Tuesday, July 29, 2008

The Truth Shall Set You Free!

Merrill CEO John Thain's Public Statements in the last seven months...


If you think that is bad, MER was up $1.92 today... go figure!

Gold and other precious metals continued their slide suggesting that the government's latest shell game between the Fed and Treasury, at least now, has stabilized the dollar. This is more than we can say for our British cousins as The Bank of England's attempt to form a Fannie and Freddie Mae type system there is D.O.A.. Maybe the British are better off in the long run with a weaker pound as opposed to malfeasance and moral hazard.. Of course, the New Zealand and Australian dollar are also on a slide. (1)

Meanwhile back in the states, the Dow was up over 250 points. Why one might ask? Consumer confidence was up a little I guess... Maybe it was the fact that home prices dropped 15.8% in May. Banks must be thinking this is the magic bullet to start the whole charade again...lower housing prices.... more consumers that will buy houses... and a Bank of America licking its chops about the new mortgages they are sure to write with the old Countrywide division. We will just forget about the bad loans banks are currently holding, on the houses that are no longer worth the loan amount, the home equity loans, revolving credit card debt, and jobs... (2)

The big day on Wall Street allowed the spin doctors to pad the financials a little more. After all, there is only so much good news that can be manufactured. Oil prices will continue to move lower in part on the strengthening dollar, and less demand. On the surface, 3.75 a gallon gas has as an easing effect on the consumer to some degree, however for some Americans like truckers... or folks who commute over 20 miles a day round trip... they are hurting. (3) I'm sure the likes of Iran, Venezuela, Nigeria, Sudan, and Libya enjoy tweaking the noses of the west. (Note: It is interesting that Bush's Axis of Evil Speech dealt with Iran and Venezuela two countries that are trying to price oil in a different currency than dollars... therefore weakening it!) The jobs reports on Wednesday, Thursday, and Friday should shed additional light on this subject.

Shorting Banks in Britain... shorting the Pound FXB 9/198s or 12/198s
FHN...serving Tennessee -2.56 eps... 2/10s
Zion with loans concentrated in AZ, NV, and CA commercial, land, and mtg. not an enviable position!

Sources Cited
1. http://www.kathylien.com/site/us-dollar/dollar-rally-just-beginning
2. http://biz.yahoo.com/ap/080729/home_prices.html
3. http://biz.yahoo.com/ap/080729/oil_prices.html

Sunday, July 27, 2008

Response from the Honorable Senator from Ohio: Commentary and Analysis

Dear Mr. Davis:

Thank you for contacting me about the potential relief being debated for Fannie Mae and Freddie Mac.

I understand your concerns that responsible borrowers should not be forced to foot the bill caused by widespread foreclosures. Throughout this debate, I have remained firm in my belief that we must develop smart policies that do not reward the many bad actors who contributed to the problem.

However, thousands and thousands of people who were essentially bystanders in the housing bubble have felt its effects. It has been estimated that a foreclosure on average costs almost $80,000 in total. The brunt is not only absorbed by the banks and foreclosed homeowners, but also by their neighbors and local government.

The current wave of foreclosures are close to 8,000 a day and is a growing economic epidemic that threatens more than just housing speculators and families late on their payments. This contagion has spread to whole communities and is threatening the greater stability of our economy.

Fannie Mae and Freddie Mac hold or guarantee nearly half of the $12 trillion mortgage market in the United States. Their failures could set in motion a serious economic disaster. In a worst case scenario, shareholder losses would be the least concern, far behind an overall credit collapse and widespread bank runs.

While I share your hesitation about government intervening to take on a large amount of risk, I think the risk may be greater if we do not have the tools necessary to avert a greater financial collapse. I am not entirely comfortable with this course of action, and am pleased that the housing legislation we are considering would reform the regulation of Fannie Mae and Freddie Mac so as to lessen the likelihood we will ever face this situation again.

As this policy continues to be debated, I will certainly keep your thoughts in mind. Thank you again for contacting me.

Sherrod Brown

I voted for Sherrod Brown back in November of 2007. It's not that I necessarily agree with all of his party's positions...like many Americans, I feel as though there are some radical elements inside the party which has surfaced the last two Presidential elections. (It appears that Barrack Obama will be more moderate! He will need to be a centerist if he has any hope of winning the White House.) The fact was, I voted against the former Senator from Ohio by the name of Mike DeWine. I think it is the narrow tunnel vision of people like Dewine that just don't get it...think outside the box. Conservative values I like, not getting things done in D.C. though just can't be tolerated.

