well the hits just keep on coming don't they? BLUD dropped somewhere around 20-25% yesterday because they decided to radically change the amount they were spending on R&D by way of an acquisition of a start up company (well they have been around for 10 years but they are a few years away from a fully automated solution so revenues are minimal).
Still thinking through this one -- the hard part is they claim the key to the deal is that no one else is focused on using DNA technologies on the blood bank market. I wonder about companies like ILMN and Gen-Probe. ILMN sells a bead express product that makes me wonder why someone couldn't come out with a blood bank version. Gen-probe sells nucleic acid tests (NAT) that are used for screening STDs and other types of products. Gen-probe has been a good stock but for me I haven't liked the valuation nor could I see as much upside as others given the returns so far.
BLUD's management has a great track record but 15% dilution for the next few years is hard to swallow. that's why the stock got crushed. They claim on the call that this DNA version of blood typing will be additive -- used only for tests that the current technology can't handle. I at first figured they are doing the deal because they believe their franchise is at risk and they have been spending only 2-3% of sales on R&D -- a pittance compared to most health care product companies. The only reason why DNA tech won't replace their current antigen tech is because of price -- something which is continually dropping so its more of a matter of time.
so in some ways despite the drop the story just became more risky -- or more precise the risks became more known -- DNA is something I wondered about prior to buying but decided to trust in management. have to do some more thinking and see what Wall Street's Finest have to say as well.
Oh and the Fed's actions? -- probably helps -- look at what their last auction did to the Libor rate -- I expect this action will help calm spreads within mortgage land to some extent but that doesn't change the fact that home prices are still falling and that there is still probably too much leverage in the system. Not much the Fed can do about the unwind of house prices and leverage but this move might make it orderly -- that might limit the collateral damage -- the innocent bystanders caught up in a liquidity squeeze of someone else's making.
Ken Fisher makes the point in Forbes that we don't have a credit crunch for anyone that has good credit -- true but I think he misses the point about house prices and leverage. still I would agree that the economic situation shouldn't be as dire as many think.
Took another look at the charts and realized the nat gas stocks look like Goog and apple from last year -- a wee bit extended. a better price is likely to come in the future. CLB is the one I should be focused on -- it had its goog moment last year too so its probably much closer to heading back up again then the nat gas stocks.
Thursday, March 13, 2008
Monday, March 10, 2008
DFR, TSRA, FLIR, Nat Gas, and whatever else I get to
Ok, first let's cover the DFR -- yes I am feeling pretty stupid for buying more to try to recognize some losses (buy more wait 30 then sell). I am feeling stupid overall too -- what did I say in August? don't own the financials. Why I didn't equate that with DFR I don't know. They were too leveraged and owned the wrong securities with that leverage and they are practically insolvent -- at least that is what is implied by their current share price.
Owning a leveraged portfolio that was funded by the brokers has turned out to be the worst place to be -- the brokers are playing musical chairs with their capital -- there is only so much of it to go around and lately the hedge funds, mortgage REITs and others are having trouble finding chairs.
Their portfolio seemed simple and easy to understand in contrast to the brokers and other financials that owned complex hard to value securities. They have a great track record of credit analysis at a time where they should have known who their fellow investors were -- that was far more useful info than credit analysis. In the ultimate irony -- the mortgage part of the portfolio was merely designed to provide the REIT tax advantage with the risk and the higher returns coming from the alternatives yet its the mortgages that cost them a fortune.
The management company? what is that worth? I have bet a few bucks a share but obviously others disagree. I just find it hard to believe that the management team was that wrong as to sign up to be bought by a REIT that was headed for bankruptcy just a few months later. wouldn't you think they structured the deal to prevent one from destroying the other?
We are only a few months into this issue -- there is going to be more pain to come -- we haven't had any failures yet. So far companies seem to be able to get access to more capital which is why the financials aren't coming back for several years -- tech's have been in a trading range in some sense for about 5-6 years since they bottomed. Most tech's haven't gotten very far since the bottom or if they did they have rolled back over. Apple and RIMM are exceptions. Think about EMC, NTAP, SUNW, JDSU, CSCO, MSFT, etc. old leaders. no where for years. I expect that once the financials bottom they will not get very far for several years either.
