Seeking Alpha

Alex Cho

View as an RSS Feed
View Alex Cho's Comments BY TICKER:
Latest comments  |  Highest rated
  • Perspectives On Friday's Sell Off [View article]
    Hey guys earlier in the day I gave out a stock talk for $SPY. Granted, I told you all that this looked to be a pretty severe correction.

    In standard technical analysis theory the worst kind of candle stick is the bearish engulfing pattern. Remember, a bearish engulfing pattern is a signal that the session opened high, and continued to trend lower for the entire session. Markets that cannot find support and continues to break below levels is indicative of a broader change in sentiment.
    Notice, how the VXX shot up today (I'm long VXX). I figured that the downward momentum was strong enough so that in fact it could be a precursor to further losses. Following a bearish engulfing pattern, you'll notice that a continuation of this pattern is very, very, very common in bear markets.

    This is because markets sell in a short period of time. I notice that the writer of this article pointed to periods that were only marked up to a year. Others make similar mistakes thinking about the stock market in terms of current time frame. But, if you remember (Long Term Capital Management) those guys out performed the market using an algorithm that assumed volatility would be about the same as it was for the past five years. They went bankrupt.

    Therefore, what you really have to watch out for on high volatility days isn't the past 6 months. You have to look at signals that are indicative of something much, much, bigger. We haven't seen stock trend like this in a while. A give back is a duh, we're at the end of major earnings season. Now I cover technology and financials. I haven't written much about the financial sector in the past quarter. Granted, I'd still consider myself one of the few people on this website who could open up an annual report and understand what the bankers are trying to tell analysts.

    We saw that markets were pushing valuation on banks primarily because of the value of the assets on the balance sheet. For those of you who don't know mark-to-market accounting, banks are now valuing assets based on market prices. So with a market pull-back, you'll find a reinforcing mechanism on a banks balance sheet that would require you to shore up additional liquidity in the even of declining asset values (capital tiers). The fact of the matter is, a decline across assets classes, would result in a decline in intrinsic value on bank stocks. So what we usually see with financial is that if the stock market is tanking, the banks go along with it, because their value depends on the value of securities along with the fees generated from inter-market lending, investment banking, and broker commissions.

    Now, look at technology. Anyone who has followed tech for the past year depending on the method of analysis, constantly raised price targets. DCF is built on opportunity cost, and discounting, while not a perfect reflection of a market mechanism, can be useful for coming up with a reasonable value, for non-exchange traded assets. Hence, DCF is great for when there's no liquid market to compare the value of an asset to.

    Now, back to the point, tech has gone up a lot. Some tech companies I feel deserve a higher valuation. Some tech companies don't deserve a high valuation. What markets tend to do is pay a lot for a whole basket of tech stocks rather than pay up for what's likely to work. This is called crowd diversification causing a basket of assets to go up. In a market correction the winners continue to trend higher (Amazon, Apple, and Facebook). Losers on the other hand keep losing (AMD, Zynga, BlackBerry). When markets correct, you'll find that losers will continue to lose, but winners are identified in the process. You want to short losers, and buy winners, sector diversification turns into portfolio allocation, and markets become a little more selective. In the selection process, markets may do a better job of valuing companies.

    We saw capital goods, like Caterpillar and Boeing do pretty well. However weakening overseas sales for Caterpillar has plagued the company since 2012.

    We go into services like fast food, and same-store-sales no longer trended above the economic growth rate. Fast food depend on commercial property, but unfortunately fast food store growth has stalled. This is because, fast food tends to bundle itself in commercial property lots that aggregate other businesses like retail. Unfortunately retail square footage is dropping, and because of that opportunity for store growth is limited. So now restaurants (more established ones) are being squeezed. Meaning that in a geographic area the growth is limited to a declining base of commercial square footage as average consumption goes higher. Store counts drop, but sales per store were on a roar. Well that trend has obviously slowed. Meaning, no more avenues for growth, total loss of momentum. Certain pockets of strength exist however Chipotle Mexican Grill. Losers on the other hand, Yum! Brands, and McDonald's.

