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Jake Huneycutt  

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  • Netflix CEO Reed Hastings Responds to Whitney Tilson: Cover Your Short Position. Now. [View article]
    While I agree with Whitney's short thesis, I have to admire Hasting's forthrightness and integrity in responding to it. It's easy to see in his response why NFLX has one of the best management teams around; Hastings is a big part of that.

    All the same, I do not believe the issues looming ahead have that much to do with the quality of management; rather, the issues ahead have everything to do with the completely different economics behind streaming video (vs. DVD-by-mail), and the market's failure to realize this in valuing NFLX. Even if NFLX has the best management in the business, does that change the fact that the barriers to entry in the streaming video market are much lower than they were in DVD-by-mail?

    I virtually never bet against good management, even when a company is very overvalued. But in rare instances, there are cases where I feel as if the market has a basic misunderstanding of the profitability that lies ahead in an industry. We saw it in the Internet bubble. Maybe we're seeing it with NFLX now, as investors assume that NFLX can continue to earn abnormally high profit margins moving forward, without attracting intense competition (and without their content providers demanding a larger piece of the pie). Then again, maybe Tilson (and I) are wrong about this.

    For disclosure purposes, I own some small, long-dated puts on NFLX.
    Dec 20, 2010. 01:54 AM | 41 Likes Like |Link to Comment
  • The Truth About the U.S. Housing Market [View article]
    This is a flawed analysis on multiple levels.

    First off, the author's basic declaration that no one focuses on supply is false. Almost all housing statistics are supply-related. You can find how many housing starts there were. You can find total estimated number of housing units. You'll have difficulty finding more demand oriented statistics, however.

    Next off, the author ignores the fact that most of the 'restrictive land use' cities also happen to be large, urban areas that, by their nature, lack land. Cities with denser population will have lesser availability and higher prices. Likewise, cities with natural, geographic barriers (San Francisco Bay, New York, Miami, Boston, Chicago, etc) will have more limited availability.

    Finally, there's really not much of a connection even ignoring all that I said above. Atlanta and Detroit made the 'least restrictive areas' list, but they also had some of the worst housing bubbles. So that theory doesn't work out too well. In fact, you could argue that Atlanta's property values are held back precisely because the lack of housing regulations, which has created incoherent design, so that everything is sprawled out. This in turn prevents economic efficiencies from being achieved, which would cause the property values to rise more.

    The author also ignores the fact that transportation subsidies are one of the primary drivers behind suburban housing growth. If the US Federal government and various state governments did not subsidize the road system, it's much less likely that people would want to buy "cheaper land" 30 miles away from a major urban core, when they could pay more and live 10 miles away, but connected to everything.

    It's not that I don't buy into the author's idea that governments are distorting the housing markets. They absolutely do, and in most ways, it's detrimental! But this article really ignores too many common sense factors driving housing prices. Large cities like New York and San Francisco don't have high housing prices merely because of 'regulations.' They have a high level of regulations because of the dense population. (We'll ignore New York's fatally flawed rent controls for the time being --- but needless to say, those are detrimental.)

    Also, the author ignores the fact that "housing bubbles" almost always form in highly urban areas. It's rare to have major 'rural housing bubbles' because there are no real supply constraints. You'll only get bubbles in areas with supply constraints like densely-populated urban centers. So trying to compare the 10 large cities with smaller "Middle America" cities is fatally flawed from the get-go.
    Jan 6, 2011. 03:18 PM | 35 Likes Like |Link to Comment
  • 3 Attractively Priced Big-Dividend Stocks [View article]
    Any time someone begins a sentence with "writers such as yourself", you know it's got to be good.

    I've never written about PER until today. If you bought it at $24, you overpaid for it. Don't blame it on me. Figure what you did wrong and learn from your mistakes.
    Apr 4, 2013. 09:05 AM | 31 Likes Like |Link to Comment
  • The Third Depression? [View article]
    I don't think we're Japan to be honest. We've made a lot of the same, idiotic errors, but there was also more afoot with Japan's "Lost Decade" than meets the eye.

    The Japanese Asset Bubble developed after the Plaza Accord --- and that was no coincidence. Once purchasing power was increased after years of suppression, the result was an asset bubble like no other. Japan may have made errors post-crisis, but to me, the bigger mistake was years of mercantilistic policies that undermined them in the long-run. Japan's economic philosophy was always to try to use tricks to manipulate trade in their favor --- this is the predominant philosophy in East Asia right now still.

