Archives for April 2012

Local Bank News in Connecticut

Long time readers know how critical I was of how the whole New Alliance Bank merger with First Niagra went.  While it was a good deal at the time for shareholders, their CEO and the bank said one thing over and over, yet their actions did the opposite.

New Canaan-based BNC Financial Inc., a $500 million institution, has hired Peyton R. Patterson, former NewAlliance chief executive officer, to lead an expansion that one day could include a public offering.

BNC Financial, the holding company for the Bank of New Canaan, The Bank of Fairfield and Stamford First Bank, announced Patterson will take over for M. Jay Forgotson in September. Forgotson will continue as president of the Bank of Fairfield and has no intention of retiring.

Patterson faced criticism in the press and in the community over the sale of NewAlliance, a New Haven-headquartered bank, to a New York institution and walking away with a pay package that was estimated to be worth between $16 million and $23 million. The deal, however, paid $14.09 a share, a 24 percent premium, for NewAlliance.

One such critic, Paul Schatz, president of Woodbridge-based Heritage Capital, said he didn’t like the way Patterson and the board at NewAlliance exited and the way the deal came together after rhetoric of NewAlliance being committed to New Haven and the community.

But Schatz said bringing in Patterson is a coup for BNC.

“She’s certainly a very qualified and talented business person with a successful career,” Schatz said. “It certainly is a big positive.”

But he cautioned time will ultimately tell if this is a great move for the bank. He said Patterson was on track to lead a mid-regional financial institution and not take over a community bank.

Schatz noted the environment for mergers and acquisitions is quite different today than when Patterson built NewAlliance.

BNC had been looking for its next CEO since last summer.

In August of last year, Forgotson, a founder of the bank and a significant investor, informed the board of directors he would not serve as CEO past June of 2013 and that the group should look for a successor.

“I’m truly amazed we were able to bring her into this organization,” Forgotson said Wednesday in a phone interview, citing Patterson’s role in merging three banks into NewAlliance, going public and acquiring three more, all between 2002 and 2010, when the operation was sold to First Niagara Financial Group for $1.5 billion.

Patterson has more than 25 years in finance, including nearly a decade at the helm of NewAlliance Bancshares and executive roles in lending and consumer services with Dime Bancorp and Chase Manhattan. She was named Community Banker of the Year by American Banker in 2008 and ranked as one of the top 10 CEOs in banking in 2006 by U.S. Banker.

While she has taken time off from banking since the deal closed in 2011, the BNC board expects her to take her new bank to the next level and maybe beyond, according to Forgotson.

“She’ll be a great driving force to bring this bank to the level of a regional bank,” he said. “We anticipate major, major success.”

BNC Financial was formed in 2007, five years after the opening of The Bank of New Canaan. The group added The Bank of Fairfield in 2008 and Stamford First in 2010. Assets have grown from about $200 million in 2007 to $500 million, according to Forgotson. And the company reported record profits of $2.2 million in 2011. It operates five branches.

NewAlliance had 88 branches and $8.7 billion in assets at the time of the sale.

Besides the branches BNC operates under its core brands, it has filed to open a limited commercial and industrial lending operation in Bridgeport under The Bank of New Canaan. The application is pending before the state Banking Department. When asked if the bank was looking to go public on a major exchange, Forgotson said it was too early to say and, ultimately, a matter of strategy like that would be something Patterson would have to review. BNC does have some shares traded over the counter.

He said flatly the “bank is absolutely not for sale,” noting they would not have brought her in just to sell it.

Forgotson is familiar with Patterson.

“My bank Cornerstone Bank was acquired January 2, 2006, by NewAlliance,” he said. “I was operating in Fairfield County. I didn’t work directly for her … but I got to know her a little bit.”

Patterson, a one-time Greenwich resident, lives in Madison and plans to move to New Canaan. She was not available for comment Wednesday, but said in an official statement she was honored to be joining BNC and sees its strong financial position as a good base from which to grow the bank.

Patterson serves on several boards and commissions, including the Connecticut Council for Education Reform, The Greater New York United Way and the Greenwich YMCA.

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Is Apple in Trouble?

My negative Apple segment on Yahoo’s Breakout continues to be picked up by other websites…

After a historic rise to nearly $650 per share, Apple stockhas dipped back below the $600 mark after a steady decline over the past week. As a result, the soothsayers have unsurprisingly emerged from the woodwork with their less-than-certain predictions about the company’s future.

