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Thomas Tan, CFA

 
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  • My 10 Predictions for 2010 [View article]
    Thanks for everyone on your comments. The 10 yr bond yield is my mistake. It should be: doubling from 3.75% currently to 7.5%. Thanks for those who pointed this out.
    Dec 30, 2009. 09:01 AM | 1 Like Like |Link to Comment
  • Huron Consulting: Getting Too Close to Its Roots [View article]
    I have pointed out many weak spots from Huron’s latest financial results, such as immediate liquidity risk to cover their interest payment on their huge debt, the goodwill issue, the risk of equity holders being totally wiped out during a debt restructuring, etc. etc. At the same time, how much value it offers if the last 5 years’ financial reports are all fraud, which they are in the process of re-stating and re-issuing all of them? You can go back to read them all if you like, but do you know how much truth they said is really there? Can you tell the difference between the truth and the lies in those reports?

    Obviously you think DCF, or more specifically the cash flow projection, is the only way to evaluate a company. Since you are a big fan of DCF, then tell me what do you think the discount rate (or hurdle rate) to use in this DCF model based on Huron’s management quality and their fraud financial reporting for the last 5 years? The weakest spot for Huron is its culture and management, or the so-called soft aspects of a company. Tell me how will you evaluate it based on DCF analysis?!

    If you want this kind of analysis, fine, just go to buy UBS analyst report, which reiterate “Buy” rating when if it was traded at $45 and before it plummeted to $14, if that is the kind of DCF analysis and “serious” research report you want. Contrary to your view, I think SA and other websites provide their readers a platform of more diversified opinions about a firm, instead of a few mainstream Wall St. firm’s analysts only knowing how to grab numbers of cashflow and discount rates in the air and make up false assumptions in their DCF models. Those research reports along with their false DCF analysis are indeed worthless.
    Aug 16, 2009. 09:23 AM | Likes Like |Link to Comment
  • Huron Consulting: Getting Too Close to Its Roots [View article]
    GMM: Please read the news again. This is directly from Reuters: "Huron's board audit committee discovered that shareholders of four businesses that Huron acquired between 2005 and 2007 redistributed portions of their acquisition-related payments among themselves and to certain Huron employees." Please note "to certain Huron employees". This is kickback to a few key own employees. Unless Huron Audit Committee is also wrong, then I really don't know what to say about Huron.

    Also since this is the only comment you have made so far on SA, so I assume you register at SA just to make this comment to my article. In this sense, I am honored. Thanks.
    Aug 13, 2009. 02:44 PM | Likes Like |Link to Comment
  • Silvercorp: Canadian Mining Profits in China [View article]
    Thank you all very much for the comments.

    For fxtrader07, by talking with the management, I don’t think the power issue is really that bad. First of all, there was a press release dated Aug 13th and I copied the related paragraph on power supply below. Secondly, with the upcoming new power line and their own diesel power capacity, I think Silvercorp now has a good backup plan if the same problem occurs again in the future. And the Olympics is over. Third, as I was told by management, Silvercorp mining operations actually don’t use that much power, at least not as much as the perception of some investors think. In summary, their production target this year is unlikely impacted by the power supply issue.

    Aug 13th press release from Silvercorp: “The Company has noted an improved outlook for its power supply problems outlined in the August 8, 2008 news release. There has been no power rationing for the last five days. The local County Utility Bureau has assured the Company minimum power rationing as power supply to the local county has also improved when a new hydro power generating project in the County was brought into operation last week. Management is working closely with the local Utility Bureau to minimize future power interruptions, including investing almost $1 million since last May to build a new power line to the Ying Mine. The new power line is expected to be complete by the end of this August. The Company is also expanding diesel power generating capacity at the Ying mine to cope with potential power rationing.”
    Aug 28, 2008. 01:34 PM | Likes Like |Link to Comment
  • Northgate: Mid-Tier Gold Producer with Strong Cashflow [View article]
    Thank you all for the comments. Some of you raised a few good points. Regarding ARS, I am cautiously optimistic. As bulletbob said, with JP, ML, C buying back at full price, likely NXG will get that deal too. Since NXG can borrow with ARS as collateral, so I don’t see liquidity is a big issue here. Plus they are generating cash from their productions, unlike many juniors.

