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Ted Barac

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  • BlackBerry: How Can Returns Possibly Exceed Sales [View article]
    BlackBerry called Detwiler Fenton’s claim “absolutely false,” according to an e-mailed statement. “Our data shows that return rates for BlackBerry Z10 devices both in the U.S. and on a global basis are in line with or better than our expectations and are consistent with return rates for other premium smartphones in the market today,” it said.
    Apr 11 05:16 PM | 3 Likes Like |Link to Comment
  • Nokia: A Turnaround Through Creative Destruction [View article]
    Great article, Georgi! Thanks.
    Oct 25 08:28 AM | 3 Likes Like |Link to Comment
  • Questioning The Case Against The Case Against Gold [View article]
    Agreed, Charles...equity investments can be horrific investments if you buy during periods of euphoria and overvaluation. People who ignored valuation and bought stocks at the peak of the Internet bubble are still waiting to get back to even (even in nominal terms). Assuming any asset class is always attractive, regardless of valuation and future earnings prospects, is foolish. Any asset can be a bad investment if priced to high.
    Oct 12 02:53 PM | 3 Likes Like |Link to Comment
  • Questioning The Case Against The Case Against Gold [View article]
    The math?

    Let's see. It's been a while since I did this type of calculation, but if memory serves:

    An anonymous, after the fact, claim of buying gold at the 20-year trough and holding through today = worthless.

    Just kidding, duse62, and congrats, if you really timed things so perfectly. It doesn't get better than that. Like I said...many very smart people have made a lot of money trading gold.
    Oct 11 10:08 PM | 3 Likes Like |Link to Comment
  • JPMorgan's Depositors Needn't Worry About Its Gambles [View article]
    Apart from reckless banker greed and foolish risk/reward decisions by the banks, those subprime loans existed because millions of Americans overpaid for their homes using way too much leverage (despite witnessing enormous and unsustainable price increases). The banks took on stupid, greed-induced risks, but American homeowners also took on stupid, greed-induced risks and regulation was too lax. There's lots of blame to go around.
    Sep 24 07:07 PM | 3 Likes Like |Link to Comment
  • How To Assess Performance [View article]

    If you keep reporting your performance by excluding the losers (those that haven’t been assigned, expired or closed), you should consistently be very pleased with your results, however, that's not a very good gauge of performance. If a fund manager reported performance as you do (apart from omitting losers, also excluding the dividend portion of the S&P 500 performance and omitting transaction costs), I think the SEC would have something to say about it. Do you provide potential clients with any true performance metrics over extended time periods (total return, including the losers, versus total return for the S&P 500)?

    Secondly, in assuming that options don't limit upside (because non-options writers will have a sell price target), you fail to recognize that there's a HUGE difference in 1.) setting a price target and exiting a trade by selling out and 2.) reaching a profit ceiling, because you sold covered calls on your underlying stock position and those calls have hit the strike price.

    In the former, you have exited the position at market levels, you have no further downside exposure (in the event of a subsequent pull back) once you sold out, and you have the capital immediately returned for re-investment.

    With the covered call, after the strike price is reached, you continue to have complete downside exposure on the position (in the event of a subsequent pullback/sell-off), until expiry or exercise. If there is no pullback and the stock price continues to increase, you ultimately may be selling out a level 10%, 20%, 50% below market prices. In both situations, the capital is tied up and unable to be used for re-investment until expiry or exercise.
    Sep 12 01:40 PM | 3 Likes Like |Link to Comment
  • Dividends Provide A Return Bonus [View article]
    "However, it is our contention that the market does not price the stock according to their dividend policy, they price the stock according to their earnings power. Therefore, if and when a company does pay a dividend, it represents a nice bonus to total shareholder returns."

    Chuck, in saying this you are effectively saying that the market ignores retained earnings (those earnings that don't get paid as dividends and stay with the company) and the benefit of these retained earnings that can accrue to a company through:

    1.) paying down debt (lower interest costs),
    2.) acquiring other profitable companies (accretive to net income)
    3.) R&D spending (can lower costs/increase sales),
    4.) A higher book value (more attractive valuation multiples),
    etc., etc.

    I think the market can be pretty inefficient, but to say that it ignores the benefits from retained earnings is simply not true. Even if the market does ignore retained earnings, in the short-term, the earnings power of a company that doesn't pay dividends will outpace one that does (all other things equal, for the reasons given, above) -- so the valuation will ultimitely reflect those higher earnngs (even if the P/E multiples are the same). Also, bear in mind that retained earning offer the individual investor value accretion/wealth accumulation with no tax implications (tax deferment).
    etc, etc.

    Dividends do provide a liquidity and steady income benefit, but I think you are vastly overstating the return advantage (if there even is one).
    Aug 22 09:54 AM | 3 Likes Like |Link to Comment
  • Ultra-Low Interest Rates Indicate U.S. Stocks Are Expensive [View article]
    Fair enough, I did kind of miss the point; however, I disagree with the Shiller PE theory (don't have time now to get into that now), so I don't see P/Es as high and I don't think you should read anything about earnings growth from treasury yields. As I mentioned, they were high right before market crashes (when optimism was too high) and much lower when the market prices became attractive (both in 2000 and 2008).
    Jul 26 10:37 AM | 3 Likes Like |Link to Comment
  • Young Investors: Buy Bonds Now, Stocks Later [View article]
    Assuming an average maturity of 20 years (for your 16-28 year, portfolio) would mean that this 7.48% yielding portfolio is paying 533bps over yesterdays 20-year treasury yield of 2.15%. Such a wide credit spread implies that these bonds have susbtantial default risk and taking comfort from investment-grade ratings is never a good idea -- as one shouldn't confuse an investment-grade credit rating with investment grade credit risk (particularly for rapidly deteriorating credits like Telefonica). There is a lag in credit ratings and yields are typically a much better indication of credit risk.

