thomast2's Comments

Huron Consulting: Getting Too Close to Its Roots

Sun, 16 Aug 2009 09:23:23 -0400

I have pointed out many weak spots from Huron’s latest financial results, such as immediate liquidity risk to cover their interest payment on their huge debt, the goodwill issue, the risk of equity holders being totally wiped out during a debt restructuring, etc. etc. At the same time, how much value it offers if the last 5 years’ financial reports are all fraud, which they are in the process of re-stating and re-issuing all of them? You can go back to read them all if you like, but do you know how much truth they said is really there? Can you tell the difference between the truth and the lies in those reports?

Obviously you think DCF, or more specifically the cash flow projection, is the only way to evaluate a company. Since you are a big fan of DCF, then tell me what do you think the discount rate (or hurdle rate) to use in this DCF model based on Huron’s management quality and their fraud financial reporting for the last 5 years? The weakest spot for Huron is its culture and management, or the so-called soft aspects of a company. Tell me how will you evaluate it based on DCF analysis?!

If you want this kind of analysis, fine, just go to buy UBS analyst report, which reiterate “Buy” rating when if it was traded at $45 and before it plummeted to $14, if that is the kind of DCF analysis and “serious” research report you want. Contrary to your view, I think SA and other websites provide their readers a platform of more diversified opinions about a firm, instead of a few mainstream Wall St. firm’s analysts only knowing how to grab numbers of cashflow and discount rates in the air and make up false assumptions in their DCF models. Those research reports along with their false DCF analysis are indeed worthless.

Huron Consulting: Getting Too Close to Its Roots

Thu, 13 Aug 2009 14:44:04 -0400

GMM: Please read the news again. This is directly from Reuters: "Huron's board audit committee discovered that shareholders of four businesses that Huron acquired between 2005 and 2007 redistributed portions of their acquisition-related payments among themselves and to certain Huron employees." Please note "to certain Huron employees". This is kickback to a few key own employees. Unless Huron Audit Committee is also wrong, then I really don't know what to say about Huron.

Also since this is the only comment you have made so far on SA, so I assume you register at SA just to make this comment to my article. In this sense, I am honored. Thanks.

Silvercorp: Canadian Mining Profits in China

Thu, 28 Aug 2008 13:34:41 -0400

Thank you all very much for the comments.

For fxtrader07, by talking with the management, I don’t think the power issue is really that bad. First of all, there was a press release dated Aug 13th and I copied the related paragraph on power supply below. Secondly, with the upcoming new power line and their own diesel power capacity, I think Silvercorp now has a good backup plan if the same problem occurs again in the future. And the Olympics is over. Third, as I was told by management, Silvercorp mining operations actually don’t use that much power, at least not as much as the perception of some investors think. In summary, their production target this year is unlikely impacted by the power supply issue.

Aug 13th press release from Silvercorp: “The Company has noted an improved outlook for its power supply problems outlined in the August 8, 2008 news release. There has been no power rationing for the last five days. The local County Utility Bureau has assured the Company minimum power rationing as power supply to the local county has also improved when a new hydro power generating project in the County was brought into operation last week. Management is working closely with the local Utility Bureau to minimize future power interruptions, including investing almost $1 million since last May to build a new power line to the Ying Mine. The new power line is expected to be complete by the end of this August. The Company is also expanding diesel power generating capacity at the Ying mine to cope with potential power rationing.”

Northgate: Mid-Tier Gold Producer with Strong Cashflow

Thu, 21 Aug 2008 10:54:31 -0400

Thank you all for the comments. Some of you raised a few good points. Regarding ARS, I am cautiously optimistic. As bulletbob said, with JP, ML, C buying back at full price, likely NXG will get that deal too. Since NXG can borrow with ARS as collateral, so I don’t see liquidity is a big issue here. Plus they are generating cash from their productions, unlike many juniors.

