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Everything posted by Jimbo

  1. THE OXY........MORON DEAL So Oxy gets Anadarko a company that generates no free cash flow And a lot of expensive debt. And Warren getting 800 million a year Winners: Warren B Anadarko shareholders who take the cash Chevron shareholders Losers: Oxy shareholders (lower oil prices or higher interest ratyes will tank the dividend). Oxy bondholders (lower oil prices or higher interest rates could see the bonds downgraded to junk). This exercise in financial enginering provides lots of opportunity for capital structure arbitrage.
  2. TESLA BREACHES THE MARGIN...NOT LINE (Terrible pun on the marginot line) Tesla stock breached the $250 line Next stop ZERO??? Admire the guys vision BUT ....NOT the business plan, In the end its the cold hard calculus of numbers that count. When did Tesla jump the shark??? There are so many events to choose from. Sending the Tesla to Mars is definately up there for contention. But my personal favourate is the funding secured buyout at $420.
  3. PARTY LIKE ITS 2009!!!!!! or MONEY FOR NOTHING AND YOUR WARRANTS FOR FREE So Warren B gets 8% on his ten billion in prefs AND 80 million in free warrants This is the sort of deal Warren was getting in 2009. But let us look a little bit more closely at Anadarko and Oxy. Thier share prices have almost halved on the past few years. Thats because it has slowly dawned on Mr Market that both companies really dont generate any free cash flow. Combining them wont change this. The only way to stop the rot with these 2 is: 1/ Higher oil prices - pay down debt - restore equity value. or 2/ major cost reduction. I wouldnt want to be a common shareholder in the merged entity. Chevon should let the deal go ahead and buy them out a couple of years latter at the inevitably low stock price. Because the merger will creat another publicy listed LBO. Dependent on low interest rates to survive. (shouldnt these companies be called "public private equity"?????). With all that debt any rise in interest rates will destroy the common dividend and lead to a lower stock price. Warren has appeared to have learnt his lesson from Kraft Heinz and avoided the common shares of a highly leveraged company. Just too much possible downside. The prefs meet the margin of safety rule. Let some one else own the downside.
  4. SHORTING TESLA AND THE MARGIN OF SAFETY When you think about it you can apply Warren Bs concept of a margin of safety to shorting stocks. This is where you only short AFTER the stock has gone down a certain % or below a chart resistence point. What it the margin of safety for TESLA????????? Well it looks to be $250.
  5. THOUGHTS ON INBEV Is Inbev another Kraft Heinz??? I don't think so. Looks reasonable value at current prices.
  6. MORE THOUGHTS ON KRAFT HEINZ - PART 2 KH is basically a busted Leverage Buy Out - like toys r us. Its just that its a publicly listed busted LBO. But instead of paying down debt with the FCF (which traditional LBO's do to reduce risk and create equity value). They paid it out as dividend to the shareholders. So the company had no "Margin of safety" if the FCF went away. The brands didnt have the pricing power they expected. The "Moat" got filled in!!!!!!!!!!!!!!!! So the FCF went away. Hence the dividend cut and asset sales. Another lesson that "Investors" shouldnt just look at the dividend. They need to look at the dividend's coverage ratio - the company's "margin of safety". But the FCF depends on how deep and resistant to being filled in the moat is. And even deep moats can disappear - moats arn't static!!!!!!!!!!!! They tend to diminish and disappear over time. KH was always a financial high wire act. Im sure Warren B can read a balance sheet. But this investment was more in the nature of an experiment for Berkshire I think. It just did'nt turn out well.
  7. MORE THOUGHTS ON KRAFT HEINZ Given the firms lack of free cash flow. And adding $3 billion in debt every year to pay the dividend. The company will have to completely eliminate its dividend. It may even need a capital raising or asset sales to stabilize its position.