    Secondly, you can't ignore interest rate risk unless you ignore inflation risk and who really knows what will happen with inflation over the next 28 years. A worst-case return to 1970's level inflation levels, at some point over the next three decades, would mean substantial real losses for those high inflation years (despite 7.48% nominal returns).

    Effectively, you need to believe that these bond spreads are substantially mis-priced (for reasons other than the credit ratings) and believe that inflation over the next 30 years is not a risk. Personally, I think that a substantial overweight position in bonds, with interest rates where they are, is a very risky trade.
    Jul 24 05:05 PM | 3 Likes Like |Link to Comment
  • Sell AT&T And Buy Sprint [View article]
    Yes, AT&T has a larger base of iPhone customers, which will translate into higher iPhone sales (as theses customers upgrade).

    Bear in mind, however, that the upgrade of an existing iPhone customer represents an expense with no incremental profit (as the customers were already paying their monthly fees). It's a necessary expense (to maintain customers and keep down churn), but an expense nonetheless.

    44% of Sprint's iPhone sales last quarter were to new customers...for new customers, its also an upfront expense, but with substantial incremental revenues and profit over the life of the contract (as these customer weren't already paying monthly fees).

    In other words, it's the acquisition of new iPhone customers that really drives incremental profits, not just the total number of iPhones sold.
    Jul 13 07:26 PM | 3 Likes Like |Link to Comment
  • Sell AT&T And Buy Sprint [View article]
    So, if Sprint were trading at $7.00/share, would it be more attractive because the debt/equity ratio would be half of what is is today? That's circular logic.

    Sprint is clearly more leveraged and a greater credit risk than AT&T, but I believe you are more than compensated for those risks at current valuation levels. Furthermore, if Sprint does successfully execute their turnaround, the company's leverage will actually boost shareholder returns.

    While credit risk is low for AT&T, it has a large declining fixed/other business and will have to fight hard to maintain its large wireless market share versus smaller operators with similar product offerings. As such, I believe that downside risks for the shares is high, although default risk is low.
    Jul 12 07:33 PM | 3 Likes Like |Link to Comment
  • Sell AT&T And Buy Sprint [View article]
    Thanks, Thomas. Great article of yours, which I now remember also reading last year. The spectrum capacity subject is very complex, but I think management has a good handle on the issue and have ample time to plan for future growth needs (and I do think Clearwire will play a big part). What are your current thoughts in that area?
    Jul 12 11:24 AM | 3 Likes Like |Link to Comment
  • Upside For Sprint's Shares Remains Substantial [View article]
    1.) Liquidity is cash and credit availability (with Sprint, mainly cash). Yes, they issued debt to improve their liquidity position, which effectively left their net debt position the same (but no one implied it improved their balance sheet and/or leverage; liquidity and leverage are completely different issues).

    2.) With respect to assets/liabilities and profitability, you need to better understand the underlying accounting issues with Sprint. In 2007, they made a massive acquisition of Nextel which added billions in assets to their books. Subsequently, they decided to close down that business and write-off those assets in an accelerated manner.

    Now, the cash for the Nextel acquisition is already out the door, but they are still having to account for large depreciation/amortization expenses that have no impact on cash flow. If you look back at Sprint's cash flow statement over the last few years, you will see that they were generating billions in free cash flow, although net profit was negative.

    This is why analyst often tend to focus on normalized free-cash flow generation over net income (particularly for special situations like Sprint), as net income can, have temporary disconnects from
    economic reality. It can work the other way, too. Some companies have D/A expenses that vastly understate current and ongoing capital expenditure requirements and, thus, the income statement overly flatters their financial picture.

    So where do I see Sprint's FCF in the, above, scenario. Well, very/overly simplistically, with $9.4bn in OIBDA less $4.9-5.9bn in CAPEX (my estimate) less $1.5bn in interest expenses, you have about $2.0 - $3.0bn in FCF. At which point, I would assume that Nextel's depreciation/amortization issues should have worked their way through the system and FCF will more closely resemble net income. Take the mid-point of the range and use it as an estimate for net income and give it a 13x market p/e multiple and you get a market capitalization of $32.5bn (a little higher than my estimate in the analysis, above).
    Jun 22 08:10 AM | 3 Likes Like |Link to Comment
  • Sprint's Virgin Mobile Prepaid iPhone Service Is Exactly What It Needs To Compete [View article]
    "Virgin may, however, attract people who already own an iPhone or who can get a cheap, used one off Craigslist, which has the opposite effect of overburdening their network for no additional gain."

    Apart from not counting towards the iPhone commitments, these subscribers would be just as economically attractive as those who would buy the iPhone from Virgin at cost (it's exactly the same). Secondly, I think you may be surprised at the number of people that would find this proposition attractive.
    Jun 9 12:48 PM | 3 Likes Like |Link to Comment
  • Should Minimum Wage In The U.S. Be Cut? [View article]
    "What would be wrong if minimum wage fell by 5% and as a result everything got 5% cheaper to match?"

    So, 100% of most company's costs are wages to minimum-wage workers?

    "Few to no negative consequences exist other than short term, mild pain."

    Except for the millions that already can't afford to get by on existing mimimum wage levels.
    Jun 4 03:48 PM | 3 Likes Like |Link to Comment