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  • Nuverra: Bonds Say Broke, Stock Clinging To Hope [View article]
    Yes the coverage is adequate based on my memory of the specific terms of NES's debt. But maybe I'm wrong, and I'm too lazy to look up past filings to see the exact terms. Anyhow, if they sell TFI (which they will), interest coverage will improve further as debt is paid off. Insiders are most likely buying because they believe TFI sale will close within a few months helping improve the financial profile of the company. This of course may or may not matter depending on the macro environment.

    And yes, as interest coverage and therefore the credit profile of a highly leveraged company improves, so does the equity value (of course the reverse is also true, which is why NES is plumetting now). This is common sense because for highly leveraged companies like NES, the equity is similar to an option.

    I think it sometimes helps to try to envision various scenarios, and it seems like you have an inability to see anything but the negatives here. Of course, this has served you well recently, only because of the current unprecedented crude crash (NES bonds were at par just 60 days ago). The current price of NES or it's bonds really has nothing to do with NES specifically, and so your negative comments about NES are not particularly relevant. You could have written a similar article about dozens of other companies in this space. They are all down because oil is down. End of story.

    To the extent this crude crash is short-lived and/or providers adjust quickly to a new enviroment, and/or banks are very lenient with overleveraged drillers, the short story in all these overleveraged names will evaporate. May not happen, I admit, but it can and it's just as likely as your $0 scenario.
    Dec 15, 2014. 08:50 PM | Likes Like |Link to Comment
  • Nuverra: Bonds Say Broke, Stock Clinging To Hope [View article]
    NES interest coverage is currently more than adequate, so the equity is surely not worthless at this juncture. The current price (which has declined in concert with virtually every other service provider, e.g. see SLCA) is merely a reflection of the belief that EBITDA will plummet by mid-2015 as drilling slows dramatically. However, nobody knows how the craziness in the crude market over the last few weeks will play out right now, so I think it's quite premature to count out NES just yet (or any of the other providers). Personally, I think people will be surprised at how quickly many of the players will adjust to the new environment, and the dire predictions will prove false. With regards to NES it is certainly conceivable to me that some of NES's competitors will go bankrupt prior to NES, and this could prove to be favorable for NES in the long-term, if they survive (a big if, of course, but not improbable).
    Dec 15, 2014. 08:06 PM | Likes Like |Link to Comment
  • Nuverra: Bonds Say Broke, Stock Clinging To Hope [View article]
    "I had no idea how bonds really trade so I appreciate the insight. "

    Are you being facetious? The entire basis of your thesis in this article is based on the bond prices, but you have no idea how bonds really trade?
    Anyway, good luck trying to buy the bonds (or sell them). No liquidity.

    BTW, NES's debt is not due till 2018. So I'd think they have 12 to 18 months to deleverage and pray oil prices rebound a bit. It's not game over just yet. I'm pretty sure there will be some strong rallies in 2015, as it's doubtful oil is going to fall 5% - 10% every day forever. And I bet NES does sell TFI before 2015 is out. My guess is that crude will stabilize soon, and you'll see a sharp rally in alot of these overleveraged equities, like NES.
    Dec 15, 2014. 04:04 PM | Likes Like |Link to Comment
  • Nuverra: Bonds Say Broke, Stock Clinging To Hope [View article]
    A mere 3 months ago, NES credit was quoted at near par. Now it's at .60. Sorry, but I don't think the price of the debt now, following the recent crash in crude has much meaning, as far as a long term value of the equity. If you look at the chart that you posted of the credit prices, the plunge in the price, exactly corresponds to the recent plunge in crude. So this is a macro issue and is unrelated to NES specifically. Many other debt issues for anything related to the shale, have also been plumetting. It's doubtful so many companies in the industry is worthless as far as the equity, and the credit prices merely reflect panic and illiquidity. Of course, if crude remains this low or goes lower for the next year or two, these companies, like NES, are toast, but I don't think anyone knows what the trajectory of crude in the next 12 to 18 months, and in the interim the bankers will adjust credit terms to keep the most of the companies afloat until they have some indication of a stable price for crude.

