Tuesday, November 30, 2010

Mike Carlson (AIM '08) Visited the AIM Program This Week

AIM Alumni: Mike Carlson and Katie Koutnik
2008 AIM alumnus, Mike Carlson, an Investment Analyst at Cascade Investment in Seattle, Washington, visited the AIM program on Monday, November 29. He met with the AIM students in the Class of 2011 during their class meeting - and then he talked informally with the newest AIM students in the Class of 2012.

Dr. David Krause, AIM program director said, "It was great to see Mike again. Having him in the classroom was a treat for the students since he is able to talk about investments in terms the students can relate. He has gained some valuable experience at Cascade Investment and I look forward to watching Mike's career develop. Mike is making steady progress towards his CFA charter and I expect him to be continue to prosper in the investment industry."

Mike played on the Marquette men's soccer team during the 2004-2007 seasons. He is from Glendale, Wisconsin and attended Nicolet High School. Dr. Krause added, "I know it was a treat for Mike to make it back to Wisconsin for Thanksgiving. It was great to see him again and I hope we continue to place more Marquette students in Seattle with Cascade."

"The AIM students talked with Mike about various topics, including the current events that were impacting the market," Krause said. "We discussed the North Korean surprise artillery attack on South Korea and the implications on the global market. Mike commented that the tension with North Korea is one of the reasons why South Korea is still considered to be an emerging market and continues to carry high political risk for investors. It further explains why the South Korean stock market trades at a significant valuation discount to the Asian region. It was clear to the students that Mike had an excellent grasp on the capital markets."

Dan Fuss - AIM Forum Presenter - Named to Top 100 Most Influential People in the Mutual Fund Industry for 2010

The MutualFundWire.com recently listed the 100 most influential people in the mutual fund industry for 2010. Not surprisingly, Dan Fuss (Marquette BS and MBA), Vice Chairman of Loomis Sayles was named to the list. Here's what they wrote:

Dan Fuss
Fuss took home Morningstar's fixed income manager of the year for 2009 and continues to have the wind at his back as investors continue to seek safety and the bond market outperforms. Famous for sticking with a good routine (he reportedly awakes at 4:28 a.m. to catch the 6:06 a.m. train to the office). With five decades behind him he still believes a pencil and paper can be more useful than a computer. Part of a team that invests $150 billion for the Natixis-owned fund firm, he is reported to be a current buyer of Irish bonds even as rumors are that the Irish government may be forced to turn to other European nations for a financial hand. 

Dr. David Krause, Marquette AIM program director said, "Mr. Fuss will be joining us on Tuesday, January 25, 2011 at the AIM Forum. We are excited that Dan will be able to participate in the Forum this year - he is truly a legend in the world of fixed income investing. It will be interesting to hear his views of the U.S. and European economies. His visit will be one of the major highlights of the year for the AIM students."

Monday, November 29, 2010

Restaurant Performance Index Records Three Year High - Another Positive Signal of Improving Consumer Confidence

The National Restaurant Association’s Restaurant Performance Index in October reached 100.7. (Note: any reading above 100 is expansionary). This is the highest level for the index in over three years, since September 2007, and reflects a strengthening environment of consumer spending at restaurants.

Dr. Krause, AIM program director said, "Restaurants are a discretionary expense and this reading suggests consumers are becoming more and more confident. While this measurement alone is not a strong indicator of an expanding economy, it is another in a series of positive signals that the consumer is becoming more confident."

Good Luck to Those Taking the CFA Level I Exam on Saturday, December 5th

Dr. David Krause, Marquette's AIM program director said, "This Saturday several AIM graduates will be taking the CFA Level I exam. I wish them good luck and hope we can add more AIM alumni to the list of those passing the first CFA exam. As a CFA program partner, we strive to have all of our students in the AIM program take and pass the CFA Level I exam."

The Chartered Financial Analyst (CFA) designation is an international professional certification offered by the CFA Institute to financial analysts who complete a series of three examinations. To become a CFA Charterholder candidates must pass each of three six-hour exams, possess a bachelor's degree from an accredited institution (or have equivalent education or work experience) and have 48 months of qualified, professional work experience. CFA charterholders are also obligated to adhere to a strict Code of Ethics and Standards governing their professional conduct.

