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Gene Jaquet

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  • Wall Street Breakfast: Yellen, Draghi Speeches Take Center Stage [View article]
    Ben Gee, Europeans have more important issues du deal with at the moment. Priority A is for Athens.

    I've posted this before, but to repeat: I have little doubt Greece will default, the only question is how "controlled" that default will be. I'm surprised the media hasn't been leaking info about talks between central bankers and politicians concerning how to manage the bankruptcy. Knowing that Europeans can't get anything done without dithering for months, we should have heard something - but on balance I still think the odds are that someone will not get paid on time.

    But no one really cares about the Greeks; the main concern is how the default impacts other European economies and asset markets. And that hinges on a Grexit - whether or not Greece will revert to the Drachma.

    The press invariably assumes that a Greek default will lead to their exit from the Euro, but I have yet to read or hear why that should be so. I cannot find one treaty article, or one legal argument, that says a Grexit must follow a default. Why can't they default and keep their currency? After all, polls show a majority of Greeks want to stop the pain of austerity, yet an equally large majority wants to keep the Euro and stay in the EU.

    Greece is a sovereign country, they can choose whatever legal tender they want. Zimbabwe uses the US dollar and never asked permission from the Fed. So do a dozen other countries.

    There is however an economic argument for Grexit, independent of legal considerations. To regain competitiveness and growth the Greeks would have to devalue (which can only be done by reverting to the Drachma) because insolvency by itself will only provide short term liquidity, not long term solutions. But that would be their choice, and it would not follow automatically or mechanically from an event of default.

    So it's all pretty murky. I'm not an expert on European law and maybe there's a legal angle that I've overlooked. But I still think the most probable outcome is that (a) they do become insolvent (b) there is some kind of plan to organize their bankruptcy (c) they eventually leave the Euro but only after months or years (d) markets have anticipated it for so long now that a default will not cause a tsunami, and (e) the rest of the Eurozone will be better off without them.

    And if I can add an (f) it's that the IMF will be the big loser: they already stand accused by the BRICs of being too euro-centric and throwing good money after bad in the Greek rescue effort. Greece belongs to a club of rich countries already, the argument goes, and IMF funds are best reserved for the developing world. Factor in the absurd refusal by the US to give more voting rights to the BRICs, and it gets downright nasty. If Greece defaults the IMF will have quite a bit of explaining to do. And China will be laughing all the way to the bank - the new Asian Infrastructure Investment Bank, that is.
    May 22, 2015. 08:10 AM | 3 Likes Like |Link to Comment
  • Visa: Market Power, Stable Growth And High Profitability Doesn't Come Cheap [View article]
    Awesome article. Many thanks.
    May 19, 2015. 06:50 PM | 1 Like Like |Link to Comment
  • Wall Street Breakfast: Netflix In Talks To Enter China - Reports [View article]
    GGGL - going back to your original post, whether or not minimum wages destroy jobs is still very much an open question - at least as far as academics, NGOs, governments and economists that study the issue are concerned. There have been innumerable quantitative studies, and studies on the meta data of those studies, and still no clear-cut conclusion. You can spend an afternoon with google and wiki and other websites without getting an answer.

    The reason is simple: hiking the minimum wage shifts corporate spending from labor to capital, and shifts jobs overseas. On the other hand, the higher pay lifts consumption (thus growth) and the higher capital spending creates jobs elsewhere in the economy. Trying to disentangle those effects and isolate the pure impact of minimum wage levels is near impossible.

    This would suggest that minimum wage legislation can be useful to a degree, but is counterproductive if taken to extremes. As with so many things it is about finding the right balance (which will by definition not please everybody).

    My own feeling is that a minimum wage is necessary to prevent labor market abuse, but once it becomes a reference wage for a significant number of firms it becomes dangerous. For example in France 1 in 8 private sector workers are pegged to the minimum wage, and given the sorry state of their labor market I suspect this is a danger level.

