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Have IBM's Share Repurchases Created Value?
- IBM has repurchased over $100 billion in its own shares since 2004 (about two-thirds of its own market cap).
- Given the large size of IBM's share purchases, it's worthwhile to examine whether the buybacks have created value for IBM shareholders.
- My analysis suggests that IBM's buybacks neither created nor destroyed value from 2004 to 2013.
How Low Can Oil Fall?
- Oil prices aren't returning to $100 any time soon.
- Technological innovation in oil extraction will keep production costs lower, while alternative technologies such as electric cars will slowly chip away at oil demand growth.
- We're more likely to see oil trading in the $40 - $75 range over the next few years.
- Low cost oil producers selling at a discount will be better investments than speculating on a high-cost producers and a return to $80 - $100 oil.
Taking A Look At Historical Natural Gas Prices
- Natural gas has been in a bear market since late 2008.
- Natural gas prices are currently about 15% - 30% below historical inflation-adjusted levels.
- If history is any guide, natural gas producers could become very attractive investments sometime in the next 2-5 years.
Share Buybacks And Value Destruction
Wed, Jan. 14 • 13 Comments
- Share buybacks are neither inherently good nor inherently bad.
- Share repurchases should be analyzed in the context of a company's intrinsic value, its market value, and its potential growth opportunities.
- Too many companies use share buybacks as a "default option" when they can't find other internal projects to invest in --- this can be a red flag.
America's Disinflationary Future?
- The US could suffer from a low-growth, disinflationary future, similar to Japan after the collapse of the Japanese asset bubble.
- Policies of the Federal Reserve, such as QE, have increased the likelihood of disinflation.
- QE incentivizes short-term investment at the expense of long-term investment.
- Interest rate suppression results in a cycle of subdued returns, lower investment, and lower growth.
- Fed policies that have suppressed interest rates will increase likelihood of future issues with pension funds, resulting in austerity (higher taxes and / or lower benefits).
Projecting The Forward Returns On The S&P 500 Index
- Savvy investors focus on forward returns, rather than the past.
- Forward returns on the S&P 500 over the next five years are likely to be in the 1% - 6% range, well below historical averages.
- The S&P 500 appears to be moderately overvalued.
- A 20% correction in the S&P 500 would be needed before hitting an expected 5-year forward return of 8%.
The Central Bank Boom Is Creating Huge Risks For Investors
- Flawed macroeconomic policies create significant market risks and can quickly undermine valuations.
- China's US bond buying binge, along with loose Federal Reserve policies, helped fuel the US housing bubble from 1997 - 2005.
- There's a significant correlation between US Federal Reserve bond buying activity and the US stock markets since 2007.
- The market's reliance on central bank stimulus is creating significant downside risks for investors.
- A defensive posture, focusing on attractively-priced dividend stocks and holding extra cash, can help cushion against potential downside risks.
Krispy Kreme: Strong Growth And Great Turnaround, But Is It Overpriced? (Value Invasion, Episode 2)
- In spite of a high P/E multiple, KKD's stock price is justified.
- Over the past decade, KKD has transformed from a dysfunctional company with insolvency risks into a cash flow machine.
- Strong management, attractive business model, great cash flow growth, and a reasonable valuation make KKD an OK buy.
- KKD has some upside potential due to deleveraging, which could make an LBO offer attractive to a private equity firm.
- High growth expectations embedded in the stock price provide KKD with less "margin of safety" than might be desirable for many value investors.
Un-Redeeming Greenspan: Why The Fed Was To Blame For The Housing Bubble
Apr. 1, 2014 • 31 Comments
- Christopher Matthews' case for "Redeeming Greenspan" is based on a flawed understanding of monetary policy.
- The Greenspan Fed aggressively lowered interest rates in the early 00's in spite of surging housing prices, strong loan growth, and high money supply growth.
- "Cheap money" policies by the Greenspan Fed altered the economics of housing, incentivizing both banks and borrowers to engage in reckless behavior.
- The Greenspan Fed deserves the lion's share of the blame for the housing bubble and subsequent financial crisis.
Bank Money Is Contracting (And Other Hidden Statistics)
- While overall money supply in the US is increasing, bank money appears to be declining, possibly due to Dodd-Frank and tighter Federal regulations.
- Tighter regulations, coupled with loose Federal Reserve policies have created an odd combination of de-leveraging in some categories and surging debt in others.
- The above-average spread between the Federal Funds Rate and US treasuries, alongside of weak loan demand may suggest that US treasuries are undervalued.
- Mortgage REITs appear attractive at current prices given economic data.
- Italy: The New 'Powder Keg' Of Europe
- The Crisis Of Modern Economics
High Margin Debt And Quantitative Easing
Feb. 4, 2014 • 9 Comments
Don't Worry About Being 'Right'; Focus On Risk Vs. Reward
Editors' Pick • Jan. 19, 2014 • 73 Comments
- Five Major Underreported Economic Threats
- 2014: Stealth Tightening, Hidden Austerity, And The Potential For Recession
- Bubbles, Crashes, And Market Corrections, Part 2: 1900 - 1925
3 Year M2 Money Supply Growth At Highest Level Since 2003
Oct. 15, 2013 • 3 Comments
- Bubbles, Crashes, And Market Corrections, Part 1: 1871 - 1900
- Amazon: Much More Profitable Than Perceived And A Foolhardy Short
- Examining Historical Margin Debt
- Now Is The Time To Be Fearful
- The Budget Deficit Is Still A Huge Problem
- 7 Reasons Why Zillow Is Extremely Overpriced
- Potash Producers Look Expensive Even After Plunge
- Panic In China: Malinvestment, Deflation, And The Next Emerging Market Crisis
- 5 Inexpensive Stocks In An Overheated Market
- The Housing Rebound And Why The Fed Should Begin Tightening
- McMarket Share: How The Golden Arches Could Benefit From Obamacare
- Deteriorating Franchisee ROE: Why I'm Short On Sonic, Part 3
- Carhops, Coneys, And Healthcare: Why I'm Short Sonic Drive-Ins, Part II
- Carhops, Coneys, And Healthcare: Why I'm Short Sonic Drive-Ins, Part I