    The US is on the reverse side of this bubble. Just like it was on the reverse side of the '70s/'80s Japanese bubbles. China is Japan of the '70s/'80s. It hit a brick wall this past year as the cost-of-living and inflation have taken off, undermining its experiment to manipulate currencies in order to boost trade.

    China can either deal with rising prices, labor unrest, and weaker exports under their current regime of currency manipulation --- or --- they can start to appreciate the Yuan, watch purchasing power increase, and cross-their-fingers that falling prices help keep exports high, even while this allow other currencies to depreciate and other nations to gain exporting advantages over them.

    US economic growth would be restored if the Yuan were allowed to appreciate to its intrinsic value. It's not a coincidence that the US happened to suffer in the '70s and '80s as the Yen became extremely undervalued; and then grew robustly in the '90s once the Japanese bubble burst.
    Jun 28, 2010. 07:28 AM | 30 Likes Like |Link to Comment
  • Peter Schiff Has It Totally Backwards - Gold Is Not Going 'To The Moon' [View article]
    He was predicting it for like a decade or so before it actually happened; the old saying goes, "even a broken clock is right twice a day". Then he still managed to lose a ton of money even when he was "right".
    Jun 13, 2013. 12:10 PM | 23 Likes Like |Link to Comment
  • How Obamacare Could Harm Growth In 2014, Part III [View article]

    Thanks for your comment. However, I'd strongly disagree with most of your assertions and there's evidence contradicting most of them.

    1. $4K is probably a low-ball estimate. Average employer contribution to healthcare insurance was about $3,940 in 2010 and premiums have been rising rapidly since the ACA was enacted.

    2. Insurance spending will benefit the medical sector, no doubt. It will merely do so at the expense of other sectors of the economy. This means less investment in more viable areas, which likely means less job growth and lower long-term economic growth.

    3. The uninsured are not a major contributor to healthcare costs. This has always been a bit of a myth (it's the "Weapons of Mass Destruction" for Obamacare). Medicaid and Medicare are the primary drivers of high healthcare costs; not the uninsured, who are disproportionately younger than the broader population. Indeed, the entire idea behind Obamacare is that by forcibly requiring these younger, lower-cost consumers to purchase overpriced insurance, they will artificially lower the costs for the higher-cost consumers.

    4. The ACA redefines "full-time" to 30 hours.

    If anything, I think people are letting their political biases blind them to the economic realities of this bill. "Universal healthcare" is almost a religion amongst a certain political sect in American society. Yet, cold hard facts seem to demonstrate how this act is likely to harm the economy significantly.
    Mar 19, 2013. 04:52 PM | 21 Likes Like |Link to Comment
  • Washington State's Minimum Wage Experience [View article]
    This article has major issues.

    First off, Washington state's real minimum wage hasn't even changed in the past 12 months. It was increased from $9.19 per hour to $9.32 per hour, a 1.4% increase, that is based off of an inflation index. Therefore, posting a chart showing that Washington state's unemployment rate has fallen is kind of irrelevant.

    Even if Wash state had raised the real minimum wage, you'd have to look further than the unemployment rate over a 12-month period to reach any conclusions. For starters, the unemployment rate does not factor into account labor force participation. Likewise, the headline unemployment number examines people of all skill levels. You wouldn't expect an accountant making $50 / hour or an engineer making $75 / hour to be affected by a minimum wage of $9.32 / hour.

    In order to even begin to quantify the effects, you'd need to look at unemployment on a group of unskilled laborers. Unfortunately, there's no perfect measure but the employment to population ratio for individuals aged 16 - 19 years old is probably the best proxy.

    Since a series of Federal minimum wage hikes from 2007 - 2009, the employment ratio has dropped from around 35% to 26%, a very significant decline.

    There's also a bit research showing that European nations with minimum wages have higher unemployment than European nations without minimum wages.

    So far as I know, there are no major studies that look at the long-term impact of minimum wage laws on long-term income. My guess is that it results in reduced income over the long-term, since many younger individuals would prefer to accept lower wages, in exchange for experience and skills that would lead to higher income growth in the future. In fact, it's sort of silly that we make kids take out tens of thousands of dollars in loans to acquire technical skills that a century ago, they would've been able to acquire while earning a small wage (apprenticeship).

