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The case for cash
Old 02-22-2005, 11:54 AM   #1
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The case for cash

I saw this guy from First Pacific Advisors on the Bloomberg this morning. Yes, I know, we're not supposed to listen to these guys. I just watch bloomberg if I wake up early cuz it puts me back to sleep.

This guy (for a change) sounded like he knew what he was talking about.

http://www.fpafunds.com/news_040423_case_for_cash.asp

The upshot was that their analysts see stocks as slightly overvalued against current earnings, and that current earnings are ramming their upper limits. Nowhere to go but down, and stocks with them.

Bond returns stink and they dont see the 10+ year yield curve topping 5% until ~5 years from now. Their bond holdings in the funds I looked at were low single digit %. They dont see any value in putting currency at risk against todays bond market.

Their team has looked into inflation and believes the CPI to be 1 to 1.5% below actual inflation.

Before inflation, at stocks to return 4-5% over the next 5 years...losing ground to their measure of inflation.

So their plan is to sit out a portion of their positions in cash and wait for the drops in stocks and bonds.

Another good read for a learning investor, investing discipline:
http://www.fpafunds.com/news_040223_..._investing.asp

Favorite quote: "How wonderful it is to be in a business where, when something goes on sale, most everyone runs away. It is fantastic because it creates investment opportunities for those who are disciplined, patient and decisive."

Of course, these guys are the very people we usually advise to avoid...5.25% front load and .83% annual on their fund...
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Re: The case for cash
Old 02-22-2005, 12:10 PM   #2
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Re: The case for cash

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Of course, these guys are the very people we usually advise to avoid...5.25% front load and .83% annual on their fund...
Maybe avoid their product, but best to pay attention to their thinking. Bob Rodriguez who manages FPA Capital has the best 5 year record in the business, and he makes sense to boot.
*WARNING*
His ideas could be mentally destabilizing to random walkers and investment agnostics.

Mikey
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Re: The case for cash
Old 02-22-2005, 12:28 PM   #3
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Re: The case for cash

You wnt a hot tip on something that is not overpriced? PPD. The company is off almost 10% today over nothing, and will spew out something like $4 a share in cash flow this year (stock is ~$32).

That's the advantage of investing in individual stocks: I don't care if the market is overvalued. I only care if MY stocks are overvalued.
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Re: The case for cash
Old 02-22-2005, 02:32 PM   #4
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Re: The case for cash

Thanks Brewer. I'll look at it.

Mikey
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Re: PPD
Old 02-22-2005, 03:13 PM   #5
 
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Re: PPD

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You wnt a hot tip on something that is not overpriced? PPD. The company is off almost 10% today over nothing, and will spew out something like $4 a share in cash flow this year (stock is ~$32).
.
From a writer that I followed and respected:
http://www.thestreet.com/_yahoo/stoc...FREE&cm_ite=NA

Regarding the case for cash, given the pressure on the dollar and the hidden/true inflation rate, I'm buying into the scenario and also into dividend paying PAYX as a play on interest rate.
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Re: PPD
Old 02-23-2005, 06:53 AM   #6
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Re: PPD

Quote:

From a writer that I followed and respected:
http://www.thestreet.com/_yahoo/stoc...FREE&cm_ite=NA

.
I don't think I have ever seen as pathetic an excuse for journalism as the crap that MD and TSCM as a whole puts out on PPD. It is very obvious that MD is the tool of interested short sellers.
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Re: The case for cash
Old 02-23-2005, 11:43 AM   #7
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Re: The case for cash

I have a "TheStreet.Com" tee shirt signed by Jim Cramer.

Anyone wanna buy it?

The only one of their writers I liked to read was Helene Meisler. Every time she said the market was overbought or oversold and was about to surge or sell off, it did.

I'm amused that when you drop down the list of commentators, they're in alphabetical order except Cramer has his name put at the top. Worried Jim?

Jims a fun read, as long as you dont follow any of his investment advice yourself...
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Re: The case for cash
Old 02-23-2005, 11:55 AM   #8
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Re: The case for cash

"don't think I have ever seen as pathetic an excuse for journalism as the crap that MD and TSCM as a whole puts out on PPD. It is very obvious that MD is the tool of interested short sellers."----ROFL!