Too much capital -- too many competitors meaning there is at once too much capital and not enough capital. There is too much capital but its spread amongst too many companies so there is too much for the industry but not enough capital for each company in the industry. That means pressure on liquidity and once they survive pressure on returns. People keep saying once the business bottoms the survivors will have great returns because the competition will be down so much. That's going to take a long time. When you back out all the leverage that was used you realize the actual amount of debt needed to finance the economy isn't nearly as much as what has been issued over the last few years. That impacts all the infrastructure put in place to produce that debt -- think brokers, hedge funds, mortgage REITs, banks, etc.
Remember my comments from August -- the mortgage market shrinks by 40% or so but the securitizations of the securitizations (CDOs buying MBS) means the actual mortgage related debt falls even more. That remains the biggest risk for MCO -- that the amount of debt issuance falls and keeps falling. Only hope is the rise of securities in Asia as well as the need to replace too many failed short term funding sources with longer term debt (i.e. auction securities).
Moody's has been flat but I think that is a function of a small float and lots of cash flow at the company to buy back stock. soaking up all the volume. it could easily fall to the 20's if people decided debt issuance was going to drop further -- say for them to earn $1.50 instead of $2 or more.
TSRA -- AMKOR arbitration will continue as planned -- panel rejected a stay motion. By law this is a contract dispute not a patent issue. Therefore TSRA should win easily after proving that AMKOR signed a license agreement and is using their technology without paying for it. However, the last few weeks proves nothing is easy or simple with TSRA. I would expect a decent rebound for the stock if they win the stay appeal and Amkor too. What sucks is that management can't buy the stock to show their confidence because of the insider rules -- they have to wait 6 months after their last sale before they can buy at the market price. So far this has held up well during the last couple of days declines. So much volume near these levels I think you have decent downside protection with a large potential upside.
FLIR and ILMN -- too many own the stocks and have been hiding here -- that means people are selling them because they haven't gone down yet and now the charts are broken (well at least FLIR's isn't looking as strong that's for sure). fortunately I sold some ILMN but obviously not enough so far. I will look to add to FLIR in a bit -- a little nervous given how far some of the stocks have fallen and the fact that we still have lots of unwinding to do in terms of fixed income leverage. do not believe there has been any material change in either of their businesses -- perhaps some loss of mo but that seems to be reflected in the price.
Nat Gas -- EOG is my pick at this point. I really like their strategy of using the drill bit to build reserves -- they buy cheap land and find reserves on it -- that's somewhat similar to MCF's strategy just on a bigger scale. I have been thinking a little diversification can't hurt. these nat gas stocks have just broken out from 3 year long bases -- that is usually a good thing for ongoing appreciation. CEO of EOG during their recent analyst meeting called horizontal drilling -- 10% of industry wells this year but 50% of EOG's wells -- a sea change that continues to be underestimated by the industry and by investors. They have identified enough growth paths in terms of areas to be drilled to last them for several years. Only problem is the stock has soared post analyst meeting -- I feel like CLB all over again. This time I am watching the stock pull back first but will probably switch some of my MCF over to EOG as a diversifier. I belive in nat gas overall and I think EOG will maintain strong growth in production, reserves and cash flow while keeping ROCE high. Still can't help but wonder why these won't be the next set of winners to roll over and go back down -- chart says a low volume pull back towards the breakout point is ok but nothing more.
We are at the previous lows -- are we to successfully retest them or are we going a lot lower? hard to say but It seems to me that if we luck out and don't go to new lows we aren't going up either. I expect flat prices at best for quite some time.
today's irony -- that all the concern is about the US economy -- is it in recession or not? yet the price of oil is hitting highs. commodity inflation is not driven by our economy but everyone else's. we have asset deflation combined with commodity inflation. fun stuff.
Owning a leveraged portfolio that was funded by the brokers has turned out to be the worst place to be -- the brokers are playing musical chairs with their capital -- there is only so much of it to go around and lately the hedge funds, mortgage REITs and others are having trouble finding chairs.
Their portfolio seemed simple and easy to understand in contrast to the brokers and other financials that owned complex hard to value securities. They have a great track record of credit analysis at a time where they should have known who their fellow investors were -- that was far more useful info than credit analysis. In the ultimate irony -- the mortgage part of the portfolio was merely designed to provide the REIT tax advantage with the risk and the higher returns coming from the alternatives yet its the mortgages that cost them a fortune.
The management company? what is that worth? I have bet a few bucks a share but obviously others disagree. I just find it hard to believe that the management team was that wrong as to sign up to be bought by a REIT that was headed for bankruptcy just a few months later. wouldn't you think they structured the deal to prevent one from destroying the other?
