Rabbitisrich
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Posts posted by Rabbitisrich
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The more I read about fiat currency, the more disgusted I am by how manipulated and "faith-based" that system is, and I also find it scary how the powers that be equate consuming and spending with saving and productive activities, but I also can't figure out what precious metals are worth and whether that the fiat system can just keep going and be patched for a very long time. I like to invest in things that I can understand, but I don't really understand macro...
I'm not sure that gold is best understood through cpi price movements, or even expectations. Look at gold in yen terms over the last two decades compared to inflation, or see gold in dollar terms relative to yield curve and tips implied inflation.
Here are a couple of interesting conjectures about gold:
http://krugman.blogs.nytimes.com/2011/09/06/treasuries-tips-and-gold-wonkish/
http://ftalphaville.ft.com/blog/2012/08/27/1128691/china-dollars-gold-and-a-theory-of-relativity/
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Reasons given by S&P (and my comments):
1. Lack of progress on containing growth in public spending, especially on entitlements. (The blame would certainly fall on Obama and the Democrats since Ryan and the Republicans have shown the courage to produce a plan that reduces the growth rate to below nominal GDP growth.)
2. Lack of progress on reaching an agreement on raising revenues. (This certainly falls on Republicans. It shouldn't be a surprise since that is what many campaigned on (compromise is difficult when it forces one to renege on your campaign promises). I would also note that all Obama has proposed is increasing taxes on the rich which would reduce the deficit by less than 10%. Not particularly bold.)
Sounds to me like S&P is clearly blaming both sides.
I found S&P's message to be difficult to discern. They seemed to be making a mathematical argument about America's capacity to service debt in nominal terms. But then they would say something like this:
[pre]Standard & Poor's takes no position on the mix of spending and revenue measures that Congress and the Administration might conclude is appropriate for putting the U.S.'s finances on a sustainable footing.[/pre]So the explanation is perhaps better understood as a statement on federal character. Why did S&P spend so much time on capacity arguments without explicitly contextualizing bearish scenarios with character arguments? It leaves too much ambiguity and allows for pundits to make silly arguments over which "side" caused the downgrade.
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The employee is like... "well why don't you just give me the cash so that I can buy bread at the store, or alternately I can just invest it in those exact same publicly traded securities?"
Unfortunately the investor population at large hasn't realized that they could just sell an offsetting number of shares in order to generate a lower-taxed dividend, so instead we have to accomodate them and pay some sort of regular dividend.
It would be better for investors to set up some sort of mandatory tender facility, where investors are compelled submit stock pro rata to some pre-set aggregrate $ amount. The company would then immediately effect a stock split, so that each investor holds the same number of shares as before. You get a "dividend", but only pay tax on the gain.
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Winning article on gold from the Adonis team at FT Alphaville: http://ftalphaville.ft.com/blog/2012/08/27/1128691/china-dollars-gold-and-a-theory-of-relativity/
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Any big wig at Big Blue as well as Michael and even Longleaf probably all saw that paying a dividend in this market had such a large impact on lowering your cost of capital that at a 13% payout ratio(ML has a $2.50 in FCF number for next year) that they could afford to do it b/c the opportunity to fill in the rest of the paper remains compelling and their EV/FCF is 26%.
If the dividend doesn't reduce bond yields, and the marginal ROC is shrinking, then Dell would want the cost of equity to be as high as possible. What is the benefit of a cash flowing business with a high equity yield paying a dividend except to the extent that it hedges against investor mistakes?
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What is interesting about this story, among other things, is that you can walk up to someone and hand them two thousand bucks, and they still end up mad at you because you made more than they did.
Hah, well if your business strategy involves bargaining with the terminally ill and their loved ones in the months prior to expected death, then I think that you lose some rights to indignation.
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The actual letter that Ackman wrote is very interesting.
http://www.sec.gov/Archives/edgar/data/1336528/000119312512366295/d401719dex994.htm
Someday, I would like to find the time to go back and dissect the GGP saga. It would make a fascinating case study.
