Wednesday, October 31, 2007
Tuesday, October 30, 2007
Is Ip the Fed's Poole?
Today it's Grep Ip's turn, of the WSJ. He had an article today entitled: Why Rate Cut isn't a Sure Thing. Here's the nugget from that piece:
But for policy makers, the decision is between the quarter-point reduction and no cut at all.
Misdirection my friends. Wall Street bears and hedge funds would love a quarter point cut, because a .50 basis point cut will allow stocks to continue their ramp, and the professionals are positioned incorrectly for that to happen. The Fed still needs to break the pervasive bearish psychology of the market and the weakness of the financials. That's why they cut the discount rate the day before options expired and .50 basis points in September.
So now the market wants you to believe that the Fed is floating trial balloons in the WSJ, and Ip's the source? Believe it if you want, but I don't buy it for a second, as I've said for the past two weeks that they'd chop off 50 basis points. But if you don't want this blog to be the source for the rate cut, then get conspiratorial. At least this way you can pass the information off as your own.
Anyone recall how many times Bernanke met with Treasury Secretary Paulson, the former chairman of Goldman Sachs? 58 times. What does Goldman Sachs think on the real time economics blog of the WSJ? They had this to say:
Many Fed officials probably continue to view the current episode as a mid-cycle slowdown rather than an all-out fight against a possible recession. In our view, however, a [half-percentage-point] move would be preferable because a 4.5% federal funds rate is still too high given the outlook for inflation and economic growth.
The Fed cuts .50, and that information is not in the market. And now you have the cover to move on it-Goldman Sachs has blessed it!
Packer's beat Denver 19-13
If you were bearish on Favre, you'd say it was the thin air in Denver. Just like the excuses the pundits make why the market should be going down. At least in sports; the scores silence the critics. But the market Cassandras? Their comments get play everyday, irregardless of how wrong they are.
Don't listen to these prognosticators. They should be on the bench! And that's why I had the Pack in the final leg of my four team parlay!
Sunday, October 28, 2007
Crack Spreads III
You had a shrinking of the crack spread margin, so Wall Street dumped these stocks, even though it was only a temporary situation. The enterprise valuation of TSO and Western Refiners (WNR 38.15) is substantially greater than their stock prices. But Wall Street didn't care. Maybe now they will.
90 year old young Kirk Kerkorian, who is worth $18 billion, decided to tender for almost 22 million shares of TSO at $64. If successful, he'll own 27 million shares.
If you missed TSO, look at WNR. The enterprise valuation of this stock exceeds 60, but it trades at 38? Give me a break. On October 10th, I said this:
TSO rallies next as it's a relatively cheap refiner with market rumours of a takeover, and WNR is the last to rally because it's hated by the street. And paradoxically, the stock loved the least, WNR is poised to rally the most, showing that in Wall Street, as in life, "the last shall be first."
It still stands. Let me be clear. If you followed this blog, in one month you got 18 points in TSO, and now you have the chance to get the same in WNR.
It's your choice.
Saturday, October 27, 2007
AIG's "$10 billion" writedown hysterics
Here's how the raid starts.
A junior level assistant attempting to make a name for himself, spots this tidbit of information on AIG's latest 10-Q on page 65. So the senior level trader lays out some shorts,and then this news is spread.
Since 1998, AIGFP has written super senior (AAA+) protection through credit default swaps, a portion of which is exposed to CDOs of residential mortgage-backed securities and other asset-backed securities. At June 30, 2007, the notional amount of this credit derivative portfolio was $465 billion, including $64 billion from transactions with mixed collateral that include U.S. subprime mortgages.
So how do you get the $10 billion dollar writedown? Look at the $64 billion figure, with CDO's. So mix apples and oranges and start a raid. Investors use the ABX index to track the subprime market. The triple A component trades at .84 cents on the dollar. So take $64 billion, x .84 and you have 53.8 billion. The difference? $10.2 billion dollars. So they scream AIG has exposure of $10 billion, and will take this writeoff when they report earnings. It's so sophomoric it's pathetic. But the street, blindly sells, and Thursday was another wonderful buying opportunity.
Maybe traders should have read AIG's 10-K. They would of seen this:
AIGFP maintains the ability opportunistically to economically hedge specific securities in a portfolio and thereby further limit its exposure to loss and has hedged outstanding transactions in this manner on occasion. AIGFP has never had a payment obligation under these credit derivatives transactions where AIGFP is providing credit protection on the super senior risk. Furthermore... no transaction has experienced credit losses in an amount that has made the likelihood of AIGFP having to make a payment, in AIGFP’s view, to be greater than remote, even in severe recessionary market scenarios.
$10 billion? Give me a break.
Now to finish the raid, the street screams that Genworth Financial, which was reporting after Thursday's close, and Countrywide Financial, which reported Friday before the open, were both rumored to be calamitous situations. What fools. Look at the prices that CFC (13.07), and GNW(25.48) closed at Thursday. To top it off, Cramer screams on CNBC at 2:30 that PMI and MTG were both going out of business.
Now the Treasury department was already talking with CFC. They didn't want CFC to cut the dividend because that would further erode the psyche of the market. We already knew this news. So let's play out the scenario. What if CFC was going to report terrible news Friday? We already knew this? If their was such a frightening scenario for the market, the Fed could of cut the discount rate before the market opened Friday. But MSFT had huge earnings Thursday after the close, so they did the heavy lifting! And if you can't follow this, you shouldn't trade these stocks. Trade those stocks that aren't battlegrounds. But don't sell your other stocks because you're getting panicked by these pathetic raids.
On Friday morning, when I said Cramer was completely wrong on the mortgage insurers, it was an easy call. I already saw the foolishness on Thursday.
What happened Friday? CFC closed at 17.30 up 4.23 or 33% on the day. The NASDAQ ramped, and the shorts were steamrollered, and the mortgage insures romped.
