najdorf

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  • Fear and Loathing in 2009
    Nonsense after nonsense. The original post makes no sense: nothing but bearish sentiment followed by sticking to positions that the writer is married to because he's facing huge losses on all of them.

    whisperonthewind: Do you know anything about banking? Why would banks pay 4 or 5% for standard deposits that could depart any day when the government is essentially handing out free money? Are you that stupid? Many banks are issuing new mortgages at 5% and below - where do you think their interest margin is going to come from if they start paying equally high rates on deposits?

    I should know: You already know that you were wrong once (driven and derided by greed in July - selling WFC for 20? What did you think, that we were never going to have any banks again? You should go into business as a contrarian indicator!). Now you're wrong again. WFC is not the First National Bank of Purple Unicorn-Land. They were in every type of bad lending - interest-only, subprime, Alt-A, HELOC, no-doc, ARM, etc. Maybe they didn't go as far into the joys of negative-am ARMs as Wachovia, but they remedied that mistake by purchasing them. Why would you trust any bank's marks when all of them have had to take further writedowns and loss reserves every quarter for the past year? Of course financial bulls will eventually be right, but it doesn't really matter if you're right about one bank (which you accidentally sold) 10 years from now when your other investments have blown up along the way.
    Dec 26 01:24 am |Rating: +2 -2 |Link to Comment |View article
  • Kuwait and Dow Chemical Deal Will Get Done Despite Opposition
    Look, no one is going to tell you that there isn't potential upside in a company like DOW down as far as it is and yielding 10%. But this author has been pumping since 40, regardless of the news. There are plenty of things that can go wrong with Dow, most of which involve completing bad deals due to stubborness. The worst case scenario is:

    1. Dow gets hosed even worse than they already are by the Kuwaitis and ultimately has to accept poor terms in the K-Dow deal.

    2. Dow borrows a ton of money at high rates.

    3. Dow completes ROH deal at absurd full price.

    4. Management pays itself huge bonuses for deal-making "success".

    5. Dow fails to delivers synergies and struggles to endure a long downturn in the chemical industry.

    In this scenario, Dow has no alternative but to cut the dividend and might have to sell assets at fire sale prices in order to service debt and keep capital-hungry businesses alive. Dilutive share issue probably follows. Bankruptcy is not likely but possible.

    The problem here is that the Kuwaitis and ROH have all the leverage in the negotiations due to Dow's insistence of taking on transformative change in the midst of the worst economic downturn since the Depression. Without both deals Dow is just another plodding chemical company with no edge. The Kuwaitis have already been able to talk Dow way down on price, while Liveris and Co. have obviously indicated that they're so desperate for Rohm that they'll do anything. If management had any sense they'd go to Rohm and say "Take 70 or watch us release a statement saying we're re-evaluating the deal, followed by your shares going to 30." Of course, if they had any sense they never would have cut a deal at 78 (massive premium to ROH's all-time high, of course) during the worst market downturn since the depression.
    Dec 26 01:01 am |Rating: +2 -1 |Link to Comment |View article
  • Berkshire's Puts: Not Such a Great Idea
    Alex: As has been discussed many times, they're European-style puts, exercisable only as expiration. The whole point of the investment was that the length of the option prevented any short-term market risks. BRK has sold someone an insurance policy against long-term stock market depreciation. As always, the company continues to operate as a moderately bullish long-term stock-market investor that attempts to take short-term volatiiity or risk in order for long-term profits in excess of what it will have to pay out in insurance.

    Of course BRK could have made more money selling puts today, but their invested capital/collateral is zero, meaning as long as stocks don't stay low for 20 years whatever profit they make will equal an infinite ROIC.
    Nov 26 02:05 am |Rating: 0 0 |Link to Comment |View article
  • 4 Unbelievable Stock Charts: Freeport-McMoran, Alcoa, Peabody and Goldman Sachs
    You might be right about FCX having a comeback, but you're wrong that commodity prices don't matter. The company is completely levered to commodity prices. What is their book value constituted of? Inventory, property, plant & equipment, and goodwill (not much cash on hand). The inventory consists of commodities and commodity-derived products. The properties, plant and equipment are valuable for no reason other than that they produce commodities (remote Indonesia? desert in the American SW? Congo?). The goodwill is from acquisitions of other companies equally levered to commodity prices - what's this worth if they have to shut down the mines they acquired?

