Spekulatius

“Marketplaces”, which take a cut out of a transaction should be good stocks in an inflationary environment.. the cost of goods trades might go up, but that is not a problem for a marketplace, which just takes a cut from the transaction. A dealer wholesale/ distributor has probably the same characteristics, but might have an issue where the inflationary inventory eats up more and more working capital. Google, FB, eBay etc are marketplaces.

As for the lower tax rate, it would be interesting to see studies, if this earnings boost is at least partly competed away. Given how important taxation is, I am surprised there haven’t been many studies on this. So far, I haven’t seen much evidence of lower pretax profit margins. there are also some natural experiment available across state lines where different income tax rate can cause distortions that might be analyzable..

Wells hasn’t updated their online platform for as many years ai remember (probably 2008). That said, it works, but I think they could do better than the average $3B balance sheet credit union with their online banking. I also use Wells Fargo advisers (still 100 free trades) and it works as well. There was one platform refresh since 2008. Again a working platform, but nothing compared to online brokers like Schwab etc. I do like their way of tax lot management and they get the taxes right (downloads into Tax software without issues).

Greg, Please tell us more about it, when you do your bold moves - when you actually do them. I have in the past. Many work, a few here and there dont(like BHC earnings trade and RSYS merger arb where I posted the idea and was about the only one in the world who didn't make money because I read it wrong). My most recent ones have been actionable, especially gene therapy/CRSPR related ideas and the buy anything under the sun call in mid/late December, but frankly after the preposterous reaction from many here on the MDXG trade I decided it better to tone back the ideas if it was just going to be met with scorn from under appreciative underperformers(likely due to jealousy). My point here is that JPM is the best of the banks and Jamie Dimon is basically God so dont overcomplicate things when it comes to owning JPM. A few years back my wife let me manage her 401k(converted to IRA) . Within a year I lost 35% of it. My wife was shouting and kicking and crying. Later I bought JPM at 50ish, at 100%, and later BRKB. Made all the money back and up like 50% from the original balance. Her comment was “just up so little? After all these years?” Losing proposition. If you bet on JPM had gone wrong, you may have looked at a divorce. What did you get for winning ;D?

I believe they banks don’t do well with high inflation rates. I think part of the reason is that they capital (which is partly held in liquid assets) gets eroded by inflation. At least that my observation from looking at several Emerging Market banks when inflation turns up. The sharply rising interest rates are also often correlated with economic distress. Cable stocks have too much debt to be good in a high interest rate environment.

Sold the remainder ( except one share) of my few PDER shares.

The max “safe” leverage depends on the predictability of the cash. Pipeline companies typically have 10 year contracts spore or less guaranteeing stable or slowly growing cash flows during that time, so a 4-5x EBITDA coverage is considered “safe”, E&P’s have very volatile cashflows, so everything higher than 2.5x EBITDA can be dangerous (depend on asset life of course ), high quality real estate can be leveraged 6x or even a bit higher and is considered safe. 12x leverage is very high and in my opinion unsafe, no matter the underlying asset, imo.

With the largest BAM sub (BIP/BPR) at 12x debt/EBITDA, I wouldn’t call BAM antifragile. It is essentially a bet on having low interests for a long time to come, IMO.

I felt the shareholder letter is very good, but the last 10 pages indeed seem to be more about his desire to get involved in politics rather than being CEO of a bank. Also, what is his gripe with mortgages? The big banks have become fairly uncompetitive with mortgages, but from a customer perspective, the mortgage process has become much simpler due to what seams to be a standardized platform (Ellie Mae?). Just had my refinance done in 2 weeks (very low cost; almost no cost refinance), my quickest ever - all online, except signing of the final docs with a notary.

I agree, PBM's have taken the heat over this but the fact is that their clients (self insured employers, for example) are the one's who decide whether or not to pass the rebate on to their employees. The argument with respect to the PBM is that they are working with the drug manufacturers to increase the list prices, while at the same time increasing the discounts to the customer (from which they get a cut or at least it makes it appear that they do something) so the cost to the customer rises less. Just look at the drug channel link up thread - drug list price increase by 6% and prices to consumers by 1.5% - how can this be? I think the whole system lives of opaqueness- everybody pays a different price for the same product.

Great/tough question, isn't it? Historically WFC had better ROTE and ROAs, but you know it seems like the culture that achieved that had some drawbacks too. :-/ I personally prefer the deposit base banks that WEB and CMT seem to have preferred (so BAC and WFC). I like WFC's mix of businesses better (don't like a lot of the Merrill business, think it is a dinosaur), but WFC has no CEO and has an asset cap/restriction. Even with all that WFC still doesn't look appreciably cheaper to me. Also they are all three so darned big. WFC doesn’t have an investment banking business , which tends to be volatile, has considerable tail risk and usually fetched a lower multiple. I think JPM‘s investment banking is still 1/3 of the total earnings and I think BofA‘s Share is similar.

