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laterre

laterre
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  • Buy This Coal Company For Superior Income [View article]
    I find this MLP puzzling, and wonder what's the "secret sauce" that allows them to make money when everyone else in the industry is bleeding cash? Apparently they have been able to secure long-term (now above-market?) "contracts" to insure that their production is spoken for. But two questions emerge: why are they uniquely able to hedge their sales into the future, whereas others are stuck sitting on large inventory or forced to move it at increasingly risible prices? Why hasn't someone else stepped in and outbid them? And assuming that these long-term contracts are in-the-money (viz. above-market) aren't they liable to exactly the same dangers as the shippers: namely, that counter-parties have every incentive to play hard-ball and try to break/ default/ renegotiate extant contracts?

    Beyond empty blandishments about the genius of their management, can someone explain exactly what their durable advantage is, when other coal producers in North America literally can't give away coal assets? Is their coal somehow better than the coal of others?

    Color me skeptical but open to being convinced...
    Oct 15, 2014. 08:42 AM | Likes Like |Link to Comment
  • Walter Energy: Dramatic Price Decline Appears Overdone [View article]
    Well-said, and no real disagreement here. It's all about the Met prices.

    It's just worth noting that "turnarounds" and "bankruptcies" aren't mutually exclusive (something the RSH bulls have yet to fathom), and these coal companies seem to have a hair-trigger when it comes to filing. If/ when they file, the equity is toast.

    At these current prices (mid to high 20s), the senior unsecured bonds are also essentially OTM calls, but with a slightly less binary and more compressed range of payouts.
    Oct 14, 2014. 05:00 PM | Likes Like |Link to Comment
  • Pacific Coast Oil Trust And Measure P [View article]
    http://bit.ly/18CtaIx

    http://bit.ly/MaAiTj

    Or, see Poundstone's Fortune's Formula--a terrific read.

    FWIW, I personally won't venture more than 1/2 Kelly on any single situation unless there's an absolute margin of safety (heads I win a little, tails I win a lot).
    Oct 14, 2014. 04:52 PM | Likes Like |Link to Comment
  • Walter Energy: Dramatic Price Decline Appears Overdone [View article]
    Here's to miracles: great for sainthood, not so good as an investment thesis.

    The relevant question isn't whether there are other heavily indebted companies that have recovered from a sub $2.00 share price. Loads of them. The better question is whether any companies with bonds trading in the .20-.30 range have successfully avoided filing Ch. 11. The answer is few and far between, and the equity rarely survives in these scenarios.
    Oct 14, 2014. 11:28 AM | Likes Like |Link to Comment
  • Pacific Coast Oil Trust And Measure P [View article]
    That seems like a very optimistic "worst case," as it's at $8.50 already even when everyone seems to think the Measure is a longshot to pass. With passage, the headline risk is mid single digits, I'd think. Roughly symmetrical risk reward.

    Upon passage, and with a likely dip into the $4.50-6 range, you'd be looking at 2 or even 3:1 asymmetric risk reward.

    Under the passage scenario, I'd take the bet with a decent Kelly factor.
    Oct 14, 2014. 11:22 AM | Likes Like |Link to Comment
  • Pacific Coast Oil Trust And Measure P [View article]
    These guys now have two potential problems, the Measure P uncertainty and tanking oil prices.

    Haven't looked at the materials for a while, but my recollection is that the initial hedges on oil prices from the IPO are rolling off and this will become more sensitive to market prices in WTI/Brent.

    I'd actually play this the opposite way as CubRob. In the event that Measure P passes, and this thing tanks to low single digits, buy a modest position and patiently wait from them to pursue their legal remedies.

    PS: even some of the less uncertain royalty trusts are getting pounded. BPT and some of the others are starting to look interesting...
    Oct 13, 2014. 09:29 AM | Likes Like |Link to Comment
  • GT Advanced Technologies: What Went Wrong And What Investors Need To Know About The Bankruptcy Process [View article]
    Interesting interpretation of the evidence. That exchange--and others throughout the CC transcript--show at least modest indications of deception.

    See Spy the Lie by Houston, Floyd, and Carnicero.
    Oct 9, 2014. 02:03 PM | 1 Like Like |Link to Comment
  • Is Farmland Partners The Best Set And Forget Opportunity Ever? [View article]
    I don't have any problem with a truly long term view of farmland, so long as it doesn't involve (a) buying into the local maximum of a bubble or (b) getting involved in a convoluted vehicle such as this one.

    If you can find actual Midwestern farmland for sale at prices that yield 4-6% ROE from real at-the-market leases, then by all means buy with both hands and a bucket.

    My only point is that this FPI thing ain't that.
    Oct 7, 2014. 04:21 PM | 1 Like Like |Link to Comment
  • Is Farmland Partners The Best Set And Forget Opportunity Ever? [View article]
    No arguments there, and well-said! Buying at a realistic price is key--and long-term a good inflation hedge (for when we actually get some inflation). As for FPI, we know what they paid (though not the current value) but the attraction for many is the possibility of a dividend and earnings--which are going to be a lot less lucrative once those related-party, above-market leases roll off. I think people who see this as a divvy play are going to be disappointed in the future.
    Oct 2, 2014. 10:00 PM | Likes Like |Link to Comment
  • Is Farmland Partners The Best Set And Forget Opportunity Ever? [View article]
    Haha, LOL, buying opps from the commodity bust!

