Archive for August, 2007

Putting The Markets In Perspective

Thursday, August 30th, 2007

Let me venture here far beyond my expertise or confidence in an effort to share my views on the gyrating financial markets. I’ll start by saying I have developed my career by building companies and not by predicting markets or selecting stocks. However, it seems we have seen this story unfold before, and it always seems to follow similar patterns which we forget in the madness of the moment. The patterns are:

  • The market overreacts in both directions – driven by “irrational exuberance” or doom and gloom.
  • These moods of course exacerbate the swings and have the potential to cause panic.
  • The tide carries good companies down with the troubled ones, but of course it’s hard to recognize which are which when the tide moves so rapidly.
  • As the scenarios unfold, few have the courage of their convictions to buck the trend, and this in itself accentuates the swings.
  • The swings usually tend to last longer than anyone predicts.
  • The value is ultimately realized as sanity returns and the markets adjust, usually regaining much of the lost ground, or giving up some of the great gain.

In my view the credit markets, buyout values, and stock market were due for adjustment. In fact a few months ago I was quoted in the Washington Post stating that the buyout values were unusually frothy and couldn’t last forever. Some private equity firms were borrowing nine times operating earnings on acquisitions (at Thayer our buyouts average only 3.4 times leverage) which means any bump in the road could sink a company and not allow it to pay its interest, let alone retire debt. Also multiples on real estate had risen to unfound heights (6 percent capitalization rates down from 9 or 10 just a few years ago – cap rates being the inverse of multiples).

So yes, a correction was in order, but not this tidal wave. It is at times like this that he most productive investments can be made. And yes, it does take courage of your convictions to cut against the grain and take the risk. My belief is that the preponderance of evidence suggests that this is a time to take risks!

  1. The economy is fundamentally sound. We enjoy continued GDP growth, low inflation, and low interest rates. Further, corporate profits continue to increase, even if at a more moderate rate.
  1. Major deals are still moving forward with some at more reasonable, reduced prices.
  1. There continues to be great liquidity around the world.

But, we all know the above. What gives me more confidence today are the actions of great institutions and individuals, to wit:

  • Bank of America’s $2 billion investment in Countrywide has risk but in my view is one of the smartest investments in recent months.
  • One of my closest friends and a true leader in real estate investing is Joe Robert, head of JER Companies. Joe saw the value of his JER Investment Trust (JRT) sink from a high of $18 to $9 or less. This company has no residential exposure and makes mortgage loans on commercial real estate, yet its stock was pounded along with other commercial mortgage REITS. What did Joe do? According to the Washington Post, he personally purchased $8 million of JRT stocks in the last several weeks.

In sum, don’t take my beliefs or take confidence in popular known trends. But do watch what the smart money does. It says, we have seen an overcorrection where solid companies have been punished, and there is opportunity for selective investing and lending.

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The Future of the Republican Party of Virginia

Wednesday, August 15th, 2007

A few months ago, I accepted the post of Finance Chairman of the Republican Party of Virginia. I’d like to share a little bit about why I accepted that position, and the Fred Malek Blog gives me a good opportunity to do so.

I believe very strongly in the importance of the Republican Party of Virginia, because I believe that Virginia is a crucial state for Republican Presidential candidates. If Republicans cannot win Virginia, then we cannot win the Presidency. To keep Virginia in the (political) Red, we absolutely have to rebuild our Party here in Virginia in order to give it the structure and leadership it needs to make our case to the people of the Commonwealth.

While then-RPV Chairman Ed Gillespie initially persuaded me to take this role, the people I have watched since then have only strengthened my resolve and my enthusiasm. The competence and dedication of other leaders in our Party has been impressive – from Lt. Gov Bill Bolling and Attorney General Bob McDonnell, to the members of the Central Committee and the District Chairs, to my Finance Co-Chair Lisa Gable and the many others who have stepped forward to help.

While Ed Gillespie’s resignation to become Counselor to the President seemed like a loss, I now believe we are in best shape ever due to the impressive leadership of the aforementioned people, and two other important people:

  • Former Lt. Gov. John Hager, who was elected RPV Chair, is a dedicated public servant. He resigned his position as Assistant Secretary of Education to take on the RPV Chair position where he will work full time without pay. That kind of dedication, combined with his leadership and competence will show great results for the RPV.
  • Charlie Judd is an exceptional Executive Director, with the experience, judgment, and staff to run one of the finest state political organizations in the country.