    We go back through and realize that even biotech was a bit expensive despite the merit of certain drugs. I liked Johnson & Johnson back in 2012. Now, I'm a little surprised markets would be willing to pay so much for some of these companies.

    Now longer-term companies will obviously grow into current valuations. Markets are up-trending, and we even call the best line of fit for a 100-year duration an exponential function. How this happens is because economic growth compounds, winners compound earnings, winners continue to buyback shares. This results in a consistent pattern, and I'm not asking you to deviate from that belief.

    We're just at a point where we can all agree that as a consensus stocks aren't worth what they're worth at the present moment. Classic supply and demand, sellers are putting up for sale in anticipation of future losses, and buyers buy. This is where high volume selling comes into play as one of the determinants of demand is market perception, another is a reduction in quantity of dollars. A perceived reduction in the supply of dollars, and boom the value of a dollar goes up. Reflected in the depreciation of assets and good sold. What the Fed is doing essentially is reducing the supply of dollars, thus reducing aggregate demand for assets in general. Next, the supply side, markets anticipate stock to fall, and put up more for sale, on an aggregate scale you have inwards shifting demand determinants. Now another problem, is that we had record IPOs this past year, granted. Total markets supply of assets on the aggregate went up, another downward striking force. Now finally another demand side determinant, the aggregate margin is at the highest level seen in a while at brokerages. People are too leveraged, excessive demand will turn into moderate demand, demand curve shifts inwards.

    I have covered finance theory, economics, technical analysis, and even fundamental analysis into my argument. I hope it makes sense to you all, for why it's not a good time to be jumping on the bandwagon until market conditions become substantially more normal.

    Hey guys, I'm going to be putting together a market outlook article this weekend and I'll have it syndicated. Right now, you know how I feel, and I stand by my assumptions. I'm just going to present it a lot better when I'm writing an article and presenting my thesis in a more organized and cohesive manner.
    Jan 24 07:40 PM | 44 Likes Like |Link to Comment
  • Dow 14,000: Are You The Sucker? [View article]
    I really have to disagree with your analysis. While you point to many macro factors, I have actually analyzed a third of the Dow component stocks, and it seems that there's a lot of organic demand for consumption in the United States. Furthermore commodity prices are likely to trend higher because global demand for commodities is rising. Domestic companies in the United States are doing well, but if you notice, the retail sales figures, the retailers are doing extremely well implying higher rates of consumption. The unemployment figure is still trending lower. I have to disagree with your analysis because it points to some negative factors but ignores all the positives that are going on in the economy. No one on wall street is acting out of stupidity, the demand curve is definitely shifting to the right on an aggregate basis. Investment into capital goods implies that production is likely to improve which means that the supply side is actually like to shift, and that the supply curve is shifting further to the right. Both demand and supply curves are shifting towards the right, which implies economic growth, ie. GDP growth, which is represented by the GDP statistics. I believe that the United States economy is likely to recover. Europe is a little messy, but the cost of inaction is too high, and I anticipate that Europe will inject a large amount of capital into its economies in order to increase rates of consumption and investment. The ECB will follow a pattern similar to the Federal Reserve, and this means that investors should be abandoning their bonds and should rather invest into stocks in order to hedge against inflation. This is the best time for retail investors to buy stocks. I will stand by that because the research I have done on actual companies supports this conclusion to a very large degree.
    Feb 6 03:17 AM | 21 Likes Like |Link to Comment
  • Snapchat Is Killing Facebook [View article]
    Yeah you see the problem with some of SA's writers is that in an attempt to have a more variant view they make some serious extensions on logic. For example, Snapchat is more of a competitive threat to text messaging than it is to Facebook. But because people use it as a way of communication they use it as a way to degrade Facebook's business model rather than the telecoms that charge cash for unlimited texting. As a result, telecoms usually bundle texting with the lowest cost data plan, which negates the financial impact to telecoms. Kofi, I disagree with the premise of your article in other words.

