Up in Morning, What do I See,
Bear Raid from China, A to Z :-))
Woe, oh woe, the end is near. China markets, closed to all foreign investors [aka, "real investors" ], goes DOWN overnight. Mirabile Dictu !!!
Uh, that's about as big a surprise as the full moon appearing once a month.
So the beefers hit the world in a full court press bear raid. I guess they want to scare late buyers & run some stops to collect a little payday. Futures are down about 7 pts on the S&P 500. Interestingly, India held about unchanged.
So what's in the news? Big IBM buyback, LBO of CDWC. WSJ says Wal-Mart problems are hurting some suppliers in China (that might mean something - the article is interesting).
Fed minutes today will be important. Since we had some good inflation news before the meeting, a bullish surprise is possible. OR wording to spark a ramp into the June meeting in expectation of removal of the inflation bias. OR they might be a non-event.
So far I think the real buyers will be patient and buy this dip. Disinflation and moderate growth are still the attributes of the US economic trajectory. Nothing has changed.
PS: that title is supposed to remind you of Good Morning, Vietnam !!! [the movie with Robin William and the real DJ in the war zone, Adrian Cronauer]. Just imagine my baritone voice yelling that as you wake up. Have a cup of Joe. Black, no sugar.
PPS: Today's action seems to indicate there's too much stock and ETFs sold short. I think the real buyers are more patient. But if one is shorting every move up, a drop like this would seem like a reprieve. The five minute charts I watch look like short covering plus some real buyers. So those record short interest numbers of last week mean something, like last fall.
P^3S: I thought the line in the Fed minutes that core inflation was "not convincingly" trending down was significant. I think another one or two downticks gets the inflation monkey off Ms. Market's back.
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35 comments:
IBM Corp. disclosed Tuesday that it is taking on $11.5 billion in new debt to finance the aggressive accelerations of its stock repurchase plan, which appears to be one of the largest such steps ever.
i know im retarded but i just dont see how borrowing money to buy your stock back, makes your stock worth more? i mean i get it, but really it makes no rationale sense.
if i took a million dollar loan on my credit card at 10%, did my net worth go up or down?
i didnt see the percentage on the loan but after listening to the last 2 IBM calls, this company can grow 5% in a decent economy with a stable dollar. if the dollar goes up that growth slows, if the $ goes down maybe they can grow net income 7%.
looking at eps seems almost meaningless becuase they just buttered up to buy all the supply.
i cud see why a company like CTSH wud do that becuase the cud actually get a higher rate of return on the money borrowed than IBM (looking at the potential growth in net income).
the last 2 IBM calls have sounded bad. i guess the stock is a pound the table buy on any weakness today.
more confused by the day
Uh, Mern, one can prove that so long as the added borrowing is incremental and doesn't significantly increase bankruptcy risk, the value of the firm increases due to the tax deductibility of the interest payments on the debt. I learned that at B-school at MIT - there's a mathematical proof. If big firms are underlevered, they can increase value by borrowing to buy in stock.
You can't deduct credit card interst. But you can deduct mortgage interest on a home. So borrowing to buy a home can increase your net worth vs. saving the money for years to buy it with cash, since you are taxed on the income from the savings (on a PV basis).
5% growth with interest rates this low is fine. At a PE of 17x, that stock is way undervalued if they can grow at 5%.
Robin Williams was great in that flic. I love movies about Vietnam.....ComingHome, Platoon, Apocalypse Now, FullMetalJacket all terrific.
interesting. so it looks like they will have around 40 bil in long term after this, market cap of about 155 bil. so that is considered "underlevered?".
never given the issue much thought
paying 17 times for a 5% grower doesnt seem great to me, but then again, im retarded
Check my past posts on Valuation, Mern. I did some examples. One was for a 5% grower. The PE should be well over 20x.
Re underlevereged, I'd have to compute the debt service coverage. That's the key to debt risk.
Hmm. $40B x 6% interest = $2.4B /yr interest. Annual earnings are about $7/share on 1.5B shares = $10.5B aftertax earnings. Assuming tax savings on interest go to debt principal, that would give a debt service coverage of 4.4x. That's pretty good coverage. No problem.
Rambo was a good post-Vietnam movie, Bud. Missing in Action, too, including the sequel. The good guys win in those ;-)
Another positive read on a big buyback is that management is much less likely to make a stupid acquisition. That takes risk out of the earnings & growth.
A really good Vietnam movie is Siege at Firebase Gloria (hard to find). That might be the best I've ever seen.
The battle scenes in Green Berets were pretty good, too.
We Were Soldiers Once and Young was good, too (even if Mel Gibson is a jerk). I read the book.
Cool. I never heard of Siege. I will have to see it.
Market looks in trouble today. We'll see. Do I have to start lookin at darkside trades? I'm very hesitant to do that with so much m and a activity. ( Not sure if anyone cares...since I'm not a 'real' trader).
SOLF hideous numbers. Solar stocks look horrendous.
how about "the hero" with richard pryor, liked that one too.
IBM can borrow money at 6%? i was thinking that wud be more like 8 to 9% paper?
I see one rating agency has them at AA- on credit watch. The other two said the debt would not affect the rating. So I'd guess IBM debt trades like an "A" credit, which would put it at no more than 100 bps over the 10 year. So yes, I'd guess 6% is pretty close or maybe even too high. [I didn't check with my partners so this is an estimate]
ok thx u
All the good quality big caps should be increasing their leverage and buying in stock in this economic environment. I think they are too conservative. At 6-6.5%, they should sell as as many long term bonds as possible.
IBKR rofl, what a pos.
that company sux!
Darn. Just cut my hand in two places using the wrong tool. Dumb. Typing is slow with two bandaids. :-((
u cut your hand, while using your tool? u r a freak, lol ;-)
im shredding documents from my mother. put this off about 6 yrs. looking at some funny P&L statements. singing "those were the days" she didnt throw anything.
i found my first pair of shoes this am and first baby rattle with a bunch of statements from 1999
haha. I was working on my outer defense perimeter ;-)
What do you need a hole-drilling machine for?
lol
use your imagination, Bud :-))
I have a fine drill press for drilling holes in metal, for example, to install a screw or bolt to hold two parts together.
But that's not the automatic hole-making machine ;-)
im thinking land mines surrounding the perimeter
:-)
lololol. A good minefield is tough to breach, especially if covered with "fire".
rofl
I posted a PPS on short covering, fwiw.
This Bubblevision environmental focus sure gets old. Their producers must be dating "green" girls and want .... uh ... you know ;-)
Tough to breach? A decoy and some mine sweepers should be enough.
Mern.....Kobi wants out ........76ers should go after him.
Bunkerman you really remind me of the 'earth is flat' guys.
Uh, Bud, it's usually fatal in combat to assume one's adversary is stupid or dumb or not paying attention ;-)
Wow. Bulls took control of the day again. S and P all time closin highs close.
Too many traders & beefers are looking to short. Forget the technical signs & "extended" crap. This market will top intermediate term on real news OR when the beefer bears & traders capitulate. Too much stock and ETFs are short.
We get a couple down days and we hear the screeches, "TOP!" When they screech, "Bargains" on a dip, that might be it.
New S&P 500 all-time high close. We need another one tomorrow to be sure this one isn't just beefer mo buyers. I think it's real, but want proof.
PS: it must suck being a bear.
Rofl beefer mo......too funny
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