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Investment Ideas / Re: ADS - Alliance Data Systems
« Last post by chompsterama on Today at 04:50:22 AM »
what is the main catalyst for ADS to be recognized by Mr Market?  Is it more bookings (more customers)? Revenue? or just normal bottom line growth?

I would argue that ADS right now is recognized by Mr Market correctly. Mr Market has stripped off the premium from phony cash earnings and values the company based on GAAP earnings, just like its peers.

I disagree, I think ADS looks very cheap for a 30% ROE company that has grown receivables 14% plus average since 2006. Cash EPS mostly adds back amortization of purchased intangibles. They acquired Conversant for $2.3B which was mostly intangibles assets. With Epsilon gone the delta between "Cash EPS" and GAAP should compress.

We'll see if the management change up helps but I think they mostly sold off on disappointment in the stock repo and the tax leakage, not to mention who wants to own a credit card company exposed to retail with a possible recession coming. SYF, COF and DFS trade at similar multiples but i would argue ADS has a higher ROE and growth profile and should trade at a premium. 

Can I argue that >30% ROE is because almost double Debt/Equity multiplier compared to SYF or others? If SYF is allowed to double the leverage, canít they earn 30+% ROE? If yes, what other competitive advantage it has to earn that 30%+ ROE? If not much, then perhaps ADS should be valued in terms of normalized book multiple, e.g.~2x or less,  and that it might drop another 30%. P/E then becomes ~5 this year? Once they lower d/e this year, ROE, P/E and book multiple might normalize as the other financials? May be that's what is happening?

Why should (seemingly) all financial related businesses trade at some multiple of book value?  I commonly see this argument and I genuinely don't get it.  No one in the tangible world buys an entire business as a going concern based on its multiple of book value.  Profits from now until kingdom come discounted by some rate back to today really does determine the worth of a business.  Going further, why is a PE of 5 reasonable?  A 20% earnings yield in a world of 2% long-term bonds? 
Investment Ideas / Re: TPL - Texas Pacific Land Trust
« Last post by Hielko on Today at 03:04:21 AM »
Following this owe with interest from the sidelines :)
General Discussion / Re: POLL: Fed and interest rates
« Last post by thefatbaboon on Today at 02:42:51 AM »
Still having difficulty to admit they made a blunder in raising rates

The Wizard Powell. 

We have a "symmetric" target of 2% inflation. We raise preemptively 8 times before reaching this target as the data suggests we may reach this target at some point.  We never really reach the target and inflation expectations turn down. Question: so why aren't you cutting this meeting?  Because we are waiting for more persistent data. Someone needs to explain the words symmetry and target to this guy!   

Reflect for a minute on the last 12 months. The arrogance of this man is staggering.  Everything he says is contrary to what the rates markets are telling him at the time he says it. Think of this from a gambling point of view.  The bookmakers with all their trillions of $ at risk along all durations of the bond market expect a lower neutral rate, undershooting inflation and lower growth and believe that hitting 2% is unlikely and price trillions and trillions and trillions of bonds accordingly.  This wizard then repeatedly backs the long shot contrarian position: that the neutral rate is higher, and that inflation and growth will increase. Like most long shot gamblers he has been losing all his bets.  Ok, so this isn't ideal, it would be better if the guy wasn't always wrong.  But really more remarkable than all these lost long shot bets is that Powell has been walking into the bookies when HE DOESNT EVEN NEED TO.  He has a target of 2% he doesn't need to gamble on any outcomes until we hit 2% and spend some time symmetrically around it.   So not only do we have long-shot-larry running the Fed but he's compulsive and runs out to make these bets when he should be sitting quietly at home.

Investment Ideas / Re: ALS.TO - Altius Minerals
« Last post by linealdin on Today at 02:24:43 AM »

Capital Power is converting to dual fuel capability at the Genesee complex over the next couple of years. The power plants are currently 20% dual fuel, moving to 40%, then 100%.

They seem to be committing to mining coal for a portion of their fuel needs through December 2029: ďThe coal operations at the Genesee facility are currently planned to continue up to December 2029.Ē

Dual fuel conversion gives Capital Power the political cover to keep burning a significant amount of coal. I expect coal fuel costs to be lower than natural gas fuel costs. I see all 3 Genesee plants running at about 50% coal right through December 31st, 2029. Another 10.75 years of Genesee coal royalty flowing to Altius.

