Tepper also went on to say that if we had a 15-20% correction, "I would buy."
That happens to be my entry point too. I’m holding AAPL, and want some XOM at the bottom, but the rest seems too expensive.
yea i saw those cnbc interview. from an ev/ebitda perspective it makes sense. ev/ebitda is like 15x btw. average is like 12x. 20% decline would put us at the average. haha. so interesting that hed say that.
David Tepper flips flops, i remember a few weeks ago he was saying the market is not expensive on bloomberg. Wouldn’t be surprised if he just went on CNBC so muppets would sell then he could load up after a small correction. He did mention he’s not running a huge equity book now.
One thing to consider, and I’ll just throw it out there for all the smart equity boys to think about… When the Fed moves, the short-term debt costs I manage will double. The consequences for my firm will be negligible, but I’m not sure that’s the case for everyone. There may be a psychological shift in management of many companies as all of a sudden debt cost begins to matter and money is no longer free to throw around. We are already starting to see this priced into the money markets and I’m getting questions from the biz decision makers like “yo Geo, why are my st debt costs doubled this quarter? Do I need to adjust my plan?” Answer is yes. It’s a small move in the big scheme but its a huge move in relative terms to where we are. What I’m trying to say is I expect the first move to be much more significant than a typical 25bps hike. There is a psychological factor at play. And its a significant one.
isn’t most of this already priced in. not much debt is priced off the key interest rate. most is priced off of 3-10 year debt. U.S. key interest rate is 0% and the 5 year is at 1.5% meanwhile Canadian key interest rate is at 0.5% and the 5 year is at 0.75%. the actual hike may have a slight shift in expectations (e.g. force those who still have the position of “no hike ever” to change their tune a bit) but clearly the consensus is for some serious rate hikes in the coming 5 years.
I’m sitting on over a billion in debt <2 months to maturity, I can tell you the key rate matters a ton to me this week! I need to finance an additional couple hundred mil this week alone Lots of big firms are in that boat. They’re addicted to st-debt because its cheap. Or was. It’s about to cost 2x as much when Yellen pushes the button. Where it matters is when a company decides to pursue a short term project, some kind of deal or contract terms. Right now, financing cost is assumed to be zero or near zero. Add in a cost, and things all of a sudden need to be prioritized. Moving from zero matters.
i think your situation is a little unique. the bulk of companies in the energy sector, and companies that service the energy sector, typically work on 3-24 month contracts. with horizontal wells, ~90% of your revenues come from your first two years so of course financing is short-term in that industry, and industries who service that industry.
large energy players with long-term contracts or long-term projects (e.g. oil sands) issue long-term debt to match project profiles. non-energy companies do the same. technically, over the past coule of years long-term debt was cheaper than short-term debt based on historical spreads, especially throughout the 2012-2014 period. there is a reason why Apple has issued 10 year debt despite not really needing it when 30 day rates are effectively zero. after-tax, 2.4% is basically nothing anyway. why not lock in an after-tax cost of long-term debt of 1.5%?
so to sum, interest rate hikes will have little impact on anyone. for sectors, like energy, that have lots of ST debt, credit risk reigns, especially now, so a hike in interest rates will have a minimal impact on the cost of capital for those companies. will a rate hike cause credit market investor panic and cause credit spreads to worsen? maybe. but the actual effect of the rising interest rate on the cost of capital is negligible for the vast majority of corporations, both energy sector types and non-energy sector types, for different reasons.
Sniffing around the planet for any buys. Any thoughts on Singapore?
DBS is their largest bank, 4-yr chart is nothing but up, then smacked down 20% in this crash, hasn’t caught a bounce at all, P/E 10X trailing, 3.4% yield, currency has lost 5% YTD vs USD.
Fantastic posts Geo! Exactly, these 25 bps will be the biggest ever! If the Fed raises rates, we’ll quickly be in a recession. A majority of corporate profitability growth since 2009 has been fueld by cheap debt. When that goes away, so does corporate profitability.
When you say profitability, do you mean EPS growth or margin accretion?
I guess I mean both… all-in margins will decrease with higher debt costs, thus lowering EPS… no?
And the Fed chickened out. What a surprise. Who would have thunk.
Well, what’s new with the Shanghai crash? Not much, it has been holding steady for a month now…
HSBC calling the bottom in A-shares. Nomura says poised for rally. Leverage is down, and the illegal/questionable margin has been cleared out, everyone who wanted to sell would have sold to the government-directed funds by now (I would think?). Seems likely we sit around these levels for awhile. Overall sentiment feels good, people are cautious, yet at the same time looking for a reason to slam their fist down on the buy button. Going to wait it out and collect the yield in the meantime. Doing a partial hedge on the RMB with some futures even though I don’t expect it to move much, since my position is like totally balls-deep massive. http://www.bloomberg.com/news/articles/2015-09-24/china-s-218-billion-of-vanishing-debt-shows-rout-ending-to-hsbc
Picked up Citic Securities during the scandal, these guys are going to be huuuge. Chinese are the world’s biggest savers, incomes rising fast, and they haven’t even begun to get into stocks yet. IPOs are going to be crazy in the coming years (they were big this year prior to the crash), SOEs will go public. I’m with Goldman on their forecast – China’s percentage of global market cap passes that of all North America, in the next 15 years. http://www.bloomberg.com/news/articles/2015-09-15/citic-securities-chief-probed-for-insider-trading-xinhua-says
In other service sector awesomeness, China Unicon is priced right, and would be the beneficiary of any SOE reform.
Not really a fan of H-shares but they are cheap. Over the last 5-years the index has come down near this 9000 level a number of times, then bounced. Thinking of getting a little if I can get it just a wee cheaper, just need some more crappy economic data to creep the Hong Kongers out. http://www.bloomberg.com/quote/HSCEI:IND
I mean it doesn’t really matter, lot of highly leveraged companies have analyst who analyze EBITDA to gauge operational metrics. Would have to also assume these companies loading up on debt plan to roll and keep their capital structure the same. I’d assume some roll and some don’t, with some of the rollers going under in the longer term.
Not sure it’s as simple as saying aggregate corproate profitability will suffer from 25bp move.
^ Oh S&P is going to bite the dust hard. Nikkei225 also, which ate serious dirt today.
I’m on fire…
Citic limit up two days in a row, up 33% since I got it.
China Unicon up on tower spinoff deal, went as high as 12%, but now back down at 3.5%. Deal will filter into income in future quarters (this quarter earnings sucked).
Update: my largest position Saic Motors just opened limit up +10% (was halted for weeks on private placement deal). Can we see a second limit up tomorrow please? PA is destroying S&P500 YTD…
…Shanghai has gone full bull again. Look out! 