Doesn't mean these hedge funds have any inside information, although maybe they do, but it does suggest that in their updated DCF discount cash flow valuations, they may have figured in higher delinquency rates... maybe 20% of loans are underwater.
Plus, it might be a few years now until market borrowing rates drop back some, and so CBG may have to refinance under more onerous conditions.
So banks and life insurance, financials indeed, would not be a sector that an investor would want to be in, other than for short-term trading, for a few years.
There just doesn't seem to be the earnings growth and higher returns on capital in CBG. Need to mark down EPS the earnings per share. This seems apparent from the graph of the share price over five years. If momentum indicators back each other up and suggest a share price decline, then instead of investing, I stay away, get out, or would invest in a company with good SP momentum.
The bottom-up method concentrating on fundamentals for target companies in a target index is the best departure point, as it provides a graded list of better-value candidates, ie companies with a solid history, solid balance sheet, earnings and return on capital giving it a record of industry leadership. But on the other hand, I do think it's important - having decided a company is a good bet historically - to take full account of future earnings in a DCF discounted cash flow, and indeed to take full account of the sector or industry which is more important really; and to go for solid leaders, inexpensively-priced and with an upward SP momentum.
A reasonable aim is a 30 to 50% premium over the next three to five years which is under normal circumstances achievable. And then having obtained most of the upside, through TSR total shareholder return (share price + dividends), sell out; or maybe keep under review if the company is still exceptional and continues to generate exceptional earnings.
But many at the moment have a lot, a third, in cash (includes gold), aiming to preserve capital more than growth, leaving some firepower for once the recession seems to be bottoming out. Of course, the best laid plans ...
Anyway, bad luck with CBG but on the other hand MONY is still on the up, just about...
In general, from all we hear and read, we must understand that banks and life insurance and financially-driven companies are a sector to avoid for the next few years as the market is now wrestling back control over the artificial economy created by the Fed with first lowering the interest rate and then buying up all the bonds the govt needed to balance its tax receipts and expenditure.
"Higher for longer" is really worrying as it threatens the bond markets and then equities, the govt budget eaten 40% by interest payments, and finally the whole system would finally collapse under the weight of debt; and so yet another QE would almost certainly kill demand for US govt debt with severe currency debasement.
So manufacturing, commodities...hard assets in the real world ...can we put the irreal aside and look here at the real?
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