Thursday, February 28, 2008

AIG "hedges"

In December, AIG reiterates 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.

Today, AIG reports a $11.2 billion dollar charge:

Included in both the full year and fourth quarter 2007 net income (loss) and adjusted net income (loss) were charges of approximately $11.47 billion pretax ($7.46 billion after tax) and $11.12 billion pretax ($7.23 billion after tax), respectively, for a net unrealized market valuation loss related to the AIG Financial Products Corp.(AIGFP) super senior credit default swap portfolio. AIG continues to believe that the unrealized market valuation losses on this super senior credit default swap portfolio are not indicative of the losses AIGFP may realize over time. Under the terms of these credit derivatives, losses to AIG would result from the credit impairment of any bonds AIG would acquire in satisfying its swap obligations.

The difference? AIG states now:

AIG continues to believe that the unrealized market valuation losses on this super senior credit default swap portfolio are not indicative of the losses AIGFP may realize over time.

I have just one question: What happened to the opportunistic hedge?

Thornburg Mortgage seizes up

From the 10K

As a result of these factors, during the fourth quarter of 2007 and continuing in 2008, we have experienced declines in the market value of our securities to levels at or below levels experienced in August 2007, and incurred additional margin calls as a result of the decline in our securities prices, an increase in certain margin requirements and a further decline in the value of our Hedging Instruments as a result of the continued decline in yields on Swap Agreements. All of these market value losses are unrealized and there has been no deterioration in the actual credit performance of our assets. In addition, the cost of financing in the Reverse Repurchase Agreement market increased during the fourth quarter of 2007, especially in December 2007, compared to prior periods as a result of both the increased spread between the LIBOR and Federal Funds rate and increased financing spreads over LIBOR required by our Reverse Repurchase Agreement lenders.

The stock (TMA) is trading down to 8.55 in the pre-market. It's worth a shot here. And in today's WSJ Secretary Paulson rejected the mortgage rescue plan:

In an interview yesterday, Treasury Secretary Henry Paulson branded many of the aid proposals circulating in Washington as "bailouts" for reckless lenders, investors and speculators, rather than measures that would provide meaningful relief to deserving, but cash-strapped, mortgage borrowers.

Mr. Paulson's comments came amid signs that the nation's housing market is getting worse, not better. Indeed, at a House hearing yesterday, Federal Reserve Chairman Ben Bernanke kept the door open to further interest-rate cuts to boost the economy, even as he warned that inflation pressures have intensified in recent weeks.

Nobody trusts anyone's paper!

Private Equity going to Abu Dhabi

In FT:
Private equity firms are now approaching sovereign wealth funds for loans for big leveraged acquisitions, filling the gap left by investment banks struggling with the credit squeeze, leading buy-out bosses said on Wednesday...

“Effectively you will just intermediate Wall Street and the City of London out of the picture,” said Mr Hands. “It is already happening.” He said the Abu Dhabi Investment Authority (ADIA), the world’s biggest SWF, “will effectively replace Wall Street”...

Remember when Warren Buffett said the "dollar would be worth less" and commentators said "the dollar would be worthless?" It's the same here. Sovereign wealth fund? Or is it the Sovereign's wealth fund? When funding comes from offshore private accounts, it would help if you have a stake in the world's largest bank. And now private equity comes calling, with their hat in hand.

Today the had this to say:

SWFs are accused of being opaque as regards financial reporting and investment strategy, and of pursuing political as well as commercial ends.

The IMF, for its part, has emphasised the risks to the global economy of increased financial flows through “black boxes”, as the Fund's chief economist, Simon Johnson.

The irony is that banks in both Europe and the US have not just welcomed but actively solicited investment from the likes of the Kuwait Investment Authority (KIA), which participated to the tune of US$5bn in January’s capital-raising exercise by Citgroup and Merrill Lynch, and the Abu Dhabi Investment Authority (ADIA)—the world’s biggest SWF with assets estimated at some US$800bn—which injected US$7.5bn into Citi in November. And in straitened times, politicians too have encouraged such moves by the funds that, buoyed in the Gulf Arab case by record oil revenues, have the ready cash currently so lacking during the Western credit crunch.

Backlash? Just rumblings. The SWF's can invest, or hold a depreciating dollar. And we can watch the disintermediation of Wall Street from the palaces of Dubai.

Wednesday, February 27, 2008

Who's drinking the Kool-Aid?

For any of those who think that the depressing, dispirited and negative financial and housing environment will never turn around, just read this story two months ago on Bloomberg about Apple Computer:

Here is just a bit of the article:

There's so much growth to look forward to for the iPhone,'' said Stephen Coleman, chief investment officer at St. Louis-based Daedalus Capital LLC, which owns about $7 million of Apple shares. He projects the stock will hit $600 in 18 months. Apple gets about 30 percent of the iPhone fees charged by carriers, Coleman said. Wall Street analysts' estimates range between 5 percent and 20 percent, he said.

The iPhone has helped Apple evolve from ``a company dependent on one hit product to one with multiple growth engines,'' Andy Neff, an analyst with Bear Stearns & Co. in New York, wrote in a Dec. 6 note. He raised his share-price estimate to $249 from $243 and his earnings projection for the year ending in September by 2.9 percent to $5.40 a share.

Raising Price Estimates: Neff was among at least 10 analysts who raised their price estimates for Apple above $200 in October. That month, the company gave a quarterly forecast that uncharacteristically topped analysts' expectations and said holiday sales would be the highest in its 31-year history.

Now that Apple needs to be bought, the same bullish analysts are hiding. What a difference two months makes!

But now, we can find the same bearishness by analysts who are enamored with their spreadsheets and predictions of doom and gloom for all things financial. The FDIC re-hires 25 people, who used to do bank bailouts 15 years ago, and this news gets pinged around by every hedge fund and bear on the street.

25 hires and now we are going to melt down? The financials have already melted down. The Kool Aid has just changed hands. The bears, instead of recognizing that their payday is in front of their face, are at the trough waiting for more. They believe their own bunk!

Did anyone suggest two months ago, that Apple would be completely re-appraised by the street? And now is anyone even skeptically looking at some of the nonsense the unrepentant bears throw up? Even Goldman got in the act, by downgrading Costco today, to stop the momentum in retail. Why don't they say that the rich are just going to shop at Dollar Tree?

One of the bears suggested that they should just bulldoze the condos being built in South Beach, like they did to homes Texas, with the RTC's blessing in the 90's. Humidity causes mold-bulldoze the places! It gets rid of inventory and stabilizes prices. What if these guys were the 25 hires? Maybe I should ping this spin?

When all this nonsense is being thrown around, it means we are at a serious inflection point in the market. I'm surprised some quant hasn't suggested buying Caterpillar as the hedge for bulldozing. It will probably come from the same quant who had the pair spread of being long Goldman Sachs, and short Lehman as the perfect hedge to play the financials.

How did that work out?

It's the same question, that will be asked to those who are staying short at these prices.

Eventually, the bears will get bull-dozed!

Apple rocks afterhours!

Steve Jobs re-iterated the 10 million iPhone prediction at a Goldman Sachs conference, and buyers go giddy, pushing the stock up 8 points on the day to 127 with after hour trading.

The real push will be March 6th, when Apple announces the iPhone software development kit (SDK).

There is supposed to be "some exciting enterprise features." Which means the iPhone is looking at getting into the corporate market, which BlackBerry dominates.

Apple has their annual shareholder meeting next Tuesday, and then this event on Thursday.

Another "two for one." Shorts will be squeezed, and bulls will be emboldened. You had the bottom in Apple yesterday, and it still is 75 points off it's high.

This time being a day late doesn't cost you a dollar, but 10. And it can tack on another 10 points before the shareholder meeting. With a corresponding increase in the volatility of the calls.

Stock or options, you make the call!

The "tell" from Fannie

Fannie Mae (FNM 27.27) closed up .30 on 102 million shares, trading from a low of 25.32 to a high of 31.58! Two days ago, FNM was downgraded to sell by Goldman Sachs. Two days before that, it was downgraded to sell by Merrill Lynch.

Today, FNM announced a huge loss, and the stock hit sold off at the open, then rallied viciously, as the 5 day chart above shows, after OFHEO (Office of Federal Housing Enterprise Oversight), the companies’ regulator, said it would lift caps on the size of Fannie and Freddie’s mortgage portfolios.

Why the huge rally?

Because the shorts have no conviction. They love to talk doom and gloom, and they love to intellectualize the seriousness of the recession, but the stock activity shows they are scared out of their shorts. The shorts are the like emperor with no clothes.

