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charliezap

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  • Has Paul Krugman Gone Too Far This Time? [View article]
    Paul Krugman is a Nobel Prize winning economist. You may disagree with him, but calling him names does not change that fact.

    If we have a financial crisis and recession that causes consumers to pay back their credit cards instead of buying goods, then consumer demand dries up. Seeing a lack of demand, business investment dries up. How do you get the economy going in such circumstances? With a government stimulus plan, of course! (What alternative would you propose?)

    But that's Keynesian, you say, as if Keynesian is a bad word. Yet most qualified economists would agree that government stimulus is the right action in the circumstances of the recent recession. The economists have run their econometric models and figured that had there been no stimulus program, unemployment might have gone to 12% or 15%.

    BTW, the stimulus plan has run its course, and no longer contributes to the current federal deficit. But the following are still with us, and are the major causes of the deficit:

    1. The GW Bush tax cuts
    2. The GW Bush war in Afghanistan (the unnecessary war in Iraq is now over, thanks to Obama)
    3. The GW Bush unfunded Medicare drug plan.

    So how do you get the economy to create jobs? Please don't say tax cuts and deregulation. We tried that under GW Bush, and we know how that ended.
    Nov 13 12:19 AM | 61 Likes Like |Link to Comment
  • A Brand New Mortgage REIT That May Deliver Something Special [View article]
    Wow! A REIT that makes land and construction loans! As Yogi Berra said: "Its deja vu all over again!"

    We seem to have forgotten the REIT industry fiasco of the 1970's, when several large REIT's went belly up, including the largest of them all, the Chase Manhattan Mortgage and Realty Trust, at considerable embarrassment to the bank. CMART was heavily into land and construction loans, in places like Hilton Head Island; Amelia Island, FL; Dade County, FL; and Puerto Rico. When housing turned down in the late 1970's, the developers could not afford the carry (interest and taxes) and they walked away from the loans.

    This was followed by the S&L crisis of the 1990's. As a result of changed legislation, S&L's were permitted to get into construction lending, and many did. When housing turned down in the late 1980's, many S&L's (about a third of them) went bust, including the 10 largest in Phoenix, and several from the Dallas-FW area. The RTC (Resolution Trust Corporation) was set up by the government to sort out the mess, which they did by taking over and liquidating the insolvent units.

    Now we have UDF -- heavily into land and construction loans -- and heavily concentrated in the Dallas-FW area. Sorry, this is too risky for me, so I think I'll sit this one out, even though housing is still in an upswing, IMO, and the state of Texas is benefiting from oil industry activity. But good luck to those who jump on for the ride!
    Jun 7 12:18 AM | 20 Likes Like |Link to Comment
  • Tax Code Goof: Could BP Claim a $10B Credit for Gulf Oil Spill Loss? [View article]
    This article is inflammatory and stupid -- basically an attempt to create news out of a normal accounting practice.

    As for the US taxpayer losing, that is also nonsense. Much, if not all, of the $32 billion will be income to other individuals and companies that will be reporting an increase of income to the IRS.
    Jul 28 07:21 AM | 15 Likes Like |Link to Comment
  • A Word Of Caution About Bank Of America's Share Buyback [View article]
    The Buffett deal was a heck of a good deal for BRK and a heck of a bad deal for BAC. I very much doubt that "good management" had much to do with the decision. In fact, in 2010 BRK sold all of the shares of BAC that it then held, well before the Buffett deal, which took place in 2011.

    It was Buffett and not BAC that set the terms. But BAC lacked liquidity and appears to have had little choice in the matter. Buffett got a preferred stock position, putting himself in a preferential position in case BAC went bust. He also got a 6% dividend on a $5 billion investment, plus warrants to buy 700 million shares of common stock at just over $7.14 per share, with an unusually long 10-year exercise period. BAC was closed at $6.99 per share the day before the deal was announced.

    Before the financial crisis and the Ken Lewis misadventures (Merrill Lynch was another very bad deal), BAC set an historic high of $55 per share toward the end of 2006. It was downhill from there to the closing low of $3.14 on 3/9/2009. At the current price around $12.50, BAC is at only 23% of the price at its historic high. In large part, dilution is to blame, including that brought about by the Buffett transaction.

    In the buyback, BAC effectively be paying $12.50 or more for shares that Buffett will buy at $7.14. Buffett gets a 6% dividend and the common shareholders get penny. Some "vote of confidence" as some called the Buffett deal when it was announced!
    Mar 18 07:53 PM | 14 Likes Like |Link to Comment
  • Royal Blunders In Oil [View article]
    The headline to this article should be "Certified Technical Trainer Blunders in Oil."

    I have no idea what a Certified Technical Trainer does in life, but I do know something about the international oil business and about financial analysis. First of all, the short name for Royal Dutch Shell is not "Royal". The name is Shell.