We are only a few months into this issue -- there is going to be more pain to come -- we haven't had any failures yet. So far companies seem to be able to get access to more capital which is why the financials aren't coming back for several years -- tech's have been in a trading range in some sense for about 5-6 years since they bottomed. Most tech's haven't gotten very far since the bottom or if they did they have rolled back over. Apple and RIMM are exceptions. Think about EMC, NTAP, SUNW, JDSU, CSCO, MSFT, etc. old leaders. no where for years. I expect that once the financials bottom they will not get very far for several years either.
Too much capital -- too many competitors meaning there is at once too much capital and not enough capital. There is too much capital but its spread amongst too many companies so there is too much for the industry but not enough capital for each company in the industry. That means pressure on liquidity and once they survive pressure on returns. People keep saying once the business bottoms the survivors will have great returns because the competition will be down so much. That's going to take a long time. When you back out all the leverage that was used you realize the actual amount of debt needed to finance the economy isn't nearly as much as what has been issued over the last few years. That impacts all the infrastructure put in place to produce that debt -- think brokers, hedge funds, mortgage REITs, banks, etc.
Remember my comments from August -- the mortgage market shrinks by 40% or so but the securitizations of the securitizations (CDOs buying MBS) means the actual mortgage related debt falls even more. That remains the biggest risk for MCO -- that the amount of debt issuance falls and keeps falling. Only hope is the rise of securities in Asia as well as the need to replace too many failed short term funding sources with longer term debt (i.e. auction securities).
Moody's has been flat but I think that is a function of a small float and lots of cash flow at the company to buy back stock. soaking up all the volume. it could easily fall to the 20's if people decided debt issuance was going to drop further -- say for them to earn $1.50 instead of $2 or more.
TSRA -- AMKOR arbitration will continue as planned -- panel rejected a stay motion. By law this is a contract dispute not a patent issue. Therefore TSRA should win easily after proving that AMKOR signed a license agreement and is using their technology without paying for it. However, the last few weeks proves nothing is easy or simple with TSRA. I would expect a decent rebound for the stock if they win the stay appeal and Amkor too. What sucks is that management can't buy the stock to show their confidence because of the insider rules -- they have to wait 6 months after their last sale before they can buy at the market price. So far this has held up well during the last couple of days declines. So much volume near these levels I think you have decent downside protection with a large potential upside.
FLIR and ILMN -- too many own the stocks and have been hiding here -- that means people are selling them because they haven't gone down yet and now the charts are broken (well at least FLIR's isn't looking as strong that's for sure). fortunately I sold some ILMN but obviously not enough so far. I will look to add to FLIR in a bit -- a little nervous given how far some of the stocks have fallen and the fact that we still have lots of unwinding to do in terms of fixed income leverage. do not believe there has been any material change in either of their businesses -- perhaps some loss of mo but that seems to be reflected in the price.
Nat Gas -- EOG is my pick at this point. I really like their strategy of using the drill bit to build reserves -- they buy cheap land and find reserves on it -- that's somewhat similar to MCF's strategy just on a bigger scale. I have been thinking a little diversification can't hurt. these nat gas stocks have just broken out from 3 year long bases -- that is usually a good thing for ongoing appreciation. CEO of EOG during their recent analyst meeting called horizontal drilling -- 10% of industry wells this year but 50% of EOG's wells -- a sea change that continues to be underestimated by the industry and by investors. They have identified enough growth paths in terms of areas to be drilled to last them for several years. Only problem is the stock has soared post analyst meeting -- I feel like CLB all over again. This time I am watching the stock pull back first but will probably switch some of my MCF over to EOG as a diversifier. I belive in nat gas overall and I think EOG will maintain strong growth in production, reserves and cash flow while keeping ROCE high. Still can't help but wonder why these won't be the next set of winners to roll over and go back down -- chart says a low volume pull back towards the breakout point is ok but nothing more.
We are at the previous lows -- are we to successfully retest them or are we going a lot lower? hard to say but It seems to me that if we luck out and don't go to new lows we aren't going up either. I expect flat prices at best for quite some time.
today's irony -- that all the concern is about the US economy -- is it in recession or not? yet the price of oil is hitting highs. commodity inflation is not driven by our economy but everyone else's. we have asset deflation combined with commodity inflation. fun stuff.
Friday, March 7, 2008
tonights thoughts
2 Comments in one night!! wow!!! thanks so much for taking the time to share your thoughts -- especially Dr John for sharing that painful story about Elan.
