Thoughts Worth Thinking

Thoughts Worth Thinking
Contributor since: 2009
Thanks Todd. Your comment is another point suggesting that Microsoft's condition is not analogous to RIM's -- see my response to Jon T's question above.
I think that's a legitimate question, Jon, and reasonable people can differ in responding. Two immediate points come to mind on the perspective that RIM is different. First, while Microsoft's Windows and Apple's OS X are competing operating systems Microsoft's business interests on that front are not only competitive. Microsoft profits from hoards of Mac owners who purchase Office for Mac. Second, RIM is still just a couple of years from a peak of $148.13 in 2009 while now Microsoft is over a decade from its peak levels.
Thanks for your good comment, Lucifuge. Given the steady long term trends Microsoft arguably doesn't need to hit a grand slam, just good base hits, so your observation about the quality of recent releases is relevant.
Thanks for your comment, Jim. I agree that the union negotiations are an important dimension, and so far indications are favorable that they can reach an agreement consistent with the company’s business interests. The UAW’s rhetoric has recognized the importance of keeping the U.S. automakers competitive (see, Ford’s workers’ medical benefits trust is invested in securities tied to the price of Ford stock, and public opinion is not likely to support efforts to obtain an agreement repeating past mistakes. We shall see.
Well, one metric is that annual revenue has gone from $1.2 billion to $40 billion. And as for return to investors, the shares were hovering around $2 when Chambers took over, making today's depressed price a 7.5x return. Of course those who sold when the stock spiked during the Y2K tech bubble did much better, and the shares are also currently trading below most entry points since. But if the time horizon for measuring is the length of Chamber's tenure, the case looks pretty clear. Am I missing something? TWT
Thanks for your comment, Harm. To be clear, this particular post doesn't address the long case for HP. That's not to say there isn't one, but apparently Leo Apotheker make some big personnel changes that were announced today, and I would want to study these before saying something current on HP. TWT
Thanks, kmne68. Providing source information is something I am particularly committed to doing. I think it's important for readers to be able to independently assess the background, and even if someone doesn't agree with my perspective I hope they can use the source information to forge their own view. TWT
Thanks for your thoughtful comment. A significant intangible for Diana Shipping that’s hard to assess is the “quality” factor, the fact that the company basically offers newer, more reliable vessels to top tier international players – typically for long term. While the effect of the Australian wheat situation on their pricing should be less pronounced than in the spot market, it should still favorably impact negotiations with customers. At the end of the day, Diana has the regional relationships and far more financial flexibility than most competitors to capitalize on the Australian wheat situation – the extent to which they do is a test of management. In any case, I don’t look at this as something that will make or break Diana, but just one more factor that improves the risk/reward ratio for a strong player in a volatile industry.
I’m saying it’s less of a risk than argued by some because of the United States’ unused revenue raising power. If you were a bank, who would you rather give a mortgage to, all other things being equal: a person putting down 20% who barely earns enough to make the payments, or someone else who puts down 15% but makes 50% more? My point is that the U.S. is like the latter person when you plug GDP and the real power of the U.S. economy, not just tax revenue, into the equation.
On Oct 15 11:44 AM chap08 wrote:
> So, you're saying that the budget deficit isn't really a problem
> because we can reduce it by putting taxes up to European levels.
> I'm not sure that qualifies as a "thought worth thinking".
> I agree with you on hyperinflation, but that's more because of the
> deflationary forces opposing the inflationary forces and the fact
> that other nations will continue to purchase Treasuries.
Don’t have an opinion on the answer to your question but note the following. Not sure which Sheila Bair quote you’re reading but my understanding of what the FDIC Chair is saying is that going forward she would like to see a regulatory system that sometimes requires banks to issue preferred stocks that automatically convert to common shares in times of distress. That appears separate to me from the question of whether the government will convert any securities it has already received from CIT in exchange for TARP funds, which would depend on the terms of those securities and whether the government wanted to become a common shareholder.
On Sep 07 10:03 PM invest-4-income wrote:
> It is interesting that the Europeans are not looking at preferred
> conversion to common.
> I believe the US is now in a post-Citigroup-conversion world. Everything
> I read is that we will see more conversions. I even read speech
> and testimony from Sheila Baer where she wan't securities in bank
> holding companies to automatically convert to a junior class right
> through the capital structure.
> Do you think we will see a CIT preferred conversion?
