Posts Tagged ‘Financial Crisis’

Fantastic Michael Burry UCLA Commencement Speech on U.S. & European Financial Crises

Sunday, June 24th, 2012

Below you can view an excellent speech by Dr. Michael Burry, who at one point shorted over $8 billion of subprime mortgage backed securities before the U.S. credit crisis. Dr. Burry openly shares his experiences on divorce, luck, finance, and the future of college graduates at UCLA. As an alumnus of UCLA, Dr. Burry shows that passion, curiosity, foresight, and “working smart” rather than “working hard” can be handsomely rewarded. Michael Burry’s hedge fund, Scion Capital ultimately recorded returns of 489.34% (net of fees and expenses) between its November 1, 2000 inception and June 2008. The S&P 500 returned just over two percent over the same period. Other than Dr. Burry’s subprime short, I am not sure of his performance from 2000 through 2005. Enjoy.

[youtube]http://www.youtube.com/watch?v=1CLhqjOzoyE&feature=share[/youtube]

Burry left work as a Stanford Hospital neurology resident to become a full-time investor and start his own hedge fund. He had already developed a reputation as an investor by demonstrating astounding success in “value investing,” which he wrote about on a message board beginning in 1996. He was so successful with his stock picks that he attracted the interest of such companies as Vanguard, White Mountains Insurance Group and such prominent investors as Joel Greenblatt.
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After shutting down his web site in November 2000, Burry started Scion Capital, funded by a small inheritance and loans from his family. The company was named after The Scions of Shannara, a favorite childhood book. Burry quickly earned extraordinary profits for his investors. According to Lewis, “in his first full year, 2001, the S&P 500 fell 11.88 percent. Scion was up 55 percent. The next year, the S&P 500 fell again, by 22.1 percent, and yet Scion was up again: 16 percent. The next year, 2003, the stock market finally turned around and rose 28.69 percent, but Mike Burry beat it again—his investments rose by 50 percent. By the end of 2004, Mike Burry was managing $600 million and turning money away.”
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In 2005, he veered from value investing to focus on the subprime market. Through his analysis of mortgage lending practices in 2003 and 2004, he correctly forecast a bubble would collapse as early as 2007. Burry’s research on the runaway values of residential real estate convinced him that subprime mortgages, especially those with “teaser” rates, and the bonds based on these mortgages would begin losing value when the original rates reset, often in as little as two years after initiation. This conclusion led Burry to short the market by persuading Goldman Sachs to sell him credit default swaps against subprime deals he saw as vulnerable. This analysis proved correct, and Burry profited accordingly. Ironically Burry’s since said, “I don’t go out looking for good shorts. I’m spending my time looking for good longs. I shorted mortgages because I had to. Every bit of logic I had led me to this trade and I had to do it”.
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Though he suffered an investor revolt before his predictions came true, he earned a personal profit of $100 million and a profit for his remaining investors of more than $700 million. Scion Capital ultimately recorded returns of 489.34 percent (net of fees and expenses) between its November 1, 2000 inception and June 2008. The S&P 500 returned just over two percent over the same period.
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According to his website, he liquidated his credit default swap short positions by April 2008 and did not benefit from the taxpayer-funded bailouts of 2008 and 2009.[13] He subsequently liquidated his company to focus on his personal investment portfolio.
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In a April 3, 2010, op-ed for the New York Times, Burry argued that anyone who studied the financial markets carefully in 2003, 2004, and 2005 could have recognized the growing risk in the subprime markets. He faulted federal regulators for failing to listen to warnings from outside a closed circle of advisors.
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In April 2011, he suggests: (1) Open a bank account in Canada, (2) there are opportunities in small cap stocks, and (3) blue chips may be less attractive than their price-earnings suggests.

Burry left work as a Stanford Hospital neurology resident to become a full-time investor and start his own hedge fund. He had already developed a reputation as an investor by demonstrating astounding success in “value investing,” which he wrote about on a message board beginning in 1996. He was so successful with his stock picks that he attracted the interest of such companies as Vanguard, White Mountains Insurance Group and such prominent investors as Joel Greenblatt.After shutting down his web site in November 2000, Burry started Scion Capital, funded by a small inheritance and loans from his family. The company was named after The Scions of Shannara, a favorite childhood book.


