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Jeremy Johnson

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  • Electronic Arts: The Turnaround Is At Hand For This Fallen Angel - Buy On Headline Weakness [View article]
    I would say the vast majority of gaming companies are very poorly run. They are run either by MBA types or gamers and both poor fairly in this environment where you need the right mix of creativity and desire to make money while empathizing with your customer base which the "c-suite" are almost completely incapable of doing.

    Anyway, with respect to EA, I can see over the past five years, the company has generated little to no free cash flow, especially after acquisition costs (which have at least helped keep revenue stable and are depreciable assets the way I see it). This is first sign of a bad business. I don't know if it is driven by "industry dynamics", although those are certainly a factor, or just poor management. I think it is some of both. Gaming companies I think are far too eager to reinvest excess returns from a couple hits into every tom dick or harry project that comes into the door. Game creation cannot be viewed like a factory floor.

    Console gaming is in trouble in my view. The console was a very unique device 5-15 years ago in its ability to provide a unique experience at a reasonable price. Those days are long gone. The market is saturated and new discretionary dollars are going towards the gadgets of today. It is not like these systems will be gone tomorrow, but they fade into the background to a certain degree from where they have been the last 10 years. During that process, I doubt large integrated gaming companies will make anyone a ton of money. The release of a new generation of gaming consoles could be interesting, but I am not at all sure if the uptake will follow the historical patterns.
    Jan 8 08:27 PM | 1 Like Like |Link to Comment
  • 6 Market Predictions For 2013 From Bond Guru Jeff Gundlach [View article]
    I believe Gundlach's trade is short yen long Nikkei. In truth, it is all driven by currency, the companies that are rallying in Japan are purely exporters. Even companies that nominally benefit from a strong economy are not moving. The Nikkei move is outsized versus the yen due to operating leverage, but you could add financial leverage to a yen bet and get the same place.
    Jan 7 09:07 PM | Likes Like |Link to Comment
  • 6 Market Predictions For 2013 From Bond Guru Jeff Gundlach [View article]
    There has never been a handset manufacturer that hasn't eventually flamed out, and when they do their earnings go from a lot to negative. Motorola, RIM and Nokia are just the three biggest examples; but you can also look at Ericsson and HTC for smaller and perhaps less convincing examples. There is nothing beyond this, no magic formula you can look to in order to convince yourself, nor any fundamental valuation principle.

    How many iPhone 8s will the company sell 5 years from now, and what will the profit per device be? That is the only relevant question to valuing Apple. You could have asked the same question of Motorola in 2004: In 2013, how many RAZR 2013s (or their descendants) will you sell and at what profit per unit? It turns out quite a small number on the bottom line. Luckily they had a patent portfolio Google wanted.
    Jan 7 09:03 PM | Likes Like |Link to Comment
  • Vodafone (VOD +2.2%) spikes after Verizon (VZ +0.4%) CEO Lowell McAdam says his company is capable of digesting Vodafone's 45% stake in Verizon Wireless. "We have always said we would love to own all of that asset," he reminds us. The fact Verizon Wireless is now making giant cash distributions gives Verizon more incentive to make a deal, but the fact Verizon has $53B in debt complicates matters. McAdam also suggests Verizon won't be following T-Mobile's lead in eliminating phone subsidies. "I don't think U.S. consumers are ready to buy an iPhone for $700." [View news story]
    VZW is VODs best asset when considering cash flow and stability (South Africa is a good earner, but questionable stability). I doubt they have any interest in selling.
    Jan 7 08:30 PM | 2 Likes Like |Link to Comment
  • More from the Fed: The FOMC has adopted economic thresholds for when it would commence tighter policy. The fed funds rate will remain at exceptionally low levels as long as unemployment remains above 6.5% and inflation is expected to be no more than 50 basis points above the 2% target rate. [View news story]
    The Fed will buy bonds as long as the government is running ~10% budget deficits. The government will run ~10% budget deficits as long as they feel it is necessary to keep GDP growth above 2.5%. Even if inflation goes to 4%, the Fed will merely raise the short-term rate a percent or two in order to make the rate less negative than it otherwise would be.

    Unless there is a political storm (on the order of a third party gaining material amounts of votes) due to US Treasuries outstanding / GDP reaching some significant milestone, 150%, 200%, etc., this strategy will not change.

