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!

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