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Jeremy Johnson, CFA

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  • National Bank of Greece Appears Undervalued [View article]
    This isn't how you value a distressed bank. The only thing you should be looking at is the balance sheet. What are the assets, what are their values, and what are the claims on the bank -- market value of debt, equity, etc; all under various scenarios. Given the current market value of Greek government debt, I *suspect* the bank is technically insolvent although that could change depending on government backstops.

    Greece only has three options, restructuring government debts while maintaining the Euro, leaving the Eurozone and defaulting on euro-currency debts, or having it's debts guaranteed by a federal Eurozone entity for at least 5 years and more likely a decade or more. There is no chance of Greece raising private money when interest rates are ~15%. In either the 1st or 2nd case, your NBG equity is probably worthless in dollar terms, although it's been about a year since I closely inspected the balance sheet. So really you have an event driven play here based on Eurozone policy response to Greece.

    I would probably look harder at the Greek telecom company, since your operating assets should stay more stable in Euro terms.
    Jun 21, 2011. 04:23 PM | 5 Likes Like |Link to Comment
  • The Challenge of Using Betas to Measure Risk for Tech Companies [View article]
    Beta is a broken concept. Buy-side analysts disregard it as measure of cost of funds. It's usefulness is in the ability to manipulate value with a single easily changed number -- because you can calculate beta a multitude or ways (1yr, 3yr, 5yr, industry average, against any number of indices, etc) it's easy to get the value you want for a company by simply calculating it a different way. That's why it's useful for accounting firms giving "fairness" opinions and sell-side shops recommending stock.

    If you do use beta, it needs to be a de-levered sub-industry beta re-levered using the firm's debt-equity ratio. This is to be statistically significant since the beta of one firm over three years has very little statistical significance. Each business segment of a company needs a separate beta based on the sub-industry they are in and then the separate betas need to be recombined on a percentage basis. What you'll often find at the end of that process is that most companies' betas are close to one which comports with the economic reality that most large companies have a similar cost of funds.
    Jun 19, 2011. 07:02 PM | 1 Like Like |Link to Comment
  • Apple's Valuation: The One Article Every Investor Should Read [View article]
    They are not splitting because it doesn't matter. Studies done in the past 10 years show it may even reduce liquidity. The people still splitting are living in the past.
    Jun 7, 2011. 03:10 PM | 1 Like Like |Link to Comment
  • Valuation and U.S. Debt [View article]
    A lot of the securitization boom was driven by the desire to hold riskless "AAA" assets by large financial institutions (and to a lesser extent the "AA" piece). The way the capital regulations work, a bank could fund nearly limitless "AAA" tranches and earn 20-25 basis points risk free.

    The problem was always selling the "A" and "BBB" and "BB" tranches which limited how much could be done... not to mention finding enough underlying assets. I would love to blame the banks, but it's a highly regulated and competitive business. Making half the money of the bank next door will get you fired. Ask Phil Purcell.
    Jun 4, 2011. 07:30 AM | 1 Like Like |Link to Comment
  • My Advice to Cisco: Double the Dividend and Cut the Conference Calls [View article]
    The Company need to return it's cash to shareholders, but they will wait in order to try to get a tax amnesty or fundamental tax law change on foreign earnings.
    Jun 4, 2011. 07:23 AM | 1 Like Like |Link to Comment
  • Valuation and U.S. Debt [View article]
    Pre-crises the Fed was monetizing less than 0.5% of GDP per year, post-crises it is in excess of 3%. There is an argument that as long as inflation is below some threshold, say 2% that the Fed can replace treasury assets (bills, notes, bonds) with Federal reserve assets (deposits at the Fed) at whichever rate it chooses. I don't see the logic in this argument. It doesn't matter whether base line inflation is 1% or 3%, the purchase of treasury securities with Federal Reserve assets is a transfer of purchasing power from the private sector to the public sector with no promise to repay.

    The authorities will continue to monetize because it is the most politically achievable way to effect a tax increase. And since the Government has nearly full control over the banking sector, it can create enough financial repression to tie up funds in excess reserves in order to control inflation. All the banking acts and regulations are purposeful acts to constrict credit creation to effect that end.
    Jun 3, 2011. 06:55 PM | 2 Likes Like |Link to Comment
  • How a New Cisco CEO Could Move the Stock Price Up 40% [View article]
    The US worldwide income tax policy will have to change eventually. It's a significant disadvantage. However, US firms have many competitive advantages to offset this, so it has been and remains only a minor drag. As the world competes better, the tax rules will have to change.
    May 24, 2011. 06:13 PM | Likes Like |Link to Comment
  • Cisco's Flip Cam Failure and the Consumerization of IT [View article]
    I like the article, but I doubt IBM is lamenting the disposal of ThinkPad given the further commoditization of that business
    Apr 18, 2011. 01:06 PM | Likes Like |Link to Comment
  • Diamond Offshore: Attractive Investment, And a Possible LBO Candidate [View article]
    I could care less if they buy more rigs as long as the IRRs are as good as they are getting now.
    Feb 21, 2011. 12:48 PM | 1 Like Like |Link to Comment
  • iPhone Technology: It's Like Buying 'B' Shares in Apple [View article]
    motion sensing on the iphone uses mems accelerometers.

    these are "analog" devices is you look at for example texas instruments business lines.

    returns of capital here are good, but in general they commoditized products.
    Feb 18, 2011. 04:25 PM | 1 Like Like |Link to Comment
  • The Teflon Market: When Will It Correct? [View article]
    Yes they can stop buying and not collapse the market because there is enough net global savings to fund treasury debt issuance and the US govt is still a credit worthy borrower. At the current rate of issuance that may not be the case is 2-5 years depending on how things evolve. The bigger problem for the treasury market in the short-term I think is that if private demand for capital picks up, then there will not be enough excess savings to fund the deficit at current levels.
    Feb 18, 2011. 01:31 PM | 1 Like Like |Link to Comment
  • 10 High-Yielding REITs Offering Safety and Growth [View article]
    Also, although I own HCP, I don't think it's undervalued. It's about fair value, which is saying a lot compared to most REITs.
    Feb 18, 2011. 01:22 PM | Likes Like |Link to Comment
  • 10 High-Yielding REITs Offering Safety and Growth [View article]
    At HCP, pro forma for the HCR ManorCare acquisition debt and debt-like liabilities are 40% of enterprise value and 53% of current cost accounted net invested capital.

    I should take a look at HCN again, I can't recall what I didn't find attractive about it. I think it was their business mix.
    Feb 18, 2011. 01:19 PM | Likes Like |Link to Comment
  • The Teflon Market: When Will It Correct? [View article]
    If you mean sell 2 trillion of assets off it's balance sheet, no. Impossible.
    Feb 18, 2011. 11:48 AM | 4 Likes Like |Link to Comment
  • Is Gold 50% Overpriced or 25% Underpriced? [View article]
    The decline rate on a single well may be greater, but you can tie a well back to the gathering point more cheaply on average and the well itself is cheaper to drill due to all the process improvements enabled by the geology of shale compared to conventional plays. Encana believes it can still drive costs down significantly (>50 cents) from where they are now with infrastructure improvements in its fields.

    I agree with your long-term thesis on natural gas, at the same time we haven't even begun to see long-term, infrastructure related switching toward natural gas due to its current availability and these things take a lot of time.

    We probably agree over the long-term, but how long it takes to get there and what the path will be is up for debate.
    Feb 18, 2011. 11:39 AM | 2 Likes Like |Link to Comment