Alan Brochstein

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    • Tue Dec 2nd 08:27 AM
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      3 Reasons This Rally Has No Legs
      You cite the "number of bulls on TV", but you include neither that number nor a methodology. Are you watching all channels, all the time? Can you tell me what number greater than zero counts as "high"?
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    • Tue Nov 25th 17:40 PM
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      Stocks Will Continue to Erode In This Busted Economy
      NWC, I offer the example of GM bonds trading at 14 cents on the dollar. While it is extreme, corporate bonds in general have been pounded. When a bond's price falls, it becomes more equity-like. At 100 (par value), a bond-holder to maturity already knows the most that they can make (the interest payments plus the return of principal). Hypothetically, if a bond investor buys a new issue that goes belly up the next day, he could be out 100% of his investment. The most he would have ever made is the interest. That is a pretty bad risk/reward scenario (though the odds would typically be very low that the investor would lose everything and so quickly, though there is that risk).

      When the bond price tanks, the risk/reward ratio changes - the holder now has upside (like the equity investor). Since technically the bond holder has additional downside protection in the event that there is a bankruptcy (equity investor wiped out before bond investor loses a penny of principal or interest), you can probably appreciate that scenarios exist, especially in distressed situations, where the bond becomes superior to stocks. In the case of GM, why would you buy equity at any price if you could buy debt trading at 14 cents on the dollar? While GM stock could "double" or "triple" in a "good" scenario, the bond would probably do even better. The answer is complex, but I believe that it has to do with how one values an option (being long GM is a way out of the money option, but volatility is high and expiration is way out there) and the potential for the reorganization to not wipe out equity holders if it happens. As corporate bonds have become cheaper, stocks have discounted this phenomenon. As long as pressure remains on corporate bonds, there should be pressure on stocks as well.

      So, I am not sure I am answering your question exactly as you expect, but yes, sometimes it makes sense to buy deep discounted debt and hedge it by shorting the stock. In a broader sense
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    • Mon Nov 24th 16:14 PM
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      Rating: +1 -1
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      Stocks Will Continue to Erode In This Busted Economy
      I am long and I didn't say that the next move is down the drain, just that I can more clearly see a rationale for this move continuing for some time. I am not an investment advisor, but you wouldn't qualify to be my client if I were due to your irrational expectations about the necessity or ability to predict the very short-term.
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    • Mon Nov 24th 14:45 PM
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      Rating: +1 0
      Commented on:
      Stocks Will Continue to Erode In This Busted Economy
      Are you blind? I disclosed at the end longs only and said in the article that I am long. I remain long in my heart and my ass just not my brain. I was hopeful that maybe someone would have a stronger criticism than yours.

      The market is extremely oversold, like never before. My contribution wasn't a suggestion to go and sell today but rather that we should open our mind that "the" bottom may just lie further off in the future and lower than we might ordinarily expect.




      On Nov 24 09:37 AM DonSuper wrote:

      > U WISH U STUPD SHORT
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    • Mon Nov 24th 11:17 AM
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      Stocks Will Continue to Erode In This Busted Economy
      I have learned that "cash" isn't always "cash", as sometimes it is spoken for. In the case of software companies, they book sales with large up-front cash before they are actually able to book the revenue (deferred revenue). Honestly, I am not sure why AAPL has so many liabilities - they aren't listed on my balance sheet in the normal detail. The FACT is that while they have a ton of cash, they also have a ton of liabilities. If you are an AAPL investor, you should be aware, so why don't you explain?

      AAPL is on the list solely because it has a high market cap. If you notice, the leverage is among the lowest of all the companies. You will also note that AAPL has a relatively low P/TB. Instead of thinking that I am picking on AAPL, which I assume you do, you should take comfort in its relatively better position. Leverage in general ranges from a mathematical low of 1.0 to sometimes astronomical levels (though negative equity can lead to negative numbers). So, to answer your point, AAPL does have low leverage, but it does have significant liabilities nonetheless.
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    • Mon Nov 24th 10:52 AM
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      GM: Bankruptcy Is No Longer an Option
      SWRichmond, if you don't mind my asking, how old are you? I have read some of your other comments on boards, and I tend to think that you are actually older than me (43).

