Friday, August 31, 2007

Bernanke's speech

The text of Bernanke's speech today in Jackson Hole, WY which lifted the stock market.

Wednesday, August 29, 2007

Stop paying attention to Wall Street research!

Is it just me or are Wall Street analysts asleep during every bubble? First the equity analysts with theInternet bubble, now the ratings agencies(Standard and Poor's, Moody's, Fitch) with the current credit bubble. Why do investors, retail and institutional alike, rely on them for information? Well, I can see why the big boys would put such faith in research, since they're the authors, but the little guy should take a page from Warren Buffett and only read Wall Street research for laughs. Wall Street analysts and ratings agencies are not the SEC. They're not interested in protecting you or your money.

Tuesday, August 28, 2007

Dow down 280 points

So Wall Street didn't get the word of a rate cut that it wanted from the Fed. Boo-hoo! I say no welfare for the rich. A rate cut would help the markets temporarily, but in the end, no one can stop the inevitable correction that's coming this market's way. The FOMC can only delay it. The business cycle is real. It can't be outsmarted, not even by PhD. economists. Besides, why should homeowners and mortgage companies go belly up, while their Wall Street co-conspirators get bailed out?

Monday, August 27, 2007

Friday, August 24, 2007

James Altucher defends his friend and business partner Jim Cramer

On Wednesday, James Altucher, founder of Stockpickr, and an insider at TheStreet.com wrote a piece for the website defending Jim Cramer against this week's damaging Barron's article. He sets out to answer two questions:


1. Do Cramer's picks make money?
2. Does Cramer outperform the market?


He even goes so far to test Barron's picks during this time period.

He lays out a couple of rules. First, he recommends that you wait a week before buying Cramer's picks. In his book, Jim Cramer's Mad Money: Watch TV, Get Rich Cramer says to wait 5-10 days in order to avoid buying at an inflated price, something he calls the Cramer Effect. Altucher conducted this study by buying the stocks after 5 days. When it comes to selling, he tests the results after one month and then two months.
You can probably guess what the results were. Still its worth reading the piece. Altucher is kind enough to provide details about his methodology and the specific picks.

Thursday, August 23, 2007

Barron's gives Jim Cramer a "don't buy!"

Jim Cramer was featured in the cover story of Barron's this week. The coverage wasn't flattering. Bill Alpert's depicts portrays Cramer as a manic-depressive clown. Based on a database compiled YourMoneyWatch.com by Michael McGown, a former stock analyst, Cramer's picks have trailed the market by 10% since the show began. These totals include picks made during the "Lighting Round" and MadMoney says that they shouldn't count as part of his record. Also, this analysis doesn't follow Cramer's caveat to buy on the second day after the recommendation, not the next day.
Alpert also examined a database compiled by TheStreet.com that covers the last six months. These picks were about even with the market, including commissions you'd be down if you followed Cramer's suggestions.
Overall, the piece is fairly evenhanded and reasonable. The writer merely wants Jim Cramer to be accountable for the picks he makes.

Part I & II of "Shorting Cramer".

Monday, August 20, 2007

Don't fixate on the United States

Yes, it's been a rough past few months for the S & P 500 and the Dow, but they represent only one market. There's still the rest of the world out there. Look at Europe. Look at Asia, ex-China. They've taken a hit too, but not as big a one as the U.S. YTD, these markets are up over twice what we are.

Saturday, August 18, 2007

Bogle hopeful

The father of indexing says that hope will return.

Friday, August 17, 2007

Bill Fleckenstein is absolutely right

Bill Fleckenstein has been warning of the impending demise of the current asset bubble for at least a year. Central banks have to stop bailing out the market. They are guaranteeing that we will will have even more egregious bubbles because idiots and crooks won't get punished. Whatever happened to capitalism? Creative destruction?

More on the Yen Carry Trade

Bryan Moore at SeekingAlpha writes that it's not dead.

How to play these rallies

Don't. Just sit on the sideline until the market has made a definite decision about where it's headed. Don't try to be a hero. There's nothing wrong with sitting in cash. It's safe and it's smart when the market is this volatile. Pick some stocks for your watchlist and try to pick up a screaming buy if you want, but don't get cute.

