Tag Archives: Android

Thursday’s Top Links: Fixing Shiller CAPE, A Better LIBOR, The End of Quantitative Easing

Fixing The Shiller CAPE Model

Philosophical Economics wrote a great piece about the downside of relying on the Shiller CAPE ratio. While the tool has been criticized because it has been consistently stating that equities are overvalued for a large part of the last decade, very few have proposed a solution to fix the model. This piece goes into great detail to describe how changes in earnings due to small tweaks in GAAP and the treatment of goodwill have affected it. Perhaps, Pro-Forma adjustments are the solution? However, changes definitely need to be made in order for investors to continue to claim that the Shiller CAPE is still a credible model going forward.

KKR Charging Its Own Investments I-Banking Fees

A little over two weeks ago, payment processing company First Data received a $3.5B equity injection from its controlling private equity companies. I noticed this when the highly levered company’s bonds dropped in yield significantly from this action and made some big news in the credit markets. This financial engineering move has the potential to save the First Data billions of dollars going forward if they decided to call their debt and reissue at assumed lower borrowing rates with an improved credit outlook. However, I came across this article that shows KKR went ahead and just took $40mm out of that $3.5B total for underwriting fees. I’ve never heard of a P/E firm pulling this move, but it could potentially be the industry standard for private companies with multiple large owner interests going forward.

The End of QE (Is In Sight)

After its June meeting, the Fed has made plans to end its quantitative easing program in October of this year. In that month, the Fed will purchase its final $15B in bonds and mortgage backed securities (presumably until the next recession). This meeting was held before the release of the extra 288K+ non-farm jobs added in June, which goes to support the Fed’s theory that the economy will continue to slowly improve & support itself and that the stimulus isn’t needed anymore.

While this clears up one of the questions for the Fed, a more important question remains for investors: when will interest rates go up? When quantitative easing began during the crisis and rates plunged down to zero, Fed Chairman Ben Bernanke stated over and over again that rates will remain low for a considerable time and to his credit, they have. However, FOMC members have been hinting at a future rate increase coming in the next few years which has led to a lot of speculation. Wall Street is starting to pay more attention to the FOMC “Dot Plot” which shows where each FOMC member thinks the Fed benchmark rate will be at certain points over the next two years and beyond.

This chart shows congruency among the members of their thoughts on the rates through 2014 and going forward after 2016, however we see a lot of differing opinions as to where the Fed benchmark will be in 2015 and 2016. There are a lot of differing thoughts on the future of rates, from PIMCO’s Bill Gross betting big on a “New Neutral” to Goldman’s Jan Hatzius’s thoughts. Only time will tell who the winner is, but we know who the loser will be; the FOMC having to deal with Wall Street’s prying questions and pressure over the next few years.

A Better LIBOR?

Interesting piece by Quartz on how a new company called Credit Benchmark which is aiming to create more reliable and transparent benchmark data. With banks being accused of manipulating LIBOR and a handful of other reference rates, it sounds like this company could have a shot. It reminds me of IEX, the exchange created after the controversy caused by predatory high frequency trading earlier in the year. I really hope this pans out and becomes the new normal because after all of the lawsuits being brought on banks in the past few years, some ethics and credibility in major financial institutions is much needed.


-How to improve the lack of liquidity in the credit markets?: get rid of the complexities of the debt issues and make them similar to the equity markets on the exchanges.
-We just had DOW 17,000 yet short selling is low?
-Charts that show why trading volume remains low: increased regulation & ETF popularity
-Effects of taxes show that being the best trader in the world doesn’t compare to buy-and-hold results
Myths that hurt investors. Just remember, you’ll never be Buffett, nor will the stock market make your riches for you.
-Everyone will eventually own a smartphone and Android will disappoint from here on out

Yo, Raising $1.2 Million Is That Simple


If you haven’t noticed yet, Yo is one of the hottest new apps and has made quite the headlines over the past week, from Business Insider to The Colbert Report. It has rocketed into the Top 10 in the Apple App Store and passed Snapchat, Instagram, and Facebook along the way. The app took a measly eight hours to create and is so ridiculously simple that it actually made me laugh the first time I used it, but it’s founders Moshe Hogeg and Or Arbel aren’t laughing after raising $1.2 million in funding and looking for additional engineering talent in San Francisco. (Side note, their job application shouldn’t surprise you https://medium.com/p/76e18a2c686c)

In the last year we’ve seen WhatsApp take the world by storm and get acquired by Facebook for $19 billion and we’ve seen Snapchat make various tweaks to its original creation while turning down $3 billion and $4 billion offers from Facebook and Google along the way. King Digital also created the addictive Candy Crush game and was valued at $7 billion at its IPO. After seeing the giant hype and valuations of these three, you cant help but think back to 2000 Tech Bubble when we saw ridiculous valuations for any company that promised an Internet presence. Could the possible future IPO or acquisition of Yo be the “Pets.com” of a 2014-2015 tech bubble burst stemming from smartphone apps as David Einhorn has been predicting?

Personally, I believe Yo will be a phenomenon for a few weeks and eventually die out like Draw Something, but I’m excited to see what the future holds for this app and to see the strategy of the founders going forward. How long will Hoegeg and Arbel run with the app before being pressured into finding a way to create revenue? What metrics and forms of user analysis will be used to find the potential monetary value of the company? Only time will tell if it just replaces the typical “You up?” text at bar close for a few weeks or if it will evolve and eventually replace the basic text message.

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