JEF - Jefferies Group

[scorpioncapital]

Given LUK's operating performance over the past few years, I'm not sure it deserves to trade much above book value.

 

https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1446584400000&chddm=498916&chls=IntervalBasedLine&cmpto=NYSE:LUK&cmptdms=0&q=INDEXSP:.INX&ntsp=1&ei=Ptc4VpG4McikmAGbtYeIAg

 

I agree. "Shooting-yourself-in-the-foot" syndrome should be rightly discounted. Buffett often swats aside the claim that intelligence is important in investing but premiums do require something above average going for you. Above average smarts or above average business. But who starts an above average business if they aren't above average in smarts? :)

 

[thepupil]

Btw, does anyone else think the 6 5/8% of 2043 @ $99 are cheap?

 

390 or so over the 30 yr seems like decent compensation for the credit risks of this business.

 

Compare the financials heavy i-shares preferred stock index at 5.6% and vanguard long term investment grade @ 3.76% and the vanguard long term corporate bond @ 4.2%.

 

I know some of you may scoff at this, but for the right buyer (like a retiree) this seems like decent relative value.

 

at the risk of being laughed out the room for accepting a low rate of return, I have recently purchased some more of these at 89 3/4% of par for a YTM of 7.5% for both my and my parents account (in an IRA for them).

 

these are 440 over the 30 year and are well collateralized by $7.6B or so of tangible equity (half of which is NOT  Jefferies). There is about $1B of holdco debt. So you are writing insurance on the bottom $1B of of Jefferies and other LUK equity and getting paid a reasonable equity rate of return to do so ( I don't believe the S&P or Russell will return anywhere close to 7.5% at current valuations over the next say 5-10 years). A further back up in rates only increases your rate of re-investment (<---this is a cop-out way to dismiss the duration risk).

 

I also own LUK stock, which I think is very cheap given the changes in the assets that are occurring, but the bonds are obviously a different set of risks/reward.

[Jurgis]

I am not interested in LUK equity, but your bond buy is possibly not bad.

[Picasso]

Thanks for mentioning the bond pupil.  That is an attractive risk/reward.

 

Jeffries/Leucadia bonds have always traded at a high spread relative to other financial bonds.  Not 100% sure why but I was buying them back in 2008-2011 and it took forever for the spreads to come in relative to other financials.

[flesh]

Btw, does anyone else think the 6 5/8% of 2043 @ $99 are cheap?

 

390 or so over the 30 yr seems like decent compensation for the credit risks of this business.

 

Compare the financials heavy i-shares preferred stock index at 5.6% and vanguard long term investment grade @ 3.76% and the vanguard long term corporate bond @ 4.2%.

 

I know some of you may scoff at this, but for the right buyer (like a retiree) this seems like decent relative value.

 

at the risk of being laughed out the room for accepting a low rate of return, I have recently purchased some more of these at 89 3/4% of par for a YTM of 7.5% for both my and my parents account (in an IRA for them).

 

these are 440 over the 30 year and are well collateralized by $7.6B or so of tangible equity (half of which is NOT  Jefferies). There is about $1B of holdco debt. So you are writing insurance on the bottom $1B of of Jefferies and other LUK equity and getting paid a reasonable equity rate of return to do so ( I don't believe the S&P or Russell will return anywhere close to 7.5% at current valuations over the next say 5-10 years). A further back up in rates only increases your rate of re-investment (<---this is a cop-out way to dismiss the duration risk).

 

I also own LUK stock, which I think is very cheap given the changes in the assets that are occurring, but the bonds are obviously a different set of risks/reward.

 

 

cusip?

[thepupil]

527288BF0 LUK 6 5/8% of 2043

[merkhet]

Thanks for mentioning the bond pupil.  That is an attractive risk/reward.

 

Jeffries/Leucadia bonds have always traded at a high spread relative to other financial bonds.  Not 100% sure why but I was buying them back in 2008-2011 and it took forever for the spreads to come in relative to other financials.

 

Agreed. Thanks the pupil. That's a mighty nice return for a retiree's account.

[ourkid8]

Anyone adding to their position at this price?

[jay21]

Anyone adding to their position at this price?

