April 2011


Only in America.

What Trump actually stands for is an exaggerated sense of victimhood. This is the theme that unites his personal style with the political views he has thus far expressed. Are you tired of being pushed around? Are you tired of our country being pushed around? Trump’s political acuity lies in his ability to take these grievances and turn them into politics. His foreign policy views in essence consist of a pledge to bully other nations. China is “decimating our country.” OPEC is imperiling the economy. And ungrateful Libyans and Iraqis are trying to build a society from oil that is rightfully ours. (“We won the war. We take over the oil fields. We use the oil.”) When Bill O’Reilly, in an interview with Trump, seemed taken aback by the idea that we could simply force OPEC or China to do our bidding, Trump appeared surprised that anyone could view international relations as anything more than a contest of machismo. “The messenger is the key,” Trump told O’Reilly. “If you have the right messenger and they know how to deliver the message … you’re going to scare them, absolutely.”

When was the last good President. Not great, just good, or maybe adequate is a high enough bar to clear. But don’t dismiss him as a lightweight candidate, that would be an error. He has some political muscle behind him;

The biggest name, however, is Roger Stone, the veteran Republican operative who is only too happy to be described as a “hit man.” After getting his start performing dirty tricks for Richard Nixon, Stone worked as eastern political director for Ronald Reagan’s 1980 and 1984 campaigns. He most recently made headlines when he took credit for tipping off the FBI to Eliot Spitzer’s dates with call girls, less than a year after he allegedly made threatening phone calls to Spitzer’s father. He first worked for Trump as a lobbyist for his casinos before chairing the real estate mogul’s quixotic bid for the 2000 Reform Party nomination, the closest Trump had previously come to an actual campaign. Trump has denied any connection between Stone (whom he once called “a stone-cold loser”) and his campaign, but it was Stone’s name that repeatedly surfaced when I spoke to sources close to Draft Trump 2012 about recruiting other Reagan veterans. Stone has also served as the contact person for groups interested in hosting Trump, including the Chamber of Commerce in Nashua, New Hampshire, whom Trump will speak before in May.

When I talked to him, Stone neither denied nor confirmed any official association with Trump, but was happy to muse upon his appeal: “He brings something significant to the race, which is celebrity. He brings a certain size.” And indeed, those staffers I spoke with, as well as leaders of Tea Party and Republican groups who have hosted or will be hosting Trump, take his candidacy seriously. “He’s very genuine,” says the head of one Republican women’s group who is co-hosting Trump’s visit to Las Vegas this week. “With Donald Trump, what you see is what you get.” For them, a Trump campaign is no joke.

From IBankCoin

This time around for May, we are looking at OVTI as a primetime seasonal play. The chart is looking extremely well set up, and the seasonality statistics are of the finest quality.

Let’s see if it’s two in a row!

From the CEO of [Larry Pope] of Smithfield Foods.

The other thing he touches on is corporate taxes, trade policy and tariffs. He says, “I fundamentally don’t understand the logic of corporate income taxes,” he tells me. “If I have a 35% tax, all I do is take that 35% tax and I transfer it into the price of bacon and the price of pork chops.”.

Corporations don’t pay taxes. They merely pass them onto you. Republicans and Democrats have created some asinine policies over the years. They need to be undone.

Actually he’s wrong. The worry is that this chap is the CEO of a corporation, getting paid whatever he’s getting paid, and he’s fundamentally clueless. Not good. I shall return to this topic.

The mandate for the Federal Reserve is [i] Stability of prices [ii] high employment. Obviously they are failing on both counts, but their thinking process is important. With the monetary policy that they have at their disposal, how, does Bernanke go about fulfilling the Feds mandate, with the additional pressures from the Treasury and Congress to fund their fiscal policies?

*Needed to fund US national debt
*Needs to maximise Bank profits

To fund the US debt, money/credit creation is the only way. If Congress will not cut expenditures to match revenues, the debt at this point is so large that the interest payments being offered are simply not attractive to selling the debt to the market. If the interest rates were to rise, the repayments become prohibitive, and bankruptcy ensues. Thus we have the low rates at the Fed Funds Rate for the foreseeable future.

