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Zachary Scheidt, CFA

 
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  • First Solar Faces European Stimulus Concerns [View article]
    good comments guys - one thing to note.. Since the high, FSLR has dropped 20% and while concerns in Europe continue to mount, there are other variables coming online.

    BP's oil spill may eventually lead to a significant push towards alternative energy. We haven't seen the effect in solar stocks yet, but I'm digging deeper into the sector to see where the best opportunities are.

    Debt and excess capacity continue to be significant challenges for many manufacturers, but if demand picks up sharply, the excess capacity could quickly be put to use, and pricing power may firm a bit.

    There are several strong companies in the sector, but before buying I want to start to see some positive price action in key stocks.
    May 15, 2010. 04:33 PM | Likes Like |Link to Comment
  • Homebuilders: Too Far Too Fast? [View article]
    Homebuilders have taken it on the chin in the past week and I've locked in some profits. While the majority of my positions are still in play, at this point in the selloff it seems wise to at least take some of the risk off the table and see exactly how much strength the sector can manage during any reflexive move higher.
    May 15, 2010. 04:25 PM | Likes Like |Link to Comment
  • Are Strategic Defaults Fueling Consumer Spending? [View article]
    So are you saying you ARE being responsible by defaulting on a contract? I've got six kids and a decent mortgage payment. Should I do the "responsible" thing and default on my mortgage so I can

    -send them to a better school?
    -work less and spend more time with them?
    -buy "reliable" transportation - and what doest that mean - a BMW?

    We all have priorities, but I think there's an ethical problem when people decide NOT to pay a mortgage - a contract that they have agreed to - not because they don't have the means but because they have other places they would "rather" spend the money...

    Just my $0.02
    zachstocks.com
    Apr 20, 2010. 04:27 PM | 1 Like Like |Link to Comment
  • Three Industries for Building Short Positions [View article]
    Captainccs - You're going to have to excuse me for the following rant... Seriously, I apologize - it's not directed at you, but at the continual assumption that "shorting has unlimited risk" and casually assuming that this is better than the "limited risk" of buying into an extended market...

    What kind of idiot would short a stock and continue to hold it for the "unlimited" risk you talk about? If the position moves against you, then CLOSE IT OUT! Risk control is the most important part of investing whether you are long only, long short, a daytrader, swingtrader, position trader, or horse trader! Of COURSE the mathematics say that risk is unlimited, but the practical application of shorting a stock or ETF or market would require you to manage that risk.

    Too many people use this overstated technically true but practically obsolete statement to simply excuse themselves from having to think about BOTH sides of the market. Shorting stocks allows for diversification. It allows investors to take advantage of mis-priced securities. It brings truth to the market through the context of accurate price discovery. Short interest often acts as support when stocks are falling out of control. Shorting is a NECESSARY cog in the wheel of finance to keep equilibrium in place.

    When was the last time you were short a stock that doubled overnight before you had a chance to cover? Ii'm sure it has happened to someone but those times are EXTREMELY rare - and almost always involve shorting a penny stock which has no liquidity and should only represent a small portion of an account (if any portion at all).

    The idea that shorting stocks is inherently more dangerous than buying stocks, is morally wrong, or is a poor investment tool drives me nuts! (can you tell? :-) It especially bothers me because too many investors that COULD have protected themselves through this turbulent market period have decided NOT to because they heard that shorting was risky, or wrong.

    To be sure, one must understand the risks involved with trading ANY security - from the long OR the short side. I would argue that too many individual investors enter the market without the proper knowledge base to make them competitive or keep them safe. But that's what sites like seeking alpha and ZachStocks.com are about - giving investors tools and the proper understanding to be able to make informed and profitable decisions.

    You're reference to using puts is well taken. But options traders get nothing for free. The reduced risk in buying puts comes with a cost - that would be time decay if buying puts outright - or any number of other risks if a more sophisticated approach is taken.

