Saturday, October 29, 2011
Friday, October 28, 2011
Cowardly Banks Now Scared Away From Debit Fees
Maybe those noisy protesters from the so-called 99% are having an effect on the system already. Banks that are too big to fail are getting too scared to charge more fees. Chase and Wells Fargo are backing off plans to assess more fees on debit card transactions. BofA hasn't budged yet, probably because they're in such terrible shape and will have to have their corporate fingers pried away from their new fee plan once the boardroom gets sufficiently terrified. A bank in that much trouble must have either a pretty high pain threshold, extremely tone-deaf management, or a billionaire investor like Warren Buffett who assures them they'll be bailed out now matter how many new fees they assess. Oh, wait, that's right, it's the last choice. Okay, that explains it.
Doesn't Berkshire Hathaway still own WFC too? And isn't JPM historically a Rockefeller family franchise? If so, they and other "healthier" banks will figure out more devious means of financial repression. Depositors need to read the pop-up windows every time they log into their accounts from now on, because failing to click "No Thank You" on one may result in the assessment of some stealth annual fee for non-acknowledgement.
Full disclosure: No positions in bank stocks at this time.
Doesn't Berkshire Hathaway still own WFC too? And isn't JPM historically a Rockefeller family franchise? If so, they and other "healthier" banks will figure out more devious means of financial repression. Depositors need to read the pop-up windows every time they log into their accounts from now on, because failing to click "No Thank You" on one may result in the assessment of some stealth annual fee for non-acknowledgement.
Full disclosure: No positions in bank stocks at this time.
Thursday, October 27, 2011
Market Goes Nuts Over Last-Ditch Euro Debt Deal
Today's big news out of Europe was hardly a surprise but the market acted like it had never been priced in. An agreement to draw a firebreak around Greece's debts using French and German money has been obvious for days if not weeks. Maybe sellers are finally glad they found one last group of gullible buyers onto whom they can offload some equities before everything is shredded.
I give my readers credit for being intelligent, but the odd few might need an explanation of my sarcasm. The EFSF as presently constituted is still too small to backstop anything beyond a bailout of banks holding Greek sovereign debt, even with principal writedowns. Any further deterioration in Greek state finances, or even further hints of trouble with Spain's or Italy's debt, will overwhelm the EFSF's ability to respond in time. European governance is too fractured to reach a broader bailout agreement, and the European Central Bank is too weak to backstop banks unilaterally or flood the market with liquidity.
This means that any further bad news at all from Europe will require the U.S. Federal Reserve to immediately offer massive dollar swap lines to shore up the euro and its member states' various underwater banks. The future of European unity now rests with Washington. Europeans have done all they can for themselves, once again.
I give my readers credit for being intelligent, but the odd few might need an explanation of my sarcasm. The EFSF as presently constituted is still too small to backstop anything beyond a bailout of banks holding Greek sovereign debt, even with principal writedowns. Any further deterioration in Greek state finances, or even further hints of trouble with Spain's or Italy's debt, will overwhelm the EFSF's ability to respond in time. European governance is too fractured to reach a broader bailout agreement, and the European Central Bank is too weak to backstop banks unilaterally or flood the market with liquidity.
This means that any further bad news at all from Europe will require the U.S. Federal Reserve to immediately offer massive dollar swap lines to shore up the euro and its member states' various underwater banks. The future of European unity now rests with Washington. Europeans have done all they can for themselves, once again.
Wednesday, October 26, 2011
Early Look At Living Systems Behind Occupy Wall Street
Examination of any nascent insurgency requires documentation of the living systems giving it sustenance.
The organization that used to be known as ACORN no longer formally exists, but its staffers have formed the nucleus of new groups such as New York Communities for Change. The NYCC now supports the Occupy Wall Street movement with fundraising and staffing.
The Left's own Mother Jones describes how labor unions provided early support for the Occupy movement. Other blogs have reported on how labor union activists were apparently brought in by bus and paid to appear in Occupy events.
A story this big deserves an ironic cant. Goldman Sachs pulled out of a fundraiser for a credit union when it discovered Occupy Wall Street would be an honoree. GS does not share any target markets with that credit union so concern over anti-trust collusion should not have been a deal-breaker. It is safe to say that GS is not part of the living systems support structure.
The organization that used to be known as ACORN no longer formally exists, but its staffers have formed the nucleus of new groups such as New York Communities for Change. The NYCC now supports the Occupy Wall Street movement with fundraising and staffing.
