Our Blog

US Banks – Why the Malaise?

US Banks – Why the malaise?

Bank BuildingBy Jean Rosenbaum, CFA and Portfolio Manager, Hotaling Investment Management, LLC 

Banks are a key component in the economic jig saw puzzle. They make up between 6-8% of the S&P 500 and roughly half of the financial sector of the index. Banks as a whole have modestly underperformed the S&P 500 for the last two years. The industry continues to struggle with the “pricing” environment. The low interest rate environment, coupled with ample liquidity, has led to ever lower rates banks can charge for loans and earn on their securities. While loans continue to grow, the revenue line for banks has been almost stagnant as the price they can charge continues to decline.

Banks have been able to grow earnings in this weak top line environment through an improvement in credit quality. Following the financial crisis, banks significantly increased their loan loss reserves. In the subsequent years, as defaults (or net charge offs) came in lower than initially anticipated, banks have been able to reduce their reserves providing a tailwind for earnings. Loan loss reserves are now approaching previous lows, so this improvement appears to be ending, or at least slowing.

The next driver of earnings for the industry may be operating expense control. Many banks have been experiencing cost growth ahead of revenue growth due in part to additional regulatory expenses. The banks have also been reluctant to limit their branch networks. However, with earnings drivers limited, it appears that some management teams have begun to take action. Going forward, physical infrastructure (a bank on every street corner) is likely to be replaced by more digital infrastructure at an accelerating pace.

Many bank management teams have been hoping for a Fed rate increase and a steeper yield curve, but the ability to wait may be coming to an end. The recently announced hiring and wage growth data was nothing short of robust. This may give the Federal Reserve the impetus to raise rates later this year, and potentially offer some relief to the banking sector.

Financial Market Issues Explained – In Plain English



Financial Market Issues Explained – In Plain English

By Jean Rosenbaum, CFA and Portfolio Manager, Hotaling Investment Management, LLC


Why have the financial markets sold off so sharply recently? The Yuan devaluation seemed small.

The recent sharp decline in the S&P 500 was sparked by the devaluation of the Chinese Yuan. While the amount of the move in percentage terms has not been large, it has clearly destabilized some financial strategies, causing a broad sell off. Many investors had been confident the Yuan would remain stable or appreciate, but it has done the opposite!

The devaluation of the Yuan is the symptom of a bigger problem that began with the end of the Global Financial Crisis (GFC). To deal with the problems of the GFC, central banks, beginning with the Fed, lowered interest rates which caused a weakening of the currency. The low interest rates in the developed world, made the higher rates in the Emerging Markets (Malaysia, Indonesia, Turkey, Brazil, etc.) much more attractive, encouraging capital to move into the Emerging Markets. The influx of capital fueled the growth of EM, but has also left them with a big build up in external debt, denominated in foreign currency. 

Debt denominated in another currency is only a problem when the local currency weakens relative to the currency in which the debt is denominated. Unfortunately, this is the situation that many Emerging Markets now find themselves in as their local currencies have depreciated relative to the value of the debt which is priced in U.S. dollars, Euros or Yen. 

As the Chinese have watched their customers’ currencies weaken, their economy has suffered as well. To remain competitive and to move to make the Yuan more freely tradeable, the Chinese officials have weakened the currency. It is possible the currency weakens further if the GDP growth does not reach their targets.

Our main focus is investing in the stocks of U.S. companies.  Our expectations hinge on factors much closer to home than China.  Just the same, the global economy today influences investors who also invest in U.S. stocks.  When trouble brews, it’s common for various asset classes to begin to behave similarly, until the smoke begins to clear.





Maratona dles Dolomites, Summer 2015

Maratona dles Dolomites, Summer 2015                                                                                                             Maratona








Earlier this summer I was fortunate enough to be able to spend some time with my friends from InGamba at the beautiful La Perla hotel in the South Tirol. On the agenda was a race that takes place each year called the Maratona. It’s referred to as a grand fondo, but any time you put a number on a cyclist’s back and start a clock, it’s a race.

The Maratona starts in the postcard village of Corvara. The locals speak Ladin and have lived sandwiched between the Austrians and Italians for generations. The course is 138km long with over 4,000m of climbing and crosses some of the most iconic passes visited by the Giro d’Italia.

