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Lucas Krupinski

 
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  • The Time of Hype and Hope Is Ending (Beware the Collapse to Come) [View article]
    Remember that I'm an investors when I say this: Big government is not the one killing this country; it's big business. And even more specifically, it's their shareholders, who put such emphasis on the numbers, day to day, month to month, quarter to quarter. It's become impossible for nearly anyone to create a longer term plan for sustainable growth when everyone is obsessed with hitting the numbers each and every quarter. Take Microsoft, one of the most profitable companies out there. Even they're so obsessed with the bottom line, that even though they achieved most of their growth on the backs of domestic employees, they're pinning their future revenue growth not to any attempt at innovation, but just cost savings through outsourcing.

    WHy? No shareholder wants to hear that the reason the numbers weren't hit for the quarter because the company chose to keep domestic workers rather than moving staff to cheaper locations.

    One company doing that is no big deal, but when they're all doing it in the name of creating value for their shareholders, it's destroying our country from the inside out.
    Oct 4 11:07 AM | 18 Likes Like |Link to Comment
  • Physical Gold Vs. Paper Gold: The Ultimate Disconnect [View article]
    Why is everyone citing the cash cost of gold at $1200 or $1300 per ounce, when say, Goldcorp, pegged their own costs at being below $500 per ounce in January 2013?

    What motivation would Goldcorp have for understating their costs by that much? I can't think of any. But I can think that people wanting to justify gold pricing at current and higher levels would want to do as much as they could to inflate the perceived production costs in order to make other investors feel like there is a solid floor that they are standing on...

    http://bit.ly/15Hom6r
    Apr 24 01:45 PM | 14 Likes Like |Link to Comment
  • Annaly: Who Needs QE3 When We Have ZIRP? [View article]
    I'd like to try to explain, but it's difficult to know where to begin.

    You ask "I can see how you can short the 2 year and go long the 10 year but I don't see how you could create much leverage. (Author example)".

    NLY and the like are not shorting anything. They're borrowing at short term rates and buying longer dated mortgage backed securities, which have higher yields. The borrowing is the leverage.

    You ask "Or go buy MBS securities (long.) But how could you borrow money super cheap and also create leverage?(Professor K comment)"

    Generally, we (ordinary investors) can't borrow for that cheap. Well, not through margin accounts - save for my favorite broker, Interactive Brokers, who has low enough margin rates where borrowing to buy higher yielders actually works.

    As for your question "Could an individual investor become a do-it-yourself NLY? That is if you had $100,000 to $500,000 could you create the same yield as these guys could?"

    Yes and no. Yes, an ordinary investor could borrow and buy longer dated mbs's (or treasuries, or corporate bonds - NLY and the other mortgage REIT's are confined to only buying mortgage backed securities because only those allow them to qualify as REIT's and get the favorable tax status - as an individual investor, you wouldn't need to worry about entity level taxes on top of individual taxes.

    The main issue would be source of funds. Brokers won't lend you 8x the value of your portfolio. But if you can convince someone to lend you money for less than the bonds you want to buy will pay, then you could get closer to their yields.

    There is one broker out there that, with $150,000 in equity, will lend $450,000 for 1.2411% (only for purchase of investment grade bonds, for which there is a 25% initial margin requirement) - so you could then buy $600,000 of AA corporate bonds, yielding 3.51%, and you're now a 3x leveraged investor doing what MREIT's do (to put it really simply).

    Your equity will be $150,000

    Your interest income will be approximately $21,060 (yield of 3.51% on $600k)

    Your interest expense will be approximately $5,584.95

    Your net income will be $15,475.05, giving you a yield of 10.31%.

    I don't endorse this strategy if you don't know much about bonds, what interest rate movements can do to them, and so many other things. I just outlined this so you can see how a roll yourself entity leveraged entity that buys fixed income products would look - to demystify it.

    For instance, the initial margin requirement is also the maintenance requirement - so if you've bought to the max and yields rise at all (meaning the value of your bonds has fallen), you will be forced to liquidate positions at a loss so that you're within the margin maintenance requirements.

    Again, please don't do this - this was for information only just to demonstrate the mechanics to you.
    Aug 31 09:17 PM | 12 Likes Like |Link to Comment
  • Bearish About Stocks? So Is Everyone. [View article]
    People are always pulling that "factoid" out; the market has been flat for XXX years so there's no point to having been invested during any of that time frame.

    And it's true that if one had taken their savings and dumped it into the market all at once XXX years ago, they'ed have little or nothing to show for it. BUT, if those same people had been putting money in consistently (ie, dollar cost averaging) rather than as single lump sum, they would in fact be ahead.

