Monday, March 30, 2009
Who is steering this ship anyway?
I have no love loss for many of the auto executives who have helped push, if not directly cause the demise of their companies. For Rich Wagoner it was a curtain call. New direction, new thinking, new guy whatever.
Of course the unofficial response is that the banking sector is much more sensitive to our economy. Funny though, how the people who helped cause this debacle in finance are still at the helm. Although there is a major push from a BAC stock holder to throw Ken Lewis out on his right ear.
I am curious how many Squawk Box personalities and snake oil salesmen called bottom again. Remember folks, all of them have a vested interest in keeping your money in the market. At the end of the day, no one will look out for your investments like you!!!
Headlines already boast of an Asian rebound... We'll see!!!
Saturday, March 28, 2009
It has been said that perception equals reality. If that is the case, then D.C. politicians and Wall Street may have to hire the best marketing firms on 5th Avenue to sell the latest round of government spending. The U.S. Government is facing increased pressure from constituents. The bailout culture is not sitting well with many Americans. In particular, ordinary citizens are starting to question some of the basic tenants of democracy... and the pecking order of what is important, and what is not! As the Obama Budget comes into debate, and an eventual vote Congress is facing considerable scrutiny. The the Obama administration, the budget means that they will be able to hold the anger of Main Street off with lots of pork barrel projects. However, there is a deeper theme that is echoing in living rooms, break rooms, and unemployment lines throughout America. Country singer John Rich will get a lot of mileage out of this song. Be certain, it will also create fervor on the common man's level.
While the boss man takes his bonus pay and jets out of town/
And DC’s bailing out the bankers as the farmers auction ground
Yeah while they’re living it up on Wall Street in that New York City town
Here in the real world there shuttin’ Detroit down.
The Week Ahead
The market has rallied 20% from its bottom. Gold has taken a beating, oil continues to fluctuate with a continual crawl to the upside. While financials have rallied, I am extremely suspicious that this move is a breather for a market that had sold off too quickly. I do expect the lows to be tested once again. The G20 meeting should lay an interesting background with a BRIC nations showing continued concern over the lack of stimulus from EU, and a sprawling debt from the United States. While much of the conversations that will transpire during the meeting will be kept low-key, rest assured there is a heightened state of anxiety throughout the world.
This week has an economic calendar that is simply loaded with information including Non-Farm payroll and Unemployment numbers that will hit late in the week.
March 31 Consumer Confidence
March 31 Regional Manufacturing Updates (Chicago CPI)
April 01 Auto Sales/Truck Sales
April 02 Initial Job Claims
April 02 Factory Orders
April 03 Average Work Week and Hourly Work Week Survey
April 03 Non-Farm Payrolls
April 03 Unemployment Report
According to one source, there are seven states which are already experiencing double digit unemployment. Up until two months ago, I had heard of people not having jobs, but I did not know of anyone who was unemployed. Now, I have met a half-dozen people who do not have jobs. One person has been looking for a job in food production for one year, and he can't land anything. We should note that there are eight other states who have reached the 9%+ category for unemployment as well.
Michigan registered the nation’s worst rate, with 12 percent of its labor force out of work as of February 2009.
Michigan (12 percent)
South Carolina (11 percent)
Oregon (10.8 percent)
North Carolina (10.7 percent)
California (10.5 percent)
Rhode Island (10.5 percent)
Nevada (10.1 percent)
RYL continues to drift higher. Unless there is a massive sell-off I will be taking a loss on that one. I still believe it was the fundamentally right decision to make, and may even serve as a leap play should the stock still drift to the upside.
CNK is back on the board. This stock along with several others bubbled up fover the past week or so, in a mis-information euphoria that has not been witnessed since H.G. Wells did his radio broadcast for War of the Worlds.
I will continue looking for additional puts on TM, and look for entry points on SPG, VNO, WYNN, and maybe even load up on more MLHR since it is getting so "expensive" again!