Burry quickly earned extraordinary profits for his investors. According to Lewis, “in his first full year, 2001, the S&P 500 fell 11.88 percent. Scion was up 55 percent. The next year, the S&P 500 fell again, by 22.1 percent, and yet Scion was up again: 16 percent. The next year, 2003, the stock market finally turned around and rose 28.69 percent, but Mike Burry beat it again—his investments rose by 50 percent. By the end of 2004, Mike Burry was managing $600 million and turning money away.” In 2005, he veered from value investing to focus on the subprime market. Through his analysis of mortgage lending practices in 2003 and 2004, he correctly forecast a bubble would collapse as early as 2007.

Burry’s research on the runaway values of residential real estate convinced him that subprime mortgages, especially those with “teaser” rates, and the bonds based on these mortgages would begin losing value when the original rates reset, often in as little as two years after initiation. This conclusion led Burry to short the market by persuading Goldman Sachs to sell him credit default swaps against subprime deals he saw as vulnerable. This analysis proved correct, and Burry profited accordingly. Ironically Burry’s since said, “I don’t go out looking for good shorts. I’m spending my time looking for good longs. I shorted mortgages because I had to. Every bit of logic I had led me to this trade and I had to do it”. Though he suffered an investor revolt before his predictions came true, he earned a personal profit of $100 million and a profit for his remaining investors of more than $700 million. Scion Capital ultimately recorded returns of 489.34 percent (net of fees and expenses) between its November 1, 2000 inception and June 2008.

The S&P 500 returned just over two percent over the same period. According to his website, he liquidated his credit default swap short positions by April 2008 and did not benefit from the taxpayer-funded bailouts of 2008 and 2009. He subsequently liquidated his company to focus on his personal investment portfolio. In a April 3, 2010, op-ed for the New York Times, Burry argued that anyone who studied the financial markets carefully in 2003, 2004, and 2005 could have recognized the growing risk in the subprime markets. He faulted federal regulators for failing to listen to warnings from outside a closed circle of advisors. In April 2011, he suggests: (1) Open a bank account in Canada, (2) there are opportunities in small cap stocks, and (3) blue chips may be less attractive than their price-earnings suggests.

PNC to Pay Back TARP Funds – Finally

Tuesday, February 2nd, 2010

PNC Bank logo

One of the last banks to pay back TARP is PNC Financial, a relatively well capitalized bank that will now raise $3 billion in common stock to complete the deal…after its 4 biggest competitors have already made the plunge.  Over the past few years, PNC had been making some big moves, including the takeover of Harris Williams, a promising middle market investment bank with a great track record and the acquisition of National City in Ohio.

Bloomberg:

Feb. 2 (Bloomberg) — PNC will repay $7.6 billion of federal bailout funds, following the lead of its four biggest rivals that announced or completed their exit from the Troubled Asset Relief Program.

PNC expects to finance the deal by selling $3 billion of common stock, $1.5 billion to $2 billion of senior notes, and the bank’s investment servicing unit, according to a statement today from the Pittsburgh-based lender. The unit’s $2.31 billion sale to Bank of New York Mellon Corp. was announced separately.

The lender, ranked fifth by deposits in the U.S., is the largest commercial bank still holding TARP money. PNC tapped the bailout program after agreeing to buy Cleveland-based National City Corp. in 2008. Paying back TARP would free PNC from limits on compensation and dividends, and may bolster Obama administration officials who say the banking system is recovering from the 2008 financial crisis.

“With signs of an improving economic environment and stabilizing financial system, we believe now is the appropriate time for us to redeem the preferred shares held by the U.S. Treasury,” Chief Executive Officer Jim Rohr said in the statement. The redemption is expected to be completed this month, the statement said.

~I.S.

For more information, please visit Bloomberg…