Burton A. J - because they would immediately move from "troubled" to "failed." No one wants to do business with a troubled bank. The entire system is built on trust and if you know first hand that a bank is troubled then it is only a matter of time before depositors pull out leaving the bank insolvent.
Ray - I agree with you mostly. The issue is not necessarily that we need MORE regulation as much as we need to require adequate disclosure. If banks were required to show just how ugly their balance sheets were (bring all those skeletons out of the closet and open your book to the public), there would no longer be an incentive to act irresponsibly. Consumers could easily see who were the stalwart banks and the market share would increase. Being responsible at this point would be akin to being profitable. Instead of heavy handed regulation, we need to properly align the incentives so that responsible business practices are rewarded, not discouraged.
Oil Inventory Report Fuels a Market Rally [View article]
Rohan - Are you trading via futures markets? Any stock or ETF suggestions for some readers who might not have access to these markets?
Mmarrkk: I'll go back and look harder. But sometimes discipline means taking advantage of opportunities even when competitors are pulling in the horns. Discipline works both ways - discipline to produce within your means, but also discipline to continue producing when opportunity is there, but fear of risk is shutting down peers.
long_on_oil - I think the cuts in production were a result of FALLING prices as many projects made no economic sense at low NG prices. As we see these prices rise, production will increase. This is how the equilibrium of supply and demand work.
Toobad41- agree that Congress cannot set prices. Unfortunately they can influence them however, and can shoot us in the foot by placing trading restrictions. Do keep in mind that if 75% of oil is imported, the importers have a vested interest in keeping the prices high. So to offset that it would be wise for us to open up reserves we have set as "off limits" and also develop a more robust alternative energy platform.
Thanks for the comments guys! Come visit zachstocks.com when you can for more updates and energy insights.
Increased Deficit Spending: We Can't Afford It [View article]
AM chap - Good point. I'm not a big fan of cash and treasuries. Instead I think cutting back on risk means owning "stuff" or commodities. You can own physical gold and silver, you can own real estate, you can buy financial instruments that represent ownership in these areas. But the bottom line is that I want to be long hard assets and feel like that is a less risky play. Sure some cash is worth holding on to but as you say - the value of cash assets will likely decline over the next several years.
Jamesa - I don't think the consumer is anywhere close to having paid down enough debt to "not need bank financing." They may not GET bank financing but in order to spend, consumers either need to take much more time to pay down debt, or they will need to fund it with MORE debt.
The Geoffster - I'm not sure I get "trillion" and I'm a numbers guy! Do you think our elected leaders can get THEIR heads around "trillion"?
tunaman4u2 - see note to AM chap - owning hard assets appears the safest play to me
WheelsComin... - don't forget... WE are the traders too. We have to make money during this environment which sometimes means stepping back and waiting for the herd to exhaust itself and then picking up the spoils later.
inthemoney: - good point, well spoken
JJJ: - I'm not quite sure, but that's definitely worth looking at deeper. Your point however, is a good rebuttal to WAKEUP's two posts :-) Even though everything is bigger (an ode to inflation), it's bigger to a greater magnitude and alarming when considered as a percentage of GDP
TeresaE - You're right. It seems this administration has a grudge against anyone turning a profit. But in punishing those evil capitalists, we don't realize that we are punishing the entire country. Because it is successful business who actually create jobs. What will happen when we put all the strong companies out of business and rely on the government to supply jobs and stimulus? I sure don't want to rely on their programs to feed my family.
RatWatcher - Thanks for the link...
All - thanks for the great comments! Come visit zachstocks.com when you can. Lets keep the dialog going!
How to Invest in Private Equity Through Public Markets [View article]
While BDC's offer exposure in areas that most individual investors do not typically have access to, I'm actually more interested in private equity COMPANIES who have the benefit of running these private equity funds and collecting on the profit.
For instance, Blackstone (zachstocks.com/2009/08.../) has several new funds including a Yuan denominated fund and manages billions in AUM and collects management fees on these funds. The management fees are nice, but the real money is made through incentive allocations. These companies usually get to keep 20% of the profits of their investors. The stocks have been hit hard over the last 2 years as incentive allocations have been low but the environment is changing.