EFU currrency play will be hot this week. The EU will have considerable pressure placed on finance ministers to lower rates...and spend... ut oh!
1. John Rich, Their Shutting Detroit Down
3. Bureau of Labor Statistics
Tuesday, March 24, 2009
Several years ago, I heard a story. Hunters were giving deer meet to homeless people as a good will gesture around the holidays. The thought was that everyone would appreciate a warm meal and a bit of protein. Food is food right? As it turns out, some of the homeless people refused to eat deer meat citing that they could not Bambi... Conventional wisdom suggests that if you are hungry enough, you will eat anything.
I bring up this story because it is a classic example of beggars being choosers. It is an eerily similar story to the plan to purchase toxic assets from banks. The U.S. government, along with private equity investors are seeking to purchase toxic assets from banks. This plan is designed to clear the banks of their toxic assets once and for all so the United States can start to work out of the current financial abyss. After all, the banks have toxic assets that are eating up balance sheets.
In a recent interview with Market Watch chief editor, he suggests that many bank are unwilling to part with their toxic assets unless they are paid market value. According to banks, and their mark to market accounting formulas, the "toxic assets" are worth more than the what the government, or private equity partnerships are wiling to pay for them. In essence, if the banks let these toxic assets go for anything less than the estimated value, there will be a black hole on their that could well swallow up the nearest planet.
Therefore, further discussion of Geithner's plan was practically dead. The euphoria we witnessed on Wall Street Monday was nothing more than half-witted jubilation. The truth is that the trillion dollars that was pledged to purchase the toxic assets will not cover the losses that banks currently have on their books anyway. And the banks want something else(namely more money) for paper that has little to no value. In other words, the homeless are turning their backs on the food that is on the table, because they prefer something else.
The Real Meat Eaters
One must admire the banks for their persistence if not their out-right arrogance on the the latest proposal to purchase toxic assets. I give the banks 50/50 odds that their assets will sell at if not extremely close to the value to the original purchase value. If that is done, then the bad bank plan will cost taxpayers closer to 4 trillion dollars. That will be the day to own gold and silver.
A second plan suggests that changes in current accounting rules (the same things that were used for Enron) allow toxic assets to be held in investment vehicles that are off the regular books. As is Enron, the losses can be shifted from vehicle to vehicle. All that banks really need are enough liquidity to keep them floating. This is where the original TARP funds come into play. Although, one could make a strong argument that AIG bailouts have been nothing more than a supplement to big banks as well.
The last and possibly most disturbing aspect of this financial shell game was floated by fellow blogger Ax at bigbigbet. According to several stories, the government and hedge funds are never intended to make any money from the toxic assets. The hedge funds will pay close to top dollar with 93.3% government (as in taxpayer money). Once the toxic assets are digested and teh toxic portion disposed of, the valuable part of the assets will be sold bank to the banks.
One thing is for certain. Even though Chris Dodd and Barney Frank have egg all over their faces in these deals... both are still calling shots. Maybe it is just not time to pull the plug on these birds yet. But if things go south, rest-assured both of these characters are looking more like fall guys.
The market has never sen a turn-around like this before undera new President except for November of 1929... While I do believe Obama brings a high degree of intelligence and charisma to the office, I am certain that if he is caught off guard by numbers... or if trading partners demand a move to a new reserve currency, his rosy relationship with the media can turn.
FAZ is at a 52 week low and is worth consideration.
Saturday, March 21, 2009
Harry Truman's Desk at the White House Read "The Buck Stops Here!"
Passing the Buck
As the public screamed about AIG bonuses totaling somewhere in the area of $165 million dollars, it appears as though the media took their eye off the ball. The real story should have been half-witted attempt to recover those funds. Treasury Secretary Tim Geithner demanded that Treasury will deduct $165 million from the BILLIONS of dollars already given to AIG. I am not so sure what the true embarrassment is... discovering that AIG (and other Wall Street firms who received TARP funds) was able to pay bonuses to employees of bankrupt companies, or the fact that Christopher Dodd was able to put the language in a bill and slip in through Congress almost entirely un-noticed!!! If Geithner is successful in "recovering" the AIG bonus money, it will equal .1% of the taxpayer funds that were already distributed. A classic example of government waste and incompetence.
