cayale

1) & 2) Um, AXP did reserve heavily through the cycle (and continues to reserve), cut-off some of their riskiest clients and re-oriented their product mix toward charge cards versus revolving balances (loans). They remained profitable through the crack-up. AXP focuses on a more affluent customer and their business model tries to optimize spend, not credit. It is a unique franchise that, as of yet, no one has been able to effectively replicate. There is a first-mover advantage to the affluent network they have built. 3) They do reserve and they already carry considerable excess capital and liquidity 4)This seems a bit far-fetched I think the main risks here are 1) governments limiting interchange fees (a key component of AXP's attractive economics) and therefore indirectly limiting a company's ability to offer rewards (a key component of AXP's customer offer) and 2) this business is, over time, dependent on economic growth and therefore macro-crackups. The company does some pretty innovative things with its data, being one of only two issuer/processors in the industry (Discover is the other). It has consistently generated 20%+ ROEs and returns ~60% of annual earnings to shareholders, retaining the rest for growth.

Just to clarify, I am not speaking to ffh specifically, but referring to debt ratings more generally.

Agreed. I have never understood how a cash generative company with net cash on the balance sheet can have its debt rated as junk versus a bank, an inherently leveraged entity, rated high-investment grade. Seems bass-ackwards to me. It's just plain dumb.

Whatever the case, the market is valuing a lot of these companies (rightly or wrongly) with no regard for the gigantic war chests ($B in net cash) on which they sit. In my opinion, many names across the "tech" complex are trading at discounts to mature, cyclical industrials even though the secular growth rates of "tech" are higher.

Yes, you are right.

I own: AVX CYMI ACN GIB AVT though today I think that only AVX and AVT are really cheap. CSCO intrigues me. Good market positions, loads of cash, reasonably priced, but it is such a hype machine. And Chambers seems to be to be the Phil Knight (of NKE fame) of the the tech world. The structure of the company is so unorthodox that I fear the thing could come apart when he retires.

Part of me doesn't get why they would continually open stores if they were in such dire waters. Dov is CRAZY, really crazy. Have heard some classic stories from folks that worked for him.

And fraud. It's probably bad karma to kick a man while he's down but this whole story was so dubious: http://finance.yahoo.com/news/Cramer-Got-Duped-By-Lenny-siliconalley-3574466349.html?x=0&.v=2

Yeah, this is unbelievable. All so they can purportedly achieve their 8% return assumptions despite a big fixed income allocation. This will not end well. It will come out of taxpayers pockets. Have you seen the price of corporates and government bonds lately? It is hard to get up the stomach to purchase one, let alone with borrowed money. If they hurry, they can buy before the Fed exits the market.

Sanj, When you are ready to live abroad, contact me and we can swap properties for a month! Offices, too.

Vancouver is considerably more fun!

For what its worth, one can buy nice houses in Omaha for $100-150/ft. And the area economy is in great shape.

I am sorry, but this is a waste of bits. The utility of the site (outstanding) is no different and the aesthetics are easily ignored. Plus, there is software that will block out the ads if you are that torqued out of joint. It's not like a chain of pop-ups erupt with every click. Jeez Sanjeev is entitled to recover his costs. In fact, it's his brain child. He can do whatever he wants. Thank you, sir.

The sun never sets on a perma-bull.

Why? My best guesses: 1. Thinks over time the price of oil will remain high enough to justify the purchase of shares in the 80s 2. Large proportion of reserves are domestic. 3. Price. Was trading at a discount to the other big majors. 4. Management admits mistakes freely 5. Free call on oil sands projects

I love this guy. Guess that options strategy didn't work out for him.

I own a bunch of companies that trade below (net) cash. Does that qualify? Do tell, if you wish.

Good point. Too, he is a trader, not an investor. It is not unusual for him to change his mind, ahem, frequently. If you go back and look at many things he has said over the years, they stand in contradiction to things he said prior.

Excellent job, Mr. Parsad. You have created a great forum. Thank you.