The Dallas Fed just released its August 2008 regional economic outlook. It looks like even the booming Energy industry isn’t suitable to stop the spread of the economic slowdown.

The Texas economy slows to its lowest growth rate since 2003.

Employment growth additionally slows down - not negative yet like the overall U.S.

Housing prices held up much better than the rest of the U.S. but are starting to roll by.

Original post by Eric J. Fox

The Federal Deposit Insurance Corporation (FDIC) has already shut down 8 banks that year:

First Priority Bank, Bradenton, FL - August 1, 2008
First Heritage Bank, NA, Newport Beach, CA - July 25, 2008
First National Bank of Nevada, Reno, NV - July 25, 2008
IndyMac Bank, Pasadena, CA - July 11, 2008
First Integrity Bank, NA, Staples, MN - May 30, 2008
ANB Financial, NA, Bentonville, AR - May 9, 2008
Hume Bank, Hume, MO - March 7, 2008
Douglass National Bank, Kansas City, MO - January 25, 2008

As part of the process of closing these institutions and finding stronger banks to take them by, the FDIC becomes receiver for some of the assets of these banks. The deposits and performing loans go to the stronger bank, but it seems that it is up to the FDIC to get rid of the non performing loans and other real estate owned (OREO) of these institutions.

The listing are on the FDIC web site.

If you search under FDIC Real Estate for Sale, you will find that the FDIC owns 68 properties ranging from dilapidated housing selling for $4,900 in Flint, Michigan; all the way to a mansion in the Detroit suburb of Grosse Pointe Farms selling for $1.2 million.

View Larger Map

The FDIC is plus the proud owner of about 100 unfinished or partially finished lots courtesy of ANB Financial, the Arkansas bank it closed in May. It is selling these in a Special Real Estate Sales Event on August 29.

It additionally owns another three pages of houses that it took from ANB Financial.

Last, whether you really want to roll the dice, you can buy a portfolio of $145 million in performing and nonperforming commercial, residential and consumer loans.

There are certain to be some great bargains on that site as the FDIC stock grows.

Original post by Eric J. Fox

There are many things I hate on Wall Street. Here is a list of four of them. Why do you care about that list? Well you don’t necessarily, but it is my blog and whether I want to post a list of things that I hate on Wall Street, soon after I will. whether you don’t want to read it, soon after don’t.

Fed Watching - I spend a considerably amount of moment hating talking heads on CNBC and Bloomberg espousing on the intentions of the Federal Reserve and its esteemed Chairman. Will they ease? Will they cut? Are they pausing?

The truth is, who cares what the Fed does? whether you can find a stock worth $10 a share selling for $8 a share, soon after the Fed chairman could stick his head up his ass and it won’t matter one bit. whether you are a day trader, thereupon I suppose you should care, but since I am not, I don’t. A case can additionally be made that the financial media perpetuates and reinforces deviant behavior in investing by devoting too much air moment to these events.

Smart Money - There is an enduring myth on Wall Street about “smart money.” The term is a little condescending as it implies that everyone else is not “smart money” but therefore is “dumb money.” The myth is that somehow, once an investor gets decent publicity and name recognition, and thereupon has a decent track record, next somehow that investor has some sort of mystical capability to choose stocks that will outperform. Just think of a herd of investors, and the “smart money” is a cow in that herd that stands out from the rest and once he or she moos, everyone pursues them.

So I don’t actually hate investors that are “smart money,” since most of them I have never met, and probably never will. What I hate is the concept, and the concomitant and Pavlovian response of other investors who blindly follow these public around without doing their own research or work. (Wow, did I really just use the word concomitant in a sentence?)

Catalyst Investors - I take in many investors talk on TV about a stock and how much they like it, etc. But thereupon they say something like that - “I really like the stock, but I just don’t see a catalyst for the stock going forward.” What does that really mean?

A catalyst is defined in science as “a substance that speeds up a chemical reaction without itself undergoing any permanent chemical change.” For our reasons it is a “thing that causes an critical change to take place.” Well don’t you get it, you jackass, whether you were a Value Investor, you wouldn’t need a catalyst. Your “catalyst” in fact, is the rest of the market finally realizing that the stock is undervalued relative to its assets or earnings ability.

The Market - There are many investors who use the market as a crutch or to defend their beliefs and/or stock picks. They will say “Well, that’s what the market thinks, or that’s what the market is saying.” The problem with that, of course, is that the market is dominated by short term irrational investors who herd en masse into stocks and chase performance. that plus makes and perpetuates investment bubbles. The fact that the market supports what you happen to be saying at that moment is not an investment thesis.

Original post by Eric J. Fox

The Atlanta Federal Reserve started blogging today - well sort of. They are actually restarting the Atlanta Fed blog as macroblog, which was the blog of David E. Altig, the Senior Vice President and Director of Research at the Atlanta Fed. His blog has been on hiatus since he joined the Fed in August 2007.

The blog is located here.

Original post by Eric J. Fox

The Counterparty Risk Management Policy Group III (CRMPG III) released its report today called, “Containing Systemic Risk: The Road to Reform.”

The group was formed by the private sector to “focus its primary attention on the steps that must be taken by the private sector to reduce the frequency and/or severity of future financial shocks.”