For the record, every time AIG receives an additional cash injection from Treasury, chances are those monies are given to another financial institution. For instance, the credit default swaps (cds for short) were financial instruments insured by AIG. The the big banks are collecting on the obligation side of this transaction. So far, the bailout of AIG has been passed along to such institutions as:
Goldman Sachs 12.9 billion
Societe Generale 11.9 billion*
Deutsche Bank 11.8 billion*
Barclays 8.5 billion*
Merrill Lynch 6.8 billion**
Bank of America 5.2 billion
UBS 5.0 billion*
BNP Paribas 4.9 billion*
HSBC 3.5 billion*
Dresdner Bank 2.6 billion*
*Please note that the * notes foreign banks.
**Refers to a bank that is no longer in existence.
It is hard to believe that one financial institution could have leveraged themselves to the hilt. The fact of the matter is that counter-parties should ave been well-aware of the over-leveraged risk that AIG had assumed. Furthermore, the bailout of AIG really means that the United States is bailing our foreign banks and economies. Note that all settlements were made in full, and not at an amended rate (which is is customary in dealing with bankrupt companies). I wonder where this buck will stop?
The Market at a Glance
According to the Cleveland Plain Dealer, there are relatively few investments which have actually earned money over the last year. Based on $1000.00 dollars invested in a one year period, there are several companies that seemed to have handled the financial meltdown remarkably well.
A Few to the Good
Amgen is up over 21% year to date.
Bristol-Myers is up 1%
Wyeth up 4%
TFS Financial up 2.3%
McDonald's nearly even
Fannie Mae where a 1000.00 investment is now worth 20.77
Royal Bank of Scotland 56.95
Tween Brands 72.03
Fifth Third 95.46
I am sure that I have missed more than a few losers (like AIG 28.43) Bear Stern 0... Merrill Lynch... and LEH... which do not exist.
Even if inflation were to take off, and reflate the stock market (And I do believe this is an earnest goal of Fed and Treasury)... Many companies on Wall Street are down for the count...
It was once said, and rightly so that "He who holds gold and silver makes the rules." And for many of those who gold and silver, they carry it in their upper hand for business dealings. Debtors to be sure are at the mercy of lenders more so now, than in almost any time in history. Not because there is debt... more because debtors are over-leveraged to creditors. Likewise, creditors could well be over-leveraged to those who have borrowed too much. (1) It truly is an unhealthy combination in this case. But I bring up this point because the the U.S. government has gone to great lengths to help accommodate the lending... not regulate it... The issue then becomes more touchy as the Federal Reserve Chairman Ben Bernanke dropped a $1.2 trillion dollar bomb last week, that will soak up T-bills without an auction. This could only mean that both Treasury and Fed are concerned about the dis-interest of other governments (namely China, Russia, and Saudi Arabia) in soaking up additional U.S. debt. The Fed move is nothing less than a hail Mary pass into the end zone at this point. Should the trend of shunning U.S. treasuries continue, there will be grave consequences. And the ramifications of no buyers for U.S. debt is ground shattering:
1. The U.S. dollar will be replaced as the world's reserve currency. This will effect the value of everyone and anyone who is holding dollar based assets... From homes to equities...
2. The U.S. will not wield the traditional influence we have become accustomed to in world affairs. And the world will continue to drift into a more isolationist pattern, while governments seek to "test" the new world order. i.e. Iran, Pakistan, North Korea, and China just to name a few.
