Michael B. Krause

http://scriabinop23.blogspot.com

57 Comments

    • ECB Move: An Opportunity To Trim International Exposure [view article]
      I wrote an article also dealing with the ECB and received the same anti-US rhetoric in the replies. Clearly there is a large audience caught up in the politics that uses these causes as justifications for their nationalistic or political campaign, clearly disregarding facets of economic analysis that make your point clearly undebatable.

      The ECB is straying from its past alliance with the Fed, it appears. Whatever the reason, whether political or out of fiscal responsibility, it is straying. That has implications, however, since we are not isolated economies, and interdependence is a key trait defining our global trade experiment.       Jun 08 10:18 PM
    • Trichet, ECB Missing the Point with Crude [view article]
      The European banking system is just as guilty (if not moreso) and dependent on liquidity support from their respective central banks as US counterparts. I am suggesting that 'this time around' uncoordinated rate policy is really a sloppy way of solving these inflationary tendencies.

      Remember that speculative money is out of stocks and bonds, looking for a home. That $240B (or whatever the # is) is now pumping commodities.

      Also considering the destruction of wealth and reigned in credit (slower velocity of money as well), I am not sure total money supply is so 'pumped' as of recent despite what shadowstats might suggest. Whatever has been sent to the system offsets the hundreds of billions of wealth that have already disappeared (or been transferred to 'subprime' assetholders).

      I agree the EU should look out for itself, and it should not have to pay for US policy recklessness as well. But at the same time, my criticism focuses on two issues seperately: 1) rate policy may be ineffective versus actual coordinated world energy policy (and this should have been done a long time ago), 2) the EU is now not backing up the Fed, but they were months ago. The EU has not decoupled from the US economy, and erroneous moves have negative ramifications for them as well, despite the wave of anti-US dollar sentiment that is so popular now.

      Jun 07 02:16 AM
    • Sigma Post-Earnings Update: Staying Long, Though Concerns Remain [view article]
      With regards to inventories from the conference call:
      'Inventory was $34.5 million, an increase of $8.2 million over the previous quarter primarily due to the decrease in our shipment and the purchased VXP inventory... (Per the VXP inventory) We book it at its selling value and that was one of the adjustments that I explained to our gross margin. There’s about a $700k gross margin miss or unrealized amount associated the VXP sales during Q1. As we sell through the purchased inventory we’ll begin to get new inventory in that will actually have a gross margin and that will be another positive affect on our gross margin.'

      It'd probably be fair to assume at least half of that inventory build was actually the booking of inventory at selling price on the VXP assets (18m purchased).

      Still, 28m of inventories is a little over a buck a share to discount. I don't see your point. On the goodwill and intangible, again similar numbers. Thus the $14 strong buy target.


      Jun 02 12:04 PM
    • Peak Oil, Crude Price and Equity Correlation [view article]
      I am only suggesting it will take $50 crude for it to be a serious stimulus, rather than braking force to the economy. The bulk of this article is quite bullish oil (long term), buying into peak oil. That is of course until demand destruction occurs at a faster rate than supply shortfall.
      Jun 02 11:52 AM
    • Sigma "Massacre" - What To Do? [view article]
      Have a new entry posted. Go to scriabinop23.blogspot..... Coming to seekingalpha in a few days. May 30 10:37 PM
    • Commodities Prices: Speculation Exposed [view article]
      A: Your long diatribe is correct, and Malthus dealt with it 200 years ago.

      What does that have to do with short term (next 10 years) oil price? Economies also cycle, viruses happen, famines, storms and wars destroy large swaths of populations every once in a while as well.

      Such is the evolution of humanity.. Here's some interesting data on China birth rates. Even with one child policy, their birth rate is higher than that in the United States.

      afe.easia.columbia.edu...
      May 26 11:25 AM
    • The Case for $1300/Oz Gold [view article]
      Trade imbalances exist because of the undervalued yuan (and unequal labor cost). You forget one thing: US (and European) demand for Chinese goods will fall dramatically as the imbalances correct, thus the Chinese economy will slow and they will have less buying power. Why buy a Chinese DVD player for $60 (instead of $30) when I can get a higher quality Japanese one for $60?


      As long as I've lived, Japan was (and still is) an export economy. The same applies to China with a much larger scale of magnitude. A strong currency will kill their GDP growth.

      And then there are crude input costs. If China entirely removed the subsidies on crude (they force their refiners to run at a loss), margins on Chinese businesses would be at further pressure. The stronger currency would help offset this pressure, but at the same time would dramatically reduce demand for their goods from world consumers.
      May 26 11:06 AM
    • Commodities Prices: Speculation Exposed [view article]
      Regardless of techniques of manipulation and/or legitimate demand, supply/demand economics will kick in sooner than most think, particularly because of the inability for the subsidized world to afford oil at these prices. Simply put, subsidies will bankrupt these developing economies in the long run - and these governments are coming under scrutiny to get rid of them as they bankrupt reserves and dwarf all other spending. Their comparative advantage to the developed world is cost of labor, but with input prices escalating their edge will quickly disappear.

      Look at the percentage of income spent on food in India and China per capita. The real population driven energy demand drivers can not simply afford *unsubsidized* product in the long run with current CPI/consumption balances taken into consideration.