To been there -- good advice about selling and re-evaluating. Sell discipline is my weakness. It is also true that I am not an expert in patent laws, which one could easily suggest means I have no business owning a company that makes its living from patents. I could say the same thing about several of the stocks that I own. I have written before that having a deep understanding of what you own and why is key to great results because it keeps you out of stocks that are overvalued (e.g. living off of reputation) and keeps you in stocks that have dropped more than they should have.
I try to read as much as I can about the companies and industries I invest in to help determine their value better but I can't know everything that's for sure. Its a tough call about how to balance investing in only what you really know well and having enough diversification as to not taking too much risk. the answer is to concentrate your stocks in areas that you know really well while using funds to diversify with the rest of the money.
I try to do that = probably 40% of my money is in funds.
TSRA tried again to issue a press release explaining their position and it helped pop the stock higher but investors also got to see the briefs filed in the ITC appeal including the one by the ITC staff -- that to me was the reason for the pop today. The ITC staff made a great argument for overturning the stay -- because if they stay actions every time when the PTO is involved they shouldn't bother to exist -- they will have no power anymore because every defendant will just get a stay and the PTO or the federal courts will be the real decider of patent cases because the ITC will have neutered itself. A compelling argument -- every organization wants to have a reason to exist and to have as much influence as possible. will it work? who knows. If it does, I would expect to see the stock reach the low $20's.
I got lucky so far on my additional TSRA shares. To me its still a reasonable decision to have added when I did -- there has been more perception change in terms of the patents than real change. Am I rationalizing the decision -- probably.
DFR -- its all about leverage and forced selling. Brokers have limited capital at this point thanks to their mark to market or subprime losses. That means they don't have the liquidity for all the markets anymore -- they must be selective. All the issues from SIVs to Asset backed CP to auction rate securities to the RMBS repo market (both agency and non-agency) are about 1 thing -- brokers/banks not having the capital to offer liquidity to customers. Various fixed income players are leveraged to the eye balls and they are getting some margin calls -- this not only includes mortgage REITs like DFR but also hedge funds and other types of funds (see carlyzle. As they are forced to liquidate, that puts pressure on bond prices, which makes more people insolvent which means more forced selling. a snowball effect.
when do we find enough low leveraged or no leveraged buyers to soak up all the securities and relieve the pressure? beats me but this will likely ebb and flow -- nothing goes straight down without some kind of rally.
To me it seems like the management company is worth more like $3-5 per share -- yet the stock is near $2 per share. I wonder if the REIT portfolio goes under, wouldn't DCM still be around unless they end up pledging that asset as collateral to try to prevent bankruptcy.
Other reading -- well some cautious folks on the MCF yahoo board have got me thinking -- perhaps I should at least diversify my nat gas bet. MCF has done extremely well but is highly concentrated on one big piece of gas in the Gulf of Mexico. There are other companies that also seem to recognize that value is created at the drill bit -- XTO, RRC, CHK, SWN, EOG are some that I am looking into. we'll see where that goes.
thanks again to my two commenters -- I didn't do that well responding but its thought provoking stuff.
To been there -- good advice about selling and re-evaluating. Sell discipline is my weakness. It is also true that I am not an expert in patent laws, which one could easily suggest means I have no business owning a company that makes its living from patents. I could say the same thing about several of the stocks that I own. I have written before that having a deep understanding of what you own and why is key to great results because it keeps you out of stocks that are overvalued (e.g. living off of reputation) and keeps you in stocks that have dropped more than they should have.
I try to read as much as I can about the companies and industries I invest in to help determine their value better but I can't know everything that's for sure. Its a tough call about how to balance investing in only what you really know well and having enough diversification as to not taking too much risk. the answer is to concentrate your stocks in areas that you know really well while using funds to diversify with the rest of the money.
I try to do that = probably 40% of my money is in funds.
TSRA tried again to issue a press release explaining their position and it helped pop the stock higher but investors also got to see the briefs filed in the ITC appeal including the one by the ITC staff -- that to me was the reason for the pop today. The ITC staff made a great argument for overturning the stay -- because if they stay actions every time when the PTO is involved they shouldn't bother to exist -- they will have no power anymore because every defendant will just get a stay and the PTO or the federal courts will be the real decider of patent cases because the ITC will have neutered itself. A compelling argument -- every organization wants to have a reason to exist and to have as much influence as possible. will it work? who knows. If it does, I would expect to see the stock reach the low $20's.