 

Thinking about adding a little. I did once <$22 I think. Anecdotally, the company has used its stock buyback program at these levels twice now when they said they only like to buyback stock when the world is on fire. I think they think its cheap. But two of the bigger businesses remain challenged (JEF and Beef).

 

I also think its cheap but the two things that will move the stock higher are unforecastable (cycle turns and mgmt doing something smart).

[EricSchleien]

I have added here at these prices.

[HJ]

http://www.bloomberg.com/news/articles/2015-11-08/the-real-cattle-class-747-full-of-cows-feeds-china-beef-craving

 

Anecdote of why National Beef may be a tough business for a while, when you are competing with this sort of demand for your raw material.  Better being a cattle rancher than a beef packer?

 

A separate question, if LUK at this point is mostly Jefferies, why should it trade significantly above tangible book, when GS trades around book?

[WhoIsWarren]

A separate question, if LUK at this point is mostly Jefferies, why should it trade significantly above tangible book, when GS trades around book?

 

Well you might be right on the GS comparison, but perhaps both stocks are cheap now??

 

Also, when you say LUK is mostly Jefferies, I have it being worth around 30% of my conservative estimate of group assets.  In particular, I value Jefferies on 0.9x tangible book, which I think in the fullness of time will turn out to be too low.

 

Jefferies aside, the other big swing factors are Berkadia and National Beef.

 

Berkadia could be a real home run.  It's earning c.$200m a year pre-tax and I think has a good chance of increasing its market share over coming years.  I think a $1bn valuation on Leucadia's 50% share of the business is not too much of a stretch.  Book value is just $200m.

 

I wager that National Beef is worth a lot more than its $99m tangible book value -- I'm guessing anywhere from $300m to $1.5bn or more.  In my valuation I put NB in at the low of that range.

 

Add it a little more for HRG, HomeFed and Garcadia, which I believe are undervalued from a balance sheet point of view and I get LUK to be worth $24 a share (based on 376m fully-dilluted shares o/s).

 

I believe this valuation is conservative on a number of fronts.  Firstly the likes of National Beef and Jefferies could be significantly more valuable.  Secondly, Leucadia owns a number of option-like assets, such as Linkem and Leucadia Asset Management business.  I put these both in at cost but they could be worth another few dollars per share.  Thirdly, there's nothing in there for future HRG / KCG / FXCM opportunities that Lecuadia is likely to be presented with from time to time.  This could be very material over time.

 

Management would seem to agree -- they bought back a modest amount of stock in Q3 (-4m shares, now 362m ords o/s).

 

But these are all my own guesses -- maybe I've been too easy on them.  You'll have to do the work yourself and change as you see fit......

 

 

[scorpioncapital]

I have GS trading around 1.2x tangible BV.

I have LUK/JEF trading around 0.9x tangible BV.

 

My suspicion is the market is pricing based on cash generated. I agree some of LUK's assets are carried at cost or depreciated value but in a way it does make sense for the moment if the total entity doesn't produce a good return on capital. I believe Buffett even wrote that a bank or financial firm should earn at least 1% on total assets and if it can't do this it's worth far *less* than tangible book value. LUK has 50 billion or so of total assets a leverage under 10:1 but has some trouble recently earning even 500m per year net.

 

A giant company  may have a stunner of a small division but it's a needle-moving problem. Too small to make an impact. Berkadia and Beef have this potential, as well as Spectrum and the wifi startup. Hopefully when Jefferies returns to kicking on all cylinders it can get to 500m-700m/year run-rate.

Then the market will go above tangible book.

 

[Spekulatius]

separate question, if LUK at this point is mostly Jefferies, why should it trade significantly above tangible book, when GS trades around book?]

 

Jeffries should trade at a large discount to GS in terms of price/tangible book because it is not as good of a business, in my opinion. Jeffries is far more vulnerable (see the issues during the European debt crisis ) and the return on equity seems to be less. They may have benefitted a few years ago from the main competitors being tainted, but that is no clearly not the case any more. Now they are just sub scale, imo.

[ratiman]

So if in the next two years the high-capital businesses maintain the same low-single digit return profile, will the industry start to substantially shrink? Or will it continue to be a war of attrition in which nobody wants to be the first to admit defeat? FBR looks like the only bank that is following a rational strategy of returning cash and slowly exiting the industry.