Helicopters hover over the 9,000 riders at the starting providing live television coverage. The vast throng of riders is overwhelming and I know I’ve never seen so many avid and fit cyclists at a start line in my life. Ascending the 33 hair pin turns of the Passo Pordoi from Arabba, there is a mesmerizing line of riders as far as the eye can see. At the ski station at the top, snow pockets line the northern aspects of the mountains. The massive glacier the Marmolada looms in the background.

The Passo Giau is the highest point of the ride (figuratively and in fact). It circles mercilessly at an average 9% grade up around the spectacular Cinque Terre just above Cortina d’ampezzo. The Giau sits atop meadows with bell collared cows, jagged vistas, and switch-back turns. It ends with a somewhat sparky kicker over the Flazarego/Valparola, where there stands the Tre Sassi Fort, an open air museum exhibiting relics of the First World War.

At the finish line, with a big smile and tired legs, there is an immense feeling of gratification. One has to spend a fair bit of time on a bicycle in the first place to even attempt a ride such as the Miratona. Reviewing the day with my friends from InGamba over a glass of Alto Adige Lagrein, we compared notes on crashes (and near misses), wind lashed descents and how the pain suddenly disappears the moment you summit. All riders in our group had their own successes.

There are many daunting challenges to be found in Europe on a bicycle such as the Ronde van Vlaanderen Cyclo in Belgium, Quebrantahuesos in Spain and the La Marmotte in France. Italy is one of the world’s most alluring places and there is something so compelling about the Dolomites that I’m quite sure I’ll pack my bags and head back next year for an encore. If you have been itching for a challenge, and some fun on a bicycle, I suggest you check in with my friends at InGamba: http://ingamba.pro/



La Pina – July 2014



La Pina – July 2014

 La pina photo

Pinarello is an Italian bicycle manufacturer founded by Giovanni Pinarello in Treviso Italy in the early 1950’s.  The brand has enjoyed huge success in the professional peloton. Today, son Fausto (pictured above with Sir Bradley Wiggins, and Miguel Indurain) is the company’s ambassador to the cycling community.    

Each year, Pinarello sponsors a Grand Fondo, (also known as a cyclosportive) which has been popular in Italy since the early 1900’s.  La Pina is a challenging timed course across the Veneto and then up over the Treviso Alps with two category 1 climbs.

LaPina JPG (800x593)

 We rode through the narrow streets of Treviso for the 7:45 am start and the forecast was for rain throughout the day.  With over 1,000 entrants, it took our group from InGamba (www.ingamba.pro) a few minutes to reach the start line.  A few of us (Chris, Mark and Danny) were planning on riding the Lungo, while others were going to tackle the slightly less daunting Medio.  We more or less stayed together, moving up through the swarms of riders.  The road was a sea of 60-70 rider pelotons.  For 30 km we leap frogged up the road from group to group at a ferocious pace.  

By the time we turned off the main road toward the first hills, the roads narrowed and thankfully the crowds thinned.  The short steep climbs on the narrow roads (paved cart paths) were challenging, and no one seemed to be settling into a pace, we were going full gas, up the hills and down.  

After the medium and long routes split, the long route went up, in a big way.  The Passo Praderadego is not to be taken lightly.  The climb, roughly 14 km, is a maze of switchbacks.  The roads were not regularly traveled and shrouded in trees, making them mossy and slippery.  The constant climb reached grades of up to 18%, which made for 720 vertical meters of tough climbing.  At the top, Chris was never to be seen again (until the finish).  Danny, Mark and I bellied up to the table with Coca-Cola to re-fuel.  Mark immediately bolted, my final clue this was no Sunday jaunt – it was everyone for themselves and the no-waiting rule was in effect. 

The descent was steep and cold.  Even though the rains never came, we had gained a lot of altitude.  Danny and I rode with a small group of riders we had cobbled together, across the Valle di Schievenin, a valley floor.  Before long, we began to wind our way back up into the foothills.  We sliced through several small villages and suddenly were at the base of Monte Tomba.  This climb rose 540 vertical meters, and while it wasn’t as high, it was every bit as steep.  I found myself looking down at my gears wishing I had another sprocket or two on my rear cassette.  

