There was no Thursday note last week as after several weeks of contractors and noise the wife and I decided we had had enough. The youngest was in Ireland seeing her fathers family so we left my son with the dog and took off for the weekend. That pushed everything back a week and since I was not going to cut off subscriber updates, this mostly weekly epistle hit the cutting floor. We are not in a world where things are changing at the speed of light so missing a week here and there is probably not all that critical.

All you need to know about the markets is contained in the Private Equity earnings calls I have been covering for Real Money this week. Bill Conway the Co-CEO of Carlyle Group put it this way. He said “You have to evolve in our business. We're not changing a risk that we're willing to take. But in the current environment , which, who knows how long it will last, you know, maybe it's, as I said, maybe there's a time to sew and a time to reap. And right now is a pretty good time to reap, frankly.” KKR CFO Bill Janetschek put it this way telling investors “We like liquidity in this type of environment. To the extent that there's going to be dislocations, we want to have the ability to have that cash and take on those types of opportunities. Keep in mind cash is probably one of the best hedges you could possibly have." Scott Nuttall KKR's Global Capital and Asset Management Group added “"With patient capital and the added benefit of $38 billion of record dry powder, we feel well positioned to take advantage of opportunities that arise from this dislocation. In effect, when you have locked-up capital and a lot of dry powder to deploy, it's great news when assets get cheaper."

That’s what I see right now as well. There just not a lot of places to put cash to work. Community banks, a few special situation a few real estate related securities. Beyond that holding cash makes a lot of sense. It is not time to be flooding the market with our earned cash. I can promise you if Hetty Green was alive today she would be holed up in one for hidey holes collecting rents and avoiding tax collectors. She would not be anywhere near Wall Street. Mr. Womack is off taking care of his pigs and waiting to hear that Euphoria has risen to levels where he should consider driving to town and sell all those stocks he bought back in 2009.

The big news in community banking this week is that the KPMG 2016 Community and Regional bank Outlook is out. This year report is titled “A Matter of Momentum” finds that regional and community banks are well positioned to grow and learn from the past. The focus for Regional and Community banks in 2016 should be on kick-starting growth, improving management of regulatory risk, deciding whether they are going to be buyers or sellers in a fluid M&A market, and enabling the “branch of the future. Author John Depman is KPMGs leader of Regional and community banking and has 25 years’ experience with banking industry. He found in this years survey that “Only 8 percent of survey respondents believe a bank smaller than $1 billion in assets can survive. That size may vary depending on geography, but almost 5,400 of today’s banks fall below that asset size. In fact, there are still about 1,700 banks below $100 million in assets. Many fewer executives this year said they would “very likely’’ to be a buyer through mergers and acquisitions this year as compared to last year. Instead, many more told us this year that they are “somewhat likely’’ sellers than said so last year.”

Compliance costs remain a problem according to the survey. The report summary noted that “In addition, the continuing drain on banks from regulatory costs could be a reason for increased involvement in M&A. A full 47 percent of those executives polled said their regulatory costs represent between 11 and 20 percent of their total operating costs – up from 33 percent last year. "The need to absorb these costs over a larger asset base seems to be a driving factor in the interest in M&A that we have seen," said Depman.

David Seleski, CEO of Florida based Seacoast Bancorp (SGBC) talked about Florida M&A on his recent call. He told investors” New mergers. We are actively looking and I'm still extremely confident that we're going to get something done before the end of the year, at least announced. We really have kind of fine-tuned how we're looking at acquisitions, we're really only looking in-market deals where we are currently. We think that real value Stonegate is adding market share in individual markets were in, such as, right now we're number one or will be number one in the closed region in the Broward County. We would like to be number one or number two in some of the other markets that we're in as well and we think that makes us a very attractive franchise. We're also seeing that those economies of scale and just having that many much larger of a sales force in a particular county in a geographic area creates more opportunities for us and we're simply seeing that's where the growth is and that's where we're getting better margins. It just makes more sense for us. So while we'd love to be in Orlando and Jacksonville, I think the only way we'll enter those markets at this point is if we were to hire a de novo team and bring them over and then build that up to some extent down the road and then maybe capitalize on a merger down the road along those lines, but for right now, we're primarily focused in-market and we feel fairly confident we're going to get something done.”

I made the just buy them all call in Florida back in 2014 and to say it has worked out pretty well for us would be a massive understatement. There have been 22 bank deals in Florida since I made that call and we have participated as either a buyer or seller in most of those involving a publicly traded bank. Florida M&A has covered a lot of mistakes and paid for a lot of bad habit in the past two years. The opportunity is still there as there are still several banks on the hunt here and plenty of smaller banks considering a sale.

I have watched the two conventions every night (to the dismay of my wife and kids and delight of my alcohol vendor) and all I can say is what a mess we have created for ourselves. I found great amusement during the conventions by flipping between Fox News and CNBC. At times it seemed like they were covering two different events. As I watch the two parties put forth such poor candidates and then fall in line behind the ridiculous platforms they have both passed all I can think of is the warnings our founding fathers gave up about party politics. In his farewell address George Washington said “However political parties may now and then answer popular ends, they are likely in the course of time and things, to become potent engines, by which cunning, ambitious, and unprincipled men will be enabled to subvert the power of the people and to usurp for themselves the reins of government, destroying afterwards the very engines which have lifted them to unjust dominion.”

In 1795 he commented in a letter that he worried that party disputes would lead to a climate where victory by the part rather than the truth of the matter would be more important. He penned “Much indeed to be regretted, party disputes are now carried to such a length, and truth is so enveloped in mist and false representation, that it is extremely difficult to know through what channel to seek it. This difficulty to one, who is of no party, and whose sole wish is to pursue with undeviating steps a path which would lead this country to respectability, wealth, and happiness, is exceedingly to be lamented. But such, for wise purposes, it is presumed, is the turbulence of human passions in party disputes, when victory more than truth is the palm contended for.”

John Adams was not a fan either. He said in a letter to a friend “There is nothing which I dread so much as a division of the republic into two great parties, each arranged under its leader, and concerting measures in opposition to each other. This, in my humble apprehension, is to be dreaded as the greatest political evil under our Constitution.” There has to be a better way than this to select our leaders. I will also venture a guess that if the representatives of the Libertarian part and Green Party, both of whom are polling well, got on the debate stage the election would be a much tougher and far more interesting process.

Moving along from politics when we left the house last week the wife and I had no pre-selected destination. We merely headed south on Florida 17 right through the heart of rural Florida. My main takeaway was that while not much appears to be going on in the rural region of Florida cell phones and churches are real big. Every little town we drove though had locations for all the major brands of cell phones and there appeared to be about 1 church for every 100 or people. It was an enjoyable drive as I have never driven straight though the heart of the state though the rural area before and it was something of an eye opener as to how big the ag industry is here in Florida.

We ended up in Fort Myers Beach at the Holiday Court right in the middle of town. What a great little off beat hotel! We will stay there again and I would not hesitate to suggest the place to anyone looking to visit the town and beach. I also highly recommend the Fresh Catch Bistro where we had a spectacular meal overlooking the beach and I had the best Maryland Style steamed crabs of my life at Pinchers Crab House along the beach. Great visit in a great little town. Pretty cheap as well for a beach weekend.

We have run a bit astray this week with a touch of travelogue and a dash of politics but our position on the markets remains the same. Hold cash, buy little banks and special situations.

Cheers,

Tim

PS- Sometimes you just have to head off to

https://www.youtube.com/watch?v=kItD0LX7sg4