I got lucky so far on my additional TSRA shares. To me its still a reasonable decision to have added when I did -- there has been more perception change in terms of the patents than real change. Am I rationalizing the decision -- probably.
DFR -- its all about leverage and forced selling. Brokers have limited capital at this point thanks to their mark to market or subprime losses. That means they don't have the liquidity for all the markets anymore -- they must be selective. All the issues from SIVs to Asset backed CP to auction rate securities to the RMBS repo market (both agency and non-agency) are about 1 thing -- brokers/banks not having the capital to offer liquidity to customers. Various fixed income players are leveraged to the eye balls and they are getting some margin calls -- this not only includes mortgage REITs like DFR but also hedge funds and other types of funds (see carlyzle. As they are forced to liquidate, that puts pressure on bond prices, which makes more people insolvent which means more forced selling. a snowball effect.
when do we find enough low leveraged or no leveraged buyers to soak up all the securities and relieve the pressure? beats me but this will likely ebb and flow -- nothing goes straight down without some kind of rally.
To me it seems like the management company is worth more like $3-5 per share -- yet the stock is near $2 per share. I wonder if the REIT portfolio goes under, wouldn't DCM still be around unless they end up pledging that asset as collateral to try to prevent bankruptcy.
Other reading -- well some cautious folks on the MCF yahoo board have got me thinking -- perhaps I should at least diversify my nat gas bet. MCF has done extremely well but is highly concentrated on one big piece of gas in the Gulf of Mexico. There are other companies that also seem to recognize that value is created at the drill bit -- XTO, RRC, CHK, SWN, EOG are some that I am looking into. we'll see where that goes.
thanks again to my two commenters -- I didn't do that well responding but its thought provoking stuff.
Wednesday, March 5, 2008
TSRA
Well TSRA dropped another 40% or something like that today. Another PTO rejection of patent claims and another huge drop. Doesn't make sense to me in that this is an initial action -- unless people figure the odds of the ITC appeal being successful just dropped -- that is possible.
Essentially some very large holders or a whole lot of medium sized holders have decided to sell and there was no one interested in buying. Do those that sold know something? nope. No one can at this point. TSRA has successfully litigated these patents several times and there is no new evidence being presented. It is absolutely stunning that what has worked every time before has all of a sudden been a complete failure.
What I mean is that investors do not believe the patents will survive challenge despite the fact that a court has ruled in their favor on the same evidence that the PTO is using to reject their patent claims -- generally you would think a court ruling would take precedence over the whim of a patent examiner but not so far. The ITC court has previously ruled that TSRA's technology represented a paradigm shift in packaging technology.
Regardless -- they have $5 per share in cash plus an annualized rate of free cash flow equal to $2 per share so figure 3 years (2008-2010) worth at that rate and then I guess the revenues disappear as the contracts and or current patents expire. That adds to $11 -- the bottom in the stock so far. Gives no value to the digital optics, which is NOT a subject of any litigation and is likely worth at least a couple of dollars per share of value.
Micro pilr -- no licenses but also no litigation -- if they can get customers to switch to this new technology, then the old patents won't really matter any more.
My understanding is that when the ITC judge ruled in favor of the stay the opposing lawyers (i.e. not TSRA's team) actually cheered -- they were just as surprised as anyone by the stay. The PTO starts by rejecting claims and then TSRA submits their evidence and things go back and forth until a final ruling is made and then TSRA can appeal to the courts -- this war is just getting started but the opposition has been more successful than they probably ever figured and have put tremendous pressure on TSRA's management. Believe me the team is feeling the heat from this huge stock drop -- it really shines a bright light on management and they must now operate under the assumption they have no credibility -- that impacts their ability to sell new licenses or defend their IP against anyone and everyone.
Many people buying the stock believe once the ITC rules in TSRA's favor or some other event happens -- perhaps the PTO rules in TSRA's favor just once -- people believe the stock will soar back to previous heights -- maybe but call me skeptical. I think its going to be a long hard road. It took 2 years for the stock to recover from the big decline of early 2005. Once a large number of shareholders -- stock traded HALF its shares outstanding today -- have lost a bunch of money and sold near the lows, they don't come back -- its emotionally too difficult. It takes time for the company to attract new investors and they will now have to convince people to trust their IP again. that will be difficult and will likely mean a lower multiple for TSRA in the future.