And somewhat ironically, I’m going to make one of my own. But first, let’s see what everyone else is saying.

Apple on the Brink

Noting that he isn’t worried about Apple quite yet, Business Insider’s Henry Blodget gave his readers two reasons to consider regarding the company’s future.

“First, the Apple zealots have gone silent,” he writes. “Earlier, we reported a fact that could be construed as negative for Apple—that iPhone sales had plunged 24% quarter over quarter at Verizon—and we weren’t immediately attacked by a band of crazed fanboys.”

Noting this lack of blowback from the Apple base rather abnormal to say the least, Blodget appears to take such radio silence as an indication of deeper troubles within the company itself.

I, on the other hand, am not willing to let something that could so easily be little more than coincidence pass as one of the only two reasons to be “a bit nervous” about Apple’s long-term standing. Furthermore, consider the nature of the statistic used as supposed proof of the Apple base’s sudden silence.

First of all, the statistic about Verizon’s quarterly iPhone sales dropping is hardly surprising. With anticipation of the next-generation iPhone slowly building as we await an announcement from Apple, it makes sense that sales of the current version will begin to decelerate. After all, why pay full price for an iPhone 4S when you could wait and pay the same price for the iPhone 5 that’s right around the corner?

Second of all, the statistic is limited exclusively to Verizon iPhone sales, not all iPhone sales, which, according to a recent U.S. study, bested Android earlier this year.

Blodget’s second reason isn’t much more convincing. “Second, Apple is not backing off on the flawed gimmick known as Siri—instead it is doubling down,” he continues. “Apple is now paying celebrities zillions of dollars to hawk Siri on TV, when even Apple fans have gotten so frustrated with the feature that they’ve basically stopped using it.”

This, too, would come as a bit of a surprise if it had any factual basis whatsoever. Moving beyond the laughable exaggeration that “zillions” are spent getting the likes of Samuel L. Jackson and Zooey Deschanel to promote Apple’s virtual assistant (because only struggling companies employ celebrity endorsements), his suggestion that iPhone 4S users have “basically stopped” using Siri comes without citing a single report or study. Meanwhile, a study last month by Parks Associates shows just the opposite. The results of the study confirm that nearly 90 percent of iPhone 4S owners use Siri for at least one task a month. Furthermore, when asked if they were satisfied with the virtual assistant, 55 percent of respondents said they were while only 9 percent said they were dissatisfied.

Despite that reality, however, Blodget maintains that Siri is “not ready for prime-time.” In fact, he asserts that the late Steve Jobs would have felt the same way, suggesting that the legendary Apple CEO would have “ripped the Siri product team’s faces off, and then either killed Siri or fixed her.”

I find this difficult to believe. Would Jobs, like any right-minded executive, pushed for improvement to increase adoption? Of course. But berate the product team and scrap it altogether? Hardly likely.

Apple in Reality

Nevertheless, despite his position’s basis in conjecture, it is understandable that Blodget and others sharing his position have gone to the lengths that they have to distance themselves from the outrageous positions of those who think Apple can do no wrong. Those who suggest that Apple could double its value—currently resting at $500 billion—in just a few more years are, as Blodget points out in a separate piece, likely the ones who stand to gain the most from it happening.

In reality, we really don’t know what’s going to happen. Things could spike, slump or remain steady. We really can’t be sure.

“Such is life in the technology industry,” he rightly acknowledges.

Therefore, it’s understandable that amidst the lofty speculation and constant clamor of fanboys (and girls) that some would attempt to balance the scales by making equally supercilious claims in the opposite direction. While Goldman Sachs is urging investors to swoop in and buy up Apple’s dipping stock in anticipation of another spike, there is nothing written in stone that says it will pay off.

Case in point: Heritage Capital president Paul Schatz, who suggested today that Apple’s basic practices “couldn’t be better” than they currently are—possibly reaching up to $1,000 per share—is not under the impression that Apple’s high valuation is everlasting.

“Whenever that bull market peaks, I think Apple is headed, minimally, 30% down, probably 50% to 60% down,” he said immediately following what seemed like a display of unfettered optimism.

But this sobering prediction has less to do with Apple—or who’s running Apple—than it does with the stock market as a whole.

“This is the dot-com bubble all over again,” Schatz suggested. “I am not saying it will never recover, but when  you have the whole nation in one story stock, it never never never ends well.”

Given similar bubbles inflating around other tech companies—most notably Facebook and its $104 billion anticipated valuation—Schatz’s position is by far the most credible.

