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Pompano Frog  

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  • Why I Am Buying AK Steel [View article]

    I too still hold my original AKS position.

    I see the import situation as being a national defense issue. You have to maintain your domestic steel making capacity in order to have the expertise and expansion potential during wartime.

    Meanwhile, steel is a short if you believe that the U.S. is going into a recession. That would be a wrong assumption, but if you believe it to short these stocks is the correct move.

    AKS is a deep value stock. All of the stocks with small or negative earnings with high debt to equity ratios have had a shortage of buyers. That represents an enormous buying opportunity for more patient investors.
    Feb 26, 2015. 07:12 AM | Likes Like |Link to Comment
  • Is It Time To Buy Greece? [View article]
    Dear Reader..

    Greek bond prices are not an indication of Greek default risk. Even if Greece leaves the Euro they still owe this money and eventually they will pay.

    It seems to me there is at least a 50% chance that Greece will leave the Euro. The debts of Greece are serviceable, contrary to the claims of the current Greek government.

    Other countries in Europe have complied with reform requirements. If the ECB gives into these opportunistic Greek politicians that are taking advantage of an uneducated electorate, what are the implications for Italy, Spain and Portugal?

    Politicians usually have little concern with the long term consequences of their actions. They have little to loose if Greece leaves and chaos ensues. They will blame others and try to remain in power.

    This is a 50/50 deal and not worth an investment.
    Feb 20, 2015. 09:16 AM | 3 Likes Like |Link to Comment
  • Greece Dependency Has Created Dangerous Illusions [View article]
    If France & Germany give into blackmail then Portugal, Spain and Italy are entitled to equal treatment.

    Greece should leave the Euro and let the new Greek Drachma bring an influx of tourists and if, there are reforms, industry.
    Feb 10, 2015. 04:03 PM | 7 Likes Like |Link to Comment
  • Rising Credit Spread In Junk Bonds - This Red Flag Is Really Ominous [View article]

    The Fridson quotes used in this article come from the "Reuters Global Investment Outlook Summit" in November, 2014.

    At the end of these soundbites he said "This is just a projection of what would happen in a normal cycle."

    This is totally true. We will always have business/liquidity cycles. Since World War II these have been preceded not by earnings shortfalls, but by significant tightening of credit and liquidity by the Central Bank.

    The yield curve went negative in August of 2006. That means the yield on the ten year government bond was less than the yield on 3 mos tbills.

    The author's chart on the yield curve shows nothing. He is throwing charts at the reader.

    The increase in issuance of low rated bonds is because their yields are near 50 year lows. It is a license to steal to borrow money at these rates.

    The spread has had a slight rise because the potential default rate on energy related issues has increased.

    In a bond default does not mean the investor necessarily loses any money. It means an interest payment was missed.

    During the entire U.S. bank rescue of 2008/2009 all of the money was repaid with interest.

    If you think that a dramatic drop in the price of oil is bearish for the U.S. stock market you ought to drag the data down from the St. Louis FRB and put it into a spreadsheet. The historical record is that large drops in energy prices are followed..are followed by double digit returns in equity markets.

    I would think this author has been bearish on the U.S. for the last 5 years. If a reader is in a similar situation he needs to revisit his assumptions and variables.

    One last thing, go to the Federal Reserve Board of Governor's website and look at their assumptions for interest rates, unemployment, GDP going forward.
    Feb 3, 2015. 05:40 PM | 23 Likes Like |Link to Comment
  • Why I Am Buying AK Steel [View article]

    There are different types of steel. Low grade steel sells for $600 a ton. You will notice that AK's average selling price is close to $1000 a ton.

    There is still no recognition that we are in an equity bull market which is being further fueled by low energy prices. Higher stock markets create a macro economic environment where housing prices and auto sales rise.

    I expect the Federal Reserve forecasts for GDP growth, unemployment and inflation to eventually meet their targets.

    This should lead to enough strength in steel pricing to allow AKS to show $1.50 to $2 annual pre-tax earnings. With tax carryforwards this is the bottom line.

    In the end, it is not what I think, but what the hedge funds think. They are determining the next hot sector or market strategy. They have successfully brought down the valuation levels of most deep value portfolios.

    Deep value strategies are at a substantial discount to the market which is at 16x earnings.
    Jan 28, 2015. 11:19 AM | Likes Like |Link to Comment
  • Why I Am Buying AK Steel [View article]

    I have run those numbers and I find no correlation with future movement in the steel stocks.

    This stock has characteristics that attracted hedge funds to sell short. I don't believe anything was used rather than a strictly mechanistic system. I am buying this and I believe it is a leveraged play on a continued bull market and economic recovery.
    Jan 25, 2015. 09:02 AM | Likes Like |Link to Comment
  • Shorting China Based On GDP Growth Rate Projections Is Highly Risky [View article]
    Thanks for the article.