At this point, Blackstone has plenty of dry powder (and has had the cash for the last 9 months) to put to work at depressed prices. As some markets recover, the company is able to build those incentive fees and investors should see the stock rise quickly. A healthy dividend yield pays you to wait at the same time. So while investing in the individual funds or BDOs could be worthwhile, I think owning the company that manages those funds makes even more sense.
The market will follow fundamental information over the long run, but today's prices appear to be largely a function of investor confidence which is being juiced by positive statements out of the various governing bodies of our economic process. It is very difficult to know WHEN the market will swing back to a fundamental pricing measure (and likely take investor confidence along with it), but I think it's very clear that the risk is high in this environment. So as investors we've got to be careful not to drink the kool aid but also not get too committed to the short side until the confidence has run its course.
Keep the investment powder dry and the eyes wide open. We should see some much more attractive buying opportunities in the next several months. For today, buying on the hype could be disastrous.
Whole Foods: Stock Is as Pricey as Company's Wares [View article]
Appreciate the comment. Obviously the market has strong momentum right now and could continue to drive the stock higher short-term, but from a fundamental valuation standpoint there is just too much risk for me to put capital to work.
I've never actually used their products before but your insight might explain why they are finding it necessary to spend more on advertising in order to maintain sales growth. The trend is alarming and should cause investors to think twice before jumping in even at these lower prices.
Buffett's Latest NYT Op-Ed: The Greenback Effect [View article]
Market ace, I think the contraction in credit is certainly helping to hold prices lower for the time being, but this contraction is very small compared to the long-term effect of the new dollars in the system. The loose monetary policy has not been effective yet because the velocity of money has been so low. But once the economy begins to turn (I say Economy - not Market) the velocity will pick up and inflation will quickly become a serious issue.
At that point, the Fed will have the dubious choice of either raising rates to fend off inflation (which would kill the expansion) or keeping rates low to continue to encourage the recovery (which leaves us with inflation). I'm pretty sure I know which direction will be chosen.
Three Ways to Profit from the Drop in Consumer Spending [View article]
Captainccs - The dollar saved is certainly just as valuable as the dollar earned. That's why earnings came in as expected.
The problem is that the trend of saving through cutting costs cannot continue indefinitely. There is a finite amount of cost that can be cut before damaging a business. Conversely, if revenue were to experience an upward trend, the business would become even more healthy and productive - and likely leverage against fixed costs.
I'm all for saving and expect businesses to maintain a lean cost structure. But I won't pay a growth stock multiple for retailers who are not actually growing, but instead cutting back on expenses so it LOOKS like they are growing.
Three Ways to Profit from the Drop in Consumer Spending [View article]
Ted, I think you’re right… We all know the typical aversion to spending held by the majority of people who lived through the great depression. It completely changed the fiscal landscape of an entire generation. The interesting thing is that while it looks obvious that the retail bubble has burst as far as SPENDING is concerned, the EQUITY PRICES have yet to burst. But maybe we’re on the edge of seeing that happen.
There are certain areas within retail that could actually hold up well. We had an article on Carters (which makes baby clothes) - zachstocks.com/2009/05.../ - and I think there is potential for a few specialty stores like this to hold up well. But as a general rule, there are many retail chains which will likely have a very hard time this holiday season.
Neutral Tandem Offers an Attractive Entry [View article]
Good point Michael... And I DO still like it. Obviously timing is difficult in this market and I've never been a good day trader. But I do have the ability to add value over time by selecting opportunities which have the potential for strong growth above that of the overall market.
TNDM is a strong leader in its category and I expect this to be a great buying opportunity if you are willing to hold on for some time. If the fundamentals change then my opinion needs to be revised. But if the price changes it may be that the opportunity just became more attractive.
Why I'm Adding More Blackstone Group [View article]
Actually while it may be considered shady, that business practice ends up putting serious capital in the hands of (Blackstone) shareholders. As owners of the stock, you participate in both the management fees as well as the incentive allocations from these transactions.