 

Have the managements really come to grips with the reality that the 1990s aren't coming back? And as LUK/JEF shareholders, how long will it be before management realizes that banking is an even worse industry than meat packing, though the competition is fierce?

 

http://40.media.tumblr.com/9b5a5ecf841e52447ceea23db07708d5/tumblr_nuov7vidsC1qm0t57o1_500.png

[jay21]

I would include the Asset Management business as part of JEF. That's something that IBs can't do as much of nowadays but JEF can.

 

But I really have no idea if IBs ever generate good returns going forward. I think management needs to address why think they can earn a reasonable return on equity given post-crisis returns.

[benhacker]

I do think these are the 2 key areas of importance for figuring out if LUK is marginally cheap, or really cheap:

 

1) Is the flavor of banking JEF is involved in likely to generate good returns going forward (it certainly hasn't the last couple of years)

2) on the spectrum of returns in their sector(s), will JEF do worse, average, or better

 

I'm a huge fan of Handler, but agree eventually results have to come, without that it's clearly not going to get anybody going.

 

I think downside here is minimal, so you really don't need to answer these questions to your satisfaction, but if you are bearish on JEF, LUK isn't very cheap.

 

I think the IB business has changed, but I think a volatile environment (which I expect) is one where I would favor a good management team with history of conservatism and execution, but that is also much smaller and thus likely quicker to change than their major competitors.  Also, small deals that come to JEF can be much more impactful than to someone like GS.

 

To me, GS is a great example of a firm that would seem to be at the epicenter (in a negative way) of all future regulation... but they clearly are making money today in a reasonable way, which is harder to say about JEF.

 

I personally think GS is moderately cheap, and LUK is really really cheap.  However, that view is not new for me, and has not been super profitable recently. ;-)

 

Good luck to all!

[jay21]

Ben - do you have any resources / links describing the IB industry going forward? What do people think they can earn? What has prevented JEF from earning those returns? What is the difference between GS and JEF?

 

I am sure I can answer some of those questions myself but I was wondering if you had anything good off hand.

 

Thanks

[ratiman]

 

 

I think the IB business has changed, but I think a volatile environment (which I expect) is one where I would favor a good management team with history of conservatism and execution, but that is also much smaller and thus likely quicker to change than their major competitors.  Also, small deals that come to JEF can be much more impactful than to someone like GS.

 

 

 

Why in the world do you think JEF does well in a volatile environment? JEF is a bank. Banks don't do well in crises. That's why the whole IB/merchant banking model is broken.

[scorpioncapital]

I think JEF underperformed because it isn't a bank holding company and has had to pay up for permanent capital, especially debt at 5 to 6% vs 0%. That already shaves off 5 to 6% off your total return. Also, they have shot themselves in the foot a bit with a focus on junk bonds and commodities/energy especially in a downturn in these markets. Likewise, their costs are substantially higher than all the other major IB's. In the mid 60% to between 10-20% lower at the other banks. I.e. they have not reduced costs in the face of poor returns, sort of "we'll make it up on volume if we can't make a profit on price". Don't get me wrong, they aren't losing money but they aren't doing too hot. Sort of muddling along.

 

 

[benhacker]

Jay,

 

do you have any resources / links describing the IB industry going forward?

 

I don't have any links handy.  I think the primary changes are of a regulatory nature.  Less proprietary trading, less ability to float debt / loans that are quantitatively high risk, holding more capital for market making / trading.  Also, I think if more products (bonds, derivatives) move on exchange it's also a negative to traditional IBs business model(s).  I don't think advisory itself is dramatically changing, and this is something that definitely favors scale (as Spek says above, I think this is not in JEF's favor).

 

GS / JPM / other SIFI banks have an implicit back stop, and thus lower capital costs than other smaller players, but also generally have to live by more rules.

 

What do people think they can earn? What has prevented JEF from earning those returns? What is the difference between GS and JEF?

 

I think probably a very nuanced answer.  I think capital cost (higher) + risk profile (lower) + execution issues (Bache) at JEF have lowered their returns.  Lower trading costs, and structural bond market changes have affected all IB's / regionals including JEF and I think will continue to have an affect.

 

Why in the world do you think JEF does well in a volatile environment? JEF is a bank. Banks don't do well in crises. That's why the whole IB/merchant banking model is broken.

