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2018 Ideas

Nerdyblop wrote:

best of luck. 

how much $$ did you drop on GE as stock?

how much $$ did you drop on the calls? at what expiration? planning to hold to the end like erj?

also just fyi, market cap is 120b, but enterprise value is like 180b. market cap can easily change, but the debt you have, that **** needs to be paid in full.

FYI I think I understand the company a bit better than you but thanks for the heads up on the EV.  How much debt is getting spun off on the Healthcare business Nerdy?  How much of $22B goes against the debt?  The firm still has a 9% stake in combined Wabtec and shareholders have 40%.  What value are you giving that?  Do they sell the air leasing business for $10B, they’ve had unsolicited offers.  What does normalized EBITDA look like coming out of this?  Proud of you for reading the debt number though…

Anyhow, ERJ is great, feeling pretty good about that one, still above cost basis, production ramping, Boeing partnership, a few recent analyst upgrades and Brazil shaping up nicely.  I said 5 year holding period 2 years ago, so no harm no foul on that one.

I won’t disclose stake size but it’s a nice one and the calls expire 1/20 but I’m planning to ditch them sometime around June as the market wakes up to reality.  Stick to hyping SNAP, if the debt number says zero it must be a good buy right?

#FreeCVM #FreeTurd #2007-2017

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lol no need to get butt hurt. just wanted to see if ud stick to ur convictions and how much dough you dropping. just didnt want you to play the i went in at this price, got out at this price, and got in again game that you criticized others for. on the debt side, state ev next time, stating market cap on a levered company is misleading.

snap is dead. killed by insta. if they cant figure out how to ramp up revenue and generate profit, they are fooked.

I love my cheese. I got to have my cheddar.

Nerdyblop wrote:

lol no need to get butt hurt. just wanted to see if ud stick to ur convictions and how much dough you dropping. just didnt want you to play the i went in at this price, got out at this price, and got in again game that you criticized others for. on the debt side, state ev next time, stating market cap on a levered company is misleading.

snap is dead. killed by insta. if they cant figure out how to ramp up revenue and generate profit, they are fooked.

I mean, the GE stake I’ve disclosed for awhile and I’m not playing the fake trade game if I’m telling you my cost base is above current market…

The options though were solid.

#FreeCVM #FreeTurd #2007-2017

q1 2019 gdp decline. 

q2 2019 gdp decline.

Be yourself. The world worships the original.

infinitybenzo wrote:

q1 2019 gdp decline. 

q2 2019 gdp decline.

Is this for the US and are you saying growth slowing or outright decline and is that negative YoY or negative QoQ.  Either way I’m calling bull.

#FreeCVM #FreeTurd #2007-2017

Also what’s with people floating around butt hurt down voting investment talk?

#FreeCVM #FreeTurd #2007-2017

Got to respect Black Swan for actually posting his picks, regardless of if they end up working out or not. When I switched jobs and was allowed to post stocks, I was going to start posting banks. But then everyone got happy about banks and I haven’t been motivated to find any.  Good luck on the GE stuff. I still don’t really understand what edge can exist for these huge companies 

rawraw wrote:

Got to respect Black Swan for actually posting his picks, regardless of if they end up working out or not. When I switched jobs and was allowed to post stocks, I was going to start posting banks. But then everyone got happy about banks and I haven’t been motivated to find any.  Good luck on the GE stuff. I still don’t really understand what edge can exist for these huge companies 

Keep in mind for GE you’ll be down to three core business lines comprising ~60% of pre-chaos revenues so they won’t be the behemoth they were.  Finance will be gutted to less than half its original size and shrinking or 1/5th if you go back even to early 2010’s.  All that’s left is aero engines (type of turbine), power (turbines) and wind (spinning turbine type thing, ~10% of revenue) and in power they’ll be one of two industry competitors with like 80% market share and in aero they’ll be one of three major engine suppliers (and one of two offering next generation engines).  So they’ll actually be pretty streamlined when it’s all said and done.  The only reason they’ll be a “behemoth” is because they sell big ticket items that would overwhelm a smaller company when you consider the capex and investment required to design and produce.  For instance the H-Class gas turbine which they have the largest market share in sells for as much as $500M a piece and are typically bought in at least pairs while the leap engines cost about $15M a piece and are also sold at a rate of approximately 2,000 per year.  Aircraft are certified for a single type of engine then produced en mass.  That’s a real moat.  Boeing won’t even work with anyone but the three leading engine suppliers because of the supply chain and quality risk and the airlines want strong, relationships, reliability and commonality.

