Saturday, September 27, 2008

UW Football`

I just watched a performance in the first half which was very different from the second.
I'm unhappy. That's to say the least by the laissez-faire attitude of the defense in the second half and the impotence of my Badgers in the first! GRRRrrr... I feel like was just punched in the gut.
I do not agree with Brett B. on his call to send out the kicking team in a 4th and 2 with excellent field position when the average drive was over 4 yards. Let em burn a time out... then get the first down anyway! Give your team some credit and let them kill the opposing crowd. Loud crowds create false starts.
As to the last play... that's the last of my concerns. Illegal man down field. I couldn't care about that based off of all the other plays I fundamentally disagreed with based off of the team we're given. Play your team... know yourself, know your opponent and win every battle!

Labels: , , , ,

|

Friday, September 26, 2008

A Better Way... The Plan

If a separate market was created to sell these houses and the bad debt involved (bonds and insurance), then you can bring in private equity to pull out the debt. The markets feel like there is a deal out there.

There are models of how these markets work... ie. the stock market.

If the capital gains tax is lowered or suspended, a flood of liquidity would be created. That's not what us workin' class Joes want to hear, but its the truth. I agree with it fundamentally, and I think it should be added to the bill. I think this is worth 40 Republican votes. There are only 30 more needed for it to pass.

I do not believe a judge should be able to renegotiate mortgages so people can stay in their homes. There was a deal made. It was broken. I believe people involved should have their credit marked. It's a crime.

This is much shorter than the Fed's 3 page summary. The devil like everything is in the details.
I believe there should be a system of regulation of the market and checks and balances.

If it is the Fed's job to buy bad debt, then the public should be the major beneficiary of any resultant profit. The financial companies using the market should be penalized for their embarassing performance.

|

The Failure of the Current Plan

There is a great urgency of NOW! A few calmer heads really don't believe this is true.
This is a PANIC.
They believe that a stock crash is not emminent. Will the DOW have to dip in to 4 digits do it?
9999 or lower? We might see this today depending on how things go!
I don't believe Bush is an expert on the economy. None of the presidential candidates have a PhD in the subject. Paulson was a CEO for Goldman Sachs during the time that these bad loans were being made. He should know this was coming.
First, this should be an issue that takes months to plan out. Contingent plans must be made... and it seems that people involved in the system that created this mess knew it. I heard this "We (real estate finance) always knew that if this (lending / real estate end of the banking system) went down the government was going to bail us out." It was part of their plan. When they gave the investment banks the tools to be clearly deregulated and directed them to send money to impoverished neighborhoods, then they became mismanaged.
Nobody forced the consumers to take the money. That was their own mismanagement and lack of due diligence. I did not go out and take a ninja loan (NINJA: No Income No Job or Assets). Nothing in this legislation penalizes those who took risky behavior. The homeowners are considered victims, when the real victims are the ones who don't own a house. Evidently, because you made a bad decision in taking the loan, they are the victim, what about people like us who saved money where they could and now can't get a loan because of them. Should they be kicked out of their house and foreclosed against? Damn straight they should! They're not the victims. They were greedy, they participated in risky behavior. They should be marked and their credit should be stripped!
The only thing that keeps you in the grace of the banks is cash on the barrel head!
If you have the money, you're way better than those who are tied up in investments right now. Nobody knows what is going on or what to do. The only two things that are certain are death and taxes. The fundamentals are lost, they mean nothing now.
There needs to be a total revaluation. Houses aren't remotely worth what they say they're worth.
A $275,000 house built in Ft Myers Florida is selling for $125K. A house in Wrigleyville is selling for $799,000. These are assets that needs to be reevaluated. Each property is different and must be priced differently.
If a bank saw value in over pricing their assets because the government only paid $0.60 on the dollar, then they'll find assessors who do it. Assessors are part of the problem. They've been over assessing property values for years.
If we used the assessor price from the 1970s, we'd be a lot closer to the mark, but then a 500K house is only worth 150K in Wrigleyville. I would be fine with this, because then normal people with normal jobs can afford this house. If there were some benchmark to rate property values, then we'd be in the clear. An auction house would have seemed to have been the right move.
Question: Who has the capital to buy up all of these properties?
Answer: Consortiums that you mght not want to buy America. The Soverign Wealth Fund has already expressed blankly, that they are not interested in saving corporations and institutions in the United States, instead they are interested in property.