3. According to one Reuters report, there will be additional resentment toward the United States seen as a long-time exporter of debt, and now inflation. (2)
Anyone who doubts this premise could be part of the Cramer Camp who tauted the positives of inflation. As Cramer stood in his kiddie pool with pants rolled up in a sea of dollars he suggested that stocks will inflate along with dollar based assets. I would like to remind anyone who watches Cramer that he is nothing more than entertainment. Even a six year old girl pointed toward him and laughed saying "That guy is funny." I believe Cramer is short-sighted at the bare minimum, and to the other extreme a buffoon. Inflation is a two-edged sword. And I am suggesting that Cramer is missing a more fundamental paradigm shift that should pull another 20% out of the stock market...maybe more.
Retail and Commercial Real Estate
If you are a Darwinist, then you will see Natural Selection in many aspects of the economy. In the most basic level, most of us would enjoy a flattened playing field where domestic businesses would either compete and win, merge to crate a new synergy, or fail.
With a state like Ohio hitting a 9.4% unemployment rate, there is a resounding message that is sent... It is time to place bets on those who will whether the storm, and those who will not make it in retail. Take a company like DBRN for instance. They are exploring new ways to do business. And even offering members of Weight Watchers "special deals" to visit their store. Currently off their low of 7.94 in November, an 11.35 price tag could well be too much.
REG specializes in commercial real estate property which includes anchor stores like grocery or even large box stores. That being said, we can only imagine the devastating effect the recession (or whatever they are calling it these days) is having on such an operation. The all-time high at 87.10 in July of 2007 has been punished to a current price of 24.93. And the chart looks UGLY!!! (Please see the hyper link)
CSTR has a nice gimmick with the coin-counting mechanisms that are commonly found in grocery stores. I believe the Coinstar charges somewhere in the area of 10% to count coins. Sure, there are a lot of people counting coins these days. But I also believe that human nature will be to leave the middle man out of the equation and deal directly with a bank. Unfortunately, many of the people dealing with change are in long-term financial pinches. I guess if you wanted to add extra minutes to a phone card, buy retail gift certificates, or something of that nature, Coinstar is the thing for you. But, I see this as a company that will be squeezed in this economy. Here is what a couple of people have said about their Coinstar experience. Click here.
Saturday, March 14, 2009
Intrinsic Investing Part III
With the 9% rally in financial markets last week, we are left in two competing schools of thought.
School One: Suggests that stocks are incredibly beaten down, and are all on sale right now. That there are many companies that have a much higher intrinsic value than the current price dictates. That given a recovery... any type of recovery... these stocks could easily double or triple in value, especially if their earnings beat lowered analyst expectations. Additional liquidity will revive the consumer, banks will return to old lending practices, and credit markets are thawed. Moreover, Treasury Secretary Geithner's "Bad Bank" will simply wipe out all the toxic assets on bank balance sheets. We are on the road to recovery... Now is the time to buy!!!
Case in point would be the statements of Vadmir Pandit and Ken Lewis last week. Both CEO's hinted that their companies are returning to profitability. According to Pandit and his internally leaked memo, their first two months of 2009 have been profitable. Ken Lewis echoed similar views. Taken at face value, it appears as though these CEO's see opportunity.
School Two: In simple accounting terms, the assets must out-weigh the liabilities. This suggests that earnings and asset values determine a company's true worth. For a company to have value, it must have positive earnings on a consistent basis. Sure, there are times when the company may re-structure. Or, a company may just have a bad year or two. This differs from a company which has based its business model on unsustainable if not completely false premises, or simply made extremely poor investment decisions. See LEH, BSC, WM, or MER. In many cases, we (as in the investment community) have been led astray if not out-right lied to by analysts and company representatives alike. The question is, are they telling the truth this time?