    A minimum wage level that protects the "long tail" of exploited workers but does not affect more than 5-10% of the labor force would seem a good idea from a national economic perspective. I don't know what that translates to in dollar terms.
    Of course for developing economies with more agricultural labor and more low-wage manufacturing enterprise, the level would be defferent.
    May 15, 2015. 04:36 PM | 1 Like Like |Link to Comment
  • Wall Street Breakfast: Dollar Crumbles, Hits Fresh Lows [View article]
    Bob - thank you! Glad you did that for me. But.. aren't they still talking about Obama saluting with a cup of coffee in his hand? I can't believe how the media just glosses over some things.
    May 14, 2015. 06:21 PM | Likes Like |Link to Comment
  • Wall Street Breakfast: Dollar Crumbles, Hits Fresh Lows [View article]
    Yup, it's GNT. And for once the good news is right here in WSB : "Greece's debt is not viable and the country's debt repayments to the ECB should be delayed, Greece's finance minister declared on Thursday."

    Read: we're gonna default.

    I have little doubt Greece will default, the only question is how "controlled" that default will be. I'm surprised the media hasn't been leaking info about talks between central bankers and politicians concerning how to manage that default. Knowing that Europeans can't get anything done without talking and gnashing their teeth for months beforehand, it does give me doubt - but on balance I still think the odds are someone will not get paid on time.

    But no one really cares about the Greeks; the main concern is how the default impacts other European economies and asset markets. And that hinges on a Grexit - whether or not Greece will revert to the Drachma.

    The press invariably assumes that a Greek default will lead to their exit from the Euro, but I have yet to read or hear why that should be so. I cannot find one treaty article, or one legal argument, that says a Grexit must follow a default. Why can't they default and keep their currency? After all, polls show a big majority of Greeks want to stop the pain of austerity, yet an equally big majority also wants to keep the Euro and stay in the EU.

    Greece is a sovereign country, they can choose whatever legal tender they want. Zimbabwe uses the US dollar and never asked permission from the Fed. So do a dozen other countries.

    There may be an economic argument for Grexit, insofar as to regain competitiveness and growth they would need to devalue (and therefore revert to the Drachma) because insolvency by itself will only provide short term liquidity, not long term solutions. But that would be their choice, and it would not follow automatically or mechanically from an event of default.

    So it's all pretty murky. I'm not an expert on European law and maybe there's a legal angle that I've overlooked. But I still think the most probable outcome is that (a) they do become insolvent (b) there is some kind of plan to organize their bankruptcy (c) they eventually leave the Euro but only after months or years (d) markets have anticipated it for so long now that a default will not cause a tsunami, and (e) the rest of the Eurozone will be better off without them.

    And if I can add an (f) it's that the IMF will be the big loser: they already stand accused by the BRICs of being too euro-centric and throwing good money after bad in the greek rescue effort. Greece belongs to a club of rich countries already, the argument goes, and IMF funds are best reserved for the developing world. Factor in the absurd refusal by the US to give more voting rights to the BRICs, and it gets downright nasty. If Greece defaults the IMF will have quite a bit of explaining to do. And China will be laughing all the way to the bank - the new Asian Infrastructure Investment Bank, that is.
    May 14, 2015. 06:07 PM | 1 Like Like |Link to Comment
  • Hope Is Not A Strategy, Before Investing Have A Precise Calculation Of Return In Mind [View article]
    @hardog - All power to you! When I get to 7 figures I'll drink one in your honor. GJ
    May 12, 2015. 10:39 PM | 1 Like Like |Link to Comment
  • Signs Of A Stock Market Correction Developing [View article]
    @James Kohstohryz - sorry, I'm trying to take this seriously, but I'm not sure you understood my point, which is a simple one : when the market breaks downwards, you don't (yet) know whether it is the first leg of something big or just a blip. Your finger is poised on the sell button. Do you click?

    Charts which are by definition backwards looking, offer explanation for what has happened - days or weeks afterwards - but offer little guidance as to whether you click or not on the day. As such they can explain (as you say) but not predict.
    May 12, 2015. 10:27 PM | 2 Likes Like |Link to Comment
  • Significant R&D Increase Suggests Apple Is Working On Something Big [View article]
    ?? Gold products are not even adaptaions, they're simply marketing nuances.
    May 12, 2015. 09:48 PM | 2 Likes Like |Link to Comment
  • Generating $100 A Month From Kinder Morgan [View article]
    @ Pendragon & Gabby - Much respect, everyone has their own investment style, but there is one thing that bugs me about yours : you explain when to buy the stock, but not when to sell it. OK so when the stock price goes down that's a buying opportunity for you. But one day you'll want to spend that money, no? So what happens when your dividend queen has been languishing in the doldrums for 5 years whilst the S&P has gone up 80% ?

