Chungst

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97 Comments

    • Wed Apr 16th 04:13 AM | Rating: 0 0
      Commented on:
      Could the U.S. Lose Its AAA Rating?
      Having worked in corporated credit for a number of years -- first as in the commercial lending business and later as a buy-side analyst in High Yield & High Grade funds -- I don't think people understand what it means to have a "AAA" corporate credit rating (per S&P) or senior implied rating (per Moody's). Keep in mind the S&P ratings methodology on corporate bonds is transparent; each year, S&P provides a free copy of its Corporate Ratings Criteria (I was orginally introduced to it in my Level II CFA exam) that goes in depth of their ratings approach. If the rating is not "AAA" then it is AA+ because there is no "AAA+" or "AAA-" ratings in the S&P ratings universe for corporate bonds. That is to say if the WSJ claims the rating is not "AAA," then the burden is show or prove what is the correct rating and why. Telling us that it isn't "AAA" is insufficient in my book.

      Here are a few more comments to think about:
      1) It's not a case of S&P not being "brave enough", it's a case of following the transparent S&P ratings methodology (please note, the 2006 edition was 128 pages).
      2) I had the opportunity to speak with Sol Samson and Scott Sprinzen (2 of the main contacts listed in the 2006 ratings methodology book) many times when I was following the auto the sector. From 2002 to 2004, S&P was guiding investors on Ford's arrival into junk status and a lot of investors and critics didn't give S&P enough "credit" for their work. I have transcripts of those calls and Mr. Samson made it clear his job is to make sure the analyst get the ratings right! That is to say S&P demonstrated the courage to get the ratings right even though it meant disappointing investors (who were obviously in the denial state!) that wanted Ford to remain an investment grade credit.
      3) Credit analysis is an art that is a science and a science that is an art. Having worked with all four rating ratings -- S&P, Moody's, Fitch, and DBRS, I would say S&P tends to be the most quantitative-driven of these four firms. This is good because it means their ratings are replicable, especially in light of the transparency of the rating methodology. That is to say, given so many people can replicate S&P ratings with high degree of accuracy (the 2-factor model I've developed is 95% accurate), then WSJ or other critics need to show via the hard data why the "AAA" is incorrect due to "ratings dynamism."

      Cheers
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    • Thu Apr 10th 07:57 AM | Rating: 0 0
      Commented on:
      It's Now 'Official': Ethanol Is a Scam
      Check out this link: www.coskata.com/Proces...

      Coskata claims:
      "Environmentally superior - The Coskata process reduces carbon dioxide emissions by as much as 84% when input materials such as grass, agricultural waste or woodchips are used (Argonne National Laboratory). The Coskata process has no back-end solid waste to dry and handle like enzymatic approaches, and water and wastewater treatment requirements are low due to significant water recycle and energy conservation. The Coskata process uses less than one gallon of fresh water per gallon of ethanol produced, versus 3-5 for corn, and as much as 7 gallons of water per gallon of ethanol for enzymatic routes."

      "Lowest cost target in the industry - Coskata's process delivers the next-generation of ethanol at the lowest cost target in the industry - under US $1.00 per gallon."

      The company is in a partnership with GM.
      View article »
    • Tue Apr 8th 06:45 AM | Rating: 0 0
      Commented on:
      New Rules on Leverage Would Hit Goldman More Than Its Peers
      This is my first time reading your article. Here's my advice (from many years as a Buy-Side Analyst): Get your point across as quickly as possible.

      Most PMs won't give you that much time to ramble on. The saying on the street is: When a PM asks an Analyst what time is it? The PM doesn't want to be told how to make a timepiece.

      Good luck.
      View article »
    • Mon Apr 7th 01:56 AM | Rating: 0 0
      Commented on:
      Book Review: 'The 7 Commandments of Stock Investing'
      Without an independent verification of the principles in action over an extended period of time, I see little reason to read the book. While the independent verification need not be an full-blown audit, it nonetheless needs more than anecdotal evidence.
      View article »
    • Wed Apr 2nd 09:54 AM | Rating: 0 0
      Commented on:
      Wal-Mart: What PR Won't Fix
      The first word that comes to my mind after reading your article is "demagogue." WMT also does good with numerous charitable acts.

