« Soros and investments | Home | Seth Klarman’s speech at MIT »
Richard Bove and the future of Wall Street firms
By Rob | June 11, 2008
Instead of showing you index charts which are clearly looking sad, I will show you a chart of Krispy Kreme (KKD) which turned its first profitable quarter. Same-store sales, or sales at locations open at least a year, fell 3.9% systemwide, but rose 1.2% at company-owned stores. Same-store sales is a key indicator of restaurant performance since it measures growth at existing locations rather than newly opened ones. Krispy Kreme, which sold its first glazed doughnut in 1937, has been hurt by allegations of misconduct by former management, healthier eating trends, bankruptcy filings by several of its franchisees and increased competition. Notice the nice volume and cup pattern that seems positive indeed. I also like the brand and its international expansion strategy. May be a good acquisition strategy too. In the meanwhile coffee futures are starting to come down, which would be good for its cost.
Now for some of the recent musings: “Our favorite commodities pundit, Jim Rogers, gave an interview to Bloomberg this morning, and his story’s largely unchanged… Jim is still short all investment banks through an ETF. He’s specifically short Citibank and Fannie Mae.”"Rogers doesn’t believe there’s a commodity bubble. He cited nickel, zinc, lead, silver, cotton, and sugar all being double-digit percentages off of their recent highs. His most recent purchase is more agriculture. Rogers is still long oil, “The world has a serious oil problem.” Rogers says the bull market in oil has years to go, but the price may drop 50% or more in the near term. He believes “the world is running out of known oil reserves.”
Rogers also announced he purchased airlines today. His reason… “Everybody’s very bearish.” He said flights are full, fares are increasing, and if you ordered a new plane today, you couldn’t get it for several years due to problems at manufacturers. Also, 24 airlines have declared bankruptcy and “bankruptcies are signs of bottoms, not signs of tops.”
And now, specially for my readers: the latest Marc Faber’s interviewLast, one of my favorite analysts, Richard Bove commented today on the financial sector:
“Wall Street firms will be scraping around at very low earnings levels for the next several years,” Bove said. “They’re going to have to find a new base on which to build a business,” Bove said at the Reuters Investment Outlook Summit in New York. “One of the core elements of the broker model of the past few years has been to take proprietary risk. If you have to shoot the balance sheet, you can’t take proprietary risk.”"The old model is broken,” he said. “They’ve got to do more stuff overseas — wealth management, commodities, currencies and private equity. That’s where the action is going to be.”
Even so, Bove said while investment banks are shedding business, commercial banks with stronger balance sheets, such as JPMorgan Chase will benefit.
If you enjoyed this post, make sure you subscribe to my RSS feed!
Topics: Mark Faber, money managers |