Wednesday, December 31, 2008

GMAC's Bad Medicine

More Bad Medicine: Rates Were Never the Problem
More good news for GMAC. Now that GMAC is more like a bank, the Treasury gave them $6 Billion dollars in TARP money. GMAC said that it would use these monies immediately to introduce 0% loans, and loosen lending standards. Management hopes that this move will help GM reduce its car inventory, and create additional cash to keep it floating. I am not as optimistic. As we have noted rates (whether they were for cars, credit cards, homes, or business loans) were never really the problem. When rates were lowered it encouraged more people to buy and refinance, money was cheap to borrow. Now that we have extended too much credit to the wrong borrowers, we are seeing the fallout. GMAC's move may be the initial step. It may temporarily sell cars. The large glut of inventory may move. However, extending more credit could well be a recipe for disaster.

According to Nouriel Roubini "Today's global crisis was triggered by the collapse of the US housing bubble, but it was not caused by it. America's credit excesses were in residential mortgages, commercial mortgages, credit cards, auto loans, and student loans. There was also excess in the securitized products that converted these debts into toxic financial derivatives; in borrowing by local governments; in financing for leveraged buyouts that should never have occurred; in corporate bonds that will now suffer massive losses in a surge of defaults; in the dangerous and unregulated credit default swap market." (1)

As companies and governments attempt to remedy borrowing through reduced rates... and loosening credit standards, they may only exacerbate the situation. I remind readers that government intervention is not only limited to GMAC, but a variety of lending institutions which have received direct infusions from the Fed as well. To encourage the same practices that caused the original problems is not only senseless, it encourages the same people who have helped cause the financial crisis to remain in the picture. It is almost as if governments are encouraging a policy of Natural De-Selection (encouraging the weak, in-efficient, and dumb) to survive. And we watched Wall Street react with 185 point run-up... go figure!


Sunday, December 28, 2008

Men don't Grow Old. They Grow Careful... Portfolio Round Up: I am in the Money... Not Bad for an Amature...

Men Don't Grow Old. They Grow Careful. -Ernest Hemingway (From A Farewell to Arms)

Maybe Ernest Hemmingway had something here. The older we are, the more careful we grow. If we are to grow old, then we must grow careful. If we are too careful, then we do not grow...

I have been blogging for nearly 11 months now. Over the course I have educated myself and readers about economic, historic, and political trends. I do, for the most part, spend a portion of each day browsing through blogs, news, the archaic form of news delivery known as a newspaper, and my favorite... casual conversation. This blog has in many ways became a tool for research and understanding. It has allowed significant insight into areas in which I had little to no understanding. In many ways, this blog represents a learning community. Learning alone is nice, but there is also a financial piece that has accompanied this blog... How do we profit from this market, or at the bare minimum, insulate ourselves from the varied havoc reeked by Wall Street and politicians in D.C..

Three Mega-trends for the Upcoming Year

1. The Financial Crisis is Far from Over

Pundits on Wall Street would like to see a bottom placed in the market. As we blogged earlier... there is little credibility left on Wall Street. I would like to reminder readers that we can turn on the TV daily to hear another TV personality call market bottom... only to be toasted days if not hours later. The complete meltdown of Bear Sterns, Lehman, and Washington Mutual reminds us that the financial problem is big... and it could be devastating. Likewise, charlatans like Bernie Madoff (with billions)who could well be the biggest scoundrel in the history of Wall Street to date, underscores the the economic minefield of Wall Street. For most, money is safer under a mattress than in the hands of a broker.

2. Foreclosures Galore
While we have blogged that 1-10 houses in the United States face financial ruin, we still do not comprehend the depth of this financial meltdown. One mid-west transplant from California remarked that the house he sold in Sunnyvale, CA has lost 10% of its value in the past six months. His insight into California's housing market could well be the most frightening. As a mortgage broker, he explained that option arms, negative arms, and Jumbo Loans have yet to reset. Even with the Federal Reset, there are a tremendous number of borrowers who will not be able to refinance... under ANY circumstances!!!

3. Deflation v. Inflation

In conversation with a programmer at the Department of Treasury, he stated that the Treasury is printing out too much money. Way too much money. Still though, he commented that Treasury is more concerned about deflation instead of inflation. This individual cited housing prices, oil prices, and all goods (with the exception of food) are coming down... way down. The Treasury and Fed have gone to great lengths to ensure that money is available to purchase these goods. When asked about BILLION dollar bailouts, TRILLION dollar stimulus packages, he simply commented that the economic meltdown is their biggest priority.

Portfolio Round-Up: I am in the Money

It is never kind to brag in light of the financial turmoil that has devastated world markets, but I will simply say that this blog, and fellow bloggers like Ax at bigbigbet have encouraged me more than ever to take charge of my finances. And with great risk came great reward.

Big Winners

PQ +215% Call
SPG +363% Put
VNO +280% Put
XLI +304% Put
XLY +477% Put


BAC 100% 12/25s Call: I underestimated the response of companies to the TARP. I was in good company as Buffet was said to have lost on the same calls... I followed the Oracle...and got punished for it.

TRLG -43% Puts: As a coach, I remind athletes that they should always give it their best. The worst thing they will do is lose! If only I would have heeded my own advice. But this was at the early stages of my option trading. You live and you learn.

Could Haves (Could Have Made More)... Should Haves (Should Have Sold Earlier)...

WGO -40% Put: My first option trade. I liked the triple convergence of consumer discretionary spending, high fuel prices, and unemployment to drive this one into a triple digit profit. Instead, I watched the value of this play paired... I started to panic... and that was that...

BAC -15% Put: BAC was a company I loved to hate... not only did I lose on the call side of transactions, I also lost on the puts as well. I became increasingly irritating when the government intervened this summer banning short selling... propping up this company... and I will still call CEO Ken Lewis not much less than a COMPLETE buffoon... Remember Ken if you are going to lie to the public, pick a story, rehearse the story, and stick to your story... Dare I say this could be another Citi destined for $6.00 per share. Go long on the discount price, this one is too big to fail...

COF +30% Put: Another joke still trading in the upper 20s. Like BAC, COF, and HBC, I watched triple digit profits evaporate before my eyes. At least I made a few bucks on this one...

HSBC -27% Put: Little did I know that our British cousins' situation was more dire than our own. The simple fact is that credit, as over-extended as it was here in the United States, it still wasn't as bad as Great Britain. They put a short sale ban on their financials as well... and the Tiger Coach got left holding the bag.

STI -40% Put: Their is no foreclosure crisis in Florida. At least that is what the fine folks as Sun Trust would have us believe. This bank was/is in about the same shape as NCC. Something tells me they could be one of the banks that received a loan from the FED in return for some of their useless collateral. I hope the Bloomberg Suit exposes all of these crooks for who they really are!!!

AU +10% Call/s: I traded this stock a few times buying at the open, and selling at close. I had built a nice system...and the system failed me. Kissed away approximately 40% in AU profits... and I have grown older...and wiser!!!

Not Bad for an Amature
I do not claim to be an expert. This blog is written in part as an intellectual exercise. It has given me the opportunity to observes the humor, trends, and absurdities of life. The economic, historical, and political realms are simply the venue of this observation. As far as investing goes, I was lucky to say that my portfolio at close of business today is up 88% for they year. Over 75% of these monies are currently in the market, with a reserve fund waiting for the best opportunity. I have a list of 10 stocks that could either make us rich or poor. I only ask that you share your thoughts with me. After all, I am not an "expert" like Thomas Lee or Jim Cramer.

These returns do not include the 403B plan which was saved by in large before the October and November meltdowns on Wall Street. As I watched the profits ebb away, and with the urging of Ax, I "wiped the board clean" and booked profits there as well. Those monies are currently sitting in T-Bills (1.3%) looking for the right place to move it.

In Closing: This is not my is Our blog...
I would like to thank all readers who have shared this journey. We have readers in five continents... from Capetown, Africa to Sydney, Australia...from Neidersachen, Germany to Bangladesh, India...and all over the United States. We have received letters from House of Representative members, Senators, and even members in U.S. government agencies. We also reach a variety of academic institution throughout the United States. We especially appreciate the comments of readers like Ax, DC North, Boom and Doom, Jimmy K., and a number of those who simply remain anonymous. Let's look forward to another profitable 2009.

Sunday, December 21, 2008

The Miracle on 34th Street... Age of the Empty Suit... $10,000,000 Bill?

The Miracle on 34th Street
You have to love family movie night. Tonight we watched the John Hughes version of Miracle on 34th Street. In the not too distant past, I distinctly remember going into the colossal department stores as a kid. Sitting on Santa Claus' lap. Getting a picture with Santa. And taking a ride down the slide back to mom and dad. Big Cleveland Department stores like May Company, Hallie's, and The Bing Company stood as icons of a thriving 1970's era retail. Big train displays, Winter Wonderland villages, and even a few elves.

