An interesting thought experiment: take Amazon net margin during the "good years" and subtract an average US sales tax it didn't have to collect until this year, say, about 4-5% (and adjust for income tax). If Amazon kept all prices the same and collected sales tax, it would have about zero margins.
Which leads to a simple conclusion: Amazon has to raise prices and lose a lot of sales in hyper-competitive on-line shopping business.
I live in New York where Amazon collects 8.75% sales tax and usually buy from Ebay (no sales taxes) anything above $200 because it's usually cheaper even if I have to pay shipping. Amazon prices are simply not competitive.
3 Safe Micro-Cap Stocks For A Turbulent Market [View article]
Thank you for your comments, and especially the data on Llloyd Miller selling out its stake (I missed that).
If history is to repeat itself, we'll see another (mindless) run-up early next year pre-dividend, followed by another (mindless) sell-off post-dividend.
Very good article. Some people just never learn. China is still a socialist country with some capitalist characteristics. Absent a drastic reform, China will follow Japan from a development stage right into a slow decline, skipping the prosperity phase Japanese at least had a chance to enjoy for a couple of decades.
3 Safe Micro-Cap Stocks For A Turbulent Market [View article]
I don't think so. There would be an SEC filing if there was a publicly known investigation and etrade doesn't have access to non-public information. Most likely an etrade trading bug.
3 Safe Micro-Cap Stocks For A Turbulent Market [View article]
Thanks for reading my article. It's fair to point out that MNDO has been paying out all its earnings as dividends for several years. This gave it a very robust dividend of 12-16%. It also prevented its stocks from appreciation as there's been no "retained earnings". Overall, an average long-term MNDO investor shroud be quite happy with the total return.
Is Australia Still The Lucky Country? (Part 1) [View article]
Colin,
Thanks for referencing my article. I have to disagree (as you might expect) with your premise. I stick to the point that the root cause of a financial crisis was unbalanced Chinese growth that pushed global interests rates artificially down, commodity prices up, and inflated bubbles everywhere from Ireland to Spain, Iceland to Greece, United States to Australia. Any hard asset that could go up in price, has gone up in price financed by the debt binge. I recommend reading "Fault Lines" by Rajan for a very good analysis of the underlying causes (http://amzn.to/OmRxQj).
Whereas all other bubble economies are undergoing a very painful adjustment, the Australian bubble is yet to truly pop. Australia has not had a recession in over 20 years which means that necessary economic adjustments have not occurred. Property prices are very mean reverting over a long period of time and should roughly trace country per capita GDP growth. You may argue that Australia is "different this time", but we all know how this argument ends.
Just my 2c., I still appreciate your article which gives a good argument against my views.
Amazon (AMZN) releases somewhat broad sales numbers for its Kindle Fire line, tipping off that they generate 22% of all tablet sales in the U.S. Analysts will be burning up their calculators to estimate the impact on AMZN's earnings, but early word is that the market share is higher than forecast. Stay tuned. [View news story]
The release doesn't cite the source. 22% doesn't sound plausible based on a casual observation. Maybe Amazon meant that Fire captured 22% of Kindle market? That sounds about right.
Very good article overall. I would caution a bit at looking at the growth of a book vale. JBLU has a large CapEx because it's growing. Therefore, it's forced to plow cash into deprecating assets (planes). This leads to the book value growth and cash flow lagging its earnings.
Once the company stops growing, the already depreciated assets get turned into cash and the book value growth will start outpacing the earnings. So comparing JBLU book value growth to that of a more mature Southwest may not paint an objective picture.
Another reason JBLU may perform well because it's an attractive acquisition target due to its smallish size and lower liabilities.
Amazon: It Is Amazing How Overvalued Its Share Price Is [View article]
I am surprised how few people brought up Amazon's questionable accounting (I believe Paulo Santos is a notable exception). Their gross margin are artificially inflated that would have been much lower in a more conservative accounting treatment.