While I'm certain Dewine would have voted against the Housing Bill...in the end, it didn't make much of a difference. The response I received from Senator Brown has a bit of an eerie tone to it. It is almost as if the Senator was disclosing that problems are much worse than the Wall Street spin doctors will disclose. Senator Brown obviously sees a tremendous threat to the U.S. financial system. That being said, I think we will see the financials come under pressure once again. Cramer be darned! A few stories last week said the bailout may cost taxpayers $1,000,000,000,000.00 be fore it is all said and done! No why wonder National Australian Bank is bailing out of the U.S. mortgage exposure. Evidently, the Aussies are belated realists!

I wrote to LaTourette, Voinovich, Brown, and President Bush. I look forward to sharing their responses with my readers.

F.I.R.E. (finance, insurance, real estate) was credited as the main driving force of the U.S. Economy. ALL BANKS...ALL OF THEM are downsizing! Even an extremely stable bank like AmTrust, formerly known as Ohio Savings is laying of workers (175) as of last week. They were not exposed to the sub-prime markets like the others! Cramer and his Wall Street friends can crow as much as they want about the financials bottoms being in, the guy on Main Street has a different story.

Friday, July 25, 2008

Is There Reason to Celebrate?

Alan Greenspan coined the term "irrational exuberance" during the bull market (fueled by the .coms) of the 1990's. In six business days, last Wednesday July, 16th to July 23rd, it seemed as though Wall Street bulls had a chance to walk down Memory Lane. For little or no apparent reason, the SP 500 moved approximately 68 points led by the financials. Analysts and other snake-oil salesmen have been quick to call the bottom to financials. After all, the good news continued to roll in:

1. BAC's revenue was only down -42% claiming that the worst is behind the company now. Countrywide debts may go unpaid, and a 75 million share buyback was underway.

2. Wells Fargo shocked the market by beating estimates (since they now calculate delinquencies at 180 days as opposed to 120 days. WFC is up 8.50 since this great news was released.

3. Even Wachovia bounced up 50% from its low of 9.08. WB shareholders got a boost of confidence as the new CEO Robert Steel purchased $16 million dollars worth of shares.

Ax's favorite Wall Street celebrity Jim Cramer appeared on SQUAWK Box Thursday in a pre-market rally playing the old tune "Happy Days are Here Again!" Everyone received a party hat, balloon, and a kazoo... The market had bottomed right??? The Housing Bill was a done deal right??? There was NOTHING holding back the banks right? How many times have we heard this song and dance this year?

Positive numbers from housing in that existing home sales were not as bad as they were last month... Foreclosures were up again, just not up as much as they were the previous month. Some people saw this as good news... others realized that the peak months of summer should be the best months of housing sales. It could be a long winter for home builders and existing home sales.Does this suggest that natural selection in has taken over?

Portfolio is up 13.24% a far cry from close to 100%. I will develop a more effective method of booking profits and even hedging options with OTM calls/puts.

Upcoming Economic Calendar for Next Week:

Monday, July 28, 2008

10:30a.m. Jul Dallas Fed Mfg Production Index: Previous: 0.0.

Tuesday, July 29, 2008

7:45a.m. ICSC Chain Store Sales Index For Jul 26: Previous: +0.1%.
8:55a.m. Redbook Retail Sales Index For Jul 26: Previous: +1.1%.
9:00a.m. May Case Shiller Home Price Index: Previous: -16.3%.
10:00a.m. Jul Conference Board Consumer Confidence: Expected: 51.0. Previous: 50.4.
5:00p.m. ABC/Wash Post Consumer Conf For Jul 27: Previous: -41.

Wednesday, July 30, 2008

7:00a.m. Jul 26 MBA Mortgage Application Survey Refinancing Index: Previous: -5.6%.
8:15a.m. Jul ADP Employment Report: Expected: -55K. Previous: -79K.

Thursday, July 31, 2008

8:30a.m. Initial Jobless Claims For Jul 26 Week: Expected: -8K. Previous: +34K.

8:30a.m. 2Q Advance GDP: Expected: +2.3%. Previous: +1.0%.
8:30a.m. 2Q Employment Cost Index: Previous: +0.7%.
9:45a.m. Jul Chicago PMI: Expected: 51.0. Previous: 49.6.
10:00a.m. Jun Help-Wanted Index: Previous: 17.
10:00a.m. DJ-BTMU Business Barometer For Jul 12: Previous: -0.8%.

Friday, August 1, 2008

8:30a.m. Jul Nonfarm Payrolls: Expected: -60K. Previous: -62K.
8:30a.m. Jul Unemployment Rate: Expected: 5.5%. Previous: 5.5%.
10:00a.m. Jul ISM Manufacturing Business Index: Expected: 49.0. Previous: 50.2.
10:00a.m. Jun Construction Spending: Expected: -0.3%. Previous: -0.4%.