      Keep in mind your words made it clear WMT paid $470,000 in medical expenses in the first place. Any company that pays that type of money for medical help is hardly the "poster pig for that lipstick."
      View article »
    • Thu Mar 20th 02:35 AM | Rating: 0 0
      Commented on:
      Salesforce.com: When Shorting, Timing is Everything
      ZDS:

      First, I (like yourself) was tested on that specific question various times on the CFA exams; in my case, I was awarded my CFA charter in 2001.

      Second, I am not splitting hair since your example is egregious. You didn't just say **presumptuous**, you wrote **extremely** presumptuous.

      Cheers

      PS If you like, we can let the CFA Institute decide this issue.
      View article »
    • Mon Mar 17th 13:07 PM | Rating: 0 0
      Commented on:
      Batten Down the Hatches
      Jimmy Cayne lost big time. Dave Faber of CNBC made a comment last Friday that JC lost something like $1 billion given BSC used to trade at $170 a share.

      I checked JC's filings with the SEC, and it said: "The Reporting Person is the beneficial owner of 7,008,839 shares of Common Stock or 4.79% of the outstanding Common Stock" based on the latest filing. Ouch!

      Every penny (1.99 vs $2.00) is about $70K for JC. Easy come, easy go.
      View article »
    • Fri Mar 14th 19:47 PM | Rating: 0 0
      Commented on:
      Carlyle Deserved to Collapse
      Rich Shinnick:

      It's to critique, and there is a difference. As I stated many times on your ETFC article, my motivation is to coach someone to do a better job. I can lead a horse to water, but I can't make the horse drink the water. For example, when someone doesn't want to pick up the phone or email the investor relationship department (after being coached to do so many times), then my critique becomes criticism of "lazy behavior" and the negative influence on said behavior on his original article.

      Additionally, your recent posts here reflects (a) poor sportsmanship after you yourself admitted to this "lazy behavior" and (b) a lack of professional courtesy to Felix Salmon, who is a neutral party to our discussions, not to mention a fellow SA contributor, respectfully. There is a time and place to air our differences, and your ability to demonstrate discretion is lacking.

      Again, if you are unable to handle people providing critiques of your pieces, then reconsider making such pieces available in the first place. Any essayist worth his salt knows his work speaks for it itself, and attacking critics is a sign the work couldn't speak at all.

      Good luck and please save the sarcasm (what little you can think of) for your friends and family. Your actions here speak volumes of your character (if any such exists).

      View article »
    • Fri Mar 14th 02:47 AM | Rating: 0 0
      Commented on:
      Carlyle Deserved to Collapse
      Rich Shinnick:

      Your argument: "Sure they did, they read that the fastest way to billions is to use OPM and they rolled the dice" makes little sense. For example, The Carlyle Group owns 15% of Carlyle Capital Group.

      Also, as I stated to you many times earlier that as a critic, I am under no obligation to provide you any analysis despite your numerous protests.

      Cheers.
      View article »
    • Thu Mar 13th 21:16 PM | Rating: 0 0
      Commented on:
      Carlyle Deserved to Collapse
      LTCM had about 26X leverage in the beginning of 1998, and then it collapsed [source: en.wikipedia.org/wiki/... ].

      It looks like some people at Carlyle didn't read their financial history books.
      View article »
    • Mon Mar 10th 11:29 AM | Rating: 0 0
      Commented on:
      Salesforce.com: When Shorting, Timing is Everything
      Did you forget your CFA training, i.e. Standard of Professional Conduct in that you need to separate fact from opinion [i.e. Standard V B.3 or page 105 of the 5th edition of the "Standards of Practice Handbook"].

      I'm sorry, but when you wrote: "the *fact* remains that this stock has a multiple that is extremely presumptuous." That is NOT a fact, that is YOUR OPINION of the company's multiple being "presumptuous.&qu...

      Mr. Scheidt, if you advertise yourself as a CFA charterholder, you have to accountable to the Standards, and you should know better.

      Cheers.
      View article »
    • Fri Mar 7th 23:22 PM | Rating: 0 0
      Commented on:
      Wal-Mart Remains Undervalued
      Are we looking at the same company called Wal-Mart, with ticker being WMT???

      "Wal-Mart boosted its annual dividend by 8% to $.95 from $.88, showing that the company is cash rich right now."