Labels: , , , , ,

|

Saturday, September 20, 2008

Fortune Investor Guide?

I was looking at Fortune Investor's Guide 2007: The 10 stocks to buy.
On their list is AIG. Wow, that was a good pick.
In the 2008 Guide they apologized and told you to buy Meryl Lynch!
Great picks guys.
A note to the investor... before making any decisions, you really need to be worried about where are you are getting your advice from. Do your due diligence.

|

Friday, September 19, 2008

A Second Day Rally?

I liken yesterday and today to a barbeque... The coals were right to do what I wanted to do (buy low when everyone was in gold)... and then the grill master (the government) came by stoked the coals and poured a ton of gas on the fire! There was a huge fireball and stocks soared.
Now the next thing for them to do is put their food on the grill... watch those buns Paulson!
So let's take a look at the menu, may as well know what they're up to:
As a starter, no more short selling:
http://www.sec.gov/rules/other/2008/34-58592.pdf
What does this mean? It means that if I think your stock is worthless and I go to a bank and say, "Good Morning, do you have any XXXX stock available for me to sell? I don't think it's going to be worth more money in the future." I can no longer do so in this fashion.
We vote everyday with our checkbooks. Why not our stocks?
Banning the shorts basically halts us from saying "that company over there sucks.
It's got bad fundamentals and their balance sheet is stretched and if the wind blows their whole house is going to fall because it's a house of cards!"

Call a duck a duck!
The reason why these financial companies are in trouble isn't the shorts its because they mismanaged their risk! Proper relative valuation was always in order! The system works! These stocks weren't in my portfolio!
I bought yesterday and I'm waiting for the bull run... then I and every other smart person is going to take some profit! The government plan can't be finalized with out a discussion and a vote. It's not going to happen by the end of the day... is it?


I see controversy in the making!
How much war and how much financial garbage can we fit on the Fed's balance sheet? If I were China or any of the myriad of countries that hold the US debt, should I be worried that the US government is printing their way out of this mess. Is this systemic risk of worldwide inflation?

|

Thursday, September 18, 2008

A Volatility Technician - Bubbles & FOREX

By definition a bubble "involves a non-sustainable pattern of price change or cash flows. The implosion of the asset price bubble in Japan led to the massive failure of a large number of banks and other types of financial firms and more than a decade of sluggish economic growth." Charles P. Kindleberger "Manias, Panics and Crashes A History of Financial Crises" Chapter 1. p.1
With unprecedented government intervention, the reality is uncertainty. Change is emminent and unpredictable. A jobless claim that is up by 10000 Americans. 247 Billion Dollars have flooded the world markets today. The financial system is highly leveraged and I'm not sure if the architects of it really imagined this end product. A revaluation is underway. People are taking their assets and fleeing to safety.
I try to make decisions by taking into account the macro-picture using fundamental and technical analysis. I trust government sources regarding jobless claims, and oil production... I'm sometimes concerned about corporations hiding debt in the numbers. Today for instance I believe the numbers that central banks have injected into the market are sufficient for a one day rally in the US market. However, I don't believe it will last. I believe the market ecosystem works. There are enough different species out there to digest the bloated carcasses of failed companies.
So what would a technician do?
Fundamentally, If you have enough leeway in your margin, if you setup to take less profit by 50% than your stop loss I think you'll make money in these volatile markets.

|

Wednesday, September 17, 2008

All that glitters is GOLD!

I think I said on Sunday when I announced a fire sale this week that gold was going to be the flight to safety. On monday it was at something like 744. That's a buy in my book.
Today it went up $80. That's 11% in a day.
Either I'm not the only one who's read CPK (Charles R. Kindleberger), or read about the Weimar Republic, or just can think their way out of a box, but it happened and it happened really quickly!
This is all in just 4 days. Don't you love technology!
Ok kids... this is where it gets interesting.
When people leave the stock market in droves, it's a panic. Now selecting the right bets really happens when the real bottom hits... that requires a real drop in stocks. Remember... if I am right about inflation, and I think I will be (in the next year double digits)... you need to outpace inflation which means earning 12-14% for every dollar you have in your savings account.
As I'm surprised that this happened so quickly, I wonder how long it will be before other things will happen... by the way, I'm really pissed that AIG got a "loan" from the government! Really P.O.ed! What does this mean? It means that the government is basically concluding that they must intercede in the market yet again, and this will asuradley not be the last.
It looks like they are going to structure some new form of regulation to deal with all of this bad paper... but for now its gold! Tomorrow it's oil. Maybe by Friday this will all get cleaned up. Seriously, how fast did everyone fly to safety?
If the Federal Reserve could be downgraded, it would be downgraded. If you have money, you have a bird in the hand, an ace up your sleeve... it's your move!