The key for NXG is more for the future. They need to make up the declining revenue of Kemess South from Fosterville and Stawell in next 2-3 years, then 3 years from now, let Young-Davidson take over to replace both kemess South and Stawell. And they need to find another resource rich mining project soon in order to grow their business, top line and resources level. Once the whole PM industry is back on track with gold bull market resuming, NXG stock price will come back at much higher level than now.

Vista Gold: Ready for the Middle Tier

Sun, 10 Aug 2008 15:54:34 -0400

Thank you all for the comments.
LarryH, my analysis includes production cost per oz as indicated in the article. Jimmy46, I don’t think it is the case here for Vista.
Clavis, I don’t know much about Aurelian but since you mentioned it, I looked it up quickly at the web. It seems that Aurelian has 13.7m gold inferred resources at Ecuador. This is actually comparable to Vista which has 10.3m M&I, and another 3.9m inferred gold resources in 6 separate projects but in more geopolitical safer countries.
So if KGC feels comfortable to pay $1 billion for Aurelian, Vista should be worth the same too, if not more. Another way to look at it is that KGC pays roughly $60-70/oz (?) of gold in the ground for Aurelian, but based on my analysis above, Vista is now only traded at < $15/oz.
Bill sanders, I agree with your point on proxies. Bobjou, most of the companies I follow have production or near production, including Vista which is also at the verge of production.
Utiwiq and others raised the cost issue which is always my concern too, and probably the reason why the whole sector is currently depressed. But if energy cost stays at this level, and gold bull market returns to life and goes over $1,000 again, higher production cost will be offset by higher gold price.

The True Nature of Fan and Fred

Fri, 01 Aug 2008 10:58:57 -0400

Thank you all for the comments, even some of them are very harsh and unfriendly ones.

For those who don’t think F/F will cost taxpayer a dime, did Greenspan just call for “nationalized” F/F this week? What’s “nationalized” mean? If not taxpayer’s money, then whose? Yours? Maybe Greenspan meant the Japanese or Chinese central banks? Maybe it is not such a bad idea for foreign central banks to takeover F/F since they own so much of their debt anyway. How about the $25B estimate from Congress for taxpayer’s losses, even it is probably underestimated by 15-20 times as ithinkbig pointed out (I can show some calculations at the next article on this subject).

Fannie’s business is actually a simple one. It provides guaranty operations by stamping its brand and guarantee on bundles of mortgages refashioned into bonds, then earns a spread on the difference between the cost of its liabilities (US treasury equivalent bonds) and the yield on its assets (mortgages). Without its public entity status and government guarantee, how would they be able to stamp its brand and get the US treasury equivalent rating from its bonds? More importantly, without government support, how would they be able to borrow at super low rates equivalent to US treasury so that they can earn a decent spread? Not even the largest investment bank or commercial bank such as JP Morgan in this country can do either one of above. It is actually a more than Skull & Bones type of privilege.

Even it doesn’t conduct transaction directly with government (who does these days? Even foreign central banks are doing most of their transactions in open markets), the guaranty nature from US government for all its debt indirectly transfers the ownership to the government. It is as simple as if you fully guarantee all of your brother’s loans from various banks, it is the same as you implicitly borrow from the banks, your brother’s total liabilities become your liabilities, as simple as that.

Did someone commented “The GSEs couldn't do jumbos or subprime, which are the biggest messes of all.” Really? Where did you get that from? In reality, Fannie’s book has $51.2B of subprime exposure and $344.6B of Alt-A exposure. In addition, Fannie holds $25.8B of private-label Alt-A securities and $25.2B of subprime residential mortgage-backed securities (RMBS) on its balance sheet. The Alt-A RMBS are carried at 85 cents on the dollar and the subprime at 83 cents. Doesn’t sound even close to me, especially the 83 cents for subprime, maybe 25 cents is more likely.

Regarding the Skull & Bones comments, during the S&L crisis, who had protected the Lincoln S&L? The Keating Five, very few but caused public great losses. This time, who has protected the F/F to avoid stronger regulations throughout the years? The few laid out in Paul Gigot’s article.