One scene from the movie which really caught my eye was the flood of people coming in these stores to visit Santa Claus. Cole's had the best Santa Claus, and everybody else was jealous. We went out to see the real Santa Claus the other night. This required a track to Great Northern Mall on the west side of Cleveland. All that I could think of was a 40 minute drive, and another hour wait to see Santa. However, much to my chagrin, we were met with a 10 minute wait. And this guy is supposed to be the best Santa in Cleveland. According to the photographers, business was down approximately 30% from last year. That would suggest that 30% less people found themselves in the mall thus far during Christmas and Hanukkah shopping.

According to the Wall Street Journal, retail vacancies of strip malls surged to 8.4% in the third quarter. The report went on to say that vacancies increased in 76 of the U.S.'s top retail markets. Not to be outdone, these recognizable names are circling the wagons and closing stores inside the United States. Others are simply filing bankruptcy. Some of the names of troubled retailers include: Shoe Pavilion, Steve & Barry's, Gordman's, Radio Shack, JoAnn Fabric, Boscov's, Bennigan's, Winn Dixie, Office Max, Comp USA, Pier 1, Sharper Image, Starbucks, The Disney Store, Wilson's Leather, Talbots, Ann Taylor, Bombay Co. and more. This could well explain the added pressure on REITs that was seen last week. No wonder Mr. Wolstein dumped the vast majority of DDR. He got out went he getting was good!

Ironically, SPG and VNO surged last week. This suggests one of three scenarios:
1. A covering rally...meaning the stocks will be very ripe to short once again.
2. Momentum trade from TARP discussion that commercial real estate and consumer real estate could be the next beneficiaries on free monies.
3. A bottom was set, and now is the time to buy.

For my money, I find scenario number one to be the most logical explanation. Although, I am becoming increasingly suspicious of a TARP play here. Especially with Obama's high level appointment of a Housing Secretary Shaun Donovan. Donovan is known as a crusader against low-income foreclosure and housing management. Obama will need a point man on this issue as once source not only mentioned the next "reset of ARMs and Alt-A loans. "At present, one in 10 U.S. homeowners is either delinquent on mortgage payments or in foreclosure, With more than 259,000 homes receiving a foreclosure-related notice last month, the Federal Reserve has predicted that the nation's 2008 foreclosure figure will reach 2.25 million." (1)

The Age of the Empty Suit

The empty suit is a new reference to those who have lost all of their material wealth on Wall Street. In this case, many of those who lost it all were affiliates of Bernie Madoff...scoundrel extraordinaire! For many of us, we hear of the financial tragedies as they unravel... wince... hope that our financial futures are not effected... and think that we are a little bit luckier if not smarter than the next guy. After all, it is human nature. Wall Street Journal writer Peggy Noonan brings up the point "That’s the big thing at the heart of the great collapse, a strong sense of absence. Who was in charge? Who was in authority? The biggest swindle in all financial history if the figure of $50 billion is to be believed, and nobody knew about it, supposedly, but the swindler himself. The government didn’t notice, just as it didn’t notice the prevalence of bad debts that would bring down America’s great investment banks." (2) The government if not Wall Street's pimp, has at the bare minimum become an accessory to the crime of negligence. Banks, investment houses, and now multi-billion dollar Ponzi schemes is exactly what Wall Street does not need. For those who have put faith in the system, they are finding out that the world can be an ugly place. Who can you trust? And I am the type of guy who will put faith in the average American.

Our forefathers might easily allude to Nathaial Hawthorne's Grey Champion as guide, protector, and champion of the persecuted. However, most believe that heroes are in limited supply.

Where have you gone, Joe DiMaggio
A nation turns its lonely eyes to you (Woo, woo, woo)
What's that you say, Mrs. Robinson
Joltin' Joe has left and gone away
(Hey, hey, hey...hey, hey, hey)

We are an optimistic people. We have and will continue to thrive on optimism and innovation. While the roads will be rocky for the next few years, I do believe this country will stand the test of time. We should experience “the current crisis” as “a gigantic wake-up call.” We’ve been living beyond our means, both governmentally and personally. “We have to be willing to face up to our problems. But we have a capacity to roll up our sleeves and get down to work together.” Americans tend to rally in crisis situations.


The other side of the coin leads us back to the bunker mentality. If you live in Zimbabwe, you would be best served to transact all business in silver, gold or other commodities. This week the government of Zimbabwe created a $10,000,000 note. Don't think for a second that you are rich. This note has the buying power of a new Zimbabwe dollar...deleveraging the old dollar...and creating the new...with 168 equaling one U.S. dollar. This is served as a reminder to all readers that:

1. The world needs the United States (as of now) in spite of our financial breakdown, we are still the most stable economy in the world. Even though the printing presses are overheating, countries are still flocking to the security of U.S. bonds. More importantly, bonds that are at a minimal yield.

2. If the United States does not grow the economy... or reduce spending, we could face a inflation...deflation scenario.

Kind of scary if you think about it.

Stock Positions:

Curtain Call for BAC as by 12/25s expired worthless...
AU 1/30s will look for an exit point...
GE 3/20s Some hope... looking for an exit point as well



New Considerations:


Saturday, December 13, 2008

Save the Drama... Stock Watch...

Save the Drama
Congress (the Senate to be precise), had made a critical vote about the Big Three Bailout. They voted NO to the bill. They had used the legislative authority authorized by our Founding Fathers in the U.S. Constitution to deny bailout funds to car-makers. Not that this was the final word in the matter. More than likely, the measure would have been picked up by the House of Representatives... revived... revised... and resubmitted to the Senate for another vote. But it was the vote that never was. The Department of Treasury under the approval of the Executive Branch of Government offered up TARP funds to Detroit.

Why all the drama? Good question. It appears that no one ever needed the approval of Congress to begin with. While our Founding Fathers decided that ALL spending measures must originate in the House of Representatives. However, the Executive Branch was once again by-passed the House, the Senate, and for all intensive his own party to extend a helping hand to the car makers.

To put it frankly, there are so many piggy banks in D.C. that can be raided, Congressional approval was only a minor formality to getting this deal done. Here are the piggy banks I can think of right now:
1. Congress
2. TARP Funds
3. Wall Street Emergency Funds
4. The Federal Reserve (Who is always intended to be the lender of last resort).

One thing is for certain, before our eyes government transparency, an essential element to democracy, is being destroyed. Without honesty and clarity, government (any government) becomes a tool to those who are in power. In the end the power is always used against the masses. The Roman Republic became the Roman Empire under the shadowy guises of looking out for the "people's best interests." A powerful few manipulated rules, laws, a republic traditions. The transformation continued until Rome was controlled by a dictatorship... then a triumvirate of strong men who eventually ran the empire into the ground. Without democracy, this country is dead... The people have no say in a government that is not representing their interests.

If the auto industry cannot get consumer money from selling cars, I hardly believe they should be given tax payer money to continue the same reckless policies that have landed them in this predicament. More anecdotal evidence of the union gone wild... One police officer said his best arrest came from a Ford worker who was one his way home from work. In Ohio, you are legally drunk at .08. You are smashed at .3. This fellow was at .5 which in most cases means he should be in a coma from intoxication. Instead, I remind you that he was on his way home from work, as in pulling right out of the plant. In another scenario, I was informed that the best duty to get as an employee is to be sent to the Gin-Pool. This means that when you report to work, you report to a staging area and wait to fill in for someone who calls in sick. If no one calls in sick, then you get to play cards and nap all day. At one auto plant, there are over 200 workers who are part of the Gin Pool. as for the auto industry, I have always made it a point to buy American cars... I just feel good about employing a fellow American.

The story to follow deals with a Sunshine Law suite filled by Bloomberg against the Fed. As it stands, the Fed has loaned well over a trillion ($1,000,000,000,000) to various financial institutions in the United States. These loans were not made with Congressional authority, nor any legislative oversight. Furthermore, now that the Fed has made these loans accepting Lord only knows for collateral, non one... NO ONE can find out who the loans were made to, nor the collateral that was used as security for the loan. While the Fed is using the official excuse as "trade secrets" for non-disclosure, when it is OUR money and OUR debt, every single American deserves to know. And this is why governments need transparency!!! I will once again write every Congressman I can reach... I beg each reader of this blog to do the same!!!

Stock Watch
Unemployment revisions suggest that the numbers will always be estimated on the low end... revised a week later as to help cushion the real blow. No sense on hitting XLY or XLI yet, but I will start bidding on June puts. Wynn and MCRI still stand as slam dunks here. I am increasingly suspicious that inflation, once America's leading export could well be replaced with deflation. Even though treasuries are at historic lows, there is more to be said on this subject. Shorting the dollar may be another play in the deflation scenario. UDN is a consideration as well.

Tuesday, December 9, 2008

Wal-Mart's Wisdom... Sin City Silence... Commercial Real Estate Re-Visited...

