...(F)irst ...you have to believe the (stock) markets aren't going to crash again

Quote from Globe article below:

"I have to take a leap of faith, as I do with bank shares. As most of us do, I would argue, on the basis that their prodigious profitability will paper over all sorts of mistakes. Which has been true - so far. "

snip and re-order slightly

There are a couple of caveats. The first, obviously, is that you have to believe the markets aren't going to crash again and wallop ... (everybody& everything) ...with more losses from those guaranteed products.

The second, and this is a little embarrassing frankly, is that I don't really understand exactly what ...(this and therefore all financial institutions) ... does - I mean in detail. I can't fully understand the annual report. (you're not alone ... except in admitting it) It's so full of jargon and financial engineering that I challenge anyone but the most knowledgeable of industry insiders to truly understand what it all means.


November 20, 2009

A beaten-up Manulife looks awfully tempting

By Fabrice Taylor
From Friday's Globe and Mail

The selloff seems harsh: Manulife can now absorb greater shocks, and its returns to shareholders are generous

Fabrice Taylor is a chartered financial analyst.

A Manulife investor ran into one of the insurer's investment bankers yesterday. "Why do companies sell shares low? Aren't they supposed to sell them when they're high?
"
The answer: "Sometimes we want investors to make money, too."

That's a true story, but is it true that investors (I don't mean existing Manulife investors, I mean those who bought shares after they fell, as I did) got a gift from the market? I suspect so.

My argument isn't very technical. It's also got a couple of important caveats. But here goes: The first point worth making is that the market often overreacts to extreme news, both good and bad. Two years ago, when Manulife was cranking out huge profits and earning high returns on equity, the stock was $41. Yet it was about that time that the company was maximizing the risks that would sink it a year later. Investors were so focused on the good news they didn't bother to look for the bad.

It stands to reason that the opposite might be happening now, particularly because the company has lost credibility with this surprise share issuance. The stock's selloff seems harsh.

While it's true that investors, and analysts, are worried that this means there's more dilution to come, I'm not so sure. This is the second point: If you were CEO Donald Guloien, you would presumably raise enough capital to ensure you won't do it again. He's already got egg on his face; he doesn't want any more. And while it's true that there have been a number of about-faces at Manulife, I think the magnitude of this raise, especially with respect to how far the insurer's capital now exceeds requirements, says they think this is it.

It's also worth noting that capital requirements for insurers are heading up, although no one knows to where. Good reason to sell shares when the market is open to buying them.
The upshot of this share issue is that Manulife should be able to absorb more losses from guaranteed products it sold (i.e. stock market-linked investments that insured against a fall in stock prices), should markets tumble again, or make acquisitions if markets hold or rise. Or both.
Which brings me to point No. 3: Manulife has probably the best Western insurance franchise in Asia after AIG. It's also one of the top franchises in the United States, through John Hancock. And in Canada it's part of a small oligopoly, making great profits. AIG, now owned by the U.S. government, is for sale and Manulife now has the opportunity, platform and funds to make a play for the parts that would fit. That's a once-in-a-lifetime opportunity. Bulking up in Asia, and maybe in the U.S., would be good for shareholders.

Finally, look at the big picture: From 2001 to 2007, Manulife's return on shareholders' equity averaged 16 per cent with little deviation. Generally, it was on an upward trajectory, especially after digesting John Hancock.

I peg Manulife's book value at about $16 a share, so the stock is slightly ahead of that - about 1.18 times.

But if it can make some useful acquisitions and get its ROE back to say 15 per cent, buying the equity at this price still means a healthy double-digit return (almost 13 per cent and rising) over time, in theory.

There are a couple of caveats. The first, obviously, is that you have to believe the markets aren't going to crash again and wallop Manulife with more losses from those guaranteed products.

The second, and this is a little embarrassing frankly, is that I don't really understand exactly what Manulife does - I mean in detail. I can't fully understand the annual report. It's so full of jargon and financial engineering that I challenge anyone but the most knowledgeable of industry insiders to truly understand what it all means.

I have to take a leap of faith, as I do with bank shares. As most of us do, I would argue, on the basis that their prodigious profitability will paper over all sorts of mistakes. Which has been true - so far.
*****
An entry point?
Manulife shares fell 6 per cent Thursday, but the insurer has a long history of generating double-digit return on equity.
Yesterday's close
$18.95, down $1.23
SOURCES THOMSON DATASTREAM, THE COMPANY

The Day Global Warming Stood Still - IBD -Editorial

Will Al G's Nobel need to be recalled?
Will David Suzuki's fervent positions be recanted -publicly?
Will all the grant-seeking, pseudo-scientists on university/gov't payrolls be demoted for incompetence?

Will the truth "set you free"?

The Day Global Warming Stood Still
Posted 11/20/2009 07:46 PM ET

Climate Change: As scientists confirm the earth has not warmed at all in the past decade, others wonder how this could be and what it means for Copenhagen. Maybe Al Gore can Photoshop something before December.

It will be a very cold winter of discontent for the warm-mongers. The climate show-and-tell in Copenhagen next month will be nothing more than a meaningless carbon-emitting jaunt, unable to decide just whom to blame or how to divvy up the profitable spoils of climate change hysteria.

