CapNgain

Health Care: Public vs. Private and the Impact on Health Plan Stocks

I don't get your logic... or are you using logic... or just emotionally spouting off words?

If the net effect is a lot of people become unemployed due to the public option, then you're implying that the government will be able to run their insurance program so much more efficiently that they won't need to hire a lot of the people currently working in the private sector.

Since government almost never runs things as efficiently as the private sector, then I'd expect the public option, competing with the private option to actually add to net employment in the health insurance sector.


On Sep 13 11:49 AM Shotei wrote:

> Shout it loud. I've been tell everyone that will listen the same
> thing. Public option will put hundreds of thousands of people out
> of work also.

Investing in Natural Gas: It's Time

Before I'm willing to predict which way NG prices will go, I want to understand the underlying fundamentals. Can anyone answer the following questions:

a) At < $3.00 NG, are any NG companies making money, and if so, who?
b) What is the current lowest cost today to start drilling and producing NG from the largest shale plays?
c) If you've already drilled and Frac'd some shale, what's the incremental costs to extract this gas and get it to market?

In my opinion, economic extraction of NG from shale is a relatively new paradigmshift, so until the world energy producers and consumers get a better handle on what this new supply means, the traditional NG to Oil price ratios may stay at non-traditional levels for quite a long period of time.

Regards,

Curtis.

Dr. Doom Responds on Wells Fargo

Most of your article was informative, and was supported with actual numbers. Too bad you more or less ruined this article by straying from an argument supported by numbers when you "diss'd" Rubini.

When almost every major bank action in this current downturn has been proceeded by the bank CEO claiming reserves were adequate, one begins to question whether anything the CEOs of poorly performing banks (contrast that with the multiple banks that have actually outperformed in the last year) have to say has any credibility.

People such as Meredith Witney, and Rubini have numbers to support their calls in the last 1-2 years. They were more correct in seeing this train wreck before it happened than many other professionals and major bank CEOs. However, just like the few internet analysts that were mostly correct in their price targets as the 1999-2000 tech bubble was inflating only to be very wrong when the bubble burst, the real test of Rubini and others abilities will be whether they call the banking bottom in this downturn, or whether their bearishness blinds them from the inevitable recovery at some point.




On Feb 28 05:13 PM vvvvviking wrote:

> I looked at Wells' 10K that came out on Friday, and they looked adequately
> reserved for the WB option arms. There is 120BB or so of principal
> balance on those loans, and they have them marked at 95BB, or in
> other words, a 20% loss estimate. That is consistent with most analysts
> assumptions on losses for similar vintage loans, and I think the
> Wachovia stuff will perform better than average - it was mostly retail,
> which performs about 30-40% better than Wholesale, and they were
> notorious for being pricky on appraisals (ask any broker who had
> to deal with them).
>
> On their Home Equity portfolio, I think they are being a bit light
> in their loss estimates, but no more light on those then I think
> they are heavy on the Option Arms. No doubt they marked the OAs
> down a lot since they aren't as familiar with them.
>
> BTW, Wells mark on the OAs is consistent with JPM's mark on WM's
> OAs when they were purchased, and WM was a MUCH worse underwriter
> than Wachovia. The majority of WM's OAs were Wholesale, and of course
> WM had all those appraisal issues. So even on a relative basis,
> WFC's mark is more conservative.
>
> Of course, I actually work in the mortgage industry, so can evaluate
> the appropriateness of these things, whereas Roubini is in the entertainment
> business, so has very little credibility in my mind.

Citigroup's Decline - Not a Good Sign for the Market

You'd probably be right if it wasn't for the CDS contracts. Would nationalization trigger a default provision, causing tons of other zombie banks to pay out cash they may not have? I'm no CDS expert, but I wonder if it isn't this complex web of derivatives forcing the US to follow the Japanese blunder of supporting zombie banks at the expense of a decade or so of economic growth - simply to avoid further destabilization of other internationl banks?


