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Citi sucks, is up 7%
2008-04-18 17:40:00
Read this dispatch from MSN Money. Read it twice if you have to. I did. Citi did worse than expected, and people see this as a good sign. What sort of perverse logic leads to this conclusion? As the article states, investors have chosen to interpret this as a bottom. Forgive me, I'm a little slow, but haven't people been calling a bottom in financials every quarter for a year? Don't investors foolishly believe that the worst is over with every new rash of write-downs or shotgun wedding mergers? CEO Vikram Pandit is saying the right things. He's going to axe people. He claims that they are going to get back to basics, the usual we're going to stick to our knitting rhetoric that any new CEO announces after he replaces a guy that did the exact opposite. This reminds me of NFL hiring practices. Every offseason, there are about four head coaching positions available. Two of those teams will want a taskmaster who will get tough with the players. The other two will want a...
More About: Sucks

I don't get this market
2008-04-15 21:15:00
Oil is hitting a new high every day. Food costs are soaring, leading to shortages and riots. The Fed is handing out money like Fun Size Snickers on Halloween. The economy is hitting the skids worldwide. Private equity deals are falling apart. Retailers are going bankrupt. Foreclosures are up nationwide. Gold is over $900 an ounce. The U.S. dollar is basically toilet paper. Yet the U.S. markets ignore all of this. I guess that it didn't get the memo. What will cause the bulls to throw in the towel? Any ideas.P.S. Oh, one more note. The proposed Blockbuster-Circuit City merger is moronic. Two bad companies don't equal one good entity. You really have to work hard to upstage a bad airline merger.
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Opportunity knocks
2008-04-11 16:29:00
Not in the Dana Carvey way, but more like Elijah on Passover. This applies not only to Goldman Sachs but to lots of other companies in this space. Jamie Dimon realizes this and has done some bargain shopping. He's a great operations guy and he imagine to get the remaining meat off the bones and left the Fed with the carcass. I am eyeing Goldman Sachs(GS) really hard, like she's the one girl at a party full of guys. Goldman is trading at a discount to the market and its peers when it comes to P/E, P/CF, P/S, and P/B. Remember, these are the guys who avoided the whole subprime meltdown. I think it's only going to get cheaper when everyone else reports and get killed; it'll be guilty by association. I'm thinking about picking up shares at the end of the week. This may be the last time left to buy Goldman at a single-digit P/E. As for the latest socialist bailout, I am reminded of the Rolling Stones' "Salt of the Earth." I think it applies here. Raise your glass to ...
More About: Opportunity , Opportunity Knocks

CNBC Feels Your Pain
2008-04-08 16:27:00
The latest issue of Fortune features an article about CNBC and how they report business news. This piece unintentionally represents many of the things that I dislike about business journalism. It really shows the superficial, unsophisticated, sideline style reporting that produces noise that is of little use to investors. As the author notes without a touch of irony, CNBC is i"investotainment." Network boss Mark Hoffman distills the formula down to this:'We're always looking for qualitative combat on the air. Most of these conversations live somewhere between fear on one end and greed on the other. One person wants to unload something, and another person wants to pick it up.'Does that sound like measured or useful information? Or is that tabloid journalism worthy of the New York Post? CNBC, in it's attempt to provide news that is "fast, accurate, actionable, unbiased" ultimately fails. If you are committed to the first of those tenets, then it's awful hard to execute the...
More About: Pain

E. Stanley O'Neal
2008-04-01 17:26:00
It's good to put a human face on calamities, lest we forget that real humans cause and are effected by them. There's been a lot in the press recently about the victims of credit markets, usually about how Joe Sixpack who was foolishly duped into taking a mortgage he couldn't afford, luring him with lenient terms and offering multiple refinances that allowed him to use his house as an ATM. Eventually the home is lost and lives are ruined, and some greedy fat cat or nerd quant trader is to blame. Such stories are true stories, but not the only stories out there. John Cassidy wrote a superb profile of the deposed former Wall Street titan for the March 31, 2008 issue of The New Yorker. It's just the sort of penetrating, long form journalism that gives the reader more than a sound bite or a carefully crafted press release. O'Neal has a truly all American story. His grandfather was born a slave. He worked the line at General Motors. He later parlayed that into a Harvard MBA...
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The latest sad travail of John Meriwether
2008-03-28 15:00:00
I am confused. Does John Meriwether get all the breaks? Or is it that he can't catch one? The greatest and most heralded trader of the old, fabled Salomon is once again being brought to his knees by the credit markets. First, it was the Treasury scandal back at Solly, then it was the blowup of Long Term Capital Management(LTCM). Now his group of hedge funds, JWM Partners LLC, is on the ropes. The largest fund in the group is rumored to be down by 28% YTD. One of the sadder details in the story is that he was actually not nearly as leveraged as he had been back in the heyday of LTCM(he was only levered 14 to 1). Obviously the guy is super bright, if only because he can consistently blowup and then get people to fund his latest venture. I guess there are second acts in American life. Even third. My guess is that if forced to shutdown his funds, that he will start yet another. People will no doubt clamor to give him money, confident that they can get find a chair when th...
More About: Travail