 

Rati,

 

I'm glad you've got it figured out - my crystal ball seems fuzzier.  I have a bit of history investing in the financial sphere and I'm comfortable here, so I guess that's what makes a market.  I could be wrong of course, but to me it seems JEF has the tools and connections to profit from some upheaval.  I agree a 2008 style upheaval is not good for almost any leveraged financial company, but rate / credit / economy vol != 2008 at least in my mind.  I'd still rather bet on JEF than GS in that case.

 

--

 

I guess a fundamental thing for me, is that investing in heavily regulated businesses is a little dangerous.  I think traditional banking, the rules are pretty well formed, and even there, I think changes can still be dangerous (even assuming you get the financial analysis right).  In the case of most other businesses, I see regulation bestowing benefits while simultaneously ossifying and corrupting the culture of the company.  I think GS (to use a specific example) is a company that historically performed very well, and is tied directly to the elite of the global industry in a meaningful way.  Their lobbying is strong, and I would expect them to continue to benefit from implicit and explicit government support.  However, i don't think their business model is one that inherently should exist as it does today in a regulated way (it should be broken up).  I don't believe it's a safe bet to make that things won't change; any changes for GS I think are to the downside.

 

I'd rather own a relative upstart with well aligned incentives that can change plans, shrink, grow and do what is needed as the needs arise.  That is my preference.

 

So I hear those who say GS is cheap, so why shouldn't JEF be cheaper.  Fair point (and I do think GS is moderately cheap), but I don't and won't own GS because I don't think their size and current position has a lot to say for it in the long run.  (I've own GS debt before, JBK, but not the common).

 

I maintain JEF is a more flexible business, with a better leader, less of a culture issue, and cheaper.  None of that means shit to JEF's income statement this year, but I'm betting it will long term.

 

Seeing the composition of GS's board over time and the changes that have slowly taken place there since going public and talking to folks who worked there even 10-15 years ago vs. today makes me think GS is changing, and not for the better.  I don't think the symptoms are unique to GS either.

 

By the way, I have said the same thing when JPM is used as a comparison for other more traditional banks... I think JPM has a culture problem which is masked by a) their good financial results and b) a temporary TBTF / elite alignment they get that others don't in our economy.  I do like Jamie Dimon... but still...

 

Hope that helps, just one guys opinion.  I think if you just judge highly levered financial institutions simplistically solely by the numbers (ROE / PE) you will almost always be the loser at the table.  BAC and C had crazy ROE in 2003-2006 but it wasn't real (or was high risk).  Any highly reflexive situation compounded with financial accounting that is heavily subjective can always confuse risk and return IMO.  Management analysis and risk analysis are the most important thing to focus on IMO.

 

Way too long to say mostly nothing, sorry.

 

[EDIT, to contextualize, not sure if affects anything, but we are all biased in some way.  I started my RIA in 2007 and have had >50% or there about in financials / banking / insurance since day 1 (>75% during 2007/8-2010).  My stake in LUK comes from JEF acquired pre-merger announcement so I was a fan of Handler prior LUK making that bet, and in fact I had hoped LUK would buy / merge with JEF.]

[twacowfca]

Jay,

 

do you have any resources / links describing the IB industry going forward?

 

I don't have any links handy.  I think the primary changes are of a regulatory nature.  Less proprietary trading, less ability to float debt / loans that are quantitatively high risk, holding more capital for market making / trading.  Also, I think if more products (bonds, derivatives) move on exchange it's also a negative to traditional IBs business model(s).  I don't think advisory itself is dramatically changing, and this is something that definitely favors scale (as Spek says above, I think this is not in JEF's favor).

 

GS / JPM / other SIFI banks have an implicit back stop, and thus lower capital costs than other smaller players, but also generally have to live by more rules.

 

What do people think they can earn? What has prevented JEF from earning those returns? What is the difference between GS and JEF?

 

I think probably a very nuanced answer.  I think capital cost (higher) + risk profile (lower) + execution issues (Bache) at JEF have lowered their returns.  Lower trading costs, and structural bond market changes have affected all IB's / regionals including JEF and I think will continue to have an affect.

 

Why in the world do you think JEF does well in a volatile environment? JEF is a bank. Banks don't do well in crises. That's why the whole IB/merchant banking model is broken.

