Andres Rueda

Value, long-term horizon
Andres Rueda
Value, long-term horizon
Contributor since: 2013
I do not believe that deep-water drilling is "completely dead". It is however generally not profitable at current prices. My advice to investors is to parse through the wreckage and seek out the companies most likely to survive the current downturn. In other words, seek low leverage opportunities in stable cash flow companies, or invest in high quality debt instruments in troubled companies. The market will eventually turn, I believe, and those companies that survive the downturn, or their underlying assets, will be considerable more valuable than they are in the current environment.
Long-term treasuries are a terrible, terrible investment. Let's assume that despite gargantuan and ever-increasing debts, the U.S. never restructures its debts (not even 20 or 30 years down the line). As the author correctly points out, a small upward blip in interest rates can wallop the value of your meagerly yielding, long-term bond. I do not understand why these instruments are called "safe haven" (or risk-free(!!!!)) bonds. Perhaps therein lies their appeal, in their label. Except that, they are anything but. They are only true to that label for someone who does not understand how a bond works.
The presentation was a disaster for Bill Ackman. Truly embarrassing. He brought nothing to new to the table, just blah, blah, blah about the "poor people" who do business with Herbalife, and when he started crying... all anyone could think is, PHONEY. That's why the stock popped. He was laughed off the stage.
Never written about this company before...
Hi J. Without the CEO's $10 million investment into Paragon, the company would have likely gone bankrupt or had its ships repossessed. This was an equity infusion required by the company's creditors. The investment was made in exchange for company shares issued at prevailing market prices. I think you underestimate the difficulties in raising third-party equity capital for small drybulk shippers. That is why, in my view, an insider had to step in.
Ha, ha. I could not stop laughing at Rob Goldman's post. The penny stock man comes out of the woodwork. President Obama? Nelson Mandela? Oh, boy! I am sold!!!! Where do I wire you the money??????? Please, while funds are still fresh in my bank account...
Yes, agreed. But you have to look at the volume when you deal with pink sheet or over the counter stocks. That some fool in Nebraska pays $50 for a couple of shares in a moon dust distribution scheme means nothing if the stock has no volume. The fact that the company has 100,000,000 shares issued and outstanding does not mean that the company is worth $5 billion if the only volume comes from the two shares purchased by the fool from Nebraska.
Hi, Ashraf. I don't doubt the analysis of your excellent article. The small cap and micro cap space is full of frauds and promoters who overhype stocks of dubious value. However, in terms of actually shorting these pink sheet, low volume names - how practical is that? How readily can these names be borrowed for shorting? How easily is it to cover your short? Given that the price of these names can so easily be manipulated by others, are you in danger of a huge run-up of the stock, even if its fundamental value is zero or close to zero? What about the risks of a short squeeze? Sometimes, these companies change their names and ticker symbols just to squeeze the shorts. I've never done this type of trade before, and I am not sure I have the risk appetite for it. I am just curious how this type of thing works out in practice.
Hi, Brian. You are indeed correct, and the numbers have been updated accordingly.
The company responds to GEO's allegations with its own security videos, taken on same dates, which directly contradic GEO's videos:
If the company's videos are true, then it appears that the fraudsters and crooks are the short sellers, not the company. In any event, this episode warrants an SEC investigation, because someone perpetrated a fraud here, it is just not clear who - the company or the short sellers.
I was also wondering about that. Why cameras on the truck zone, but not the rail area? And were the cameras on the truck zone correctly positioned? The short sellers claim they were, and emphasize that in their article, but it may not be so clear cut.
In any event, the company needs to provide a meaty response, and fast.
Also, I found GEO's attempts to associate LPH with PUDA unconvincing. It's a "friend of a friend of a friend"-type argument.
What I do not understand is... if the company is a complete fraud, why does it pay Chinese authorities so much in value added taxes? Photocopies of these tax receipts are contained in the company's website:
Are these receipts fake? Because these are value added taxes, you can calculate the company's revenues by working backwards. In fact, the auditor confirmed the tax information, and reconciled it with the company's financials.
I don't think GEO satisfactorily addresses the tax issue. Either the receipts are fake, or they are not. I doubt a company that is a fraud would pay taxes over phantom revenue.
Something fishy here, I'm just not sure who to believe... the short sellers or the company. In any event, tomorrow we'll have a press release from the company, which should shed light on the situation. It should be interesting.
Fed intervention in the long end of the T-bond curve has created a situation where these instruments are dangerous for investors. These instruments offer little yield, and are by Fed design exorbitantly expensive right now. Because of convexity, even a small upward movement in interest rates can cause the price of these long duration bonds to crater. Extremely high risk (i.e., no so-called "safe haven"!), and no yield. Buyers beware.
The discount at which PEO trades is not justified by its fees, which are relatively low. Perhaps a slight discount may be warranted by built-in capital gains? These gains are a non-event provided that the fund does not liquidate its positions.
In any event, closed end funds that commit themselves to fixed distributions frequently trade at a premium. The dividend yield on PEO's positions will probably be insufficient to fund PEO's own dividend. Some positions may need to be liquidated, which could result in adverse tax consequences to PEO's investors given the likely built-in gains and pass through tax treatment to investors.
