November 3, 2004
Richard S. Berg
We are pleased to announce that on November 2, 2004, Nicholas W. Betzold, Jr., Chairman, CEO, co-founder and majority shareholder of the Betzold Companies has agreed to sell all of his shares in the Betzold Companies to Richard S. Berg, a co-founder of the Betzold Companies, and Philip M. Nussbaum, also one of the firm’s original partners. At closing, Rich and Phil will be the sole shareholders of the Betzold Companies.
October 19, 2004
Sunil O. Kothari
In 1952, Harry Markowitz introduced modern portfolio theory and optimization to the world of finance when his paper “Portfolio Selection” appeared in the Journal of Finance. Since then, portfolio optimization has become a popular topic of research in both industry and academia. Despite its sustained popularity, optimization still causes a great deal of confusion. Although the term portfolio optimization itself implies a superior means of choosing allocations, many portfolio managers still choose to rely on heuristic approaches rather than utilizing optimization programs. While the theory behind these programs is sound, there are a number of practical issues that arise when implementing them as a stand-alone portfolio management tool.
August 20, 2004
Charles M. Carpenter
One of our clients recently shared with us a strategy presented to them by another investment advisor and asked for our opinion. The proposal recommended the liquidation of a large number of smallbalance holdings from their portfolio and the reinvestment of the proceeds into one, larger-balance security holding.
August 2, 2004
Disciplined Investor®
We will be conducting our annual Three-Year Look-Back® for 2004 in two teleconferences which will be broadcast via MS Office Live Meeting on:
July 1, 2004
Seung Y. Lee
Over the last year and a half, many Shape Managers have purchased Price InsulatorsSM to add defense to the overall portfolio shape. We placed them in your portfolios with the mutual understanding that shapes change, and in the event of a rate rise, we must be prepared to divest from these shapes that were originally sold as InsulatorsSM.
June 30, 2004
Lawrence R. Levin
Recently a group of top economists predicted the Federal Reserve would raise interest rates by at least 100 basis points over its next three meetings. Now that we all know where interest rates are going, can we just smile and go home or do we have to continue to manage our portfolios if we want success?
April 13, 2004
Eric C. Brown
You may recall from “The January 2003-2004 One-Year Look-Back®” (Disciplined Investor® Volume 11, Number 5, dated February 5, 2004) that we broke our analysis down into three sections. Section I, “The Validity of Shape ManagementSM,” was completed and put to rest given the data then available.
March 12, 2004
Mark P. Bodett, Andrew J. Hixson
The other day, I was scrolling through some of the earlier Beyond “Average Life” Letters (now known as the Disciplined Investor®) and came across the B.A.L.L. Volume 3, Number 18, titled “Ditka, the Fridge and Modern Portfolio Management,” dated May 13, 1996. The original B.A.L.L. compared assembling a football team to managing a bond portfolio. And, since we are in the midst of the NFL free agency period, I thought this might be the appropriate time to revisit the topic. Mark Bodett, a co-author of the original article and a Chicago Bears fan, assisted me with the update.
March 4, 2004
Kurt A. Fritz
Have you ever had one of those ideas that hit you like a ton of bricks? I was reading an article about a business principle called the J–curve (Growth curve), and one such idea hit me. The general idea of the J–curve made me think of the movie, “The Matrix” (more on that later), but first let me briefly explain what a growth curve represents. The principle can be illustrated by a picture similar to the one below in which two different experiences are in force: positive (smiley) and negative (frowney). In business management, this curve is used for a variety of purposes, but usually it is used to describe productive change within an organization.
February 11, 2004
Brad Bonga, Andy Hixson
Yes, you read the title correctly. We know of a bond that is such a great sale candidate that we are recommending you sell it even if you do not own it. Fannie Mae issued $125 million of the bond below earlier this week.
February 5, 2004
The Disciplined Investor®
The purpose of this teleconference is to validate our methodology by looking back at The Disciplined Investor® Volume 10, Number 4, “The January 2003 Level Playing Field®,” dated January 16, 2003. We encourage you to review that document in preparation for the teleconference. If you no longer have it or have joined us since its publication, please call your advisor to have it sent to you.
December 4, 2003
Andy Hixson, Seung Lee
This is a revised version of today’s Call to Action. In our efforts to present “Call to Action” information in a timely manner, haste is required. When time permitted today, we discovered a couple of minor errors. In addition, while correcting these, we also took the opportunity to add a few clarifying textual revisions.