Pick the Biggest Losers or Winners of a Recession?
Gaming/Entertainment Industries
Ideas MECAD may go BANKRUPT at his rate!
LVS earning per share a measly .04.
Consumer Goods/Products
Anything like carpet, furniture, and irrigation supplies deserve a look as well.
SHW plenty of anecdotal evidence this was will be hurting during a recession as well.

Saturday, July 19, 2008

Everybody Gets a Beating...

"Man can be beaten but not defeated." -Santiago- The Old Man and the Sea

A friend of mine by the name of Randy told me how he keeps a record of the winners and losers in the stock market... Interestingly enough, he writes the names of companies on the back of a wooden Phoenix. The Phoenix known as the mythological bird that built its next of cinnamon twigs is engulfed by flames and reduced to ashes. From those ashes a new Phoenix regenerates. The Phoenix was said to heal itself when wounded creating an aura of invincibility.

This Saturday morning I find myself in a very similar position of the Phoenix. Wounded, wiser, and learning some lessons from the University of Wall Street. The lessons learned fall into two categories: 1. Things that I had Control Over. 2. Things I did not have Control Over

Things that I have Control Over:
1. Rule number one, I am trading to make money... and should book winners and cut losers on a regular basis.
2. Rule number Two, never forget Rule Number One!
3. Continue to see the Big Picture in finance and politics... and know that it impacts the small and large investor differently.
4. At the end of the day, I am responsible for my success and failure.

Things that I have No Control Over:
1. Practices like naked-shorting are supposedly illegal. It is interesting that the SEC disallows that practice for three days (three days where the financials got a 25% boost). Now, the SEC is allowing the practice again because it may hurt the overall efficiency of the market... Click Here for more information.

2. From tax payer funds to bailout Freddie Mae, Fannie Mae, Housing Bills, Federal Reserve Powers, and other trends, I am extremely concerned that the rules of a Capitalist Society do not apply to all of us. Click here for a better understanding of the term Moral Hazard

In a recent conversation with an accountant in Cherokee, NC I suggested there was a more complicated problem where there is no failure in the risk-reward scenario of big business. Unfortunately, we are becoming a Communist-Socialist Oligarchy where government stands poised to bailout big business on every turn... terms like "Too Big to Fail" or "May have a Dramatic Effect on the Economy" have become common place. While the Democrats can be accurately accused of handing out bread to the masses, the Republicans are just as guilty of handing out bread to the corporate world.

When I started blogging several months ago, I submitted an article called "The Market Domino Effect". This article suggested that continued bailout of big business coupled with massive entitlement programs will erode the value of the U.S. dollar. While some implications in that article may deserve additional attention, the bottom like is that the conclusions are as fundamentally sound today as they were when the article was published.

Weekly Wrap
The profits from my portfolio were severely eroded this week. I have gone from close to 100% profits to somewhere in the area of 17%. I will try to break things down when I get a chance... This article has taken a bit more time than anticipated... I would prefer to enjoy the last day of vacation. As for my positions, I am still short on this market as I truly believe the more the powers that be tinker, the more volatile it will become. Some parties will be entitled to free bread, others will not. The probability of the financial sector to make good news out of bad, and the losses of companies like COF will still create a downward trend. I don't think there is a plan to bailout credit cards and auto loans....yet.

Thought of the Day
The Bible is often misquoted as saying money is the root of all evil. According to the Book of Timothy 6:10 "The love of money is the root of all evil."

Wednesday, July 16, 2008

Does Run Rhyme with Fun?

One picture is worth a thousand words... This a picture of a "run"on the IndyMac Bank which led to its collapse over the weekend. Federal Regulators shut the whole bank chain down, and re-opened them on Monday. The term run means that depositors grew increasingly uncomfortable with IndyMac's liquidity, and thus ran to the bank to withdraw their funds. The problem was that IndyMac did not have the funds to cover all withdraws. Ut oh...now what happens? Great question...F.D.I.C. takes over to cover any deposit up to 100K. What if you are a depositor with 150 K in the bank? That's a great question... FDIC only covers up to 100 K. Speaking of FDIC, the estimate is that this run alone used 1o% of the F.D.I.C.'s funds!!! Now that is scary!!! (1) IndyMac opened up Monday morning with government regulators running it. More to follow on this story!

