Microfinance IPO - Blended value = no value?

Recently stunned by $300+M IPO of a microfinance institution in India.

Mo Yunus says of the recent exits of MFI institutions (which has been happening in India and Mexico): "It’s not mission drift. It’s endangering the whole mission."

I too am wary of a confused organization that is trying to have a "double bottom line" impact but only pays employees and investors with one of those bottom lines. What if you got a promotion and you were rewarded in "more goodwill" with no pay raise? I think it would be weird.

It reminds me of communist slogans about equality when all the bureaucrats really meant was "equality of no opportunity for you, but lots of money for me". I am highly skeptical of "idealistic" companies.

The biggest risk here is taking public money to invest, with quite possibly lax financial controls (at least relative to pure banking institutions), moreover having these for-profit institutions push loans on poor people quite like what happened with subprime lending in the US.

This RPCV is not a buyer.

This week in Disney

Disney buys Playdom for $763M.

Disney sells Miramax for $660M.

So Playdom is worth more than Miramax (makers of Shakespeare in Love, Pulp Fiction, etc)?

Maybe its the old foggey in me but is the possible virtual goods are worth more than good movies? Sigh. Am I not acknowledging today's entertainment reality, or does this smell like kneejerk acquisition/overvaluation of new media?

Microsoft Looking Cheap

Yahoo Finance tells me MSFT is trading at a Forward PE of 11. To put this into context, consumer goods companies sell at multiples of 11-15, and they have operating margins in the 18ish range, if they're really, really good.

Many of my loyal readers will know that I am a big Apple fan and I remain an Apple fan despite the Antenna issue - only Apple could make a technical malfunction seem so endearing. But Microsoft is looking cheap, like a value stock that generates lots of cash. Did Apple earnings surprise this week? No, because as we had noted before, prior quarter earnings did not reflect the sale of a single iPad.

I'm surprised MSFT gets such a beat down given how generous the valuations are for Food Companies. Anyways, with their dividend yield at 2.1%, probably better to put $$ in MSFT than a savings account. As much as we dislike Windows, its not going away any time soon.

Hugs from Mo' Money.

China - New Lender of Last Resort?

The US is living on borrowed money (yes, thats the money we used to bail out the real estate deadbeats, finance easy money for new homeowners, car companies). Europe is living on borrowed money ("stimulus package" to do the same, but of course, since Europe has all kinds of restrictive laws around firing people, their economy hasn't turned around as quickly, PLUS most recently, the recent retroactive payment on Greek democracy).

Who has money to deal with further crises?

Today we were reminded, China! China has been hoarding all our US cash while we've been borrowing to finance our fancy consumption standards.

If they have cash, why don't they step it up to bail out these Greek dudes?

It is an economic concept called "free riding". If the other developed countries pony up the cash to deal with this, why bother? China can just free ride off the other countries providing financing to float the global economy towards uninterrupted consumption of "stuff", which of course drives the Chinese economy.

Would China step it up if the global pockets are empty?

Trades on deck:

GS

Euro

Greece taking payment for democracy

Looks like this Greece thing is blowing up the financial systems. Not sure euro can handle it. Today's market activity is a little troublesome. Any time there's a precipitous drop like that it means that people are scrambling for the door, not running valuations. Reminds me of August 2007, when all of a sudden and without warning, the market just spontaneously dropped.

I guess we've had easy money for a while, so that's to be expected. Even though the market did bounce back up (perhaps from short covering), these types of drops are not momentary. They signal a fundamental weakness in the confidence of investors, and possibly foreshadow a lack of liquidity (everyone cashing out no matter what the price).

Would not be surprised if we head downhill for a while.

Scary stuff!

04.23.10 Timber!

When I saw this article in the WSJ about the high cost of raw materials, I thought immediately of Yale. Apparently lumber as gone up 59% in the last 4 months.

I've been reading in the alumni/ae magazine about how the endowment invests in assets like private equity, emerging markets, and timber yards. I must admit, I was a little perplexed about the latter. What on earth would Yale be doing with a lumber yard. Ah-ha!