    Second, book value is not an especially good guide to stock price value in the oil industry. If an oil company spends $100 on exploring and developing oil serves, it may find just $100 worth of oil. Or it may be $1,000 worth, or $10,000 worth. A far better guide to value, used by professional analysts, is an estimate of NAV per share (Net Asset Value, derived by estimating the value of proven reserves, plus the discounted value of prospective and speculative reserves, plus all other assets, minus liabilities -- for more on this go to mcdep.com). For large companies such as Shell, oil analysts also base their evaluations on conventional EPS and growth rate estimates.

    Third, Shell is a worldwide operator. The outcome of the EU summit will have no more impact on Shell, than on, say, Exxon. Most of Shell's worldwide oil production is outside the Eurozone. Shell produces about as much oil in North and South America as it does in Europe. Shell is big in the Middle East and Africa. Most of its European production is outside the Eurozone, the main volumes coming from Denmark, the UK, and Norway.

    Fourth, most analysts would agree that it is far better to buy back shares at low valuations than at high valuations. Too often we have instances, of companies wasting $millions on buybacks at high prices, only to see the shares fall later when the buybacks cease, or the company fails to deliver.

    With oil prices having fallen, and with the share price down, Shell is to be commended for the current buyback program.
    Jun 27 09:17 AM | 13 Likes Like |Link to Comment
  • 4 Reasons to Be Long Oil - And Nothing Else [View article]
    """China is the worlds largest consumer of oil . . """

    Not true. According to the BP Statistical Review of the World Oil Industry, the US consumed oil at the rate of 18.7 million barrels daily in 2009 (21.7% of the world total), while China's consumption was only 8.6 MMBD (10.4%).

    The US produced 7.2 MMBD (8.5% of the world total) in 2009, while China produced 3.8 MMBD (4.9%).
    Sep 13 11:44 PM | 12 Likes Like |Link to Comment
  • Exxon Mobil: Undervalued Industry Leader With Large Growth Runway [View article]
    The headline is misleading. 1) XOM is not undervalued, compared with peers, CVX, RDS-B, BP, TOT, COP, etc. All have lower P/E's, higher yields, and higher future growth (according to the analyst consensus. 2) Where is the "large growth runway"?

    You say: "Exxon Mobil can grow faster than overall energy demand by gaining market share in the highly competitive oil and gas industry", but the fact is that XOM has been losing market share in terms of oil production. National oil companies have taken a greater share in their respective countries, and smaller, more nimble, firms have led the way in shale oil production.

    You say: "Exxon Mobil will likely see more efficiency gains resulting in higher long-term average profit margins as technology continues to improve", but the fact is that oil is becoming more difficult to find and develop (shale oil, offshore, and other unconventional sources such as oil sands). Costs can only go up, and margins will only improve if oil prices go up. Whether oil price gains will outpace costs is a matter of conjecture, but it is a fact that demand in the major OECD countries has already flattened or declined, partly in response to high prices and partly due to conservation and alternative sources of energy.
    Aug 6 07:25 AM | 11 Likes Like |Link to Comment
  • Detailed Case To Short The S&P 500: This Time Isn't Different [View article]
    """Current Fed policies are causing stagflation which has eliminated disposable income for the average consumer."""

    I quit right reading right here. People like you have been saying the same thing since 2009, and the Dow has more than doubled.
    Mar 24 12:27 PM | 11 Likes Like |Link to Comment
  • Why Did Warren Buffett Buy Exxon Mobil? His Partner Charlie Munger Reveals All [View article]
    """Buffet must know something . . """

    Actually, I doubt it, though I am sure he gets a lot of expert opinion. He perhaps has an opinion about, but really doesn't know, the price of oil a year from now, or 10 years from now, on which the future price of XOM's stock is largely dependent.

    But XOM is the stock with the largest market cap, and its bonds carry a AAA rating. 21 analysts have an estimate for 2014 earnings, according to Yahoo. Some investors regard XOM as an inflation-protected bond substitute. Given these characteristics, plus its liquidity, XOM is often used by institutional fund managers to park money. It is also used by such managers to increase exposure to the oil industry, when they deem it appropriate to do so.

    As an institutional favorite, XOM trades at a premium to its large oil company peers. Its PE ratio is generally higher, and its dividend yield is lower than CVX, RDSA, BP, or COP, even though the analyst consensus is that the peers all have higher 5-year growth rates.

    I think Buffett is parking money. When you are as big as Berkshire has become, you need something as big as XOM to park money!
    Nov 17 10:38 PM | 11 Likes Like |Link to Comment
  • What To Do With ConocoPhillips? [View article]
    A silly article that cites a few random issues but says nothing about the valuation of COP. No earnings data, no information on future projects. Virtually nothing that is relevant.
    Oct 4 05:17 PM | 11 Likes Like |Link to Comment
  • It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
    Article is idiotic paranoia, like buying bushmasters and holing up in a bunker in the woods!
    Mar 28 01:16 PM | 11 Likes Like |Link to Comment
  • Don't Invest In Oil & Gas Before You Read This [View article]
    A. On an asset allocation basis, UGP should not be compared with XOM, CVX, RDSA, etc -- integrated domestic/worldwide large caps. It belongs in a more speculative category. Perhaps foreign small/mid caps.

