Wednesday, November 28, 2007

Wall Street finally sees a recession coming

That's all the financial press has been writing about for the last few days. I don't think that this is any more newsworthy than Helio Castroneves winning "Dancing With the Stars." Actually, it's less important because so many people have been predicting it. Hell, Jim Rogers for months has been saying that we're already in a recession. If the press is now writing stories about it, than it must be an old story. Don't fixate on the magical 10% number for a correction, or get caught up in these huge sucker rallies that happen once a week it seems.

Monday, November 26, 2007

E*Trade and TD Ameritrade hooking up?

This rumor sent ETFC up 25% on Friday. It has since given back 10%. I think this is a very real possibility and that's why I bought the stock in the thick of it's mortgage problems. TD Ameritrade had been eyeing E*Trade for years now. The brokerage business scales incredibly well so being able to spread costs over an increased asset base will make the combined company more profitable. It's still unclear however, if TD Ameritrade wants everything or just the brokerage assets.

Tuesday, November 20, 2007

Freddie Mac gets the knife

Shares of Freddie Mac(FRE) hit the skids this morning. Fitch Ratings is has put the rating on their preferred stock on negative watch. This is not a downgrade. not yet at least. Fannie Mae(FNM) also got a haircut. Defaults are rising at both outfits. They are government sponsored-enterprises(GSEs). That doesn't mean that they are government-owned, but it does give them access to great interest rates and the perception that the government won't let him fail. I think that Uncle Sam will live up to this perception. At some point, another bailout is coming. These are the last bastions of liquidity in the housing market so everyone has a stake in them being healthy companies. I'm adding both these stocks to my watchlist. If they get under $20, then I'll pull the trigger.

Freddie Mac Conference Call

Monday, November 19, 2007

Dipping my toe in the E*Trade pool


After some more research, I've decided that the sky is not falling at E*Trade. Despite the kick in stomach it got from a full-page Wall Street Journal ad by TD Ameritrade, I know that the stock resembles Jan-Michael Vincent right now, but E*Trade is not down for the count. So far this morning, it's lost about ten percent. That's perfectly fine with me. I have no problem averaging down on this one. This company isn't going bankrupt. The only way it's folding is through a merger, probably with someone like TD Ameritrade. I don't see any better values out there. This stock is selling for half of book value. I know that more writedowns are coming in this sector, and maybe at this company. It's going to require patience to make money on this position, especially when things get uglier and the market as a whole is convulsing. It's these times of market uncertainty, when astute value investors step in and buy good companies for practically nothing.

Thursday, November 15, 2007

Paul B. Farrell vs. Jim Cramer


Today is the Great American Smokeout, but let me suggest that we also declare it National Get Over Jim Cramer Day. Paul Farrell is the latest member of the financial media to take a shot at Jim Cramer. Last week, Paul Farrell wrote a MarketWatch column attacking Jim Cramer's trading strategy. In it, he acknowledges that he has only listened to "Mad Money" once but found it insufferable; I doubt if he's read Cramer's books. Farrell then goes on to make the usual anti-Cramer attacks: he trades to frequently, he's an irresponsible idiot, my passive approach is cheaper and takes much less time. Nothing new really.
So Cramer responded to Farrell's attacks, also on MarketWatch. Here is Cramer's defense of his picks. As usual, Cramer painted himself as a man of the people, the Huey Long of the stock market if you will, giving the people the means to live out their dreams. Farrell made the mistake of insulting Cramer's viewers, which allowed Cramer to break out his anti-elitist screed; his viewers are not idiots, they are fairly level-headed and sophisticated, they do their homework.
Cramer is part entertainer. He has never shied away from this role or denied it. He's not trying to be the august and patrician Louis Rukeyser. He is not the genial and folksy Warren Buffett and he knows it. He goes with what he has, manic enthusiasm and a near-autistic recollection of stocks. To this he adds sound effects. The show is not completely worthless fluff. Cramer's critics need to look past the buffoonery for just a minute. Cramer is one of the rare celebrities whose detractors' efforts to expose him only make him more popular. So just get over it.