    Minimum wage's biggest legacy is the death of apprenticeship and the rise of student debt.
    Jun 3, 2014. 07:25 PM | 19 Likes Like |Link to Comment
  • Here's What Happened The Last Time The Fed Owned All Outstanding Treasuries [View article]
    Thanks for this analysis, Matt. I've never known all that much about the WWII period as far as monetary policy goes --- this is a great synopsis.
    Apr 4, 2013. 03:58 PM | 19 Likes Like |Link to Comment
  • Robert Shiller: Don't Invest In Housing [View article]
    Shiller seems to be operating under the flawed assumption that most buyers are all-cash buyers. Real estate, in general, is a terrible investment if you are an all-cash buyer. What makes it attractive is leverage.

    3% appreciation is basically equivalent to a 0% real rate of return. But with 9:1 leverage, that 3% appreciation, becomes a 30% return on equity. Even with 4:1 leverage, it's a 15% return on equity. And that is why real estate can be an attractive investment.

    This seems to be a case of Shiller having an expert understanding of the historical dynamics of the housing market prices, but seemingly having virtually no understanding of real estate finance. No one gets rich "owning" a home --- but many people have made fortunes buying leveraged real estate assets.

    Shiller also seems to be ignoring the economic alternatives. If you don't own a home, you must rent one. So the question isn't how much housing price appreciation is there --- it's whether the present value of buying is more attractive than renting.
    Feb 8, 2013. 04:31 AM | 19 Likes Like |Link to Comment
  • There Are Opportunities Everywhere - Barron's Interview [View article]
    He's right. It is the greatest time to be an investor for many of our lifetimes. It's too bad he's squandering the opportunity by buying overpriced companies like Strayer (STRA) and DeVry (DV).

    In all fairness, some of this other buys would've been good a few months ago. I'm not quite as sure if they are good buys now. Blue Nile (NILE) appears to be selling at a P/B over 30 and a P/E over 50. Even if you go by their record earnings in 2007, it's still at a P/E of over 33. That's an awful lot of growth already priced into the stock.
    May 3, 2009. 06:14 PM | 17 Likes Like |Link to Comment
  • Wal-Mart (WMT), McDonald's (MCD) and Starbucks (SBUX): Why do you pay your employees so little that most of them are poor? Profit margins at many big U.S. firms are near all-time highs, so there's plenty of room to pay more, but they've made the short-sighted decision not to do so. Henry Blodget thinks if they spent half their profit on better wages, it would help the employees, the companies and the economy.  [View news story]
    Wal-Mart's profit margins are fairly slim. From FY '09 - FY '11, they ranged from 3.3% to 4.0%. Not that atypical of retail. The idea that they could "pay more" is misinformed and based on populist myths about the economy. In order to pay more, they'd have to raise prices and become less competitive. Then people would complain about how Wal-Mart's "high prices" harm middle-class consumers; so they can't win.

    The idea that American has fewer 'good paying jobs' now is likewise a myth. More of our economy was focused on low-paying agriculture in the first part of the 20th century. People talk about the shift away from manufacturing, but the bigger trend is the shift away from agriculture. Getting paid $10 an hour at Wal-Mart or Starbuck's beats working in a field all day for a few bucks. For that matter, I'd take Starbucks over working 12 hours per day, 6 days per week in some nasty factory for virtually nothing.

    The way to increase wages is to increase economic growth. And the way to increase economic growth, is to incentivize people to innovate. Simply paying low-skilled occupations higher wages isn't actually a sustainable formula.
    Feb 18, 2012. 11:57 AM | 16 Likes Like |Link to Comment
  • The Real Reason for Silver's Run [View article]
    Enjoying your articles on silver, Jeffry.

    I'm vastly more negative on silver than gold right now. I agree with you on the distinction between investment demand and industrial demand.

    Gold can continue its run, precisely because investment and jewelry demand makes up such a substantial chunk of its overall demand, that higher gold prices become a "self-fulfilling prophecy" of sorts. There's no real counter-balance in the gold market; so long as investors are willing to pay a high price for it, the price can stay high.

    Silver, on the other hand, is much more complicated. Sure, half of its demand is subject to the same sort of self-reinforcing processes that gold is subject to; but the other half is industrial and industrial users tend to be more price sensitive. I'm wondering how long this process can last before some of the industrial users start to get squeezed. This could start pushing prices back down and once they fall significantly, they might push downwards quite a ways further.