I think this article at FT this week (linked below), by Joseph Stiglitz, 2001 recipient of the Nobel Prize for economics, expressed many similar views as mine in his article (and he may not want to spend his time to argue with you like me here). For example: the F/F private/public partnerships, in which the private sector takes the profits and the public sector bears the risk. Does that line sound familiar to you? He also said, “Taxpayers should not be asked to pony up a penny while shareholders are being protected.” I might also add “no a penny while F/F bondholders are being protected.”

I totally agree with Dr. Stiglitz, During liquidation of F/F, taxpayers should get the highest priority, fully compensated, then the F/F bondholders, then the perferrs, common shareholders being the last.

www.ft.com/cms/s/0/c69...

How High Leverage Has Brought Down the Whole Banking Industry

Mon, 21 Jul 2008 12:06:39 -0400

Thank you all for providing your wonderful comments here. I really appreciate your thoughts and your time.

Amm, book value and market cap are two different things. Market cap usually is higher than book value but not in LEH’s case here. I also used the same approach as used by the WSJ article that the potential future writeoff could wipe out both book value AND the market cap.

Helplessobserver, I also agree that S&P will fall below $1,100 which is only my intermediate target. See my previous article of seekingalpha.com/artic..., my ultimate target is actually $800, as indicated in my article.

Thanks to Bob Gary and stockguy456, those are good links, especially the video on Fed which I watched before and now watched again. It is a cartel of the banks, by the banks and for the banks.

Charlie, you can read my previous article of seekingalpha.com/artic..., which has a brief discussion on the CDS risk exposure to JP Morgan. This is also the 2nd most popular article I have written next to my 10 predictions for 2008. By the way, what is the link to the Bloomberg article you were referring to?

Pescayolas, this is a long report, let me read through it, especially the derivative portion. Thanks for the link.

Kinabalu and Charlie, what I meant was for those CDOs with AAA rating, which the recovery rate is around 50%. It is more conservative that way. I am aware that anything below AAA rating is pretty much all wiped out. But at the same time, LEH may have written some of them off already.

Magellan Minerals - A High Potential Gold Explorer in Brazil?

Fri, 18 Jul 2008 09:22:39 -0400

Yes, I am long MNM. Thanks for the reminder.

The Current Bear Market: Death by a Thousand Cuts

Sat, 05 Jul 2008 14:08:41 -0400

Thanks everyone for all your great comments. As I said, the bottom of this bear market is expected to be around $800 for S&P, similar to Blair's analysis. Kunst, you are right, it is negative "correlation", sorry about the mis-spelling. Thanks again.

Will Wall Street Discover Endeavor's Mines? Part I

Tue, 17 Jun 2008 10:05:38 -0400

Dan, me too. It was so nice to chat with you during the whole trip. My other two parts are also posted already. See link to all my articles below.

seekingalpha.com/autho...

How Much Is NovaGold Worth?

Mon, 19 May 2008 19:51:10 -0400

Thank you all for your comments.

Marco, a large property like DC needs to do a DCF analysis to put a value to such property. Reserves, even under ground and yet to be digged out, still have a value, and in this case, a good value.

Saba, you are correct from pure math standpoint. But you need to look their M&I reserve figure, which is increasing by the way once the inferred are qualified to be M&I. Even you don't count inferred right now, it is still 1.8 mil, with 0.1 mil per year, it is 18 years. So it is more likely 15 than 10 years of mining life. At the same time, I expect the output will increase which is typical for mining, this is why I said 10-15 instead of 18 years of life since you want to get them out more quickly which will realize a higher net present value. By putting alll these into your DCF calculation, I am sure you will get roughly $500 mil.

Thanks again to all.

Introducing the Minsky Theory - Stability Is Destabilizing

Tue, 13 May 2008 13:10:18 -0400

Thank you all very much for your feedback.

