My Own Analyst

INT: Trash or Treasure

I listened to the call - haven't seen any published comments.  This is TREASURE.  The issue appears to be a big cash burn due to rising receivables (mainly because of sharply higher fuel prices, but also an acquisition).  I think whoever is selling is not thinking very clearly - this is a company that is really doing well.  EPS growth has been disguised by a share offering from last year.  NI growth was 29%.  I want to see how this one shakes out, but this is "Top 20 model-worthy".  My target for a year out is likely 45 or higher.  15PE on 2-year out non-GAAP EPS would be closer to 50.

Pimco Dumps Bonds

Subscriber Jerry asks:

What do make out of the headline of Pimco fund dumping all of its U.S. government debt. That is for sure a big $ statement from the bond King (maybe ex King now) and what would this possible mean for stocks down the road.

Jerry, you made me create a new category (interest rates).  I have a feeling this is going to be a bigger and bigger topic as the year progresses.  For those that don't know, I started my career in bonds and was part of a small team managing about $10 billion as late as 1998. 

The end of QE2 will get a lot of attention, but it's not that big of a deal.  This is a well known future event  - I googled "QE2 and June 30" and got something like 100K the other day.  Even Pimping Bill is predicting the 10-year Treasury rises to just 4% (really not a big deal).  To me, the bigger issue is that the Fed will be raising rates.  Not sure when, but they probably should.  Time to take the training wheels off.  Short-term rate hikes can have psychological impact, probably more than real.  What really counts is where companies can borrow 5-10 years out.  I have written extensively about some possible pain points from bonds, and this probably won't get us there.  Moderately higher rates, if due from economic strength, should be viewed favorably for stocks.

As you know, we are underweight bonds rather dramatically, in CG/B.  At the beginning of the year, I predicted that bonds will likely return about zero this year (small capital loss, small income gain).  I am sticking with that forecast for now.