    While you brought in a lot of great info on Snapchat, there was nothing that substantiated your conclusion. Other than, Snapchat is just another alternative that could diminish Facebook's earnings growth, which it clearly hasn't. I'd work on the clarity of your article ,because you had two different themes playing out through the course of your article. Stick to one theme, and write about it. I don't get why you'd have so much information that negates Snapchat's competitiveness and that would in turn ruin Facebook's competitiveness because it can't replicate something that it really doesn't need to. None of the data you used would result in any meaningful damage to shareholder equity, and therefore your argument is a false argument.
    Dec 26 12:53 AM | 18 Likes Like |Link to Comment
  • Perspectives On Friday's Sell Off [View article]
    Buybacks can't increase in proportion to the increased value of stock. If a stock appreciated by 40% the effectiveness of a buyback on EPS and decrease on supply of shares is mitigated by 40%. When price premiums rise, the incentive to be publicly listed increases. Total supply increases, prices decrease as a result. Therefore, the increase in IPO shares happens as a result of increasing prices, which has a mitigating factor on prices. The dependency is on sentiment, and only a small drop in sentiment, and the bag flies out the bag. Remember, markets are always trading on future assumptions, what it takes for a market to collapse overnight is a loss of confidence. Ben Bernanke said this every single year, and it sounds like a broken record. But, I'm not one to talk about buybacks as a form of offsetting supply, when the price of the underlying security is admittedly increasing in value at a rate greater than an increase in the commitment on share buybacks.

    Again, I'm sounding like I belong to a group of doomsayers. But, really I'm just being extremely cautious. But, let's be honest, I think I'm one of the few people who will take on a single stance. Sure, some could get away with an "up or down" outlook, "I don't know answer," but unless you have an option position that's likely to benefit in both directions, the insight really isn't that actionable. So I'm taking the stance of a bear for now. If I look at the technical formation it reminds me of the 2007 drop. It was flat and quiet and then a sudden break of a couple heavy candles in a span of days. I've sat down and watched price action in the 5% to 10% when it was a normal phenomenon, so when I say it looks different I mean it.

    If you've ever sat in on a bad day, the first couple days look like the other ones you come across. The real panic comes when participants realize that indeed something different is happening, the fear switch is turned on and volume turns on. A sell off is always characterized on high volume, up-trends are characterized by low volume. You can apply the demand determinant and supply determinant of expected pricing. Markets are forward looking always. If sentiment changes it will become obvious next week. However, today was the day to sell, because by the time the market sell off happens, the people who have exited will have done so at a time when only a partial picture of the tape is formed.

    Remember when investors expect future prices to go up, suppliers hold back the fixed quantity of supply, and the price rises. If the price is expected to drop, sellers will sell increase fixed quantity of supply (sounds weird) but imagine more people selling on a day they normally wouldn't, and all of a sudden you get the picture a little better. It's hard to characterize it, but it look sort of like a vertical line for supply curve, and perhaps a slanted line for demand curve. You could get different supply for an asset based on secondary offerings, or buybacks. Demand on the other hand is heavily sentiment driven and can vary significantly. You shift the whole entire vertical supply curve in instances when the determinant changes. A different way for an economic model to work would be to model the number of shares sold per day to make it look more like a normal supply/demand relationship.