|

Friday, September 12, 2008

Lehman Brothers (LEH), WM, & AIG

There are three war torn companies that look like they're going the way of Enron and World com... but they are in the financial sector now. First Lehman Brothers, who are a 150 year old firm, have been led by Dick Fuld in the past years. He should have been out of a job a long time ago. As I'm not a share holder of LEH, I can plainly see that he's done a horrific job managing his company. There are a lot of old mentality financiers who think that they are right, regardless of the mounting disconcerting evidence to the contrary. He is one of them. Lehman Brothers is a big company and I can see how hard it is to keep track of where what pies all of your fingers are in especially when you have 600 billion dollars of capital riding out there. They are completely tied down by the mortgage mess... and they are going to go out of business. That's fine by me. I expect another company to come over and buy the best performing sectors of their business. I also expect other companies to see the value in the quality employees that Lehman had and buy them out.
However, some of those quality employees approved the deals that got them there in the first place.
So let's look forward to the next logical steps... Lehman Brothers is forced to sell off its holding in commodities to get enough capitol to meet their operating requirements in the short term. If Barclays (as rumor has it) saves them and buys them out (which I don't see happening), so much of their business will be in trouble too. No, I don't see many buyers out there in the market, because no one is liquid enough to save them. Maybe the government would step in, but it sets a horrible precident if they do.
I don't believe I'm saying this, but I agree with Shelby (R) that the Fed should do nothing for them. Yes, I agree that it will set off a chain reaction and I will get to that in a second. The fact is, if you have money, and you're seeing the price of gold and oil drop, you buy them... why? Because as I stated before in the previous financial blog (a few days ago), when the market reacts in panic, people fly to safety... a flight to safety, it's a key word and one you should remember because it will make you money in the long run.
Lehman Brothers and a ton of other firms and corporations are going to sell a bunch of stuff on the market... I am actually beginning to see it now. If you are sitting on the sidelines (gold is real... you can and you should) Buy it! Remember... this is a fire sale, everything must go!
In a moment you'll see commodities fall... Hold heart my dear ones, fortune favors the brave. Commodities like gold will hold their value and rise in value as the dollar gets weaker. Remember the dollar is only strong because the value of everything else is really weak. It's like being the smartest kid on the short bus. Luckily for us, we don't have to stick to stocks, but we want something that is going to outpace inflation. To reiterate, I see inflation coming in the double digits. Everything I am hearing about the Fed getting involved on any angle means they are going to commit to printing our way out of this problem. I've studied this happening before. The Weimar Republic tried to do this after the crash of '29. In that story, the people who didn't lose everything were the ones that held commodities like gold. That's how antisemitism in Germany really went through the roof, and I don't have to remind you what happened in that case, but what you can do as an investor is learn quick from what happened there. We're in the digital age and I don't expect anyone to lose time as they did years ago.
This is how it starts... Lehman Brothers goes into Bankruptcy. Then what happens, if Washington Mutual WM doesn't sell itself, it will be next. After that, the one company that insures all the rest... many of the bonds that are out there are insured by AIG. They hold a direct risk to their portfolio when this situation occurs will need money... how much? No one knows.
They do work in over a hundred countries and are over twice as big as Lehman Brothers.
I don't know if there is a larger company out there that can buy them. They are a megalith. I expect them to need about a hundred billion dollars. According to the news they are trying to raise $20 billion dollars. I expect they think they are going to get someone to finance the rest if they put 20-25% down. Who do they go to? Goldman Sachs, they are in no position to do so. Bank of America doesn't want a piece of AIG, though I hear in through the grapevine that they are interested in a different kind of bank than what they are. BAC is more of a consumer bank. So that leaves an investment opportunity. I look at where the BAC execs are from and very few are from Lehman or AIG, so it's definitely not them... and I don't expect WaMu seeing as they picked up all of the LaSalle branches around Chicago and seem to be pretty solid regionally.
I have no idea how long of a depression we are in for, or if we're in for one at all... it all depends on how fast we can react, work, create, and conclude!
If you have questions... let me know. If it's a flight to safety!
Please welcome the entrance of the Flight to Safety!

|

Wednesday, September 10, 2008

Obama Art Study

Hey Everyone,
Has anyone else noticed the tremendous amount of Obama merchandise on the market? Perhaps, being in Chicago I am inundated with it, but I am seeing art created from coast to coast in amounts that can be considered a movement.
Lately, he has graced the covers of magazines of all types. The two that stick out were GQ & Rolling Stone
GQ portrayed him very realistically."