The brokerage firms are complicit because they already told you to sell the stock. Who is left to sell? Nobody. Stock investors are concerned about what is going to happen, not what has happened. And the for shorts, and the bears thesis to work, we need a humdinnger of a recession for stocks to remain at these levels.

Maybe you want to drink their Kool-Aid, but I'm not!

Ignore the current macro environment, and ignore the doomsdayers. If you follow them, you'll follow it at your own financial peril!

Petroplus and Blackstone to acquire refineries

They've committed $2 billion in cash to purchase oil refineries in the US. More than a week ago, private equity firm Klesch signed a $8 billion deal to build a 300,000 barrel a day refinery in Libya and an aluminum smelter. Where would someone buy an oil refinery on the cheap?

The cheapest refineries in the world are selling on Wall Street. To add capacity to an existing refiner, it costs about $10,000 for each bpd production. To build a refinery? Well, back in the states a new one hasn't been one built in thirty years-so it's at least double that and that's only after you get the permits. So using the above metrics, Western Refining (WNR 23.76), (which reports earnings tomorrow and 225,000 bpd production) should be selling above 50. And when crack spreads had widened, WNR was selling at 66.

You can make the same arguments for Tesoro (TSO 41.58), but it would be too big as a play on Petroplus and Blackstone. The folks that jig stocks will play with WNR. When HOC reported earnings, the stock jumped 6 points. Thus WNR is the trade today as it is both an earnings and an asset play.

As my daughter would say, "It's the best of both worlds!"

Tuesday, February 26, 2008

MBIA's letter to investors

I thought this was an interesting letter to shareholders from Jay Brown, Chairman of MBIA :

....But as the leading monoline, we are also a convenient and attractive target for self-interested parties such as Mr. William Ackman. Many of you have asked me in the past few days whether there is something personal between us. In actual fact we have many similarities. We are both extremely passionate in our beliefs and are persistent in overcoming all obstacles in terms of reaching our objectives. The real difference is that I am leading a regulated institution that provides security, jobs and peace of mind to tens of thousands of institutions and millions of individual investors. Mr. Ackman's objective is less complex; he will stop at nothing to increase his already enormous personal profits as he systematically tries to destroy our franchise and our industry. His campaign against us has increased our cost of capital, but his intent to force a collapse has no chance to succeed.

Soon, others will realize that the short base has been pressing their bets, and using egregious means to attempt to manipulate prices and cause more panic amongst investors, just as Mr. Ackman has done with his short positions in the monolines. And it has worked-temporarily.

But temporary will prove to much more fleeting than the shorts realize. And that's the biggest mistake they have made. Lowe's reports punk earnings and an expansion plan and the stock goes up. Home Depot reports puke earnings, and a punk forecast, and the bears can't even knock a penny off of the price, even though it is already up 20% from its lows.

Today we heard about the 15 days Citigroup had last year, when they lost more than $100 million on each of these days trading. Big deal. So they lost $1.5 billion. Citigroup has already lost $150 billion in market cap. Does anyone care? Or does the WSJ just want headlines?

But this action is everywhere. Google (GOOG 464.19) has lost 300 points, as petrified analysts scurried talking about comScore and new algorithms. Are these analysts smoking crack? Or are their heads lodged in one? Google simply changed the ads on websites, so that inadvertent clicks wouldn't be counted. Try it. Click on an ad to the side of this site, and then click on the URL underneath it. That's the story, in a click. You only get paid for a click when you intend to click on the ad. So if you sold Google today, that's the reason why. So why would anyone be selling stock at these levels?

Give me a break! Investors are so worried and scared it just makes me want to puke. But to paraphrase Mr. Brown above, any further collapse from here has no chance to succeed.

Get bullish, get long, and ignore the shorts and the macro news. Look at today. Consumer confidence dropped over 20 points! We had the worst home price decline ever. And producer price inflation rang the bell. Yet the market was up a percent. Does anyone think this news isn't factored into prices?

All of this negative news can be summarized by a Tuesday night visit to Roadhouse Grill. Just go there. It will be jammed packed. Why? Because kids eat free on Tuesday. And that describes this economy. The stock market belatedly, but rapidly, recognized the shift in the economy. And it priced things in. And from Wall Street to Main Street, everyone now recognizes the slowdown. Does anybody think this isn't new news?

It reminds me of the man, who went into the psychiatric office, wearing only Saran wrap. The psychologist said, "I can see you're nuts!"

It may take balls to buy this market, but at these prices, you are not nuts. You just have to look thru the bears bluster.

And they are standing there naked. I can see they're nuts!

Variable Interest Entities

No wonder Citigroup had analysts discussions last night over cocktails. Bloomberg has this to say:

Even Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. may find they haven't dodged the credit crisis.

The new source of potential losses: so-called variable interest entities that allow financial firms to keep assets such as subprime-mortgage securities off their balance sheets. VIEs may contribute to another $88 billion in losses for banks roiled by the collapse of the housing market, according to bond research firm CreditSights Inc. Goldman, which hasn't had any of the industry's $163 billion in writedowns, said last month it may incur as much as $11.1 billion of losses from the instruments.

Citigroup, which has incurred $22.1 billion in losses from the subprime crisis, has $320 billion in ``significant unconsolidated VIEs,'' according to a Feb. 22 filing by the New York-based bank...

The securities in the VIEs may be worth as little as 27 cents on the dollar once they're put back on balance sheets, according to David Hendler, an analyst at New York-based CreditSights.

Once again the headlines are worse than the reality, but anyone reading the 10K of Citigroup and not getting queasy, must have a lot of faith in the institution. (Page 86-87 of the 10-K outlines their exposure to VIE's)

Monday, February 25, 2008

Market rallies on AAA affirmation

Did anyone think this wasn't going to happen? Apparently, most of the shorts didn't, as Ambac and MBIA's ratings were both affirmed by S&P, and the markets promptly took off. The bears will intellectualize the move, and say it is ridiculous. How can an insurer, get money from the banks, of which it holds products, that the insurer is insuring?

But that degree of rigour isn't the issue. The issue is that the stocks have been beaten down, by the crowded shorts and cowed bears. There isn't anyone that doesn't know the bears' story, or who hasn't heard of Meredith Whitney. They have already reacted (sold and shorted) on this news. And the stock prices, have already discounted any news that the bears can throw at it.

Good grief, the bears have been given prices on a silver platter, but they are so damn greedy they can't see that times are changing, and that stock prices have already bottomed. My only question is: Why haven't they covered? Because now they believe the Kool-aid that the investment banks drank!

They will be taken out in their foolishness and stubbornness, quoting prices on indexes on bonds and credit reflecting default rates that will never happen, that the equity bulls refuse to acknowledge. The bulls don't acknowledge it, because much of theses prices are fiction! So the bears, like the shorts in Take Two, will learn their lesson when it is to late.

So tomorrow, we'll here of some inadvertent write-downs by Merrill Lynch, with stories of more chickens coming home to roost, but market players won't give a hoot about that. They'll be more concerned with the Citi's Mr. Pandit's meet and greet with analysts over cocktails. Regulation FD be damned, they'll come back with a wink and a nod, and a penchant to be Pollyanna.

And then go out and buy the futures.

The Bears get taken on Take-Two

Electronic Arts offers $26 in cash for Take-Two (TTWO 17.36), the poster child stock for shorting, (naked or otherwise) in a "bear hug" after TTWO management rebuffed the offer. The question is not if the offer will be accepted by shareholders, but by how many! Institutions own 99,561,039 shares, of the 72,075,000 shares outstanding or 138% of the shares!

TTWO, like YHOO is gone. And this was a hug that the bears definitely hated, that the bulls will love.

So the headlines tomorrow will say that the market rallies on the monolines. It also rallies because good things can happen to stocks that the bears loathe!

Take that bears! This one hurts!

Friday, February 22, 2008

Real estate "short sales"

Now that no one is taking courses on being a realtor, South Florida's own Gold Coast Real Estate School is now having classes on getting real estate short sales approved!

Short Sales Class

You have asked for it, now we have it! Learn how to make more money by getting short sales approved. Gold Coast will be holding a Short Sales class on Tuesday March 4th in our Broward location. The course will focus on short sales from the real estate agent’s perspective. Learn how to locate clients in foreclosure; how to recognize a short sale opportunity; how to save sellers from foreclosure; the paperwork needed for short sales; and how to prepare the short sale submission package.

