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Michael Nau

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  • Fannie Mae repays Treasury, and more [View news story]
    Here's a question: what would of happened to equity holders if the feds did nothing in 2008? Probably would have been totally wiped out. So the government is why there is any value for equity holders to begin with.....
    Feb 21 10:50 AM | 4 Likes Like |Link to Comment
  • Which VIX Spike Could Kill XIV? Here Are The Numbers. [View article]
    Great article, I've warned about this potential in my articles, and think that SVXY gives a bit more protection since liquidation occurs only after a 100% daily loss.

    But there is a potential limitation: regulated equity derivative markets have changed significantly since 1987 and are arguably more liquid and stable. The real risky stuff seems to be OTC. I suspect that if VIX futures were available in 1987 at current levels of liquidity the crash would not have been as dramatic. But then again, liquidity is only there when you don't need it, and it isn't clear what net shorts would do during a flash crash/liquidity crunch.

    Here's a possible test: does anyone know what VIX futures did during the flash crash?
    Feb 21 09:01 AM | 3 Likes Like |Link to Comment
  • Facebook Is Insane - The Stock May Be A Short [View article]
    They will have to stop printing eventually. And even $4B for a company with 50 employees is ridiculous. If FB has to make acquisitions greater than net income in order to sustain its moat, then it is not a sustainable business model. It will work only as long as the current bull market.
    Feb 20 09:44 AM | 10 Likes Like |Link to Comment
  • Is There Opportunity In Art History? [View article]
    I'd think of the issue in terms of resources and mission: how much funding should humanities departments receive?

    I agree that Latin, comparative literature departments etc are good, but their faculties are rewarded too much for "research" and not enough for teaching. Liberal arts should be focused on creating undergraduate majors that are experts in critical thinking, but that is not how professors are evaluated, at least in large state universities.

    At the same time, funding for these programs is pretty thin and the bigger problem seems to be business schools: they are extremely powerful within universities yet often produce graduates of questionable quality. I'd like to see employers get back into the education business through employee training, mentoring programs etc. There are limits to what universities can do and they should not get all the blame for any workforce training issued.
    Feb 19 08:45 AM | Likes Like |Link to Comment
  • Reversion To The Mean Phenomenon: Part I [View article]
    Excellent article, I totally agree. The case of growth in the 1990s and REITs in the 2000s are the clearest recent examples, but I think small caps and mid caps may be the next classes to underperform based on their outperformance in the last decade.
    Feb 19 08:30 AM | 1 Like Like |Link to Comment
  • An Expensive Kind Of Insurance [View article]
    SVXY is better than XIV- it tracks the same index but is an ETF, so there is no credit risk.

    The only wipeout risk is if the varying combination of front month and second month VIX futures that comprise the index go up 100%+ within one day. Then the product will be liquidated and investors would need to open futures accounts (most would likely not). This is certainly possible, but VIX futures are linked to VIX options rather than the spot VIX so a flash crash or whatever will likely affect the spot VIX much more than VIX futures.

    So I think a 1%-20% position is fine so long as gains are regularly rebalanced to lower-return strategies and positions are on the small end of that range when the market is calm.
    Feb 6 09:23 AM | 3 Likes Like |Link to Comment
  • CVS to pull tobacco products [View news story]
    Jeez, they're just changing their business model. Are you upset with GNC that they don't sell cigarettes? Or car dealerships?
    Feb 5 11:21 AM | 1 Like Like |Link to Comment
  • The Conservative Bias Of Economic Models [View article]
    This is probably true of American economists, especially in the last 30 years. But I'd argue that academic fashions are a result of broader social forces, and it seems like the pendulum is swinging back to the left. Left-leaning models do a better job at explaining debt deflation that right-leaning models. Also, there is a growing consensus that inequality matters, and nobody but the far left cared about that before 2008.
    Feb 5 08:23 AM | 3 Likes Like |Link to Comment
  • How To Retire At 30! [View article]
    I don't get the point of retiring early. Why not just get a job you love and adjust your standard of living accordingly? Even if you can pull off retiring at 30 or 40 or whatever, why spend a decade or more of your best years before that doing something you hate?