December 1, 2003
David V. Raphael
In this Disciplined Investor®, we will utilize Shape ManagementSM to evaluate a liability product that has been around for a few years, but is picking up steam in the marketplace – the bump-up CD. We’ll explain the structure, examine its intended purpose, and provide you with a framework to evaluate whether the bump-up CD has a role in your liability portfolio. What we will come to discover is that this product looks attractive on a total cost basis if we strongly believe that only a limited number of depositors will ever take advantage of the “bump-up” feature embedded in this CD.
November 20, 2003
Kurt A. Fritz
Every couple of months, someone will ask if they should park some money in one of several ARM funds. My gut instinct is that it is probably not a good investment. Nonetheless, since these ARM funds come up time and again, I decided to review the facts surrounding one such fund.
October 28, 2003
Raj Nandkumar
This article compares traditional and options-based credit analysis, and explains why options-based models should be used in conjunction with traditional models to gain an understanding of the true credit risk of a corporate bond. The emphasis will be on understanding the differences at an intuitive and conceptual level rather than a mathematical one.
August 4, 2003
Michael L. Coogan
There is an old saying that warns, “Be careful what you wish for.” On June 25th, the Fed cut rates to 1%. The 10-year Treasury was trading around 3-¼%. Swap spreads were tight as a drum. Prime had just moved to 4%. Mortgage prepayments were projected to intensify further. As we all know, they did. Deflation, not inflation, was the current economic topic. Bank interest margins were compressing each month. As we looked at our asset/liability report, further interest rate decreases would crush the economic value of our institution. In short, most portfolio managers wished for higher rates. Be careful what you wish for.
July 31, 2003
Girish M. Patel
Three years ago, John Behof wrote an article (“FNMA 2-Year Floating Preferred Stock,” dated 8/3/00) warning us about a floating perpetual callable preferred stock issue. Here, we will look back at the risks John discussed and see what has transpired.
July 11, 2003
Eric C. Brown
We are in the midst of a bond market that can only be described as extreme in the experience of any currently active investor. Rates are at lows not seen in over forty years, mortgage refinancing volume is at all-time highs, and the word “deflation” is being bandied about as something other than a punch line. Investors in general, and depository institutions in particular, are experiencing an array of pains and challenges that accompany this unusual environment.
June 20, 2003
Kurt A. Fritz
Editor’s note: Kurt’s article on step-up callable securities has a magical theme to it. Despite his overwhelming literary talent, we have our doubts regarding his capability to compete with the magic and wizardry of the new Harry Potter book being released tomorrow!
May 29, 2003
Eric C. Brown
The purpose of this teleconference is to validate our methodology by looking back at The Disciplined Investor® Volume 7, Number 24, “The May 2000 Level Playing Field®.” We encourage you to review that document in preparation for the teleconference. If you no longer have it or have joined us since its publication, please call your advisor to have it sent to you.
May 27, 2003
Brad Bonga, Craig Johnson, Larry Levin
Our goal is to reduce our cost of funds in the same way that the Agencies (Freddie Mac, Fannie Mae, etc.) have been doing for years. Currently, we can fund with floating rates and fixed rates but we are at the mercy of the marketplace. Funding with a customized callable liability that has been specifically crafted for your individual institution allows you to control your liability destiny.
May 21, 2003
Craig S. Johnson
We are announcing the issuance of another Trust Preferred Funding deal, the MM Community Funding X, with Citigroup (formerly Salomon Smith Barney). We are beginning to collect collateral for the current deal that is planned to close late July 2003.
May 15, 2003
Andrew J. Hixson
Over the past few years, our strategic partnerships with credit unions have grown steadily and since a credit union investment portfolio is generally different from a bank portfolio, we introduced a Typical Credit Union Portfolio in the March 2003 Level Playing Field®. With this newly introduced typical portfolio, I took on the challenge of designing a Strategic Credit Union Portfolio that would outperform this “benchmark.”
May 8, 2003
Nicholas W. Betzold, Jr.
Volatility was the theme of last year’s Advanced CourseSM. And as we have seen since that program, the world continues to be a volatile place fraught with peril for those who are unprepared. As I’m sure you agree, last year’s theme was very timely! Those of you who attended last year acquired knowledge and skills that have, once again, paid off handsomely over the ensuing year.
