n.r98

Covering some shorts today. CBOE PCR abnormally high + January effect? Just dart throwing here probably to rationalize some profit taking but we'll see.

Steve Clapham has a great newsletter and he attended the MoneyWeek Conference where Napier was the keynote speaker. here's a snippet From his newsletter - https://behindthebalancesheet.substack.com/ " Russell Napier/Financial Repression Russell Napier was the keynote speaker and he gave his usual session on the need for financial repression. I have heard the presentation several times (Russell is a friend), but he always manages to refresh the content and make it interesting. Of course, since I last heard it, the debt numbers have all gone up. Russell, in contrast to the modern monetary theorists, looks at a country’s debt as the sum of Government debt and corporate (non-financial sector) debt. If you are an MMT enthusiast, you probably know that I don’t understand the theory – please email me and explain why the Government doesn’t solve all our problems by mailing $1m through everyone’s letterbox. (I shall probably regret this). The problem is self evident from the chart, especially when you consider that debt servicing costs are exploding to the upside, from an all-time low. The global average is extremely high and the UK, US and Euro area are all ahead of that high average. What the gap between France (very high) and Germany (relatively low) means for the future of the ECB and the Euro is hard to predict, but I am guessing it’s not positive for the stability of the Euro and warm relations between the two main participants. The gap has grown from 12% at the formation of the Euro to over 150% today – a useful illustration of how unusual, recent history has been; more on this later. Global Non-Financial Debt to GDP Source: Behind the Balance Sheet from Russell Napier, The Solid Ground It’s quite clear from this chart that there is more risk in DM than EM, especially if you consider that the EM indebtedness falls below 200% if China is excluded. This is where Napier thinks you should put your money. Paying subscribers will learn later where I have put my biggest bet. Russell’s rule number 1 in a financial repression is simple: get your money out of the UK or the US and look at Asia.£"

I read through the comments on Whitman's books and wow, the sentiment... but maybe it's time to dust off "Distress Investing: Principles and Technique" for the coming cycle?

Been buying $DCP. Another MLP company, probably gets taken out by PSX soon - read PSX latest Q3 transcript - almost seems like a 99.99% probability, big question is what's the premium? That's all a wild guess of course - SHLX was 23%, BKEP was like 50% +.. Simple back of the envelope - 8% normalized yield on 60% 2022 distributable cash flow = $47 per share. So maybe another 15-20% upside from here, downside is perhaps 10% (?) - PSX offered a zero premium bid in August. But given oil markets a lot stronger now than in Aug, maybe trades higher even. Seems like a nice uncorrelated sit.

How are they putting up these crazy numbers in such a hostile environment, esp the high dd comp store sales? They're not a new brand either.

Is the TLT a bet on a FED pivot?

Speaking about insurance companies - maybe $ARGO might interest you, still looking into it. Right off the bat, already trading at 0.6 BV despite making a division sale at 0.81 BV. Business has been trimming international divisions and current core US insurance biz has a combined ratio <100 whilst previously, blended combined ratio in the 120s. Activists just got on BoD and really pushing for a sale here it seems.

Bought a little $KSS. Trading at trough P/E of 9-10x, average EPS was $4-5 pre COV and share count has reduced bigly so any reversion could bring this back up to $40-50? Also stock trades below BV which has never happened except at Covid troughs. This is the reversion to the mean story. Insiders just bought cum $1m worth of stock past week after whiff of a print. 7-8b real estate portfolio value. Perhaps mgmt extrapolated cov environment and thought stock should be worth oodles more but perhaps not anymore and be more willing to sell the co now? Idk. But seems like a decent r/r apart from the icky balance sheet.

It's weird because he wasn't like this previously. Back in the mid 2000s, u can track his 13F and turnover was not this high, some stocks lasted multiple quarters etc. But now, it's literally a full portfolio turnover every q.

Herbalife? Stock got killed on declining volumes v 2021 and guiding to a full year decline in volumes and revenue. But guiding adj EPS of 3.50-4? Their adjustments are not egregious so even taking low end of guidance is 6.5x P/E or with 700m of guided EBITDA, and 4.5b of EV, 6.5x EBITDA - both measures at low end of historical range. Share cannibal, FCF generative and good level of insider buying last few months - seems like what matters is whether volume declines will stabilize and eventually return to growth - insiders seem to agree that headwinds are temporal.

What's the gameplan? Is it a dejavu trade like last Q or more a mid/lt hold.

