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Jake Huneycutt  

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  • Krispy Kreme: Strong Growth And Great Turnaround, But Is It Overpriced? (Value Invasion, Episode 2) [View article]

    The only reason I'm reluctant to take a stronger case for buying is that the restaurant sector, by its nature, tends to get hit hard during downturns, and I question whether the recovery is about to weaken. KKD lacks that "margin of safety" I prefer if the broader economy gets hit, but otherwise looks reasonable. If the economy continues to slog along, I think KKD is one of the better buys in the restaurant sector right now, and could easily push up to $25 or $30 based on strong fundamentals.
    Apr 22, 2014. 06:02 PM | Likes Like |Link to Comment
  • The 25 Best Authors On Seeking Alpha [View instapost]

    Thanks for including me. I feel honored to make the list. Others have already said it, but I fully agree: if it were anyone else's list, you should be on there as well! Definitely appreciate your articles.
    Apr 19, 2014. 04:40 PM | Likes Like |Link to Comment
  • Five Major Underreported Economic Threats [View article]

    What part of the article was wrong? Be explicit.

    From my perspective, you seem to be saying this:

    "Your article says a bunch of things that I simply made up. And those predictions that I made up were WRONG!"


    If anything, this article looks rather prescient in hindsight. The Puerto Rican situation has stabilized a bit, but the rest has continued to play out. Mortgage lending has fallen significantly as a result of Dodd-Frank in the US, pushing interest rates down (one of the issues I highlighted). Italy continues to struggle on the growth side. And Russia's military occupied the Crimea in Ukraine --- which plays right into my bit on elevated risks coming from oil-producing nations, which are now increasingly desperate. Venezuela and Brazil, two other oil-producing nations, are also having significant issues.
    Apr 19, 2014. 03:47 PM | Likes Like |Link to Comment
  • Bank Of Internet: Higher Rates Will Compress Margins For Bank Priced At 3.5x Book Value [View article]

    Property and equipment is rarely a significant portion of a bank's book value. For the average bank, loans and securities constitute the vast majority of "total assets." PP&E is often less than 1% of total assets.
    Apr 8, 2014. 07:43 PM | Likes Like |Link to Comment
  • Bank Of Internet: Higher Rates Will Compress Margins For Bank Priced At 3.5x Book Value [View article]
    Banks are often valued based on P/B or P/TCE ratios, since ultimately, they are in the business of assets. AMZN and WMT are both "cash-cow" type businesses, so it wouldn't make nearly as much sense to value them based on P/B ratios.

    BofI is a bank, so it absolutely makes sense to treat it like one. The fact that it operates mostly on the Internet does not change the nature of its business. Besides, the author suggests that BofI deserves a higher multiple than most banks; but that the current multiple is excessive.
    Apr 8, 2014. 10:50 AM | 1 Like Like |Link to Comment
  • Bank Of Internet: Higher Rates Will Compress Margins For Bank Priced At 3.5x Book Value [View article]
    Excellent article, KCM.

    Personally, I'm a bit contrarian on interest rates. I'm not so sure we'll see a significant increase in rates, but BOFI could also suffer from the opposite end if asset yields decline.
    Apr 8, 2014. 10:24 AM | 1 Like Like |Link to Comment
  • Introducing "Value Invasion": A Web TV Show On Value Investment [View instapost]

    Outro is from Gioachino Rossini's "The Barber of Seville".
    Apr 6, 2014. 10:30 AM | Likes Like |Link to Comment
  • Un-Redeeming Greenspan: Why The Fed Was To Blame For The Housing Bubble [View article]

    Keep in mind that due to unconventional policy measures (such as QE), it's now more difficult to quantify Fed actions post-2008, as the Fed Funds Rate is less meaningful. Overall, my position is that the Federal government has tightened credit via Dodd-Frank and other regulatory actions, and that the Fed has tried to compensate by running QE and other unconventional measures. Unfortunately, I don't think this approach has worked, and rather has simply pushed too much money into certain areas (corporate debt, emerging markets, stock market), and too little into others (mostly housing). In other words, we're fighting the last crisis rather than the current one.
    Apr 1, 2014. 12:30 PM | 5 Likes Like |Link to Comment
  • Fed rejection a shock to Citi [View news story]
    The biggest thing I've learned from analyzing banks over the past few years: Federal regulators are extremely arbitrary. Politics drives the banks more than most of us care to realize.

    The idea that C is "insolvent" or even "in trouble" is completely ludicrous. The same Federal regulators that did nothing prior to the financial crisis, are now trying to compensate, by taking the extreme opposite position now.
    Mar 28, 2014. 05:20 AM | 3 Likes Like |Link to Comment
  • The Wal-Mart Economy [View article]
    Thanks for the thought-provoking article, SU.

    I'd argue that a few things:

    (1) Post 2008, the US has seen massive demand destruction,
    (2) US Federal govt policies, such as Obamacare, Dodd-Frank, and new taxes, have increased prices,
    (3) Higher prices have significantly harmed the recovery in demand,

    (4) The Fed's response to this has been QE,
    (5) QE increases investment demand, but not end-user demand,
    (6) W/ no increase in end-demand, returns on investment fall over time,
    (7) Lower ROIs make capital investment less attractive over time,

    (8) Lower returns on assets lead to austerity at the state and local level, where defined-benefit pension plans w/ high actuarial returns are the norm
    (9) Going back to prices, QE actually increases prices for assets such as real estate, which increases end-prices for corporations, further sapping long-run demand

    I'm not going to say every policy has been bad. The tax cuts of 2009 helped, but have since been reversed. US has also benefited massively from a few trends, including the shale oil revolution. And yet, even with that, we're still in low-growth mode.