Cash is king... just ask Wal-Mart. The retailing giant made an announcement today that they are holding on to cash, and putting share buy-backs on hold. While investors have been rewarded a whopping 18% for holding Wal-Mart for the last year, even the master of retail sees the significance of putting additional share buy-backs on hold. Currently, Wal-Mart has $5 billion allocated toward additional buybacks. Could it be that the cash-rich retail giant for-sees big problems for the American consumer? Could Wal-Mart set another troubling trend for Wall Street bulls? This could well be the green light to short the !@#$@% out of any retailer that has seen a bump... the all-around play could be XLY. I was looking for an additional "feel good" run for shorting this one again... I will look to buy on any tick to the upside...6/15s are an idea. I have also considered some specialty retailers like TIF.

Some people call in discretionary consumer spending. Others call is play money... Whatever you want to call it money is not getting spent in places like Las Vegas. With convention bookings down by more than 18%, Las Vegas in no longer the impervious desert recession-proof oasis that it used to be. The Gaming conventions that meet in Sin City this week will find little solace in the current economic climate. After all, gaming in the United States could well be coming to a whimpering end. "This is as bad as it has ever been from a consumer-confidence standpoint," said Jim Murren, president and chief operating officer of MGM Mirage. "We have had a few recessions here in the past, but none as severe as the one we are in right now." While we have seen a covering rally for stocks of late, rest assured... Casino and gaming equipment makers are in for the beating of their lives. Cheap credit rates... and infrastructure projects will do nothing to help these places out. And 80% of the stimulus checks that Obama and friends will pass out as already been spent! I have seen WYNN taking a severe beating only to rally back. I believe this is another entry to to add additional contracts to my 3/30s put position. MCRI which has a projected earnings growth rate of 16% will see a reversal that could well lead them to negative growth. Unlike Las Vegas, MCRI has exposure in Reno... and NO ONE goes to Reno for gambling. Furthermore, MCRI's recent rally can be directly attributed to a covering rally. There will be no good news to come out of Las Vegas a.k.a. the epicenter of the foreclosure crisis. As one cab driver said, "It is worse than after 9/11."

VNO and SPG are back on the board. In a gravity defying move both have risen to the point that they are in the safe range to short once again. I have really given up asking the basic question as to "why" these stocks rise... I just know that they are rising for no legitimate reason, and when the market comes to its senses, these dandies are goners! The SRS play is another consideration...{E95D4A0E-05B7-4967-94D4-A56CB872648A}&dist=TNMostRead

Sunday, December 7, 2008

A Message from Dr. Doom, Mortgage and Rates, Expert Opinions... Stock Moves...

A Message from Dr. Doom
Marc Faber known by many as Dr. Doom believes 2009 could well mark a deepening of the world recession. While Faber admits that he miscalculated the positive impact of liquidity injections that the Fed has taken. However, the key story is the derivatives market. With a general over-extension in credit, and the complete depth of "bad debt" unknown, there could well be a scenario for further unraveling. "When credit growth began slowing in 2007 and when asset markets sold off, a huge de-leveraging process was triggered, which then brought about further price falls and caused further de-leveraging. In addition to the severity and speed at which asset markets collapsed globally, volatility also increased to record highs — not just for equities but also for commodities, currencies and bonds." Expect equity returns to remain weak as long as market volatility remains. Equity prices around the world are down nearly 50%. Home values and commodity prices are also down by half. Noticeably absent from Dr. Doom is the impact of lower oil prices which would be a net positive on world economies, and unemployment which trumps almost any other indicator! It doesn't matter how cheap gas is if the consumer does not have a job. With November unemployment at 535,000, December could well surpass that number... Last, Dr. Doom believes gold and gold miners are the winners.

Mortgage and Rates...

The good news is that rates have dropped to 5.65% for a 30 mortgage. This should be helpful to those who have the ability to service that debt. The fundamental problem of the credit crisis was never the fact that rates were low... The real problem was that credit was extended to people and businesses who did not deserve it. We are reminded that terms like sub-prime and Alt-A became common vocabulary among mortgage brokers and bankers. Seeing other untapped revenue streams, lenders were willing to extend home equity loans to people at 125% of their home value. According to Alphaville's Stace-Marie Ishmael "One tenth of all homeowners with a mortgage in the US were either behind on their payments or facing foreclosure in the third quarter of the year, according to data released on Friday by the Mortgage Bankers Association." The good news is the opportunity to re-finance three and five year ARMS. More importantly though, is the fact that borrowers may no longer qualify for loans due to property devaluation and tightened lending standards. If Fannie and Freddie back all of these loans, we are all is much more trouble than we realize.

Ask the Experts...

In June, I noted that Morgan Stanley's Thomas Lee made several recommendations about up and coming sectors. I equated these sectors with XLF, XLY, and XLE. I know Lee is an expert... and knows a heck of a lot more about the stock market than I do. So, I thought it would be a good ideas to check out these sectors. Here is what I found out:
XLF -45% from recommendation date.
XLY -35% from recommendation date.
XLE -48% from recommendation date.

Now Bob Froehlich vice-chairman and chief investments strategist believes 2009 will be a "very good year for the DOW!" Froelich believes that Dow will approach the 12,500 level next year with the greatest upside potential being the financial services sector. However, Froleich gave himself an out suggesting that three areas could have a negative impact on the financial markets: 1. cut in oil production
2. Rising Unemployment and 3. Political in-fighting on a Obama stimulus package.
So today 12/7/2008 we will assign Mr. Froelich three stocks that represent his expertise: DIA (Dow Jones Industrial Average Index), XLF (Financial services SPDR... sorry Mr. Lee he is recommending this one a little lower than you), and KEY because Forelich sees additional consolidation in the financial services sector.

My Stock Moves

I opened new positions in:
MLHR 5/12.5s
MDC 3/22.5s
MCRI 6/5s...
And still hold short positions here:
CNK 3/10s, FXI 5/16s, RYL 4/12.5s, WYNN 3/35s, BBW 1/10/5s
I still hold Calls on:
AU 1/30s, BAC 12/25s (which will more than likely expire worthless), GE 3/25s

Monday, December 1, 2008

The New Odd Couple... Cease and Desist... The Three B's...

The New Odd Couple
If you believe that politics create strange bedfellows, then one would need not look further than the political fervor that is being created by Dennis Kucinich and Steve LaTourette. While both politicians are polar opposites, the National City Crisis has brought them to a common ground. In typical Dennis Kucinich fashion, he has raised ethical and procedural questions about the PNC purchase of NCC. In a letter to a vice president of the Federal reserve, Kucinich outlined his reasons for either nixing the NCC purchase, or extending the comment period by 30 days:
1) to protect jobs, convenience, and needs of the Greater Cleveland community;
2) to protect the interests of the shareholders; and
3) to assure that public funds are not being used to distort the banking market to pick winners and losers. (1)
Dennis you have a heart of gold. By the real issue at hand and the only one that seems to gain any traction in D.C. is point number three. This is where Steve LaTourette has tagged in. LaTourette's membership on the Financial Services committee provided he and Kucinich with a 90 minute meeting regarding the TARP with Neel Kashkari. (2) While immediate details were not available due the sensitive nature of business, I can only imagine the discussion when all of National City's cards were laid upon the table... With LaTourette's brains and Kucinich's win one for the Gipper attitude maybe just maybe there will be a part two to this story!

AmTrust Cease and Desist...
Cleveland's fourth largest bank AmTrust, has received a Cease and Desist order from the Federal Reserve. The order put officials on notice at AmTrust that they need to build reserves and deposits in order to continue loan operations. There is considerable speculation that AmTrust's Florida exposure could be the culprit of this recent unraveling. Note that AmTrust immediately placed pink slips in employee mailboxes. Maybe with a bit of help from Treasury, maybe PNC will buy them next...

The Three B's

In school this refers to dress code violations: Bellies, Breasts, and Butts... In the world of economic panic it stands for Bullion, Bullets, and Bibles. Strange as it may seem, but one blogger noted the increased interest in gun sales and safes. Evidently, the Bunker Mentality is gripping some people more than others. While I am rather quick to discount this blogger, he did note an interesting fact. "Breadlines did not appear immediately after the 1929 Crash." The first soup kitchens appeared in 1933... The blogger's point was that Wall Street indicators take a while to play out on Main Street. While some of these points are valid, I believe our government is better positioned to meet needs and demands if there ever was a "true" panic.
Did you Hear, it's official?


Sunday, November 30, 2008

We had to Destroy the Village to Save it... Black Friday... My Actions... A Christmas Carol

The Old Skin-flint Ebeneezer Scrooge was transformed in the Christmas Carol by Charles Dickens...

