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  • Lululemon: Keep Calm And Don't Worry [View article]
    In the valuation view, you show LULU could decline another 50% and still be pricier than your comparables on a price/sales basis. One view is that mgmt prioritized margins over product quality (cf. notes of deteriorating product quality c. 2011), and margins may likely shrink one way or another. Throw a still 35 p/e on top of potential margin compression with new mgmt that aims to clear slow-moving inventory and lower guidance so as to beat forecasts, and, well, I still own a few puts on it though don't suggest how it will trade.
    Jun 12 01:04 PM | 1 Like Like |Link to Comment
  • Modeling Intuitive Surgical's Triple Revenue Stream [View article]
    @Scipio -- ISRG closed c. $475. If you think it's fairly priced c. $350, and you could easily sell your stake in one day, why do you own it at all? (That's not advice to buy or sell; just curious as to rationale. We have a few puts on it among others.)
    Apr 22 09:18 PM | 1 Like Like |Link to Comment
  • Interest Rates Are An 'Unreliable Indicator' [View article]
    "Just so that you don’t think I always cop out on past predictions, post this one on your wall:

    If NGDP growth during 2013 is less than 4%, or if RGDP growth is less than 2%, then I believe fiscal austerity will have reduced growth somewhat. In other words, I believe the Fed will have failed to offset the expected fiscal austerity with its QE3 policy of late 2013.

    Hold me to it."

    If that's a falsifiable prediction, I'm Bugs Bunny. Okay, I'm just cranky amid addressing economists; I've enjoyed your other pieces.
    Apr 5 02:58 PM | 1 Like Like |Link to Comment
  • Notes On The 2011 Berkshire Hathaway Annual Report, Part 1 [View article]
    Dumb question: In the Equity Price Risk table, a 30% price change on $76,991 equity securities is a 9.1% hypothetical change in BRK owners' equity. That implies around $254b equity when equity at Dec 2011 was nearer $169b. There's a similar discrepancy as of Dec 2010. What explains the 9.1%?
    Mar 11 02:24 PM | Likes Like |Link to Comment
  • Spanish Broadcasting System, Inc. Should Call Berkshire Hathaway [View article]
    Well, it’s interesting. You’ve owned ETM, which also had a credit facility due in June 2012.

    (1) Would you say that ETM also has no assets? You know, broadcast licenses compose over 70% of both Entercom’s and SBS’ stated noncash assets. As a practical matter, earnings indicate assets.

    (2) ETM’s credit facility required under about 6x leverage (debt to operating cash flow). SBS could refinance most of its debt on that basis. You speculated ETM’s interest rate wouldn’t double from about 3.4%. Its new credit facility enables maybe 5x leverage at around Libor+5%. Why would SBS necessarily pay much more than that for a bank credit facility with strict covenants and secured by its licenses? If it borrowed $200m at Libor+5% on top of $93m Series B at 10.75% and then $75m at 12.5%, that’d be a weighted average ~ 8.25% cost of interest-bearing capital. Why should SBS pay 12.5% on $275m?

    (3) IIRC Berkshire loaned Goldman $5 billion at 10% with warrants that rendered Berkshire’s investment akin to participating preferred stock. As to what interest rate SBS could attain from Berkshire or another corporate lender-advertiser, it’s a matter of valuing advertising time included in the deal. Start with a commercial rate on senior debt and subtract value of the underutilized ad time: a potential win-win.

    As to the notion that SBS had no choice: there’s almost always a choice in method of financing (I wonder whether SBS could have issued 5-year notes at Libor + 9% -- like hotel owners, radio operators may be better off with variable-rate debt), and SBS had four more months to make one.

    Now SBS’ best financing move may be to enter into a bank credit facility with covenants negotiated carefully, then use it to repurchase its 12.5% notes on the secondary market. It would incur unnecessary interest and transaction fees vs. the forsaken path of negotiating an advertiser loan or, conventionally, a bank credit facility that minimized any pricey senior notes issuance.
    Feb 10 11:15 AM | Likes Like |Link to Comment
  • Spanish Broadcasting System, Inc. Should Call Berkshire Hathaway [View article]
    And the offering closed. It accords with three lessons:

    1. When we leave a message for a CEO or CFO and a company spokesperson and both the executive and spokesperson decline to call back: watch out.

    2. Consider running in the opposite direction when we see “we entered into an engagement letter agreement (the “Engagement Letter”) with Lazard Frères.… Lazard will be entitled to (i) fees upon the consummation of certain strategic transactions, (ii) fees in connection with services rendered under the Engagement Letter and (iii) reimbursement for expenses incurred in connection with its performance thereunder.” And Lazard’s incentive to do well for the company’s owners apparently: zero.

    3. Continue running when long-term notes are issued at an above-average cost and non-callable. Had these notes been callable in a year, even issued at 12.5%, there’d be opportunity to rectify the interest burden with a reasonable bank credit facility or innovative advertiser-investor. Now it looks stuck.

