Jimbo

THE WEWORK EXPLOSION How are short sellers going to make decent money if the valuations of unicorns like Wework explode before they can get to the public market. Its just so unfair to the short sellers!!!!!!!!!!!!! Looks like UBER and LYFT poisoned the well for wework. From a $48 billion valuation to $24 Billion. Is that a lot??????? The rule of first out the door of the burning market valuation theatre applies here!!!! If short sellers had an annual awards ceremony (we could call it the "shorties") Then Uber and Lyft would each get a "golden shorty" But Wework ......a wooden shorty.

A VERY UNGOOD IDEA So Altria wants to merge with PMI. Thats not a good idea. No....not at all. What will happen then: The combined company will get into vaping and dope in a big way???? I can just see it now 5 years down the track: 1/ Massive vaping emphemsemia law suits on the vaping side. 2/ Massive "Schizoprenia" law suits on the dope side. It wont be pretty. The two companies have a $200 Billion combined market cap because they demerged Kraft Heinz had a market cap of $120 Billion (which was part of Altria). Mondelez has a market cap of $80 Billion (which was part of Altria) Altria created massive shareholder wealth over $300 Billion in market cap by demerging its assets!!!!! And made itself a lot less tempting and a harder target for the trial lawyers. Altria has already thrown away $15 Billion on Juul and Chronos. And suffered a hit to its market cap of twice that by showing such bad capital allocation skills!!!!! I.e. Altria has lost 26% in market cap over the last year PMI has only fallen 7%. PMI has a superior valuation due to its seperation from Altria.

THE PERFECTLY RATIONAL GERMAN 30 YEAR BOND So the Germans sell a 30 year bond at a negative rate Lets just start at 0 Minus 1.7% german inflation rate Lets not even subtract tax as there is no interest to tax. Thats a loss of 51% of the capital over the life of the bond. Half your capital gone simply by buying this "Instrument of capital destruction" Just increase the inflation rate to 3.3% over the next 30 yerars and ALL your capital is gone. A perfectly rational bond!!!!!

THE PERFECTLY RATIONAL BOND MARKET Who can argue that the bond market is anything but perfectly rationional??? The US 30 Year yeilding 2%. Take out tax at 25% and its yield is 1.5% Take out inflation at 1.8% and its yield is -0.3% So you can lend money for 30 Years and only lose 9% of your capital. Makes perfectly rational sense to me.

FOUR TYPES OF PUMP AND DUMP 1/ Penny stock pump and dump: This is the old style pump and dump of penny stocks that's been around for ages. 2/ Large cap pump and dump: Since 2009 its been the golden age of large cap pump and dumps as large cap companies have spent billions of borrowed money to buy back there shares. The great example of this type of pump and dump has been GE. 3/ Drive by pump and dump: This is actually a term I invented. This could also be called greenmail pump and dump and refers to activist investors buying a stake in a company and then persuading it to buy back its own stock - the activist selling into the buy back. 4/ IPO pump and dump: We are having quite a bout of this right now. The valuation is ramped up in the private equity raising rounds and then the stock is dumped with maximum hype on the public. Cant wait for the Wework IPO!!!!!!

THOUGHT OF THE WEEK Where is the 100 year bond ETF when you need it????????????

THE PROBLEM WITH GE In the last four years Net tangible assets have declined from $15 Billion to Negative $47 billion A drop of $64 Billion in NTA. Mainly due to all their the dividends and share buybacks. (i.e. massive stock pumping operation) All funded by borrowings. Which finally trashed the share price and balance sheet. After the shareholders suddenly realized that borrowing to fund stock purchases and dividends destroys the actual reality price (ARP) of the stock in the long term (even as it does wonders for the market reality price of the stock in the short term). Because GE simply doesnt generate any free cash flow from its operations (I think negative 2-3 Billion....not large but adds up over time). (unlike Apple which is a FCF king..........for now.....it appears to be starting to go down the GE path......I hope it stops in time). As GE is still FCF negative it has no funds to pay down debt. So it cant do a "REVERSE COYOTE" and pay down debt and add NTA and ARP value to the stock. (Note GE has had three full coyote cycles in the last 25 years!!!!!!!!!) So I dont think the stock goes up anytime soon unless: Further real cost cutting, capital raising, major asset sales or significant demand increase for products occurs. And as Mr Markopolous suggested any blow out in long term care costs, or a recession inducing drop in demand for its products, could sink the stock severely. If I were GE I would do a capital raising here. 20-30 Billion should do the trick!!!!!!!!!!

