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Martin Vlcek

 
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  • Greece, 'Europe's Argentina', Strikes Again [View article]
    According to my knowledge of history, Greece was allowed to join the EU for political reasons only, as a strategic piece of land controlling the land connection to Asia and also from Asia to Russia. It was never for the economic reasons. Today, the situation is the same. Do the EU countries really want to decimate Greece to the point where Russia and China bail them out for pennies on a dollar and control it for strategic reasons? I am certainly happy that a country should be bailed out, but unfortunately, pragmatism is needed here above economic or purely political logic.
    Jan 27, 2015. 03:07 PM | Likes Like |Link to Comment
  • Do You Believe Me Now? [View article]
    Add Russia annexing Crimea and invading part of Ukraine.
    ISIS was almost non-existent a year ago.
    An extremist far left party wining a landslide majority in Greece while a far-right fascist party came in third
    Scotland almost voting to be out of the UK, UK probably voting to be out of the EU by 2017, etc.

    While lots of these things don't have a direct economic impact, they are symptoms of great stress underneath the surface. The income inequality and wealth inequality is tearing the world apart, as it always does when the GINI coefficient reaches a certain level. Last time the Gini was this high, we had the Great depression and WW1. This all causes huge volatility underneath the surface although the S&P stayed nice and smooth more or less so far.

    Ultra cheap credit is fueling rapid technological investments which replace human labor at an unprecedented pace. This is another reason for the unrest and volatility in the world. The technological change is too fast for the labor markets, corporations, government policies and people's psychology to stomach. Companies like IBM, Microsoft, McDonalds are at risk of becoming irrelevant within 10 years while they trade at high FCF multiples, of sales growth and boost numbers by buyacks instead of investing to stay relevant. So there is a good reason for volatility in the S&P. S&P is boosted by the hint for yield and flight to perceived safety of the biggest stocks.

    I am definitely even more cautious this year than last year but I am not out of the markets. But I am picking individual stocks, not buying the broad markets.
    Jan 27, 2015. 01:26 PM | 4 Likes Like |Link to Comment
  • Electro Rent's 6% Dividend Yield Is Enticing. But What Are The Risks? [View article]
    rg3922ch,

    That's a great point and I had a good laugh. You are spot on. To be honest, I rarely check the "consensus" target price when performing my valuation but I now see that the "consensus" has a ridiculously high target price of $23. My valuation is ~$14.20 per share, so I hope my realistic valuation serves your needs better.
    Jan 27, 2015. 01:13 PM | Likes Like |Link to Comment
  • Zulauf: Fed won't hike this year [View news story]
    Alegaleth,

    Just go give you additional perspective, when you buy a bond at a certain current yield, you are making a bet on future inflation. Basically, if future average inflation is higher than your current yield at which you bought the bond, you will lose relative to inflation over the long run. So basically, anyone who buys bonds at current tiny yields makes a bet there will be deflation or almost no inflation over the bond term (on average).

    The caveat is that even if bond yields will lose to inflation, some people may still choose bonds because they are afraid other assets will lose even more (stocks, cash held in non-USD currencies such as Euro, Yen, Ruble, etc., bonds in other currencies which have even lower yields). So for them, getting a tiny positive yield in Treasuries may still be attractive *relative* to potential risk adjusted returns from other asset classes, even though in absolute terms they may lose money against inflation.

    But locking in such tiny returns over cash in a mattress returns (cash has virtually zero nominal return but is viewed as riskless), they are accepting very little (perhaps inadequate) premium for the risk of a potential sovereign default in some countries' bonds.

    I always try to focus on absolute risk adjusted returns when making investment decisions and not rely just on relative returns. Sometimes holding cash (in the right currency of course, which is the trick:)) may be the best risk-adjusted strategy, at least for a part of your portfolio.
    Jan 26, 2015. 02:02 AM | 1 Like Like |Link to Comment
  • Super Micro Computer Has The Potential To Become The Next IBM Or HP [View article]
    I really like the deep and interesting discussion going on here and all the additional information presented, thanks!