    Readers need to understand that the IMF economists are using an American/European economic model to forecast the China economy. In America and Europe you have a low savings rate combined with an anti/investment tax structure.

    The peak in China GDP growth in 2010 at 10% annually was the result of a stock market boom which ended with p/e ratios above 40x.

    At the recent bottom of the China equity market p/e ratios were 8x with a savings rate in excess of 40%.

    Due to the recent runup in the Shanghai market GDP growth is going to come in above the government targets.

    In the U.S., at the market bottom in March, 2009, it took until the 4th qtr for that to be expressed into GDP growth.
    Jan 23, 2015. 12:22 PM | 2 Likes Like |Link to Comment
  • Why I Am Buying AK Steel [View article]

    You have hit on a key point. Markets are not efficient pricing mechanisms. The hedge funds have marketed shorting to their investors. They are then using long term studies, that do not apply, to analyze for potentially negative investment situations.

    What is amazing is how few deep value investors exist. It is what makes this strategy so profitable. Though you have to subtract the costs of a cardiologist.
    Jan 14, 2015. 07:00 AM | Likes Like |Link to Comment
  • There's No Bubble In Bonds, But They Look Frothy [View article]
    Dear Reader..

    Reading this I am incredulous.

    The yield of a bond is no different than the p/e ratio on a stock.

    Yields on all of fixed income are near 55 year lows.

    What financial market investment was a good idea at 55 year highs in valuation?

    Valuation is the most important factor in an investment allocation decision.

    Investment allocation is the decision which will determine 80-90% of your ultimate return.

    Fixed income is in a masive bubble.

    Investors ignored the Central Bank when they inverted the yield curve in 2006/2007 to tighten credit.

    Investors ignored the Central Bank when they created double digit M1 growth in early 2009.

    And today investors are ignoring the Central Bank when they are making it easy to look at what they are doing.

    The reader needs to take 5 minutes to go to the website of the Board of Governor's of the Federal Reserve Board. Just google.

    Across the top press the category "monetary policy."

    Under Features, the fourth line down you will see a heading "related information:"

    Press the last item "View All>"

    Under 2014 FOMC meetings, at the bottom, you will see December 16-17.
    Press "Accessible Materials."

    You will see before you the economic projects of the 18 members of the Federal Reserve for the years 2015, 2016 and 2017.

    For this to be wrong, you need to think you have more knowledge than the staffs of each of these members, plus their ability to create the reality of their projections.

    Holding fixed income is financial suicide.
    Jan 8, 2015. 08:36 AM | 1 Like Like |Link to Comment
  • U.S. Market Valuation: Are U.S. Equities Overvalued? [View article]

    In 1989, Japan's Central Bank was following the German economic/monetary policy model. This calls for maintaining a strong currency and low inflation at all times.

    Until Bernanke wrote his 1996 paper "The Financial Accelerator Model" it was not realized how important the financial markets are in transmitting monetary policy to the real economy.

    If you have an economy operating below its historical growth rate standard practice today is to not only loosen blunt monetary policy, but to make sure that this money flows through the system to weaken your currency, raise inflation and raise the valuation on financial assets.

    The U.S. is the global reserve currency and is a special case.

    You will notice that the U.S. Federal Reserve, in 2009, bypassed the banking system and bought commercial paper directly because of the lag in which banking systems respond.

    Your description of the economy has also been on the Seeking Alpha pages since 2009/2010 and it has not done a good job of describing the investment environment.

    Until Abe Japan did not target inflation, the currency nor financial assets. We will know in a year or two the outcome.
    Jan 2, 2015. 09:16 AM | 1 Like Like |Link to Comment
  • U.S. Market Valuation: Are U.S. Equities Overvalued? [View article]
    Dear Reader..

    This exact same article appeared in Seeking Alpha with the same factors of q ratios and Shiller p/e in 2009/2010!!

    It has cost the readers of Seeking Alpha one of the largest post world war II bull markets.

    A simple spread sheet with the q ratios and shiller and then future s&p returns would show a total lack of forecasting ability.

    These are here because this is what is taught in the universities. It is consistent with their theoretical economic models that consider financial markets to be a minor factor in determining economic outcomes.

    Shiller used Benjamin Graham as his source for his model. Graham was brilliant, but he lived in the world of the 1930's. Revenue growth of his industries was almost zero and therefore he saw a world where stock prices fluctuated back and forth over a fixed flat line.

    This is nonsense in today's economic environment. All central banks create monetary increases in line with what they perceive their countries economic potential to be. That means that you have the business cycle fluctuating around a rising line of long term economic growth.

