moore_capital54

US Futures rallying here, Europe is up nicely, this may be the bottom.

Parsad I fully agree with your assessment. here is no doubt that even if tomorrow is the first "Black Monday" since 1987, buyers will do extremely well over time deploying capital aggressively.

There is no doubt in my mind that this is truly the reason we are in the mess that we are in today. I would love to debate this with anyone as well. The problem I see is that so many investors, and even economists, are influenced by the Keynes school of thought, completely disregarding Rothbard, or the Austrian School of thought, or any financial history before the great depression. That is why most people think that Ron Paul is crazy or extreme, when in fact we are lucky someone with his understanding of central banking and fiat money is in government. This is even true for value investors, who I find generally disregard these facts of life. I consider myself a value investor and have earned a living deploying my capital according to the principles of Graham. Buffet once said, that value investing either makes sense to people or it doesn't, and usually it has to click right away or it never does. I feel the same way about Fiat Money, and fractional reserve banking. Either people get it or they don't. Either they can understand that for several thousand years we did not have a Fiat Money based system and this is all really an experiment gone wrong, or they just think its all nonsense. As we are on the subject, my biggest critique lies with Munger and Buffet, who I know are intelligent enough to understand these concepts but deliberately sway the public in the other direction, all for the sake of exuding confidence in the system.

My fear is that BAC and other banks will have to make reserve adjustments as these are no longer "risk-less" securities.

This is absolutely terrible news. I hope this doesn't mean more red...

http://www.businessweek.com/magazine/the-nixon-shock-08042011.html

I can say from personal experience that at least 95% of my friends and family are still NOT able to join Google+, I think Google+ is going to annihilate Facebook. There is a very good interview that Vivek Wadhwa gave to Bloomberg about this as I will try to post it but you can probably find it by googling. Essentially he predicted that Google+ will surpass Facebook within a year, and that Facebook is most likely going to make a last run for it with an IPO. If I am not mistaken he called Facebook the next Myspace..

I believe their returns. But I do have a hard time understanding their confidence in the russian equity markets. That being said, these guys owned at one point 5% of Gazprom and sold it way too soon. IF they had held their stake would be worth close to $10B.

True Value Investors! http://www.iinews.com/site/pdfs/IIMagazine_March_2006_Secrets_of_Sovereign.pdf

Thank You Parsad, I figured as much. Here are my findings and analysis of the situation. To me the biggest issue was understanding what these "Other Assets" are comprised of because when looking at tangible equity of around: $124B. or when reducing the Mortgage Servicing Rights we are at around $111B which is about $13~ per share. Now, this Tangible Equity is essentially a liquidation value which gives no value to the earnings power of the business, which I believe is much higher than the tangible value. So again, I found myself willing to rationalize that any additional mortgage or loan related losses will be more than offset by future earnings. What worries me more is understanding whether additional losses can be realized from other areas of the balance sheet. I don't buy the Treasury argument as we now know the Fed will conjure money and support treasury securities ad infinitum. Same is true for any short term liquidity situation with BAC, which I view as a very low probability scenario. Again going through the balance sheet on the asset side, I really don't have a problem with anything except for this "Other Assets" line and possibly the Customer Receivables. Lets review the "Other Assets": Other assets (includes $70,531 and $55,909 measured at fair value) 182,124 So we have $182,124 Billion of these "Other Assets" of which BAC is only providing disclosure for $70.5B worth which they account under fair value. The breakdown of the $70.5B is as follows: Other assets Fair Value 1 Fair Value 2 Fair Value 3 Total 32,624 31,051 6,856 – 70,531 Are the remaining $112B worth of securities all ABS? What else can be in there. That is the question here. If I can get comfortable with this piece, than this becomes more of a no brainer.

Aha, missed this. My biggest issue right now is trying to ascertain the value of the "other assets" block, Other assets 174,459 Other assets, less allowance for loan and lease losses(2) 378,629 (2) For the second quarter of 2011, $40.4 billion of non-interest earning equity securities were reclassified from trading account assets to other non-earning assets. Prior period amounts are immaterial and have not been restated. Latest Q. I know I am being lazy here, but just started the DD and figure one of you may have already broken this down. I can't find references in the Q.

Starting to think so myself... Interested in hearing your thoughts.

Guys and Gals, I found the full interview on this here: http://fora.tv/2011/05/05/92Y_Gold_The_Running_of_the_Bulls This is one of the only interviews with Mr. Tom Kaplan I have ever seen. For those that don't know, Kaplan has built a fortune of about $4-5 Billion dollars all in the last 10 years in the natural resources industry. He has mastered the art of buying way out of the money projects that became in the money due to large moves in the commodity price. Take natural gas, in the earlier part of the decade, he acquired leaseholds in Texas and began horizontal drilling/fracking and discovered one of the largest natural gas fields. He sold that field to Encana for $2.4B in cash, at the time of sale he owned 90% of the company. The capital which he used from start to finish with about $50 million of his personal equity and an additional $150-300 million in debt and equity from institutional investors. The $50 million he had came from APEX Silver which was a company he founded in the 1990's and owned the world's largest silver mine (San Cristobal in Bolivia). Since 2004, Kaplan has built his Electrum Group into the world's largest gold investment fund, owning stakes in Novagold/Gabriel, and over 100 deposits worldwide. Another great article on fiat money here: http://www.businessinsider.com/25-reasons-to-buy-gold-and-dump-dollars-2011-7