    The key for NXG is more for the future. They need to make up the declining revenue of Kemess South from Fosterville and Stawell in next 2-3 years, then 3 years from now, let Young-Davidson take over to replace both kemess South and Stawell. And they need to find another resource rich mining project soon in order to grow their business, top line and resources level. Once the whole PM industry is back on track with gold bull market resuming, NXG stock price will come back at much higher level than now.
    Aug 21, 2008. 10:54 AM | Likes Like |Link to Comment
  • Vista Gold: Ready for the Middle Tier [View article]
    Thank you all for the comments.
    LarryH, my analysis includes production cost per oz as indicated in the article. Jimmy46, I don’t think it is the case here for Vista.
    Clavis, I don’t know much about Aurelian but since you mentioned it, I looked it up quickly at the web. It seems that Aurelian has 13.7m gold inferred resources at Ecuador. This is actually comparable to Vista which has 10.3m M&I, and another 3.9m inferred gold resources in 6 separate projects but in more geopolitical safer countries.
    So if KGC feels comfortable to pay $1 billion for Aurelian, Vista should be worth the same too, if not more. Another way to look at it is that KGC pays roughly $60-70/oz (?) of gold in the ground for Aurelian, but based on my analysis above, Vista is now only traded at < $15/oz.
    Bill sanders, I agree with your point on proxies. Bobjou, most of the companies I follow have production or near production, including Vista which is also at the verge of production.
    Utiwiq and others raised the cost issue which is always my concern too, and probably the reason why the whole sector is currently depressed. But if energy cost stays at this level, and gold bull market returns to life and goes over $1,000 again, higher production cost will be offset by higher gold price.
    Aug 10, 2008. 03:54 PM | Likes Like |Link to Comment
  • The True Nature of Fan and Fred [View article]
    Thank you all for the comments, even some of them are very harsh and unfriendly ones.

    For those who don’t think F/F will cost taxpayer a dime, did Greenspan just call for “nationalized” F/F this week? What’s “nationalized” mean? If not taxpayer’s money, then whose? Yours? Maybe Greenspan meant the Japanese or Chinese central banks? Maybe it is not such a bad idea for foreign central banks to takeover F/F since they own so much of their debt anyway. How about the $25B estimate from Congress for taxpayer’s losses, even it is probably underestimated by 15-20 times as ithinkbig pointed out (I can show some calculations at the next article on this subject).

    Fannie’s business is actually a simple one. It provides guaranty operations by stamping its brand and guarantee on bundles of mortgages refashioned into bonds, then earns a spread on the difference between the cost of its liabilities (US treasury equivalent bonds) and the yield on its assets (mortgages). Without its public entity status and government guarantee, how would they be able to stamp its brand and get the US treasury equivalent rating from its bonds? More importantly, without government support, how would they be able to borrow at super low rates equivalent to US treasury so that they can earn a decent spread? Not even the largest investment bank or commercial bank such as JP Morgan in this country can do either one of above. It is actually a more than Skull & Bones type of privilege.

    Even it doesn’t conduct transaction directly with government (who does these days? Even foreign central banks are doing most of their transactions in open markets), the guaranty nature from US government for all its debt indirectly transfers the ownership to the government. It is as simple as if you fully guarantee all of your brother’s loans from various banks, it is the same as you implicitly borrow from the banks, your brother’s total liabilities become your liabilities, as simple as that.