On Mar 01 12:28 PM Ricard wrote:

> If C were to be nationalized, it may end up being a plus. Given
> its current state and the media attention it is receiving, no financier
> of high repute would ever want to work in this firm. It, and others
> like it, needs to be dissolved, or sold in parts to the highest bidder.
> Only then would our financial system begin a recovery.
>

Citigroup's Decline - Not a Good Sign for the Market

I can't believe how many people seem to believe the BS about the uptick rule, and mark to market.

Has it occurred to anyone that perhaps these stocks are getting hammered because their fundamentals are lousy, and they're losing more money than the company is worth? Sure, the uptick rule can result in larger short term hourly fluctuations, but at the end of the day it seems to me earnings, cash flow, etc. matter far more than short interest (if short sellers unfairly drive down the price of a stock, the smart money moves in and buys value).

And, w.r.t. any mark-to-market whiners, it would be great if you could lend me money to purchase stocks with up to 50% margin. If the value of my holdings declined, and you gave me a margin call, I'd love to have a lender that I could convince to rescind the margin call based on convincing them the non-mark to market value of these stocks 5-10 years later would likely be far more than the margin amount owing today.

Stress Test: It's Time for Transparency

If I could form a company, issue $100 Billion in publicly traded shares and another $100 Billion in ten year debt at any interest rate of 7%, and then went out and invested most of this cash in "underwater mortgages in default " bought from the various large banks for the price they carry them on their books today, would you be buying or selling my shares? Would you change your mind if a government regulator reviewed each purchase to put their stamp of approval on the value of the mortgage?

However, if for each mortgage asset I bought, if I had to "stress test" any future value of the asset by reconciling the predicted house price recovery over the next 10 years from analysts and savvy property investors to actual price recovery data from past housing crisis aroung the country and other developed countries, and then discount this value by my current 10 year cost of debt, would you be more inclined to buy my company shares?

Yes, the above is oversimplified, and subject to many potential flaws, but the point is that until a realistic, calibrated model is agreed upon to value the roughly 1 in 6 mortgages reported to be underwater, irrespective of whether this fails none, some, or all of the big banks, then any pass results from the government proposed stress test is pretty meaningless. If the government can't come up with a more realistic asset valuation model, then why not use the one proposed here.

Lithium Unicorns and Alternative Energy Storage

A quick look at the chemical composition of spodumene suggests it's a combination of roughly 8% Lithium Oxide, 28% Aluminum Oxide, and Silicon Oxide. So, although I don't doubt that the cost of separating only the Lithium from this mix is substantial, I wonder what the overall cost is if the Lithium is a byproduct of Aluminum and metallurgical Silicon (used for solar panels, or stock for further refinement into semiconductor wafers) refining (just like copper credits can reduce the effective cost per ounce of gold in gold/copper deposits).

I remember in the 1990s, making money off of Ballard at the time, after digging up the number of cars produced worldwide, assuming they could obtain 5% market share, and assuming revenue of 1/10 the cost (at the time) of a PEM fuel cell multiplied by the 5% of cars produced. What I mostly remember from this experience is NOT that I sold at a profit after seeing the company yet-again miss cost and revenue milestones, but that a lot of SMART people and so-called EXPERTS kept on believing that by 2010 we'd all be driving PEM fuel cell cars. Had even a tenth of the money put into this fuel cell R&D been spent on improving lead-acid, NiCd, NiMH, and Lithium batteries, I think we'd have much better battery cost/performance today. Thus, although I think a few of the Lithium Phosphate companies will do well (I like the way Valence closes deals despite not having the best product from a technical point of view), I'm NOT writing off the lead acid battery companies, either. Although lead-acid batteries have been around for a long time, little R&D dollars (at least from what I can see) were invested in improving this technology outside of a few years in the late 1970's (oil crisis) and the last few years (again, high oil prices, but also with global warming and energy independence thrown into the mix). Some of the more recent nanotech and materials advancements (such as carbon/silicon nano-tubes, aerogel foams, etc. that are being used for better supercapacitors) also have the potential to provide significant advancements in both lead-acid, and Lithium-based battery technologies. Bio-materials are even newer, with their potential even less understood, but significant. Plus, from a hobbyist point of view, my Enersys Odyssey batteries and recently Kinetics cap-bats (AGM lead) still provide unbelievable short bursts of high current without any BMS, and reasonable amounts of heating!

