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James A. Kostohryz

 
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  • Linn Effectively Admits To Misleading Investors And Announces Key Accounting Changes [View article]
    For the record, with oil at a long-term price of $70, LINE might be worth $7-$9 bucks. Therefore, with the stock below $10, I am no longer interested in the LINE story.

    Why is it worth $7-$9 bucks? Well, it's not hard. Book value is about $15. All of LINE's assets were purchased fairly recently, so book value is a fairly decent reflection of its acquisition costs at market prices. In my view, LINE overpaid for virtually all of its assets from far more experienced and better operators that basically unloaded junk assets on LINE and its hapless shareholders. Thus, the assets were worth less than purchasing value at the get-go. Plus, the assets were purchased with oil at $100. Obviously, those assets are worth even less assuming a long-term oil price of $70.

    The only reason LINE isn't worth even less than $7-$9 is because long-term futures are still overpriced and LINE can hedge lots of their production further out on the curve. I suspect they are doing that as we speak. That can save them and LINE's shareholders for a few years. Without that possibility, LINE is worth close to ZERO with long-term oil prices at $70 bucks.

    I 100% stand behind my research on this stock. It is my view that the business model stinks to high heaven, the accounting practices of this firm are deceptive, operationally the company is sub-standard, and all of the chaotic transactions this company makes simply hide what is really going on. Individual investors; particularly retired investors looking for income have no business investing in this stock. This stock is all about baiting naive income-starved investors; its dividend speculation at its worst. LINE is no longer grossly overvalued at this point, as it had been and as I stated clearly in my initial article on the stock. But, people should remember all of the above this when and if it gets back to $20.

    I don't plan to be involved with this stock in any way, either way. I am officially closing out my interest in this stock. So, people can consider what I have said, or they can ignore it. Its up to you. I've done my job.
    Dec 15, 2014. 06:00 PM | Likes Like |Link to Comment
  • The Shiller Equilibrium: What Is The Relationship Between Growth And P/E Ratios? [View article]
    Excellent work, John.

    Shiller would say that what is happening during booms (PE expansion booms) is that investors are extrapolating recent earnings growth trends indefinitely. Shiller would say that bidding up PE's during an earnings boom is foolish because in the long-run, earnings growth is mean reverting. Thus, investors are "fooled" by high earnings growth and assign high PE multiples at a time when they should be assigning lower PE multiples due to future earnings growth which is bound to be lower.

    I have a substantially different theory about why Shiller's PE10 is deficient, but I will write about that at a later time.

    Having said that, I think yours is a very interesting approach -- and I know you have more to come. At the very least it points to a potential explanation of what might drive PE booms. Whether such booms are "rational" or not depends on how rational it is to extrapolate recent earnings trends, which is what Shiller would argue that people are doing (and he thinks it is irrational). Shiller's argument on this point is not particularly strong. It's not at all clear that it is more rational to assume that earnings growth will revert to trend or below trend in some stochastic fashion; prima facie it does not appear any more rational to assume this than to extrapolate the recent past. Both are cases of backward looking analysis which is fundamentally a no-no. There is no guarantee that what happened in the past is going to repeat in the future -- whether it be recent earnings growth or past mean-reverting oscillations of earnings growth.

    Again, great work, John! The SA community is lucky to have you contribute here.
    Dec 12, 2014. 06:42 PM | 2 Likes Like |Link to Comment
  • Being Grateful: Economy Good; Getting Better [View article]
    Hi Boss_302:

    The data from FRED is fine. The level of household debt is measured relative to GDP (or GDI). You need to divide household debt by nominal GDP. (It is important to divided by nominal rather than real GDP since the household debt number is nominal). Both numbers can be obtained from FRED. When you do that you will be able to confirm my point.
    Dec 2, 2014. 02:11 PM | Likes Like |Link to Comment
  • Being Grateful: Economy Good; Getting Better [View article]
    Hi Bill:

    Just to be clear, I think there is something to what Abrose Evans-Pritchard is saying about certain negative "deflationary" forces. And I think there is something to the notion that a commodity price deflation is stimulative as the author of your linked article implies. It's just that I think that both perspectives are a bit grandiose and might go beyond what the evidence indicates at this time. I think the reality is probably a bit less dramatic and a bit more prosaic. But hey, when you are a wealthy nation like the US, no drama will tend to be a good thing.
    Nov 28, 2014. 10:48 PM | 1 Like Like |Link to Comment
  • Being Grateful: Economy Good; Getting Better [View article]
    Hi Bill:

    Thanks. I think declining commodity prices in the current context is a net positive for the US and pretty much all oil importers. However, it is a zero sum transfer. I do not think it has any relation to or that it will cause a "deflationary boom" in any structural understanding of that term. This will simply be a temporary boost. Furthermore this is a supply-driven phenomenon that is being driven by technological forces, not any sort of cyclical macroeconomic deflationary forces.

