Seeking Alpha


Send Message
View as an RSS Feed
View JasonC's Comments BY TICKER:
Latest  |  Highest rated
  • A Golden Opportunity In Silver [View article]
    zondlo - You do know that Alexander Hamilton founded the First Bank of the United States, as well as the Treasury Department and US Customs system, right? And that George Washington supported him on the constitutionality of that bank against its anti-Federalist critics? The United States was not founded on hatred of bankers or of commerce, but by bankers and for commerce.
    Sep 2, 2015. 03:40 PM | 1 Like Like |Link to Comment
  • A Golden Opportunity In Silver [View article]
    Nope, but you can get a "pound sand". I'll take the Fed over its bashers any day and twice on payday, thanks.
    Sep 2, 2015. 03:38 PM | 4 Likes Like |Link to Comment
  • A Golden Opportunity In Silver [View article]
    I don't buy any of the short term, tactical reasons, and I don't buy the gold short part. But I do think it is fine to gradually accumulate silver at these prices, on the principle that it has already been beaten to heck and gone and will eventually have another up cycle. Keywords "gradually" and "eventually". Don't buy any if you can't hold it for 10 or 15 years waiting.

    And don't buy all you plan to buy - instead do something gradual, whether it is buying a certain amount on a fixed frequency, or buying a certain amount every dollar down on the price, doesn't matter too much. Just ensure you get an average of the price from here to the next little bit and can get more if the price gets still cheaper, because chances are decent that sometime in the next 2-3 years it easily could.

    Personally I am long modest amounts of physical silver, have been since this spring, and I am willing to gradually buy more if the price goes down further. It is not, however, a timing call - beyond a timing of "it is after a great big drop". It is a level call. YMMV.
    Sep 2, 2015. 03:28 PM | Likes Like |Link to Comment
  • Financials join energy as hardest hit sector today [View news story]
    Tack - again, spreads are simply not absent. Banks do not depend on long rates being 5 points higher than short ones to make money. They are not large scale takers of long rate risk.

    They have very low cost of their positions from deposits paying little; they invest in loans that pay more, for credit spread reasons at least as much as rate curve reasons.

    Their "long" or asset side is roughly 25% cash and risk free sovereigns, 25% residential mortgages and MBS, 25% corporate loans - spread among floating rate prime rate lending, commercial property lending, and corporate bonds - and 25% other consumer lending (credit cards, car loans, etc) with short terms or variable rates or both, but with wide credit spreads. Their short or liability side is roughly 70% deposits, 20% their own borrowing both short and medium term (some money market stuff, some corporate notes 2 to 10 years mostly), and 10% shareholder's capital.

    The overall sheet is quite diversified; it is not at all a matter of borrowing on 3 month CDs to lend on 30 year bonds or anything of the sort.
    Sep 1, 2015. 06:21 PM | Likes Like |Link to Comment
  • Financials join energy as hardest hit sector today [View news story]
    They have spreads (and boom time low credit losses), and besides, these days banks make have their revenue from fee income, not interest carry. The Fed's proposed way of raising the Fed Funds rate without drying up their supply is also to increase interest paid on reserves, which will raise their cash income. The banks are not going to be appreciably hurt by marginally higher short rates. That isn't why their stocks are being shot.

    They are being shot because (1) they are high beta, (2) recession fears, starting from China but the fear is that it doesn't stay there and (3) memories of 2008, and the sector simply being irrationally hated, both then and since.

