Insightful Insights

Kyle Bass is a recently minted billionaire investor. But he didn’t gain prominence for the billions he made presciently trading credit default swaps and collateralised debt obligations in the US sub prime markets, nor for the billions more he made by levering his subprime profits and trading credit default swaps on Greece. He because famous for being the hedge fund manager Michael Lewis left out of his book because Lewis thought Bass was a bit of a nutter.

The results, however, speak for themselves and now Kyle Bass is a fixture on the business circuit, on CNN and Bloomberg and feted as a speaker at conferences globally.

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by Roger Montgomery Posted in Insightful Insights.

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The terms of the Budget Control Act of 2011 are scheduled to become effective at midnight on 31 December 2012. This will result in a 2% tax increase for workers, the end of certain tax breaks for businesses, the beginning of taxes related to health care law and deep automatic spending cuts. This would reduce the budget deficit by an estimated $560 billion or 3.7% of the $15 trillion US economy, however the Congressional Budget Office (CBO) estimates Budget Control Act would cut GDP by 4% and increase unemployment by at least 1% in 2013. The fiscal cliff is concerning investors and there is a strong possibility Congress won’t act until the eleventh hour.

The indecision is likely having an effect on the US economy as households and businesses “sit on their hands”. Walmart, for example, reported like for like US sales growth of only 1.5% for the three months to 31 October 2012. Their forecast for the three months to 31 January 2013 is for same store sales growth of between 1 percent and 3 percent.

by David Buckland Posted in Insightful Insights.

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With the Ten share price up 5% today we reckon some participants must be trading on rumours. In this case, rumours are swirling around the market that Telstra is about to buy Ten. We don’t of course trade in rumours and we won’t be starting now. We are keen however to watch Telstra’s content strategy roll out – in anticipation of the NBN being completed. As we have previously mentioned, by 2017 Telstra will likely dominate the digital delivery of content. The delivery platform will have been levelled and so the competitive focus for Telstra needs to be content. They’ll knock on your door with a big black box and bundled deal offering IPTV, Foxtel, FoxSports and (Ten?) all on the one platform for one great price….

So could Ten be part of that strategy? As is always the case with rumours, time will tell.

by Roger Montgomery Posted in Companies, Insightful Insights, Market Valuation.

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We often hold a material amount of cash in our funds management operation and, with deposit rates at painfully low levels, we have been considering ways we might work the cash a bit harder. Like many investors, we have focused attention on hybrid securities as one possibility.

Having studied this possibility for a short time we are now focusing elsewhere. Analysis of the terms of some of the recent offerings reveals highly complex instruments with concealed downside risks and an interest rate that falls well short of compensating investors for the hidden downside. A cynical observer might think that some of these products are designed to exploit retail investors who are unable to fully assess the downside risks they are taking on.

by Tim Kelley Posted in Insightful Insights, Investing Education.

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Do Energy Action (EAX), Central Petroleum (CTP), Perseus (PRU), Iluka Resources (ILU), AGL (AGK), Matrix (MCE), Reward Minerals (RWD), FKP Property (FKP), Rio Tinto (RIO), Telecom NZ (TEL), Hills Holdings (HIL), Aurora (AUT), DWS (DWS) Cash Converters (CCV) or NAB (NAB) achieve the coveted A1 grade? Watch this edition of Sky Business’ Your Money Your Call 15 November 2012 program now to find out, and also learn Tim’s insights on Exchange Traded Funds. Watch here.

by Roger Montgomery Posted in Companies, Insightful Insights, Investing Education, TV Appearances.

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Earlier this week The International Energy Agency released its World Energy Outlook. While total US oil and gas production is expected to increase 35 per cent from 17 million barrels of oil equivalent per day (mboe/d) in 2010 to 23 mboe/d in 2020, the transformation is explained by the expected 6 mboe/d surge in unconventional oil and gas production over this decade. Together with the widening of the Panama Canal by 2014, which will allow LNG Supertankers to travel to Asia from the Gulf of Mexico, the US could potentially turn into a cheap exporter of gas, in competition with Australia.
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by David Buckland Posted in Energy / Resources, Insightful Insights, Value.able.

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The contractual nature of the resource service sector was highlighted with Emeco’s latest earnings downgrade. Their Australian fleet utilisation has declined from 91% in the 6 months to June 2012 to the current 66%. A combination of weaker demand, contract revisions, and contract non-remewals was to blame. Commentary particularly reflected lost contracts from the iron ore and coal industries. Expectations for the Company’s revenue line has been cut by 20% to around $550m for each of Fiscal 2013 and 2014, while net earnings have been reduced by around one-third to $51m and $58m, respectively. At the current share price of $0.51, some brokers are calling Emeco a buy as it is now selling on a prospective PE of 6X and a one-third discount to its net tangible asset backing of $0.76 per share.

Nevertheless, we remain cautious on the outlook for the resource service companies generally and believe investors should be wary of Emeco’s forecast $443m net indebtedness.

by David Buckland Posted in Companies, Energy / Resources, Insightful Insights.

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Roger provides his latest insights into the current state of the Australian share market (and a lack of value therein), the impact of changes in the mining industry on the Australian dollar and future foreign investment, and the outlook in the United States and its “Fiscal Cliff” with Ross Greenwood on Radio 2GB.  Listen here.

This program was broadcast 13 November 2012.

by Roger Montgomery Posted in Energy / Resources, Insightful Insights, Radio.

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AMA, MXI, AHE and ARP share prices are all booming on the back of surging demand in an under supplied car market, causing a shortage of capacity which is driving up margins for the sector’s operators.

You can read one of our recent post on the subject here.

Naturally we have been drawn to the operators in the sector on the back of this capacity shortage. The ability to charge higher prices in a capacity-constrained environment is great if they are enduring, but I must ask, is the entire sector in a little bubble? A bubble in profitability and short-term market growth?
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by Roger Montgomery Posted in Companies, Insightful Insights, Manufacturing.

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In this Australian article published 10 November 2012 Roger discusses why listening to share market cliches is likely to result in poor portfolio returns.  Read here.

by Roger Montgomery Posted in In the Press, Insightful Insights, Investing Education.

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