The CFA Level I exam emphasizes financial tools and inputs, and includes an introduction to asset valuation, financial reporting and analysis, and portfolio management techniques.  The curriculum includes these topic areas:
  • Ethical and Professional Standards
  • Quantitative Methods
  • Economics
  • Financial Reporting and Analysis
  • Corporate Finance
  • Analysis of Investments
  • Portfolio Management and Analysis

Peter Gunder and Neil Zamansky of American Family Insurance Visited Dr. Krause's Classes on Monday, November 29th

Peter Gunder, CFA, Senior Vice President, Chief Investment Officer at American Family Insurance (Madison, WI), and Neil Zamansky, Fixed Income Analyst, visited Dr. Krause's Fixed Income class and the AIM program on Monday, November 29.

Peter Gunder
Dr. David Krause, AIM program director said, "Peter Gunder is responsible for the Equity, Fixed Income, Alternatives and Risk Management teams at American Family. In the Fixed Income class Peter talked about  American Family's approach to fixed income portfolio management. He and Neil brought into the discussion their experiences with MBS and ABS - the content the class is currently covering. Neil also provided a perspective on the structured products area of the fixed income market."

Dr. Krause said, "I believe the students found it useful to learn how American Family goes about its internal and external fixed income management process. Mike Muratore had an internship with them last summer and I know he had a valuable experience at American Family. It is good to get Peter and Neil to campus to see the finance students and the AIM program. I look forward to their return to campus in the future."

Prior to Peter Gunder joining American Family, he was a Managing Director and Founding Partner of Cardinal Investment Advisors. He was responsible for client service and research. Previous to this he worked with Summit Strategies where he advised insurance clients. Before beginning his consulting career in 1997, Peter worked eleven years at MMI Companies, a NYSE holding company for property, casualty, and life insurance companies - where he was the Treasurer and Chief Investment Officer. Peter holds a B.S. in Engineering from Stanford University and an MBA from the University of Chicago Graduate School of Business.

Neil Zamansky is a Fixed Income Analyst of Structured Products at American Family. Prior to joining American Family, Neil was an Assistant Portfolio Manager at Silver Spring Investment Advisors. His background includes Commercial Real Estate Analyst at Silver Spring Investment Advisors. He was also an Assistant Operations Manager at Fremont Investment and Loan, a Senior Underwriter at Option One Mortgage, and a CMBS Analyst at RBS Greenwich Capital. Neil graduated from Bentley University.

Dr. Krause stated, "It was a pleasure having both Peter and Neil on campus. The ability for our students to hear directly from practitioners helps them comprehend difficult and challenging material - such as RMBS and CMBS. I am thankful that they were able to take the time and visit campus today."

Sunday, November 28, 2010

U.S. Municipal Bond Market Under Fire; This Will Be a Major Story the Remainder of the Year and 2011

This weekend's The Economist had an article about municipal bonds titled: 'The Mortgage Parallel: Nerves jangle again in a huge and supposedly stable market.' Dr. David Krause, AIM program director stated, "The unfunded pension liabilities and growing structural deficits of state governments have been a ticking time bomb the past several years. While not yet a crisis, the risks in the muni bond market are substantial and the credit risk premium is likely to rise in the near future. Muni bond prices have dropped the past two weeks."  

From The Economist: "America’s $2.8 trillion municipal-bond market was rocked in the crisis of 2008. It regained its poise, however, and has rallied strongly in the past two years. Now a sudden jump in yields (and drop in price) has renewed fears that the main source of finance for America’s 50 states and thousands of towns and cities is ripe for a crisis all of its own. Investors have long been drawn to “munis” for their supposedly steady, largely tax-exempt returns. This month, though, municipal-bond funds have seen their first weekly net outflows since the spring, estimates the Investment Company Institute. Some leveraged funds fell by more than 10% in a few days. As the market grew more volatile many fund investors fled on the assumption that there’s no smoke without fire.”

