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Geoffrey Rocca

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  • Determining the Intrinsic Value of Gold [View article]

    Isn't that the same as a zero-coupon bond? The investor is banking on the probability of the issuer redeeming/buying back the bond at a higher price, or selling it to someone else in the future at a higher price. The difference is, the zero-coupon bond is expected to go up in price as it reaches maturity, but the principle is still the same. The investor takes a directional view on the bond price increasing. "

    The cash flow from a zero coupon bond is contractually determined; there is no speculation on what the figure might be. Nothing determines the price of gold when you decide to sell except the market levels. That is the difference, in Klarman's eyes and Saj's eyes, between investment and speculation.

    " Also over most horizons, Gold has outperformed every other equity/bond/currency index."

    Only very recently has that been the case, and a lot of that is caused by the current massive leap in the price of gold. If you start counting in 1971, stocks have still beaten gold by almost a full percent despite the recent run-up.

    And if you take an even longer view, in 1776 the price of gold was 3 pounds, 17 shillings, and 10.5 pence according to Adam Smith. The current price of gold in England is 814 pounds and change. That is a return on investment of 2.31%..
    Sep 16, 2010. 01:51 PM | 1 Like Like |Link to Comment
  • Good News: Expiration of Bush Tax Cuts Won't Kill Recovery [View article]
    I'm going to reply en masse rather than individually.

    DOGS THAT BARK: "I remember hearing same back when Bush tax cuts were introduced--and not good on graphs and charts but do remember the greatest tax revenue in history followed--not the doom and gloom projected by Krugman and others. "

    It took six years for that to happen, if you take inflation into account (five years without it), and by 2006 the real estate bubble was inflating anyway. In fact, by 2008 inflation-adjusted revenues were lower than 2000's despite a 17% increase in real GDP.

    Skinnyfrom Vinny : "First of all you should consider taxes that relate to businesses more heavily than personal, and then focus on ones that affect income, versus excise, sales, and related taxes. Second, you should use tax rates as opposed to tax collections."

    I thought about it, but tax rates don't often change much from one year to the next that often so there would be many GDP figures for a single tax rate figure, which really would overload a regression analysis. Besides, it's not the nominal rate of taxation, but the effective rate, that matters in my view, hence the use of percentage of GDP.

    "I would suggest a study aimed at correlating changes in some mix of business and personal income taxes (weighted toward business) with changes in income levels, as opposed to just raw income and tax numbers."

    I'm glad you asked. For corporate income taxes, the correlation between corporate tax revenues as a portion of GDP (which I used to broadly capture changes in income levels), as compared to GDP growth in the next three years, the r-squared was .003. For income taxes as a portion of GDP, the r-squared was .070. If I flatly combine the two, I get an r-squared of .0007, and if I double the contribution of corporate taxes, I get an r-squared of .0001.

    So the correlation still isn't there.

    Davidingeorgia: "The amount of taxes collected increasing or decreasing does NOT equal tax rates being raised or lowered, so you're not even testing what you claim to be testing here."

    If I were using dollar amounts, yes, but taxes as a portion of GDP reflect changes in the tax base and thus bring us closer to calculating the effective tax rates on the economy.

    "Everything that I've read on the subject indicates that lower tax *rates* lead to increased tax revenues which supports exactly the opposite of what you're claiming."

    I never made any claims about the effect of tax rates on tax revenue. I was talking about the effect of tax rates on GDP growth.

    Greg Sneddon: "I agree with davidingeorgia. You're not testing what you claim to be testing. You probably have come closer to proving that raising taxation rates has little or no effect on increasing revenue to the treasury."

    See above. I may have done so in the article you read, but not in the article I wrote.

    TBill "Lowering tax rates boosts the economy, works 100% of the time it is tried. How's that for correlation?"

    Based on statistical data, this is not the case, unless you have your own statistical analysis I haven't seen.

    "Since you are of the soak the rich mentality,"

    I never once mentioned the rich. My opinion of the rich has nothing to do with the conclusions of my analysis. I suppose that the CEO of Intel is rich, but I didn't mention him because of it.
    For those of you who didn't receive a reply, I either agree with what you said, or my reply would be duplicative, or I disagree but don't want to start a political debate in what is really a facts and figures discussion. I'm sure you'll know which category you fall under.

