AKJ's Comments

Oil: If You Can't Beat 'em, Join 'em Using Credit Spread Options

Wed, 02 Jul 2008 11:50:07 -0400

The August 104s and 96s are puts. That detail isn't mentioned in the article but explains why the 96s are cheaper than the 104s. This article could have used a proofread for clarity. I think the sentence starting with "Conversely" is missing the introduction to the "bear" strategy.

Would be good to mention commission costs here too because I imagine they eat up a considerable portion of your theoretical profits and ensure you can't enter into this position for zero cost. If an option is exercised (likely if the options he sold go in the money) the commissions are even higher. Not an issue when you trade $100k+ at a time, a big issue when you trade <$1k.

ETG: An Attractive Tax-Advantaged Fund

Tue, 22 Apr 2008 09:08:36 -0400

This is a good find - I'd like to learn more:
- are there competing ETF's to compare this to? I've seen other high dividend ETFs, but not another high dividend, tax-advantage ETF.
- what's the long term prospect of the 15% dividend tax rate if the Democrats take the White House?
- the trading price got very volatile in 2007 compared to earlier years - what do you think's driving this and will the volatility continue going forward?

SoundBite Communications: Cheap Valuation Means It's Time To Buy

Wed, 09 Apr 2008 14:03:42 -0400

I'll start by saying I agree with the author's summary - this is a good buy. This whole space is going to be radically changed by Voice Over IP which will bring down the cost of delivering calls to nearly 0. There are alot of "mom and pop" vendors in this space who will be rolled up or put out of business by a well capitalized competitor like SDBT. The cash flow situation is very strong as well - good ability here to land prepaid, long term contracts. Even the pay-as-you-go contracts lock in a very strong gross margin.

Having said all that, I think you need to reconsider some of your valuation comps. Salesforce and Nuance are not relevant. CSG Systems (CSGS) is a direct competitor, as is Blackboard (BBBB) and Premiere Technologies (PTEK). CSG bought Prairie Communications, another direct competitor. Blackboard bought the NTI Group. Yet another competitor, Varolii, has filed an S-1 to go public soon.

Also - the gross margin decline doesn't really tell a great story. And I'm not sure why growth is lowering gross margin - is the cost to deliver calls affected by hiring more salespeople or opening new offices? I could perhaps see having to discount prices to win away marketshare from a competitor, but haven't seen that rationale communicated by SDBT.

Also interesting to note -the biggest consumers of this service are debt collectors. Will a recession actually help SDBT as collectors have more debt to collect? There's also a growing use by government and education users for emergency notification. These are juicy contracts but have extremely long sales cycles. They should also be immune to a recession (assuming emergency notification doesn't get cut out of the budget).

This is a great business model if you can get the sales front-end to work. You typically land clients for long term, highly profitable contracts. At some point you can pull back on sales and marketing spend and really let a large part of these 60+% gross margins start showing up on the bottom line.

I think the biggest risk right now in owning SDBT is trading risk. This is a small cap stock with little to no analysts following. One would think after Blackboard bought the NTI group for 6 x LTM Revenue (yes - Revenue!) that more analysts would take notice of SoundBite. If you have an appetite to buy and hold then, as the author stated, I think the upside potential is very good as SoundBite's growth into midcap renenue size range combined with large profit margins and good growth prospects in a recession will make this one a winner.

Hitting the Reset Button On Home Mortgages

Tue, 01 Apr 2008 10:47:55 -0400

Everyone gets up in arms about bailouts and the unfair treatment of irresponsible buyers until they start looking at what a wave of foreclosures does to their own property value. Just look at California - that state has more Jumbo mortgages than every other state combined. Very responsible buyers have to finance $500-750k on their first home purchase to get a reasonable home in most cities. If you collectively let everyone in California foreclose who is currently or soon will be in default or delinquent on their mortgage, you will wipe out hundreds of billions of dollars of property value. Whole towns will be abandoned as home values drop below mortgage balances and owners have no incentive to stay current on their loans. Property tax revenue will plummet. Consumer spending will grind to a halt. Personal bankruptcies will skyrocket. City and county governments will start defaulting on their bonds. Insurance companies (mortgage, bond and property) will go under as claims exceed reserves. This is why the Fed is fine bailing out "irresponsible" borrowers - because it saves the system for the rest of us. So boo hoo - you may not get the break your neighbor got. Irresponsible people get government help all the time - the US is fairly frugal on this compared to most Western countries. This would be the least wasteful assistance ever offered. Your home is most likely your most valuable asset - to see it marked down 20-30% in one year because your neighbors went into foreclosure will not make up for the fact that everyone got a fair deal and the US Government spent a few billion less than they could have.

Exxon's 2007 Tax Bill: $30 Billion

Thu, 07 Feb 2008 01:44:14 -0500

Don't forget that Exxon Mobil and other oil and gas companies benefit from amazingly generous tax breaks, credits and discounted federal mineral rights that no other industry even approaches. If you have any doubt that we are a nation addicted to oil, just add up the "oil and gas only" tax breaks in the code. There's even a credit for depletion of the oil in the ground as they pump it out - literally the desired outcome of the company generates a tax break. One would think we were trying to nurture a nascent industry versus the largest corporation in the world.

And don't even begin to complain about taxes at the pump. They are comparatively low to laughable compared to the rest of the developed world who treats gas consumption as a social burden and invests in novel concepts like mass transportation and fuel efficiency.

The size of Exxon Mobil is staggering. Their tax bill is not in comparison. The size and scope of tax deductions they enjoy make their tax burden relatively low. The tax code has been setup to treat profit from oil exploration as more sacred.