April 30, 2003
Kurt A. Fritz
Earlier last week, I was faced with a day when there were very few good quality securities available on the street. I began to peruse some of the street’s inventories and came across a very interesting bond, but before I share this new discovery, let me first set the table for our discussion.
April 1, 2003
Mark P. Bodett, Kurt A. Fritz
As you know, we talk to literally hundreds of bankers in any given week – customers, Bond Math UniversitySM attendees, and prospects. Inevitably we end up talking about interest rates and one thing has remained constant – a debate on where rates are going.
March 12, 2003
James V. Lorentsen
Please review Jim Lorentsen’s comments on accounting practices and the attached article from the past, which provides two mechanical explanations of terms like “retrospective method” and “experience method” prior to this week’s Level Playing Field®.
February 4, 2003
Craig Johnson
As most of you know, we on the desk are shown hundreds of bonds everyday. Some are good risk/rewards (shapes), some are average risk/rewards (shapes) and some are down right lousy risk/rewards (shapes). Sometimes, just a quick glance is all a bond needs before dismissal and at other times, we explicitly calculate the shape to ascertain a bond’s true value.
January 24, 2003
Craig Johnson
I am writing to announce the issuance of another Trust Preferred Funding deal, the MM Community Funding IX. We will participate with Salomon Smith Barney and are planning a mid-to-late March 2003 close for the current deal.
January 23, 2003
Disciplined Investor®
The purpose of this teleconference is to validate our methodology by looking back at The Disciplined Investor® Volume 9, Number 3, “The January 2002 Level Playing Field®.” We encourage you to review that document in preparation for the teleconference. If you no longer have it or have joined us since its publication, please call your advisor to have it sent to you.
January 10, 2003
Kurt A. Fritz
In a previous Disciplined Investor, “We Can Never Take the Bond Math on Faith” (Volume 9, Number 15, dated April 3, 2002) many of you will remember Girish Patel’s account of inaccurate Bloomberg analytics. For those who may have missed it, the main theme of his article was to always “trust but verify” someone else’s bond math.
January 6, 2003
Eric C. Brown, Seung Y. Lee
Every year for the past several years (and now every six months), the Wall Street Journal publishes a survey of fifty-odd economists with their projections for future interest rates (as well as other economic indicators).
December 20, 2002
Eric C. Brown
Many of you may be aware that since May of this year, we have been conducting in-house “Mini Look-Backs®” on all Level Playing Fields® as they reach their one- and three-year anniversaries. We finally got it through our thick skulls that if this is important to do once a year, maybe it is important enough for every Level Playing Field.
December 4, 2002
Mark P. Bodett
The prepayment report for October, which shows up on CMO deals as the November print, has been out for several weeks. In general, prepayments came in even quicker than the fast prepayments that were projected. We are at all time highs on speeds.
November 6, 2002
Craig Johnson
I am very excited to announce the issuance of TPref Funding III. This will be the last opportunity this year to participate in this approach to raising capital. The deal is scheduled to close in December, and for those who participate in issuing, you will receive your funds before the end of the year.
October 28, 2002
Eric C. Brown
I would like to share an exciting story about a recommendation Shape ManagementSM produced a year ago, and the value of our collective policy of non-disclosure and non-circumvention that it demonstrates. It is basically a story in three parts: the good news, the good memories, and the good lesson.
October 23, 2002
Eric C. Brown
If you attended either the June or the September editions of the 2002 Advanced CourseSM, you will recall that we devoted two talks to the topic “Best Moves We’ve Seen You Make.”
October 18, 2002
Kurt A. Fritz
Have you ever had a song get stuck in your head? For many months, I have been quietly humming Rocky Top to myself (wife, kids, co-workers, etc). I can’t shake it. “Good ‘ole Rocky Top, Rocky Top Tennessee…” The other thing I can’t shake is a nagging concern I have about this market. Many of you have heard Craig Johnson touch on this theme at the Advanced CourseSM – it is the dilemma regarding all these options we are all “short” a.k.a. prepayment risk. Craig’s talk focused on several aspects of the market, which on the surface differed from his intuition including the surprisingly good performance of current coupon sequentials. As Craig and I discussed his talk, several offshoots of his theme popped into the forefront of my brain. I Kurt A. Fritz couldn’t shake ‘em. Let me explain.