The Left's own Mother Jones describes how labor unions provided early support for the Occupy movement. Other blogs have reported on how labor union activists were apparently brought in by bus and paid to appear in Occupy events.
A story this big deserves an ironic cant. Goldman Sachs pulled out of a fundraiser for a credit union when it discovered Occupy Wall Street would be an honoree. GS does not share any target markets with that credit union so concern over anti-trust collusion should not have been a deal-breaker. It is safe to say that GS is not part of the living systems support structure.
Tuesday, October 25, 2011
First Solar (FSLR) CEO Out - Is There Hope?
First Solar (FSLR) has seen better days. A shake-up in the CEO's chair was expected given the company's share price performance, down to the low 40s from over 170 in less than a year. The stock's fundamentals now look compelling from a deep value standpoint: a single-digit P/E ratio, low long term debt, positive FCF, five years of ROE growth. The most recent quarter's nose-dive in net income is a cause for concern, but fortunately they don't have to worry about competing on price because their cost of production is low enough to compete with even China's state-subsidized solar makers.
A brief word on FSLR's core technology is in order. First Solar has the distinction of being the first solar (okay, pun intended) manufacturer to produce solar panels at a cost of $1/watt. The key to their success has been the use of cadmium-telluride. The price of cadmium has been deregulated since the 1950s, its worldwide supply sources are geographically diverse, and there is a growing market for recycling cadmium in the U.S. Tellurium, although not a rare earth element, is so rare in geological availability that the U.S. government has difficulty estimating its worldwide production. If resource availability will ever constrain First Solar's ambitions, falling tellurium supply will be the main culprit. Tellurium is largely a byproduct of copper mining and the world price of "Dr. Copper" has fallen this year in response to slackening world demand. The long-term outlook for tellurium is not rosy, as Jack Lifton has noted in this article addressing FSLR's ambitions. No matter how compelling a value FSLR may appear based upon financial reports, the realities of geology will govern its future.
Full disclosure: No position in FSLR at this time.
A brief word on FSLR's core technology is in order. First Solar has the distinction of being the first solar (okay, pun intended) manufacturer to produce solar panels at a cost of $1/watt. The key to their success has been the use of cadmium-telluride. The price of cadmium has been deregulated since the 1950s, its worldwide supply sources are geographically diverse, and there is a growing market for recycling cadmium in the U.S. Tellurium, although not a rare earth element, is so rare in geological availability that the U.S. government has difficulty estimating its worldwide production. If resource availability will ever constrain First Solar's ambitions, falling tellurium supply will be the main culprit. Tellurium is largely a byproduct of copper mining and the world price of "Dr. Copper" has fallen this year in response to slackening world demand. The long-term outlook for tellurium is not rosy, as Jack Lifton has noted in this article addressing FSLR's ambitions. No matter how compelling a value FSLR may appear based upon financial reports, the realities of geology will govern its future.
Full disclosure: No position in FSLR at this time.
Monday, October 24, 2011
Updating The Alpha-D For 10/24/11
I didn't need to make many portfolio changes this week. My covered calls on FXI and GDX expired unexercised. I renewed my covered calls on FXI to expire next month. With GDX, I sold my calls in my IRA to expire this Friday, and in my taxable account I sold them to expire next month.
My intent in splitting the GDX expirations was to capture a larger cash premium in my IRA with a lower strike price that is much closer to the current market price of GDX. I needed a shorter expiration date to minimize the possibility that volatility would spike and sell away the GDX holdings. My GDX holdings' value is below the most recent price I paid to recapture them after they were sold away (thanks to covered calls) some months ago. Part of the challenge of a covered call strategy is maintaining the underlying stocks as a long-term investment while minimizing capital gains from selling them and avoiding capital losses from repurchasing them.
I continue to hold several California muni bonds that will mature next year. I am considering putting some cash into TIPS but I must complete some analysis first. Individual TIPS may not adjust in value quickly enough to keep pace with high inflation, but a TIPS bond fund or ETF may be able to keep up. I'll let you know which vehicle I choose (if any) once I've figure that out.
My intent in splitting the GDX expirations was to capture a larger cash premium in my IRA with a lower strike price that is much closer to the current market price of GDX. I needed a shorter expiration date to minimize the possibility that volatility would spike and sell away the GDX holdings. My GDX holdings' value is below the most recent price I paid to recapture them after they were sold away (thanks to covered calls) some months ago. Part of the challenge of a covered call strategy is maintaining the underlying stocks as a long-term investment while minimizing capital gains from selling them and avoiding capital losses from repurchasing them.