Thursday, August 16, 2007

Countrywide continues to fall

This morning, Countrywide Financial revealed that it has drawn down its $11.5 billion unsecured bank line of credit. In response, the credit rating agencies, Moody's and Fitch, have downgraded the company's debt rating. Shares are off about 15%.

The Yen Carry Trade explained

The Yen carry trade is a topic that is often bandied about, but is little understood by amateur investors. John Hughes and Scott Maragioglio over at the TheStreet.com do a good job explaining it and its significance. They even show you how the average investor can use it to protect his/her portfolio.

Wednesday, August 15, 2007

REITs on a buying spree buying back shares

Do not follow them into the breach. A lot of companies in this space or undervalued right now. A lot of them will be even more undervalued in the near future. The same goes for insider buys at troubled firms like Yahoo(YHOO). Yahoo is still a good company with a dominant, entrenched brand. However it is also a mess right now and has large problems. Susan Decker's $1 million ante, while encouraging, shouldn't be seen as a sign of a turn. Keep your powder dry for the moment.

Nasdaq Portal set to debut

The Nasdaq Portal is set to open today. It will be a private market free of Sarbox regulation for 144A private placements. Here's the official press release.

Merrill downgrades Countrywide

Merrill Lynch(MER) wants you out of Countrywide Financial(CFC), downgrading it from a buy to a sell. Like everybody else, they got spooked by Thornburg's(TMA) enormous drop yesterday. Countrywide shares have lost nearly half their value since February.
This morning on CNBC, Thornburg president/COOLarry Goldstone attempted to calm the waters. It may have worked for now. The stock is up about 47% thus far. Yesterday, they announced that they were delaying paying the second quarter dividend in order to preserve cash. Goldstone says that the company is not for sale.
These are stop gap measures. They are the appropriate actions, but they are bandaids on a massive head trauma. Yesterday, Goldstone said that they had no "intention" of filing for bankruptcy. What's that line about the path to Hell?

U.S. to miss out on Arctic Circle Oil Rush

Telis Demos recently wrote in Fortune about the chase for oil in the North Pole. The Arctic Circle could have 25% of the world's undiscovered oil and natural gas reserves. Why are these formerly undrillable areas in play now? Simply put, the polar icecaps are melting.
The Russians have taken the lead in making claims to the potential black gold bonanza. They've already claimed half the Arctic. Denmark is rolling up its sleeves. So why isn't the U.S. joining the fight? The Senate refused to ratify an obscure UN treat back in 1994 due to sovereignty issues. Oh well.

Tuesday, August 14, 2007

The Dow loses more than 200 points

Wal-Mart said that the consumer is reigning in spending. Home Depot warned that the slowdown in the housing sector would hurt its profits. No shit.
Quant funds are blowing up left and right. Everybody's trying to stop their partners from taking the money and running. blue chips are selling off as people try to raise cash. The credit crunch continues. The Fed and the other central banks don't have the firepower necessary to stop this run. They can put some speed bumps in the way, but the financial system needs an enema. They are only delaying the pain.
I'm still shorting the bank, brokerages, mortgage lenders, and mortgage insurers. Still, like any panic, there will be babies thrown out with the bathwater. Take a look at Goldman Sachs(GS). It's selling at 8x earnings and under 1 price to sales. Remember when this was a $230 stock? That wasn't that long ago. Or take a look at Sears(SHLD). That was a $180 stock at its peak. These are still two extremely well-run companies. Now they're significantly cheaper. I'm going to wait for them to get even cheaper, especially Goldman. They could both lose another $20-$30. We still don't know much about whete the dead bodies are in this sub-prime-credit crunch mess. Be patient during this downturn and try to find some gems that's been unnecessarily trashed.

You cannot invest like Harvard or Yale

This month, Smart Money ran article touting that you could invest like these two stalwarts of the endowment universe. They looked at the allocation models of the two endowments, spoke with the managers, and formulated a mix for the retail investor to follow. I'm afraid that this is an impossibility. You or I or anyone with less than hundreds of millions of dollars cannot ape Harvard or Yale. These institutions have access to the best managers in the world. They have large staffs who do nothing but analyze investment performance. A great deal of their endowments are invested in private equity, venture capital, oil & gas partnerships, timber, and other highly illiquid assets and strategies. You cannot get PE like returns by investing in the PowerSharesListed Private EquityPortfolio(PSP). Investing in Rayonier(RYN), is not the same as owning millions of acres of timberland. Unless you are willing to commit the time and money required to getting above-market returns, do yourself a favor and invest in index funds and ETFs. In fact, this is what David Swensen, Yale's chief investment officer, advises in his book, Unconventional Success: A Fundamental Approach to Personal Investment.

