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TranceAddict Investors Club @ Marketocracy (pg. 157)
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| Krypton |
| quote: | Originally posted by saluyamo
If AIG stocks plummit (which seems like they probably will sooner or later) will we be looking at another massive drop similar to the one near the end of last year? |
No we won't. The reason why the market reacted so badly to AIG was their insolvency as a "too big to fail" company. This time around, the concern won't be over the systemic risk of AIG failing. Everyone knows AIG isn't going to fail. So prices will not reflect such sentiment. |
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| saluyamo |
Thought this was an interesting read, however gloomy it maybe.
http://www.telegraph.co.uk/finance/...ly-ticking.html
| quote: | The unemployment timebomb is quietly ticking One dog has yet to bark in this long winding crisis. Beyond riots in Athens and a Baltic bust-up, we have not seen evidence of bitter political protest as the slump eats away at the legitimacy of governing elites in North America, Europe, and Japan. It may just be a matter of time.
One of my odd experiences covering the US in the early 1990s was visiting militia groups that sprang up in Texas, Idaho, and Ohio in the aftermath of recession.
These were mostly blue-collar workers, – early victims of global "labour arbitrage" – angry enough with Washington to spend weekends in fatigues with M16 rifles. Most backed protest candidate Ross Perot, who won 19pc of the presidential vote in 1992 with talk of shutting trade with Mexico.
The inchoate protest dissipated once recovery fed through to jobs, although one fringe group blew up the Oklahoma City Federal Building in 1995. Unfortunately, there will be no such jobs this time. Capacity use has fallen to record-low levels (68pc in the US, 71 in the eurozone). A deep purge of labour is yet to come.
The shocker last week was not just that the US lost 467,000 jobs in May, but also that time worked fell 6.9pc from a year earlier, dropping to 33 hours a week. "At no time in the 1990 or 2001 recessions did we ever come close to seeing such a detonating jobs figure," said David Rosenberg from Glukin Sheff. "We have lost a record nine million full-time jobs this cycle."
Earnings have fallen at a 1.6pc annual rate over the last three months. Wage deflation is setting in – like Japan. Interestingly, The International Labour Organisation is worried enough to push for a global pact, fearing countries may set off a ruinous spiral by chipping away at wages try to gain beggar-thy-neighbour advantage. Some of the US pay cuts are disguised. Over 238,000 state workers in California have been working two days less a month without pay since February. Variants of this are happening in 22 states.
The Centre for Labour Market Studies (CLMS) in Boston says US unemployment is now 18.2pc, counting the old-fashioned way.
The reason why this does not "feel" like the 1930s is that we tend to compress the chronology of the Depression. It takes time for people to deplete their savings and sink into destitution. Perhaps our greater cushion of wealth today will prevent another Grapes of Wrath, but 20m US homeowners are already in negative equity (zillow.com data).
Evictions are running at a terrifying pace. Some 342,000 homes were foreclosed in April, pushing a small army of children into a network of charity shelters. This compares to 273,000 homes lost in the entire year of 1932. Sheriffs in Michigan and Illinois are quietly refusing to toss families on to the streets, like the non-compliance of Catholic police in the Slump.
Europe is a year or so behind, but catching up fast. Unemployment has reached 18.7pc in Spain (37pc for youths), and 16.3pc in Latvia. Germany has delayed the cliff-edge effect by paying companies to keep furloughed workers through "Kurzarbeit". Germany's "Wise Men" fear that the jobless rate will jump from 3.7m to 5.1m by next year. The OECD expects unemployment to reach 57m in the rich countries by the end of next year. This is the deadly lag effect.
What is so disturbing is that governments have not even begun the spending squeeze that must come to stop their countries spiralling into a debt compound trap.
French president Nicolas Sarkozy, with a good nose for popular moods, says: "We must overhaul everything. We cannot have a system of rentiers and social dumping under globalisation. Either we have justice or we will have violence. It is a chimera to think that this crisis is just a footnote and that we can carry on as before." The message has not reached Wall Street or the City. If bankers know what is good for them, they will take a teacher's salary for a few years until the storm passes. If they proceed with the bonuses now on the table, even as taxpayers pay for the errors of their caste, they must expect a ferocious backlash.
We are fortunate that the US has a new president enjoying a great reservoir of sympathy, and a clean-broom Congress.
Other nations must limp on with carcass governments: Germany's paralysed Left-Right coalition, the burned-out relics of Japan's LDP, and Labour's death march in Britain.
Some are taking precautions: Silvio Berlusconi is trying to emasculate Italy's parliament (with little protest) while the Kremlin has activated "anti-crisis" units to nip protest in the bud.
