Amazon: Making BlackBerry Cool Again? [View article]
Amazon has spent well below operating cash flow on capital investments and acquisitions for the last 2 years, cumulatively.
They are not really breaking the bank on investing in their business.
Considering how fast revenue has grown, their capital efficiency is quite good. Hopefully they can turn this revenue growth into profit growth in the future (I for one think they have a good chance of doing so, and adjusted for non-capitalized expenses such as technology development, they probably are, but I haven't done the work to determine for sure).
It's too bad you're missing the other six board members other than the Chairman nominated by the President and confirmed by the Senate who far and away have more power than the regional members who don't always have voting power.
Hewlett Packard: The Cheapest Stock In The S&P Index? [View article]
We call it a tech company, but it's really a conglomerate, not much different than UTX, etc. When management of a conglomerate goes south so does the share price because the overall business is so complex.
I think they would do well to split the company up in some way that was both simple to execute so that it could be done quickly and made some semblance of long-term sense. While it would be best to do it properly, a lot of value could be destroyed in taking the time to do so.
IBM spun off Lexmark, HP could do the same with printers.
Unfortunately, I think HP sees the cash flows generated from its mature businesses as "theirs" and not investors. They want to redeploy those cash flows to recreate a different company instead of returning it to their investors.
Why 'Operation Twist' Is Especially Stupid: There's No Lack Of Short-Term Financing [View article]
I think people should be aware that commercial banks are not major investors in US Treasuries, especially longer-term (10-30 years) and that total US Treasury holdings at commercial banks have _decreased_ by 10% over the past year.
This notion that commercial banks load up on US Treasuries because they carry a 5% risk weighting under Basel III (and similar amounts in percentage terms under other RWA regimes) is just false.
Banks face extreme duration risks, especially in the US because of the prevalence of fixed rate mortgages -- with the large amount of duration risk tied up in such securities it is very hard to allocate such risk to something like a Treasury. Bank investors know that all US banks manage their duration risk extensively and there is very good reporting on how much such risk they are exposed to and how they hedge it.
Another misunderstanding is that banks have "zero" or "close to zero" financing costs. While most time deposit rates are sub-50 bps, the entire retail banking network has to be run off the net interest margin and fees, those are the real costs of attracting deposits not the interest paid. NIM also has to pay for defaults on loans, which are a cost of doing business. In addition, short and long-term senior debt is quite expensive relative to lending margins right now for banks.
Banks cannot exist by lending to the Treasury at 2% for 10 years at a fundamental economic level.
Frontline's Idealistic Proposals Will Not Save the Day [View article]
That is certainly an issue depending on the specific company. I don't know if massive is the correct word though. You won't see write downs past replacement cost minus accumulated depreciation. I've done the analysis on a couple and there could be some impairment but small (~5% range). I have only looked at a small number of companies though and others may be in greater difficulty.
I think the real issue with the market valuation level for the tanker companies is that you either have a highly leveraged capital structure and the equity is fearing dilution or you're tied to Greece (and are leveraged).
Companies like NAT are trading at just a slight discount to book even though their book value is probably a bit too high given the trend you are describing.
Mission Impossible: How Can Greece Exit the Euro? [View article]
It would not be hard to change the rules. Many of the rules of E-zone have already been openly broken. Give Greece rights and responsibilities on par with that of Sweden.
Your comparison with the U.S. just doesn't fit. Federal Reserve Notes are backed by Federal liabilities backed by a great ability to tax, not liabilities of the various states.
People in the U.S. might mildly complain about fiscal transfers from California to Mississippi made possible by Federal debt issuance in many cases, but transfers on the scale in Europe appear to be producing much greater consternation and I see little ability or willingness to issue e-zone debt backed e-zone citizens and not their respective sovereign governments.
The Economist argues again for a 3rd way in dealing with Greece: an orderly restructuring marking down the country's debt by 50%. This would bring Greece's debt/GDP level down to 80%, from where the country could hope to grow again. Yes, banks would have to take an immediate hit, but nothing their capital position can't handle. [View news story]
Title 11 of the U.S. Bankruptcy Code. You or your firm will be means tested.
Undervalued Cisco: An Economic Profit Valuation and Analysis [View article]
I typically only model seasonality when it is statistically significant and material. I test for seasonality using a variety of statistical tests which give me forecast seasonality and also use visual checks using 10 years of quarterly operating earnings data. Visually, an argument can be made that 1Q is slightly weak and 2Q slightly strong but the impact appears small. Also in recent years the very small amount of regular seasonality seems to have dissipated. In addition, the quarter I annualized seems to split the difference between 1Q and 2Q. Cisco's results are somewhat volatile, but boiling this down to an identifiable seasonality effect wasn't possible for me.