    Come on. If your only business is selling copper, gold, moly, etc. and the price of those items declines, your earnings will decline. If they decline far enough you'll go bankrupt. What kind of liquidation of FCX's assets could you run in this climate? You really want to bet that there's anything left over for equity-holders if we don't see a commodity comeback? The only thing keeping FCX afloat is that they come across some gold while mining minimally profitable copper.
    Nov 23 15:40 pm |Rating: 0 0 |Link to Comment |View article
  • Buffett Serving Free Lunch?
    The "real money"/"cash prices" that you refer to do not come from BRK, which, as you know and even state, has recieved only cash and registered only paper losses on this deal. It's possible that traders who bought puts have now sold their own puts at today's higher prices, or otherwise netted a profit - but they didn't sell to BRK. They sold to scared investors who think the right to sell the S&P at 750 or 850 far in the future has real value. The cash comes out of their pockets, not BRK's.

    When stock markets rebound at some point in the next ten-twenty years we'll all say "Oh, who could have known that this would happen?" If stock markets don't rebound in the next ten-twenty years, show me an investing strategy that would have worked better without exposing one to huge risks (e.g. being short only).

    Also, you're not the only offender, but I'm a bit tired of the endless Buffett/Berkshire confusion. Warren Buffett is not Berkshire Hathaway - he is its leader and a large shareholder, but there are many other shareholders and a few other people who work at the company, such as Charlie Munger and all the insurance subsidiary guys who consult on investments.
    Nov 23 11:50 am |Rating: +2 0 |Link to Comment |View article
  • How Low Can Mining Stocks Go? (Part II)
    qwerty - Have you even looked at metal prices? Most are getting close to 2002 levels. Have you looked at how much money mining companies were making at those prices in 2002? What makes you think that the recent expectation of sky-high pricing has led them to operate at a level of efficiency that will allow them to profit more successfully at those low prices? What makes you think that debt taken on to do acquisitions at higher prices will not cripple the companies?

    I'm not saying I know where metal prices or mining stocks are going, but there certainly are some risks to worry about.
    Nov 22 12:34 pm |Rating: 0 0 |Link to Comment |View article
  • Buffett's Gamble: $40 Billion Bet on Volatility
    Comparing stock levels in the period from now to 2020+ to stock prices in the period from 1929 to 1954 is one of the most insane hobby horses to ride around on. 1929-1954 included the worst depression in our history and the worst war in our history. It also was a time when companies paid much higher dividends and had lower levels of retained earnings/buybacks, lowering stock prices. American had little or no inflation until after WWII, also holding down stock prices (you might have noticed that this has changed). Finally, 1929 was like 1999-2000 for bubbleish peak prices. We've gone sideways for 10 years, which means that if anything we should be comparing today to 1939.

    If stocks aren't higher when BRK's puts expire, what alternate strategies would you retrospectively recommend? Investing in Treasuries at negative real yields and widening credit risk? Buying stocks that go nowhere? Sitting in cash and continuing to pray BRK doesn't get hit with any big insurance claims? A company like BRK has to take stock market risk - that's the whole point of the company! Out of all stock market risks available, the one Buffett chose by selling these puts was a pretty good one. Accounting earnings don't matter to this company, although if they do take the big cash hit all those years down the line it might kill them. It's a cost of doing business - if it wasn't difficult and risky everyone would be doing it.
    Nov 22 12:28 pm |Rating: +2 0 |Link to Comment |View article
  • GE: Not-So-Good Things Come to Light
    GE has some covenants requiring them to support GE Capital from the industrial side of the business, but none of these are worded very strongly, and there's a reason that substantially all of the debt is in GE Capital - they didn't set up the corporate structure that way just because they thought it was cute. There's no reason for it except that some wise manager back in the day thought "Worst-case scenario: we dump the Capital unit into bankruptcy or sell it off cheaply and get back to making lightbulbs". Maybe it also allows some balance-sheet games, but the SHtF scenario is the main point.
    Nov 19 19:13 pm |Rating: +1 0 |Link to Comment |View article
  • My Reconsideration: Why Share Buybacks Are Pointless
    You're all over-simplifying and treating your passing thoughts as firm realities. Like most ideas, buybacks aren't all good or all bad.

