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Madhusudan Rao

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  • Is It Time To Short The Canadian Housing Market? [View article]
    To sum it up. Banks lend people against a collateral (home) and insure it with an insolvent counter-party. But a fall in collateral value is good for banks.

    Lets just agree to disagree!
    cheers
    Apr 11 01:22 PM | Likes Like |Link to Comment
  • Is It Time To Short The Canadian Housing Market? [View article]
    Well, you may be right. There may be better ways to play it. But the top 10 banks and mortgage lending institutions hold $ 1 trillion worth mortgages, thats 55% of the Canadian GDP. And the total household credit is near 97% of GDP. (http://bit.ly/NLDpF7).

    The "big 5" are a big part of this credit story and are under-capitalized. So is the CMHC. And the smaller players are even more exposed with lower equity base and more uninsured mortgages. Thats why their RoEs look great on surface but are a cause for concern.
    Apr 10 09:08 PM | Likes Like |Link to Comment
  • Is It Time To Short The Canadian Housing Market? [View article]
    Hi Timmies,
    I agree with a lot of what you say. But I also live in Canada and I find the situation somewhat different. I find banks offering personal loans, 1% cash back and other incentives to circumvent the 20% downpayment rule (And this is also not anecdotal). I find banks somehow luring Canadians into buying a house and passing the monthly insurance costs to the borrowers. I believe that CMHC is not adequately capitalized to insure those mortgages.

    If we follow a foreigner's rationale , it must be to store the money in the form of real estate. But if the real estate values crumble (due to lower credit growth or any other reasons, or a fall in CAD), then a foreigner will also try to exit like the citizens (speculators).

    Playing the banks and other lending institutions is still a good idea, as long as CMHC is not bailed out. And even if it is, the shareholders will have to take some significant pain.

    About default rates, there is always a first time. Never before 1999 was there a dot com bubble, never before 2008-09 was there an ABCP crisis in Canada. Never before were debt levels so high and interest rates so low either. Every new crisis appears to be bigger than the one before and as unexpected as the one before it. So fingers crossed!!
    Apr 10 07:50 PM | Likes Like |Link to Comment
  • BlackBerry May Be A Contrarian Buy [View article]
    Blackberry is probably trying to capitalize on the perception that iPhone is for kids who do not know what to do with a mobile phone and Blackberry is for users who want to be productive. Hence the shift in focus towards producers (enterprises) rather than naive consumers.
    Apr 1 01:13 PM | 7 Likes Like |Link to Comment
  • Is Google A One-Trick Pony? [View article]
    Yes...Your assessment is very accurate. Google also plans to sell its self driving car away for free, because it will monetize it by displaying ads on the windshield. Even otherwise, people will be so hooked on to the Google glass that they wouldnt mind looking at those ads when the car is driving them to their destination.
    Now thats a great business model.
    Feb 27 09:23 AM | Likes Like |Link to Comment
  • Is Google A One-Trick Pony? [View article]
    Hi Orion
    Thanks for the comments. My point is that Google is using the cash generated from ads to venture into too many segments without much success or a coherent strategy to monetize the "innovation". And at the same time, its cash cow is being targeted by many players. It does not seem (to me) to be a growth stock that it is perceived to be. (I would also like to write an article on how ineffective its ads and search is, but that would be too daring?!)
    Feb 26 07:31 PM | 3 Likes Like |Link to Comment
  • Seadrill - A Very Risky Dividend Play [View article]
    Sorry for the delay...I still believe the company is extremely risky. The company is creating financial maneuvering to increase short term profitability and dividends.

    The sale of tender rigs that was booked as $1.2 billion profit is in exchange of shares of a company , not cash (valued at market price) as marketable security. The value of those shares are subject to changes.

    The operating cash flows have fallen. And debt levels remain elevated. The interest expense has risen and inclusion of gains from derivative in net income is good for the short term but reversals are equally likely in future quarters.
    But it is ok to stay invested as long as you recognize the risk.
    Good luck
    Sep 13 02:46 PM | Likes Like |Link to Comment
  • Seadrill - A Very Risky Dividend Play [View article]
    Sorry for the delay...I still believe the company is extremely risky. The company is creating financial maneuvering to increase short term profitability and dividends.

    The sale of tender rigs that was booked as $1.2 billion profit is in exchange of shares of a company , not cash (valued at market price) as marketable security. The value of those shares are subject to changes.

    The operating cash flows have fallen. And debt levels remain elevated. But it is ok to stay invested as long as you recognize the risk.

    Good luck
    Sep 13 02:42 PM | Likes Like |Link to Comment
  • Seadrill - A Very Risky Dividend Play [View article]
    It is up to you. My article is on SDRL. I cannot figure out industry wide downturns...so i diversify and stay with conservative companies. ..You may have figured out what the game is, but I cannot...If it helps, my NE entry point was at $29.5 and it is about 0.7% of my portfolio.
    cheers!
    Jun 24 11:46 AM | Likes Like |Link to Comment
  • Seadrill - A Very Risky Dividend Play [View article]
    Desperate to build a bullish case..There are too many talking points, no point in answering them..I dont think I can change your view...So lets agree to disagree..no offense...cheers...good luck investing....
    Jun 23 08:40 PM | Likes Like |Link to Comment
  • Seadrill - A Very Risky Dividend Play [View article]
    That is an interesting question. In 2007/08 a bottom-up screening process might have eliminated all the oil tanker companies due to high debt levels compared to Equity (with retained earnings). I looked into the 2007 annual financials of oil tanker companies (VLCCF, TK, NAT and Frontline) and I think Teekay had relatively lower debt levels.( 2 to 1) and conservative dividends.

    Coming back to Offshore drilling (SDRL's industry), If one wants exposure, I think NE is more conservative. (I own very few shares of NE)
    Jun 21 08:31 PM | 1 Like Like |Link to Comment
  • Seadrill - A Very Risky Dividend Play [View article]
    Your comments (and several others) are very insightful for all readers
    Jun 20 01:34 PM | Likes Like |Link to Comment
  • Seadrill - A Very Risky Dividend Play [View article]
    So you are fine holding a stock that has not recovered even if the stock market has?!
    Jun 20 01:09 PM | 2 Likes Like |Link to Comment
  • Seadrill - A Very Risky Dividend Play [View article]
    Frontline Ltd is an oil tanker company owned/controlled by Fredriksen. The cash dividends were often higher than earnings, with high levels of debt. The stock fell from $64 in Sep 2008 to $28 in December. The board increased the quarterly dividend from $2.75 to $3 per share only to suddenly reduce it to $0.5 in Mar 09. (It was considered a growth company with high dividend yield).
    The stock now trades at $1.9 with a quarterly dividend of 2 cents.
    If I were a shareholder of SDRL, I would be cautious. It is a very risky investment. The board is very aggressive in both dividends and investments.
    Jun 20 12:56 PM | 7 Likes Like |Link to Comment
  • Windstream - Dividend Cut Inevitable, Probably Priced In [View article]
    If you are certain about the survival of the company then, if possible, you might want to get exposure to the debt. You get a decent yield and first claim to its assets with lower risk.

    I am not quite certain about its survival in its current form. I may write another article on the credit risk and probably the consequences of the interest rate swaps on the debt.
    Jun 13 08:17 PM | Likes Like |Link to Comment
COMMENTS STATS
36 Comments
29 Likes