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Michael Allen  

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  • 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, 2012. 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, 2012. 01:42 PM | 1 Like Like |Link to Comment
  • The Coming Meltdown In College Education [View article]
    Mark raises a number of disturbing issues, but fails to raise the most important one of all. I think most of us, regardless of political orientation, can agree that it is OK for rich people to live in larger houses than poor people, but should their kids automatically go to better colleges? Why should there be any barrier at all to getting a college education?
    May 14, 2012. 11:27 AM | 1 Like Like |Link to Comment
  • The Coming Meltdown In College Education [View article]
    If you run a discounted cash flow model using the cost of college as your start-up cost and the difference between the average income for college-educated vs non-college educated over a life-time, it still appears that most college educations are very much worth paying for (I get an internal rate of return of 7%). I'd appreciate it if others would check my math on this, as it is actually difficult to get reliable information to run such numbers.
    May 14, 2012. 11:24 AM | 2 Likes Like |Link to Comment
  • JPMorgan Calendar Put Spread [View article]
    The probability of making money on this trade is only 45.7% and the potential loss is twice the potential gain. The suggestion that it is low risk because its only 2% of your portfolio is disingenuous because if you make 50 bets exactly like this one, you will lose quite a lot of money and the commissions will also be quite horrendous. If you are going to do it, I'd at least make it a double calendar with the 36 puts and 37 calls. The loss/gain ratio is still the same, but the odds of winning increase to 63%. You can increase the odds to 80% by using the 35 put and 38 call strikes, but then you're potential proift is only a quarter of your potential loss. If you make $1 on 8 trades, and lose $4 on 2 trades, and you pay $1 commission for each trade, you will never win. There's no free lunch.
    May 12, 2012. 01:43 PM | Likes Like |Link to Comment
  • Chart: The S&P And 'Sell In May' In An Election Year [View article]
    The t-stat for my data is 2.6. The sample size is still not very large, but you cannot dismiss it out of hand. In May, during election years, you have a 64% probability of losing money in a sample of 34. In any month that does not fit this description, the probability is only 42% in a sample of 1630.
    May 10, 2012. 09:15 AM | 1 Like Like |Link to Comment
  •, The 10-Q Surprises [View article]
    Just to let you know my appreciation for your courage and persistence, I bought some puts. Wish I could pay you.
    May 5, 2012. 10:12 PM | Likes Like |Link to Comment
  • In the disappointing jobs report, the most important statistic may have been the 63.6% labor participation rate, a 30-year low. Critics of the Obama administration are quick to seize on this as the “real” reason for the falling unemployment rate, but the downward trend has been happening for more than a decade as baby boomers have been retiring.  [View news story]
    Retirees do not affect the paticipation rate because this rate is calculated as a percentage of people IN THE LABOR FORCE. The labor force excludes retirees and children by definition.
    May 5, 2012. 09:59 PM | 2 Likes Like |Link to Comment
  • Why 'New York Times' Economist Paul Krugman Is Partly Right But Mostly Wrong [View article]
    Most economists are mostly wrong most of the time, so I take it from the title of this article that you think Krugman is a genius. Me too.
    May 5, 2012. 09:51 PM | 1 Like Like |Link to Comment
  • Chart: The S&P And 'Sell In May' In An Election Year [View article]
    I have calculated the returns in May during election years going back to 1872. That is as far back as data is available. For all months in this 140 year period, the average return is 0.4% with a standard deviation of 10.6%. For May, in all years, the average return is just 0.1% with a standard deviation of 9.7%. This doesn't change much even if you remove years when returns or declines exceeded 9.8%. In election years, the average return for May is negative 1.3% with a standard deviation of only 4.4%. Excluding outliers, the returns are still negative 0.6, with only a 3.2% standard deviation. Returns were negative in election year Mays 22 out of 34 times. This is a somewhat significant finding, but I would refrain from suggesting that it will make you rich. Markets are extremely over-bought and over-valued in my opinion, and my models are almost universally negative. So the way I look at the May statistics is that it would be really nice if we make it 23 out of 35.
    May 5, 2012. 09:39 PM | 1 Like Like |Link to Comment
  • Chart: The S&P And 'Sell In May' In An Election Year [View article]
    Very interesting, but you only show three complete cycles in your chart. A pattern is not really statistically meaningful until you have about 60 cycles - which of course you don't have because the US stock market did not exist in 1772. I am short the market, but not because its May and not because its an election year.
    May 5, 2012. 01:19 PM | 2 Likes Like |Link to Comment
  • 5 Reasons The Bond Bears Are Wrong [View article]
    Wow. Sorry. I'm wrong. The gap already closed. Both Japanese and US Bonds have negative real yields. Still, that hasn't ever been sustained either.
    May 3, 2012. 02:45 AM | 1 Like Like |Link to Comment
  • 5 Reasons The Bond Bears Are Wrong [View article]
    Real yields on US 10Yr treasuries are almost 200 bps lower than on the equivalent Japanese bonds. This gap is almost unprecedented, and has never been sustained. There might be any number of reasons for this, but you cannot argue that US bonds will go lower becasue Japanese bonds did, because they didn't!
    May 3, 2012. 02:36 AM | 1 Like Like |Link to Comment
  • Is Amazon The Next Netscape? [View article]
    I am an avid follower of your work, but am taking it upon myself to keep you honest:

