Michael Jackson and the Federal Government... Coming to a Town Near You...

Michael Jackson and the Federal Government
O.K., I'll admit it. I grew up in the 80's and listened to some of Michael Jackson's music... How couldn't you? Michael Jackson in the 80's was like Elvis in the 50s, The Beatles in the 60s, and The Rolling Stone in the 70s. But enough of the stardom talk. After all singers come and singers go... and while each have entertained us in a unique and revolutionary way, there is always another star waiting to take the spotlight.

We can make several observations about Michael Jackson:

1. MJ had a name the preceded him; and a brand name has a value unto itself.
2. MJ owned a considerable amount of property rights from artistic property (see Jackson Five, Beatles, and Michael Jackson)... and a ton of other collectibles.
3. MJ was on the verge of bankruptcy because his liabilities far exceeded his assets... Most reasonable assets list his debt at $500,000,000.

To be sure, there is a long list of creditors that will be left holding the bag once Michael Jackson's estate is settled. Undoubtedly, someone will own the Neverland Ranch, someone else will own the property rights to Billy Jean, and who knows what will happen to the Beatles music. But that is part of the problem when you are in debt... your creditors are not necessarily your friends... and in the end, their need to collect on a debt will supersede any final wishes Jackson had for his estate. One of his creditors went as far as to book a 50 date tour for Jackson that was to start in the near future... Only having insurance on 10 of the 50 dates as no shows, these speculators will be at the bottom of a very long list.

The Office of Accounting released a statistic today that the United States will exceed 100% of GDP by 2023. That means that our country will be officially broke by that date. Some of the more hawkish figures have the date moved up approximately three years to 2020. During WWII, we sold War Bonds to help raise money to pay for the war. This time around, we are in way over our heads, as governments like China, Russia, and Saudi Arabia are holding our debt. And just like Michael Jackson found out, your creditors are not always your friends... and in the end, they own you!!!

I do however, believe that there are workable solutions to our problems... tough decisions, no doubt. Hard decisions, absolutely. Painful choices, for sure. And to be quite frank, I am not so certain that Congress nor the American people will have the stomach to make the necessary changes until a crisis actually hits... By then, a lot of the difficult decisions will be made out of pure necessity. Hopefully, we can all learn a lesson from Michael Jackson.

Coming to a Town Near You...
According to the National Coalition Against Legalized Gambling, the United States is experiencing its third great gambling wave. The first wave took place during the 1840s to 60 with the opening of the Wild West, and riverboat runs up and down the Mississippi. The second great wave took place from 1910 to approximately 1929 where mafia families pushed numbers rackets in factories, and gambling halls in speak easies. Now the 1990's to 2010s marks the third great gambling wave in the United States.

I write this from the view point of an Ohioan who has voted against legalized gambling on three separate ballot issues. It is not that I do not like gambling, it is more that I do not like gambling in my back yard. Look at the states that have legalized casino gambling, and at the root of every casino you will find rich and opportunistic millionaires trying to become billionaires on someone else's dime.

In Ohio, Governor Stickland who was once a minister, social worker, Congressman, and now governor is trying to pass legislation that will have the state legislature create a slots in race track bill and simply sing it into law. This is the equivalent of political suicide. The governor recognizes that casinos are not good for the state, but he is desperate to find money... any money to keep Ohio away from the time of fiscal meltdown that is taking place in California.

Fellow blogger Ax (www.bigbigbet.blogspot.com) observed the impact a casino in Philadelphia will have on Atlantic City. The impact will be devastating. Yet, I will also remind readers that any government that is reliant on seeing its citizens lose money in casinos, is a government that is doomed to fail. Call me a conservative... call me a do-gooder... and yes, call me a guy who does not mind a game of chance... But a casino on every street corner is not the American Dream.

WYNN and MCRI still very much remain on my short list. MCRI in particular lost approximately 9% of its value today. EFU, SRS, and TM still remain on the short list.

SLV and D are long. Possibly FAZ when it breeches 4.5.

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...

1. http://news.yahoo.com/s/ap/20090522/ap_on_re_us/us_california_day_of_reckoning
2. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a7DLzGCIOJ3s
3. http://www.washingtonpost.com/wp-dyn/content/article/2009/05/21/AR2009052104393.html

"Know" News is Good News???

