ERICOPOLY

I called back and pressed "0" this time to reach an operator. Instead of getting an operator, I got an answering machine with no instructions. It just told me to leave a message. This company is a joke -- you've heard about Bank of America having bad service? Well... move over, we have a new champion.

I called that number. This is humorous. Thank you for calling BYD North America Headquarters. If you know your party's extension, you may enter it at any time. To reach an operator, please stay on the line or press 0. So I stay on the line (my hands are busy chopping veggies in the kitchen and I have the phone on my shoulder). But they must repeat the loop like 6 times or something. Finally they hang up on me. Operator never came on the line.

That's really weird. On the website they list that address as their "Auto" destination (cars presumably). http://www.byd.com/na/service/salesinformation.html And for all the other departments they say you should contact China. And it's funny, the "Autos" for North America is the only department on that sales page that lists a non-Chinese number. They only offer Chinese numbers for Africa, Europe, Australia (and all of North America excluding "Autos").

Start off at their website: www.byd.com Click on "Energy" Then click on "Contact Us -- Sales Information" Then click on "Energy". Then they tell you to basically call China.

Have you tried calling them instead of email? Not yet because who do you call? China? Come on BYD, how about a local number for those of us actually in North America? I'm not kidding, they give you a Chinese phone number for their North American Energy sales: North America-Energy Address:No.3001, Hengping Road, Baolong, Longgang, Shenzhen, 518118, P.R.China Tel: +86-755-8988 8888 | Fax: +86-755-8420 2222 Email: nmd.og@byd.com

Have you purchased it? It does seem pretty cool My situation is complicated by a few factors: 1) I'm not a homeowner so I'd need the landlord to be a cosigner for the loan or agreement (not happening) 2) I'm exploring have a carport built later this year and having the solar installed there (I have a purchase option so the house is going to be mine in 3 years) 3) I want to look into the cost efficacy of using batteries to buy power at night and spend it in the day. Might be better than buying solar panels, but the company (BYD) refuses to answer their email (two weeks now, two tries at different departments). BYD is really irritating me. I don't like waiting a week and not getting a response to a basic question like price. And people think BYD has a rich future -- not if they routinely behave this way.

In short, you are obligated to save money for five years.

Solar City has a no money down program where after five years you can tell them to take their equipment away at no cost to you. So it's only a five year window, and during those five years your only obligation is to purchase the generated electricity at a lower price than your utility charges.

I met a couple at a dude ranch in Northern California -- back in early July. They were both medical researchers at UC Irvine. I talked about Tesla a bit and they told me they had a Solar City installation on their rooftop. They were recommending the company to others. They purchased the system rather than leasing it. It's hard to imagine why more rooftops don't have solar yet. No money down, and immediately your energy bill drops. We'll get there, it's a matter of getting the word out perhaps.

Elon Musk is bringing more to the table than iPhones and iPads. We were so easily wowed before.

Nearly a week... no response from them yet. Next time, I will ask them "pretty please, with sugar on top, do you guys have a price for this item?". To: bydenergy@byd.com Subject: price quote for energy storage Date: Thu, 8 Aug 2013 16:08:29 +0000 Hi, I would like to find out what the price is for the DESS-B08P03A-E. I live in Santa Barbara, California. I pay 9 cents a kilowatt between 12am and 6am, and during summer I pay 47 cents per kilowatt between 10am and 6pm. I have been thinking about the cost efficiency of buying the electricity at night when it's cheap and using it during the day when it is expensive. Thanks, Eric

That's what I said. The warrant adjusts to convert to more shares. This is identical to a DRIP plan where you wind up with more shares because you've put the dividend into the shares. Then under the DRIP plan, the next time a dividend is paid you get more dividends than on the first iteration because you now own more shares. You just have to compare them side by side. Take two warrants and two shares of common. Get the dividends from the common and buy more shares at market price -- realize that it's exactly the same increase in share count as what goes on with the warrant adjustment. Were the warrant adjustment (the conversion to # share count) to NOT happen, then you would in effect be getting the credit for the dividend (strike adjustment) but it would just be sitting there in synthetic cash not earning a return. So the share count adjustment of the warrant is just the reinvestment of that cash value into the stock. Again, it's just a DRIP. Only because you are leveraged. You have purchased warrants for two shares, so you get twice the dividend. Now, if I have 2x leverage on the common stock in my portfolio margin account, then too get twice the dividend. But I can go to 3x leverage and I have 3x the dividend. There is nothing special here for the warrant.

I disagree. It actually works out the same as just using the dividend to buy more common. FIRST: They adjust the strike price penny for penny with the dividend. All they are doing is recording your dividend as a capital gain (taxed as a dividend instead). So your total value here is the same. Ten cents of dividend in cash, or ten cents of dividend's worth of strike adjustment. SECOND: They adjust the number of shares the warrant converts to. The adjustment happens to be exactly the number of shares that you would otherwise have been able to afford with the cash dividend. It's just a synthetic DRIP!

