lorddarley's Comments

10 Reasons the Equity Rally Is Over

Wed, 09 Dec 2009 13:40:56 -0500

In any market, there are mini-bubbles and undervalued opportunities. What's new?

You can get a dividend yield of 6% on Verizon, with the best network. (I want to flush my ATT cool device down the toilet because the coverage is so undependable compared with Verizon, but that's a separate rant).

You can buy a cash flow, no-debt, franchise like Stryker at historically low multiples, and at a time when it is assured of new customers, due to demographics and the fedral government.

You can buy the premier compensation consultants in the world at a
time when more government control makes compensation studies invaluable. (I'm referring, of course, to WW, the merged entity of Towers Perrin and Watson Wyatt, which has just secured Eurozone clearance for anti-trust.)

In historical terms, these companies are great values. Even the banks at these prices are probably OK to own, simply because they have government guaranties in case they foul up again.

The commodity stampede will not last forever. These unique companies like VZ and SYK and WW, are greatly undervalued. So buy great companies, and don't fixate on "the market."

Natural Gas: Powering the Dubai Overshoot

Sun, 29 Nov 2009 08:55:54 -0500

Gee, I wonder why a city without gambling and liquor doesn't take off as a playground for the region? I'll bet on Vegas.

Show Me Economic Expansion, Chairman Bernanke

Sun, 22 Nov 2009 12:01:54 -0500

It's just history, rhyming away. It happened in Rome. It happened in Europe. It's inevitable in the US.

Don't count on a self-interested Republican to be any better than a self-interested Democrat. None can keep their position in a democracy by saying "no" to spending borrowed money for voter entitlements. Whether it's Bush with Part D Medicare, or Obama with whatever comes from Harry and Nancy, you can only be a hero in a democracy by spending money to buy votes.

What's non-unique in the current crisis is as natural as the tides. National wealth has encouraged the import of affordable goods and affordable immigrant labor. That makes it harder for local working people to compete, so the state subsidizes. Whether it's bread and circuses, or cradle to grave welfare, the politician-rulers are required to provide these nets for political stability. In the process, these politician-rulers -- elected by the donees -- make a great life for themselves.

The result, of course, is that these nations decay from within. An external crisis, which could have been blunted by a strong-minded citizenry, eventually topples the thing, because people will not sacrifice to save their entitlements. Don't moan. This is just history and it cannot be prevented.

It's probably best, for people who can afford it, to emigrate once you retire. You need to plan. It's no big deal to forfeit social security payments of depreciated dollars, and Medicare is already not worth the money, and it will be less valuable with time. They already charge over $300 monthly for Part B if you make a good income, so who needs it, when you also have to shell out for drugs and a private medicare supplement?

Neutral countries which are not superpowers are the best candidates. You can still keep ties here, but it's crazy to keep assets within the borders. Eventually, you will lose the freedom to keep what you have earned.

Meredith Whitney: 'I Haven't Been This Bearish in a Year'

Tue, 17 Nov 2009 16:23:22 -0500

This has been a zero stimulus program, because all of its blood has been pumped into the part of America which is gangrene. The dead industries in Detroitand the obese structures of state government, are not job creators, just voting blocs. As for Wall Street, it creates jobs, but the price is too high.

Obscene opportunists, who mask as patriots but who have been purchased, do not love this country. They love what they can pry out of it. The average American is learning the lesson they teach, and we are unraveling as a great nation.

And Bernanke Didn't Think Unemployment Would Reach 10%

Sun, 08 Nov 2009 11:28:28 -0500

There is nothing in all this stimulus from Washington that would induce me or any of the businesses I work for to hire a single individual.

In fact, the IRS seems to be th big winner. It got ovr 2/3 of a BILLION extra, and with its enhanced audit budget it is already wreaking mischief through audits. The goal is to catch employers on technicalities in our obscenely complex employee benefits laws, and to grab penalty taxes. Better not to provide benefits is my advice quite often.

