More on Capital One (COF) Q1 earnings: Backing out the $809M bargain purchase gain related to ING, EPS of $1.56 missed by $0.06. Revenue of $5.6B, off 1% Y/Y. Noninterest expense of $3B, off 7% Y/Y - marketing expense of $317M, off 19.3%. Provision for credit loss of $885M, off 23% - "better than anticipated credit performance." Domestic card charge-off rate of 4.3%, delinquency rate of 3.4%. Net interest margin of 6.71%, up 19 bps from Q4. Earnings call at 5 ET (slides). Shares +0.6% AH. (PR) [View news story]
Read more carefully. The $1.56 (adjusted) was the 2012 Q1 number, which compares with the 2013 Q1 number of $1.79.
Michael Dell's Buyout Drama: Possibly Scripted [View article]
A glance at the most recent SEC filings from Southeastern shows they have been sellers, not buyers, in the last 60 days. Importantly, the selling has been at the request of their clients - i.e., not Southeastern's decision - but no buying at all. Nice theory, but no facts yet to support it.
With that said, buying could very well be going on at the many many professional investment shops we have not heard from on this subject. Someone out there is paying $14+ , and it's probably not Mom and Pop.
The Outsiders: Eight Unconventional CEOs And Their Radically Rational Blueprint For Success [View article]
I'm not sure I understand the structure of the interview above - who is saying what - but this is a very good book. You will be a better investor if you integrate it's lessons into your investment decision making.
PRF: Active Returns With Passive Discipline [View article]
Nice analysis. Clear, complete, useful.
But if I understand this correctly, you are telling us that with PRF this possibly superior weighting scheme gets completely wiped out by the above average fees and turnover costs. So the sponsors win, the index supplier wins, the brokers win with a sexy new product. Everyone seems to win except the investor.
How does this make me better off than putting my money in a 7-12bp expense ratio Vanguard, Schwab or Fidelity zero brokerage fee large cap ETF, be it value, blend or whatever?
I appreciate the quality of the analysis, but the take-away seems to be "don't bother, unless you prefer complexity over simplicity".
I usually love your stuff, but I've got two small quibbles with this post.
Not sure if you're kidding about the stock "taking off" back to $23-$24 if they deliver on their potential in 2H13. $21 to $24 hardly qualifies as taking off. For what it's worth, I think their credibility is so low right now that if they deliver any more than half of what they say they can do we'll see $25 or better.
Second, Why do you only allow for a possible positive reaction to the announcement of the next CEO? While they do lots of things well, there is no certainty whatsoever they will make a good decision on a successor. And with the wrong leadership in place, much of the promise of this company goes to the back burner, if not down the drain.
INTC strikes me as a (net) attractive package of attributes, but there is no shortage of risks here. We all know less about the future than we think.
Intel's Big Buyback Will Roast The Bears [View article]
It's actually a little better than that. The interest on the debt is tax deductible, so, using the US corporate marginal rate of 35%, your 2.5% blended rate becomes 1.625% after tax, or $97.5 mil/year on $6 bil. The dividend is an after tax, non-deductible item, so assuming they buy 273 mil shares at~ $22 , they are avoiding $245.7 mil/year (273 mil shares X $0.90/share) in dividend payments, for an annual cash pick-up of $148.2 mil. It's a classic "carry" trade, with the extra added twist that one would hope they know a little something about what the future holds for their products. And if their confidence in the future is borne out, the trade gets better, as the dividend increases but the cost of the related debt stays fixed.
Reserve Releases At Banks: More Scrutiny Required. What Are They Thinking? [View article]
You seem to think these reserve releases are discretionary. They are not. Used to be, maybe 25 years ago, but because they were too subjective, the rules were changed so that now they are, for the most part, driven by formula, mostly based on aggregate trailing bad debt experience and end-of-period loan balances. This is, of course, pro-cyclical, which is exactly what we don't want, but blame the regulators and the accountants, not the bank managements.
Crude Oil And Gasoline Inventories Show Unexpected Decline [View article]
Not doubting what you say, but if the measure compares same week year to year, the seasonal switch should not matter, i.e., it happened last year too. The "down" refineries could be an issue, but we need to know what the norm is for that one too, to give it any meaning. Is 3 down facilities a lot, normal or below avarage for early November?