Saturday, August 11, 2007

The housing mess

Last week, BusinessWeek did a cover story on the meltdown in the U.S. housing sector, specifically the homebuilders, their overbuilding, entrance into the mortgage business, and even possible criminal misdeeds during the boom. It's worth reading. Unfortunately, this is just the sort of thing that occurs during any boom. Things become so good, so many people are making easy money, that no one notices fraud and other crimes being committed. These ugly realities are only revealed once the boom goes bust. Jim Cramer actually made a great point about this industry on Monday; this is a very small industry with a total market cap of 35 billion! Some homebuilders will go belly up, but that's not such a big deal. This used to happen all the time.
It's been tough shorting these stocks. Any hint of a rumor of good news sends these stocks through the roof. I've been up 40% on the position at times, and then the next day, been down 10-15%. I've hanging in there though. If you don't have the financial wherewithal to handle the swings, maybe you should look at buying puts as a way of reducing your cash exposure.

Thursday, August 9, 2007

Dow plunges 387 points

Subprime worries continue to rear their ugly heads. This time BNP Paribas was the bearer of bad news. They suspended trading in three of its funds that traded heavily in subprime mortgages. BNP did so because, "the complete evaporation of liquidity in certain market segments of the U.S. securitisation market has made it impossible to value certain assets fairly regardless of their quality or credit rating. " It added, "in order to protect the interests and ensure the equal treatment of our investors, during these exceptional times, BNP Paribas Investment Partners has decided to temporarily suspend the calculation of the net asset value as well as subscriptions/redemptions, in strict compliance with regulations, for these funds."

Tuesday, August 7, 2007

Morningstar interview with Mohnish Pabrai

Mohnish Pabrai runs the Pabrai funds and has written two books on value investing, and Mosaic: Perspectives on Investing and The Dhando Investor: The Low-Risk Value Method to High Returns.

Monday, August 6, 2007

Short financials and housing

I can't predict the fortunes of the broad market, but a blind man can see that these two industries are hurting. Added to this, the truth about just how bad things are is trickling out very slowly or not at all, as if that will somehow save their stocks from the whims of capricious investors searching for alpha. Short the big brokerages, money center banks, and homebuilders either the individual names or through an ETF like XLF, IYG, or XHB. The subprime mess and the credit squeeze are going to get worse before they get better.

Friday, August 3, 2007

Dow lost 280 points today

Everyone still worried about subprime and the jobs report was weaker than expected. The yield on the 10-year Treasury note fell from 4.77% to 4.70%. S & P lowered it credit rating on Bear from stable to negative. The financials continue to swoon(even Goldman lost 3.5% today). The apocalypse is not upon us. This doesn't even qualify as a correction. However, the market may be coming to its senses. It's long denial of the subprime and housing messes might be over. The sooner the better. I think the dow will end the year at 12,300, the S & P 500 at 1100, and the QQQ at 2100. I think that we are in bear market territory, but I'm not quite ready to short the indexes or buy puts. I'm still looking for a catalyst.

Thursday, August 2, 2007

Synalloy Corp.

Synalloy Corp(SYNL) is a small, South Carolina-based company that operates in two hot markets. The Metals division produces pipes for the chemical, petrochemical, pulp and paper, mining, power generation, waste water treatment, liquid natural gas, brewery, food processing, petroleum, pharmaceutical, and other industries. The Specialty Chemicals segment produces specialty chemicals, pigments, and dyes for the carpet, chemical, paper, metals, photographic, pharmaceutical, agricultural, fiber, paint, textile, automotive, petroleum, cosmetics, mattress, furniture, and other industries. As of Q2, the Metals segment was on fire, while the Speciality Chemicals segment experienced declining sales. The company has tremendous returns on assets and equity and sells at a paltry 11x trailing earnings. The company has little debt and has doubled its quarterly earnings growth year over year. Ovcr the last three months, the stock has taken about a 50% haircut. That seems to have been a bit much. If this stocks falls under $20, buy it! It's a steal.