    But that brings me to a good point. When I recommend shorting a particular instrument (or when Ritholtz, Trader Mark, or Cramer makes a recommendation) the individual trader or investor can apply the best tools that he personally would like to use for that instance.

    So if you like the idea of shorting retail - GO AHEAD and buy puts - or sell the calls - or set up a backspread strategy - use futures - use straddles, strangles, condors or butterflys (option strategies). That's what individual traders do! They take the tools available to them and create a trade which matches their risk tolerance, their aggressive or conservative approach, that ties with their existing positions, and that meshes with their view of the world.

    OK - NOW that I've got that off my chest - thanks for the comment - thanks for reading - I really mean that.

    Good points on the retailers going out of business (although I think the smaller pie will more than make up for the fewer eaters). We live in dynamic times and risk must be carefully monitored and managed to ensure financial survival. The point is that as individual traders, we should use the tools available to us in order to protect and grow our investments.

    The best of success to all...
    zachstocks.com
    Apr 20, 2010. 03:48 PM | 1 Like Like |Link to Comment
  • Why the Market Won’t Trade Straight Down From Here [View article]
    We've got a pretty polarized discussion here. Half seem to think this is a "BFD" (pardon the Biden reference) - and the other seem to think that "this too shall pass" and expect market's to get back to normal.

    I honestly think the truth is somewhere in the middle. Goldman getting sued by the SEC is a BIG DEAL. And I certainly didn't mean to imply this wasn't the case. The action has ramifications that will take weeks and months to sort out. We're talking about risk for all other securities underwriters, for the financial industry as a whole, and essentially for our economy (as this lawsuit has ripples that spread into the very bedrock of free capitalism)

    Remember, for a minute that when this security was being put together, John Paulson was a nobody - essentially a small-time hedge fund manager looking for a big break. The investment bankers thought he was a nut but liked him because he was helping them generate big fees by taking the other side of his trades. So if the concept is that a "mastermind" was picking out the mortgages that were destined to lose, keep in mind that Paulson had yet to be proven to be a mastermind...

    Anyway, despite the fact that I think the suit really is a big deal, the current bull market is so very strong that it will likely take some time to set in. That's why I expected a relief rally shortly after Friday's air pocket (although I must say I didn't expect it to reverse the majority of losses on Monday and Tuesday).

    The true test comes NOW after we have had time to adjust and evaluate the long-term ramifications. If the market can press to new highs and continue to operate with momentum, then I will have to step back, close shorts and take short-term stabs at the long side (while managing risk and continuing to build a short-list)

    But if we are unable to retake the highs, if risk is actually going to be a factor when deciding what to invest in, if momentum stalls and "story stocks" lose their appeal, we could enter a short-sellers dream - an era of falling expectations and declining multiples.

    If you're a bull, it's a concept you should at least be aware of and have a hedging plan to help you survive. If you're a bear, you should already have a game-plan in place complete with momentum stocks on the chopping block and an eye for particular profit points...

    And if you're an agnostic?? Well, then you probably know all this already...
    Apr 20, 2010. 03:19 PM | Likes Like |Link to Comment
  • Citigroup Taps Liquid Market by Selling Primerica [View article]
    Wow - seems like I hit on a sore subject. To be fair, I will point out that I did say that there are exceptions to the experience level of the representatives (zachstocks.com/2010/04.../) and I know that there are some "business owners" who are legitimate in their endeavors.

    But the stigma still stands. I've been approached by several Primerica consultants who explained over lunch or coffee how I could become a "business owner" and fit into the pyramid looking structure.

    As a general rule, I was appalled by the knowledge and experience of these representatives (AND ONCE AGAIN I KNOW THERE ARE EXCEPTIONS) - but many of these reps were recruiting their parents, neighbors, babysitters and others to join in their business. If this is where middle income America is supposed to get their financial advice, we are in serious trouble.

