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Michael Allen

 
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  • There's Still Time To Buy Junk [View article]
    Default rates have risent to 12% in each of the last 3 recessions and recovery rates fell to about 20%. This means you need at least an 800 basis point spread just to break even over treasuries. I could make anything look attractive by looking around for something else that is even worse. If you eliminate the totally inappropriate comparison with treasuries, the current yield on high yield bonds is very low compared the the actual risk.
    Jun 25 12:17 PM | Likes Like |Link to Comment
  • This Part Of The Bond Market Has Real Value [View article]
    There is nothing calm about the current environment. This should be obvious.
    Jun 25 11:28 AM | Likes Like |Link to Comment
  • Amazon's Leases Are Not Debt [View article]
    Your correct that it is the liability, not the expense, that make the difference, but I find it useful to move the expenses to their proper location when comparing operating ratios to other companies that engage in the same busienss but don't use leases extensively. In Amazon's case this might not be so meaningful.
    Jun 23 10:31 AM | Likes Like |Link to Comment
  • Amazon's Leases Are Not Debt [View article]
    If you made all of the adjustments to the cash flow statement that you could make on this basis, you would end up with an income statement. On the other hand, it doesn't make any difference what FASB decides, there is no excuse for not making these adjustments to the income statement and the balance sheet. I've seen a very prominent company that was spinning out tremendous EVA numbers but it went bust because they were over-using the lease loophole for properties. Compared to capitalization, the lease understates liabilities and transfers some of the expenses from interest expenses to operating expenses. (Interest on borrowings become rent). If revenues drop to the point where you can't pay your rent, some unforseen problems arrise that would have been obvious if you had capitalized.
    Jun 22 05:38 PM | Likes Like |Link to Comment
  • Why You Need To Buy JPMorgan [View article]
    It never makes sense to subtract cash on hand for any company unless you will have control of that cash, which, as a minority holder, you don't. By holding on to the cash, management is already telling you that they don't believe they have any good use for the cash (and that they don't feel threatened by any potential take-over). When managements tell you this, you should at the very least, moderate your expectations for E, and that is even if they don't do anything stupid with the money. It is almost inevitable that they will misuse it. What JPM has done does not in itself justify the 30% drop in market capital, but it was of a level of such monumental stupidity both in terms of size and direction that it is hard to square with all the previous assumptions that it was ever such a great company in the first place. C'mon. People who had been promoted to very important positions bet enough money to make the news on something good happening in Europe! This calls into question how people are promoted, what kinds of people are promoted, and what kind of bubble they then operate inside of once they get there. I would like to see how they rationalized this trade at the time that they placed it. More importantly, I would like to take whatever new risk rules they implement and see how many profitable trades are eliminated by the new rules.

    Most of the bulls are analyzing this as if it was one trade that will go away and that JPM will go back to being exactly what it was before. I don't think we have any idea what JPM will be like in a couple of years time (please see comments by pjnovot above). I think the solution to the problem could easily cause more harm than good. I'm certainly not convinced that I have to buy it now. In the worst case scenario, they probably have tangible book value of $28/share, but the stock can easily trade below that. I'm not even convinced that the accounts of any US financial institution have enough credibility to trade above book.
    Jun 2 03:49 PM | 1 Like Like |Link to Comment
  • How Low Should JPMorgan Fall Before Buyers Return? [View article]
    What if you buy it and then discover that the cash isn't really there, or that the liabilities are understated, or that they are only making 5bn? The company has no credibility. You can't take any of these numbers at face value.
    Jun 1 02:55 PM | Likes Like |Link to Comment
  • The Current U.S. Stock Market Collapse Makes No Sense [View article]
    The market is always wrong.
    May 24 04:58 PM | 2 Likes Like |Link to Comment
  • Comparing Amazon And Facebook [View article]
    Calling Facebook or Amazon "High-Tech" companies is like calling me a phone company because I use the phone. Hey, why not call me a media company because I watch TV? They are not building or selling anything high tech. They have both used technology to gain an advantage, but so did Wal-mart. So did Newscorp. You have to analyze Amazon the same way you analyze any other retailer because that is what it is. You have to analyze Facebook like any other media company because that is what it is. Amazon makes money the same way that Wal-Mart makes money, namely, by selling things to consumers for a mark-up above wholesale. Facebook makes money the same way that Newsweek or Time magazine makes money - by charging advertisers for the service of gathering subscribers and enticing them to look at your adds. There's nothing new about what either one of these companies does; the only innovation is in the way that they do it.