      I am sorry to advise you that WMT's debt on its balance sheet has been increasing of late and that may help explain the strong cash balance. WMT's audited 2007 annual report revealed about $39 billion of funded debt on the balance sheet (WMT has considerable non-balance sheet as well, not to mentions commitments and contingencies) and WMT's unaudited 2008 balance sheet reveal about $44.7 billion of funded debt. That is to say, WMT's funded debt on its books continues to grow!

      "The increased dividend is not the only way that Wal-Mart is using excess cash reserves, as the world largest retailer continues to grow and open new stores."

      In Corporate Bond parlance, there is a term we used called Funds from Operations (net income plus primarily DDA and other non-cash adjustments before working capital account changes using the indirect method per FASB #95) was $18.7 billion based on audited 2007 numbers and that was insufficient to covered capex of $15.7 billion AND stock repurchase AND dividends. I don't see where this excess cash flow is. Based on the unaudited 2008 numbes, FFO increased to $20.1B and that again was insufficent to cover $14.9B in capex AND stock repurchases AND dividends. Perhaps what you meant to say per financial statement logic is that after WMT spent so much money on stock repurchase in fiscal year ended January 2008, it had to borrow money so it could continue to grow and open new stores. As you know, borrowing money for new stores is NOT the same as using retained earnings, respectively.

      "In fact, Wal-Mart plans to open 81 new stores this year ..."

      You failed to acknowledge that this number is a revised number, i.e. WMT had to rein in their growth from prior guidance in 2007. You never explained why WMT had to "moderate" its growth -- could it have been due to the fact that WMT's margins (i.e. EBIT margins) have been declining over time, that it's debt balances have been increasing over time, and that generic free cash flow (i.e. non-normalized CFFO less Capex) was about $4.5 billion based on audited 2007 statements and that number couldn't justify WMT's lofty valuations.

      "For example, WMT has a historical normal range for Price to Cash Flow of between 13.13 and 17.59 but that valuation metric is currently only 10.48."

      Based on my first two comments about your firm's understanding of basic cash flow analysis per financial statement logic, it makes me want to question your cash flow valuation metrics. Logic dictates that if you don't understand cash flow, then on what basis can you use cash flow metrics? Hmmm.

      I would be very curious to understand how you treated the fact that WMT's EBIT margins now are so much smaller than say ten years ago, respectively. As you know from ROIC analytics, EBIT margins is one of the biggest drivers of NOPLAT margins.

      Cheers.
      View article »
    • Tue Feb 26th 17:42 PM | Rating: 0 0
      Commented on:
      My Walgreen Mistake - What Went Wrong?
      Having been a Buy-Side Analysts (BSA) to very demanding (if not unreasonable) PMs, I have to say that you are judging yourself using the WRONG metric, which is the stock price.

      The rule I and other BSA use is being right for the right reasons or being right about the market. That is to say, we judge ourselves on stuff that we can control, not on stuff we can't control, such as the stock price (in a similar vein, corporate CEOs should be held accountable the same way). If our analysis did in fact come true, i.e. we were able to predict the company's future performance and HOW the performance manifest itself, that is important not the change in the stock price. Or said different, you get the valuation drivers right, and hopefully the stock price will follow.

      So when you wrote: "I still believe shares of Walgreen should be a phenomenal long-term investment," then why are you judging yourself on short term stock movements (i.e. 1 year stock movement) because generally long term would be something like 5 to 10 years into the future.

      In summary, the acid test is the quality of your original investment thesis, and not whether you made money or not (separately buying with a significant margin of safety also helps).

      Good luck.
      View article »
    • Mon Feb 25th 00:05 AM | Rating: 0 0
      Commented on:
      An Options Strategy for Volatile Times
      To: Arco Wagemakers, I agree with omooc that you ought to have used an example to walk the readers through your recommendation.

      Separately, the problem with strangles or straddles as you are aware is the frictional or transactions costs, i.e. bid-ask spread on two positions and commissions for two trades. Then you have to deal with short term capital gains.

      Cheers.
      View article »
    • Mon Feb 25th 00:00 AM | Rating: 0 0
      Commented on:
      An Options Strategy for Volatile Times
      Note stock ticker should have been VDSI in prior post.
      View article »
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