 

Rati,

 

I'm glad you've got it figured out - my crystal ball seems fuzzier.  I have a bit of history investing in the financial sphere and I'm comfortable here, so I guess that's what makes a market.  I could be wrong of course, but to me it seems JEF has the tools and connections to profit from some upheaval.  I agree a 2008 style upheaval is not good for almost any leveraged financial company, but rate / credit / economy vol != 2008 at least in my mind.  I'd still rather bet on JEF than GS in that case.

 

--

 

I guess a fundamental thing for me, is that investing in heavily regulated businesses is a little dangerous.  I think traditional banking, the rules are pretty well formed, and even there, I think changes can still be dangerous (even assuming you get the financial analysis right).  In the case of most other businesses, I see regulation bestowing benefits while simultaneously ossifying and corrupting the culture of the company.  I think GS (to use a specific example) is a company that historically performed very well, and is tied directly to the elite of the global industry in a meaningful way.  Their lobbying is strong, and I would expect them to continue to benefit from implicit and explicit government support.  However, i don't think their business model is one that inherently should exist as it does today in a regulated way (it should be broken up).  I don't believe it's a safe bet to make that things won't change; any changes for GS I think are to the downside.

 

I'd rather own a relative upstart with well aligned incentives that can change plans, shrink, grow and do what is needed as the needs arise.  That is my preference.

 

So I hear those who say GS is cheap, so why shouldn't JEF be cheaper.  Fair point (and I do think GS is moderately cheap), but I don't and won't own GS because I don't think their size and current position has a lot to say for it in the long run.  (I've own GS debt before, JBK, but not the common).

 

I maintain JEF is a more flexible business, with a better leader, less of a culture issue, and cheaper.  None of that means shit to JEF's income statement this year, but I'm betting it will long term.

 

Seeing the composition of GS's board over time and the changes that have slowly taken place there since going public and talking to folks who worked there even 10-15 years ago vs. today makes me think GS is changing, and not for the better.  I don't think the symptoms are unique to GS either.

 

By the way, I have said the same thing when JPM is used as a comparison for other more traditional banks... I think JPM has a culture problem which is masked by a) their good financial results and b) a temporary TBTF / elite alignment they get that others don't in our economy.  I do like Jamie Dimon... but still...

 

Hope that helps, just one guys opinion.  I think if you just judge highly levered financial institutions simplistically solely by the numbers (ROE / PE) you will almost always be the loser at the table.  BAC and C had crazy ROE in 2003-2006 but it wasn't real (or was high risk).  Any highly reflexive situation compounded with financial accounting that is heavily subjective can always confuse risk and return IMO.  Management analysis and risk analysis are the most important thing to focus on IMO.

 

Way too long to say mostly nothing, sorry.

 

[EDIT, to contextualize, not sure if affects anything, but we are all biased in some way.  I started my RIA in 2007 and have had >50% or there about in financials / banking / insurance since day 1 (>75% during 2007/8-2010).  My stake in LUK comes from JEF acquired pre-merger announcement so I was a fan of Handler prior LUK making that bet, and in fact I had hoped LUK would buy / merge with JEF.]

[twacowfca]

Jay,

 

do you have any resources / links describing the IB industry going forward?

 

I don't have any links handy.  I think the primary changes are of a regulatory nature.  Less proprietary trading, less ability to float debt / loans that are quantitatively high risk, holding more capital for market making / trading.  Also, I think if more products (bonds, derivatives) move on exchange it's also a negative to traditional IBs business model(s).  I don't think advisory itself is dramatically changing, and this is something that definitely favors scale (as Spek says above, I think this is not in JEF's favor).

 

GS / JPM / other SIFI banks have an implicit back stop, and thus lower capital costs than other smaller players, but also generally have to live by more rules.

 

What do people think they can earn? What has prevented JEF from earning those returns? What is the difference between GS and JEF?

 

I think probably a very nuanced answer.  I think capital cost (higher) + risk profile (lower) + execution issues (Bache) at JEF have lowered their returns.  Lower trading costs, and structural bond market changes have affected all IB's / regionals including JEF and I think will continue to have an affect.

 

Why in the world do you think JEF does well in a volatile environment? JEF is a bank. Banks don't do well in crises. That's why the whole IB/merchant banking model is broken.