    It’s as if management preferred to pay an extra ~ $15 million annual interest than to be beholden to EBITDA requirements and operating restrictions attending a bank credit facility. Yet the interest burden creates practical operating restrictions.

    This decision to favor ~ 13% long-term notes over a potential ~ 8% shorter-term bank credit facility may have cost the company a near-term teens stock price and ability to deleverage rapidly via a secondary offering of SBSA stock at a price triple today’s.

    After all, the ~ $15 million saved annually may have been a $2 per share annual dividend in abidance of credit facility terms negotiated well.
    Feb 7 06:16 PM | Likes Like |Link to Comment
  • Spanish Broadcasting System, Inc. Should Call Berkshire Hathaway [View article]
    It’s especially interesting for three reasons:

    1. Even without considering any corporate lender or investor, there ought to be opportunity a la #3: extending or replacing most or all of the bank credit facility at a variable rate around Libor+6%. That would appear dramatically preferable to 12.5% non-callable 5-year notes. It could enable a $10-15 million annual dividend, a durable teens SBSA price, retirement of the Series B through a secondary offering of common stock and then issuance of 5- or 10-year notes at a reasonable price not exceeding 8%.

    2. While much of the world -- Europe, China, Brazil, Australia etc. -- might present more macroeconomic downside than upside in the near-to-medium term, US economic trends appear positive.

    3. SBS’ credit facility does not expire until June.

    We could have counseled SBS differently.
    Feb 6 01:47 PM | Likes Like |Link to Comment
  • Shiller P/E Suggests Low Returns For The Next Decade [View article]
    Very good.

    1. Can you present a similar regression model to estimate 10-year returns on Treasury bonds?

    2. "On the date of each calculation, we asked: What was the real return of the S&P, per year, over the subsequent 10 year period?" Does real return here mean inflation-adjusted price change only or total return with all-important dividends reinvested?
    Oct 26 03:38 PM | Likes Like |Link to Comment
  • With Competition Like This, Does Amazon.com Need Partners? [View article]
    Comment above if Apple (or anyone) buys Hulu: "There's no doubt this is a Netflix killer."

    I doubt it for two reasons. Any buyer who maintains the ad model may fail to compete well with Netflix. Second, it depends who buys it. Apple prices high-end. Netflix prices low-end. Amazon prices low-end. Google prices low-end. Amazon or Google may eat Netflix's lunch. Apple won't.

    Regardless, ongoing competition from Amazon should pressure Netflix's margins: even if its sales rise to $5b in a near-future year, its optimistic-case earnings stream appears worth well <$200/sh.

    (The LP I manage owns a boatload of Netflix puts: up to about a couple percent of net assets now.)
    Jul 22 02:29 PM | 1 Like Like |Link to Comment
  • That's half-way to one million! [View instapost]
    Kindly note that, one month later, these two feeds remain broken. What's the estimated date by which they'll be fixed?
    Jul 15 12:47 AM | Likes Like |Link to Comment
  • That's half-way to one million! [View instapost]
    Thanks! When I endeavored to add a subscription to those feeds in google.com/reader, it replied: "Your search did not match any feeds." The feeds didn't validate at feedvalidator.org/ either. Perhaps your technical team can make them work?
    Jun 15 09:59 AM | Likes Like |Link to Comment
  • Amazon.com: Picking Its Battles Wisely [View article]
    I like this article too, without comment on any recommendation.
    Jun 14 04:23 PM | Likes Like |Link to Comment
  • That's half-way to one million! [View instapost]
    "One thing I'd appreciate some help thinking about is how to encourage more vibrant comment streams on our Investment Views and Just One Stock articles."

    Sure: let the stream of "Just One Stock" articles (seekingalpha.com/artic...) be an RSS feed. I couldn't see how to track that series of articles in Google Reader.
    Jun 14 01:35 PM | Likes Like |Link to Comment
  • Just One Stock: Perelman's Conglomeration Isn't Thrilling, But Too Cheap to Resist [View article]
    "We got some really valuable feedback on this interview. In light of the feedback, we reconsidered and changed our investment thesis."

    How exactly did your thesis change?
    May 26 02:26 PM | Likes Like |Link to Comment
  • Johnson & Johnson Looks Promising on New Product Potential [View article]
    kherman, a few questions if you'd oblige me:

    "The above math for the FCF portion [15*FCF] is basically a DCF when FCF is expected to grow at 8% for 10 years and 4% for the next 20. No FCF after that is in the calc."

    1. That's discounted at ~12% and assumes distribution of FCF or its reinvestment at that rate? What led you to that discount rate?

    2. Why do you add $44b to it rather than stop there? What's the value of unliquidated equity beyond enabling FCF for owners?
    May 25 10:19 AM | Likes Like |Link to Comment
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