      I am sorry that you think that my pragmatism is a cop-out. I understand your point. I was so idealistic as a youth, but, the older I get, the more I realize that the world isn't exactly as black and white as I once thought. Maybe you are right that I am just afraid, afraid of the alternative to letting everyone fail. My thought process is that we are not islands. Even since Ayn Rand wrote, we have become more and more interconnected, more specialized in what we do to earn money. I can't fathom to think about how far our society could fall if we just "let everyone fail".

      Yes, it makes me sick how individuals, companies and governments have made the mistake that you have pointed out: credit is not capital. I believe that the lesson is being learned, and a return to the Dark Ages is probably not necessary to drive home that point.

      I am not suggesting that the government bureaucrats begin running our banks and industrial companies, but I do believe that as a "lender of last resort", it must act. If you want to call me a socialist, that's your choice. In any event, I hope that capitalistic tendencies do prevail again soon. It's tough to imagine, though, in a world without capital.
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    • Mon Nov 24th 07:02 AM
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      GM: Bankruptcy Is No Longer an Option
      There is tremendous anger regarding the auto industry - I think it has a lot to do with a perception of unions impeding long-term economic success. You make a great point about "invitation for investments", but this is reality. I don't believe that there is any way to not see equity values get wiped out increasingly without an end to the credit crunch. Don't think for a minute that Citi equity holders will be dancing in the streets. None of the "bailout" recipients has really been "bailed out" - it's just life support for now. Hopefully, the patient survives.

      I do think that my view of "saving" the auto industry is somewhat similar what is being done to banks. I don't see how the government can't wipe out the equityholder and most of the bondholder's investment. It's going to happen anyway. It's a gargantuan task, but the role of government here isn't to propagate bad businesses indefinitely but rather stem systemic collapse. My view of how to handle GM is one that allows for a gradual winding down and reduction in size.


      On Nov 24 01:38 AM somtam wrote:

      > The Americans are strange people. During the election campain the
      > Dems and Reps said we are too dependent on foreign oil, loose jobs
      > to overseas etc. Now, they are willing to hand-over to auto-industry
      > to the foreign companies? How much did the car-industry in the south
      > pay the Senators representing these States. Loosing around 3 millons
      > jobs,i.e. 3 million individual hardships etc..just because they can't
      > fork out 25-30 billion. How much did the Americans waste in Iraq?
      >
      > Citibank...of course had nothing to do with the subprime(?), got
      > without submitting a plan, without grilling the CEO, 20 billion plus
      > 300 billion in capital and guarantees over the weekend...strange.
      >
      > Let the "big 3 fail'..wipe out the value of the shareholder, bondholder
      > get a haircut etc...that's an invitation for investments in the US...No
      > thanks!
      >
      >
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    • Mon Nov 24th 06:50 AM
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      Stocks Will Continue to Erode In This Busted Economy
      Andy, you are correct about the cash being $24.5 billion, but the book value (or common equity) is actually less: $21 billion. How? Equity is Assets less Liabilities. Total assets for AAPL are $39.6 billion (cash plus inventory, receivables, etc.). Total liabilities are $18.5 billion roughly ($14 billion short-term, which includes payables and $4+ billion long-term). With a market capitalization of $73 billion, the ratio is 3.5.

