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david_j_c

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  1. Henrietta, By "revelations" do you mean something more than the recommendation to accept the offer? That certainly surprised me as it seems to me that CST has heaps more growth to go and the company executives stand to gain a great deal from that. But assessing future risk is obviously difficult and there's plenty of room for different views (particularly if you have most of your wealth tied up in the company). Otherwise it seems to me that the company has been run well.
  2. Henrietta: "...but when I look at the pretty fragile state of the world economy , and my reasonable pessimism about any recovery for some time , I am reluctantly accepting the offer" I agree with your premise but draw the opposite conclusion, to maintain my NO vote. Recent developments in Europe and the US suggest to me that the world economy is likely to follow the Japan model: zombie banks and essentially zero growth for a couple of decades, which means negative returns on most investments (especially cash) with modest inflation. True, there are always opportunities, if you can find them before everyone else does. For example, a company that has a superior product that can steadily grow market share in a segment of the economy even when the economy as a whole is going nowhere. Like CST, for instance. If you have some better candidates that remain undiscovered by the market I'd appreciate it if you could give some hints.
  3. "A 6% discount rate would suggest the capital & income of CST are as safe & locked in as a 12month Government guaranteed term deposit. That's a bit of a laugh." No, the discount rate is a guess at what return you might get from an alternative investment. The choice of 6% sets the alternative as a risk free term deposit. If the analysis concluded that CST will do no better than this by 2020 the NPV would be the current share price. The conclusion then would be obvious: take the offer and put the cash in a term deposit. The calculated $11.53 for NPV means that if you accepted $11.53 per share and put that in a term deposit at 6% you would get the same return as holding CST to 2020. Since the risk is less you should go with the term deposit. With an intermediate offer of, say $7, you have to decide whether the extra $4.53 you would get by holding CST until 2020 is worth the risk. For an individual company it's obviously not possible to quantify the risk, and not necessarily very helpful if you could. If you were to determine that the risk (=probability that CST won't come close to the targets assumed in getting the $11.53 valuation) was 0.9 you would probably take the $7 offer; but what if it was 10% or 20%? That has to be a decision based on individual circumstances. But there are so many hidden assumptions that the application of common sense is essential. Take the "risk free" discount rate of 6% for example. If you assume that CST can adjust their prices in line with inflation, and if you assume inflation stays constant at 3%, then the NPV will be about 30% higher. If you took the ultimate risk free rate as US treasury bills then the discount rate would be negative and the NPV would be much higher. With a higher discount the NPV is lower but for most of us that's not very helpful. For example, with a discount rate of 22% (so I don't have to do any calculation) the NPV is the current share price. But all that is telling you is that if you sold at the current share price and invested elsewhere with a return of 22% you would be just as well off. But of course that other investment has to be high risk (Greek bonds?). I think that what the valuation of $11.53 with a discount rate of 6% is telling us is that the offer is way too low.
  4. Any suggestions why the current share price is a significant discount to the offer? It appears to be saying that the offer won't be accepted but that CST is fully valued at $3.41.
  5. Logging on to csag-blog I'm getting a welcome page but no links to anywhere else. Anyone else having that problem? I agree with those advocating a No vote. The offer is the wrong order of magnitude.
  6. Is anyone up to date on the current IP position - how long before key patents expire?
  7. "...believe far worse than 1990. Then the household sector had a relatively low level of debt–the mortgage debt to GDP ratio was a comparatively trivial 18 percent, compared to its now record level of 87.5%." Thanks for the links you've posted to Steve Keen. On the issue of mortgage debt I think a key point is how much of this is on investment properties. For that part of the debt rent will go a fair way in covering interest payments. For owner-occupiers paying interest at less than 10% the total interest bill would be of the something less than 9% of GDP. Is this really an excessive amount to pay for somewhere to live?
  8. Saw some slides from an IBD conference held a few days ago. QFT recommended for screening for latent TB. TST described as "useless". This should apply for all starts on immunosupressives. Anyone looked at the size of this market? Has it been included in the total market estimated by CST? Clearly the number of patients would be large, but just a single test when therapy is initiated I assume.
  9. db, No, not familiar with Keen's work but just been reading it. I certainly agree with him on the role of credit and deleveraging. The latter is unmistakable in listed companies and we will soon know how this flows through dilution into reduced EPS. That is, the market has obviously factored in reduced company earnings in the sp, but it's not clear that it has factored in the dilution as well. The performance of our REITs in the absence of credit has been exactly as he says. I bought some when they were around 60-70% of NTA thinking I was being pretty conservative (also geograpically diversified). I was quite prepared for an increase in interest rates for a while, and maybe negligible income for a while, but the complete absence of credit was a (costly) surprise. Debt isn't going to go away but leverage is obviously going to be less for some time. Sooner or later other people are going to feel the same as I do, that holding cash for any length of time is not wise. When will that be starting to matter? Thanks for the link.
  10. db, actually I'm a fan, just jealous that he can get a lot more out of him not knowing than I can. The current situation is very much one of his black swans but there were plenty of warnings. All of which I think could be summed up by the common topic on this thread from the beginning: evaluation of risk. I nearly typed mispricing of risk but I think that term implies something about the whole issue - that there is in fact a correct price for risk. Taleb's point as I see it is that confronted with an outlier (black swan) it is impossible to assess risk. The only thing is to get the hell out of there (to cash). The form of risk control that has failed is the application of statistical models (eg subprime securitisation) but these have their place in the right circumstances. I think those circumstances are returning, but not yet here. As always, in the timing. Perhaps after the next reporting season is over?
  11. Taleb must be laughing in his socks. His message is: nobody don't know nothin, 'cept me and what i know is that nobody don't know nothin. Nonlinear, fragile, nature don't like big, fragile breaks, tipping point [no, delete that, someone else got that one]. Human nature, now there's a thing. Gosh. All innocent and harmless fun. But hang on. I remember, I do know something after all. Debt/equity. I predicted that [didn't I? must check] nobody else did. Back when I was a boy in Lebanon [but don't say that because history tells you nothin] they had this Muslim [don't say that either] finance thing where the lender didn't accept interest on a loan [fordidden] but instead took a portion of the equity in the asset bought with the loan. Worked a treat [actually, since I was quite young when I was a boy I don't remember how it all workd out 'cept that all the assets fell over so it didn't matter]. So there, that's the answer. You owe the bank 150% of the value of your house. The bank takes 150% of your house, you get nothin. Win-win all round. Nobody knows nothin.
  12. david_j_c