#FreeCVM #FreeTurd #2007-2017

Black Swan wrote:

infinitybenzo wrote:

q1 2019 gdp decline. 

q2 2019 gdp decline.

Is this for the US and are you saying growth slowing or outright decline and is that negative YoY or negative QoQ.  Either way I’m calling bull.

all just a guess…only time will tell.

I am saying the US…two consecutive quarters of gdp decline is recession but we shall see…I recently felt bold enough to say this of course with super gray lawyer like talk in between to cover my arse on my call with an insti investor. 

You know…you gotta sound like we can see the future…and then on to say…..because of the risks…..we….the gist of it is get ready and invest more because we still (only) have a few months left. haha…you know the drill.

Be yourself. The world worships the original.

rawraw- i keep reading that banks are stull undervalued, what are you seeing these days?

"You want a quote? Haven’t I written enough already???"

RIP

igor555 wrote:

rawraw- i keep reading that banks are stull undervalued, what are you seeing these days?

You end up looking into Ivanhoe?  I think that one looks ripe for a takeover.

#FreeCVM #FreeTurd #2007-2017

erj set up is looking nice. bolsonaro greatly outperformed in the first round election and looks like the obvious winner of the second round. he is generally in favour of the ERJ-BA deal and with that likely comes close to $20 in net cash, plus 20% ownership in a well funded JV with a global leader in aerospace and whatever value is attributed to the business and military jet businesses. if ERJ and BA settle on a US facility to build the KC-390 (as has been rumoured), the value generated by a military jet JV could be significant.

igor555 wrote:

rawraw- i keep reading that banks are stull undervalued, what are you seeing these days?

Honestly I haven’t bought a data subscription to know definitively. But people keep saying this, which makes me not want to spend the money to look. I preferred it when people hated the sector. 

I’m sure there are still cheap banks out there, given all the number of companies and large impact from retail investors. But I don’t know if I could buy any high quality banks cheaply right now.  At least I think it’d be harder to find them. I’m a big fan of buying the obviously cheap ones 

Almost all my bank stocks have at least  doubled since Trump. The only one I follow closely that hasn’t done well is OZK.  This may be one I look into soon.  I’m pretty sure it is misunderstood  But I haven’t thought about how to handicap the reliance on the CEO given his age  

ozk looks good. i likey. summary on ozk?

I love my cheese. I got to have my cheddar.

Black Swan wrote:

igor555 wrote:

rawraw- i keep reading that banks are stull undervalued, what are you seeing these days?

You end up looking into Ivanhoe?  I think that one looks ripe for a takeover.

I had the message open but then got caught up in something and completely forgot about it.

I’ll take a look at it.

"You want a quote? Haven’t I written enough already???"

RIP

Nerdyblop wrote:

ozk looks good. i likey. summary on ozk?

High growth bank that has historically used M&A to support the growth. If I gave you the ten most predictive factors for a bank to fail, OZK would score highly on all those factors. This means that people perceive the bank as extremely risky, especially with the concerns in real estate.

Extremely high profitability for a bank, largely due to the RESG lending group. Investors think RESG takes a lot of risk. This is basically enormous construction loans, which often represents large concentrations on capital. OZK has never taken losses on these loans, even during the Great Recession  The head and the builder of the RESG group left a couple years ago.

With a depressed multiple, it makes it harder for them to buy banks. This means they’ll have to pay up on funding to grow, causing NIM compression http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/ozrk-ba...

lol its kind of funny. this isnt the first regional bank ic changing their name. bofi just switched to ax. and ozk was ozrk. haha. anyways i plan to drop  10k on ozk soon. can you give further details on those most predictive factors? from what i read, and what you mentioend they seem pretty good at making loans. lol i did read an article on how the other guy you mentioned left: https://www.fool.com/investing/2017/10/25/why-did-bank-of-the-ozarks-chi...

in terms of current multiples for regional banks, they can still acquire through issuance imo, i feel that all regionals are trading like **** right now as they  are poppin in my radar. ozk is trading at a slight premium compared to 4 other regionals i follow news for. but that makes sense since its pretty much 1 of the best regionals out there as it is growing faster and has done so with relatively low risk. historically for them, their multiple has fallen a lot though.

anyways i have 3 investments to choose from. ozk is 3rd place, which is cheap  and i feel grows around 10%, 36% of their real estate loans are construction and are 80% secured by other real estate. also 82% of all loan are variable rates, so rising rates are mitigated, i feel very comfortable with them, if **** hits fans they will acquire more ****. 2nd 1 is an asset management which is cheaper and is expected to grow but they are highly dependent on aum and if markets are at peak they will certainly fall, and 1st place is a this chinese internet co that trades more expensively than the other 2 but in line with SPY, but  itgrows much faster,  issue is there is a major competitor for them but i have a feeling the chinks are entrenched an this’ll  be a 10 bagger. lol lots of cos with ties to china are getting fooked due to trade war concern but imo china will get stronger no matter what.

