Tim Pagliara Expert On The GSE Debate Talks Fannie Mae Reform

ValueWalk’s Raul Panganiban interviews Tim Pagliara, Founder, Chairman and CIO of CapWealth group and Grant Stark, CFA, is director of research at CapWealth Group. In today’s episode we discuss the potential solution for GSE reform.

Q4 2019 hedge fund letters, conferences and more

Interview with Tim Pagliara and Grant Stark

Transcript

Raul Panganiban: Hello podcast listeners. Today is a very special episode with Tim Pagliara, founder and chairman and CIO of CapWealth Group. Tim is named as number one in Tennessee on Forbes, best and state wealth Advisors for 2020. He brings over 30 years of experience. He earned his undergraduate at St. Louis University and his law degree from St. Louis University School of Law. Grant Stark, CFA is director of research at cap wealth group. Before joining CapWealth Group. He served as CEO of V Mac holdings, and served as a senior investment research analysts at Fairholme Capital Management. Grant earned his Bachelor of Science and finance from the University of Miami. In today’s episode, we discuss GSE and the current state. I want to welcome both Tim and Grant to the show, and I want to welcome all listeners to a very special episode.

Raul Panganiban: Hello, podcast listeners. This podcast is sponsored by the Hidden Value Stocks newsletter, publish once a quarter. The Hidden Value Stocks newsletter contains at least two interviews with up and coming hedge fund managers and their top two favourite investment ideas. Each newsletter subscriber not only receives a detailed investment thesis on each idea, but we will also provide direct access to the funds profile as well as their quarterly updates. We are proud to report that the average annualised return of all 60 stocks profile in Hidden Value Stocks since inception is 27.9% within average holding period of 319 days. To download a 10 page teaser issue or sign up for a five day free trial, head over to HiddenValueStocks.com. Podcast listeners can get 35% off the annual subscription price with the discount code VIP19.

Unknown Speaker: Welcome to value talk with Raul.

Raul Panganiban: Just wanted to welcome our listeners to a very special episode. I have Tim Pagliara founder chairman and CIO of CapWealth Group and Grant Stark, CFA, Director of Research at CapWealth group. And I also have Michelle Jones from VaueWalk. Here also So Michelle, Tim and grant, welcome to the show.

Tim Pagliara: Good morning.

Michelle Jones: Hello.

Grant Stark: Thank you for having us.

Michelle Jones: Yes, thank you.

Raul Panganiban: All right. Yeah, if we can just quickly just begin with your backgrounds.

Tim Pagliara: Well CapWealth is a registered investment advisory firm we work with individual investors, in helping them solve their goals and objectives. We currently managed a little over a billion dollars on a discretionary basis. I’ve been in the industry 38 years. My background is in legal and financial. I’m an attorney with some, you know, significant amount of financial training. And I started the firm over 20 years ago. And Grant, Grant to give them your background, you’ve got a really unique set of qualifications also to speak to this audience this morning.

Grant Stark: Yes. So, you know, I think what the focus on the GSEs today, I will start there, I worked at Fairholme capital for a little over 9 years. And we certainly had taken the lead and Fairholme still does on a significant portion of the preferred and common stock of the GSEs. I was heavily involved in the process from the beginning of sort of sourcing that idea and going through litigation between the Treasury department and also crafting some policy that we had proposed in 2013, 2014 timeframe to purchase the GSEs with a consortium of other investors. So my background is a generalist analysts to begin with. I also spent a few years in private equity more recently building up a business in New York, which is still operating. And I’ve taken a passive ownership interest in that now and this opportunity to work with Tim more closely on both his investments and the GSEs is absolutely a no brainer. And it’s a perfect fit for both of us. So that’s what brought me to cap wealth this year.

Raul Panganiban: All right. Yeah. The topic of conversation will be the GSE. But before we do that, I just wanted to get your general thoughts on the current environment and what has been going on. And there’s a interview with Ben Bernanke. He said something interesting last night this past Wednesday. When he said he was asked if it was similar to the financial crisis back then in ’09, and he said that was when the financial system collapse and causing damages to the real economy versus now where the virus is shutting down the economy causing a strain on the financial system. So just wondering your general thoughts first on the current environment.

Tim Pagliara: Well, that’s a really good way to start. Because I think what distinguishes this from 2008 2008 was about credit. And this is about liquidity. Every financial system and that’s what we have in this country. We’ve created a financial system over the last hundred years that it relies on credit. And the banking system relies on credit and, and and leverage. And what distinguishes this is that, you know, credit is essentially fine Right now it will deteriorate a little bit with the shutdown of businesses. But it’s, it’s the liquidity and the, our system functions very, very well except in these times of crisis, we have a very pro cyclical model, meaning that in a time of crisis when people need cash, and they D leverage, there’s got to be somebody out there to buy these assets. And whether it’s mortgage backed securities or municipal debt or corporate bonds, or whatever what you have seen in the last couple of weeks, that’s the largest, counter cyclical moment in the nation’s financial history that comes as a response to the history that we have with crisis and how we deal with them. And so the Federal Reserve, for example, is buying billions of dollars of mortgage backed securities, they’re buying billions of dollars of other assets. assets in the debt markets on a daily basis to help provide that liquidity that everybody needs right now, in this crisis and only the federal government has the liquidity capability. They have the balance sheet necessary to handle this. I remember it was in an earlier interview that I had with Michelle. This is why Fannie Mae was created, it was created to provide a counter cyclical balance to the pro cyclical nature of the design of our financial system. Fannie Mae and Freddie Mac have provided that liquidity they buy mortgages. They, they they bought mortgages in the, in the economic downturn of the 20s and, and 30s and, and provided a source of liquidity for the banks at the same time. The 30 year mortgage was created and that’s how People kept staying in their homes. Right now we’ve got we’ve got problems with that some things that have happened that are counterintuitive. Counterintuitive, as you and I kind of talked before we started this interview.