Another story showed that beleaguered consumers are actually withdrawing monies from retirement accounts at an alarming rate. According to an article in Yahoo Finance, sources suggest that the people who are responsible for 2/3rds of U.S. economic growth are in a choke hold and trying to tap themselves out of it until things get better. (2) Another article went a far as suggesting that the U.S. economy may be the worst shape since the Great Depression. (3)

When interviewed this morning on Bloomberg TV George Soros' former right-hand-man Jim Rogers criticized the long arm of the Fed citing that the one two combination of Paulson and Bernanke are over-extending its role. Rogers was acutely concerned about the additional leverage Treasury and the Fed have taken in this crisis. In particular, Rogers went as far as saying the new bailout and stock buy back for Freddie Mae and Freddie Mae accounts for nothing less than a criminal act. Whoever invested in those worthless institutions should be left with the consequences found in the capitalist system. (4)

We are reminded that a leading analyst from RBS has already warned his top clients and the bank that there is great risk of an impending credit calamity. (5) Interestingly enough, Fed Chairman Bernanke espoused nothing but smiles and good news to the Congressional Finance Committee. I wish Steve LaTourette would have read my letter aloud to Big B. But nothing would have changed. After all, the tag team of Paulson and Bernanke have been telling us all along that everything is o.k.. The U.S. economy is on solid footing... that the housing market will be taken care of with new regulations. This is the same song and dance the American public has been fed for the past 16 months. Today the persuasive words and phrases of Bernanke coupled with Wells Fargo's surprise insurance division's earnings was enough to let the bulls win the day on Wall Street. However, more earnings are on the way. And after a while, the pep rallies that have been held by the Treasury and Fed will lose their punch.

Note the particular caution the business wiseguys are applying on the naked-short selling by the likes of Ackman on Freddie and Fannie... (6) Like Rockefeller said " The way to make money is to buy when blood is running in the streets."

I am looking to increase my positions in STI and considering a new position in PNC. I am also interested in regional banks that have heavy exposure in the Detroit, East Tennessee, Texas and Florida areas. I will also be looking into any consumer discretionary that is low on cash. One would have to question Wynn Resorts notion to increase dividends in a period of a busted consumer. Also consider IGT.

P.S. WFC goes from 120 to 180 days for delinquency reporting...
That is just crazy... Talk about changing the rules of the game during the game...
Why is it that mainstream media does not cover the manipulation in reporting???
That should be the story of the day... pure acts of desperation.

Sources Cited

1. http://images.google.com/imgres?imgurl=http://www.latimes.com/media/photo/2008-07/41024781.jpg&imgrefurl=http://www.latimes.com/news/printedition/front/la-fi-indymac162008jul16,0,5489094.story&h=366&w=500&sz=40&hl=en&start=18&sig2=fWWLHIVJq7bCNwmVkpoEPQ&um=1&tbnid=w7gKYFwS10dDnM:&tbnh=95&tbnw=130&ei=LbJ-SJviGJG-hAL_lOzeBw&prev=/images%3Fq%3Dindymac%26um%3D1%26hl%3Den

2. http://news.yahoo.com/s/ap/20080716/ap_on_bi_ge/raiding_retirement

5. http://moralequivalentofwar.wordpress.com/2008/06/18/royal-bank-of-scotland-issues-global-stockcredit-crash-warning/

4. http://itulip.com/forums/showthread.php?t=4550

6. http://www.nysun.com/business/us-to-curb-some-naked-short-selling/81988/

3. http://finance.yahoo.com/tech-ticker/article/39587/How-Bad-Is-It-Some-Say-Crisis-Worst-Since-Great-Depression?tickers=FNM,FRE,LEH,XLF,JPM,C,WFC

Saturday, July 12, 2008

Mr. Lee's Update...The Thin Blue Line

Another rough week for Mr. Lee...

Well over a month ago, Mr. Lee was a guest on Bloomberg TV. He was able to predict that the market was in position to stage a big turn-around at year's end... and he even went as far as saying that his calculations and data suggested that there was a 100% probability for accuracy! That is what really turned my head. Since that time, I have followed this investment professional's stock picks... Evidently, Mista Lee must be looking for a second half rally. Personally, I would be looking for the lynch mob had this been my money...

If you had a 100 K in each of these investment ideas this is where you would be as of 7/11/2008!

XLE down $4,220.00 or 4.22%

XLY down $2,910.00 or 2.91%

XLF down $4,650.00 or 4.65

This is no mistake...that would have the $300 k investor down over $11 k. I am sure that this market has thrown a number of investment managers for a loop. However it just goes to show the reader that no one is right all of the time. That is why I go back to the old cliche... "No one will take better care of your money than you!" If you need further evidence look at the number of losers for mutual funds YTD the next time you seen the business section of the paper. Then think of the saps that are just plowing their monies into a losing proposition... The best money invested is that you have direct control of!!!