    The mortgage REITs aren't going to be harmed by any of it, either, they just face marginally higher expected returns from buying anything else at these marked down prices - only reason for them to drop (and it isn't much of one). They yield 9 to 10.75% for taking leveraged interest rate risk, which should be about the last thing anyone panicking now is worried about. But hey, financial, risk, mortgage, leverage - those words and memories of 7 years ago are enough to send half the planet screaming from the room...
    Sep 1, 2015. 05:14 PM | 1 Like Like |Link to Comment
  • Financials join energy as hardest hit sector today [View news story]
    This isn't rate anything, and it isn't even a China recession. This is panic, memories of 2008, and is unjustified. It may last for some time, but it is an opportunity to pick up good companies cheap, on the back of fears imprinted by recent pain.
    Sep 1, 2015. 03:40 PM | 12 Likes Like |Link to Comment
  • The Volatility Will Continue [View article]
    I heartily agree. We go sideways with chop through about November, as everyone who is afraid it is 2008 all over again gets five chances to panic and sell to the rest of us. When October passes and the world doesn't end, real recovery from the lows gets underway. The whole could take 6 months, before all is "forgiven".
    Aug 31, 2015. 06:14 PM | 1 Like Like |Link to Comment
  • Normal Valuations Are The Real Worry, Not China [View article]
    RS055 -

    Oracle profit margin 26%, return on equity 20.6%
    ADP profit margin 13.3%, return on equity 24%
    SAP profit margin 16%, return on equity 16.6%
    H&R Block profit margin 15.4%, return on equity 28.7%
    Visa profit margin 43.5%, return on equity 21.1%

    There are very attractive returns in major service companies, that do the world's books or process the world's payments, and similar.
    Aug 29, 2015. 10:01 PM | 4 Likes Like |Link to Comment
  • Normal Valuations Are The Real Worry, Not China [View article]
    Stocks and bonds are of course not capital, but claims to income, including capital income for the most part. But any long lived asset that produces a regular stream of future income is capital. Circulating goods used to maintain a business (inventory, work in process of completion, etc) are capital. The building around the industrial machinery is as necessary to production as that machinery, and longer lived as a rule, and is emphatically capital. When Pulte lays out $5 billion for thousands of new houses, it is investing in its inventory, and that inventory is capital. Also exactly no one but you mentioned money in any of it.
    Aug 29, 2015. 07:59 PM | 4 Likes Like |Link to Comment
  • Why Have U.S. 10-Year Yields Risen 30 Bp Since Monday? [View article]
    Good analysis, and FWIW I agree with your conclusions...
    Aug 28, 2015. 11:23 PM | 1 Like Like |Link to Comment
  • Good Economic News May Not Curb Market Turbulence [View article]
    Heartily agree with every word...
    Aug 28, 2015. 11:20 PM | 1 Like Like |Link to Comment
  • Yield Spreads: This Selloff Is For Real [View article]
    red - don't have a daughter, but happily trust major US banks with my money. One man's injustice and fear is another man's opportunity.
    Aug 28, 2015. 03:54 PM | 2 Likes Like |Link to Comment
  • Intrinsic Valuation Of The S&P 500 [View article]
    Zenith - sure, but with a few provisos. DCF analysis properly accounts for growth; any company that will truly have above average growth in the future is fairly worth a higher PE, and the other way around for below average growth, etc. The other proviso is that the difference between your own valuation and the market's needs to be pretty wide to act on the difference. It is perfectly normal to find candidates at half the price you think something is fairly worth. Buffet suggests only paying 40 cents on the dollar of your own DCF based valuation, for example. This gives you a margin of safety for your estimate being wrong. FWIW.
    Aug 28, 2015. 03:45 PM | 1 Like Like |Link to Comment
  • Normal Valuations Are The Real Worry, Not China [View article]
    Alphatag - horsefeathers. Investment most definitely includes construction spending.

    Specifically, in the National Income and Product Accounts, capital spending is account number 6, labeled Domestic Capital Account. Its left hand column is domestic investment and its right hand column is domestic savings. The dominant item in the left hand column is private fixed investment, as distinguished from government, with a current value of $2.89 trillion per year. The Fed ID of this series is FPI, and you can find it here -

    BEA guide to the NIPA accounts, specifications for table 6.1, "investment in structures by private business", very first line reads "includes construction of new nonresidential and residential buildings".