    Since everyone pretty much agrees on liking dividends, lets think about what effect buybacks have on dividends. If a company paying a $2.00 per year dividend buys back and cancels 10 million shares, they now have $20 million in cash that they don't have to pay out (the dividends for the bought-back shares). What will they do with this money? Hmm, maybe a dividend increase?

    Of course, some companies don't do that. Some use the $20 million for a more lush executive compensation package and then watch the exec fly the plane into the mountain. These companies misused buybacks.

    But what's wrong with a company that buys back shares when shares are unreasonably cheap and only raises dividends with the increased EPS when shares are expensive? The buyback helps to make stock prices more accurate and buoyant, pulls concentrated ownership from speculative weak hands to buy-and-holders, avoids taxes, and provides a more beneficial use for capital than speculative acquisitions or foolish expansions. Even as a yield-driven investor, you want your asset value to be high because you don't pay taxes on asset level and it's always better to have higher asset levels than lower - everything will be sold some day.

    Buybacks aren't a panacea because most stocks are often overvalued, especially at those times when management has enough cash on hand to consider buybacks (cyclical tops, usually). Many managements would do better to immediately give shareholders money to invest elsewhere. But if you don't trust the management to invest your money profitably and would prefer a special dividend, why don't you give yourself a special dividend by selling your shares and investing your money elsewhere? The mass of averagish managements in average companies would do better to hold more cash and use it for buybacks and acquisitions when irrational pessimism makes everything cheap. Excellent managements in an excellent businesses should be investing everything back into the business all the time so long as ROIC matches or exceeds alternatives available to shareholders. Buybacks are a way to do this when expansion isn't practical.
    Nov 19 19:06 pm |Rating: +2 0 |Link to Comment |View article
  • Will Berkshire Lose Its Triple-A?
    You're both wrong: GS/GE are Berkshire investments and they can erode the book value (we won't know officially until the next Q, of course). Preferred shares have to be marked-to-market and in this case we would have to calculate a market value by comparing the cashflow and risks to other similar products, such as other forms of GS/GE equity or debt. Given that prices have declined sharply for both and the warrants are now way out of the money, one could see justification for discounting BRK's book value. Furthermore, erosions in WFC/AXP/etc. will clearly and directly reduce book value.

    Not saying I think BRK is going down, just pointing out that all investments at a company like BRK should be marked to market and that the value of future cash flows from an investment should be based on credit risk/cost of capital for the company in which one invests.
    Nov 19 18:49 pm |Rating: +1 -1 |Link to Comment |View article
  • Where Have All the Peak Oil Believers Gone?
    Just want to point out that there's more to the price of gas than the price of oil, since an early commenter apparently hadn't realized this fact. There are refining and transportation costs as well as highly varied tax rates in different parts of the world and states of the U.S.