John D. Rockefeller would say "Turn every disaster into an opportunity." As we sit back and watch the market meltdown, we must remember to take advantage of the situation. As for me, I am short!

The Thin Blue Line
I guess we never really think about it... Maybe it is something we take for granted. But there are people who put their lives on the line for us each and every day. There is a thin blue line that protects us from the bad guys. This morning in Twinsburg, OH we are reminded of this fact with the shooting death of one of our own police officers. A senseless death, as many of them are. A routine traffic stop, and 23 year old male with music too loud, an altercation, a shot, and now a dead police officer. It didn't have to end this way. A widow... one who is still on maternity leave... and a child who will never know her/his father. Just stories, pictures, and an American flag with sharp folds in the shape of a triangle.

To this day, I am always nervous when a police officer pulls me over I know I was driving a couple of miles over the speed limit... and under no circumstances would I dream of fighting with one or arguing, let alone shooting one. That's just crazy... No crazy isn't the right word... and I don't think ignorant fits either. Ignorant means you are just uneducated... and a 23 year old who went through that school district is definitely educated. Maybe an anarchist "someone who does not respect the rules and standards of a civilized society is the only term that would fit. After all, an authority figure is an authority figure.

While the story is unfolding and many details are still unknown we are reminded of the fragility of life. There are no guarantees of tomorrow, just the here and now. Secondly, we should be prepared to meet our maker. I always knew about the people who really put their lives on the line. Memorial Day always drove it home. Then, there was 911. Again, I was reminded of this two years ago when Major Stephen Reich was KIA in Afghanistan on a rescue mission. He was dedicated...like many of our service professionals who put it on the line every day! Like Jefferson says, "The only guarantees in life are death and taxes." As for me, I going down to spend some quality time with the family. Please keep the family, friends, fellow officers, and everyone who protects us in your thoughts and prayers.

Weekly Wrap: When the Pep Rally Fails... BIG IDEAS...and Just Plain Dumb!

Brian's Weekly Wrap 7/11/2008

BAC 1/30 3.0 9.75 225%

BAC 1/27.5 3.15 7.60 141%

BAC 1/22.5 2.25 4.4 96%

BAC 1/22.5 3.05 4.4 44%

COF 1/50 8.10 14.9 84%

COF 1/40 6.0 8.5 42%

HBC 12/75 3.9 7.6 95%

HBC 1/75 6.0 7.8 30%

STI 10/25 2.3 2.9 26%**

**Indicates new position

In literature, there are a vv. ariety of conflicts which are identified and discussed. MAN V. MAN, MAN v. HIMSELF, MAN v.NATURE and MAN v. The UNKNOWN. The Unknown is always the one that seems to throw people for a loop. When I was a kid TV shows about U.F.Os, Big Foot, and aliens would creep me out. After all, people's imaginations can be more dangerous than reality! But what happens if there is reason to worry?

When the Pep Rally Fails
When people don't know what's going to happen next... when professionals who make their living by reading the numbers and data can't make sense of things like volatility... Wall Street can't quite see the big picture, and the picture they do see is one that is looking pretty scary! That was o.k. though right? Uncle Sam was there to make everything better right? Henry Paulson spoke on markets to calm them down right? Ben Bernanke followed suit by a great "Pep Rally" to bankers on Tuesday... And from that point on, cameras and sound bites continued to roll in the rest of the week from the Dynamic Duo! That being said, I have a deep respect for anyone in public service... However, at the end of the day... they are two men trying fix... or recommend fixes to problems which are quickly taking on a life of their own. For instance one headline read "Paulson contacts Bush on the health of Freddie and Fannie Mae." I guess we all missed the boat on that one! Imagine another bailout is under way, and the markets are fearful of the UNKNOWN...

Volatility should heat up quite a bit in the next two weeks... COF reports earnings on 7/17, BAC on 7/21, and STI on 7/22. Earnings in of themselves should shed a degree of light as to where these companies are right now, but it is always those forward looking statements, and future guidance that has such a big impact on stock price as well. For instance, Lewis from BAC held a Town Hall type meeting this week and his stock seemed to yo-yo on almost every word he uttered... a most curious phenomenon. This could very well be the best time to get out of these stocks if you like so many others on Wall Street think the carnage is over. For me, it may be one of the last chances for little guy like me to load up on a couple more financials before they hit put prices that are simply too expensive!