While current owners of Apple shares (and other bloated tech stock) are asking how high they can push values before an inevitable market-wide selloff ensues, the real question is how this fantasy world of speculation actually serves to benefit the technology industry as a whole.

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The Bubble in Apple

It’s amazing that every time I take the unpopular view on the market, a sector, a general security or a stock, people come out of the woodwork to so easily dismiss the majority view as implausible or crazy, which is fine.  Everyone is entitled to their own opinion and I have always believed that respectful and constructive disagreement is healthy communication.  The “problem” is that it usually and eventually leads to personal attacks or worse from anonymous cowards sitting behind their keyboard.

Here is the final segment I did with my friends at Yahoo! Finance for their show, Breakout.  Some of the emails I have received so far accuse me of treason,blasphemy and heresy.  Hmmm… those are eerily similar to those I received in early 2000 regarding the Dotcoms.  For the record, I don’t believe Apple is equivalent to Dotcom bomb, but the sentiment surrounding it surely is.  To me, Apple most closely resembles Google in 2007.

There’s an old saying amongst Bible Belt evangelists that goes, “You gotta get ’em in the tent before you start preaching to ’em.” Along those lines, Paul Schatz, president of Heritage Capital, offered some inspiring but cautionary words for the Apple (AAPL) faithful.

The past week has seen the largest stock in the world face its toughest 5-day slump in 6 months. The way forward for Apple is still fraught with nerves, as some worry that all those gains could fast become profits, should investors finally decide to realize them and exit this crowded trade.

“The fundamentals of Apple couldn’t be better,” Schatz says in the attached video. “Apple could go to $700, $800, $1,000 first. I’m not that ridiculous in my notion to think that Apple is going to top right here.”

Yet, in the next breath, Schatz paints a treacherous picture of what a post-top exodus might look like, saying, “Whenever that bull market peaks, I think Apple is headed, minimally, 30% down, probably 50% to 60% down.”

It’s all part of what happens when opinion changes on the ”lone stock standing.” Until now, virtually every fund manager in the world, depending on their style, needed to have anywhere from 5% to 25% of their assets in this one stock just to tread water. Because of the breadth of ownership (71% by institutions), plus Apple’s red-hot performance and outlook, it has essentially been on the do-not-sell list whenever we hit a bit of turbulence.

But Schatz says that is always how it has been with widely-held mega-caps like IBM, GE, or Exxon.

“This is the dot-com bubble all over again. I’m sorry, I am not saying it will never recover, but when you have the whole nation in one story stock, it never never never ends well,” he says, pointing to a dearth of evidence for similar soft landings.

In the meantime, his advice is to own it but keep raising your stop-loss orders, or even start lightening up a bit, because when “go-time” inevitably arrives, it’s not going to be pretty.

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Europe’s Debt Problems are Here for Many More Years

In my bi-weekly interview with my friends from ET NOW in India, I continue to share my long-term view that Europe’s debt problems are not going away anytime soon.  Although that may seem bad on the surface, markets have a way of discounting known and anticipated news into current prices.

Remember 2008?  Who could forget it?!?!

The stock market turned down long before the economy and news.  And right at THE bottom in March 2009, the news was about as bad as the modern investing generation has ever seen.  For now, Europe’s problems are known and somewhat expected.  Any market can pullback 4-8% at any time, but a complete global, systemic meltdown should not be in the cards here.

In a chat with ET Now, Paul Schatz, President, Heritage Capital LLC, talks about the factors affecting global markets and the Eurozone crisis. Excerpts:

ET Now: What do you want to start with, US economic data, Goldman Sachs earnings or the kind of indications we have got from Citigroup?

Paul Schatz: Going into the earnings season, analysts kept ratcheting down and ratcheting down expectations. So the bar was set so low coming into Q1 earnings, that you have to imagine most companies could exceed the bar pretty easily.

But as we have always learned in the market, it is not what the news is, it’s how the stocks and the companies in the market react to the news. So clearly after the bell today, after a great day for the bulls on Wall Street, Intel and IBM on a natural high.

ET Now: The Spanish bond yield fell and it has been a successful auction at that. Are concerns about what may happen to Spain now receded?

Paul Schatz: No, I think this is almost a daily soap opera. One day we are worried about yields going 6-7% higher, the next day the auction goes well. This news has been with us for more than a year and once we get by Spain, if we get by Spain, it will move to Italy or it will move to France, where we get the French elections.

