tv Boom Bust RT September 3, 2014 1:29pm-2:01pm EDT
today he's sitting down with me to discuss accounting evaluations and in today's big deal edward hairs and i are discussing an underqualified eric cantor taking an arguably overpaid position on wall street it all starts right now. welcome to a brand new season of boom bust now our lead story today europe european purchasing managers index or pm i came in monday and it wasn't pretty manufacturing growth in the eurozone slowed to a thirteen month low in august the markets eurozone manufacturing and purchasing managers index dipped to fifty point seven in august down from fifty one point
eight in july now it's important to note that a figure above fifty indicates expansion so obviously not a lot of expanding going on in your own land and while the p.m.i. is resting above fifty it's just barely above it now amid rising tensions between the e.u. and russia over ukraine new order's window and factories suffered the factory p.m.i. for germany russia's biggest trading partner in the you fell to an eleven month low of fifty one point four while meanwhile p.m.i. in the blocks second largest economy france fell to forty six point nine the fresh decline in manufacturing activity in italy adds to concerns about the inability of the euro zone's third largest economy to return to sustainable growth six years after the onset of the financial crisis now activity in spain's manufacturing sector slowed for a second straight month in august a sign that the economic recovery there may be losing some momentum as well the figures come ahead of the european central bank. meeting on thursday and there's
speculation that u.c.b. boss mario draghi could offer some indications later this week that he's considering some form of quantitative easing for the eurozone similar to those taken by the u.k. and us during the financial crisis the eurozone wasn't alone in experiencing weakness in manufacturing u.k. manufacturing activity slowed sharply as well while activity declined in denmark also partially reflecting weak demand for danish exports in the eurozone activity also slowed in poland the czech republic and hungary which likely reflects the worsening conflict in ukraine will be keeping a very close eye on europe and keeping you up to date on all the latest. now live and in studio with us today is david markel founder and president of olive investments and former chief economist and director of research at fin of corp
securities first and foremost welcome to the show david i think you're happy to have you here now i want to start our conversation by asking you about the term value investor that's a very popular term and i've heard it applied to to different people like a warren buffett or you know a jeremy grantham but what does that term mean to you it means that we're trying to buy securities for a discount that disco could be twenty five percent off forty percent of fifty percent of the group or the discount rate or margin of safety for us and we look to try to do it under many different conditions such that if there is war if there's panic we're not going to lose so much we like to have the net close below us and by buying at a discount we tend to assure that that's at least for objective doesn't always work though does it work more often than not yes well you know as i understand it you could just love a company its business model that so-called moats and all that built around itself that could be your favorite but if the valuation doesn't present a lot of upside. what should you do as
a value investor you should avoid that company i mean there are some very popular companies with with great business models but can they grow into the valuation in question i'll just toss on example tesla tesla is one of those companies where. you would have to grow at a rate of something like forty percent per year for the next five six seven years in order to grow into that valuation i look for companies when i'm buying them that maybe have to grow at about a five or six percent rate to justify their valuations and even then in an economy that is as weak as it is that's still challenging right five percent is it does count it certainly does count and by that you bring up tesla because i want to ask you basically on about high growth companies like tesla you also have amazon facebook there's many many others but you know from this is hard to figure out a value so how do you do it from a valuation perspective you know with some things that are really out there like
a tesla or say in amazon you might try to imagine what might this company be like fifteen years from now what percentage of the total retailing market might amazon have and would they be it as a normalized margin at that point in time now take that and then discount it back to twenty percent interest for for fifteen years and you'd need something that would say yeah now i'm buying this thing for maybe forty percent of what i think it might be worth even accruing a twenty percent interest for a long period of time now there's a huge amount of risk there who's who's going to compete with them and what new technologies might come into existence i mean g.m. is coming up is throwing a huge amount of money to try to compete with tesla grand i think the total is much more clever and will be able to beat g.m. but there's the possibility who can tell you one must have got a lot on his plate you never know things can happen stranger than fiction or you know the higher the the valuation. the greater the profit potential the more people
are going to try to compete with you and that means uncertainty there you go now if you could advise individual investors about the tools and habits you know to use that that improve it evaluate in the company invest what would you say are the most important to us well you have to be skeptical for one because managements will feed you information and you have to say what if what the management is telling me is not going to be correct and what's my downside how how bad could this forecast turn out that's why i like to own companies that have lower low expectations built into them many of the companies that i own for my clients if growth does not happen the valuations of the companies are not going to change that much and they'll still be earning decent money for example i have owned some shares for my clients in a company called industrious boco it's based in celeb mexico it happens to be one of the largest producers of meat in north america very few people know about it it trades on a mexican exchange of trades in new york but it you know it's it's basically