Thanks to a reader, I am just aware of that in early 1990s, when MBS appeared, Minsky anticipated the problems they would cause. In his 1992 article titled: “The Capital Development of the Economy and the Structure of Financial Institutions”, Working Paper No. 72, The Jerome Levy Economics Institute of bard College, he wrote:

"The securitization of standard mortgages was a technique by which Savings and Loans and Mortgage companies originated mortgages which were then packaged as securities for the portfolios of holders such as pension funds, life insurance companies, mutual trusts and various international holders. Because of the way the mortgages were packaged it was possible to sell off a package of mortgages at a premium so that the originator and the investment banking firms walked away from the deal with a net income and no recourse from the holders. The instrument originators and the security underwriters did not hazard any of their wealth on the longer term viability of the underlying projects. Obviously in such packaged financing the selection and supervisory functions of lenders and underwriters are not as well done as they might be when the fortunes of the originators are at hazard over the longer term. All that was required for the originators to earn their stipend was skill avoiding obvious fraud and in structuring the package."

Well, even he put it politely at the beginning of the wild MBS era, he pointed out that the fundamental here was the underlying moral hazard issue. And we saw how moral hazard had caused things totally out of control 15 years later.

Why Did the Mortgage Market Go Out of Control?

Wed, 07 May 2008 09:53:59 -0400

Thank you all very much for your comments.

Syndicat, you raised an interesting point about MLP. I think it is similar to REIT as a legal structure, but I suspect there are a lot more of tax loopholes on MLP for those private equity senior partners to evade taxes, which is probably the original purpose of setting up MLP. Need more time and research on this.

For Bentra and others, as Billddrummer indicated and well said, most of the price distortion is from the securitization process, which is only about 10 years old with proliferation only in recent years.

During this packaging process, fundamental elements of underwriting get stripped out, replaced with macroeconomic assumptions by the computer model. It is similar to the situation that, instead of buying company stock one at a time after you do research on their fundamentals, now Wall St gives you a basket of 500 companies and charge you a premium, because they claim that, based on Abby Cohen of Goldman, US economy will go on strongly in double digit growth forever.

Unlike equity securities, for mortgage securities, even you know they are mispriced, distorted, overvalued, manipulated, there is no mechanism to do arbitrage to return the price equilibrium, since investment banks at Wall St. controls both the market and the source of those illiquid mortgage securities and their derivatives.

So it becomes an one sided seller’s market, structured finance groups at Wall St. set their price, tell you their value, determine their risk, manipulate its credit ratings, investors don’t have a say on this since it is impossible and too complicated to value them.

The only thing investors can do is to buy high and try to sell higher to the next suckers. This is why you see so many hedge funds are involved in this. At the end of the day, this whole thing is totally a pyramid scam now crumbling, as Bill Gross of PIMCO indicated.

How Quickly Market Sentiment Has Changed

Wed, 30 Apr 2008 10:29:12 -0400

Thanks for your note. I also think it is possible that the business cycle will play out as you have laid out here.

Why Wall St. Needed Credit Default Swaps

Mon, 28 Apr 2008 16:22:27 -0400

Yes. As Bill Gross from PIMCO said, the historical default rate is only 1.25%, but I think it is probably more like 3% due to CDOs. Most of them are still good with good counterparties. However, 3% of $65 trillions now is a huge number.

Interesting analogy of Loyds of London. Thanks for your note.

Why Wall St. Needed Credit Default Swaps

Fri, 25 Apr 2008 08:43:47 -0400

Arneson, You are right about bonds. Actually CDS is used for both bonds and CDOs. The CDS on bonds are simpler than CDOs which are very hard to put a value on, let alone assign a value to a derivative (CDS) of the CDO. Even in the GM example, I alluded to CDS used for GM bonds, but the main discussion of my article is focused on CDS on CDOs, where most of the manipulation, distortion and abuse are coming from. Thanks for your comment.

Why Wall St. Needed Credit Default Swaps

Wed, 23 Apr 2008 10:29:37 -0400

Thank you all very much for your feedback. I have never received so much positive feedback on any of my previous posts at SA. Last Dec, I published another article “My 10 predictions for 2008” that was well received but also got some negative comments. More luck than anything else, most of those predictions have already turned out to be true at the 1st quarter of this year so far. Even I am happy about them being correct, I am also deeply worried about the soaring price of current agricultural products, which usually brings unrest, riots and wars in the long human history.

