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   Strategies & Market TrendsValue Investing


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To: Spekulatius who wrote (56684)1/18/2016 6:03:10 PM
From: Jurgis Bekepuris
   of 68892
 
In the first part of the roundtable there's a lot of thrashing and tea leave reading very similar to this thread. If these guys were held accountable for their macro predictions, most of them would be out of jobs long ago. Cudos to Witmer and Gabelli who mostly did not get involved in the talking head seance.

The section on stock selections and ideas is more interesting. Yes, a bunch of ideas that have been mentioned here and CoBF.

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To: Paul Senior who wrote (56686)1/18/2016 7:16:18 PM
From: Investor2
   of 68892
 
Hi Paul Senior. Hope you've been well in this "correction" environment.

What do you think about XOM or CVX from a valuation standpoint?

Thanks,

I2

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To: Jurgis Bekepuris who wrote (56692)1/18/2016 8:18:03 PM
From: Spekulatius
   of 68892
 
The stock picking part is definitely more interesting than the macro part. I do think it is interesting what these guys are thinking in terms of macro, since they represent the big houses somewhat.

Other than that, I agree with buying when a stock appears to be cheap. However, I also try to take into account what the macro could look like and what it means for certain sectors. Value investors always seem to underestimate the headwinds that a bad macro (or micro) can create for a certain industry. For example, I thought that VALE @$15 looked really cheap, as it was close to book and has some of the lowest costs in the industry. But with Brazil and Iron ore prices going to the toilet simultaneously, the stock easily hits $2 and I am not sure it's attractive here. A very small position only, but still. Mistakes can get costly....

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To: Graham Osborn who wrote (56688)1/18/2016 9:37:50 PM
From: Robohogs
   of 68892
 
I hate PSR as it does miss cap structure.

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To: Spekulatius who wrote (56694)1/18/2016 10:01:29 PM
From: Jurgis Bekepuris
   of 68892
 
Other than that, I agree with buying when a stock appears to be cheap. However, I also try to take into account what the macro could look like and what it means for certain sectors. Value investors always seem to underestimate the headwinds that a bad macro (or micro) can create for a certain industry. For example, I thought that VALE @$15 looked really cheap, as it was close to book and has some of the lowest costs in the industry. But with Brazil and Iron ore prices going to the toilet simultaneously, the stock easily hits $2 and I am not sure it's attractive here.
I really don't want to get involved into macro-or-not-macro meta discussion.

However.

You are doing Monday morning quarterbacking with your VALE example. You know now that Brazil went to toilet and iron ore went too. But did you really have enough info to make macro call beforehand?

Same with oil. Now everybody "knows" that oil was supposed to go to $30. Where were all the experts when it was $100? OK, forget about that, where were they all when oil bounced to $60 last year?

Do you really think you can call macro events? If so, how about couple predictions from here (with time intervals and without vague hand waving), so we can learn how good you are?

Mike Burry is probably the only value investor who has made great macro calls. Buffett is pretty lousy on macro. Most other big name value investors are either macro-agnostic or underperforming or both. (Actually, nowadays, it's hard to find big name investors who long term outperform, but that's another discussion).

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To: Spekulatius who wrote (56684)1/18/2016 11:13:34 PM
From: Jurgis Bekepuris
   of 68892
 
BTW, 2015 roundtable picks beat the market significantly if you discard the crazy permabears (Marc Faber and Felix Zulauf). This is surprising, since it's better result than a lot of mutuals, hedgies and overall famous investors.

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To: Touching who wrote (56690)1/18/2016 11:41:15 PM
From: Paul Senior
   of 68892
 
Welcome, Touching. I have a full position in CF. I rode it up (shares purchased in '09), held, and unfortunately am now riding it down. Shares purchased in '13 in red; overall slightly positive. I don't intend to add any more shares here. Hoping I don't see red and sell out in disgust.

Besides YARIY, I'm holding shares of AGU, and a few shares of MOS recently bought.

If/when China devalues against USA $, then their exports of fertilzer will be cheaper and put pressure on these USA producers. I suspect the devaluation event and result are not all built into the stock prices yet. So I expect it will be painful to be holding these fertilizer stocks. I'm not sure I'm willing to take that pain.

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To: Investor2 who wrote (56693)1/19/2016 12:03:38 AM
From: Paul Senior
   of 68892
 
Hi I2. XOM/CVX: If oil stays down, they're either expensive or fair-valued. If oil moves up, maybe to $60 or more this year, then the stocks are cheap now. I am avoiding both companies at current price. Too tough for me to value--I defer to others on the thread who may see the outlook or these companies more clearly.

