Tuesday, March 14, 2023

First Republic; Mike Burry on the banking crisis; This Department-Store Stock Has Trounced Apple, Amazon, and Tesla; I visited the Babi Yar Holocaust Memorial

By Whitney Tilson

1) In yesterday's e-mail, after discussing the banking crisis, I concluded that "the entire banking sector is taking a hit... so I think it's time to start looking for babies thrown out with the bathwater," and mentioned Wells Fargo (WFC) and First Republic Bank (FRC), writing:

A higher-risk, higher-reward idea I'm exploring is First Republic, which I've been banking with both personally and professionally for more than a decade. It's a first-rate institution with an excellent franchise, yet its stock was down more than 75% this morning.

Well, apparently there was some trouble buying the stock yesterday...

For example, it seems that TD Ameritrade (AMTD) – to protect its customers – wasn't allowing market orders on such a volatile stock... which was the right thing to do. As you can see in this chart of yesterday's price action, FRC hit a low of $17.53 in the morning and then, only four hours later, hit an intra-day peak of $42 – a staggering 140% increase – before closing at $31.21:

To get around this, you would have had to enter a buy order as a limit order and it likely would have gone through no problem.

FRC shares are up more than 50% today... so it's a good lesson to make sure to read the fine print when trading volatile stocks!

2) I want to repeat what I wrote yesterday:

The most important thing that the average investor needs to understand is that this is nothing like 2008, when the combination of a massive housing bubble, on- and off-balance sheet leverage, and widespread fraud created the biggest financial bubble in history. When it burst, it brought the world to its knees and required every existing – and many new – tools of the U.S. government to stabilize the situation.

Today, our banking system and economy are healthy, and there is no reason why the idiosyncratic problems of a few stupid banks – most notably, tech startup banker SVB Financial's (SIVB) Silicon Valley Bank and crypto bank Silvergate Capital (SI) – should create a systemic problem.

My old friend Mike Burry, made famous in the book and movie The Big Short, agrees:

3) I have been following retailer Dillard's (DDS) for years, but never pulled the trigger on it...

It was a costly miss for me, as this recent Wall Street Journal article highlights: This Department-Store Stock Has Trounced Apple, Amazon, and Tesla. Excerpt:

One of the best-performing stocks of the past few years isn't a tech giant or a highflying startup. Instead, it is a family-run department-store chain that doesn't have a wide following on Wall Street.

Shares in Dillard's have soared more than 1,500% since April 2020. The company's market value is similar to that of Macy's, even though Dillard's has less than a third of Macy's annual revenue.

The Little Rock, Ark., retailer has about 280 stores, most of which are in the South, and is one of the few department-store chains still run by its founding family.

The chief executive and president – both sons of the company's founder – visit stores weekly and know down to the item what is selling best in each location, people who have worked with them said. They have an old-school shopkeeper mentality that combines smart merchandising with shrewd financial management, according to the people and analysts.

The Dillard family has instilled a sense of loyalty among staff, many of whom have been with the company for decades. Employees are encouraged to give customers personalized attention, which in turn keeps shoppers coming back, the people said.

Dillard's management has been criticized for not embracing changes. In some ways, that steadfastness has benefited the company. The retailer hasn't chased growth the way some of its peers did by opening hundreds of stores that later had to be closed.

It also didn't buy internet startups and resisted prodding from investors to generate cash by selling its real estate. Dillard's owns the majority of its stores, which bolsters its balance sheet by keeping lease payments and debt to a minimum. More recently, it avoided a product glut weighing on other chains.

4) I've studied the Holocaust in great depth, in part because my wife, daughters, and many of my closest friends are Jewish. My family and I have been members of Central Synagogue, New York City's oldest Jewish congregation, for more than 20 years.

So when I was in Kyiv, Ukraine on Saturday, I took the opportunity to visit the Babi Yar (also spelled Babyn Yar) Holocaust Memorial, where 33,771 Jews – nearly the entire Jewish population of the city – were murdered in two days on September 29 and September 30, 1941 in the ravine behind me in this picture. It was very emotional for me, as you can see in this video I filmed.

Best regards,


P.S. I welcome your feedback at [email protected].