      The whole Chinese and Indian labor/export model (which is the foundation of their rampant growth) does not work if the governments stop picking up the tab.

      For examples, look at Indonesia. They just raised the price of gasoline (it is subsidized) to the equivalent of $2.45/gal. At a long run breakeven for refiners of $7-8 on the crack spreads (of $3.33 avg product price at $133 crude +$7 crack), that is still 27% below market clearing price.

      And even with that, there are bloody riots.

      The Urban consumer in China in 2006 has about $1469 of income annually. How much unsubsidized oil (at $3.33) can he afford with food already consuming probably in excess of 26% of his expenses (imagine these #s with the price increases in commodities/inflation) ?

      The Chinese rural peasant (most of the population) has $448 of income. He spends 34% of his income on food in 06 (probably a lot more right now). How much $3.33/gallon product can he afford to be economically competitive in the rest of the world [only justified by his willingness to work for rock bottom labor rates]?

      If you are the average Chinese or Indian, this is not the time to buy your first car. Any new buyer is on the margin, a very very slim margin.

      www.ers.usda.gov/Data/...

      You China+India demand pipe dreamers need to get over it. This is an Olympics diesel stockpiling blowoff top and will not be sustainable in the long run.

      As long as Arab oil princes are running AC to 50 degrees F in their 5 million square foot palaces 365 days a year off oil fired power plants, they are quickly sowing the seeds of demand destruction and eventual replacement of energy sources (nuclear, wind, solar, etc).
      May 25 11:29 AM
    • Time To Abandon Stocks? [view article]
      The future of the stock market is entirely dependent on expansionary monetary policy and political stability. When you buy stocks, you are betting on an expanding economy and innovation to occur over whatever time frame you suggest.

      All of the evaluation of statistics and precedent will give you false justification for your investment behavior.

      Simply put, if the managers of this country do a good job in the next 20 years, stocks will do great. If they goof it all up, you'll lose your money. Its that simple, and thats what you are betting on.
      May 25 11:09 AM
    • Commodities Prices: Speculation Exposed [view article]
      With financially settled contracts and swap vehicles you don't even need to close out your contract at expire. May 22 12:29 AM
    • Microsoft in Perfect Position to Undercut Previous Yahoo Offer [view article]
      Tom S:

      1) My calculations are based on the assumptions that search market share for MSN (and others: Yahoo, Google, etc) are fairly in line with their revenues. I am making (what some may consider disagreeable) a leap saying that search shares are consistent enough to get a handle on valuation. Is 100% of search worth $150B total? Maybe not search alone: but search, display and everything else that comes with it does come to that. MSN is worth more than search, but so are Yahoo and Google. So for blunt measurements (which are practical for such high multiple stocks), I think its appropriate.

      Add up Google, MSN, and Yahoo market caps and you get somewhere close, plus or minus normal volatility (recall GOOG was worth 25% less just a few weeks ago because analysts incorrectly pinned Google's growth curve).

      2. I meant revenue when referring to cash flow, not Cash flow on operations.

      3. I agree it may not be foolish to merge, but at such a high multiple, all benefits from the merger would be likely forgone with such an overpriced initial transaction. High risk, minimal reward.

      Lastly: $47B isn't a merger. Thats a money giveaway.
      May 16 05:43 PM
    • Microsoft in Perfect Position to Undercut Previous Yahoo Offer [view article]
      You are definitely right that 16% earnings yield is not a normal return. You caught my error.

      I was a bit sloppy there - I made a causative assumption saying that since their real returns are much weaker (than even 6% earnings yield on such a high multiple that MSFT offered), that the likely result of such a collaboration would at best create normal (somewhere between the 58 multiple MSFT is offering and the best-case multiple of 6) returns for enormously high risk.       May 16 05:32 PM
    • Microsoft in Perfect Position to Undercut Previous Yahoo Offer [view article]
      $20B?

      Take a look at the latest 10-Q. $10.5B total stockholder equity, 2.2B of that being Alibaba.

      www.sec.gov/Archives/e...

      My estimate of a $30B offer value on Yahoo is nearly a $10B premium on the cash flow valuation estimate, perfectly making up for these 'assets' you mention. Their interest in Alibaba is worth $2.2B according to their own 10-q.
      May 16 04:43 PM
    • ComScore: The Google Fallout [view article]
      This just points to how irrelevent factoring in only US click data to determine google valuation is.

      The comscore data will be useful for macro trends. If click data is down 10% q/q from comscore, I'd trust that as a general guide.

      But more than half of revenues are from the international sources, so good points.

      That said, $25 for next year gives you a forward PE of 21. Considering that lines up with growth #s of 20%, this is a fairly valued stock. If google gets yahoo's clicks, pop another $5 onto earnings and you have a $600 stock.

      That said, I don't think there's much upside beyond that unless they find a way to monetize the developing world more aggressively.       Apr 19 11:45 AM
    • Dear Mr. Bernanke [view article]
      Depression? Get over it. Intel can't even give a bust quarter.

      This is going to be a long a protracted unwind, a recession with some defaults, but this is not a depression.

      Apr 15 10:42 PM
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