So called "investment-for-the future" CAPEX and SG&A is actually misclassified "cost of sales". For example, "fulfillment" expense is, at least partially, "cost of sales". Just think of it: selling a $10 item for $20 with free shipping/handling that cost $5, should result in a $5 gross profit, not $10. This $5 essentially is a sales discount that should come off the top line.
Yet Amazon books $10 to "gross profit" (50% gross margin) and $5 expense to SG&A.
Zynga Continues To Dominate And Expand Social Gaming As COO Schappert Exits [View article]
"Everyone can make a stupid mistake once in a while, but some people clearly abuse the privilege." - attributed to Joseph Stalin.
I checked that author's prior recommendations, and his track record is just surreal. He was "bull" on WaMu and Wachovia in 2008, wrote an article about Fannie being attacked by "evil shorts" about a month before its nationalization, and assigned Groupon a $15 price target in May.
Having said that, ZNGA has some value, but it's not in its (probably flawed) business model which relies on Facebook for most of its revenue. ZNGA has a large cash pile (50% of its cap) which can buy it a lot of time to restructure its business.
Buying ZNGA equity and selling very expensive covered calls against it, may be a good way to go. Alternatively, one can sell "naked" puts for March whose price implies that ZNGA has about 30% being bankrupt by then (much less likely).
ZNGA is a flawed business with very attractive financials.
Australia: Safe Haven Or Just Core Exposure? [View article]
Roger,
I believe you are way to sanguine about Australian prospects. Let me add several other major exposures not metioned in your "bear case":
- Death of manufacturing (I don't see too much Yellowtail wine on store shelves) - Extreme reliance of Australian banks on wholesale funding (loan/deposit ratios way above 100%) - Highest in the developed world consumer indebtedness over 100% of GDP
I am also doubtful about "diversification" argument. Australia has a very high correlation to the world economy. Just check SPY and EWA correlation.
I've noticed that you got interested in Chinese internet companies. What's your take on the fact that most of the Chinese companies "listed" in US are actually "shell" holding companies, which hold "variable interest entities" incorporated off-shore, which in turn, hold assets of the actual operating businesses. It looks like any entity assets can be taken away by Chinese government at will without any compensation.This seems to be the case with all large Chinese companies.
What are your thoughts on shareholder rights should China economy tank?
Under-performance of an average hedge fund vs. a passive ETF is quite eye-catching. For example, Alerian MLP index YTD returned 4.3% through July 31 while HFRI MLP Index only 1.3%. The difference seems slightly larger than 2/20% fee structure: 2% + 20% * 1.3% = 2.26% so the HF lost to a passive index even when the fees are added back! At the same time, if you bought AMLP ETF, your return would have been 2.3%.
The Truth About Amazon's Margins [View article]
Which leads to a simple conclusion: Amazon has to raise prices and lose a lot of sales in hyper-competitive on-line shopping business.
I live in New York where Amazon collects 8.75% sales tax and usually buy from Ebay (no sales taxes) anything above $200 because it's usually cheaper even if I have to pay shipping. Amazon prices are simply not competitive.
3 Safe Micro-Cap Stocks For A Turbulent Market [View article]
If history is to repeat itself, we'll see another (mindless) run-up early next year pre-dividend, followed by another (mindless) sell-off post-dividend.
China's Solyndra Economy [View article]
3 Safe Micro-Cap Stocks For A Turbulent Market [View article]
3 Safe Micro-Cap Stocks For A Turbulent Market [View article]
MNDO and LACO are even more egregiously underpriced than KSW.
3 Safe Micro-Cap Stocks For A Turbulent Market [View article]
Is Australia Still The Lucky Country? (Part 1) [View article]
Thanks for referencing my article. I have to disagree (as you might expect) with your premise. I stick to the point that the root cause of a financial crisis was unbalanced Chinese growth that pushed global interests rates artificially down, commodity prices up, and inflated bubbles everywhere from Ireland to Spain, Iceland to Greece, United States to Australia. Any hard asset that could go up in price, has gone up in price financed by the debt binge. I recommend reading "Fault Lines" by Rajan for a very good analysis of the underlying causes (http://amzn.to/OmRxQj).