I am very disinclined to recommend CIT on the basis that I still have no clear idea how they intend to rebuild their business. I bought some CIT preferred Series A (CIT.PR.A) before the meltdown and have been disgusted with this company, particularly how they cruised after receiving TARP funds in December on the assumption of further government aid, and were caught like a deer in the headlights in July when it was denied. Yes, it’s possible that the preferred share prices could multiply from current levels if CIT really recovers, but they may also languish in the basement for years or get wiped out in an eventual bankruptcy. Even if CIT survives, if there ever was a situation where someone will think of a creative way to snatch value from preferred shareholders, this may be it. Finally, CIT.PR.A is non-cumulative, so they don’t need to pay back unpaid dividends on that issue later. I’m keeping mine for now in the hope that future events will provide clarity on whether to hold them or sell, but I think there are better places for a new investment right now.
On Sep 07 08:50 PM orestruss wrote:
> Hi, thanks for sharing your thoughts! I am interested in buying cit-a
> and some ISF..Do you think we have a good chance to enjoy 5 beggar
> in CIT-A shares? Thanks!
Thanks. I am not particularly concerned about their ARMS for the sake of this analysis. From ING’s perspective, if I understand their materials correctly, they require at least 25% down—a substantial chunk of change—in addition to bi-weekly payments to accelerate paying off the loan for some of their products. That’s pretty good security against loss for the bank. Home buyers should have some strategy to protect against risk of higher rates after the fixed rate term expires—i.e. setting significant reserve aside and/or reasonable expectation of higher income—or else they should not be looking at this type of loan.
I do think that ING Direct is well-positioned to benefit from a higher U.S. savings rate, though competition in the internet banking area will probably be fierce and it’s not clear whether this will be a significant growth area or just a healthy performer that contributes to the group running a stable and consistently profitable business. For the sake of investing in preferred shares at current price levels, the latter is ultimately more important in my view.
On Sep 07 12:52 AM sticktoitiveness wrote:
> Nice article. You seem very well informed. Have you noticed that
> they only offer adjustable rate mortgages, no fixed rate, on their
> website? Does that concern you and by how much?
> Also they tend to collect a high number of deposits from middle class
> Americans like myself because of their relatively high interest rates.
> With the savings rate in America raising do you expect them to benefit
> more the other banks?
I would say that ABN-Amro is a different case since they were nationalized which may introduce other risk factors into the mix. I have not looked closely at Aegon and don’t have an informed opinion of how it compares overall with ING on this investment thesis, though that’s not to say that it doesn’t. One difference I do observe is that ING has branded itself exceptionally in the United States, while U.S. consumers know Aegon primarily through its subsidiaries such as Transamerica, Monumental Life Insurance Company, and Merrill Lynch Life Insurance. The multiple-branding strategy carries inherent multiplication of effort and I have to admit that I am biased against companies that are too reliant on it.
On the dividend deferral, five years sounds excessive for a company that was not nationalized, though who knows in this environment? But even if that happens investors willing to wait should get a very nice payout—around 12% dividends depending on the issue and price fluctuations plus interest for the deferred interest plus eventual capital appreciation—unless ING somehow falls on its face. That’s all the more reason why a deferral that long is not likely to happen, and if it does that something would intervene to the shareowners benefit before then. Of course investors concerned about this scenario can wait to see what happens, probably getting a better opportunity if they’re right, but losing the present one if they’re wrong.
On Sep 06 02:14 PM THofler wrote:
> The preferred shares of ABN-Amro, Aegon, and ING were all hit by
> this downgrade. Any thoughts on the others? Do you think ING is
> in the best shape?
> I would suggest that these share prices would decline to a buck or
> two if dividends are suspended (think Fannie Mae) unless a date certain
> for payment resumption is included in the deferral statement. I'd
> guess such a statement is unlikely. Also, the "short-term" deferral
> could last as long as 5 years.
The report is a recommendation of a panel of health experts convened by the Pentagon & Department of Veterans Affairs, not an administration proposal, and the timelines reported for implementation are up to 20 years. Again, not defending the industry but just reviewing the investment case, I think it’s premature to conclude that this will really hurt them, but it is the kind of thing that keeps the stock price down for now.
On Jul 13 09:11 AM Mad Hedge Fund Trader wrote:
> The administration is proposing banning smoking in the military.
> About time! The Pentagon spends $846 million a year on cigarettes,
> and another $6 billion treating smoking related diseases. Few people
> know that the Bureau of Prisons banned smoking three years ago, precisely
> to reduce spiraling health care costs. The riots that followed went
> unreported. Not good for Altria (