This is not a friendly country for employers, so unemployment should be no surprise, except to those who spin theories and do not have to deal with the real world.

Market: Spooked Today, But Panic Attack Is Likely Temporary

Sat, 31 Oct 2009 09:16:20 -0400

This rally was bought through currency manipulation and an obscene transfer of wealth to the major banks by government.

View the rally (and your portfolio) through the lens of a person who owns EUROs. There was no rally at all.

I guess they can keep running the dollar into a hole and prop the market in dollars, but it has not appreciated in real terms, and the market is anticipating something we have never seen before. The Fed (and the laughable Congress) is not able to prevent the inevitable: a multiyear period of near-zero growth and a collapsed federal balance sheet.

Where's the Outrage at the Banks?

Sun, 25 Oct 2009 09:27:55 -0400

The country would have been just as well off without these large banks, that were so poorly managed, and which decided that traditional banking was not profitable enough.

It was sheer politics that kept them afloat, rather than allowing the bad ones to collapse. The smart survivors could have easily picked up the slack. In fact, they would have more money to lend if we had not wasted so much on the big banks.

If a "bank" wants to derive its revenues from leveraged gambling and speculation, rather than lending, the FDIC should withdraw its insurance.

Bond Market Expects Inflation to Be Only 1.75%

Sat, 17 Oct 2009 12:20:53 -0400

I do want to follow up on my recent comment. In that, I noted that many of the purchasers of US debt were foreign export countries. I did not mention, and it's probably needless to say, that the biggest purchaser of our debt is Ben B.

In today's Barrons, it is noted that the US is buying 75% of its issued debt!!! It's an effort, through the printing press, to keep rates (especially mortgage rates) low, and to pump the economy.

That is a little bit head spinning, But the basic premise of Mark's article (sorry Mark) was that low rates means that a "market" has judged against accelerating inflation for our future. This is simply market manipulation by governments. The US consumer has the loss of purchasing power (my own term for inflation, which is a manipulative concept) in his or her destiny.

On Oct 17 08:48 AM lorddarley wrote:

> The massive buyers of our debt are not shrewd private institutions.
> Is PIMCO buying US debt? Hardly.
>
> This is a war of exporting governments, forced to prop the dollar
> to support their own export-led economies. Gradually, as the world
> economies improve, and as they sell more to each other and rely less
> on the US market, their intervention will cease. US interest rates
> will soar. That is as sure a bet as you can find on this planet.

Bond Market Expects Inflation to Be Only 1.75%

Sat, 17 Oct 2009 08:48:16 -0400

The massive buyers of our debt are not shrewd private institutions. Is PIMCO buying US debt? Hardly.

This is a war of exporting governments, forced to prop the dollar to support their own export-led economies. Gradually, as the world economies improve, and as they sell more to each other and rely less on the US market, their intervention will cease. US interest rates will soar. That is as sure a bet as you can find on this planet.

Yahoo's Dispute of Eric Jackson's Articles

Mon, 12 Oct 2009 02:21:48 -0400

I've never seen a company that didn't do it this way. Taxes have to be paid at vesting, even if the offficer wants to continue holding the stock. Because they are compensatory, the company has to pay the taxes, just like with any other form of wage or bonus.

Tax at vesting is a big difference between options and stock. There is no tax owed when an option vests (unless the option is exercised). There is tax owed when restricted stock vests.

By the way, the company gets a tax deduction for the full amount of the shares based on value at time of vesting.

Finally, issuing restricted stock is better for investors, because fewer shares are issued than with options.

Why Exxon Should Significantly Increase its Dividend

Sat, 10 Oct 2009 09:58:15 -0400

Baloney to paying dividends in a double tax environment. I would rather have the company pay one tax (at the corporate level) and redeem shares. Share redemption (i.e. fewer outstanding shares) is a big reason for Exxon holding its value in the recent crash.

For those who need income, sell some shares and pay your second tax. Management should not force shareholders who prefer to accumulate wealth to pay two taxes.