Thursday, February 21, 2008

The Bear's "straws"

Tuesday night, Hewlett Packard (HPQ 47.44) had blow-out earnings. But the bears, tried to find fault with the report. Slowing ink sales! So they pressed the stock down at the open, and buyers, had HPQ at 45.50 on their games. So now no-one is going to use ink?

It's the same with Apple. (AAPL 123.82). Enough already with the iPod story, or cutting the price of the iPod shuffle. This brings people into the store, and let's them start using iTunes. Like HPQ cutting the price of the lower margin printer, and selling the ink. But Wall Street is petrified of their own shadow. Fearful. Scared. Worried.

Maybe they should use a Garmin (GRMN 64.47) navigation device to get out of the funk. They had blow-out earnings yesterday, but Wall Street was worried about pricing. Excuse me, but is there anything in technology that goes up in price? How do you think we get hedonically adjusted CPI numbers?

Buy the stocks from the fearful, scared and worried. And they want stocks that the fearful are selling.

And they want it in size.

Remember when Wall Street said that Research in Motion (RIMM 97.91) would be hurt because of all the lay-offs in financial services? They guided up. Where is that straw man?

It's the same in the market. They are giving stocks away, and the viewpoint is so short sighted, that every time someone attempts to buy in size, the pundits think it is the PPT, or another market manipulator. Take a look at this piece by Mr. Practical at

If you watch the market close enough, tick by tick everyday, you notice things. They start to add up and you can’t avoid the feeling that the markets are tainted, manipulated. If not, they have gotten really, really stupid.

I mention these things from time to time, the most interesting being that every rally is futures led. Buyers are not buying stocks because they like the fundamentals, buyers are just buying futures because they want in the market. Or do they even know what they want?

Another was yesterday. The Russell 2000 ETF, IWM, is closed through a transparent auction process. Nearly everyday this auction process is to buy in a large way. Sellers do fill, but the buying normally outweighs the selling. Yesterday was especially interesting: a buy order for a million shares of IWM popped into the auction cue very early, around an hour before the close. Not too many noticed, however, and by the time the auction completed the closing rotation, the IWM popped to a closing price of 70.73, a huge $0.50 higher than where you could buy it one second before and where you could buy it one second after.

Maybe there are some who aren't so fearful, scared and worried. And if the PPT is buying, it means they want to break the bear's back.

And it shouldn't be too hard. It's made of straw. Look how much play that .50 got!

Wednesday, February 20, 2008

Why did Buffett buy Kraft?

Isn't Kraft affected by food commodity inflation? Apparently, Warren feels this risk is already reflected in the price of the stock. Or maybe, Kraft will just replace the "food" with more "fat."

Ambac's scathing response to Ackman

It can be found here. How ridiculous is it that a shortseller, who won't disclose in shares, or in swaps, the extent of his short position (except that we know he will make billions for his company if he is successful) has put himself in a position to attempt to advise the insurance commissioner of NY?

Ackman's new plan

Ackman Floats Plan To Not Split Up Bond Insurers -CNBC
Last update: 2/20/2008 7:38:59 AM

NEW YORK (Dow Jones)--William Ackman, founder of Pershing Square Capital Management, presented Tuesday night to New York State Insurance Department Superintendent Eric Dinallo a plan not to split up bond insurers, CNBC's Charlie Gasparino reported Wednesday morning.
Splitting bond insurers into two sectors - one focused on lower-risk municipal bonds and another to handle higher-risk collateralized debt obligations - allows the shareholders of the lower risk holding company to benefit while holders of the CDOs suffer.

Ackman's plan suggested that if the municipal business is performing, the profits could support the CDO segment, leaving the bond insurers whole, Gasparino said.

-Rebecca Townsend, Dow Jones Newswires; 201-938-5174,
(END) Dow Jones Newswires
February 20, 2008 07:38 ET (12:38 GMT)

Tuesday, February 19, 2008

The 401k ATM

Michelle Obama speaks and it ain't pretty

Stocks are "commodities"

And commodities are commodities. And that's this market in a word. The markets have been "commoditized." Stocks are difficult to trade in this choppy environment. Commodities are easy to trade. The CRB continually makes new highs.

So the money, gravitates to where you can make money. And make it easier.

And the bull market in stocks, are where there are bull markets in commodities. But the capital chasing commodities, affects the input cost of companies. So the commodity goes up, and stocks go down.

A perfect example of this is the action in refiners. Gasoline prices went down, when oil was going up. But now that gasoline is being re-priced, the refiners bottom as they can raise prices at the pump to offset the input cost of oil. But the stocks had to be cut in half first!

Wheat has doubled. Does anybody think the price of cereal or bread is going to double? Do these companies have experience in the pricing environment that now exist?

When oil was going up, we heard that it was the action of speculators. But speculators go where the money is easiest to be made. And you have real buyers in commodities. It's the world trading, not just speculators in the pit.

Every week, billions of dollars gets yanked from stock funds. And every week, we have more financial players that want something tangible. The sub-prime fallout, the bad loans and CDO's, the fake AAA ratings, and the depleted balance sheets of the financial institutions have affected the liquidity of the market. So they go elsewhere.

And if the most liquid and largest market in commodities; oil, can hit a new high, what will happen to the rest?

And the market needs to price this in.

Microsoft not haggling with Yahoo

Only Wall Street wants you to bid against yourself! But Microsoft (MSFT 28.42) should get a bounce on the word they are not looking to add billions to their bid.

Castro "resigns"

And you should get a jump in Miami and in CUBA (Herzfeld Caribbean Basin Fund 7.44)!

Wal-Mart and the market

The world's largest retailer came out with numbers this morning, and is now doing a billion dollars a day in sales. Their guidance was a bit muted, but the stock, is now at 49, up from 42. It's the same with this market.

Prices already reflect the doom and gloom scenario that the bears have envisioned. When the news hits that the bears want, the stocks will be much higher.

So you have to be buyers, in this market, not sellers. Put your rally hats on, when the market is at it lows!

Monday, February 18, 2008

Obama's Speechwriter?

Fraudulent conveyance?

Feb. 18 (Bloomberg) -- Regulators' plans to break up bond insurers into "good'' businesses covering municipal debt and "bad'' businesses liable to subprime-related losses may trigger "years of litigation,'' Bank of America Corp. analysts said..

"It is the equivalent of going to a casino and trying to keep only the winning bets,'' said Tim Mercer, chief investment officer at Hong Kong-based hedge fund Musashi Capital Ltd. "This would be a straightforward case of fraudulent conveyance and everyone involved would be liable for damages from deprived creditors.''
More here:

I am not a lawyer but the proposal to split up Ambac looks like Fraudulent Conveyance. A fraudulent conveyance, also fraudulent transfer is a civil cause of action. It arises in debtor/creditor relations, particularly with reference to insolvent debtors. The cause of action is typically brought by creditors or by bankruptcy trustees. The usual fact situation involves a debtor who donates his assets, usually to an "insider", and leaves himself nothing to pay his creditors as part of an asset protection scheme.

It's the credit default spreads that the investment banks have with the monolines, that they so desperately want to protect. And with Buffett in the background, "arguing" that his plan "saves" the municipals is just nonsense. Who needs to pay to save that which doesn't need saving?

But the action in the European stock markets today, shows that Trichet's comments about credit, and the Central banks "alertness" are being heeded by stock investors.

And now, the markets are heading up.

A month ago, on the MLK holiday, SocGen was blowing $7.3 billion by "being prudent" and liquidating $73 billion of futures. Talk about taking a loss you didn't have to take!

A huge loss for being "prudent." So when you hear the bears telling you not to step in at these prices, don't listen to them.

They're not being prudent; they are being reckless!

The monoline split

Ambac is now joining FGIC in the pursuit of splitting up of their business: On one side we have muni bonds and all that is good, and on the other side we have subprime and CDO's squared and all that is bad.

The theory is that the "bad" business is so bad, that those costs (their assurances notwithstanding) will bring down the "good" business with it. And by separating the businesses, at least we have something. And if housing prices resurrect, foreclosures stall, and "jingle mail" stops, then the other business could have something more than nothing. But nothing close to the something of the good business.

You would of thought this game of "Quick! Can someone think of something good?" would be appropriately a request for dinner, instead of the blueprint for the monolines survival. But I guess that what happens, when they eat their own cooking!

