JEF - Jefferies Group

[prevalou]

The growth of electronic/sales has not produced margin compression. Better rotation and less human costs=better margins. For a detailed explanation see Goldman Sachs presentations.

 

On the advisory side, nobody Will be throwing the towell is far from certain: advisory is now a capital intensive business.

 

Asset backed business has been impaired but products change and banks as middlemen adapt.

[Munger]

"The growth of electronic/sales has not produced margin compression"

 

Only because I view this comment as potentially misleading -- although not questioning what Goldman may have presented or your honesty in relaying their assertion.  I should have been more clear -- absolute margin dollars are down and continue to decrease.  You may disagree, which obviously is entirely your right.  We'll let future results speak for themselves.

 

 

 

Asset backed business has been impaired but products change and banks as middlemen adapt.

 

Personally I don't believe new profits will be found to replace anything close to prior levels.  Dot com IPO profits were huge at the end of the 90's...when that bubble burst, IBs ramped up asset backed securitization and all the associated businesses, which reached astronomical levels.  Now it's back to reality.

 

Best. 

   

 

 

 

 

 

 

 

[Guest Hester]

Comparing investment banks to Kodak is powerfully stupid.

 

LOL -- the passion and anger is so funny.  I do enjoy.

 

 

No passion or anger. I was very calm and lucid when I typed that. I have no position in Jeffries or Kodak. Comparing an I-Bank to a company that sells technology that is no longer relevant isn't worthy of a response greater than, "no, that's stupid"   

 

But for a simpler mind, let me try the following -- Bear Stearns and Lehman Brothers were aggressively guided by "visionary" leaders and had phenomenal 15-20 year runs and then collapsed under the weight of a over-levered business model that didn't adjust to changes in industry economics. 

 

Maybe those buying the stocks in 2007 based on the "visionary" and aggressive leadership, strong past performance, and high insider ownership were slightly misguided?:)  Here is the primary point for the truly simple -- look forward not backward.

 

 

 

I'll let the onlookers decide whether me questioning the comparison between a struggling modestly levered I-Bank and an old camera company with technology that is obsolete makes me simple minded.

 

In any case Bear and Lehman had 3 times the leverage Jeffries does.

Bear and Lehman had 3 times the leverage Jeffries does.

[Munger]

Comparing an I-Bank to a company that sells technology that is no longer relevant isn't worthy of a response greater than, "no, that's stupid"  

 

Hilarious -- so funny...I spelled it out for you and you still don't get it...LOL

 

guided by "visionary" leaders and had phenomenal 15-20 year runs and then collapsed under the weight of a over-levered business model that didn't adjust to changes in industry economics

 

I wonder what company could fit that description -- possibly Kodak...:)  And guess who else fits -- Bear and Lehman...

 

Now let me make it more simple for you -- the challenge facing JEF is not unique in the history of business or specific to any industry...  The comparison was not to highlight the specific dynamics of a tech business model vs an IB business model -- LOL!!!

 

History is littered with companies that have had fabulous runs and then collapsed under the weight of a over-levered business model that didn't adjust to changes in industry economics.  Will JEF follow the same path? -- it's a risk but only time will tell... 

 

The example of Kodak, Lehman, and Bear simply drives home the point that Buffett has made on numerous occasions...look forward not backward (past peformance doesn't guarantee future results) -- really very simple.

 

And when someone accuses another of being "powerfully stupid" as a result of what turns out to be their own ignorance, their original thinking was usually clouded by emotion.  But I guess not in your case...

[stahleyp]

I would like to know munger's long term returns.  :-X

 

I'll try this again.

 

 

[Munger]

modestly levered I-Bank

 

OoooooooooooK....13x is modestly levered...got it...LOL

 

What happens if the asset side of the ledger declines by only 8%?

[tombgrt]

Munger, you have already proven how little you know about capital and how banks come to the sum of parts of it. No need to make the same mistake twice. Right?

 

Furthermore you are always the first to make bold statements and then state that you have no position in any of the stocks mentioned. That's a bit easy because this way you can never ultimately lose. If you are right you'll get the credit. If you are wrong you'll just mention that you weren't sure because the companies discussed were "black boxes" and that anything could have happened considering associated risks.