The Arithmetic of Gold: Why Its Price Has No Ceiling

Fri, 09 Oct 2009 04:15:12 -0400

What perplexes me is that there continues to be such demand for the dollar. The interest rate at the last 10 year auction went down.

So who is spending the massive amounts necessary to finance the US debt? Someone is wildly wrong.

My theory is that people see the dollar at a much higher level next year than at present. There will begin to be a cut back in military commitments. There will be a modest raise in interest rates and tax rates because economic activity will pick up. There will be capital inflows back to the US, simply because the EURO is hardly worth its present price and US assets are on sale. The government will also be restricted in discretionary spending due to its assuming so many of the problems of the last bubble.

I'm not down on gold, but it is just one of many commoditis, and they are all having a good run during fearful times. With a return to normalcy, which the bond buyers anticipate, I don't see it behaving better than its asset class.

Dollar Nearing a Critical Level

Thu, 24 Sep 2009 22:34:35 -0400

I am no fan of the disastrous policies that got us into this pickle. However, the dollar is oversold. There are many economies (especially Europe and Japan) that have staggering and dishonestly reported liabilities for the mandates owed to their citizens.

The US dollar is due for a bounce. It is as badly thought of as stocks last March. It's not a long term hold, but the bounce is inevitable.

How Low Can the Dollar Go?

Sun, 13 Sep 2009 11:27:57 -0400

This will be a long term and painful process.

It is inevitable due to our decision (I don't remember voting, but I own a foreign car, so I guess that's a vote) to integrate within the world economy.

US labor is being repriced, and politicians are spending money like mad to shelter labor from the truth. Things won't get better for most private sector people until foreign wages go up, or until we decline further, in the name of "competition." Even privileged civil "servants" will start to feel the sting, but most of them are protected.

It's a sad state of affairs. Americans without jobs and prospects will not be good Americans. We should cut off the oil imports, and limit the junk we buy from Asia. Our favored political class, in Washington and the states, are incapable of solving this as they pursue their own self-interest.

It's Rome, redux. The collapse of a dedicated citizenry caused by imports and a corrupt ruling class. Until its final days, most Romans still thought they were living in a "republic."

Best Risk / Reward Income Investments, Part II: Canadian Energy Infrastructure Stocks

Thu, 03 Sep 2009 08:53:45 -0400

For those interested inAtlantic Power, I just put a couple of posts on Cliff W's other article (Part I).

Working out the math for the units -- Atlantic Power is a combination of a subordinated note and stock -- is not for the faint of heart.

Today's Best Risk / Reward Income Investments, Part I: Canadian Power Stocks

Thu, 03 Sep 2009 08:44:39 -0400

One correction. Note redemption would be $6.05 Canadian, 105% of the Canadian book value of the notes.

Today's Best Risk / Reward Income Investments, Part I: Canadian Power Stocks

Thu, 03 Sep 2009 08:41:27 -0400

Atlantic Power units include an 11% note paired with the stock. The note portion can be redeemed as early as November for $5.75 (105% of Canadian book value). Units currently trade at $8.99 (Canadian).

I hate the thought of losing the yield from the notes, but November redemption would leave you with the stock at a net cost of $2.94 (Canadian) paying a dividend of 15.6% (Canadian).

The main problem (or attraction) is that you get so much cash returned to you if they do redeem, that you will have to find another home for it. Still, that's not such a bad problem.

If they don't redeem, they have been clear that cash flow from projects makes payouts sustainable into 2015. My guess is that they will not redeem and will make another acquisition. Fortunately, they don't overpay, and their project debt is non-recourse to the parent. It's a pretty solid investment. Just don't panic about stock moves, because it is thinly traded.

Is It a Stock Market Rally or a Dollar Devaluation?

Sun, 23 Aug 2009 12:05:52 -0400

<>

If they don't pay, you will (gladly), even if you had to sell your house to do it.

The alternative is a crippled and painful retirement. The business of SYK is "can't miss."