Sunday, February 17, 2008

Northern Rock gets nationalized

Sir Richard Branson's bid for Northern Rock was nowhere near what was needed, and the UK government nationalized the bank. Now it looks like Northern Rock shareholders will walk away with the same thing shareholders got when Railtrack Plc went the same route. Nothing. And taxpayers will be guaranteeing Northern Rock's $200 billion of mortgages.

Even Goldman Sachs advice couldn't prevent the government from biting the bullet and nationalizing the bank. And now, the naked shorts, whom the Government tried prodding into covering shares; will now be able to cover in pence instead of in pounds.

And the mortgage fiasco worldwide delivers another beating.

From Russia with Love

Sports Illustrated is out with their latest swimsuit issue, and Russian model, Irina Shayk, is making her appearance in the issue for the second time. Boy have times changed. When I was sixteen, the only Russian I saw in Sports Illustrated was Alexeyev.

She prefers palladium costume jewelry, while this "mining engineer" prefers wearing gold medals. Above was his 66th world record. (They look a little different in their respective strings!)

But it looks like Russia has decided to put a squeeze on palladium. Half of the world's production comes from them, and it looks like palladium is going to make a move.

It hasn't gone unoticed. Tuesday, the NYMEX will increase Palladium futures margins to $2,250 from $1,750 for clearing members, to $2,475 from $1,925 for members, and to $3,038 from $2,363 for customers after just increasing them on February 6th to $1,750 from $1,000 for clearing members, to $1,925 from $1,100 for members, and to $2,363 from $1,350 for customers. It looks like the NYMEX is worried about a squeeze.

Palladium, besides it's industrial demand, is now being introduced into jewelry, as an alternative to platinum, and China, has been an especially voracious buyer. Do the math. Platinum sells for $2,051 an ounce; palladium is at $445, and rhodium, tips the scales at $8,830. Palladium, can be used as an alloy in white gold and platinum; and it doesn't need the rhodium plating. And 950 palladium jewelry sounds like the 950 platinum standard.

Palladium ETF demand has also been surprising. Zurich Cantonal Bank's palladium ETF, is already over 300,000 ounces, and last week, they added over 50,000 ounces alone. ZCB's projection for the ETF were about 200,000 additional ounces for the year!

And the way to the the move in palladium in are North American Palladium (PAL 6.76) and Stillwater Mining (SWC 16.10).

It looks like the heavy lifting in Palladium as already been done. And the increases in the margin requirements, may mean that a squeeze is in the offing. And those are always a work of art.

From Russia with love!

Friday, February 15, 2008

Banks: Walk away from the deals

In today's FT:

Leading banks are being advised that it would be cheaper to walk away from big buy-out deals than incur further losses on their funding commitments, increasing the chances that more high-profile private equity transactions will collapse.

This advice from lawyers contrasts with the conventional wisdom that banks would risk serious damage to their reputations if they were to drop out of deals.

But legal advisers argue that the break-up fees banks would owe in such cases would be far lower than the write-downs they would have to make on their loans, given the current cataclysmic conditions in the capital markets.

More here on why the banks are walking away:

“It is the tipping point argument,” said a senior partner at one of the biggest private equity firms, who asked not to be named. “The banks have so many issues with their balance sheets that they are considering a new policy.”

Now that homeowners have found out that it is easier and cheaper to walk away, so are the banks!

What the banks and homeowners have is declining assets on their respective balance sheets. In a deflationary environment, you hoard cash, and you can't service your debt. Yesterday, I highlighted Bernanke's anti-deflation speech of November 2002.

The banks, now want to hoard cash, and just walk away, just like the homeowner. So Fed policy has to be stimulative enough to not only get us out of this recession, but to causes prices on homes, stocks, and bonds to inflate. Which needs much healthier and faster growth. For that to happen, short term rates need to come down much farther, and stay there much longer for that to happen.

And when banks hoard cash, they don't lend. Bernanke finally gets it. How ironic, is it, that his policies, helped cause this situation; and now he can put his academic musings into practice.

If a fireman burnt down his house, in order to hone his firefighting skills, we'd commit him. But do the same in finance, and you're the head of the nation's bank!

The auction-rate market

A good overview on the failures is covered by the NY Times today.

The $330 billion auction-rate market is dominated by municipalities and other tax-exempt institutions like the Port Authority of New York and New Jersey, which had issued some auction securities and had its interest rate soar to 20 percent on Wednesday. Closed-end mutual funds, student loan companies and corporations also issue such securities....

The Port Authority rate was 4.3%, now it's 20%??? On $100 million, they are paying $389,000 a week instead of $83,600. The State of Wisconsin's rate on $950 million of their securities went from 5.2% to 10%. Remember how Bank of America juiced the credit card rates last week to offset their losses in mortgages? It's the same here, but done on a more "sophisticated" scale.

The S.E.C. investigation centered on how bidding was conducted for these securities. Critics complain that investment banks have the upper hand in bidding because they can bid after seeing what other investors have bid.

All you have to do is find out who bought the Port's paper!

The situation is an awkward one for investment banks and brokers that have had to tell clients that their cash is frozen until at least the next auction — if not longer. One affluent New Jersey family has sued Lehman Brothers for the declining value of its cash in auction-rate securities. Lehman has said it acted properly...

See my post:

This year, Bristol-Myers Squibb, the drug maker, took a $275 million write-off on money it had invested in auction-rate securities that it was unable to sell because of failed auctions.

BMY had $811 million in auction rate securities (ARS) at year end 2007. The value was marked down to $419 million-that's a $392 million hit. After tax they wrote off $275 million. So BMY's experience was that these "cash equivalents" were worth only .50 cents on the dollar. (Obviously all of these auction rates are not like BMY's experience.) But the rates show the panic in this area of the market that is "misunderstood." Cash equivalent ="misunderstood?"

Only on Wall Street's can this be a definition of a cash equivalent, and only on Wall Street can a "cash equivalent" be "misunderstood!"

Thursday, February 14, 2008

The Credit Crisis intensifies!

Looks like Bernanke and Paulson both had an abscess on their ass, as Congress didn't play patsy and ripped into both of them. Bloomberg had this commentary on Paulson:

While bank funding costs have declined, ``there are a number of the credit markets that aren't functioning as normal,'' Paulson said. He cited high-risk, high-yield bonds, ``structured'' credit, which includes debt such as CDOs, and mortgages greater than $417,000, which haven't been eligible for purchase by Fannie Mae and Freddie Mac, the largest sources of U.S. home-loan financing.

He didn't mention the municipal market? Has he tried getting a bid on anything? Getting bids was like a Valentine Massacre! The mess in municipal land, could leech into something much bigger, and much quicker, because you're not supposed to have problems here. I know it is a "liquidity" issue, and not a "credit" issue, but go tell that to the Maher family, who are suing Lehman Brothers for $857 million. Here's the story, and a few snippets afterwards.

"Auction-rate securities usually are long-term bonds with interest rates that are reset periodically (usually once a month) at an auction. Because the auctions happen so often, the bonds traditionally were much easier to buy and sell than other forms of long-term debt. Auction-rate securities worked well for over 20 years and were regarded by Wall Street as cashlike investments, since they were highly liquid and highly rated.

But if buyers stop showing up for auctions, they become tough to sell, or even to value...

Mr. Kim says Lehman may have sold the Mahers a portion of securities from the firm's own balance sheet, thus shifting Lehman's potential losses to the Mahers.

Lehman says it couldn't have foreseen the auction failures in mid-August."

So you can't value a cash equivalent, or get a bid on it, and the brokerage firm, sold it from their balance sheet?

You want a bid? How about 20-80? So sell it from their balance sheet. No wonder Lehman didn't miss numbers, and increased their dividend a few cents, and announced a huge buyback a few weeks back.

They gave their problems to their clients!

Bernanke's deflation Speech in 2002

Remarks by Governor Ben S. Bernanke Before the National Economists Club, Washington, D.C.
November 21, 2002
Deflation: Making Sure "It" Doesn't Happen Here

....One approach, similar to an action taken in the past couple of years by the Bank of Japan, would be for the Fed to commit to holding the overnight rate at zero for some specified period. Because long-term interest rates represent averages of current and expected future short-term rates, plus a term premium, a commitment to keep short-term rates at zero for some time--if it were credible--would induce a decline in longer-term rates. A more direct method, which I personally prefer, would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt (say, bonds maturing within the next two years). The Fed could enforce these interest-rate ceilings by committing to make unlimited purchases of securities up to two years from maturity at prices consistent with the targeted yields.....