Friday, October 26, 2007
Now analysts are speculating that Hewlett Packard will make a counter bid. Does that make sense? HPQ bidding against Ellison? What did they do, read The Art of War and get courageous? Give me a break. Larry Ellison beat the Justice Department when he acquired PeopleSoft. BEAS will go to Oracle.
Maybe BEAS just doesn't want anyone looking at their books.
Buy the financials
He's wrong. Completely.
The Fed wouldn't allow that to happen. If Microsoft didn't have blow out earnings last night, I think the Fed was prepared to cut the discount rate 50 basis points before the market's open. Now Mr. Softee broke the back of the idiotic shorts and sellers of stock. The Fed, will cut 50 basis points on Wednesday, and will cut more until the financial stocks weakened balance sheets are revitalized.
When Mother Merrill calls Wachovia for a lifeline, the street is panicked. Secretary Paulson has been meeting with Bernanke weekly. Do you think they don't know what is going on? Have we heard from the Fed buffoon Poole? He's been silenced. Moral hazard? Not a peep. Fear is back into the system, which means we have the winds of the Fed on our back, and the market, led by the NASDAQ, follows the script I advertised here a week ago Wednesday.
And now, the shorts have to cover their bets on the financials, fueling the fire to the upside!
How ironic is that?
Thursday, October 25, 2007
Microsoft blows earnings away
Market considers a 50 basis point cut
Now there's a 100% chance of a 25 basis point cut, and a 14% chance of a 50 basis point cut, and a 50 basis point cut priced in by year's end. The market, is being dragged kicking and screaming to my position. What a difference a week makes.
And the bears, who are still short huge amounts of stock, will be dragged kicking and screaming into the poorhouse, blabbering about subprime, housing and mortgage messes, as this market steamrollers them.
The information I had given you, would of allowed you to buy stocks last Friday, on the 20th year anniversary of the crash, when the market was down 376 points, with bears everywhere, and Maria Bartiroma screaming, "look at the sell imbalances."
Even today some shill on CNBC said, "you have to be brave to be long." Are you kidding me? Brave? This talk makes me puke. I can't even turn the volume on the TV set. I just need to watch the tape.
If you want to follow Wall Street you might as well just burn your money. Or you can keep your cool, and keep your money, and make some manna from the opportunities the market is giving you.
It's your choice.
Buffett bless Korea's market
Buffet owns a chunk of steelmaker POSCO (PKS 171.90).
Look for this and other Korean stocks that trade here to be gunned on this bit of news.
Wednesday, October 24, 2007
..ISRG's COO Gary Guthart should, and he had this to say about it: "We view Luna as the clear technology leader in the area of advanced shape sensing and position tracking systems."
Today ISRG closed at 317.37, a gain of 88 points or 38% since September 6th. LUNA traded nice volume today, and is up 49% since then. In this market, it seems that the investor has made himself scarce. He needs to come back.
Investors should read the SEC filings on LUNA, and take another look at this company, as Wall Street is finally taking a bit of interest in the stock. Chartists will probably say that if it breaks through 6 on high volume, you'll have a multiple breakout on the chart. The stock is worth another look.
Sovereign wealth investors
Merrill Lynch's earnings
"Third quarter 2007 results reflect significant net write-downs and losses attributable to Merrill Lynch’s Fixed Income, Currencies & Commodities (FICC) business, including write-downs of $7.9 billion across CDOs and U.S. sub-prime mortgages, which are significantly greater than the incremental $4.5 billion write-down Merrill Lynch disclosed at the time of its earnings pre-release.."
“Mortgage and leveraged finance-related write-downs in our FICC business depressed our financial performance for the quarter. In light of difficult credit markets and additional analysis by management during our quarter-end closing process, we re-examined our remaining CDO positions with more conservative assumptions. The result is a larger write-down of these assets than initially anticipated,” said Stan O’Neal....
Why is it so difficult for MER to value these positions? Because they don't want to sell them, and mark them down even farther. So they use a more "conservative assumption." So they're halfway there. They went from mark-to-myth, to mark-to-model. Eventually they'll get to marking to market.
But they need the Fed's help first.
Time for Stan to go
To get a grasp on the size of this loss, just look at the wildfire calamity in California. About 1,500 houses burned already. At $500,000 a home, you have losses of $750 million dollars. Mother Merrill lost 10x that amount! But Stan O'Neal assured Merrill employees that they were watching the store in video feed. Let's see how true that is.
MER's Value at Risk for fixed income (VaR) in the 2nd quarter was $61 million. That's the amount that the quants say they could blow up on a very bad day. So divide $8 billion by 60 days, and I have a loss of $133 million a day. Maybe they need to adjust their VaR's.
Sovereign Wealth Funds II
The US economy is still the laggard in the world. We used to need the nations of the world to buy our bonds, to finance our deficits and to keep our interest rates low.
But our lenders in Europe bought bonds with our mortgages attached; and they are finding out, like Merrill Lynch, that those that leveraged these transactions, get pennies on the dollar.
Since our domestic economy is so weak, the influence of petro dollars and sovereign wealth funds pulling back on purchases of our treasury securities, (unlike subprime) is well contained. Here's where Treasury officials could of used that language.
But these nations around the world now have reserves, in dollars, that our depreciating, as the chart shows. So if the value of your dollar reserves has fallen, in your currency, by 20-55%, what's a central banker do to contain this dollar weakness contagion?
The housing and mortgage market is so moribund that the Fed has to continue cutting rates. Weakness in Caterpillar, Coach, Target, and Walmart give real and anecdotal evidence that the woes in housing have spread, and are affecting the consumer. So the Fed cuts. And even a central banker can recognize that.
Yesterday I chided a certain CNBC anchor for gesticulating on Friday's sell imbalances. Tuesday, when the market was romping, she was talking about "the flow" and the "conviction" of the buyers. In technical parlance you could call that the "hysterical" indicator.