On Aug 23 11:21 AM pockyclips 2020 wrote:

> I'm probably one of those "crippled boomers" that will need one of
those titanium gizmos in the future. I doubt that Gen X'ers and beyond will be willing to pay for them if they have to go without basic
health care.

Is It a Stock Market Rally or a Dollar Devaluation?

Sun, 23 Aug 2009 10:11:52 -0400
This is absolutely right.

1. The dollar is trash

2. Gold is very overvalued compared to production cost.

3. Real estate is still overvalued, because much of its "value" is based on leverage, rather than income.

What is undervalued is the equity of well-managed US public companies that have global franchises, little debt, and a legacy of innovation in markets that must grow, regardless of economics.

A few months ago, I decided to go heavily into SYK (Stryker). It has the best portfolio of products for artificial joints, and a balanced portfolio of other healthcare products.

It is selling at 14 p/e, and 14 future p/e estimates. If you read my posts, you know I advocated strongly for the "can't miss" financial sector, especially Bank of America, and for that Brazilian ETF which emphasizes the Brazilian consumer market -- BRF.

Follow me now and recycle those profits to SYK. It's a great hedge against a declining dollar, and demand from crippled boomers will outweigh any pricing concerns from US healthcare "reform."

Health Care Stocks Anticipate Weak Reform Bill, If Any

Thu, 30 Jul 2009 08:15:40 -0400
How could any rational person say they want this "reform" law when they don't know what's in it? What's the rush?

We deserve to see a detailed description before it is passed. And we should get a certification from all these elected "reformers" that they, not some kid on their staff, has actually read the fine print.

I've been to Town Meetings where the average citizen is more informed and better prepared than Congress.

Why Microsoft and Apple's Market Caps Should Be Reversed

Mon, 27 Jul 2009 19:25:34 -0400
I'm excited about Apple and its products, but let's face facts. The stock has doubled in a short period.

As for MSFT, the failure of VISTA means the next generation of its OS must be bought. I don't understand why, but I do know that our IT department says we have to, and we have to buy more powerful boxes, too. So we are budgeting a hefty 6 figure amount so that we can continue to word process and do spreadsheets.

We are just a small firm of 40 lawyers. Multiply our lemming-like purchasing over the country, because our clients buy this same stuff and we have to integrate, and I at least want to own Microsoft stock.

Apple management is light years ahead of the doofs who run MSFT, but I think MSFT stick has more upside. And don't kid yourself it's GM. There are no legacy costs; there are no unions; and there is no foreign competition.

First Read of House Health Care Reform Act (H.R. 3200)

Fri, 17 Jul 2009 20:03:49 -0400
A main flaw in our system is inequality. The tax breaks and pricing of of medical care are prejudiced in favor of those who are in large groups, and who do not buy individually.

Let's first start with the tax inequality. If you work for a company that provides insurance, you pay no income tax or employment tax on the company share of the premium, or on the portion you pay (assuming there is a 125 plan at the company). It's a great deal for those lucky enough to have those jobs.

If you are self-employed (like a guy thrown out of work who is struggling as a "consultant"), you are screwed. First, the amount you pay for your policy is taxable for self-employment tax purposes. That is a non-deductible 15.3% add-on to your insurance cost. Also, if your consulting practice is not making money, the insurance is not deductible against your other income (like withdrawals from an IRA while you are trying to get back on your feet) except to the extent your overall medical costs exceed 7.5% of your adjusted gross income.

So the little guy, who doesn't have that great job with a big company or a government, pays more taxes. It gets worse. If he or she tries to go without insurance, here's what happens. Get sick, and the hospital will charge three times what it would have charged if you had been employed in a well-managed group, or if you had been in Medicare, which negotiates low rates for its large group.

The effect of unfair tax law, and unfair pricing prejudiced against individuals, is at the heart of the problem. If we could self insure, and get the same tax breaks and pricing, I (and many others) would drop insurance in a minute, and we would then get some market discipline in this abused sector of the economy.