Big Ideas
At the beginning of the year, I was becoming increasingly frustrated with my long positions. Coca-Cola (KO) was millstone around my neck. Nostalgia aside, I just didn't see the future in the combination of high fructose corn syrup and carbonated water... so I dumped it... Wall Mart and Dominion might be a little tougher to drop. While many are critical of Wal-Mart's short-comings of the past, I can only look to the future. When times get tough, people shop for value. And Sam Walton prided himself on value for the customer. (You got to live anyone who was the world's richest mat and still drove a pick-up truck to work every day.) But I also realize that cash and leverage in options maybe the only way to beat inflation... and the more scary sibling deflation in the future. A friend asked about the tax liability of early withdraw from a 401K plan... while I believe those monies could be rolled over to a Roth taxtree... the other question I have is what is the threat to those who have money parked in a mutual fund with 5-10 years left for retirement??? Long-term anything aside things of real value such as oil (energy), gold (and other metals), and cash maybe a loser at this juncture.

Those simply providing services could be in trouble. Sure an organization like Wynn is able to utilize cash resources to prop up the stock price now, but that is not the type of company I would want to hold right now... A closer look at regional casinos should be a good barometer for that type of entertainment and discretionary spending. I like Ax's SRS suggestion. Recent conversations with people from Pigeon Forge, TN and Boca Raton, FL reminded me that real estate is a much bigger mess than anyone really understands. And to make matters worse, the bill coming to the House of Representatives will only help residential property owners... not investors, and definitely not corporations. With the short-comings of President Bush he realizes that a bailout for business is not good for ANYONE! Bush will expect a tightly drafted housing bill that does not invite "Moral Hazard" among big business.

Just Plain Dumb
Evidently, someone is not teaching history to the T-shirt makers in the South. I am o.k. with the Stars and Bars wear. It is a Southern pride thing that most Yankees just don't get... that much I can live with. It's some of the other stuff that makes us think that some people are just PLAIN DUMB! Interestingly enough, I read a shirt that said "Still Standing." Another shirt said "Apologize for What?" This must be by the same hair-brains that pushed "The South will rise again" shirts back in the 1980's. While I have a deep respect for many things in the South... traditions, football, church, etc. I do not have a lot of respect for ignorance... and you really can't debate with ignorance!

A Damn Yankee

Wednesday, July 9, 2008

A Small Leak Can Sink A Great Ship!

I have a great admiration for Ben Franklin. Maybe it's the rags to riches story...maybe just his humor...maybe his insight. Insight is something that is sadly lacking when it comes to Wall Street...and that is where we could use some good old fashioned Ben Franklin type common sense.

In a pure move of politics and back-scratching Ben Bernanke gave a speech that would have made the greatest confidence men in Sing-Sing envious. Prior to the market's open Tuesday morning Bernanke made a damage control speech in Richmond, Virginia touting the following initiatives:

1. The end of shady mortgage lending practices.

2. A possibile reform movement in the credit card industry.

3. The suggestion that weaker banks and mortgage companies should be allowed to fail.

4. Continued access to the special loan window through 2009.

The market responded as one would expect with a 175 point jump in the NYSE led by financials. This was done to shake loose the shorts that seem to be resounding the bear sentiment on Wall Street. (This did cut into my short positions which I will address later in this blog post.) A down day on the oil market and it looked as though the long awaited market bottom was found, and the rebound was under way. Back slapping and table pounding was under way. The market got its much awaited good news.

Today however, was a different story. The short-lived bounce was gone, and the market found a new bottom dropping 237 points. Of the panel of six experts who appeared on CNBC's Market Wrap only one admitted he had a cash position because the market was too volatile for his or more importantly his client's money. The other "experts" did what they have been doing all along...talking about the great buying opportunities, dollar cost averaging, and near bottom forecasts. After all, aren't all stocks on sale now?

Ironically, David Tice from the Prudent Bear made a sound case the the U.S. Economy is headed for a deep recession...and even muttered the word depression (1). These words seemed almost as piercing as Warren Buffet's words in late April which mentioned the words... deeper... longer... and "Worse than feared." (2) Let's face it, the market fundamentals did not change Tuesday morning when Bernanke made the Rah... Rah... speech. Remember folks, his job is to support and help make the financial system work.

Speaking of the financial system of the United States, let's look at those fundamentals:

1. The dollar's buying power has been going down for years.

2. We are the largest debtor nation in world history.

3. We are in the midst of a sub-prime crisis that is still only being unfolded.

4. Consumer credit is tightening... and our economic growth is reliant on consumer spending.

5. Gasoline hoovers around $4.00 per gallon.

6. The housing, real estate, and construction components of the economy are on life support.

7. Unemployment is one of the dominoes falling... now near 6%.

*These are just some of the arguments for a Bear Market off the top of my head...