Except with Bank of America's warrants... get that strike price down with some dividends! :) The warrants effectively lock you in to buying more shares, no matter what the price. That's what the dividend readjustment provisions are all about. IMO it's better to own the straight common, levered, and hedge the leverage with puts. This way you get the cash itself from the dividend and you can spend it where you think the best value is -- not 100% back into BAC. I've read your comments on the topic over on the BAC thread. I've never commented on them but I just prefer the warrants over the strategy you laid out. The thing with the dividend knocking the strike price down is that it's much more effective than just using the dividend to buy more common. Entry price of $3.32 on the warrants when they were trading around $7 or $8 means I get roughly double the benefit of dividends than the common shareholder gets (by investing the same dollar amount initially but acquiring twice as many warrants compared to the number of shares I would have been able to buy). You entered the trade when the common was priced at $7 or $8. Let's say you instead purchased the common (no leverage). You would get a capital gain of somewhere between $6.30 and $5.50 per share (up to the $13.30 warrant strike) that the warrant holder will never get. He gets more dividends, sure, but he bought those dividends with this opportunity cost I just talked about. Then he gets the potential of leveraged capital gains on the upside, but that's standard fare for anyone taking on so much leverage. The opportunity cost of the leveraged common (vs the warrants) has been simply, in a word, less (at least since that discussion began in March with the stock at $12). And further down the road when the stock is trading at fair value, the levered common will have the big advantage of flexibility in which share to purchase with the reinvested dividend (why buy more BAC if it's fair valued?). And if you were thinking of exiting the stock when it's fair valued, then you would have missed out on much of the leverage potential of the warrants because on their way to fair value much of that premium you paid will be annihilated by the skewness effect of options pricing (which is what has so far happened as the "cost of leverage" has dropped so much with the rising stock price). It's only when the warrants are held all the way to expiry that you have the best hope of getting your bang for the leverage incurred. If it's not clear, anywhere I say "leveraged common" I'm talking about the strategy where the leverage is fully hedged with puts.

Depending on inflation, 6% or 7% earnings yields could be just as good as getting 15% earnings yields. PE of 20 is a 5% yield and PE of 15 is a 6.7% yield. So a 170 bps movement in inflation can make a large difference to market levels (a 33% increase) without having any impact whatsoever on real earnings yields. Sorry I did not see this follow-up the other day. Even I look at my statement through the "real" cost of equity prism, it still stands that the market is currently implying a lower-than-historical-average cost of "real" equity. So assuming $100 operating EPS for the S&P and a $1,700 price, the PE is 17X and the EY is 5.88%. Assuming average inflation of 2.5%, the "real" EY is 3.38%, which is significantly lower than the GMO-calculated historical average of 6% real. A 6% real required return + 2.5% inflation implies a "fair value" PE of 11.76X, or $1,176 on the S&P 500. For the current market level to be considered "fair value" while maintaining a 6% real required return, then the market is implying 0% inflation in perpetuity. My example was intended to show that the market isn't that expensive in real terms if we do indeed get the 0% inflation. Yes, using historical inflation it is expensive. The market doesn't appear to be expecting historical inflation... if it were, then why is the long term treasury yield so low? Actually, P/E would be 16.66x if you assume 6% real returns and 2.5% inflation. My numbers include the idea that if you have 2.5% inflation, you might also have 2.5% nominal GDP growth. And if you have 2.5% nominal GDP growth, then the company earnings get this 2.5% nominal earnings growth tailwind.

Except with Bank of America's warrants... get that strike price down with some dividends! :) The warrants effectively lock you in to buying more shares, no matter what the price. That's what the dividend readjustment provisions are all about. IMO it's better to own the straight common, levered, and hedge the leverage with puts. This way you get the cash itself from the dividend and you can spend it where you think the best value is -- not 100% back into BAC.

That's why I strongly desire all companies to never pay dividends, and always buy back shares. No matter what the price of the stock! I had to bring up the topic in this thread because I could see people getting sucked into the "magic" of IV growing from buying back shares. No more magical than when KO pays a dividend and you are enrolled in the DRIP!

