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A Hedge Fund Manager And Priest On Why Greeks Need The Drachma And To Get Over Post-Ottoman Psychological Insecurities

Also featured in Barron's here.

bz logoOn June 5, 2015, Rev. Father Emmanuel Lemelson, Founder and President of The Lantern Foundationand Chief Investment Officer of Lemelson Capital Management, appeared on Benzinga's Pre-Market Prep show to discuss The Greek Debt Crisis, Apple (NASDAQ: AAPL), Geospace Technologies (NASDAQ: GEOS), new short positions in shares of Skechers (NASDAQ: SKX) and Ligand Pharmaceuticals (NASDAQ: LGND), and other positions held by Lemelson Capital's top-performing Amvona Fund.



Among Lemelson's comments on the Greek debt crisis:

"My hope and prayer would be that Greece would do an orderly default, leave the Euro, re-institute the Drachma" said Lemelson.

"The root of this problem is that the Greek people as a whole are suffering from almost a latent 'Stockholm Syndrome', I mean they've almost fallen in love with their abusers, they don't want to leave the Euro on the one hand because they feel like it's a matter of Greek national pride, with pride being the ultimate form of myopia, but at the same time it's really subjugation to the Germans," Lemelson added.

"It's a sociological phenomenon more than anything else… they need to walk away from this debt, it's not sustainable, Greece does not have the productivity or the GDP to maintain these debts… Greek pride is a complex and funny thing… they have to get beyond this superiority complex that is really rooted in an inferiority complex, once they get beyond this psychology, they can start to lead their own country again, and whether you go back to Ottoman rule or World War II, the Greeks have this incipient belief deep in their hearts that somehow their inferior and they've got to get beyond that because they're not, that's the most ridiculous thought in the world," Lemelson continued.

"But until they get beyond that they can't really take control of their own destiny and rise up as the strong people that they are, take control of their currency and walk away from these debts," Lemelson added.

"Their response has been 'everyman for himself', they have a huge tax revenue problem, they're under-collecting at least 20 billion per year… they've got 80 billion in 'black money' stored away in Swiss banks, there is no sense of the collective good anymore, it's 'everyman for himself' and you just can't build a country that way, and they've got to get beyond that, they have to stop worrying about their inclusion in the Euro and recapture their identity as Greeks, reinstitute their own currency and get back to healing their culture, " Lemelson continued.

Among Lemelson's comments on Apple (NASDAQ:AAPL) and its fair value:

"It's important to look at some of the more subtle things going on with Apple… look at the rise of swift, their programming language for example, the thing is growing like weeds, it's unbelievable, it's probably going to displace Objective-C which has been around since the 80s," Lemelson said.

"This creates long-term barriers to entry, since Apple controls of course what gets into their app eco-system and what doesn't, and if they control the programming language, they've got a tremendous amount of moat around their castle if you will," Lemelson added.

"There is an upgrade cycle which is highly predictable, you can't replace the battery in these things, like laptops, they diminish, they degrade over two years, they're going to have to replace them, I don't see any competitive threat to their business… they'll probably sale 50 million phones this quarter, that's an extraordinary number, they sold 60 million last quarter as you know, it probably would be fairly priced around 175, 180," Lemelson continued.

For some of Lemelson's recent commentary on Apple click here:

On Lemelson Capital's long position in Geospace Technologies (NASDAQ:GEOS), Lemelson said,

"We have just under 600,000 shares, which is close to 5 percent of the company, ideally we'll try to get about 10 percent of the company," Lemelson said.

"At 15 per share it was trading well below net current asset values, it was the ultimate cigar-butt investment if you will, if it went into chapter 7 liquidation, the common would have been covered like a bond, so you almost have like an equity-bond situation," Lemelson added.

"I'll just talk real quickly about some of their science and why we're big buyers of the stock even though they're running a deficit, it really revolves around the future of their PRM system… which is a science designed to mitigate the output of aging wells, existing reserves… the estimate for the TAM is about 200 wells based on life and the age of the fields, so if you estimate 50 million a PRM system, that's about a 10 billion dollar market opportunity," Lemelson said.

"You've got Statoil publicly claiming on their website that their PRM system that was installed by Geospace doubled the output of their existing wells, that's extraordinary," Lemelson continued.

For some of Lemelson's previous commentary on Geospace Technologies click here:


On Lemeslon Capital's new short position in Ligand Pharmaceuticals, Lemelson said:

"We started re-shorting it, even though we don't like shorting… some things are hard to overlook, we just doubled our short position in Ligand yesterday in fact, so our average short price is about 89 per share," Lemelson said.

"I personally think that ten years from now, or twenty years from now, Ligand could be used as a case study in an academic setting for the excesses of what the stock market is capable of, they've created almost a veritable pyramid scheme of shell companies, they've got this IPO in Viking therapeutics (NASDAQ:VKTX), and it's really fascinating what they're doing because they're IPO'ing this company that really has almost no prospect of future earnings or revenues, it has no assets, it's just a tenant in their building," Lemelson added.

"What they're doing is they're taking this ownership stake of about 48% of Viking and putting it on their balance sheet to pad their balance sheet, and then the profits their getting from the IPO they are recording as earnings, so they're able to show these really great earnings, and then what they're doing is, if you have 48 percent earnings in this subsidiary if you will 'we're not going to record any of their losses on our P & L', even though this company is guaranteed to have losses, so they're selling internal "IP", to really almost a shell company, taking it public, getting a massive fee for the IPO... with the underwriters, padding the balance sheet and then disavowing the losses," Lemelson continued.

For some of Lemelson's previous commentary and research reports on Ligand Pharmaceuticals click here:

    • Lemelson Capital's previous research reports (including PDF versions) on Ligand can be found here.

On Lemeslon Capital's new short position in Skechers, Lemelson said:

"We've been shorting Skechers, which really probably seems counter-intuitive, and I'll tell you we were long Skechers back in 2010, 2011 we were active buyers under 12 dollars per share, and we had written a number of articles publicly, saying that we really thougt it was radically undervalued, at a time of course when all of the analysts were saying 'sell', and we were saying at the time that maybe it's worth 40-60 dollars per share, and we were buying between 12 and 17," Lemelson said.

"Above all, they're really a marketing machine, but there is limits on all valuation, the thing is a company like Skechers… they're always going to be subject to the vicissitudes of preference," Lemelson added.

"their earnings are very very inconsistent over the life of the company, so they're enjoying an extreme run-up in price, it's probably also related to short covering, the percentage of their shares which are short have gone from something like 26 or 27 percent at December 2014 to about 10 percent now, but historically if you look at their average price to sales, if you look at it on an discounted cash flow basis, this company is still probably worth between 40 to 50 dollars per share, maybe 60 per share, they're having a great couple of quarters, they've probably got a great couple of quarters ahead of them, but this is not a company that is developing a better mouse-trap, like Nike (NYSE:NKE), if you read the way Nike's CEO speaks and you compare that to David Wienberg, the COO and CFO of Skechers, you got two different beasts," Lemelson continued.

"there's always a place for a secondary player in every market, and that's been our thesis when we were long, which is there's a place for a company producing a second-rate quality product, but it should not be valued at such premiums, and the product has not changed in 4 or 5 years… we don't think the growth in revenue is sustainable, because they're not building enduring value, they're not building a moat like Apple or a Nike… at 105 'the wheels have come off'," Lemelson said.

For some of Lemelson's previous commentary and research reports on Skechers click here:

To listen to the full interview as well as brief commentary on Chipotle Mexican Grill (NYSE:CMG) click here.

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