Alternative Energy Storage: It's All About Price vs. Performance

Consistent with the overall theme of your article, I believe the price/performance of Lithium Iron Phosphate will translate into the following market categories:

a) For $100K and higher sports/super car category, there's a strong case for EVs, as the battery pack cost can be covered, and the high peak torque to peak horsepower ratio is hard to beat with any ICE engine. That's why Tesla's business plan could be very successful, if they can just learn to run operations better.

b) For the mid-market range, battery cost limits the economics of pure EVs, and therefore hybrids and light plug-in hybrids are reasonable

c) On the low-end of the market, battery cost only works for the lightest short range vehicles, such as scooters and e-bikes. If one visits Taiwan, China, SE Asia, and some parts of Europe with their high "in the city core" penetration of scooters, one would think the US electric scooter market is still in early adoption phase (perhaps even being slowed by extremely cheap scooters that don't work well).

The above categories could easily change w.r.t. some additional factors, such as:

a) What will government Carbon strategies look like... a cap and trade system could help EV/plug-in HEV owners recover money by selling carbon credits to gas guzzler owners...?

b) Further technical advances in lower cost hydrid sources... for example, I see potential with mechanically rechargeable Aluminum/magnesium air cells (low cost, high energy density, with the byproduct recyclable)

c) Further advances in super-capacitor technology, perhaps even built-into lithium batteries.... today's hybrids have city mileage similar to highway mileage, but with better regenerative braking energy recapture, hybrids should get much better mileage in city driving, due to less losses from wind resistance. For couriers and taxis, this could allow for more battery pack in the economics.

Alternative Energy Storage: It's All About Price vs. Performance

T. Boone Pickens may be onto something with natural gas.

Although simple gasoline motor conversions to natural gas can just barely stand on their own, one can get much higher efficiency with natural gas, along with reduced CO2/other pollution per unit horsepower, by taking advantage of the high effective octane performance of natural gas with higher compression engines designed for diesel or natural gas. For example, the average modern gasoline engine is around 25% efficient, versus 45% for a dedicated natural gas engine with small amounts of diesel injection.

One company I watch in this space is a Canadian traded stock (WPT-TSX) called Westport Innovations, who's been working with Cummins diesel motors.

Also, if you want North American energy independence, the US and Canada have huge amounts of natural gas locked up in Shale/Tight Rock/Coal-bed deposits, which becomes economic to extract with current natural gas prices. And, if you add in Natural Gas from Alaska, and Canada's North, once pipelines become economic, there's no shortage of Natural gas for the foreseeable future (something global peak-oil believers including myself until last summer may have overlooked).

Plus, one comment on Uranium supply (one of my invesment focus areas... Although the current supply of high grade (1% or higher U3O8) is fairly small, there's huge deposits of low-grade (say 0.15% or even 0.01%) Uranium worldwide. So, just like shale gas, although the economic supply of Uranium at $50/lb may be limited, Uranium, and Thorium for that matter are quite abundant and economic at $150/lb. And, since the cost of raw U3O8 fuel is realitively small compared with the processing, and capital costs of reactors, nuclear energy at even a longer term price of $150/lb for raw Uranium could still be economic, with a large supply ensuring a long term future for this energy choice.

Alternative Energy Storage: It's All About Price vs. Performance

What do you get when you put an Electric Engineer (EV focus) together with a small hedge-fund manager? .... my opinions, as follows.

Lithium Iron Phosphate (LiFePO4) batteries even today are economically a better value for EV-Hybrid vehicles than today's AGM/VRLA Lead-acid batteries, if one amortizes the battery cost over the lifetime of the battery, and if one looks at the efficiency improvements offered by LiFePO4. For example:

1. Lead-acid, and even NiMH batteries for higher power applications often spec. a 300-500 cycle lifetime, versus 2000-3000 for LiFePO4. I've bought some Chinese large-scale LiFePO4 batteries for $500/KWh versus $200/KWh for AGM lead-acid. But, if the lead-acid batteries must be replaced even only 4 times during the life of the battery, the LiFePO4 could be cheaper, depending on what discount rate you use.