It's not the flow from the programs that matter, it's the deployment flow from the long term strategic buyers of our stocks. And it looks like these sovereign wealth funds, like the NASDAQ names.
And that variable is not in the quant's equation.
Tuesday, October 23, 2007
AMZN has $240MM in convertibles, denominated in euros, (PEACS Premium Adjustable Convertible Securities-about $340MM US) that pay 6.875% and are convertible at 84.83 euros (120). Wouldn't it be ironic, if the shorts, who have hated AMZN, helped with the conversion of these PEACS via a nasty squeeze?
Monday, October 22, 2007
Bottom fishers only
Is that in estimates?
Send in the Clowns!
Don't you love farce?
My fault I fear.
I thought that you'd want what I want.
Sorry, my dear.
But where are the clowns?
Quick, send in the clowns.
Don't bother, they're here.
Isn't it rich?
Isn't it queer,
Losing my timing this late
In my career?
And where are the clowns?
There ought to be clowns.
Well, maybe next year.
And I hate to point this out, but one of the lead clowns was Maria Bartiroma of CNBC, last Friday at 3:45, gesticulating like Howard Dean, and screaming "look at the sell imbalances" for the option expiration close. Pathetic.
The sellers this morning? Moronic.
Hope you made some money off of them.
Buy the market's "hissy fit"
A spokeswoman for Comcast, Beth Bacha said, "Nothing justifies this sort of dangerous behavior."
The police arrested her on a charge of disorderly conduct. She received a three-month suspended sentence, was fined $345 and is barred from going near the Comcast offices for a year.
She eventually got phone and television service from Verizon and Direct TV.
She said many people have called her a hero. "But no, I'm just an old lady who got mad. I had a hissy fit," she said.So the market has a "hissy fit." I wonder if the sellers of stock walk on the other side of the street when the 75 year old grandmother walks by.
"Hissy fits" happens.
Why would this move it? A few years back, daytraders took Host America to crazy levels, after news came out that they were doing a beta test for environmental lighting at Walmart. PLUG's battery beta test turned into an order, and the daytraders won't be able to resist striking again with a hot potato stock.
Ben Stein on subprime
One is that it’s a bit too predictable that Mr. Paulson would basically pooh-pooh the subprime problems until major Wall Street powers got in trouble and then — presto! — swing into action. It might have been inspiring had he stepped up to the plate when smaller players like home buyers were getting burned, but that’s not really his style...
But the vicious, cruel truth is that some very greedy, selfish and, yes, stupid men made fortunes on deals that were economically and/or ethically wrong. (Why else hide them off balance sheet or abroad?) They got immense fees, stunning paychecks and the inheritance of maharajahs. Their great-grandchildren will be rich from their deeds and misdeeds. As far as I can tell, they are not being called to account in any major way. The ones at the top aren’t fired or, if they are fired, are fired very rich.
Friday, October 19, 2007
Today I'm recapping what has happened, but I'm just recapping what I wrote before it did.
On Wednesday, there was only a 32% chance of a Fed rate cut in October, when I wrote about the housing's implosion accelerating. I said there would be a 50 basis point cut:
The idea, that the FED will be on hold for it's October meeting is now completely ridiculous. Look for talk of a 50 basis point talk next.
Thursday morning, when discussing the breakdown in BAC's earnings I repeated it in case anyone missed it:
Thus the FED cuts in October, and they do 50 basis points. That is not in the market.
Today the Fed fund futures rate is now pricing in a 100% chance of a quarter point cut in October. The street has now come halfway to my viewpoint. That's a good start.
Thursday morning I talked about Goldman Sachs Level 3 assets, which I called "mark to myth." Today GS is down 10 points. Did someone else decide to read the 10Q or this blog? If you did, you saved yourself 10 points. You can get your news before it happens; here, or you can get when it has already happened, somewhere else.
This market selloff is all about housing. The homeowner was stuffed with higher mortgage payments, and unsalable homes; now the market has recognized their problems are now the banks. Being stuffed with bad loans is preventing banks from doing business, just as the multiple mortgage payments stopped the consumer from spending.
The good news, though is the Fed will be highly proactive and aggressive in their rate cuts, the dollar be damned. They need to stop the spiraling down of home prices, and prevent the banks from owning more homes. The homeowner needs the value of his home to go up, and he needs lower rates to stay in his house.
Nothing makes a central banker move faster, than when they have a whiff of fear. Especially, when their "children" are losing money in bad loans, and the mortgage insurers are losing the confidence of the market.
So the Fed cuts. And this time, there won't be a peep about "moral hazard."
Thursday, October 18, 2007
So can you give us some color on the timing of your hires during 3Q and also how we should think about this in relation to margins going forward? Thank you.
Eric Schmidt's reply:
Obviously can’t talk about margins going forward. What we said last quarter, as you know, is that this is an area where we needed to spend some more time and focus more on what is the appropriate rate. And the good news is we have done that. The numbers that you are seeing are essentially an overhang and they are an overhang from hiring that had been agreed to many, many months earlier. June, of course, is a major college hiring, university hiring, professor hiring kind of a cycle, so I don’t know that that will be repeated.
The important thing here is that we did in fact correct and I think going forward, you should be comfortable that we are paying a lot of attention to the headcount.
And that caused the stock to run to it's afterhour high of 650.
In a different tape, GOOG would have been down. These earnings already should of been factored into the price. But for the bears that want to put in their two cents, that's what foreign currency added to earnings for the quarter.
Tier and Capital level
Why is this important? Because you have certain tiers in Capital that banks need-Tier's 1, 2,and 3, and these are substantially different than the levels that brokerage firms price their assets. Today, you make hear whispering by the bears about Goldman Sachs (GS 227.62) and their asset level pricing. From their latest 10Q, (from memory) they had $73 billion of level 3 assets, and a $2.98 billion gain on it.
