As part of our effort at T&T Capital Management (TTCM) to educate our clients on our positions, I wanted to provide a few quick updates.  Macy’s (M) is obviously a very well know and well run retail operation.  The 52-week range is $34.05-$73.61.  The stock has plummeted as retails sales have been a bit disappointing the last several quarters.  The most recent disappointment is due largely to the extremely warm weather experienced in the Northeast during the crucial Christmas sales period.  At TTCM, we sold puts at $40 and below that are expiring tomorrow.  For example, let’s say we sold a $38 put for $2.00 per option.  This would be a relatively short-term put.  If the stock is below $38 at expiration, we will own 100 shares at a breakeven price of $36.00 per share.  You take the strike price $38 and subtract the premium collected, which is $2.00 in this example.  On your account it would show that you bought it at $38, but on your gainskeeper and tax accounting you’d see your actual breakeven which is $36.  This means you will get the 3.8% dividend moving forward and all upside from $36.  Currently the stock is at $37.91 as I write.  Macy’s owns some of the most valuable mall real estate in the world, including its iconic store in Herald Square, which is one of the most valuable real estate properties in the world.  Through 3rd party valuations, Macy’s real estate is estimated to be worth $40 per share on its own.  The company’s normalized earnings power is between $3.82 per share and $4.25 per share currently.  It also owns a very valuable credit card business, which could be sold.  In this situation where we likely will get exercised, we have manufactured a cheaper entry price and now we get to own a stock we want to own at a great price.  Moving forward we will have the opportunity to sell covered calls.  Being long the stock gives us way more upside than if our options just expired worthless.  This is still a fairly small position for most but we’d look to add in a selloff.  Below is a report by Starboard (one of the most respected value driven hedge funds):


Unlocking Value at Macy’s – January 11th, 2016


In this severe market correction, just about all stocks have gotten killed and banks are no exception.  The problem is that the selloff has very little to do with the actual fundamentals of the businesses.  This is what creates tremendous opportunity.  While commodities being in a depression is bad for some areas of the economy, it is great for others.  So perhaps charge offs, might increase in the energy and mining segments, but the benefit to consumer balance sheets can outweigh that.   J.P. Morgan was the first bank to report earnings today and the numbers were very strong.  Net income was a record $24.44 billion for the year, or $6 per share.  In the 4th quarter net profit was $5.43 billion or $1.32 per share.  Unsurprisingly, the bank increased reserves for energy and mining credits, but it was nothing too significant and is pretax. Tangible book value grew in the quarter and will continue to grow.  JPM is a minor position in a few accounts, but we are much bigger in some of the other banks.  These banks have similar characteristics, will likely post similar type numbers, but are unbelievably cheaper from a valuation perspective.  They all have been aggressively cutting costs and adding capital.  A minor recession would be very manageable and even that is no sure thing that we will experience one.


JP Morgan Chase & Co. 4th Quarter 2015 Financial Results


Investing based on facts and fundamentals is what matters.  It is  one thing for a stock to decline, which is inevitable.  It is another when the decline is purely a mark to market issue and that is what creates opportunity.  Now a Facebook might be trading at 75 times earnings and drop to 65 times earnings, and still might not be a buy.  This is a big difference between individual securities.  The market as a whole isn’t a screaming buy, but these positions we are buying are incredibly obvious.  Probably the best opportunities since the founding of TTCM.  There are always those that panic, although that is thankfully rare for our clients.  Out of several hundred, we have probably had 2 people panic and sell over the last 18 months.  That is a great number in this industry.  I believe a big reason for that is because we are constantly focusing on educating and communicating.  I want you to know the things I’d want to know if I was in your position.  When stocks are expensive I’ll tell you and they aren’t that cheap now, nor are bonds.  But the stocks we are buying right now are so incredibly attractive that I can’t buy enough.  The great thing is, time will tell if we are right or not.  On energy, I didn’t expect prices to go as low as they did for as long.  That was a clear mistake that I am accountable for!  I still like energy long-term quite a bit, especially well financed companies like NOV and APA.  With that said, almost everybody missed on energy and it was a relatively small part of our portfolios.  I think we learned from that mistake but I couldn’t be more confident in the health of our major positions!