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Far Horizon  

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  • Chevron: A Juggernaut Of Wealth Preservation And Cash Distribution [View article]
    John,
    Fully agree that alternative energy is a long term trend moving with an uncertain speed and destination. I also agree that Oil looks oversold, and I am overweight as a result. That's not going to change in a hurry.
    Your 'wind up value' exercise is insightful to put the current price level of stocks like CVX into context. Some comments have pointed out how far fetched a scenario a CVX failure is - I agree. However stock evaluation is an exercise in relativity - is A riskier than B, and is the expected return a fair reflection of this? Analysis of tail scenarios is a question of relative probability of directional outcomes, not the worst case scenario itself.
    The point isn't whether CVX will ever be wound up, it's more one of what valuation metrics will look like compared to other stocks in different scenarios - in that context future oil price will drive not just CVX earnings, but also how it's assets are valued. I would love a crystal ball to be able to predict future oil prices - but absent that (and being an investor not a trader) I feel it's prudent to resist the temptation to go further overweight in Oil as rebalancing of energy sources in the future will probably result in a downward pressure on oil prices to some extent.
    Aug 14, 2015. 09:24 PM | 3 Likes Like |Link to Comment
  • Chevron: A Juggernaut Of Wealth Preservation And Cash Distribution [View article]
    Nice line of thinking - I might suggest adding another angle to pure price to book. The quality and liquidity of assets is a critical feature here. If CVX assets are all strongly linked to oil production, and the price of oil remains suppressed, the value of those assets will reduce. Winding up CVX at $60, $50 a barrel $40 a barrel and $30 a barrel would produce dramatically different returns to shareholders.
    That's why financials tend to trade at low price to book multiples - their assets are mainly paper assets (including cash and bonds).
    I fully agree that CVX at a lower pb than XOM looks to be better value - the market sees XOM as a better risk/ return play - understanding why is a whole new exercise. Long CVX, XLE, SDRL, PSX, because of the value, hesitant to pull the trigger on more oil stocks due to the potential for a systemic shift in energy consumption patterns.
    Aug 14, 2015. 06:53 PM | 3 Likes Like |Link to Comment
  • China's debt-to-GDP ratio hits record high [View news story]
    RM - totally agree....I commented similarly earlier in the thread.
    "canb - agree that cash is king in China, compared to US banks however I fear that we can have little confidence in the security of cash deposits. There is a state loan guarantee in place for bank deposits, but this is capped out quite low, and shadow leverage seems to be rife. With the diversified and relatively financially naive depositor base, any hint of weakness in the banks would be likely to create a run which would see a rapid unwinding of the leverage. Payout of the bank deposit guarantee needs liquidity which isn't kept on hand, China gold and USD deposits would need to be liquidated in a hurry........need I say more?"
    The problem with a centrally managed economy is that the directed market support measures are all compounding - market forces aren't in place to manage risk, so the policies are all implemented with a single perspective on risk - the ultimate "groupthink" which is great if everything goes to plan, but if a call is the wrong one, it all unwinds in a hurry.
    Jul 17, 2015. 07:58 PM | Likes Like |Link to Comment
  • China's debt-to-GDP ratio hits record high [View news story]
    canb - agree that cash is king in China, compared to US banks however I fear that we can have little confidence in the security of cash deposits. There is a state loan guarantee in place for bank deposits, but this is capped out quite low, and shadow leverage seems to be rife. With the diversified and relatively financially naive depositor base, any hint of weakness in the banks would be likely to create a run which would see a rapid unwinding of the leverage. Payout of the bank deposit guarantee needs liquidity which isn't kept on hand, China gold and USD deposits would need to be liquidated in a hurry........need I say more?
    Jul 17, 2015. 07:51 PM | Likes Like |Link to Comment
  • China's debt-to-GDP ratio hits record high [View news story]
    Just back from Beijing last week, the real issue is in the shadow financing market. It's crazy. Peer to peer net based borrowing is way more prevalent than the regulated loan sector.
    In the insurance sector, companies are selling free fire insurance coupled with guaranteed return savings products so they can speculate with the leverage on the stock market. Their regulator last week eased the restriction on the amount of their assets they can invest in equities to support the government market support exercise. It's layer on layer of leverage.....look out below!
    Jul 16, 2015. 04:55 AM | 9 Likes Like |Link to Comment
  • Everything You Need To Know About Investing In Australia [View article]
    I agree with the comments around the super system. Another important thing for investors to understand is the dividend imputation system here - where most companies choose to 'frank' dividends, prepaying tax and generating reciprocal tax credits for Australian investors. This makes high dividend paying stocks popular with local investors, who are tax advantaged.
    I would love to see more manufacturing in Oz, but sadly wage costs are sky high as a result of the high cost of living and taxes - we are victims of our own prosperity and can't compete. Government spending needs to reduce to align with a period of lower economic growth, but that means some corageous policy making and the current mob don't seem to have the guts to take that on.....so it's fingers crossed for China.
    Jul 10, 2015. 07:30 PM | Likes Like |Link to Comment
  • Everything You Need To Know About Investing In Australia [View article]
    As an Aussie I enjoyed your 'outside in' view, and share some of your Macroeconomic concerns. Inflated house prices and a reliance on commodity exports are two key worries. The economy is seeking a transition into a stronger service sector, and the rapid population growth will generate a striong domestic demand. The road will no doubt be bumpy - presenting better entry points in the next few years, but I for one believe that the future for The Australian economy will be bright if it can be weaned off Chinese commodity demand - strong demographics, good governance and proximity to Asia are all positives.
