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Debt, Debt and More Debt

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Image Source: Michael Fleshman Many readers may be familiar with the rhetoric of the Presidential Election Cycle of 2016 and Democratic hopeful Bernie Sanders’ view on making “college tuition free and debt free.” You can take a read of the 6 steps Bernie will take as president to make college debt-free here. Many may find his last point rather intrusive to the heartbeat of the American economy and the driver behind innovation and standard-of-living improvements, but we’ll leave that conversation for another day. But what’s the shocking statistic, right? Get this – and I hope you are sitting down. According to an article by the Journal, “more than 40% of Americans who borrowed from the government’s main student-loan program aren’t … Read more

Part I: Nelson’s Evaluation of Berkshire’s 2015 Annual Report

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Image Source: Fortune Live Media By Brian Nelson, CFA It’s always fun to crack open the Berkshire Hathaway (BRK.A, BRK.B) annual report, this year’s 2015. It reminds me of how much times have changed. For one, if Warren Buffett had been starting out in the investment business today, he simply wouldn’t have had a chance. The front page of this year’s Berkshire Hathaway shareholder letter shows that he trailed the market 33% of the time in the first 6 years in business (1965-1970), and the company lost half of its market value in 1974. Very few fund managers today, if any at all, that lose half of their market value in one year, trailing the market by 22 percentage points … Read more

More Market Weakness: We Haven’t Hit Bottom Yet

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Global equity markets are falling yet again February 11, in part due to cautious comments from US Federal Reserve chair Janet Yellen about the health of the global economy and the legality/efficaciousness of negative interest rates, “Dividend Growth ‘Bubble’ To Continue But For How Long? (Feb 2016).” Market onlookers continue to fear that the Fed has nothing left to give, “out of ammunition,” with the tank of accommodative policy empty, and it might just be. To us, however, the news flow is more of the same. The world continues to be awash in crude oil (USO), and many are now starting to think that what was once mostly an oversupply problem is now being compounded by a demand problem as … Read more

Giddy Up – It’s Earnings Season!

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By Brian Nelson, CFA During the trading session January 27, Apple (AAPL) failed to turn the tide of a disappointing fiscal 2016 first-quarter report (calendar fourth-quarter), “Apple Will Go Lower…And It Will Be ‘Forced’ Into Acquisitions,” and coupled with a Fed statement, where the Committee left interest rates unchanged, as expected, many market observers read between the lines and hit the sell button. On the basis of some of the concerns we’ve outlined, “Not Doom and Gloom – But Just Cautious,” we can completely understand the hesitancy by participants to stay fully exposed to this tumultuous equity market. In many ways, that the Fed has hit the brakes just a few weeks after the long-anticipated rate hike means the global … Read more

Surveying the Aerospace Arena

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The reasons for liking commercial aerospace, or constituents involved in the production of commercial aircraft, are many and varied. The liberalization of air travel between global point-to-point markets has facilitated expansion in not only leisure travel but also business travel between countries. The advent of the low-cost-carrier model in the likes of Southwest (LUV) and others just like it around the globe has made air travel affordable to those that it once had “priced out.” The growing middle class in developing countries has paved the foundation for continued passenger growth, something that should be expected for decades to come. The collapse in jet fuel costs has made the global airline industry, or those involved in the transporting of people from … Read more

Bellwether Snapshot: Walmart, Boeing, CSX

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Alcoa (AA) kicked off third-quarter earnings season with a wimper, which had been preceded by Yum! Brands’ (YUM) doozy of a showing. Incremental news impacting the expected performance of Walmart (WMT), Boeing (BA), and CSX (CSX) hasn’t been great either. Investors continue to write off weakness as “normal,” even “macroeconomic” as if it doesn’t matter, pointing to the transient nature of a struggling global economy suffering from a slowdown in the pace of growth in China and weakness in export-dependent countries, not the least of which is Brazil, as somehow a “good thing,” but it may not matter. The trajectory of expectations of future free cash flow generation is being impacted, and so are fair value estimates as a result, … Read more

Batten Down the Hatches – Another US Market Crash Probable

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A global financial contagion like that of the Financial Crisis just six short years ago cannot be ruled out. The magnitude of wealth lost in China’s (FXI) equity market is simply staggering, and we’re already witnessing bad loans soar across China’s Big 4 banks. We’re hearing that property, used as collateral for stock margin trading in China, is often being sold for 90 cents on the dollar as speculators look to cover losses. We expect the fallout from the collapse in Chinese equity markets to eventually reverberate through their property markets, impacting loan-to-values in the commercial and residential arenas, sparking significant loss rates and asset write-downs across the Chinese financial system. We continue to assess the tangible evidence of an … Read more

The Damage Has Already Been Done

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The Shanghai Index only fell another 1.3% yesterday. The US markets are cheering at the open Wednesday on hopes that last month’s July durable goods number is foretelling of what investors can expect after the latest leg down in the Chinese market and the collapse in US equity markets the past few weeks. Though “core” July durable goods orders were better than expected, pre-collapse data is no longer indicative of the true state of the US economy and what lies ahead, in our view. The Chinese government has gone “all-in” to prop up its bubbly market, one that is trading at 60 times reported earnings, but the impact, while arguably successful in preventing Armageddon in China for now, has only … Read more

Valuentum Moving to “Neutral” on Kinder Morgan

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Valuentum is moving to neutral on Kinder Morgan (KMI). An updated 16-page report will be available on our website Monday morning. On June 11, 2015, we published an article “5 Reasons Why We Think Kinder Morgan’s Shares Will Collapse” when shares of the pipeline giant were trading at ~$40. Without reaching out to us first for questions or comments, Barron’s picked up the scoop, and on websites in which we frequently publish a small sample of our content including Seeking Alpha, Valuentum was repeatedly blasted and “attacked” for its unique and differentiated view. Many of our members were appalled by the public (and anonymous) commenters because our members have been aware of our fair value estimate on Kinder Morgan since … Read more

Annual US Defense Spending Still 85% Higher Than Year of September 11 Attacks

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July 8 brought news that the Army plans to cut 40,000 troops over the next two years in a decision that will impact command posts across the globe. By the end of 2017, the Army plans to have 450,000 soldiers, down from levels of 570,000 at the peak of the Iraq/Afghanistan wars and the lowest number of active US Army soldiers since the beginning of World War II. The 450,000 mark is widely believed to be the level at which, if it falls below, the US may not be able to effectively meet defense strategies. Bare minimum, it would seem. But while personnel cuts are being implemented, geopolitical uncertainty has only increased. The Islamic State of Iraq and the Levant … Read more