 

Why don't you just post some of your current holdings that are completely "anti-black boxes"? While you are at it post your long term returns that comes with your brilliant insight like stahleyp asked. It would lower the scepticism of many here.

 

Btw, posting "Oooooooook" & "LOL" doesn't add to your credibility just like using the color red and all kinds of fonds doesn't really work for Ben Graham (the poster...) and others.

[BargainValueHunter]

If JEF had no issues in Sept./Oct. 2008 then what is the worry now?

 

Back then even the BUCK was broken...

 

http://www.usatoday.com/money/perfi/basics/2008-09-16-damage_N.htm

 

If you want to know how severe the financial industry crisis is, here's further proof: The share price of the Reserve Primary fund, a money market mutual fund, has fallen below the sacred $1 mark, thanks to the Lehman Bros. meltdown.

 

Money market funds have been the fund industry's haven for more than three decades, and investors often view them the same way they do bank checking accounts. The funds' safety record has attracted more than $3.5 trillion in assets.

 

Until now, no money fund open to the general public has ever allowed its share price to dip below a dollar — "breaking the buck," as it's called. (A small institutional money fund, Community Bankers Money fund, broke the buck in 1994.)

 

Money market funds have long feared that if they broke the buck, thereby shrinking investors' principal, people would shift their money into bank money market accounts or ultrasafe Treasury securities. The question now is whether other money funds will follow the Reserve fund in dipping below $1.

 

We aren't even CLOSE to such an event now.

 

Didn't Fairfax suffer the slings and arrows of a huge bear attack back in the day?

[Munger]

I've never deemed one of tombgrt 381 prior posts worthy of a direct response -- certainly not going to start now.  Most recent post confirms what I concluded long ago -- his posts aren't even worth reading.  The whole notion that I have any interest in winning "creds" with him is just hilarious -- the height of silly self delusion...this is a message board.  So I would respectfully ask tombgrt that if you don't agree w my opinion, just ignore or do what I typically do to you -- don't even read. 

 

 

There are some on this board who really contribute thoughtful opinion -- and I've been happy to even receive direct messages from some.   

 

I'm done w this thread until new developments w JEF.

 

Best.

[stahleyp]

I'm done w this thread until new developments w JEF.

 

Best.

 

You've said this twice in the past several hours.  :o

[Guest Hester]

modestly levered I-Bank

 

OoooooooooooK....13x is modestly levered...got it...LOL

 

What happens if the asset side of the ledger declines by only 8%?

 

OMG like I think part of the confusion is from the fact that like typically banks are much more levered than the average company and stuff. SOOOOOOOOO a bank like totally borrows money and then like lends it out at higher rates and junk. Whatevs. You can learn more about them here: http://www.businessdictionary.com/definition/bank.html

 

k bye

[Guest Hester]

Comparing an I-Bank to a company that sells technology that is no longer relevant isn't worthy of a response greater than, "no, that's stupid"  

 

Hilarious -- so funny...I spelled it out for you and you still don't get it...LOL

 

guided by "visionary" leaders and had phenomenal 15-20 year runs and then collapsed under the weight of a over-levered business model that didn't adjust to changes in industry economics

 

I wonder what company could fit that description -- possibly Kodak...:)  And guess who else fits -- Bear and Lehman...

 

Now let me make it more simple for you -- the challenge facing JEF is not unique in the history of business or specific to any industry...  The comparison was not to highlight the specific dynamics of a tech business model vs an IB business model -- LOL!!!

 

History is littered with companies that have had fabulous runs and then collapsed under the weight of a over-levered business model that didn't adjust to changes in industry economics.  Will JEF follow the same path? -- it's a risk but only time will tell... 

 

The example of Kodak, Lehman, and Bear simply drives home the point that Buffett has made on numerous occasions...look forward not backward (past peformance doesn't guarantee future results) -- really very simple.

 

And when someone accuses another of being "powerfully stupid" as a result of what turns out to be their own ignorance, their original thinking was usually clouded by emotion.  But I guess not in your case...

 

Your logic is that Kodak and Jeffries share 3 random traits and thus Jeffries is thus equal to Kodak, and will spend the next few years on a spiral down like Kodak has. Jeffries is a bank so their business model depends on the use of debt unlike Kodak which could be financed other ways. I-banking faces no technological obscolescence, the single driving force behind Kodak's demise. That fact makes the comparison extremely flawed at best.