Dr. Krause said, "The recent California $10 billion bond sale went out at higher yields than expected. Other state governments are borrowing heavily from the federal government to keep paying unemployment benefits California borrowed nearly $8.8 billion in mid-November. Municipalities are running almost $600 billion in unfunded pension liabilities - on top of the nearly $3 trillion in statue unfunded pension liabilities. The markets are just waking up to the facts. Philadelphia, Boston, and Chicago will all see their pension funds run out of money by 2020. The Irish debt crisis has forced muni bond investors to look more closely at their own government bond portfolios. This is likely to continue to be a growing story the remainder of the year."

Interesting Article on the Equity Risk Premium Used in Textbooks and By Equity Analysts

Dr. David Krause, AIM program director commented, "I just read an interesting article on the equity risk premium used in popular finance textbooks and by practicing stock analysts. It seems like the consensus is to presently use a 5% market risk premium for equity valuation. The AIM students in their stock evaluations utilize discounted cash flow techniques which require the use of a risk premium - they should find this interesting and useful."

Pablo Fernandez, a finance professor at the IESE Business School in Madrid, Spain, recently published several articles that examined the equity premium used in textbooks and by practicing equity analysts. The equity premium (also called market risk premium, equity risk premium, market premium and risk premium), is one of the most important parameters in investment analysis. The term equity premium is used to designate the differential return of the stock market over the risk-free rate (U.S. Treasuries) and is an integral portion of the discount rate used in valuation.

The table below shows that the 5-year moving average used in finance textbooks has declined from 8.4% in 1990 to 5.7% in 2009. Fernandez reported that the average equity premium used by analysts in the U.S. in 2009 was 5.1%.

Economic Data Released Last Week Continues to Support Case for Moderate U.S. Economic Growth

Dr. David Krause, AIM program director commented, "The release last week of the revised Q3 GDP figures and the October Chicago Fed National Economic Activity Index showed continued positive growth for the U.S. economy. The GDP for the third quarter was revised up to 2.5% from 2.0%. While this rate is still below the 3.0% average historical growth rate for the U.S. economy, it continues to suggest the reduced likelihood of a double dip recession. I think the U.S. economy is in better shape than the view of most economists and pundits. The weaker U.S. Dollar and stronger than expected holiday sales are going to result in a 2011 that exceeds consensus."

The historical U.S. GDP graph shown below is from Calculated Risk. The revised Q3 data is shown in blue.

Dr. Krause continued, "The other major economic release last week was the Chicago Fed's October National Activity Index which showed a slight pickup from the previous month. The index’s three-month moving average is less than zero, which like the GDP data suggests that growth in national economic activity is still below its historical trend. The report also showed considerable economic slack and subdued inflationary pressure which will likely continue over the next few months."

He continued, "The encouraging news, however, was that production-related indicators in the U.S. made a positive contribution to the index in October. This news continues to suggest that manufacturing is advancing and that factory capacity utilization is improving. The trend continues to be one of steady, positive advancement. While employment is lagging, I think we will see an improvement in private hiring as production and capacity utilization continue to improve. These are finally the 'green shoots' of recovery that we've been waiting to see."

The Chicago Fed National Activity Index shown below is from Calculated Risk.

Saturday, November 27, 2010

Krause Not Surprised by the Stronger Than Expected Retail Sales Reported This Weekend

Dr. David Krause, Marquette's AIM program director has been reporting for months that the U.S. economy is stronger than most economists and politicians have been predicting. "I had been hearing for the past quarter from my contacts in manufacturing that demand for their products has been stronger than expected and now it is apparent that the U.S. consumer is getting into the act. I have been saying that the consensus estimates of economists and the dire predictions of the politicians over the past several months have been way off the mark. This weekend's retail sales help support my belief the U.S. economy is much better than expected and that 2011 is going to be a stronger than expected year -  early estimates are for a double-digit increase in holiday sales."

