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Friday, August 27, 2010

Even in the midst of Apocalypse, things will get better

An outstanding analysis of hyperinflaction from on the ground
I’m not repeating this insight as an empty comfort to my readers—I’m saying it as a trading strategy. When things are at their crazy worst, when everyone believes the Apocalypse is well nigh here, that’s when things are about to turn for the better.
We're not there yet, not even close, but we might be before long.

Thursday, August 19, 2010

The Economy

Back in the 1970s, the economy was stagnant. The velocity of money slowed. From what I've read, the government had this big idea that inflation would cause people to spend their money, for fear of having it inflated away. I also heard that inflation was associated with economic boom times. So if you cause a lot of inflation, the economy should start growing again, no?

The result was that people had to invent a new word for the situation because apparently no one had intentionally tried such a dumb idea before.

There is a flaw in the human mind which insists that the future will look like the past, despite hundreds of years of evidence showing that to be false. Even worse is the view that the future will simply be an extension of the near past.

In the 1990s, the Fed was pouring money into the economy and observing very low inflation. The problem was that they were measuring it wrong. Stocks were inflating. When the stock market bubble burst, they continued to pump money into the economy and continued to allow the government to assume the risks while private investors reaped the profits from bundling up mortgages and selling them, backed implicitly by the US Government. This allowed massive amounts of money to be loaned out at low interest rates to people with bad credit. Housing prices went up, then the bubble burst. I remember people telling me years ago that housing prices never go down by much.

Ordinary people are getting three-point-something percent 15 year loans backed by real estate whose value is still not entirely clear. There's something going on. The cost of money is far, far too low right now and it's holding up the prices of things that are purchased with money, especially borrowed money, way too much. It's propping up the stock market so that the risk premium is way too low. I worry that it's propping up the housing market, as well.

Now, the government continues to pump money into the economy in the form of "stimulus" and big government spending. Inflation still appears to be low. But there's some sort of bubble inflating somewhere. It's just a matter of time before we find out where. Probably somewhere within the government or its politically connected cronies. Glenn Reynolds argues that there's a higher education bubble.

I don't recall any time, and I've never read about any time in US history, when the government and associated politically connected people were so far disconnected from the views of ordinary citizens as they are today. People are holding up 1994 as the measure of what will happen in November. They'll have to invent a new measure when it's all done.

Fortunately in the US, we can have a hostile takeover of the government without the horrors of war and revolution.

I have no idea where the stock market will go, but it may depend on what happens in November, or what looks like it will happen.

Tuesday, August 10, 2010

CVU Q2 results

CPI Aerostructures just announced Q2 results. Comparing to Q1.

Revenue continues to climb to record levels. Up to $12.5 million from $11.0 million. Gross margins continue climbing to 26.7% from 25%. Net income increased to $1.2 million (18 cents) from $860K (14 cents). GAAP diluted share count increased 8.7% since last year.

Government prime work is down to only 24% of revenue.

They expect gross margins to be 24% to 26% for the year.

Mr. Fred noted, “Based on results for the first half of the year and expectations for a strong second half, we are confident that we will reach our 2010 guidance which calls for revenue to be in the range of $48 million to $51 million, with resulting net income in the range of $4.3 million to $4.8 million.”

Total contract awards for 1st half were $31.1 million, up from only $4.9 million in the 1st half of last year.

They get another $1.5 million on the extremely long awaited C-5 TOP contract.

Mr. Fred added, “We are again reaffirming our long-term guidance which is based on our expectation that our three major long-term production programs (A-10, E-2D and G650) will be in full scale production and producing consistent significant revenue during 2011. For 2011 we expect that revenue will be in the range of $78 million to $81 million, with resulting net income in the range of $8.9 million to $9.5 million. Using 2008 as the baseline, we expect a three-year compound annual growth rate for revenue in the range of 30% to 35%, with a resulting compound annual growth rate for net income in the range of 50% to 60%.”

They sold 500K shares to raise $3.5 million ($7 per share).

I'll look at the balance sheet later....

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