I still believe TSRA will prevail ultimately -- its not like much new news came out today other than the stock price dropping to levels that can be justified under almost any scenario.
of course as you read this note there are probably thoughts coming to mind about me being in denial and going through the stages of loss (think grieving) no doubt its true. I had a tough day but I went ahead and added to my position -- almost doubled it. Was that rational? depends -- if I still believe in the story then you have to buy more at these prices. At a low teens valuation you are not really paying for patents anymore just cash on hand and the existing contracts. Was my buy emotionally based -- oh yea. We'll see how well it works out -- but I suspect its going to be a long road ahead -- think 2 years to resolution by which time most current investors or those that have sold the last couple of weeks will have long lost interest.
I sold some GOOG and some MSFT to buy more TSRA -- I still belive in GOOG but its a big company and that has to impact its growth at some point relative to a smaller company. I just thought TSRA offered much greater opportunity. If I had more MSFT, then I would have just sold that and not bothered with the GOOG but alas I needed more funds to rebuild the TSRA position -- thank goodness I didn't buy last week in the 20's -- let's hope next week I'm not saying wish i hadn't bought in the teens.....
I also doubled up on DFR with the idea that I will sell these shares in a month to recognize the losses.
I am really excited about DFR's potential but so far I have been as wrong as possible on that stock. I have thoughts on the entire financial sector but not tonight.
Essentially some very large holders or a whole lot of medium sized holders have decided to sell and there was no one interested in buying. Do those that sold know something? nope. No one can at this point. TSRA has successfully litigated these patents several times and there is no new evidence being presented. It is absolutely stunning that what has worked every time before has all of a sudden been a complete failure.
What I mean is that investors do not believe the patents will survive challenge despite the fact that a court has ruled in their favor on the same evidence that the PTO is using to reject their patent claims -- generally you would think a court ruling would take precedence over the whim of a patent examiner but not so far. The ITC court has previously ruled that TSRA's technology represented a paradigm shift in packaging technology.
Regardless -- they have $5 per share in cash plus an annualized rate of free cash flow equal to $2 per share so figure 3 years (2008-2010) worth at that rate and then I guess the revenues disappear as the contracts and or current patents expire. That adds to $11 -- the bottom in the stock so far. Gives no value to the digital optics, which is NOT a subject of any litigation and is likely worth at least a couple of dollars per share of value.
Micro pilr -- no licenses but also no litigation -- if they can get customers to switch to this new technology, then the old patents won't really matter any more.
My understanding is that when the ITC judge ruled in favor of the stay the opposing lawyers (i.e. not TSRA's team) actually cheered -- they were just as surprised as anyone by the stay. The PTO starts by rejecting claims and then TSRA submits their evidence and things go back and forth until a final ruling is made and then TSRA can appeal to the courts -- this war is just getting started but the opposition has been more successful than they probably ever figured and have put tremendous pressure on TSRA's management. Believe me the team is feeling the heat from this huge stock drop -- it really shines a bright light on management and they must now operate under the assumption they have no credibility -- that impacts their ability to sell new licenses or defend their IP against anyone and everyone.
Many people buying the stock believe once the ITC rules in TSRA's favor or some other event happens -- perhaps the PTO rules in TSRA's favor just once -- people believe the stock will soar back to previous heights -- maybe but call me skeptical. I think its going to be a long hard road. It took 2 years for the stock to recover from the big decline of early 2005. Once a large number of shareholders -- stock traded HALF its shares outstanding today -- have lost a bunch of money and sold near the lows, they don't come back -- its emotionally too difficult. It takes time for the company to attract new investors and they will now have to convince people to trust their IP again. that will be difficult and will likely mean a lower multiple for TSRA in the future.
I still believe TSRA will prevail ultimately -- its not like much new news came out today other than the stock price dropping to levels that can be justified under almost any scenario.
of course as you read this note there are probably thoughts coming to mind about me being in denial and going through the stages of loss (think grieving) no doubt its true. I had a tough day but I went ahead and added to my position -- almost doubled it. Was that rational? depends -- if I still believe in the story then you have to buy more at these prices. At a low teens valuation you are not really paying for patents anymore just cash on hand and the existing contracts. Was my buy emotionally based -- oh yea. We'll see how well it works out -- but I suspect its going to be a long road ahead -- think 2 years to resolution by which time most current investors or those that have sold the last couple of weeks will have long lost interest.