    As far as insider buying in NES specifically, it's extremely farfetched to believe that the insiders have been buying to "paint the tape." A more likely explanation is that they are optimistic about certain future events at the company. You may disagree with their optimism, but it is disingenous to suggest that there aren't two sides to the story.

    Specifically, as it relates to NES, I think insiders are buying because they are confident they will sell TFI and significantly deleverage the company. There are also additional options still available to NES in other parts of the business that could unlock value.

    Is NES risky? Yes. Is it overleveraged? Yes. But is it going to $0 in 2015? Possible, but unlikely. I can sooner see this stock doubling from the current price in 2015, then going to $0. The trigger for a price increase will be the sale of TFI. Personally, I have never seen a situation where a stock heads to $0 when there is so much legitimate insider buying (as opposed to the type of insider buying that is touted in company PR). This could be a first, but again I think it's unlikely.
    Dec 15, 2014. 06:50 AM | 1 Like Like |Link to Comment
  • Gafisa: One Of The Cheapest Stocks In The World [View article]
    BRF (market vectors Brazil) is the best ETF in my opinion for broad exposure to Brazil. Sell GFA? Why would anyone sell a stock for a loss when the stock is trading at a fraction of it's fair value? I've been down 50% on a stock numerous times, only to see the stock increase in value way above my purchase price with time. Of course, sometimes the stock never recovers, but it's not a mistake until the fundamentals prove otherwise and to sell every stock that declines at a loss seems like an easy way to lose all your money. The market price is meaningless, unless you are running a fund and you have to answer to a group of investors. Otherwise, I think it pays to have some conviction in your fundamental analysis.
    Dec 14, 2014. 07:26 PM | Likes Like |Link to Comment
  • Why It's Absurd To Call The Oil Price Drop A 'Free Tax Cut' For America [View article]
    Your analysis is a bit too simplistic. Oil prices have a complex spillover effect throughout the US and world economy given the fact that oil and petroleum-based components are key cost factors for nearly every major industry (even ecommerce companies rely on shipping, whose cost is based on trucks which need fuel to run). Net net, if crude prices continue to decline, or just stabilize at $60, the economy as a whole will get a huge boost, due to improved profitability from lower cost inputs. This will inevitably flow thru to consumers, via lower prices, and and improved employment. Again, it is a complex relationship, but lower crude will certainly provide a major benefit to GDP, along a circuitous route.

    Incidentally, since somehow Obama mysteriously got into this discussion, I would add that I always wonder whether those who are against Obamacare, have even signed up a for a policy under the ACA or have any basic understanding of what the private insurance market looked like prior to the ACA? Well, I have dealt with the private insurance market for over a decae and have used the ACA for 2 years already. And all I can say, is that the propaganda against the ACA is absurdly childish and selfish, and simply reflects extreme ignorance as to what the ACA actually does. I suggest anyone who is against the ACA, should try to live without insurance for a few years and then come back and analyze the issue. The problem seems to be that people's hatred of Obama is immediately attached to every policy he passes, without any intelligent analysis of what the policy actually is. As for the ACA, the only problem with it is that it didn't go far enough in dismantling the for-profit insurance companies. But, I'm not foolish enough to believe that for-profit health insurance companies will ever ever cease to exist in the US. As such, given that the for-profit insurance is going nowhere in the US (which is unfortunate, but another discussion), the only fair thing is to allow EVERYONE to have the same access to health insurance. So unless you have something against tens of millions of Americans, there is nothing wrong with allowing these tens of millions of Americans to access to the same health care coverage that is already available to everyone else in the US. This is all the ACA actually does in reality: Allow everyone and anyone to buy quality health insurance from for-profit companies. In the big picture, the cost of the ACA relative to this enormous benefit, is miniscule and a rounding error.