    B. The article is pure analysis by hindsight. What if you had included Petrobras in the performance standings?
    http://yhoo.it/YV3LmB

    C. You also say, "The majority of your petro dollar investments should be in the downstream refining, marketing, and distribution [sector]." This is very highly questionable advice. It is in complete contradiction with your reliance on historical performance. While we are currently in a cyclical period of fat refining margins, historically, the fattest margins, and highest returns on capital have been in the exploration sector. You can, in theory, smooth out returns by investing in the integrated companies (XOM, CVX, RDSA again) which combine E&P with R&M.
    Feb 26 08:50 AM | 11 Likes Like |Link to Comment
  • BHP: Don't Buy The Hype [View article]
    Here is how BHP describes its business in its annual report:
    ----------------------...
    """We are the world’s largest diversified natural resources company. Our corporate objective is to create long-term shareholder value through the discovery, acquisition, development and marketing of natural resources. We pursue this through our consistent strategy of owning and operating large, long-life, low-cost, expandable, upstream assets diversified by commodity, geography and market. This strategy means more predictable business performance over time which, in turn, underpins the creation of value for our shareholders, customers, employees and, importantly, the communities in which we operate. We are among the world’s top producers of major commodities, including aluminium, energy coal, metallurgical coal, copper, manganese, iron ore, uranium, nickel, silver and titanium minerals, and have substantial interests in oil and gas."""
    ----------------------...
    Note that there is no mention of diamonds, which is confined to one small operation. No mention of gold either, so what is the relevance of gold miners, Yamana, Barrick, and Freeport?

    The major products are aluminum, coal, copper, oil and iron ore. Demand for all of these products is heavily dependent on the business cycle. Last I heard, China was still growing at over 7%, the US at about 2%, while Europe may be flat to down -- on balance there is still growing demand for BHP's output.

    The article contributes nothing of significance about BHP.
    Jun 29 02:40 PM | 11 Likes Like |Link to Comment
  • Which Of These 3 REITs Will Outperform In 2012? [View article]
    """Purchasing properties that it intends to use for commercial rentals has allowed the company to profit on the low mortgage rates with higher securities, sometimes getting a 100% return in the process. This changed in 2011, driving up the corporate obligations, as evidenced by its debt to equity ratio of 557."""

    Nonsense. This article: A) shows virtually no comprehension of the business models followed by these companies, and, B) the numbers quoted are totally misleading. More specifically, these 3 companies are mortgage REIT's that invest primarily in residential mortgage securities (paper). They are not equity REIT's that invest in commercial rental buildings (bricks and mortar). They borrow short term funds to leverage the returns, and they hedge their interest rate risks. They make a profit on the spread between mortgage rates and short term borrowing rates.

    To alleviate credit risk, Annaly primarily invests in mortgage securities that are guaranteed by agencies of the US government. Like a bank, Annaly operates with a high ratio of debt to equity. Most recently, Annaly's ratio of total liabilities to assets was 85.6%. This gives a debt to equity ratio of 5.94, or 594%. (Did the author mean % when he said that the debt to equity ratio was 557?)

    Let's be clear. Annaly does not purchase properties "to use for commercial rentals". Nor does not "profit [from] low mortgage rates" on the properties. Incoming funds did not "collapse" in 2011. In fact, net interest income rose from under $0.5 billion in 2007 to $3.1 billion in 2011. The fairly sharp decline in reported net income was almost entirely due to a non-cash charge, unrealized losses on interest rate swaps, that has virtually no bearing on dividend paying ability.
    Mar 19 01:25 AM | 11 Likes Like |Link to Comment
  • John Paulson Says to Buy Dividend Stocks and Houses, Sell Bonds [View article]
    1) Most likely taxes on qualified dividends will go up to just 20%. This will not have much impact on the stock market, IMO.

    2) Also, many stocks are held by non-taxable entities, such as pension funds and IRA"s. This is another item that will diminish the impact. There is a lot of disinformation being spread (particularly on CNBC and Fox Business) about taxes on dividends going to 39.6%. Tax fears provide a buying opportunity, IMO.

    3) Of course, the most sensible thing to do with dividends would be to give corporations a deduction for dividends paid, just as there is a deduction for interest paid. This would eliminate the bias toward debt, eliminate the double taxation problem, and simplify our tax returns. It would also encourage corporations to pay dividends and to stop hoarding cash or reinvesting in low return projects. (Dividends received by individuals would be taxed at the same rate as earned income, just as they were pre-GWB tax cuts.)
    Again, of course, it would happen. It makes too much sense, and is regarded as "politically impossible", just like the carbon tax.
    Oct 1 12:13 PM | 11 Likes Like |Link to Comment
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