Tom Armistead

On Leverage

John, almost two years ago I conducted an interview with a well kinown academic on this very subject...

www.investorplaceblogs...

Some of the allusions are dated but the rest of it is still applicable

Capital Spending Has Yet to Get Off the Ground

The lack of capex is a serious problem, as you have noted that is one of the main reasons we can look for a slow recovery with weak employment. I could add to your guesses about what the money has been used for:

Share buybacks at inflated prices. Many companies have borrowed money to buy back their own shares at inflated prices, meanwhile neglecting to keep plant and equipment up to date. Depreciation, which is measured in last year's dollars, doesn't say anything about the cost of new and state of the art facilities.

Acquisitions at peak prices, buying a lot of obsolete equipment from weak competitors and booking the overpayment as goodwill, much of which was written off in the kitchen sink 4th quarter last year, both the goodwill and the plants that were closed.

Investors seem to prefer very low capex, FCF is the preferred metric, don't waste money keeping up to date, just run everything into the ground.

Meanwhile, much investment stimulus is tax concessions or cheap and forgivable loans given out by state and local governments to try to attract any business they can in order to create jobs. The states vie with one another, and skillful negotiators can play them off against each other. Somewhere in there the overall direction of developing the kind of jobs we need gets lost, it's about stealing the other state's existing jobs.

That leaves out the capital that has been chasing returns in CDS manipulatin and supporting short-selling by hedge funds - neither activity creates real jobs in the real economy.

Nucor Corporation: Fantastic Stock at an Attractive Price

US Steel I am neutral, based on an impression the company is too big, slow-moving. It makes sense based on historical earnings but there is the high short interest and debt as a % of capitalization is a little higher than I prefer.

I have some HAYN and CRS, small positions and I am watching them develop. CRS I did very well on the last time through the cycle and I am hoping to repeat....


On Nov 25 09:48 AM Jacob Wolinsky wrote:

> Thank you.
>
> I also own GE and am overweight in the metals sector. They have been
> some of my most fantastic performers over the past year. Any thoughts
> on US Steel? It was at 190 two years ago and is now at 42. I got
> in earlier at 40 and bought again at 20.

Nucor Corporation: Fantastic Stock at an Attractive Price

Good article, NUE is a quality company. 5 year average EPS is the right metric for a cyclical, a P/E of 10 on that basis is attractive.

gaspains, many good stocks look unattractive at low points in the cycle. That would include IBM, which could be bought in November last year for 77, now trading at 128: or GE, which could be bought under 7 in March and now trades above 16.

I have been buying some industrials to include steel, positioning for a potential economic recovery.

Cramer's Mad Money - Amazon Is Wal-Mart's Giant Twin Sister (11/23/09)

AMZN - I could swear Jim Cramer wrote in one of his books not to pay higher than a P/E of 36 for anything, and what I heard last night was him talking about a forward P/E (2011) of 39.

TTM P/E is 78.

I haven't been able to locate the rule about the 36 multiple, but it makes sense to me, maybe I made it up.

Time to Bail on Shale?

Good analysis, appreciate the work you did reading (or listening to) all those conference calls.

Until recently I was long BJS/BHI on the theory that rig counts would have to increase as supply dwindled. Now with the lateral drilling technlogy getting better and the shale producers hedging and continuing to pump, plus storage is so high, it looks like natural gas is not going to spike the way it has in the past. The producers that borrowed in order to finance shale production are going to keep on pumping in order to service their debt.

The Retiree's Conundrum

The retiree's cunundrum differs from the prisoner's dilemma in that the retiree can see what everyone else is doing - they're going for bonds, settling for 1% in the name of safety.

The strongest and best of the dividend payers, the likes of JNJ, PG, XOM, are far and away a better buy than bonds, and they will do much better in an inflationary environment than bonds will. The sale of out of the money covered calls on such a portfolio would provide some additional income.

That's my personal opinion, as a baby boomer, retiree, and investor.

Valero's Major Announcement a Telling Economic Indicator

Valero is a poorly run company, excessive debt incurred to buy back shares at inflated prices. Meanwhile they had operational problems with the Delaware refinery during the past year, indicative of poor maintenance.

To cap it off, they made a dilutive offering to buy a heavy/sour refinery in Europe, again this year. So now they shut down Delaware.

What I see is poor capital deployment, buying back shares instead of maintaining Delaware. Capex if neglected long enough leaves properties that are of low value due to deferred maintenance and upgrades.