    I don't know about you guys, but i'm still in my accumulation years. I don't really care where the market was 15 years ago versus today. And any amount that i deposit to a brokerage account or contribute to a retirement account is not going to be my last amount invested. In short, when the Dow was between 7000 and 8000, I am so glad that I didn't listen to the herd and say to myself "wow, equities have had negative 10 year returns, I really shouldn't invest in those!".

    And on a second point, yes, the "market" may have had flat returns for that duration, but that hasn't prevented so many companies from delivering outstanding performances. So yeah, Citi and Wamu and National City went bust or nearly so, but Apple, IBM, Berkshire, and many others have outperformed. Not even counting all of the smaller issues.
    Jun 18 08:03 AM | 12 Likes Like |Link to Comment
  • Will These mREITs Continue With Massive Payouts? [View article]
    A) Limiting to buying at book value or below is essentially locking in your purchases to the worst performing members of the sector. Moreso, you may just end up sitting on your hands waiting for an opportunity that never materializes because the price doesn't fall enough for your liking. I've seen people say they'll buy into AGNC, for example, at $25 and no more. Those people have seen several quarters worth of distributions sale by without landing in their brokerage accounts.

    B) When you say "The market values of their mortgage holdings are not guaranteed, and could possibly drop below the value of the outstanding short-term debt a levered mortgage REIT owes", you're overlooking that for many mREIT's that invest in agency mortgages, the principal is in fact guaranteed. Yes, principal value can still fluctuate before mortgage is paid off, but that's interest rate risk, not principal risk. AGNC, for example, in a mREIT that invests solely in agency (federally-backed) mortgages.

    3) I believe you're overstating the risks of borrowing short and lending long. YES - it is a risk, losses are certainly magnified, but if you're trying to draw a comparison to the banking situation in 2008, it's not applicable. Lehman brothers, for instance, was leveraged at over 30:1 when it fell - that is an extreme amount of risk - if the value of their securities fell by less than 4%, that was enough to bankrupt the enterprise (which is what happened). Compared to that situation, leverage rations 3:1, 4:1 on up to 8:1 are much easier for risk managers to contain.

    4) Yes - these companies are likely not long term holds - one day the interest rate environment will not be as conducive as it is for them. I would think that the main catalyst for the environment making that change is because our economy will have finally recovered and such accommodation monetary policy will no longer be warranted. But, for me at least, I'm cognizant that this is the magic time for these businesses and have invested accordingly.

    5) Yes - income is fully taxable, rather than taxed at the more favorable rate for qualified dividends. But ask yourself, if you're in the top tax bracket, which will be better at the of the day - 15% return from your investment, which will be taxed at 35%, or 3.8% returned from your investment (JNJ) that's taxed at 15%.

    Hint: for every $10,000 invested in an mREIT yielding 15% will return $975 to a taxable investor in the top bracket after paying 35% income tax, where as the 3.8% yielder will return $323 after taxes. Therefore, if someone needs just a 3.8% yield to flourish but has a level of market uncertainty, one route they could take is to invest 100% into stocks like JNJ. Or they could invest 32.3% of what they were to have put in JNJ to obtain the same cashflow, and keep the rest of their cash on the sidelines or whereever they would prefer it to be.

    I'm biased. I love these things and have been in them since 2009. I know they're not going to last forever, but I'm also reasonably sure that they still have another year or two of great conditions ahead of them. And even after that, there's a good chance that they'll remain compelling investments.

    Disclosure: Long AGNC, MTGE and NCT
    Jun 15 02:55 PM | 11 Likes Like |Link to Comment
  • Netflix CEO Reed Hastings Responds to Whitney Tilson: Cover Your Short Position. Now. [View article]
    First I'll say that I love your service, and actively recommend it to everyone I know. I have a box from Roku, which my friends marvel over, and am getting one for my mom for Christmas.

    So, as a consumer, I love what you're offering.

    That said, the valuation scares me. I'll be clear, that shortly after buying the Roku box i was like "this is the future" and bought into your company around $64 per share. Only a few months later, I exited around $95, thinking at that point it had reached a decent valuation. So yes, i kicked myself when it kept flying upwards.

    I don't think anyone is arguing that Netflix is a profitable enterprise. But when you're at a P/E ration of 60-70, it doesn't even mean that a misstep can burn investors. It could just be traders moving on, exiting positions and exerting some downward pressure. Or you can continue to execute everything perfectly, only to see your P/E begin moving back inline to the rest of the market.

    It's not about netflix's viability. It's about an unsustainable P/E. And everytime someone points out a fundamental flaw and is told "this time its different" (think dotcoms in the 1990's, or mortgages and their default rates in the 2000's), it turns out, well, that they're not wrong.

    DISCLAIMER: Short Netflix.
    Dec 20 11:34 AM | 11 Likes Like |Link to Comment
  • If I Could Buy Just One Stock, It Would Be This One [View article]
    Rather than throwing out random facts, I just took your example and paired it with Excel and Yahoo's price history. Here's the end result:

    The investor needs $10,000 per year from their Berkshire investment to survive. Initially, they're aiming for a 3% yield, and each year thereafter they increase their withdrawal rate by 3%. They make their sale on the first trading day of the year, each year.