 

Hey Enron had a leader, a lot of debt, and good stock returns at one point. Jeffries must be cooking the books too. Wow this is worse than you thought Munger.

 

Wait... Berkshire Hathaway also has debt, a visionary leader and good past returns. So DID KODAK. SO DID ENRON.

 

By your logic I guess Berkshire Hathaway is on a one way track to becoming an obsolete camera maker with bad accounting. Sell Jeffries and Berkshire immediatley because they both share three random traits with Kodak.

[Munger]

Your logic is that Kodak and Jeffries share 3 random traits and thus Jeffries is thus equal to Kodak, and will spend the next few years on a spiral down like Kodak has. Jeffries is a bank so their business model depends on the use of debt unlike Kodak which could be financed other ways. I-banking faces no technological obscolescence, the single driving force behind Kodak's demise. That fact makes the comparison extremely flawed at best.

 

Hey Enron had a leader, a lot of debt, and good stock returns at one point. Jeffries must be cooking the books too. Wow this is worse than you thought Munger.

 

Wait... Berkshire Hathaway also has debt, a visionary leader and good past returns. So DID KODAK. SO DID ENRON.

 

By your logic I guess Berkshire Hathaway is on a one way track to becoming an obsolete camera phone maker with bad accounting. Sell Jeffries and Berkshire immediatley because they both share three random traits with Kodak.

 

OMG like I think part of the confusion is from the fact that like typically banks are much more levered than the average company and stuff. SOOOOOOOOO a bank like totally borrows money and then like lends it out at higher rates and junk. Whatevs. You can learn more about them here:

 

 

 

You're right stahleyp -- but I want to be on the record when such insane posts are specifically directed my way. 

 

Here is my official response to the above -- he still can't comprehend...LOL -- literal truth as I read his post.  And he obviously doesn't know how to answer the very simple question -- what happens if the asset side of the ledger declines by only 8%?...which triggered another literal LOL as I read his "OMGs," "like totally," and "watevs"...so funny.

 

This is a forum to ecxhange opinion -- have fun with it...I do. 

 

 

 

 

 

 

 

[prevalou]

What happants if the asset side of the ledger declines by 8% can't be answered. It depends on the liabilities side too. The whole balance sheet must be considered.

[tombgrt]

I've never deemed one of tombgrt 381 prior posts worthy of a direct response -- certainly not going to start now.  Most recent post confirms what I concluded long ago -- his posts aren't even worth reading.  The whole notion that I have any interest in winning "creds" with him is just hilarious -- the height of silly self delusion...this is a message board.  So I would respectfully ask tombgrt that if you don't agree w my opinion, just ignore or do what I typically do to you -- don't even read. 

 

 

Haha, well I'm sorry if my newbie posts in my third language aren't worthy of your time and effort Munger but I won't lose sleep over it. At least I don't pretend to know things about certain subjects only to make oneself look ridiculously stupid explaining them to others with great certainty and arrogance. Yet I am the one with self-delusion issues.

 

The creds weren't for me but for the participants in this discussion and its overall quality. I couldn't care less about your person "Munger". Although I must admit you are a remarkable phenomenon.

[Kraven]

Here is my official response to the above -- he still can't comprehend...LOL -- literal truth as I read his post.  And he obviously doesn't know how to answer the very simple question -- what happens if the asset side of the ledger declines by only 8%?...which triggered another literal LOL as I read his "OMGs," "like totally," and "watevs"...so funny.

 

This is a forum to ecxhange opinion -- have fun with it...I do. 

 

 

Here is the part I don't understand.  You keep referring to the leverage, but as others have pointed out that's inherent in the model for financials.  All financials are levered.  Obviously you don't like that.  So it isn't a question of whether the asset side for JEF declines by 8% but whether the asset side of any financial declines by any similar amount.  JEF has pointed out repeatedly, and most recently yesterday, that their assets are of very high quality.  Assuming what they say is true and I think we have to given the nature of their communication, if the asset side of JEF declines by that amount we might as well kiss the financial system goodbye since other financials will be similarly situated at best and most probably not as well situated.

