I have found over the years that when private equity speaks it makes a lot of sense to listen. This week both Apollo (APO) and Carlisle (CG) reported earnings and they had a lot to say. First they are holding a lot of cash. According to a WSJ article this morning “Carlyle said it has a record $62.8 billion of so-called dry powder. Blackstone has $82 billion to invest across its four business lines, which include hedge funds and debt investing. The Private Equity Growth Capital Council said Wednesday that $487 billion of uncommitted cash has backed up in private-equity funds alone. “ As I pointed out last week Blackstone has something on the order of $82 billion in uncalled cash. Opportunities are limited and valuations are high so it just make sense to let the cash pile up right now.

Bill Conway the C0-CEO of Carlisle was asked about his company’s slow pace in putting money to work on the conference call and he said “There are several factors driving this year's cautious investment pace. Most importantly, we think prices in many asset classes are high. Our caution is further driven by uncertainties in Greece, fluctuations in the Chinese stock markets, continued high levels of leverage, and the significant movement in energy prices. Also, with corporations struggling to find growth, they have turned to M&A to meet revenue targets, while private equity activity has remained relatively muted. We believe current conditions will serve as catalysts for the next round of buying opportunities. And while we cannot predict when or how these opportunities will present themselves, the breadth of our platform and our dry powder positions us to take advantage when the time comes.” During the Q&A session he was even blunter about investment conditions right now. He said “It's clearly an easier time to sell than it is to buy.”

According to the WSJ article “All told, Carlyle reaped $5.8 billion selling, while investing $1.6 billion in new deals, the greatest spread, in dollar terms, between sales and investments since the firm went public in May 2012.” It was about the same at Blackstone as the article said that “At Blackstone, which reported second-quarter results earlier this month, total invested cash dipped to $1.2 billion, from $2.2 billion during the same period a year earlier. Selling, however, remained robust at the world’s largest private-equity firm, which reaped $8.7 billion divesting real estate and private-equity assets.” It is a far better time to be a seller in most sectors and assets and that’s what the small banks are doing right now.

Apollo does see some opportunity in mid-market and real estate lending. Head of Global Credit at Apollo Jim Zelter was even kind enough to give us some stock tips on how to profit in the sector. He said “Certainly it's been alluded to in the call earlier, but real estate -- the way to plate real estate in an overvalued market or a in highly valued market is to do more debt and structured solutions. We've done that through Apollo Commercial Real Estate Finance (ARI), and certainly, we believe that, that's going to steadily grow and create a variety of opportunities for -- and that team not only supplies product for that vehicle, but also for Athene, as well, on their balance sheet. And finally, AINV, which is the BDC, that continues in a marketplace where certainly permanent capital vehicles in the credit space are few and far between. Now saying, where the book value -- that stock is trading to book value, we still believe there's nice steady growth opportunities in that vehicle, as well.” We own both of those in the Value and Income portfolios and are glad to see management likes them as much as we do.

The real opportunity in today market remain the community bank stocks. I had a chance to catch up with the CEO of Sunshine Bancorp (SBCP) this week. When I asked Andrew Samuel if consolidation would continue he told me that it would indeed and especially here in Florida. He pointed out that there were about 170 banks in Florida and most of them were very small community banks and the only way for them to deal with the cost of regulatory compliance was going to be to partner up. He believes there will be continued consolidation. He says it has to happen as the regulatory pressure is just too much for the little banks and achieving greater scale in the only way to deal with it.

This a huge opportunity for us as individual investors and I am flabbergasted that more people are not involved. You should be in this sector unless you have an allegoric reaction to profts. In two years we have picked more tham60 stocks and only one is down. We have been involved in 15 takeovers and the average return on our closed stock positions is about 60%. Banking on profits is handily beating the market. You can click here to join Banking on profits and get in on the best opportunity in todays market.

Have a great week everyone

Tim

PS Why Do I Buy Small Bank Stocks ? Because I like the way https://www.youtube.com/watch?v=2lqdErI9uss&list=PLSt4XakWFmhF6IJ_dHQGlbawdyyhyizHy&index=11