Friday, May 22, 2009

The Terminator... The Market... The Politician Who was Not...

The Terminator
Arnold Schwarzenegger wanted to become President, but he had to settle for Governor of California, the fourth largest economy in the world. After leading a campaign to recall then Governor Grey Davis, then winning a special 2003 recall election against the likes of Gary Coleman, and adult film star Mary Carey, Schwarzenegger enjoyed a series of minor victories including an initiative to decrease license registrations. Consider the following economic conditions that helped propel California's wealth:

1. Silicon Valley
2. Ports to the Far East
3. Cheap labor from Mexico
4. Obnoxious appreciation in housing prices

However, Arnold is seeing the state of California crumble around him. One Californian summed it up this way. "Silicon Valley is waiting for the next great idea to come around." The housing market like much of California was based on easy credit. And let us not forget the ports which have been the center of California's success. When trade stopped, so did California easy money from the ports.

"California is looking at a budget deficit projected at more than $24 billion when the new fiscal year starts in July. That is more than one-quarter of the state's general fund.

This week, voters said they no longer want the Legislature to balance budgets with higher taxes, complicated transfer schemes or borrowing that pushes California's financial problems off into the distant future. In light of that, Republican Gov. Arnold Schwarzenegger has made it clear he intends to close the gap almost entirely through drastic spending cuts." (1)

It is often said that California enjoys being the innovator and trend setter for the rest of the nation. Should this be the case, the tremors in California may well stretch to other areas in the nation. California could suffer more than any other state in the Union... except for Nevada who is in a league of their own. These problems are not the fault of Arnold. More or less it is a combination of a weak state constitution that is easily amended, lobbyists who influence politicians, politicians who are easily duped, and a belief that good times would last forever. Parlay those belief with a good old dose of loony left politics and you have a recipe for disaster.

The Market
The Dow Jones finished another down week. For those of you who are keeping track, the last four of five weeks the Dow has finished down. Some analysts are calling this a consolidation period. Others are not so easily sold on the market rally. One analyst David Rosenberg suggested that all should “keep an open mind as to whether the lows from March will hold or not as we go into the second half of this year. I’m not sure where the buying power is going to come from.” (2)

In the most classic sense, markets generally test their lows before a new bull market can begin. The 1929 Chart shows that each test only brought a another new low. Buyer beware!!!

A familiar theme has been casino stocks based solely on discretionary spending. A short on WYNN last week reaped a handsome profit as share value dropped over 20% in the past week... I was happy to see that MCRI was down in sympathy!!! Still, I need another few dollars of drop in stock price by September...and think that it can happen. Should Wynn creep over the Mason-Dixon line of $40.00 consider another short with confidence. With a bit of luck, I will do my own bit to hurt the casinos when my wife and I celebrate our 10 year anniversary later this year. I have been utilizing the KO card counting system with a degree of success, but must familiarize myself with the nuances of 2,4, and 6 deck strategies.

Still though, United Bank's failure in Florida did little to move today's market. After all, it was only another $4.9 billion dollar hit to the F.D.I.C... and let's face it, who is keeping track of F.D.I.C. losses anymore...(3) Interestingly enough, someone is paying attention as the 10 Year Treasuries are losing a bit of interest. Rates are now at 3.4% and it appears that the Fed will make another purchase of T-Bills to sop up the extra T-bills that not one else wants. While I do believe our financial system is based on a high degree of genius and sophistication... we are reminded of the farmer who went to the well too many times found his well to be empty.

The Politician Who Was Not...
I would encourage all readers to Google the name Andrew Mizsak. He is from Bedford, Ohio... is a member of the school board... and for all intensive purposes is an aspiring politician. The dreams of politics came to a screeching halt the other day as police were called to his house during a domestic incident. It turns out that the 29 year old (who lives in his parent's basement) refused to clean his room... and furthermore threw a temper tantrum when his parents wouldn't get off his back. Upon police arrival, Andrew went to his room crying promising to clean it. I have definite thoughts about this incident, but will let readers draw their own conclusions. I hope that he owns his behavior, and treats this as a growing experience. This goes to show all readers that everyone..everyone has a public and a private life...


Thursday, May 14, 2009

A Brave New World?

