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Michael Nau

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  • Cyan Shares Are Cheap [View article]
    I'm no expert in this industry, but buying stock in a company that has never turned a profit seems very risky indeed. Also, the $80M+ cash does not seem like much of a buffer if the company has an annual FCF of -$25M. Perhaps the company will pull it off, but this investment strikes me as very speculative with a very uncertain margin of safety.
    Nov 14 12:18 AM | Likes Like |Link to Comment
  • Can You Really Call It A Savings Account If It's Only Earning 0.84%? [View article]
    Wow, homes are really expensive on the coasts, Ohio is a lot cheaper. Perhaps homeownership is not such a good idea in some markets, middle class people already have their portfolios tilted too much towards real estate....
    Nov 13 08:26 PM | 1 Like Like |Link to Comment
  • Yellen leans dovish in prepared confirmation hearing remarks [View news story]
    I think that inflation worriers should buy Gold or TIPS or whatever inflation play they think is best and report back how they did in a decade. Its one thing to complain about policy, but its another to put your money where your mouth is.
    Nov 13 08:12 PM | Likes Like |Link to Comment
  • Another insider buy at Annaly [View news story]
    Agreed, this purchase is just noise.
    Nov 13 07:02 PM | 1 Like Like |Link to Comment
  • Annaly: Never An Investment Vehicle For The Fainthearted [View article]
    PC, interesting point, thanks!
    Nov 13 03:37 PM | Likes Like |Link to Comment
  • Annaly: Never An Investment Vehicle For The Fainthearted [View article]
    positive convexity, I agree that the performance of NLY will not directly mirror that of the agency bond market because of hedges. But the basic fact remains: those hedges are likely pretty expensive right now and companies like NLY have to pay up for protection because the underlying portfolio will likely lose value. Either way, its a melting ice cube.
    Nov 13 02:16 PM | Likes Like |Link to Comment
  • The Lowdown On Sky High Corporate Profits [View article]
    Interesting article. Just to be sure we have an apples-to-apples comparison, which organizations are included in the BEA classification of corporate profits? Does it include private equity, LLCs and limited partnerships?
    Nov 13 11:40 AM | Likes Like |Link to Comment
  • Annaly: Never An Investment Vehicle For The Fainthearted [View article]
    Here's what I'd say: consider the effects of a rise in interest rates on a medium-to-long term bond. Prices will fall depending on 1.) the bond's duration and 2.) the level of rise in interest rates. Now compound that loss 5X or more to get a sense of what will happen to the portfolio of companies like NLY.

    Unless you have a very, very strong conviction that long-term interest rates will remain stable or fall for a long time, then mreits are a bad idea. So if you're agnostic about interest rates or don't have a strong conviction or aren't sure how leverage affects returns, move along and buy something else.
    Nov 13 11:32 AM | 1 Like Like |Link to Comment
  • Annaly: Never An Investment Vehicle For The Fainthearted [View article]
    I don't expect the government to do much about privatizing the mortgage market anytime soon. Fannie and Freddie are profit centers for the government, and that is huge during an era of budget cuts. Also, getting political consensus on the issue seems impossible given the partisan atmosphere in Washington. I think that the government is totally fine with letting the mreits wash away and be replaced by other institutional investors such as insurers, etc.

    As I see it, mreits were inadvertent beneficiaries of policy during the past five years, but their business model does not have much of a future, especially agency mreits.
    Nov 13 11:26 AM | 1 Like Like |Link to Comment
  • Annaly: Never An Investment Vehicle For The Fainthearted [View article]
    I don't think that NLY is a good investment vehicle for playing a steepening of the yield curve via higher long-term interest rates. The company cannot establish a duration-neutral position like a life insurance company and truly pocket the spread (assuming no underwriting losses), but must instead pile on the duration risk via leverage. As longer-term interest rates rise, the company will have to sell into a declining market by reducing leverage while book value evaporates.

    As I see it, NLY is good if long-term rates are stable or falling. I expect the next decade to be very bad for the agency mreits.
    Nov 13 10:35 AM | 1 Like Like |Link to Comment
  • Goldman Sachs Preferred Stock: 5.2% Yield And 25% Potential Upside [View article]
    Josh, what about a scenario in which the yield curve steepens: short-term rates remain near zero until 2020 but long-term rates melt upwards? That would be my baseline scenario.

    The coupon will stay the same, but the price of the preferred will likely fall as the yields on junk and other preferred stocks rise. In the meantime, you are left with a relatively low-yield, high-risk security and your only hope is to be bailed out by the liquidation preference. But what GS CFO would want to end such a sweet deal if they didn't have to? It dramatically lowers their cost of equity. I'd say that a compelling investment case would have to handicap the likelihood of redemption- perhaps regulatory reasons, etc.

    All that said, GS.A at first glance looks interesting for a capital structure arbitrage trade: GS.A will go down in price if the yield curve steepens or GS's business deteriorates, but GS will likely only go down in price if the business deteriorates. I haven't done any due diligence in the company itself, but I would consider long GS, short GS.A if such a trade was possible. There is a significant carry cost though.....
    Nov 13 10:15 AM | Likes Like |Link to Comment
  • Lower Feed Costs And Prop 2 Will Benefit Cal-Maine Foods [View article]
    Drew, I just came across your article, thanks for linking to mine. Its always good to hear an opposing point of view.

    I guess where we disagree is on how to characterize the business. It seems like in your point of view, the egg business is stable and CALM is more of a high value-added producer like SBUX than a commodity play. The difference seems to hinge on the growth/relative importance/pricing power of specialty eggs. I'm pessimistic and you're optimistic.

    I don't short stocks myself because all my assets are in retirement accounts, but if I had when I wrote my original article I'd be wrong so far. Let's see how this plays out in the coming quarters!
    Nov 13 09:58 AM | Likes Like |Link to Comment
  • Are We In A Stock Market Bubble? [View article]
    It all depends on how solid you think the E in P/E is. If trailing earnings are close to a cyclical peak as I suspect, the market looks pretty expensive.
    Nov 13 09:22 AM | 2 Likes Like |Link to Comment
  • An ETF Of The VIX Index Forecasts Market Moves? [View article]
    thetortise, if I had a ZIV position, I'd be more hesitant to sell as well: the back end of the tern structure still has a decent amount of contango and I don't expect the VIX to go much above 20 anytime soon. ZIV has a much lower "beta" than XIV/SVXY and is therefore better for medium-term holdings than the front month VIX ETPs, but I'm still on the sidelines until there's a spike. It's all about risk-adjusted returns.

    My thinking also reflects the options market for these products. ZIV is not optionable, so my preferred method of exposure in this environment (selling OTM puts) is unavailable. As far as SVXY goes, If I was holding on to my position for the next month or two because of a "November and December are low vol months" thesis, I'd still look to lock in some gains with OTM calls. The bid for the DEC 125 call is $4.80 and the bid for the DEC 130 call is $2.80. If you sell a covered call, you can still get a gain close to what the author is suggesting if SVXY continues upward but also have something to show for a good call on the shutdown even if SVXY craters again.
    Nov 13 08:30 AM | Likes Like |Link to Comment
  • An ETF Of The VIX Index Forecasts Market Moves? [View article]
    VIX futures are in steep contango, so there is reason to think the next month or so will be good for SVXY holders provided the VIX does not increase much. The problem is that with the VIX under 13 and a lot of short-term headline risk, I wouldn't count on it.

    I already sold out my position from the shutdown for a 20% gain, looking for a VIX spike in the next 6-8 weeks.
    Nov 12 06:32 PM | 2 Likes Like |Link to Comment