    Did someone commented “The GSEs couldn't do jumbos or subprime, which are the biggest messes of all.” Really? Where did you get that from? In reality, Fannie’s book has $51.2B of subprime exposure and $344.6B of Alt-A exposure. In addition, Fannie holds $25.8B of private-label Alt-A securities and $25.2B of subprime residential mortgage-backed securities (RMBS) on its balance sheet. The Alt-A RMBS are carried at 85 cents on the dollar and the subprime at 83 cents. Doesn’t sound even close to me, especially the 83 cents for subprime, maybe 25 cents is more likely.

    Regarding the Skull & Bones comments, during the S&L crisis, who had protected the Lincoln S&L? The Keating Five, very few but caused public great losses. This time, who has protected the F/F to avoid stronger regulations throughout the years? The few laid out in Paul Gigot’s article.

    I think this article at FT this week (linked below), by Joseph Stiglitz, 2001 recipient of the Nobel Prize for economics, expressed many similar views as mine in his article (and he may not want to spend his time to argue with you like me here). For example: the F/F private/public partnerships, in which the private sector takes the profits and the public sector bears the risk. Does that line sound familiar to you? He also said, “Taxpayers should not be asked to pony up a penny while shareholders are being protected.” I might also add “no a penny while F/F bondholders are being protected.”

    I totally agree with Dr. Stiglitz, During liquidation of F/F, taxpayers should get the highest priority, fully compensated, then the F/F bondholders, then the perferrs, common shareholders being the last.

    www.ft.com/cms/s/0/c69...
    Aug 1, 2008. 10:58 AM | Likes Like |Link to Comment
  • How High Leverage Has Brought Down the Whole Banking Industry [View article]
    Thank you all for providing your wonderful comments here. I really appreciate your thoughts and your time.

    Amm, book value and market cap are two different things. Market cap usually is higher than book value but not in LEH’s case here. I also used the same approach as used by the WSJ article that the potential future writeoff could wipe out both book value AND the market cap.

    Helplessobserver, I also agree that S&P will fall below $1,100 which is only my intermediate target. See my previous article of seekingalpha.com/artic..., my ultimate target is actually $800, as indicated in my article.

    Thanks to Bob Gary and stockguy456, those are good links, especially the video on Fed which I watched before and now watched again. It is a cartel of the banks, by the banks and for the banks.

    Charlie, you can read my previous article of seekingalpha.com/artic..., which has a brief discussion on the CDS risk exposure to JP Morgan. This is also the 2nd most popular article I have written next to my 10 predictions for 2008. By the way, what is the link to the Bloomberg article you were referring to?

    Pescayolas, this is a long report, let me read through it, especially the derivative portion. Thanks for the link.

    Kinabalu and Charlie, what I meant was for those CDOs with AAA rating, which the recovery rate is around 50%. It is more conservative that way. I am aware that anything below AAA rating is pretty much all wiped out. But at the same time, LEH may have written some of them off already.
    Jul 21, 2008. 12:06 PM | Likes Like |Link to Comment
  • Magellan Minerals - A High Potential Gold Explorer in Brazil? [View article]
    Yes, I am long MNM. Thanks for the reminder.
    Jul 18, 2008. 09:22 AM | Likes Like |Link to Comment
  • The Current Bear Market: Death by a Thousand Cuts [View article]
    Thanks everyone for all your great comments. As I said, the bottom of this bear market is expected to be around $800 for S&P, similar to Blair's analysis. Kunst, you are right, it is negative "correlation", sorry about the mis-spelling. Thanks again.
    Jul 5, 2008. 02:08 PM | Likes Like |Link to Comment
  • Will Wall Street Discover Endeavor's Mines? Part I [View article]
    Dan, me too. It was so nice to chat with you during the whole trip. My other two parts are also posted already. See link to all my articles below.

    seekingalpha.com/autho...
    Jun 17, 2008. 10:05 AM | Likes Like |Link to Comment
  • How Much Is NovaGold Worth? [View article]
    Thank you all for your comments.

    Marco, a large property like DC needs to do a DCF analysis to put a value to such property. Reserves, even under ground and yet to be digged out, still have a value, and in this case, a good value.