.....Historical experience tends to support the proposition that a sufficiently determined Fed can peg or cap Treasury bond prices and yields at other than the shortest maturities. The most striking episode of bond-price pegging occurred during the years before the Federal Reserve-Treasury Accord of 1951. Prior to that agreement, which freed the Fed from its responsibility to fix yields on government debt, the Fed maintained a ceiling of 2-1/2 percent on long-term Treasury bonds for nearly a decade. Moreover, it simultaneously established a ceiling on the twelve-month Treasury certificate of between 7/8 percent to 1-1/4 percent and, during the first half of that period, a rate of 3/8 percent on the 90-day Treasury bill. The Fed was able to achieve these low interest rates despite a level of outstanding government debt (relative to GDP) significantly greater than we have today, as well as inflation rates substantially more variable. At times, in order to enforce these low rates, the Fed had actually to purchase the bulk of outstanding 90-day bills. Interestingly, though, the Fed enforced the 2-1/2 percent ceiling on long-term bond yields for nearly a decade without ever holding a substantial share of long-maturity bonds outstanding...

....Of course, in lieu of tax cuts or increases in transfers the government could increase spending on current goods and services or even acquire existing real or financial assets. If the Treasury issued debt to purchase private assets and the Fed then purchased an equal amount of Treasury debt with newly created money, the whole operation would be the economic equivalent of direct open-market operations in private assets.....

....For this reason, as I have emphasized, prevention of deflation is preferable to cure. Nevertheless, I hope to have persuaded you that the Federal Reserve and other economic policymakers would be far from helpless in the face of deflation, even should the federal funds rate hit its zero bound.

Let's hope he's shaken the dust off of his paper.

Sports Illustrated models at the NYSE

Did anyone else catch Maria Bartiroma's loss of composure when Dylan Rattigan said the Sports Illustrated swimsuit models were on the floor of the exchange?

Hearings on short sellers

The monoline insurers want lawmakers to lasso in the shorts innuendos. There already is a backlash as the shorts profit on others misery, and this letter has been circulated, as a counterpoint to Ackman's "white papers." It's written tongue-in-cheek, but the "fictional" letter makes it's point.

So we have hearings on short sellers, and Bernanke and Paulson before cameras in Congress.

Maybe the bulls get jump off all the hearings today.

NetSuite reports tonight

NetSuite (N 22.70) reports after the close. The stock, which went public in a Dutch auction at 26 in December, traded up to 45.98, and now is cut in half. I'd buy it before the earnings, and would expect the stock to trade up on the conference call as management tells a good story.

Happy Birthday Mr. "Blackstone"

Today is Stephen Schwarzman's 61st Birthday/Valentine bash, and as last year his Valentine's birthday party marked the top in private equity, today's should mark the bottom, as this time, his party is just being held at his 35 room townhouse in NYC. I just wonder if his intellectual property lawyer wife is going to be doing any pole-dancing?

If you have some time, here's a great read on him, in The New Yorker. I figured if you knew his wife, (who was married to Hearst wealth before him) pole-danced, you might read The Birthday Party article that James Stewart wrote about him.

He's always selling. Just last week he said, "He doesn't feel rich." That's his sales pitch to the public to "reform" his image. It isn't that outrageous. He sold the banks to lend him billions to buy companies he leveraged up, with the downstroke on the companies provided by the money that pension funds gave him, of which he got a quarter of all the profits, after expenses.

But private equity will be back. The animal spirits have been hiding just a bit too long in this market. And Blackstone Group, (BX 17.63), at these prices; a smidge off it's yearly low is finally worth buying.

Page Six needs Steve's antics.

Yahoo's MySpace nonsense

Rupert Murdoch wants to trade his dying MySpace for a 20% piece of YHOO. Does anyone think this has any chance in hades of happening?

Remember when Google gave Fox $900 million so they could sell ads on MySpace, and Google thought their smart algorithms would surely be able to exploit this social network site? MySpace was then valued at upwards of $20 billion. Now we have a valuation on this declining property of around $8 billion.

In Yahoo's corner you have Bill Miller of Legg Mason saying Mister Softee should pay $40 and Rupert Murdoch offering to swap MySpace for a 20% piece of Yahoo. What are they going to say next? That Blackstone's Steve Schwarzman is interested?

The only one saying "Yahooooo!" now is Ballmer and Co. who made the pre-emptive bid!

Beat of the Bailout

Just one day after the builders decided to cut off their PAC money ($1.6 million in bribes per year) to Congress, bankers from Credit Suisse want to repackage home loans and let the Uncle Sam guarantee them. A bit from today's WSJ:

Just a few months ago, such proposals would have been considered far-fetched, but these and other unorthodox ideas are gaining credibility. This week, the government announced the latest idea, a mortgage-industry plan that would give seriously delinquent borrowers extra time to avoid foreclosure.

So far the government's moves haven't propped up the sagging housing market or thawed frozen credit markets. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke are expected to face questions on these issues today from lawmakers at a Senate Banking Committee hearing.

Bernanke's Valentine card

Is highlighted in today's WSJ with this headline: Will Bernanke get a second term?

Bernanke's Fate May Hang on Economy

A significant economic recovery this year could bolster Mr. Bernanke's credibility with Wall Street and the public. But continued turmoil, with fluctuating financial markets and a surge in unemployment, could increase the chances he will be replaced.

On the campaign trail, some of the leading candidates have raised questions about whether Mr. Bernanke, 54 years old, moved quickly enough to rescue the economy, and whether the Fed could have blunted the housing crisis by tougher regulation. But none has talked openly of replacing Mr. Bernanke, who is a Republican.

Does anyone think that any Congressman will be hard on Paulson and Bernanke? Bernanke may not have an abscess on his ass, but this headline should at least make him squirm. Let's see how he handles the lobs thrown at him from Congress. The cost of the housing bailout is increasing each day that home prices go down, while the call for government help increases. And now it's the banks! And they haven't stopped giving their bribes! Especially in an election year!

Wednesday, February 13, 2008

Some cheap dates

Tomorrow is Valentine's Day, and like most, I do things at the last minute. Which means you're stuck on a cheap date. So here's a couple of cheap, small cap stocks that should get some play.

Akeena Solar (AKNS 7.79) pulled back from 15, and is making a rounding bottom here. The news on First Solar and the 57 point move in the stock, will cause the daytraders to take another look at the solar plays. AKNS is doing a dog and pony show for institutional investors next Tuesday and Wednesday. These small cap solar stocks trade on press releases, momentum and exposure, and you should get all three.

SiRF Technology (SIRF 7.50) makes chips for GPS devices. The passage of the stimulus plan, may mean more iPods (I have to keep pushing AAPL here while it's still cheap) and GPS devices sold. The stock has sat here the last couple of weeks, and traded better volume today, with offers being taken instead of just accumulating on the bid. With no debt, over $2.00 in cash, and a stock down from 15 or 25, depending if you are looking out two weeks or two months, you have a lot of upside if something goes right.

And in the rumor circuit there was whispers of things going right in Barcelona. And if I'm hearing "whispers" it means "they" want the stock higher, and not be pinned at the 7.5 option strike which had rather unusual call option volume today with just two days left before expiration.

With this action, you can make up for the cheap date with something extravagant--By next weekend!

The Clemens' Circus

Clemens gets grilled by Congress, but tomorrow Bernanke steps in the hallowed halls and he'll get the kid glove treatment. Now does that make sense?

At least Clemens gave as good as he got. These Congressman tried to parse the meaning of the abscess on his ass; but these hearings were an abscess on our country!

But when this stuff makes headlines it must mean we're on our way out of the recession and the market is poised to "Rocket" higher! beats estimates

The estimate for the quarter was .71; and BIDU came in with .87. The conference call is tonight at 8:00 EST. But the stock, which closed at 261, traded down after earnings to 242 and up to 297 and is now trading at 274!

This stock shows the fragility of the bulls confidence or the games of the desperate shorts! I think it's a combination of both! But that's why you can buy First Solar the day before earnings and make 50 points. Or buy BIDU this morning at the open at 240, after three brokerage firms suggested a better opportunity would be after earnings, and make 50 points in a day. Maybe brokerage firms feel it is better to pay up for a stock, or that their short clients need to cover.