So when Blackstone takes their investor's dollars (not BX shareholders, these are investors in Blackstone funds), borrows additional capital (The fund borrowing - usually not a liability for BX shareholders), buys out a company at $500 million, and then sells it for $2 billion a year later, shareholders actually receive somewhere in the neighborhood of $300 million in incentive fees.
This is what will likely drive the stock higher in the next few quarters. There are plenty of opportunities to buy distressed assets and Blackstone has the capital to put to work.
Now not every deal will have this kind of return, but again, the majority of the risk is borne by the investors in the Blackstone FUNDS - not by shareholders of BX
TERM LIMITS - how refreshing would it be to get new minds, new ideas, and fresh energy in Washington? The American people are tired of career politicians. We need representatives who actually LIVE in the economic and social environments which they influence.
Thanks guys for the comments. Yes, I do think that we are experienceing a fundamental, far reaching, and long-term shift in the psychology of the American consumer. Even when money is available to spend (due to employment, fed stimulus or other entitlement checks) we are seeing less of that money actually filtered into the economy through spending. This will have a WIDE effect, but will likely catch retail stocks off-guard first.
Blacklist Grows for Troubled Banks [View article]
Ray - I agree with you mostly. The issue is not necessarily that we need MORE regulation as much as we need to require adequate disclosure. If banks were required to show just how ugly their balance sheets were (bring all those skeletons out of the closet and open your book to the public), there would no longer be an incentive to act irresponsibly. Consumers could easily see who were the stalwart banks and the market share would increase. Being responsible at this point would be akin to being profitable. Instead of heavy handed regulation, we need to properly align the incentives so that responsible business practices are rewarded, not discouraged.
Thanks for the comments guys,
zachstocks.com
Chart Industries Rides the Natural Gas Trend [View article]
zachstocks.com
Oil Inventory Report Fuels a Market Rally [View article]
Mmarrkk: I'll go back and look harder. But sometimes discipline means taking advantage of opportunities even when competitors are pulling in the horns. Discipline works both ways - discipline to produce within your means, but also discipline to continue producing when opportunity is there, but fear of risk is shutting down peers.
long_on_oil - I think the cuts in production were a result of FALLING prices as many projects made no economic sense at low NG prices. As we see these prices rise, production will increase. This is how the equilibrium of supply and demand work.
Toobad41- agree that Congress cannot set prices. Unfortunately they can influence them however, and can shoot us in the foot by placing trading restrictions. Do keep in mind that if 75% of oil is imported, the importers have a vested interest in keeping the prices high. So to offset that it would be wise for us to open up reserves we have set as "off limits" and also develop a more robust alternative energy platform.
Thanks for the comments guys! Come visit zachstocks.com when you can for more updates and energy insights.
Increased Deficit Spending: We Can't Afford It [View article]
Jamesa - I don't think the consumer is anywhere close to having paid down enough debt to "not need bank financing." They may not GET bank financing but in order to spend, consumers either need to take much more time to pay down debt, or they will need to fund it with MORE debt.
The Geoffster - I'm not sure I get "trillion" and I'm a numbers guy! Do you think our elected leaders can get THEIR heads around "trillion"?
tunaman4u2 - see note to AM chap - owning hard assets appears the safest play to me
WheelsComin... - don't forget... WE are the traders too. We have to make money during this environment which sometimes means stepping back and waiting for the herd to exhaust itself and then picking up the spoils later.
inthemoney: - good point, well spoken
JJJ: - I'm not quite sure, but that's definitely worth looking at deeper. Your point however, is a good rebuttal to WAKEUP's two posts :-) Even though everything is bigger (an ode to inflation), it's bigger to a greater magnitude and alarming when considered as a percentage of GDP
TeresaE - You're right. It seems this administration has a grudge against anyone turning a profit. But in punishing those evil capitalists, we don't realize that we are punishing the entire country. Because it is successful business who actually create jobs. What will happen when we put all the strong companies out of business and rely on the government to supply jobs and stimulus? I sure don't want to rely on their programs to feed my family.
RatWatcher - Thanks for the link...
All - thanks for the great comments! Come visit zachstocks.com when you can. Lets keep the dialog going!