Like Zolio, also as a MBA holder (not from the prestigious Ivy League though), sometimes I am also ashamed of the whole financial industry, especially the investment banking sector. With regulation or without regulation, I don’t see any way to eliminate the moral hazard issue. It always comes back in one form or another (usually not at the form that people would expect) if you look the whole Wall St. history. I guess we just have to live with it, because it is basically human nature, thus “greed”. The best thing about this country is that we still have some press freedom to reveal this kind of manipulation and abuse, which could be a luxury in other countries.

Thanks again to all and Cheers.

Foreclosure Versus Delinquency: Either Way, Financials Will Pay

Fri, 14 Mar 2008 11:45:03 -0400

Thanks both for your comments. I think when seekingalpha moving my article over from my blog site vestopia.com, it made a minor error. What I said was "Foreclosure has already caused bank's recovery rate at 50%". What I meant was due to the increasing foreclosure with fire sale prices, lack of bidders, further deteriorating of real estate market, banks and mortgage companies can roughly recover 50% of their loans. So Zhang Fei, your interpretation is correct.

My Ten Predictions for 2008

Thu, 28 Feb 2008 20:23:24 -0500

I don't know much about HSBC, never read its FS reports. My impression is they don't have a lot of subprime or CDS, and they have a strong presence in Asia. So I hope that they will survive.

Will Citigroup Go to the Teens?

Thu, 28 Feb 2008 08:50:38 -0500

No position in C now. No long, no short, no option. If you want to see my portfolio holdings, you can go directly to vestopia.com/thomast All my trades and holdings are transparent.

Platinum is on Fire, Will Gold Be Hot?

Tue, 26 Feb 2008 08:49:56 -0500

Thanks for your comment. Yes, it is possible. As you said it well, it is a supply issue. But it is also possible that demand for jewelry will decrease and substition from palladium will dampen the price increase. I am more looking at platinum as a leading indicator to gold which also has a monetary function for central banks. They probably won't sell those gold in their vaults.

Anybody Seen Our Gold?

Sat, 02 Feb 2008 12:02:11 -0500

Thank you all for your comments.

Pseydocyst, GATA mission is very different than us gold investors. They are not in for money, but to discover and reveal the truth and increase public awareness.

JT, your points are very thoughtful and I agree it is a big deal. But at the same time, with gold in bull market for 8 years, I see gold cartel's power deteriating, unlike in the 1990s when they could do whatever they want to do. Also European CBs have made no secret about selling gold, and it is public that CBs don't like gold and selling gold in the market to depress gold price. So it is not a totally conspiracy no one knows. What GATA is doing is to try to discover whether investment banks at Wall St are used by US Fed and other CBs to manipulate gold market at daily basis. This is a different matter. Unfortunately so far there is not much strong evidence on this matter since no one is talking. All we see are some strange price movement as you pointed out.

Another thing is to make Fed transparent on our gold postions, their gold cross trades and reserves, which could be the single most important thing for the future monetary strength of this country. This is why I said the existence of GATA is very healthy and timely and hopefully they can promote public awareness so power will return to the people, not the few elites behind the scene for too long.

My Ten Predictions for 2008

Mon, 31 Dec 2007 11:45:40 -0500

Thank you all very much for providing comments to my article.
The response has been overwhelming. I put this article together originally for my blog website more for fun and didn't expect so much feedback. I won't answer all of you one by one, but overall here.

For those criticizing my views as subjective, I fully respect your opinions. But here I only point out one fact, many of my predictions are merely continuation and extension of trends from 2007 (gold, oil, banking sector, real estate, US dollar, etc.), so unless you have your eyes closed or your head in the sand, you are as subjective as mine, but at least my views are based on real data and real trends in 2007. For those don't believe any of these things will repeat 2 years in a row in 2008, just look back in 1970s, it is just a super normal cycle of business and financial market. BTW, I never heard of Dr. Enzio and Trader Mark.