But there are now cracks in the confidence of the bear's bravado. It's showing in the momentum stocks, which are getting their mojo back. Anyone notice that RIMM (96.76) and APPL (129.40) tacked on five points apiece today? You had the bottom of these stocks Friday:

So pick up Apple (AAPL 121.24) which today traded 75 million shares, and traded down to a low 117.27, 86 points off of it's high a month and a half ago. If CSCO trades up on tepid guidance, AAPL can trade up from here, at least to the 137 level where it found buyers after it reported earnings two weeks ago. Research in Motion (RIMM 84.95) is down 52 points from it's 137 high. Like Apple, it corrected over 40%! Give me a break. Does Wall Street think there won't ever be a growth stock buyer again?Both of these stocks have made beggars out of the buyers. Now they are begging to be bought. Buy both of them!

What the action in these stocks show is that buyers are finally getting emboldened as bad news is already reflected in current prices. So you can fret about the news and the economy, or you can make tremendous sums of money on the bargains tossed, thrown, shorted and puked up by the hapless money managers and fear mongers.

So get out the rose colored glasses! They're what the bulls are wearing on Wall Street. And with just 36% of the bull-bear ratio being bullish, you won't have much company. But who needs company when you have conviction?

Buy em, and buy em big!

Who sold First Solar?

Yesterday, FSLR was hammered going into the close as the "smart money" was selling before earnings. Today the stock is trading up 37 points, as FSLR trounced numbers.

The highlight of Applied Materials conference call yesterday was the growth in solar business. The highlight in today's market will be the solar stocks. When the presumptive Republican nominee, John McCain was touring California last week with Schwarzenegger, he visited the solar companies..

Obama, who is known for his rhetoric, appropriately loves wind power, and is also a fan of solar.

So the momentum boys have their day in the sun.

The Dating Game

Anyone remember CIA "operative" Chuck Barris's The Gong Show or The Dating Game? But look at how times have changed. In USA Today, they had an article about matchmakers, a $236 million dollar business, where some charge $25,000 for their services. A client, a computer consultant said, "We outsource computer work for clients. Why not outsource the initial part of dating, which is meeting the right people in the first place? That's the hard part."

If you look at the above clip, it looks like Schwarzenneger has lost a bit of height in 34 years. But California's stature in the US economy has not diminished. And if you check the numbers from the comptroller of California you'll see the dramatic slowdown in retail sales. (page 4)

Retail sales and use taxes for January of 2008, were $991,439,000 versus $1,097,669,000 for January of 2007! So when we get retail sales figures out this morning, they'll probably be closer to the Governator's height today.

But maybe now the Bureau of Labor Statistics can create some seasonally adjusted matchmaker jobs!

Tuesday, February 12, 2008

Buffet offers to insure FGIC, ABK, and MBI's muni's

The insurers have a 30 day firm offer from Warren Buffett to take all the municipals off their balance sheets. So far, they have declined.

This reminds me what Pimco's Bill Gross had to say:

"How could Ambac, through the magic of its triple-A rating, with equity capital of less than $5bn, insure the debt of the state of California, the world’s sixth-largest economy? How could an investor in California’s municipal bonds be comforted by a company that during a potential liquidity crisis might find the capital markets closed to it, versus the nation’s largest state with its obvious ongoing taxing authority?"

Buffett's move would strengthen the "insured" muni's which have taxing authority, and allow the monolines to use the capital they have for their more "esoteric" products. Give the good to Buffett, the bad they keep. Rather Darwinian, but effective.

AIG's hit

Knocked Prudential (PRU 67.36) down also. I'd buy this number for a trade.

Bid Baidu! (246.7) reports earnings tonight, and the stock has already pulled in 160 points. The 100 year snow storm in China, has already given BIDU an excuse on estimates. So you buy the stock here before the number.

BlackBerry Outage

Last April, when RIMM"s system went down, it was the bottom in the stock. Nothing like a system going down, for someone to realize how much they depend on it. The stock traded off a dollar and a half to 93 on the news. If you haven't yet picked up RIMM, you better take it now!

Monday, February 11, 2008

Derivative sewage

With the mess going on at AIG, I thought these comments by American Century's Jim Keegan in today's WSJ was more than a little interesting:

Deal Journal: What’s your take on the markets today?

Jim Keegan: The employment shoe is the next to drop. The question I wanted to ask is, if this country is undercapitalized, why have there not been more massive layoffs on Wall Street? It was an origination-and-distribution model. Now it’s a risk-retention model.
I think the write-downs are being sized to the amount of capital the banks can raise. Reserving for losses is an art not a science. It seems all they’re doing is taking write-downs that are absolutely known today. There’s no forecasting.

DJ: Certain firms seem to have gotten it right, like Goldman Sachs.

JK:I’m not going to talk about specific firms. But for some of them, you have to wonder why they haven’t monetized their hedged positions. Either they believe the hedged positions are going to get a lot worse, or if they do monetize them, they’re going to bankrupt their counterparties. it’s probably a little bit of both.

Apple getting into handheld gaming?

Citigroup re-iterated their buy on AAPL and $212 target, and putting it on it's Top Pick Live list. Looks like the analysts have been reading this:

Trademork notes that Apple has filed to extend their Apple trademark into new areas, covering:
Toys, games and playthings, namely, hand-held units for playing electronic games; hand-held units for playing video games; stand alone video game machines; electronic games other than those adapted for use with television receivers only; LCD game machines; electronic educational game machines; toys, namely battery-powered computer games.

9to5Mac believes that the iPhone and iPod touch will be seeing $100 price drops in the next two months, simultaneously discontinuing the low capacity models. Their belief is that the 8GB Touch and 8GB iPhone will be discontinued, leaving a 16GB iPhone at $399, 16GB Touch at $299, and 32GB Touch at $399.

Sunday, February 10, 2008

President Obama?

Wall Street better start changing their models. Two hour traffic jams in Nebraska caucuses? And these weren't voters for Hillary, who picked up only 32% of the vote to Obama's 68%. Hillary canned her campaign manager today, thinking the switch might change her momentum. But do you want another 100 years in Iraq, or do you want the troops home? We got that answer this weekend as Washington, Louisiana, Nebraska and Maine increased Obama's momentum.

The public has spoken. Get out of Iraq. And only one candidate has that message.


Obama started at 70:1; he's now at 11:8.

Hey quants, it's time to tweak your models!

Friday, February 8, 2008

Yellen corrects Fisher

It's about time! Fisher, the Fed head, who voted against cutting rates, said this beauty yesterday, of which is below, and in my previous post:

"The Fed has to be very careful now to add just the right amount of stimulus to the punch bowl without mixing in the potential to juice up inflation once the effect of the new punch kicks in."

Today, Janet Yellen of the Fed had this to say about his comments:

"I don't think it's quite fair to say spiking the punchbowl, when on balance, credit conditions still at this point are not obviously across the board looser."

Inflation concerns weigh on Fed?????!?!!?!?

That's the headline in today's WSJ????

Federal Reserve officials are acknowledging increasing weakness in the economy, signaling a willingness to cut rates again at their next meeting. But inflation concerns are rising among some officials, indicating the magnitude of their next move may be a matter of contention...

"The Fed has to be very careful now to add just the right amount of stimulus to the punch bowl without mixing in the potential to juice up inflation once the effect of the new punch kicks in," Richard Fisher, president of the Federal Reserve Bank of Dallas, said in a speech in Mexico City yesterday. Mr. Fisher dissented in the Fed's latest vote, which lowered the interest-rate target half a point.

What tripe! The Fed is worried about the banking system, and they are worried about the deflationary death spiral in housing. And if they are not, they have to be complete idiots. And the staff of the WSJ should quit pandering to these lackeys from the Fed who amplified the current situation by not recognizing it, and acting when all of Wall Street did!

Bad news already priced in

  • Cisco (CSCO 23.37) cuts guidance and the stock goes up.
  • Ralph Lauren (RL 63.24) misses and the stock goes up 6. Citigroup cuts the stock the next day and it still goes up a nickel.
  • Pepsi (PEP 70.41) beats by a penny and the stock goes up 3 1/2 points.
  • JC Penney (JCP 47.44) sees earnings at the higher end of estimates, and the stock goes up 4, and is up 14 points from the low a month ago.

    Just like when the Fed cut rates, the dollar rallied, as the currency starts to discount the turnaround in the U.S. Economy. The stocks that haven't rallied are the tech stocks. They will.

    So pick up Apple (AAPL 121.24) which today traded 75 million shares, and traded down to a low 117.27, 86 points off of it's high a month and a half ago. If CSCO trades up on tepid guidance, AAPL can trade up from here, at least to the 137 level where it found buyers after it reported earnings two weeks ago.

