With the tax bill passing the House, here is the take of bloomberg News, supposedly a business oriented news service: "The bill marked the second time in nearly two years that Congress rammed through a massive economic stimulus. The first one, Obama's $814 billion spending bill, was opposed by Republicans who complained about its impact on annual deficits, now hovering at about $1.3 trillion annually." You have to wonder what planet the reporter comes from. The bulk of the so-called stimulus comes from keeping middle class tax rates unchanged, something that everyone has agreed should happen since the 2008 presidential campaign. Then there is the so-called stimulus of not raising taxes on the wealthy, a much smaller amount. Again, keeping taxes the same as this year is hardly a stimulus. Oh, then we have setting the estate tax at 35%; this is up from 0% during 2010. Here raising taxes is called a stimulus; even for Bloomberg this is idiotic. Then there is the extension of unemployment benefits. While this is stimulative it was hardly passed for that reason. that would be like calling a cost of living increase in Social Security a stimulus package. Next we have the continuation of a few of the current tax breaks that were set to expire. More of keeping taxes where they are as stimulus. Finally, we have the temporary payroll tax reduction. This will cost about 100 billion dollars and will indeed be a stimulus. In other words, only about 15% of the total bill is properly called a stimulus. Everything else is either keeping taxes as they are now or raising them by less than was expected.
I have to assume that the reporter and the editor of this piece are either to uneducated to understand that the talking point of the Democrats who want to tar the GOP as having promoted a "stimulus" like they did are false, or they are part of the group that is pushing those phony talking points.
The nice thing is that the bill has now passed. This is not going to make the economy much better; it will, however, prevent the policy pushed by the Democrats which would have made the economy much worse. it is sort of like the Hippocratic Oath for politicians -- First, do no harm!
Friday, December 17, 2010
Thursday, December 16, 2010
the Omnibus Crashes
According to the latest news, the Democrats in the Senate have abandoned their attempt to pass a 1.3 trillion dollar omnibus spending bill. Let's hope that the story is true and the decision is final. The attempt by Reid and his Obamacrats was both arrogant and tone deaf. Imagine, after the election results we just saw a few weeks ago, the Obamacrats want to fund all of their pet projects in order to thwart the will of the people. the people say that government spending is out of control and the Obamacrats proposed answer is to spend still more.
Hopefully, a continuing resolution will be passed to fund the government for two or three months, and the new Congress can pass individual spending bills that cut out the fat and waste in the budget.
Hopefully, a continuing resolution will be passed to fund the government for two or three months, and the new Congress can pass individual spending bills that cut out the fat and waste in the budget.
How low can Congress go?
Today's latest developments in lame duck drama include 1)attempts in the Democrat controlled Senate to pass one bill covering all spending for the entire government for the year in a bill that no one has yet read; 2)attempts in the Democrat controlled House to stop the tax compromise from passing which will mean higher taxes for all Americans come the first of the year and higher taxes for millions in the current year due to the AMT; 3) attempts by the Democrats in the Senate to approve the START treaty, a move unparalleled in modern times (no treaty has been approved during a lame duck session in over a hundred years); attempts by the Democrats to move forward with the Dream Act that gives amnesty to certain illegal aliens; 4)Attempts by the Democrats in the Senate to pass repeal of Don't Ask Don't Tell; and much more.
I have to ask: Where have the Democrats been for the last two years? None of these items are new. None of these items are things that could not have been voted on six months ago. In short, all of these things are parts of the Democrats agenda that they ducked before the elections in order to avoid having to defend their actions on these votes. Now, after the Democrats have already lost and are about to depart, they want to pass things that they chose previously not to do.
The truth is that the Democrats should be ashamed. Unfortunately, these folks do not know the meaning of the word "shame". I just hope more of them are gone after 2012.
I have to ask: Where have the Democrats been for the last two years? None of these items are new. None of these items are things that could not have been voted on six months ago. In short, all of these things are parts of the Democrats agenda that they ducked before the elections in order to avoid having to defend their actions on these votes. Now, after the Democrats have already lost and are about to depart, they want to pass things that they chose previously not to do.
The truth is that the Democrats should be ashamed. Unfortunately, these folks do not know the meaning of the word "shame". I just hope more of them are gone after 2012.
Pier 1 -- Let's clear up the misunderstanding
I got a question after my post this morning about the great earnings from Pier 1 Imports. Specifically, I was asked how I can like the company when the estimates for earnings for next year are one cent less than those estimated for the current year. This question illustrates a major misunderstanding about the stock that needs to be clarified.