    Sticking to the investment - yes, you're right. My purpose is not to debate the merits of Primerica as a service to middle America but to analyze the stock as an investment vehicle. And with significant selling pressure likely to increase as Citi and other private investors dump their positions, I believe there is risk in owning the shares.

    I could be wrong - it wouldn't be the first time and it certainly won't be the last. Primerica could shoot to $30 or higher. But with the risk of selling pressure and what I believe to be a poor business model, Primerica strikes me as a better short than long position.

    Thanks for the comments guys,
    zachstocks.com
    Apr 8, 2010. 03:39 PM | 2 Likes Like |Link to Comment
  • Chimera Raises Capital for RMBS Purchases [View article]
    Why pay 8-9% when current borrowing rates are much lower? I think the capital raise was really just to give the company more flexibility to act quickly when they are ready to pursue opportunity.

    With available capacity on the credit line, the company could immediately purchase mortgage assets up for sale at an attractive price. But if the credit line was fully used and the company had to wait to pursue a transaction until a capital raise was already completed, the opportunity could be missed.

    Obviously we're seeing this transaction differently, but I do agree with your point that the company could responsibly increase its leverage - not to the previous level of 4-1 or more, but maybe something in the 2-1 range considering the low cost of debt capital.

    zachstocks.com
    Apr 8, 2010. 03:23 PM | 2 Likes Like |Link to Comment
  • Chimera Raises Capital for RMBS Purchases [View article]
    But isn't this transaction exactly what you're talking about? with a slight adjustment in timing?

    CIM really IS paying down its repo line with a secondary (as you suggest) - this repo line has been used to make acquisitions. And in the future, I expect the line to be used again.

    So the transaction is exactly what you are suggesting, we're just discussing it mid-way through the circle.

    zachstocks.com
    Apr 7, 2010. 11:57 AM | Likes Like |Link to Comment
  • Chimera Raises Capital for RMBS Purchases [View article]
    It could be that they were expecting the RMBS to decline sharply after the Fed purchase program was over. In this case it might make sense for management to have the capital handy early in the game so they could jump on an opportunity immediately without needing to take the time to finance the deal.

    If they are just using equity capital to pay down a line, I agree - that doesn't make sense. Right now CIM's cost of funds is approaching zero. But if that line remains open and they can draw it down for opportunistic purchases along the way - then the dilution effect might actually disappear.

    Thanks for the comment
    zachstocks.com
    Apr 7, 2010. 07:19 AM | Likes Like |Link to Comment
  • Profits Are EZ for This Lender [View article]
    Alan - agree on the attraction of the un-leveraged business model. and you're right... Credit is going to be hard to come by for a generation because traditional banks will be (rightfully) distrustful of the consumer. Traditional finance is a big mess that will take years and years to clean up.

    Tom and Lower - you've got a point, there are certainly plenty of other opportunities and I'm pretty active in chasing those down too. A wise man (or perhaps a smart@$$) once told me it's immoral to let a fool keep his money - now I'm not sure I really agree with this, but its very hard to integrate social agendas into investment approaches. There are things I dislike about nearly every company I invest in - so the difficulty is figuring out the balance between social principals and investment principals.

    You should know I respect your opinion and anyone choosing not to invest in a particular stock or industry based on their convictions...

    Thanks for the comments guys,
    zachstocks.com
    Apr 6, 2010. 07:04 PM | Likes Like |Link to Comment
  • 2010 ZachStocks Recommendations: First Quarter Update [View article]
    I hope so too. I'm a little surprised that the stock hasn't had more positive action with the health of the IPO market. This should be a benefit and ample liquidity should drive not only profits but also investor confidence.

    The dividend should continue to help support the stock, but I'm keeping a tight stop due to the failure for BX to participate in the current rally.

    zachstocks.com
    Apr 6, 2010. 06:56 PM | Likes Like |Link to Comment
  • Are Strategic Defaults Fueling Consumer Spending? [View article]
    Jeff – I think you are taking that statement a bit out of context – I’ve never been one to rely solely on the government numbers – but you can’t deny most retailers have been reporting strong sales increases – and this is true not just for luxury spending but regular mom and pop stores – from basic essentials all the way to purely discretional items – you HAVE to account for these increases even if you throw the government numbers out the window.