Maybe Goldman has their own SIV. Or at least, that's the whispers you may hear. So read their 10Q so you'll know how to answers the whispering bears.
Bank of America's earnings
Now it's apparent that residential housing caught the banks off guard, and they'll say the same when it comes to commercial loans. Loan losses are accelerating for one simple reason. A typical homeowner will do his best to hold on to his home, until he throws in the towel. It's easier to throw in the towel, when your equity disappears. The home equity losses are appearing even faster because of "short sales" in a home.
Assume Joe sixpack in 2005 had a $300,000 house. He had a mortgage of $225,000 and an equity line of $50,000. That house is now worth $225,000 but will sell for less than $200,000. The equity line is a total loss, and their will be a 20% hit on the mortgage also. An investor or a buyer, will offer to buy the house for $175,000 even though $275,000 is owed. The bank eats the loss, and the homeowner "short sales" the home. The short sale only stays on his credit for two years, and the tax implications of this are negotiable.
Banks got stuck on dummy mortgages; now they are getting stuck on funky short sales. Home prices need to go up, for this mess to stop, and the FED understands the problem when their banker buddies continually take hits on their balance sheets. When the homeowner was getting hit, things were "contained." When the bankers get hit, it's contagion.
Thus the FED cuts in October, and they do 50 basis points. That is not in the market.
Wednesday, October 17, 2007
Housing implosion accelerates
The Fed couldn't care less about strength in the NASDAQ, but they are concerned about the weakness in the banks. Treasury Secretary Paulson stump speech yesterday was a back handed attempt telling banks that they need to keep homeowners in their houses. Why? What is the $80 billion SIV for? To keep these assets off the balance sheet until pricing recovers. It's the same in housing.
The idea, that the FED will be on hold for it's October meeting is now completely ridiculous. Look for talk of a 50 basis point talk next. This lowering of rates, is the only tonic that can stop the homeowner's from bleeding, and get the cozy home lookers, off of the couch, and into a buying mood. They feel they have the benefit of time. The home seller doesn't, so the sales closed are now distress sales. Other homeowners, seeing this markdown in their equity and their nest egg evaporating, are just giving the keys back to the banks. Now the banks are feeling the pain that the homeowner felt, and it is happening at an accelerating pace. And since the problem is now shifting from the homeowner to the banks, the FED is now very concerned.
If houses drop another 10%, you'll see $200 billion more in losses in these packaged mortgage securities, and theses SIV's will be a sieve. If this SIV wasn't a problem, but just a technical issue with a balance sheet, then why was Treasury involved?
So the FED cuts. And this cut, is what the NASDAQ buyers see. And those buyers will stay around, to the shorts dismay. The bears are getting the bad news that they wanted, but the bulls don't care. That story, already played out in August. Paradoxically, this bad news, is exactly the news that the bulls needed to bury the bears. May they R.I.P.
Fuel Tech romps as advertised!
FTEK 26.64 is another stock the bears have piled in on the short side. Barron's had a nice weekend story on the stock, and it's on the Regulation SHO list. Look for the bulls to try and gun this number. All the have to do is whisper that FTEK is going to sell more NOx reduction projects in China.
Today FTEK closed at 33.52 up 4.72 today. The news? A 7.2 million NOx contract with a Midwest utility and this blib in the press release..."Sales of our proprietary NOxOUT ULTRA technology continue to gain momentum in 2007 with announcements thus far in the United States, Italy and the People's Republic of China."
A shark for $8 million?
It's called a sculpture for a reason. The first shark wasn't properly injected with formaldehyde and it disintegrated, and was replaced. So if you think your meal at the Ithaa at the Hilton Maldives, is expensive-it's not.
Maybe the Nasdaq and technology stock participants would be a little better off, if they developed a bit more belief. A nice example is Intel (INTC 25.48) which reported bang up numbers. The WSJ headlines yesterday were Intel Soars: Did customers overorder?
Who helped the WSJ with this article? The analysts from Think Equity who downgraded INTC to a sell and cut their target to 22 last week?
In the conference call afterwards INTC saw higher margins and larger participation in the server market. To see a higher price for the stock, and you don't need to suspend belief. You just don't need to listen to Think Equity.
Tuesday, October 16, 2007
The dish on DISH
Monday, October 15, 2007
Shares outstanding 15,889,000
Institutional ownership 19,528,391
Market cap $1.3 billion
Another heavily shorted stock. Did you notice that just the institutional ownership alone exceeds by 3,639,391 the the total shares outstanding? There is plenty of demand for the stock, from both shorts and longs, but Citigroup's Mark Mahaney downgraded the stock on Friday to a sell but left his target at 88. He felt that NILE would miss revenue estimates, or be in line at best. They report November 6. I think you need to buy the stock for a trade at these levels, and that the hedge funds that are short, got a gift from Citigroup, and will try and cover here.
The picture on the right is Lake Tana, the source for the Blue Nile, known in the Greek as Psebo, discovered by Straba in 22 CE, and known now as the "blue valentine." Lake Tana's center is at 12 degrees N, 37 degrees E, and is 1400 square miles with 37 islands, with 19 monasteries, one of which, legend says, stored the ark of the covenant along with other treasures. (Psebo in Greek is: psi epsilon beta omicron= 700+5+2+70= which adds to 777).
The most famous Blue (tavernier) diamond in the world, is the Hope Diamond. Jean Baptiste Tavernier, hocked it from the Hindu god Siva's, third eye, which represented fire, while the other two eyes represented the sun and the moon. He sold it to Louis XIV in 1668. 300 years later, before it made it's final home in the Harry Winston gallery in the Smithsonian, the diamond's phosphorescence was checked by gemologists. If you shine an ultraviolet light on a diamond, and the diamond glows afterwards, that's known as it's phosphorescence. The presence of one boron atom, a conductor of electricity for every million atoms of carbon, allows this to happen. The Hope's phosphorescence was expected to be light blue, but instead it glowed "orange red like a fireball." The eye did represent fire.