    One caveat to your comments on EWA - isn't the decline in EWA value over the last 12 months a currency impact? ASX 200 is about flat over the year in AUD?
    Jul 9, 2015. 05:48 AM | Likes Like |Link to Comment
  • What's Wrong With Emerging Markets ETFs? [View article]
    Totally agree. I have written a few articles about investingin emerging markets, both via country ETF options, CEFs and ADRs. This series started a couple of years ago with a foundation article that proposes a balanced approach to picking EM allocations market by market.
    I also favour global companies that have high EM exposure as a low risk EM play, preferring non US stocks where valuation and currency headwinds are higher. Check out Prudential in UK, Nestle, HSBC, Siemens, Unilever.
    Jun 24, 2015. 06:30 AM | Likes Like |Link to Comment
  • Correction 2015? Be Prepared To 'Buy The Dip' [View article]
    I couldn't agree more, I have been selling puts on my target stocks and ETFs for the last year or so. Contrary to the author I prefer shorter duration to allow me to adjust to a more prolonged or drawn out market fall. Trading costs not having a big impact on my low brokerage account.
    I wait for a nice down day for a target stock which pushes the option premium up. Typically selling for 5-10% below current price, depending on how much I like the stock. Usually 4-6 weeks duration and premiums as close to 10% annual equivalent return as I can. Currently holding VTR, O, GDXJ, PSX, MSFT, NUE, RY, XLE. AFL, GILD short puts. My list is in more volatile stocks as I find the classic dividend champions generate lower option premiums. Will add to these from cash if pricing comes into my target. MSFT, NUE, GILD and AFL positions I picked up following a drop on a "bad news day" which I saw as overreaction. I like the ETF options to make a sector play and thus avoid getting hit by a bad assignment on a single stock (see SDRL below.)
    So far going ok. Got a nasty assignment on SRDL when it fell off the cliff which hurt, but over the last 12 months I have been able to absorb that and still meet my 10% return target. My only concern is that the market continues to drift up, and these are all realised, thus taxable profits. I need a correction to be able to enter longer term positions at a reasonable price. Selling puts is a short term strategy for a toppy choppy market but a lot of work for a part time investor.
    May 29, 2015. 07:09 PM | 1 Like Like |Link to Comment
  • Bill Gross: March Madness [View article]
    Blank....no worries mate.
    Will think about an article on TRV, I am not writing much at the moment as my day job is keeping me pretty busy right now!
    UW Reserve analysis is a pretty rich topic. You could probably Google some decent papers on the topic from the Casualty Actuarial Society, but those guys get complex quickly. In a nutshell, Insurers disclose reserve triangles in their financial statements. These show the history of each accident year as it matures over time, and you can see the pattern of "incurred claims" which are those paid out already plus those lodged by clients but not yet paid out, and " incurred but not reported" claims which they know must be out there, but haven't been lodged yet. Watching how consistently these numbers move over the years can tell a lot about the quality of the business and also how management is behaving - but only to the informed eye. Anything inconsistent, or " lumpy" in the triangles is a hint to look deeper.
    Sorry if this is too high level......its a tough thing to explain without examples etc.
    Apr 18, 2015. 04:05 PM | 2 Likes Like |Link to Comment
  • Bill Gross: March Madness [View article]
    Blank blank, good to see a fellow Aussie on SA. I am not sure if there's a book on how to evaluate insurance companies. You might find this article a useful place to start your thought process. http://seekingalpha.co...
    TRV is a nice stock, and more of an underwriting than investment driven model. With insurance stocks, please be careful!
    Apr 18, 2015. 12:51 AM | Likes Like |Link to Comment
  • 4% Dividend Yield Portfolio: Take Advantage Of The Volatility [View article]
    Thanks Ron. The other impact of volatility that I like is that it makes writing options a more compelling strategy. As an example the May 80 puts on VNQ are trading at .50, on a positive day for the ETF. This generates an annualised yield of 5.2% if not assigned, or an entry point of 79.5 on the ETF. I like to wait for a day when the price is down to maximise the option price. In this environment there is a good chance of assignment, and with short duration puts the risk of overpaying for the stock is somewhat mitigated. With a series of overlapping puts at my target entry point, find I can I usually develop a meaningful position over a few months more efficiently than by buying the dips. For a position I am really keen on, a put closer to the money or mixing in straight purchases has also proved effective.
    Apr 2, 2015. 06:01 PM | 1 Like Like |Link to Comment
  • Oil Peaks And Valleys: Why Big Oil Is A Bargain [View article]
    Totally agree - if investing vs trading, averaging in to the majors over 12-18 months seems a compelling strategy. I am also watching the alternatives - ESP solar carefully for entry points.
    Mar 30, 2015. 09:25 AM | Likes Like |Link to Comment
  • The Earnings Recession Of 2015: Stock Market In Danger? [View article]
    It's always worth reading press from the other side of the pond. Headline from today's FT...." US corporate profits heading for second consecutive quarterly decline". I usually find good analysis at FT.com......
    Mar 6, 2015. 11:47 PM | 1 Like Like |Link to Comment
  • The Earnings Recession Of 2015: Stock Market In Danger? [View article]
    So there are prettier blocks?!
    Mar 6, 2015. 02:24 PM | Likes Like |Link to Comment
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