The Goose is Cooked
As for me and my investment portfolio, I have made more positive than negative plays betting against companies if not their CEO's. The credibility factor is in play, and will continue to stay in play. While the easing of accounting rules... a moritorium on foreclosures... and initial signs that credit is thawing, I tend to error on caution. In many cases, companies have been allowed to create their own realities, and report these realities as fact. The difference between how things are, and how you wish them to be allows rationization. And rationalization means excusing actions and behaviors, or simply justifying a false interpretation of reality. That is the type of thinking that has led us to TYCO, MCI, and ENRON just to name a few. (For more information, please see the Theory of Cognitive Dissonance )
People like Bernie Madoff created their own reality... and many of the investors willingly believed the "too good to be true results." We know about Madoff. Are there others like Madoff? Until standardized accounting regulations are made and enforced by the powers that be, who can you trust? We are reminded that in many respects, Wall Street has caused its own goose to be cooked!!!
From Yahoo News:
FIVE SIGNS THE MARKET HAS YET TO FIND A BOTTOM:
CHRONIC CREDIT WOES
The banks may not be dead, but they're still sick. So are those giant, complicated credit markets. JPMorgan analyst Thomas J. Lee noted that the markets for securities backed by residential and commercial mortgages have recently deteriorated to their worst levels since Lehman Brothers' bankruptcy.
The market needs a plan for these "toxic assets" -- either by selling them to private investors, or allowing banks to mark them differently. A failure by the government to deliver such a plan sparked a sell-off last month, and if investors don't get one soon, the market could be in for another tumble. Analysts aren't ruling out a Dow drop to 5,000, or an S&P decline to 500.
"We don't believe that the bear market's over yet," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York. Toxic assets "either need to come off the banks' balance sheets, or they need to improve on the banks' balance sheets."
ECONOMIC DROPS ARE JAGGED
Economies, like stock markets, don't decline in a straight line. The recent spate of better-than-expected retail sales data could be merely a short-term blip.
Sandeep Dahiya, a finance professor at Georgetown University's McDonough School of Business, said he wants to see three months of sustained increases in the Conference Board's consumer confidence index. It is currently at the lowest levels since the gauge started in the 1960s.
"Until that happens, I'm not willing to say this thing is behind us," he said.
SHORTS: NOT SWEET
A big chunk of last week's rally was driven by what's known as "short-covering" -- when investors buy stocks simply to offset short trades, in which an investor borrows a stock then sells it right away, hoping to buy the same shares back later at a lower price, thus profiting from the decline.
It's difficult to differentiate between short-covering and regular buying, but floor traders last week estimated that between 50 percent and 60 percent of Tuesday's 379-point jump in the Dow was due to short-covering. And a rally driven by short-covering can disappear quickly when a scary headline hits the wires.
FEAR OF THE UNKNOWN
The market fears something wildly unexpected could happen. The Sept. 11, 2001 terrorist attacks threw a wrench in the market's recovery following the bursting of the technology bubble. And an unintended consequence of addressing the Great Depression with protectionism in the 1930s was global trade war, which hampered the U.S. market's recovery.
THE BERNIE MADOFF FACTOR
Even if you didn't invest in Bernard Madoff's fund, you might still be an indirect victim. Trust in the markets took a major hit after his $65 billion Ponzi scheme was revealed last December. It took another blow when R. Allen Stanford's $8 billion scheme came out in February. Without trust, the stock market can't rise for long.
Wednesday, March 11, 2009
Back to Square One...
Interesting that Citi CEO Vikram Pandit would go on the record yesterday with an announcement that his company has had two profitable months in 2009. Interesting indeed. I find it interesting for the simple fact that Citi has still not revealed the amount, or extent to which toxic assets have fouled the balance sheet. While some speculators saw this news as an opportunity to pile money into the market, it appears that this news should be chewed well, and swallowed slowly. Truth be told, Citi was one of the first banks to respond to a moratorium on foreclosures, not to mention the reset of alt-A and ARM loans. I write this not so much to frighten investors, but more or less to offer an opinion that was widely disregarded on any of the major networks.