Hats off to Bill Miller
2008-03-25 14:43:00
I have been critical of Bill Miller on this blog. I find it strange that a guy as smart as he clearly is has failed to anticipate the energy bull market and not buy oil stocks. He's not perfect though, and so such a mistake is unavoidable. Friday's Wall Street Journal featured an article detailing his woes owning Bear Stearns(BSC), Countrywide Financial(CFC), Pulte Homes(PH), and Eastman Kodak(EK). So far he has wrong, very wrong on these picks. The streak has been over for two years now, largely aided by these wagers. Reading his quarterly shareholder letter for Q407 from about a month and half ago really reaffirmed my respect for his intelligence and courage as an investor. First of all, he uses words like alacrity and enantiodromia. That's a tad bit more erudition than you should expect from the typical fund manager, but then again, Miller dropped out of a doctoral philosophy program in order to join Legg Mason(LM). He is also on the board at the Santa Fe Institute.He ...
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It's not over yet
2008-03-21 13:06:00
The Fed has once again appeased Wall Street. The rate cut and the Treasury swaps had led to a market rally and an easing of the liquidity problems. However, things are still dangerous. I still think that the full extent of the problems are unknown. So far, subprime has been the word on everyone's lips, but I wouldn't be surprised if prime mortgages begin to show significant deterioration. Then there's the issue of the commodities boom. All the talking heads have declared this over, citing recent reversals in the oil and gold futures. I don't think it's over. I think that it is a correction as investors unwind positions and take profits after a huge run, but I still think that long term, the supply-demand ratio is out of whack. Markets don't go straight up after all and this is no reason to bail on this thesis yet. If you're not interested in averaging down, then I suggest that you just sit on cash until you figure out your next move. By the way, I still like agricu...

Goldman Sachs: The Andy Dufresne of this market
2008-03-18 15:38:00
Goldman Sachs(GS), just like the hero of Shawshank Redemption is trapped in a prison for a crime that it didn't commit. Just like Andy , Goldman will have its good days and bad days on the inside, but ultimately will escape. Earnings were down last quarter, but still beat the estimates.Let's look at some numbers and compare it to the sector.P/B: Goldman 1.49, Sector 1.75P/E: Goldman 6, Sector 14P/CF: Goldman 4.75, Sector 11.65P/S: Goldman 0.68, Sector 3.315-year sales growth rate: Goldman 30.94%, Sector 17.15%5-year EPS growth rate: Goldman 43.78%, Sector 16.45%Net income/employee: Goldman $380, 021, Sector $132,411ROE 5-year avg.: Goldman 25.16%, Sector 14.94%Simply put, GS provides both growth and value. It will probably be a bumpy ride for a while, but within the next five years you should be well rewarded.
More About: Market , Goldman Sachs

Memo to those who live in caves: dump the insurers
2008-03-14 13:58:00
When will Wall Street throw in the towel and admit the obvious? It's starting to remind me of a kid that's been caught lying yet sticks to their story, hoping that sheer will can convince their parents that they're telling the truth. When they reported three weeks ago, did any credible analyst not expect AIG's quarter to really stink? Has the market become so desperate/hopeful that it has deluded itself to reality. There will not be a speedy, neat solution to our housing/credit problems. Every time I turn on the TV, there's some sycophantic"economist," "market strategist," or "President" telling us that a recession is not going to happen. They're right. It's already here. Recessions are part and parcel of a capitalist economy. They've occurred with regularity and will continue to do so for the forseeable future. I agree that both business and central bankers have lots of new toys that can help them navigate the recessionary shoals better than in years past. Ho...
More About: Live , Memo , Caves