Rolling Stone on the other hand brushed the background and gave him an aura / glow.

This coverage is normal with major political campaigns when introducing a candidate, but I would like to address the other amazing amount of art that has been created featuring Barack Obama. Ordinarily, we do not see art propagate unless the candidate has already accomplished something.
The level of art that I am seeing is quickly rivaling sales from the communist college propaganda like Che Guevarra, Mao Se Tung. The second kind of art is called campaign office art! We have seen our friends wearing these since they came out.

These posters are widespread and definitely are comparable in type and tone.
We should look back to the beginning of how Obama was portrayed at the beginning stages of his US Senate career. We began to see it with conventional press art:

It is almost assured that political cartoonists are going to exaggerate certain features of his face, whether it's his ears, size of his forehead. This is what they do. Also, they tend to jump on anything that could be deemed as a major campaign issue.

Then came the second teir of art, that art which portrays him in a different light. This is generally unexpected until the candidate reaches office. This is the first time I have ever seen it before an election. I have to tell you, I think some of these portraits are beautiful.
To put up all of the art would require a lot of time... so I picked just a few.
The first piece I selected comes from my friend Justin Bua. He is prominently known through his art world wide. His art is everywhere. It is at EVERY poster shop I have been to in the past 10 years! It is by this that I think you know that his art, through cartooning brings something different out in his characters. You can see the differences between his characters from the past and this one of Barack.

Another example comes from well known live music painter J Garcia.
Alex Grey, one of my favorite artists, also produced a tribute to Obama:


Dan Lacey, who produces faithmouse, has created many portraites, including this one:


During the Democratic National Convention:


What is your opinion on this? Have you noticed the same or similar? What are the consequences of this amount of art in the market surrounding a candidate? Is there anything like this happening in the McCain camp? What does this mean for the Republican Party?