    And yes, I am biased, as my wife was denied decent health coverage for many years, due to a nonsensical pre-existing condition, and had to live with a garbage health policy for years. So yes, I'm happy that the the ACA I can now access quality health care insurance for my entire family without having to resort to a private insurance market that was previously rife with fraud and abuse (and no I don't ask for any federal subsidies). Any dismantling of the ACA would be tragic for milions of people who now have quality health insurance. Of course, there are always the tiny percentage of individuals who take advantage of the ACA and give it a bad name, but on the whole the ACA has many positive implications that far outweigh the negatives. The above is not to say the ACA is perfect. Far from it. But the basic ideas are sound. What we should be doing is trying to improve the basic tenets of the ACA, instead dismantling it and hurling nonsensical objections that are based on pure ignorance and irrational political hatred.
    Dec 13, 2014. 08:09 PM | Likes Like |Link to Comment
  • Burton Malkiel Says Don't Listen To Forecasts (Except His Forecasts) [View article]
    "Theories like the Efficient Market Hypothesis are not internally consistent. They are theories created by people who hate the government and discretionary intervention."

    You lost me here. Malkiel's market call in 2014 was surely wrong and I've also been humbled by the huge returns I could have gotten by just sticking to US government bonds and ignoring stocks, which are ridiculously volatile nowadays relative to their meager returns. However, I don't think your comments about EMH, in general, has any basis in reality, and ad hominem attacks are weak ways to support an argument. Personally, after years of trading I believe in the EMH to a large degree (the basic premises are indisputable), and yet I also believe in government and discretionary intervention. I also do not believe that the market is all knowing, nor does anyone who espouses the EMH. I think you are confusing people's personal politics belief with a market theory, and greatly exaggerating extreme versions of EMH.
    Dec 13, 2014. 07:38 PM | Likes Like |Link to Comment
  • Gafisa: One Of The Cheapest Stocks In The World [View article]
    Yes, I was way early also on this trade and am now down 50%, but I think you are being too pessimistic, though of course it's hard see the positives when prices are dropping every day. That said, equity prices in Brazil are getting quite undervalued and the way to make money is to buy into crashes, not sell.

    The country did fine when oil prices were lower than today, and since the government basically owns PBR, it's doubtful the oil price drop will have a "spectacular income rout for Brazil", as Brazil is a sovereign country with it's own currency, and it is the largest economy in South America. They'll survive fine and now is the time to think about the positives in Brazil, not the negatives. Capirinha anyone?

    Anyway, I plan to invest more in Brazil via the ETF's, as at this point the whole market is cheap and it's not worth it to bet on one company, like Gafisa (though I do think Gafisa will recover with time - I don't plan to lose any money on this trade, even if I need to wait a few years).
    Dec 13, 2014. 07:15 AM | 1 Like Like |Link to Comment
  • Medallion Financial: Classic Case Of A Thought Virus Gone Wild [View article]
    For further reading on just the railroad industry alone, see this Wikipedia article:

    Some tidbits:

    "Government support, most especially the detailing of officers from the Army Corps of Engineers - the nation's only repository of civil engineering expertise - was crucial in assisting private enterprise in building nearly all the country's railroads. Army Engineer officers surveyed and selected routes, planned, designed, and constructed rights-of-way, track, and structures, and introduced the Army's system of reports and accountability to the railroad companies."

    "State governments granted charters that created the business corporation and gave a limited right of eminent domain, allowing the railroad to buy needed land, even if the owner objected."

    "Authorized by the Pacific Railway Act of 1862 and heavily backed by the federal government, the first transcontinental railroad was the culmination of a decades-long movement to build such a line and was one of the crowning achievements of the presidency of Abraham Lincoln, completed four years after his death."