    The related parties transactions are a risk, for sure. All factors taken into consideration, if I had to pick a side, I would go with a company with strong insider ownership like SMCI and hope the benefits outweigh the risks. I've seen too many corporations run by CEOs and managers that have absolutely zero interest in the longer (or even shorter-term) benefits for the company (=shareholders), and mostly only make political decisions that protect their own jobs and bonuses. So from my experience, insiders can work against the company (and often do) even when there are no related parties transactions.

    A year ago in an earlier SMCI article, I mentioned the management took ~ one third of all profits as salary and stock bonuses. This is another risk. The high ratio was understandable sort of due to the relatively small company size (sort of like fixed costs which are relatively high due to a small size of the total income). The profits are rising fast, so the ratio of management rewards to total income has fallen. But there is a risk the insiders will want to take out a higher share of the profits again. Without dividend payments, the stock appreciation is the only tangible benefit for shareholders. However, hopefully, the insiders will balance their benefits with long-term company and shareholder prosperity.
    Jan 26, 2015. 01:24 AM | Likes Like |Link to Comment
  • Super Micro Computer Has The Potential To Become The Next IBM Or HP [View article]
    Alpine,

    You add many excellent points and I agree with practically all of them. The probable 10% customer has been mentioned below.

    I will just mention that I absolutely agree on a need to improve the brand name. They usually use Supermicro, but it still could use some improvement:).

    I also see Lenovo taking over IBM's server line as a threat and will watch the impact closely.

    I think SMCI mentioned on the call that the Grantley was going well, they saw strong demand if I remember correctly.
    Jan 25, 2015. 12:39 PM | Likes Like |Link to Comment
  • Super Micro Computer Has The Potential To Become The Next IBM Or HP [View article]
    Ship99,

    You are correct that the family ties are a risk. On one hand, they are part of the reason for SMCI's good performance and potentially good future prospects as the motivation of the whole chain is aligned. On the other hand there is always a risk as you correctly mention that the family could work more for themselves than for the shareholders at some point in the future.
    Jan 25, 2015. 12:34 PM | 1 Like Like |Link to Comment
  • Super Micro Computer Has The Potential To Become The Next IBM Or HP [View article]
    Alpine,

    That is of course possible, that SMCI will not make it. There are many risks and the growth story may stall at some point. Interestingly, IBM is selling the server business to Lenovo if I recall correctly? This could mean more competition for SMCI as Lenovo is known to be able to cut costs and could make the servers more competitive.
    Jan 25, 2015. 12:32 PM | Likes Like |Link to Comment
  • Super Micro Computer Has The Potential To Become The Next IBM Or HP [View article]
    Magical Alpha,

    I've spent a great amount of time going through all the reviews at Glassdoor and thinking about the situation. Lots of the employees work long hours and the CEO seems to unofficially require/reward that. However, given most of the employees are of Asian origins and the CEO and management are also mostly Asian, this looks to me like they just "moved" an Asian factory to the U.S. but still use Asian working standards. Long hours, hard work, relatively low pay. So this seems like Asian culture dominates this company.

    The management also seem to be rigid from what I've studied, not accepting much change and creativity. This may be terrible for employees (dull monotonous work without a chance to change much). But it may actually be good for the business because it is a low-margin business where execution and a "strong hand CEO" may make all the difference between a losing company and a thriving company.

    This entire culture works in the U.S. as it provides low costs. However, it may not work in Asia as their competitors in Asia will have similarly low cost structure.
    Jan 25, 2015. 12:29 PM | 1 Like Like |Link to Comment
  • Risk Parity: What It Is, How It Works, And Why It Matters [View article]
    Thanks for a very interesting article. I am using risk parity principle as the main principle for a part of my portfolio. For other parts, I am using different approaches, such as a barbell strategy, implied volatilities vs. historical, through selling out of money options when they are relatively expensive, but not using leverage!, and buying other LEAPS options when they are relatively cheap, etc, to be diversified even in terms of various portfolio theories and portfolio parameters (interest rates, volatility, etc.) because every theory is just that, a theory.