Heavy/Sour refining will go on, and will provide value to shareholders of better managed companies, Tesoro (TSO) comes to mind.

Two Takes on the Financial Crisis: 'Too Big to Fail' by Andrew Ross Sorkin and 'How Markets Fail' by John Cassidy

Like Kint, I have not read either book, although I will be adding them to my collection.

What I see in the article is an accurate discussion of the shortcomings of Keynesian economics when used as a basis for expansive fiscal and monetary policy. It works - it worked when Kennedy did it, it worked when Reagan did it, it worked when Bush did it.

But in its wake there is inflation, whether it manifests itself in higher gas prices or asset bubbles. In the absence of firm regulation, all kinds of excess appear in the financial system. At the end, interest rates are so low that further reduction is logically impossible, while the government is too deeply indebted to engage in another round of stimulation, and a stalemate ensues.

Keynesian economics needs to be re-examined: it has serious short-comings as a basis for public policy. It's a hell of a way to run a country.

If you accept that the crisis is over and we're on the road to recovery, what, Paul Vigna asks, has Tim Geithner specifically contributed? Aside from stress tests and the PPIP: a whitewash and an awful idea respectively.

Geithner was the man who put a floor under bankstocks by announcing that Treasury would provide capital via the purchase of preferred shares with warrants based on the 20 day average price as of the date of the announcement. That's what he said, that's what happened.

That stopped the carnage. Soon the banks were able to raise capital from private investors. The government capital is steadily being replaced by private capital, according to plan. Talk of nationalization has faded away.

Geithner does not present well on TV. But he has the ability to develop and implement solutions to complex problems.

AMong his solutions is the intention to prevent fraud, abuse and manipulation. Over and over he says it, nobody believes it can or should be done, they prefer other answers. But Geithner has it right: the answer is to regulate so as to prevent fraud, abuse and manipulation.

MBIA: Tax Arcana

On the options strategy I should have said "reversals," not "conversions."

MBIA: Tax Arcana

<IMG class=authors_reply src="static.seekingalpha.co..."> RP 95839, I think the shares will ultimately be worth somewhere between nonGAAP ABV of 39.05 and 1.00, with clarity arriving within 3 years. I think the odds of the outcome being on the high end of that spectrum are much better than is reflected in the market price.

At all times I own some shares, but my efforts have been focused on controlling a large number of shares by the use of options, using bullish conversions and similar strategies. The stock could potentially gap either way on news, so I have a tendency to maintain control of a definite number of shares.

The trend is for ownership to become increasingly concentrated, including hedge funds that operate with quantitative strategies. There is an extremely large short interest. So it's anybody's guess what these outfits will be doing heading into year end.

MBIA: Tax Arcana

appro, I can appreciate that Ackman's conduct re: MBI and ABK upsets you. I reported it to the SEC as I felt that laws had been broken. However, I am not holding my breath waiting for them to act.

As an MBI shareholder I look to management to enhance shareholder value by any means possible. They have done some things buying back their own debt, or bonds they wrapped, as well as repurchasing shares.

But the most important thing here is their determination to pursue all legal claims against those who have injured MBIA shareholders by fraud, negligence, misrepresentation, breach of warranty, violation of Securities legislation whether Federal or State, etc.

Obviously I got excited at the idea that they could use a tax refund to buy back a bunch of shares and nail the shortseller's naked asses to the wall but it is necessary to do some reality testing on ideas of that type.


On Nov 20 08:15 AM apppro wrote:

> Until you guys attack the cause of MBIA's demise, all this back and
> forth will remain meaningless. Ackman destroyed this company via
> his take down of Ambac. He had no idea what long term macro damage
> he would be causing across our entire society, but what do you expect
> from scum like that.
> You buys keep looking for answers where they don't exist. Monolines
> will remain dead until the entire Nation says what needs to be said,
> "Shorts caused this disaster, and we must now go after them as we
> did out CEO's!"

S&P 500's Most Unattractive Stocks

I wish you would not publish performance claims that are not verifiable.

The Twenty Year Stock Bubble Is Still Inflated

The data presented is thought provoking but I would be extremely hesitant to draw the extremely negative concusions advanced by the author.

There are many comments suggesting other explanations for the data, such as new technology (computers, but robotic assembly lines would be another) or interest rates, which are at extreme historical lows.

To which I would add, major US companies do a huge amount of business overseas. During the Depression there was very little international trade. Meanwhile Asian GDP has skyrocketed over the past 20 years.