Gold is Money, that is it's utility. Until 1971 it served as money and over time there is no doubt we will revert to some type of a gold standard system. A fiat money system never works, it has been tried for centuries and always leads to the situation we are in now. Buffet knows this as well having acquired a significant amount of the world's silver supply in 1999 for reasons that had to do with its demonetization (google Buffet Silver). That being said, in a fiat money based world Buffet has chosen the most intelligent way to accumulate wealth and that is by owning good businesses with pricing power and moats. But it is important to remember that the argument is not about whether gold has utility or not, it's about how you measure your wealth over the long-term and if you adjust for the depreciation of currencies. Gold is the only regulator of fiat money and it's sad that a lot of the younger generation investors simply refuse to comprehend that logic. There is no doubt in my mind that Buffet knows this better than most, but at the same time understands that in a fiat money world, it makes zero sense for someone in his position who essentially gamed the fiat money system by acquiring toll roads in almost every segment of the economy to talk about the fallacies of our system. If anything, buffet's fear of inflation should only confirm this thesis. Buffet also assumes that the average 9-5 worker can allocate most of their after tax salary in equities and compound better than inflation but that too is something I disagree with. A factory worker who has put away his after tax salary for 30-40 years in safe CD's and muni bonds has done a lot worst than gold, and all that means is that the money he saved has eroded in value. A fiat money system punishes the savers and rewards the creditors, leading to booms and busts. A good book on this topic: A World in Debt by Freeman Tilden, written after the great depression. ADDED** Before I open a can of worms here and get told that "Buffet bought silver because it has industrial use" I am quoting directly from a Berkshire Hathaway Press Release in 1998: " Over 30 years ago, Warren Buffett, CEO of Berkshire hathaway, made his first purchase of silver in anticipatin of the metal's demonetization by the U.S. Government. Since that time he has followed silver's fundamentals but no entity he manages has owned it."

Another reason might be that @18B in assets, Berkowitz is making $180M a year come rain or shine???

I am the Google+ Cheerleader but will gladly take the other side. Internet adoption is much quicker. Time will tell.

Berkowitz is apparently being targeted as well: http://www.bloomberg.com/news/2011-07-01/st-joe-says-sec-is-investigating-financial-reports-and-chairman-berkowitz.html

Completely off topic, but I have been using Google+ and I genuinely feel this thing has the potential to destroy the whole facebook experience. Its far superior.

Einhorn!

Just finished reading the Zynga S1 here are my thoughts: At first glance, Zynga looks more like a business than LinkedIn, but then they start with all this Adjusted EBITDA nonsense. I really believe that when it comes to valuing a business, there is nothing new under the sun. But that doesn't stop these new tech co's trying to re-educate the investing public with these adjusted metrics to make their financials look that much better. The crux of the Zynga business model are these virtual goods. Under US GAAP you can only book these virtual goods as revenue when they are used. This makes sense, as when I fund my Zynga account I may only use the virtual good next month or next year, or I may even decide to "cash out" and not buy anything. There may be a proper formula to better understanding how to project what percentage of the virtual goods will be cashed or used and when, but Zynga did not offer that in their S1. If we strip apart Zynga's belief that every 1$ coming in as "deferred revenue" will eventuall be cold hard profit, the business is unimpressive: http://sec.gov/Archives/edgar/data/1439404/000119312511180285/ds1.htm (Page 42) For 2010, The great Zynga generated $597mm in revenue and US GAAP Net Income of $90MM. For the first quarter of 2011, those numbers are $235mm and $11mm respectively. The current valuation under Sharepost is $15.5B but rumors on pricing in the range of $20-25B. Under US GAAP, this indicates an EV Multiple (Zynga has raised $1B in cash and will have another $1B more from the IPO) of 100x Net Income on the lowside, and as high as 300x Net Income on the high side. Now under this scenario, I may be a little aggressive because a portion of those deferred revenues will in fact translate into profits. That being said, I don't agree with the Zynga methodology of adding back ALL The deferred revenue to come up with an Adjusted EBITDA as there is clearly a cost for every dollar in the system. The best way to figure out just how much cash ends up in Zynga's pockets is to look at the Cash flow Statement. FCF never lies. The Cash flow statement provides a lot more insight into the potential earnings power of this business. Its definitely interesting. For 2010, I would estimate the true FCF to be roughly $150mm-200mm when adding back what appear to be truly one-time items. However there is not enough clarity to truly understand what will be recurring and what will in fact be one time expenses. If you listen to Zynga and buy their argument for "Bookings" + Adjusted Ebitda, you are still going to be paying up a high valuation for this business. Lets assume that their EBITDA was in fact $392mm, that still indicates an EV/EBITDA multiple of between 40-50x on day 1. Google is currently trading at an EV/EBITDA multiple of 12. My gut feeling is that Zynga most probably has a fair FCF of $150-200mm per year which makes for a great business but not one worth $15-20B. I think the insiders know that as well. Since inception Zynga has raised $833mm from investors and has spent $265mm repurchasing common stock from employees and CEO Marc Pincus. From our inception in October 2007 to date, Mr. Pincus, our Chief Executive Officer, Chief Product Officer and the Chairman of our Board of Directors, has purchased an aggregate of 149,197,328 shares of our common stock. To date, Mr. Pincus has sold an aggregate of 43,629,310 shares of our common stock at prices ranging from $0.42 to $13.96. In addition to sales by Mr. Pincus, our other current and former executive officers and employees have sold an aggregate of 51,192,501 shares of our capital stock at prices ranging from $0.25 to $17.09 per share, including, 6,717,161 shares we repurchased from our other executive officers and employees. These sales include two tender offers in 2010 by third parties in which 383 employees were eligible to participate and 298 employees decided to participate and sell shares. These businesses never grow forever, we saw it with Open table recently. At some point the Zynga growth will slow and only then will we really see if this is an EFAX type online business that spins out cash every quarter consistently, or benefitted from some temporary social craze. One thing is for sure, investors buying in at the IPO price are not getting a bargain. I would take Google @ 12x EV/EBITDA over Zynga @ 40-50x any day. Cheers!