The flip-side of low interest rates are a weak dollar. Mercantilism has always advocated exports over imports. The more goods/services you export the more [gold] money that you receive in return. Without exploring all the fallacies, Mercantilism is a failed economic strategy. Add to that fact that many economies are trying to effect the same strategy, and you have the current state of affairs.

A low exchange rate also has the effect of raising nominal stock prices and nominal commodity prices to offset the otherwise lost value stolen via the inflation. In this aspect, the QE has succeeded: the nominal prices in all the financial markets are far higher than they would have been without the inflation.

The weak dollar however in relation to other currencies, the Yen, Euro and Yuan creates problems [perceived] for these economies: the Euro needs to be weaker vis-a-vis the dollar to address their ever increasing debt pressures in Greece, Ireland, Portugal and Spain. The German banks, who have purchased gobs of Euro denominated debt, will fail if the aforementioned default, taking Germany into the abyss with them. Thus the Euro requires the low ground, of course, so do the Dollar, Yen and Yuan.

So what’s Bernanke to do? The recent Fed meeting that concluded this week was the culmination of the game that Bernanke has been playing with QE2. Take a look at the chart that summarises the quagmire that Bernanke finds himself.

QE2 effectively was the way in which, surreptitiously, the Federal Reserve funded the government. The top 5 debt holders: Federal Reserve is now the largest holder of US debt, with almost $1.4 Trillion. The other high holders being China and Japan. Should either one stop purchasing, or even start selling, to diversify away from the US dollar, then the effect on interest rates will be enormous, they will rise, and rise significantly.

If they do, the interest rate burden will increase dramatically. Already the interest cost consumes 15% of revenues, which don’t even come close to covering the expenditures: further debt increases interest payments, consumes greater % of revenues, requires more…it only has one outcome.

Only a Central Bank can afford to own debt that yields below the inflation rate. No private investors will purchase debt that creates for them a guaranteed loss. So unless the interest rate rises above the inflation rate, no-one will purchase Treasury debt [this was the purpose of QE2] PIMCO and Bill Gross have sold all Treasury debt, and not only that, they have sold it Short. This is so major that I’m surprised not more has been made of it. Without a QE3, QE4, etc, interest rates will rise.

Look at the unfunded liabilities: $113.5 Trillion. Where is that money coming from? Unless productivity goes through the roof, the US is in deep trouble. The market thinks so. Look at the 10yr Credit Default Swaps rate, the market is starting to price in a default. Medicare and Medicaid together constitute 2/3 of these liabilities. They simply need to be cancelled. [I’ll look at the implications later.]

Essentially the government via inflation has never stopped defaulting. Default on debt is government policy, always has been. Nothing looks set to change.

To date, most of the inflation has been centered in the financial markets. For businesses this means rising production costs as the cost of raw materials rise. This creates a significant margin compression which cannot be passed forward to the consumer, not at least while there is competition, either direct, or indirect via substitution. Only as competition from high cost producers forces them out of business will we see the production costs be passed forward into consumer prices.

We have already seen it within two industries: energy and food. Both have raised significantly their consumer prices. For the consumer, there is no substitution possible with food, and only minimal with energy. Food prices are rising via stealth tactics, smaller serving sizes at the same or slightly higher prices. Inflation from the producer prices is set to enter consumer prices very soon.

So what is Bernanke’s strategy?

Being an academic, being a Keynesian, he will resort to a strategy determined possibly via a Game Theory strategy. Game Theory posits a strategy by where you don’t lose. It’s not really designed to create a winning strategy. This will appeal to Bernanke, who caught in the politics, will not want to execute the politically unpalatable, but maintain the status quo as long as possible.

Thus a policy of managing perceptions and expectations: this is the jawboning strategy that has been employed by Greenspan before him. So we know what he can’t have: a rising dollar and rising interest rates, although that is exactly what the US needs. Thus he must move towards the policy of eliminating the QE programs, with incremental moves to minimise the rise in interest rates and a stronger dollar. This is gradualism, which, essentially do as little as possible, preferably nothing at all.

