The Sax Angle

JP Morgan: Derivatives Now A Great Way To Lose Two Billion

Posted on 11. May, 2012 by Wilensky.

With the bank down over 8% on the announcement of at least $2 billion in expected losses, JP Morgan’s Jamie Diamond has some explaining to do.  And simply saying that the incident “puts egg on their face” isn’t cutting it.  The massive trading loss stemmed in part from a failed hedging strategy and derivatives bets placed by a large trader better known as the “London Whale.”   Known for a high level of risk management, JPM’s lack  of diligence does not inspire confidence in an already shaky sector with a looming European crisis on its hands.

According to Sterne Agee analysit Todd Hagerman, “It’s a pretty stunning admission for a company that prides itself on its risk management systems and the strength of its balance sheet.  The timing couldn’t be worse for the industry. It will have ramifications across the broker-dealer community.”  And this is precisely what is rippling across the markets and dragging down the banks.  With the added uncertainty that JPM’s derivatives fiasco adds to the banks, this sector could be a time bomb with Europe as the fuse.

Wal-Mart’s Scandal A “No Issue” For Buffett

Posted on 07. May, 2012 by Wilensky.

In an interview earlier today with CNBC, Warren Buffet expressed very little concern over the super retailer’s recent issue with suspected bribery down in Mexico.  Although certainly a black eye for the management team, Buffett feels the situation is a representation of  bad choices made by a few rather than a deeper rooted issue of widespread poor practices.  Considering the retailer’s recent issues with workers unpaid overtime, legal issues with the treatment of women, and other socially based blemishes, I wouldn’t be so quick to dismiss this as a case of “a few bad apples.”

(As of December 31, Berkshire’s 39.04 million share stake in Wal-Mart was worth $2.33 billion)

Buffetts opinion on Walmart not changed by scandal | Reuters.

Why Do You Hate The Oil Sector? And Yes, I Do Mean You..

Posted on 20. Apr, 2012 by Wilensky.

Watching SLB trade lower and lower is what I’m talking about.  Watching HES and HAL trade into the red is what I’m talking about. Watching BAS get crushed is what I’m talking about.  The market hates oil and oil service stocks.  Period.  Prices are high, these companies are making profits hand over fist, but demand for these companies simply isn’t there.  Despite SLB’s conference call, fracking still offers a major opportunity for these companies.  China is trying to sever their lifeline to coal, and shale drilling is the surgeon.  Sure natural gas is a big black eye, but this world runs on OIL.  How can the market be so blind?  Or maybe how can the market’s memory be so short…  Did we forget about the Middle East?  One headline and oil is at $150 in a heartbeat.  It’s just a matter of time..

Sleep On This (TPX)

Posted on 20. Apr, 2012 by Wilensky.

Tempur-Pedic just got a taste of this ultra finicky market in a big way.  Earnings weren’t all that bad, but a slight change in guidance sent shares spiraling down almost 21% on the day.  The product is fantastic, it’s the only bed I’ve found to vastly improve my ability to sleep.  Just look at how many knockoff companies have emerged in the past year or so (although cheap, the quality is nowhere near as good).  It’s turned into a mini craze.  So does a slightly rockier outlook over the next few months merit the stock getting crushed?  I doubt it.  It’s the same great product with the same great prospects.  It’s not difficult to imagine the stock trading in the low hundreds, and the mid sixties looks even better.  Still unsure?  Sleep on it…

This Is Who Owns Apple

Posted on 17. Apr, 2012 by Wilensky.

These Apple charts from Business Insider are getting more and more interesting..  With all the headlines touting AAPL as hedge fund’s number one holding, it’s a bit startling to see how small a slice of the company they actually control.  Looks like wirehouse brokers couldn’t have found an easier story to pitch to their clients..

CHART OF THE DAY: Apple Stock Ownership – Business Insider.

Someone Smarter Than You Just Sold All His AAPL

Posted on 17. Apr, 2012 by Wilensky.

Aswath Damodaran is what the investing world would call smart money.  As  a professor of finance at NYU, he wrote Damodaran On Valuation.  And yes, that means he wrote the book on valuation.  So when you hear that he just dumped AAPL from his portfolio with a cost basis of $5 a share, should you follow suit?  Price targets, valuations, and headlines aside, Aswath is simply following the most fundamental rule of investing: if you don’t like the stock, then just get out.  Now Aswath doesn’t have a problem with Apple, rather it’s with the type of people currently buying Apple.

“I sold because I’m very uncomfortable with the other people who are holding Apple shares right now. The new investors of Apple scare me. They’re momentum investors. They’ve shifted the game.

“Once stocks become a momentum play, intrinsic value goes out the window.” 

As Business Insider notes, “Apple’s new dividend is the latest wrinkle that has complicated things even more. It has created a new class of Apple shareholders: dividend growth investors.”