    However there will still be huge amounts of debate in Washington about where the money gets spent, everyone will want there piece. Fiscal cliff is really about who gets what, not how bug what is.
    Dec 12 02:28 PM | 5 Likes Like |Link to Comment
  • Why do investors continue to pour money into EWJ and expose themselves to currency risk when the DBJP offers the same Japanese stock exposure, but hedged against the yen? Another of Dennis Hudachek's 10 Overlooked ETFs is the INDA, tracking the same Indian index as the INP, but with lower expenses. And don't forget IAU, basically the same exposure as GLD, but at 15 bps cheaper per year. [View news story]
    The Yen is about fairly valued where it's at. Also, the Japanese stock market tends to move inverse the currency. When you fully hedge, your position becomes more speculative, not less. There are decent amount of dollar earnings in Japanese companies as well. I would not hedge over 50%. I personally hedge 25% on my Japanese portfolio, but purely to reduce volatility in USD terms. It will probably hurt long-term returns.
    Dec 7 08:28 PM | 1 Like Like |Link to Comment
  • Why Analysts Missed The Apple Correction [View article]
    I think you are fooling yourself a bit that sell-side analysts haven't for a very long time, if not always, been salespersons first and foremost. Sales people are not inherently bad, it is rather just their job to present the good aspects of a product / service / financial instrument. Since issuers pay most the bills, research analysts that serve issuer needs self-select to stay in those roles. No one is telling you what to do, but the promotions go to those that can help sales move paper.

    There are times when it has been easier. During sustained bull markets, you can get by slagging off more of of the losers, but those times usually don't last long enough to build a career.

    Keep your use of the sell-side to fact-based data gathering and free food.
    Dec 7 08:12 PM | 1 Like Like |Link to Comment
  • Is There An Undervalued 3D Printer Manufacturer? Yes: Arcam AB [View article]
    Maybe the fact it has a $50 million market capitalization has something to do with it.
    Dec 3 04:29 PM | Likes Like |Link to Comment
  • Exelon: Potential Dividend Cut May Be Deeper Than You Expect [View article]
    Natural gas was $13 in 2008. Nuclear assets had different cash flows then. Natural gas isn't going back to $13 and neither will electricity pricing go back to where it was for many many years, perhaps decades.
    Nov 30 06:56 PM | 2 Likes Like |Link to Comment
  • What Amazon.com Selling Double The Kindles Really Means [View article]
    I have often had 50 pound items sent to me free of charge by Amazon. On some occasions even by 2-day mail. I have often wondered if UPS/FedEx aren't eating some of these charges through their contracts with Amazon.
    Nov 30 12:16 PM | Likes Like |Link to Comment
  • What Amazon.com Selling Double The Kindles Really Means [View article]
    I did read that piece of yours, good work. That gets back to the biggest knock on Amazon in my view (and one I agree with) their capital investment is not producing the same incremental returns it did 3-5 years ago. This is a serious problem and one that will be recognized sooner or later if it continues.
    Nov 29 09:39 PM | 1 Like Like |Link to Comment
  • What Amazon.com Selling Double The Kindles Really Means [View article]
    I think the market (not me) is assuming $4.5 billion which is simply a 4% free cash flow yield, a premium to a business like Target which is more in the 5.5% area.

    I am not saying that is what Amazon actually generates. It might, but the issue is very contentious and I am choosing not to state an opinion on the matter.

    When companies invest it is in R&D, marketing, physical assets, etc., so that is where the discretionary cash flow is going. The trick in any growth business is determining how much of that spending is necessary to sustain current revenues. Clearly, in the case of Amazon, not all of it is; hence, some is discretionary.
    Nov 29 09:30 PM | 1 Like Like |Link to Comment
  • Talking Soda [View article]
    Thanks for the info.

    Unfortunately, I don't consume sugar at all (not for medical reasons) so the machine would be a bit of waste for me. And the tap water in most but certainly not all of California does not taste that great!
    Nov 29 07:47 PM | Likes Like |Link to Comment
  • What Amazon.com Selling Double The Kindles Really Means [View article]
    I think the market assumes they generate about $4.5 billion of discretionary cash flow. In my view the biggest knock on Amazon is that their growth is becoming markedly less capital efficient but I am not sure what series of events will lead to a crisis of confidence in the company. If the CEO waits for a stock crash to pull back on spending for growth, it could wreak considerable havoc on the real business. I hope he understand this.
    Nov 29 07:35 PM | Likes Like |Link to Comment
  • Talking Soda [View article]
    This is sort of my position. I know people like to rail on short sellers, but in terms of real power on Wall Street, a firm like Fidelity owning 13% of your shares speaks volumes. These are the guys that can move the needle with a series of phone calls, including not allowing the shares they own to be borrowed (although I am not 100% sure how this works when held in a mutual fund). But if I am a long and I like the company then I want there to be short sellers, because then I can get more shares without moving the price. Capacity is a huge issue in a smaller name like this for multi-billion dollar funds. End of day, the high short interest has always had me a bit confused. I think there is a story here that hasn't been fully told.
    Nov 29 07:22 PM | 1 Like Like |Link to Comment
COMMENTS STATS
771 Comments
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