10 ETFs I'd like to see
2008-03-11 13:04:00
Though they were first introduced in 1992, it's the last few years that we've seen an explosion in both the popularity and availability of these instruments. They've moved beyond plain vanilla market indexes to encompass commodities, currencies, and bear funds. Still there's more work to do. Here are ten new ETFs that I would like to see added to the stable.1. More commodity ETFs. Where are ETFs for pork bellies, cocoa, and lumber? Most people aren't sophisticated enough to handle futures trading, but they still need exposure to this asset class. An ETF would be a great way to do this.2. An ETF that mimics options strategies. 3. An ETF based on the new Merrill Lynch frontier equity index. 4. ETFs that track sentiment indicators like the VIX. Or how about one that tracked interest rates. 5. Momentum stocks ETF. I don't know how this could be done cheaply due to the constant shifts in buying and selling, but there would be HUGE demand for it. 6. An ETF of ETFs/target ...

Stocks Watchlist
2008-03-07 14:18:00
I am beginning to see some values emerge, but I'm not convinced that they won't get a lot cheaper in a month or so. So I'm making a list and checking it twice, just like Santa. These are stocks that I'm considering buying if they get a certain price target. These price targets aren't set in stone, as I realize that I am bad at calling bottoms. Comcast(CMCSA)-This is still the largest cable operator in the United States, but its also still a bit too price for me. Cable is at a crossroads and I think that it'll be some time before they figure out how to take on the phone companies.Citigroup-The government will not allow the largest bank in the country to fail or become a trading vehicle for wealthy Arabs. I have no idea how far this one will fall, but I'm buying at $17 and below.Goldman Sachs(GS)- A trailing P/E of 6 and a forward one of 7. I should probably pull the trigger now, but I'm waiting for it to hit the 140s. Can you believe that Goldman is cheaper than Citi?Jo...
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The Latest Installment of Money Honeys
2008-03-04 14:03:00
We last visited the pool back in mid-December. Since then, there have been a few changes, but nothing too radical. 1. Liz Claman2. Erin Burnett3. Ashley MOrrison4. Bambi Francisco5. Maria Bartiromo6. Farnoosh Torabi7. Jenna Lee8. Brittany Umar9. Alexis Glick10. Sandra Smith
More About: Money

Own a strip club
2008-02-29 20:12:00
I found this interesting link from MarketWatch on The Kirk Report. It seemed funny, but then I re-read it. Apparently, people still can't lay off the sauce, even when times are tough. They just move down the scale, rail instead of premium, Natural Light instead of Heineken, or getting blasted at home rather than at the local watering hole. I believe that this is what an economist would call satisficing. I am trying to figure out how much this will affect my holdings in RICK as strip clubs make a killing on drinks. If people are going to be drinking less, than the company should take a hit.There's some litigation risks that threaten to change how they do business in Houston where they derive 14% of their business. Local lawmakers want to them to charge a $5 cover and make the girls wear latex and bikini bottoms.They are also a company that is aimed heavily at corporate clients. These guys are going to be throwing around less discretionary funds just like everybody else. As they ack...
More About: Club , Strip

Bond Crisis Profits
2008-02-19 14:29:00
“A failure is a man who has blundered, but is not able to cash in on the experience.”- AnonymousLast week, I wrote about the ongoing crisis in the auction rate securities market. Now I'm going to share my thoughts on how to benefit from this imbroglio.1. Once more into the breach. As the Wall Street Journal reported in their weekend edition on Saturday, the market has recovered a bit. If you have $25K, you can directly buy these debts. The morbidly obese yields of 20% are largely gone, but 8-10% remains sufficiently corpulent for my taste. This is trickier than it sounds though, I wouldn't enter any market unless I really knew it. After the Maher brothers' experience with Lehman, I'm not sure that I would trust an investment bank to help me navigate these waters either. 2. Short circuit. You could short the money center banksA(individually or through an ETF) and the bond insurers who insure auction rate bonds. As I have written previously, shorting is not for the fa...
More About: Bond , Profits , Crisis