So the message from the Federal Reserve?

[i] Do not commit to anything with regard to QE2 other than to say, it will end in June. Provide no further guidance as to extensions, new QE3 policy. Zip. Nada.

[ii] Leave an escape route open. By not committing to anything other than reaffirming the conclusion of QE2 in June, Bernanke is not ruling out a QE3 or QE4, but neither is he committing to one. He hopes, one supposes, that the markets will not decide to take a firm direction based on this rather unsatisfactory state of affairs.

If QE3 was a certainty, then markets [stocks, commodities] would continue their rise, the dollar would continue its plunge and interest rates would fluctuate around Fed purchases. If QE2 was the final QE program, then markets would react in the opposite manner, and another 2008 would be upon the markets.

So bearing in mind that ideally, Bernanke wants and needs a QE3, but cannot politically announce one currently, should the markets fall or plunge after QE2 ends, this will provide enough of a smokescreen to implement a QE3. Should markets not fall, but continue to rise, Bernanke is off the QE3 hook for a time anyway, and look at raising the Fed Funds Rate from 0.025% to say 1% over a period of time and 0.025% increments.

Will Bernanke’s strategy succeed? I don’t think so, but we’ll have to wait and see. My prediction: expect more [a lot more] volatility.

Date (Month, Year) ………………………………………..March 2000……………..March 2009
Index Price ……………………………………………………1442.21…………………….751.35
Dividends ………………………………………………………$16.76……………………..$27.25
Earnings ……………………………………………………..$50.94……………………..$6.86
Dividend Yield (%) ………………………………………….1.16%………………………3.60%
Price Earnings Ratio …………………………………………28.31……………………..110.37
Consumer Price Index……………………………………….171.20…………………….212.71

Index Rate of Return without Dividend Reinvestment (%)………………………..[-6.91%]
Index Rate of Return with Full Dividend Reinvestment (%)……………………….[-5.27%]

Inflation Rate (%) ………………………………………………………………………….2.44%
Index Rate of Return without Dividend Reinvestment (%) ……………………….[-9.13%]
Index Rate of Return with Full Dividend Reinvestment (%)……………………….[-7.52%]

In retrospect, does this look like, in valuation terms, the same type of bottom that is likely to launch a new secular bull market? Not even close. With QE2 coming to a close, many of the earnings that the companies [particularly financial] are destined, also, to come to an end.

The constant infusion of POMO $5 Billion – $8 Billion Federal Reserve proxy buying to support Equities and Bonds is also finished. The Commodity markets, also recipients of the QE2 effect, destined to end. Not until we hit a market low, marked by increasing earnings, dividend yields will we have the quality P/E that marks the true bottom, from which another secular bull market can launch.

Once upon a time, I completed an analysis of BWLD for my main man flippe-floppe-flye on the stock BWLD which was at the time a trading thesis for him. I bring it back from the dead.

Atherosclerosis
Good morning chaps, I as previously advertised have been employed at the aforementioned historical minimum wage once reserved for galley slaves, that is, consider yourself lucky not to be fed to the sharks.

The title should alert you to the fact that we will start this weekend briefly examining the previously floated investment theme from Mr Fly; “Be long the adipose challenged consumer”

We are of course going to briefly discuss why this could in point of fact be a stroke of genius [no pun intended] and why it might save an otherwise go-go stock, I refer of course to BWLD

First, obesity is a disease, that is hallmarked by addiction, depression, poor self worth and esteem that finds solace in eating, thus chemically inducing the pleasure areas of the brain. [Limbic hippocampal region]

Thus, any product that provides the desired pleasure, will in all likelihood gain great loyalty from the consumer base. A second and as important factor is the cult of cool. Is this product a product that invokes the correct responses from your [the consumer] peer group.

Having never heard of BWLD, never mind eaten them these are questions that I cannot answer. It is important for any individual investor to have, or gain a viewpoint, as this could prove quite vital to the ultimate success of the investment.