The collapse of the talks coupled with the decision by Senate Majority Leader Harry Reid to put off the Kerry-Boxer cap-and-trade bill, the Senate's version of Waxman-Markey, until the spring thaw has led Oklahoma Sen. James Inhofe, the leading Republican on the Environment and Public Works Committee, to declare victory over Sen. Barbara Boxer, D-Calif., and the triumph of observable fact over junk science.

"I proudly declare 2009 as the 'Year of the Skeptic,' the year in which scientists who question the so-called global warming consensus are being heard," Inhofe said to Boxer in a Senate speech. "Until this year, any scientist, reporter or politician who dared raise even the slightest suspicion about the science behind global warming was dismissed and repeatedly mocked."
Inhofe added: "Today I have been vindicated."

The Ada (Oklahoma) Evening News quotes Inhofe: "So when Barbara Boxer, John Kerry and all the left get up there and say, 'Yes. We're going to pass a global warming bill,' I will be able to stand up and say, 'No, it's over. Get a life. You lost. I won,'" Inhofe said.

Now we have the German publication Der Spiegel, which is rapidly becoming the house organ for climate hysteria, weighing in again with the sad news that the earth does not have a fever so we really don't have to throw out the baby with the rising bath water.

In an article titled, "Climatologists Baffled By Global Warming Time-Out," author Gerald Traufetter leads off with the observation: "Climatologists are baffled as to why average global temperatures have stopped rising over the last 10 years." They better figure it out, Der Spiegel warns, because "billions of euros are at stake in the negotiations."

We are told in sad tones that "not much is happening with global warming at the moment" and that "it even looks as though global warming could come to a standstill this year." But how can it be that the earth isn't following all those computer models? Is the earth goddess Gaia herself a climate change "denier"?

The article gloomily notes that a few weeks ago Britain's Hadley Centre for Climate Prediction and Research pointed out that the earth had in fact only warmed 0.07 degree Celsius from 1999 to 2008 and not by the 0.2 degree Celsius predicted by the U.N.'s Intergovernmental Panel on Climate Change.

An even more inconvenient truth, according to the British experts, is that when their figures are adjusted for two naturally occurring climate phenomena, El Nino and La Nina, the resulting temperature trend is reduced to 0.0 degree Celsius. No, that's not a typo.

As if that weren't enough, it seems hackers broke into the computer network run by the Hadley Climate Research Unit, removing 61 megabytes of e-mails and data.

While we don't condone theft, the hacked data and e-mails have spilled onto the Web and reveal something startling: The scientists at Hadley, one of the world's leading climate change study centers, aren't scientifically objective at all.

Indeed, in e-mails, they boast of twisting scientific data to suit their views and to "hide" the truth. At one point, a scientist actually gloats over the death of global warming skeptic John L. Daly, saying, "In an odd way, this is cheering news."

If true, this is massive scientific fraud.

To add to the warm-mongers' woes, patron saint Al Gore, the man who claimed to have invented the Internet, might also have claimed the discovery of Photoshop. Dr. Roy Spencer, of the University of Alabama at Huntsville, formerly with NASA, has taken a look at the pictures used to illustrate Gore's new book, "Our Choice: A Plan To Solve the Climate Crisis."

Gore Photoshopped NASA imagery of the earth for the fold-out cover photo, adding four hurricanes at once, including one spinning in the wrong direction next to Florida and, in a physical impossibility, one on the equator next to Peru. Somewhere in the process, the island of Cuba was deleted.

It is the warm-mongers who are spinning in the wrong direction. We win. You lose. Get a life.

© 2009 Investor's Business Daily, Inc. All rights reserved. Investor's Business Daily, IBD and CAN SLIM and their corresponding logos are registered

How Little Law From '70s Brought The Financial System To Its Knees

How Little Law From '70s Brought The Financial System To Its Knees

Posted 11/20/2009 06:51 PM ET - Bloomberg news

This is the second installment of a Monday series excerpting the chapter on political implications from Thomas Sowell's latest book, "The Housing Boom and Bust."
IBD Exclusive Series:Thomas Sowell on The Politics of the Housing Boom

In recent times, government officials have increasingly pressured banks and other lenders to lend to people whom they would not lend to otherwise.

One of the first federal government efforts to change the process of mortgage lending by private financial institutions was the Community Reinvestment Act of 1977. Like many government policies or programs, it began small and grew in scope and severity over the years.

The Community Reinvestment Act directed "each appropriate federal financial supervisory agency to use its authority when examining financial institutions, to encourage such institutions to help meet the credit needs of the local communities in which they are chartered consistent with the safe and sound operation of such institutions."

These almost innocuous words nevertheless contain the implicit assumption that government officials are qualified to tell lenders to whom they should lend money entrusted to them by depositors or investors.

Although the Community Reinvestment Act had no major immediate impact, over the years its underlying assumptions and provisions provided the basis for ever more insistent pressure on lenders from a variety of government officials and agencies to lend to those whom politicians and bureaucrats wanted them to lend to, rather than to those whom lenders would have chosen to lend to on the basis of the lenders' own experience and expertise.
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whole article