That being said, Neel Kashkari seems to have a decent pulse on the financial situation inside the United States. In his COngressional testimony, Kaskari said that "Forcing banks to lend was a bad idea... and that the over-extension of credit was the root cause of the current financial crisis." Soon there-after, Treasury Secretary Geithner and President Obama called on a world-wide stimulus package to create jobs and promote spending. They too have realized that the extension of credit alone will not solve any crisis in the United States.
FLSR, and any of the oil companies or an all in one play of SCO
NOC, DE, and TM also look as though a protracted recession (or whatever the experts are calling it these days) could suffer. NOC is particular may suffer with defense spending cuts and an already negative EPS.
MSFT cash rich, and idea poor... maybe just maybe they will look to better themselves in a discounted financial market with a key acquisition.
Sunday, March 8, 2009
(Image from Carl the Custodian in The Breakfast Club)
Who Wants to be a Custodian?
Massilon used to be called Tiger Town. It was a tough city with tough people living there. Massilon and surrounding cities in Stark county used to have the bragging rights of such companies as Hoover Home Products... Manufacturing is still the crown jewel of this area. Timken makes some of the best bearings in the world... Diebold produces products for financial services and security. J & L Steel builds products that are used in heavy construction. Now things are rough in this little area of the state. According to Yahoo News, "Evidence of the slumping economy is stacking up at an Ohio school which has nearly 700 applications for one open janitorial job." (1) The job based on experience pays approximately $12-15 dollars per hour with benefits. I have deep respect for anyone who goes out and forges their way in today's economy. The number of applications suggests there are many Americans who will willingly take shovel ready jobs as part of Obama's budget and stimulus package.
We Shall Overcome One Day...
According to one report, the powers that be are trying to spend our way out of the economic slow-down. The Obama budget looks to ramp up government spending to an un-precedented level. This move is an attempt to "shock" the economy back to its regular beat, and encourage private investments to follow. One point of concern about the Obama budget is that it is based on positive GDP by the end of fiscal year 2009, with a lofty projection of 3% by the end of 2010. While I would like to see these predictions come true, we are reminded that during the Great Depression, Herbert Hoover said that "No country can squander itself to prosperity on the ruin of its taxpayers." That being said, Barack Obama is right, there MUST be accountability in government spending. And, the spending spigot should be turned off once the economy has recovered. This includes a closer look at government out-lays on entitlement programs that do not promote growth. I believe that Barack's stance on competitive government bidding is a great place to start!!!
Intrinsic Investing Part II...
There is value in today's market. There are companies that have been unduly punished by the bears on Wall Street. Many companies are trading at a significant discount to book value. That being said, there are two underlying factors which are keeping a person like me out of the long side:
1. Accounting practices: There really isn't a firm way to determine value on a number of companies based on traditional accounting formulas. The pressure to fudge numbers, under-report losses, and over-project earnings is one variable that no one can quite but a finger on yet. The unfortunate fact is that an under-funded if not completely inept SEC has not been able to take companies to task for stock market schemes (see Madoff...Stanford... Tyco... MCI... Enron... etc). This could well have been the real beginning of the meltdown. Without honesty and truth, credibility is lost. When panic strikes, it penetrates to the very core of reality. No artist and no paint brush can create a rosy picture if the very canvas of the art is flawed.
2. Credit: With injections of money from TARP... TALP... and whatever acronym that is currently being used, companies are destroying additoinal credit as soon as it is being created. Many big banks are still hedging on lending, because it has become more prudent to preserve capital. Other companies like AIG have become nothing more than a bottomless pit. The government could have easily purchased the company twice over as opposed to injecting additional funds into the company. Mark my words, AIG will be back for more... and maybe even more after that.
3. With accounting irregularities and credit issues at the heart of the matter. Confidence is the last, and maybe the most critical factor impacting Wall Street as well as the world economy. For instance, the Bank of England has for the first time in its 315 year history cut its rate to .5%. "The central bank is aiming to boost the money supply in hopes the moves will ease tight credit conditions and translate into increased spending, thereby preventing a sustained, widespread and potentially destructive fall in prices." (3) Unlike Iceland, and many of the eastern European nations, Great Britain in many ways effects the psyche of practically every country in the world. These is still time to short the Pound!!!