A Brave New World

"All our science is just a cookery book, with an orthodox theory of cooking that nobody's allowed to question, and a list of recipes that mustn't be added to except by special permission from the head cook."
- Aldous Huxley, Brave New World, Ch. 16

A quote from Huxley’s A Brave New World seems appropriate at this juncture. Huxley wrote a futuristic book that did so much as to question how modern day trends might evolve into a futuristic world where people are numb and mindless sheep.

Let the Sun Shine In…
A story that drew little to no attention this week deals with the Bloomberg lawsuit in which they filed a motion for summary judgment against the Federal Reserve of New York. The Federal Reserve gave loans to a number of banks during the financial crisis. (1) The Federal Reserve will not make disclosure of the banks who received loans. More importantly, the Federal Reserve refuses to list the collateral it received for the bank loans. I would like to remind readers that the public will be put over the barrel on this one. Not only was Secretary of Treasury Tim Geithner in charge of the Federal Reserve during the loan arrangement, but it is obvious that the Obama Administration must have accepted the role Geithner played. Moreover, we can expect the Federal Judge (an appointee of the Bush Administration) to back the Federal government. However, I wanted to remind readers that the Federal judges receive lifetime appointments for reasons such as this. Should she rule to open the books, there is really nothing the government can do to stop her…except appeal the case to a higher court.

As one manager for PNC told me “Well a good portion of those toxic assets now belong to the Federal Reserve…and they are not our problem any more.” I am sure he had no idea that he was going to be quoted in this blog.

The Recession-proof City
In a visit to Las Vegas nearly 10 years ago, we visited a friend named Steve. He billed Las Vegas as a miracle city. One of the last places in the United States where a person could graduate high school and still earn $100 grand a year. If waitresses upgraded their game with the proper investments in silicone, they too could earn $70,000 to 80,000 as cocktail waitresses. Aside from Las Vegas becoming a Mecca for retirees, it also was the fastest growing city in the U.S. for several years running. This could have been the part where enough eternal optimists got together to cook up CityCenter. (2) This futuristic city built in the middle of a land of rock, sand, and desert demonstrates that business models should always have contingency plans for a worse case scenario. (See bankruptcy) (3) A city and town built on the excesses of a credit-driven economy (in many ways similar to the Roaring 20’s) has a rendezvous with destiny. Quite simply, there are currently not enough U.S. dollars to keep this city floating for any extended period of time. Even the Train Track to Nowhere relies on a state like California and its people who are in the midst of financial abyss. (4)

Still though, it appears that the March and April rallies have pumped a bit of juice into casino stocks. My recommendations are to short all of the casinos including:
MCRI: After one big down day, traders were back piling into this dandy… Looks like a loser to me…
MGM: MGM Mirage, which announced Thursday that it had completed a dilutive $1 billion public stock offering priced at $7 a share, closed down 10.8% to $7.76. MGM originally said it would offer 81 million shares, but instead sold 143 million.
STN…oops they already filed for bankruptcy. (5)

The End Around
I must admit, that I knew of no one who was unemployed at the beginning of the year…now I know of at least a dozen people who have lost their jobs. And I will give anyone associated with the auto industry a pass on this one. Still though, Wall Street shrugged off an increase in unemployment claims, an upward revision in last week’s phony numbers, and another record in continuing unemployment. (6) One would gather that SCC (a short play on consumer discretionary spending) would be a slam dunk here. Yet, the deterioration factor of any and all ultra short funds must be taken into consideration. These are plays that should be held for days not months. Rather, I would like to think that CNK still with negative earnings maybe be a more logical consideration here. Ax Man’s LNY has seen a decent run, and may be in short order as well. Let’s not forget the BBW.

If there is one sacrificial lamb of the car industry, then Chrysler must be it. Chrysler the company receives little to no sympathy from me. However, the workers have made concessions only to learn that at least five of their plants are closing. As Fiat courts the auto maker, one may find it almost amazing that the billions of dollars loaned to them are dead… and the stipulations on executive pay are being circumvented as many of them are signing on as FIAT employees, thus not having to follow any rules regarding compensation.


Friday, May 8, 2009

Apples to Apples... An Engineering Feat or a Disaster Waiting to Happen?... Just Plain Dumb...

For those of you who are familiar with my blog, you know that I love baseball and college football. While being a Cleveland Indians fan is more and more of a challenge these days, there is nothing like seeing a team build on its small triumphs, and develop into a cohesive unit. With focus, determination, and a bit of luck, almost any team can make a run at the pennant.