As we head into Thursday, I am even for the week. Monday's great numbers were killed by a strong day for financials on Tuesday. Wednesday, the pep rally was over, and reality was sinking in again. Today at market close, Lewis from BAC was holding a Town Hall type meeting. He was quoted as saying that the recovery should take place in mid-2009. Other positive comments were that BAC did not need to raise capital, and the dividend was safe. I do believe Lewis was telling the truth. His company's stock price will continue to tank, and the dividend will be the only reason to hold it. Stay tuned for Thursday. Remember from one Ben to another Ben, a small leak can sink a great ship. A big leak will sink the ship faster!

Works Cited

Saturday, July 5, 2008

Observations from the Driver'sSeat

I like driving the family on a vacation. Maybe it's the togetherness of family. Maybe it's just getting out of town for a while. Maybe it's a total guy thing like holding on to the TV control and being in charge. This trip was going to be a bit different. I talked to my lovely wife about the state of the American economy, and made a number of observations:

1. On the trip down we saw a Smart Car in action. It was cruising down hill at 58 mph. If I didn't know any better I would hve confused it with a roller skate. Not only were cars whizzing by at 65-75 mph. I could only think of what would happen to the poor folks driving one of things if it ever got into an accident. safety v. efficiency...no question here... people will pay the extra for peace of mind!
2. I made it a point to count the number of RV's on the road. I came up with 46. This did not include trailers...just RV's. We spotted an RV on average of one per every twelve miles driven. Secondary suppliers of these things have to be drying up. Sure there will be a couple of die hards that drive these things...but my observations took plce on July Fourth weekend...the busiest travel weekend of the summer. Winnebago, Fleetwood, and Thor Industries may deserve additional attention here. And Thor apears to have additioanl ground to give.

3. If you think RV's were bad, then the boating industry is much worse. I saw approximately 23 boats in transit on the drive down to Tennessee. This suggests that the consumerhas become extremely savy and docked their boats at a local marine...or they have decided to leave the boat dry docked. Maybe companies like Sea Ray (HZO) for instance could be under considerable pressure here.

4. According to one worker at Dollywood (CKXE) located in Pigeon Forge, TN attendnce is down. As a rule of thumb if attendance ever breaks the a daily markset the previous year, the park will stay open later. The park opened in March. Thus far, there have been three days where the park needed extended hours...or every other day except those three that the park did not hit their numbers. My belief is that this trend hold true throughout the United States.

5. Tier three restaurants (fast food) appeared to do well. There was always a line at the cheaper placesto eat. However, it is also duly noted that tier two restaurants $40-50 per couple seemed dead.

6. On a stop at Max and Erma's in Washington Courthouse, OH I noted a conversation between fertilizer salesman who were preparing for a luncheon with farmers. They were pushing products that would enhance crop production by 20%. This suggests that there is still some play left in commodities. Secodnly, there was neer any talk about the sfety ofthe products that were being used on the crops...something which I have always held a deep suspicion. ADM ADM's chart suggests that some people can fail durg a time of prosperity.

7. CNN (a.k.a. Communist News Network) ran a story where they claimed that 32% of Americans polled said that their travel plans have been limited by the price of gas. This would make perfet sense because one toll both worker in Ohio claimed that 73,000 less cars came through his plaza compared to the same month in the previous year. I would assume this spells a bit of trouble for auto dealerships like AN and alsotire makers like CTB.


There should be no doubt that the economic slow down in the United States is not a simple problem of credit contraction. Fuel prices are also sending a shock wave through the population and influencing spending decisions that were once taken for granted. Although "experts" like Thomas Lee from JP Morgan are convinced that the consumer discretionary will rebound soon, I am not as optimistic. Aside from stimulus checks...it just seems like extra spending cash for many Americans has dried up. The more sobering tone of Henry Paulson said it all. Wall Street must come clean with its credit problems. Those problems were not created over night, and will not go away overnight. Secondly, the Fed should not and will not be given the flexibility or abuse its authority to bail out every bank on Wall Street. I am reminded that the Great Depression started as a small credit crisis which had a domino effect throughout the entire world. While some people are feeling a pinch now, it is definitely not a depression.

While some people are having a rough go of it now, most are only experiencing degree of financial discomfort. But Americans don't like pain...and wedefinitely don't like the word no. As long as credit is available consumers will use it. Some have already over-consumed...others by reason of necessity or irresponsibility will bring about additional credit woes. Remember, credit is the consumer's life-line. The Oracle of Omaha Warren Buffet seems to have a pulse on this one. "The recession that we are currently in will be longer and more pronounced than anticipated." Do not count on Wall Street pundits, analsyts, and other salesmen to look out for you best interests.