"We had to destroy the village to save it."
During the Vietnam War, the United States found itself not only battling a shadowy force of Viet Cong, but more importantly an ideology and thinking that was almost imposible to fight. Our attempt to "win" the Vietnamease over through give-aways, acts of kindness, and even fighting their war for them proved to be folly. Communist inflitration became so heavy that one officer at Ben Tre commented "We had to destroy the village to save it."

The rationale befuddled many Americans during the Vietnam War. Destroying the village to save it... Ironically, this week Congress will discuss whether it will "Destroy" the Big Three in order to "save" them. As previously noted, a failure of the Big Three will send a giagantic shock wave through the economy from line-workers, executives, middle management, and secondary suppliers such as out-sourcers. A Big Three failure will effect every single American in one shape or form. Congress would not be destroying the automakers. Quite simply, by doing nothing Congress would allow the Big Three to whither and die... They would be forced to file bankruptcy. Bond and shareholders would have worthless shares, and all contracts would be null and void. If Congress allows the Big Three to fail, then there would be an opportunity to re-organize the manufacturers into a 21st century organization, as opposed to retaining the failed industrial model. To allow another life-line and cash-infusion in the end, would be folly. Under a bankruptcy plan, executives, line-workers, bond-holders, and speculators would be ones on the hook for the financial loss. Congress may well have to destroy the Big Three in order to save them.

Black Friday...
Bargin shopping... That is what happend the day after Thanksgiving. Nothing more, nothing less. Cash strapped consumers were out spending... and they are not spending friviously. They are looking for bargins. It is a sad commentary any time shoppers trample another human being to death for a couple of low-priced items... Ironically, the main consumer in our house noted that "The stores were very busy in the morning, but everyone had gone home by noon." Many people are going in to conservation mode... expect hellacious retail numbers within the next two weeks.

The recent run-up in stocks could well be another opportunity to re-short commercial real estate. The story of the week on several TV stations was how commercial real estate was taking a terrible hit. To be precise, chain stores specializing in apparel will be the ones that take a hit. Ironically, I do believe some stores will hold their own. As I have mentioned to fellow reader Boom and Doom, certain specialty retailers will always hold their own. Sports apparel will always have business due to the nature of their product, and the demographic of the clientele. Jerseys and hats become part of a person's persona.

Restaurants, furniture, and jewlery are on the board as well as a few specialty selections from AX that can be found at:

My Actions...
Two weeks ago I sold positions in SPG and VNO puts the day before the big rally started... 180 % profits!!! It was more luck than genius... but something should be said about profit taking... profit is never a dirty word in this trader's book. Still, I am in the black on several other positions. I am continuing to hold WYNN, CNK, BBW, FXI, and RYL since the earliest of those contracts expires in March. I also added MCRI into this rally. Thank goodness it was a low-ball bid or I would be down 25%. One thing is for certain, there is more bad news to be had. It is obvious that unemployment will be heading into double digits before this is all said and done!!! Aside from stimulus checks for basic survival skills, I believe most will curb their appetite for extras like gambling. I am convinced that we are getting a nice "feel good" effect from the Obama administration... after all there is always a honeymoon phase. Just remember, the same reporters that are heaping the laurels and celebrating the arrival of a new President could well be the same ones who write vicious words. If we develop protectionist tarrifs akin to Smoot-Harley, then we will be in for a looong sloooow doooown.

Keeping Christ out of Christmas...
Whether you are a Aganostic, Hindi, Muslim, or Jew, there is nothing to gain by taking Christ out of Christmas. As my wife and I journeyed 15 miles down to the State Theater in Cleveland, paid for parking, and bought tickets for Charles Dickens "A Christmas Carol" we were treated to a dumbed down version of the play. Scrooge's tortured old soul was supposedly changed through visitations from four ghosts. Scrooge it supposed to be redeemed in mind, body, and spirit on Christmas morning. However, there is no redemption without the birth of Jesus... and that is something that would have Dickens rolling in his grave. In an age of political correctness and multi-culturalism we should genuinely appreciate the aspects of everyone's culture... not destroy it! Taking liberties with stories can destroy them, and the author's true intention. I am not sure whose version of a Christmas Carol was shown last night, but it was not Charles Dickens!!!

Friday, November 28, 2008

Everything Else is Negotiable... The Negotiable...

Everything Else is Negotiable...
Abraham Lincoln had it right. He was the President who made Thanksgiving a Federal Holiday. Maybe it was Honest Abe's ability to think positive during a time of national crisis (the Civil War). Thanksgiving was a simple call to remember the sacrifice and misery of our Puritan-Separatist forefathers. In 1620, the Pilgrims left England for good. They left to escape religious persecution from the Church of England. The Puritans were different, and had such a deep commitment to God that they left their mother country England, and set up for Virginia Colony. (Jamestown, VA was the first successful English Colony started in 1607.) As fate would have it, the Mayflower was blown off course and they landed in Cape Cod. In the first year of settlement, the Pilgrims saw one-half of the original settlers die. In spring, there was considerable discussion as to whether they should abandon Plymouth and return to England. Then one day, an English-speaking Indian walked into Plymouth. Samoset, Squanto, and the Wampanaog Tribe taught the Pilgrims new world survival skills. In spite of the many hardships, the Pilgrims recognized that they were truly blessed with health, prosperity, friendship, and an opportunity to worship. In the fall, the Pilgrims celebrated a great feast with their Indian brethren, and the first Thanksgiving was born. Like the Pilgrims, let us remember the important things on Thanksgiving... health, happiness, and friendship. Everything else is negotiable.

The Negotiable...

As of late, the stock market has seen a pop due largely to President-elect Obama's brain trust of cabinet members. Obama brings an upbeat-pragmatic attitude that has given the American people in general, and Wall Street in particular, a belief that help is on the way. To call Wall Street's recent upturn to be anything else than a "feel good" rally is a mistake. As I was sitting in the barber shop the other day, I over-heard one client say that now has to be the time to buy... I simply smiled and asked him "Why do you think we should buy?" He said "Because it has to go up from here." Simple enough...

$800 Billion or the 800 Pound Gorilla?

The Fed is using some of the same implied powers delegated to it during FDR's New Deal. The latest move showed that the Fed was going to purchase up to $600 Billion dollars worth of mortgage backed securities, you know the ones that are guaranteed by Freddie Mac and Fannie Mae. As we know, the Fed is not in the business of purchasing its powers to purchase these loans. With several key strokes to a computer, the Fed "created" additional fiat currency...(at this point I will no longer call it money... money always has value.) Prior to the credit crisis in August of 2007, the Fed's balance sheet stood at $850 Billion. As of last week, it is now at $2.2 Trillion dollars. The sincere hope of the Fed is to create liquidity... an atmosphere where banks are not afraid to loan to businesses or consumers. Aside from inflation which is an issue the Fed is willing to kick down the road for now, their real concern is to oil the credit market.
If credit was the drug, then it is obvious that we have an addiction. It is more than obvious that those who have maintained their credit, lived below their means, and serviced current debts will always have credit. A good portion of the credit crisis originated from those who could not service their debt. As the saying goes:

"There are those who buy things they don't need, with money they don't have, to impress people they don't even like."

To continually offer credit to this portion of the credit market is a monumental mistake. If anything, there should be a nationwide program to teach people about the dangers over over-consumption, not encourage it. While credit markets could use a thaw, I would hope that lenders would be older and wiser as to whom they extend credit. It is always a bad idea to give a drug addict more drugs... Hopefully we are not creating another 800 pound gorilla.

Monday, November 24, 2008

"Too Many Pigs, Not Enough Tits" to Nurse Them -Abraham Lincoln

Abraham Lincoln once commented that those seeking political appointments were aggressive and numerous. "Too many pigs, not enough tits" to nurse them... Wall Street would definitely fit the bill here. With big pigs like Citi, and the three little pigs (Big 3 Auto Makers), rest assured, everyone will get their milk!
The Bottomless Pit?
The United States finds itself center stage in the world financial crisis. The rest of the world has come to expect the United States to be the leader in developing a system to thaw credit markets. With Citi Bank hitting an all-time low, the Treasury had little choice than to dole out more TARP funds to the beleaguered banking giant. Paulson and his cronies are stopping just short of playing God, and allowing institutions like NCC to get purchased for a mere pittance, while allowing Citi to receive a $306 Billion dollar Federal backstop! The government has now pledged over $7,760,000,000,000.00 in tax payer funds to keep the credit ball rolling. This figure equals approximately half of the nation's GDP for one year!!!

However, a conservative think tank known as the Heritage Foundation believes that the government is over-involved in the TARP program. While Paulson said that he needed flexibility to deal with the ever-changing credit crisis, "Not only are there serious questions about the need for these specific actions, but--and perhaps more importantly--the uncertainty created by yet another game plan for the rescue casts doubt on the financial rescue plan as a whole, its administration, and the prospects for its success."(1) The Heritage foundation has cited Paulson's concern with consumer credit markets as a tipping point. As Paulson alludes to the systemic nature of damaged consumer markets, there is a suggestion that companies holding consumer and mortgage debt could well be the next beneficiaries of TARP funding. Interventionist policies could well stop markets from freely functioning, and more importantly allow the ever important price discovery when a bubble is popped. What the markets truly need is time and flexibility to function, not over-involvement.