I sold some GOOG and some MSFT to buy more TSRA -- I still belive in GOOG but its a big company and that has to impact its growth at some point relative to a smaller company. I just thought TSRA offered much greater opportunity. If I had more MSFT, then I would have just sold that and not bothered with the GOOG but alas I needed more funds to rebuild the TSRA position -- thank goodness I didn't buy last week in the 20's -- let's hope next week I'm not saying wish i hadn't bought in the teens.....
I also doubled up on DFR with the idea that I will sell these shares in a month to recognize the losses.
I am really excited about DFR's potential but so far I have been as wrong as possible on that stock. I have thoughts on the entire financial sector but not tonight.
Tuesday, March 4, 2008
market
How critical are falling housing prices? can anything else do well while housing prices are falling? Key to loan losses is the loan to value ratio -- that's because we are suffering a severity issue not a frequency problem. huh? Frequency refers to people not being able to pay their loans because of something like unemployment -- in a downturn it happens frequently and the bank's losses are relatively small because of the value of the collateral (home).
Severity refers to big losses that happen when the home value has dropped and the owner is far enough under water that they mail in the keys so to speak. After foreclosure costs, the banker will often suffer 25% loan losses -- small number of big losses rather than lots of small losses. The more home prices fall the more owners are under water and the more severity losses the system will have to absorb. Now the WSJ is saying commercial property is experiencing falling values.
Losses have put pressure on bank/broker balance sheets and that is why you saw the auction rate securites fail -- the brokers don't have the capacity to own those securities when they are struggling for capital. But does all this have to hurt ILMN's sales or FLIR's or LH's or TECH's or UEPS's or CLB's or MCF's or anything else non-financial?
depends on how strong the wealth effect is from housing and how strong the offset from overseas growth is in my mind. Have no idea. I have said in the past not to own financials and that I would rather own DFR than most of the banks -- that turned out to be faulty thinking (leverage is a killer). I still am wary of any financials because home prices are still falling. That said, I am nervously long all those other securities and thinking about others. The market has been in a tight range for the last month or so -- between about 1320 and 1400 on the S&P 500. The dip from 1320 to 1270 at the lows was largely Soc Gen induced.
Where do we head from here? New lows or back higher? I'm focused on putting the money into secular growth stories that can do well even in poor economies. That's based on valuation and the strength of the secular cycle. That's why I'm buying BLUD -- recession resistant, relatively attractive valuation with a good secular story. TSRA -- gotten crushed on the whim of an administrative law judge -- long term they win so its a matter of how much to risk and how patient I am for the recovery. I still believe strongly in that story and will likely add some to it.
I am intrigued by AAPL and CREE on the tech side -- but its a tough call for them in this economy. AAPL is too big now not to be influenced by cyclical forces. RIMM isn't cheap enough yet in comparison -- what happens as AAPL comes out with their enterprise strategy - -won't that impact RIMM's PE? CREE -- how much competition will they face in the illumination market? is their new found capital spending discipline sustainable?
I did sell some ILMN today to buy more BLUD -- that's just taking some profits and redeploying them into something with potentially better risk reward. I have had too many round trips to not want to take some gains off the table like ILMN. Love the story but its one expensive stock unless they are able to really beat the numbers. Last year yes, this year -- not so sure.
Severity refers to big losses that happen when the home value has dropped and the owner is far enough under water that they mail in the keys so to speak. After foreclosure costs, the banker will often suffer 25% loan losses -- small number of big losses rather than lots of small losses. The more home prices fall the more owners are under water and the more severity losses the system will have to absorb. Now the WSJ is saying commercial property is experiencing falling values.
Losses have put pressure on bank/broker balance sheets and that is why you saw the auction rate securites fail -- the brokers don't have the capacity to own those securities when they are struggling for capital. But does all this have to hurt ILMN's sales or FLIR's or LH's or TECH's or UEPS's or CLB's or MCF's or anything else non-financial?
depends on how strong the wealth effect is from housing and how strong the offset from overseas growth is in my mind. Have no idea. I have said in the past not to own financials and that I would rather own DFR than most of the banks -- that turned out to be faulty thinking (leverage is a killer). I still am wary of any financials because home prices are still falling. That said, I am nervously long all those other securities and thinking about others. The market has been in a tight range for the last month or so -- between about 1320 and 1400 on the S&P 500. The dip from 1320 to 1270 at the lows was largely Soc Gen induced.
Where do we head from here? New lows or back higher? I'm focused on putting the money into secular growth stories that can do well even in poor economies. That's based on valuation and the strength of the secular cycle. That's why I'm buying BLUD -- recession resistant, relatively attractive valuation with a good secular story. TSRA -- gotten crushed on the whim of an administrative law judge -- long term they win so its a matter of how much to risk and how patient I am for the recovery. I still believe strongly in that story and will likely add some to it.
