Cliff Wachtel

Research analyst, fx risk hedged income, low risk forex, macro market outlook
Cliff Wachtel
Research analyst, FX risk hedged income, low risk forex, macro market outlook
Contributor since: 2009
Company: THE SENSIBLE GUIDE TO FOREX
concerns about value of and returns on medallions also from expanding medallion supply in NYC, TAXI's prime market.
that said, it's true that investors mistakenly seeing too much correlation between harder times for medallion owners and TAXI's performance, as it the company continues to
1. show it knows how to lend conservatively enough to continue to prosper
2. successfully diversify into other lending.
Thus fundamentals continue to be strong.
However the chart still showing a lot of weakness, telling me to watch and see if we can get some sustained upside. Just had a good earnings report and fat divvy coming in less than 2 weeks. If those can generate some sustained breakouts above some key resistance levels I'm watching, then we can consider a bottom might be in.
The fact that yesterday's big post earnings announcement bounce faded so much suggests there remains a great deal of skepticism. We continue to watch for follow through.
If we don't get those breakouts, then the buyers just aren't there yet, for whatever reason, and the odds of more downside remain high. Anyone buying now must accept that they may well eat some paper losses for a while yet.
Most of us are better off waiting for evidence of a bottoming that isn't there yet.
In sum, we watch price action in the coming weeks. Use fundamentals all you want to build an investment thesis, but we base our entries and exits based on what the market tells us, not on our personal theories.
Just looked over Q2 results. Preliminary conclusions:
In sum, while medallion prices and returns continue to be pressured, TAXI’s medallion loans continue to perform well. Meanwhile it continues to diversify successfully into other lending. Despite predictions by some of its demise since late 2014, the company continues to perform well and the high dividend remains safe.
So fundamentals remain good, with performance is as good or better than when the stock was around 17.
However the technical picture continues to warn against new longs at this time.
--Despite the great Q2 results, the stock has thus far given back most of its gains over the course of the day, suggesting most of the bounce was a short squeeze (short sellers buying to close their positions in fear of a sustained move higher). We wait to see evidence of a sustained move higher. Until we see it, we must conclude the market still doesn’t believe that the threat to TAXI from as yet unseen declines in its lending business has passed, despite continued solid quarterly results.
--Medium term momentum indicators and trends suggest odds favor more downside, so we’ll need to see some evidence of sustained movement higher before we believe investors have calmed on TAXI.
Regarding James’s remarks, I’m still not clear how much medallion prices in Chicago or other cities matter for TAXI at this time. Thought NYC was the only market where it has major exposure.
Regardless, the company's performance does not give me reason to sell, but the charts warn me from taking new positions at this time.
not a matter of timing really, just staying out of the way of a strong trend.
timing is about picking tops and bottoms. no sign of bottom here
again, that said, I haven't sold any of my energy positions (mostly midstreams paying steady n high yld). just not adding at this time.
most energy stocks, even the truly less leveraged to commod prices like KMI or EPD, still in brutally strong downtrend, nothing equivocal about it. Trend following works best with exactly that kind of trend.
a reasonable approach
tho article and comments suggest a genuine sense that we're in bargain territory, which again, is another way of saying we're near a bottom when available evidence suggests otherwise.
wanna nibble a bit? your call, as long as you accept you'll probably be saying you should have waited, or don't even care as long as the divvy remains steady or grows.
bf,
but to anyone remotely literate in technical analysis, stocks actually DO send pretty good signs of when a bottoming process has or has not begun.
In the case of most energy stocks, even my beloved KMI and EPD, there is no room for debate - the downward momentum remains strong and anyone buying long as fighting a strong trend until proven otherwise. Trying to catch a bottom is ultimate dumb money mistake.
Granted, an inexact forecasting process, but there is nothing in these charts suggesting a bottom has even begun.
that's why NOT to buy until you've at least some evidence of that
Unless you must stay fully invested for income or other reasons, and/or don't care about forgoing likely lower prices and higher returns, why buy now?
weekly charts of most energy companies continue to show strong downside momentum, making the odds high that these "bargains" are more likely falling knives.