Whereas all other bubble economies are undergoing a very painful adjustment, the Australian bubble is yet to truly pop. Australia has not had a recession in over 20 years which means that necessary economic adjustments have not occurred. Property prices are very mean reverting over a long period of time and should roughly trace country per capita GDP growth. You may argue that Australia is "different this time", but we all know how this argument ends.
Just my 2c., I still appreciate your article which gives a good argument against my views.
Amazon (AMZN) releases somewhat broad sales numbers for its Kindle Fire line, tipping off that they generate 22% of all tablet sales in the U.S. Analysts will be burning up their calculators to estimate the impact on AMZN's earnings, but early word is that the market share is higher than forecast. Stay tuned. [View news story]
JetBlue: Moderate Leverage, Strong Performance, Reasonable Valuation [View article]
Once the company stops growing, the already depreciated assets get turned into cash and the book value growth will start outpacing the earnings. So comparing JBLU book value growth to that of a more mature Southwest may not paint an objective picture.
Another reason JBLU may perform well because it's an attractive acquisition target due to its smallish size and lower liabilities.
Cisco Recognizes The Commodity Trap [View article]
You obviously meant $100B.
Amazon: It Is Amazing How Overvalued Its Share Price Is [View article]
So called "investment-for-the future" CAPEX and SG&A is actually misclassified "cost of sales". For example, "fulfillment" expense is, at least partially, "cost of sales". Just think of it: selling a $10 item for $20 with free shipping/handling that cost $5, should result in a $5 gross profit, not $10. This $5 essentially is a sales discount that should come off the top line.
Yet Amazon books $10 to "gross profit" (50% gross margin) and $5 expense to SG&A.
Zynga Continues To Dominate And Expand Social Gaming As COO Schappert Exits [View article]
I checked that author's prior recommendations, and his track record is just surreal. He was "bull" on WaMu and Wachovia in 2008, wrote an article about Fannie being attacked by "evil shorts" about a month before its nationalization, and assigned Groupon a $15 price target in May.
Having said that, ZNGA has some value, but it's not in its (probably flawed) business model which relies on Facebook for most of its revenue. ZNGA has a large cash pile (50% of its cap) which can buy it a lot of time to restructure its business.
Buying ZNGA equity and selling very expensive covered calls against it, may be a good way to go. Alternatively, one can sell "naked" puts for March whose price implies that ZNGA has about 30% being bankrupt by then (much less likely).
ZNGA is a flawed business with very attractive financials.
Australia: Safe Haven Or Just Core Exposure? [View article]
I believe you are way to sanguine about Australian prospects. Let me add several other major exposures not metioned in your "bear case":
- Death of manufacturing (I don't see too much Yellowtail wine on store shelves)
- Extreme reliance of Australian banks on wholesale funding (loan/deposit ratios way above 100%)
- Highest in the developed world consumer indebtedness over 100% of GDP
I am also doubtful about "diversification" argument. Australia has a very high correlation to the world economy. Just check SPY and EWA correlation.
China's Transition Continues [View article]
I've noticed that you got interested in Chinese internet companies. What's your take on the fact that most of the Chinese companies "listed" in US are actually "shell" holding companies, which hold "variable interest entities" incorporated off-shore, which in turn, hold assets of the actual operating businesses. It looks like any entity assets can be taken away by Chinese government at will without any compensation.This seems to be the case with all large Chinese companies.
What are your thoughts on shareholder rights should China economy tank?
Why Investors Should Avoid Hedge Funds [View article]
http://bit.ly/P8q48D.
Under-performance of an average hedge fund vs. a passive ETF is quite eye-catching. For example, Alerian MLP index YTD returned 4.3% through July 31 while HFRI MLP Index only 1.3%. The difference seems slightly larger than 2/20% fee structure: 2% + 20% * 1.3% = 2.26% so the HF lost to a passive index even when the fees are added back! At the same time, if you bought AMLP ETF, your return would have been 2.3%.