Saturday, October 25, 2014

"Miners Shovel Coal Into Flooded Market" $WLT

Miners are shoveling more metallurgical coal on to a global market already awash with the steelmaking commodity, delaying any recovery in prices that are at multiyear lows.[...]

BHP Billiton Ltd. became the latest company to unveil record output of metallurgical coal, after opening new mines planned years ago when prices of the commodity were at a peak. But the extra supply is far outpacing demand in countries such as China and Japan, which produce much of the world's steel. Miners' willingness to dig up more coal despite lower prices mirrors a similar push in iron-ore where miners are investing billions of dollars and running their operations harder in a bet that their enormous efficiencies of scale will allow them to profit. However, critics say the strategy risks creating a supply glut of each of the raw materials used to make steel that will take years to clear.[...]

The supply surge is weighing on prices, and forcing analysts to redraw their expectations of a recovery. Many companies with unprofitable mines are opting to wait out the downturn, rather than shuttering production and laying off staff. [...]

"We are forecasting a surplus again in coking coal in 2015," said Christopher LaFemina, an analyst at broker Jefferies who estimates the market oversupply will double to 20 million tons in 2015 from 10 million tons in 2014. Consequently, the potential for coal prices to rise "is likely to be much more limited than we had previously anticipated," he said.
Isn't the potential for coal prices to rise not just unlikely, but in fact more likely for prices to fall, if the size of the met coal surplus is going to increase next year?

The implications for high cost miners are so grim that many in the industry seem to prefer to hide their heads in the sand about what's coming.

Value Investors Obsessed With "Compounders", ROE; Don't Care About Liquidation Value Or Margin Of Safety

Young Money did a post called "Two great posts from Credit Bubble Stocks":

"I find this fascinating because it shows how much valuation standards can change over time. Today, a company is praised for earning a high return on equity (ROE). In Graham's time, companies were praised for having significant assets, even if reporting significant assets depressed their stated ROE."
I sent this to Oddball Stocks, who responded with a great comment:
"It seems the high ROE trend has been born out of the crash of 2008. I don't remember anyone talking about it before then. Now I see things all the time saying 'they earn 4% on equity so they're only worth 40% of book value'. Of course that's insane, someone could purchase them and unlock the value. Or new management could unlock the value.

It seems since the crisis investors have lost their imagination. We have investors believing that anything good will go on forever; these are the growth companies. A company doesn't grow to the sky. Wells Fargo isn't going to grow at 15% a year for decades, if they do in something like 15 years they will be 100% of the banking market in the US. The other are value investors who can't imagine a bad company changing. Things happen, management changes, people change, things change. Nothing is static, yet we live in this static market. It's weird."
I would summarize this by saying that "value" investors are currently obsessed with "compounders" (i.e. "quality" businesses with high returns on equity, and they don't care about liquidation value or margin of safety.

I'm not saying you can never make money buying a high margin, high ROE business at over five times book value, but that's not value investing as the style was traditionally known.

To me (and to Graham), value investing is buying a consistently profitable bank at 60% of book, or closed end muni funds when they are trading at historic discounts to NAV.

"Judges Feedback from FactSet Best Short Idea Contest"

From an email that Sum Zero sent out.

"Unless you’re looking at very small companies or you’re in a period of general market dislocation, you’re not dealing with neglect but instead taking a position on a controversial aspect of a business. Summarizing the available data from financials/presentations/CCs is 60-80% of the work; it basically puts you in an informed position as to what is controversial but it doesn’t provide an edge or advantage on the controversy. Said differently, getting to the point where you understand what is controversial is 60-80% of the work, and it is the easy part. You need to be analytical, but it doesn’t require discomfort or creativity."
Probably everyone in the business got this email, but kind of amusing to repost.

"Walter Energy Declares Quarterly Dividend" $WLT

From the geniuses at Walter Energy:

"Board of Directors has declared a regular quarterly dividend of $0.01 per common share"
This is a company with bonds yielding 43%.

Throttle-up as you crash the plane into the mountain.