Seems foolish to attempt to fight such a strong trend that has yet to show signs of slowing. Barring some huge surprises, you will have time to see the bottoming and buy at similar prices with far less risk of lost opportunity to get more for your money.
Not time to grab them yet.
Disclosure: I own many divvy paying energy companies, continue to hold, have not sold. Am long term believer. But not adding positions much at this time, won't unless need more income now.
Risk much higher than reward for most of them at this time given entrenched downward momentum by every indicator you care to use.
again, foolish to take new longs in EPD given its equally (vs. KMI) strong intermediate - long term downtrend.
Disclosure: As with KMI, I'm a long term holder and believer and have not sold.
But to buy more now?
That's only for those who need to be fully invested and don't mind accepting high odds of further downside and better prices/yields.
Otherwise going long against this downtrend to attempt to pick a bottom is classic dumb money amateur's move.
Charts indicate high odds of more downside. At least wait for evidence of bottoming. Barring a sudden intense price spike due to some unknown event, likelihood is you'll be able to get in at similar price with lower risk.
See above reply to Ms. Conti's comments for details.
Robin, This not time to buy $KMI. Charts scream falling knife. Until technical evidence of bottoming, foolish to fight such a strong downtrend.
NB: I remain a long term believer and have not sold any of my KMI position. However, ...
Risk outweighs reward, odds favor more downtrend. May be great long term investment, but why buy now when odds so strong in favor of more downside? Regardless of one's personal thesis, prudent investors NEVER fight such strong, entrenched downtrends.
Details follow:
to all those who believe Kinder's purchase is some kind of "all clear" sign, please note: (learn from my mistakes)
Back around 2008 (?) Richard Thornburg also bought big lots not long before Thornburg Mortgage ( a former 'blue chip' mReit) crashed. It is not unknown for those with large stakes in a company to boost that stake a bit to bolster confidence. Still, you can reasonably argue that it's better to listen to Kinder than little ol' me.
Fair enough.
Btw, There were other smart money types also buying the 'bargain" Thornburg appeared to be (see: http://nyti.ms/1OxZiBl )
The truly compelling bear case against buying more shares of KMI is the technical picture.
It's weekly chart, like that of the midstream sector overall, remains a screamingly obvious falling knife, with momentum ( intermediate term - is weekly chart) still suggesting more downside ahead.
For example, for the technically inclined, the weekly candles remain firmly in the double bollinger band sell zone (for explanation see:
http://bit.ly/1NLiM5V for both summary of how to use this most useful tool as well as more detailed explanation).
Other technical evidence suggest more of the same. Not the time to attempt to pick a bottom. A real amateur's mistake (unless you really need to stay fully invested and don't care about buying at a better price later, with better yield, and don't mind absorbing paper losses for a while.
Regardless of what our fundamental thesis is, prudent traders/investors who are not certified prophets NEVER attempt to fade a strong trend (long or short) until they have adequate evidence that the trend has bottomed.
There is nothing in the KMI chart to suggest that. Yes, yesterday's action was a nice bounce on above average volume. So what? We had that back on July 7th, back when KMI closed at 37.74, about 10% higher.
Risk at this point continues to greatly exceed reward. Why attempt to pick a bottom in the absence of any evidence?
Once again, author's failure to consider technical issues when choosing entry points grossly erodes his/her credibility.
Unless you're a very long term investor who doesn't care about losing a chance to buy for less and for better yield, no reason to buy now.
Worst case you miss the absolute bottom. Big deal. Attempting to pick bottoms is fool's game for most people, no matter how sophisticated.
Sadly, I'm seeing a lot of these half-baked ill considered recommendations coming out these days in assorted income investor favorites with equally poor charts that put odds in favor of more downside. Risk outweighs reward.
Stay tuned, plan on doing a rare post to school investors on the problem and how to distinguish between genuine potential bargains and falling knives
This not time to buy $KMI. Charts scream falling knife. Until technical evidence of bottoming, foolish to fight such a strong downtrend.