I continue to hold several California muni bonds that will mature next year. I am considering putting some cash into TIPS but I must complete some analysis first. Individual TIPS may not adjust in value quickly enough to keep pace with high inflation, but a TIPS bond fund or ETF may be able to keep up. I'll let you know which vehicle I choose (if any) once I've figure that out.
Sunday, October 23, 2011
The Limerick of Finance for 10/23/11
There's not enough cash to save Greece
The markets will not be at peace
Italy's next to go
Then yield spreads will blow
Taxpayers, hold onto your fleece
The markets will not be at peace
Italy's next to go
Then yield spreads will blow
Taxpayers, hold onto your fleece
Saturday, October 22, 2011
Friday, October 21, 2011
Frankish Kabuki Presages Euro Debt Non-Solution
It sure looks like the Frankish ethnic cousins - France and Germany - have pretty much settled on an uneasy compromise for injecting fresh capital into the EFSF. France had wanted it to act like an insurer but Germany said "nein" to that, so the fund will likely remain only a liquidity provider. That takes care of Greece for the time being, with short-term melt-up rallies aplenty coming for stocks on both sides of the Atlantic. Maybe France will see the light behind limiting the EFSF's firepower once it considers how its sovereign credit rating is getting trashed.
The bad news is that the continent's bad debts are now obviously too big for a Greek-sized rescue fund. Germany has drawn the line at any further rescues beyond Greece. Italy and Spain, when and if they fail to make sovereign debt payments, are beyond the EFSF's reach. China will not bail out Europe; it has too many insolvent banks and municipalities at home to shore up. The U.S. may provide a repeat of its massive swap transfers, but if Europe's collateral (that's the euro, folks) dissolves the Fed will have to create untold amounts of new dollars to shore up its own balance sheet. That giant sucking sound you'll hear will be the sound of non-U.S. institutions running to dispose of their dollars. No foreigner wants to hold a devalued dollar. Rushing to drop a devalued currency can very well launch hyperinflation for Americans holding no other asset besides U.S. dollars.
Enjoy your weekend!
Nota bene: I am long FXI and GDX (which I have held for diversification purposes) and a few California state muni bonds. I hold a lot of cash right now because I believe this European situation will result in a very serious downturn in may equity markets.
The bad news is that the continent's bad debts are now obviously too big for a Greek-sized rescue fund. Germany has drawn the line at any further rescues beyond Greece. Italy and Spain, when and if they fail to make sovereign debt payments, are beyond the EFSF's reach. China will not bail out Europe; it has too many insolvent banks and municipalities at home to shore up. The U.S. may provide a repeat of its massive swap transfers, but if Europe's collateral (that's the euro, folks) dissolves the Fed will have to create untold amounts of new dollars to shore up its own balance sheet. That giant sucking sound you'll hear will be the sound of non-U.S. institutions running to dispose of their dollars. No foreigner wants to hold a devalued dollar. Rushing to drop a devalued currency can very well launch hyperinflation for Americans holding no other asset besides U.S. dollars.
Enjoy your weekend!
Nota bene: I am long FXI and GDX (which I have held for diversification purposes) and a few California state muni bonds. I hold a lot of cash right now because I believe this European situation will result in a very serious downturn in may equity markets.
Thursday, October 20, 2011
Evolving Gold (EVG) Exploring In The West
Evolving Gold (EVG.TO and EVOGF.PK) is prospecting in several well-explored areas. Their challenge is to bring several years' worth of effort to fruition.
The company's recent financial history deserves scrutiny. They closed a private placement in July 2010 for $15.6mm and apparently burned through it in about a year. Goldcorp owned 19mm shares worth $0.82 a share at that point. EVG secured their most recent private placement in August 2011, receiving $5.8mm. This placement valued the company at $0.56 per share (not counting warrants, which at an exercise price of $0.75/share have no value at present). The investors keeping this company alive with cash infusions are expecting progressively lower valuations, which is no surprise given the company's operating history. Appointing a new CEO in March 2011 was a necessary step in retaining investor confidence and keeping their drilling programs on track.