So what do you do?  Apple’s business prospects are still strong and there is no reason why this stock won’t continue to grow, but Aswath’s decision to get out makes a very important point:  know the game you are playing.  If the investor environment is changing, you need to reevaluate the effect that will have on your investment goals.  Will the addition of a dividend hurt the growth potential?  Will it attract a different style of investor that could affect short-term swings?  Remember, even the most solid company is susceptible to the savagery of short-term traders…

NYUs Aswath Damodaran: Why I Dumped All My Shares Of Apple – Business Insider.

The New Share Class Warfare

Posted on 13. Apr, 2012 by Wilensky.

After hours and after earnings last night, Google (GOOG) announced a 2:1 share split.  However the split has an ulterior motive other than reducing the cost per share, as Google’s co-founders are also looking to revamp the corporate structure as a result.  With the split, a new share class will be formed other than the already existing Class A and Class B shares.  This new class will trade under a different symbol but will retain all the rights of the previous two share types, including the ability to collect any future dividends.  Here’s the catch though: ownership of these Class C shares retain no voting rights.  This allows founders Brin and Page to issue more debt without diluting their control over the company.  Over time, their ownership has dwindled down to just over 50% because of new issuance of Class A stock and the sale of their Class B shares (possessing a 10 vote per share premium).  Since companies cannot issue shares with privileged voting rights after the fact, this new non-voting share class provides an opportunity to raise capital without giving up voting control.  Keep an eye out for companies to follow suit and offer a non-voting share class..  this could become the new normal.

New Share Class Gives Google Founders Tighter Control – NYTimes.com.

Apple to Top Spain, Greece, Portugal: Chart of the Day – Bloomberg

Posted on 12. Apr, 2012 by Wilensky.

Not much needs to be said here.  Apple makes more money than three european countries combined ($33 bil in earnings vs $32 bil in earnings for Europe).  Its valuation is more than three european countries combined.  How big can Apple get?

Apple to Top Spain, Greece, Portugal: Chart of the Day – Bloomberg.

So Just How Much Is That Tweet Worth?

Posted on 11. Apr, 2012 by Wilensky.

Rob May, who is a co-founder of Backupify (online data storage) just posted some interesting information on his blog.  In case you ever wondered just how much your Yelp review or Tweet, was worth in real life dollars, here’s what he found:

Check-in on Forsquare= $.40

LinkedIn Search= $.124

Facebook Share= $.024

Tweet= $.001

and last we have a Yelp review= $9.13

Keep in mind, May produced relatively rough estimates of these valuations based on the parameters he came up with.  Read more about how he came up with the valuation here: How Much Is a Tweet Worth? – Businessweek.

Facebook IPO Is On Nasdaq

Posted on 05. Apr, 2012 by Wilensky.

Well, we can all stop holding our breaths..  FB is on the Nasdaq.

Facebook Picks Nasdaq for I.P.O. – NYTimes.com.

Bull Markets Are Everywhere. Here’s One In Sand

Posted on 05. Apr, 2012 by Wilensky.

US Silica went public at the beginning of February.  And the first direct play on sand has been on a tear ever since. Up around 24%, SLCAs appreciation has been due to the rising demand for sand in the fracking process of extracting oil.  The fact that some of the larger resource companies have simply bought their own sand manufacturers bodes well for the company, in conjunction with a steadily rising demand for the product.

Along with Heckmann Corp. (HEK), US Silica could be a nice indirect play on the US becoming a oil producing powerhouse.  It’s worth taking a look at.

Climateer Investing: What the Frack? U.S. Silica Up 24% since Feb. 1 IPO (SLCA).

We Will See QE3. Just Not Until We Need It

Posted on 04. Apr, 2012 by Wilensky.

The notes from yesterday’s Fed meeting have managed to spur back-to-back down days in the market, seemingly all based on the lack of language hinting at an immediate round of Quantative Easing.  This market is hooked.  It fiends for stimulus injections, pitching a tantrum at the slightest hint of being denied what it assumes is “promised.”

This reluctance to dole out yet another “dose,” this sign of maturity on the part of the Fed is a glimmer of hope that fiscal responsibility is on the horizon.  Over medicating is a self fulfilling prophecy, spiraling into the depths of physical reliance.  And detox is the answer, which is precisely what the past two market sessions have yielded.  But don’t you worry… Should the sickness persist, we won’t hesitate in the least to synthesize a solution.  Prescribing ourselves back to the pristine picture of artificial health that we are today.

Why Are Oil Markets So Short Sighted?

Posted on 04. Apr, 2012 by Wilensky.

Other than the occasional headline, the Iran embargo is a distant memory.  And oil markets seemed to forget that an increasing oil reserve is a direct result of preparing for such an embargo.  Just because reserve levels happened to beat expectations (it’s not like analysts regularly and accurately deal with embargo situations anyways), is it reason for a 2% or more correction in USO?  I doubt it.