How to Invest in Private Equity Through Public Markets [View article]
For instance, Blackstone (zachstocks.com/2009/08.../) has several new funds including a Yuan denominated fund and manages billions in AUM and collects management fees on these funds. The management fees are nice, but the real money is made through incentive allocations. These companies usually get to keep 20% of the profits of their investors. The stocks have been hit hard over the last 2 years as incentive allocations have been low but the environment is changing.
At this point, Blackstone has plenty of dry powder (and has had the cash for the last 9 months) to put to work at depressed prices. As some markets recover, the company is able to build those incentive fees and investors should see the stock rise quickly. A healthy dividend yield pays you to wait at the same time. So while investing in the individual funds or BDOs could be worthwhile, I think owning the company that manages those funds makes even more sense.
zachstocks.com
SuperNanke to the Rescue! [View article]
The market will follow fundamental information over the long run, but today's prices appear to be largely a function of investor confidence which is being juiced by positive statements out of the various governing bodies of our economic process. It is very difficult to know WHEN the market will swing back to a fundamental pricing measure (and likely take investor confidence along with it), but I think it's very clear that the risk is high in this environment. So as investors we've got to be careful not to drink the kool aid but also not get too committed to the short side until the confidence has run its course.
Keep the investment powder dry and the eyes wide open. We should see some much more attractive buying opportunities in the next several months. For today, buying on the hype could be disastrous.
zachstocks.com
Whole Foods: Stock Is as Pricey as Company's Wares [View article]
zachstocks.com
Rosetta Stone Is Under Pressure [View article]
I've never actually used their products before but your insight might explain why they are finding it necessary to spend more on advertising in order to maintain sales growth. The trend is alarming and should cause investors to think twice before jumping in even at these lower prices.
zachstocks.com
Buffett's Latest NYT Op-Ed: The Greenback Effect [View article]
At that point, the Fed will have the dubious choice of either raising rates to fend off inflation (which would kill the expansion) or keeping rates low to continue to encourage the recovery (which leaves us with inflation). I'm pretty sure I know which direction will be chosen.
zachstocks.com
Three Ways to Profit from the Drop in Consumer Spending [View article]
The problem is that the trend of saving through cutting costs cannot continue indefinitely. There is a finite amount of cost that can be cut before damaging a business. Conversely, if revenue were to experience an upward trend, the business would become even more healthy and productive - and likely leverage against fixed costs.
I'm all for saving and expect businesses to maintain a lean cost structure. But I won't pay a growth stock multiple for retailers who are not actually growing, but instead cutting back on expenses so it LOOKS like they are growing.
Thanks for the comment,
zachstocks.com
Three Ways to Profit from the Drop in Consumer Spending [View article]
There are certain areas within retail that could actually hold up well. We had an article on Carters (which makes baby clothes) - zachstocks.com/2009/05.../ - and I think there is potential for a few specialty stores like this to hold up well. But as a general rule, there are many retail chains which will likely have a very hard time this holiday season.
Thanks for the comment!
zachstocks.com
Neutral Tandem Offers an Attractive Entry [View article]
TNDM is a strong leader in its category and I expect this to be a great buying opportunity if you are willing to hold on for some time. If the fundamentals change then my opinion needs to be revised. But if the price changes it may be that the opportunity just became more attractive.
zachstocks.com
Why I'm Adding More Blackstone Group [View article]
So when Blackstone takes their investor's dollars (not BX shareholders, these are investors in Blackstone funds), borrows additional capital (The fund borrowing - usually not a liability for BX shareholders), buys out a company at $500 million, and then sells it for $2 billion a year later, shareholders actually receive somewhere in the neighborhood of $300 million in incentive fees.
This is what will likely drive the stock higher in the next few quarters. There are plenty of opportunities to buy distressed assets and Blackstone has the capital to put to work.
Now not every deal will have this kind of return, but again, the majority of the risk is borne by the investors in the Blackstone FUNDS - not by shareholders of BX
zachstocks.com
Congressional Healthcare Games [View article]
zachstocks.com
Retail Data Fails to Inspire [View article]
zachstocks.com