tripled for me over the ten years that i've owned it and they are now called challenging tyson here in the u.s. in addition to other things that they've done so looking off the beaten path not looking at everything that's being tossed at you by the media i mean when i used to write for real money dot com i would write things to to to tell people be wary of what you get here in media even for me i mean i used to write for jim cramer so. yeah you have to be careful and be as low as possible is hard work is possible you have to do your own research and homework and understand that things can go wrong this is wall street the markets always have a new way to make a fool out of you and so caution is always warranted not bold moves it's a business it's a business you know and businesses go well i think about it sometimes the sexy money is at the end sexy company is going to hate it we think smart now i understand people like george soros they have to file this thirteen f. thirteen f. and i want to tie. about this it's
a major document basically that highlights the changes in their portfolio existentially now how can someone like me use this kind of information because basically what his thirteen have said it was very bearish signals the meal is sane so how can i use information looking at his bearish thirteen at that and invest myself once a quarter around the middle of the quarter all the thirteen f's come out i download about eighty of them and i i have my own database that that translates the cusip which are controlled by the american bankers association into the ticker symbols that you and i commonly use and then i take a look and see ok what are the new companies that these expert investors have been buying that nobody has seen so far and so i'll set them aside and a look at them then i'll take a look at the ones that have been added to dramatically by these same investors and i'll say ok these are these are fodder for research so with with soros i mean you only see half of his powerful and that's true of all thirteen eps you don't see the short parts you're only required to reveal the long positions the long bonds stocks
and options whether put or call options now what people were bearish about if they saw all the put positions in all the world to fully bearish things that he had entered into but you don't see the other sides of the trade source is a clever guy and you don't necessarily know the full so but is there some validity for looking at just the long side of thirteen yes yes and it tends to lead to our performance my friend my body faber has written a great deal about this it does aid and i find good ideas just reading from the experts and even a fellow whose book i've reviewed and i'm going to be putting out the next several days. you guys fire of aquamarine fund of educational value investors coming out next week. he. he does thirteen of us. another acolyte does does thirteen us they look at each other's ideas and they copy i mean it in that one sense of shameless. but but nonetheless it has. to be put out
and why not learn from those who have done so well now i ask you not even one thing that you hear a lot about is this over trading and the lower returns with it over trading so is it isn't it that not swinging at pitches just as powerful basically is swinging when a pitcher is throwing low balls or curve balls right i do something to tie my hands i only trade basically in any major way once a quarter and i do it right after i finish my thirteen f. analysis that doesn't mean the thirty nothing else is everything but at that point in time all stack up all my companies in my portfolio now and then all the competitors that i'm looking at and i'll rank them against each other then i'll sit down doing fundamental analysis of the companies that look attractive and then take a look down my list of companies that aren't ranking so highly that i still own and also treat a few out of those that look not so attractive a bonus that i own who wants to look at tractors but that forces me to be very mechanical businesslike and keeps me from oh hey i'm this company's following my
perform what i'm going to do i'm going to say no i don't so. i'll wait. well what's my expectation for this company from here on out always look forward if you look at the past you're going to say you're going to make bad decisions are a good miss businessmen are saying how can i maximize from here david thank you so much for your time and what i wish we had more time i think we have to have you back very early on that was david merkel founder and president of our investment. time now for a very quick break but stick around because when we return reggie middleton will be on the show reggie sat down with me to discuss the latest and greatest news surrounding apple apple they've got a new film coming out next week and then in today's big deal edward harris and i are discussing eric cantor's new gig on wall street and remember you can see all segments featured in today's show on you tube at youtube dot com slash boom bust our teeth and on hulu at hulu dot com slash dash now before. go here are
a look at some air closing numbers of the bell come on back with us. c.b.s. this is are you see it more than the propaganda. that is the state sponsor of russia today program just words like sabean not like telling them and analyze this . is just a ridiculous non-answer to my question. john is not. supporting their safety and sometimes their lives all over the world to bring people stories among the taliban the channels don't want you to see and we told the most sleep.