Several years' worth of exploration efforts in multiple properties have yet to result in independently verified assays or a 43-101 compliant report. The lack of confirmed 2P reserves makes it impossible to establish a firm valuation for this company. The delays in confirming announced discoveries seem to to stem in part from an inefficient drilling program. EVG's most recent investor presentation emphasizes vertical drilling, yet the Carlin trend's geology is so well-known that vein locations can probably be estimated more accurately than EVG has done so far. Talented drillers can drill at slants to intercept multiple veins with one bore hole; it isn't clear whether EVG has ever considered slant drilling in any of its properties, let alone the Carlin trend. Their recently completed airborne radiometric and magnetic surveys of their Rattlesnake property should have been completed long ago, so the company's plan for renewed drilling is long overdue. Agnico-Eagle must be wondering if its commitment to fully fund exploration at Rattlesnake is worth the cost.
The viability of the Rattlesnake property is worth a mention. Photos of the property reveal a varied topography of multiple hills and spurs with 40-degree inclines. EVG claims Rattlesnake's ores have plenty of oxides that will allow for efficient gold separation through heap leeching. The only suitable place to locate a heap leeching pond is a plateau that looks to be several miles from the primary drill intercepts, so the logistics requirements of trucking ore a few more miles will add costs to any operation. JV partners like Agnico-Eagle will need to know this before committing to development.
EVG investors will need patience. The firm has been operating for over four years and needs to show results. One thing they can do immediately is commit to wisely using cash. They closed their last fiscal year with $8.7mm in cash and now seem to have about $6mm on hand. Most of that $6mm seems to have recently arrived from the August private placement mentioned above. Did they completely spend their March cash balance in eight months? Keeping exploration costs under control will be imperative, because they will have to raise more private placements in 2012 to complete the surveying they should have done in the first place prior to drilling holes. They should also consider the cost of future purchases of mineral rights from those private landowners in the Carlin-Humboldt project who are not yet fully on board with development. A bet on an exploration-only company is a bet on managerial talent. Management should take a page out of other junior miners' playbooks and investigate whether its properties sit astride geothermal vents. Leasing some property to a geothermal developer can provide them with cash flow they'll need to survive.
Full disclosure: No position in EVG at this time.
The company's recent financial history deserves scrutiny. They closed a private placement in July 2010 for $15.6mm and apparently burned through it in about a year. Goldcorp owned 19mm shares worth $0.82 a share at that point. EVG secured their most recent private placement in August 2011, receiving $5.8mm. This placement valued the company at $0.56 per share (not counting warrants, which at an exercise price of $0.75/share have no value at present). The investors keeping this company alive with cash infusions are expecting progressively lower valuations, which is no surprise given the company's operating history. Appointing a new CEO in March 2011 was a necessary step in retaining investor confidence and keeping their drilling programs on track.
Several years' worth of exploration efforts in multiple properties have yet to result in independently verified assays or a 43-101 compliant report. The lack of confirmed 2P reserves makes it impossible to establish a firm valuation for this company. The delays in confirming announced discoveries seem to to stem in part from an inefficient drilling program. EVG's most recent investor presentation emphasizes vertical drilling, yet the Carlin trend's geology is so well-known that vein locations can probably be estimated more accurately than EVG has done so far. Talented drillers can drill at slants to intercept multiple veins with one bore hole; it isn't clear whether EVG has ever considered slant drilling in any of its properties, let alone the Carlin trend. Their recently completed airborne radiometric and magnetic surveys of their Rattlesnake property should have been completed long ago, so the company's plan for renewed drilling is long overdue. Agnico-Eagle must be wondering if its commitment to fully fund exploration at Rattlesnake is worth the cost.
The viability of the Rattlesnake property is worth a mention. Photos of the property reveal a varied topography of multiple hills and spurs with 40-degree inclines. EVG claims Rattlesnake's ores have plenty of oxides that will allow for efficient gold separation through heap leeching. The only suitable place to locate a heap leeching pond is a plateau that looks to be several miles from the primary drill intercepts, so the logistics requirements of trucking ore a few more miles will add costs to any operation. JV partners like Agnico-Eagle will need to know this before committing to development.
EVG investors will need patience. The firm has been operating for over four years and needs to show results. One thing they can do immediately is commit to wisely using cash. They closed their last fiscal year with $8.7mm in cash and now seem to have about $6mm on hand. Most of that $6mm seems to have recently arrived from the August private placement mentioned above. Did they completely spend their March cash balance in eight months? Keeping exploration costs under control will be imperative, because they will have to raise more private placements in 2012 to complete the surveying they should have done in the first place prior to drilling holes. They should also consider the cost of future purchases of mineral rights from those private landowners in the Carlin-Humboldt project who are not yet fully on board with development. A bet on an exploration-only company is a bet on managerial talent. Management should take a page out of other junior miners' playbooks and investigate whether its properties sit astride geothermal vents. Leasing some property to a geothermal developer can provide them with cash flow they'll need to survive.