For those who agree with me, please also exercise caution. If at the end of next year, 6-7 of them (2/3) become true, it is already record breaking against any wall st. masters. I personally will be very happy even if 3-4 (1/3) are true.

Elliot Miller, I am talking about nominal USD, but $2,500 gold who knows might eventually happen but probably many years down the road. For general equity market, I am actually more careful by saying range bound since I factor in what Fed can do by lowering fed fund rates very aggressively, down to 3% if they want to. Also the rate lowering this year will help and see impact next year. I also only point out banking and retail will be under pressure, it is possible some other sectors mentioned by nomadine will offset to provide a trading range for overall equity market. Yi Yi, I am neutral on solar and wind, but feel too much hype in solar already. I feel they are not that different than water hydroelectric power utilities with stable income, don't see anything so "high-tech" or super growth like ipod there. Hugh, I agree with your comment on labor and real estate, especially with labor cost. Darrell, I only said 10% for 2008, then I see a rebound, then I agree with you, I see more falling much worse than 10% but will take a few years to play out. But anything is possible in the market, USD could drop much >10% next year too.
Thanks again to you all. It will be an exciting year next year.

Gold Will Hit $1000 in 2008

Fri, 28 Dec 2007 21:32:00 -0500

Thank you very much for your comment. Really appreciate it.

Sotheby's (Falling) Stock as a Market Indicator

Wed, 05 Dec 2007 10:06:51 -0500

Very insightful views on this specific and special auction market behavior. Thank you very much for your reply. I am using BID as only one of the many indicators and this one is kind of reinforcing the others which are all pointing bearish, at least for now. Thanks again.

Sotheby's (Falling) Stock as a Market Indicator

Wed, 05 Dec 2007 09:30:00 -0500

Very insightful at this very specific and special auction market behavior. Thank you very much for your reply. I am using BID as only one of the many indicators and this one is kind of reinforcing the others which are all pointing bearish, at least for now.

Gold Has More To Run, Whatever The Benchmark

Thu, 27 Sep 2007 09:45:48 -0400

Thanks for your comment. I will actually discuss more on this in the future but since you mentioned it, I will give a quick note here. DJIA represents paper asset, gold is the king of all commodities and represents the hard asset. They are both assets but people have changed their preference from time to time and from one to another. For example, in 1970s, no one cared about stocks, or so-called nifty fifties were all down 50-90% from the peak, while people were buying into gold as inflation and asset protection vehicle. Gold was out of favor between 1980-2000 and I am arguing that we are seeing a financial asset rotation back to gold. Thanks again.

Gold Has More To Run, Whatever The Benchmark

Wed, 26 Sep 2007 21:04:04 -0400

David, I actually read that article. Maybe it is true that M3 is not a good figure to look at, but too many other factors argue for gold's rise. I actually think it might be stagflation, or recession plus inflation, as Jim Sinclair always indicates and what actually happened in 1970s. There are many more reasons for gold's rise which I will discuss in the future.

Bill, I appreciate you share your thoughts on the strategy and your other comment at my earlier blog.

Setting A Minimum Gold Price Target

Tue, 18 Sep 2007 10:50:31 -0400

Thanks for your comments. By hyperinflation, I meant out-of-control price inflation like in the 1970s, which I do see a repeat in the near future. But now if I rewrite this I will use a better word, stagflation. It is hyperinflation combined with slow-to-no output growth, rising unemployment, and recession. Thanks again.

Remaining A True Believer in Gold and Precious Metals Stocks

Sat, 08 Sep 2007 23:16:11 -0400

I agree and thanks for your great insights and comments. Last 4 years, every major ups & downs I did trim back and buy back however, not enough. I developed a simple HUI and gold indicator, but only trim back 1/4-1/3, not the majority of my positions as you suggest (however not too sure about your target of 30%). Part of that is more psychology than anything else, I am concerned I am not fully invested for this major long term gold market, so I tend to trim less than I should and buy back too early. I will do some backtesting on your strategy and probably make some minor change to my strategy by incorporating yours. Thanks again. Thomas