October 16, 2002
Girish M. Patel
Several days ago, a community banker asked us to look at a new product that is designed to attract deposits and / or provide funding. New products always pique our curiosity and we were excited to examine this one.
October 9, 2002
Craig Johnson
As our second trust preferred (TPref Funding II) transaction of 2002 comes to a close, I would like to update you regarding our involvement in the issuance of trust preferred securities.
August 19, 2002
Celia T. Wong
Six months have passed since we last reviewed and updated the Typical Bank Portfolio to represent the “average” bank’s portfolio holdings. It is time once again to go through the process and see what the typical bank now holds. We will use this for all Level Playing Fields® from now until we update it once more.
August 5, 2002
Michael Coogan
Since it is the beginning of August, an ominous process is already in the works. Mutual fund statements are getting ready to invade the homes of millions of investors. I have developed a new theory on market value. Market value only matters in stocks when you open the envelope. I, for one, plan to deposit the envelope unopened in a file with other unopened statements. I will open those envelopes either when the stock market recovers or I retire, whichever is sooner. We can take bets on which will occur first.
July 2, 2002
Disciplined Investor®
Please join us September 18-20, 2002 in New York City, for our annual Advanced CourseSM program.
July 1, 2002
Mark P. Bodett
Since the May 2002 Level Playing Field, treasury rates have fallen 40 bp on the 2- and 5-Year, and 30 bp on the 10-Year. More importantly, mortgage rates as measured by the Fannie commitment rate have fallen 26 bp. While treasury rates are still some 60 bp above the lows of last fall, mortgage rates are only about 25 bp above their lows of the same period.
June 25, 2002
Brad Bonga
This is a call to action to bring to your attention two interesting opportunities that may facilitate your investment in Prepayment Penalty Pools (PPP) or which may allow you to make some of your existing investments more convenient.
May 14, 2002
Disciplined Investor®
The following table is an accompaniment to Section V. Down to the Atomic Level.
May 13, 2002
Disciplined Investor®
The purpose of this teleconference is to validate our methodology by looking back at The Beyond “Average Life” Letter (predecessor to The Disciplined Investor®) Volume 6, Number 21, “The May 1999 Level Playing Field®.” We encourage you to review that document in preparation for the teleconference. If you no longer have it or have joined us since its publication, please call your advisor to have it sent to you.
May 3, 2002
Disciplined Investor®
Please join us June 12-14, 2002 at the University of Chicago Graduate School of Business, Gleacher Center, for our annual Advanced CourseSM program.
April 15, 2002
Mark P. Bodett
Last Friday, April 12th, Fannie Mae took a page from Rosanne Rosanna Danna of Saturday Night Live fame. After hearing from the investment community, and maybe others, such as lawmakers, Fannie said “never mind” to their call of premium pools. This includes the pools that were called the previous Friday. Further, Fannie Mae pledged not to call their mortgage pools in the future. New factors for pools and CMOs will be available on April 17th.
April 9, 2002
Mark P. Bodett
Last Friday there was a surprise in the April prepayment speeds for certain segments of Fannie Mae collateral. Prepayments for seasoned 8.5% collateral and above were much higher than expected, in some cases shockingly higher. On the following page is the Fannie prepayment breakdown for April and March.
The research and other information provided herein has been prepared for informational purposes only and is not an offer or solicitation to purchase or sell securities. Performance Trust Capital Partners ("Performance Trust") may make a market, or have a position in the securities discussed herein and may purchase or sell the same on a principal basis or as an agent. Investing involves risks, including the potential for principal loss. There is no guarantee that the strategies and services will be successful or outperform other strategies and services. Investing in bonds includes assumption of risks, including rising interest rates to decrease the value of bonds. Certain assumptions may have been made in connection with the analysis presented herein, and changes to the assumptions may have a material impact on the analysis or results. Past performance is no guarantee of future results. The investments discussed herein may be unsuitable for investors depending on their specific investment objectives and financial position. Investors should independently evaluate each investment discussed in the context of their own objectives, risk profile and circumstances. With respect to the information contained herein that has been obtained from public sources, while Performance Trust believes this information to be reliable, Performance Trust does not guarantee its accuracy, adequacy or completeness and is not responsible for any errors or omissions or for the results obtained from the use of such information. Performance Trust is not a chartered bank or trust company, or depository institution. It is not authorized to accept deposits or trust accounts and is not licensed or regulated by any state or federal banking authority.