Moving swiftly on to the Industry.
The Industry is Restaurants
P/E………………………………19.6
P/B………………………………4.8
Net Profit margin……………8.0
ROE……………………………..20.2
Debt/Equity…………………..11.8
Dividend Yield………………..1.8%

Some of these metrics are relevant to BWLD and some are not. Be warned in advance BWLD is a growth or go-go stock, it has very aggressive accounting. The success or failure in the accounting will have a large impact within the final outcome in market price.

The Debt/Equity ratio within the industry is high. Compared to BWLD it is massively high. In 2003 BWLD retired a tranche of debt via an equity placing. Why did this occur?

The cost of capital in 2003 at the tailend of the recession was almost free money, the Fed discount rate was at circa 1.0% and corporate debt would have been around 3.0%, why in that environment deleverage and take expensive equity capital?

The answer is that the company holds an extraordinary level of cash, some $64.6million, while the working capital requirements are a fraction of that. We are talking say $5million in cash would just about squeeze by.

The reason is that there is an interest income that flows directly to the bottom line, boosting Net Profits. Further, the small amount of long term debt held by the company at $9.5million, the interest payments are capitalized. Not really for any other reason other than again boosting the bottom line. It is not illegal, but it is aggressive.

The industry pays a dividend, BWLD does not. Again, growth of Net Profits is key. They must continue to grow, and thus higher multiples will be awarded to the stock. Net Profits have grown, +40% annualised but this is a high hurdle to keep clearing

Depreciation is being accelerated for tax purposes, but not being disclosed in a forthright manner in the Income Statement, again aggressive.

A number of Operating costs are being capitalised, costs from Selling,General & Administration, again, aggressive, borderline legality issues with growth in Revenues [+24.5%] on an annulised basis far higher than SG&A [+17.1%]

The very high Capital Expenditures in relation to Depreciation charges will tend to overstate the cash generating ability of the business. [1.63]

Therefore we return to the necessity of loyal customers. In any economic downturn that might crimp Revenues, it is vital for a go-go stock to maintain earnings growth, without which the market might re-value the shares in short order.

Last point, the “Insiders” have been heavily selling stock, unloading circa $3million in stock, worth thinking about.

flip-flop-fly and the results;
Sector Spotlight: Machine Gunning
Wall Street can be a brutal place to make a living, especially during earnings season. To put it plainly, buying or selling stocks, ahead of earnings, is equal to river boat gambling. Furthermore, when one of your favorite companies misses estimates, not only does it hurt monetarily, it jars your very existence.

For me, this earnings season has been the worst of my career. I don’t think I’ve ever had two top ten holdings blow up like this, first NTRI, now BWLD. Thankfully, I had great success, early in the year, else I’d be in a deep hole.

The lesson to be learned: never go all in, or heavily overweight a stock, no matter how much you like it.

Sure, BWLD is a top ten holding, but comprises less than 7% of my holdings. Does that make me not want to punch the beards off of the bitches who are running BWLD into the ground? No.

However, I’ll survive this bombing and probably come out on top, eventually.

My plan is to buy here, for now. The stock is down way too much, on a small miss. Plus, the company is entering its best quarter, going into peak football season.

Nonetheless, I will not chase the stock lower. If it looks like support is weakening, I will wait for it to dip again, before adding.

In short, this is a machine gunning to the torso.

All in all, I’ll be fine, with nice gains and positions in HANS, MVIS, GME, RIMM, AAPL, VMI, iiG etc.

This hurts, but life goes on.

As for today’s trading:

With the Fed meeting on deck, I suspect the market will flat line, until “The Great Bearded One” makes his decision.

For now, I’ll make a few offerings to the stock God’s, while punching my fucking monitor– with the set of brass knuckles I have on my hands right now.

# posted by Broker A @ 9:41 AM 25 comments links to this post

Fly Buy: BWLD
I bought 10,000 BWLD @ $30.

Disclaimer: Don’t bother. This is a car accident with a bag of grenades in the trunk.