Let's say we have a $10,000,000 company with 10,000,000 shares outstanding ($1/share). A $500,000 dividend is issued ($0.05/share). Lampert owns 2,000,000 (ownership is 20%) shares so he receives $100,000 as a dividend. He reinvests at $1/share and his share count is now 2,100,000. Ownership is now 21% (up from 20%). On the other hand, let's say they repurchase shares at $1 using that $500,000. Share count decreases to 9,500,000. Lampert still owns 2,000,000 shares but now his ownership percentage is 21.05% (instead of 21.00% with dividends reinvested). I know 0.05% seems insignificant, but why choose 21.00% ownership when you can just as easily choose 21.05%? I'd certainly take the latter. And this doesn't even factor in tax advantages, reducing the share count for a potential short squeeze, etc. I believe Lampert cares most about the shareholders that want to hold this for the next few decades, not the shareholders that need cash in their pockets today. Repurchasing shares instead of issuing dividends attracts the investors he wants in his permanent capital vehicle as it makes the most sense, and provides the most value, on a long-term basis. Someone correct me if I'm wrong, but I think what you might be missing is that the stock will drop on ex-dividend date by the dividend amount, which is the price you should use for purchasing shares with dividends received. So in your example, the purchase price with dividend proceeds should be $.95/share, not $1. It's the same dollar of cash deployed. It the same share bought back for the same price. Tough to argue that more value is created on one side of the corporate veil versus the other. Just the logic of it, doesn't pass the test.

But Lampert effectively IS buying more businesses with the share repurchase. Since SHLD already has a handful of businesses under its umbrella when shares are repurchased he is buying a larger concentration of each company within SHLD as his personal holdings increase in ownership percentage. I disagree. Back in early March 2009 there was somebody on the board that wanted Berkshire to buy more shares back. I argued that it would be better to buy more WFC instead. It wasn't just because WFC was more undervalued (it was of course). The secondary reason if that if shit ever hits the fan, you've got those extra WFC shares on hand that can be quickly sold to shore things up. Just like paying cash out in a dividend, buying back shares weakens your hand and reduces your financial flexibility. You need to be damn sure that you are very very strong to be paying cash out. What about those comments by Eddie that closing stores are good for their bond ratings because they reduce liabilities? Well, another way to improve your ratings is to have more businesses that spit out cash. Not to pay out the cash instead! Buying back shares (at any share price) and paying out dividends (at any share price) are effectively the same thing (taxes aside). Shareholders who like the price can reinvest their dividends into shares, and shareholders who don't like the price can sell shares to get at the cash. So there is no use complaining that a company pays dividends instead of buying back shares, and there is no use complaining that shares were bought back at high prices. These are all within the control of shareholders (taxes aside). But I do find it valid to say that he could build the cash flows of the company stronger by using cash to buy more streams of income instead of just flushing the cash out to shareholders. This is how Berkshire continually makes itself stronger. Where would Berkshire be today if they had only ever bought back shares instead of making it stronger and safer with every purchase of a new company?

Bill Gross' comments: Insurance companies, pension funds – all institutions with liability structures that require matched asset hedging require fixed income assets on the other side of their balance sheet. The recent several months’ experience of higher yields was, in fact, a blessing for them, as their future liabilities went down faster than the price of their bond assets did! http://www.pimco.com/EN/Insights/Pages/Bond-Wars.aspx

What about the non guarantor structure? I think what he meant is that you'll suffer large opportunity costs if the retail doesn't work out. They intend to plug away at the retail results until it turns around. So lets say that instead you have more than doubled your money over that same period invested in WFC. Well that's effectively a 50% loss if you take a chance on SHLD and only walk away with your same original $40. Or at least the guy who instead invests in WFC could then lose 50% of it and be right back to where he would have been if he bought SHLD. So it's either do very well in SHLD or you effectively lose. In that sense SHLD is risky even with the non guarantor structure -- probably a greater chance of not doubling that WFC. And WFC has effectively very tiny risk of total wipeout, so might as well think of it as non guarantor type safety.

Well, I hope I was right about Australia -- sounds like you find it a great value. I think it's a gem, it's just that they would tax me all to hell because of the Roth IRA.

I can do simple math (I have BS in Math degree) so I can tell you what a 13% return on tangible equity translates into for a 10x or 12x earnings multiple. So based on that, I was in banks. I was in both banks for a while. I then concentrated only in BAC after Buffett invested in BAC and repeatedly commented that he can't imagine what Citigroup's earnings would be like down the road. I figured they both looked roughly just as good with my own knowledge, but Buffett only really cared to own one of them. So I followed Buffett's trail into the woods and invested only in BAC.

And I suppose that's how I differentiate an investment in SHLD vs 2011/2012 vintage BAC. It was much easier to imagine BAC earnings 13% on tangible equity. That launches BAC from $5 to $20 over lets say 3 years roughly. In this case, I have to imagine SHLD retail turning around and thriving. Fuck me. (sorry for the rude language)

That's the nail on the head. This investment works if the retail "turnaround" happens. Or perhaps it's a "startup" that needs to succeed. IMHO there is no other path to glory here because as long as they are trying to do that, there won't be a liquidation. But look, if this stock is still at $40 in 7 years I will have lost 50% (or perhaps more) relative to what I can make in Wells Fargo (IMHO) over those same 7 years. So really, it's all about the glory or nothing. That means the retail strategy sure as hell needs to succeed.