Garrison Financial

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2012-07-28T19:06:00.000-05:00

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Glenn E. Atkins, CFA, MBA
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KNWA Interview Regarding Local Recession

2008-04-28T22:01:00.002-05:00

In this interview with KNWA Northwest Arkansas' News, we comment on the resiliency of the economy in Northwest Arkansas.

As always, call with questions or comments.

Glenn Atkins

www.garrisonassetmanagement.com

Garrison On TV - Television News Interview

2008-04-24T17:31:00.004-05:00

Here's a little something KNWA Northwest Arkansas' News put together recently, representing our views on the nation's current economic situation.

Enjoy. As always, call or e-mail with questions or comments.

Glenn E. Atkins, CFA

www.garrisonassetmanagement.com

The Truth Will Set You Free

2008-04-04T20:20:00.000-05:00

James A. Garfield, the last of the log-cabin presidents and the 20th President of the United States, among others, said "The Truth Will Set You Free". The entire quote was "The Truth Will Set You Free, But First It Will Make You Miserable."

Hang on to your wallets, because here comes some truth. Congressman Barney Frank, Chairman of the House Financial Services committee, is proposing to throw around $11 billion dollars at the mortgage lending market to help insure up to $400 billion in mortgages.

One problem in his proposal, among many, is that the underwriting standards for this bailout will be enumerated at some later date. According to a Wall Street Journal (WSJ) article yesterday, the idea is that any loan originated between 2005 and mid-2007 would be renegotiable between borrower and lender. Lenders would have to write down the value of the mortgage to no more than 85% of the current appraised value of the property. The borrower gets a low fixed interest rate and a new principal balance equal to a new, presumably lower, appraised value. Instant equity!

This proposal will also bail out the lenders too because they would get a federal guarantee of the debt. What would you do if you were a lender? Why, you would "renegotiate" all your worst loans and essentially "put" them to the government. Well really not the government, but the taxpayers - me and you. According to the WSJ, mortgage fraud has gone up 1,200% (not a misprint) since 2000. What's a rational lender to do?

According to the article "A new study from the Boston Federal Reserve destroys the myth of the victimized subprime borrower. Boston Fed economists examined 1.5 million homeownerships over nearly 20 years and found that the overwhelming reason for subprime foreclosures is not unsustainable debt foisted on ignorant borrowers or even financial setbacks. People walk out on subprime mortgages when the value of their home declines." According to the Fed study " homeowners who've suffered a 20% decline in home prices are 14 times as likely to default as those who have enjoyed a 20% gain. Subprime lending played a role but that role was in creating a class of homeowners who were particularly sensitive to declining house price appreciation, rather than, as is commonly believed, by placing people in inherently problematic mortgages." Do you think that borrowers will not continue to "stiff" the taxpayers just like they have been their lenders already? There's the truth - cold, hard and unvarnished.

Current Federal Housing Administration (FHA) guidelines from the WSJ indicate that borrowers "should not have debt payments amounting to more than 43% of monthly income." Mr. Frank's bill would allow this figure to rise to an astonishing 55%. You have got to be kidding me. His proposal further calls for "flexible underwriting" standards in which borrowers "can't be denied FHA insurance due to a low credit score" and that a "delinquency on existing mortgages also can't be the sole reason to deny FHA insurance." Unbelievable - are there going to be any underwriting standards at all?! I'm not a rocket scientist, but it seems to me that "flexible underwriting" standards got us into this problem in the first place. According to the Mortgage Bankers Association, 42 of the 46 million (91%) mortgages they track are currently paying and paying on time. I'm not sure that this problem is as bad as Mr. Frank says it is. Only time will tell.

Markets this week were up. The S&P 500 registered a gain of 4.22%, the NASDAQ was up 4.87% and Dow was up 3.24%. Interest rates were slightly higher this week, especially in the 2 to 5 year maturities. The 2 year Treasury ended the week to yield 1.81% versus 1.65% while the 10 year came in at 3.48% versus 3.44%. All in all, a pretty good week.

Even though market volatility is huge right now, remember how we think. If investors had sold last week, and you can be sure many did, they would have missed an almost 4% gain this week. To put this in context, if markets average around 10% a year over decades, which they do, many investors missed this week what might have been almost 40% of an average years' gain. By the way, we didn't sell last week. Have a great weekend!

If you have any questions please call us at 877-442-0042. Please feel free to forward this email to your friends and family by clicking on the forward link at the bottom of the page. As always it is a pleasure serving your investment needs.

Click on the forward link below to send this email to friends and family.

Have a great weekend!

Kerry Bradley, CFA

http://www.garrisonassetmanagement.com/

We Have Just Witnessed History

2008-03-28T20:19:00.000-05:00

Not since the reign of FDR have we witnessed as much government and regulatory involvement in the financial markets of our country. Although not written in the Constitution, traditional capitalism no doubt has as one of its greatest tenants the separation of government and business to the maximum extent possible.

