Bear Case Scenario Alcoa $AA, $XME

Men with burning jackets will rip off their clothes quickly. Sizeable quantities of aluminum tied up in financing deals will hit the market if interest rates increase and cash-and-carry trades that capitalize on the contango exhibited by aluminum futures become less profitable.

Overcapacity is still a major issue and will continue to provide headwinds to both the industry in general and Alcoa in particular.

Some competitors have not curtailed or right sized production and will be trapped in a low price hyper competitive price cycle before they go bankrupt.

George Gutowski writes from a caveat emptor perspective.

Bull Case Scenario Alcoa $AA, $XME

Aluminium demand and pricing are set to recover from cyclical lows. All of which will help leverage Alcoa’s earnings model.

If, as and when the global outlook improves Alcoa will participate and reward shareholders.

Alcoa is a low-cost producer with decent margins. The Saudi Arabian facilities are ultra-low cost. As demand drives upward pricing pressure margins will leverage quickly.

George Gutowski writes from a caveat emptor perspective

Marissa Mayer Yahoo Plan B $YHOO, $BABA, $GOOG

Ok So Marissa is doing a stealth decimation. Weekly Yahoo HR takes over a bunch of board rooms and a group of  traumatized employees are excommunicated and released from any and all obligations Yahoo. Especially of the pay cheque variety.

Yahoo needs to cut costs. No secret. Marketplace looking for leadership from executive team. Slow short stokes have never done it; so why will it now?

Common sense and HR thinking in a rare intersection advocates you do one big day of execution and move forward with the survivors. Psychologically the wait is disturbing and pseudo survivors are not productive otherwise.

Cut to the bone. Motivate survivors and move on.

Marissa Mayer was hired for her skills as an engineer. She was not hired as an axe wielding cost cutter. Perhaps this is why we have a stealth decimation.

Is Marissa Mayer afraid to jump in the water and feel an invigorating change in body  temperature? She is afraid of something. Shedding headcount wholesale is a time-honoured but not guaranteed way to cut costs. So why pull your punches.

Because she is not sure this will really work. So its done in the back rooms quietly. Someone promised the board that she can turn Yahoo around. Cutting staff was not what they were thinking.

Ask not for whom the bell tolls for it tolls for thee.

George Gutowski writes from a caveat emptor perspective.

Achilles Heel for Banks and Credit Cards $V, $MA, $AMEX, $DFS, $C, $JPM, $WFC, $BAC

Interest Rates are rising or so the pundits say. Fed changed some wording on a sacred document and the market is convinced money will cost more. Usually banks do well in a rising interest rate environment. Lock in low cost deposits and capital. Lend and invest at variable rates and watch the spread expand.

True that but only so far.

Credit cards are fixed rate. They really have not come down as interest rates declined. After you chew through the tricky mumbo jumbo of a basic card holder agreement most credit card users are paying around 20%. Many are paying something north of that like 28% plus difficult to avoid fees.

That’s the way it used to be before the financial crisis. The banks may attempt to increase fees but the election cycle consumer turning into political pressure will be too high.

So spreads will narrow and that’s on the good accounts. The high risk accounts will increase defaults and the mathematical algorithms will start to invalidate.

Got that: The spreads will start to narrow as funding costs start to go up.

Not good for financial institutions. Wonder what the stress tests are showing on this fissure.

George Gutowski writes from a caveat emptor perspective.

Bank of America Bear Case Scenario Disaster Looming or Value Play $BAC, XLF

Financial Institutions of this size are usually too large to manage. They are not nimble or opportunistic. They are still the large aircraft carriers of the fleet. Too big to fail or sink without taking everything with them. Very depressing isn’t it.

It may take years before Bank of America covers its cost of capital. How long is a shareholder supposed to wait.

Cost cutting programs are usually not effective or take too long before the patient is declared terminally ill. Announcing a share buy back followed by the Fed’s giving them a provisional pass only smells of danger.

George Gutowski writes from a caveat emptor perspective.

Bank of America Bull Case Scenario; Reality or Delusion Driven $BAC, $XLF

Bank of America is poised to become a dominant provider of wealth management and deposit services. Low risk, high touch, low capital will generate fees far into the future.

Mortgage problems are finally behind them. Costs and exorbitant legal fees and settlements are a thing of the past.

Previous problems were attributable to poor capital allocation decisions. Given its current size there are no large mergers which could make senses to investment banker or fevered boards of directors. Besides the regulators are on duty and can be expected to scrutinize everything very carefully. Speaking of which B of A just passed the stress tests provisionally. They can still fail if they do not correct their homework properly.

Management was pretty cheeky when it announced a share buy back deal worth billions. That gets by the regulators but they did not seem to mind.

Most banks do well in a rising interest rate environment. Interest rates have only one way to go.

George Gutowski writes from a caveat emptor perspective.

What Will Kill Warren Buffett and Most Cities in the USA. The answers is …$MUNI, $BRK.B, $GOOG, $AAPL, $SUB, $MUB, $PZA, $SHM

What will kill Warren Buffett or more specifically his insurance operations and wipe out most American Cities?

Answer: Driverless Cars.

Driverless Cars have no active human intervention. Active human intervention is the leading sole cause of accidents. Humans making bad decisions resulting in accidents. Drunk Driving will stop being a factor. Speeding will become impossible. As a matter of fact Driverless cars will be programmed to follow all aspects of Highway Traffic Act and Municipal Ordinances. So there will be no accidents.

Risk reduces need for expansive auto insurance policies. Consumer starts to save a lot of money. Auto-Insurance companies start to shrink and then disappear. Insurance companies are major buyers of high yielding municipal debt. Politicians with good credit ratings will still go begging but the municipal bond market will dry up.

The driverless car will discipline municipal borrowers. Republicans and Democrats alike will need to cover their bills in another way.

Driverless cars will destroy the blood sucking auto litigation business that feeds so many shyster lawyers. If the accident did not occur there is no lawsuit.

Driverless cars will destroy auto repair shops. Less accidents means less work. Flinty eyed grease monkeys will stop taking money out of your pocket because you do not have as many accidents.

But the big issue is Berkshire Hathaway’s position within the general insurance market. The need for car insurance will lessen dramatically. After all who really likes their insurance agent.

Right no one.

This will be the first time that Berkshire Hathaway will need to go in a fast reverse and exit an investment before it drops dramatically. Everyone will see it coming. Insurance has been such an integral part of Berkshire Hathaway that when they attempt to dispose of it the stock valuation will drop like a stone.

Warren Buffett and associated minions have no experience or perspective with this kind of problem.

George Gutowski writes from a caveat emptor perspective.