Tuesday, December 4, 2012

Tuesday Links

  • The latest on AONE; "[T]he U.S. government, which has given A123 about half of the money in a $249 million grant [...] filed court documents this week stating any sale of A123 assets associated with that grant should have to get federal approval."
  • Someone is finally building a gas to liquids plant: "Sasol announced yesterday that it will go forward with its proposed gas-to-liquids plant near its existing facilities in Lake Charles. Sasol will now commence engineering for the ethane cracker project, which is expected to cost between $16 and $21 billion and commence construction in 2014. It should be operational by 2017."
  • "Ships, hogs, dirts and the shipbuilder called Conrad" is a very interesting discussion of Conrad, although I don't think it is bullish enough. The most important thing about Conrad is that at the current price you aren't betting that the barge replacement cycle / GOM infrastructure boom will continue for a long time. See also his earlier post on Q3 results.
  • Stableboy on Soros: "you can’t really get the dynamic going until you get a little bit of profit underneath your belt. Because it’s very different when you’re risking your principal than when you’re risking your profit. That’s how you get these runs, when you get it right and then you can risk more and make more money."
  • Very interesting, the cobweb model of booms and busts in individual markets. "[O]scillating between periods of low supply with high prices and then high supply with low prices, the price and quantity trace out a spiral. They may spiral inwards, as in the top figure, in which case the economy converges to the equilibrium where supply and demand cross; or they may spiral outwards, with the fluctuations increasing in magnitude."
  • Paper on how CEO confidence/calibration influences acquisitions: "[C]onfident CEOs were 65% more likely to do acquisitions than cautious CEOs, though they were also less likely to draw on external financing; their over confidence led them to believe that the market was underpricing their stock and thus made them more reluctant to use stock in acquisitions. They were also more like to acquire just to diversify, and the market reaction to their acquisitions is more negative than to acquisitions by cautious CEOs."
  • Stableboy: why dividend stock investors are usually really, really stupid.
  • Unlistedstocks.net is an online database of unlisted stocks which allows users to view updated financial information about unlisted companies and screen the database for specific criteria.
  • Beware of linear thinking about investments: "Linear thinkers believe that all net-nets go to zero, why else would a company trade for less than NCAV? Of course the evidence says otherwise. Linear thinking says that big giant companies with steady growth will continue to grow forever, a quick look at the Dow over the past 100 years says otherwise."
  • Another finance anomaly; the earnings guidance anomaly. "Over the past five years, companies that issued quarterly EPS guidance outperformed the S&P 500 by just over 17%, while companies that did not issue quarterly EPS guidance underperformed the index by about 6%." This fits right in with my "no news is bad news" theory.
  • Mental Model: Bias From Insensitivity To Base Rates "If you want to catch a lot of fish, then you must go to a pond where there’s a lot of fish. You don’t want to go to fish in a pond where there’s very little fish. You may be a great fisherman, but unless you go to a pond where there’s a lot of fish, you are not going to find a lot of fish."
  • Falky review of new Taleb book: "As per correlations being stochastic and so 'uninformative', he is wrong again: they are highly predictable, as high beta portfolios formed using past data create portfolios with higher future betas. The same is true for low volatility investing. The problem with betas (ie, correlations), is not that they change so much as to be irrelevant, but that they aren't correlated with returns over long periods as theory suggests. So, I agree modern academic finance is highly flawed, but not for reasons Taleb suggests."
  • Falky: "[O]ptions are not just bad investments, but worse the more out-of-the-money they go. These are horrible long investments (large negative returns to out-of-the-money aka AntiFragile options). "
  • What else is overpriced because of reaching for yield? Mortgage REITs. "Leveraging a bond that yields 1.5%-2% (same bonds the Fed is buying via QE) over 8x is not a great business proposition. As the Fed keeps their foot down via QE-infinity, prepayments will continue to accelerate causing margin pressures at the mREITs. At the same time prepayments accelerate, they will be forced to redeploy this cash back into lower yielding bonds. This is a bad formula and dividends will be cut more than investors realize."
  • Paper on activist investing: "[I]nvestors who actively engage with the companies they own to improve governance and strategy outperform more passive rivals."
  • Utilities also overpriced because of reaching for yield: "Wealthy people I know (not my clients, of course) have chased bonds, REITs, and utilities in a frantic quest for current yield over the past few years, elevating prices and lowering yields in the process. Recently, it appears that they may be starting to get their comeuppance in utilities." 
  • Speaking of activism. Mutual funds are an artifact of regulation. They do a horrible job choosing companies and managing companies they own: "Two-thirds of the shares of US companies are held by large institutions. Of the $9 trillion held by the largest 300 managers $3 trillion are held by Vanguard, BlackRock, State Street Global, Fidelity, and American Funds. On the whole, these giant firms 'have been conspicuous by their absence from exerting influence on the companies that they collectively own.' None of these managers has submitted a proxy proposal in opposition to management..."


eahilf said...

a $249 million grant

What is the legal definition of a "grant" here? I would have said it is not a loan, and so repayment cannot be pursued in BK.

CP said...

Repayment is not the issue. It's money that would be receivable provided that certain conditions are met. The DOE can argue that those conditions are no longer met and that the original deal did not contemplate giving the money to a purchaser in a liquidation.