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Michael Allen  

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  • The Fantasy Keeps Growing [View article]
    I appreciate that you've looked at this a lot closer than I have, but I'm starting to get concerned that you are not allowing enough for the normal seasonality of the busienss. Since 2008, the company has increased cash flow from operations in every 4th quarter. They have also increased the cash outflow in Q1 in every year. They have increased Q2 cash flow two years in a row, but mostly this quarter is random. Q3 has been down two years in a row. So far as I know, nothing has happened this year that is out of pattern. Getting ready for the 4th quarter is not an incredible excuse. It's a normal part of their business. I don't know why the stock is so damned expesive either, but this doesn't make it a bad company, just an over-valued one.
    Jul 29, 2012. 08:15 AM | Likes Like |Link to Comment
  • The Fantasy Keeps Growing [View article]
    As for everyone knowing the fundamentals, you can read articles on SA that were written by people who clearly haven't read any of Paulo's pieces. How could you not even check for alternative opinions in the publication you are writing for? It never ceases to amaze me what people can conclude without actually knowing anything, and it often seems that the less they know the more convinced they are.
    Jul 28, 2012. 12:33 PM | 1 Like Like |Link to Comment
  • The Fantasy Keeps Growing [View article]
    To be fair, not a lot of retailers make any money in the first three quarters, and Amazon is just a retailer with big ideas. Expectations for the 4th quarter still don't seem right to me either, but I have a hard time focussing on what they did or will do in the 2nd and 3rd quarters.
    Jul 28, 2012. 12:07 PM | Likes Like |Link to Comment
  • Amazon's Cash Is Not Amazon's Cash [View article]
    Incidentally, Amazon's defensive interval, which measures the company's ability to use net cash and net receivables to pay its bills if sales suddenly grind to a halt, is 65.1 days. Berkshire's interval is 220.8 days and presumably Berkshire's would be even higher if they were not cosistently finding new places to invest their cash. Berkshire has enough time to make a decent return on investment. Amazon really does not.
    Jul 21, 2012. 12:04 PM | Likes Like |Link to Comment
  • Amazon's Competitive Advantage, Growth Opportunities Make It A Buy [View article]
    Only one of the companies in your basket has a higher price to sales ratio than Amazon, so why even include the others? You are making the argument that Amazon's sales are comparable to Ebay's, which is the most incredible nonsense I've ever heard. EBAY has a 5-year average gross margin of 72%. Amazon's is 22%.
    Jul 20, 2012. 10:00 AM | 1 Like Like |Link to Comment
  • 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, 2012. 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, 2012. 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, 2012. 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, 2012. 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, 2012. 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, 2012. 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, 2012. 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, 2012. 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, 2012. 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, 2012. 12:18 PM | Likes Like |Link to Comment