Ackman makes it easy being such a powerpoint jockey. Via Marketfolly:
http://www.marketfolly.com/2010/06/bill-ackmans-ira-sohn-presentation.html
http://www.marketfolly.com/2009/06/pershing-squares-general-growth.html
I also enjoyed the "debate" with Hovde Capital:
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These days, I've been finding good research ideas from strong analysts with mediocre results. For example, Tom Brown from Second Curve and Meryl Witmer from Eagle Capital are smart as mountain goats, but for various reasons didn't show good returns. Just try to skip those reasons.
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^This is a particularly good exercise for exactly that reason. I read an analysis of RIMM where the author listed attractive financial data and then surprised the reader with the name. Yet, you could have done something very similar with LOJN prior to when you couldn't.
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There are a few issues that cloud the analysis, though I don't know to what extent. For example, the Buffett portfolio is assembled from the 13f-hr, then treated as constant weights between reports. So if a company outperforms the rest of the portfolio, the excess weighting may be treated as "sold", and then "repurchased" when it shows up at a different weight in the next 13f.
The authors also try to look past tax effects by comparing a pre-tax stylized portfolio to the "Buffett" portfolio mentioned above. Yet, taxes and fees are a large part of portfolio management. It's a comparison of a tax-efficient portfolio strategy to a tax-free strategy, before taxes.
These issues aren't really criticisms of the study, but they complicate the authors' conclusions. What is the turnover on the stylized portfolios? Does size affect tahe monthly rebalancing as the portfolio grows?
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I forgot about this clever goat, but Lou Simpson has been filing 13f-hrs for several quarters.
http://www.sec.gov/Archives/edgar/data/1534380/000117266112000880/sqadvisors2q12.txt
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He probably stress tested the banks to determine the likelihood of requiring further capital. The paper also provided a floor on the conversion price--very handy when the market price plunged the next month.
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I've been selling my basket financials positions, and selling Jan calls on my WFC position. I entered August with almost no cash, but I don't really have a view on market direction.
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It seems that Geithner does not care that the government is using their power to take all the gain instead of letting the companies pay down the senior preferred shareholder so that the private preferred shareholders and the commons could benefit. Management is supposed to be in the best interest of the company, not one class of shareholders.
If Treasury ever allows capitalism back into the US the recovery could get started.
I remember an old CNBC interview where one of the Freddie Mac directors stated that the BOD held fiduciary responsibility to the conservator. Bill Ackman sat next to him, and received confirmation that the director would subordinate equity and preferred interests.
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From what I understand, after the Washington Mutual seizure, the FDIC sent in staff to allow depositors access to their covered funds almost immediately. Similarly, Indymac shut down for a weekend and reopened under conservatorship. If you are within the coverage amount, then it's a pretty seamless transition.
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It's strange to read Parsad describing an empty Holiday Inn at the 2002 Berkshire Hathaway AGM. Interesting comments from the meeting:
http://msnbrkboardarchive.multiply.com/journal/item/9709/BRK-AGM-Notes
There was a question regarding bank stocks. WEB is surprised by how well banks have done. ROE's are beyond their expectations - partly due to high leverage.I'm not sure if I got this right? Maybe somebody can confirm! We had a $400M nominal put on the S&P 500 back in early 2000.
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Keep them coming! Super interesting series. By the way, do you visit any real estate investing blogs or message boards?
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Ragnarisapirate is too modest to post this, but he has a very interesting series called "Walking Away From A Few Million Dollars". I have been tempted by a glut of condos that trade for under $250,000 despite comparable floor plans renting at ~$1,500 monthly. These articles helped me to remove the dollar signs from my eyes and to look at the mysteriously low HOAs, low owner-occupancies, and special assessments histories.
http://ragnarisapirate.blogspot.com/2012/05/sometimes-its-best-to-take-pass-40.html
http://ragnarisapirate.blogspot.com/2012/06/walking-away-from-few-million-dollars.html
http://ragnarisapirate.blogspot.com/2012/07/walking-away-from-few-million-dollars_18.html
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To what extent does having a small fund support his returns? He doesn't hold a lot of small/micro caps.
