Jim Kingsdale

Jim Kingsdale
Contributor since: 2007
With EPS of $1.91 and a stock price of just under $27, that looks like a P/E of about 14, not 25? What am I missing?
Also, re: bankruptcy of G.M.and Chyrsler, going through bankruptcy seems to be the only way the existing capital structure will become rationally re-alligned. So far negotiations with bond holders seem to have failed.
Hmmm. A good bit of steamed up commentary here. Please keep in mind that I concluded my observations by saying that the EV race is in the first inning. I didn't predict a winner, which nobody can know at this point. The article simply observes that the Chinese are taking the EV very seriously and seem to be making more progress than the much more experienced American companies have made.
Anyone who wants the U.S. governement to invest more money behind the management of G.M. and Chyrsler, sans bankruptcy, does not seem to appreciate that historical failure by a management team is a pretty goodpredictor of future results (it's one basis on which successful investors make decisions) and also fails to appreciate that only a bankruptcy can re-align the disfunctional legal constraints on G.M. and Chrysler in both manufacturing and distribution.
It does seems strange that the C-M study concluded that a 40 mile all electric range is not cost effective and yet the BYD PHEV is said to have a much greater range. I can't explain that unless the BYD battery's weight/performance characteristics are much different from the C-M assumptions or unless the final BYD export vehicle will be different from the one described.
I completely agree with comments pointing out the history changing consumer perceptions of quality of other countries' exports, especially cars. Anyone who thinks the Chinese could not become known in the U.S. for producing high-quality, high-value cars is an idoit...er idiot.
Thanks for all the good comments, all valid. I tried to indicate that the field of battle is continually changing and the ultimate outcome is totally uncertain at this point. So it's not clear that investors should be betting money on one technology or another right now. On the other hand, demand for Rare Earth Metals is growing independent of NiMH batteries. If Lynas clears up its financing, its stock could prove very rewarding. But in this market that is a big if.
In para. 5 I said car and commercial loans will increase. I meant to say defaults in car and commercial loans will increase. Sorry.
Two brief comments: I caught the mis-spelling of Roubini but not quickly enough - Seeking Alpha picked up the piece before I changed it. But the criticism is justified. I should have been more careful before posting, not afterwards.
Someone misunderstood my point about stocks and deflation. I did not mean that risings stock prices would cause the economy not to go into deflation (although rising stock prices would help improve consumer spending). What I meant is that rising stock prices would be a predictor that the economy is not falling into deflation.
A problem with my suggestion that we might use stock prices to predict deflation (or anything else) is what period to look at. For example, stock prices could well rise for a few months then fall back again so that the temporary rise would be only a correction in a bear market. Do you look at the rising period or the longer term trend?
It might take so much time for a true bullish trend in stock prices to emerge (a series of higher highs and higher lows that conclusively breaks the downtrend line) that by then it might also be clear from the rear view mirror that deflation was not prevailing.
Thanks all for the spirited discussion. First, an apology for the Rubini link. It actually does work if you click on it and then click on the "open message" link. But I've amended my original post on my site to include Rubini's full comments at the end of my post. Go to: www.energyinvestmentst.../
On the actual matter, I think John Lounsbury's point clarifies my own view of inflation and deflation and I should have been more clear and specific. Leading up to late 2007 we experienced conflicting trends of inflation and price declines. There was an asset inflation of enormous proportions in houses and stocks that lasted for many years. There was also some inflation in commodity prices based on real demand from the growth of the world economy. At the same time we experienced price reductions effectively in imports and real wages in the U.S. based on globalization. So any discussion of past or future "inflation" or "deflation" needs careful definitions which I did not provide because different parts of the economy can experience rising and falling prices simultaneously.
When I used the word "deflation" I was thinking about the term as defined by economist to refer to CPI, which, as has been pointed out, is still in positive territory. I'm not an expert on the CPI, but I'll accept it at face value for now. It seems to me as a general rule that if CPI turns negative for long enough the economy can be said to be in a period of deflation. I think that's what Rubini means and his caution about liquidity traps, etc. refers to that.
Clearly we can avoid such deflation while still experiencing the unwinding of the asset bubbles that created enormous increases in the prices of homes, stocks, and (though caused not by a bubble) commodities. The dangerous risk is not the fall in asset prices but a much more general fall in CPI that produces a self-reinforcing feedback loop that it is very hard for government to reverse and which basically emasculates the Federal Reserve because of the "pushing on a string" problem.
A few comments:
1. Seeking Alpha left out the first sentence of my essay. For the original, see my website: energyinvestmentstrate....
2. For those who said that I didn't offer an investment conclusion: did I not specifically say that in a deflationary environment the two investments that make sense to me are bonds and cash? What could be more plain? That means "no stocks".