 

The annoying point of the post though is that you consistently raise these red flags as if you've divined some hidden risk no one else sees.  That's why a financial never is really worth more than a couple times book in the best of markets.  The risk of the balance sheet is taken into account.  These red flags can certainly be raised with any business.  What if no one shops anymore and decides to grow all their own food and make things at home?  I bet that would probably impact WMT, TGT, etc.  If just 5% of people decided to do it, it would really impact their sales.  What if no one uses technology anymore?  That would probably impact AAPL, MSFT, etc.  You think your issues raised are very insightful when all you've done is raised a basic point that anyone who invests in financials should already take into account.

 

But you probably won't respond to this since you aren't responding until there is new info on JEF.

[value-is-what-you-get]

So tThe asset side can only drop by 8% in a severe market selloff as the vast majority of assets are securities inventory.  In this scenario, and with an eye to value, I would expect the sharp minds running the show would use some of their 2 billion to buy more inventory on sale.  Also ROE would go up. 

[value-is-what-you-get]

My last post was a bit lazy.  Here is a more precise answer.  On 12/31/2007 Assets were 27907273.  On 12/31/2008 Assets were 17857414, a drop of 36% yoy.  On 12/31/2007 shareholder equity was 1761544.  On 12/31/2008 shareholder equity was 2121271, or an increase of 20.4%.  Assuming a linear realationship between a dexrease in JEF assets and an increase in their shareholder equity,  an 8% drop in their assets should produce 8/36*20=4.44% increase in shareholder equity.  So there's your answer Fear-Munger.

[coc]

 

OMG like I think part of the confusion is from the fact that like typically banks are much more levered than the average company and stuff. SOOOOOOOOO a bank like totally borrows money and then like lends it out at higher rates and junk. Whatevs. You can learn more about them here: http://www.businessdictionary.com/definition/bank.html

 

k bye

 

This post is very funny.

 

[AZ_Value]

;

 

OMG like I think part of the confusion is from the fact that like typically banks are much more levered than the average company and stuff. SOOOOOOOOO a bank like totally borrows money and then like lends it out at higher rates and junk. Whatevs. You can learn more about them here: http://www.businessdictionary.com/definition/bank.html

 

k bye

 

This post is very funny.

 

;D

[AZ_Value]

Munger, could you tell us if there is any circumstance under which you would consider a financial institution a good company to own?

 

Maybe that'll help clarify where exactly you're coming from because sometimes oftentimes you don't make much sense.

 

And if the answer is none and for you banks will always be highly levered black boxes and Jesus himself couldn't understand what is on their balance sheet, then no need to jump on all the threads relating to banks to repeat the same stuff, we got it.

[txlaw]

Looks like Egan-Jones has decided to double down on their call for JEF to raise equity and reduce their leverage ratio. 

 

http://www.bloomberg.com/news/2011-11-22/jefferies-should-raise-1b-in-equity-egan-jones.html

 

Meanwhile, Fox News reports that JEF is considering selling itself to a "bigger player."

 

http://www.foxbusiness.com/industries/2011/11/22/exclusive-jefferies-ceo-weighing-future-as-independent-firm/

 

The saga continues.

[Munger]

The Fox report confirms what I have asserted -- the JEF business model (as currently configured) is not sustainable.  Seems management has now realized.  The world has changed for investment banking -- back to reality.  13x is not "modestly" levered for an IB.

 

Will be interesting to see how JEF management plays out -- hopefully for current shareholders and employees, managemet acts rationally otherwise could be a disaster.

 

 

[philassor]

Looks like Egan-Jones has decided to double down on their call for JEF to raise equity and reduce their leverage ratio. 

 

http://www.bloomberg.com/news/2011-11-22/jefferies-should-raise-1b-in-equity-egan-jones.html

 

Meanwhile, Fox News reports that JEF is considering selling itself to a "bigger player."

 

http://www.foxbusiness.com/industries/2011/11/22/exclusive-jefferies-ceo-weighing-future-as-independent-firm/

 

The saga continues.

 

Hum, could the "asset management firm" rumored to be a potential acquirer be LUK ?  ;)

[stahleyp]

Buffett discusses JEF. He doesn't say much about it. Really just saying that it isn't big enough to buy.

 

http://www.valuewalk.com/2011/11/warren-buffett-spend-10b-investment/#.TsxkV7Ik67s