    And what do you think happened when new entrants came into the market, how did that happen?
    "As early as the 1930s, automobile travel had begun to cut into the rail passenger market, somewhat reducing economies of scale, but it was the development of the Interstate Highway System and of commercial aviation in the 1950s and 1960s, as well as increasingly restrictive regulation, that dealt the most damaging blows to rail transportation, both passenger and freight."
    Dec 13, 2014. 06:58 AM | Likes Like |Link to Comment
  • Medallion Financial: Classic Case Of A Thought Virus Gone Wild [View article]
    I think this Wikipedia article is a good read as it pertains to one common aspect of every single popular app nowadays, especially Uber,: GPS.

    Without GPS, the main innovation, most of these apps, including Uber are meaningless. How did GPS develop? Who now owns it?
    "GPS is owned and operated by the United States Government as a national resource."
    Dec 13, 2014. 06:32 AM | Likes Like |Link to Comment
  • Medallion Financial: Classic Case Of A Thought Virus Gone Wild [View article]
    "Most innovation takes place in a regulatory vacuum."

    I'd have to disagree with this statement and I believe it is entirely false. The Wild West notion of innovation as it pertains to a successful business is a complete myth, and in fact every useful innovation has happened under some sort of regulatory framework. Of course, you can counter with the likes of Einstein and Newton, but I think we'll agree that those are different kinds of innovations, and even in those cases I can point out certain regulatory issues that helped drive the innovation.

    In any event, with regards to capitalistic businesses, many of the successful businesses today that appear to have innovated have simply usurped the innovations developed under regulation and marketed/packaged them in a better way to a wider audience. The Internet is prime example of this (i.e. ever wonder who developed the technology to pinpoint your exact location from your iPhone - hint: it's not Uber, or Google or Apple). Nothing wrong with this by the way that's the point of capitalism.

    The biotech industry is another great example of innovation under a regulation. Just one example of many: The Orphan Drug Act, without which many of the hottest biotech investments of the last couple of years, would never have existed. Then there is patent regulation, monopoly rights to drugs for a certain number of years etc. Without these extensive regulations nobody in their right mind would pursue drug innovation as a business. It is the strict regulatory framework around drug discovery, ownership and marketing, which permits innovation to flourish.
    Dec 13, 2014. 06:20 AM | Likes Like |Link to Comment
  • Medallion Financial: Classic Case Of A Thought Virus Gone Wild [View article]
    "the impulse to regulate is not universal". Capitalism is based on the notion of private property. Without regulation there is no such thing as private property and no way to enforce private property rights. So I would say that regulation is not universal, until you want to become a capitalist state. When you decide that capitalism is the way to go, the first simple regulation you put in is: "Thou shall not steal." Then once you have that law, you begin to produce lawyers and lobbyists who further define this law, and argue about the definition of this law, i.e. what is theft, who owns what, what determines ownership, who is above the law etc.

    The oil industry is the prime example of regulation capture. It is always a case of securing land permits, preventing competitors from establishing new energy sources, securing distribution, etc. The whole proces is a maze of regulation. I suggest people read the book "The Prize" by Daniel Yergin, for a good historical account of the way the industry developed. Rockefeller obviously didn't wake up one morning and have a monopoly, which was then broken up via regulation. There was plenty of regulation prior which he purposely and brilliantly influenced, which allowed him to create the monopoly in the first place. Incidentally, the modern world is not that much different, in that a vast majority of the worlds oil resources still reside in countries that exercise massive regulatory control (e.g. Russia, Saudi Arabia).

    I would just like to mention in conclusion, that of course there are times when there is too much regulation. Not all regulation is good obviously (i.e. certain regulatory aspects of taxi medallions are ridiculous, and Uber was correct in taking these on). My point is simply that there is always some sort of regulatory battle in every business, and the history of every business is about using regulatory influence to create a monopoly, whether by removing regulations to allow competition or by increasing them to create barriers of entry. It is always a pendullum that swings from underregulation to overregulation and back again.
    Dec 13, 2014. 06:00 AM | Likes Like |Link to Comment
  • Medallion Financial: Classic Case Of A Thought Virus Gone Wild [View article]
    "early radio industry, the early oil and gas industry, the early rail industry."