Pick an analyst or two and follow their selections or predictions over the course of a few months. Maybe you can find somebody who is better that Thomas Lee.
Idea II:
If you have a young child, consider taking them to Kit Kittenridge which is currently playing at the theaters. It takes place during the Great Depression and brings up a lot of great points for teaching kids about the real world.

Thursday, July 3, 2008

Weekly Wrap 7/3/2008 and More...

Happy Fourth of July!

Greetings from Townend, Tennessee! One of my favorite rites of passage every summer is the Fourth of July. Sure the cookouts and annual parade are great but, there is just something about the Fourth of July that makes me proud to be an American! Sure a couple of stanzas of Stars and Stripes Forever or another Sousa march can get my blood going bit. A look at the Spirit of 76' (by Archibld Willard Bedford, OH) does more than tells a story. Willard helped give me a sense of what it really meant to be an American. Of course its the words of Thomas Jefferson in the Declaration of Independence that really drive it home. Even if you're not a Jefferson fan, you can't help but appreciate his way of telling the British government that we were declaring our independence:

"When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation."

But I always appreciate the poetic words of Jefferson:

"We hold these truths to be self-evident that all men are created equal. They are endowed with certain unaienable rights, that among these are Life, Liberty, and the pursuit of happiness.

Most importantly, Jefferson reminds us that governments get their power to rule from its citizens. As he most boldly stated, when any government abuses its power to rule, then that government should be abolished.

That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government.

Lincoln definitely knew how to keep his the the eye on the ball. He was one of the few who really understood what was happening to our country during The Civil War:

"It is for us the living, rather, to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced. It is rather for us to be here dedicated to the great task remaining before us. . .that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion. . . that we here highly resolve that these dead shall not have died in vain. . . that this nation, under God, shall have a new birth of freedom. . . and that government of the people. . .by the people. . .for the people. . . shall not perish from the earth."

On this Fourth of July let us all give thanks for the many blessings the good Lord has bestowed upon this great country of ours. And we must also then be thankful for the priviliges and opportunities that are now available to us as U.S. citizens. Most of all, as Americans we should remember that the legacies and endowments that are ours are not entitlements. We all should remember that we have an obligation to keep this nation great.

Weekly Wrap 7/3/2008
I will apologize for the formatting ahead of time...and will try to return to the spread sheet next week.
Net Gain/Loss
BAC 1/30s P 3.0 8.85 195%
BAC 1/27.5P 3.15 6.90 110%
BAC 1/22.5P 2.25 3.70 64%
BAC 1/22.5P 3.05 3.70 18%**
COF 1/50 P 8.10 14.40 78%
COF 1/40 P 6.0 7.90 32%
HBC 12/75P 3.9 6.30 62%
HBC 1/75P 6.0 6.30 5%**
XLK 1/25C 1.70 .75 -56%*
NCC 10/10C 1.30 .10 -96%
NCC 10/8P 1.55 3.30 113%*
*Liquidated Position
** New Position

As mentioned in my last post, BAC finished digesting the CFC merger. Needless to say, there was a severe case of indigestion on Wall Street. Part of the stomach rumbles came from the continued credit crisis. One analyst even had enough guts to say that the credit card companies are over-sold, and the companies all have an appropriate stock price. While some of the Wall Street experts were calling bottoms and rally points this week, in the end it was all for naught. This week Henry Paulson gave the financial community a bit of straight talking on Wednesday. The Dow finished in Bear Market territory that day...rallied a bit on Thursday...and took a much needed day off to celebrate the Fourth. An analyst by the last name of Roney believes the worst for financials are over, and predicted a new interest in the financials as of Monday. When asked if he would put his OWN money into the financials...he avoided the question! Enough reason to validate the increase I made in BAC and HBC.

I sold XLK and took it like a man. Once again, I believe my strategy was fundamentally sound, but timing was off. I will utilize monies from that and NCC's put which was mostly treading water to go on a shopping spree.

Here are some of the names I am looking at:

Dollar Store (Retail sales are due next week and I am expecting big numbers from the bottom feeders.)

Foster Wheeler has a strong association with the housing market...and may deserve some additional research.

Heavy Metal? USX, CLF, ZEUS some of my favorites that I watched way out perform the market maybe on there way down. May deserve a strangle or straddle...FSLR is another candidate.

AN and STI are also on the board.


XLF now down 15%

XLY now down 6%

XLE now down 1%

Uh, oh MISTA LEE...this is bad news! That's o.k. you probably did better than many of your cohorts!!!