    QE actually increases risks for future crises significantly. It's inflationary short-term (leads to a short-term surge in buying for certain assets), but disinflationary long-term (beats down the long-term ROIs and is reversionary).

    In spite of record cash balances, corporations can find nothing to do with that money that so increasingly buy back shares; a completely unproductive waste in most cases.

    Some thoughts on how to fix it:

    (1) First off, dividends should be taxed at a lower rate than capital gains. Dividends at least redistribute wealth back out to shareholders, who then might conceivably invest in higher-return projects. Other benefits: incentivizing dividends generally results in more honest companies, as dividends are the most authentic "proof of earnings"; also force companies into being more responsible with capital.

    (2) US tax code has become overly complex and completely unwieldy. Needs to be streamlined significantly. Studies have shown that tax compliance costs in US run in the hundreds of billions (maybe even close to $1 trillion); a sizable amount given the size of the economy. It's low-hanging fruit, but politics has prevented it from being taken advantage of.

    (3) US needs major reforms of entitlement programs, which are another drag on fiscal policy. It's a form of "hidden austerity", since it results in higher taxes, and lower govt spending in other areas (as govts tend to cut pretty much everything else first, even productive research).

    (4) The Affordable Care Act and Dodd-Frank were both huge mistakes. Both have increased prices, with very few benefits.

    (5) While nothing the Federal govt could do about this, many state and local governments need to loosen up real estate development requirements, as tight policies are leading to higher cost-of-living in places like Silicon Valley. SV could probably employ another million plus people if there was simply enough housing at affordable rates.

    In sum, I think the US has taken a completely backwards approach to the crisis. We've used legislative policy to impose much higher costs on businesses. We've tried to offset that via the Fed, but monetary policy only temporarily lowers costs (and is reversionary), and tends to incentivize certain forms of investment over others (e.g. higher fixed asset investment over R&D). QE has likely done very little to stimulate true end-user demand.

    Just my thoughts on matters. Admit I'm not a Keynesian, nor an Austrian, but I've found a lot of insight from both schools.
    Mar 6, 2014. 12:30 PM | 9 Likes Like |Link to Comment
  • Italy: The New 'Powder Keg' Of Europe [View article]
    Dear Andrew,

    I have no shorts on Italian bonds. However, if I did I would be in the black right now.

    ITLY - Up 0.4% since 2/19
    TLH - Up 1.1% since 2/19

    As you can see the US Treasury ETF has outperformed the equivalent Italian Treasury ETN.

    While a long US bonds / short Italian bonds pair trade is interesting, I've not done it mostly due to liquidity reasons and also due to the Eurozone's penchant for arbitrary political intervention.
    Feb 27, 2014. 01:04 PM | Likes Like |Link to Comment
  • Italy: The New 'Powder Keg' Of Europe [View article]
    Great comment and thanks for the kind words, James.

    Admittedly, the biggest thing I seem to be learning from the comments is how dissatisfied the Dutch might be with the Euro. It would be an interesting twist if one of the Northern European nations decided to leave the eurozone first.
    Feb 21, 2014. 02:15 PM | 1 Like Like |Link to Comment
  • Italy: The New 'Powder Keg' Of Europe [View article]

    Thanks for the well-detailed rebuttal.

    As I've pointed out in earlier comments, the comparison to Japan is simply not apt. Japan is a sovereign issuer of its own currency. Italy is not.

    A bet on Italian bonds 'becoming like JGBs' is essentially a bet that the Eurozone restructures. I'm not saying this won't happen; but rather that it's a bet on the politics of the region, moreso than the economics.

    While I did not cover it in this article, I think there's a better case for US treasuries to go the route of JGBs than Italian bonds. You have to understand that the US and Japan are both sovereign issuers of their own currency, but Italy's debt is external. In a practical sense, that means that long-term disinflation should generally lead to rising bond prices in the US and Japan, and falling bond prices in Italy (as default risk increases).

    As for Italian stocks being significant undervalued historically --- so were American stocks in 1930. The eurozone in 2010 is similar, in many ways, to the US in 1930. The US suffered a recession that turned into a long-term depression because of tight monetary policies promoted Federal Reserve. These policies were a result of regulations relating to gold that inhibited the Fed from increasing money supply.

    The eurozone has a lot of similarities to the US in the early Federal Reserve era. The Italian labor market is uncompetitive due to the Euro, while German labor has become cheap. The problem is that it's difficult for the ECB to enact any policy that fixes this disparity without angering some political constituency. Instead, they enact a policy like the LTRO (which is very similar to the Fed's QE, btw) which beats down bond yields, but does so in a blunt-force fashion that doesn't necessarily remedy other issues.

    What happens when the LTRO ends? Does the ECB renew it again? Does it let it expire and lead to a bout of monetary contraction? I don't know personally, but I wouldn't bet on things improving much in Italy without constant ECB and / or German govt intervention. And personally, I'm not sure whether the political will exists for that.

    And if Italy leaves the Euro (which I strongly believe they should do), Italian bonds are going to get obliterated. Italian equities (which will also likely get hit) will then suddenly become more interesting.
    Feb 20, 2014. 08:26 AM | 2 Likes Like |Link to Comment
  • Italy: The New 'Powder Keg' Of Europe [View article]
    Shareholders Unite,

    Thanks for the kind words.

    I agree that there is a good deal of low-hanging fruit. On the other hand, the skeptic in me says that national politics rarely seems to push towards those solutions, as they inevitably stomp on someone's toes, and normally that "someone" is well-connected.
    Feb 19, 2014. 05:53 PM | Likes Like |Link to Comment
  • The Turkish Debt Dilemma [View article]
    Excellent article, Jon. Thanks for this.
    Feb 19, 2014. 05:04 PM | Likes Like |Link to Comment