So where do we go with this tremendous team?

  1. Our first priority is this Fall’s State Assembly and Senate races, where Democrats are making a full on assault to achieve majority in one or both of these chambers.
  2. This must be followed by attention to Congressional, Senate, and Presidential races in 2008.

This team, led by John Hager, has the ability to make the Party of Lincoln the majority party in Virginia for years to come. I’m excited to be a part of this, and excited to keep Virginia in the Republican column for a long, long time.

Financial And Stock Market Turmoil

Friday, August 10th, 2007

The questions are everywhere these days: What’s going on with the stock market? Why the wild swings? And more specifically, what’s causing all the turmoil in the financial and credit worlds, and what are the solutions?

I’ll be blogging my thoughts about these important issues more in the coming days and weeks, but for now I wanted to share with you the angle I take in today’s Washington Post business section. The question here is how the rockiness specifically affects the Washington DC financial community.

Frederic V. Malek, who was a senior adviser to Carlyle from 1989 to 1991 and then founded Thayer Capital, said the effect on Washington would be less severe than on other financial centers.

“The Washington area has been generally resistant to large swings because of the stability of government employment and spending,” Malek said. “This is likely to settle down in the coming weeks or months. And I suspect that this will have a lesser effect in Washington than in the rest of the country.”

Would love to hear your thoughts.

Talkin’ Baseball: Cal Ripken and Everyday Leadership

Friday, August 3rd, 2007

In a wonderful departure from my usual world of business and politics, I was privileged to spend this past weekend as Cal Ripken’s guest at his induction into Baseball’s Hall of Fame. And what a privilege it was for this lifelong baseball fan.

You may wonder, how does a Washington business guy get to be friends with one of baseball’s greatest legends? It started by chance when one of Cal’s former assistants, Desiree Pilachowski, came to be my executive assistant. At the time, I was leading the Washington Baseball Group in partnership with the Mayor and D.C. Sports Commission to bring Major League Baseball to Washington. It was through Desiree I met Cal and turned to him for periodic advice on navigating the waters of Major League Baseball in general. In the process we became friends – and, oh yes, our partnership with the city was successful. We shared expenses with the city and worked closely with Mayor Tony Williams and the Sports Commission Chairman, Mark Tuohey, and we won out in the contest to find a new home for the Montreal Expos. We were gratified to receive a unanimous Resolution from the City Council for having succeeded in this hotly contested process.

But back to the topic at hand – the Hall of Fame induction. On Saturday night the Hall hosted a dinner for present Hall of Famers, their spouses, and the inductees and a small group of their guests. It was stunning. Over here was Dave Winfield, over there was Willie Mays, here came Ralph Kiner, approaching from the left is Frank Robinson and from the right, my friend Jim Bunning, and – oh my, is that Bob Feller? Talk about being a kid in a candy store. I found all of the Hall of Famers to be eminently approachable and eager to talk. Cal and Kelly Ripken had three tables for family and friends, and he made each of us feel special, as if we were honoring him with our presence. Cal was the man of the hour but he was just being Cal – soft spoken, no swagger, all humility, and total concern for those around him.

The induction itself on Sunday was the greatest turnout by far in the Hall of Fame history: 75,000 in all, to see the induction of two great players, Tony Gwynn and Cal Ripken, who played their entire 20 plus year careers with a single team. I suspect their work ethic and character had as much to do with the turnout as their playing statistics. Of course, Cal’s records of 2,632 consecutive games, and Tony’s .338 career batting average, were also great draws.

Both Tony Gwynn and Cal delivered superb acceptance speeches. They set a great example for everyone in attendance and the millions watching on television. The highlight was Cal’s speech, where he talked in a humble but moving manner. It was a tremendous moment when he said, “I just look at it as showing up to do your work every day. Teachers, mothers, fathers, business people, and many others: You may not receive the accolades that I did through my career. So I’d like to salute you all for showing up, working hard and making the world a better place.” The high point was when he choked up talking about his and children. The iron man showed a chink in his stoic amour – but at the right place and in the right way. Many of us shed a tear with him.

I wish every day was Sunday and every Sunday like this one. And I wish every great athlete was a role model in the mold of Cal Ripken.