Investments

• This post discusses why common unit holders of Eagle Rock Energy Partners, LP (EROC) should vote NO to the most recently proposed recapitalization. We have set up a website at www.fair-eroc.com where we explain why we believe unit holders should vote NO.
• That website discusses EROC’s current recapitalization proposal, while this post discusses EROC’s background, business and the stock’s potential total return if NGL prices stay roughly constant.

Eagle Rock Energy Partners, LP trades under the ticker EROC on Nasdaq. EROC is an oil and natural gas MLP…

• This post expresses a bullish view on Bank of Internet (BOFI)
• BOFI is a well-run bank trading at a low valuation that should continue to grow earnings and/or tangible book value for the foreseeable future
• While its earnings growth will slow in 2010, and earnings could contract when the yield curve flattens, the current valuation is still too low given the company’s near-term and long-term growth prospects
• The PDF materials referenced in this post can be downloaded here…

• This post expresses a bullish view on MTN Group, an Africa-based wireless operator
• MTN’s recent merger with India-based Bharti collapsed two weeks ago, creating an opportunity to purchase a standalone MTN Group at a somewhat depressed valuation
• MTN is a leading wireless operator in Africa and the Middle East, with operations in (i) fast-growing emerging markets like Nigeria, Ghana and Iran and (ii) South Africa, a market that’s more mature but where MTN is generating solid free cash flow. Overall, MTN has been a rapidly growing business since inception and that growth should continue for at least several more years. Key countries where it has large operations still have relatively low wireless penetration, implying continued organic expansion over the next several years
• The current valuation is cheap (5x EBITDA and 14x PE) given MTN’s growth potential. The valuation is low, in my opinion, because (a) Bharti was not offering a particularly high price for MTN and (b) the proposed merger was complicated, due to share swaps, equity raises and other unusual features, which resulted in MTN’s stock price remaining depressed as public holders waited for transaction details to finalize
• Materials on MTN referenced in this post are available here…

• This post indicates a bullish view on Cheniere Energy Partners, LP (CQP on AMEX)
• CQP has a high 17.5% dividend yield and I believe that the dividend is not in danger of being discontinued
• CQP has long-term take-or-pay contracts with two large customers that help ensure continued payment of the dividend. While CQP’s parent may go bankrupt, the parent’s creditors are incentivized to continue facilitating CQP’s dividend while the parent is in bankruptcy

This post will be about Cheniere Energy Partners, LP (CQP), a master limited partnership, or MLP, which operates receiving terminals for liquefied natural gas in Louisiana. The underlying thesis is that CQP is an attractive investment because it yields a 17.5% dividend which I view as stable over the next 20 years. I think a more appropriate dividend yield is around 12% – 15%, which yields a stock price range of $11.33-$14.17. That implies stock appreciation of 16% to 46% based on Friday’s close price of $9.72. While one waits for that capital appreciation to occur, an investor in CQP can clip a fairly large quarterly dividend…

• This post expresses a bearish view on the solar industry, specifically with regard to manufacturers of solar photovoltaic cells.
• Although demand is growing, and over the long-term the solar sector will become very large, there is currently a massive oversupply of solar PV cells. This oversupply should become much worse in 2010 and 2011. Solar cells are essentially commodity products, and the large supply-demand imbalance should render most high-cost producers insolvent. Low-cost producers will also have trouble generating profits.
• Accounts managed by Kerrisdale are short shares of certain solar companies mentioned in this report

This week, I’m going to write about companies that sell solar photovoltaic cells, and how I think 50%+ may go bankrupt over the next several years. I think solar cell companies are in the fourth inning of an unmitigated disaster, and the looming supply-demand imbalance in the industry is one of the most violent I’ve ever witnessed in any commodity sector…

• This post discusses the emerging market wireless sector. These are businesses that offer cell phone services in countries like Paraguay, Syria or Chad.
• I’m bullish on this sector. While I have reservations about mature wireless companies, emerging markets still benefit from under-penetration, and there is room for continued rapid growth over the next several years.
• If a given emerging market avoids currency depreciation, political turmoil, or excessive competition in the wireless market, the mobile telephony business is quite a good one as the resident country grows from low mobile penetration to high penetration.
• The emerging market PDF materials discussed in this post can be downloaded here…

