Andre J. Peschong

What is “smart money”?  Smart money is an age old question that many people hear but don’t necessarily understand.  Some people believe smart money is someone with a long term horizon who looks for stellar blue chip or branded companies such as Warren Buffet buying Coca Cola.  That type of smart money is long term value investing, which Warren Buffet has proven to be true through his Berkshire Hathaway company.  There is also the macro global view taken by some very large investors such as Julien Robertson and his Tiger Fund.  His form of smart money was taking a large macro view of economics, money supply and emerging markets, and discover meaningful trends.  Then there are the hedge fund superstars such as George Soros and John Paulson who understand macro trends but also were able to call large secular shifts in the market enabling their funds to make substantial returns on calling the direction correctly.  Smart money rarely advertises what it is going to do, save for maybe Warren Buffet who is long term anyway.  Having said that with the transparency and ubiquity of the web information can be found if one searches efficiently and effectively enough or better put has the ability to interpret “smart money’s” actions in the marketplace.  [Read more →]

That is the current mantra for banks as it portends to their portfolio of commercial paper.  The banks cannot afford to have the level of delinquencies on their commercial paper turn into a massive capital call and thus stay in the TARP money conundrum.  In speaking with some very high level management at major banks they are all concerned with the health of their commercial portfolios: off the record of course.  I am hearing from these people that approximately one third of their portfolios are in some form of default while another third is currently distressed or substantially out of covenants.  [Read more →]

For small promising startups that wish to access something more than the friends and family capital, the Angel Investor networks are probably the only place left to find capital.  The VC industry, like everyone else over the last year, has gone through some introspection in how they deploy capital.  Many traditional VC’s have moved away from start up and seed stage investing because of the perceived risks and, more importantly, the time frame in holding these investments to maturity.  Right now syndication of larger, later stage deals is becoming common place where in years past that was not done. 

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That says it all.  I am out of the equity markets, no more stock, index funds or exposure to US companies.  At some point a line must be drawn and there has been a tremendous bear market rally giving many the peace of mind that finally the economic landscape is recovering.  Now, I may be early, and if the equity markets continue to climb people will surely jeer me and tell me I am a putz… but my belief is I would rather be 2 months early than a day late.  What do I base this rash decision on?  Well, just about everything.  The fundamental liquidity that drives the market still has not recovered and banks continue to pare back their exposure while keeping new loans at extremely high qualification levels.  My decision was based on 3 things and they were all grounded in common sense.  The first reason for getting completely out of equity exposure was based on human nature. There has been a 50+% run up in the market in the last 6-7 months.  The second was a Main Street perspective.  When my friends, neighbors and business associates are still struggling with jobs, liquidity and basic living expenses it tells me that there is no “recovery”, regardless of what Bernanke is told to say by the administration.  And the third reason was literally everything else.  Everything else would encompass the current deflationary environment, the continuing increase in unemployment, the staggering deficit, the cost of the healthcare reform bill, the fact that 5 hotels a week in this country are going into bankruptcy, massive commercial property loan defaults… I could go but why bother. So in true old school form I listed all of the positives and all of the negatives on a blank piece of paper and the decision was fairly easy to extract myself and my capital from US equity market exposure.  This may be a temporary exit but for now, unless something compelling happens to show me signs of a recovery, then I will probably remain sidelined.  Although, from time to time, I still find a number of interesting companies that I may buy into, mainly because those stocks or companies would have very low or no correlation to the overall market. 

I like to use common sense and human nature as the initial basis for this decision but I also like to back it up with fungible data.

I would love to hear from people whose rationale is the same as or different than mine.The Last Winter the movie

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As a stalwart California coastal resident that has been through many of the boom and bust cycles over the last 30 years from the oil crisis in the mid seventies, the hyper inflation of the early eighties and the destruction of the military/aerospace industry at the tail end of the eighties and early nineties and let’s not forget the S&L debacle of the early nineties.  These events truly affected the California economy more than the country because it was ground zero.  The events that have unfolded in the last 12 months have rattled people to their core shaking even the heartiest souls into a grip of fear.  That can be fear of losing what they have left, fear of not finding work or fear of being taxed out of the state. 