Re-Rerun Ron...
While many of Ron Paul's political notions may fall left of center. It appears that Paul does have a gauge on the economy. Paul, better than anyone else echoes thoughts from Main Street. Governments have two ways of raising money: inflation or taxation. More importantly, Paul recognizes that government has the responsibility to be stewards of taxpayer monies. Thus far, we have heard that one bailout after another should be the "end" of bailouts. Still though, there always seems to be another piglet's mouth at the hog's tit. Businesses should be allowed to compete, evolve, and if necessary die. A rebirth is often more glorious than the fall. Innovation has always been the cornerstone of American business. To discourage failure it to discourage innovation. To discourage innovation is to destroy the very fabric that makes us winners.

Tiger Calls it Quits...
Everyone knows that hard times have befallen General Motors automotive company.
To add insult to injury, Tiger Woods has quit his celebrity endorsement of GM. Details of the breakup were not known with the exception that the two parties agreed to a parting package. The amicable terms were undisclosed. The world's greatest golfer and GM appear to be moving in opposite directions.,tx14_paul,blog,999,

Saturday, November 22, 2008

Don't Drink it's Poison!!!

21 Year Returns on the SP 500..."Dump it All in the S&P are a guaranteed winner in 25 years!!!"That's the advice one of the pundits gave viewers on Fox News Taking Stock... One investor calculated the return on an invesment if he would have Dollar Cost Averaged 1 share of the S&P 500 since 1987. "During that time, I would have purchased 251 "shares" of the S&P 500 and I would have spent a total of $215,301.93 purchasing those "shares." On November 20, 2008, the S&P 500 closed at $752.41. That means my 251 "shares" would have been worth $188,854.91. That equates to a net LOSS of $26,447.02. The return on my investment would have been a NEGATIVE 12.28% for the past 21 years."

If one did not get their fill of hemlock from the 21 year return, then look at what has happened over the last 10 years. That is when I was first approached by a "Fianancial Advisor" . After all, what the heck did I know? After a year of investing with American Funds, I shifted gears to another company that did even worse for me. Finally, I started investing in Vanguard Funds which are for the ivdividual investor. Still, I only received marginal gains. It was only after I started following the markets that I made a few well placed investments, which made my 403 B plan a winner. When I saw the looming market meltdown, that money was moved into T-Bills that are currently yielding approximately 1.3% interest... which sure as heck beats the DRUBBING most others have taken on their retirement accounts. As of the fist of the year, I am contemplating whether I should be putting any money into a 403B Plan. I am certain I can beat whatever their return is... plus that money is tied up FOR-EV-ER! Remember folks, no one will take care of your money like you will!

10 Year Returns on the SP 500
"If I would have started investing on the last trading day of November 1998, I would now own 120 S&P 500 "shares." I would have spent $147,544.63 for those 120 shares. The value of my portfolio on November 20, 2008 would have been $90,289.20 giving me a net LOSS of $57,255.43 and the return on my investment would be a NEGATIVE 38.81%."

I sent a letter to one of the fellows who were combing the halls looking for news 403B investors. I am certain he did not expect a series of questions that he got from me. I am positive that the response was just about as evasive as the high pressure salesmen on TV...

Brian: How are your funds performing?

Advisor: I typically use the 403(b)7 mutual
fund accounts for my clients. Overall, the funds are down.

Brian: Could you please indicate what your best performing fund is year to

Advisor: U.S. Gov. security fund or Fixed accounts

Brian: Do you believe that buy and hold strategies are a good decision?

Advisor: I believe it is a good idea if one is diversified. Most people buy and
sell at the wrong times which drives down long-term performance in ones

Brian: Does dollar cost averaging always make sense?

Advisor: Depends on your time frame and what the money is needed for.

Brian: If I would have invested $100,000.00 with you last January, would I
be up right now?

Advisor: Mutual funds, NO. Fixed strategy and some bonds, Yes

I've been handling my own investing for a while now... but I am always
open to solid financial advise!

My Strategy...

Look for trends, and follow them!!! Consider getting long on Gold... Find companies that are under stress in the current financial crisis... Last, bottom fishing could be hazzardous to your investment health... The only place I have lost this year has been on the call side of transactions... More to follow!!!

Sources Cited:
Tom Sesny Letter On 20 and 10 years Returns
Converation with Financial Advisor

Tuesday, November 18, 2008

Ken Lewis and Jerry Lewis... A Death of a Thousand Cuts... Staying Short...

Jerry Lewis or Ken Lewis... Is there a difference?

Long-time comedian Jerry Lewis must have a long-lost brother by the name of Ken! While Ken runs the Bank of America, it is obvious that he is working on a stand-up routine. Ken Lewis has continued to tickle the funny bone of people on Wall Street... and for some, this is just what they needed to hear... for others, it is what they wanted to hear. One thing is for certain. Ken Lewis does not have a reputation for being a straight shooter, but more along the lines of a snake oil salesman. Some of Ken Lewis' quotable quotes have been "We have no need to downgrade our earnings forecast." Bank of America downgraded earnings two months later. (1) Then there is the issue of dividends. "I see no need to cut the dividends." Months later Bank of America cut dividends. (2) Now Ken Lewis is tauting that the United States should "see an economic recovery by the second half of next year (2009). But, it may feel like a recession until then." That's just like saying it feels like it is raining, but you are not getting wet! (3)

A Death of a Thousand Cuts
The Big Three testimony on Capitol Hill this evening should be one for the history books. Senators grilled the auto giants for well over an hour. It has been a while since I have seen grand-standing like this take place. Here are some the questions I remember from the testimony.
"If business is so bad, why are you building plants in Russia?"
"If you are truly global companies why don't you use profits from divisions that are making money?"
"Is it true when you make a plant idol, 80% of the workers still show up for work...and get paid?"
I am certain that some type of arrangement will be worked out. They will get their money this time. And I will bet anyone that the Big Three will back at Congress with their hats in their hand once this money is hemmoraged!

Keep the Shorts...
As I recommended last post, commercial real estate could well represent the last bastion where prices could potentially tumble into nothing!!!! Retail is in for their worst Christmas in 30 years. Since a number of retail businesses are on their way to financial oblivion, it triggers issues in commercial real estate as well.
Tiger Coach likes Puts on the following:
1. Ryland -12.75 EPS is UGLY... Homebuilder, Mortgage Finance, and Home Design sets this play up as a loser!!!
2. Simon Property Group EPS 1.74 and FALLING! This lovely specializes in commercial real estate property. This company has the distinction of owning 168 regional malls, and premium outlet centers. To make matters worse, they also
have exposure to Europe...
3. VNO 4.07 EPS and shrinking... 30 million square feet of property in NYC... Short this stock and you short Toys R Us for FREE!!!


Saturday, November 15, 2008

The Difference Between Rally and Fally: A Closer Look at the PPT, A "Short" List of Retailers, Mr. Kucinich

You know it! I know it! They know it!!!

Over the last year, the government has become "over-involved" in market manipulation. We have come to accept little "fudges" on GDP, unemployment, etc. That was always done for the good of the market. After the 1987 Crash, Ronald Regan issued Executive Order 12631. The Working Group a.k.a. Plunge Protection Team (PPT)consists of:
1. The Secretary of the Treasury, or his designee (as Chairman of the Working Group)
2. The Chairman of the Board of Governors of the Federal Reserve System, or his
3. The Chairman of the Securities and 4.Exchange Commission, or his designee.
4. The Chairman of the Commodity Futures Trading Commission, or her designee.

So the next time you sit in wondered-amazement as to how the market could rally over 500 points like it did on Thursday, consider government manipulation. Rallies starting for no reason or for reasons that are already known. Rallies starting after chart support is broken with the market becoming vulnerable to a much bigger drop.
Rallies taking place at politically convenient times, can all be linked to the PPT. It is becoming more evident that the United States government in some cases is not on only the Lender of Last Resort, but also the TRADER of LAST RESORT. I wonder if the PPT can be linked to the $2 Trillion Dollars that is unaccounted for from the Federal Reserve. (3) This does not include the over $2 Trillion dollars that it will eventually cost the United States Treasury in this bailout. As UBS Analyst David Havens put it "You're in for the dime, you're in for the dollar." (4)

A "Short" List of Troubled Retailers...
I hope readers can appreciate a bit of humor. However, if you are in the fluff retail business this is not funny. One report suggests that retail is worried about survival, that they may not even hire seasonal workers. While it may be too late to nail a few of these "dandies" with put options, I would ask that readers consider commercial real estate as a the current play against the retail industry. I currently hold puts on VNO, SPG, and RYL. (5)

Linens ‘N’ Things – closing 120 of 589 stores. Filed for chapter 11 bankruptcy protection in May.