I am intrigued by AAPL and CREE on the tech side -- but its a tough call for them in this economy. AAPL is too big now not to be influenced by cyclical forces. RIMM isn't cheap enough yet in comparison -- what happens as AAPL comes out with their enterprise strategy - -won't that impact RIMM's PE? CREE -- how much competition will they face in the illumination market? is their new found capital spending discipline sustainable?
I did sell some ILMN today to buy more BLUD -- that's just taking some profits and redeploying them into something with potentially better risk reward. I have had too many round trips to not want to take some gains off the table like ILMN. Love the story but its one expensive stock unless they are able to really beat the numbers. Last year yes, this year -- not so sure.
DFR
well that sucked! coming so close to last week's drubbing in TSRA, this really sucks. Seems so obvious in hindsight too -- as in why wouldn't their non-agency RMBS run into liquidity issues in terms of the repo funding?
I hope we are at that point like NLY was at when that stock was around $11 in early 2006 -- they were supposed to be smart investors with a low risk strategy and all of a sudden the stock went from $20 to $11 and the dividend cut crushed too. Since then the dividend has gone up and the stock with it. NLY was suffering from the shape of the yield curve during the Fed's interest rate hikes. They bit the bullet and adjusted the portfolio and from then on the dividend has slowly come back.
Right now everyone loves NLY and no one likes DFR yet right now it sure seems to me there is finally less risk in owning DFR then NLY because DFR has removed their non-agency mortgages so their liquidity risk has all been eliminated (at least relative to NLY). NLY still faces rate risk but DFR hedges their risk away with interest rate swaps. DFR has a management company that offers growth potential as well as a diversified revenue stream -- NLY used to have one too but I don't know how large it is/was as a percent of the total.
For DFR, the management fees should be a larger than expected percent of the total. Their assets under management are holding firm because of the nature of their CDOs (term funded). While the REIT portfolio has declined in size and earnings potential. Pro forma during 2006, the two sides of DFR were about the same -- since then I suspect the DCM part has held up better than the REIT portfolio believe it or not.
since my cost basis is significantly higher than the current price I plan on recognizing those losses in the near future -- probably double up on the stock and sell half in 31 days.
I hope we are at that point like NLY was at when that stock was around $11 in early 2006 -- they were supposed to be smart investors with a low risk strategy and all of a sudden the stock went from $20 to $11 and the dividend cut crushed too. Since then the dividend has gone up and the stock with it. NLY was suffering from the shape of the yield curve during the Fed's interest rate hikes. They bit the bullet and adjusted the portfolio and from then on the dividend has slowly come back.
Right now everyone loves NLY and no one likes DFR yet right now it sure seems to me there is finally less risk in owning DFR then NLY because DFR has removed their non-agency mortgages so their liquidity risk has all been eliminated (at least relative to NLY). NLY still faces rate risk but DFR hedges their risk away with interest rate swaps. DFR has a management company that offers growth potential as well as a diversified revenue stream -- NLY used to have one too but I don't know how large it is/was as a percent of the total.
For DFR, the management fees should be a larger than expected percent of the total. Their assets under management are holding firm because of the nature of their CDOs (term funded). While the REIT portfolio has declined in size and earnings potential. Pro forma during 2006, the two sides of DFR were about the same -- since then I suspect the DCM part has held up better than the REIT portfolio believe it or not.
since my cost basis is significantly higher than the current price I plan on recognizing those losses in the near future -- probably double up on the stock and sell half in 31 days.
Monday, March 3, 2008
DFR
As if I wasn't having enough fun with TSRA declining, now there is a good chance that DFR will drop a lot on Monday. They keep shrinking in size and that will have an impact on how much they will earn.
interesting move to not do the corporate debt anymore in the principal side -- first reaction is that is probably better for lowering risks but not sure that it won't lead to lower income.
if an early estimate is right -- that they might pay 1.20 in 2008 -- that would still amount to a big yield on the current price.
more after the call
interesting move to not do the corporate debt anymore in the principal side -- first reaction is that is probably better for lowering risks but not sure that it won't lead to lower income.
if an early estimate is right -- that they might pay 1.20 in 2008 -- that would still amount to a big yield on the current price.
more after the call
Subscribe to:
Posts (Atom)