It was reported by Coremetrics, that the U.S online retail sector delivered double digit growth on Black Friday 2010 compared to the same period last year. The analytics-based firm reported the following year/year trends for Black Friday:
  • Consumer Spending Increases: Online sales were up a healthy 15.9 percent, with consumers pushing the average order value (AOV) up from $170.19 to $190.80 for an increase of 12.1 percent.
  • Luxury Goods Make a Comeback: Jewelry retailers reported a 17.6 percent increase in sales. These affluent shoppers appear very willing to open their wallets.
  • Surgical Shopping: Consumers know what they want and where to get it. People are viewing 18.0 percent fewer products on sites than they did last year, suggesting that they are shopping with a specific item in mind and quickly moving on.
  • Social Shopping: Consumers appear increasingly savvy about their favorite brands’ social presence, and are turning to their networks on social sites for information about deals and inventory levels. While the percentage of visitors arriving from social network sites is fairly small relative to all online visitors—nearly 1 percent—it is gaining momentum, with Facebook dominating the space.
  • Mobile Shopping: Consumers are also embracing mobile as a shopping tool. On Black Friday, 5.6 percent of people logged onto a retailer’s site using a mobile device, a jump of 26.7 percent compared to the prior Friday.
Bloomberg reported that across the U.S., stores reported heavier traffic than last year as Black Friday, the biggest shopping day of the year, got off to its earliest start yet. Foot traffic was estimated to be the highest in five years. At Macy’s flagship store in New York’s Herald Square, many people were shopping for themselves for the first time in two years.

Dr. Krause commented, "I think that the American consumer will spend more on themselves this holiday season. People with jobs are not as worried about losing them as they were the past two years. I can see and feel the pent-up consumer demand when I'm in big box stores. We are a consumer-driven society and this is going to be a stronger holiday season than forecast."

"I also believe on-line shopping will add to the strong first weekend and Cyber Monday," Krause added. Shoppers who skipped the crowds on Black Friday gave online merchants a 16 percent spike in revenue, according to Coremetrics. The solid increase adds to a 33 percent spending increase for Thanksgiving. Shopping on cell phones remained a small piece of the pie with about 6 percent of people logged onto a retailer's website using a mobile device, but this was a 27% increase over last year. Online shopping makes up between 8 and 10 percent of holiday spending - and continues to grow.

Friday, November 26, 2010

Ins and Outs of Wall Street Planning Already Underway for the April 2011 Event

2010 'Ins and Outs of Wall Street' Presenters
Every spring, undergraduate finance students at Marquette University can spend a Saturday learning firsthand about careers on “Wall Street” from more than a dozen alumni currently working for some of nation’s most prestigious financial firms.

Dr. David Krause, AIM program director said, "The 4th "Ins and Outs of Wall Street" event is currently being planned. It will be held on a Saturday in early April 2011 on Marquette's campus. We know that this program has been successful and we intend to continue to help our students attain their aspirations of working in high finance."

Students at Last Year's Event
Dr. Krause further stated, "The 'Ins and Outs of Wall Street' is a very valuable program - especially for the sophomores and juniors. And it is designed to increase the awareness of opportunities for all Marquette graduates - not just the AIM students. Our alumni do an excellent job preparing our students for the rigorous recruiting process as our undergraduates pursue careers on Wall Street and in other major money centers."

More information will be forthcoming soon; however, to read about previous "Ins and Outs of Wall Street" events, go to http://tiny.cc/mftr5

Thursday, November 25, 2010

AIM Student Equity Write-Ups Since 2005 Posted on AIM Web Site

AIM student 'road show"
All of the AIM student equity write-ups since the program was created in 2005 are posted on the AIM web site.

Copies of all student presentations in pdf format since the inception of the AIM program can be downloaded at: http://tiny.cc/pcqe4.

If you are interested in attending an upcoming AIM Fund Advisory Board meeting, please contact Dr. David Krause at AIM@marquette.edu.

The next AIM 'road show' will be held at Geneva Capital Management on Friday, December 3. Geneva Capital Management is located in Milwaukee and is an investment management firm offering investment management services to individual and institutional clients. Five students will be pitching stocks at Geneva - you can go to the AIM web site next week to download the write-ups.