The answer to this question is all about taxes. In the current year, Pier 1 is not booking any taxes as expenses other than various state corporate taxes. Because of the losses incurred during the recession, Pier 1 has a tax loss carry forward that it is using to offset any federal income taxes that would otherwise be due on its profits. The company has made clear that it has sufficient losses remaining so that it is unlikely to incur any tax expense for the quarter now underway as well. Starting with the new fiscal year on March 1, 2011, however, the company will have to begin to expense taxes since the loss carryforwards will be used up. The company says that it will be carrying taxes at 35% commencing at that time.
If one does the math, the current estimate of 70 cents per share for next fiscal year translate into earnings of $1.08 before the tax expense. using the proper pre-tax comparison, then the estimate for 2010 is 71 cents per share and the estimate for next year is $1.08 per share, an increase in earnings of over 50%. In short, the increase in earnings for PIR is great, but, after the tax adjustments, it looks like much less.
In many ways, these figures are much like the headlines about the earnings this morning. News organizations seemed almost uniformly to report that earnings had declined by a large percentage from last year for the quarter. Only a few of them, however, also reported that last year the earnings were entirely created by a one time tax benefit that the company got when it carried its losses back so as to earn a refund from the government. Again, this quarter was much better than last year, and the estimates for next year are much better than this year.
One last note: Since the earning for the quarter were substantially better than the Wall Street consensus, there will likely be increases to the estimates for future periods. I expect that the estimate for next year will climb by 10-15% over the next three weeks. As all of this information permeates the consciousness of investors, Pier 1 stock should rise nicely.
The answer to this question is all about taxes. In the current year, Pier 1 is not booking any taxes as expenses other than various state corporate taxes. Because of the losses incurred during the recession, Pier 1 has a tax loss carry forward that it is using to offset any federal income taxes that would otherwise be due on its profits. The company has made clear that it has sufficient losses remaining so that it is unlikely to incur any tax expense for the quarter now underway as well. Starting with the new fiscal year on March 1, 2011, however, the company will have to begin to expense taxes since the loss carryforwards will be used up. The company says that it will be carrying taxes at 35% commencing at that time.
If one does the math, the current estimate of 70 cents per share for next fiscal year translate into earnings of $1.08 before the tax expense. using the proper pre-tax comparison, then the estimate for 2010 is 71 cents per share and the estimate for next year is $1.08 per share, an increase in earnings of over 50%. In short, the increase in earnings for PIR is great, but, after the tax adjustments, it looks like much less.
In many ways, these figures are much like the headlines about the earnings this morning. News organizations seemed almost uniformly to report that earnings had declined by a large percentage from last year for the quarter. Only a few of them, however, also reported that last year the earnings were entirely created by a one time tax benefit that the company got when it carried its losses back so as to earn a refund from the government. Again, this quarter was much better than last year, and the estimates for next year are much better than this year.
One last note: Since the earning for the quarter were substantially better than the Wall Street consensus, there will likely be increases to the estimates for future periods. I expect that the estimate for next year will climb by 10-15% over the next three weeks. As all of this information permeates the consciousness of investors, Pier 1 stock should rise nicely.
Pier 1 -- Great Earnings
My stock of the month for December, Pier 1 Imports (PIR), reported stellar quarterly earnings this morning. EPS came in at 18 cents (as against the consensus of 14 cents) and revenues were $353.8 million just above the consensus. An outperformance of four cents over the analysts views means more than one might think. Pier 1 reported its comps for the quarter over a week ago, so the Wall Street crowd had time to adjust their earnings expectations before today's reports. these numbers mean that not only were sales up (comps were up over 10%), but also the management has achieved this while getting higher margins with lower costs than expected. Given today's bad climate for business tied to home furnishings, this is no mean feat. Also on the good news front, the company said that sales momentum continued into the all important Christmas season.
The next big impetus for the stock after today's reports will likely be the upgrades from Wall Street or the increases in earnings estimates from the same crowd. PIR closed yesterday at $10.38, and it has been higher in the last week. After things settle down following today's numbers, there remains, in my view, still another potential 50% rise from where we are now. My one year target for the stock remains $15.00.
For those interested in reading my original and more complete discussion of PIR, it can be reached by clicking on the title to this post.