So these kinds of European sovereign debt woes are going to be with us not just for days, weeks and months but we have got years to deal with this.

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Gold to $2000 and Beyond

Here is the second video I did with the folks from Yahoo! at their beautiful new studio in the city.  Anytime there are bold statements on gold, people come out of the woodwork to comment.  And I would be surprised if they aren’t at least 100 comments by the time you read this. 

One of the great myths is that gold goes up when there is inflation. I think the 1990s is the perfect example of why that isn’t true.  A better statement would have been that gold goes up anticipating inflation…

If you bought gold nine months ago at a record high and have since seen the price decline by 15% or $300 an ounce, you’re not the unluckiest investor alive, you’re just a little early.

“This is not a pullback, this is a full fledged correction,” says Paul Schatz, President of Heritage Capital in the attached video. “We’re shaking out every weak-handed holder possible.”

His case for owning gold is three-fold but also comes with the self-disclaimer that he’s “not a gold bug” that reflexively sees the precious metal as the answer to all investment questions.

First off, there’s the fundamental backdrop that the world is full of accommodating central banks right now, least of which is our own Fed. As Schatz says, “the ECB (European Central Bank) is just getting started.”

Add in super low interest rates and just enough inflation and we find ourselves facing so-called ”negative real rates of returns” and you’ve got an environment where something like gold, that protects purchasing power, should do well.

There’s also a timing and technical component to Schatz’s bullish call on bullion. As much as he thinks it would be ”nice” to see gold bottom out around $1500, he’s counting on a sharp snap-back to the previous high of $1900, that will ultimately break through psychological resistance of $2000 by the end of this year or early 2013.

“Once we exceed the old highs in the $1900s, we certainly go to $2000 and that sets the stage for the next run” he says, pondering the next high-water mark, “Is it $2200? $2300?”

“I don’t think the secular bull market in gold is over,” Schatz concludes. “I think you have years left in it.”

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The Fed, QE and Earnings Season

I had a great time with the folks at Yahoo! yesterday in New York in their brand spanking new studio.  We tape three fairly controversial segments and Matt Nesto knew exactly how to bait me just right!  Here is the first piece.


In case you missed it, The House of Mirrors has officially taken the place of The Earnings & Fundamental Palace on Wall Street. I say this at a time when the aspirations and way forward for the U.S. stock market appear to be in direct conflict with what is normally perceived as being in the best interest of the country.

Worst unemployment print of the year, stocks rally.

Job creation craters, stocks rally.

Of course, even casual students of the market can see right through this bad-is-good charade and know the answer to this riddle lies right at the feet of Ben Bernanke, the Chairman of the Federal Reserve and key holder to the vault where so-called “QE3” is being stored.

“It is amazing but it seems that people are just going to invest when the Fed is going to stand behind and backstops them,” says Paul Schatz, President of Heritage Capital in the attached video.

But before you get too far ahead of yourself on the QE3 bus, you must realize that it’s going to take a whole lot more drama than a 4% dip to get Bernanke to deliver the goods. By my math, which is based on the prior three rounds of easing, the S&P 500 would have to erase all of the year’s gains, or drop 10 to 12% before the Fed can be expected to act.

Like most investors, Schatz is of the mind that it’s not a matter of ”if” but “when” it’s going to act, and has been calling for multiple QE’s since the first one was floated in 2008.

“We’re well on our way to a $5 trillion Fed balance sheet,” he says.

And it’s not just the Fed, Schatz says, Central banks from around the world are engaging in unprecedented easing programs, so much so that Schatz facetiously calls “ink” his best idea given the amount of it that will be used to print.

“The ECB is just starting. They’re going to go into the trillions and trillions in the next couple of years,” he says, describing the ensuing environment as a ”rent to own” market that will be full of volatility and opportunity.

“Four to eight percent pullbacks can and do occur at any time,” he says, calling them healthy, regular and something that should be bought, as long as the market has the QE-backing it so badly craves.

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Jobs Report Overreaction

Last week on CNBC I commented on how investors and the media are way too concerned about one less than expected jobs report from Friday, just like they were way too celebratory last month.  While I am glad we raised cash a few weeks, I plan to redeploy that this quarter into weakness.

Give a look…


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What Keeps Me Up at Night

Here is the latest Street$marts.$marts20120405.pdf

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Apple… Is this Time Really Different???$marts20120325.pdf


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The Coming Crash in Apple or the Road to $1000$marts20120309.pdf


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