Category Archives: Simmons First National

Thoughts on Gold

A reader says:
“There's a reason Gold is the hottest in the world.Investors are simply losing faith in ALL fiat currencies. Hence, they areturning to one thing that has always been real money - GOLD!”
Our Take:
We don’t know about the far distant future of gold,governments and profligate spending. However, we've always enjoyed a historical perspective on the topic of “realmoney.”  We’ve pulled a few quotes fromRichard Russell’s Dow Theory Letterson the topic of “real money” in the same vein as described above.
The US is on a treadmill to disaster via the creation ofdebt. In time (and the time is moving very rapidly now) the debt will destroyalmost ALL forms of investments. Gold will withstand the destruction, becausereal money is never destroyed.” 
Dow TheoryLetters.  Issue 736. August 7, 1978. Page5.
Coming up in a month, a year, a few years (I can’t time it)is the BIG PROBLEM, the problem that I’ve warned about for a long time. How doyou get people to hold paper “money” when they have increasing doubts about itsworth? The answer: you must make it CONVERTIBLE into real money-gold.”
Dow TheoryLetters.  Issue 766. September 26, 1979. Page1.
My job now seems to be to try to save my subscribers fromthe deceitfulness and greediness of our own Government. So I talk about thetechnical position of gold, of where WC are, of whether gold is still a buy andwhether it will take 900 or 1000 paper dollars to buy an ounce of real moneysay six months or maybe even three months from now." 
Dow Theory Letters.  Issue 774. January 16, 1980. Page 7.
‘How can the Government ever be bankrupt if it is able to createmoney?’ The answer is that the Government could only be bankrupt if no onewould accept that money. And of course, that possibility is the reason why manysurvivalists will ‘never be without some kind of a position in real money -gold.’” 
Dow Theory Letters. Issue 805.March 25, 1981. Page 3.
Why could gold be bullish? Two opposing reasons: first,with a potential crisis in the world monetary system, people turn to real moneyas an insurance policy. Gold is real money. Second. With unbearable deficits facingthe US over coming years, politicians will be tempted to ‘print’ (monetize)some of those deficits (and suppose Edward Kennedy gets in in ‘84).
Dow TheoryLetters. Issue 841. August 11, 1982. Page 6.
Now, we’re not suggesting that the ultimate consequence ofprofligate spending isn’t coming.  Additionally,we’ve made a call for a secular bull market (as opposed to a cyclical bullmarket) in gold on September28, 2010 and silver on September5, 2009 .  However, much of thearguments during and after the peak in the price of gold are the same as today. 
Additionally, nothing has changed that was said about profligatespending at the peak in the price of gold in 1980 or the period from 1981 to1999, a time when the price of gold was in a declining trend.  Therefore, we have little to help us distinguish the difference between huge government spending when gold is rising and when gold is falling.  We're sticking to the view that Dewey and Dakins' assertion that gold vacillates in a 50 to 54-year cycle is right on target (our 2009 review of their work here). 


We’re opting for the view that goldexperiences good times and bad rather than the view that our nation is comingto an end.  After all, the redemption ofour gold, as with all forms of insurance, is not something that we look forwardto.

Investment Observation: Simmons First National Corp (SFNC) at $26.65

For better or worse, we expect that regional financial crises will emerge as the dominant investment theme going forward. After having devastated our economy on a national basis, with the use of derivatives and residential real estate, the time has come for the old-fashion regional boom and busts of old.
With the secular trend towards inflation, as reflected in the rise in gold, silver and all other commodities, we should expect that farmland in the U.S. will ultimately take a parabolic trajectory. The gradual rise in prices of farmland by large investors will attract retail buyers. Unlike large investors, retail buyers of farmland will need to borrower heavily to participate in the speculation. Unfortunately, it will be because of the retail buyers that the boom will go to extremes. The chart below demonstrates the last farmland boom during a secular bull market in commodities.
Source: Richard Russell's Dow Theory Letters, http://www.dowtheoryletters.com/
On the way to a speculative surge and inevitable bust of the farmland boom, financial institutions will likely have to play a more significant role in financing it. To that end, we present a former Dividend Achiever that is currently on our Dividend watchlist, Simmons First National Corp (SFNC). Simmons First National is likely to become one of the many lending institutions that will play a role in financing the coming boom in commodities. From farmland to farm equipment, SFNC will definitely be in the mix. Unlike the banking institutions that will eventually arrive at the party, as an Arkansas bank, Simmons First National is already situated to play a contributing role.
Simmons has all the qualitative elements that a true value investor would want like falling only 20% in the period from 2007 to 2009 as compared to other regional banks as a group which fell over 70% as indicated by Standard & Poor’s Quantitative Stock Report dated April 8, 2011. SFNC has managed to keep the dividend at the same level since 2008 which is no small feat. Book value has increased 6.5% over the last 5 years.
Value Line Investment Survey dated March 11, 2011 indicates that SFNC has a high predictability in their earnings which have gained 3% in the last 5 years and while the last year of earnings have declined –9%. Investors should not confuse falling earnings with no earnings at all. Over emphasis of a companies declining earnings is often what creates value in the price of a stock for those unable to make this distinction.
Because SFNC has traded in a range between $20 and $30 since 2004, there is an implied element of value that has accrued in the shares. If nothing else, the management of SFNC has managed to dodge the banking crisis bullet and is now poised to participate in the coming boom in farmland as part of the bull market in commodities.

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