    Risk parity is based on historical data. I use my estimates of future standard deviations or volatilites of the assets and their correlations for the risk parity part of my portfolio. But my approach in this part of my portfolio is then based on a "crystal ball" approach, trying to guess future values of standard deviations, correlations, etc, so it has its own weakness:). The bottom line is nobody has a crystal ball and diversification of approaches is the best approach IMO.
    Jan 23, 2015. 02:19 AM | 2 Likes Like |Link to Comment
  • Update: DXP Enterprises Q3 Results Miss On Sales But Organic Growth Continues [View article]
    REIT, oil prices crushed another ~40% since the last update, and virtually nobody predicted that. So unfortunately the stock took a beating as well, down by roughly 30% to 40%. I advised to protect the downside, and that proved to be a very good advice. My $80 target price is a 2-year target. I stand by it, although it may take three years, not two. I believe the current oil price drop has much less room to go and oil could be volatile both ways going forward. DXPE is a better buy today than two months ago.

    Here is what I wrote in the update: "I am lowering my target price to $80 which now represents a ~24% upside within two years. However, downside should be protected due to continued weakness in the oil prices and its somewhat unpredictable impact on DXP"
    Jan 21, 2015. 01:11 AM | Likes Like |Link to Comment
  • The Oil-Fueled Economic Cycle [View article]
    I don't think falling oil prices are a systemic risk. But I think the appreciating dollar is. If the dollar keeps rising, we could see defaults or haircuts on lots of U.S. denominated debt in many countries outside the U.S. Private, corporate as well as sovereign. Now that is the real problem that has the size potentially systemically dangerous. If the debt holders don't default, they will at least have higher costs of servicing the debt (they already have now thanks to stronger dollar). This will suck money out of the real economy and could cause a global recession.
    Jan 19, 2015. 08:03 AM | Likes Like |Link to Comment
  • Rosenberg's Fatally Flawed Rationale -- Dollar Strength Is Already Kicking Off A Profit-Killing Tightening Cycle [View article]
    What an excellent article!

    I think it is spot on. One think I would change is use a different company, not Tiffany's. I would blame Chinese corruption crackdown and Russian roulette (their billionaires hit) on falling luxury product sales. But these companies will surely use the US dollar as a great excuse. This may create the feedback loop needed for a crash: many companies blame all their mistakes on the easy target, the strong dollar, and the market then overshoots to the downside because they think the dollar really hurt the companies more badly than the reality is.

    Many large companies are partly or fully hedged against currency fluctuation. But the demand for their products abroad (their competitiveness) will still be hurt despite their currency hedges. Foreign companies will likely try to increase market share by not raising prices when U.S. companies raise (early example: Apple already raised prices of apps in some countries).
    Jan 14, 2015. 11:20 PM | Likes Like |Link to Comment
  • The Oil Obituary? Be Careful As The Quick And Easy Money Has Been Made [View article]
    Yes indeed, sorry for the typo. Thank you for catching that.

    BTW, the oil futures staged a huge 1-day rebound, so the thesis of heightened volatility and risk to the short oil positions is playing out very soon, influenced also by options expirations and Russia cutting nat gas flows to EU. I expect more whipsaw around the $50 mark.
    Jan 14, 2015. 09:52 PM | Likes Like |Link to Comment
  • Is The Fed Buying Stocks? [View article]
    Lawrence, ranclarke summed it up well below. I would add that the S&P futures markets (after forex and U.S. Treasuries) is probably the largest market out there. Japan needs to diversify as Yen devaluation and Japanese Treasury "restructuring" or default is one of the few real solutions available after decades of attempts with no results. I knew I was probably going to default on some of my debts, I would try to buy anything outside of Japan to save at least some value. Also, Japan offers low growth and the pension funds need higher income sources.

    Japan is a huge buyer, the BOJ and Japanese investment funds together. I think they would created distortions if they actually tried to purchase single stocks or even some smaller ETFs. The FED (almost) created distortions by buying lots of U.S. Treasuries. I don't know how the SPY ETF compares to the S&P futures market in terms of size and liquidity, but I would guess the volumes are 100s-fold higher in the S&P futures and forex, futures and Treasuries are probably the only markets that can soak up as much demand as Japan represents.

    During the 1987 20% one-day crash, what exacerbated the fall was the hedging done by virtually everyone by shorting the S&P futures If I remember correctly.
    Jan 13, 2015. 08:15 PM | Likes Like |Link to Comment
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