    In 2004, they start out with 5591 shares of BRK-B (adjusted for the split that occured with BNSF a few years back), which are worth $333,335.42.

    Jan 3, 2005, they sell 167 shares at $59.88 in order to generate $9999.96 income - 5424 shares remain.

    Jan 3, 2006, they sell 175 shares at $58.64 in order to generate $10,320.64 in income - 5248 shares remain.

    Jan 3, 2007, they sell 145 shares at $73.35 in order to generate $10,635.75 in income - 5103 shares remain.

    Jan 2, 2008, they sell 120 shares at $91 in order to generate $10,920 in income - 4983 shares remain.

    Jan 2, 2009, they sell 188 shares at $59.78 in order to generate $11,238.64 in income - 4795 shares remain.

    Jan 4, 2010, they sell 152 shares at $76.43 in order to generate $11,617.36 in income - 4643 shares remain.

    Jan 3, 2011, they sell 146 shares at $81.75 in order to generate $11,935.50 in income - 4497 shares remain.

    Jan 3, 2012, they sell 157 shares at $78.37 in order to generate $12,304.09 in income - 4340 shares remain.

    Jan 2, 2013, they sell 131 shares at $96.93 in order to generate $12,697.83 in income - 4209 shares remain.

    So - they started out with 5591 shares worth $333,335.42 in 2004, and they ended up with 4209 shares worth $450,783.90 in today, having withdrawn $101,669.77.

    I'll also mention that, had the payments been made as dividends, they would have been subject to a 15% tax on the entire income - in this scenario a 15% LT cap gain tax would only be applied to the gain on sales (i.e. if cost was $59.62, tax would be paid only on the gain).

    Put another way, if Berkshire had indeed been yielding 3% and paid out $101,669 over the time period, the investor would have owed Uncle Same $15,250.47 in taxes on those dividends.

    If the investor had been selling off shares along the way, they would have generated a grand total of $19,274.93 in long term gains, on which $2,891.24 would be owed.
    Apr 27 01:18 PM | 9 Likes Like |Link to Comment
  • Has Paul Krugman Gone Too Far This Time? [View article]
    He's clear in saying that he doesn't think now is the time to pare down government spending. Contrary - for as long as the economy is the doledrums he advocates more spending. So you can't look at his plan and criticize it for not closing the deficit when that's not what he's pushing for. You might want that, but he is has said time and time again that the deficit is fine, and wants to concentrate on fomenting a recovery.

    Because I'm a mindreader, I'll go ahead and answer the statement that is sure to come. No, our current economic quagmire has nothing to do with our national debt or deficits. Those are invented problems, created by political opportunists. And no, I don't think that running huge deficits forever is at all sustainable, but I agree that when we're on the brink of recession, it's not the time to cut spending. When we get to a recovery, that's when we should refocus our aim on paring down spending.

    Only one president in the last 30 years has even made an approach at a balanced budget. He neared it during an economic boom. All the other presidents oversaw many economic expansions, but none of those expansions was couple with decreasing debt levels. If the others couldn't pull that off during good times, its even more difficult to do so during bad times.
    Nov 13 08:28 AM | 9 Likes Like |Link to Comment
  • If Stimulus Works, How Come We Need More Of It? [View article]
    Wow. Talk about revisionist rewriting of history. Yes, democrats were hawkish as well and likely all your quotes are correct and not out of context, but to throw up only their quotes and imply that they're the reason we went into Iraq defies logic. Try pulling up some Republican quotes on the matter, just to provide some "balance". And especially post 9/11, i might wonder how many people joined the hawkishness (from both sides of the aisle) as a result of false intelligence that was brazenly presented in every forum imaginable.
    Aug 12 01:20 PM | 9 Likes Like |Link to Comment
  • If Stimulus Works, How Come We Need More Of It? [View article]
    The issue is that the fed is coordinating with no one. Forcing down rates and buying bad assets out of the market doesn't lead anyone to a certain outcome. If there was a coordinated response - fed providing low cost capital, government outt bidding out projects that need manpower,and treasury providing a tax incentive for new hiring, you'd see something. But just dumping liquidity into the market without stoking demand, it's no surprise that alone doesn't work...
    Aug 11 12:03 AM | 9 Likes Like |Link to Comment
  • 10-Year Treasuries Telling A Much Scarier Story Than Stocks [View article]
    It's flight to safety - the investor is willing to pay much more for a stream of income from a "bond" because they feel much more assured about not only the safety of the payment stream, but more importantly, the return of their principal when the time comes.