Wednesday, November 24, 2010

Tuesday, November 23, 2010

Dr. Krause Had Productive Visit to Kansas City

Dr. David Krause, AIM program director, was in Kansas City visiting various financial firms. Today he met with Trica Feuerborn, Human Resources Recruiter at American Century Investments. He said, "It was a pleasure meeting with Trica. We have talked in the past, but it was nice to get to Kansas City and visit American Century. I am impressed with the internship program at the firm and appreciate the rigor of their interview process. I hope to share the resumes of some of our top students - it would be outstanding to have an opportunity for a Marquette AIM student to work for American Century."

Kansas City
American Century Investments is a privately-controlled and independent investment management firm that focuses on delivering highly-regarded investment products. Headquartered in Kansas City, it was formerly known as Twentieth Century Mutual Funds. The company has 1,300 employees serving clients from offices in New York, London, Hong Kong, Mountain View, California and Kansas City. In 2009, American Century Investments was named Lipper's Best Large Mutual Fund Company in the United States.

Earlier in the day, Dr. Krause met with Charles Holzhecht (MU '02) at G.K. Baum's headquarters in Kansas City. (See previous blog discussion of Charles and G.K Baum). Krause said, "I enjoyed meeting with Charles this morning. G.K. Baum is a very impressive firm that competes in the investment banking and public finance space in the Midwest. It is great to get into the industry and visit our alumni in their home offices. G.K. Baum has an excellent culture that you can sense when you are on site. I know Charles will do well with the firm - he has the perfect balance of intelligence, passion for finance, and personality. I was impressed with the firm and their prospects - it was an excellent visit to Kansas City and I'm hopeful we can bring more Marquette graduates to KC."

Jim Bianco Comments on FOMC Minutes Today on CNBC

Jim Bianco
Following the release of the Fed's Open Market Committee minutes this afternoon, Jim Bianco of Bianco Research joined Erin Burnett, CNBC host of Street Signs, to offer his opinion. View the CNBC interview in the video clip below.

In short, Federal Reserve Board officials sharply revised down their forecasts for economic growth next year, and saw unemployment at significantly higher levels than they had the last time they issued official forecasts in June. Most participants in the Federal Open Market Committee, the Fed's policy-setting arm, backed the plan to ramp up asset purchases in an effort to bring down long-term interest rates and try to nudge economic activity up a notch. The minutes of the Fed's November meeting did show some opposition to the new quantitative easing strategy that was ultimately passed 10 to 1. Also, in a rare, unscheduled meeting held via videoconference on Oct. 15, Fed policymakers debated a range of new avenues for policy, including the possibility of targeting a specific level of bond yields and enhancing communications by instituting news briefings by Chairman Ben Bernanke.

Monday, November 22, 2010

Jim Bianco to be guest in Dr. Krause's AIM class this semester and a member of next semester's AIM Forum

Dr. David Krause, AIM program director said, "I will be meeting with Jim Bianco (MU '84) in Kansas City this week. We will be talking about his upcoming visit to the AIM program on December 7th and his participation in the AIM Forum on January 25th. We might even take in the MU-Duke basketball game while we are in KC - I know Jim is a big fan!"

Jim Bianco
Jim Bianco is the president of Bianco Research, L.L.C., located in Chicago Illinois, which was founded in 1998. Bianco Research is an affiliate with Arbor Research & Trading, Inc., a fixed-income research and brokerage firm located in Barrington, Illinois.

Krause said, "Bianco Research specializes in "macro" investment analysis of the equity and fixed-income markets. Their web site and daily e-mail posts are some of many products they offer their institutional customers. I read their research daily and participate in their bi-weekly conferences. Jim offers one of the top advisory firms in the country."

Jim Bianco on CNBC talking about Fed policy
Since 1990, Jim Bianco has been producing fixed income commentaries with a circulation of hundreds of portfolio managers and traders. His commentaries are primarily devoted to the fixed income markets with special emphasis on: money flow characteristics of primary dealers, mutual funds, hedge funds, futures traders, banks, and institutional investors. Other topics he has researched include: the effects of commodity prices on bond yields, how the ratio of the equity market’s capitalization as a percentage of nominal gross domestic product affects price performance of the stock market, the role government regulation plays in determining inflation, how market performance affects mutual fund investors, the role politics plays in setting interest rates, and measuring the stock and bond markets from a total-return perspective.
Krause said, "Jim Bianco produces unique and original insights into movements in the financial markets and has been a featured speaker at many investment conferences. He is regularly featured in the following investment publications and he appears regularly on CNBC, CNN, Bloomberg and Fox Business News. He recently joined me on a panel in New York City to discuss the impact of financial regulation in the U.S. markets." 