Why You Should Pay No Attention to Consensus Estimates

Fri, 17 Jul 2009 19:36:51 -0400
Set the bar low enough, and anyone can jump over it. Implicit in any of the current optimism, as companies lose less than projected, is that there are better days on the near horizon.

The US is an economy with asset "values" that still grossly dwarf GDP. Unfortunately, we have tough sledding until our labor costs are reasonably in line with those of foreign competitors. Until we resume status as an exporter without major imbalance in trade, the long term trend will not be good.

It's total fiction to think we can prosper with a "service-based" economy, importing all this oil and overseas junk.

The Labor Market's Worse than We Think

Thu, 16 Jul 2009 20:31:39 -0400
After a real whacking, it's in our nature to want a quick rebound. Don't be fooled.

Tim is 100% correct that the real economy is spiraling downwards. We have over 100 trillion in unfunded promises in the US. We will meet them all in the next twenty years, by depreciating the savings of the middle class by 50-80%.

To preserve the value of your life's work, it may be necessary to leave the US.

Groundbreaking WSJ Story on Gold

Mon, 13 Jul 2009 21:54:03 -0400
Arthur,

You and I will garner negative comments for taking a "contrary" position, but I fully agree with your post. Especially important is your observation that: "The production cost of gold keep falling as the oil price falls."

There is no way that a commodity, even if it's gold, can maintain pricing that is double (at least) the production cost.

With the ability to move funds cross border to sounder currencies, and with the option to purchase baskets of commodities, and with bond vigilantes ready to hike rates if there is a hiccup, there are too many other ways to protect savings than to horde a commodity that is overpriced compared with production costs.

Naysayers, before pouncing, consider which is in the majority these days: posters in favor of gold, or posters who are skeptical? Also, ask yourself how long the US can continue unchecked with its profligate habits. The US will soon be in the humilating position of other banana republics. The IMF will not be telling us what to do, but the bond market will. The unhappy state of US finances does not make gold a good investment at these levels. Bring it down to $5-600, and it's off to the races.

On Jul 13 12:52 PM Arthur Hau wrote:

> I don't know why people are still holding any gold when they could
> have sold their last piece at around $1,000 per troy oz!
>
> I have my gold futures margin account ready now. I am hoping that
> some crazy people from the media launch their last wave of gold rush.
> Then I will short-sell a couple of lots of gold in the futures market
> to earn some interest when it reaches close enough to $1,000 per
> troy oz again!
>
> If everything goes well, we will see gold price falling below $600
> some time next year! So, my gold futures account will show $400 capital
> gain per troy oz, plus interest from short sales! :-)
>
> Why would gold ever fall below $600?
> 1. No one has too much money to hoard too much gold, except for the
> Chinese who would like to get rid of the U.S. dollars by buying some
> gold.
>
> 2. The production cost of gold keep falling as the oil price falls.
>
>
> 3. Unlike oil, the stock of gold can only rise cause it is pretty
> much not a consumable asset (with the exception of some gold being
> used for industrial purposes).
>
> 4. Last time when there was a gold rush, there was the Iraq-Iran
> war, double digit cost push inflation, ... Now, we only have a fading
> oil crisis, a bearish asset market, ...
>
> 5. The low interest rate cycle will soon be over some time next year
> cause they are starting to talk about the strategies for the current
> stimulus package.
>
> The last bubble remaining is in the raw material and precious metal
> markets! No doubt about that!

Groundbreaking WSJ Story on Gold

Mon, 13 Jul 2009 09:38:08 -0400
I own the gold mining stocks through GDX. At times I have owned GLD, although I have no idea if it could deliver physical gold if there were an emergency.

I gues it's my lack of sophistication that keeps me from buying physical gold. First, when buying coins, I don't know who to trust. I don't know if the coin has been diluted with alloy. Also, I don't know how much cash I could get in a time of hyperinflation and whether I would just get cheated by middlemen. In fact, I don't know in a lawless time of hyperinflation how I would even keep the metal safe and get it to a place where I could negotiate it.