Just a few observations with today's market. Bank of America reported estimates that were three times over estimates... clearly an amazing feat. Today's story is not so much what was reported, but it is what was not reported. Analysts were more concerned about loss provisions that are being set aside in commercial and residential loans. It appears loss provisions are nearly doubling in anticipation of a tidal wave of future losses. Not that the government won't throw another lifeline to a company that is too big to fail. But more along the lines that BAC cannot begin to repay TARP funds which in essence means they are going to stay under government control. Specifically, this could add momentum to Ken Lewis' tenure as BAC CEO.

COF, one of my favorite short plays from 2008 lost 1/3 of its value today. Unsecured debt from a company that specialized in finding the right card for everybody is now coming back to haunt them. I would like to remind readers that BAC also has a tremendous amount of exposure to credit card debt. Some people are concerned about the stress test. I believe that most banks will pass this test, but the story beneath test results will rule the day once figures are released. While one "expert" was calling a perfect day to buy, I am a bit more apprehensive. For sure, CRE is on the chopping block. The question is, who else? Casinos in spite of LVS loan arrangements appear to be a healthy play here. Consider puts on WYNN 1/25s or OTM puts on MCRI at 2.50.

Who Wants to be a Custodian? We Shall Overcome Someday... Intrinsic Investing Part II...

(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.
Stock Moves
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.


Sources Cited
1. http://news.yahoo.com/s/ap/20090307/ap_on_re_us/janitor_applications
http://www.google.com/search?hl=en&q=Lessons+from+the+Great+Depression%3A++You+Just+Don%27t+Know!!!&btnG=Google+Search&aq=f&oq=
3. http://www.marketwatch.com/news/story/Bank-England-cuts-key-rate/story.aspx?guid={E1B35879-BDA9-4A0B-9299-7E5DB7669EE2}

A Life Raft with Duct Tape and Glue... A Tale of Two Cities... Stock Watch...

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!

Stock Watch...
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!!!


Next Time...

Thinking Outside the Box and Intrinsic Investing Part II

Sources Cited

1. http://www.bloomberg.com/apps/news?pid=20601087&sid=a1L50vuf_HiM&refer=
home
2. http://www.bloomberg.com/apps/news?pid=20601087&sid=a1L50vuf_HiM&refer= home
3. http://www.washingtonpost.com/wp-dyn/content/article/2009/02/26/AR2009022603926_2.html?hpid=topnews&sid=ST2009022600786
4. http://news.morningstar.com/newsnet/ViewNews.aspx?article=/DJ/200902231832DOWJONESDJONLINE000583_univ.xml

Will a Thaw in Credit End the Crisis? TARP for the Good Banks... Stock to Watch...

The world economy in general, and the U.S. economy in particular relies on credit. Credit is the life source of much, if not all growth. However, we have all witnessed the negative impact of too much credit. According to Allbusiness.com, over-extension is defined as:
"A loan balance or total credit obligation beyond the borrower's ability to pay . In situations where the borrower has taken on more credit than he can handle, a debt consolidation loan (combining several obligations in a single loan repayable over a longer term) may be the only alternative to bankruptcy. As a rule of thumb, borrowers who pay more than one-third of their net income to repayment of consumer debt, excluding mortgage debt, may be over-extended in their ability to repay recurring household debt." (1)

As we noted, credit drives growth. The question is can the American consumer handle more credit at this point int he economic cycle? According to one Reuters report, "In spite of rising energy prices, a turbulent stock market and an
ongoing state of war, US consumers have continued to spend. While this
spending has prevented the economy from slipping, it has come at the
cost of decreased individual savings and increased personal debt." (2)
According to Reuters, one of the most influential groups driving consumer credit is aging baby boomers. This demographic has increased spending in a period when many have decreased it. This would suggest that many retailers would be best served by marketing services to this influential class.

Credit cards, which have been the key to consumer spending are adjusting their offers. According to creditmall.org, "The last year and one-half has been interesting in that banks are seeking the affluent, the credit worthy, and stable." (3) People who were able to qualify for cards several years ago cannot. Revolving credit at the corporate and individual level could well have run its course. A new "growth" engine must be found.

TARP for the Good Banks
Like most Americans, I am growing increasingly frustrated with the TARP Program. In general, there has been a lack of progress. Banks who received these funds have not begun to loan... There are a variety of reasons. 1. If you were a cash-poor bank, you would think twice about lending as well. 2. You are concerned about loaning money because you are uncertain about the counter-party's ability to repay the loan. 3. You would rather keep the dividend charade going for as long as possible to prop up the stock price.