Traditionally the role of our Federal Reserve was to regulate banks and to act as the "lender of last resort" to these same banks in an effort to protect the public interest and maintain stability in the banking sector. Mission accomplished. During the last couple of weeks the Fed has taken the unprecedented-in-modern-times step of offering lending to the nation's largest investment banks, not just the largest commercial banks. Additionally, the Fed is taking on a much broader and deeper pool of collateral as backing for these loans as well. Industry estimates indicate that the largest investment banks have borrowed an average of about $30 billion daily under this new Fed facility.

Keep in mind what the markets have been experiencing during the last few months. They have been experiencing a lack of confidence, a lack of visibility and a lack of transparency. They have not been experiencing a lack of capital. By all measures Bear Stearns was well capitalized before the Fed forced its fire-sale to JP Morgan. Bear suffered a lack of confidence, not capital.

I'll be the first to stand up and err on the side of less government regulation and intervention, but in this case I believe it was entirely warranted. I don't believe it was warranted for the sake of Bear Stearns, but for the greater good (I hate that term) of the global financial picture. Temporary intervention is good, permanent and long-term intervention is not so good. Yes housing prices are down and most of our venerable institutions have been forced to take huge write-downs, but do I think the value of the assets will dwindle to zero? Of course not. The markets will correct and buyers and sellers will come to terms on price. But this must and will occur in an environment of transparency. The Fed actions have laid the foundation to provide this transparency and the beginnings, at least, of an underpinning of stability has been fostered in the last few days between the financial institutions.

Both the Dow and the S&P 500 finished the week essentially flat. Bonds gave up some ground with the 10 Year Treasury rising in yield to around 3.50%, up from 3.33% last week. Callable Agency spreads ended the week even to slightly narrower ahead of quarter end. Consumer spending in February rose only .1 percent, the lowest gain in more than a year as consumers clearly feel the pinch of higher prices at the pump. Commodities continue to be volatile. Last week Oil fell 7.6% to $101.84 per barrel while Gold fell by almost 8% to $920 an ounce. This week Oil us up around 4% to near $106.00 per barrel and Gold is up around 1.4% to near $933 an ounce.

I thought about titling today's article "Is Patience A Virtue Or A Vice?" but decided against it because I thought the history angle was more appropriate. But it warrants mentioning anyway. We have always been of the belief that patience is a virtue. But the uncertainty vice of a lack of confidence between financial institutions brought us to this dance. Fortunately, for tonight at least, our dance partner is the Federal Reserve. Continue to focus long-term and not on the latest thirty-second news cycle.

Fortunately for us long-term planning brought Garrison Asset Management to the dance. We haven't changed our focus or our thought process. We continue to try to execute, to try to find good value and to make well-informed decisions for each of you. Remember too that the decisions we make today and the actions we take on your behalf are not really for today. They are for the next three-to-five years and even the next decade. We believe the best results are achieved through well-placed conviction and a steadfast adherence to the proven discipline of a long-term view. We're on your side and we'll get through this together.

If you have any questions please call us at 877-442-0042. Please feel free to forward this email to your friends and family by clicking on the forward link at the bottom of the page. As always it is a pleasure serving your investment needs.

Have a great weekend!

Glenn E. Atkins, CFA

http://www.garrisonassetmanagement.com/

Bear Stearns Sold To JP Morgan

2008-03-20T20:17:00.000-05:00

This was an active week in the financial markets. In fact, this was an historic week in the financial markets. We saw a huge interest rate cut from the Federal Reserve, the seemingly overnight disappearance of a venerable investment bank, and three days of triple digit swings on the Dow Jones Industrial Average.

The week started with the news on Sunday that the Treasury had assisted in the sale of Bear Stearns to J.P. Morgan Chase. It was a maneuver designed to ensure that Bear Stearns could open for business Monday morning following a dramatic drop in liquidity as firms that traded with Bear began to question whether Bear would be solvent to complete the trades. Although terms are not finalized, the purchase price is likely to be $2 per share, after Bear Stearns closed last Friday at $30 and Thursday at $57. This rapid deterioration is a reminder of the downside of leverage and the importance of liquidity.

The Federal Reserve cut the federal funds rate ¾ of a point on Tuesday. They were widely expected to cut somewhere between a half and full point, and splitting the difference was agreeable to the stock market as the Dow rallied 400 points. The schizophrenic market then sold off 300 the next day, then rebounded 300 on Thursday. The Fed is walking the tightrope of trying to jumpstart lending and economic activity through lower rates while not stoking inflation.

A market that is this volatile is one that is trading with high emotions. These swings can present opportunities to the disciplined investor with a long term perspective. It's hard to predict how the history books will be written, but I have a feeling we will be talking about the events of this week for years to come.

If you have any questions please call us at 877-442-0042. Please feel free to forward this email to your friends and family by clicking on the forward link at the bottom of the page. As always it is a pleasure serving your investment needs.

Have a great weekend!

James B. Bell, CFA
http://www.garrisonassetmanagement.com/