The Credit Crisis Financial Stocks Short Journal
- Thread starter Daal
- Start date
I'm still short. Added a bit at 32.60 today, around 3% of my networth plus the 25 Jan 2010 puts(0.5%). My target frankly is $0, the litigation should cost the company a lot, plus all the negative press will hurt the business. Maybe the government will shutdown a lot of their practices, I cant see how the model works in all of this. But the stock can squeeze a ton in the mean time
Thanks for your detailed reply.
"Can squeeze a ton in the mean time" is exactly what I'm worried about, especially since this story has been around (as you know) for at least 8 years, if not more.
I just pulled up a 10-year chart, was below $10 in 2001 and went over $70 in 2007.
Great analysis regarding the cost of defending ligitation, and the negative press hurting the business.
The interesting thing now 8 plus years later, as Reggie noted in one of his pieces in the last year or two is that the company is running out of people to sell their services to.
To be even more specific, my understanding is that they rely more on increasing customer numbers rather than increasing sales dollars per customer. (Whereas in theory Starbucks can make more money each year by selling more coffees to the same people).
I probably haven't written those last two paragraphs very well - Reggie does a much better job than me.
I guess at the end of the day playing PPD on the short side is just about money management.
"Can squeeze a ton in the mean time" is exactly what I'm worried about, especially since this story has been around (as you know) for at least 8 years, if not more.
I just pulled up a 10-year chart, was below $10 in 2001 and went over $70 in 2007.
Great analysis regarding the cost of defending ligitation, and the negative press hurting the business.
The interesting thing now 8 plus years later, as Reggie noted in one of his pieces in the last year or two is that the company is running out of people to sell their services to.
To be even more specific, my understanding is that they rely more on increasing customer numbers rather than increasing sales dollars per customer. (Whereas in theory Starbucks can make more money each year by selling more coffees to the same people).
I probably haven't written those last two paragraphs very well - Reggie does a much better job than me.
I guess at the end of the day playing PPD on the short side is just about money management.
The buyback is probably gone forever, that was one of the reasons that stock was holding up. If their marketing gets shutdown by the government they probably wont be able to enroll much in new people, it will also hurt their ability to sell their services(the revenue is probably headed lower for a long-time, although I dont know about the short-term). If the management were smart they would file chapter 7 and give the proceeds to shareholders but they will probably try to 'turnaround', this means this stock is headed to $0.
I could be wrong about the government being tough on them however, but I think thats likely
I could be wrong about the government being tough on them however, but I think thats likely
Interesting comment about chapter 7 - I hadn't thought about that as a possibility, although as you say it is very unlikely. From the little I know of the CEO, I think he is the type that will try for a turnaround, as you suggested. From memory there is a YouTube video of him at a PPD event, being quite loud and over the top about the company. Doesn't at all seem like the shy / quiet / modest chapter 7 type.
The key is that (as with any maturing company), revenue growth is declining. And when your business model is based around MLM / pyramid scheme / heavy selling, then slowing revenue growth is a disaster.
The key is that (as with any maturing company), revenue growth is declining. And when your business model is based around MLM / pyramid scheme / heavy selling, then slowing revenue growth is a disaster.
As the chart shows the stock market beats commodity prices over the long-run. Since GDP(incomes) tends to be conneted to the stock market(specially in the long-run), incomes are also likely to beat commodity prices, this represents the long-run commodity disinflation. This is where some commodity critics get it wrong, yes the malthusians are incorrect and they have history against them, but on a cyclical basis one can make an speculation that commodity prices will beat the stock market and GDP. Its important to keep in mind though that over the very long run commodities are not a good place to be(unless you have a special insight that this time is different)
This chart provides some decent counter evidence to the commodity bull market story. During the 'inflation' cycles, M2 growth was 3% bigger than during the disinflation ones, this almost alone explains the fact that the Urban CPI growth on inflation cycles was 4% bigger on average. It doesnt explain though the fact that the commodity prices growth were about 7% higher per year on average during inflation cycles
The fact the periods where commodity prices rose more than the Urban CPI could suggest it was preceeded by a period of underinvestment. At least to the extend that the investment failed to antecipate future demand, so even if the investment was resonably high since it did not meet demand at current prices, prices had to rise more than typical costs(urban cpi). When they achived higher levels, investment would rise and bring out about the bust, this seems to be the Rogers theory for commidity boom bust cycles
The alternative explanation is that growth of M2 triggered an inflation which then encouraged people to buy commodities as a way to protect their purchasing power, so unless one were to believe the Fed is about to allow M2 to get out of control or a great war to break out, commodities would not a good investment(specially with T-Bill rates at 0%)
Some kind of data on the investment in E&P of raw materials over the last century could be helpful
The alternative explanation is that growth of M2 triggered an inflation which then encouraged people to buy commodities as a way to protect their purchasing power, so unless one were to believe the Fed is about to allow M2 to get out of control or a great war to break out, commodities would not a good investment(specially with T-Bill rates at 0%)
Some kind of data on the investment in E&P of raw materials over the last century could be helpful