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To: Paul Senior who wrote (56698)1/19/2016 4:14:21 AM
From: Touching
   of 68892
 
Abstracts from CF Q3 2015 on China:
---------------
Yeah, Vincent, let me kind of step back and talk about where we sat in 2012 when we made the decision to move forward with these projects. At the time, the forward curve was above $5.50 per MMBtu and that dramatically changes what the profitability of the output of these plants are. We did anticipate at that time based on the number of projects that had been announced and were in flight in Middle East, North Africa, as well as in China that kind of 2016 was going to be sort of a low point in the pricing curve. [...]

Chinese government devalued their currency during the third quarter. This devaluation, along with less expensive coal and ocean freight, help to push the international price of urea lower.

However, over the last few months, China has been reducing its exports. This decline has also been evidenced in the last three India urea tenders, which saw lower Chinese producer participation. Additionally, over the last few weeks, several large curtailments of urea facilities have been reported in China. [...]

While all these factors have led to a depressed pricing environment, we believe pricing is beginning to stabilize and that we have reached the seasonal floor of anthracite coal-based production in China at around $250 a ton delivered to the U.S. Gulf.[...]

I hope in 2016, we see return to Brazil [...]. So the 5 million tons of demand out of Brazil will probably be there and a return to some other markets. And I don't think that Chinese anthracite coal producer can continue at their current rate of production and we're seeing that reflected in operating rates in China.

And so, when you look at the 13.6 million tons exported last year, estimating 12 million tons this year, I expect that to slowly wind-down to probably an acceptable rate in the 5 million to 10 million tons longer term, which sets up available options for CF.

The other point, Joel, that I'd like to bring up is, as you sort of rewind the clock, you can look forward and see there was this ongoing tail of new plants that were coming online in China and Middle East, North Africa. That sort of tail, by the time we get to the middle of next year, is largely empty from there going forward. The U.S. plants will be online. Most of the Chinese plants will be completed and operating. So there has been this pretty significant build that's left this overhang of capacity and the marginal stuff swings on and off depending upon where price is. And, as you say, it sort of puts a relative cap on where prices get to before the marginal producer swings back into production again.

The global nitrogen demand is growing about 2% per year and that requires four to five world-scale ammonia complexes being brought on every year just to meet what the demand is. And so, as we look forward and the existing capacity gets absorbed into the marketplace, any kind of rebound in the Chinese economy with attendant increase in coal prices there, all of a sudden makes this marketplace shift into a different dynamic from a really over-heavily supplied position to one where there is some price appreciation. So, we think this is kind of the tough area to get through, but even at these ranges we're highly, highly profitable. And as we get into a recovery mode, we'll participate in that very, very nicely.

Yeah, when you look at China, every year is an anomaly. When you see the numbers ramp-up from zero tons, 2 million tons, 4 million tons, 8 million tons, 13 million tons, and so, we're modeling this year coming down to 12 million tons. I think based on – again, cost structure market optionality and how we see the market developing, I think, that's a declining run rate. But I'm not comfortable giving you a specific number.

---------------

It looks like they did their homework and given the strong financial position of the company they have room for coping a low point in 2016. They anticipated it, they are not reacting to unexpected economic shifts. I think the Q4 call will set the tone for the next decision on CF.

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From: bruwin1/19/2016 5:06:44 AM
1 Recommendation   of 68892
 
Yeah, well, ... 'micro', 'macro', 'shmakro', 'shmikro', ... whatever....

The thing is, you buy a Resource based company, you know that there's a built in RISK of the international price of its commodity taking a dive or, hopefully, a surge.
That's the thing about (a)'COMMODITY TYPE BUSINESSES'.

Management of EXXON, BP, Mobil, VALE, etc.., however competent and experienced, can do very little when world oil or iron ore prices fall through the floor from $100 to $30, etc ....

However, people will still be buying and drinking Coke, Pepsi, Budweiser, etc..,
They will still be brushing their teeth, shaving, etc.., etc.., via P&G/Gillette, Colgate, etc...,
They will still have their kids and even adults watching Disney, etc.., etc...

In other words they will be still be buying from (b)'CONSUMER MONOPOLIES' long after we're all pushing up daisies.
Consumer Monopolies control the prices meted out to the merchants, so business moves along nicely. The "price fight" that takes place after that between merchants is their problem.

Yes, maybe, according to some, Buffett hasn't got his 'macro' right every time, but he sure as hell knows the difference between (a) and (b) above, and when to buy more of (b) when "Mr. Market" gets 'neurotic' and 'panic stricken' ....

"you pays your money and you takes your choice" ....

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