I love my cheese. I got to have my cheddar.

Ozark does construction lending

Ozark makes extremely large (probably 99th percentile) construction loans relative to their size 

Ozark has an extremely high concentration of capital in construction loans. 

Ozark does the majority of their construction loans out of territory. 

Ozark grows much faster than GDP or the industry 

Ozark relies a lot on high priced, non core funding 

Ozark has changed their organizational structure to avoid Federal Reserve oversight. Only one of a couple such banks ever 

Ozark uses a lot of interest reserves on their construction lending. 

Ozark often operates with low liquidity given their loan portfolio and growth

I think that’s the high points 

For a guy whining about GE’s debt load the blinders here are remarkable.

#FreeCVM #FreeTurd #2007-2017

debt is a double edged sword. if you can invest in assets that produce higher income than interest rates then debt is good. if you use debt in assets with declining fundamentals then it’s terrible. ge selling their assets that suck, ozk dont sell shiet! i agree that construction is a terrible bet as it is not turnkey, but i like their lending requirements for it. they only lend $49 for every $100 spent! they’ll be fine even when there is a 40% drop. anyways here is a great article on ozk:

https://www.bloomberg.com/news/features/2018-07-10/how-a-tiny-bank-from-...

During the post-recession gentrification wave that’s seemingly blanketed U.S. cities in barre studios and artisanal toast, he’s become something else: the country’s largest construction lender. That this superlative— should go to a relatively small Arkansas bank and not, say, Wells Fargo & Co., with 87 times the assets, is a measure of the skittishness many lenders still feel when it comes to real estate. Memories of empty Miami condo towers, vacant Silicon Valley office parks, and half-finished Las Vegas casinos don’t easily fade.

Where others have stayed away or placed forbidding restrictions on deals, Bank of the Ozarks has jumped in—making Gleason look, depending on whom you believe, like a contrarian genius or the driver of a turnip truck that’s about to careen off the road. At a conference convened in New York City last year by Commercial Observer, the industry publication Jared Kushner’s family owns, property finance specialist Simon Ziff, who’s firmly in the genius camp, opened one panel by asking how many times Gleason and his bank would be mentioned. “He’s one of the most important real estate bankers in America today,” Ziff says. “They go into a town where this construction stuff is going on, they’ll take the business.”

Reaching the big leagues has required an unusually concentrated bet: Eighty percent of Ozarks’ portfolio is in real estate, and half of that is in construction and land development, which is historically the riskiest sector and has led to a disproportionate share of bank failures. The share of these loans at a typical midsize bank such as Ozarks is eight times smaller, on average. Also, unlike many of his rivals, Gleason doesn’t work with other banks to spread risk or sell off loans as securities; he’s so confident of his judgments that he loads them onto Ozarks’ own balance sheet. Since 2014 profit has jumped almost fourfold, and the return on assets is double the industry average

But an old banking adage holds that the lender who grows fastest is the lender who someday loses most, and Gleason’s rise has brought plenty of skeptics. In a 2016 presentation in New York, Carson Block—the founder of investment adviser Muddy Waters Capital LLC and a short seller then anticipating the bank’s shares would fall—argued that Ozarks’ growth would flag as the hottest property markets cooled. Goldman Sachs Group Inc. economist Spencer Hill said this spring that commercial real estate is overvalued by as much as 16 percent and that next year it could approach the “bubble-period peaks” of a decade ago.

The expansion since the recession ended has been so long and seemingly unstoppable that Congress, without much controversy, passed a law in May easing oversight of smaller banks—just the thing to allow Ozarks to accelerate even more. Of course, if Gleason is already going too fast, as the skeptics maintain, the last thing he needs is more gas.

Gleason took Ozarks public in 1997, and its share price has climbed an average of 21 percent annually, three times the rate of the S&P 500 index. A big reason has been the Real Estate Specialties Group, a unit Gleason started in Dallas in 2003 with the help of Dan Thomas, an attorney and accountant there. RESG initially concentrated most of its lending in Texas and the Southeast, avoiding the ravages of the financial crisis in part by requiring developers to invest big sums of capital upfront. “A lot of deals weren’t killing it, but they were still performing,” says Wes Hardin, a former manager at the unit. Some borrowers simply took more time to pay back their loans.