More broadly, by using millions of barrels as the measure, the 1990-2010 average is going to capture a significantly less fuel efficient vehicle mix than what is on the road today. Would be interesting, and more instructive, to look at inventories measured by days supply on hand, to incorporate the stock versus the flow. My guess is managements watch that ratio more closely than absolute,raw barrels.
Another blow against the income-seekers, Capital One (COF) announces it will redeem $3.65B of trust preferred securities. The high-cost paper is in the process of being called by most financials as it will no longer by allowed to count towards capital buffers. (PR) [View news story]
Not really Bernanke. This is about new Dodd-Frank and Basel capital requirement calculation methodology. As the post says, these securities no longer count toward regulatory capital, and being as expensive as they are, it makes all the sense in the world to retire them.
Well done, and quick! The ROIC for GE is somewhat misleading for the same reasons it is not a useful metric for the financials - GE's balance sheet includes the massive debt related to it's financial businesses. When it is broken apart into an industrial company and a financial company - admittedly somewhat arbitrarily - the two pieces stack up reasonably well in comparison to similar businesses.
We all have the choice of emotionally reacting to headlines or thinking for ourselves. This post makes a good point about resisting the urge to disengage, but the broadbrush characterization of these examples as "bad players" deserves comment.
LIBOR: Wrong, yes, but when it was set artificially low borrowers around the world benefited, as did savers when the opposite occurred. Where are the victims?
MF Global: Agreed, just a debacle of greed and incompetence.
Knight: Their own self inflicted near-death experience. Traders run amuck! I'm Shocked! Again, no victims besides themselves.
Standard Charter (the "U.K. bank"): Unsubstantiated headline making charges from an ambitious junior NY State regulator. This is how two-bit politicians become Governor in NY (see Spitzer, Cuomo) Numerous other higher level regulators disputed the charges and none backed him up.
Awful Employment Report: More An Outlier Than A Harbinger [View article]
Nice job of covering the latest news, as usual.
Your intro says much of the value of this type of survey is that, as this is weekly data, turning points should show up here before making themselves visible in the monthly data. And as this is all coincident data, the best we can hope for from this approach is to catch a turn as it happens, so to speak, rather than months after the fact. A worthy goal - no question. Most forecasters miss turning points by months and quarters.
Further, you seem to focus heavily on absolute levels and YoY rates of change.
My observation/concern is, while the picture you present is clearly still positive-to-mixed, the second derivative of almost every data stream is negative. As the "instantaneous" rates of change will go negative well before the absolute levels and the YoY rates of change, don't they warrant some attention, and respect, too? Clearly paying too much attention to them, as the stock market always does, is a mistake, generating way too many false signals. But giving the rate of acceleration/deceleration no importance at all strikes me as a bit too casual.
You have been highly critical of ERCI recently. I know you have written extensively on their methodology and the weaknesses you perceive with it. I wonder how much of your differences with them boil down to their giving much more importance to rate-of-change readings than you do?
Don't get me wrong - I think you do a great job with what you do, and you provide a very useful service by putting all this together for us on a regular basis. But that doesn't mean it can't be even better.
More on Capital One (COF) Q1 earnings: Backing out the $809M bargain purchase gain related to ING, EPS of $1.56 missed by $0.06. Revenue of $5.6B, off 1% Y/Y. Noninterest expense of $3B, off 7% Y/Y - marketing expense of $317M, off 19.3%. Provision for credit loss of $885M, off 23% - "better than anticipated credit performance." Domestic card charge-off rate of 4.3%, delinquency rate of 3.4%. Net interest margin of 6.71%, up 19 bps from Q4. Earnings call at 5 ET (slides). Shares +0.6% AH. (PR) [View news story]
Michael Dell's Buyout Drama: Possibly Scripted [View article]
With that said, buying could very well be going on at the many many professional investment shops we have not heard from on this subject. Someone out there is paying $14+ , and it's probably not Mom and Pop.