  8. FINANCIAL MEDIA REFRAIN: WHAT HAPPENED TO KRAFT HEINZ Answer: nothing happened to Kraft Heinz. Once it vastly overpaid for its assets with cheap QE debt (this happened several years ago) the die was cast. Kraft Heinz had $105 billion of intangibles and goodwill on the balance sheet. It has $31 billion in debt and negative net tangible assets of $38 billion. Its balance sheet is not a pretty sight. At the same time its FCF is only $3 billion. Not enough to pay interest and the dividend at the same time. Obviously the "market" cant read a balance sheet or a cash flow statement. The market is only now realizing that Kraft Heinz has to make massive write offs of intangibles and goodwill!!!!!!!!! and eliminate the dividend to pay down debt. I said on this board in January that the company would have to cut its dividend to pay down debt and now it has done so The company is full of declining brands which were massively overpaid for when they were bought. The stock price since then has simply been a case of market "Denial". Only now is reality forcing its way into the markets conciousness in regard to Kraft Heinz.
  9. IS APPLE THE NEW NOKIA Given that unit sales of iphones are falling. Apple has a lot in common with Nokia. Which is down 80% since its peak in 2007. Yes Apple has more in common with Nokia than the market currently thinks.
  10. FALLING OFF THE CRYPTO CLIFF - THE STRANGE CASE OF NVIDIA Still valued at 90B The crypto crash went on all through out 2018 Terrible external frame all year for the company. Yet it only broke in October 2018. Was $280 now $140. Before the crypto boom it was selling for about $30 Still a long way to fall. Not a Coyote Cliff but definitely a Crypto Cliff!!!!!
  11. INTRODUCING THE COYOTE FAMILY OF ETF's The Running Coyote ETF This ETF invested in stock where management is borrowing billions to buy back large amounts of stock. The Coyote Cliff ETF This etf shorts stocks that are falling of the coyote cliff because they can't borrow any more to funds buybacks. The Recovering Coyote ETF This funds invests in stocks of companies that have gone over the coyote cliff and are in recovery mode i.e are successfully paying down their debt etc Eg GE , BHC, kinder Morgan et al
  12. THOUGHTS ON 2019 1/ Still lots of stocks that need to bleed out their Ponzi values. (the difference between the actual reality price and the market reality price) For instance Coca Cola needs to halve in value. Mondelez needs to halve in value. 2/ Bonds still bad value.
  13. MORE THOUGHTS ON INDEX FUNDS Index funds are a great idea and will beat the majority of hedge funds over the long term. However their archilles heal is value. At the end of a bull market index funds will typically be stuffed with over valued large capital stocks. Which will tend to give up a large part of their value. There needs to be some mechanism which allows index fund to hold large cash balances (or even bonds) when a fairly long term moving average technical indicator such as the 200 DMA is on a downward slope. A sort of "Get out of market free" card. But I guess a smart beta etf would have this covered already ?????
  14. THE GOVERNMENT SHUT DOWN QE When you thing about it the Government Shut down is a form of QE Instead of increasing demand for bonds you reduce the supply. Rates go down and money flows into stocks. But when the shutdown ends the QE ends. I am sure traders are positioning themselves for a short sharp fall in prices.
  15. CREATURES FROM THE QE SWAMP When you think about it Heinz Kaft and Inbev are sort of creatures from the QE swamp Corporate vehicles - publicly listed LBO's - with lots of debt- structurally designed to benefit from QE. BUT: Drain the debt swamp and their stock prices wilt. Both have gone over the coyote cliff and lost half of their market cap. Both need to eliminate their dividends and spend every dollar of FCF on debt reduction. This should stabilize their stock prices and lead to reasonably quick debt reduction. Indeed they are both prime candidates .......along with GE For a "Coyote Recovery ETF" This would invest in companies that have gone over the cliff and are now in recovery mode.