There could well be a more modest proposal which would serve the good banks, punish the bad banks, and more importantly destroy the weak business models. If another TARP program were developed, and I am certain there will be a second TARP, then it should be done with the most solvent and well-run banks. The good banks should be given government loans to purchase the good assets of the bad banks, and allow the bad banks to fail. (4)

While I am certain this will create a great deal of turbulence in the world of finance, it could well be the only viable solution that truly saves the financial system. One thing is for certain, the government will not be able to bailout every group that needs it. Heck, instead of cooking the books to make them look good, there could well be a case of cooking the books for TARP funds. (5)

Stock Holdings
SCC, EFU, SRS

Options Holdings
RYL, MDC, WYNN, MCRI, FXI, CNK, BBW, MLHR

1. http://www.allbusiness.com/glossaries/over-extension/4944338-1.html
2. http://www.reuters.com/article/pressRelease/idUS157743+09-Jan-2008+BW20080109
3. http://www.creditmall.org/
4. http://www.marketwatch.com/news/story/bloody-start-earnings-season-batters/story.aspx?guid={3746153F-B946-4C22-8870-66BC92C0B31B}&siteid=trackedcomment#comment1416992
5. http://beltwayblips.dailyradar.com/story/the_cook_the_books_financial_collapse/

Over-Expansion v. Over-Contraction... A "Short" List of Retailers... Watch List...

Over-expansion v. Over-Contraction.... That is the battle of almost every economic cycle. Below is a list of companies that over-expanded during the previous economic cycle. While I am concerned about the loss of jobs, there is a great opportunity to develop new... efficient... and effective business models for the future. I will admit, that the demise of two companies will not bother me in the least.

Piercing Pagoda: Earrings are one thing... but putting extra holes in eye brows... noses... belly buttons... etc. is something else. Maybe these folks made a bundle of cash in the last trend of punching holes in the human body... but this should be a word of warning that a company can easily die with the trend as well. WWE... Roller Derby... Bungee Jumping...

Video Gallery: I made my last visit to Video Gallery nearly one month ago. It was a last visit by choice! Over-priced items... and incompetent help put this place on the dinosaur list. As I left, I crossed a Red Box .99 cent rentals... no retail space... no workers... and all credit card transactions. Block Buster will be next... it is not a matter of if, just a matter of when!


FYI................ If you intend to give gift cards around the holidays, you need to be careful that the cards will be honored after the holidays. Stores that are planning to close after Christmas are still selling the cards through the holidays even though the cards will be worthless January 1. There is no law preventing them from doing this. On the contrary, it is referred to as 'Bankruptcy Planning). Below is a partial list of stores that you need to be cautious about.

http://www.snopes.com/politics/business/storeclosings.asp
*All information is deemed but not guaranteed to be accurate as reported by Snopes.com (1)

Watch List...

Look for an up market week. Followed by more horrific news. The issue of transparency will surface sooner rather than later. The Federal Reserve will have a lot of explaining to do if... if... the new administration is truly looking out for the best interests of the American people. I believe companies in general, and banks in particular are becoming "more transparent" only because their toxic assets are surfacing. Like a bad mafia movie, there are some bodies that keep re-surfacing.

SCC Continue to short consumer spending. Un-employment will be in double digits before summer.

EFU Europe will see the EURO re-set at par value with the dollar... ut-oh! Massive cuts from central banks to follow!!! Good bye social state... Hello welfare state.

SRS With a list of retailers closing shop, note that there are not a lot of others
rushing to take their place of place inside malls...

FXI... MCRI... WYNN... CNK...

1. http://www.snopes.com/politics/business/storeclosings.asp

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

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

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

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

Three Mega-trends for the Upcoming Year

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

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

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

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

Big Winners
Calls/Puts
PQ +215% Call
SPG +363% Put
VNO +280% Put
XLI +304% Put
XLY +477% Put

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

$10,000,000

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

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

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

Kind of scary if you think about it.

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

Puts
CNK, RYL, MLHR, WYNN, FXI, BBW, MDC, MCRI

New Considerations:

1. http://www.knx1070.com/Obama-Appoints-New-HUD-Secretary/3489158
2. http://www.peggynoonan.com/
3. http://www.tamilnow.com/magazine/inflation-in-zimbabwe-at-33.html

Save the Drama... Stock Watch...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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