Prior to creating Bianco Research, Jim spent five years in New York City with several prominent investment banking firms. He was a Market Strategist in equity and fixed income research at UBS Securities and Equity Technical Analyst at First Boston and Shearson Lehman Brothers. He is a Chartered Market Technician (CMT) and a member of the Market Technicians Association (MTA), where he served as a national Vice-President and Chairman of the MTA’s 1996 annual seminar. Jim has a Bachelor of Science degree in Finance from Marquette University (1984) and an MBA from Fordham University (1989).
Bianco on Bloomberg

He is meeting with the AIM students on Marquette's campus at 5pm in the AIM Room on Tuesday, December 7. Krause said, "Jim is also one of four guests that will several as panelists at the AIM Forum on January 25. He is a lively and knowledgeable guest speaker and panelist. I look forward to meeting with Jim and I know the students feel the same way."

Dr. Krause Tells Students That Bulge Bracket Banks Are Beginning Their Summer Internship Interview Process

Dr. David Krause, AIM program director said recently, "The bulge bracket investment firms are beginning their summer internship interview process. If you want to work in New York or some other major money center this upcoming summer, then now is the time to be applying. While some Chicago, Minneapolis, and Milwaukee-area investment firms might come to our campus to interview juniors for summer internships, the NYC firms do not. Therefore, you'll have to apply on-line and work with a 'champion' within the firm."

"I also want to remind my students that there are marvelous internship opportunities locally," Krause said. "Mason Street Advisors, Baird, M&I, Wells Capital Management, and others have provided outstanding summer and school year internships for the AIM students. While it might sound appealing to be in New York for the summer, students should not discount the opportunities in our own backyards. Milwaukee is a major investment city and the internship experiences are outstanding."

He continued, "The summer investment banking and equity/debt research positions are very competitive in the major firms, such as Goldman Sachs, Morgan Stanley, JP Morgan, Bank of American Merrill Lynch, etc. Just within the past week or so, the bulge bracket firms have begun accepting applications for their summer analyst positions. If you want to be considered, you must complete the on-line application. Once this is done, my students generally meet with me and I help them connect with one of our alumnus in the firm if they fit the bulge bracket model."

"What does it take to secure an internship with a major financial firm?" Krause said he is often asked. "For non-core schools it takes a high GPA. A 3.50 or lower will probably not get you a look by a NYC investment bank - and the higher the better. These are very competitive positions and you are up against students from the top East Coast schools. The other things essential to getting a summer internship offer are to have a strong resume, a network in place that can help you advance through the interviewing process, and to have excellent interviewing skills."

Dr. Krause continued, "Right now I am telling my AIM students to be working hard to secure an internship. Students who procrastinate or expect an internship to fall into their laps are not going to land a top summer internship opportunity. What happens if they don't land their dream internship? I tell my students that not all is lost - they should seek out meaningful opportunities in firms that they want to work. Taking a job in operations or the back office at a well-regarded asset management firm can help to turn heads if you are a hard worker and seek out advanced opportunities. Also, if a student is interested in investment banking and can't land the ideal internship, then seek out corporate finance opportunities within a strong firm. S&T and PWM are also good summer internships for students with an interest in banking and/or investments - and these are great career choices as well."

"The bottom line is to work hard in school to achieve good grades, follow the capital markets and macro-economy, and be active in student finance organizations," Krause stated. "It is also vitally important to network with alumni and seniors. Students should check internship postings on Career Manager and indeed.com daily - and they should continue to monitor opportunities at major firms in the Midwest, such as R.W. Baird, G.K. Baum, Lazard, etc. I tell students to think of this as a landing a job - getting the summer internship that sets them up for their senior year and beyond is something that generally doesn't happen by chance."