I don't care how long any dealer has been in business, or how many recommendations they have, or if there is a sealed little plastic bag around the coin. Madoff taught us that the most respected can cheat you. Lord knows what is being sold to Chinese and Indians, but my gut tells me there is more than a little larceny in some of the "pure gold" being sold.

Until customers can feel safe (i.e. by buying gold directly from the government and storing it with the government) I wonder if there really will be a wholesale transfer of paper money to gold.

Why GM Is Ready for a Rebound

Sat, 11 Jul 2009 10:26:16 -0400
The guy is an idiot.

On Jul 11 09:29 AM Soldalma wrote:

> SeekingAlpha should add an "Idiot" button besides the "Follow" button
> so we could get rid of people like Mr. Newman, who do not do their
> homework and still insist in distributing advice.
>
> GMGMQ is NOT the new GM, and the success or failure of the new GM
> have absolutely nothing to do with GMGMQ's performance. GMGMQ will
> go to zero, as correctly pointed out by other commenters.

Let CIT Fail: The Business Model Is Broken

Sat, 11 Jul 2009 10:17:16 -0400
You have raised a legitimate, and painful, point. The typical observation would be "Well, why don't you just go to another bank?"

The real life observation is that "other banks" are just sitting on free capital from the Treasury, and doing nothing with it. Like you, I have to deal with this inanity in real life.

I would recommend (and I am sure you are already doing this) that you aggresively pursue other lending sources. Good luck. You are doing business in a country that does not help small business.

On Jul 11 08:18 AM American Businessman wrote:

> CIT's failure will cripple many small to medium size businesses.
> I am one of the small (not mom and pop) businesses that CIT finances
> and has for the past 17 years. I understand that like many other
> financial institutions CIT has made poor investments/decisions. However
> financing me and thousands of other businesses like me was not one
> of them. We are responsible for about 100 jobs in the US, the same
> number in Mexico and another 200 or so worldwide.
> So multiple our employee numbers by the tens of thousands of CIT’s
> customers, who face the possibility of not being able to secure other
> financing or surviving an interim period, and CIT’s lack of support
> by the Federal Gov’t will be more devastating than any other bank/financial
> institutions failure so far.
>
> busdevoffice@yahoo.com (not company's email)

Let CIT Fail: The Business Model Is Broken

Sat, 11 Jul 2009 08:42:52 -0400
Extending that 20 year line of credit was a "noblesse oblige" move by Goldman, which had underwriten the 2006 IPO when CIT spun off from TYCO. Goldman also helped CIT sell its construction finance business.

That Goldman facility is fully secured with investment grade assets which CIT owns. Repeat: it's fully secuured and subject to seizure by Goldman. Don't invest in CIT common just because Goldman made a secure loan to a customer.
______________________...
On Jul 10 09:47 PM shrike wrote:

> Don't schedule the funeral for CIT yet - Goldman Sachs extended a
> $3 billion credit line to them last June and they rarely make loans
> to deadbeats.

This Recession Isn't Over: Now for the Hard Part

Tue, 07 Jul 2009 09:40:33 -0400
Fooey on green shoots.

To get job growth, you don't throw money at failed businesses, make-work projects, pie-in-the sky "green" industry, and safety nets of long duration that discourage work at affordable rates.

You don't get job growth by imposing more federal and state mandates, and 15.3% employment taxes, on business that have proven models, which provide jobs, and which can still compete in overseas markets. All that reglation and tax just encourages employers who could provide jobs to lay off and relocate operations.

Is anyone surprised the first stimulus failed to stem unemployment?

We need to rebalance trade and promote export growth, and that means we need jobs at companies that are good enough to make and sell product that other countries want. And, let's get serious about "retraining." What we lack in this country is affordable labor. No politician will say the obvious. The rest of the world does not want to pay middle class wages for much of the US labor pool.

We can compete, but our best companies should be the ones getting the stimulus and encouragement from washington, not thefailures. Instead, the government keeps adding weight to employers. As they say in horse racing, enough weight will stop a train.