    Saba, you are correct from pure math standpoint. But you need to look their M&I reserve figure, which is increasing by the way once the inferred are qualified to be M&I. Even you don't count inferred right now, it is still 1.8 mil, with 0.1 mil per year, it is 18 years. So it is more likely 15 than 10 years of mining life. At the same time, I expect the output will increase which is typical for mining, this is why I said 10-15 instead of 18 years of life since you want to get them out more quickly which will realize a higher net present value. By putting alll these into your DCF calculation, I am sure you will get roughly $500 mil.

    Thanks again to all.
    May 19, 2008. 07:51 PM | 1 Like Like |Link to Comment
  • Introducing the Minsky Theory - Stability Is Destabilizing [View article]
    Thank you all very much for your feedback.

    Thanks to a reader, I am just aware of that in early 1990s, when MBS appeared, Minsky anticipated the problems they would cause. In his 1992 article titled: “The Capital Development of the Economy and the Structure of Financial Institutions”, Working Paper No. 72, The Jerome Levy Economics Institute of bard College, he wrote:

    "The securitization of standard mortgages was a technique by which Savings and Loans and Mortgage companies originated mortgages which were then packaged as securities for the portfolios of holders such as pension funds, life insurance companies, mutual trusts and various international holders. Because of the way the mortgages were packaged it was possible to sell off a package of mortgages at a premium so that the originator and the investment banking firms walked away from the deal with a net income and no recourse from the holders. The instrument originators and the security underwriters did not hazard any of their wealth on the longer term viability of the underlying projects. Obviously in such packaged financing the selection and supervisory functions of lenders and underwriters are not as well done as they might be when the fortunes of the originators are at hazard over the longer term. All that was required for the originators to earn their stipend was skill avoiding obvious fraud and in structuring the package."

    Well, even he put it politely at the beginning of the wild MBS era, he pointed out that the fundamental here was the underlying moral hazard issue. And we saw how moral hazard had caused things totally out of control 15 years later.
    May 13, 2008. 01:10 PM | Likes Like |Link to Comment
  • Why Did the Mortgage Market Go Out of Control? [View article]
    Thank you all very much for your comments.

    Syndicat, you raised an interesting point about MLP. I think it is similar to REIT as a legal structure, but I suspect there are a lot more of tax loopholes on MLP for those private equity senior partners to evade taxes, which is probably the original purpose of setting up MLP. Need more time and research on this.

    For Bentra and others, as Billddrummer indicated and well said, most of the price distortion is from the securitization process, which is only about 10 years old with proliferation only in recent years.

    During this packaging process, fundamental elements of underwriting get stripped out, replaced with macroeconomic assumptions by the computer model. It is similar to the situation that, instead of buying company stock one at a time after you do research on their fundamentals, now Wall St gives you a basket of 500 companies and charge you a premium, because they claim that, based on Abby Cohen of Goldman, US economy will go on strongly in double digit growth forever.

    Unlike equity securities, for mortgage securities, even you know they are mispriced, distorted, overvalued, manipulated, there is no mechanism to do arbitrage to return the price equilibrium, since investment banks at Wall St. controls both the market and the source of those illiquid mortgage securities and their derivatives.

    So it becomes an one sided seller’s market, structured finance groups at Wall St. set their price, tell you their value, determine their risk, manipulate its credit ratings, investors don’t have a say on this since it is impossible and too complicated to value them.

    The only thing investors can do is to buy high and try to sell higher to the next suckers. This is why you see so many hedge funds are involved in this. At the end of the day, this whole thing is totally a pyramid scam now crumbling, as Bill Gross of PIMCO indicated.
    May 7, 2008. 09:53 AM | Likes Like |Link to Comment
  • How Quickly Market Sentiment Has Changed [View article]
    Thanks for your note. I also think it is possible that the business cycle will play out as you have laid out here.
    Apr 30, 2008. 10:29 AM | Likes Like |Link to Comment
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