Auction rate securities
2008-02-15 13:47:00
"The people you are after are the people you depend on. We cook your meals, we haul your trash, we connect your calls, we drive your ambulances. We guard you while you sleep. Do not fuck with us." - Tyler Durden This quote comes from one of the more disturbing scenes in Fight Club. It's the one where Project Mayhem kidnaps the police commissioner and threaten to castrate him. The statement perfectly encapsulates the current mess in the credit markets and specifically the problems in the area of auction-rate securities(ARS). They are part of the plumbing in the financial world that no one notices until it breaksdown. Corporations, universities, municipalities, and even individuals enter and exit this market like Mario and Luigi. ARSs are a relatively small(only $250 billion) backwater of the collosal $25 trillion U.S. debt market. The market has recently come to a screeching halt due to problems elsewhere in the credit markets; this has meant higher borrowing costs for a var...
More About: Auction , Securities , Rate

Seth Tobias Update
2008-02-12 19:04:00
“A successful man is one who makes more money than his wife can spend. A successful woman is one who can find such a man.” -Lana TurnerA little more light has been shed on the sad saga or Seth Tobias, though the story has gotten no less strange since last May. What was already a bizarre tale that featured a male gogo dancer named Tiger, now gets the added allure of an Internet psychic and professional rabblerouser Gloria Allred. It seems like his wife, Phyllis was a real pill-popping harpy and may be responsible for his death. Their relationship was straight out of "Who's Afraid of Virginia Woolf."Can you imagine give your money to a hedge fund manager who consults with a psychic? Perhaps the most unbelievable aspect of this whole case is that the police's main witness in a murder case is a con man, "psychic," with a long rap sheet who has constantly changed his story. I am incredulous.CNBC's latest update on Seth Tobias. Notice that Maria Bartiromo calls him "occasion...
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Jamie Dimon eyeing a fat pitch
2008-02-08 16:28:00
I just read this Reuters wire story about Jamie Dimon and his stewarship of JPM. JPM has for the most part avoided the subprime meltdown and has not needed infusions of foreign money to shore up its tier 1 capital. Tier 1 capital is a core measure of financial strength from the regulatory perspective, measuring how well the bank can weather unexpected losses. The finance textbook definition of it is core equity capital / risk weighted assets. It includes of common stock, preferred stock that is irredeemable and non-cumulative, and retained earnings(note, that these are all highly liquid assets). Think of it as a nitrous oxide boost for a race car or a cornerback's closing speed. Dimon is the sort of conservative, cost-conscious manager that I want running a company, especially a bank. CEOs are often trigger-happy when it comes to acquisitions. CEO bonuses are often predicated on increasing EPS or selling the company, giving them a perverse incentive to go shopping. Gran...
More About: Pitch

Insider Trading
2008-01-29 15:39:00
When you hear the words "insider trading" do you immediately think of Ivan Boesky or Michael Milken? Maybe Martha Stewart? Insider trading is a phrase that has gotten a bad rap when all it needs is a bit of clarification in its application. The Securities and Exchange Commission(SEC) has made it clear that there is legal insider trading and illegal insider trading. The legal kind is the sort I want to examine today, particularly insider buys. During a weak market, heavy insider buying can pinpoint a particularly undervalued stock. Perhaps you can decide if a sell is for reasons of diversification, to pay taxes, to pay the kids' college bills, but I can't. You can contact investor relations for some insight, but you might not always get the truth(see Enron). However, people only buy stocks because their trying to make money, but they sell for a variety of reasons.Here are some basic definitions that will enrich our discussion.Insider: An officer or director of a public com...
More About: Trading

Goldman Envy
2008-01-25 18:10:00
"Our envy of others devours us most of all." -Alexander Solzhenitsyn The Romans called it invidia. The Catholic Church has made it the sixth deadly sin. It's part of the reason that Cain killed Abel and Kevin Spacey killed Gwyneth Paltrow in Se7ven. Three days ago, The Wall Street Journal published a short, but interesting article about how other banks attempts to be more like Goldman Sachs contributed to their current financial troubles. This reminded me of how important it ignore the crowd. Merrill Lynch and Citigroup shouldn't have tried to out-Goldman Goldman. It was doomed to fail. They should have instead focused on their strengths. I remember a strategy class that I took in school where we examined a case study involving Harley-Davidson. The company was trying to decide whether to enter the performance bike market(a growing market) or to continue chugging along with its familiar and iconic cruisers. The class was divided into several ...
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Go Sri Lanka!
2008-01-22 15:29:00
Out of 43 major market indexes, only Sri Lanka didn't fall yesterday. People have been comparing it to Black Monday. Everyone is all of a sudden worried about a recession in the United States. I heard one market strategist genius say that the market was trading on sentiment. Silly me. I thought that the market always traded on sentiment.The Fed is attempting to come to the rescue with an emergency 75 basis points rate cut. I think that this may be to little too late. As Andrew Leonard has observed, the Fed pushed the panic button. I am very grateful that I've put on some hedges in the last month, but they've only taken a bit of the sting away. I believe the drop in the U.S. markets today is a buying opportunity for both traders and investors alike. I like Japan even more at these prices.