Disney Stores – closing 98

Foot Locker – closing 140 of the 3,785 stores in addition to the 274 stores it closed last year.

Wilson’s Leather – closing 160 stores.

Home Depot – closing 15 stores.

Ann Taylor – closing 117 stores.

PacSun ‘Demo’ Stores – closing 154 stores in addition to the 74 stores it closed last May.

Lonestar Steakhouse – closing 27 locations.

Zales – closing 105 stores. Will have 2,145 locations open.

Pier 1 Imports – closing 25 stores. Closed 79 in 2007.

Friedman’s Jewelers – closing 120. Closing stores and laying off employees as it goes through bankruptcy proceedings.

Dell – closing 140 stores.

84 Lumber – closing 140 stores. Directly impacting by the nation’s housing market. Closed 12 stores in December.

Sharper Image – closing 90 stores. Filed for bankruptcy protection.

Pep Boys – closed 31 stores in November.

Ethan Allen – closing 12 of 300+ stores.

Rite Aid – closing 28 stores.

Sprint/Nextel Corp – closing 125 stores.

Movie Gallery – closing 400 of 3,500 stores.

Saks – closing 1 store.

CompUSA – 103 stores will be shut down or sold.

Kirkland’s – closing 30 to 130 stores.

Fashion Bug, Lane Bryant and Catherine’s – closing 150 stores.
Market moves down... Comparison...

Mr. Kucinich v. Mr. Kashkari...
Dennis Kucinich is a cult-hero of epic proportions on the West Side of Cleveland. His brash and pointed aproach to politics has gained his stature as a champion of the down-trodden. Yesterday, Dennis Kucinich had his chance to tweak the nose of Neel Kashkari (Asst. Treasury) on the PNC buyout of NCC. Kashkari's Capitol Hill testimony to the House subcommittee claimed that NCC never had a chance of securing Federal TARP funds due to its weakened state. According to Kashkari "he claimed that "Congressman, we only review applications that regulators submit with their recommendations." According to Kucinich, "National City Bank was pushed off a cliff." Do not be suprised if the House Banking and Finance Committee will redress this issue before it is all said and done! (6)

Sources Cited
6. Cleveland Plain Dealer, Saturday November 15, 2008

Sunday, November 9, 2008

Conscience Doth Make Cowards of Us All? How Much is Enough? Obama's Priorities

Conscience Doth Make Cowards of Us All Hamlet Act III Scene I
Conscience is supposed to be the little voice in our head that tell us when we have done something wrong... Our conscience beckons us to return to the ways of honesty... Yet it seems as though a good portion of people in government have lost their conscience, or at the bare minimum have forgotten the difference between right and wrong. Bailouts for instance... sure, a parent may bailout one of their kids when they get behind the eight ball... But we really have to scratch our head when the government bails out businesses like banks, then other organizations like the Big three line up like hogs at the through. Anyone who has a mortgage with Fannie and Freddie now have the option of repaying their adjusted loan. Thirty-eight percent... no current mortgage holder will exceed 38% of their take-home pay. Not too shabby of a deal especially for those who were hit with a balloon payment coming off the 3-5 year ARM.

If their was a degree of conscience on Wall Street or Capitol Hill, I would expect the credit card bailout to lose traction immediately. As I write, there is an uncanny alliance forming between credit card companies and consumer advocacy groups. According to the latest Federal Reserve statistics, there is an estimated $900 billion in consumer credit card debt. According to June Shelby, who had filed bankruptcy several years ago, she believes that all debts should be repaid. There should be no such thing as a free ride! And most of us would tend to agree!!! (1)

How Much is Enough?
I heard John F. Kennedy's speech where he posed "Ask not what your country can do for you, But what you can do for your country! Evidently, the help me and help me now attitude has always existed. In a recent letter to Congress LaTourette, I expressed my concern about the lack of Congressional recourse on the Treasury TARP. AIG has already tapped the table requesting additional operating funds. Housing will undoubtedly look for more monies before it is all said and done. The question becomes "When do you draw a line?" Bloomberg has filed suit against the Federal government so it will disclose where $2 Trillion dollars have gone! The real story here is the continued weakening of the U.S. dollar, and accountability. Congress must get answers, and the responses must be made public. After all, every single person who does business in dollars is at risk. From retirement accounts, pension plans, and your little kid's piggy bank! (2)

President Obama's Top 10 Priorities

1. Continue fighting the War on Terror...albeit different means to an end.
2. Develop a plan to remedy the housing crisis while not punishing responsible homeowners.
3. Address government transparency, that all aspects of Treasury and The Fed have accountability.
4. Energy Independence... Electric, Solar, Natural Gas, and Coal
5. Health Care...
6. Education (Maintaining the best parts of No Child Left Behind...and scrapping the rest. Concentration on Math and Science... directed toward energy independence.
7. Restore America's role as the world leader of Democratic Ideals.
8. Keep China and Russia in check as both will seek to expand power and increase their spheres of influence.
9. Figure out who is going to purchase Treasury Bills as it is increasingly apparent that China, Saudi Arabia, and Russia will be "less interested."
10. Keep the U.S. Dollar the "World's" currency.

Long Looking for exit points on GE and BAC... preserve remaining capital before it is too late!

Look for other options to the U.S. Dollar.. and consider shorting the dollar as the big spenders are in charge, and they can print all the money they need!!!


Saturday, November 8, 2008

The Future of U.S. Auto-Makers...

I'll be frank with readers... I do not like to see these companies whithering on the vine, and asking the government for more monies to restructure. We've all heard the stories of plant shenanigans and workers milking the Big Three dry... But I have not heard of those stories for years! I would officially lay the fault of this one at the feet of management. These companies are failing... Now what? Pragmatic thinking is essential. One might ask... when did it become the job of government to ensure the success or failure of these institutions? Are these institutions too big to fail? Is it necessary for these companies to fail? I am curious to see how the Barack Administration will handle this one. Union support was a key element to his victory... The Bush Administration thus far has balked at further "Bailout" monies, as those are reserved for the financial and housing crisis. Please share your comments and ideas!!!

Pros of Bankruptcy=No Bailout Money
A. They need major... major restructuring...
B. Benefit obligations have impacted the possibility of these companies ever becoming profitable.
C. The Unions are becoming leaner...and meaner... getting rid of the dead weight... yet there are a lot of safe-guards protecting those who would have been fired from any other job!
D. There would be an option to sell of profitable divisions...
E. Certain parts will always be part of our National Defense structure... i.e. jeeps...hummers...
F. Allow the companies to rise from the ashes like a Phoenix

Cons of Bankruptcy=Bailout Money
A. Failing means the loss of anywhere between 1-3 million jobs.
B. Workers will lose benefits...
C. Stock and bond holders will take a bath!
D. Will more than likely have a ripple effect through the markets and economy... secondary suppliers... steel industry... etc.
E. Allow foreign competition to become more embedded into the U.S. market...
F. Human cost of workers... families... etc.
G. Effect on municipalities tax revenues...
H. Good paying jobs in the economy will be reduced if not eliminated.

Sources Referenced

Sunday, November 2, 2008

Our New Export, The New Brenton Woods... Mr. President...

Our New Export...

In a recent conversation with a dear friend, we discussed what America's number one export was. We discussed industries such as as defense, technology, and even infrastructure materials. Other ideas were foods, medical devices, and banking. Jobs seem to be one of the most popular export items. With unemployment erupting to a near 7% mark, there is a reasonable case here. However, after the recent agreement between the Fed and Korea, Singapore, Brazil, and Mexico, it appears that the U.S. dollar is our best export. The Fed has gone to great lengths to insure credit markets in those countries. Could the dollar be as "good as gold?" How easy it is to control other governments and policies when you run the printing presses. The only other export that compares to this Treasury's efforts is U.S. debt. And that could well be the biggest of the exports. (1) The real concern should be who is holding the debt. He who prints the money makes the rules. Yet, he who holds the debt will have their say!

The New Brenton Woods...

