Monday, October 14, 2013

Grupo Prisa: Why the Sudden Rise?

Today, I'd like to revisit Grupo Prisa (PRIS), a Spanish media stock I recommended in the past and then got out of, citing concerns about Europe's inability to solve its fiscal problems.  Getting out proved to be a good idea because the stock lost roughly 75% of its value, after I sold it at $4.40.  The decline was apparently due to fear that Spain's debt crisis would affect Prisa's ability to refinance debt and/or secure additional credit.  It is heavily indebted, although it has some valuable media assets.  I never really believed that the company would be forced into bankruptcy -- its cash flow and market position seemed too solid for banks to pull the plug on it.  Nevertheless, the company has coasted along for much of the year, valued near zero, on the theory (presumably) that it was on the edge of bankruptcy.  Then, last month, it suddenly went on a run. It has doubled since late August.  The renewed interest has some basis.  PRIS has made progress in restructuring its debt and has made provision to pay dividends to Class B shareholders. 

Here is a link to the announcements:

Whitney Tilson, whose fund has a large position in PRIS, has long maintained that PRIS would rise again.

The ultimate point here is that PRIS' assets are worth a lot more than its current price, even after the recent run up.  It's still risky but appears undervalued even accounting for the risk.

Thursday, October 10, 2013

Twitter, Fat Finger Mistakes, Oil, and Yet Another Nail in the Efficient Market Hypthothesis,

I promise that I really had intended to drop this theme of fat finger trading mistakes and their implications for efficient market theory but the news just won't let me.  How about this article from today about oil traders who mistakenly believed that a tweet about the 1973 Arab-Israeli war, discussing Israel's bombing of Egyptian airfields, was current and reacted accordingly by driving oil prices up today.  How are people this careless allowed to make trades?  What does this say about the need to act quickly in markets and the corresponding mistakes?

Wednesday, October 9, 2013

Follow Up on Twitter, Tweeter, and the Efficient Market Hypothesis

So I got curious after my previous post on all the folks mistakenly buying near-dead stock Tweeter, apparently thinking it was Twitter (which hasn't even had an IPO yet).  Are people really that careless (a diplomatic way of putting it)?  Or is there something else at work here, such that what appears to be a mistake is actually the work of highly refined minds?  Minds who understand that, over time, there may be enough mistaken purchases of Tweeter to justify an investment. 
   I did some quick research on how often a stock spikes when it is apparently mistaken for another stock.  I did not find much but the phenomenon is certainly not unheard of.  It is sometimes referred to as a "fat finger error."  Here is a link to an article discussing a spike in a Chinese stock when an investor apparently confused very similar ticker numbers:

    But it is likely more than just a clumsy mistake in many instances.  I noticed that sometimes the press gets a ticker symbol wrong in an article.  One can imagine that some readers would be impressed by the company discussed and then cut and paste the mistaken ticker into their online broker's "buy" form.
    At the end of the day, we do not know what the real cause of the Tweeter spike was but it does raise some interesting questions.   

Friday, October 4, 2013

The Final Nail in the Efficient Market Hypothesis' Coffin

If you don't know what the Efficient Market Hypothesis is, you're probably not reading this.  If you believe in it, then I submit for your consideration the strange ride of the shares of Tweeter Home Electronics today.  The nearly illiquid, OTC shares of this recently bankrupt home electronics retailer soared about %1500 at one point today.  Why?  Because the smart money realized that Tweeter is back from the dead to take over retailing?  No, because apparently many folks believed that they were buying shares in Twitter, which announced it is filing for an IPO.  I've never really believed in the "smart money" but we now know there is some not so smart money.  Here is a link to an article on Tweeter's journey:

Of course, maybe there really is smart money behind this.  Maybe some research indicating that in the run-up to an IPO a lot of careless people buy stocks with similar names or ticker symbols to the new company.  Or maybe even after the IPO, careless folks buy similar stocks.  Maybe Tweeter really is a smart play.  And maybe, just maybe, this phenomenon could be duplicated with the next hot tech IPO, i.e. find a stock with a similar name in the run up to the IPO.

Wednesday, October 2, 2013

A Perfect Storm: The Shutdown and the Debt Ceiling

When will the U.S. government re-open for business?  Apparently, Congress is working on it.  But while they are working on it, we're not sure how hard they are working on a possibly bigger problem:  the onset of another "debt ceiling."  A debt ceiling occurs when Congress fails to authorize the government to borrow more money to meet its obligations.  U.S. Treasury Secretary Jack Lew has told Speaker of the House, John Boehner, that the U.S. will hit its debt ceiling on October 17, 2013.  Meaning that, on that date, the U.S. Treasury will no longer have authority to borrow money to meet obligations, including payments on U.S. Treasury bonds.  I'm not sure anybody really believes it's likely that the U.S. will default on payments to bondholders but, given the chaos in Washington right now, we might go a little longer before the debt ceiling issue is resolved. Markets may have to price in the risk that doomsday will occur.  This could have a severe impact on bond pricing and the value of the dollar (a negative impact) over the next week or weeks.  Here is a nice article on Slate discussing the current situation:

Friday, September 13, 2013

Goldman and Bank of America Exiting China Bank Investments

I found it interesting to learn that Goldman Sachs has completely divested its investment in Industrial and Commercial Bank of China, the largest bank in China.  The divestment occurred earlier this year and was one of a series of stock sales by Goldman which now no longer holds any stock in the Bank, according to publicly available information.

Bank of America has also now exited its large position in another major Chinese bank, China Construction Bank.

The following article posits that this shows the lack of confidence large U.S. financial institutions have in the quality of Chinese banks and their loans.  This conclusion is among the factors cited in the article for a predicted major financial meltdown in China, which will affect the rest of the world.

I need to do a bit more digging on this one.  I could think of some regulatory reasons for the divestments (capital requirements, for one) but I suspect the cause is the obvious one:  a belief that the investments had run their course and a further run-up in Chinese banks was unlikely or, worse, a run-down was likely.

But let's walk one step further here.  The stocks sales by Goldman and BoA generated fairly large gains for the banks.  Unless the banks feared a run-down in the Chinese banks, why would you want to generate large gains in 2013?  Possibly because profits will not be as high this year as last year or next year.  Unfortunately, this is just food for thought because we don't know what Goldman and BoA really think about the likelihood of a Chinese bank disaster. 

Thursday, May 2, 2013

Facebook and the Future of Privacy

Wired magazine did a good piece on how a large portion of Facebook's earnings are coming from mobile ads and that the company apparently plans on increasingly moving toward "impression"-based advertising for revenue.  Translation:  charging advertisers every time you simply look at an ad (rather than click).  For this type of advertising to be tracked, however, Facebook has to know what you, yes you, are doing.  That has obvious privacy concerns.  Link to the article below: