Here’s an interesting chart from Merrill Lunch’s recent “Hedge Fund Monitor” report. It shows that traditional long short hedge funds have returned to a historically normal market exposure after the shock late last year: Complete Story »
After spiking to 6%, savings rates for consumers have fallen and are now back to 3% as of August. We are still however off the lows of 1% savings rate. Are consumers back to their spending ways again? Or are these one off effects of government programs like "clunkers" and the $8000 credit for homebuyers?While many skeptics will point to the latter scenario, and they may be correct (see the drop in annualized auto sales back to 9mil units from 14mil units in the heat of "clunkers"), who knows when the Fed and the government will take their foot off the stimulus pedal? They have all the incentives and the capabilities to print more moolah. Again, skeptics may laugh at the government's capability to take on more debt to subsidize the economic recovery, but the dethronement of the US dollar as reserve currency won't happen overnight, and global economies have limited options as to where to put their foreign reserves.Complete Story »
Macro Man submits: Macro Man has thus far avoided the great "deflation versus inflation" debate, at least publicly, for a couple of reasons. The first is that he doesn't think the outcome will be as black and white as many of the debate's participants; he suspects the underlying dynamic is heavily dependent on the velocity of money, and so he prefers to focus his analytical energies in that direction. Moreover, the tone of the debate has taken on a quasi-religious tone, which is rarely conducive to the sort of open-minded give-and-take that yields substantive results. However, it's probably worth touching on some small aspect of the debate, as behind the scenes it seems as if the same is happening at the Fed. Don Kohn's recent speech highlighted the large size of the output gap, a view largely echoed in last night's FOMC minutes. Yet at a recent St. Louis Fed conference, Bank president James Bullard offered a somewhat contrary view - namely that the collapse of the bubble has eradicated some of the productive capacity of the economy, thus rendering the output gap smaller than commonly believed.Complete Story »
Kurt Wulff (McDep Associates) submits: Buy-recommended Canadian Oil Sands Trust (COSWF.PK) stands out at a low McDep Ratio of 0.67 despite a steady uptrend in stock price from the bottom on January 23. Opportunities for optimists, or concerns for pessimists, might include operating reliability, distribution rate and environmental issues. We remain hopeful that the trust can meet management guidance with operations near capacity of 350,000 barrels daily (bd) to the end of the year despite a surprise upset in August that reduced monthly volume to 284,000 bd. We see ample capacity to double the distribution rate on October 28 to C$0.50 a unit compared to estimated Ebitda minus Interest of C$0.79 a unit for the quarter ended December 31. Complete Story »
Marketing Charts submits: Ford Motor Company (F) vehicles accounted for six of the top 10 autos for customer brand loyalty in the US according to a Q209 auto-industry analysis from Experian Automotive. According to the quarterly study, Ford Fusion (62.4%), Ford Edge (57.9%) and Ford Five-Hundred (56%) had the highest percentages of owners who returned to buy a Ford vehicle, while the Ford Freestyle (51.9%) was fifth, the Ford Escape (49.4%) ranked seventh, and the Ford Focus (47.57%) placed ninth.Complete Story »
Chuck Carnevale submits:eBay (EBAY) is a truly great American success story. According to eBay's March 2009 Three-Year Roadmap for Growth:"We are positioning this company to compete and win across a range of profitable ecommerce platforms focused on connecting buyers and sellers across the platform of their choice."Founded in San Jose, California on September 3, 1995, eBay has carved out a unique position in the retail space based on e-commerce. Earnings growth has averaged an incredible compounded 48% per year (See purple circle in Figure 1 below). Fig. 1. EBAY 13yr EPS and Price Correlationclick to enlarge In many ways, eBay (EBAY) has become a victim of its own success. eBay first set the bar high with its IPO on September 24, 1998. Within only a few months its stock value peaked at close to a thirty-fold increase and earnings were doubling almost every year and sometimes more than doubling. (See red arrow and red circle on Figure 1). After eBay’s stock price peaked at just under $32 per split adjusted share in 2000, its value was almost cut in half throughout 2001-2002. However, from the period 2001-2004 eBay established itself as a growth stock extraordinaire. Earnings grew by 80% during the recession of 2001 and averaged over 85% per year compounded through 2001-2004. Even though eBay’s (EBAY) shares started out overvalued with a PE ratio of roughly 135 times earnings (orange circle) at the beginning of 2001, shareholders enjoyed an incredible return of 48.6% per annum (See purple circle in Figure 2 below) for the four-year period. This exeplary performance occurred during one of the worst bear markets on record. Fig. 2. EBAY 2001-2004 EPS History Plus Price Performance When contrasted to the performance of the S&P 500 over the same time frame, it’s clear that eBay’s results were astonishing. See Figure 3 below. Fig. 3. S&P 500 2001-2004 EPS History Plus Price Performance The point we are striving to make is that eBay (EBAY) created a new and unique category of retail selling that it had all to itself for the better part of a decade. Therefore, explosive growth was easily achieved. Common sense says that those glory growth days are forever gone, however, that does not mean that attractive above-average growth for eBay is over. In Figure 4 below, we plot the consensus five-year growth forecast of 18% (15-20% as we see it) for eBay by 20 leading analysts reporting to Zacks. This depicts what we mean by “growth at the right bid”. In other words, we see eBay as very attractively valued today based on realistic assumptions for achievable future growth. Fig. 4. EBAY EPS 5yr Forecast The thesis for eBay’s (EBAY) growth is admittedly somewhat cloudy, but not without plenty of opportunity. Legitimate questions remain as their business model transitions from pure auction to a blend of auction and fixed pricing. Due to competition for auction from formidable competitors with cost advantages, developing a successful fixed business is important. After struggling for several quarters due to the recession, recent sales indications for their fixed-pricing business models appear promising. The current desire to sell Skype is being challenged by its founders. Frankly, we are ambivalent towards the transaction. On the one hand eBay can focus more on core strategies sans Skype. While on the other hand, Skype offers strong growth potential in our view. Therefore, keeping Skype would not be all that bad, especially since eBay does not need the cash. eBay’s enormous free cash flow generation, strong cash hoard and healthy balance sheet puts them in the catbird seat. eBay enjoys the luxury of not needing to tap credit markets to fund its growth. See Figure 5 below which plots eBay’s free cash flow over earnings. (Orange shaded area with “F”). Fig. 5. EBAY 13yr EPS with Free Cash Flow We believe the real growth story today for eBay (EBAY) is PayPal. As online shopping continues to proliferate and expand worldwide, the need and world-wide potential for PayPal appears limitless. eBay certainly possesses the financial resources and we believe business acumen to exploit this opportunity. At the end of the day, eBay (EBAY) is an extraordinary company with enormous resources at their disposal. This allows them to explore numerous avenues of future growth. Promising business lines such as StubHub, Kijiji, Shopping.com, Half.com, ProStores, Rent.com, and many others are merely scratching the surface of what’s possible for eBay. They may not all pan out as hoped, but odds are that enough will to generate the growth that validates today’s attractive valuation. eBay (EBAY) is a fast growing company whose tentacles reach into 30 countries worldwide. Consequently, we believe eBay is a sound investment for prudent long-term investors seeking growth of capital. Although its future growth will likely not be as fast as its past, it should, in our view, remain an above-average grower currently selling at an attractive entry point. Full Disclosure: Long EBAY at time of writing.Complete Story »
The 451 Group: Inorganic Growth submits: By Brenon DalyDeal flow at Compuware so far this year has been out with the old and in with the new. The 36-year-old company sold off its testing automation and software quality business to MicroFocus for $80m earlier this year, and then last week, it put some of those proceeds toward covering its $295m purchase of Gomez. (Interestingly, Updata Advisors worked both the divestiture and acquisition for Compuware.)Complete Story »
Hard Assets Investor submits: By Brad ZiglerMany investors dismiss options trading as too arcane or speculative. While I can't say I blame them for thinking the business is mind-boggling, what with its use of Greek alphabetics like delta and gamma, it's not always about speculation. In fact, options are often used to reduce the risk of holding investment positions. Options are, in this sense, a form of insurance.Complete Story »
Wall Street Cheat Sheet submits: JPMorgan Chase (JPM), the beneficiary of a $25 billion taxpayer bailout and trillions in indirect subsidies, reported soaring third quarter profits of $3.6 billion (a seven-fold jump) on an 81% increase in revenues. Moreover, The Wall Street Journal reports JPMorgan is projected to pay $25.9 billion to the bank’s workers. Seems as though socialism is a windfall for private banks. In this case, taxpayers took all the risk and received none of the upside when lending money to banks such as JPM. Rather than our public servants negotiating on our behalf to get a genuine capitalist deal like Warren Buffett did with Goldman Sachs (GS) and General Electric (GE), we now get to watch JPM et al swim in their profits while our broken system could have benefited from a savvy deal.Complete Story »
Trader Mark submits:Since I am using a virtual portfolio, and I am not sure how it will handle a potentially complicated transaction, I am going to temporarily sell E-House Holdings (EJ) pending the spinoff / IPO of China Real Estate Information (CRIC) [Sep 30, 2009: China Real Estate Information Seeks US IPO Worth $200M]Now, real-estate broker E-House Holdings (NYSE:EJ - News), is preparing to sell off part of its information and consulting business this week. But the deal is a little different because it's doing a merger at the same time.Last year, the firm formed a joint venture with Sina Corp. (NasdaqGS:SINA - News), one of China's leading Internet portals. In July of this year, Sina agreed to sell its real estate division to E-House, which is combining it with the spun-off data business. The IPO, then, will consummate the merger.Doing all the stuff for the blog, I have not had time to look to see how this deal works mechanically, but it sounds similar to what Sohu.com (SOHU) and Changyou.com (CYOU) did earlier this year. So just to keep it simple, I am going to sell Wednesday and buy back hopefully Friday or next Monday after the IPO. This is actually one of our largest positions at the time ... we'll be out in the $22.10s.Complete Story »
Wall Street Cheat Sheet submits: by David Gibbs Not long ago, before the dark days of the economic fallout, the increasing needs of the growing populations of the developing world were the name of the game. Indeed, for a time, we saw fertilizer and seeds become sexier stories than semiconductors and smart phones. However, as Newton would have it, for every great commodities boom, there must be an equal and opposite bust.Complete Story »
Hard Assets Investor submits: By Brad ZiglerReal-time Monetary Inflation (last 12 months): 2.6%* This is shaping up to be another contrary week, as sell-side analysts' guesstimates of oil supplies square off against traders' bullish sentiments.Complete Story »