    Global central banks are increasing liquidity and this is pushing the price of financial assets higher. China could move 50 to 100% this year. (FCA)

    I need to go.
    Jan 1, 2015. 11:30 AM | 16 Likes Like |Link to Comment
  • The Keynesian End Game Crystalizes In Japan's Monetary Madness [View article]

    Writing comments on Seeking Alpha is a break for me and I was rushing. I did not mean to imply that the U.S. had spent large amounts on infrastructure and economic development relative to its GDP in the last 30 years.

    I was referring to the Asian countries I mentioned.

    As an aside, I think a comment by you in 2009 got me started on Seeking Alpha. I thank you for that. By taking a break I seem to accomplish more. Its been a great six years.
    Dec 30, 2014. 04:19 PM | 1 Like Like |Link to Comment
  • The Keynesian End Game Crystalizes In Japan's Monetary Madness [View article]
    In 1965 or 1975, this article would get an A+ in any economics class. But, not in 2014.

    The reader is asked to believe that all of the economists who work at the FRB and the BOJ know nothing and instead we should rely on the theologies of our two political parties in the U.S. that have their theological origins in the 1930's and prior.

    Are there many economic papers that insist that demographics determines a country's economic destiny? Yes..Yes.

    The reason you get such a result is that most countries don't change their basic institutional structure as they are sucked down the drain by their current circumstances. When Korea applied to the World Bank for a loan to build a steel mill in the 1960's they turned it down. Korea's military leaders had determined they were not going to settle for the status quo.

    How do you explain that Singapore, which after the War was on a par with Africa currently has 1 of 6 of its residents with a net worth over a million dollars? Unless the political elites of a country are not satisfied with the status quo whatever the current endowments of a country are becomes that country's destiny.

    I believe that Japan, unlike the U.S., realizes that China has decided to become belligerent towards its neighbors. Japan's elites realize that without economic growth there is no possibility to maintain military parity with China.

    Therefore, they have decided to create economic expansion. They are using the same techniques that have been used in Singapore, China, Korea and Taiwan. This is not new.

    Three percent inflation, with economic growth, will wipe out the value of the existing bonds. Everyone of the countries previously listed has created enormous growth in wealth for its population through government expenditure on infrastructure and economic development.

    I don't believe Stockman could find one economic paper that would support the thesis that government expenditure on development and infrastructure was an economic negative. Does that mean that mistakes are not made? Of course not.

    We don't live in the world of the 1930's, as the Greeks might find out the hard way. The U.S. has the capacity to have a 4% long term growth rate. Can we make that happen with supporting massive unskilled illegal immigration? Can we do this with an educational system geared to turning out liberal arts majors? Probably not.

    Can we do this without investing in moving the frontiers of science and technology?

    And this is the important point. All of this means little regarding your investment strategy. There are global business cycles whether you have good government or bad government. To set a good investment strategy you need to be aware of what these major central banks are doing and why. If you move with them you will do fine.

    And that's what makes this author so dangerous. Not only is his economics not current but he is encouraging investment outlooks that run counter to the direction the central bank is taking. Good luck with that.
    Dec 29, 2014. 06:37 PM | 7 Likes Like |Link to Comment
  • How Much Does It Cost To Produce One Barrel Of Oil? (Tight Oil, Part III) [View article]
    Dear Reader..

    This is one of the best articles I have read on the oil industry in Seeking Alpha. Thanks for a great contribution..

    It is our job as investors to make the judgement on oil prices and what our investment allocation should be.
    Dec 28, 2014. 04:48 PM | 1 Like Like |Link to Comment
  • What Lies Behind The Plunge Of The Ruble? [View article]
    Dear Reader..

    In the first paragraph, you state recession looming, interest rate up, inflation up and capital flight up.

    I am not investing in Russia at this time because as in the U.S. in 2007/2008 you don't want to invest in countries before the recession hits.

    But, as far as the capital flight goes, I think the author has little basis to project the recent past into the future. There has been a dramatic increase in interest rates by the Russian Central Bank. That increase compares in size to other interest rate shocks that were effective in changing investment preferences and behavior.

    In addition, Saudi Arabia is budgeting an oil price of $80 for 2015. Not only does Saudi Arabia have the ability to give a reasonable forecast, but like our own Federal Reserve they have the ability in reality to influence the forecast. And, just like our FRB their forecast is linked to their reputation. If it turns out to be way off the mark its going to have a future effect. I am betting the Saudi's know best.

    I think the Western media exaggerates the negative factors effecting China and Russia and as investors we should be on alert.

    Further, it looks like growth in oil production in the U.S. will flatten due to current oil pricing. Meanwhile, growth in oil usage by China and India will increase this year. It's complicated.
    Dec 28, 2014. 04:38 PM | 4 Likes Like |Link to Comment