Sunday, February 28, 2010

Belief In Climate Change Hinges On Worldview

I guess this story from from NPR helps to explain why I don't really believe that humans are causing global warming... It apparently stems from my individualist mentality; plus, I fully admit that in the event that we are causing the earth to warm, I wouldn't care, since we could probably (and I say this with a high degree of certainty) reverse the trend and fix the problem without going back to the stone age. In a worst case scenario, if family locating traditions continue, my descendants will be a few hours closer to the beach; as my family has generally done a good job of containing themselves to a 75 mile radius since the time that Kentucky was a part of Virginia. ;)

Actually, now that I think of it, being roughly a 13th generation Kentuckian, I guess that I am more qualified to hold Jim Bunning's Senate seat than our Secretary of State, Trey Grayson- who explains how as a 5th generation Kentuckian he is more suited for the job Rand Paul. As a side note, Rand Paul is doing incredibly well in the polls, has raised a boatload of fiat currency, and is a virtual shoo-in according to Intrade:

Anyway, thanks goes out to my brother for sending the NPR link my way

YouTube offering clues to why value investing works... because it's boring, just like this blog.

Here is a simple search result for the phrase "warren buffett mba talk" on YouTube. Take a look at the results of the search, which Is one of my favorite YouTube video series.

Here are the views for each video in the 10 part discussion (and are correct as I write this):

Part 1: 383,687
Part 2:
Part 3: 149,344
Part 4: 122,408
Part 5: 100,618
Part 6: 90,296
Part 7: 88,006
Part 8: 86,595
Part 9: 76,010
Part 10: 87,193

Notice what happens? In every single video, the number of views goes down. Having watched each of the videos numerous times, I have trouble believing that the quality of the information goes down until the last video, when if goes up to the level of part 7...

The conclusions that I come to (which, I will admit is untested and merely hypothesized speculation), is that value investing is something that people claim to 'want' to know about, but when push comes to shove, they think 1 of 4 things:

1) They find it boring.
2) They view their time as more valuable than the knowledge that they get; which would make sense if a person was only investing $100 for the rest of their life, when they could be making $20/hr by not watching the video.
3) They figure out by the second video "Hey! This Buffett guy seems pretty smart- I don't think that I will be able to out preform him, so, I am just gonna buy a small part of his company and let him manage my money for me!"
4) In the fashion of an inoculation, it just doesn't take.

Personally, I think that it predominately the first reason. I, and I am assuming about 90% of the people that are reading this, are some of the fortunate individuals that find reading SEC filings to be one of the most delight filled things that life has to offer. ;)

Discuss amongst yourselves.

Saturday, February 27, 2010

Buffett and I agree on at least one thing.

again, from the most recent BRK letter:

"There were three ways to cure this overhang: (1) blow up a lot of houses, a tactic similar to the destruction of autos that occurred with the “cash-for-clunkers” program; (2) speed up household formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers or; (3) reduce
new housing starts to a number far below the rate of household formations."

Any one remember me saying that the government should have simply destroyed 1/3 of the nation's houses a bit more than a year ago? No one? Here it is.

My favorite quote of the 2009 BRK letter

From Here.

"GEICO’s managers, it should be emphasized, were never enthusiastic about my idea. They warned me that instead of getting the cream of GEICO’s customers we would get the – – – – – well, let’s call it the non-cream. I subtly indicated that I was older and wiser.

I was just older."

Friday, February 26, 2010

Not extending unemployment, so that you can see Demarcus Cousins pwn South Carolina.

Jim Bunning is awesome, simply for doing crazy shit like this. Thanks to my friend Chris for the link:

Jim Bunning, a Republican from Kentucky, is single-handedly blocking Senate action needed to prevent an estimated 1.2 million American workers from prematurely losing their unemployment benefits next month.

When Sen. Jeff Merkley (D-Ore.) begged him to drop his objection, Politico reports, Bunning replied: "Tough shit."

Bunning says he doesn't oppose extending benefits -- he just doesn't want the money that's required added to the deficit. He proposes paying for the 30-day extension with stimulus funds. The Senate's GOP leadership did not support him in his objections.

And at one point during the debate, which dragged on till nearly midnight, Bunning complained of missing a basketball game.

"I have missed the Kentucky-South Carolina game that started at 9:00," he said,
"and it's the only redeeming chance we had to beat South Carolina since they're the only team that has beat Kentucky this year.

Obama to McCain: screw you, buddy.

Classy, President Obama... classy. I must ask, though; who's the jackass now?

Disclosure: I have never cast a vote for either Senator McCain or President Obama.

EDIT: as Josh pointed out, McCain did make a (in my mind, pretty slight) criticism of Obama's campaign; I still think that the president looks pretty bad, especially when he implies that Americans care about getting a bill through that helps them, rather than one that is actually was done correctly. Well, maybe that is the case, but not for me, anyway; making exceptions or spending to get elected officials to vote for something should be called what it is... vote buying.

Here is the video of the whole thing:

Saturday, February 13, 2010

Snow covered black swans.