So "fiscal cliff" is the new "Greece"? Market prognostication by sloganeering is a bore. Equities are still cheap relative to bonds. Once that relationship changes, I'll start getting concerned.
Ok, so irrational negativity will now be replaced with irrational exuberance. Fine. At least irrational exuberance is fun.
Panic should have hit the bond pits a long time ago. The panic of - gee, I guess I just realized that I did not know what I was doing. Bond traders who paid yields of 1.38%, 1.47%, 1.63%, or even the current yield of 1.85% for the 10-yr bond apparently can't do math. The long T-bonds are a deteriorating asset at recent yields. Anyone with a spreadsheet can play around with the coupons, repayment schedule, and govt inflation data and Fed targets, and confirm the size of the built-in loss. You can also play around with sensitivity to upward movements in interest rates, to confirm the sharp pain as long-term interest rates creep up. Long bonds are the idiot's version of greed: lots of risk for no yield.
Yeah, yeah. Nice analysis. Blah, blah. I still don't understand why anyone would short ANYTHING in this market environment, given that the Fed keeps pumping huge amounts of liquidity into the system. You can easily get your teeth knocked into the back of your mouth, if you short.
The technology sector is all about intellectual property. Research and development costs are not capitalized. They are expensed when incurred. Therefore, book value does a poor job of measuring the company's true "capital". There are other issues.
I disagree. In the technology industry, book value means very little. It's almost a meaningless metric in terms of valuing the cash flow potential of a company.
The obvious question - what about political risk? This is a company that was recently expropriated. Down the road, will minority shareholders be treated fairly? Is there a prospect of dividends resuming at some point in the future, or are would-be minority shareholders buying the proverbial share in somebody else's swimming pool? Given the recent expropriation, is it realistic to assume that the company will be able to secure partnerships to develop its properties, other than perhaps at a huge discount? This may be one of those instances where the share of the company is cheap for good reason.
After "Greece", the "fiscal cliff" is the new short-sellers' boogeyman. Meanwhile, 10-yr T-bonds stand at a yield of 1.66%, well below inflation. If there is a "fiscal cliff", long T-bonds would be massively sold off, and where would the dollars go? Other asset classes, including equities.
If the Fed wants you to go long equities, you should go long. End of story. You don't want to end up a statistic - just another short seller who loses his shirt fighting the Fed.
After Greece, the so-called "fiscal cliff" is the next short-seller's boogeyman. 10-yr T-bond yiels are at 1.67% right now, well below inflation. If there's a fear of the so-called "fiscal cliff", long T-bonds would be massively sold off, causing yields to spike. Where would the money go? Other asset classes, including equities. End of story.
Market reaction is exaggerated. The new Lumias appear to be innovative, quality products. Who knows how well these Lumias will sell. Wouldn't be surprised if they're a hit, or at least sell decently. The drop off today is however so steep and out of whack, driven by massive short selling and speculative players, that one can pretty much safely assume that the stock will see a big bounce tomorrow as shorts scramble to profit/cover and in doing so trip over each other.
I am not in love with many of the companies described in your article. LULU has been in a short squeezed for years, to be sure; however, it has also been ridiculously overpriced for years. However, in this environment I would not short any of these names, including LULU. There is too much liquidity in the system, compliments of the Fed, and these names could shoot up in no time and really hit you hard in the teeth if you are short. Not because the companies deserve their lofty valuations, but just because there is too much cash out there.
Technical analysis is a form of withcraft, in my humble opinion.
If you have a short position, you need to close it out right now. Folks with short positions are out in the open sitting on a fishing boat with a hurricane just around the corner. Even if the CEO of the company is a crook or the company sells ice to the eskimos, you cannot beat Hurricane Bernanke. Bring your ship to shore, and close out your shorts. This is a public safety announcement.
Southern euro countries are not insolvent, with the notable exception perhaps of Greece. If you however charged the US govt the same interest rate on its debt that panicky investors require from Spain or Italy, it would be inches away from insolvent (unless of course Bernanke, with a magic wand, decided to monetize its debt).
Just a reminder that no matter how skilled you may think you are as a short seller, you should never bet against the guy with the bigger guns: The Fed. You may think that the stock of a particular company is overpriced, but if you discount the company's cash flows at an interest rate of 0% is it really so overpriced? The Fed is telling you to go long, so by jiminy you should go long.
The moves against the German bunds will be brutal as the ECB plan materializes. German bunds are grotesquely overpriced, with tiny yields, and some recent auctions have seen negative nominal yields. When a bond hits a zero yield, you pretty much know that the run up in prices is over. I mean, how could it not be? The herds of panic-stricken euro currency investors have nowhere to go, and will be pushed back into risky assets or periphery debt. A muscular ECB response will just turn what would be a gradual process into a stampede in reverse. I would steer clear from Geman debt (particularly long bonds) at this stage.
I wonder why people even bother to sell equities in this market. Equities are shooting up, by Fed dictat.