After escaping the morass that engulfed some of the country’s most storied institutions, Ozarks became a buyer, purchasing seven failed banks that the Federal Deposit Insurance Corp. had shuttered. Profit almost tripled from 2009 to 2011. Gleason’s bank by then had $3.8 billion in assets, and Arkansas Business dubbed him the Wizard of Ozark. With other lenders sidelined, he expanded the construction unit in Dallas. “When all your competitors jump in the bunker and close the door, you build a lot of customer relationships,” says Brannon Hamblen, RESG’s chief operating officer.

He holds to the belief that, if you lend to the right projects, there is no boom-and-bust cycle. Ozarks doesn’t change its underwriting standards in good times or bad, Gleason says. And it doesn’t base decisions on headlines. It examines population growth, household formation, and job creation around proposed projects, virtually down to the street. “If you do the work, you can predict those items with some degree of precision,” he maintains.

The managers handle 16 loans each on average; at other banks, it might be more than 100. That’s one reason, Gleason says, that Ozarks has recorded only $11 million in losses on its billions in construction loans and that its net charge-off ratio (the proportion of loans it can’t collect) is one-third that of its competitors. Other banks “put things in buckets,” says Cliffton Hill, a managing director at the unit. “They diversify for the sake of diversification. Sometimes diversification compels you to do more risky loans to fill your bucket. We don’t have George making blanket statements of ‘You can lend this much, and that’s it.’ ”

But Ozarks has made its biggest bet in the country’s priciest real estate market, New York, which accounts for a third of the construction unit’s portfolio.

The CEO should have been enjoying the satisfying third act of his remarkable 39-year rise. But the concern raised by Muddy Waters’ Block in May 2016, that Ozarks’ growth will prove unsustainable, hadn’t gone away. “You have people in the media who don’t understand our business,” Gleason lamented. “You end up with some ridiculous headlines and stories.”

Among other things, he’d been having to explain, or at least downplay, Thomas’s July 2017 departure from RESG. Thomas by then was the bank’s chief lending officer, and he’d complained about the regulatory burdens Ozarks faced as it grew past the $10 billion asset threshold, according to Bill Koefoed, a bank board member. “In my conversations with him, he felt like he was under a lot of scrutiny just because of how fast he’d grown,” Koefoed says. Thomas moved on to advising a competitor, Otera Capital. (Gleason said only “we wish him well” and “our unit has not missed a beat.” Thomas said his departure “was not due to the additional audits or regulatory stress tests, which were required due to the growth of the bank.”)

It wasn’t just the media getting under Gleason’s skin. In March, UBS Group AG analyst Brock Vandervliet had become one of the few to put a sell rating on Ozarks’ stock, saying the bank was likely to fall victim to the end of cheap money. The Federal Reserve has boosted interest rates twice this year and has signaled that two more hikes are coming. As rates rise, Vandervliet predicted, the spread between what Ozarks pays out to depositors and collects in interest will shrink. And as projects become more expensive, it will be harder for the bank to maintain its remarkable loan growth. “Now the machine is running in reverse,” he said.

 In Miami, according to consultant Jack McCabe, some developers are offering broker commissions as much as four times the usual 3 percent to bring in buyers. “We’re getting back to what we saw 12 years ago,” says McCabe, who warned of a bubble forming in Florida in 2006. “Any lender making condominium loans for near-future construction is in a world of trouble.” In Sunny Isles Beach, where the Turnberry Ocean Club is going up, at the end of March you could find 30 months’ worth of inventory available, compared with the normal six, according to Condo Vultures LLC. (Gleason says that 9 of Ozarks’ 11 Florida condo loans have already closed enough sales for the bank to be paid back and that the buyers laid down substantial deposits.)

The unstoppable engine of New York is also showing signs of malfunction. After a big run that pushed average Manhattan condominium and co-op prices above $2 million, they dropped more than 8 percent in one year, starting in April 2017. By CityRealty’s count of new developments, the number of unsold condominiums costing $2,000 a square foot or higher more than quintupled between 2015 and 2017, to 4,362. Fitch Ratings Inc. warned in January of an increase in problem hotel loans and said that an oversupply of rooms may depress rates in seven U.S. cities, including New York. “I do think you’re going to see some problems,” says Barry Sternlicht, who founded the Starwood hotel chain and now runs the real estate investment company Starwood Property Trust Inc. “And the first ones will probably show up in New York City.” These problems won’t, he makes clear, necessarily involve Ozarks, which he’s worked with on some deals and calls “a very good lender.”