"A Mississippi jury last week found both the company and its founding CEO, Harland Stonecipher, guilty of fraud and deceptive advertising, according to plaintiffs' attorney Doug Minor"

tools of short sellers,the catch all phrase for "my stock is going down".
Where theres smoke theres fire.Did these same evil doers rig the jury that convicted the CEO of fraud etc.,
Back during the naz crumble there were a few good equity hedge funds that did very well by tearing apart balance sheets and challanging the printed cooked books and initiating there positions based on this.Short sellers dont make the stock go down,since you have to short with an uptick on the ask(supply),this obviously requires a fair amount of risk.Its the absence of buyers(demand) that makes stocks go down,as the bids get pulled.

"We still have more litigation in front of us,"

And it would appear on this basis of the fraudulant practices that this stock is /was overvalued

And for $2.15 million direct compensation to the CEO,one would expect a bit more wouldnt you think?

huge short interest,i suspect theres some very large positions here.But again where theres smoke theres fire.I can think of alot safer places to be,good luck.
Hope this brings some clarity to an emotional issue,which is the bane of buy-n holders.-ak
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Re: The case for cash
Old 02-24-2005, 11:00 AM   #9
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Re: The case for cash

Hey, I like Jim Cramer,
even if he is a democrat.
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Re: The case for cash
Old 02-24-2005, 11:35 AM   #10
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Re: The case for cash

At least the dollar has a chance to stabilize:

http://biz.yahoo.com/ts/050223/10210174_4.html

As an income earner/not retired home owner, I'm pretty well hedged against inflation, but I can't imagine what it's like to be ER'd and hear those CPI numbers begin to creep up....
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Re: The case for cash
Old 02-24-2005, 12:08 PM   #11
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Re: The case for cash

Quote:
As an income earner/not retired home owner, I'm pretty well hedged against inflation, but I can't imagine what it's like to be ER'd and hear those CPI numbers begin to creep up....
No problem amigo. Just remember 4% rule and recite:

Inflation doesn't scare me
I never think of it twice
With Bogle, Bernstein and Intercest
My ER will stay so nice!

Mikey
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Re: The case for cash
Old 02-24-2005, 01:01 PM   #12
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Re: The case for cash

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Hey, I like Jim Cramer,
even if he is a democrat.
Hey I like him too. I just wouldnt listen to his investment advice.

He reminds me of "larry" from the 3 stooges if larry had enjoyed very successful nutrition...
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Re: The case for cash
Old 02-24-2005, 01:07 PM   #13
 
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Re: The case for cash

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.... I can't imagine what it's like to be ER'd and hear those CPI numbers begin to creep up....
It's a relief actually to have the numbers inching toward reality... somewhat overdue IMO. And yep, these numbers are making 'the case for cash' so to speak. And no, going back to work doesn't even enter my mind.
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Re: The case for cash
Old 02-25-2005, 09:01 AM   #14
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Re: The case for cash

Cash is one way to anticipate inflationary change,but is it the right or best way?If indeed a good defense is a good offense,why not try to protect your portfolio with what Bill Gross calls "reflatables"

1.Commodities and tangible assets
2.Foreign currencies
3.Real Estate
4.TIPS
5.Global bonds and equities denominated in non -dollar currencies.

One doesnt have to go hog wild,a nibble here,a nibble there.We are a very U.S centric nation,much like the old world thinking of the earth being the center of the universe.IMO,a good part of inflation is due to falling dollar,not soley to much money chasing to few goods.Hope this helps some and causes some reflection-ak
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Re: The case for cash
Old 02-25-2005, 09:22 AM   #15
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Re: The case for cash

Quote:
"

tools of short sellers,the catch all phrase for "my stock is going down".
Where theres smoke theres fire.Did these same evil doers rig the jury that convicted the CEO of fraud etc.,
Back during the naz crumble there were a few good equity hedge funds that did very well by tearing apart balance sheets and challanging the printed cooked books and initiating there positions based on this.Short sellers dont make the stock go down,since you have to short with an uptick on the ask(supply),this obviously requires a fair amount of risk.Its the absence of buyers(demand) that makes stocks go down,as the bids get pulled.

"We still have more litigation in front of us,"
*
And it would appear on this basis of the fraudulant practices that this stock is /was overvalued

And for $2.15 million direct compensation to the CEO,one would expect a bit more wouldnt you think?

huge short interest,i suspect theres some very large positions here.But again where theres smoke theres fire.I can think of alot safer places to be,good luck.
Hope this brings some clarity to an emotional issue,which is the bane of buy-n holders.-ak
How shall I put this politely, ak? I would have no problem with TSCM casting aspersions on a company if they did actual research and considered all the relevant factors. However, in the case of PPD (which I have profitably owned for years), I have seen nothing but slanted, one-sided articles quoting "unnamed short sellers" and mythical "portfolio managers with no position in the stock."