We are moving into Phase II of the Great Unwinding. It may be time to put away our texts of Keynes, Friedman, and Fisher, so useful for Phase 1, and start studying what happened to society when global unemployment went haywire in 1932. |
edited, so it's hopefully less of a wall of text. |
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| Krypton |
The Dow Jones just crossed 9000. Does anyone think the market is getting over valued? I have my suspicions that it might be the bear market I was talking about. Profits are still declining in many areas and consumer spending is essentially low and flat. Where's the justification in all this? Is it just this?
"The National Association of Realtors says sales of previously occupied homes rose 3.6 percent from May to June." |
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| Groundhog Boy |
| quote: | Originally posted by Krypton
The Dow Jones just crossed 9000. Does anyone think the market is getting over valued? I have my suspicions that it might be the bear market I was talking about. Profits are still declining in many areas and consumer spending is essentially low and flat. Where's the justification in all this? Is it just this?
"The National Association of Realtors says sales of previously occupied homes rose 3.6 percent from May to June." |
There is no justification and this rally has gone beyond the point of being a joke. INTC reports better than expected (which were already low as ) and the market rallies 200 points. Meredith Whitney says "i'm bearish, but Goldman is a buy because of debt underwriting," and the market rallies 200 points.
Meanwhile, Microsoft (2.25% of the S&P 500) bombs earnings, misses revenues estimates by $1.25 billion and the market sells off in AH, to completely recover and go positive by the close. I refuse to chase this because it's all going to end poorly. |
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| Krypton |
| I got out of Microsoft at $24, lucky me. |
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| saluyamo |
| quote: | Originally posted by Groundhog Boy
There is no justification and this rally has gone beyond the point of being a joke. INTC reports better than expected (which were already low as ) and the market rallies 200 points. Meredith Whitney says "i'm bearish, but Goldman is a buy because of debt underwriting," and the market rallies 200 points.
Meanwhile, Microsoft (2.25% of the S&P 500) bombs earnings, misses revenues estimates by $1.25 billion and the market sells off in AH, to completely recover and go positive by the close. I refuse to chase this because it's all going to end poorly. |
The question I and I'm sure a lot of other people are asking is when will the rally break? |
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| Krypton |
| quote: | Originally posted by saluyamo
The question I and I'm sure a lot of other people are asking is when will the rally break? |
Hopefully soon, I was wanting to get back into the market, but not at these valuations. |
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| saluyamo |
| quote: | Originally posted by ********
cad euro has been performing well, although you can't truely forcast forex - I'm consisently feeling bad or sitting on the USD I have. On the flip side it is nice to see the CAD increase in value to the USD.. part is expected this winter again.. |
What made you choose to put your money in USD? |
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| Krypton |
| quote: | Originally posted by saluyamo
What made you choose to put your money in USD? |
:stongue: No one should be in FOREX unless they know they're doing and have a lot of money. Someone clearly doesn't. |
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| Shakka |
Alright Krypt--what does your model say about ADS?
| quote: |
July 26, 2009
Fair Game
Benchmarks as Bendable as Gumby
By GRETCHEN MORGENSON
SELF-SERVING compensation practices, we can now agree, played a central role in the financial wreckage that still surrounds us. For example, rewarding Wall Street’s outsized risk-takers with immediate bonuses, no matter how their trades worked out, turned out to be, well, disastrous.
With public-company shareholders on heightened alert for problematic pay plans, one would hope that corporate directors — who are supposed to serve their investors — would also be watchful for red flags. But that, alas, is not always the case.
Consider, for a moment, the incentive pay structure at Alliance Data Services, a company that manages customer loyalty programs, like air-miles reward plans, and provides private-label credit card programs through its World Financial Network National Bank subsidiary. Alliance, whose credit card clients include Ann Taylor, Victoria’s Secret and Pottery Barn, generated $2 billion in revenue in 2008.
Like most companies, Alliance dispenses stock awards to its executives each year when certain performance measures are met. Where Alliance gets creative is in the benchmark those stock awards are tied to, one that excludes some fairly significant costs that the company incurs. Alliance calls this measure “cash earnings per share.”
So how does Alliance define “cash earnings”? As income that is adjusted upward by adding back certain expenses like the cost of the stock awards that the company gives to executives and employees.
In any other universe, costs reduce earnings. But in Alliance’s happy world, expenses actually improve the bottom line.
Alliance adds other costs back into its income calculation as well. It takes a portion of the premiums that it pays when it acquires credit card portfolios and account lists, for example, and adds that to its earnings. Such premiums are normally viewed as a cost of doing business, but Alliance considers them to be an intangible asset, which it amortizes over time. Adding this amortization amount to its “cash” earnings each year generates a fatter figure.