Lately, it appears that Obama's team is also making a run at the pennant. While off to a losing streak during the opening days of his first 100, Obama fans have seen a dramatic reversal in financial fortunes. The losing streak out of the gate (Dow 6,500) has been replaced by a rally that saw the market close above 8,500 yesterday.

I must admit that I like Obama. He communicates well, and appears to have a game plan (unlike his predecessor), and he has a team that can execute the game plan he has put together. One only has to look at the choreography between Bernanke, Geithner, Obama and practically everyone else as this juncture to know that confidence is the flavor of the month. I want to believe in this confidence almost as bad as I wanted to believe in Santa Claus when I was a kid. After all, I saw Santa Claus at J.C. Penny's. I told him what I wanted for Christmas. I woke up Christmas morning and looked under the tree, and there it was. The Tooth Fairy also gave me money for Teeth, and the Easter Bunny came up with some awesome baskets!!! If seeing is believing, then I was definitely a believer!!! Geithner's one...and maybe only plan it to keep banks capitalized at all costs.

Bernanke who is an expert on the systemic failure of the Great Depression realizes that liquidity and lending are the keys to reviving the economy, or at worst giving us a "Great Recession" as opposed to another "Great Depression." Seeing the market move the way it has of late is making some people believers again. Unemployment rates, while at a 26 year high, are showing signs of stabilization. Although it is possible unemployment will hit over 10% this summer. With first-time home buyer incentives of $8,000, "experts" are calling a bottom in housing. Finally, the government's stress test which was designed to rate a banks financial health revealed that top banks only need $75 billion to meet capital requirements.

As for me and my money, I am not buying into the hype... at least not yet. I even missed out on two hot calls from Ax about FITB and C which have could have netted easy profits... But in my mind, I didn't feel good about it. I am a pragmatist, and I will generally play the hot hand. However, this time I sat out, and cheered for a few of my fellow bloggers. After all, there is nothing like seeing a well executed play... based on skill... analysis... and of course a bit of luck. These guys are no fools. It is not that they don't want the market to succeed, they are just not buying into the story that banks are insolvent one day, and good to go the next... They just saw opportunity.

An Engineering Marvel or a Disaster Waiting to Happen?
We are reminded of the German engineering masterpiece Hindenburg, a zeppelin which carried passengers across the Atlantic Ocean in a time when the air transport business was in its infancy. The Hindenburg was also a feather in the cap of post-WWI Germany who had gained the reputation of the world's bad guy. The Hindenburg became the embodiment of German engineering, technology, and pride. And the Bible is clear on man and pride. "It comes before the fall." We are reminded that a small spark destroyed the mighty Hindenburg which was filled with Hydrogen gas. Likewise, while conspiracy theorists are pulling their hair out with the winks and nods of this well orchestrated rally, there should be a degree of appreciation for the engineering that has taken place. When it is all said and done, the players may well earn an academy award.

Sparks that May Ignite the Fire
1. Taliban sympathizers in Pakistan gain control of the nuclear arsenal...
2. Data suggesting that economic indicators were misinterpreted, and the true risk is deflation.
3. Systemic credit crisis in East Europe spreads to the EU and beyond.
4. China, Russia, and Saudi Arabia dump the U.S. dollar as the reserve currency.
5. An uptick in unemployment.
6. Israel gets the green light to take out Iran's nuclear capabilities.
7. Bloomberg wins its case to learn who the Federal Reserve loaned money to during the initial credit crisis.
8. Upbeat analyst predictions for a turn-around in earnings do not coincide with actual results. (See Toyota Motors).
9. Consumers do not return to reckless spending.
10. Credit risk to reward does not allow banks to lend as they once did during the expansion.

Just as a reminder, Fannie Mae reported losses of close to 18 billion dollars. AIG on the other hand only lost another 5 billion dollars in taxpayer money this quarter.

Just Plain Dumb
I often times wonder what people like Manny Ramirez would be doing for a living if they did not play professional sports. I don't believe his cover story at all... and believe this will do considerable damage to his "brand name" in terms of marketing. What a stooge!!!

Stocks Long: Randy's Picks
NVTL is hot! BAC,XIDE, and CLWR

NEOP, D, and SLV

Stocks Short