If TSCM did a good job, I would even be willing to pay for their offerings. Grant's Accounting Observer, for example, is a very worthwhile publication that uses forensic accounting to dig up examples of questionable behavior. TSCM instead appears to a mouthpiece for large shorts. For example, Rocker Partners is known to have a substantial short position in PPD and is/was one of the largest investors in TSCM. Coincidence? I don't buy it.

As for the issues specific to PPD (if anyone still cares):

- the court case is one of many fleabag court actions filed by individuals in Mississippi and Alabama. PPD was settling these for bupkus, but decided to start fighting instead because they didn't want to encourage these suits. The case in question is ridiculous: the plaintiffs had paid a few hundred dollars for PPD products, yet were asking for punitive damages of nillions of dollars. The company lost this civil case, but will appeal. In any case, a $45k judgement is hardly a big deal to a company that will generate ~$60 million this year. FWIW, I also find it a tad suspicious that these suits popped up just after the big short positions were put on.

- Valuation looks extremely low to me. This company should post EPS of about $2.75 for 2005, depending on sales. They will also generate roughly $4 a share in operating cash flow this year. Their accounting by and large is pretty simple and transparent, although I thought that the old way of accounting for commissions (capitalize and amortize) provided more actual information about economic value the business added every quarter. It is very difficult to value the in-force block as an outsider, but my calculations with conservative assumptions and haircuts suggests something north of $50.

- This is one of the mos shareholder friendly management teams I have ever seen. They regularly return gobs of cash to their shareholders via stock buybacks and (lateky) dividends. Last year they conducted a tender offer that retired ~6.5% of outstanding shares, and they have hinted at doing another tender this year. In fact, I would not be surpised to see them issue some long term bonds and buy back a really big wad of stock.
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Re: The case for cash
Old 02-25-2005, 12:17 PM   #16
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Re: The case for cash

Quote:
Cash is one way to anticipate inflationary change,but is it the right or best way?If indeed a good defense is a good offense,why not try to protect your portfolio with what Bill Gross calls "reflatables"
3.Real Estate
But what do you do when the asset class has already inflated so much over the last 5 years, as is the case with RE? If inflation and interest rates rise, I wouldn't be surprised to see a double-whammy on RE values as mortgages become less affordable and consumers have to devote more of their income to household purchases.
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Re: The case for cash
Old 02-25-2005, 05:25 PM   #17
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Re: The case for cash

brewer,perhaps its just my style,but i prefer individual stocks with as little controversy as possible or outright indexes(yes lower returns,but far fewer blow ups).Obviously thats hard to do in this liturgeous(sp?) times.I hope it continues to do well for you,and comes thru in spades.That being said,fraud is fraud,I can think of many better places to look for an inflationary protection,but then again,thats just me.Good luck-ak
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Re: The case for cash
Old 02-25-2005, 05:55 PM   #18
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Re: The case for cash

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brewer,perhaps its just my style,but i prefer individual stocks with as little controversy as possible or outright indexes(yes lower returns,but far fewer blow ups).Obviously thats hard to do in this liturgeous(sp?) times.I hope it continues to do well for you,and comes thru in spades.That being said,fraud is fraud,I can think of many better places to look for an inflationary protection,but then again,thats just me.Good luck-ak
As you intimated, different strokes for different folks. However, I note that you rarely get a really good deal on an investment unless it has a little hair on it. The art lies in determining whether it just needs a little trim job, or really needs the machete. FWIW, my best and most successful investment have been in companies with a little sh!t on them. Sh!t usually washes off pretty easily with the application of sufficient healthy cash flow, in my experience.
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Re: The case for cash
Old 02-26-2005, 08:02 AM   #19
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Re: The case for cash

My,my, a kindred soul. This man Rodriguez is singing my song. Thanks for the link.

Donner
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Re: The case for cash
Old 02-26-2005, 09:11 AM   #20
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Re: The case for cash

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However, I note that you rarely get a really good deal on an investment unless it has a little hair on it.
Don't tell my fiance that! I'm in the process of losing my hair!
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