National Bank of Greece Appears Undervalued [View article]
Took a look at most recent annual report and subsequent quarterly report. Bank had a little under €18 billion of Greek Government loans and securities on it's books. Bank has about €7 billion of tangible equity capital and €4 billion of allowances for loan losses. It's hard to say how much other direct exposure the bank has to Greek state finances such as local governments or Greek corporates that are heavily leveraged to the Greek State. But, a 30% haircut to their outstanding loans and securities made to the Government of Greece would be €5.4 billion. It's possible the loan as opposed the general obligation debt securities is secured. However, assuming the 30% haircut the equity capital of the bank would be all but wiped out. That is just the direct effect. In the event of Government default, I would imagine their could be some knock on effects of other borrowers defaulting. Also it seems like loans to Greece are trending up or at least they were as of the annual report.
As far as I can tell, NBG trades around tangible book value which would seem to indicate it's hardly cheap.
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.
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.
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.
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.
J.C. Penney (JCP) confirms Ron Johnson is "stepping down and leaving the company." Mike Ullman, who was J.C. Penney's CEO until Nov. 2011, is replacing Johnson as CEO, and has also been elected to the company's board. Investors don't seem crazy about the choice, JCP now just +0.5% AH. (previous) Update (5:33): Shares are now down 4.4% AH. [View news story]
42k an hour is way too high. That's not even a sensible estimate.
Avoiding Annaly Capital [View article]
Amazon: Making BlackBerry Cool Again? [View article]
They are not really breaking the bank on investing in their business.
Considering how fast revenue has grown, their capital efficiency is quite good. Hopefully they can turn this revenue growth into profit growth in the future (I for one think they have a good chance of doing so, and adjusted for non-capitalized expenses such as technology development, they probably are, but I haven't done the work to determine for sure).
This Bank Of America Nonsense [View article]
Hewlett Packard: The Cheapest Stock In The S&P Index? [View article]
I think they would do well to split the company up in some way that was both simple to execute so that it could be done quickly and made some semblance of long-term sense. While it would be best to do it properly, a lot of value could be destroyed in taking the time to do so.
IBM spun off Lexmark, HP could do the same with printers.
Unfortunately, I think HP sees the cash flows generated from its mature businesses as "theirs" and not investors. They want to redeploy those cash flows to recreate a different company instead of returning it to their investors.
Why 'Operation Twist' Is Especially Stupid: There's No Lack Of Short-Term Financing [View article]
This notion that commercial banks load up on US Treasuries because they carry a 5% risk weighting under Basel III (and similar amounts in percentage terms under other RWA regimes) is just false.
Banks face extreme duration risks, especially in the US because of the prevalence of fixed rate mortgages -- with the large amount of duration risk tied up in such securities it is very hard to allocate such risk to something like a Treasury. Bank investors know that all US banks manage their duration risk extensively and there is very good reporting on how much such risk they are exposed to and how they hedge it.
Another misunderstanding is that banks have "zero" or "close to zero" financing costs. While most time deposit rates are sub-50 bps, the entire retail banking network has to be run off the net interest margin and fees, those are the real costs of attracting deposits not the interest paid. NIM also has to pay for defaults on loans, which are a cost of doing business. In addition, short and long-term senior debt is quite expensive relative to lending margins right now for banks.
Banks cannot exist by lending to the Treasury at 2% for 10 years at a fundamental economic level.
Frontline's Idealistic Proposals Will Not Save the Day [View article]
I think the real issue with the market valuation level for the tanker companies is that you either have a highly leveraged capital structure and the equity is fearing dilution or you're tied to Greece (and are leveraged).
Companies like NAT are trading at just a slight discount to book even though their book value is probably a bit too high given the trend you are describing.
Mission Impossible: How Can Greece Exit the Euro? [View article]
Your comparison with the U.S. just doesn't fit. Federal Reserve Notes are backed by Federal liabilities backed by a great ability to tax, not liabilities of the various states.
People in the U.S. might mildly complain about fiscal transfers from California to Mississippi made possible by Federal debt issuance in many cases, but transfers on the scale in Europe appear to be producing much greater consternation and I see little ability or willingness to issue e-zone debt backed e-zone citizens and not their respective sovereign governments.
The Economist argues again for a 3rd way in dealing with Greece: an orderly restructuring marking down the country's debt by 50%. This would bring Greece's debt/GDP level down to 80%, from where the country could hope to grow again. Yes, banks would have to take an immediate hit, but nothing their capital position can't handle. [View news story]
Undervalued Cisco: An Economic Profit Valuation and Analysis [View article]
National Bank of Greece Appears Undervalued [View article]
As far as I can tell, NBG trades around tangible book value which would seem to indicate it's hardly cheap.
Valuation and U.S. Debt [View article]
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.
Is Gold 50% Overpriced or 25% Underpriced? [View article]
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.
A Sense of Optimism for Steel Stocks [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.
J.C. Penney (JCP) confirms Ron Johnson is "stepping down and leaving the company." Mike Ullman, who was J.C. Penney's CEO until Nov. 2011, is replacing Johnson as CEO, and has also been elected to the company's board. Investors don't seem crazy about the choice, JCP now just +0.5% AH. (previous) Update (5:33): Shares are now down 4.4% AH. [View news story]