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Altisource Rising; Volcker's View: Best of Kass

Doug Kass

NEW YORK ( TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.

Among the posts this past week were entries about Altisource Portfolio Solutions and former Fed Chair Paul Volcker.

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Altisource Portfolio Solutions Still Soars
Originally published on Friday, Oct. 25 at 10:06 a.m. EDT.

I wanted to update Altisource Portfolio Solutions for those who are fortunate enough to still own this monster! (As I have often reminded myself, I mistakenly failed to re-establish my long position when the shares traded down to $70 months ago.)

Altisource reported a huge beat in revenue ($211 million, up 46% year over year) and profits (GAAP $1.42 a share, cash EPS $1.80 a share). Pretax margins leaped to 27%, leading to the earnings breakout, which was well above consensus).

The company repurchased 265,000 shares during the third quarter.

Over the next two quarters Altisource expects to board about 1,550 loans from Ocwen , mostly government-sponsored agency loans. The incremental fees earned on this (at a near-50% default servicing margin) coupled with other growth initiatives within the company and at Ocwen should produce revenue of $775 million in 2013 and $1.05 billion next year.

This will translate into approximately $6.20 a share in 2013 and over $10.25 a share in 2014.

The shares, which stood at around $15 a share in late 2009, now trade at near $150 -- adjusted for the Altisource Residential and Altisource Asset Management spinouts, it trades over $200.

By any measure, the stock has been a home run, and I appropriately termed it the stock of the decade in my diary and in my annual surprise list.

Here is a segment from Mad Money in which Jim "El Capitan" Cramer endorsed the idea when the shares were in the low $20s. (Well done, Jimmy!)

At the time of original publication, Kass was long RESI.

The World According to Paul Volcker
Originally published on Thursday, Oct. 24 at 10:24 a.m. EDT.

Brother Bank of America/Mother Merrill Lynch recently sponsored a lunch meeting with former Fed Chair Paul Volcker.

What follows is a summary of his comments. Volcker is typically someone who sees the glass half-full.

He is bearish on U.S. and worldwide economic growth, a skeptic of the Bank of Japan's current policy and increasingly concerned about the eurozone banking system.

  • world economic growth stuck at 2%
  • business investment has plateaued despite record profits / no special sauce for the economy
  • housing up but off a very low base
  • consumer is spending but at restrained levels / no wage growth for the past decade
  • loss of confidence (in the American political system)> low inflation / zero rates should be good for the economy
  • Japan may not be successful reflating their way out of a 20 year recession given the depths of their economic morass
  • Japan demographics contra to their ability to grow (oldest demographics in the world)
  • Europe slowly emerging from their recession
  • EU/Euro remains a good concept re: inability to devalue individual currencies
  • weak periphery European countries (PIIGS) benefited and capitalized on strength of UK and Germany bringing down the entire EU
  • a cohesive EU will take time/Germany cannot do it alone
  • pay attention to France / critical that the French remain relevent and strong
  • European banks remain weak
  • lack of global confidence remains the primary (global economic growth) gating factor
  • difficulty re: implementation of Volcker Rule / Dodd Frank / et al due to independent nature of individual banks
  • not happy about how US government currently functions / regulators missed the crisis / reconstruction moving too slowly
  • local government working more effectively/efficiently
  • too many Federal regulatory bodies
  • expect no great changes from Yellen
  • QE taper is not "life or death"
  • interest rates at zero is not a guarantee
  • Fed will act when appropriate based on data
  • U.S. remains best system globally/however emerging economies are not so willing to align with U.S. interests as they were 30 years ago.

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