Full disclosure: No position in EVG at this time.
Wednesday, October 19, 2011
Tuesday, October 18, 2011
Apple And Goldman Sachs Miss Earnings
Two blue-chips the analyst community counts on to drive bulls over cliffs have faltered. Apple has missed Q4 earnings estimates. When your earliest adopters are fanatically devoted to shiny new products and expect version 5, an interim product called 4S just won't do. Delaying it one month didn't help either. Amazon's new gizmo will bring full blast margin compression to a commoditized product. Apple's ability to extract monopolistic rents from this market is peaking, so it absolutely must milk this cash cow to fund the rest of Steve Jobs' legacy blueprints.
The second unpleasant surprise for bulls is an even worse story of eroding monopoly power. Goldman Sachs lost money for itself. I'll skip the hard-core analysis and just say that bad karma from publishing equity research that lost money for clients has finally caught up to the firm.
These two stocks are symbols of the gossamer knowledge economy as much as railroad stocks used to be bellwethers of the old-fashioned America. It's time to fold up the revival tent, bull investors, and head for defensive ground.
Full dislcosure: No positions in AAPL or GS.
The second unpleasant surprise for bulls is an even worse story of eroding monopoly power. Goldman Sachs lost money for itself. I'll skip the hard-core analysis and just say that bad karma from publishing equity research that lost money for clients has finally caught up to the firm.
These two stocks are symbols of the gossamer knowledge economy as much as railroad stocks used to be bellwethers of the old-fashioned America. It's time to fold up the revival tent, bull investors, and head for defensive ground.
Full dislcosure: No positions in AAPL or GS.
Monday, October 17, 2011
IMF Understates Its Potency, Europe Overstates Its Unity
Mme. Lagarde seems fairly sure that the IMF doesn't need any more boosts to its financial firepower. This is not comforting in light of a mounting Eurpoean political logjam. Greek politics are in paralysis, stifling any pro-austerity vote and emboldening civil servants who refuse to do their jobs and citizens who refuse to pay taxes. German officials are dialing down expectations for next week's EU summit, telegraphing to all parties the high price Germany will charge for acquiescing to even a minimal bank bailout plan. Europe's inability to stick to the details of an agreed-upon plan has made staving off sovereign defaults much more difficult to solve. Both debtors and creditors are unwilling to meet in the middle.
If the IMF has already secured a promised backstop from the U.S. then Mme. Lagarde has every reason to be confident that no further reserves are necessary. The Fed has already established a precedent of unilaterally offering swap lines to foreign banks, which amounted to $16T worth of loan guarantees during the last round of this crisis. On the other hand, if European political leaders think that tighter vertical EU integration will be the deus ex machina needed, they must know that it will not fit this timeline. One week is not enough time to both forge a revised EU constitution and ramrod it through every member state's parliament.
The most probable result of next week's action will be another toothless agreement in principle, followed by noncompliance from the PIIGS and immediate sovereign debt downgrades. We will then see whether the IMF activates its pre-existing swap lines with the Fed, and whether those loans stay locked into Eurpean banks' reserve requirements as non-hyperinflationary balance sheet decorations.
If the IMF has already secured a promised backstop from the U.S. then Mme. Lagarde has every reason to be confident that no further reserves are necessary. The Fed has already established a precedent of unilaterally offering swap lines to foreign banks, which amounted to $16T worth of loan guarantees during the last round of this crisis. On the other hand, if European political leaders think that tighter vertical EU integration will be the deus ex machina needed, they must know that it will not fit this timeline. One week is not enough time to both forge a revised EU constitution and ramrod it through every member state's parliament.
The most probable result of next week's action will be another toothless agreement in principle, followed by noncompliance from the PIIGS and immediate sovereign debt downgrades. We will then see whether the IMF activates its pre-existing swap lines with the Fed, and whether those loans stay locked into Eurpean banks' reserve requirements as non-hyperinflationary balance sheet decorations.
Sunday, October 16, 2011
The Limerick of Finance for 10/16/11
China says the yuan will be stable
Pledges to keep it range-bound if able
Falling exports do cost
Lead to Chinese jobs lost
You won't read that in some Asian fable
Pledges to keep it range-bound if able
Falling exports do cost
Lead to Chinese jobs lost
You won't read that in some Asian fable
Saturday, October 15, 2011
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