    Here are the "directions" for that account, in full -

    Includes construction of new nonresidential and residential buildings.
    Includes improvements (additions, alterations, and major structural
    replacements) to nonresidential and residential buildings.
    Includes certain types of equipment (such as plumbing and heating
    systems and elevators) that are considered an integral part of the
    Includes nonbuilding construction (such as pipelines, railroad tracks,
    power lines and plants, and dams and levees).
    Includes mobile structures (such as office trailers at construction sites
    and temporary trailer classrooms) and manufactured homes.
    Includes petroleum and natural gas well drilling and exploration,
    including “dry holes.”
    Includes digging and shoring of mines.
    Includes brokers’ commissions on sales of new and existing structures.
    Includes net purchases (purchases less sales) of existing structures
    from governments.
    Excludes maintenance and repair of nonresidential and residential
    Excludes demolition costs not related to the construction of new

    In Barron's regular feature "pulse of the economy", you will find the relevant account figures printed together as follows -

    All fixed investment - $2.866 trillion
    non-residential investment - $2.271 trillion
    residential investment - $595 billion

    From other series, about $700 billion annually is spent on non residential construction, $300 billion of it public spending, $400 billion of it commercial real estate spending.

    You say not only the residential real estate "isn't" investment but that is "never has been" investment. What was it when the Pultes of the world and paid for it and built it, but hadn't yet sold it? All inventory is business capital, including all buildings as they are produced. They do not spring forth fully grown from the head of Zeus.
    Aug 28, 2015. 12:01 PM | 5 Likes Like |Link to Comment
  • Intrinsic Valuation Of The S&P 500 [View article]
    William wrote in relevant part "If interest rates just rose to 5% on our current debt, about 70% of tax revenues would be needed just to pay interest". Um, I am afraid not, no.

    The interest rate on the debt resets and raised Treasury interest payments only as that debt matures and its replaced by new debt at the higher rates. In the first year, that is basically the T-Bills in the hands of the public, plus a bit of auction rate notes that pay T-Bill rates, and amounts to $1.9 trillion. $160 billion of that, however, is held by the Fed, and thus a wash, leaving $1.74 trillion to adjust in the first year. That means $17.4 billion higher payments times and change in the short term interest rate, from its current average of under 0.3%.

    Then the notes in the hands of the public run $8 trillion, but only about $900 billion of that will mature in the second year, and so on. $200 billion of that is owned by the Fed and again a wash, in the first 5 years. So years 2 through 5, the extra expense per point of interest increases by $7 billion per year, to $28 billion per year at year 5. Combined with the previous, we have $45 billion per year of marginal additional interest expense per point of higher interest rates.

    The rate on the existing notes is 1.8% average.

    So on 5% on all of it, over 5 years, we'd pay 4.8x17 = $82 billion more on the T-bill stuff, and 3.2x45 = $144 billion more on the T-notes that mature in that period and aren't owned by the Fed, for a net increase in interest expense of $226 billion per year.

    Federal revenues are running $3.42 trillion a year. So that would be 6.6% of current revenues, and over 5 years of gradual adjustment. In the last 5 years, Federal receipts rose 42%, and they rise enough to cover that whole increase in just 1 year. (These are all nominal not real numbers, recall).

    There is no great danger to the fisc from normalization of interest rates. Fiscal issues, which are real, are about spending and especially rising entitlement spending, not the debt. Government transfer payments have risen from 12% of GDP (not of federal receipts, of GDP - 5 times larger) to first 16% immediately after the recession, but have stayed high at 15% of GDP now.

    Just the increase in transfer payments since 2008 - faster than GDP - are more than twice as large as the extra interest we'd have to pay for 5% interest rates. For anyone worried about the fisc, spending is the thing, and transfer payment entitlement spending specifically.
    Aug 28, 2015. 11:32 AM | 3 Likes Like |Link to Comment