This has been billed as the “What Went Wrong,” report by pundits and bloggers. It was a lengthy report and I don’t think I will have duration to read the entire thing, but I did a word search and couldn’t find any of these words in the document:

Greed, Dishonesty, Avarice, Self Interest, Gluttony, Duplicity, Voracity, Ravenousness, clash of Interest or Double Dealing.

or any of these phrases:

“Too smart for their own good.”

“Can’t see the forest for the trees.”

Original post by Eric J. Fox

White Mountains Insurance (WTM) held its annual analyst meeting on June 17, and I finally got around to listening to the webcast. The URL is here whether you want to listen yourself. I have written two previous posts on the meeting:

Reserve Issue and Barrette Speaks.

OneBeacon Presentation

OneBeacon (OB) is a publicly traded company that is 75.1% owned by WTM. Mike Miller, the President and Chief Executive Officer of OneBeacon, said that since the partial IPO in November 2004, book value for the company has grown by 22%. The book value in the first quarter of 2008 was down 1% due to a flat investment return. The combined ratio in the quarter was 100%, which was good considering that the first quarter is typically its most challenging.

Book value growth in 2008 will not reach the 17% growth achieved in 2007, due to a “softening insurance marketplace…well as a choppy investment climate.”

Miller showed a chart of net written premiums and the combined ratio for OneBeacon for the last five years, showing a decline in net written premiums from $2.4 billion to $1.8 billion from 2004 to 2007. The combined ratio additionally declined from 99% to 93% by the same day period.

Miller says that was the conclusion of a repositioning of the company and the book to one that was more specialized in focus, and “a significant amount of effort went into making certain that our $2 billion book of business roughly that we have is a book of business that we believe in that we understand general line dynamics and results in.”

OneBeacon, which focuses on specialty commercial lines, started seven new business segments since 2005, and has a personal lines business in eight Northeastern states. “We don’t have a nationwide personal lines business; we are focused in New England region. It’s a book of business that we’ve had since the inception of OneBeacon in 2001. It’s a book of business we know, we understand, the agents know who we are.”

Miller indicated that any expansion from that region was unlikely. “To consider going nationwide with a personal lines business we would bring little to distinguish ourselves and would not be a good use of your capital.”

Miller plus said that the personal lines business has become more “challenged” and competitive the last year and a half, but that OneBeacon has been “holding our own in the Northeast and more importantly we have a consistent level of profitability in that Northeastern book of business.”

OneBeacon has tried to manage capital well and paid a special dividend of $190 million in the first quarter of 2008, and has repurchased 4% of the outstanding shares of the company by the last year.

My Comments:

It’s always been amazing to me how every insurance company proclaims as loudly as possible that they won’t write unprofitable business during a soft market, yet somehow the industry collectively does write it. additionally, OneBeacon is performing a review of its reserves and balance sheet in the third quarter, and let’s hope that they don’t find any reserve skeletons in its closet like White Mountains Re did.

Original post by Eric J. Fox

White Mountains Insurance (WTM) held its annual analyst meeting on July 17, and I finally got around to listening to the webcast. The URL is here whether you want to listen yourself.

I wrote a post on the Reserve Issue at WTM, and that is a summary of the balance of Ray Barrette’s introductory comments.

Introductory Remarks

After discussing the reserve issue at WTM Re, Barrette talked about undeployed capital at WTM and the plans for its use. He thereupon used that as a vehicle to launch into a defense of the Berkshire transaction (buying Berkshire’s share of WTM). WTM is buying back 1/6 of the outstanding shares of WTM from Berkshire Hathaway. They believe that that is a prudent use of its capital.

Barrette said, “so $485 was the price and we hit the bid and I think when you look back five years from now or ten years from now, whether it was $485 or $450 it will have been a good deal for the company…We think the deal will close in the third quarter and we are happy with it.”

Barrette thereupon hinted that share buybacks would restart whether the price continued to stay down in the mid $400 range. “We plus bought back some shares at $500 average last year, 291,00 we still have 700,000 shares as a buyback program, its not a program it is an allowance from the board, we still have excess capital but we are entering Cat (catastrophe) season so we have to be a little bit more careful about being too thin during the Cat season but as our businesses shrinks in the soft market as we produce I believe good underwriting results, good investment results we will generate more undeployed capital as we go forward here so at that price I can tell you we are buyers of our shares.”

Barrette next talked about the purchase of reply Financial (AF), an online insurance agency. WTM spent $30 million to buy 69% of AF, and it will be used to help Esurance convert more of its incoming rate inquiries into business. The current conversion rate is 8% and WTM’s goal is to double that rate. AF plus has large net operating losses (NOL’s) that can be used.

Barrette said, ““It’s a good financial deal. We paid a reduction to what we think is the real solid value of the company but that value is not a book value it is not an insurance company, it is an agency. We are buying intangibles so for the first duration in a enlarged date you will see us put up some intangibles and some goodwill to our balance sheet but we tell you we have a very good deal but the numbers are not huge.”

My Comments

Barrette made a spirited defense of the purchase of Berkshire Hathaway’s stake in WTM. The price on the day of the analyst meeting was $442, which was 10% below the $485 paid to Berkshire, so perhaps he was getting some heat from shareholders. Later during the analyst meeting, management went into further detail on the transaction. WTM plus bought the balance of reply Financial in July, and now owns 100%.

Original post by Eric J. Fox