    Seriously, though, all the hot money "inflationistas" who piled in at the top of the market paying $12-15K for prime Midwestern farmland aren't going to like these new grain prices and what the commodity sell-off does to their expected ROE.

    Problem with this stock/thesis is that it can't be both ways: EITHER there's a rosy future for commodities and farmland, and healthy divvies to be paid out from all these great (above-market) triple-net leases at $400+ per acre, OR they're well-positioned to take advantage of the shake-out when land prices hit the skids. But it CAN'T be both ways.

    This thing reeks in terms of conflicts of interest, and gimmicky IPOs like this always mark tops in bubbles. Insiders seeking to cash out by dumping their problems and debt onto starry-eyed retail investors late to the party.
    Oct 2, 2014. 03:13 PM | 1 Like Like |Link to Comment
  • Is Farmland Partners The Best Set And Forget Opportunity Ever? [View article]
    Any thoughts on this now that corn is headed for a 2 handle, and soybeans an 8 handle per bushel....? Those initial above-market leases look even more improbable in light of a 30-50% +/- drop in grain prices. Absolutely no way they get those kind of rents when the original leases roll off to market rates with third parties.

    Disclosure: currently considering a small short position.
    Oct 1, 2014. 10:29 AM | Likes Like |Link to Comment
  • CEF Strategies: The PIMCO CEFs - Opportunity Or Warning Shot? [View article]
    Agreed--one of the great things about the CEF structure, as you say, is that they don't need to carry cash to meet redemptions, and many of them are already fully levered (with further implicit leverage through cmo derivatives). But the great thing about the barbell strategy in PDI, PCI, or PKO (not sure about the extent to which Gross CEFs used this) is that when one end is going down, the other tends to go up--or at least hold constant. So you sell a little of the very liquid GNMA equivalent cmos or agency pass thrus and use some of the proceeds to pick up the juicy stuff getting dumped from the other funds, which presumably you get to see first.

    For every disadvantaged seller there's a happy buyer right now licking his chops. I'm sure they've got bigger things on their minds at Pimco right now, but I see this as a trading opportunity.
    Sep 30, 2014. 08:00 PM | 1 Like Like |Link to Comment
  • CEF Strategies: The PIMCO CEFs - Opportunity Or Warning Shot? [View article]
    Or, to the extent that it's appropriate, the CEFs can scoop up some of the choicest higher yielding assets that are being forcibly dumped by the OEFs. There are SEC rules about arranged sales from one fund to another, I think, but this can be accommodated without jumping through too many hoops.

    Having more non-agency mbs dumped into the market at more reasonable prices/ yields is far from a bad thing, although you're correct that it may show up temporarily as hits in the daily NAVs of the CEFs.
    Sep 30, 2014. 05:38 PM | Likes Like |Link to Comment
  • CEF Strategies: The PIMCO CEFs - Opportunity Or Warning Shot? [View article]
    I can kind of understand (but not really) focusing on the yield, rather than the premium to the book value. You are indeed paying 1.37 for assets worth 1.00, which runs against my instincts (and the whole opportunity of CEFs) which is to buy things for a discount to their underlying value.

    But what makes no sense whatsoever (at least to me) is paying more than NAV for a yield of 13% which is actually, at least partially, a return of capital. You realize that PHK isn't fully earning the 13% they're paying out, and that part of the distribution is a return of your own money (for which you've paid a premium)?

    In fairness, some of the Pimco funds can be wonky in terms of breaking down the income from coupons, derivatives, and capital gains trading, which may be at work here, but it also seems like PHK is a fairly clear case of a fund that's not earning its distribution and hasn't been for some time. It has negative UNII.

    I'm happy to be corrected on this, as this one isn't one I've looked at carefully. But regardless of the details of this fund, if you're paying over book for an eye-popping yield, you'd better be darn sure that it's actually earning the extra yield to merit the premium...
    Sep 29, 2014. 10:21 PM | 1 Like Like |Link to Comment
  • Bill Gross PIMCO Exit Creates Unprecedented Value In CEFs [View article]
    No, we're not kidding you, and the effective leverage of PDI is actually well more than 47%. FWIW, PDI is also overearning its divvy with +/- 12% ROC, sells at a discount to NAV, and if you follow its chart of NAV, hardly missed a beat (indeed has continually increased NAV) throughout the "taper tantrum" last summer, showing negative empirical duration. Yes, it carries a lot of leverage, and some of the credits are dicey (my main concern), but it also has a healthy dose of agency CMOs and other ends of the "barbell" that would do well in a credit sell off. Other than maybe BOI or DMO, you won't find a more steadily growing NAV in the cef space.
    Sep 27, 2014. 10:10 PM | 2 Likes Like |Link to Comment
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