At dinner, Gleason ripped out a piece of notebook paper and drew a diagram with boxes and arrows showing how money flows from Ozarks, and how it’s taken multiple steps to minimize risk. Banks consider construction loans among the chanciest on their balance sheets because they don’t generate income at first and there’s always the worry projects will go over budget or simply fail to sell.

Such ventures are typically funded with cascading layers of debt. Ozarks goes for the first, least risky, part: a loan that’s secured by a lien on the property. It also protects itself by requiring developers to put their own capital into the deal first. At the end of 2017, regulatory filings show, the typical Ozarks loan covered only $49 of every $100 spent; the developer had to come up with the other $51. This is sufficient cushion, Gleason said, for his bank to withstand a drop in property values greater than the dips of the Great Recession: “It’s almost impossible for it to end badly.”

The diagram looked reassuring. But above the bank was another box, for the so-called mezzanine lender. In some cases this lender, often a fund such as Sternlicht’s, accounts for perhaps $25 of the developer’s $51 in equity. It’s something like a homebuyer getting a chunk of the down payment from a grandparent. The money goes into the project as equity, but the developer is also on the hook for the additional loan (generally around 12 percent, vs. 6 percent or so for Ozarks). The bank uses this structure on a third of its construction lending. Gleason told me not to worry about this, because the other lender doesn’t have a lien on the property and is required to put all of its money in before Ozarks. Multiple legal guarantees protect the bank, though some such assurances can be “tissue-paper thin,” he acknowledged. But, he added, “We use the industrial-strength material.”

Mark Elletson, managing principal of Maidstone Advisors LLC, which counsels parties with troubled properties, says such assurances have humbled lenders in the past. When projects fail, they tend to fail hard. If developers don’t have enough skin in the game, they cut their losses and move on. The bank holding the lien can foreclose, but then it’s holding a half-finished building. On paper the building might be worth more than the loan; in practice, selling it could require a fire sale. “Things go wrong, and mistakes get made, and lenders don’t get out whole,” he says.

Regulators will have less authority to put the brakes on that pattern after Trump signed the law easing some of the oversight measures enacted in the wake of the financial crisis—“the crippling Dodd-Frank regulations that are crushing small banks,” as he put it. Congress did away with mandatory stress-testing that forced banks with $10 billion to $100 billion in assets to evaluate how, for instance, a 40 percent drop in commercial real estate prices might affect their balance sheets. (Gleason says the bank will do its own tests that are even more specific than the government’s generic ones.) The law also changed the definition of “high-volatility” commercial real estate loans, potentially encouraging more banks to make them.

I love my cheese. I got to have my cheddar.

Nerdyblop wrote:

debt is a double edged sword. if you can invest in assets that produce higher income than interest rates then debt is good. if you use debt in assets with declining fundamentals then it’s terrible. ge selling their assets that suck, ozk dont sell shiet!

Makes sense, this is why there’s never been a major bank crisis / failure.

#FreeCVM #FreeTurd #2007-2017

That write up is actually a good summary of RESG. Normally journalists don’t get banks,so that is a good find.  I figured out the mezzanine lender part before the broader market a few years ago due to digging through some tax credit filings in Tennessee.  When we spoke to management about it, they didn’t want us to publish anything on it and to keepit secret lol. They’ve only started to really detail how those loans are structured lately (past couple of years) after investors have hammered them over it.  The former RESG guy was very impressive in person - he knew his stuff

Lol yea the article sounded like a response article by the ceo. 

I love my cheese. I got to have my cheddar.

I love my cheese. I got to have my cheddar.

I was going to post the same thing, but couldn’t remember where the GE discussion happened

Nerdyblop wrote:

aswath damodaran on ge:

https://www.youtube.com/watch?v=_p1mxkW1Fls

Good analysis…. it’s getting somewhat close to my number

We’re gonna win so much, you may even get tired of winning. And you’ll say, 'Please, please. It’s too much winning. We can’t take it anymore. Mr. President, it’s too much.' And I’ll say, 'No, it isn’t!' We have to keep winning!

you should see his other stuff. he posts regularly on many things that are current. bitcoin, amzn, nflx, tsla. he gives analysis on what’s cardi poppin. you may not agree with everything, but you’ll like his reasoning!

I love my cheese. I got to have my cheddar.

I used to watch his stuff allll the time. I’ve watched his entire lecture semester on valuation and on corp finance and also made some money on his analysis of VALE a while back. Wish I had seen the video he recently did on Apple, would have saved a lot of pain :(

We’re gonna win so much, you may even get tired of winning. And you’ll say, 'Please, please. It’s too much winning. We can’t take it anymore. Mr. President, it’s too much.' And I’ll say, 'No, it isn’t!' We have to keep winning!