Diamonds can capture the imagination, and the shorts of NILE shouldn't underestimate the psychology of stock investors. It's more with the public than the pros; just witness the action in the Chinese stocks. Compare the market cap of Amazon to NILE. Another river card that's an ace? They say diamonds are forever. Some shareholders may think the same.
- Jessup: You ever served in an infantry unit, Son?
- Kaffee: No, Sir.
- Jessup: Ever served in a forward area?
- Kaffee: No, Sir.
- Jessup: Ever put your life in another man's hands? And asked him to put his life in yours?
- Kaffee: No, Sir.
- Jessup: We follow orders, son. We follow orders, or people die. It’s that simple. Are we clear?
- Kaffee: Yes, Sir.
- Jessup: Are we clear?
- Kaffee: Crystal.
Sunday, October 14, 2007
SHO me the Money!
Here's why it is problematic. I'll use Take-Two as an example, because this stock has been hated by the bears forever. In August, TTWO had 31.7 million shares short, out of the 74 million shares outstanding. Institutions hold 95 million shares of TTWO, 20 million shares more than the total outstanding!
Overstock (OSTK 34.92) has been on the list for two years. As long as the price of the stock stayed down, the shorts could sell phantom shares, to offset any real buying to suppress the stock. This is the argument that the bulls made. The bears scoffed at it. But what has happened to OSTK's stock price as we approach the end of the grandfather clause? It was at 18 at the end of July and it's now at 34, and we know that the short interest only went down by 1 million shares in that time frame. Wacky Patty, as the bears call it's CEO, claims that the amount of shorts in OSTK is over 10 million shares. Maybe it is. Whatever you think of him, he's been winning the arguments in his lawsuit against the bears, and OSTK is the poster child stock for Regulation SHO.
Check out the list; there are stocks on here whose price has been affected by the bears shenanigans, and you have a wide assortment to chose from. One stock that has a particularly vocal contingent behind it is Local.com (LOCM 6.78). It may be worth a look.
Saturday, October 13, 2007
Heart of a Dog
But right before the bell on Friday, financial regulators and the money center banks proposed the cure, whereby the NY banks would pool $100 billion into a "Super-SIV" (structured-investment vehicle) to provide emergency funding, and keep these assets off their balance sheets. Here's what you need to know about SIV's.
Citigroup (47.87) traded up a buck in the afterhours, as it has $100 billion of SIV obligations, but that wasn't the catalyst for the move. It was the confluence of two factors. 1) Deutsche Bank's Mike Mayo criticized Citigroup's CEO, Chuck Prince in a blistering piece, and said he has to go. 2) Jim Cramer, of CNBC's Mad Money, said Prince would be gone by the end of next week. That led the market to believe they were leaking in NY, as they are in Washington DC, and dancing Chuck, would be shown the door. (Read my August 11 piece on Prince here)
So the street is attempting to contain the SIV virus, unlike the SIV virus Serge Voronoff started. He was the Russian surgeon who after observing the aging of eunuchs, began practicing "greffes testiculaires" or grafting monkey testicle tissue into man, qualifying him as the first surgical anti-aging Doctor. Lucky he practiced in the 20's so he wasn't writing scripts for HGH at Signature Pharmacy or George Mitchell would be investigating him. But now you know why the AIDS virus had a primate origin. (SIV Simian immunodeficiency virus).
Philip Philippovich Preobrazhensky, is the professor in the 1925 Russian Novel, Heart of a Dog, who transplanted human testicles, into a dog, in the fictional version, of the real life Voronoff. But the author, Mikhail Bulgakov, was known for his naming etymology. Philip's alliterated name means transfiguration, and Bulgakov's had his in his masterpiece, The Master and Margarita, his most acclaimed work.
But Wall Street has never taken to Chuck Prince, and has hoped that the Prince in Arabia, Alwaleed bin Talal, Citigroup's largest shareholder, would move to remove the Prince in NY. That hasn't yet happened. But when Margarita, made the deal with the Prince of Darkness to be reunited with the Master, at the spring ball of the full moon, the cat resigned the chessmatch with Woland and said: "I am unable to play in an atmosphere of persecution." I think Chuck will have words like that this week.
And dancing Margarita's directions to the ball were, "straight to the tulips." And at this price, I think the ukulele players will be buying the stock. And when Prince leaves, Citigroup's transfiguration begins.
Friday, October 12, 2007
Tiptoeing around TIBCO
But nobody cares about TIBX. It's been a rumoured takeover target as long as BEAS. But things changed last week when SAP bought Business Objects, and today when Oracle bid for BEAS. Now analysts are speculating that Hewlett Packard will make a counter bid. Does that make sense? HPQ bidding against Ellison? What did they do, read The Art of War and get courageous? Give me a break. Larry Ellison beat the Justice Department when he acquired PeopleSoft. BEAS will go to Oracle. But Larry doesn't care about HPQ, he wants Oracle to upseat IBM as the No. 2 player in the middleware market, and that market is now being forced to operate in Internet time. And that's forcing IBM's and Hewlett's hand, as both SAP and ORCL have already announced acquisitions so now they're at the dance without a partner.
Ever go to a dance, and have a bit of a buzz, when it's getting late at night? Chances are, your first choice is already gone, but you're not thinking about the one that got away. You're thinking about who's left. And now that farm girl, TIBX, is looking like Erin Burnett of CNBC. So ask her to the dance and get out the ukulele, just so I can throw in another "Oracle."