    No one on this message board knows whether we have 30 years, 100 years or 200 years of oil - the point that you can't dispute is that we have a finite amount of oil, and we're starting to get to where we can see the limits and we have to recover a lot of the reserves that are inconvenient, expensive, or challenging to recover. Smart people would be looking at other energy sources. Idiots imagine infinite oil.
    Nov 05 09:29 am |Rating: 0 0 |Link to Comment |View article
  • Why Is the YouTube User Experience So Poor?
    I think Youtube is wildly variable depending on time of day/internet traffic/your system/your connection. Some days I can't get videos to load at all, some days it's instant, and it's sometimes correlated with a generally slow internet connection for me and sometimes not. I find the quality pretty decent for a free service.
    Nov 05 09:08 am |Rating: 0 0 |Link to Comment |View article
  • AIG: How It Spent Your Tax Money
    You guys are looking the wrong way by blaming short sellers and CDS buyers. Blame the CDS sellers and the management of companies that failed. If Lehman was sold off unjustly, they would have been able to demonstrate convincingly that their stock was undervalued - disclose the portfolio, find some buyers for good quality assets to raise capital, and show us the cash flows that justify their valuations for various securities they hold. If AIG got taken for a ride selling cheap CDS, maybe they should have done better DD on their CDS pricing and risk-management. You can't name one healthy company in history that was done in by false rumors or market manipulation. If AIG sold insurance, and AIG has money available to pay it (thanks to the gov loan, which is arguable), they must pay. They entered the transaction freely and profited at the front end. Time to pay the piper.
    Oct 17 20:48 pm |Rating: 0 0 |Link to Comment |View article
  • Apple: Though Tempted, I Wouldn't Bite Just Yet
    Maybe some of you are younger than me and don't remember the bad days of Apple, or maybe some of you are older and only started seeing tech stocks as serious businesses after the tech crash established reasonable valuations. In any case, I think a lot of people ignore one of the biggest factors holding AAPL stock down, which is that those who predicted the continued domination of Windows machines have been right for the last 20 years. My first computer was an Apple II GS, but you have to admit that Apple didn't do a very good job of marketing and price competition in the following years. Now, I agree with most of you that AAPL is great at these prices (though I have to laugh at anyone who bought it above $150). But when you talk about Apple's growing market share, cool brand image, etc. to a general audience of potential American stockbuyers, you're talking to a lot of people who successfully ignored Apple throughout the late 80s and all of the 90s, who have been pestered by Mac users for 20 years, and who don't really find overpriced gadgets cool.

    You're talking about a company that's really a consumer company for those who want the latest and hottest: any Apple product has much cheaper competition that does the same essential functions (admittedly without so many cool features, attractive design, and brand image - but in tough times price and function come first). Do you really think that consumers will be able to afford the price premium in the environment of the next few years? I'm not talking about dedicated Mac users; I'm talking about the marginal Apple product buyer who fuels growth. In the long run Apple is almost certainly worth more than today's price (like almost every stock), but a really bad earnings announcement could be painful for a company that has so many excited momentum-driven investors. The price decline is marking both the general market problems and the particular risk for Apple of that possibility.
    Oct 04 22:42 pm |Rating: 0 0 |Link to Comment |View article
  • Not Likely to Be a Merry Xmas for Microsoft - RBC
    The thing that's particularly funny about this sort of precise revenue/earnings prediction is that if you look back at the historical record most analysts aren't even close. Many of them just repeat company guidance or project past patterns into the future along with some made-up macroeconomic assessment. When they deviate from company guidance/historical trends, they don't typically improve the quality of predictions. When things go badly they tend to pile on negativity AFTER share prices decline. When a company develops something really great, they tend to pile on positively AFTER share prices rise. Look back at analyst reports on AAPL - "it sucks, it sucks, no one buys Macs..."; "OMG AAPL IS THE BEST EVAR BUY BUY BUY MAC IPOD IPHONE AAAAAHHH!!!"; "OMG AAPL is too expensive and no one will ever buy a Mac - sell it!" I doubt following any set of analyst recommendations on AAPL would beat buying and holding or buying in at a predetermined low point and selling at a predetermined high point.

    No one knows better than people inside the company how much money the company will report in earnings in the next quarter. Given how strongly the market punishes earnings misses or revelations of accounting irregularities, companies have a pretty strong motivation to be accurate. They also release a huge amount of information quarterly. So what's the function of analysts?

    All we really need for analysis is people on the short-side looking for companies that give misleading guidance, fudge the accounting, or commit fraud, shorting them, and publicizing their findings. Einhorn is worth 1000 "analysts" who upgrade and downgrade for foolish reasons. If a full report from the company doesn't tell you whether you want to invest, how is a layer of superficial analysis from some guy outside the company with no stake going to tell you?

    All that's happening with MSFT is that multiples are compressing as it becomes a value stock rather than a growth stock. However, the company still has growth prospects (online, business software, gaming), and if you combine these with the excellent balance sheet, cash-flow, and shareholder focus (buybacks and dividends), the company probably will be worth more than today's price in the future. The only real risk is Ballmer pulling extremely stupid acquisitions, which I suppose is a significant risk, but no investment is perfect.
    Sep 30 09:07 am |Rating: 0 0 |Link to Comment |View article

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