Thursday, October 30, 2014

Good Day For Silver Puts

This chart "looks like" it is going to about $10/oz which, coincidentally, is about the cash cost of silver.

Wednesday, October 29, 2014

The Probability Of Deflation Has Diminished?

The Fed said

"the Committee judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year"
Yeah right! Look at a chart of the 30 year yield (down almost 100 bps ytd) or of a commodity index like DBC. Deflation!

What this tells you is that their concern about deflation is situational, conditional. Deflation that threatens the big banks that own the Fed is bad. Deflation that squeezes the proles out of their assets and makes them renters is good.

The big banks have been recapitalized and the proles are making a bit too much money flipping paper [1,2]. Maybe the Fed thinks it's time to pull the rug out from under them?

Removing the inflationary supports in conjunction with a nonsensical propaganda statement is consistent with pulling the rug out. Is it consistent with anything else?

Remember I said four years ago that the Fed was throwing the deflation game? Silver and gold are both significantly lower than when I wrote that post.

The biggest consensus in the market today - by far and away - is that the Fed is just kidding around and will print at the first sign of weakness, and that the printing will take asset prices to new highs. People have staked everything on the conjunction of those two assumptions.

Tuesday, October 28, 2014

#Timestamp the Arrogant CEO of Cleveland-Cliffs Inc. $CLF

Sam D. Dubinsky: Great. Thanks. Thanks for taking my question. Just in Q3 looks like pricing was pretty good in the U.S., better than I thought based on where spot is. Was there any higher priced carryover tonnage from the first half? Just because I know there was some supply disruption that pushed H1 into Q3 a little bit? And then I have a couple follow ups.

C. Loureno Goncalves: Sam, I appreciate you saying thank you for taking your question, but I'm not going to answer your question, because you already knew everything about my company. You have a $4 price target and you think that we can't sell assets. So I'm going to take the next question. I'm not going to answer you. Next question, operator, please.

Get Out Of Dodge?

A correspondent writes in about "another liberal hypocrite. Do as we say, not as we do" from banana republic New York City:

"Mayor de Blasio's SUV caught on camera running two stop signs and speeding just days after he announced crackdown on dangerous driving"
Smart people I know are selling their California and New York real estate and getting out of Dodge. Gary North says:
"Lesson: if you can read a map and draw conclusions, you can do quite well in bad times."
People have a great deal of inertia in their affairs. But as Gary says, "the emigrant plans an escape route before his peers think there is anything seriously wrong".

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.