    I have bought puts on silver at this point. No position on gold.
    Mar 4, 2011. 04:31 PM | 16 Likes Like |Link to Comment
  • America's Disinflationary Future? [View article]

    I try to take a much more scientific approach than you. You believe that the Federal Reserve has no burden to prove its actions are beneficial. I disagree and view the Fed as having the burden to prove these extraordinary measures work.

    I look at the evidence from this experiment and other similar experiments. Japan provided the most similar experiment. The result has been continual low-growth and disinflation.

    So why did Japan's monetary stimulus result in low growth and disinflation? How is the Fed's attempt different? What are the reasons why Japan's stimulus created the opposite result than the one anticipated?

    This article provides one possible answer to the last question. It makes sense once you start to piece it together. Japan's constant attempts at stimulus resulted in disinflation. This is likely because constantly lowering interest rates merely resulted in weaker investment returns. Weaker investment returns result in lower private investment. Lower private investment results in lower growth and lower demand for loans. Lower growth and lower demand for loans results in lower interest rates. And all of this also results in weaker government revenues, which have typically been countered by tax increases, which further sap growth, private investment, and demand.

    It's a vicious cycle, and we're making very similar mistakes as Japan did. Central banks can not "grow" the economy. They can merely insure that there is enough liquidity for the economy to function normally. By intervening into the market in this haphazard fashion, the Fed has made disinflation and low-growth more likely --- not less.
    Oct 22, 2014. 01:26 PM | 15 Likes Like |Link to Comment
  • As the government lurches toward a shutdown, David Stockman says "Bring it on... it’s the wakeup call that we really needed. The fools inside the Beltway are borrowing $100B month in and month out, and there’s nobody left in the world buying except the central banks... There’s no way that’s sustainable or viable."  [View news story]
    I wouldn't be so delighted by the shutdown. It tends to expose people to the fact that they are very dependent on the government functioning, which tends to increase their anger at the politicians responsible. Which in turns, lowers the political capital of the politicians involved and lowers their ability to take on more important issues later.

    No one will be very happy about seeing their tax refund delayed. Nevermind the fact that it's technically their money; it still angers people quite a bit and they want a good reason for it.

    Moreover, on a basic level, the Democrats and Republicans are arguing over political issues more than budgetary issues. I'm happy that a few Republicans are starting to get the courage to address entitlement spending, but I'm still not convinced the GOP as a whole will have the guts to take on the issue; and the current arguments certainly have nothing to do with entitlements. (It seems like minor funding to Planned Parenthood's health services is the big issue --- which doesn't inspire confidence from me.)

    Cutting these tiny little programs is completely insignificant in the grand scheme of things; we need to focus on the big items: defense, Social Security, and Medicare/Medicaid.

    I'm willing to sacrifice to make the nation more sustainable long-term, but I'm not so happy about having to sacrifice so the Republicans can cut some small amount of funding to an organization that they don't like.
    Apr 8, 2011. 07:30 PM | 14 Likes Like |Link to Comment
  • The Truth About the U.S. Housing Market [View article]

    Actually, Detroit is a great example, because it cuts to the heart of why your theory isn't very sound. You completely ignore the more obvious factors driving real estate pricing (such as population density, geography, income, employment, desirability, transportation access, amenity access, etc) in favor of exclusively focusing on some connection between 'land usage regulations' and 'housing prices.' Correlation is not causation.

    As far as Atlanta goes, Atlanta prices are down over 25% since the peak and Georgia has had more bank failures than just about any other state (even more populous ones). Maybe it's easy to ignore this reality when you live halfway across the globe, but I can assure you, Atlanta experienced a boom and bust.

    You point to the great affordability of the "responsive cities", but seem to have no understanding of the natural differences between cities like New York and Kansas City. You don't even bother to mention income, desirability, or any other major driving factor behind real estate prices. You simply assume, without any evidence, that prescriptive usage regulations (which you don't define) artificially increase the costs of housing significantly.

    By your same flawed logic, I could argue that 'prescriptive land usage' regulations create economic prosperity, since the most prosperous cities tend to be the 'prescriptive' ones. Correlation is not causation. This is true in science; it's also true in economics.
    Jan 7, 2011. 12:23 AM | 14 Likes Like |Link to Comment