UPDATE: In the conference call this morning, management said that sales for December are going very well and further disclosed that the switch to a spring merchandise line will take place on January 5th. this early change over means that there is less holdiay merchandise being sold on clearance at low margins and a longer duration for non-discounted merchandise to be on the floor. This means higher margins than last year and is another good sign of things to come.
Disclosure: I remain long PIR and have about two thirds of these holdings hedged with covered calls.
The next big impetus for the stock after today's reports will likely be the upgrades from Wall Street or the increases in earnings estimates from the same crowd. PIR closed yesterday at $10.38, and it has been higher in the last week. After things settle down following today's numbers, there remains, in my view, still another potential 50% rise from where we are now. My one year target for the stock remains $15.00.
For those interested in reading my original and more complete discussion of PIR, it can be reached by clicking on the title to this post.
UPDATE: In the conference call this morning, management said that sales for December are going very well and further disclosed that the switch to a spring merchandise line will take place on January 5th. this early change over means that there is less holdiay merchandise being sold on clearance at low margins and a longer duration for non-discounted merchandise to be on the floor. This means higher margins than last year and is another good sign of things to come.
Disclosure: I remain long PIR and have about two thirds of these holdings hedged with covered calls.
Casino Stocks -- pick MGM
With the opening this week of the Cosmopolitan Resort in Las Vegas, the gaming industry is front and center in the news. The last few years have not been a good time for the industry. The Nevada results have been stagnant after some severe declines. The Atlantic City market continues to decline in the face of hard times and hard competition from the new casinos in Pennsylvania and New York. The Indian casinos in Connecticut have declined as well. Indeed, all around the US, the casino industry has fallen on hard times. Even in the international markets like Macau there has not been much success for an industry that used to count on double digit annual growth. So the question remains: is there a good investment to be made in the gaming industry?
My answer is that there are good places to put your money in gaming, but the nature of these investments has changed from a few years ago. Casino stocks used to be held for maximum growth as one or another mega resort opened to enormous crowds that threw money at the tables almost as fast as they could. Now, I view casinos as a place to take advantage of high returns when the purchases are coupled with options. In this regard, my favorite casino stock is MGM Resorts. MGM owns some of the biggest name casinos in Vegas like the Bellagio, Mirage, Luxor, Aria, Excalibur among others. It also owns the City Center in Vegas. Its properties bracket the new Cosmopolitan, so it may even gain from the buzz surrounding this new destination. MGM also has a mega casino in Macau, the eponymous MGM Macau. As a result, it is centered in the two major markets where casinos are doing the best at the moment.
Because of the volatile history of the casino industry, the options for these stocks carry higher time values than for many other industries. For example, As of the close on Wednesday, MGM stock was selling at $12.72, and the March 13 calls were fetching $1.40. Thus, buying the stock and writing the option cost a total of $11.32, and the potential return if the stock closes above $13 on the March expiration date is around 58% on an annualized basis. In other words, because of the high time value, if the stock rises just 28 cents or a little over 2% over the next three months, this investment translates that into a 58% annualized return. further, the investment remains profitable unless the stock goes below 11.32 at March expiration. That would be a decline of over 11% in three months. For me, this risk/reward ratio is quite inviting.
there are obvious risks associated with MGM. The future of gaming in Vegas is not yet clear. MGM is likely to be one of the survivors, but with the economy in its current shaky condition, nothing is guaranteed. Nevertheless, with returns like the ones outlined above, I think that a small investment in MGM could pay big dividends.
Disclosure: I have been in and out of MGM many times in the last year. Each time, the ownership was coupled with a covered call. At the moment, I have no position in the company, but that may change shortly.
UPDATE: After the open this morning, I purchased MGM at 12.86 and wrote the March 13 calls for $1.46.
My answer is that there are good places to put your money in gaming, but the nature of these investments has changed from a few years ago. Casino stocks used to be held for maximum growth as one or another mega resort opened to enormous crowds that threw money at the tables almost as fast as they could. Now, I view casinos as a place to take advantage of high returns when the purchases are coupled with options. In this regard, my favorite casino stock is MGM Resorts. MGM owns some of the biggest name casinos in Vegas like the Bellagio, Mirage, Luxor, Aria, Excalibur among others. It also owns the City Center in Vegas. Its properties bracket the new Cosmopolitan, so it may even gain from the buzz surrounding this new destination. MGM also has a mega casino in Macau, the eponymous MGM Macau. As a result, it is centered in the two major markets where casinos are doing the best at the moment.
