Nicholas Cavallaro

Long/short equity, investment advisor, portfolio strategy, macro
Nicholas Cavallaro
Long/short equity, investment advisor, portfolio strategy, macro
Contributor since: 2009
Nate - why would an acquirer pay $11 if you believe the DDM of the company is only $4? This seems to be a significant disconnect. Surely cost cuts are a source of opportunity (given the sky high efficiency ratio), but why over pay for EVBS when a bank can just buy loans to grow their own credit book?
Surely, movements of real interest rates is a primary factor in dictating movements in the price of gold. However, you should have incorporated the velocity of money argument alongside your M2 thoughts.
Money supply x velocity of money = price level x real GDP
This is the quantitative theory of money. Moreover, as the money supply has increased, velocity has fallen. Hence, inflation (price level) is very minimal right now. (reference for this relationship: http://bit.ly/1ws9vvz).
To claim that inflation has "exploded" because M2 has exploded is incorrect, and focusing on M2 is not the best way to gauge future gold prices. You are better off concentrating on movements in wages relative to interest rates.
Hi Kurtis, you neglected to consider that negative real interest rates encourage speculation, thereby driving the performance of small caps in the past 3-4 years. Consider:
http://bit.ly/WtJXoP
If anyone is interested, I went long SLW today using derivatives
http://seekingalpha.co...
Feel free to comment, and enjoy.
Hey Sol,
You and I have very similar ideas! I initiated a three leg option position on SLW today.
http://bit.ly/O9b7Pu
I shorted two $20 puts, long a $33 call, and short a $50 call.
My apologies for the late post. Apparently this sat in the 'Edit' category for 10 days when I thought it was already published. You can view it published as of 5/7/12 here
http://bit.ly/JN3aLF
Hey Christian, good article here. I like your comparison of the gold proxies.
I went increased my GDX exposure today, and I am also bullish on gold.
http://bit.ly/JN3aLF
NEM has to make a bid for someone? Cannot NEM buyback its own shares, increase the dividend payment, or simply hold cash in the form of gold on its balance sheet?
Bret- I appreciate your view on gold stocks relative to gold. I purchased GDX today and provided a link to your article on my website.
reasonablythinking.com.../
This is the second time in a few weeks that I've read a pro-Germany perspective, the other being Bill Gross' January Outlook. Given the trade surplus, could this be interpretted that the German economy is recovering more quickly than others. If so, can we imply that EWG is mispriced relative to EZU or perhaps SPY (based on P/E metrics)? (just a thought)
1>My argument is for a trading range, not a specific pinpoint number. I believe that is clearly expressed above. Further, I do not believe that the economy is entirely free from recession. References: reasonablythinking.com.../
and
www.hussmanfunds.com/r...
2>Interesting point. Perhaps that may be so, but given the stratospheric increase in money creation over the past few years, I believe it is entirely possible for both stocks and bonds to be overvalued.
3>I agree that 2006 earnings were higher than 2007. However the 2Q07 time period you mention was clearly unsustainable (as expressed in the article) and not an accurate representation of the S&P 500 earning's power.
4>To some extent, yes. As presented in Fortune's 2010 Investor's Guide (page 60), the annualized 10yr returns when P/E begin at 5-10 yields 10.8%, 10-15 yields 10.3%, 15-20 yields 5.7%, and 20+ yields 1.1%. The article leads the reader to believe that the 5.7% is to currently be expected; I agree with this concept.
I like the data you display throughout your article, especially the Pending Home Sale Index. Do you have data that shows the correspondence to existing home sales beyond the past year or so? I would be interested to see it. Further, I may quote/link this article (and/or your blog) on my site in the near future; please let me know if this is unwelcomed.
Bryan - I enjoyed your article. I am clearly in the Money Printing camp, and I appreciate the perspectives you displayed above.
As for the person whose comments allude to college fees rising, perhaps folks should consider that college tuition is subsidized by the government (as an entitlement). Take away the subsidy (with any good or service) and the price falls.
I tend to agree with your comment. Although I believe Kudlow is well intentioned, I do not believe exponentially issuing debt is a wise choice. However, capitalism enables opportunity for all parties and benefits consumers. I whole-heartedly disagree that capitalism caused this "current economic horror." Rather, if there is blame to place, it should be placed on the easy monetary and fiscal policies that were ramped up by the Bush administration and further stretched by the Obama administration. I'm currently drafting a follow-up to this article on how the individual can play this environment. Stay tuned. reasonablythinking.com
On Nov 10 11:58 PM The Recusant wrote:
> You lost me at "To borrow a phrase from Larry Kudlow, free market
> capitalism is the best path to prosperity." Kudlow also remarked
> that increased foreign debt is good for the country and shows our
> prosperity. He also said that firing employees cuts the fat from
> companies and is good for the economy. Countless other "pure capitalism"
> blather pours forth from him almost daily. The current economic horror
> show is the direct effect of capitalism at an extreme with no controls.
> What we need is limited laws and regulation and limited capitalism.
> We are victims of our own excesses.
I do not advocate a return to the cheap money era of 2002-2007, rather the free market/bull run era in the 70s-90s would be more preferrable.
I have shorter entries on my personal blog:
reasonablythinking.com
On Nov 10 03:23 PM bob adamson wrote:
> Nicholas Cavallaro appears to be advocating doubling down on the
> deregulation, low interest, tax cutting, free trade and scaling back
> of the public sector initiatives of the past thirty years. While
> a good case can be made that those initiatives when first initiated
> in the mid 1970s had a creative destruction effect on some of the
> inefficiencies that had accumulated in domestic and international
> markets during the thirty years immediately following WW II, a better
> case can be made that those initiatives have over thirty years created
> their own set of inefficiencies that have given rise to a recent
> string of national and continent wide recessions culminating in the
> current global recession. Consider, to illustrate the points just
> made, the over extended US consumer market, the stagnation of incomes
> for a large portion of the populations of the US and other mature
> economies, the artificial and unstable balance of payments patterns,
> the real estate, commodity and secularized debt and derivative debt
> bubbles and bad investment banking practices that marked the economies
> of the US, UK and several other countries in 2007 and set the stage
> for the panic of October of 2008.
>
> Does it not follow that to simply return to the policies of the recent
> past, particularly of the 2002-7 period, is not the road to follow.
> Arguably, a selective and moderate return to some of the policies
> that marked the 1950s and 60s, in an updated form might help restore
> a better balance (along with a fine-tuning and moderating of current
> free market practices in light of current experience). Honest and
> fair minded people can differ on the nature and extent, along with
> the detail, of the rebalancing needed but it would be hard to simply
> return to and redouble the policies of the 2003-7 era.
Bryan, I enjoyed reading this.
I have a question about your last blog entry:
"It is clear that the Bank of Canada sees the strong ‘loonie’ as a threat to the Canadian economy. The only question is whether they will follow the lead of the Swiss National Bank and intervene to weaken their currency."
Seeing that Australia and Canada are similar in that both countries are commodity producers and have geographic networks to export, does a long Aussie Dollar short Canadian Dollar make sense if Canada is considering monetizing its debt (as you mention, following the Swiss' lead)? RBA raising rates strengthens this argument, correct?
(My goal is to reduce my USD exposure)
...I'm also drafting an article on this trade for my own blog.
reasonablythinking.com