    I don't think you can look at US equities and treasuries and get a full picture of what's going on. A lot of money flooding into Treasuries is likely flight to safety money coming in from overseas - as such they're not looking at investing in equities.

    It'd be a different story if we were a closed off economy - like if the only way that more money could go into stocks would be to take some out of bonds. But we're interconnected - equity investors can invest in equities, and meanwhile, huge amounts of inflows can come into our credit markets for completely different reasons than asset allocation, etc.

    Just saying - it might not be mispricing. It might just be that the "equlibrium" is off. As long as Europe continues flailing like it is, a lot of scared money will be looking to leave for safer waters, meaning US treasuries. And when that settles down, that money will likely return to Europe. Hopefully we don't panic when that happens, and just realize it's what can and will happen in such an interconnected financial world...
    Jul 16 04:12 PM | 9 Likes Like |Link to Comment
  • Thanks Apple For Killing My Portfolio [View article]
    It's extremely important to note Apple didn't do anything to your portfolio, you did it to yourself. To make such concentrated bets on the company is beyond rational, and thankfully you only did it with play money, not risking losing anything real.

    Especially damaging is the use of options. What makes options dangerous is that you can be correct in your assumptions in the long term, but you're attaching a timer to your assumption. Even if you're right, but your time frame is off, you stand to lose a lot.

    I do buy calls and sell puts, but the puts I sell are done only under the premise that the strike price is one where I would want to be a buyer. But then, I generally see lower prices as more opportunistic than higher prices. If I'm interested Apple at 600, that it hits 530 makes more more interested, not less interested.

    As for the Amazon to Apple correlation, it's off base. With Apple now paying a dividend and trading at a P/E ratio of 13 whereas AMZN trades around 185, i don't think you'll find many people who would say that AMZN is the safer bet.

    Again. Good thing this was just done with play money. Again, I'd suggest rewriting the headline to something less misleading, such as "Thanks to my short-term bets on Apple, I killed my portfolio".
    May 17 01:48 PM | 9 Likes Like |Link to Comment
  • The Bond Bubble That Wasn't [View article]
    Careful... Just because a bubble hasn't yet popped yet doesn't mean there isn't one forming. The masses brushed off concerns about a bubble in dotcoms back in the day and paid the price. And housing used to have nowhere to go but up.

    The issue with treasuries rather than dotcoms and houses is that there is an absolute top to the craziness. 30 year bonds simply can't be bid below a 0% yield. Not like we'll get that close, just saying that there is a limit to the madness unlike with the preceeding bubbles.

    And so long as prices march upwards, no one sees the harm because they're all "winning". It simply can't be sustainable, no matter how much chaos there is in the stock markets. Too many people, firms, plans and the rest have built their plans around better return expectations that 4%.So this rate environment can only last as long as the Fed keeps playing games with the yield curve to spur growth. Once either growth resumes or powers that be move to another strategy to get growth happenining again, those longer dated issues are going to cause a painful thud that'll be heard around the world.
    Sep 23 12:08 PM | 9 Likes Like |Link to Comment
  • Recession, Depression, Deflation, Inflation, Collapse or Recovery? [View article]
    I can't believe how many articles like this I run into on investment forums. Do the writers really think they're doing anyone a favor? Or are they just further stoking enthusiasm for gold? It's really silly to realize how much one hiccup in the system (yes, that's all it it... the sky's still blue, the oceans still have waves, and the ground still is fertile) sends people into hysteria.

    We had a wall street collapse ten times worse than what we just went through and guess what? It all worked out.

    We had a pair of world wars, got through them, and guess what? We're still here.

    We had a bout of stagflation in the 70's, and again, we came through it.

    We had horrifically high interest rates in the 80's, and the system didn't collapse.

    We had a 40 year cold war with Russia, and never once did we have to hide in our bunkers.

    We saw the stock market collapse again after a huge run up led by internet stocks, and we kept going.

    We made it through Y2K. ;)

    Now, the housing market collapsed and it's the end of the world? I can't believe it. Everyone expects too much in life to be easy, and when it's not, it's simply the end of the world. It's one extreme or the other, and lately, it seems to all be propogated by the goldbugs trying to push their metal up to higher and higher prices by trying to instill panic in the population in order to generate more demand.

    Life is good if you step back and take a deep breath instead of continually thinking yourself down the deepest darkest hole you can find, constantly.
    Dec 3 08:01 AM | 9 Likes Like |Link to Comment
  • Why Dividend Investors Can Ignore Stock Prices [View article]
    Nice article.

    I think value investors are at odds with the rest of the investment world. Their mindset is different from pure growth investors (the one's trying to ride the trends) and certainly different than the traders outlook. What looks so simple and apparent to us is almost impossible to explain to people of different investment classifications.
    Jun 25 04:20 PM | 8 Likes Like |Link to Comment
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