These adjustments make for a big difference between earnings based on generally accepted accounting principles — you know, the kind where you actually subtract expenses from revenue before arriving at earnings — and the figure the company has chosen to highlight. Alliance’s “cash earnings” for the second quarter, which it reported last week, came in at 95 cents a share. Real earnings in the period were 51 cents a share.
In the first quarter of 2009, the spread between the two figures was even wider: Alliance reported “cash” earnings of $1.19 a share, compared with GAAP earnings of 45 cents.
To be sure, Alliance is not the first company to devise financial metrics that put its results in the best possible light. It has urged investors to judge it on “cash earnings” since it issued stock to the public in 2001.
But at least one analyst objects to the fact that the company’s performance pay is based on a number that management can easily massage. And basing executives’ pay on a measure that does not take into account the costs of acquisitions means that Alliance’s management is encouraged to make acquisitions with little regard for price.
You get it: Neither practice is what you would call “shareholder friendly.”
A spokeswoman for Alliance said the company doesn’t discuss matters relating to compensation beyond what it reports in its financial filings. But Robert Minicucci, chairman of Alliance’s compensation committee and a general partner with Welsh, Carson, Anderson & Stowe, a large private equity firm, said that Alliance’s board is “very interested in pay-for-performance.”
“How many companies do you know that have gone from $12 to $48 in the last six years?” Mr. Minicucci asked. “It is hard to say that shareholders are buffoons here and directors are asleep at the switch.”
Nevertheless, the cost of the stock awards that the company adds back to its earnings calculation can be significant. In each of the last two years, Alliance reported stock award expenses of about $48 million; in 2006, this expense was $36 million.
As Alliance’s stock expenses have risen by 36 percent, the company’s operating income has risen by 23 percent and net income has increased by just 15 percent. Its shares have appreciated by a third in the period.
In the first three months of 2009, Alliance awarded an additional 710,303 performance-based stock units; vesting restrictions on a third of these shares will disappear next February if the company’s “cash earnings” grow by an unspecified amount during 2009, its quarterly filing said. If that growth figure is met, the stock grants will vest completely by February 2012. Typically, restricted stock grants vest over longer periods.
Stock awards are a big piece of the pay pie for Alliance executives. Edward J. Heffernan, its chief executive, received $4.7 million in total compensation in 2008. (He was chief financial officer at the time.) Stock awards had a value of $3.34 million in the period.
J. Michael Parks, Alliance’s former chief executive, received $6.7 million in total compensation; $3.4 million of that came from stock awards.
Note the circular nature of this compensation structure. If Alliance’s “cash earnings” achieve a specified growth rate in a given year, some of the company’s stock grants vest sooner. Because the costs of these stock grants contribute to “cash earnings,” the growth target becomes easier to reach the more options are awarded.
And that makes some analysts uneasy.
“By artificially inflating ‘cash earnings per share,’ management is able to serve its desire to accelerate vesting and hit ‘cash earnings per share’ targets for the Street,” said William Ryan, an analyst and managing director at Portales Partners, an independent research firm in New York.
Of course, all of this might be viewed as a matter between Alliance and its shareholders. Except for one thing: Because the securitization market has shut down, Alliance has had difficulty selling securities backed by its private-label credit card receivables. So, the company recently turned to a government program for help raising money: the Term Asset-Backed Securities Loan Facility.
Last April, Alliance issued $709 million of securities under the program — a program that we, the taxpayers, back. So Alliance’s accounting practices are kind of our concern, too.
“The Securities and Exchange Commission and the Obama administration are all coming down on pay packages that don’t correlate with metrics that are conventionally accepted by investors,” Mr. Ryan said. “So Alliance comes up with a metric that you can adjust yourself, effectively a self-graded exam.”
Another example of how good it is to be king in some corners of corporate America. |
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| Krypton |
| quote: | Originally posted by Shakka
Alright Krypt--what does your model say about ADS? |
Their 2Q earnings report is atrocious in the lack of information it provides. I had to use 1Q earnings report for current liabilities, and long-term debt. The Balance Sheet and Cash Flow statement seemed incomplete to me. The lack of information reflects poorly on them, according to me, and the investment grade I give them.
I rate them a SELL, with a valuation of $46.28, about 8% over valued. |
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| Shakka |
| quote: | Originally posted by Krypton
Their 2Q earnings report is atrocious in the lack of information it provides. I had to use 1Q earnings report for current liabilities, and long-term debt. The Balance Sheet and Cash Flow statement seemed incomplete to me. The lack of information reflects poorly on them, according to me, and the investment grade I give them.
I rate them a SELL, with a valuation of $46.28, about 8% over valued. |
So does that mean you would've rated it a BUY 2 weeks ago before they reported earnings when the stock was trading at $38? |
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