"Drawn to Lost Causes, a Hedge Fund Seeks to Turn Them Around" $RSH $APP

Hilarious article about hedge fund "Standard General" and its investments in various dogs:

“Standard General made a bad investment. They made a mistake,” said Michael Pachter, an analyst at Wedbush Securities. “They’re throwing good money after bad.”
including Radio Shack.

Wednesday, October 22, 2014

Thoughts From A Correspondent On Living In A Declining Empire

A correspondent writes in:

One reason for the collapse of empires is that the knowledge needed for maintenance of the empire is closely held and actively suppressed because it is in the short-run interest of an oligarchy to suppress it. For example, only a small circle of the Russian Communist Party had access to economic reports. It was the same in China. It could be dangerous to have certain kinds of knowledge, and yet things could fall apart without that it being widely diffused in the right hands.

Our public discourse is choked with lies:

"you end up with an entire society in an hallucinatory state, and behaving like people who hallucinate will: we’ll respond to things that aren’t there, and fail to see the ones that are[...]" [link]
Things to do to compensate for these lies are to:
  • Withdraw respect and consent.
  • Get interested in epistemology, i.e., the study of how we know what we know.
  • Listen for contradictions.
  • Listen for admissions against interest.
  • Be widely educated in science and technology so as to see contradictions between manipulative lies and well-established scientific principals.
  • Throw your TV away.
  • Cancel your newspaper.
  • Turn your radio off, except for music.
  • Watch for contradictions between manipulative lies and your own direct experience.
  • Listen to a liar's story change as his motive's change.
  • Depend on the life experience of smart old people who have no conflict of interest with you.
  • Shun any news medium, person or definable interest group that you catch in a lie.
  • Shorten your supply chains. The longer your supply chain, the bigger the proportion of people at the other end who don't care if you are dead
  • Get as much of your food as possible from people you know. Grow the rest.
  • Realize that medicine is a business that makes money by selling drugs and procedures. It is not your mom.
  • Rely on plants, fatty acids, amino acids, vitamins and minerals for healing.
  • Eat right and stay fit to stay well.
  • Stay out of restaurants to get the best ingredients and the cook with the cleanest hands. 
  • Avoid surgeons and hospitals.
  • Avoid prescription drugs. Find natural substitutes
  • Grow as much of your medicine as you can.
  • Avoid depending on the truthfulness of strangers.
  • Stay away from crowds to stay away from trouble. Use amenities in off hours.

Tuesday, October 14, 2014


From the motion:

"Dow Jones & Company, Inc. (“Dow Jones”), publisher of The Wall Street Journal, Dow Jones Newswires, and a variety of other news and information publications, respectfully submits this response to the Debtors’ request (DN 92) to file an unredacted version of the Supplemental First Day Declaration of Daniel W. Squiller (the “Supplemental Declaration”) under seal, or in the alternative, to file the full document in the public docket. [...]

During an adjournment in the initial hearings on October 9, the courtroom was cleared to address this motion. Only the United States Trustee and counsel for Apple and the Debtors were permitted to participate. On information and belief, this closed hearing continued for at least twenty-five minutes. [...]

More than the Supplemental Declaration is at stake. Dow Jones is concerned that information submitted as the cases progress that touches in any way on Apple, or falls within the expansive terms of the confidentiality agreement (DN 92-3), will be subject to seal, redaction, or other restrictive terms. [...]"
  • The Supplemental Declaration Does not Qualify for the Limited Exceptions to the Right of Public Access Described in 11 U.S.C. §107(b).
  • Preventing Public Access to the Supplemental Declaration Would Also Run Afoul of Critical Constitutional Principles.
  • In the Alternative to Full Disclosure of the Supplemental Declaration, the “Least Restrictive” Means of Balancing the Public’s Right of Access with the Limitations Described in Section 107(b)(1) is to Closely Redact the Document – Not to Seal it Entirely.
  • The Court Should Also Release Any Transcripts and Recordings Made of the Closed Hearing Held on October 9, 2014.