I'm not sure how smaller funds, like Mo Money LP can get in on the action. I was very excited about rice futures a couple years back, and John Rogers had a fund but the minimum purchase was 100K.

04.22.10 What do these pros do anyway?

Looks like the pros blew it on the apple call.

04.22.10 Greek Bond Selloff

Apparently no one in the market wants to touch a Greek bond. Bailout details unclear.

They're the subprime of the sovereign world.

The question is how to profit from this situation. I would not touch something with low liquidity such as the bond itself. On the long side, the risk of default are obvious. On the short side, if the bailout happens, you risk selling at a low price (todays market) and possibly needing to cover your short at a higher price.

The euro is under pressure because of this debt crisis, I would trade in the euro.

04.23.10 Just say no to depreciating assets

Providing for future = money made (active + passive) - money lost/spent (active + passive)

So lets talk about the money lost/spent side, and one of those sirens of excessive consumption: depreciating assets. Depreciating assets are consumption posing as assets.

Depreciating assets are fun. Clothes, furniture, cars, fancy electronics, name brand purse. But they often don't pay off in the long run. A car will depreciate 25% the minute it leaves the lot. Praise and envy from your peers will but a moment. That glow cost you couple K.

Whenever I forgo a depreciating asset, I think about how I'd much rather put the money in an appreciating asset. I imagine myself reducing my 12hr days into 4 hr days, maybe in a hammock with some iced tea, maybe painting or writing a book. This is the meaning of an appreciating asset to me, not the movement of decimal places of paper profits, but the true luxury of spending time in a way I really want to spend it. Then I begin to hate depreciating assets for all their seductive appeal.

For example, my thought process in not buying a car ($20K plus insurance cost + parking). Sure I could buy a $20K car, and have a $15K asset a year later. Or, I could put this money towards downpayment on a house - $20K of car = $133K of downpayment on a house. Over time, a house is more likely to appreciate.*

*Of course, buying a car in 2007 would have been a better choice than a house in many instances.

04.21.10 Come make Passive Income

People react to incentives, so when Active Income (ie me working for 12 hrs/day, getting on a plane on a Sunday night, dealing with yellers) is taxed at a higher rate than Passive Income, (ie, we watching my portfolio between episodes of Jersey Shore), it only makes sense I start putting more effort in Passive Income.

The most awesome form of tax-advantaged investment is real estate, as I recently discovered. Like the leverage combined with 500K capital gains tax protection (for marrieds, 250k for singles). Leverage + tax advantage => I get it.

For all of administration's attack on the rich, they haven't attacked this tax sanctuary for rich people. Not that I want it to change, I mean, no fair changing the rules once you start playing.

04.21.10 Comment on Apple quarterly earnings

Apple: Happy with earnings upside.

Forward P/E of 18 is not a horrible valuation when you consider that something with an earnings profile of a bank should be in the low teens. Apple generates a ton of cash based on ZERO leverage. Let's see, how to calculate a current ratio for Apple (traditionally measure of companies ability to meet short-term debt requirements) - oh its easy because the denominator's zero. That's the kind of financial analysis I like to do, lazy person FSA, when performance is so rockin' that you don't have management and analysts trying to fudge decimal places on both sides.

Recent quarter earnings surprise based on robust iPhone sales, not new products like iPad, so its innovation pipeline has not really been tapped. Also I expect increased mac sales as enterprises adopt mac to avoid viruses and hackers, more users mean better enterprise software.


People complain that the company is so large - how can it grow any more? True, law of large numbers on a percentage basis should not grow much larger. Its still smaller than MSFT. But Apple is like 4 companies in one, a cell phone manufacturer, consumer electronics manufacturer, pc maker, and software - and its relatively small in all these industries.

There may come a day when Apple is targeted as being too big, or monopolistic and the government would ask for the company to be broken up. The parts would be greater than the sum.

Goldman: waiting to buy call options on Goldman. This lawsuit is simply not plausible.

Greek bonds: waiting to bet on default on Greek bonds in 3 years (sorry my Greek friends).