(I remember a ludicrous assertion on this board that because Capital Power was building a gas line to the Genesee complex the coal royalty could be extinguished by December 2020. That prediction was quite a bit off!)
Investment Ideas / Re: JMIA - Jumia
« Last post by writser on Today at 12:47:50 AM »
Rocket Internet rumoured to go private (link) according to a German magazine. Shares up ~8% today. Hard to judge how reliable that source is and, if the rumors are correct, whether the Samwer brothers will pay a fair price. As pointed out above they have a bit of a dubious reputation. Still, it seems like a win/win for them to take it private at a ~4.xb valuation or a low E30's shareprice if they have some faith in the valuation of the private portfolio.

No position, but interesting situation.
Well, as you point out doing the raise and then buying the warrants may be a possibility, I guess SPO investors would see that as a massive share buyback. I agree the conservtor wouldn't have an issue with that in that order.

I thought your original post implied that treasury would no longer push for a high share price which means more dilution than exercising the warrants, something I would assume the directors wouldn't go for.

Instead of a share buyback, I see it as a cost of doing business. A reason to get Treasury to agree to the deal, since they have to approve release anyway.

Your second statement is correct, that's exactly what I was implying. What you're missing is that the directors won't have any say over it because it will happen during, and likely right at the end of, conservatorship. FHFA and Treasury hold all the cards, and neither has a fiduciary duty to shareholders. FHFA has no reason to care at what price the share offering is conducted, and if the warrants are sold for a fixed price then Treasury doesn't either. At that point the "more dilution equals more money for new investors" principle kicks in.

This is one downside scenario for the commons, especially compared to the juniors.

Calabria has said a few times that Fannie and Freddie will be left to raise the capital themselves. How much behind the scenes input treasury and fhfa have in reality is something that probably won't ever be known.

If it is left up to the co's then i don't see the need for a super low common price, especially if they have multiple years to raise capital, but we'll see. You pay your money, you take your choice.

disagree.  the entire capital raise will be multistep process and fhfa/treasury will run the show at the beginning.  at some point after the initial raise the companies will take over

We basically agree. Treasury controls nws and warrants so are largest shareholder at the table. Fnf won't decide any of what happens there and will be steered by what the warrants want.

However calabria has said milestones not timeframe, so the exact mechanics over years will likely have some flexibility imo.
General Discussion / Re: POLL: Fed and interest rates
« Last post by TwoCitiesCapital on June 19, 2019, 11:25:46 PM »
Othe then perhaps boosting asset prices, I donít think the level of interest rates matter much at this point. 2.25%, 2%, 1.5% why would anyone care? What did Europe or Japan get for lowering interest rates to basically zero?


Honestly, I agree with this. The cost of servicing the stock of debt is more deflationary than the inflationary impulse of the continues flow of new debt issuance. In other words, the marginal utility of new debt is exceeded by the additional cost of servicing that debt.

I think we need a Volker 2.0 - someone who will raise rates despite negative consequences.  Not to break the back of inflation, but to break the back of debt dependence to purchase every major item in a lifetime (i.e. and education, a home, a car, a standar of living, etc).
Fairfax Financial / Re: Why does Fairfax India use leverage?
« Last post by alpha on June 19, 2019, 09:27:56 PM »

Using leverage during a period of low rates to buy basic infrastructure plays in a growing country with good demographics seems reasonable to me. If they were purchasing speculative tech companies your argument would make more sense.
General Discussion / Re: POLL: Fed and interest rates
« Last post by shalab on June 19, 2019, 08:35:58 PM »
It matters for two reasons
   - foreign trade, the dollar is artificially high - this depresses us exports and boosts imports
   - yield curve - it is inverted -
   - negative yield curve slows down the economy or puts it in recession or both
Othe then perhaps boosting asset prices, I donít think the level of interest rates matter much at this point. 2.25%, 2%, 1.5% why would anyone care? What did Europe or Japan get for lowering interest rates to basically zero?
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