I do believe that many companies are on sale in today's stock market. I do however, believe that that the market in general, and stocks specifically offer considerable risk under the current economic conditions. A dear friend called her broker again to receive the latest casualty report of her investment portfolio. Now her portfolio is down 49.6%. Her broker's recommendation was to ride out the storm. While I am not a financial professional, I recommended that this individual take 25-50% of her funds out. Investments like mutual funds truly hold the biggest risk since they are so spread out. If this person's broker was honest, he would admit that he has a vested interested in keeping all of his clients in the market. That, he actually gets paid for the amount of money he manages. That, he will take a percentage of the profit from each person's portfolio when times are good, but not share in the loss when times are tough. A different approach would suggest that ANY companies worth a look would fit on a very short list of names. This broker has his needs placed before his clients. Just ask the guy who found out that his son's college money was halved, as he prepares to enter school in the fall.
Added positions on MCRI 6/2.5s and BNI 7/30s.
I have bids on NOC, DE, and TM. MTM and PPD are on the board as well. With on-going analysis of several other lovelies.
Tuesday, March 3, 2009
A few quick observations which means I will not be addressing the Intrinsic Investing Part II... at least not yet!
If we are playing a trend here, it would appear that the market could be positioning itself for a small rally... that is if the bad news continues to roll in...
Unemployment numbers will be ugly again, but Congress in working on legislation that will "cram down" mortgages for for home owners. Does it fire up the average schmo in the United States? You had better believe it will. This bill will, to some extent be political suicide for its makers... and will offer plenty of fodder for the next election.
Just Plain Dumb
Teh Brady Bunch was one thing... This is another... I have about had it with dumb parents. The mother (if you want to call her that) in California with the 14 kids... You know, the proud mother of octuplets should be ashamed of herself. Unfortunately, the world is turned upside down as she is receiving donations... air time... and even handouts. If there was any sense of justice, this woman should be forced to give up her children... especially if she cannot take care of the ones she already has. Rule of thumb number one is if you can't take care of yourself, then don't have kids. The doctor at the bare minimum should have his medical license taken away. Better yet, maybe he can be the one to take care of the children. If... (and it's a big if) if this woman really lover her children, she would give them up for adoption. Mark my word, she could well become the poster child for welfare reform in the state of California. Evidently, there are not enough hurting people for large public outcry to this woman. Actually, she has become a celebrity. I wonder if her new-found stardom will create more copycats?
Sunday, March 1, 2009
As a kid, I loved watching TV shows like McGiver and The A Team. Like McGiver Mr. T was always able to make some type of device out of nothing. For instance, Mr. T made a hang-glider out of a few aluminum bars, a sheet of fabric, and duct tape. The market needs a McGiver or Mr. T to make some type of invention to bring stability.
Warren Buffet has already written off 2009 claiming it to be a financial shambles. Since that is what some of the analysts and TV personalities are finally admitting, we all know that it will probably get a lot worse. How much worse will it get? Buffet went on to write “That the economy will be in shambles throughout 2009 -- and, for that matter, probably well beyond.” (1) In particular, both Buffet and Munger chastised the financial industry for creating loan products that required anything less than 10% down. However, made the most important part of the statement Buffet made about the world economy is enough to put a shiver up one’s spine. “A free-fall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. - and much of the world - became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear.” (2) You don’t have to be a financial expert to read between the lines on this one… hope for the best, but expect the worse. This could be another opportunity to short the SP 500 or Russell 2000 or even FTSE to 2011.