3. It's interesting to read what specific investments make sense to others. On Ford, I agree they look like the most likely survivor among the Detroit 3 at this point and they seem to have better management than GM or Chrysler (which does not say much). But please note that Ford is in debt up to and perhaps beyond its capacity to handle the debt. That capacity will tend to decrease in a deflationary environment when dollars buy increasingly more and are thus harder to come by. I don't think my first choice among equity investments would be a highly leveraged company. In a deflation you do not want to be indebted. It is only during inflationary times when debt is a good thing to have because it leverages the rising asset values that it finances. In deflation the asset values tend to fall - that's one thing that makes it a deflation - so debt just leverages the decline in value. You don't want to finance falling asset values with fixed amounts of debt. In fact, you don't even want to own assets. That's why cash is the preferred investment during deflation.
All: I mixed up the names of the current CEO of Exxon, Rex Tillerson, with the recently retired and agregiously over-compensated past Chairman, Lee Raymond. My apology to readers and to Mr. Tillerson. JK
hoffman, my point is not to predict the future of GM so much as to suggest that if I am right about GM going into a slow liquidation of a great deal of its business (Saab, Saturn, Pontiac for starters, probably more to follow) the impact on the general economy will be significant and has probably not been discounted by stocks. Maybe I was not clear enough, but this piece and the better written piece by Bloomberg argue, in my view, for staying invested mostly in cash.
That was the main point. The other point was to bring the Bloomberg history of GM to people's attention just because it may be of interest and is very well done, I think.
Yes I think $600 of stimulus spending and tax cuts is a big deal. If you don't, how do you explain that the numbers Congress has been tossing out are so much smaller?
An oil price increase is not like a tax increase in that it's continuation is not assured, that is true. But it is worse than a tax increase in its immediate macro economic impact in a Keynesian sense because not only is the money taken away from consumers but instead of it going to their government and thus providing some benefits as is the case with a tax increase, with an oil price increase 2/3rds of it goes out of the country and has zero economic benefit to the U.S.
You might want to stick to factual analysis - ad hominem accusations don't help anyone.
Reagan campaigned on a combination of lower taxes, higher military spending and lower deficits -using the laughable Laffer Curve to justify what George I correctly called "vudoo economics." But the Reagan insiders at the time were specifically trying to achieve huge budget deficits on the theory that a big enough deficit would be the only thing that could "stop the Democrats from spending money."
That theory didn't work either because it turns out that the American public actually likes the programs that the government spends money on. Each and every program has its powerful and/or broad based constituency - even those awful earmarks.
Anyway, I believe that Reagan knew very well that the Laffer Curve was a joke and did not mind at all inflating the budget deficit. Reagan is a false god of the GOP, in my view. He was a great orator but actually a very ineffectual president with one important exception: he shifted the country away from a union stranglehold on the corporate cost structure.
That shift has continued ever since Reagan and has now unfortunately gone too far. This election will reverse the shift of wealth away from working people that Reagan began, assuming Obama is elected.
Incidentally, for those who thing Reagan brought down the Soviet Union through militiary spending, that is wrong. What brought it down, aside from its own corrupt and inefficient system, was low oil prices. It is true that Reagan's CIA helped engineer those low oil prices.
Thanks for the excellent explication. PBEGF is one of my favorite investments for exactly the reasons given here.
Yank - you make a valid point if oil stays around the current price. But if oil goes back to making new highs as I expect it will within a year to 18 months then people will look for that 100+ mpg car, not the 28 mpg improvement, imho. Jim
With Mexico declining and Venezuela deciding to sell to China (a long way away) thus requiring more U.S. imports from Africa and the M.E., it looks like the demand for crude shipping will be strong. But what's missing is an analysis of new ships coming into the fleet vs. scrappage.
Interesting discussion except for the baseless ad-hominem attack that contained no substantive counter-arguments. Seems like the contentions boil down to:
1. Will GM have to go bankrupt or can its non-US operations salvage it? I have not done my homework on that but my reading says an awful lot of people who say they have done the homework think a bankruptcy is inevitable. More to the point, why would they be asking for a govt. bailout if they were not on the edge of insolvency? Bottom line: my suggestion of a likely GM bankruptcy is not unreasonable.
2. Will the Volt and its siblings work economically: as I said, it depends on the ultimate battery cost. There are mixed views. Clealy right now the li-on battery is too expensive, but things change with volume production and new technologies. Maybe GM is smarter than we give them credit for and maybe they can make money from the Volt at some point. I hope so, but a lot of people believe the bankruptcy will come before the Volt profitability does.
3. So, as Paul asks, why all the ads for the Volt since it won't be here for a couple of years and then not in enough volume to make much difference? I don't think it's unreasonable to speculate (which is the point of my article) that the real reason GM is hyping the Volt now is to give Congress the cover it needs to bail GM out from a likely bankruptcy by making sure everyone in America knows GM's future could be a lot more interesting and worthwhile than its miserable past. If Americans have a reason to keep GM alive other than to line the bulging pockets of top management, they will be a lot more foregiving of the Congress that wants to do just that. The Volt may be GM's hope for that reason that Americans might want GM to be saved.
In other words, the Volt is now as much about politics as it is about business. Sure that's just a guess on my part. But it seems not unreasonable and generally consistent with most of the commentary above.