Some updates.. JD Sports(retailer) now up 20% since 27/6... was quite too cheap and still pretty cheap given their leadership position in athleisure. Certain retailers bought right seem to do pretty well. Wrks.ln (retailer) - insider Carolyne just purchased a couple grand of stock, volume increased lately on said news. Stock still trades at close to 1x EBITDA. Ptec (not retailer) - stock climbing after arbs dumped stock upon TTB walking. Rumours that JKO wants to make a bid but the price action seems to point to incremental buyers due to relative undervaluation (?). Other interesting ideas that could be bought on weakness - $DOCS (Dr Martens) - strong revenue growth over long period of time - question is, what's their secret sauce? I think fashion retailers with conservative b/s can survive the fashion troughs, revamp themselves and survive a lot longer than people think; ofc not long term holds but tradeable. Some US ideas - A&F has revamped itself to remain relevant and despite poor cap alloc (repo shares at much higher prices), think this trades at a low 2-3x normalized EBITDA. $LEVI is interesting too, like Dr Martens, has a long history and could probably be bought on weakness - is unlike A&f though as I think they're less exposed to fashion cyclicals.

$PTEC, TTB walks away - can see why in hindsight. But latest RNS shown great results for PTEC and an extremely low valuation; bidding war also proves asset is worth more ££.

Heavy insider buying at $ARKR, anyone has some snap thesis/pitfalls on this?

Not an expert here but given the duopolistic dynamics that have been ongoing for quite a while, why haven't prices been raised already, to the point of free cash flow positivity for both players? And if they were warring, what would make them "collaborate" eventually? Also, the delivery business seems like a very competitive one with thin margins and if Uber determines to make it big, would it then be a huge cost center for them? Sorry for bombarding.

What is your thought process with Uber here? Flow reversals?

Rarely binary. But current cycle looks interesting vs previous cycles - strong balance sheets and cash flows and at 3-4x multiples. If underlying commod remains strong, could easily net higher $ from here and if sentiment returns, another oomph from the multiple expansion. Also oil e.g. doesnt have to be much higher, around these prices is perfect; higher prices only seem to incentivize swifter transitions and political pressures. But maybe this pov is too simplistic and some other pig has said this before.

In light of the headfake narrative as postulated by Burry and a few other members of the board, would it then be an apt strategy to take on a basket of high risk assets to play the Fed going dovish somewhere later this year?

Delayed but JD reported p good profits over fy 21. They are guiding to flat profits despite the last 4-5 months generating +5% over previous comps. Company is in a net cash posn even after netting for the minority put options. With retailers trading at low multiples across the globe, huge opp for JD to continue acq spree with its cash position. Company also made the right decision to raise equity at stock peak. Governance overhang remains. Can't wrap my head though on why theyre so confident in their outlook vs ASOS for e.g. - athleisure has stronger customer base? World Cup tailwinds? Moreover, was in the store just last week pre Myk and still had to queue p long. Also Punch Card Mgmt just took a posn in Countryside Partnerships - apparently transitioning to an asset light model. Maybe the board has some opinions on said names..

TheWorks.Ln - value retailer - trades at <2x EBITDA, no debt and net cash, think dividend reinstitution should be a catalyst in July. Playtech, igaming plug-in software, hard to build and very valuable, probably gets acquired soon at a >20% premium; even without it, business is cheap annualizing their latest quarter. JD Sports looks interesting as well, not mentioned anywhere - corp governance overhang but tremendous value creation over the last decade, youngies love shopping for athleisure there, trades at what 4x EBITDA?

As KJP mentioned, it's formulaic given the denominator you are using. What if depreciation is overstated and massively reduces EBIT? Then suddenly you're left with a firm that seems to be reinvesting a large portion of its NOPAT; that's why you have to penalize both the denominator and numerator with this accounting figure. Also don't forget you're tying this formula in with ROC(via multiplication) to obtain earnings growth - ROC given it uses net fixed assets, nets out depreciation. Hence your CAPEX assuming all is capitalized as PPE, has to net out depreciation for the multiplication to be accurate.

@Blugolds11 I'm much younger than you, final year in college so idk the perception in the early 2000s. Would argue that A&F's downfall was more than just the dispelling of exclusion but rather, digitization changing the clothing landscape and just quite simply, a change in what's in fashion.... happened to suits etc.. the in-thing now being athleisure(?); the last straw of A&F was in my high school days, cc 2013ish and I never thought the clothes looked good at all. In any case, it's just too hard to predict these things; Uniqlo is thriving on simplicity now, "it's back to basics again"... And now with Insta/tiktok models dictating what's "lit" and what's "drip", no one brand really has the monopoly to dictate where the next hot thing is and every brand is just a sheeple to some extent... could argue NIke is a trendsetter but more generally speaking. Do watch the Boeing one, I thought it was r good.. a little engineering, a little corp culture etc, bueno!

This isnt a movie/tv show recommendation but 2 recents docs on Netflix 1. Downfall: The Case against Boeing 2. White Hot: The rise and fall of Abercrombie & Fitch are quite well worth the watch. The first even more so than the second.

Nice interview but always get the feeling that Ted is very secretive with his process and approach towards markets.. Or maybe it's really *that simple*. He also sounds exactly like Warren: talks, laughs and outlook re life and success...no wonder they get along.

Amazing!! congrats aws