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  • Kinder Morgan: 2 Big Issues Which May Hurt Future Growth  [View article]

    I look forward to your KMI posts, as they are always useful and informative.

    This time, however, It's not clear to me how the decline in the NGL price comes around to hurting KMI's gas volumes.

    Your post says nothing about any diminished gas demand going forward. In fact, I would suspect a chronically low gas price might act to increase demand, not reduce it.

    So, if demand is good, and perhaps strengthening, the only way KMI has a problem is if there is insufficient gas supply to meet the demand. Today's $2.75 price says there is too much gas available, not too little. And if so much gas production is curtailed due to the low prices of gas and NGLs that the present surplus is depleted, well, the price moves back up to stimulate supply growth. A $4.00 - $5.00 gas price, which was considered extraordinarily low not that long ago, would quickly solve any supply shortfall, regardless of the price of NGLs. And the economics behind most, if not all of the anticipated demand growth still works at those gas prices.

    I'd appreciate hearing your thoughts on this. You know your stuff on this subject, but I can't see the risk you're seeing.

    The Canada pipeline, of course, is another matter. We'll just have to see about that.
    Mar 5, 2015. 10:11 AM | Likes Like |Link to Comment
  • Top And Bottom Line, Secular And Cyclical, Reinsurance Pressure Abounds, Analysts Say  [View article]
    Why is alternative capital flooding into the reinsurance market if the traditional players, with proven underwriting and investment skills, are having difficulty earning acceptable returns? Are the alternative capital providers underestimating the risks and thereby underpricing their capital, or do they somehow face totally different economics, such that what is marginal for the established players is highly attractive to them?

    Any help understanding this would be appreciated.
    Dec 21, 2014. 09:03 PM | Likes Like |Link to Comment
  • The Trouble With Discount Rates  [View article]
    I think you are mixing up a few different concepts of risk in your discussion of the risk free rate. The risk free rate is the rate you earn when there is no chance you will not get your (nominal) money back. Because the Treasury prints all the money it needs to pay its debts, it's debt fits this requirement.

    Risk free rate is not about market risk - changes in interest rates changing the current market value of a note or bond - or inflation risk, the purchasing power of the dollars you eventually receive. These concepts, theoretically, get incorporated into asset valuation through the risk premium one adds to the risk free rate - the ERP, using your example - to arrive at an overall return requirement. Again theoretically, one could build up a required return calculation by adding up the risk free rate, an inflation risk premium, a liquidity risk premium, a political risk premium, a managerial incompetence risk premium, etc., encompass all the risks one could conceive of.

    The concept holds. Before you can determine what you need to get paid for the uncertainty of an investment, you first have to know what one gets paid for a certain, future, fixed nominal US dollar payout. That is the risk free rate, and as long as our Treasury continues to function, it works.
    Aug 13, 2014. 08:26 AM | Likes Like |Link to Comment
  • ServiceSource: An Attractive Way To Invest In The Cloud  [View article]
    Nice summary. I've looked at SREV in the past because I liked the concept of outsourced renewal management services ( chronically undermanaged throughout the business world ), but found the transition they are going through difficult to understand and get comfortable with. You've explained it clearly and concisely.

    For investors with a multi-year time horizon and the emotional ability to live with some volatility (comes with the territory in SaaS/small tech ) SREV should prove rewarding.
    Mar 19, 2014. 08:45 AM | 1 Like Like |Link to Comment
  • Why Michael Dell's Fight Makes Sense  [View article]
    Ditto both of the above.

    If M. Dell and Silver Lake had simply allowed for a 10%-20% public stub, allowing long suffering owners who see the value in this enterprise to maintain their positions, this deal would have already closed.

    Being public or private is irrelevant to good management practice. The "public stockholder pressure for short term results" story is nonsense, with Berkshire Hathaway as " Exhibit A". Run the company well and managements get all the latitude they need to get acceptable results.
    Aug 13, 2013. 05:39 PM | 1 Like Like |Link to Comment
  • Post Holdings buys Premier Nutrition  [View news story]
    First sentence of 4th paragraph "discloses" $180 million cash price tag. Also important, but left out above, is the deal structure's preservation of the target's NOL, with an estimated NPV of $22-$26 million.
    Aug 2, 2013. 12:50 PM | Likes Like |Link to Comment
  • Further Regulation A Positive For Cummins  [View article]
    You forgot to mention that Cummins makes the bulk of it's profits from manufacturing diesel engines, and most of it from outside the US! Your option play may or not work out, but it will certainly not be for the reasons you suggest.

    There is no certainty whatsoever that CMI will be a successful competitor in this new engine technology - there are dozens of entrants from within and outside the traditional engine manufacturing industry in Asia, and Europe as well as the Americas trying to gain a foothold in nat gas power technologies. Also, it will be decades before the majority of over-the-road trucks in the world are running on natural gas.
    Jul 5, 2013. 12:34 PM | 2 Likes Like |Link to Comment
  • 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.
    Apr 18, 2013. 05:23 PM | Likes Like |Link to Comment
  • 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.
    Mar 6, 2013. 11:44 AM | Likes Like |Link to Comment
  • Chris DeMuth Jr's Library: The Outsiders  [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.
    Mar 3, 2013. 04:51 PM | Likes Like |Link to Comment
  • PRF: Active Returns With Passive Discipline  [View article]
    I get it. Thanks for the clarification.
    Mar 1, 2013. 07:53 AM | Likes Like |Link to Comment
  • 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".
    Feb 24, 2013. 06:54 PM | 1 Like Like |Link to Comment
  • Potential MLP Tax Rule Changes Aren't That Taxing  [View article]
    Welcome to the Tax Code!
    Feb 8, 2013. 08:20 AM | 1 Like Like |Link to Comment
  • Why Intel Is So Tough To Own  [View article]
    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.
    Jan 27, 2013. 10:52 AM | 3 Likes Like |Link to Comment
  • 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.
    Dec 17, 2012. 09:29 PM | 3 Likes Like |Link to Comment