Paul, having conviction about Peak Oil is not the same as thinking that oil is truly scarce right now. Timing may not be everything - unless you measure your profits each day, week, month or quarter. In which case the real likelihood of a near term over-supply in oil is something to consider before buying oil on the basis that you will be proven right in 3 - 5 years.
Some analysts think the existing grid can supply up to 80% of U.S. car with electricity because they will be recharged at night when there is plenty of spare capacity. I don't know what the right number is but I do think there is a lot of off peak spare capacity.
The problem will be producing enough plug in hybrid to satisfy demand and make a difference. Another problem is getting a cost effective efficient battery - not totally here yet.
So bottom line is that plug in hybrids won't solve the oil price crisis we will face around 2013.
I believe Charlie sees his responsibility as a larger one than simply to help investors. I think he sees a crisis coming and is issuing a warning so that people in power might pay attention and act somehow to mitigate it. Interestingly (to me) his numbers are completely in accord with my recent analysis: www.energyinvestmentst.../
Groucho may have said what you ascribe to him or not but you probably meant to quote Lewis Carroll who wrote: if we had jam we could have a peanut butter and jam sandwich if we had peanut butter.
Are RIG contracts at fixed rates or do some of them, if not all, call for lower rates if oil prices fall?
Good point about exponential projections. Plus you never get 100% of it out of the ground. But even if we only have 30 years at exponential growth, that's still a LOT of gas, plus its fairly clean and all-American. Still could be a game changer it seems to me.
The big drop in oil demand in the late '70's, early '80's was because utilities nearly eliminated their use of oil to generate electricity in reaction to the Arab embargoes. Oil used to provide somewhere around 50% of electricity; it's not 3%. That is a one time change that cannot be repeated obviously. The only other big savings potential is in fueling personal vehicles and possibly trucks. That is the issue at hand today. It may happen, but will take a long time. Don't expect the change to be anywhere near as dramatic as the earlier decline.
It's interesting that we have one vote for NiMH, one for lithium-ion, and two for capacitors. My point was that technological developments will be determinative in terms of when l-i becomes dominent, which should be a fairly non-controversial comment - true by definition. Same would hold for the possibility of capacitors. Maybe they both work for different markets. The only controversial thing in what I wrote - and the only reason to write it in the first place - is that the onset of the l-i age of motoring may not be quite as fast as all the car companies' announcements would suggest. Note that SQM's capital budget puts lithium in 3rd priority and only expands that capacity by 25%. Seems like SQM also thinks there is some time before a huge order inflow happens.
Incidentally, I love SQM's product line. But the stock doesn't seem cheap at somewhere around 25 -30 times projected earnings.
RE: Nexen - I would not sell any oil sands stock until well after the SEC changes its reserve accounting rules. That change could cause massive investments by the major oil companies in whatever oil sands equities can be bought.
To Eric Fox: your point is directed to the right subject but is far from complete. The countries that are increasing their oil useage include, in addition to China: India, the rest of the Far East, Russia, Mexico, virtually all of South America, and most importantly the Middle East. I'd love to give you a number for the sum total of demand increases in those countries but I don't have it. Can someone else provide that number? My SWAG on it would be somewhere around 1.5 mb/d per year. OECD countries, on the other hand use about 45 mb/d and might see a decline of about 1% in use due to higher costs, which would be 450 kb/d.
First, the problem is not where energy comes from. The problem is that we use petroleum to power transportation and we much transition that to electicity.
Second, the greatest new source of savings in electricity in the short term is conservation. For example, if we changed out all the light bulbs to CFL's or, better, LED's (which are not quite here yet on a competitive price basis but soon will be), we could save about 15% of all the electricity now used. That is huge.
Third, it's been estimated that we could power some 80% of cars with electricity just by using hybrid efficiencies and, more important, by refueling during nightime off-peak load periods when there is plenty of spare electrical capacity.
The focus on sources of energy is not getting us anywhere. We need to focus on transforming our transportation system to electricity. In my humble opinion, of course.
Please inform me, sir. I'm always interested in learning, not so interested in name calling.
That said, I'd be surprised if oil did not encounter a serious correction at some point this year. It's overdue.
The family of anyone who thinks oil is infinite and renewable should not let him play with real money.
I think we need to distinguish between a bubble and a pullback from a too-rapid increase. Looking out five years, this will not be not a bubble if oil supplies collapse within that time frame as some analysts who have studied global production in detail maintain. On the other hand, current prices may be ahead of themselves and we could get a pull back to $100 or so. That would not change the long term picture.
CJ: I'm more optimistic on alternative transport because solar thermal, PV, wave and other renewable sources for electricity are fast becoming economic and practical. Link those to an electric vehicle and, boom, you get an alternative transport system. You probably are familiar with this model as promoted by A Better Place (www.projectbetterplace.../) and you probably know that both Israel and Denmark have adopted it as national policy. While those countries have certain advantages in implimenting it, eventually it can be used virtually everywhere I think. But it first takes the intelligence, determination, and expertise of a government to make it work. Jim