At the top, I was exhausted, soaking wet and sick of climbing, but I got with the program and did not sit around eating sandwiches.  A quick Coca-Cola from Jose and the InGamba support van and boom, I was straight onto the super fast and technical descent.   When I came out of the switchbacks, the speeds were unbelievable.  Curiously, there were also not many riders around.  By the time I hit the main road at the bottom a group of 20 or so appeared out of nowhere.  We organized ourselves into a paceline, and began picking up stragglers as we raced on toward Treviso and an ice-cold beer.  

Not having studied the route carefully (beyond the two monster climbs) I didn’t process the last little “bump” we had to cross, the Santa Maria delle Vittorie, before the final 20km run into Treviso.  This was a test, as my legs and back were aching and begging to get off the bike.  As we powered down off the back of the Santa Maria, some of the remnants of our prior group reformed.  My legs were cramping and I couldn’t accelerate as fast as some in our group wanted, prompting a good old fashion Italian tongue lashing.  I countered with the peace sign, knowing my legs were close, but not done yet.  

We came onto the canal lined streets surrounding Treviso and flew under the city torre and the finishing banners.  According to my Garmin, I had been riding for 5:58.  I’d covered 171km and climbed 2,264 meters.  It turns out my friend Chris had finished in 5:15, and my long-time cycling hero, Miguel Indurain had stopped the clock at 5:45.  I was quite pleased to have handled La Pina at all and to have kept my time somewhere in the ballpark.  Of course, my official timing chip does not agree with my Garmin, giving me a more modest time of 6:08 on the day. 

We all enjoyed a cold beer and some “big fish” stories in the finish area and met up with some of the other InGamba riders.  One of them, Rudi Napolitano, won the Medio in just under 3 hours and an average pace of 40.5km per hour, an absolutely blistering pace.   Then it was off for a hot shower and probably the very best aspect of any InGamba ride, a post ride massage from soigneur Raul.  That evening, my wife Bibbi and I settled into a canal side table at Ristorante Enoteca Odeon La Colonna for the perfect Italian meal.  We opened a bottle of the local Valpolicella and celebrated the extraordinary culture of cycling in Italy, La Pina, and our first visit to the beautiful Veneto region.




ICYMI – Bike Month

Get on your bike and ride!

Get on your bike and ride!

In case you missed it (ICYMI), May is National Bike Month. The idea is to showcase cycling of many forms in varying communities around the country, with the goal of inspiring even more people to get pedaling.

Manayunk just staged the second edition of the Parx Casino Philly Cycling Classic, one of the more prestigious professional cycling races held in the U.S. Kiel Reijnen and Evelyn Stevens won the men’s and women’s races respectively, both for the second year in a row. Anyone that spent that Sunday afternoon on the Manayunk Wall will tell you, it was exciting.

Cycling and commerce have deeply shared roots. For example, Italian cycling legends Fausto Coppi and Felice Gimondi both began their cycling careers by delivering meat, and mail, on their bicycles.

Closer to home, Wash Cycle Laundry (washcyclelaundry.com), started by Gabriel Mandujano in Philadlepha, picks up and delivers laundry by bicycle. Gabe has recently expanded to Washington DC.

Philadelphia-based nonprofit Gearing Up (gearing-up.org), founded by Kristin Gavin works with women transitioning from rehab or incarceration. The philosophy of the organization is to stimulate improved self-esteem, encourage a sense of release and offer positive new direction via the cycling experience and the human connections formed through that shared experience.

According to the Inquirer, Philly bike-share will launch in the Spring of 2015, elevating Philadelphia’s reputation among the country’s more cycling friendly cities.

A recent study of cycling trends shows strong ridership growth in key cities (think Portland, OR) where bicycle infrastructure has been installed. For the period 2001 to 2009, ridership has grown most among males ages 25 to 64, while popularity has actually fallen in children. (“Bicycling renaissance in North America? An update and re-appraisal of cycling trends and policies,” John Pucher, Ralph Buehler and Mark Seinen.)

This trend might be addressed through programs such as Philly’s Neighborhood Bike Works Earn-A-Bike program. This inspiring program allows children to learn bike repair and maintenance, and much more, while earning their very own bike. (neighborhoodbikeworks.org)

Pedaling a bicycle is many things to many people. At once healthy, environmentally friendly and economically sensible, it’s more than that. So, in case you missed it, why not dust off your bicycle, pull it out of the garage and pump those tires, to head out for a ride?