  16. DIWORSIFICATION Peter Lynch talked well about DIWORSIFICATION Altria is a prime case right now. Overpaying massively for Juul and Chronos. Altria would have been far better off using those funds to creep up the INBEV share register. Taking advantage of the fact that INBEV's share price has cratered due to its excessive debt. Sectors currently in a bubble: 1/ Pot Stocks 2/ Fintech 3/ Bonds
  17. THOUGHTS ON THE FED PUT The Fed put used to trade like a US treasury. Now it trades like a junk bond.
  18. WHAT WE LEARNED IN 2018 Trade wars and tariffs are actually bad for stocks. Rising interest rates are bad for stocks. Overvalued markets finally correct. Tarrifs are a classic case of Bastiat's seen and unseen Yes the protected industry expands. But the increased cost of the protected industries goods causes an overall decrease in total demand for that good and overall economic activity.
  19. MORE THOUGHTS ON APPLE given 1/ The iPhone has flatlined technologically - lengthening the replacement cycle. 2/ Apple can only increase sales and profits by raising prices I cannot see the actual real reality price of this stock increasing. I can only see it going down and taking the market reality price with it.
  20. 2018 - THE YEAR THE PUMP WAS REPLACED BY THE DUMP Despite the last end of year rally 2018 was the year the pump was replaced by the dump. I don't think the dump in 2019 will be that bad. Normalisation has to occur to save the pension funds from insolvency. Sill numerous stocks where their market reality price (MRP) has to adjust to their actual reality price (ARP) in 2019 Apple is now selling near its ARP.
  21. THE TAX CUT PUMP AND DUMP When you think about it the corporate tax cut operated in a similar manner to a pump and dump scheme. First the tax cut and repatriation of funds to pump the stocks. Then the bond market realises that they have to fund the tax cut - leading to treasuries falling taking corporate bonds with them - rates rising. Stock market suddenly realises that corporate bond rates will rise forcing corporates to cut back on borrowing and stock purchases - the dump part.
  22. THOUGHTS ON THE BEAR Why there was no Christmas rally? Too much Bear....in such a market all news (including good news) is bad news Thats why Mnuchin's attempt at a good news story about calling the PPT. Turned into a bad news story. The Trump bump and corporate tax cut was the final overvaluation push that set the market up for the bear market. The tax cut while short term bullish was actually long term bearish as it added to the deficit and pushed up interest rates which pushed down stocks!!!!!!!!!! All the Synthetic QE from Trump or Mnuchin will not be effective. Synthetic QE is only effective in BULL markets not BEAR ones. The thing they really need to do is cut the budget deficit to take the pressure off interest rates. But they wont do that. So its back to more printing.
  23. THE POWELL PUT Not a real put.....only worth 10-20 cents in the dollar tops. It seems that the markets cant handle "normalization"
  24. THE HONEST HEDGE FUND CLOSURE LETTER A lot of smart hedge fund mangers are closing up shop. However their closure letters to their investors I think leave something to be desired. In the spirit of Christmas giving and the truth, I have decided to produce a generic hedge fund closure letter that hedge funds that are closing can use as a template to craft their own letters: Dear Investors The game is finally over. It was wonderful while it lasted, but massive Central bank bond buying has sadly come to an end. Ever since they panicked big time in 2009 and introduced massive quantitative easing its been a wonderful ride for stocks and bonds. We have not had to do anything, no stock picking skills required, just every year collect our massive 2 and 20, take very expensive holidays and buy ourselves lots of very expensive presents for Christmas. THANKS FED. Its been a wonderful welfare scheme for investors and hedge funds, but the writing has been on the wall ever since that Trump fellow got elected President and those little riots in Paris just seem to confirm everything. We looked like geniuses by just sitting tight and doing nothing. But the very action of this inaction is now making us look like fools. Time to shut up shop and open that private office in order to take advantage of all the wonderful shorting opportunities, and then pick up all the cheap assets after the crash for cents in the dollar. Just remember: all good Ponzi's eventually come to an end. Sorry got to go, the private jet to my holiday destination is waiting on the tarmac.
  25. FRENCH GOVERNMENT BONDS ANYONE????? I think not. I think a theme in 2019 will be a sell off in European bonds.
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