In a black swan of white weather events, today, the US had snow in 49 of the 50 states:

More than two-thirds of the nation's land mass had snow on the ground when
the day dawned yesterday, and then it snowed ever so slightly in Florida to make
it 49 states out of 50.

Tis' the season for manymanymany MCF of natural gas to be burnt. :)

Thursday, February 11, 2010

McConnell, displaying the emotions of a child, whose pet pig just died.

Mitch McConnell, Mr. Pork Barrel himself, the most notable senator from my state, bid an emotional farewell to his chief of staff today...

Really, this is the kind of emotion that is generally reserved for the death of a loved one. C'mon Mitch!


Here is the video...

Wednesday, February 10, 2010

Ken Peak Interview.

My favorite snippet from the Motley Fool interview:

TS: I know you also wanted to discuss the current interest rate environment. Who benefits here, who gets hurt, and what are you doing at Contango to make the best of this situation?

KP: Contango is currently investing $75 million in overnight T-bills and earning one (1) basis point or .0001. That means in 12 months we will have earned a whopping $7,500. We're losing money on this investment after inflation and taxes. In short, the prudent savers in our society continue to subsidize the big banks that bet too much on financial instruments they didn't understand, homeowners who lied about their net worth and thought their houses were ATMs, and our federal government, which is fiscally and monetarily dysfunctional and determined to print us into poverty. It's like the parable we learned as school children except that we've decided to punish the ants and reward the grasshoppers.

Disclosure: Long Contango (MCF). This is not investment advice, always do your own research before doing anything.

Thursday, February 4, 2010

I got 99 problems, but a guarantee on a defaulted mortgage secured by a hotel in Chelsea ain't one.

From Zero Hedge

The latest casualty of New York's resurgent (not) commercial real estate market is rap mogul Jay-Z, who had previously guaranteed a $52 million loan for a Chelsea hotel, which subsequently has defaulted and is holding the artist as the responsible party for accrued interest. As a result, Jay-Z is lashing out, and in turn is suing defunct hedge fund Highland Capital (maybe he should have at least picked an adversary that can pay him), which last time we checked was still trying to offload second-lien debt at par plus. Bloomberg reports: "Carter, in his complaint filed yesterday in federal court in New York, claims Highland and co-defendant NexBank SSB are attempting to “bleed” from him funds in excess of those he and two other men pledged to pay when they guaranteed the non- principal obligations of a company planning to build a hotel in Manhattan’s west side neighborhood of Chelsea."

And really, who doesn't like 99 problems? ;)

Monday, February 1, 2010

Boss Holdings Inc. Arbitrage

Boss Holdings represents a super small, but thought provoking arbitrage play. Thanks to Barel Karsan for alerting me to it. Certainly, this won't make you rich, but, for those of us that are often fascinated by interesting financial transactions, it is a cool thing to do if you have a marginal amount of cash laying around. Basically, if you own 99 shares, which are trading at $6.21/shr, you will be getting $7.65/shr just after a reverse, then forward stock split, so that the company can not file with the SEC.

From page 12 of the company's recently filed PRE 14A:
What if I hold fewer than 100 shares of Common Stock and hold all of my shares in street name?
If you hold fewer than 100 shares of our Common Stock in street name, your broker, bank or other nominee is considered the stockholder of record with respect to those shares and not you. It is possible that the bank, broker or other nominee also holds shares for other beneficial owners of our Common Stock and that it may hold 100 or more total shares. Therefore, depending upon their procedures, they may not be obligated to treat the Reverse Stock Split as affecting beneficial holders’ shares. It is our desire to treat stockholders holding fewer than 100 shares of our Common Stock in street name through a nominee (such as a bank or broker) in the same manner as stockholders whose shares are registered in their name. However, we or our transfer agent, Continental Stock Transfer & Trust Company, may not have the necessary information to compare your record holdings with any shares that you may hold in street name in a brokerage account and these banks, brokers and other nominees may have different procedures for processing the Reverse Stock Split. Accordingly, if you hold your shares of our Common Stock in street name, we encourage you to contact your bank, broker or other nominee.
What happens if I own a total of 100 or more shares of Common Stock beneficially through multiple brokerage firms in street name, or through a combination of record ownership in my name and one or more brokerage firms in street name?
We may not have the information to compare your record holdings and your ownership through a brokerage firm or to compare your holdings in two or more different brokerage firms. As a result, if you hold more than the minimum number of shares, you may nevertheless have your shares cashed-out if you hold them in a combination of record and street name or through accounts in several brokerage firms. If you are in this situation and desire to remain our stockholder after the Transaction, we recommend that you combine your holdings in one brokerage account or transfer any shares held through a brokerage firm into record name prior to the effective time of the Transaction. You should be able to determine whether your shares will be cashed-out by examining your brokerage account statements to see if you hold more than the minimum number of shares in any one account. To determine the Transaction’s effect on any shares you hold in street name (and possible payment of the cash consideration), you should contact your broker, bank or other nominee.
Insiders own the bulk of the company and will certainly vote for the transaction that they came up with. The company expects to save ~$340K per year from not having to deal with being an SEC filing company.