If you are looking for a few extra bucks, there's always the jewelry party. Invite your friends over to your house. Remind them that they are supposed to bring all of their leftover or unwanted gold. Sell the gold, get some cash, and everyone is happy! According to one representative, "People love the idea of coming to a party and making money," said Janine Cosek, from the The Gold Janine averages approximately $5,000 per party of which, she kicks back approximately 10% to the hostess of the party. Sounds like a great way to fleece and lose your friends! (2)
Maybe these folks know something. Great Britain's Prime Minister called for a "new" Bretton Woods Conference. The original Brenton Woods Conference established the U.S. dollar as the world's currency. All other world currencies are pegged to the value of a dollar. If the dollar gets too high, or too low then central banks would step in to deliver the respective medicine. Gold was supposed to back the U.S. dollar. There was supposed to be stability, and everyone would be happy. However, it appears that there is increasing discomfort with the status and future erosion of the U.S. dollar. In essence, the U.S. has thus far avoided economic disaster by exporting devalued dollars all over the world. But this trend will not let continue.
If the dollar is replaced by the Euro, or some other currency, gold will take off like the space shuttle. It's been said that is increasingly difficult to find gold bullion, and coins in local retail type shops. The U.S. Mint has "temporarily" discontinued selling gold coins. Yet, central banks have kept pressure on the price of gold. Today, its spot price closed at 741.00. Yet, an ounce of gold is selling close to $1,000.00 on EBay. Something is not right!

The New President...
Congratulations President Obama!!! The people have spoken. It is time to get behind the new President of the United States. I believe Obama will bring an upbeat and pragmatic administration to D.C.. Obama's attitude and vision for America deserve our support. Obama is a reformer and will have a welcome opportunity to challenge the status quo. More than ever, we need fiscal responsibility and reform. Most of all, we need leadership. Let us pray for him and his administration!!!


Saturday, November 1, 2008

Mr. President.. Irrational Exuberance... Living and Learning...

Mr. President...
Most Americans are excited to get this Presidential Election over with. Both candidates pose as change agents. Barack symbolizes a combination of angst and pragmatism. Voters with a high degree of angst see Obama as a genuine break from the Bush administration. But beyond the "NO more Bush attitude", American voters see Obama as someone who actually seems to care for the underdog. The people like an upbeat attitude and a sense of self-confidence that seems to permeate Obama. At the bare minimum, he appears to fit the "image" of a President.

John McCain does have the battle scars to prove that he is a change agent as well. I do believe that he could have... and should have been the President of the United States instead of George W. Bush. But soft money donations took care of that... And big money ruled the day, McCain was left out in the cold. McCain a bit older, and now a bit wiser. He lacks the Presidential image or grace of Barack. Yet, more Americans will agree with McCain's platform as opposed to Obama's. A survey was conducted on Friday, where a test group of 150 individuals voted for the President. On appearance Obama won hands down. However, the same 150 individuals completed a survey based on political platforms, and most found that they agreed with McCain. Truly interesting!!!

Both candidates bring innovative ideas to the voter. While a number of polls suggest the election is already over, I am anticipating a dog-fight on Election Day. Regardless of the out-come, I believe that both of these candidates can move this country forward. Barack could well find himself in the same position that Bush had in his first term. Ownership of the House and Senate. This could well move his agenda along. By the same token, McCain who has a track-record of working across the aisle could position himself as a champion of bi-partisan change. Whoever it is, they will have their work cut out for them. On a side note, Representative Steve LaTourette is visiting schools in Solon and Twinsburg, Ohio. The fact that he is taking time out of his busy schedule to deliver speeches on Democracy and the Importance of Voting to kids who can't vote yet tells you what kind of a guy he is! I only wish I knew where to get his sign for my front yard!!!

Irrational Exuberance...
Former Fed Chairman Alan Greenspan coined the phrase "Irrational Exuberance" during the 1990's Bull Market, explaining why companies who had negative earnings but, had a .com attached to them, doubled and tripled in value. I wanted to remind readers that companies like, Sunrise Technologies, Microvision, and Iomega are a few companies where the following epitaph might read: "Easy Come, Easy Go... Where the earnings came from, We did not know... They gave us money, for our stock. And we watched it drop, just like a rock." Yet, investors and speculators piled into stocks with no real reason, with the exception that stocks kept going up. The last time investors had piled into useless stocks was during the wireless radio revolution of the 1920's-30's!

Earnings drive companies, and companies that cannot demonstrate clear revenue now, or in the near to medium future should be punished. For instance, LVS is the ticker symbol of Las Vegas Sands Casinos. As we speak, they have no earnings... none! The EPS of LVS stands at a negative .08 cents per share. While the market cap reflects $5.04 Billion, companies are only worth what people are willing to pay for them. This week, analysts rewarded companies that require discretionary spending from a beleaguered consumer. The general belief on Wall Street must be that people will attempt to gamble themselves out of debt... or at least, win back their depleted retirement savings!

Cinnemark (CNK)is another loser. Not that I don't mind catching a movie. But when it comes to buying stock on this dead horse.. forget-about-it! While we are sure to see a new salvo a Christmas time movies (or if you prefer the term Holiday movies), expect box office numbers that are well-below expectations. With earnings of -.53 cents a share, and a high likeliness of global recession, this one should be avoided like the Bubonic Plague!!! Companies like WMT and D make much more sense!

On a positive note, reduced gas prices could well keep consumers in their houses... and hopefully service a portion of debt... but in terms of additional spending, it is just not going to happen. Moreover, I do not think that GM will actively pursue the next generation of Hummers until new gas mileage standards are developed. San Francisco Fed Chief Robert Parry suggested additional "downside risks" even after the .50 rate cut announced earlier this week. The bottom line is that a triple whammy of rising unemployment, tightening credit, and shrinking wealth are at work as major de-levereging forces. From the peak of housing boom, national housing prices have dropped -17%.

Living and Learning...
The realm of trading options is new to me. While I have had stunning success (profits of over 40%), I am living and learning. As a rule of thumb, when stocks hit a 100-200% profit, I believe a prudent strategy might be to purchase a covering position to lock in a higher degree of profits. Technical rallies have cut deep into profit margins that would be otherwise OUT OF THIS WORLD!!! The covering could well be a contract that is only a month out... and cheap. While I was a big winner of COF, XLI, and XLY, I have learned that covering positions could well be a reasonable strategy. A reminder should always be that profit is never a dirty word. I am currently holding calls on BAC, GE, and AU. Put positions include WYNN, FXI, VNO, SPG, BBW, and CNK.


Sunday, October 26, 2008

The American Voter... Dollar Cost Averaging Revisited... Cha-Ching... Letter from Senator Voinovich...

Sheldon Adelson could be thinking about the $13.5 Billion dollar hit he took. At this rate, Adelson could fall off the Forbes 400 List!

The American Voter...
In approximately one week, it will all be over. We will have elected a President. House and Senate races will be over, state and local elections will have been decided, and various issues will have received the thumbs up or thumbs down vote from constituents. I am curious as to what events are really influencing the American Voter this election? I put together a list:

1. The economy...
2. The economy...
3. The economy...
4. Everything else...

Nothing short of cardiac arrest hit voters at month's end when 401 K statements were opened, and people realized that at least the last five years of saving had been cut by half or more! What to do... What to do??? What to do!!! For some, the ghost of job loss is haunting them worse than any Halloween Goblin. Economic slow-downs mean job loss. Housing prices... sure people have seen a good portion of their home equity disappear over the past two years as well.... These people are stuck in investment plans who have always "bet" that the market will only go up. Downward trends only mean that stocks are on sale right?

Dollar Cost Averaging...

Invest for the long-term... throw your money into a fund and forget-about-it... These were the battle cries of financial advisers (salesmen) since the 1950's. As a matter of fact, one interviewee in the Cleveland Plain Dealer said that "They are not going to wait these financial markets out." (1) Personally, I have stopped any further auto-deduct program into 403B plans, or even direct purchase programs as I had for D and WMT. D is probably one of the last companies in the United States that I am worried about, but it does not make a lot of sense to chase stocks that are losing value. At the end of the day, no one will take care of your money like you!!! Case in point, a family friend called her "financial adviser" regarding her account balances... The Raymond James representative said your are down 25%, consider yourself lucky!!! That 25% equals $125,000 to you and me!!! Evidently this adviser has a different agenda...invest when the market is good... invest when the market is bad... If you are out a bundle of money... sorry. And these people call themselves professionals!!!


It was two short years ago that Sheldon Adelson was number three on the Forbes list of richest Americans. Adelson's Las Vegas Sands gambling empire positioned him near the top, with momentum enough to become the world's richest man in a year or two. His net worth was an estimated $20.5 Billion dollars! That was then, and this is now. From August 29 to October 9 Adelson's net worth declined $13 Billion dollars. (2) that is not to mention that LVS shares have moved from $149 per share to $6. Adelson may well fall right off Forbes' List this year. The next time you're feeling a bit beat up when the market is not treating you right, just remember it is always worse somewhere else! Evidently, this is one bet the house lost. (2) Since Trump and Adelson have already gone into the tank, consider Steve Wynn as the new whipping boy. WYNN 3/30s are looking quite attractive at this point!

