A Sense of Optimism for Steel Stocks [View article]
Steel's only moving with iron ore, coke and energy prices right now. If you see operating rates at 85% or moving there quickly, steel itself might be interesting. Otherwise, play the underlyings.
Cisco vs. Netflix, Value vs. Growth - Which Should You Own? [View article]
The comment raised the point that yes you apparently get a 9% yield, but for how long? Will that turn into 8% 3 years from now? It's a worthwhile question. You should also factor in that if CSCO repatriated current cash flows, the yield would not be 9%. I'm also curious if you are deducting the full value of CSCO's cash from EV, which would ignore the economic reality of US tax structure, unless you believe there will be an amnesty or a permanent change.
Diamond Offshore Offers Value Amid Gulf of Mexico Regulatory Chaos [View article]
It seems unlikely that revenue and cash flow will have stabilized in 4Q10 compared to 3Q10 just based on the recent trend of each quarter getting a little worse, but perhaps 4Q10 will prove to be the bottom with dayrates having stabilized and the fleet getting put back to work.
You have the Ocean Valor starting to generate revenue in 4Q10 at a $40 million quarterly rate helping that out in 2011.
If the oil price stays at $90, I'm sure the company will do fine, but there is plenty of room for downside. In 2004, DO's return on invested capital bottomed at just over 5%. That is 1/3rd of the current run-rate (~15%) and compares to 25% in 2008.
Netflix CEO Reed Hastings Responds to Whitney Tilson: Cover Your Short Position. Now. [View article]
The streaming content is so limited. You can burn though it in 6 months and not much new is really added, except in the TV show department. People love TV shows streamed though so this could be enough for most people to pay $8 a month. I have joined netflix 4 times and most recently it was to get a few blu-rays and some streaming for the PS3. I think I'm done again for now but will be back in a year to catch up on some movies again.
Citi could likely support a dividend of $6-7 billion based on underlying earnings in the $15 billion range. This implies a dividend rate of 5-6% at the current market value, which is on the high side relative to global banks with dividends that have not impacted by the financial crisis. A yield in the 4-5% range seems possible, though it should be noted that Citi will remain a low growth bank and so should carry a higher dividend.
However, the stock price will remain very sensitive to the course of future economic prospects, but if the world is in a durable recovery, then Citi shares have a relatively attractive yield prospect upon the resumption of dividends and may therefore appreciate to bring that level in-line with global competitors.
The G20 Communique - A Victory for Asia [View article]
China, like Japan before it, operates from a position of fundamental geopolitical weakness. The U.S. and it's allies create the global political economic landscape because they are the only one's with the surplus real economic output and human capital to do so. Asian countries fund our deficits dollar for dollar to support our stabilizing security efforts in the region. They do this because they believe it's in their net benefit and are generally happy with our Asian security efforts. Sixty years ago, Japan and China were in total war and that memory is relatively fresh in their minds. China did not save itself from Japan, it should be clear.
At the same time, China has the most to gain at this point from a relative diminution but not complete removal of U.S. security efforts in the region. Specifically, China would like to throw it's weight around to secure better resource rights in the Sea of Japan but at the same time does not want to shoulder the burden of rebuilding N. Korea alone, when the time comes. The point is their regional geopolitical aims are conflicted by their ability to deal with regional responsibilities. But China does not need the U.S. to protect it's intrinsic security at this point. China's neighbors though continue to need a counterbalance against it's regional heft.
So what difference does it make? You assert that the U.S. could be a surplus nation in 2015. It could be, but not while maintaining it's status as provider of global security. For Japan, for example, the math is simple: pay the U.S. to provide security or do it itself. Our charge is not high, for 60 years of security services, the cost has been some $850 billion or the amount of Japanese purchases of Treasuries over that period. They had no choice in 1950 after losing WWII, but today they could probably go their own way if they chose, with a transition period. As a side note, Japan gets 80% of it's oil from one country: Saudi Arabia, a county which has only two main customers, the other being the U.S. Who thinks this is happenstance? Japan benefits from it's relationship with the U.S. at no great cost. Japan is not the critical issue today, but it is the easiest to understand. I think the lesson's from Japan apply to the majority of other Asian nations as well.
Regarding the yuan, it is a non-issue to the U.S., except for the political optics. The move from CNY 8.24 to CNY 6.65, has had virtually no impact on trade with China. The reason is that China's value added is small: a stronger yuan gets them commodities and foreign services cheaper which means they retain competitiveness despite the rise in the currency. Labor is the only value add in China and it's price easily adjusts with the exchange rate with a lag. This isn't to say a 20% one-off adjustment would have no impact: it would have a huge impact because nearly every established commercial contract would be economically void. Business and labor would have to find new equilibrium prices for everything overnight which is an impossibility, but once done the outcomes would be the same as they are today.
The real issue is between China and it's competitors and here again what we are doing in pressuring China is playing the role of global mediator. Current account targets provide a framework for countries to compete in, which is negative for China so they will push back. The Hilton non-Accord (curious why you call it the Hyundai Accord, since that is the hotel the journalists stayed at and not where the G20 met) is not a failure for the U.S. in it's own policy interests, but in it's interests as global mediator.
I'm not sure any of this says much about the fate of the dollar. As long as oil prices are "reasonable" I suspect the value of the dollar will not be a key variable for U.S. policymakers.
The key people will be Duke, Warsh and Pianalto. I don't think any of them have the clout to contradict Dudley, Rosengren, Bernanke and Yellen. Bullard gives the doves cover if he gets behind the effort. Raskin and Tarullo have to go along before they get along. Hoenig is serious but has few allies.
