Deep Value

Opportunities in a High Correlation World

If the downturn is bad enough everything is correlated. You would think with credit as bad as it is the rental housing market should be doing well. But a buddy of mine that owns a few buildings called asking for referrals. He said a lot recent grads are staying with their parents longer and more single people are looking for roommates instead of one bedrooms and studios. It's getting nasty out there.


On Feb 03 03:38 PM Chris B wrote:

> In 1999, I saw that the tech bubble was about to burst, but I held
> onto my one remaining stock, Wal Mart, based on the following assumptions:
>
>
> a) Unlike the tech stocks, WMT had a reasonable PE, so it would hold
> its price even as the tech sector, and only the tech sector, collapsed.
>
>
> b) As investors fled technology, their money would flow into high-quality
> stocks.
>
> Well, as everyone knows, WMT never again reached its high near $70.
> Investors sold WMT down to the $40's to cover their tech losses,
> and few new buyers stepped forward because tech had wiped them out.
> Meanwhile, new money didn't flow into different sectors of the stock
> market, it flowed into cash!
>
> In hindsight, I should have seen the ENTIRE MARKET as one sector
> in investors' portfolios, competing with cash, real estate, currencies,
> commodities, commercial paper, treasuries, private businesses, property,
> etc. I should have thought of market participants not as a fickle
> herd bouncing from sector to sector in the stock market, but as short
> sellers caught in a squeeze, retirees who had lost future income,
> or leveraged index buyers/sellers. When things go badly, they simply
> hit the "sell" button on their browser. Selling out is much easier
> to do now than it was 30 years ago!
>
> Thus, anything that can be bought or sold through your online broker
> is correlated, perhaps irrationally. For investors who want to protect
> their portfolio balances, that leaves few options. Hedge funds and
> short ETF's have multiplied in the last 10 years, but their shortcomings
> are becoming obvious. Even commodity ETF's have failed to preserve
> value this time around. The reason: they all have a "sell" button.
> Soon, treasury and gold investors will learn this lesson, as they
> too have sell buttons now.
>
> Thus, if you want portfolio or income stability, buy a rent house
> (and don't overpay), a timber tract, a professional education, or
> a CD ladder. The illiquidity of these investments is what makes them
> less correlated with the more liquid securities market.

An Explanation for Monetary Inflation - And a New Low

Great point. I stand corrected. Gold does have some utility. I guess the point I should have made more clear is the uses (and therefore demand) of gold does not have a direct enough correlation to the aggregate demand of the general economy to be used as an indicator of inflation.


On Mar 07 10:35 AM Matt L wrote:

> Gold is not a useless metal. It is resistant to corrosion, a good
> conductor of electricity, and is ductile and malleable. That makes
> it useful in the electronics industry for electrical contacts. It
> also is a good reflector of infrared and visible light and radio
> waves, which is why it is used to shield satellites and in protective
> faceplates. And people seem to like jewelry made of gold.
>
> While it's value as a currency is a reason for holding gold, to say
> it's "useless" is completely false. If it wasn't valued as a form
> of currency, it would still have value as a useful metal.

An Explanation for Monetary Inflation - And a New Low

"[Gold] gets dug out of the ground someplace, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."
- Warren Buffett

So basically you measure inflation by the price movements of one commodity, gold. An otherwise useless metal that derives its value from an age old tradition dating back to when gold was actually a currency.

What you are doing, in a sence, is valuing currency by how much gold it can buy. (If that were true, gold mining stocks would be valued at infinate multiples. The more gold people buy the less their money is worth). Pretty much negating the reasoning behind getting off the gold standard in the first place.

The price of gold is only what people are willing to pay for it. Gold is no longer a currency. It has no inherent value. Don't be the last one the figure that out.

Irrational Arbitrage Spread: Dow Chemical's Acquisition of Rohm & Haas

Why do you think ROH has been falling lately?

Brand Names: Important, But Not Key to Investment Decisions

Good article. Branding is extremely important, no doubt. But from an investment perspective would you consider a company to have a strong brand even if it didn't translate to higher ROIC compared to its competition?

Isn't a company's brand or any other 'qualitative' measure only as significant as the quantitative evidence of its existence. In other words, a company with a strong brand should have higher margins than a company with a weak brand. If not, that company must not have a strong brand if it doesn't translate into pricing power.

True or no?

SunPower Beaten up to Buying Opportunity Levels

Germany is currenly 50% of the market. What do you think is going on there?

Countrywide: Potential Short Squeeze in the Offing

Isn't a short sqeeze a supply/demand funtion? Buy volume doesn't necessarily have to increase so long as sales volume falls. As the time of the merger approaches there will be more certainty and therefore less risk so the spread should tighten. I don't think there will be much CFC selling as the merger approaches.

Could eBay Be a Microsoft Takeover Target?

EBAY attracts alot of eyeballs but not as much as search. If MSFT's cash is burning a hole in their pocket they should raise the dividend. EBAY is extremely complex and not in the direction I think MSFT wants to go.

Could eBay Be a Microsoft Takeover Target?

GOOG's cloud computing is giving word doc's and other apps away for free and paying for it with Ad Revenue.

Nobody's going to buy Word or Powerpoint anymore.

What MSFT needs is enough search Ad Rev. to make their Device Mesh model (same as cloud computing) profitable. Hense the deal with HPQ but it won't be enough. MSFT needs YHOO for the AD Rev. And they won't be buying something just to buy something.

They need search to keep their apps from becoming obsolete. MSFT offered to buy YHOO's search because they need the daily eyeballs it attracts.

Dividend Analysis: Bank of America Corp.

If BAC cuts the common, won't the preferred be in danger as well?

Can Yahoo's Yang Survive as CEO?

Hopefully we'll still be able to get $33 after Carl does some house cleaning. The only thing keeping the stock about $20 is takeover speculation.

Jerry Yang is officially unemployed.

Dividend Analysis: Bank of America Corp.

vaduz,

Do high earnings yields scare you too?

quicktake.morningstar....

Bank of America: Better Than Treasuries

ProHFAnalyst,

I totally agree. I would rather see BAC cut dividends than issue preferred stock. It's kind of like a "heads, existing shareholders lose a little... tails, existing shareholders lose a lot" deal. If BAC makes a spectacular turn around, shares get diluted. If the housing/credit markets keep sh*tting the bed we're stuck with an extremely high fixed cost.

What is Countrywide's Lending Operation Worth?

Who cares? We all know CFC is broken but BAC knows how to fix it. Jim's analysis is right on in my opinion... with pretty conservative estimates on operations. BAC may get off the hook with regard to many of CFC's liabilities as well.

CFC is trading at only a 10% spread on the deal value but I believe BAC in trading at about 50% of it's intrinsic value.

Dividend Analysis: Bank of America Corp.

Mr. Dividends4Life,

I am disturbed by your analysis. If you think BAC is worth $25/share why do you own it? You also say that you think the dividend is safe. So basically, if you’re right, you will have a safe and secure dividend at just under a 10% yield. Do you think the market would allow such a deal? And if so, would you still be confident in the yield?

Also, your analysis uses historic numbers to estimate a valuation with no consideration for the complex reorganizations taking place as we speak and those to come in the near future. A purely quantitative analysis of a company obviously operating in an abnormal micro and maco-economic environment is irrelevant at best and at worst arguably irresponsible.

Morningstar's DCF model values BAC at more than twice the value your model suggests. So if you really do own BAC, for your sake, I hope Morningstar knows something you don’t.