Risk outweighs reward, odds favor more downtrend. Details follow:
to all those who believe Kinder's purchase is some kind of "all clear" sign, please note: (learn from my mistakes)
Back around 2008 (?) Richard Thornburg also bought big lots not long before Thornburg Mortgage ( a former 'blue chip' mReit) crashed. It is not unknown for those with large stakes in a company to boost that stake a bit to bolster confidence. Still, you can reasonably argue that it's better to listen to Kinder than little ol' me.
Fair enough.
Btw, There were other smart money types also buying the 'bargain" Thornburg appeared to be (see: http://nyti.ms/1OxZiBl )
The truly compelling bear case against buying more shares of KMI is the technical picture.
It's weekly chart, like that of the midstream sector overall, remains a screamingly obvious falling knife, with momentum ( intermediate term - is weekly chart) still suggesting more downside ahead.
For example, for the technically inclined, the weekly candles remain firmly in the double bollinger band sell zone (for explanation see:
http://bit.ly/1NLiM5V for both summary of how to use this most useful tool as well as more detailed explanation).
Regardless of what our fundamental thesis is, prudent traders/investors who are not certified prophets NEVER attempt to fade a strong trend (long or short) until they have adequate evidence that the trend has bottomed.
There is nothing in the KMI chart to suggest that. Yes, yesterday's action was a nice bounce on above average volume. So what? We had that back on July 7th, back when KMI closed at 37.74, about 10% higher.
There's no reason not to remain a long term believer in KMI. However, ...
Risk at this point continues to greatly exceed reward. Why attempt to pick a bottom in the absence of any evidence?
Once again, author's failure to consider technical issues when choosing entry points grossly erodes his/her credibility.
Unless you're a very long term investor who doesn't care about losing a chance to buy for less and for better yield, no reason to buy now.
Worst case you miss the absolute bottom. Big deal. Attempting to pick bottoms is fool's game for most people, no matter how sophisticated.
Sadly, I'm seeing a lot of these half-baked ill considered recommendations coming out these days in assorted income investor favorites with equally poor charts that put odds in favor of more downside. Risk outweighs reward.
Stay tuned, plan on doing a rare post to school investors on the problem and how to distinguish between genuine potential bargains and falling knives
tip for author: always define technical terms when writing for lay audience.
does Mcfe = metric cost/foot of energy? something else?
otherwise a fine analysis that actually seems to quantify risk for LINE and help us make an informed investing decision, unlike some other recent LINE articles that offered provocative headlines but little substance.
Again, incumbent on all considering investments in any upstream energy firm to monitor longer term energy price trends.
Those investing in for income need to also focus on stability and risk to the divvy and how low prices can get before the distribution or divvy at risk. Case in point, author is making a case that LINE divvy not sustainable long term. As I pointed out recently, its DCF is at 0.77 already. Below 1.0 implies cash flow not covering divvy. Note that there can be some volatility in this figure, so need to dig deeper. I'm not in LINE now so not bothering to do so.
If the upstream firm isn't being bought for divvy, it's mostly a bet on the price of what it produces.
a sensationalist title that even the summary then qualifies and contradicts
slimy tactic
SA editors should be alert for cheap spammy tricks to get page views
agree or disagree with thesis, a writer to avoid
tune out the noise,
watch long term energy price charts
when we get some sustained range trading to signal a bottom, also a prolonged period of on the weekly charts in the Double Bollinger Band (DBB) Neutral zone to indicate that we've bottomed (see http://bit.ly/1NLiM5V ) for a good summary of how to read DBBs, my favorite technical indicator)
then it would be time to start nibbling at the more stable energy plays (best of breed midstream MLPs, big oil, etc).
Would be underweight or avoid the upstream (ie E&P) sector alone until we see some evidence of uptrend or have very firm conviction that the divvy is sustainable.
That's why I was so hoping to see some evidence of divvy sustainability here.
The picture not great per mlpdata.com (http://bit.ly/1NLiJHb), distribution coverage ration is 0.77 (below 1 means cash flow isn't covering the distributions so distributions not sustainable at current cash flow levels) and divvy growth is very negative.
A steal? Hmmm.
