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Martin Vlcek  

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  • Is Shorting VXX Really More Profitable Than Being Long SVXY Or XIV? [View article]

    I am not talking about naked shorting. The parity and synthetic positions apply to all types of positions. For example, buying a put has to be economically equivalent over time to shorting the stock and buying a call with the same strike price and expiration as the put. So the put will have a higher time value than the call because the put indirectly includes the shorting fee. Otherwise, there would be an arbitrage.

    You are reciting some very basic definitions of simple options. You need to move beyond that point and take a look at put/call parity and synthetic positions.
    Dec 1, 2015. 07:47 AM | Likes Like |Link to Comment
  • Oil: My December Outlook [View article]
    Robert Boslego,

    "I think this is all backwards"

    Could be either way, or both ways. All we know it's a correlation. The July 2014 decline started roughly the same day. But given that oil peaked in 2011 and JNK peaked in 2014 if I see the charts correctly, you could be right, although there were many other factors in play.

    So JNK reacted to oil and/or vice versa, and then when the banks started tightening the rules for new oil&gas credit since Oct 1, that's when the market really broke and started declining. The OPEC meeting at the end of November put the last nail in the coffin.
    Dec 1, 2015. 07:08 AM | Likes Like |Link to Comment
  • Oil: My December Outlook [View article]

    Thank you for the link. Very interesting. I will have to read the whole thing but from a quick look, oil and dollar influence each other in the short run but in the long run, only oil influences the dollar, not the other way around. And short term interest rates influence the dollar in both the short and long run. Very interesting.

    So in the long run, oil should be independent of both the dollar and short term interest rates, and should be driven probably by long-term supply/demand interaction.
    Dec 1, 2015. 06:57 AM | Likes Like |Link to Comment
  • Is Shorting VXX Really More Profitable Than Being Long SVXY Or XIV? [View article]

    "I get it you always call it quits and claim being misquoted when your feet is hold on fire. Why not be humble enough to learn something useful".

    How can I not answer to this provocation?:).

    Please do yourself a service and get some basic education on options parity and the effect of shorting fee (borrow rate) on this parity. If you don't want to learn from me, fine. But at least learn from some other source, such as, or

    (SA improperly truncates the URL so I had to cut it into pieces)

    "You mentioned about shorting AMZN"
    You did it again. Deflecting attention from NBG elsewhere to AMZN when I pose an argument you can't explain. I used NBG because it has a high shorting fee, so it is a good example on which you can really see the difference between the pricing of calls vs. put options. When you use AMZN as an example, you just confirm that you don't understand what you are talking about because AMZN has a shorting fee of roughly 0.35% p.a. ON such a tiny annualized rate, you will not see any difference between the pricing of puts and calls, especially for expirations of less than 1 year. I couldn't help it but reply to you again. I am trying hard not to.
    Nov 30, 2015. 11:40 AM | Likes Like |Link to Comment
  • IBM Is A Bet On Weaker Dollar, Higher Interest Rates And Inflation [View article]

    I agree. And they are also shedding assets and buying new assets, so they are acquiring ready-made R&D tailored to their needs in the process. This is much more flexible and the results are more predictable than if they instead rely only on the their internal R&D staff.
    Nov 30, 2015. 11:18 AM | 1 Like Like |Link to Comment
  • IBM Is A Bet On Weaker Dollar, Higher Interest Rates And Inflation [View article]

    Thank you for commenting. I didn't mean to sound one-sidedly bullish. As I wrote in the article:

    "But these topics have been widely covered"

    The only reason I didn't support my bullish thesis by a full article is that the usual bullish vs. bearish arguments have been widely covered before and for regular IBM readers, this would bring little new information. So I merely wanted to state that I am in the bullish camp and wanted to focus on the broader impact of IBM on a portfolio (the factor impact) which I have not seen covered too much.

    Yes, these arguments are valid for 100s of stocks. But these 100s of stocks are not all attractively valued at the moment (at least in my opinion and by my standards). So I want to focus on an actionable idea, hence IBM which by my standards is cheap and I am getting ready to buy it. KO, MCD, YUM, PG, etc. are probably similarly exposed to international sales but I would not buy one share of them at current overvalued prices, judged by P/FCF, EV/EBIT, etc.
    Nov 30, 2015. 11:11 AM | Likes Like |Link to Comment
  • IBM Is A Bet On Weaker Dollar, Higher Interest Rates And Inflation [View article]
    The Protagonist,

    Thank you for commenting. I think we are on the same page. for the portfolio to be hedged, I need just the correlation, not the causality. If that correlation lasts, and the negative/positive currency impact will make sure the correlation will likely remain intact.

    "help neutralize the general impact of rising rates on its stock"

    By the impact of rising interest rates, I also mean the strong dollar. So the two factors (IBM's positive exposure to higher rates vs. its negative exposure to the rising dollar from higher rates) will roughly cancel out. So the net effect of higher interest rates should be roughly zero. Which is a good thing. It makes interest rates a non-issue for IBM. Which is a great benefit because right now rates are very unpredictable. 30 years of disinflation and nobody knows when the tide will turn. And once it turns, the change will be swift as many will be caught on the wrong side of the trade.
    Nov 30, 2015. 11:03 AM | Likes Like |Link to Comment
  • Oil: My December Outlook [View article]