    Research in Motion (RIMM 84.95) is down 52 points from it's 137 high. Like Apple, it corrected over 40%! Give me a break. Does Wall Street think there won't ever be a growth stock buyer again?

    Both of these stocks have made beggars out of the buyers. Now they are begging to be bought. Buy both of them!
  • What happened to the dollar bears?

    A few months ago, we heard that if the Fed would cut rates, the dollar would collapse. The Fed cut farther and quicker than any of these prognosticators thought, but the dollar has rallied five cents against the Euro. What happened? Not a peep from the dollar bears, as the ECB has proven itself to be as clueless as our Fed was.

    Yesterday, it was reported by the media that Buffett said our dollar would be "worthless" if we continue our current account deficit. This morning, Warren Buffett called in to Becky Quick of CNBC and said he was misquoted. Here's what he said: "If our current account deficit keeps running at present levels, the dollar I think is almost certain to be worth less five to ten years from now compared to other major currencies."

    Only in this market, where the professionals are completely fixated on the bearish side and over weighted with shorts can we have this nonsense.

    They'll soon get schooled.

    Thursday, February 7, 2008

    News is getting ugly

    Cisco ushers in the recession in technology, Walmart sales are up 0.5%, the Bank of Engalnd cuts rates 1/4 point to 5.25% and is worried about inflation, and Bernanke said that a downgrade of the monolines could have "adverse effects" on banks and the economy. So MBI raises $750 million, and now the banks are safe?

    The S&P has it's worst start in 70 years, and the NASDAQ's is already down 14%. And real estate is worse. In Florida you had more foreclosures last year than through the years 1980-1992 combined! The states, are seeing their budgets being crushed, with less revenue, combined with the slashing of property values. So now take the states out as a net positive in the employment statistics. That's gone.

    Now the markets only have to look forward to another intermeeting rate cut from the Fed! The three legged stool with the Fed's assumptions is now just wood on the floor. They thought that sub-prime was "contained." One leg gone. That the economies around the world would hold up while the U.S. faltered. That they were "decoupled." The second leg gone. That employment would hold up. Splat! Firewood. And now the markets, have rightly lost faith in the Fed!

    And now the ECB, which didn't cut rates, is like our Fed was in August. Trichet's head is not in the sand, it's in his ass! Inflation? It's deflation!

    And when the deflation genie gets out of the bottle....well I'll just defer to Wilbor Ross' commentary on the AAA rating of the monolines, as it aptly applies to deflation also. He said "I think a triple-A rating is like virginity, it's very important to keep it, once you lost it it's very hard to get it back."

    Wednesday, February 6, 2008

    Lennar's $800 million tax refund!

    In today's WSJ Heard on the Street column they had some good things to say about Lennar's land deal with Morgan Stanley:

    "Lennar Corp. has found a way to salvage something from the huge losses it incurred by overpaying for land during the housing boom.

    Late last year, the Miami-based home builder sold a big swath of land -- about 11,000 home sites -- for $525 million to a partnership that it formed with Morgan Stanley. At first glance, the deal seemed terrible for Lennar which had the land valued on its books at about $1.3 billion.

    But the deal's structure allowed Lennar to recognize a big loss that it applied against taxes paid the previous two years. The result: Lennar is expecting a tax refund of more than $800 million, according to the company's annual results filed in late January.

    As an added bonus, because of the way Lennar and Morgan Stanley structured their partnership, Lennar still effectively owns 20% of the land, according to the company. It also has a 50% voting interest in the partnership, meaning it will have a say in how the land is developed."

    Remember when this land was originally sold? The street was saying Lennar was selling it for just .40 cents on the dollar. I begged to differ.

    Looks like the deal is even better than that! With the stimulus plan being voted on in the Senate, losses could be applied against taxes paid for the past five years, so look for more deals on the home builders.

    DH Horton (DHI 15.45) which reports earnings tomorrow, could be a huge beneficiary; and with Toll Brothers reporting bleak earnings and outlook, and trading higher, it means you have to take DHI today.

    More problems in Credit Land

    LBO loans on bank balance sheets are selling at less than .90 cents a dollar. Here's some examples: First Data loans are selling at .88 cents on the dollar, Freescale Semiconductor at .84, Tribune at .74.

    Double-digit declines in the market value of these loans are very unusual, and a big problem for many banks, which sit on a pipeline of $152 billion in loans that they have promised to make but have yet to sell to investors.

    With the prices of existing loans tumbling, investors have little incentive to buy new loans unless they are sold at steep discounts, something banks are reluctant to do.

    The result: More assets building up on bank balance sheets, growing tensions among rival bankers who had grown accustomed during the buyout boom to cooperating with each other and a deepening crisis in the market for buyout debt.

    Problems exist also in muni land:

    At least six sales of tax-exempt auction-rate securities -- one of them by Georgetown University in Washington, D.C., and all insured against default -- failed to draw sufficient investor interest the past two weeks. Trouble in this $250 billion market could mean higher financing costs for governments, just at a time when they are already facing slower revenue growth as the economy weakens.

    Tuesday, February 5, 2008

    Disney crushes estimates!! As advertised!

    Last week I had this to say about Disney:

    But Disney's (DIS 28.68) stock is absurdly cheap at these levels. You can buy it for the theme parks and their other assets and get it's 80% ownership of ESPN thrown in for free! Beside the Disney Channel, A&E, Lifetime, and ESPN, you have 10 TV stations; of which six are located in the top ten markets in the US, and 5 radio stations and radio Disney, and the websites and Throw in Hannah Montana, Pixar, Disney Cruises, Walt Disney World, Disneyland, Tokyo Disney, 51% of Disneyland Paris, 43% Disney Hong Kong, the resorts, the vacation clubs, and it's Film and entertainment division, you have assets that can't be duplicated at 13x earnings, and this time at the bottom in the stock price, you don't have the Bass Brothers puking up their stock in a margin call.

    But a week ago, Citigroup, with their research staff of millions and millions of dollars said to sell Disney and put a target of 26!!! Are you kidding me? Citigroup downgraded Disney after "their databases indicated a slowdown in Parks is likely."

    The stock is trading up in the afterhours to $31.45! Hey Citigroup, nice call on the sale! Hah!

    "Their databases indicated...." It never ceases to amaze me how people fall for the Wall Street "channel checking" that these brokerage firms supposedly do!

    Fed Funds soon to be under 2%

    Today, Jeffrey Lacker, of the Federal Reserve Bank of Virginia said that a "mild recession was possible" and that "further easing may be warranted." Merril Lynch said we're going to get another intermeeting rate cut, and the two year note now trades at 1.95%. Lacker was one of the Fed heads that originally dissented when the Fed was cutting rates, and four times last year he voted for higher rates.

    Today he got religion. Look at his speech today:

    "A particularly dramatic change is likely to occur in commercial construction, which is a key segment of business investment. Construction spending for new stores and offices grew by a healthy 10 percent after inflation last year, but we have heard reports from our District contacts of a significant softening of conditions lately, with major projects being deferred or cancelled outright. In addition, vacancy rates for retail space have increased over the last year, which should lead to less construction going forward."

    Cisco's earnings

    So we had a leak of the non-manufacturing index, and weak overseas markets, and the early release isn't pretty: Non-manufacturing 41.9 versus 54.4, and employment 43.9 versus 51.8.

    The futures are down big. -150 on the Dow, -20 on the S&P. Buy the dips and sell the rips until it doesn't work. I'd buy this dip, and take CSCO (23.53) right here which reports after the close tomorrow.

    Monday, February 4, 2008

    The "scary" headlines tomorrow

    Will be that the banks who underwrote Harrah's LBO, are stuck with the debt. Unless they want to blow it out at a discount. Scary headline 1.

    The next headline is that private equity isn't going to participate in the restructuring of the monolines. Did anyone really think that? The banks are on the hook. They'll do it themselves. Scary headline 2.

    Problem for the bears is, this isn't new news. Anyone watch LIBOR Friday?

    They say that the scariest mask for kids is clowns. Let the market rest or come in a bit, so we can pick up some bargains, from the shorts in the market that these clowns are laying out.

    The only ones left buying in this market are the grownups. And they'll take the bears money.

    Giants Win!

    And it turns the futures 5 points! Must be some Giant fans trading! Now even CNBC's Mark Haines won't be a crotchety curmudgeon in the morning!

    Now the Patriots have the entire off season to think about the loss. Now that's worth something!

    The Giants win, takes the sting out of the Packers loss. I'll buy with the Giant fans!

