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PowerShares DB Invrs Jpn GovtBd Futs ETN Message Board

bobby2loaves 9 posts  |  Last Activity: Dec 14, 2014 8:59 AM Member since: Apr 19, 2008
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  • bobby2loaves by bobby2loaves Dec 14, 2014 8:59 AM Flag

    Back when the stock was trading around $50, he told us to take our profits at $55 before the rest of the markets took WRB along with them.

    Sure enough, the stock peaked at $54.14 last week, and then dropped like a stone, losing 5% in 5 days.

    My buddy Shane turned his portfolio over to me last week, so I used the opportunity to buy him shares in the $51s on Friday. I needed to get him some market exposure without being over-exposed to a potential market correction in the months/years ahead.

    With interest rates dropping here, WRB's book value is going to tick up nicely this quarter, even with the $1.11 in dividends, probably up to the $39-$40 range. If the stock drops into the $40s in the next few months (and along with the $1.00 the stock price will lose when the dividend gets paid on 12/30), we could easily be looking at 1.2x book after earnings in January.

    Take it from someone who has been watching this stock for many years. Unless the market is in outright freefall, if that price/book gets to 1.15x, there is going to be support for it. A great time to buy for anyone who actually acted on otc_steve's advice!

  • bobby2loaves bobby2loaves Dec 9, 2014 8:12 AM Flag

    and here's an even wackier thought:

    what if bill knows WRB is about to have a FANTASTIC few quarters, making the stock price go even higher, the price/book even less attractive, and the spare cash piled even higher? so he figured he might as well take the $1.00 this year, especially in case the dividend rate goes up in 2015.

    not saying this will happen. just saying the time to bail on this stock has historically been around 2x book, not here at 1.4x book with some big capital gains waiting in the wings. while bill's stock buybacks have not always correlated well with short or medium term share price movement.

  • bobby2loaves bobby2loaves Dec 8, 2014 11:24 PM Flag

    One other consideration: there is a 3rd option here, right? Keep the cash until the buyback is irresistible, or business expansion needs it. However, with good investments hard to find these days, Bill may be loathe to sit on too much extra capital here, whereas in the past he would have gladly kept it at his disposal. But with 3-4% returns on bonds, it would drag down the company’s ROE too much.

  • bobby2loaves bobby2loaves Dec 8, 2014 11:10 PM Flag

    the short answer is yes. i would rather bill was spending every penny on the buyback because the stock was a bargain here.

    but the truth is, the stock has run $15 in 10 months, and Bill doesn't pay up for his own stock above 1.4x (it sits at 1.43x today).

    there may be some other considerations at play though.

    bill doled out a $1.00 dividend last year when everyone was scrambling to pay dividends before tax code changes. at that time WRB was trading at $10 less than this. so it may not be a simple buyback vs dividend question, as the stock was a pretty good bargain back then.

    dividend income may be in demand for tax code reasons again this year. or maybe some large shareholders, either institutional, or bill/rob, want to get some millions out without having to do something as tacky as selling shares, which they never do.

    also consider bill's key metric is 15% ROE. it's what the entire company is measured on. and a dividend is a nice clean way to get equity to shareholders. but if you spend $1.00 and only get 70 cents of book value for it (because the stock is trading at 1.43x book), you actually reduce the return on equity for the year. now it may be a good long term investment (ie 2-3 years from today that 70 cents may be worth a dollar of book again, and now the reduced share count is more powerful).

    but in general, i think the most bill pays for stock is 1.4x, and what he really wants to pay is 1.0-1.1x. that's when the buyback is a no-brainer, and ROE is hardly affected.

    i don't think bill is so much making a statement on the share price direction, as much as he knows if you only buy stock at dirt cheap price/book, you can't get hurt wasting profits on overpriced stock, because your best guess was the cycle was still alive and well.

    bill says it's impossible to time the the ups and downs of the share price. but over time, its returns are great. personally, 12 months from today, i could see WRB at $42 or $72. Just depends on the circumstances.