By the way, Business Insider mentioned the Lee Munsen character: http://articles.businessinsider.com/2011-04-01/wall_street/30024477_1_drug-dealer-rome-closing-bell
[*]"Fast cars, one woman," he said. "Cristal. Blue Ribbon sushi. Nobu on a weekly basis. The Palm comes to mind. Whatever cost a lot of money, that's what I had. I was always a punk rocker at heart, so what I love to do is take all my friends out and just buy 'em drinks at the cool places. It was like, 'On me, baby!' Share the wealth a little bit."
[*]"If you're pissed off at Microsoft for having a monopoly and controlling the world, and Bill Gates is the Antichrist, stop whining," he said. "Why don't you buy the stock, make a million dollars, then go build a bomb and blow 'em up? But you know, people aren't man enough to do that. When I make money, I put it in Wall Street's face, man. Put it in their fucking face.
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Ok, here's my thoughts:
1) Really looks like a Buffett type stock, solid earnings growth with only one drop over 16 years (even shrugging off the 2008 crisis), high return on equity and return on total capital, decreasing share count. All nice signs.
2) Low debt! no concerns there.
3) Low margins and lots of stores (that are still increasing), perhaps a Wal-Mart, Costco type of store? Assuming a low cost provider of some sort.
4) Typically I'll ignore estimates on growth future stats unless they are lower. In this case, they are not expected to be lower, so that's a plus (or I guess not a negative, to put it better).
I'm not finding too many faults in the numbers, I imagine this one isn't terribly cheap. I'd say the upper end of my interest is around 45 dollars and I'd be increasingly interested as it gets below that. I'd guess market price in the 45-55 range.
Margins don't look low to me at 37.5% gross margin and 20% ROC. Asset turnover is 3x+ and they can safely raise more debt even if sales fall to 2008 levels at 7% operating profit. Is this a clothing retailer? The numbers look similar to GPS but with Rue 21 asset turnover.
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Plan, I think that Berkowitz always held a liquidation value thesis first, and only looked at the operating cash in so far as it covered expenses and allowed for breathing room. The March 2009 OID has a good interview [pdf file]: http://www.grahamanddoddsville.net/wordpress/Files/Gurus/Bruce%20Berkowitz/OID%20-%20Bruce%20Berkowitz%20-%203-17-2009.pdf
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Yep, I like this thread. Even if you, understandably, don't want to arrive at a valuation from the financials alone, it's still good practice to attempt to match scenarios to the available data. ENR was a particularly good choice because of the swings in debt/equity, share count, and asset turnover.
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Klarman sometimes talks about his longs. He thought that NWS was cheap on a sum of parts analysis. MSFT BBEP and PDLI had hedges and royalties, respectively, worth more than the market cap. His larger positions typically generate large amounts of cash relative to market cap. I think that he acknowledged RHI as a mistake, but these small positions are best viewed as a basket.
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That's the optimistic projection. The pessimistic projection is that Basel III type requirements will constrain a lot of their holdings to Sovereign debt with low yield that will limit profits if the economy is stagnant without robust margins on loans. This includes the potential loss of principal if interest rates increase a lot.
Cheers. :)
I suspect that such checklist banking motivated Dimon's unfortunate "Basel III is unamerican" comments. It just comes down to "by how much?" and "compared to what price?"
An easy question but perhaps not a simple answer
in General Discussion
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It's not literally the same, and the literal differences can be very important. For example, in most cases, debt held in a portfolio company is non-recourse, and the relevant uncertainty is in the operating cash flows. If you hold debt in your account to hold an equivalent amount of stock, even if the debt is non-recourse, you have to consider uncertainty in market valuations.