Christopher Wallace

Long/short equity, special situations
Christopher Wallace
Long/short equity, special situations
Contributor since: 2012
Interesting the author does not reply to the many legitimate points being raised in some of these comments.
I am afraid I have not been following it closely as per my earlier comment. There is a huge spread because the market doubts this deal will complete. Or at least does not have enough info to assess the likelihood of completion, like the purchaser's name. It is a binary outcome here in my estimation: either the deal happens and you have 40%+ upside from the current price or it does not happen and you have at least as much downside. I have no idea how to handicap the probability of either outcome happening and I am in no mood to speculate on a highly levered junior E&P with such a disparity of outcomes.
Thank you for your helpful reply, and for the useful article. It will be interesting to see how much backlog comes on with more pipeline capacity in place. Of course if they do get more pipeline capacity in place in the Marcellus and Utica, where will they pipe it to? Aren't we approaching capacity?
Those thousands of drilled but uncompleted wells: any guess as to why they have not been completed? For a while, back in better days, it was due to a lack of available crews to complete them. But with the oil and gas rig counts so decimated, that is not likely the current case. It is much more about those wells not expected to be profitable at current gas prices. Not every DUC was in a sweet spot. I don't see as many completions happening as prices rise. Completions will happen on those wells that yield positive economics at the given price of gas. Some of those wells have gone for years without completion, because prevailing prices did not economically justify their completion. My guess would be they remain uncompleted until much higher prices have not just been reached, but maintained for a while as well.
No doubt he will appoint a successor for that interim period and no doubt he will eventually say when it will happen. But equally without doubt, it is poor governance to make the announcement without including those other two important facts. Zuck is not as young or as arrogant as he once was, but he still has some growing to do.
Another high flying stock that had attracted legions of rabid fans.
If the contract eventually performs as Intermap had earlier press released, then whether they are dealing with the Sovereign or the prime contractor becomes irrelevant. If it performs below expectations, then the difference becomes extremely relevant. Investors will claim they were mislead.
Several things about Intermap do not add up for me:
1. Why would they agree to such exorbitant financing terms with Vertex if they have landed such a lucrative contract unless there was significant uncertainty present?
2. Why did they erroneously issue a press release stating they had a contract with a Sovereign when in fact they have a contract with a prime contractor?
3. Why have they not released information about either the Sovereign or the prime contractor? What is the need for the secrecy?
Further, and I think this is likely more germane, when you are in a law suit like the one initiated by Erhart with a counter suit by Bof I, you don't try these things in the media. You say nothing about them. That is why Garrabrants said he would not make further comment about those allegations and when the analyst pressed him he referred to his earlier comments. Which, by the way, were quite clear that they were not under investigation.
A great analysis, and I agree with your conclusion. The continuing reduction in costs is impressive and I am also pleased to see the Q o Q production increases. Do you think production increases are likely to continue in 2016?
Buysideanalyst 14, you know you just called the CEO of a publicly traded company a lair and inferred he has mislead in an SEC document. Do you have ANY idea of the seriousness of that? Do you have ANY idea of the liability you took on in making that statement in writing in a public forum, one that probably has thousands of pageviews??? You may want to give some thought to deleting that comment.
You cannot take anyone's comments out of context. Garrabrants had previously said that he was not going to speak further about the Erhart suit and counter suit (proper when there is on going litigation). So he re-affirmed his earlier comments (which stated no investigations, good relations with regs, approval of 2 acquisitions). If you are willing to take comments out of context, you can take everything he says and make him sound bad or good, depending on the outcome you want. But that exchange in particular has really got the market spooked. I think he gave a proper answer in the circumstances, but given how it has been mis-interpreted, I think he should look into doing a press release to clear up misperceptions.
It must have been transcribed by computer. Waaay too many mistakes for a human. Though how a voice recog software heard "complaint" as "compliant" is beyond me.
Not correct, foolishlong... With the Erart lawsuit and now the BofI countersuit, this action is preparing to go to trial and, typically and correctly, no one from the company should make any further comment about the matter. Garrabrants is previously on record as saying that Erhart brought his allegations forward to OCC and other regulators about a year ago and when those regulators determined not to take any action upon his allegations, Erhart decided to include them within his wrongful dismissal suit. Garrabrants had also stated that the regulators had approved 2 acquisitions (including H&R Block) after Erhart had filed his complaint with them.
Which were the substantive ones?
A good comment, AWvsCB, pretty much sums things up. The market had been prepped for something even greater. Still, after a 40% decline in less than 2 weeks, this reaction does not strike me as rational. I had Nov options that were in the money and are now out of the money. I am hoping that the conf call after the close will talk about the law suits and in particular any evidence that BofI may have to implicate Erhart with short sellers. While that former auditors allegations seem baseless to me, the market apparently takes a different view.