LOL
another reason LINE attracts a lot of mediocre articles, like any hi-yielder that is a leader in its sector (upstream in this case) there's a lot of interested readers waiting for the green light, so writing about LINE (EDP, KMI, NLY...etc) is an easy way to attract page views, especially if you can write a half way decent title, (it was indeed, kudos for solid copywriting) which might be the articles' strongest feature.
article would be convincing if it discussed oil and gas prices needed for LINE to be profitable or break even. It doesn't so article feels like we're getting a very partial picture.
Can LINE be profitable at current prices? At lower ones? How much lower?
THAT's what I was looking for. Didn't see it.
Anyone know?
momentum, overbought/oversold indicators like RSI kind of meaningless when sentiment strongly negative as statistical indicators assume all past data points used in the calculation are the same, They aren't, not if market believes fundamentals have shifted against LINE.
weekly crude charts do seem to show oil bottoming - that would have been a point worth mentioning.
article needed more research, looks like author just wanted to knock out something fast. No so helpful
thank you, thank you, for finally actually writing an article -- something that I can quickly skim for what's relevant -- rather than a those darned podcasts that i must sit thru start to finish, and thus ignore
meanwhile, whole healthcare REIT sector's charts look still look more like falling knives, maybe tentative bottoming.
think rate hike concerns overdone, most likely will be small, slow, mostly symbolic, but not going to argue with those charts, which suggest downside momentum very much intact, regardless of fundamental story.
in sum, technical picture suggests downtrend intact, more downside likely in coming months.
per above table, OHI has same yield as HCP, w/out the risks. So why buy HCP? Gamble on eventual greater cap gains, I guess once uncertainty passes & situation stabilizes.
Healthcare REIT sector has obvious income and long term fundy appeal (aging population etc) but every chart I see still presents risk of catching a falling knife as long as interest rate hike uncertainty hangs around.
Don't believe Fed plans on more than modest, almost token hikes, just to show they can, and provide a bit of potential to cut rates if need
However medium-long term the charts show nothing but the same downtrending and perhaps a cautious bottoming that may or may not hold if/when hikes announced, currently believed to come btwn 9.15-3.16.
Believe in the sector long term, but still showing plenty of potential to drop more than the current 3-4% yields. So I'm ambivalent for the coming months. Good time to build cash position, not losing much divvy.
very useful post
much thanks for providing 'primary source' info on uranium, which, despite nuclear power's bad image, I can't help but think still (somehow) belongs in the energy mix if can just solve the safety issues in operation and fuel storage.
I prefer to stick with stocks that produce income. Notice UEC doesn't tho CCJ does have ~2% divvy, not great, but at least get paid something to wait. No position in it but have long thought about establishing a small one once it's longer term chart bottoms, which it seems to be doing.
Author's thoughts on that?
Does author have any firm opinions on when UEC likely to become profitable?
Author makes case for this as a long term hold for those with patience to sit with it while earning nothing and accepting volatility.
I'm curious about why municipalities have allowed rideshare to devalue medallions and hit a source of muni-revenue.
I'd think they'd at least try to get some kind of surcharge from rideshare companies
Remember, a key reason for having taxi medallions was to limit traffic and in essence tax a municipal asset in short supply - space on the streets.
Indeed, whole debate over TAXI is not about current performance (it's been as good or better than when shares were ~17) but whether the combo of Uber, expanding medallion supply would at some point in the future bring:
--balance sheet write downs, limiting lending income
--dividend cuts
Not seen that yet, tho leading bear James Hickman has written in prior articles that NYC medallion value fall would take time, his estimates have varied from "imminent" (a number of months ago) to late 2015, I think. Someone correct me if I'm wrong.
So far, fundamentals are with TAXI bulls as TAXI financials and divvy look fine.
But technical picture is bearish, TAXI shares clearly suffering from worried market, still not back from May 26 drop on cnbc report(of old news) that medallion prices were down from peak , so clearly markets still nervous, awaiting some kind of new clarity.
anyone hear anything about results of June 22 court case in Queens, NY. 4 medallion lenders (TAXI not among them)? see: http://bit.ly/1FMcqxV
They're suing NYC, contend e-hail = street hail, which is exclusive medallion right that NYC must therefore protect.