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    • Sun Nov 23rd 20:47 PM
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      GM: Bankruptcy Is No Longer an Option
      Robert, I appreciated your points and agree with you and The hand. We are talking semantics here, though - Chapter 11 with the government then intervening to provide financing is similar to what I am suggesting. Unfortunately, as the massive obligations show, this isn't something that is really fixable easily. By the way, parrot lovers might be horrified to hear about their use in coal mines. I think it's canaries!
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    • Fri Nov 21st 19:35 PM
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      Healthcare REITs: Still Doing Well, But Will That Trend Continue?
      The whole group has collapsed along with REITs in general. Even REITS with relatively smaller amounts of debt are getting hammered. The ability to roll over debt down the road is being questioned by the market. The prices seem insane to me, but that is the kind of world we are living in. No one wants to lend to anyone.
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    • Mon Nov 17th 10:27 AM
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      Tech May Be a Wreck, But This Isn't 2001
      Thanks User 138602. I don't have an opinion on YHOO that is informed at all. I surely wouldn't want to own it if success depends upon being acquired. By many metrics (beyond PE), the stock looks very inexpensive, not surprisingly.
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    • Mon Nov 17th 08:22 AM
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      Rating: +1 0
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      Tech May Be a Wreck, But This Isn't 2001
      The hand, thanks for your comments. You make an excellent point - the industry is more mature indeed. I think it is a pretty bad industry quite frankly - way too much competition in many segments (semiconductors come to mind). I have just started warming up, having maintained zero or relatively low exposure for the past 15 months. One of the nice things about a recession is that it eliminates some of the weaker competitors, a process that allows the "survivors" to capture more share when the market resumes its growth. While I question the innovation at MSFT, many of the others in the large-cap Tech space will no doubt be selling things tomorrow that are quite different from today.
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    • Sun Nov 16th 21:29 PM
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      Rating: +1 0
      Commented on:
      Hormel Foods Could Be a Good Addition to Your Shopping List
      You aren't missing it, but, again, I caution you on the yield of KFT. This is going to be a heckuva disappointing year for people who count on dividends. Banks and REITs are already slashing, but it will spread to other companies as well. Will KFT be one? I don't know, but they have a ton of debt. Personally, I would sleep better at night with a less leveraged balance sheet even if the dividend yield is lower.
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    • Sun Nov 16th 19:49 PM
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      Rating: 0 0
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      Tech May Be a Wreck, But This Isn't 2001
      Thanks, Dr. O. I surely appreciate your point and believe it is mainly priced in, but, as you say "no one knows", certainly not me. An interesting aspect of technology is that it theoretically allows a company to "do more with less". To that extent, tech companies might surprise us.
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    • Sun Nov 16th 14:49 PM
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      Rating: +1 0
      Commented on:
      Hormel Foods Could Be a Good Addition to Your Shopping List
      Bob, if I understand your point about KFT being more costly, you are talking about the share price. I don't believe that is an accurate way to determine "costliness"... The best analogy that I can offer is the pizza example. Do you get more pizza if you eat a pie sliced into 6 pieces vs. 8 pieces? In the case of KFT, the company is valued much higher than HRL. The whole company is valued at $40 billion (almost 1.5 billion shares). When comparing HRL to KFT, it pays to look at valuation metrics on a per share basis. KFT trades higher relative to HRL on an earnings-per-share basis.

      You are correct that KFT has a higher dividend yield, but you should be aware that they pay out a much higher percentage of their earnings (61% vs 36%). But, here's the real kicker: KFT is much more leveraged. They have $20.6 billion in debt ($700mm due within a year)and just $737mm in cash. HRL is a far superior company in terms of financial risk. If you incorporate debt less cash into the valuation of the companies and compare that total value to the amount of earnings (before interest, taxes, depreciation and amortization) or to sales, you will find that HRL is WAY cheaper than KFT.


      On Nov 16 01:15 PM Bob Lunn wrote:

      > HRL is trading at its support level in 2004 - 2005... Its probably
      > going to stay there for some time. In addition, its yield is on the
      > low side (2.8%) ... Kraft's stock is 2.5% more costly, but Kraft's
      > yield is 50% higher than HRLs.
      >
      > I am long on KFT.
      View article »