Author Topic: Bill Miller Quarterly Commentary Q408  (Read 2774 times)

omagh

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Bill Miller Quarterly Commentary Q408
« on: February 16, 2009, 06:52:01 PM »
http://www.leggmason.com/individualinvestors/documents/insights/D7407-Bill_Miller_Commentary.pdf

  • So, Bill Miller got savaged by this board.  Bad decsions, bad results, lots of piling on by board members counting their FFH winnings :)
  • Miller provides some good points on the current state of financials and points out some of the potential winners in the finance sector (WFC, PNC, etc)
  • I'm posting this commentary since despite his performance woes, he's still an insightful commentator on the current state of the markets.
Full disclosure - I have never owned any Legg Mason funds.


"...The financial authorities seem to think of private capital as, to borrow a phrase from Justice Holmes, some “brooding
omnipresence in the sky.” Private capital is us, it is Davis, it is Dodge & Cox, it is Brandes and so on. That is, it is mutual funds
and pension plans and endowments, and every time we have bought bank shares, either new capital or existing shares, we
have been killed. Until policy becomes clearer and more capital friendly, the chances of attracting new capital to banks is nil,
in my opinion.
Policy has improved. It has moved away from being purely punitive—wipe out shareholders (private capital) if the institution
needs government support, a counterproductive policy if there ever was one when you are saying the banking system needs
more private capital—to one that is opaque and apparently confused.
Coincidence or not, the rout in banks now underway began when reports began to circulate that regulators wanted Citigroup
to sell assets and shrink its balance sheet. Citi has since announced a plan to do just that, and the stock has collapsed. There
are at least two major problems here: first, the regulators are subverting the governance process (if the stories are true) and
making strategic decisions that are the purview of management, and second, who is going to buy hundreds of billions of
dollars worth of assets from Citi in this environment? If the government wants board seats in return for capital, that would be
fine. But to have an anonymous regulator apparently deciding what the right size of Citi is, or declaring that Bank of America
has to cut the dividend to a penny per quarter, leaves investors completely in the dark as to who is responsible for their
capital and what policies the institution will pursue. As to the second issue, no one will buy those assets without the prospect
of earning a significant risk adjusted return, and if the buyer is going to get such a good deal, then it is a bad deal for Citi.
At this point, no one knows what policy is. Is it to shrink the size of the biggest banks so they don’t pose systemic risk, as
Chairman Bernanke apparently suggested in his speech, and as the actions of Citi may suggest, or is it to have them bigger and
more diversified, as the additional capital to Bank of America to complete the Merrill deal suggests?
Attracting private capital to banks requires, first, that there be a reasonable prospect of earning a good return on that
capital, and so far the record is that there has been the opposite: capital committed has been capital lost. Second, policy has
to be transparent and not opaque and ad hoc. Third, the accounting rules need to be sensible instead of idiotic, as is now the
case with so-called Fair Value accounting.
...
The problem with credit, by the way, is not that banks are not lending, a statement one reads almost every day in the Wall
Street Journal or the Financial Times, or hears from some politician or other. The facts are, according the Federal Reserve4,
that bank lending has grown 5.7% since the recession began in December 2007, and consumer loans grew 8.9%. Only home
equity loans actually declined.
The problem with credit is that it is far too expensive to make it economic to use it to grow. With investment grade debt having
yields greater than the growth rate of nominal GDP5, the cost of new debt in the system exceeds the ability to earn enough to
pay for it. Hence, the deleveraging going on. The government on the other hand, can borrow at half the growth rate of nominal
GDP, and hence, it is the government that will, and should, borrow aggressively to invest in the country’s future.


Cheers,

-O


MartinWhitman

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Re: Bill Miller Quarterly Commentary Q408
« Reply #1 on: February 17, 2009, 02:40:20 AM »
    * I'm posting this commentary since despite his performance woes, he's still an insightful commentator on the current state of the markets.

It is funny that you are already justifying to post a link to a commentary by Bill Miller. I still like his approach but I dont think he will be able to survive this downturn at Legg Mason.

Partner24

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Re: Bill Miller Quarterly Commentary Q408
« Reply #2 on: February 17, 2009, 11:45:18 AM »
I have nothing against Bill Miller. I like his view, especially in the tech sector.

I made some bad investment decisions in my short investment "career" (especially two). These were my decisions and I was wrong. I think the first thing to do is to realize it, and then to do some reverse engineering and realize what went wrong with yourself and then try to learn from it to get better over time.

It is human nature to blame outside stuff when something gets wrong. Bird flu, rain, climate, recession, government, institutional imperative (everybody was doing it, so did I)...you name it. I understand it and we're all human. But there is some limits too. Candor is a very good quality to have, because it help us to gain in wisdom.




Liberty

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Re: Bill Miller Quarterly Commentary Q408
« Reply #3 on: April 23, 2019, 09:24:14 AM »
"Most haystacks don't even have a needle." |  I'm on Twitter  | This podcast episode is a must-listen

Liberty

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"Most haystacks don't even have a needle." |  I'm on Twitter  | This podcast episode is a must-listen