    Thank you all for your interest.
    Sep 6, 2010. 01:55 PM | 1 Like Like |Link to Comment
  • United Online Needs Some Traction [View article]
    They tried to spin it off in 2007, and had to withdraw the offer. I haven't heard anything about them trying again.
    Sep 2, 2010. 01:48 PM | 1 Like Like |Link to Comment
  • Is There an Austerity Trap? [View article]
    World War 2 is credited with getting the US out of the great depression.

    World War 2 is the least austere thing we could possibly have done.
    Aug 31, 2010. 12:34 PM | 1 Like Like |Link to Comment
  • Yes, Gold Is a Decent Inflation Hedge, But It's a Lousy Investment [View article]
    $35 to $1215 in 39 years isn't 89.7% a year; it's actually 9.5% a year.

    Between Jan 1, 1971 and Dec 31, 2009, stocks returned an annualized return of 10.06%.

    They do teach compound interest in Econ 101.
    Jul 9, 2010. 05:43 PM | 1 Like Like |Link to Comment
  • Yes, Gold Is a Decent Inflation Hedge, But It's a Lousy Investment [View article]
    Read Adam Smith. The correct measure of the price of bread, or the other necessities of life, is hours of work, not ounces of gold.
    Jul 9, 2010. 05:34 PM | 1 Like Like |Link to Comment
  • The Dow Yields More Than 10-Year Treasuries [View article]
    "And if you’re valuing stocks on some kind of discounted-cash-flow basis, then your valuations should be soaring right now, as long-term interest rates continue to fall. Which probably just demonstrates the limitations of DCF analysis more than anything else."

    Indeed. You can't discount long term cash flows based on what rates are now; you have to consider what rates are likely to be in future, which is probably a good chunk higher.
    Jul 1, 2010. 04:48 PM | 1 Like Like |Link to Comment
  • Apple Trading At 2.56x 2016 Cash Flow [View article]
    Well, interest rates aren't 15%, are they?

    Fine, you pick a number for your required return on equity, compound it for five years, and tell me if the result is significant or not. I'm all ears.
    Dec 11, 2012. 02:43 PM | Likes Like |Link to Comment
  • Apple Trading At 2.56x 2016 Cash Flow [View article]
    Did you ever consider why interest rates are so low? The economy is fragile, which calls for a bigger risk premium. If anything, 10% is low.
    Dec 11, 2012. 02:23 PM | Likes Like |Link to Comment
  • Apple Trading At 2.56x 2016 Cash Flow [View article]
    If one were considering lending money to Apple, maybe, but the equity risk premium doesn't just go away when interest rates are low.
    Dec 11, 2012. 01:57 AM | Likes Like |Link to Comment
  • Treasurys continue to sell off, the yield on the 10-year of 1.78% is the highest since May, and up from 1.39% in 3 weeks. Prices are far from cheap though. A buyer today would lose 6.78% of his/her principal - equal to more than 3 years of coupons - with an increase in yields of just another 50 basis points (h/t tradefast). TLT -5.4% since July 24. [View news story]
    So a 10 year bond has a duration of 13.56 years?
    Aug 15, 2012. 03:18 PM | Likes Like |Link to Comment
  • U.K. GDP -0.7% Q/Q in Q2 vs. consensus of -0.2%. (PR)  [View news story]
    I see the austerity is working as intended, then.
    Jul 25, 2012. 05:26 AM | Likes Like |Link to Comment
  • Owens-Illinois: A Leading Glass Company At A Very Good Price [View article]
    I agree that the debt level is significant but in my view Owens-Illinois can handle it. Setting aside the adequacy of the interest coverage ratio, the long term contracts with inflation adjustments give the company stability of margins. Also, the company's major customers produce consumer staples (soda, beer, wine), and glass bottles have no direct substitutes considering the consumer preference for them.
    Jul 22, 2012. 08:08 PM | Likes Like |Link to Comment
  • Chiquita: Valuation And Analysis Series (Part 2) [View article]
    As a frustrated long of CQB I may not be in a strong position to argue for the defense of the company, but I don't think the $1.9 billion in purchase commitments for bananas and other produce should necessarily count as part of the enterprise value. What they purchase, they can resell (hopefully) at a profit, unlike the other obligation which are in respect of value already received, and also if they didn't purchase under those obligations they would presumably be buying the same produce on the open market anyway when the times comes.
    Jun 23, 2012. 02:35 AM | Likes Like |Link to Comment
  • A Simple Formula For The Fair Price Of Gold [View article]
    Or it means that people mining gold by spending more than its fair value are just wasting money.

    Just sayin'.
    Jan 3, 2012. 03:45 PM | Likes Like |Link to Comment