    AAH

    "They have only offered $1.40 if the trials have positive results." Where does that come from?
  13. In reply to: bing on Sunday 30/11/08 08:07pm bing, There are two fundamentally different ways of looking at investment on the share market. One is to chase capital gains, the other is hope for future income from dividends. You seem to have the first goal, most posters here have the second. So it's not surprising there is this disagreement: you are not having a discussion with "like-minded people". To take my personal position, what you are advocating works exactly against my interests. CST is a small proportion of my portfolio, considerably less than my long-term plans. I think CST will be a better investment at some point in the future when sales are higher. So, if CST management has the interests of "all shareholders" at heart (that is, "me") they would do nothing to talk the share price up. That, at least, is easy to do, whereas what you want is probably impossible. In general, it seems better for a company to have long-term shareholders than short-term (capital gain seeking) but in the current position it really doesn't matter for CST (except maybe registry costs). The only significance of the share price for a company is the cost of capital (and for long-term shareholders, dilution) but there appears to be absolutely no need for CST to undertake a capital raising (I'm hoping this M&A talk isn't serious). So as far as the operation of the company itself goes, the share price is largely irrelevant. The only area that I can see that it matters at all is the employee options. But if morale is an issue there are much more direct (and cheaper) ways to address that than trying to move the market. For me, all management can do now is increase sales more rapidly. I'm in no position to say if they are doing that well or not, but I'm sure they're trying. What I'd like them not to do is distribute cash to shareholders. At the moment their cash position allows them to sit out pretty well any crisis (global financial collapse, no money for any new health programs) at least for a few years. skorpian: you say "Theoretically - any share price can go to zero cents"; actually, it's 0.1 cents as BCSCA shareholders have discovered.
  14. In reply to: chesterdash on Tuesday 25/11/08 06:50am chester, Very interesting. Obviously, very few people believe this will happen (including me). But as he says when collapse happens everyone who previously thought it to be impossible comes to think of it as inevitable. That's where his Russian experience is of value in spite of the differences between the USSR then and the US now. The point in thinking about these doomsday scenarios to me is that asking why it's wrong is a way of focusing on what are the important issues. One thing completely missing from his analysis is the self-interest of the rest of the world as the US goes through the five stages. In the case of the USSR the rest of the world was probably quite happy to help the collapse along a bit, if possible. Not so the US. So what will other countries do? Not sit back and watch it happen, IMO. The other problem I have is what he has to say about the inflationary impact of printing money. He seems to be saying all the printing does to be done at once, which presumably would do as he says, destroy the value of money. But if it is done in a more measured way (and I think this has already started) at something like 5 to 10% of GDP it seems to me to lead more to the Japan scenario than the Zimbabwe one. And in time it would turn out better than Japan because of the famous American capacity to reinvent itself. David
  15. david_j_c

    BCS

    In reply to: forrestgump on Saturday 22/11/08 10:26am forrest, Yes, that's pretty much it (except the multipier means $60 in 2010 on the 60 new shares, not $1). Or, was. The October 30 announcement changed the rules so it's mainly just the $2 obligation for each 0.1c share now (unless they change back). It will be interesting (now that I'm out, just in time) to see how this develops. The effective price is currently something like $2.001, but the instant the next $1 instalment is paid (except by those who see bankruptcy as the better option; but it's underwritten) there's a whole dollar extra for the price to fall. Which I think it will do, because when the market price falls to $1 the real cost to a buyer is $2. So the trading day after the next instalment is paid will see a very interesting few miiliseconds of trading at the open as everyone tries to get as much of their $1 back as they can. The next event of interest will be the final instalment, another $1, but by then things will be different (assuming the economy is still functioning) and something like the opposite is likely as it will almost certainly be a bargain once the final instalment is paid at the likely share price then. We'll see. It's also instructive to see this as an example of how disasters like the subprime can unfold. There are I think 400m shares in total so if all of these were subject to the original rules and the terms of last Friday's trades, over $1 trillion would be extracted from "investors" (actually, in practice, the underwriters - Macquarie, JPMorgan, UBS I think). So a tunnel in Brisbane could eventually lead to the tunnel company owning most of Australia (not that it would be worth much then, which is maybe why they seem reticent to take up this opportunity). And they wouldn't even need to build the tunnel. That's financial engineering for you!
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