    Cheers!
    Nov 28, 2014. 04:07 PM | 1 Like Like |Link to Comment
  • Being Grateful: Economy Good; Getting Better [View article]
    Hi Ray:

    What's "absurd" about taking stock of what you have, rather than what you don't, and being thankful?

    Wouldn't the opposite approach -- obsessively focusing on what you don't have and not every being thankful for what you do have when you have so much -- actually fit the description of "absurd" more closely?
    Nov 28, 2014. 12:36 AM | 3 Likes Like |Link to Comment
  • Being Grateful: Economy Good; Getting Better [View article]
    Hi Dave, I really liked your article. I tweeted it.

    Thanks!
    Nov 27, 2014. 06:04 PM | 1 Like Like |Link to Comment
  • Being Grateful: Economy Good; Getting Better [View article]
    Thanks for your thoughts, btippet.

    Happy Thanksgiving!
    Nov 27, 2014. 02:07 PM | 1 Like Like |Link to Comment
  • Being Grateful: Economy Good; Getting Better [View article]
    Thanks, so much for those kind words lunco!

    You made MY Thanksgiving!
    Nov 27, 2014. 11:15 AM | 3 Likes Like |Link to Comment
  • Being Grateful: Economy Good; Getting Better [View article]
    Absolutely, Jerbear:

    It's incredible what the "ROI" on thankfulness is!
    Nov 27, 2014. 11:04 AM | 3 Likes Like |Link to Comment
  • Being Grateful: Economy Good; Getting Better [View article]
    MKTneutralhedger:

    The downward pressure on interest rates is coming from Europe and Japan. And China to some degree.

    However, US domestic forces are all exerting upward pressure on interest rates as I predicted. My 2014 US Economic Outlook was premised on an "all-else equal" assumption as far as international influences. Clearly these international influences have been pressuring US global interest rates downward and I think that it is important to make this distinction.

    But I will admit, I did not anticipate the extent of the collapse in European interest rates. But once this happened, I modified my US interest rate forecast.
    Nov 27, 2014. 10:19 AM | 4 Likes Like |Link to Comment
  • Being Grateful: Economy Good; Getting Better [View article]
    june1234:

    Regarding median income, what you say is true. But on this day of Thanksgiving, I would make two notes:

    1. Median income may have fallen, but it still the best of any major nation on earth on a purchasing power parity basis.

    2. Median income appears to have bottomed out and is now rising.

    So with regard to median income, there is much for Americans to be grateful for.

    Happy Thanksgiving!
    Nov 27, 2014. 09:23 AM | 6 Likes Like |Link to Comment
  • Being Grateful: Economy Good; Getting Better [View article]
    Hardog:

    It sounds like your mother was very wise.
    Happy Thanksgiving!
    Nov 27, 2014. 09:19 AM | 2 Likes Like |Link to Comment
  • Being Grateful: Economy Good; Getting Better [View article]
    Readers:

    Happy Thanksgiving! I want to take this opportunity to thank all of you for reading and commenting.

    I'd like to remind you all that if you appreciate my work, you can sign up to my free mailing list where you will receive articles that I publish on different venues and exclusive pieces not published anywhere else: http://bit.ly/19aF8d5

    Happy Thanksgiving!
    Nov 27, 2014. 08:22 AM | 18 Likes Like |Link to Comment
  • Misperceptions About Hayek: A Response To Soros [View article]
    Readers:

    After this article was written, I granted an extensive interview about Hayek and his work and discussed it in a contemporary context. If you are interested in Hayek and his work, you can listen to it here for free:

    http://bit.ly/1t5u9d9
    Nov 19, 2014. 02:46 PM | Likes Like |Link to Comment
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