NYC has held e-hails not the same. No doubt a ruling against NYC would be appealed, so story not over regardless.
useful post
good to see an article focused on NYC, which is all that is really relevant for the medallion lending part of TAXI's business. It doesn't have much exposure elsewhere.
Looking past Uber, does anyone know how many more yellow and green medallions NYC plans to auction? Expansion of medallion supply appears to be the most direct threat to medallion values. In particular, by what % is the supply of yellow medallions expanding? Green medallions? (does TAXI lend on greens?)
Granted, as long as medallions continue to be profitable for owners, even if less profitable, TAXI and other lenders should be ok. Worst case they're making smaller loans due to lower medallion values, with that loss of income offset to some degree by the greater # of medallions and thus medallion loans.
good post, useful restatement of much of the bull argument from prior posts
haven't had time to really weigh the arguments laid out in both prior articles and huge volume of comment stream.
I'm limited by my lack of understanding of the industry and how the thus far limited evidence for TAXI's main medallion lending markets (NYC mostly) of possible trouble really matter while the company continues to perform well.
so I'd be very grateful if you or Messers Meyers, Hickman and supporting commentators on those prior posts can clarify some questions that I've yet to answer.
So far actual TAXI performance continues to confirm bull thesis, steady to rising earnings and divvys. The debate remains all about what's could be coming
questions I've yet to answer:
quantifying risk of balance sheet write downs of loan portfolio due to:
--falling medallion values (seems only markets of relevance for TAXI are NYC and Chicago) and whether the limited # of transactions represent a valid picture of what's coming, and what data is and isn't relevant or material.
--quantifying risk and damage of write downs on Chicago medallions TAXI owns
also:
seems from prior articles that declines in NYC medallion taxi revenues correlate more with increasing supply of NYC medallions- mostly green ones as of late, rather than Uber.
how real are the issues raised in this recent article: http://bit.ly/1KNybAT
In particular
-- loan delinquencies rates remain low but are rising. Defaults in TAXI's medallion lending markets not happening as of yet.
--sustainability of dividend. the above article appeared to claim (as has lead bear James Hickman) that earnings from operations ie net investment income ($0.20/ sh.) not covering the $0.25 divvy. Is this a trend for concern or a normal fluctuation in performance?
--are these loans in fact mostly just interest loans w/ balloon payments? If so, wouldn't even the fear of falling values limit refi opportunities and threaten wave of defaults? That's been a key bear argument, but unclear if that's a material threat IN TAXI's lending markets - mostly NYC.
Just trying to get clarity. Have small long position but will go with facts as I see them.
Despite strong performance and divvy, can ignore the technical performance on the chart - the mere fact that TAXI has sold off so hard on the cnbc report on May 26th of sliding medallion values (hardly news and as you and others have shown, and not enough material transactions to prove anything as market seems frozen due to uncertainty).. still.. can't ignore fact that share prices have been volatile and dropped on so little excuse.
Shares range trading for 2015 btwn 9-11, up on news of actual performance, down on nagging fears/uncertainty that has yet to hit TAXI performance.
Clearly driver supply expanding, (both from new medallions and rideshare) the question is does it matter for TAXI's lending markets?
Even TAXI seems concerned enough to emphasize diversification into consumer and commercial lending (higher risk not a problem by itself as long as returns and conservative lending practices (collateral, LTV, rates, etc) compensate for problem loan risk). Hickman holds medallion exposure AND risk of actual writedowns so large these efforts don't matter. Meanwhile no actual evidence on TAXI balance sheet of such trouble.
Thanks in advance for any insights/ clarification. Same goes to the rest of the regulars in this ongoing discussion, Messrs Meyers, Hickman, and supporting commentators.
confused about dividend yld
showed declining quarterly yield for jan and March, then an even smaller divvy in April
company events per yahoo does not show ex div date for may and june, so it doesn't appear that they've gone to monthly divvys. Was that April divvy a 1 timer?
trying to get handle on true annual yld
thx
NO,
you can recline more on the toilets recline more and no one can put one of those devices on it to stop that.
suspect people were locking themselves in for the duration of the flight
LSF - why so emotional?
