january 26, 2009 bc investment club

January 26, 2009

BC Investment Club

• Welcome

• Portfolio Update

• Market Update

Tonight’s Agenda

Welcome Back

• Stock Market Game

• Email List: mario.morales.1@bc.edu

• Dues/T-Shirts: mcaulifp@bc.edu

• Pitches: weldona@bc.edu

Part I

PORTFOLIO UPDATESteve Regan

President

Ben Jordan

Vice President

Portfolio Performance

2009 Year-to-Date

Friday’s Value: $205,719

The non-cash portion of our portfolio was down 6.5%

5.9%

7.9%

Portfolio Composition by Sector

Cash remains available to build smaller positions

Financials have fallen to comprise 10% of portfolio

Transactions Last Semester

10/2: SOLD for $14.005 Last Trade: $8.88

10/21: SOLD for $15.5951 Last Trade: $10.72

10/21: SOLD for $20.53 Last Trade: $14.40

10/21: BOUGHT: $24.42 Last Trade: $6.00

10/28: SOLD: $19.45 Last Trade: $11.54

11/4: BOUGHT: $15.05 Last Trade: $15.07

11/11: BOUGHT: $29.46 Last Trade: $32.02

2009 Best Performers YTD

7.4%

9.7%

16.7%

19.2%

10 of our 34 positions are up this year

3.5%

2009 Worst Performers YTD

55.7%

28.5%

28.2%

25.7%

25 of our 35 positions have declined this

year

23.0%

Sad New Year for Financials

-50%

-40%

-30%

-20%

-10%

0%

10%

12/31 1/5 1/10 1/15 1/20

KBW Bank Index

Inauguration Day:

Banks down 43%

on year

58.7%

23.0%

11.2%

BCIC’s Exposure

Pfizer Reaches Deal to Buy Wyeth

• $50.19/share

• Total transaction approximately $68bn

• 29% premium over Thursday’s close

• 2/3 cash

• Securing $25bn in bank loans

• 1/3 stock

BCIC & .

Purchased in November, 2004 at $40.13

-40%

-20%

0%

20%

40%

60%

11/9/2004 11/9/2005 11/9/2006 11/9/2007 11/9/2008

WYE

S&P

25

30

35

40

45

50

55

60

WINTER BREAK MARKET REVIEW&

WINTER 2009 OUTLOOKJames Cullen

Portfolio Manager

Part II

S&P 500 – Mid-November to Present

We Are All Long Financials

• “We Are Well Capitalized, We Are Well

Capitalized… oh ----, uh, We Are Ready to

Work with the Government.”

• Bank of America (BAC, We Own)

Receives $20 Billion to Avert Bankruptcy

– Also Have Asset Guarantees on $118 Billion

– Ken Lewis: The Ultimate Dip Acquirer?

– Happy Trails, John Thain

Thankfully, Stocks Stop At Zero*

• Govt. and Citigroup (C) Made Similar Deal in November, Market Rallied Off News

– Not So This Time

• Is the Size of Problem Understood?

– Very Possible the Answer is Still “No”

– The Tier One Capital Ratio Myth

• Long-term Consequences for Large Banks

– Simply Put, Can We Afford a Citi or BoA?

*Even Though Some Are Worth Less

Retail Comps for December

• Abercrombie (ticker: ANF), -24%

• American Eagle (AEO), -17%

• The Gap (GPS), -14%

• J. Crew (JCG), Mid-Teens Decline

• Urban Outfitters (URBN), -1%

• Negative Comps: “The Other Deleveraging”

– Who Expanded Too Aggressively in 2003-2007?

Global Economic Data

• Japan

– December Exports at -35%

• Singapore

– Annualized GDP Contracted at -17%

– December Non-Oil Exports at -21%

• Taiwan

– December Exports at -42%

• Germany

– November Manufacturing Orders at -6%

Going Back to Fall 2008…

• Fall Themes:

– Credit (Scarce and Expensive)

– Global Slowdown

• Expect More of the Same

– Debt Markets Remain Shut

– Economic Data Various Degrees of Awful

• A New Theme for 2009…

Ben Bernanke, November 2002• Because central banks conventionally conduct monetary policy by

manipulating the short-term nominal interest rate, some observers have concluded that when that key rate stands at or near zero, the central bank has “run out of ammunition” - that is, it no longer has the power to expand aggregate demand and hence economic activity. It is true that once the policy rate has been driven down to zero, a central bank can no longer use its traditional means of stimulating aggregate demand and thus will be operating in less familiar territory… However, a principal message of my talk today is that a central bank whose accustomed policy rate has been forced down to zero has most definitely not run out of ammunition.

Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

So Goes the Fed Balance Sheet

• September 7th, 2006

– $832.1 Billion in Federal Reserve Credit Out

• September 4th, 2008

– $894.8 Billion in Federal Reserve Credit Out

• October 2nd, 2008

– $1.4 Trillion in Federal Reserve Credit Out

• January 22nd, 2009

– $2.05 Trillion in Federal Reserve Credit Out

Where to Look to Invest?

• “Slowly and carefully invest your cash reserves into global equities, preferring high quality U.S. blue chips and emerging market equities.”– Jeremy Grantham, GMO Client Letter; Jan. 21, 2009

– Believes Long-Term Returns to be Good, But Stock Market Has Not Bottomed

• Remember, ETFs Allow for Alternate Asset Classes and Short Positions

GMO Source

Positioning the Portfolio

• Will You Survive?

– Debt Maturities

– Asset Liquidity

– Government Support

• Then, Will You Profit?

– Long Term Industry Pricing Power

– Vulnerability to Currencies

– Vulnerability to Inflation

– Consistent Positive FCF

So, Was That The Bottom?

Join us next week at 7:00 PM in Merkert 127Check email for possible changes