• The expansion of the monetary base by the Fed and other central banks can be potentially inflationary.
• The historical relationship between the monetary base and the total money and quasi money in a given economy is governed by the money multiplier. Given that the US monetary base has exploded in the past year, we’d quickly experience hyperinflation if the money multiplier reverted to its historical average.
• I’m just not yet convinced it will. In Japan, the central bank doubled the monetary base from 2001 to 2003, but overall bank assets and deposits hardly budged, leaving overall money supply growth at low levels. Inflation never materialized, and the Bank of Japan reduced the monetary base back to sustainable levels in 2006…

• This post will explore whether the current financial crisis may ultimately lead to global inflation, a theory advocated by James Grant, Hayman Capital and various other investors.
• The most compelling arguments for global inflation are as follows: (i) the world is dramatically overlevered; (ii) to rescue insolvent banks and stimulate economies, governments will either print money or incur large governments debts; (iii) at some point in the future, increasing fiscal deficits and debt-to-GDP ratios will lead governments to print money to deal with their unwieldy debt loads and (iv) defaults and currency collapses at some of the weakest sovereigns will result in devaluations that, via competitive devaluation, will spread globally to virtually all countries, debasing the vast majority of currencies relative to gold.
• While the long-term future for fiat money may look bleak, it’s less clear whether global inflation would take hold in the near-term or further into the future. Global overcapacity and credit contraction are currently exerting a strong deflationary pull on consumer prices…

• I review the book The Dollar Crisis by Richard Duncan. The Dollar Crisis discusses how abandoning the gold standard in 1971 has resulted in large global trade imbalances and a massive global buildup of foreign currency reserves.
• These trade imbalances and buildup of foreign reserves have led to frequent booms and busts since 1971. He links the Japanese bust of 1989, the Asian economic crisis of 1997, and the current US credit market collapse to the large trade imbalances / foreign reserves that have resulted from the post-1971 paper money monetary system.
• He also argues that this new monetary system has caused global overcapacity, which has fueled disinflation over the past 30 years…

• In this post, I review the book The Great Inflation and Its Aftermath, by Robert Samuelson. Samuelson puts forth an explanation for why inflation occurred in the late 1960s and 1970s, and how it was stopped in the 1980s.
• For Samuelson, the rise and fall of inflation in the US during the second half of the 19th century was an integral part of the American economic experience, and constitutes an important historical lesson for future investors and economists. He lays out an interesting story, and some insightful conclusions. After discussing Samuelson’s narrative, I touch on several issues raised by the book…

• In the second part of my coal posts, I analyze two coal miners: Alpha Natural Resources (ANR) and Foundation Coal (FCL). I discuss my price, tonnage and cost per ton forecasts for the two companies, ultimately deriving projected EBITDA over the next several years.
• So are coal companies cheap as a group? My answer is no, or at least ANR was not. They’re certainly not expensive, but also not irrationally cheap. But my results were interesting. My models forecast a nasty next several years for ANR but decent ones for FCL, mainly because of my bearishness for met coal relative to steam coal; FCL’s higher proportion of contracted steam coal commitments; ANR’s currently inflated margins per ton; and ANR’s somewhat higher cost structure relative to FCL’s. Current market multiples are valuing FCL at a bit of a premium to ANR, but not by much…

• In this post, I’m discussing coal, with the ultimate goal of determining whether coal equities are a buy, short or neither. I will describe the coal industry in general and the drivers of supply / demand within the domestic and global coal markets. Based on these discussions, I end the post with forecasts for 2009, 2010 and 2011 coal prices.
• I’m not particularly bullish on coal – declining demand and ample supply should keep coal prices depressed for the next 2-3 years, particularly for met coal. In my next post, I will use these price forecasts to discuss whether certain coal equities are attractive or not.
• While I’m not optimistic about a rebound in coal prices, the equities’ low valuations and the fact that they’ve contracted most of their 2009 supply (and much of their 2010 supply, for thermal coal producers) could make the…