2. The spec'd energy storage of LiFePO4 is fairly independent of power output (within spec'd limits), whereas many lead-acid batteries are spec'd for 10-20 hour output, and the realized value for 0.3 to 2.0 hour EV discharge is often half or less of the spec'd value, which is partly why e-Bikes with a 1 KWh LiFePO4 pack often achieve 3X the range of a 1 KWh Lead-acid pack.

3. Higher quality lead-acid batteries, where the 1 hour energy storage value is closer to the 20 hour value (names like Odyssey, Trojan, Surrette, Optima etc.)
can cost around $400/kWh (in my experience), with less than a 2X improvement in cycle-life.

4. Vehicle range is highly dependent on aerodynamics for highway travel, and vehicle weight for city driving and hill climbing. A decent 30kWh LiFePO4 battery pack capable of peak 200 HP output weighs around 500-700 lbs, whereas a similar lead-acid pack weighs around 2000-3300 lbs.

5. For decent range and battery pack like, Lead-acid and LiFePO4 require some string equalization/battery management, so any battery pack cost must include the cost of a BMS.

6. My experience has been that fast-charging some high-power high-quality lead-acid batteries takes about 4 hours, whereas my LiFePO4 batteries take 15-60 minutes for the same task. Although this advantage goes away due to charger constraints for larger battery packs, it does offer compelling advantages for e-bikes and scooters, where their smaller pack is recharged from a standard 115VAC outlet.

7. Advances in nanotechnology, materials science, and biochemistry mean that current Lead-acid, LiFePO4, and other potential battery chemistries should see significant improvements in battery performance versus cost over the next 5-10 years, so LiFePO4 could one-day look like lead-acid does today, or perhaps not.

Transitions to a new technology often take longer than many optimistic CEOs predict, so the established Lead-acid "big guys" have some time to see which companies manage to gain most market share, before deciding which pure-play companies they'll need to buy to maintain and grow certain parts of their existing market share.

And, lest Chevron's example with NiMH large format EV batteries be forgotten, patent ownership and licensing could in the end decide which LiFePO4 battery vendors survive, and which don't.

GE, Goldman Bond Spreads: Unrealistic and Unsustainable

Perhaps I don't understand CDS contracts/corporate bonds relationship properly, but the statement "But if buyers had factored in credit default swaps, they would be demanding an additional spread of 150-200 basis points, at the very least, on both issuers" caught my attention. If corporate bond yields have been artificially low due to some of the risk premium going to CDS contracts, and since the average retail investor doesn't have access to trading CDS contracts, does this mean the big institutions have been shafting the average investor on bond issues by selling a bond with a lower yield than actual risk profiles would demand? If so, perhaps they deserve to fail!

ALT-A: The Coming Risk Abatement Disaster

Excellent article... I like it when authors use real data to support their opinions, and I think this article hits the nail right on the head.

What I would like to further see is and additional article that shows what percentage of 2008 Alt-A and Prime mortgages have been renewed at the same classification, versus what percentages were renewed at a lower category (such as Subprime, Alt-A, or even not renewed at all), and projections of this data for the next 2-3 years.

Great-West Lifeco: Dividend Investors Take Note

This company is also traded on the Canadian TSX exchange, and has pretty decent (for a Canadian exchange) volume, since some consider it a blue-chip Cdn company.

If your broker can't trade Cdn listed stocks, I've found that entering an pink slips fixed-price order (taking into account the exchange rate difference) with a small spread to the bid/ask on the Cdn exchange will often get filled, even if the XXXX.pk stock hardly ever trades otherwise.

PS I've successfully held Power Financial (PWF TSX) for years, and GWO is one of it's holdings. Check their 10 year + chart...