    By the way, it sounds like this MMM guy does have two jobs: blog writing and being a landlord. Maybe he loves those jobs, but they are jobs if he relies on them for income.
    Jan 29 05:54 PM | 12 Likes Like |Link to Comment
  • American Capital Agency's Upcoming Q4 2013 Book Value Projection [View article]
    Thanks for the article!
    Jan 29 10:23 AM | 3 Likes Like |Link to Comment
  • Oxfam Report Suggests The NWO Is Almost Upon Us [View article]
    I guess I disagree in the sense that I think credit is critical for the economy. Policies that seek to destroy credit markets are likely to have also sorts on negative unintended consequences IMO. I think it is simpler to regulate credit by limiting its use in financial speculation and requiring stronger underwriting standards.

    As for taxes not solving the problem, consider this example: in the 1950s and 1960s, high tax rates funded higher education for a whole generation. Student loans were almost nonexistent. Nowadays, we've decided (wrongly I believe) that higher education should be substantially funded by debt. The tax vs. debt tradeoff is clear. Because when it comes down to it, high household debts are a result of education and housing policy. Mortgages and student loans are by far the largest types of household debt.
    Jan 28 12:12 PM | 1 Like Like |Link to Comment
  • Oxfam Report Suggests The NWO Is Almost Upon Us [View article]
    Joseph, I applaud the anti-elite sentiment behind the article, but I think some of the conclusions and implications are worrying. Prior political movements combined conspiracy-laden anti-internationalism and anti-finance economic populism that focuses on "the productive class" and "the little guy". We fought against them in WWII. I'm not joking- read the platforms of the Nazi and Fascist parties before the got into power.

    I'd argue that the solutions are more simple: political mobilization in favor of a regulated, redistributionist form of capitalism. Tax the rich, break up the big banks, re-regulate finance, strengthen the social safety net. It worked in the U.S. and Europe after WWII and could work again.
    Jan 28 11:32 AM | 1 Like Like |Link to Comment
  • How The Focus Of Dividends Impacts Returns [View article]
    Larry, interesting article, as always.

    One question about interpreting these sorts of studies: to what extent should we be skeptical of any study because past performance is no guarantee of future results? Clearly, they are not useless, but they also do not have the same epistemological status as chemistry experiments. It seems like your approach is to go with the research and downplay investor judgement because that judgement is so often flawed. What's the right balance?
    Jan 27 06:26 PM | Likes Like |Link to Comment
  • Systemic Risk Stems From Asset-Liability Mismatches [View article]
    Wait, you are saying that AIG poses no systemic risk? Given the 2008 crisis, I'd say the burden of proof is on you to support that claim.

    It doesn't matter if the derivatives side of the business is "separate" from the insurance side so long as counterparties have recourse to the parent company or other subsidiaries. And that is exactly how AIG got into the business in the first place, by using its AAA rating to support the obscure FP division.

    Here's what I'd propose: either spinning off the derivatives business or require that the counterparties have no recourse to the parent company.
    Jan 23 08:18 AM | 1 Like Like |Link to Comment
  • Credit Acceptance Corp.: A Low Risk Sub-Prime Auto Financing Company With 12% Upside [View article]
    I like CACC in the long run, but its no longer cheap. The high margins in the recent past will erode over time as discounts disappear and the whole sector continues to heat up. At that point, CACC will have to sacrifice either growth or credit quality. Fortunately, management is disciplined so it will probably sacrifice growth. But as a result, the company should not command a growth multiple.

    I'm waiting until the competitive cycle turns down and there is a washout of the high growth, low quality players such as CPSS.
    Jan 22 11:41 AM | Likes Like |Link to Comment