Because of the volatile history of the casino industry, the options for these stocks carry higher time values than for many other industries. For example, As of the close on Wednesday, MGM stock was selling at $12.72, and the March 13 calls were fetching $1.40. Thus, buying the stock and writing the option cost a total of $11.32, and the potential return if the stock closes above $13 on the March expiration date is around 58% on an annualized basis. In other words, because of the high time value, if the stock rises just 28 cents or a little over 2% over the next three months, this investment translates that into a 58% annualized return. further, the investment remains profitable unless the stock goes below 11.32 at March expiration. That would be a decline of over 11% in three months. For me, this risk/reward ratio is quite inviting.
there are obvious risks associated with MGM. The future of gaming in Vegas is not yet clear. MGM is likely to be one of the survivors, but with the economy in its current shaky condition, nothing is guaranteed. Nevertheless, with returns like the ones outlined above, I think that a small investment in MGM could pay big dividends.
Disclosure: I have been in and out of MGM many times in the last year. Each time, the ownership was coupled with a covered call. At the moment, I have no position in the company, but that may change shortly.
UPDATE: After the open this morning, I purchased MGM at 12.86 and wrote the March 13 calls for $1.46.
Wednesday, December 15, 2010
Guest Post -- How urgent is it for Israel to militarily destroy Iran’s nuclear program?
From time to time, I am going to have posts from others than myself. Here is the first one, from Steve Brill.
A year ago it seemed that one way or another Iran’s nuclear program would be dealt with in 2010. While Israel seemed to be willing to give the U.S.
some time to engage in almost certain to fail diplomatic efforts, it repeated a number of times that there was a limited window and that Israel would have to act by the end of 2010 if nothing were accomplished diplomatically by the United States. The details of what Israel would do – undoubtedly through some kind of military action -- were obviously never disclosed and different sources stated the urgency somewhat differently. But the upshot was that 2010 could not end with Iran’s nuclear program proceeding apace.
In recent weeks, despite the end of the year approaching, discussion of the Iranian issue seemed to have waned. I thought that maybe Israel had been bluffing and knew all along that military action was not feasible, and that explained the silence. However, recent revelations of a worm that, according to the Jerusalem Post, damaged the Iranian computers and effectively set back Iran’s nuclear program by 2 years, suggests possibly a much happier explanation. There have been many references to a worm elsewhere, but the information here is quite specific. Hopefully it is also true. Whether Israel alone, Israel and the U.S. together or some other combination did this deed is less important that that it seems likely to have been successfully accomplished.
While this is not the kind of subject as to which we can expect to get the full story, the information in this article and elsewhere nevertheless gives hope that there is a possible way to effectively thwart Iran without a risky and potentially very dangerous military action, which may or may not be feasible even on a best case basis and could have catastrophic consequences. Let’s hope that 2011 brings more computer worms which eliminates the need for military action for even longer periods of time, and hopefully permanently. The consequences to Israel, the U.S. and the entire world would be hugely positive compared to the unhappy alternatives.
A year ago it seemed that one way or another Iran’s nuclear program would be dealt with in 2010. While Israel seemed to be willing to give the U.S.
some time to engage in almost certain to fail diplomatic efforts, it repeated a number of times that there was a limited window and that Israel would have to act by the end of 2010 if nothing were accomplished diplomatically by the United States. The details of what Israel would do – undoubtedly through some kind of military action -- were obviously never disclosed and different sources stated the urgency somewhat differently. But the upshot was that 2010 could not end with Iran’s nuclear program proceeding apace.
In recent weeks, despite the end of the year approaching, discussion of the Iranian issue seemed to have waned. I thought that maybe Israel had been bluffing and knew all along that military action was not feasible, and that explained the silence. However, recent revelations of a worm that, according to the Jerusalem Post, damaged the Iranian computers and effectively set back Iran’s nuclear program by 2 years, suggests possibly a much happier explanation. There have been many references to a worm elsewhere, but the information here is quite specific. Hopefully it is also true. Whether Israel alone, Israel and the U.S. together or some other combination did this deed is less important that that it seems likely to have been successfully accomplished.
While this is not the kind of subject as to which we can expect to get the full story, the information in this article and elsewhere nevertheless gives hope that there is a possible way to effectively thwart Iran without a risky and potentially very dangerous military action, which may or may not be feasible even on a best case basis and could have catastrophic consequences. Let’s hope that 2011 brings more computer worms which eliminates the need for military action for even longer periods of time, and hopefully permanently. The consequences to Israel, the U.S. and the entire world would be hugely positive compared to the unhappy alternatives.
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