  • Reply to

    WRB's Real Value

    by bobby2loaves Nov 11, 2014 3:39 PM
    bobby2loaves bobby2loaves Nov 30, 2014 4:13 AM Flag

    Hey Fundy, exactly what are you predicting here? Do you think WRB will increase bond duration over the next 3 years, as interest rates climb? True, it would be a powerful combination to increase duration as rates go up. For every 1% increase in portfolio yield, my back of the napkin math shows a 60 cent annual increase in after tax EPS. It all sound great, except my mind boggles when I try to imagine where interest rates will go in the years ahead. My over-simplistic view is with record Federal, State, Municipal and personal debt, we currently can't handle higher rates as a nation, so we'll likely see low rates for the next decade until we can inflate/grow our way out of the debt. With that said, I suppose we could see an increase on the 10-year from its current 2% to 3-4%, without the world ending. This is one case where I'm glad Bill is at the helm, as trying to figure out the macro economy makes my mind tired.

  • Reply to

    WRB's Real Value

    by bobby2loaves Nov 11, 2014 3:39 PM
    bobby2loaves bobby2loaves Nov 25, 2014 8:34 AM Flag

    Actually, by design, WRB has relatively little cat exposure. So, when other players scramble to increase rates and backfill reserves after a natural disaster, WRB would likely get the gain without much pain.

    For example, WRB's share price nearly doubled in the 8 months after Hurricane Katrnia, went up 10% in the 5 months after Hurricane Sandy, and continued up after Hurricanes Ike and Wilma as well.

  • Reply to

    WRB's Real Value

    by bobby2loaves Nov 11, 2014 3:39 PM
    bobby2loaves bobby2loaves Nov 20, 2014 8:23 AM Flag

    Glad to have someone to talk with on this board, especially someone who understands the company.

    If WRB stayed unappreciated at these modest multiples, churning out 15% a year, it still could make you very rich over the decades, doubling every 5 years. Especially compared to the current investment alternatives in bonds/stocks/cash.

    So, in a way, the current under-appreciation allows you to stay along for the ride without having to bail for fear the cycle (and the share price) is peaking, with too much downside in the name. One of my fears is actually that the insurance market will harden on some Japanese or European financial distress (there's a lot of insurers in those places) or even a good old-fashioned natural disaster, giving WRB a banner couple years, making $10+ in net income the second year, with the stock will going to $100 at about 2.0x book, and I'll have to sell the stock. Then where am I going to put my money? Walgreens at 30x? Ugh.

    I've held WRB shares steady for about 4 years now, and have only lightened up and re-added shares twice, after big gains/declines. But since the February bottom at $38, I have not sold a share. The value is still there.

    My secret evil plan? I am hoping the stock market tanks in the years ahead, while WRB increases value, and then I can re-deploy my winnings into the Walgreens of the world (well, actually, something much more aggressive than that) after they has been decimated.

  • Reply to

    WRB's Real Value

    by bobby2loaves Nov 11, 2014 3:39 PM
    bobby2loaves bobby2loaves Nov 19, 2014 6:44 PM Flag

    Sure, the cycle has slowed lately and COULD turn down here, but how can anyone know that for certain? It could also resume its upward trend, especially if some global financial issues start to heat up.

    With WRB at 1.2x-1.4x book (depending on your idea of book) and a trailing ROE of 15%, it is hardly trading at nosebleed levels relative to past cycles. In the mid-2000s, WRB was having ROE quarters upwards of 20% and trading at 2.4x book.

    One could argue that current central-bank rock-bottom interest rates have driven down the return on all asset classes. But if that turns out to be the case for an extended period of time, I'd rather be in a leveraged, counter-cyclical player like WRB, outperforming its peers by about 800 basis points over time.

    With all this said, I get your scenario that the stock could peak at $55 and then fall back to the low $40s on a substantial market correction. And no one likes to lose 25% of their money.

    But I don't think we're going to see anything close to the 3-year 60% correction that came with the 2006 cyclical top. In fact, in 3 years, I see WRB book at $60+, and the stock at $70+. Not too bad for a bear market.

    So, while the cycle could certainly turn down here, I don't think it's quite time to head for the hills. Given the current state of things, I'm probably more likely to consider lightening up around $60, around 1.62x stated book. And since we haven't traded at that multiple for many, many years, I feel pretty safe I'll be holding onto all my shares for the foreseeable future.

    Sentiment: Buy

  • bobby2loaves by bobby2loaves Nov 11, 2014 3:39 PM Flag

    Yahoo finance shows WRB with a P/E of 10.37, and a price/book of 1.42.

    But if you annualize WRB's average quarterly earnings over the past 3 quarters ($1.34 a quarter), you get a P/E of 9.54.

    And if you take this quarter's book and add the after-tax $5 Bill was talking about on the con call, you get a price book of 1.21.

    Hard to believe WRB is up 34% since the February low, yet the stock is still so cheap.

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