It looks like FEMS has underperformed EEM and FEM (the large cap variant) has pretty much performed inline with EEM. What gives?

^ good summary by Cigarbutt. I was surprised by the deterioration in profitability in this quarter , which wasn’t signaled ahead. WBA was already cutting a lot of costs and yet it doesn’t seem they can do fast enough to get already of the ever falling margins. I agree they should stop the buybacks for now. The Ride Aid acquisition is crimping FCF right now and they shouldn’t add to the debt before they return to normal FCF. I think their leverage is Ok for the time being, but they definitely need to watch it. The Ride Aid acquisition will work out, if they can indeed move most patient from their 700 store closures to existing locations. They were dismissive of PBM in their last CC in 2018, but it seem that at least for the time being, these PBM are eating their margins.

^ Why does the cost of equity depend on GDP growth?

It certainly doesn’t help to win new customers for the asset management business, that’s for sure.

I sold 90% of my shares , so I will have to wait a month to avoid wash sales, if I can make sense of the whole situation by then. This was an example where it’s turned out to be good to sell, before everybody else did (before market open). The stock looks quite cheap. It’s hard to believe that there isn’t value in this sector somewhere.

My wife told me that Prime Video now also has ads. So far, I haven’t seen any ads yet personally. They play an ad for their productions right before the show/movie starts. It's like 75% of the time now. I saw some of the ads in Prime Video my wife noticed . They are for Amazon products and deals on their website. They have had ads for movie/ series trailers for a while, but the product ads are new. I smell we end up exactly where we started.

Cash burn is a concern imo. SYTE has about $460k in cash left and cash burn appears to be ~300k/ quarter. There are plenty of liquid assets within the investment business, but I assume these are locked. SYTE needs to dispose of these real estate properties with high interest rates quickly, or cash could become an issue. I doubt there is much demand for another stock offering. Let’s face it, this is a dumpster fire and unless it’s put out quickly, there won’t be much left. I am amazed the stock trades at $8+ still.

Last time the BOMN meeting was in Boston, we had several people who were not BOMN investors who joined us for the meet-up. Thanks RtF, I bought a share today, so I am good either way.

What a disaster. Real estate ( Mt Melrose ) lost ~$2M of which $0.96M were impairment losses and more than $1M operating losses. $2.5M in debt for interest rates from 10-13% -how did this happen? I can’t even fathom the train of thought that went into financing real estate this way. The cleanup of HVAC (mostly impairments) and Real Estate (which looks like it is burning substantial amounts of cash) is going to be very expensive. Book value is $5.9/ share and in my opinion, the current price of $8.2 is pretty generous considering the current results. Hopefully in a year from now, when HVAC is gone (I think it will be sold for very little) and the real estate is sold (I believe all the Mt Melrose properties will be eventually sold, not just the parceled out assets), this will be stabilized, looking much cleaner and the losses will be greatly reduced.

I agree on this. I think Pharma sector stocks, wholesalers and some drug stocks got pretty cheap. I sold out most of my WBA, because the thesis is broken and I thought that -6% pre market is actually OK to sell for what looked like a pretty sucky result. I may shift to CVS or something else. I think the sector will come back.

Ouch! Yes, results stink. I expected some pressure on margins but not that much. Mr Market been correct on that one. Sold a good amount of my shares premarket - when then thesis changes I need to revisit.

I am not a big fan the company, but I am guessing buying one share for ~$25 is worth it for admission. Or did the proxy get out already and it is too late?

The last two recessions (2001 and 2008) caused 50% corrections in the stock market. The 2001/2002 was just a garden variety Recession by the numbers, yet it caused a severe correction because it was preceded by bubble valuations. I guess one way to frame the question by OP is to ask yourself how likely is another 50% correction in the next 10 years? If we get such a correction, results overall may still be positive, but most likely they won’t be great. Also, I have mentioned this before, I think the next stock market rout may well be caused by political events. We have populist movements in almost any country now, so it will be harder to predict what the political environment will look like. For example, we have now almost 40 years of tax reductions for corporations in most countries, starting in the 80‘s basically, which helped valuations tremendously - what happens if voters decided that it didn’t work for them and decide let’s try the another way around? That’s just one example of political risk, another one is trade wars, elimination of trade blocks and free trade. All of the above are common themes with politicians.

The cynic in me who mimics too closely the writings of Buffet with annual reports using a plain white background and Times New Roman Font is probably more likely a clever marketer than a great investor. Great investors who will make many people rich are probably still around, but they won’t imitate Buffet and probably not even his methods, much less Mimik his style.