Dear Friends and Investors -
I am pleased to report outstanding investment results, and I would like to thank all of you for trusting the future with me as the Financial Crisis fades from memory. Led by Blue Chips, Big Technology, and especially our holdings in General Motors, MWS Capital equity accounts surged 6.5% in the 1st quarter. My goal is great investments, not beating the markets, but of course I am proud that we beat the Dow, the S&P 500, and the NASDAQ yet again. From here we can look for the recovery to take hold, and with the latest jobs report, it is clear that the Recession has also ended.
My point about continued appreciation is that an investor in a stock such as American Express or Intel will get his entire investment repaid in earnings within this decade. This is the best investment situation I have seen since I began to follow the markets nearly 20 years ago. Like a mortgage being paid off, these stocks will be owned forever free and clear. I took advantage of my confidence earlier this year to buy beaten down Citigroup at $3.50 because of its financial leverage over the inevitable recovery of the whole economy. Now at $4.50, and up 28%, I think Citigroup is easily worth $7.50.
Our investment in distressed General Motors debt has been even more rewarding. We bought these bonds at ten cents on the dollar a year ago in the depth of the Financial Crisis, and they have more than tripled to thirty five cents. As I explained then, GM was too big to fail, the Government would provide financing, and GM’s core brands were a valuable and enduring asset. The value of GM’s bonds’ stake was just $2.5 billion at the time, in an enterprise that could be worth $75 billion, and I estimated bondholders would get about a third of the equity in a GM newly formed with Government aid. We got about 25%-- and in comparison to Ford, this values our debt at about forty three cents, with room to move far higher as GM and Ford fully recover along with an invigorated US car market.
Going forward, I recognize that a big concern for many is the unprecedented debt issued by the Treasury as a consequence of the Financial Crisis. In my opinion, this creation of money in the form of Treasury debt will, like the Gold Rush, provide the currency for growth in the future, and not the inflation that some investors fear. In this scenario, real growth will absorb the debt created during the Financial Crisis. I believe we are finally embarking on a period of solid growth with high productivity that was the promise of the Internet Age when the Dow first reached 11,000 eleven years ago.
Matthew Shapiro, President, MWS Capital |