    Sunday, February 3, 2008

    ESPN's Super Bowl proposition bet pick

    Is the under in the over/under (1 min, 42 seconds) in the singing of the national anthem by American Idol winner, Jordin Sparks. The theory is that she'll be nervous and rush the song.

    Rush the song? For 35 years the Miami Dolphins have been milking their 17-0 season. The Super Bowl was the highlight of their lives. And by looking at the latest Neilsen ratings, American Idol could use some ratings help this year. Who wants to rush their moment in the spotlight?

    Take the over for the national anthem sung by Jordan Sparks. Aretha Franklin and Beyonce both went over two minutes. Jordin has lungs. I say she belts it out, and goes over the 1:42!

    Specter and Spygate

    Has Arlen Specter ever been right on anything? Give me a break. With these comments regarding Spygate...

    "It could go to hearings...This is a matter to be considered by the (Senate Judiciary) Committee. I don't want to make any broad assertions or elevate it beyond what I have a factual basis for doing, We're going to follow the facts and if warranted, there could be hearings."

    ...they're already saying this is the final nail in the coffin on the Giants season.

    Why would you want to piss of the Patriots? The ticked-off Patriots could win by 35 points, and if the Giants would beat them now, it would be the biggest Super Bowl upset in it's history! And the proposition bets tell you that. You can't even play it! Look at these odds:

    Patriots victory margin:
    1-3 points +470
    4-6 points +560
    7-10 points +470
    22 or more +280

    The Giants are only +370 to win outright;
    +570 to win by 1-3 points,
    +740 to win by 4-6 points.

    Total points scored by both teams:
    71-77 +1050
    78+ +940

    But who bets on the numbers in sports? Wall Street quants? If you're a Giants fan, you could profit by betting on the Pats to win if the game is close. Do you think any true fan can do that?

    I'm still sick about the Packers not getting in. Finally after today I'll have closure! But for now, I'll envy the Giants fans. They still have hope. But I still couldn't bet a penny on the Pats. I'll have to bet that both teams score a ton of points, and hope we have an exciting game.

    But not bet on hope. The Giants fans have already covered that bet!

    Saturday, February 2, 2008

    Jobs number is "the nail in the coffin"

    Or so says the Daily Telegraph which trumpeted that the US is in a recession. Ya think? The question is: When do we come out? The negative job numbers Friday finally alerted the press what the worker, and the market already knew.;jsessionid=SSWRMIUQIPEKLQFIQMGSFGGAVCBQWIV0?xml=/money/2008/02/02/cnusecon102.xml

    But it's not the 4.9% unemployment rate that the pundits should be looking it. It's the 9.9% total unemployed, (U-6) and the (U-3) 5.4% unemployment rate for January 2008, that are the numbers that aren't seasonally adjusted or massaged by the BLS. Read their explanation on the bottom of the link (NOTE:). It's a beauty! The same information is on the chart above, from Sitka Pacific. (Click on it to see it clearly).

    NOTE: Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not looking currently for a job. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.

    That's the BLS' equivalent of "food and energy" in the CPI! Marginally attached and discouraged workers. When will they join the financial lexicon?

    My point is, the market has already discounted the recession, that the pundits only now are beginning to see. The difference now is that the rate cuts by the Fed allow equity investors (the mutual and pension funds-the Pollyanna's) who use other people's money, to be emboldened enough to give the economy the benefit of the doubt and buy.

    But those investors, of the bearish persuasion (the hedge funds-the cynics), the 20% owner of the profits crowd, are bearish and short. And the unwinding of their short positions is going to get nasty. Just look at the move the financials made in the last week! Yesterday you had the SOX index and the SMH move almost 7%! But most missed the move in those because traders trade the QQQQ's, which was held down by the heaviest weighted stocks in that index, Apple, Microsoft and Google.

    And if the market correctly priced in the recession, isn't it now going to price in the recovery?

    Who is going to buy the NY Times?

    The stock trades like it is in play, or that it is going straight to 22 on it's own, so either outcome is fine. Or maybe Microsoft can just pay 37 for it, since they are so hell bent on acquiring content!

    That isn't as ridiculous as it sounds! While I listened to the conference call of the deal with Yahoo, a couple things seemed to stand out to me. The ad industry wants an alternative to Google (Is it unusual that advertisers don't want to deal with the company whose motto is "Do no evil?" ) and MSFT was encouraged by media companies to make an acquisition like this and they received positive "unsolicited feedback this morning from publishers and advertisers."

    Yahoo already has partnerships with 555 daily papers; why not seal the deal by buying the NY Times? Go back to aQuantive. MSFT bid $6 billion for them on option expiration on May 18th, 2007, and then two months later, they bought AdECN. Obviously synergistic. Yahoo bought 80% of ad exchange company Right Media that they didn't own for $680 million on April 30, 2007. (In October of 2006 they picked up 20% of the company for $30 million.) MSFT's price for AdECN was undisclosed, but using YHOO's metrics, (and the $347 million MSFT spent on undisclosed acquisitions) I would guess it would be around $140 million. Now Mister Softee has the ad exchanges!

    So add the Times to their portfolio and get the paper that matters! Wouldn't this complement the content from Yahoo, and increase it's advertising platform? It also works linguistically. Yahoo's name came from the "rude, unsophisticated, uncouth" humanoid creatures known as Yahoos of which the super intelligent well reasoned horses called Houyhnhnm's ruled over in Jonathan Swift's 1726 classic, Gulliver's Travels. A hundred years ago, the anti-intellectual right wingers were known as "Yahoo's." As everyone knows, the Times nickname is "the old gray lady," the province of the intellectuals and left wingers.

    Remember back in 1999 when Mister Softee invested $5 billion in ATT? Oh that's right. Nobody remembers that. Do you think anyone will forget it if MSFT spent $5 billion on the Times?

    The "old gray lady" with the "Yahoo's!" The left with the right. The intellectual with the anti-intellectual. Bought will Bill Gates money! You couldn't make that up!

    Barron's blabber

    Now that the whole world is tired of subprime (and rightfully so); and that the monolines will quickly have a rescue package Barron's has found a new boogeyman: The Election!

    "There's consolation, we like to think, after careful consideration of the merits and flaws of the four leading contenders, in the knowledge that the country in its 232 years has survived worse. Although we have to admit we're hard pressed to come up with specific examples. Maybe we'd best content ourselves with the fact that it survived." Then this:

    "Should their overriding concern be that the stock market itself appears to be on such tentative footing that any moment can bring another stomach-churning crash? Or should they focus on the economy, which seems to be sinking, and with every passing day more convincingly, into the quicksand of recession?

    Or would they do better to seriously fret that their bank, the one they've done business with forever, that has such nice, friendly tellers and where their pittance of savings is parked, might be teetering on the brink? Or, instead, furrow their brows over whether or not they'll still be drawing a paycheck or have a roof over their heads a month or two from now?"

    Good grief! The market already had it's meltdown. It and Britney Spears will recover!

    Wesley Snipes Gets Off

    You'd be smiling too if the jury found you not guilty of tax fraud charges, but of just three misdemeanor charges of failing to file. It was a circus in Ocala!

    Friday, February 1, 2008

    IndyMac hits double digits! As advertised!

    These stocks are breaking the bears hearts! On Thursday, January 24th, I highlighted IndyMac at $5.43. What a difference a week and a day makes!

    Can Indymac stay Independent?
    Indymac (IMB 5.43) rocketed almost three points today before settling back. Takeover rumors, and the temporary lifting of the conforming limits for loans from Freddie and Fannie Mae to $729,750 until the end of the year spurred the buying.IndyMac can refinance the negative amortization loans, and then sell them to Fannie and Freddie Mac. They got thrown a lifeline!The stock can trade to double digits!

    Today it traded at double digits and IMB closed at 9.86. As advertised! It should be 12 by Tuesday and 14 before Valentine's day!

    APWR! As advertised!!

    AstroPower(APWR 17.75 +3.31) formerly Chardan South received a letter of intent (LOI) for 380 wind turbines at $3 million apiece, or a bit more than a billion dollars. Here's where I advertised the warrants, which closed today at 12.75 (APWRW +3.35), back when it was known as Chardan South:

    ..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 my blip on the stock on a few days later on October 10th:

    And when you re-read that, you should read the September 7th SEC filing on CSCA, and the information on Liaoning GaoKe Energy Group of which CSCA is acquiring.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.

    The merger closed on January 24, and the stock closed today at $17.75! As advertised! You get your two handle Monday!