thegrandibah

GE Results Validate Theory: Severe Economic Contraction

The article reflects extremely poor fundamental research techniques:

1) GE's double digit decline should come as no surprise. The author should have focused on interim quarterly decline trends not YOY figures. There will be no YOY gain until the YOY figures have "lapped" the big drop off in 4Q08.

2) "Stocks are, at their core, priced on earnings growth, with the most-common ratio used for such metrics being P/E/G, or Price-to-earnings-growth. But earnings are not growing, they're contracting...."
Stocks are discounters of expectations of future earnings growth (really the present value of future cash flows). If the author were correct, companies without current earnings would be priced at zero. We would have no drug industry.

3) "a 30% reduction in business done should lead to a 30% decline in profits earned"
False! This could only be true if a business had zero fixed costs.

4)"Multiples are going to continue to contract...."
If the market is flattish for the year and earnings estimates have fallen, multiples have increased.

5) "in order for revenue to come back to pre-bust levels, we would have to re-inflate the credit bubble "
This falsely presupposes re-inflation of credit is the only driver of revenue. Easy money is a good one and Obamanomics are providing crazy money supply growth, but there are many others.
6) "The move in the market off the 666 levels in March has been driven by a false premise, egged on by CNBC and the other "mainstream media" - that this is a typical recession, it is short-lived, and we will soon go back to previous spending and business patterns. That is not going to happen"
The 666 comment indicates the author is nothing more than a technician trying to masquerade as a fundamental analyst. The media and everyone is "false," yet, we should believe this pundit because he says "that is not going to happen" without any data or real analysis to support his position. Pathetic.

I could go on (and on) but you get the point. It is quite fashionable to be negative so we cheer-lead poor research like this. He may be 100% right but it would be nice to have a cogent piece to back up his position.

What REALLY Caused the Mortgage Crisis - And What to Do Now

The real catalyst of this crisis was the change in incentive compensation for Sallie and Freddie to one based on VOLUME. Senior management was rewarded with hundreds of millions based on this rudimentary change. Barney Frank was the ax behind this change. How he has been able to walk away unscathed is beyond comprehension.

Cenveo Amending Its Credit Facility

This is a super managed company that is gaining market share, generating piles of cash. The author derived myopic conclusions about a filing without providing context or doing any additional homework. Furthermore, Valassis is not a comparable company.

Ethanol: The Good, the Bad, the Ugly, the Beautiful

Nothing is mentioned about the negative impact of the vapor pressure of ethanol on the environment in terms of smog creation. The Farm lobby opted to push ethanol instead of ETBE as an oxygenate and replacement for MTBE. Ethanol has much poorer vapor pressure characteristics but uses more corn and that's all the Farm lobby cared about.

Frank is absolutely correct in highlighting that the potential benefit of biodiesel combined with high mileage technology is already available and a far better solution. What is still needed is capacity and downstream distribution. With several major auto producers introducing new diesel models this will be vastly improved in short order.

Praxair: Aggressive Growth Despite a Recession

Praxair is a far more complicated company than you realize. Don't feel bad. Most sell side analysts who cover the company don't understand what drives the business for several years after they begin coverage.

You hit on a growth driver that is neither the primary nor secondary motivation for their future growth. First and foremost, is a secular shift in growth trends based on new uses of industrial gases for the energy (primarily drilling...IG for completion and fracturing) and environmental markets (EG oxygen for hotter furnaces to reduce NOx emissions). These alone likely will likely improve trend growth by 30% to 50%.

Second, as most IG contractual purchase obligations to the company average three years. There is a significant lagged effect of price increases to the company's bottom line. This tends to mitigate the impact of slowing volumes in a recession. Prices lag the real world by 1.5 years. Unfortunately, this will have the reverse impact of delaying the onset of new price increase as things tighten gain.

Great Shorting Opportunity, Care of Obama

were these 5 lines supposed to confuse someone with equity research?

Silver - Better Than Gold, But Still a Commodity

The author has written an article than lacks any real investment thesis. The key elements missing to from one are:

1) Industrial patents for silver exceed those of all other metals combined.
2) The drag on the supply and demand balance from declining photography usage is declining.
3) Because many countries spent decades eliminating their stockpiles of silver, traditionally mining supply was necessary to satisfy no more than 85% of demand. In the last few years this has ended (with the exception of China and to some extent India). This means mining must go from supplying 85% of demand to nearly 100% of demand. This adjustment cannot be made in the short run. Imply a huge spike in silver sometime in the next few years.