    What makes a pro and amateur different is that they take action as a precaution rather than as a reaction.
    Jan 24 09:35 PM | 13 Likes Like |Link to Comment
  • Some Bears Are Missing The Point With Apple's China Mobile Deal [View article]
    Hey wait a second, Samsung sells its phones at a lower average selling price so obviously it would be more sensitive to market share because it's a volume-driving business. I look forward to reading your next article Michael Blair. Thanks for reading.
    Dec 15 05:29 PM | 13 Likes Like |Link to Comment
  • Sell Facebook Now, Its Growth Will Soon Be Over [View article]
    He dumped to pay his taxes Moon. Not enough said, you can't evade taxes.
    Dec 26 03:30 AM | 10 Likes Like |Link to Comment
  • Sell Facebook Now, Its Growth Will Soon Be Over [View article]
    Wow, you're basically making the same argument that other have made. It's a repeated argument. But you're saying that advertising in a content feed that's specific to Facebook and free content that Facebook doesn't have to pay for (because it's use generated) isn't innovative and is something that some other tech company can replicate? Social advertising helps consumers early in the buying process to make better buying decisions. These ads that you're pointing out to be ineffective, actually are very effective, because they come with more information, and in a less invasive ways than other advertising approaches. The advertisers understand the consumers pretty well, and would be more negatively impacted if CTRs were to fall, hence they're maximizing the use of ads by using strategies that go beyond a 30 second ad-slogan, or a picture with words on it.

    I really think you should re-evaluate your stance on Facebook. I'm going to eagerly wait another Facebook earnings blowout before I get too mildly worried about another falling CTR argument. Thanks for the article though. I've seen bears worry about recessions every single year, and take credit for when bubbles finally implode. Except they almost never guess the mechanism for what really causes a bubble anyway.
    Dec 26 03:23 AM | 10 Likes Like |Link to Comment
  • Apple's Next 5 Years Will Be Better Than The Last 5 [View article]
    Not sure if that's a compliment or not. I know I'm not going to be right 100% of the time. However, I wanted to make assumptions that were accurate enough to give a context on the types of returns that investors should realistically be able to achieve assuming the company is able to compound earnings.
    Oct 1 11:42 AM | 10 Likes Like |Link to Comment
  • The Periphery Is Failing [View article]
    The author makes errors in his assessment. He seems to assume that markets never traded on future expectation in the past, so it shouldn't in the present.

    Remember, assets are always inflated in value, because we assume a payoff over a given number of year, which is why it costs a premium now to own it.

    Fact is an economy can continue to expand for an eternity so as long as the productions possibilities frontier continues to shift further to the right. The shift of the productions possibilities frontier will result in real GDP growth, which is a figure that's reported every quarter, and the author of this argument clearly ignores that point.

    In the end the price of goods and services are a component of profit maximization. Therefore the core CPI inflation rate indicates that businesses simply cannot raise price without hurting profitability, and even if you increase the total base of currency, without having an increase in core inflation, that basically indicates that the economies aggregate supply is increasing enough to offset the increasing demand.The problem with current monetary policy is that it doesn't address the improvements in technology, and the commoditization of capital. In other words, the factor of market supply is dependent on the creative use of capital, and so as long as future supply continues to expand outwards it will be difficult to argue that a government can't inflate itself out of this mess, because monetary stimulus has not caused this "rapid spiral of inflation."

    When the Federal Reserve shovels money into the economy, remember that the money eventually goes inside the government's coffers. Also, remember that interest payments made by the government to the Federal Reserve is used to buy back bonds, and also remember that the Federal Reserve buys back bonds once the bond reaches maturity. So in theory this system is sustainable because money can always be increased if cash is leaving the economy in droves.

    What the federal reserve cannot control is market sentiment. Of course, but if U.S. investors are willing to pay a higher premium on assets, then who are we to deny them of their own judgement.

    Finally, people will not stop lending to the US government. Structurally speaking, most people are ignorant to finance, and financial advisers will always shovel their clients into T-Notes anyway. So, future sources of demand for treasuries have already been determined, and the argument of supply-side economics has already been discussed.