    Two examples : INTC 2005-2013, or MCD 2012-now. Both of which I owned as dividend stocks only to see the market race ahead for years and years. How long do you wait until your dividend stock catches up? It will never catch up. My personal experience (and it is mine only, not meant as a lesson) suggests you'd better spend your time researching the stock that will double in 5 years rather than calculate the gain from a 4% payer vs. a 2% payer. It's just maths.

    I also owned a huge dividend stock, SAN paying over 9%, but thankfully set a stop-loss at my entry price. That trade lasted just 18 months and had I held on I would have lost my shirt. Knowing when to sell is much more important than knowing when to buy.

    Here's what I think : once you chase stocks paying over 5%, you are at risk of a big loss because the yield is unsustainable, the company is not solid, and you don't trust them to maintain the yield for 3+ years. Under 5%, we're just talking peanuts - the difference between say 4% and 2% can be wiped out in a week. But that's my style, because I might need the cash anytime, whereas your style may be more nest-egg. To each his own.

    Good luck to all.
    May 12, 2015. 09:41 PM | 1 Like Like |Link to Comment
  • Is There A Dividend Bubble: Kinder Morgan Edition [View article]
    I can't believe all this crying and gnashing of teeth. If you didn't like the conversion from MLP to C-Corp it's because you didn't do your homewrk and bought the wrong part of Kinder Morgan. I did my homework, bought KMR, and am extremely happy about it.

    Coke changes their formula.
    General Electric sells GE Capital.
    The SNB revalues the Swiss Franc.
    Deepwater Horizon blows up.
    Greece defaults.
    Stop crying.
    May 12, 2015. 08:03 PM | 1 Like Like |Link to Comment
  • Is There A Dividend Bubble: Kinder Morgan Edition [View article]
    "I personally don't have an opinion Kinder's maintenance Capex as this is an issue that needs to be looked at in incredible detail in order to get to the bottom of it. But serious questions have been raised, and to my knowledge, they have never been adequately answered."

    Well I did look into it. Kinder replied to the Hedgeye capex criticism, million$ by million$, detail by detail, and the maths added up and the explanation made sense. I don't have the link anymore but if you have the time you should look it up. The question is settled.
    May 12, 2015. 07:47 PM | 3 Likes Like |Link to Comment
  • Is There A Dividend Bubble: Kinder Morgan Edition [View article]
    "By the way, many KMI customers are high grade and have excellent credit themselves. So, there's also a certain level of "insurance" in their customers. "

    Wrong. You fail to factor in the 'unknown unknowns' i.e. the 2nd and 3rd degree impacts from falling energy prices. Kinder's customers are hurting, and they're hurting bad. Everyone from Chevron to the one-rig outfit. They need to cut costs, fast, and Kinder's transport fees are a huge cost for them. So long-term contract or no long-term contract, they will put pressure on Kinder to reduce his monopoly rents. KMI profits will suffer more than you think in a low oil price environment. It's a matter of time.
    May 12, 2015. 07:37 PM | 2 Likes Like |Link to Comment
  • Is There A Dividend Bubble: Kinder Morgan Edition [View article]
    @Daniel - I have a couple of problems with that expanation. If I bought KMI shares 5 years ago, and they are now worth more than I paid for them, what concern is it to me if a portion of the "dividend" is in fact a return of capital (as opposed to a return on capital).

    Secondly, the MLP is obligated to pay out its cash flow as a dividend - in fact as a distribution. So logically they need to raise more capital to expand. But so long as that new capital earns a return on assets, which is paid out along with the return on the capital raised, why should I as a long standing shareholder be concerned?

    The real question is whether or not this is a ponzi scheme. Bill Ackman?
    May 12, 2015. 07:05 PM | Likes Like |Link to Comment
  • Is There A Dividend Bubble: Kinder Morgan Edition [View article]
    Giving it back with a profit does.
    May 12, 2015. 06:52 PM | Likes Like |Link to Comment
  • Is There A Dividend Bubble: Kinder Morgan Edition [View article]
    Are you sure all $3617 capex was funded by cash from operations? And was that capex dedicated to existing infrastructure or new-build? Shouldn't you factor in future cash from new-build? Cash from financing activities?

    These are the questions Hedgeye asked, and flunked.
    May 12, 2015. 06:51 PM | 1 Like Like |Link to Comment
COMMENTS STATS
650 Comments
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