Consider:
just focusing on TAXI , not the whole medallion industry
-is the decline in credit quality hitting bottom line? Didn't see that in 10q
-are these declines sign of long predicted disaster or within normal historical fluctuations?
bear argument remains mostly speculation - that supply shock implies TAXI doom (in excess of the already nearly 50% price drop ant 10% divvy that seems to price in a fair bit of bad news that has yet to hit)
-unclear when and how much decline in secondary medallion prices and medallion drivers earnings will hit conservative experienced medallion lenders (Friedman's lender is Citi, I believe, not a specialty lender, nor known for its conservative lending policies in housing bust. anyway....
Don't have a crystal ball, but medallion value and driver revenue slide is old news, suggesting an emotional rather than rational response and thus possible buying opportunity.
Bear argument for TAXI may yet work but thus far it is pure speculation that it hits TAXI beyond the damage already priced in.
What IS of some concern is that Q1 earnings were boosted by one time asset sales - see
http://bit.ly/1KNybAT
prefer to stick to facts
trends in medallion prices and driver revenue a concern no doubt, but far from clear that the damage not already priced in for TAXI
especially considering that medallion loans are far from their primary source of revenue (granted exposure is large, would be a concern IF and when defaults and asset write downs start to hit earnings)
you've been following the debate here on SA. So far, just focusing on TAXI, far from clear we've a problem that isn't priced in already.
pure bluff
wait 'till the wives/mistresses of the C-suite guys hear they might have to give up Greenwich/Southport/We... etc for some Greensboro SC or the like.
additional thought:
I'm a bit surprised that municipalities haven't been quicker to act to protect their revenue stream from medallion sales and medallion taxi surcharges.
I'd think rideshare would at least be hit up for some kind of surcharge like the taxis. Easy to track.
turns out TAXI crushed it. TAXI twice got near $11/ sh
But now that's old news.
Update - interesting development
Shares dropped hard on May 26 on cnbc report that medallion prices were down - this was old news, as even SA's news team noted:
http://bit.ly/1FWGTvo
what's interesting is that the ensuing selloff indicates that shareholders remain nervous, selling even on a rehashed reminder of old news - falling medallion prices, which may or may not have any material affect on TAXI's future performance.
So even tho TAXI performance remains strong - even as of the latest 10Q of May 15 also showed no trouble, share prices remain vulnerable, at least as they get up above 10.50, to any reminder of even old news that might at some point affect share price.
for what it's worth the share price remains in an uptrend for 2015 - higher highs n higher lows, latest lows as of this writing have not taken out lower lows, and the selloff seems to have finished, given the low price and volume action.
IN sum, we wait until next earnings in August.
But even if these continue to show strong performance, apparently shareholders will be quick to sell until it's clearer whether or not declining medallion prices and minor medallion revenue drops influence TAXI performance. Strong recent performance didn't stop the recent selloff, so why would another strong earnings showing in August?
IMHO seems that if get shares ~9.5-11 the bad news priced in (already down from ~18) and a ~10% divvy is good compensation to wait, at least for the riskier portion of your portfolio, for those willing to accept the risk that as yet unsubstantiated threat that lower medallion prices and (thus far) modestly lower medallion revenue might eventually hit TAXI performance.
So far, as Meyers said, the above threats haven't stopped loan payments or caused write down of medallion loans.
Those are the facts as I see them.
will TAXI thrive despite the secular driver supply shock of rideshare, rising subway ridership, new medallion issuance, etc? stay tuned.
anyone know the formula for calculating what the dividend would be in X number of years assuming a Y% annual dividend increase?
f/eg: if HP currently pays 3.8% and can be expected to grow dividend at x%/ year, then dividend in 2, 4, 6 years will be....?
also does the 67.3% 5 year CAGR mean we can expect that 3.8% to grow 67.3% over the next 5 years (assuming past 5 years are representative of future divvy growth?
brain blocked, not getting the right search term to find it online
thx