On Wall Street the most famous ukulele player is the "Oracle from Omaha" Warren E. Buffett, but off of Wall and Broad it's still Tiny Tim, and his Tip Toe through the Tulips tune. Now Tiny Tim shared the same name with Tiny Tim Cratchit of Dickens' A Christmas Carol, and God Bless Tiny Tim was the title of his famous first album, and also the famous last sentence of Dickens' book.
But TibCo knows that they are cheap. They've bought back 25 million shares at an average price of $8.88. Someone else thinks they are cheap and it's secretive Bruce Sherman, of Private Capital Management, at 8889 Pelican Bay in Naples who at last count had bought over 15 million shares of TIBX. Haven't heard of him? Maybe you should. His firm owned over 41 million shares of BEAS!
Does Bruce play the ukulele also? No, but he's great at spotting value, and he sells to the ukulele player, Warren Buffett, who picked up Dairy Queen, Shaw Industries, and Garan clothing, companies he had substantial positions in.
Did IBM invent the ukulele? No, but the ukulele was first plucked in Hawaii in 1885, the same year that the first computing scale was patented by Pitrap, the predecessor company of IBM. And Tibco's name came from the initials of The Information Bus Company, just like IBM's came from International Business Machines.
So I threw in some numerology, history, literature and pop culture, with six degrees of separation from those in the world of money, along with real reasons to buy the stock. And I'll also throw in a November 10 call option at .15 for those who don't have much money, but would like to make it.
And hopefully, we'll be able to say "God Bless you Tiny Tim" when the big elephants come to the dance.
Oracle buys BEAS! As advertised!
"Business Objects (BOBJ 50.26) got a cash takeover by SAP close to $60 bucks. (Where have all the midcap software stocks gone? Oh that's right, they've already been bought.) One that hasn't is BEA Systems (BEAS 14.01) a stock Ichan has bought a 13.2% stake. So that's the 10 second "derivative" play on SAP's buy."
But why the picture of the earth? Earth in Hebrew is eretz, and converting the earth from Genesis 1:1 into the numerical equivalents gives you a value of 296. Now if you cube 6.6666666666 you have 296.296296296296, the number of the earth. And the earth travels 66,666 miles an hour around the sun. Of course this story is in Genesis, where most think about Adam, Eve and the apple in the garden of Eden. But what was the price of the first Apple computer? $666.66. So $6.66 billion for BEAS? Larry Ellison dialed up the right numbers!
Thursday, October 11, 2007
Mozilo gets monkeyed with
Mr. Moore should just look at page 103 of CFC's lastest 10Q, and ask one question. Why was CFC propping up their stock in May by purchasing 21,507,817 shares of stock at an average price of $40.39?
CFC spent $869 million buying back stock in May, but they only bought back 1,494 shares in June, when CFC didn't have to sell $4.5 billion of convertible debentures like they did in May. CFC had this to say on May 9th when they reported their April operational results and were selling the debentures:
"Strong year-over-year improvement in all other business lines rounded out the month."
Contrast this with the statement in April, when CFC reported their quarter and gave "fictitious" earnings guidance of $3.50- $4.30 for 2007, when they spoke rather soberly. Here it is.
“Countrywide’s earnings for the first quarter of 2007 were $434 million, despite adverse subprime and housing market conditions,” said Angelo R. Mozilo, Chairman and Chief Executive Officer. “While the Company’s core operations delivered what was otherwise a strong quarter, earnings were impacted by charges relating to our subprime activities as well as increases to our loss reserves and related asset valuation adjustments stemming from higher delinquencies and softer housing markets.”
It appears that CFC propped up the stock in May, with it's buyback to help sell convertible debentures at favorable pricing to bring in billions of much needed cash. CFC's massive buyback sucked in Wall Street when their fundamentals were deteriorating rapidly. After they sold the debentures, they walked away from the market.
Or may wily Angelo was unaware of the impending disaster in housing, and was just fortuitous in dumping stock in his "pre-arranged" plan.
You make the call!
Remember when Matt Estrella did a little video work on behalf of the Patriots? The sportswriters said the Pats' were "tarnished" and this was a "blemish" and the NFL sent a big bad signal to Belichick in the form of a $500K fine. Does anybody care now? No. Because the Patriots have completely crushed their opponents. It's the same as Wall Street.
Eventually people will wise up that these sideline antics have nothing to do with the game, but until they do, they'll only be be able to commiserate intellectually. It took Vegas only two weeks until they widened the point spread sufficiently on the Pats, but bookies, unlike pundits, have their own money on the line, so they learn quicker. Learn from them.
Wednesday, October 10, 2007
Upon completion of a successful merger, I think CSCA could have a two handle. The warrants, CSCAW, with a strike price of 5, could be worth three times their current price. However, the merger must go through, or you'll be left holding the bag, as CSCA is a SPAC (Specified Purpose Acquisition Company), and you'll be left with $5 of cash, and worthless warrants on a failed deal. The merger is supposed to close this quarter; so it's a stock that's worth watching the news for.
So how do you get a "free play" on CSCAW on the Chinese Casino taking over Wall Street? Well, if you read the SEC filings, you'll see that GaoKe is a leading provider of distributed power generation and micro power grids. Now follow carefully. Jinpan International (JST 26.93) which sells resin transformers for the power industry in China, on their last earnings report in August, saw big growth ahead for the power industry. And I think you should be able to make enough off of this play, to have your CSCA play for free. Here's why.
Sometime in the next day or two, I suspect some hedge fund or daytrader will do some digging on SEED. And they'll come across Jinpan International. They'll see it has a small float, it's on the AMEX, 95% of their business is in China, and they see strong second half growth. When they discover it, and ping their buddies, the stock should move like ATV did today.
Why would someone who bought or missed the SEED trade stumble across JST? Besides being fundamentally cheap, the catalyst for Origen Agritech moving, was the blessing of being on Forbe's Asia "Best under a Billion" list.
Who else is on that list?