Sovereign Wealth Funds and your stock portfolio
2008-01-18 15:32:00
America has become one big yard sale, filled with shoes, lunchboxes, and puzzles with pieces missing.There's been a lot in the news about sovereign wealth funds. They are taking large stakes in our battered financial stalwarts and partnering with others in major buyout deals. The name might bring to mind images of Arabs rich from the world's addiction to oil, but that is but one face of the these powerhouses. Singapore has a very long-established SWF, as does Norway, South Korea, Australia, Canada, Venezuela, and even Alaska. China finally set up its own last year, hoping to more efficiently deploy its hoard of currency reserves. They are also lightning rods for political controversy and opportunism. Hillary Clinton has weighed in on their political motives. New York's other senator, Charles Schumer has endorsed these deals, largely because he's in Wall Street's back pocket. Recently, The Economist published a great article on the risks and rewards of sovereign wealth funds. As...
More About: Wealth , Portfolio , Stock , Funds , Sovereign

Putting my money in gold and living to fight another day
2008-01-11 21:56:00
There will be some football mentioned in this post, but don't worry. It'll have nothing to do with O.J. Simpson. "Stocks Covered in Red" proclaims TheStreet.com. Tech stocks are swooning. American Express and Capital One reported a charge and slashed earnings forecasts. Europe and Asia were down. Most market pundits would say it's time to go defensive, meaning buy consumer staples and healthcare. However, look at Pepsi(PEP). It's off over 2% today. Same with Coke(KO). Pfizer(PFE) is down. Bristol-Myers Squibb is down (BMY). These are not safe havens. Which stocks are working today? Mortgage Investments, insurance, mining, foreign banks, and gold. Of those options, I'm putting my money in the last two industries, mostly in gold. As my position in E*Trade confirms, I am not smart enough to wisely speculate on the various dead cat bounces and potential suitors of the battered financials sector(I'm still holding that position and think that the company and stock wi...
More About: Living , Money , Gold , Fight , Putting

Breaking out the short ETFs
2008-01-08 17:24:00
"I'm Winston Wolfe. I solve problems." The Wolf, Pulp FictionIf you use inverse or short ETFs correctly, they can help you out like the Wolf helped Jimmie, Vincent, and Jules.Since 2006, there has been an explosion in ETFs that allow you to short various equity or fixed-income indexes. These instruments have given investors, particularly institutional ones who often operate under restrictions on short-selling and with minimum holding periods of 90 days for stocks, flexibility. Short ETFs could allow you to stay fully invested in an index, while laying off the risk of particular segments of that index. For instance, last year the S&P 500 was up, but it was a horrible year for financials(which comprise nearly 20% of the index). By buying shares in the ProShares' UltraShort Financials (SKF), some of that risk would've been neutralized. ProShares and Rydex are the current leaders in pushing these products. ProShares even offers leveraged short ETFs that allow you to double th...
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There Will Be Blood
2008-01-04 16:52:00
There Will Be Blood , a movie starring Daniel Day Lewis and directed by Paul Thomas Anderson, is hitting theaters today. How fitting, seeing as that as I write this, oil is sitting at around $99 bbl. Oil is on everyone's lips it seems. Yesterday, The Wall Street Journal had some excellent piece on the rise of crude oil from $10.72 to $100. Many are wondering if the price of oil will send the U.S. and world economies into recession. As regular readers of this blog know, I'm a firm believer in the commodities bull market; I have been riding the coattails of high oil prices for the last three years. I don't see the end coming yet. So I've decided to share with you some of my favorite books and websites for learning about black tea.BooksOil Titans: National Oil Companies in the Middle East by Valerie Marcel and John V. Mitchell. This is an excellent primer on the history, power, and scope of the national oil companies like Saudi Aramco and Kuwait Petroleum Corporation. These companie...
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