Natural Gas: Fundamentally Bearish but Expecting a Seasonal Rally [View article]
Last time I researched fuel switching (coal to gas) the level was about $4.50 with coal at $65, but physically there isn't a lot of capacity that can switch and most of it has. Would love some additional hard data on the matter.
Natural Gas: Fundamentally Bearish but Expecting a Seasonal Rally [View article]
Project economics dictate oil-linked prices. You can't get HH to the South Pacific for $4. It's pretty easy to get gas from Pennsylvania to Boston and NYC and it can be done incrementally and organically. Building an LNG train isn't that easy. Europe can renegotiate because demand is static. If Asia wants additional supply they will have to pay to continually build out new infrastructure. I think they can only renegotiate those contracts if they are content with current supply levels.
Natural Gas: Fundamentally Bearish but Expecting a Seasonal Rally [View article]
Large energy company's can't deploy all their capital in oil, there just isn't enough of a resource base. It's not just XOM. CVX: Gorgon, RDS: Pearl, etc, many of the big new projects are in gas. It may look like XOM is making a huge bet on gas, but they just decided to buy versus build. The other majors are making enormous gas investments as well.
It took 35 years for interest rates to peak from their lows in the late 1940s. It's not inconceivable that it could take 35 years or more for rates to bottom from their highs in 1982. Even if they do bottom today, if you take US history as a guide, they could stay there for 10 years. Let's not bring up Japan.
This is the flip side of having an increasing gov't dominated economy. As long as inflation is low, no one minds government intervention to drive down yields at least in today's context. Context in 1970s was much different as the private demand for capital was quite high.
A Sense of Optimism for Steel Stocks [View article]
Cisco vs. Netflix, Value vs. Growth - Which Should You Own? [View article]
Cisco vs. Netflix, Value vs. Growth - Which Should You Own? [View article]
Diamond Offshore Offers Value Amid Gulf of Mexico Regulatory Chaos [View article]
You have the Ocean Valor starting to generate revenue in 4Q10 at a $40 million quarterly rate helping that out in 2011.
If the oil price stays at $90, I'm sure the company will do fine, but there is plenty of room for downside. In 2004, DO's return on invested capital bottomed at just over 5%. That is 1/3rd of the current run-rate (~15%) and compares to 25% in 2008.
Netflix CEO Reed Hastings Responds to Whitney Tilson: Cover Your Short Position. Now. [View article]
Is Citigroup a Buying Opportunity? [View article]
However, the stock price will remain very sensitive to the course of future economic prospects, but if the world is in a durable recovery, then Citi shares have a relatively attractive yield prospect upon the resumption of dividends and may therefore appreciate to bring that level in-line with global competitors.
The G20 Communique - A Victory for Asia [View article]
At the same time, China has the most to gain at this point from a relative diminution but not complete removal of U.S. security efforts in the region. Specifically, China would like to throw it's weight around to secure better resource rights in the Sea of Japan but at the same time does not want to shoulder the burden of rebuilding N. Korea alone, when the time comes. The point is their regional geopolitical aims are conflicted by their ability to deal with regional responsibilities. But China does not need the U.S. to protect it's intrinsic security at this point. China's neighbors though continue to need a counterbalance against it's regional heft.
So what difference does it make? You assert that the U.S. could be a surplus nation in 2015. It could be, but not while maintaining it's status as provider of global security. For Japan, for example, the math is simple: pay the U.S. to provide security or do it itself. Our charge is not high, for 60 years of security services, the cost has been some $850 billion or the amount of Japanese purchases of Treasuries over that period. They had no choice in 1950 after losing WWII, but today they could probably go their own way if they chose, with a transition period. As a side note, Japan gets 80% of it's oil from one country: Saudi Arabia, a county which has only two main customers, the other being the U.S. Who thinks this is happenstance? Japan benefits from it's relationship with the U.S. at no great cost. Japan is not the critical issue today, but it is the easiest to understand. I think the lesson's from Japan apply to the majority of other Asian nations as well.
Regarding the yuan, it is a non-issue to the U.S., except for the political optics. The move from CNY 8.24 to CNY 6.65, has had virtually no impact on trade with China. The reason is that China's value added is small: a stronger yuan gets them commodities and foreign services cheaper which means they retain competitiveness despite the rise in the currency. Labor is the only value add in China and it's price easily adjusts with the exchange rate with a lag. This isn't to say a 20% one-off adjustment would have no impact: it would have a huge impact because nearly every established commercial contract would be economically void. Business and labor would have to find new equilibrium prices for everything overnight which is an impossibility, but once done the outcomes would be the same as they are today.
The real issue is between China and it's competitors and here again what we are doing in pressuring China is playing the role of global mediator. Current account targets provide a framework for countries to compete in, which is negative for China so they will push back. The Hilton non-Accord (curious why you call it the Hyundai Accord, since that is the hotel the journalists stayed at and not where the G20 met) is not a failure for the U.S. in it's own policy interests, but in it's interests as global mediator.
I'm not sure any of this says much about the fate of the dollar. As long as oil prices are "reasonable" I suspect the value of the dollar will not be a key variable for U.S. policymakers.
At Least Eight Talking Fed Heads [View article]
Gold: A short story [View instapost]
seekingalpha.com/insta...
Gold: A short story [View instapost]
Natural Gas: Fundamentally Bearish but Expecting a Seasonal Rally [View article]
Natural Gas: Fundamentally Bearish but Expecting a Seasonal Rally [View article]
Natural Gas: Fundamentally Bearish but Expecting a Seasonal Rally [View article]
Is It Time to Sell Long-Bonds? [View article]
This is the flip side of having an increasing gov't dominated economy. As long as inflation is low, no one minds government intervention to drive down yields at least in today's context. Context in 1970s was much different as the private demand for capital was quite high.