Sources Cited
1. The Cleveland Plain Dealer, Business, Sunday

Letter from Senator Voinovich

TOD (202j 224-6997 hltp:l/voinovich .senate .gov

United States Senate
WASHINGTON. DC 20510-3504
October 14, 2008

Dear Brian:

Thank you for contacting me regarding the Emergency Economic Stabilization Act of 2008. I appreciate hearing from you on this important matter.
I believe we are at a turning point in our economy. Recently, we have seen numerous major financial institutions come under tremendous stress. As a result of this stress, basic financial transactions are at a halt. I have spoken with Ohio employers large and small who will have to make choices like laying off workers because they cannot get money from banks to make payroll. I have spoken with manufacturers, auto dealers, farmers, municipalities, and community banks who are already having trouble conducting business because credit is disappearing. I cannot sit back and allow this to happen. I believe this is affecting not only Wall Street, but Main Street and my street, and we must do everything we can to calm the markets by restoring confidence in the credit system.
Ohioans depend on credit to buy a home, drive to work, and send their children to school. The possible ramifications of doing nothing are staggering: businesses laying off workers or closing completely because they cannot make payroll; a dramatic loss of retirement funds; an inability to get a loan to pay for college, a car or a house; cities unable to float bonds to build hospitals or schools; and home prices plummeting further. As Congress considered how to address these issues, I set forth four criteria for any legislative solution. First, it must protect the taxpayers to the maximum extent possible. Second, it must stabilize home prices and reduce foreclosures. Third, it must deny companies' executives golden parachutes if they want to participate in any fix. Fourth, it must restore confidence in the credit markets.
On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of2008 (PL. 110-343). I voted for this legislation with a heavy heart. I have spent my entire career focusing on eliminating debt at the local, state, and federal level so we do not pass it on to our children and - - grandchildren. While deciding to vote for a package of this magnitude feels like being punched in the gut, the thought of what would happen to average Americans if we did not do this is much more painful. While I am pleased to see that any profit the federal government may make off this deal will be used to pay down the national debt, our work cannot stop here. We must make a full-court press to stabilize the housing market, pass fundamental tax and entitlement reform, and become energy independent. These issues all relate to each other: the crushing debt burdens on homeowners, financial institutions, and the federal government; the declining value of the dollar; and the massive transfer of US. wealth that occurs as America buys Middle Eastern oil and Chinese goods, all feed on each other and threaten our prosperity.

The Emergency Economic Stabilization Act of 2008 allows the Secretary of the Treasury to purchase up to $700 billion in troubled assets from companies, including mortgage-related and other assets. When the Department of the Treasury buys assets directly, the selling institution must observe standards limiting executive incentives, including golden parachutes, for as long as Treasury holds the asset. Institutions must also provide warrants for future shares of stock, so taxpayers can share in future profits. The sale of any assets must be used entirely to reduce the federal debt, and may not be used to increase government spending.
Under this legislation, the Treasury must also create a plan to maximize assistance for homeowners. To the extent the Federal government owns, holds, or controls mortgages, mortgage-backed securities, and other assets secured by residential real estate, the government must implement a program to help distressed homeowners by reducing interest rates or loan principal, or making similar modifications. This legislation also strengthens the Hope for Homeowners program to increase eligibility and improve the tools available to prevent foreclosures, and extends my Mortgage Relief Act for another three years, from 2009 to 2012, which excludes from taxable income any mortgage loan forgiveness provided by a lender on a principal residence. My legislation relieves families of a tax burden when they work out a deal with their lender that helps them avoid foreclosure and stay in their home.
The Department of the Treasury will also establish an insurance program, where financial institutions could pay in premiums to receive a government guarantee of their troubled assets. Finally, Congress will conduct extensive oversight to ensure taxpayers' money is invested wisely - including the establishment of a Special Inspector General housed at Treasury, which I requested be created in a letter I wrote to Treasury Secretary Paulson.
The Securities and Exchange Commission is also given the authority to suspend the mark-to-market accounting rule, which requires companies to value assets on their balance sheet at their current market value, even though this amount may be significantly lower than the value of the asset when it is eventually sold. Additionally, the Federal Deposit Insurance Corporation will temporarily increase deposit insurance from $100,000 to $250,000 for both banks and credit unions until December 31, 2009. The insurance amount for retirement accounts will maintain at its previous $250,000 level.
Thank you again for contacting me. I appreciated the many Ohioans who wrote, called, and visited my office to share their ideas and concerns. As a fellow Ohioan, I genuinely appreciate hearing from you. Please feel free to contact me again regarding this or any other issue that concerns you.

George V. Voinovich United States Senator

Friday, October 24, 2008

Buy American, I Am... A Trip to the Capitol... I See Red...

Buy American, I Am...

America's favorite investor Warren Buffet has been pumping American stocks. Last week, he opined a piece in the New York Times titled Buy American, I Am... For years, the legendary Oracle of Omaha has enjoyed the clout of a baseball slugger with bases loaded. Many times, Buffet and his creation Berkshire Hathaway have benefited from his value investing model, and his wit in turning around company management. Buffet's latest article reminds readers of this policy. "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful." This may be part of the reason that Buffet has bought positions in GE, GS, and BSF. The GE deal clearly demonstrates that even Buffet's value model has flaws. Currently, Buffet has options to purchase GE shares at $22.50 ... yet the stock price is $18.80. After all, no one is perfect right?

Greenspan's Hot-Foot
If anybody is suffering a case of burns today, then it is Alan Greenspan. He delivered testimony to members of the House Financial Services committee. It was almost as if the members built a fire, and held Greenspan's feet to it. The most disturbing portion of the testimony came when Greenspan disclosed that "those of us who have looked to the self-interest of lending institutions to protect shareholder's equity (myself especially) are in a state of shocked disbelief." Alan Greenspan is an intellectual... however, this statement clearly demonstrates that his strong intellect of understanding financial markets has been clouded by a basic misunderstanding of human nature in general, and Wall Street in particular.

Not to be out-done, the Senate had members of Treasury in for a similar hearing. During the hearing Senator Dodd noted that the entire Bailout Package of $700 Billion will, in his humble opinion, be a waste of tax payer money if the housing crisis is not addressed. At this juncture, there are several conclusions that can be drawn regarding bailout monies. 1. Bailout monies will be used only for financial institutions. 2. Monies will be used to provide working capital. 3. Monies will increase the amount of liquidity among financial institutions allowing businesses and individuals access to credit. Beyond that, if Dodd is looking for an end to the housing crisis then it will need to come after Election Day. By that time, there will be a new President. More importantly, there could be a wide enough Democratic margin in the Senate to overcome Republican filibusters. The last time in history that happened was under the Johnson Administration. And we are still dealing with broken social policies from that time period! However, note that there was considerable improvements in civil rights legislation. Should the filibuster majority come to fruition, then expect a BIG Housing Bailout Plan that could hurt the standing of our U.S. dollar... but all will agree... that have to do something.

I See Red...

I see red
it hurts my head
guess it must be something
that I read

it's the colour of your heartbeat
a rising summer sun
the battle lost --- or won
the flash to fashion
and the pulse to passion ---
feels red
inside my head
and truth is often bitter ---
left unsaid
said red red
thinking about the overhead ---
the underfed
-- couldn't we talk about
something else instead?
Words by Neil Peart, Music by Geddy Lee and Alex Lifeson of Rush (1)

No matter where you look, world financial markets are at meltdown stage. Recessions are not contained to one country, or even one continent. This is one great big financial meltdown which is encompassing every continent. Even the cash-rich OPEC states have seen a 50% drop in the price of crude oil. Aside from financial instability, the other unfortunate and often-times long-range problems deal with political unrest in nations which are most effected by turmoil. Specifically, developing nations whether in Europe, Asia, or South America may see drastic changes in the way governments do business. As noted in a previous blog "A Look at Charts", to simply call market behaviors recessionary is like saying the Titanic had a small leak. However, there will be life boats available for most this time. My biggest concern is that the United States may (through an eventual weakening of the U.S. dollar via over-spending) may have a diminished role as a world power. As of now, ever nation on earth is hoarding dollars as the currency of strength... Conversely, gold has taken an unfair beating. Should the U.S. reach a "Day of Reckoning" due to a compromise in our AAA bond rating, there will be a day of reckoning which will debase all currencies. Prior to WWII the British Pound was the currency of choice. However, the post-war era saw the U.S. dollar take over that position.

What to Do?
Stay short consumer discretionary spending... WYNN still has TREMENDOUS homerun potential. I have puts of 3/35s. DDE is another consideration.
Commercial Real Estate could only be a matter of finding the "biggest loser" VNO and SPG are two favorites here. VNO 3/60s SPG 1/35s
China FXI 4/16s
CNK 3/10s
BBW 5/10 5s
I also have a number of bids out including FXB (British Pound), RYL, WSM, DRI, DDR,

BAC 12/25s... As I am expecting the plan to position Bank of America... They are now too big to fail, and will benefit immensely from political "traction" on Capitol Hill.
AU... I am getting beaten like a red-headed step-child on this one. The ONLY thing in my favor is time!">href="">