The really cool thing about this, as was pointed out in the filing, is that if you have multiple brokerage accounts, even with the same broker, you are able to own more than the 99 shares and have them bought back by the company. As I personally have 5 different accounts, I am the owner of 495 shares of the stock and will net a virtually risk free $690 bucks for doing little more than entering in some commands on my computer and having just north of $3K tied up for what I estimate to be under 6 months; not a bad risk adjusted return! Even if the transaction doesn't go through, the company is still cheap- so you won't be stuck with a bad investment.

Disclosure: I own shares of Boss Holdings. This is not financial advice. Do your own research before investing.

Bailing out of the bailed out market and into International Baler.

As anyone that knows me, emails with me, or even reads this blog will know; I am nervous about the health of the US economy (partly due to a huge budget deficit) and will be shocked if the market went up in any significant amount of real dollars. With this said, one company that I am enthusiastic about is International Baler (IBAL.OB).

The company has an balance sheet that has been significantly reducing liabilities in the past year, as they have precipitously fallen from $2.29mm to a mere $886K- and gone back up a hair, to 1.06mm while this has come with the price of the company reducing it's cash position, there should certainly be enough to cover all the company's needs for quite sometime.

Most attractive about the company is that they sit on nearly $1m in cash, just under $1m in receivables, and a fair amount of inventory- which is at a historically low level. As an example of the company's balers being of good quality and holding value, here is a youtube video of an International Baler baler. While the people selling the used baler are asking $6,600, from emails with the company, I found out that the baler in the video was made before 1981, and was sold for between $6k-$7k. In addition, the baler is now considered to be out dated and not the sort of thing that customers want, as they want bigger and faster balers. Due to it selling for the same price, in nominal dollars, I feel pretty safe in assuming that the balers the company has on the books, are more or less worth what they say they are... at least, in the long run.

Aside from this, we can look at the cost of their revenue over the past 4 quarters and see that, all things equal, it would essentially take them a single quarter to pawn off all of their inventory. I am certainly not concerned about their inventory being bloated or overstated on the balance sheet as a result.

Property plant & equipment is valued on the balance sheet at $871K, while, the count assessment their manufacturing facility is $700K. The facility is huge, close to rails and interstate, in Jacksonville, as can be seen here:

View Larger Map

In the previous 4 quarters, the company has lost money and is generating lower than normal revenues. However, when looking at their expenses, they could have ABSOLUTELY NO revenue for nearly the next 4 quarters and still pay SG&A expenses (at last quarter's rate) before eating through all of their cash. In the unlikely event that their earnings turn into a complete representation of their cash flow, they have well over 2 years worth of cash before they have to sell off any inventory, collect accounts receivable, or even sell off their factory. In the event of a significant cash burn, they do have a credit line that they can access, which is secured by their assets (most notably, their factory). Personally, I view this as an unlikely scenario. I certainly won't be shocked if the company is profitable in the near future.

In regard to the future outlook for the business, the company is attempting to position itself to sell more high margin custom made balers, which should continue to aid them in reducing their standing inventory. Last quarter, with revenue of $1.69mm, where as, a year ago, they generated $3.34m in the same quarter. As revenues have fallen off, they have adjusted their SG&A, taking it to $277K and $275K, from previous amounts of $345K and $429K per quarter. Future earnings will be ever the more significant, as there are significant net operating loss carry forwards on the books, which don't expire for a very long time- as such is the case, their tax liability will be minimized, thus, increasing free cash flow of this already cash rich company.

Insiders own a significant chunk of the company, and have a ton of experience in the baler industry, in addition to International, they also own the privately held American Baler. A guy in Connecticut by the name of Alexander Toppan, who seems to have historically successful experience in nano/micro caps also owns a chunk of the company. Quite literally, well more than 1/2 of the company is owned by people that will in all likelihood not sell their shares for any meaningful amount of time, as they are insiders who have not traded the stock very much. Due to the age of some of the founders of the company, who also control a huge amount of the shares, I wouldn't be surprised if they would try to do a merger or sale of the company as they will be having retirement/estate needs. After all, the NOLs, real estate, in place management (not made up of the founders), and cash position do a lot to tempt a potential acquirer to 'chomp at the bit'.

While the company is certainly not having exceptional operational results, it is selling for significantly less than it should be, based on balance sheet analysis alone. If there is any sort of economic recovery in the cards, then the current share price is ever the more attractive. They have managed to turn a profit in the previous quarter, and as the economy has seemed to grow, I all but expect that they will have another quarter or two of profitability in the near future.

From where I sit, if there is any real amount of economic viability for this business in the future (which I think there is), even if there is no chance of a buyout, there is no reason that it shouldn't be trading for at least book value. Presently, it is at a little more than 1/2, and is more or less a classic Ben Graham net-net.

Certainly, I am leaving out a lot of my thoughts on the company to let you fill in your own blanks with your own research... Read some of their reports from the last recession, they are an interesting read- you should also look at their executive compensation and auditor for some more intriguing stuff.

Disclosure: I am long International Baler. This is not investment advice, and as such, is not a recommendation to buy or sell anything. Do your own research!