NIRP IS BAD FOR.................. Banks Life In surers Bond fund managers....after all if the funds bonds are earning 0.5% and your management fee is 0.5% there is not much left for the "Investors"...is there. Anybody who owns bonds really. However its great for leveraged asset investors.

APPLE: GOING DEEPER INTO THE COYOTE FIELD Apple is having to dramatically increase its share price buybacks to keeps its share price increasing. Now at nearly $100 Billion per annum. This should increase the stock price by 10% per annum going forward. But the great days since 2012 of 30% annual price appreciation are over!!!!!!!!!!! To keep the share price appreciation going APPLE is having to go increasingly Deep into the "COYOTE FIELD" going more and more towards "FULL COYOTE". i.e. using borrowed money to fund share buybacks At $100 billion per annum it is not only using up all its annual free cash flow generation on share buybacks. It will also have to run down its balance sheet cash and investments at a rate of $40 billion per annum. This means in about 5 years these assets will be gone. And remember it already has $100 billion of debt on the balance sheet. After that to still push the price up will require outright borrowing.

CAN BERKSHIRE HATHAWAY EVER OUTPERFORM THE S&P INDEX AGAIN????? Berkshire since 2011 has basically underperformed (slightly) an S&P index fund. Can it ever outperfrom the index again???? Yes it could, But only in a BEAR market scenario!!!! Then it would only drop at about half the index drop. Berkshire has good insurance characteristics for this market. Its sort of like an S&P index fund with free downside insurance thrown it. So owning Berkshire vs owning an S&P index funds is primarily for the insurance benefits!!

APPLE BY THE NUMBERS - PART 4 The stock is selling at a price to free cash flow ratio number of 15. Take out the cash and investments on its balance sheet and this number drops to 11. So I must CAVEAT my previous statements on this company. APPLE is no longer a GREAT investment. But it is stll a GOOD investment. (Given the low rate environment and overvalued large stock alternatives). However it does appear to be on its way to being only a reasonable investment. The days of 30% annual gains are behind it.

MORE BOND MARKET MADNESS In Denmark you can now get a ten year mortgage with a negative 0.5% rate. A 30 year mortgage will set you back 0.5%. The inflation rate is 1.6%. So the lender on the ten year mortage is giving away 21% of their capital as a gift to the borower. The lender giving out the 30 year mortgage is giving away 33% of their capital as a gift to the borrower!!!!!!!!!!

ARE INDEX ETF's THE ENGINE'S OF PONZI VALUE CREATION Sadly Yes....because they are momentum funds. They are used as engines to push stock values above their actual reality prices. And so create large PONZI values in stocks. They take no account of VALUE only PRICE. And so push value and price apart. This will result in a reckoning for index ETF's one day.

AMERICAN AIRLINES.......WHERE IS THE MISSING MARKET CAP????????????????? So South West has $22 Billion in sales and a market cap of $26 Billion. But AA has $44 billion is sales ...DOUBLE South Wests ......but only $13 Billion in market Cap.....HALF South Wests??? Thats right.......DOUBLE the SALES equals HALF the market cap. If AA were run like SW it should have FOUR TIMES the market cap.....$52 Billion. AA is MISSING $39 Billion in market capitalisation !!!!!!!!!!!!!!!! Where is it hiding??????

BERKSHIRE HATHAWAY AND THE AIRLINES So Warren B reverses his opinion of the Airlines as perrenial money losers and buys stock in all four big ones. On the basis I presume that airline consolidation has created semi monopolies i.e companies with moats and pricing power!!!!! UAL, South West, Delta and American. But is such an indiscriminate purchase of all four justified?????? If you look at their free cash flows - its not justified. South West has a Price/FCF of 9 - thats very good. UAL ratio is 12 also good, Deltas is 20 which is high and America Airlines has negative free cash flow. Why the great variation???????????? Because its all about CAPEX with the airlines. American spends so much on CAPEX each year that it does'nt make any free cash flow!!!!!!!!! Berkshire should sell American Airlines and Delta. It should probably sell UAL as well. And concentrate its investment on South West.