Crack Spreads II
Today VLO announced lower earnings before the open. Some joker sold stock under 70 in the premarket, (probably the same clown that sold TSO down to 50 1/2 in the premarket despite getting an upgrade!) and that's where the specialist bought his stock. This was done by the pros to panic the public, who watch the pre-market prints. The correction in these stocks are already over, but they needed some pre-market prints to bag the last holdout longs on these stocks. The ruse used was the "news" of lower earnings, but at 7 times earnings, the hereafter is already discounted in these prices. So the stocks rally.
Now think about this. Do you really think that refining margins are going to stay this low? Of course not. But most people let stock prices affect their thinking at turning points, so they can't buy at bottoms. But if you look at some bottoms, you might just laugh enough to think about buying. Now that Wall Street reverses the stocks on bad earnings, and puts a green candlestick on the charts, the public can come in and buy. Wall Street will then say the bad news is already in the prices of the stocks. The difference is I'll tell you before it happens, while they tell you after it happens. The difference in price? I already did the math for you.
So here's the script as I see it. VLO rallies first because they have the biggest buyback (they bought back 11% of their shares the past year). TSO rallies next as it's a relatively cheap refiner with market rumours of a takeover, and WNR is the last to rally because it's hated by the street. And paradoxically, the stock loved the least, WNR is poised to rally the most, showing that in Wall Street, as in life, "the last shall be first."
Tuesday, October 9, 2007
Sweet deal for Hershey's?
Today, five years later the WSJ had this statement from the Hershey Trust..."the Trust is not satisfied with the Company's results. The Company has been underperforming both the market and its own stated expectations. The Trust's holdings in The Hershey Company, on behalf of the children it serves, have lost more than $1 billion in market value during this period of unsatisfactory performance..."
Further news was that the Hershey Trust had discussions with Cadbury without then CEO Lenny knowing about it, a month before he announced his retirement.
It appears they were looking to structure a deal without diluting the interest of the trust. Reminds me of when the WSJ sold themselves to News Corp. while getting editorial assurances.
Hershey PA is a beautiful slice of picturesque, quaint, and wonderful Americana. With it's chocolate kiss streetlights, rolling gardens, and the intoxicating aroma of chocolate it's also a romantic honeymoon destination. It really is a special town, and the market is incorrectly valuing the company's intrinsic worth.
But if the Heshey's Trust wants to sell or build, in my mind, there is only one person in the world that could buy Hershey’s and give it the autonomy it deserves to continue to allow it to grow, while aligning everyone’s interests from the shareholders to the Hershey trust, and to the workers and to the people in the communities where Hershey’s has its plants. And there is only one person that would have the reputation and influence that would bring all these people together, to unite them, and to make them happy.
And that would be Warren E. Buffett, my choice for "the sugar daddy of the sweetest place on earth."
Maybe the Hershey Trust should give him a call.
Tuesday morning quarterbacking
The market is like the MNF game last night with the Bills and the Cowboys. With about six minutes to go in the game, it looked like the Cowboys were toast. (And if you missed the game, watch the highlights on ESPN). It was the same with the market. The bears had the bulls on the ropes in August, but they couldn't put them away. The recovery of the onside kick was like Bernanke's 50 basis point cut. It gave the bulls hope, and turned bad news into good. Folk's 53 yard field goal that put the game away, is like the earnings reports that the companies are giving. When they report, it's game over for the bears. It was the professionals who panicked and dumped stock while the common folk stood their ground. Now they get paid. Not quite the script the bears had in mind. That's why they play the game!
Monday, October 8, 2007
CDO's and CDN's
CDN stands for Content Delivery Network, and it simply optimizes your speed on the 'net, when you're moving big bunches of data. Web caches store the most popular "stuff" and when web traffic hits one of the switches it goes directly to the "stuff" on the server attached to the switch. That gives you your "stuff" faster, and companies pay for it. It's analogous to taking the freeway to your friend's house when you're late for a hot date, when the drive through town is shorter, but covered with traffic lights. You just want to get there fast. It's the same with data, but now we're not talking about the most popular videos on YouTube. We're talking business. Telecommuters remote wireless web applications, can be handled quicker and more efficiently, and the procrastinators can meet their deadlines. Today, AKAM unveiled their IP Application Accelerator, and the stock moved up two and change, and LLNW moved in sympathy.
Now look at AKAM's arguments. WAN optimization hardware? Fuggedaboutit. No client-side software is needed, no expensive hardware to maintain, and you have a global network. In the 15 second sound bite that Wall Street understands it will be spun as this: AKAM is doing to networking, what VMWare (VMW 95.09) is doing to storage. And that's the sound bite spin on Wall Street bytes.
Business Objects (BOBJ 50.26) got a cash takeover by SAP close to $60 bucks. (Where have all the midcap software stocks gone? Oh that's right, they've already been bought.) One that hasn't is BEA Systems (BEAS 14.01) a stock Ichan has bought a 13.2% stake. So that's the 10 second "derivative" play on SAP's buy.
The daytraders, are clamoring for China ideas. RCH (China Architectural), was floated at 3.5 and you could of had all you wanted at six, and a week later and it ran to 25, before coming back down to earth, and Agrfeed (FEED 12) popped 4 dollars on Friday. The 10 second derivative play for those that missed these? The Chinese SPAC's- Origin Agritech (SEED 7.69) which sells crop seeds in China, and Chardan South with common and warrants at 5 (CSCA and CSCAW 5.38).
CSCA is a SPAC that signed a deal to acquire Head Dragon, the owner of a controlling interest in GaoKe, the largest private Chinese engineering company for 13 million shares of stock. CSCA brings $32 million in cash and a publicly trading vehicle to the table, while GaoKe brings expertise in power generation and micro power networks, and $54 million in revenue for the last three months with $6 million in net income. If the deal closes, in the next couple of months as expected, it could rock. And that's the 10 second "derivative" play for China themed stock speculators.