Tuesday, October 30, 2007

The Important Matter of Buffalo Wild Wings
So, “The Fly” was having a pre-earnings celebration, prior to the market close–waiting for BWLD to post spectacular numbers.

I was in the office, graciously handing out low end hamburgers, deli meatballs and good champagne, until I saw the BWLD miss.

Franticly, I started taking back the burgers, making the assholes in my office spit out the meatballs, while knocking over their champagne glasses. Needless to say, the party was over. Back to work.

I couldn’t believe my eyes; the fat bitches who run BWLD had done lost their chicken head minds, via not beating eps estimates.

Now, as you already know, “The Fly” came back to the internets and declared tomfoolery. I sugar coated the reaction and made believe the STOCK WASN’T DOWN 5 FUCKING BUCKS.

Believe me when I say, I am fully aware that the stock “de-banked” me.

In other words, the homosexual commenter, named “Knob Polisher,” is right! I’m just throwing money away, owning this dog bone of a stock. Not only did I lose buckets of money; I bought 3,000 shares at the bell.

Ha! Who’s better than me?

Here’s the kicker:

Those disgusting, filthy, slobs, who run BWLD, let the company miss. That’s right, it’s entirely managements fault. They showered themselves with stock grants, while watching the drunken idiots, who eat at their filthy restaurants, eat cheap wings. This is America, ain’t shit cheap, with the exception of heavy lead laden toys–made in China.

Fuck that.

If “The Fly” were CEO of BWLD, he’d jack prices continuously, especially on over inebriated patrons.

I mean, why should I, as CEO of BWLD, have to absorb the high cost of freakishly big chicken wings? Again, fuck that; I’m passing that cost, and much more, along to you (the drunken, football fool).

In short, the BWLD quarter was devastatingly bad. Atrocious. I’d spit on the CEO, if given the chance and proper escape route.

What “The Fly” needs to do is get done with his 2005-2007 plays, and prepare, via hard nosed research, for 2008-2010.

Fly Buy: BWLD
I bought 3,000 BWLD @ $38.95.

Disclaimer: If you buy BWLD because of this post, filthy restaurants will spring up all over your neighborhood. And, you may lose money.

Today is the day, ladies.

After the close, we find out if those fat fucks from Ohio were redoubling their chicken wing eating efforts or not, at BWLD. The current eps estimate is .26; I’m hoping for .31.

Either way, I’m a buyer of the stock, going into peak football season. Remember, BWLD makes more money off alcohol consumption, than wings.

Hey, guess what?

Bernanke is going to skin the shorts alive today. And, iiG is up, again. Anyone surprised?

Which reminds me, “The Fly” bet ‘both of his eyes,’ that VMI would print $100, this week.

Finally, seeing the low end restaurant chain TXRH post good numbers gives “The Fly” confidence that BWLD will do the same. Also, I’d like to beat the devil out of the fuckers who keep selling LFT.

Off to my local Panera Bread.

Going forward, I have unbreakable confidence in BWLD. Aside from queer corn prices, BWLD should be clicking on all cylinders, going into peak football season. Should the stock dip, post earnings, I’ll be cracking open the family safe, in order to get a piece of the burgeoning chicken wing business.

Finally, “Don Dollar Danks,” CEO of iiG, is settling lawsuits I never knew existed. Funny, yet profitable shit. In my opinion, Danks is the best CEO in America. However, it’s also worth noting, if he were a guest in my house, I wouldn’t leave him alone for a second–for fear he would steal the silverware or a few DVD’s.

It would seem that the restaurant industry is having a bit of an upturn currently. My interest was piqued by the reality TV series America’s Next Great Restaurant which is playing over here currently, I’m a sucker for reality TV.

Anyhow, it got me looking at the restaurant industry. I haven’t really done too much analysis in the past on restaurants save BWLD when my main man flippe-floppe-flye was touting the stock. To date, BWLD is taking off.

Kinda missed the boat on that one [at least for the moment] So DAVE will be the subject of an analysis once I get through the airlines etc.

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