Completely baffled by the market's reaction.
Quite right. And if it turns out that Erhart was colluding with short sellers to drive the price down, as it now appears, that will have a very positive impact on the stock. All of the bad news is out on BOFI. And most of that bad news is not accurate. Looks like a buy to me.
The rise in the US dollar that resulted from the stimulus measures announced in China and the EU.
Yup. The big items for BOFI stock price are the allegations that he sent confidential information to "to additional outside sources, including to contributors to a website that allows comments on the stocks of publicly traded companies." I would think that little revelation would have a couple of authors here clenching their butt cheeks. I expect to see some short covering as a result.
I would like to read their suit. Can anyone provide a link?
@buyside - there has been no disclosure of anyone else coming forward. I suppose it is possible that others have contacted the regulators but that seems unlikely as the regs have taken no action thus far and have approved 2 major transactions, even though they have all of Erhart's files. The easy thing for anyone with corroborating info would be to contact Eavis, anonymously or not, and give him the info. So far that has not happened. No way Garrabants lied on the call about the depositor concentration (or anything else) with his CFO and legal counsel there, and the obvious risk of going to jail for doing so.
I find it very peculiar that Erhart would file such a wide ranging report, covering so many areas of potential wrong-doing, and be the only one in the company to have noticed the problems. That no one else has come forward with corroboration or similar allegations is odd if in fact there is any substance to the allegations. It is even more odd that Erhart and Erhart alone would discover these oddities in his first year with the company. One would think that even if others wanted to retain anonymity, they could at least contact Eavis at the NY Times anonymously and provide corroboration to him. This absence of corroboration detracts from the bear case.
The blatant errors of fact on the depositor concentration cast further doubt. But, of course, the greatest doubt cast on his allegations is the failure of any regulator to act on them over the past year.
@gwinner - a good, thoughtful post. I too thought it was very strange how Eavis introduced his anonymous source into the equation. To me, the last line of his article is nothing more than innuendo. Frankly, I am surprised the Times editors allowed that line in without any further substantiation. Though the rhetoric was certainly toned down in this article, those last two paragraphs come across as yellow journalism. Certainly a big step back from Eavis' well researched and credible first article.
I would expect at most a slight pause here. Gold sentiment does not strike me as excessive looking at other indicators. Sentiment Trader's Gold Optix was still showing excessive pessimism as of 9/15. Bullish percent of gold mining stocks is still only at 40% currently. RSI on gold and GDX is still under 70 for both. I would be very worried about trading out of gold positions at this moment; selling the first rally in a bull market is an all too common mistake.
Thanks for the words of encouragement, they are most welcome after that pounding. I am staying the course until after earnings are announced on the 29th, at least. It will be interesting to read the short interest report of Oct 15, due to come out after the close on the 19th. There are currently 2.4 mil shares short, implying 10 days to cover. I expect the report to show a substantial increase which in my view enhances the short term bull case.
"blasting", "extreme", "radical", "slayed", "super-bullish", "vast". These superlatives were all used in this article, in fact in just the first paragraph. Whatever point you are trying to make, you are simply over-emphasizing with so many superlatives. It actually can have the effect of turning people against your thesis, especially when you sound even more hyped than Marc Benioff after a CRM quarterly report. I am not saying you don't necessarily have a thesis here, I just got too turned off by all of the hype to keep reading to the end of the article. My 2 cents.
I have to confess that I was caught offguard by the extent of today's down draft. I went long the Nov 100 calls early in the session; a poorly time execution to say the least.
A good overall summary of the situation. BOFI has an almost rabid group of shareholder supporters, a dynamic I never like, but often occurs after a stock has had a significant run up. I think there is a good chance that this is a good dip to buy, as those shareholders are likely to take this higher after this initial scare calms down. Add to that the CEOs very bullish comments about Q3 earnings to be released, and recent comments by the FBR analyst and it all adds up to a good trade for aggressive traders and those who can stomach the inevitable volatility.
Thank you for the reply. Do you know if their debt is recourse to HRG? If not, I would think a zero value would probably be more accurate for a valuation. But I appreciate the good analysis you have done here.
As credible a theory as I can think of in this very strange situation. Too strange for me to play. I am a smart enough investor to know when I don't know enough.
How did you come up with the non-public company valuations, and specifically what was your basis for a negative value on the two HGI businesses?
It has been a great ride and it has to stop somewhere. I would not be too surprised if the author is correct.
Thanks Hebba for the (as usual) in-depth research and clear presentation. The thesis has intuitive appeal, but, and this is a big BUT, there does not appear to be any correlation looking at the historical charts you have provided between low registered holdings and a bottom in gold prices. Intuitively, that does not make sense, but it is what it is. Any explanation? Any reason why "this time is different"?