    AlexR – You make a great point – strategic defaults really ARE a stealth stimulus, and the bill is unfortunately paid by the taxpayers and by true paying homeowners who will see the value of their properties further decimated by the eventual foreclosures that MUST happen.

    Donald – I agree with you in principal on the regional banks – but do you have some short opportunities in particular? Would love to see some tickers you’re watching.

    Will DiJohn – you state that “anyone facing foreclosure is also facing bankruptcy” and you are right. So why would ANYONE in their right mind pile up cash that will be frozen and taken away during the bankruptcy process?

    Atareen – you’re right – same song, second verse. I think it was

    PTJ who said that the real tragedy of this crisis is that we haven’t learned a thing – in fact we’ve learned the WRONG lessons. The lesson consumers have picked up is that if you act irresponsibly enough, someone will come behind you and help you out.

    Thanks for the comments guys!
    zachstocks.com
    Apr 6, 2010. 06:54 PM | Likes Like |Link to Comment
  • A Rolling China Short Candidate [View article]
    Good service, accessibility, and name recognition are all things that have made the company successful. And I want to be clear - I'm not saying that I expect the company to STOP being successful. It's just that investors appear to have gotten ahead of themselves and are paying too much for the company.

    Everything has a fair price. Markets can swing significantly above or below that mysterious fair price... But eventually fundamentals become important once again, and assets will trade in parity with cash flows, risk premiums, long-term growth, and terminal value.

    My expectation is that the stock price will settle at a much cheaper level in the next several months. But of course if investors continue to bid prices higher for most Chinese stocks - HMIN will likely be supported by that movement. There is a function of the price (near term) that is associated with the Chinese market. But long-term we need to look at the value of the franchise.

    Thanks for the comments guys.
    Zach
    zachstocks.com
    Mar 9, 2010. 08:58 PM | Likes Like |Link to Comment
  • A Rolling China Short Candidate [View article]
    I don't disagree with you, but has that fact already been baked into the price of the stock? HMIN is trading at nearly 40 times expected earnings for 2010. Any disappointment could lead to both revisions to estimates and a lower multiple. Just a 10% cut in earnings expectations (to 77 cents this year) and a 15% decrease in the PE multiple would leave us with a stock trading near $26 - at that point managers could begin to bail, sending the stock sharply lower.

    I agree that the industry will continue to attract spending, but investors may have overshot the target.

    Thanks for the comment,
    Zach
    zachstocks.com
    Mar 9, 2010. 02:18 PM | Likes Like |Link to Comment
  • Salesforce.com's Earnings Unimpressive [View article]
    KungFu – I understand that the backlog doesn’t tell the entire story, but it’s just one more piece to the puzzle. Over the last several years, the industry has been telling investors to look at deferred revenue as a means to determine the future health of the revenue stream. Now many want to say this measure doesn’t matter anymore. I do think we need to be very wary when an entire industry trades substantially higher and in defense the bulls state that traditional measures don’t matter anymore. I’ve heard that line too many times and it usually ends ugly.

    Bernard – you certainly could be correct. And timing ANY bubble or inflated industry is always going to be difficult. For now I have stepped away from the short side (I’m one of those traders you mention) but as soon as the broad market and the industry begin to show signs of rolling over, I will begin to build a position. Today the market essentially seems to be taking a “risk on – risk off” mentality where traders add to ALL risk-based exposure when the newsflow is good and punish ALL risk-based positions when the news is poor. This may continue for quite some time but when fundamental valuation begins to matter once again, CRM investors will likely have a hard time justifying the price.
    Mar 6, 2010. 07:56 PM | Likes Like |Link to Comment
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