 

Rati,

 

I'm glad you've got it figured out - my crystal ball seems fuzzier.  I have a bit of history investing in the financial sphere and I'm comfortable here, so I guess that's what makes a market.  I could be wrong of course, but to me it seems JEF has the tools and connections to profit from some upheaval.  I agree a 2008 style upheaval is not good for almost any leveraged financial company, but rate / credit / economy vol != 2008 at least in my mind.  I'd still rather bet on JEF than GS in that case.

 

--

 

I guess a fundamental thing for me, is that investing in heavily regulated businesses is a little dangerous.  I think traditional banking, the rules are pretty well formed, and even there, I think changes can still be dangerous (even assuming you get the financial analysis right).  In the case of most other businesses, I see regulation bestowing benefits while simultaneously ossifying and corrupting the culture of the company.  I think GS (to use a specific example) is a company that historically performed very well, and is tied directly to the elite of the global industry in a meaningful way.  Their lobbying is strong, and I would expect them to continue to benefit from implicit and explicit government support.  However, i don't think their business model is one that inherently should exist as it does today in a regulated way (it should be broken up).  I don't believe it's a safe bet to make that things won't change; any changes for GS I think are to the downside.

 

I'd rather own a relative upstart with well aligned incentives that can change plans, shrink, grow and do what is needed as the needs arise.  That is my preference.

 

So I hear those who say GS is cheap, so why shouldn't JEF be cheaper.  Fair point (and I do think GS is moderately cheap), but I don't and won't own GS because I don't think their size and current position has a lot to say for it in the long run.  (I've own GS debt before, JBK, but not the common).

 

I maintain JEF is a more flexible business, with a better leader, less of a culture issue, and cheaper.  None of that means shit to JEF's income statement this year, but I'm betting it will long term.

 

Seeing the composition of GS's board over time and the changes that have slowly taken place there since going public and talking to folks who worked there even 10-15 years ago vs. today makes me think GS is changing, and not for the better.  I don't think the symptoms are unique to GS either.

 

By the way, I have said the same thing when JPM is used as a comparison for other more traditional banks... I think JPM has a culture problem which is masked by a) their good financial results and b) a temporary TBTF / elite alignment they get that others don't in our economy.  I do like Jamie Dimon... but still...

 

Hope that helps, just one guys opinion.  I think if you just judge highly levered financial institutions simplistically solely by the numbers (ROE / PE) you will almost always be the loser at the table.  BAC and C had crazy ROE in 2003-2006 but it wasn't real (or was high risk).  Any highly reflexive situation compounded with financial accounting that is heavily subjective can always confuse risk and return IMO.  Management analysis and risk analysis are the most important thing to focus on IMO.

 

Way too long to say mostly nothing, sorry.

 

[EDIT, to contextualize, not sure if affects anything, but we are all biased in some way.  I started my RIA in 2007 and have had >50% or there about in financials / banking / insurance since day 1 (>75% during 2007/8-2010).  My stake in LUK comes from JEF acquired pre-merger announcement so I was a fan of Handler prior LUK making that bet, and in fact I had hoped LUK would buy / merge with JEF.]

 

 

Thanks, Ben.

 

Very good account, from the horse's mouth, so to speak. I don't have your experience in the industry, but those are my thoughts as well.

 

I guess that means we're both smart -- or dumb.

 

Time will tell.  :)

 

 

 

 

[jay21]

twacowfca - nice hearing from you!

 

Happy Thanksgiving

[Rainforesthiker]

Article today in the WSJ:

 

Morgan Stanley plans deep cuts to bond, currency traders       

http://on.wsj.com/1SsPdbp

 

Comments are good too

 

It seems strange to me that equities (stocks) trade on an established market with small brokerage fees and fairly efficient prices; yet debt is largely not on an established liquid electronic market, but rather is traded through a large group of overpaid traders where the prices are not in any way efficiently set by the market, where these traders overcharge for their services and regularly fleece their customers.  Disintermediation is bound to happen, and evidently is happening.  It seems that fixed income trading is likely on a decline to a new much lower plateau. 

This is what Jefferies has been experiencing.  Has Jefferies taken steps to adapt to this new world?  Have they had any big layoffs?  I assume Handler & Co are smart enough to see this happening and reposition Jefferies to actually make money – but it has been 5 years or so and Jefferies has not been making money.  Any thoughts on this?