I was asked yesterday how I was faring during all the recent market craziness. I have ot confess I wasn’t really aware the markets had been crazy. I knew my screens were not showing anything new but I have had my nose in the stack of 13D filings most of the week looking for potential bargains. I slept most of yesterday afternoon as I had an endoscopy (I have had enough of various “oscopy” sessions to last awhile thank you) and the anesthesia takes a few hours to wear off in my case). I don’t spend a lot of time tracking day to day market movements anyway but I have been even less observant than most this week.

I decided to go look for myself at all this market craziness. After checking all the data I can only assume that my California based friend is making liberal use of that states latest legalized recreational activity. We are down less than 1% for the week and less than 2.5% for the month. We are only about 3% below all-time highs in the S&P 500 right now. The NASDAQ 100 is about 9% below the highs and down a whopping ½ of 1% on the week a down a little over 4% on the month. While not a raving positive it is not exactly a disaster either. Hopefully we are heading for a short term disaster soon but we aren’t there yet.

Looking over the media this past week everything is Donald, Hillary, Warren and Apple with a liberal dose of the Fed thrown in. It seems that a June hike is once again back on the table as the economic news has been encouraging according to the latest Fed minutes. At least that’s how the press has been framing it. Again an actual reading shows it to be a tad different. He Fed said in the release “In their discussion of the economic situation and the outlook, meeting participants agreed that the information received over the intermeeting period indicated that labor market conditions improved further even as growth in economic activity appeared to have slowed. Growth in household spending had moderated, although households' real income had risen at a solid rate and consumer sentiment remained high. Since the beginning of the year, the housing sector had improved further, but business fixed investment and net exports had been soft.” The whole thing read as better but not good to me.

The Fed is aggressively looking for reasons to raise rates but they are terrified of market reactions. It feels like a handful of large stock and bond traders have the Central bank hostage. In order to keep their lower for longer addiction fed they threaten to drag prices lower f the Fed dares to raise rates. The bond market seems to think we are going to see a hike as the TLT is off 1.6% this week as traders flee bonds. I have no idea what the Fed will do next month and I suspect it will be formed almost entirely by the next few news releases and the price action in the financial markets. It all strikes me a poor way to turn a country and economy but so far neither Janet nor Barack has consulted me on these matters. Given my long favorable record of suggesting that the economy is better but not good and that market prices would fluctuate perhaps they should.

My anecdotal read on all the 13F filings by my favored list of value and activist investors suggests that they were selling more than they were buying in the first quarter of the year. For every stock these price to value focused investors found to buy they were a seller of two or three more. This is consistent with my findings that there are not a lot of cheap stocks out there right now and as prices move higher more stocks are becoming overpriced and worthy of sale. I suspect cash stockpiles are growing at the value shops around the country due to a lack of bargain issues. I can think of no worse fate than to be a deep value shop right now that has a mandate to be fully invested. The exception here was the community banks stock specialists and activists where buying picked back up after a sluggish 4^th quarter.

Al Dominick the CEO of bank Director, recently commented on bank cybersecurity pratices. He wrote “However, with myriad opportunities to leverage new technologies comes significant risk, a fact not lost on the bank executives and board members who responded to Bank Director’s 2016 Risk Practices Survey, sponsored by FIS. For the second year running, they indicate that cybersecurity is their top risk concern. More respondents (34 percent) say their boards are reviewing cybersecurity at every board meeting, compared to 18 percent in last year’s survey, indicating an enhanced focus on cybersecurity oversight. Additionally, more banks are now employing a chief information security officer (CISO), who is responsible for day-to-day management of cybersecurity. However, the survey results also reveal that many banks still aren’t doing enough to protect themselves—and their customers. Less than 20 percent of respondents say their bank has experienced a data breach, but those who do are just as likely to represent a small institution as a large one, further proof that cybersecurity can no longer be discussed as only a “big bank” concern.”

I find this of great interest for two reasons. First and foremost cybersecurity costs and issues are going to be yet another reason smaller banks need to seek merger partners. Cybersecurity is expensive and the attacks will be never ending. The minute one threat it is killed off the developers are busy writing code for 2 two attack programs. The reputational damage from one successful attack can be devastating to a smaller financial institution and this will be the cost straw that break many backs out there in the community bank world. That’s bad news for them but great news for us as investors who by quality small banks at a discount to book value and look to sell at a premium in a takeover.

It also great news for Unisys (UIS), a special situation holding that I think can return several multiples of the current quote over the next few years. Their Stealth cybersecurity product should sell very well in the commercial bank market and I expect it to be a chief driver of growth over the next decade for the old line tech company.

I am off to Dallas this weekend to attend the Bank Director Growing the Bank conference. I haven’t been to the Big D in years and am looking forward to the trip. The Angels are in town and I may try to sneak a trip to the stadium and watch Mike Trout and his squad battle the hometown Rangers.

That’s all for this week. Have a fantastic week and quit worrying about the minute and minute and day to day market gyrations. Let time, value and common sense do all the heavy lifting for you.

Tim

In Honor of the great songwriter Guy Clark, who passed away this week, lets try to ignore the short term noise and focus on

https://www.youtube.com/watch?v=lgCyXw2EWuA&index=6&list=PLNSGbX4hylMBqM7CjKFfsX0rO_Tp4DsBt in markets and in life