    May 23 04:49 PM | Likes Like |Link to Comment
  • Making Sense Of Amazon's Market Value [View article]
    The cost of capital should theoretically compensate for these concerns. What you're saying is that your required return is higher than what the literature says it should be because you think there is a higher risk than what your model spits out. I think we all agree on this.
    May 22 01:07 PM | Likes Like |Link to Comment
  • Making Sense Of Amazon's Market Value [View article]
    I think its a useful exercise to capitalize certain items that are not capitalized on GAAP accounting to make companies with different policies more comparable. For instance, a retailer that owns its own real estate will have higher margins than a company that rents, but that doesn't make it a better retailer. The rental expenses should be capitalized to make comparisons fair. Leaving the argument as to whether this is appropriate in Amazon's case asside, the proper capitalization of an expense does not typically lead to a significantly altered valuation. You are not eliminating the expense, you are just moving it from an operating expense to a capital cost. If you get a significantly different value by doing this, then you are most likely not charging enough for the capital. This is indeed what I suspect you have done. The turnover and balance sheet ratios change and you need to compensate for the higher risk of the altered assumptions. Using a cost of capital of 4.9% for a company like Amazon cannot possibly be appropriate.
    May 22 12:18 PM | Likes Like |Link to Comment
  • JPMorgan Calendar Put Spread [View article]
    I actually appreciate you're alerting me to the opportunities here, though I traded it differently. I just sold the June 30/28 put spread for .45 today. Instead of needing the stock to rise to 37.8 to break-even, I only need it to stay above 29.55. I do not even need that, since the lower the stock goes, the more willing I should be to own it, so I can keep doubling up at lower strikes. Logically, you should have made money on your trade as well, since the fact that an investment bank lost a little money on a trade should not even move the stock at all. Just don't ever underestimate the market's ability to do crazy stuff.
    May 21 12:04 PM | Likes Like |Link to Comment
  • How The Media Is Wrong About Facebook's IPO [View article]
    Based on your definition of success, the best IPOs would presumably fall on opening day, and the more they fall the better because that would indicate that the company maximized the price it could get for the one day sale of a portion of its shares. I would submit that success of an IPO is determined by whether or not it maximizes the long-term value for all shareholders. That will depend not only on the price being stable on opening day, but generating a decent return over time, regardless of whether you bought before or after the IPO. Tough to make that call right now.
    May 21 09:25 AM | Likes Like |Link to Comment
  • U.S. Demographics And The Likelihood Of A Housing Recovery [View article]
    Can any of you imagine Jamie Dimon sitting down with these numbers and thinking them through carefully and meticulously and then honestly discussing his real conclusions with the public? He would get fired for doing that. Taking his anlaysis seriously is absurd.
    May 17 10:54 PM | 3 Likes Like |Link to Comment
  • Randgold And The Secret To Successful Contrarian Investing [View article]
    Pone was right. This trade hasn't worked, primarily because of the sell-off in the base metal price. When GOLD briefly popped up to about 88, I sold the 90 calls and bought puts in UGL (levered version of GLD), so it's not a disaster, but there is no joy here. Technicals on the metal are all broken down so I don't expect this to recover anytime soon. Will revisit if and when there is any stabilization in the metal price.
    May 17 10:50 AM | Likes Like |Link to Comment
  • Apple Bears Are Wrong: Here's Why [View article]
    You are double accounting. There is no reason for AAPL to trade above the EV/ROIC line in your graph unless you expect its ROIC to increase relative to the market. Growth is irrelevant because it is implied in the ROIC. In fact, AAPL's ROIC is most likely unsustainable, and therefore, AAPL should trade below the line, all other things being equal. According to your analysis, AAPL is slightly over-valued. I haven't checked your calculation of ROIC and don't know who you are comparing it to so I have no opinion on the stock. I'm only commenting on the methodology.
    May 16 01:42 PM | 1 Like Like |Link to Comment
COMMENTS STATS
159 Comments
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