leg. length of england school the try to play players play polo going to be going into the water. like a war to destroy the taking every bit of. the leg the money the law the weapons. like the lead. muslims think the same so the molten lead ski's is mostly to blame sometimes for nothing and schlepped is so mean and simple challenge it's not just any of the story you'll be. just you see the state eight tests
sigrid laboratory. to build a new most sophisticated. fortunately. anything turns mission to teach me. this is why you should care only. welcome back now we are bringing you part two of my interview with reggie middleton c.e.o. of there it is the i'm an inventor of ultra coin i previously sat down with reggie to discuss crypto currencies and recent tech news but in this part of our interview i asked him what his thoughts were on apple considering they've reached a new all time high here's what he had to say irrational exuberance the fact that i think a lot of people are not taking a very close look at apple's. pipeline of potential and actual products versus
their competitors apple has stood management but it appears that one of the managers that was responsible for apple's significant rise is no longer there and that's steve jobs and again i don't want to put too much weight on that because if steve jobs did his job correctly he put competent management emphasize himself but when i look at the apple pipeline i see the approaches beats at what i think is ridiculous premium you know more power to dr dre and everybody was a very good payout but i don't think it was a good deal for the shareholders of a have large screen phones which means that they're now catching up to the android manufacturers from three years ago and they have potentially i watched it sort of a compare this to their competition where you have google with driving cars so driverless cars google glass which you know you always touch with your interface applications you have. the android. the android.
phone there google spot where you have replaceable components i think is project era where a user could pick up a phone for fifty dollars and replace the memory or the camera or the speaker at will these are technologies that are allowing the competition to give in the student first. a very clear path into future profits a few future revenue and if i compare google's pipeline apple's pipeline you know google's a significantly larger and apple's also stronger behavior of a mature company no longer a growth company massive share buybacks relatively sparse investment or indeed compared to actually revenues etc even compared to samsung and stems and spans the flexible for example screen affordable phones etc. apple is a very good company it's a very good very strong marketing and product but the actual pipeline seems scarce and. stead of going through an all time high i would be most likely if i was to
speculate on it and i know the near term bear but our medium or long term. they bring up google because i want to know how do you see google both in the mobile space but also in terms of overall business strategy it sounds you can give us an overview of it if you can go more into the nitty gritty. rob google is from a revenue perspective still an advertising company but they've done an excellent job in the seas paying the seas to expand diverse for the revenue stream the projects that i mentioned such as grass driverless cars project era. and they bring google to experience if they're advertising or simply post to the advertising it all depends are they carry the business model that everybody has a mask in real quickly do you think that they're spread a little bit too thin you know if advertising is one thing what do you think just in terms of the overall company. i don't think this puts them because i take a look at the results a lot of people thought they were spread thin when they brought you to what is the most valuable video property in the world right now most likely you two they
thought it was pretty thin with android what is the most valuable mobile operating system in the world driverless cars it's just think about the possibility of a state of owning cars now you simply buy every driver and get a new car you can get it for free if you play you advertise it so now you get a new. you go from here to fifteen blocks away for free without pain gas told said roy do is look at a few advertisements you know the ability to change the business model of the extant industry leader and put them out of business is what google says excelled it think about the last time that she made a movie less some really great a classified ad. you know variety of industries google has basically couldn't have simply by changing the business model and changing the revenue proposition expansion i like it's not so sure. right now we've been hearing about a price war in the cloud storage space so do you think cloud storage costs could go
near zero. but they can go for the window for the consumer consumer. no no i know you can do as well yeah. well i don't think it's cost could go in is zero but the storage business could be interesting right now for the consumer it is free almost all the major cloud vendors offer space for free dropbox google drive microsoft's. excuse sorry michael so microscope version seven robots will all offer free space and the free space that they offer just a few years ago was an expensive premium on your client device whether it's. a hard drive etc you know some offer of five ten fifteen twenty gigabytes for free that was expensive but ten years ago very expensive what the are doing is most likely they are or again recreating the business proposition so this they will give you this drive space for free if you and then you fill in the blank google does it so
that it's as mates but they also cause things such as google docs applications the office application environment etc microsoft has a position where they're trying to defend their extend office which many which i don't think is going to be possible going forward because it's simply too expensive for them. world and then you have new technologies there's a technology base of brawn the big. the big. space in technology that allows you to use just distributed space and so distribute space of your hard drive so basically it's like dropbox makes with bit torrent where you can. take you can buy hard drive space from five hundred other. hard drives personal people for a fraction what drop charges and you can do the same if you have extra space you can sell it on this period a period distribute basis and actually making come with business models such as
these these drives these drive the cause close to zero or negative for the big providers but i don't think the big providers care if they're again trying to change the business proposition and it's giving a speech for free as a loss leader or cross i think for something else and i'm going to make money if you give yourself in for free energy and asking what are the benefits of the cloud over premises storage for home and business users of technology. the benefits or you don't have to manage your own system need don't have to deal with security you don't have to deal with upgrades etc but that's the detriment as well you don't own the system you don't control security you don't control you don't you have a privacy issue you put something very sensitive whether it's personal business and the provided good subpoena and you potentially have a problem from that mistake in microsoft actually lost a brief decision when the u.s. government declared dead microsoft had to cough up data that was one u.k.