I share all of these fears but California tends to be a very resilient economic force in the world.  So as the saying goes when times are good California is great and when times are bad California is terrible.  I want to understand how we got here and how we can get out of this.  I need to hear from people who fundamentally understand what has occurred and get their perspective on where California is going from here.  I wanted to interview people who make their living in deciding what happens next and who also have their own skin in the game.  What better place to start than a wealth manager and CA resident, David, who has done extremely well in navigating these treacherous waters. [Read more →]

By way of introduction, I have interviewed Steve Kann on DealFlowDiaries in the past regarding his thoughts on the market, economy and within the small cap arena.  He will be a recurring guest contributor giving us his perspective on how he views the financial world.  Steve Kann is an accomplished investment banker, entrepreneur, stock analyst and a talented musician.  Some say this qualifies him as a renaissance man but I look at it from the standpoint that he can give the readership a very unique viewpoint on deals, stocks and the economic landscape.  Below is his first post.

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This current downturn - especially the contraction in personal and business liquidity - has been hard on everyone, no doubt, but, as with most trials in life, there have been a number of positives that have come from it.  Businesses are tightening up bloated overhead and maybe even (gasp) trimming corporate retreat budgets, focusing more on the things that matter most in generating long-term sustainable growth.  Consumers are more conscious of the credit card debt they carry.  They’re working a little harder on the job to make sure they’re not the next ones to pull a pink slip out of their inbox.  People are learning to be content with what they have while they pursue what they want, rather than be ruled by the culture of immediate gratification that says “go get what you want NOW, while you pursue the means to pay for it LATER.”  The former is much healthier, and a much more solid foundation on which to build future prosperity.  These are all positives.
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The title, “Ductus Exemplo,” means lead by example which is always a noble effort.  Sometimes it can be hard and feel uncomfortable but you truly don’t know yourself until you test your body, mind and spirit.  Now before everyone starts thinking that I have been tipping back the wine, getting all philosophical and introspective, I believe there is an extremely valuable life lesson to be learned by testing yourself.  What does that exactly mean?  Let me give you some color on my background before I relate it back to the business and financial world. 

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Looking at the fallout on Wall Street, there has been great change in the financial industry and, in turn, some unintended consequences.  The hedge funds that once numbered over 7,000 (my unofficial estimate as I couldn’t find a substantiated number) are now pared down to around 3,000.  Venture Capital has retreated to higher ground by doing larger deals and more 2nd, 3rd and 4th rounds into existing portfolio companies.  Private equity houses have largely been untouched, but they are suffering from the lack of exits.  Three of the largest investment banking firms have gone under or been absorbed by larger traditional banks. 

What are the unintended consequences of this current market upheaval for the financial sector?  The most glaring one follows the first law of thermodynamics (and I paraphrase) which portends that nothing is ever created or destroyed but merely shifts forms.  The shift I am alluding to is the movement of talent and deals at these former large tier investment banking firms to new firms, or to more aggressive mid tier boutique investment banks or specialty M&A houses.  [Read more →]

In addition to my interview with Kevin Jones on impact investing, I was published on TheStreet.com today with some buy opportunities for those of you interested in getting into impact investing plays on your own.  Check them out at http://www.thestreet.com/story/10519268/1/impact-investing–gains-for-the-greater-good.html

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Impact investing is a term that had been thrown around in the financial world for quite some time. What does it really mean?  Impact investing means investing to generate positive environmental or social return along with financial return.

I needed to understand better this new market and how it is growing, changing and establishing itself in the traditional investment world.  Kevin Jones of Social Capital Markets and a partner at Good Fund was kind enough to spend a little time discussing some of the topics so that I could glean some insight into this investment style.

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