    I respect your opinion of course. I would add that the dollar is also about the geopolitics. We live in uncertain times, so the dollar may continue rising. Interestingly, the last two times the dollar was this strong, the Soviet union crumbled (1988/89) and lost its Eastern European sphere of influence. The second time the dollar was so high, Russia defaulted on its debt (1998). The current dollar policy seems to be the same. So until Russia crumbles or loses big in international geopolitics (Ukraine, Syria, etc.), we may not see a much weaker dollar/higher oil prices.
    Nov 30, 2015. 10:53 AM | Likes Like |Link to Comment
  • Premiere Global Services: Acquisitions Are Masking Falling Organic Sales [View article]
    Maudes Capital,

    Thank you for citing me. My target price is/was $15 per share and I stick to it. The acquisition premium to that is ~30%, which is normal, sort of an average strategic premium. So I think ON Semi overpaid 30% over fair value but the larger scale of course changes the fair valuation a bit to the upside, so there will be some synergies. Net net, not such a bad deal for ON if they generate synergies.
    Nov 27, 2015. 03:09 AM | Likes Like |Link to Comment
  • IBM Is A Bet On Weaker Dollar, Higher Interest Rates And Inflation [View article]
    I will add my 2 cents on IBM's vision. They are not going after sales growth. They are great at capital allocation. They care about the ROI of their projects in the long run, and about high-margin areas with promising top line growth, so they keep cutting less attractive sales to improve margins and reinvest that money to sales growth areas. 3M is similar in this.

    Buying back shares if they have high implied future ROI is a smart policy as well. Now buying back stock with too much debt instead of FCF would not be so smart in the long run, but IBM's purchases and dividends are more than covered with the FCF generation.
    Nov 26, 2015. 10:33 PM | 4 Likes Like |Link to Comment
  • IBM Is A Bet On Weaker Dollar, Higher Interest Rates And Inflation [View article]

    IBM has very little *net* debt, and can generate roughly 10% of its market cap and 17% of sales in FCF year after year. So even if it ran a bit higher debt now, it could very quickly repay that debt if interest rates really started rising significantly.

    Many companies have high CAPEX requirements. These CAPEX costs will be repriced higher when inflation hits. Unless you are able to reflect that in rising prices of your products/services, your capital efficiency (ROA, ROE) will fall dramatically. Since IBM has low CAPEX requirements, they will keep generating high FCF even if they can't raise prices completely in line with the inflation.

    About the dollar, it can last for another two years (the strong dollar), but I am just guessing here as there are so many variables. If the Japan and the EU debt disintegrate, for instance, while the U.S. stays at least OK, then the spike in the dollar can be huge and can hit anytime, depending on the timing of those debt issues.

    Other than that, I believe the U.S. dollar has no reason to keep appreciating much beyond this point. Is the U.S. economy so much better than the rest of the world that it can afford a 10% p.a. currency appreciation for a long time? The global deflation is being imported to the U.S. The average dollar appreciation against other currencies has been about 0.5% to 1% per year for the last 100 years if I remember the data correctly. That pretty much reflects the 0.5% to 1% faster GDP growth over these countries in the long run which makes sense due to the U.S.'s high productivity and higher population growth.
    Nov 26, 2015. 10:29 PM | 1 Like Like |Link to Comment
  • IBM Is A Bet On Weaker Dollar, Higher Interest Rates And Inflation [View article]

    I agree with you that there are other stocks with similar attributes. I just see IBM as having strong correlations in all these categories. For example, almost 70% of sales are generated overseas. For most other companies, it is less. But I get your point and would not argue with that.
    Nov 26, 2015. 10:19 PM | 1 Like Like |Link to Comment
  • Oil: My December Outlook [View article]

    I believe the ultimate price setter is the consumer buying power. Real income of consumers in developed countries has been stagnant or falling so any consumption improvement or higher prices have been driven just by debt.

    The peak in oil in mid-2014 almost perfectly coincides with a major peak in junk bonds (JNK), smaller riskier U.S. stocks, emerging market stocks (EEM), highly indebted markets, such as GREK and many currencies, such as Euro (FXE). I believe these trades are all signs that the credit cycle started tightening in mid-2014, or that the market participants at least repositioned for the future tightening of the credit cycle.

    As foreign credit in U.S. dollars is being unwound/repaid, and repaid in weaker currencies, the dollar strengthens, creating a feedback loop which then translates to other assets. As credit became tighter, the oil producers had to produce more just to service the same amount of debt. I remember that in October 2014 banks basically turned off the spigots of easy credit to oil producers, exacerbating this credit squeeze which is still going on.
    Nov 26, 2015. 10:12 PM | Likes Like |Link to Comment
  • Oil: My December Outlook [View article]

    Thank you for all your excellent comments. How about the Euro and the Japanese Yen? Those are big oil/gas consumer countries, yet their currencies have been obliterated in the last few years. I would argue that the world could not afford the expensive oil, that's why these currencies weakened. But not they are so weak that I can easily see them swing 5% to 10% the other way. This would mean oil up 10% easily just from the currency effects. The weak Euro, Yen is not helping these economies run faster because they are buried in debt. So we can argue that a stronger Euro, Yen now will not hurt those economies much either.
    Nov 26, 2015. 10:04 PM | Likes Like |Link to Comment
  • Crude inventories higher by 1M to 488.2M barrels [View news story]
    I think OPEC cutting production on Dec. 4 is unlikely by anything more than a symbolic amount which will be hard to enforce in reality if it involves anyone besides Saudia Arabia. They may start stabilizing the market with words, but action? I don't think so. They want non-OPEC to participate in the cut, which would be even harder. And with the geopolitical mess in the Middle East, I don't think an agreement is likely.

    Until mid December, I see more oil weakness. Then maybe when we get the rate hike off the table, oil can rebound temporarily before the final capitulation as weak producers go out of business:
    Nov 25, 2015. 03:30 PM | Likes Like |Link to Comment