    I think you need to read up on your history. Each one of those industries and every single industry ever developed is due to regulatory capture in one way or another. How do you think anyone drills for oil and gas originally? Who owned the land and who decided where you can drill? Who owns spectrum? Who owns the rights of ways for railroads? More recently, who developed the original Internet and who makes the laws regarding "Net Neutrality". Regulation, whether positive or negative, defines business. We don't live in an anarchy and lawless society.

    Every entrepreuneur understands this, which is why every successful businessperson is constantly lobbying to influence politics. It's not a coincedence that the recent funding bill in Congress approves an increase of 10-fold in the amount that any person can in a political race.

    As regards to Uber, a key strategic regulatory move now is to try to relax restrictions on driver background checks. Uber's background checks are a joke, as per recent articles in various sources, despite their claim to the contrary.
    Dec 13, 2014. 05:46 AM | Likes Like |Link to Comment
  • Oil closing out week on the lows [View news story]
    "So let me get this straight: A perceived oversupply of 700,000 bbls/day (on a total demand basis of 92.5mil bbls/day) has led to 45% decline in the price of crude oil?"

    Well, that should convince you that the price of oil is not in the least bit based on any notion of supply/demand anymore. In recent years, the price of oil, has been entirely influenced by financial derivatives and speculation (there is also a political motive in oil prices, but that's another story). Pretty much oil is a "manufactured" price, and in a speculative market with no rational basis for any price, there is no telling what the price will do. Oil is now like any financial paper, in that speculation based on optimism can drive the price up to obscene levels, and pessimism can equally drive the price down to very low levels. There is no rationality and no sense in trying to understand or predict the price.
    Dec 13, 2014. 05:21 AM | 2 Likes Like |Link to Comment
  • Medallion Financial: Classic Case Of A Thought Virus Gone Wild [View article]
    Great article. The way I envision the Uber bubble playing out is as follows:
    As competition heats in the app space, Uber will itself eventually lobby local governments worldwide to increase regulation of the App Livery business, in an effort to insulate itself from any future competition. Uber now has the capital to greatly influence regulation, and it will certainly take advantage of this opportunity to try to squash competition (much like the old school Medallion companies have done for years). This will eventually pit Uber (and maybe one other App player) against the medallions in a regulatory battle, a battle that Uber will most likely win given the unlimited capital these bubble stocks seem to attract despite the little economic value the businesses generate.

    People seem to forget what capitalism is actually about. While many always seem to quote the "free market" mantra, the reality is that there never really is a "free market" and capitalism is always moving towards monopoly or duopoloy in every single industry because monopoly = profit. Every business wants to shut out competition to maximize profit and the way to do that is to control the regulatory environment and eliminate competition. No true capitalist is ever for a free market, because that would eliminate profit opportunities, which is the point of capitalism.

    So the history of capitalism is always as follows:
    1. Some new upstart takes on existing entrenched businesses, and lobbies for less regulation in the name of a "free market".
    2. If the upstart is able to convince regulators to look the other way for awhile, the upstart stands to gain market share against the old guard,
    3. If the upstart is smart and luck, it may establish a strong foothold against the old guard, at which point the upstart will begin to lobby regulators to invent new regulations to restrict any new competition, and at the same time further weaken the old guard.

    Then the story repeats in an endless cycle. The battle always plays out in the regulatory realm. The winner in the regulatory battle is simply the better funded competitor, and the one who is better able to communicate a more compelling narrative (of course the ability to communicate is a function of capital, as it costs quite a bit of money to hire smart pr people and lobbyists).
    Dec 9, 2014. 06:42 AM | Likes Like |Link to Comment