servers because microsoft is a us a company that means that companies in the u.k. or u.s. companies who have dead in the u.k. have no i don't know of privacy is the word for a bad state security against subpoenas in the u.s. even know that their property or their data is not located in the u.s. and not located under the jurisdiction u.s. courts are these so they thought now i'm not a lawyer but these concerns can potentially be mitigated if you have control of your own service. that was reggie middleton c.e.o. . and inventor of alter prime time now for today's big deal. big deal time with edward harrison season new deal and today we are discussing eric cantor's new job that's right mr cantor's new gig on wall street at most and
company it was announced tuesday morning that the former house majority leader will be joining the investment bank as vice chairman and managing director now even though he was a high ranking member of congress where they cantor has absolutely zero wall street experience so edward why wouldn't louis make this offer to him yeah why would. he get his offer from were i think it's clear that neither the. guy nor have yeah financial experience because he was a regulator that said and so forth but cantor has nothing except his connections in washington so it's clear anyone who's looking at the situation understands that not only is it clear that because of his connections but he's being paid a lot of money three point two million dollars a year old in order to facilitate something as a result of those connections i mean it's incredible but you know will his law degree he does have a law degree any obviously has tremendous experience in congress will that prepare
him for the job or do you think that his preparation is his rolodex his contacts on wall street there's no preparation necessary outside of well you know some companies where there's a lot of litigation but i don't think that in the position that he's in which is basically a mergers and acquisitions for a legal experience unless he has specific legal experience is going to be that contributes ory to his doing a better job i think it's more about captured anything else i think. we have something here maybe we can put up a quote on the screen from from simon johnson and he wrote this just recently. two hundred years ago washington he was captured by the british who then proceeded to set fire to official buildings including the white house treasury department and congress today it is a domestic interest group very large bank that has captured washington because are likely to be far higher than they were in eighteen fourteen and i think that's
agreed very well that's incredible and what's going on is that it's not just the big banks per se but now we're seeing the whole financial services industry is captured because at the end of the day that's how it works in washington if you want to make things happen you need to make your voice heard in order to make your voice heard you need to have someone who has connections in washington eric cantor has those connections you have it now here's the question do you most people to have never heard of this part but do you think that moment is sending the wrong message putting cantor in a position you know as a v.p. and a man it knows he's vice chairman and managing director of their company so is that the wrong message or think most americans just think this is par for the course now that they think it's par for the course of what you were saying because basically we've seen this over and over again with obama administration officials in particular so it's not just you know the republicans are doing this or the democrats are doing this it's a bipartisan thing where we see a revolving door it's not just from government to wall street but wall street to
government in the back again so it's just back and forth and it creates not just potential impropriety but it's the mindset of the people who are involved that they are all thinking the same way because they're beholden to the same industry and the same sort of belief system it's one little club and i think that it's in the a very bad signal but people are not going to be listening to that signal because it's happened so often it's the wall street to washing. internet against that we track so closely if you're here on ground busted it happens and i will continue to and we only have about thirty seconds left i want to ask you really quickly how cantor's new gig on wall street kind of affect the twenty fourteen elections do you think i think that it will have zero impact basically because people really don't care about this unless we have some sort of financial crisis then they will gather them up there and as always thank you for your insight and that's all for now but we were hearing from you so please check out our facebook page facebook dot com
slash boom bust our teeth you can also tweet us at any rate had edward n.h. from all of us here at boom bust thank you for watching us the next time but i. am not a politician but we see that it is a lot of countries that sit on the world's greatest blue reserves and the west just cannot stay away from such tremendous wealth so in order to get there without oil the west employs what i was cultural terrorists. years in retreat ukraine civil war has grounded into a stalemate and the economy is crushing this is created an opening for dialogue all
parties seize the moment well will moscow continue to be blamed. as the media leave us so we leave the media. are the same motions to the other your part of the physical. issues that no one is asking with to get that you deserve answers from. politic only on r t. your friend posts a photo from a vacation you can't afford. to different. the boss repeats the same old joke of course. your ex-girlfriend still tends to rejection poetry keep. ignoring. the post only reason matters. to your facebook news feed.
croatia to join me you'll have. a roadmap for the next ten years. good welcome live from marty's news room i am nice to know why tonight a ceasefire the no ceasefire complete confusion surrounding a peace plan in the ukraine crisis we've set the record straight this as another russian journalist is confirmed dead in the war zone a tribute to photographer i'm sorry stan you lost his life documenting violence in east ukraine and nato is beefing up or at least hopes to obama's in the baltics trying to boost funds ahead of an alliance summit in the u.k. you're in the not.