Similar to the Lost Generation written about in F. Scott Fitzgerald’s The Great Gatsby, there are now a growing number of analysts, strategists, and hedge fund employees who are taking this opportunity to travel the world looking for excitement, exploration, and items of self-interest. In one instance, Alex Iscoe is now plotting to climb Mount McKinley in Alaska, Mount Kosciuszko in Australia, Mount Kilimanjaro in Africa and, of course, Everest. He hopes he can raise money for charity with his feat, and when it is all over in a few months, he will consider what to do for a living.
"As silly as this may sound, focusing on getting a job, even though it's relatively soon from now -- three or four months -- it's not at all on my mind," Iscoe said. "I have a 29,000-foot mountain to climb." (3) I guess Alex is not totally lost, he must be financially stable, and his heart is in the right place if he is mountain climbing for charities. The question becomes “Is this a way of clearing the mind, body, and spirit of the financial industry?”, or “Is this an opportunity of a lifetime?”
A Tale of Two Cities
Alex, if this is a way of clearing the mind, body, and spirit I would recommend that you invite John Thain and Ken Lewis along for the trip. The now infamous John Thain spoke to New York Attorney General last week regarding $3.6 Billion dollars of bonuses that were delivered as Merrill Lynch was going into the tank. According to Morningstar, there were over 700 employees who received bonus of a million dollars. “Thain was forced out of the top job at Merrill last month in the wake of his handling of the investment bank's $15.31 billion fourth-quarter loss. The investment bank set the bonus payouts in early December, when it was anticipating only about $7 billion of losses, according to Cuomo's office.” (4)
To make matters worse, Bank of America’s Ken Lewis also met with Cuomo regarding bonuses. Cuomo wants the list of those who received bonuses… and Ken Lewis is refusing to share that list unless there is a promise the names will be kept confidential. Cuomo left the meeting feeling extremely frustrated.
One thing is becoming increasingly apparent. We live in an America where most white collar criminals are untouchable. In pre-revolutionary France, the same rules applied… the rules and laws for the rich, and the rules and laws for everybody else. It appears that Obama (or at least his rhetoric) falls squarely on the side of the people. However, like most of the folks on Main Street, our ship is tied to Wall Street… and the American people will sink or swim with these crooks. Can anyone say a Tale of Two Cities? Can anyone say life raft?
In A Tale of Two Cities, Charles Dickens begins with "It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness; it was the epoch of belief, it was the epoch of incredulity; it was the season of Light, it was the season of Darkness; it was the spring of hope, it was the winter of despair; we had everything before us, we had nothing before us; we were all going directly to Heaven, we were all going the other way." Along with this theme, we are empowered to make the best of this market, and that market suggests to short practically EVERYTHING!
For instance, one might believe that companies specializing in asset recovery... repossession etc. should be hitting on all cylinders in this type of economy... Looking at charts of these two lovelies, nothing could be further from the truth.
PRAA and ASFI So this could well be a market that defies some aspects of conventional wisdom... a note that all traders should take in earnest.
Like fellow blogger Ax said MCRI is moving down, and moving down rapidly. I am tempted to make additions of 6/5s which are trading at .45. WYNN and CHDN may be on there way to oblivion as well. I dumped WYNN several weeks ago... and was thankful to hit a 60% profit. Now it is looking like it could hit 10. 10s... that is the option range to consider in the next six months on that one!!! It could be a home run just in time for baseball season. RYL is also picking up a bit of steam to the down level as it appears that things will get much worse before they get better. My 12.5s are moving very close to ITM plays... MLHR suffers from a general lack of interest, this option contract only shows a 12% increase in value while I have seen the overall share price drop 4.00. It is a lesson in interest and volatility. CNK... is ITM and will need to exit this one before the 3/21 X date. O.K. so I am a bit of a pig! I also added shares of SLV to my holdings... Poor man's gold yes, but also another hedge against the gathering storm. Mr. T's Gold must be worth a fortune!!!
Thinking Outside the Box and Intrinsic Investing Part II
2. http://www.bloomberg.com/apps/news?pid=20601087&sid=a1L50vuf_HiM&refer= home