Friday, October 5, 2007
China Direct's action
The "big" unemployment number
Hannah Montana tickets
Hannan Montana tickets are pricier because parents will do almost anything to make their kids happy. If they have floor seats for $63, and they can sell them for $400 will they? Most won't, as the smile on their kids face and the memories are worth more than that. So those tickets sell for $800. Ticket scalpers know that so they write software to steal the tickets before the parents can buy them. That's the market mechanism at work. Exploiting those without information or access to speed in trading, and then pretend they are a master of the universe.
How to you beat them? Join Hannah Montana's fan club, "Miley's World." For $29.95, your kid will get her Miley kicks. And then you can buy the presale tickets for $63, before they go on sale to the general public and fight the computer bots at Ticketmaster, with the code that the fan club gives you. And since you are a member of the fan club, you get the best seats in the house-floor seats in front of the stage. (Disney understands marketing better than anyone.)
It's the same with the market. There are ways to acquire those stocks when their isn't competition for them. When Wall Street is puking them up and giving them away, because they don't do their homework, or see past the next week. The only difference is you don't need to spend $29.95 to join the fan club, you just have to read this blog.
Thursday, October 4, 2007
Colon CAT scans
iCAD is the only stand alone company offering CAD (computer aided detection) solutions for the early detection of breast cancer, and is the industry leader in breast cancer detection. But check out page 12 of their latest 10Q, where ICAD had this to say. "CT Colonography or CTC is emerging as an alternative imaging procedure for evaluation of the colon. The Company is developing a product for computer aided detection of polyps using CTC. Colorectal cancer has been shown to be highly preventable with early detection and removal of polyps."
If the market does some digging, the day traders could get a hold of this stock, and it could be a cheap play on the potential of virtual colonoscopies.
Wednesday, October 3, 2007
Morning touts and tips
Speaking of selling ads, Microsoft said that business will eventually be about 25% of their revenue. Maybe that price of $6 billion for aQuantive isn't so outrageous. Wasn't Google's buy of YouTube universally panned also?
Morgan Stanley downgraded AMD. INTC, and NVDA this morning, while Merrill Lynch upgraded CIEN (42.66) after it was up $4 yesterday. In the financials Deutsche Bank announced a $3 billion charge, so that stock will trade up. Finally, high flier Intuitive Surgical (ISRG 233.12) was reiterated buy and the target was increased to 270 by OPCO. The stock reports earnings in two weeks, so watch the volatility on the options on this stock.
Tuesday, October 2, 2007
Melco to build "Trinity" casino
Here is the artist rendering of their third casino, which is in a prime location by the Macau ferry terminal, scheduled to open in 2010. MPEL would then have the VIP play at the Crown, mass market play at the City of Dreams, and the play of the Macau day trippers here, next to the ferry terminal.
Mr. Packer already showing his plans would make someone surmise that he may already have a deal similar to a sub-concession/licensing in his back pocket. If that's the case, this casino and the rest of the build out of the City of Dreams could be paid for. The buyers of the stock may already have a whiff of this news, while Jim Cramer of CNBC's Mad Money, who's been bashing the stock, may in fact be the "one that knows nothing." How ironic would that be?
Monday, October 1, 2007
Chris Wallace and the Clintons
William Blake's "madness"
Here is William Blake's interpretation of God creating the world. Of his paintings, Blake said "that not a line is drawn without intention." His contemporaries, in 1809 said he was mad. Or were his critics so simple-minded that they couldn't understand his genius? That's for you to decide; but today, I'm not writing about his critics; they have nothing that speaks past their graves. But Blake? His works speak for themselves.
Blake was a complex man; he used vivid imagery, and wrote poems that people didn't understand. He fought for the rights of the poor and women, and was skeptical of the power of the church and the monarchy. His creator evoked the imagery of the "Ancient of Days" from the book of Daniel, but he called him "Urizen" which was a pun for "your reason." In another poem, The Lamb, the Alpha and Omega was the creator. So whatever your view, I'll call Blake's creator "Verizon." Maybe the skeptics will hear him now.
But what's this have to do with the market? Well Navteq (NVT 76.45) was offered $78 in cash by Nokia today. There are rumours of competing offers. Google is always mentioned and the "whispers" are that Garmim (GRMN 107.23) may offer a share for share swap. Maybe I'm hallucinating but how about "Blake's" Verizon (VZ 45.40)? They already use NVT's maps; they are a leader in wireless, and the acquisition would be easily digestible. And the speculative play would be the Navteq November 80 calls. They are only .75, so it's a cheap call on the upside of a competing offer.
Now these critics said Blake's drawings were inspired by hallucinations. Or were they? His wife said he was inspired by the divine. He got more than the colors right. The above constellation was catalogued by Charles Messier of France in 1774. The 110 objects that today make up the Messier catalogue are the most wonderful and studied objects outside our solar system. It's name? The Omega Nebula. "Urizen?" Maybe they can hear him now.
421, 422 and counting!
Nokia to bid for NVT?
But what's with the picture of the moon's craters? Well, they are named for scientists, but Seth Chandler's crater is on the far side of the moon. He's the scientist in 1892 that discovered, the variation of latitude, now known as "Chandler's wobble." Now ICBM's and GPS systems will work. The poles had a twelve and fourteen month periodic motion cycle. When the phases were exactly out of phase, they canceled each other and there was was no variability of latitude. When a twelve month phase was completed, the other pole was behind by a 1/7 of a rotation, since it was on fourteen month cycle. So the variation would increase for 3 1/2 years, and then decrease the next 3 1/2. Now you know why 1/7, or .142857 is the greatest cyclic number in the world. But a target of 103? That comes from irony-its the months of data Gould used in his attempt to discredit Chandler's observations!