|

Wednesday, September 03, 2008

Financial Foreward Thinking... Avoiding the Drain

I've been asked by a number of individuals how to play this market.
My theories are probably similar to the ones you have heard before if you are listening out there. I believe that in a market like this, the technicians rule! If you know how to navigate a buy and a sell on a dime... play the short game, then you may be a winner. The market has been reacting funny lately, news that should make stocks go down haven't and things that should make commodities like oil go up haven't either (Gustof & Russia).
So, I am not going to recommend stocks, but rather give you an honest midwestern way of thinking about them. I buy what I have in my house. I hold some stock in companies that make band aids, toiletries (toothpaste, deodorant, soap), tools (I'm a guy... gotta love a good drill), and food stuffs. I also recently bought Freddie Mac FRE, because I believe that this company's existence is a hope that I pin my chance at buying a home to... and more because it was really cheap, than because it's good. I don't want to see the dream fail.
I do not believe that we have hit the bottom. I don't believe we'll see the true bottom until the Fed lets banks fail who have done poor business. It hurts us all because we (the taxpayers) are now taking on the pain that over paid bankers should be feeling. Getting out of this mess requires good old fashioned hard work and business. I also believe that the weakness in the residential market will filter through the economy in a number of different ways. The only way to truly look forward is to keep track of what has already happened.
The Fed injected liquidity into the market to bail out the financial industry. The government infused the general population with a rebate which weakened the dollar. The housing market continued to slide. Then gas prices hit close to $150 a barrel. These costs ultimately become fixed into the price of the product. Businesses can not harbor such a significant increase for long periods of time. Since then, inflation has taken root in product costs across the board.
Inflation is the worst kind of tax. It taxes the rich and the poor alike and the money goes to no services.
So... if you don't like risks... like cash.
There's an old saying that a bird in the hand is worth two in the bush. A dollar today is worth only 93 cents a year from now. The present value of cash should be respected. If you are looking for future value, it should be commensurate with risk. To outpace inflation I believe that you must be earning 8% per year in a savings account. I can't get the banks to give me this price. I would have to be a HNWI to get it, but I digress... investing when everyone else is scared is a great time to win.
The old saying is: Bulls make money. Bears make money. Pigs get slaughtered.
The new saying is: Lambs and Pigs are slaughtered. You can't follow the herd. You can't be greedy. You have to have an itchy trigger finger. Sell when you need to sell. Buy when it looks right. Do your homework. Do your math.
Generally, as a business rule, companies don't like to lower prices because it means they are receiving less money for the product or service, even though they may move more units at a lower cost. In the case of rising costs due to inflation, the prices remain sticky even after the government does it's best to remove the excess dollars from the mainstream (via taxes).
I like to look at the supermarket for inflation. Those of you who keep receipts, like I do, used to be able to buy 4 cases of coke and get the 5th free for $10. Now you can get 4 cases for $11.
That should be a good case and point, because Coke is a staple of the American economy.
A can of Campbell's soup used to cost $0.99 / can 8 years ago. Now it's going for $1.39.
Siting an example of a 40% increase in costs is not the norm over that course of time.
However, it does say that on average inflation has been occurring at 5% per year, but it hasn't. A majority of the change has come in the past two years.
Recently the dollar has gotten stronger, but the reason for this might interest you. It is common knowledge that things are tough all over. "When American economy sneezes, the world gets a cold!" So the recent strength is tied to the fact that people truly believe that it is the US economy that will emerge first in the recovery. I would be happy if we pioneered this recovery, but there is nothing in the data that currently suggests that things are getting better. Less worse is not better, but regardless the market reacts.
For US businesses exporting abroad a weak dollar provides opportunity for our products. Many US Businesses are selling internationally more than ever. The recent strength has not done enough to sabotage the deals in progress yet, however in light that the world economy is quickly slowing down as the top HNWI and companies pull their capitol back from foreign markets to sure up their investments at home, many of the US companies will have to contend with lower than expected returns in foreign markets.
In this case, the reverse is also true. One might say, that gas prices are up, so sales of Toyota's line of fuel efficient hybrids will dominate the market. I would generally agree with this logic. They are currently the leader. However, due to current financial pressures, less US consumers can afford these vehicles. I would imagine that they will miss their expectations for sales this quarter which will drive the stock lower. They also make other types of vehicles which will drag down their bottom line as SUV sales continue to dwindle. They may lower their prices on their mid-tier vehicles... but I beg you not to buy them. I'm one of those green guys who will keep using his car as long as it runs before taking on any new debt in hopes that he can find one that does not require gasoline at all. A very smart person I know made me rethink these priorities.
Now, this being said... being one of a great many people who continue to drive their same cars... they will need to be serviced and they will need to be repaired. Have you heard about stories of auto mechanics suffering during the tough old times? No? Neither have I.
However, during recovery, you generally see new car sales more than repairs.
So, where do you get auto parts? I would be interested in keeping track of these kind of stores. I think they will beat the street on their next earning report.
PBY, AZO.
On the same side, I really expect that if people are cutting back, they aren't going to be buying extravegant items. They will be buying staples, like food products from Kellogg, CQB, CPB, GIS, KFT, KO, PEP. With gas costing less, and commodity prices coming off of their highs, I expect that the extra profit will bolster Supervalu (who owns Jewel Osco) SVU, SPTN, ARDNA, WFMI, & SWY.
I also think that lower gas prices will really help FDX, UPS, & CHRW. They will beat the street.
These stocks won't make you rich, but they are good for an overall small risk investment.
The real long range view is who is going to do the dirty work in installing the plug in car charge ports on streets and garages throughout the world and how are we going to meet the energy demands?
I see OPEC deciding that they like $110 / barrel. I expect they will decrease the flow of oil out of the middle east by a commensurate amount to ensure that prices remain stable. They see demand destruction, but not by the amount that will require them to change how they operate, but I don't think this is going to happen for another couple of weeks.
The Fed will have to raise rates soon. I expect to see stocks and banks fail when they do. They have to keep inflation in the bottle. If they don't, it will spiral out of control.
So what do I know... I'm just a guy who saw this coming and blogged about it
on October 9, 2004. But as my Dad likes to say... it's not about being right, is it?

|