    1. It is ridiculous to suggest that Amazon competes on price. I can walk to my nearest book store, and to my nearest Wal-mart, but I almost always buy from Amzon because it is EASIER. I have never compared prices and would not change my habits if tax were included. No one will ever compete with Amazon on convenience.

    2. A decline in fcf in one quarter is of no material consequence. Cash earnings, which is a misleading term for a useful concept, which is just net profit plus depreciation, rose 41%. Normally, if a company is increasing its investments and is doing so wisely, the stock will go up. Only if the company is making very poor use of that cash, would it go down. Obviously the market is convinced that the investments are wise. Only time will tell, but you have to base your arguments on the wisdom of their investments, not on their operating performance. Have you discussed the wisdom of these investments? (Sorry if I missed it.)

    3. Speaking of which, there's no gimmick in equity earnings per se. If you own a strategic but non-controlling share of another company GAAP requires you to account for the earnings of that company, as well as the losses, using the equity method. I notice that they have never included this item before, but that doesn't automaticaly make it illigitimate. If the company they owned for a long time, suddenly made a large profit, it's legitimate. If they just bought the company within the last year, it's legitimate as long as they pro-rate the earnings for the number of months held. Even if they just arbitrarily decided to include profits that were there but not included before, its the past exclusion rather than the current inclusion that is questionable. The market should definitely react positively to this if it was not already in the price. Besides, do you know that the earnings from this affiliate were not in the original guidance in the first place? Certainly it is something that management should have been aware of and it SHOULD have been in the guidance.

    4. At any rate, the use of equity accounting may help to explain away the slow-down in revenue growth. If Amazon sees equity investments as the best use of its cash, then revenue growth will slow down, operating margins will decline, but earnings, and therefore value, will increase.

    None of this hurts your valuation argument, of course, but I'm still not convinced there is a legitimate catalyst ahead.
    May 2, 2012. 04:06 PM | Likes Like |Link to Comment
  •, The 10-Q Surprises [View article]
    When Netflix was $250, we read similar arguments between really intelligent, thinking analysts who were all short and getting taken to the cleaners, and a bunch of uneducated buffoons who know nothing about running a business or making a forecast all buying the stock and being smart asses about their profits when in fact it was going up for no other reason that a bunch of idiots were paying stupid prices for it.

    Netflix was comparatively easy: They were clearly headed for a dramatic change that would force the longs to pull their heads out of the sand no matter how arrogant they were when it was going up. No such catalyst appears on the horizon for Amazon. If anyone can like the stock now, what will force them to not like it 3-6 months from now? I await your barrage of new articles with great anticipation.
    Apr 30, 2012. 05:21 PM | 1 Like Like |Link to Comment