    In short summary, markets are always inflated, treasuries are risk free assets, and finally short-term changes in sentiment are not indicative of a recession.
    Aug 27 08:14 PM | 10 Likes Like |Link to Comment
  • Prepare To Short Gold [View article]
    Okay guys, if you study economics and correlation, the author is clearly correct. Investors miss interpret the meaning of trading, and especially long-term trading. Many of the best futures traders follow multi-month/year trades. They avoid a lot of the short-term yip-yap that goes on. That being the case, I want you guys to realize that the author of this article is trying to establish the fact that institutions are continuing to position themselves short in light of general sentiment. Supply, demand, and sentiment is an interesting way to look at a commodity market. But the author is wrong in that supply and demand is not the only influencing factor in price (check your Micro-economics book). That being the case, the author understands the basic concept of a supply and demand curve. But does not consider that supply of gold is different from the supply of food. Utility is a concept you learn in macro/micro-econ, but basically the price a consumer is willing to pay based on their consumer surplus really depends on the lack of or added value from each additional unit purchased. For example you can only consume a certain amount of water before you experience a diminishing util. Therefore the price of water is lower then the price of gold. Now with gold, you experience a higher amount of satisfaction for each additional you unit you purchase because you anticipate the price of it to go higher. however, there's a caveat, if everyone's sentiment changes, and the professionals positions themselves to sell the commodity. It will only be a matter of time, before those who purchase gold will not experience the same utility, meaning that they will feel more and more disatisfied for each additional unit of gold they purchase because it is depreciating. Therefore the conclusion of my analysis is that according to microeconomics, the author is absolutely correct. The only short-coming in his analysis is the missing micro-economics. From a purely academic standpoint, "sentiment" is a vague term. That being the case, the author presented a strong point. Sell gold, sentiment is weakening, utility is dropping, pack your bags and run.
    Dec 7 03:29 AM | 7 Likes Like |Link to Comment
  • Android Wear Looks Extremely Promising: Beware Silicon Valley [View article]
    Huh?
    Mar 24 09:00 AM | 6 Likes Like |Link to Comment
  • Facebook Buyout Of WhatsApp Offers Asymmetrical Risk To Reward [View article]
    Ashraf at ARPU of $12 per annum on 4 billion mobile users it's a feasible figure. Granted, WhatsApp could price itself higher to reach that projected value.

    $50 billion sounds like a lot, but when compared to TAM of mobile telecom, or global GDP, it's not that much. A service that can get near saturation of the global internet population doesn't need to generate that much in sales per user to drive meaningful bottomline growth.
    Feb 23 07:10 PM | 6 Likes Like |Link to Comment
  • Sell Facebook Now, Its Growth Will Soon Be Over [View article]
    You also see a consistent up-trend in ARPU and conclude that somehow that's not rising monetization from better CTR. This is a total nightmare to wad through people arbitrarily saying that won't happen but this will, but it doesn't come with any substantiated evidence outside of just being an opinion. It's like he ignored that Facebook can't increase the prices that advertisers have to pay for ads. Google drives earnings and revenue growth in much the same way, and it generates in the avenue of $50 billion in revenue. Somehow Google's strategy gets to scale, but Facebook's doesn't, even though the average person spends more time on Facebook than Google. I'm just going to go to sleep. Worst Christmas ever.
    Dec 26 03:33 AM | 6 Likes Like |Link to Comment
  • Intel: Don't Believe Bloomberg's Google Rumor [View article]
    Ashraf, what if your expert opinion is wrong, and Google does in fact create a chip that outdoes Intel. It could be worth discounting the stock even if it is just a rumor.
    Dec 12 11:54 PM | 6 Likes Like |Link to Comment
  • Iran Oil Outlook (Part 2): How Iran Stockpiles Oil And Hides The Fact [View article]
    Dear Change is the Constant, when you can come back offering actual analysis rather than an opinionated comment not substantiated with any evidence but your own rhetorical tactics aimed at attacking credibility I'd be open to listening to you. Unfortunately, the absence of logic is completely, and utterly prescient in the commentary offered by you.
    Nov 15 12:27 PM | 6 Likes Like |Link to Comment
COMMENTS STATS
1,261 Comments
964 Likes