The Outsiders: Eight Unconventional CEOs And Their Radically Rational Blueprint For Success [View article]
PRF: Active Returns With Passive Discipline [View article]
PRF: Active Returns With Passive Discipline [View article]
But if I understand this correctly, you are telling us that with PRF this possibly superior weighting scheme gets completely wiped out by the above average fees and turnover costs. So the sponsors win, the index supplier wins, the brokers win with a sexy new product. Everyone seems to win except the investor.
How does this make me better off than putting my money in a 7-12bp expense ratio Vanguard, Schwab or Fidelity zero brokerage fee large cap ETF, be it value, blend or whatever?
I appreciate the quality of the analysis, but the take-away seems to be "don't bother, unless you prefer complexity over simplicity".
Potential MLP Tax Rule Changes Aren't That Taxing [View article]
Why Intel Is So Tough To Own [View article]
Not sure if you're kidding about the stock "taking off" back to $23-$24 if they deliver on their potential in 2H13. $21 to $24 hardly qualifies as taking off. For what it's worth, I think their credibility is so low right now that if they deliver any more than half of what they say they can do we'll see $25 or better.
Second, Why do you only allow for a possible positive reaction to the announcement of the next CEO? While they do lots of things well, there is no certainty whatsoever they will make a good decision on a successor. And with the wrong leadership in place, much of the promise of this company goes to the back burner, if not down the drain.
INTC strikes me as a (net) attractive package of attributes, but there is no shortage of risks here. We all know less about the future than we think.
Intel's Big Buyback Will Roast The Bears [View article]
Buzz Zaino: Royce Fund Manager Sees Strong Growth Upside For 2013 [View article]
Reserve Releases At Banks: More Scrutiny Required. What Are They Thinking? [View article]
Crude Oil And Gasoline Inventories Show Unexpected Decline [View article]
More broadly, by using millions of barrels as the measure, the 1990-2010 average is going to capture a significantly less fuel efficient vehicle mix than what is on the road today. Would be interesting, and more instructive, to look at inventories measured by days supply on hand, to incorporate the stock versus the flow. My guess is managements watch that ratio more closely than absolute,raw barrels.
Another blow against the income-seekers, Capital One (COF) announces it will redeem $3.65B of trust preferred securities. The high-cost paper is in the process of being called by most financials as it will no longer by allowed to count towards capital buffers. (PR) [View news story]
Google Makes a Big Jump [View article]
Financial Foul Play [View article]
LIBOR: Wrong, yes, but when it was set artificially low borrowers around the world benefited, as did savers when the opposite occurred. Where are the victims?
MF Global: Agreed, just a debacle of greed and incompetence.
Knight: Their own self inflicted near-death experience. Traders run amuck! I'm Shocked! Again, no victims besides themselves.
Standard Charter (the "U.K. bank"): Unsubstantiated headline making charges from an ambitious junior NY State regulator. This is how two-bit politicians become Governor in NY (see Spitzer, Cuomo) Numerous other higher level regulators disputed the charges and none backed him up.
"Look before you leap", to erroneous conclusions.
Awful Employment Report: More An Outlier Than A Harbinger [View article]
Your intro says much of the value of this type of survey is that, as this is weekly data, turning points should show up here before making themselves visible in the monthly data. And as this is all coincident data, the best we can hope for from this approach is to catch a turn as it happens, so to speak, rather than months after the fact. A worthy goal - no question. Most forecasters miss turning points by months and quarters.
Further, you seem to focus heavily on absolute levels and YoY rates of change.
My observation/concern is, while the picture you present is clearly still positive-to-mixed, the second derivative of almost every data stream is negative. As the "instantaneous" rates of change will go negative well before the absolute levels and the YoY rates of change, don't they warrant some attention, and respect, too? Clearly paying too much attention to them, as the stock market always does, is a mistake, generating way too many false signals. But giving the rate of acceleration/deceleration no importance at all strikes me as a bit too casual.
You have been highly critical of ERCI recently. I know you have written extensively on their methodology and the weaknesses you perceive with it. I wonder how much of your differences with them boil down to their giving much more importance to rate-of-change readings than you do?
Don't get me wrong - I think you do a great job with what you do, and you provide a very useful service by putting all this together for us on a regular basis. But that doesn't mean it can't be even better.