Wednesday, November 14, 2007

Best-performing stocks year to date

This list of stocks was compiled by Bespoke. There are no real surprises; Solar power, mining/materials, and infrastucture stocks dominate the list. At this point, I wouldnt' touch any of these stocks, but I am going to put Mosaic and General Moly on my watchlist. I still believe the commodities story, but am waiting for some sort of pullpack. I own National Oilwell Varco and will continue to do so for the next few years.

Monday, November 12, 2007

Contemplating an investment in E*Trade?*%#@!


Surely you've seen that iPod Touch commercial featuring the song, "Music is My Hot Sex." That song is the work of a Brazilian band called Cansei de Ser Sexy which translates as, "tired of being sexy." That's exactly what's happened to the brokers. For the last five years, these stocks have been on a tear. They were like a "beautiful" woman that you met in dark bar and took home for one hell of a one-night stand. When morning came, you had a chance to really look at her and she wasn't pretty at all. Most of her was fake, and those parts that weren't were ugly in fact. E*Trade(ETFC) is now considered coyote ugly. It looks as if there are more writedowns on the way then they'd thought back on October 17th. So is the worst over? Maybe? Some analysts are predicting bankruptcy and it can't get much worse than that. Maybe not? Management once again guided lower, the fifth time in eight quarters. Looking at E*Trade's most recent monthly activity report for October, you'd surmise that this was a fairly healthy company. There will be the inevitable dead cat bounce, but I'm not talking about a trade. It's trading at 3x earnings and might might a good long term holding if they can avoid bankruptcy. This is a very hard call to make. A big, one-time, fixable problem is what every value investor love, but it's unclear if the term "fixable" applies to this situation.

Friday, November 9, 2007

Stephen Brown has sage advice to offer stock investors once more

Stephen Brown of NYU's Stern School of Business tells us how to remain safe and calm when the stock market seas get choppy. This is especially timely advice given the recent gyrations in the market.

Thursday, November 8, 2007

Waterboarding and the market

There's been a lot written and said about waterboarding recently. The US Senate has been the locus of the discussion. Waterboarding is a torture technique that simulates drowning. It's also what investors and traders do to themselves when they follow the market too closely; they're drowning themselves in information. Living and dying with every tumultuous turn of the market is not only painful, but is less than profitable. I can't tell you how many stupid trades I've made based on bad news that ended up being noise. More information doesn't automatically lead to better decisions. Right now I have position in National Oilwell Varco(NOV) that I've been checking just about daily. I'm expecting it to keep pace with the price of oil. While this isn't a bad thesis, it's one that might not be evident on a day-to-day basis. It's completely counterproductive, worse than watching a pot boil or grass grow. So now I'm going to practice what I preach; I'm only going to check the price of stocks I own once a month. Just in case something happens, I'll set price alerts on my E*Trade account. I think that I'll make better decisions and ultimately make more money.

Wednesday, November 7, 2007

Do you have a mancrush on Warren Buffett?

Do you remember the Seinfeld episode, "The Boyfriend," when Elaine starts dating former Mets great Keith Hernandez. Jerry gets to meet him and beforehand is fretting about his shirt. Jerry worries that it was too early in the relationship to help Keith move.

As with many Seinfeld episodes, it was a very funny rendering of a true life situation. Investors get mancrushes as well, especially value investors. Perhaps you don't have it bad for Buffett, but what about Ben Graham? Do you think that David Dreman is dreamy? Joel Greenblatt? Marty Whitman? Seth Klarman? Eddie Lampert? It goes without saying that you've read the books. Do you religiously read GuruFocus in order to see what these guys are buying? Do you feverishly Google them searching for articles or blog posts for information about their latest moves or philosophical treatises? Have you been to the Berkshire annual meeting in Omaha?

It's good to have heroes or people that you emulate. Reconstructing the rationale behind past investments of the masters of capital allocation can be very instructive. Just don't forget that you are you. Coke or the Washington Post are not selling at a fraction of their intrinsic worth. You can't snatch up KMart bonds right after its bankruptcy. This is not to say that you can't match or exceed their long term records. As Buffett has pointed out many times, he has more money than ideas and he could get better returns if he weren't so big.

Take a cue from the latest Nike basketball commercial featuring Buffett pal LeBron James, "you don't want to be LeBron James, you wanna be better than me." So learn what you can from these masters, but don't be hedged in by their thinking. Just like they did, you'll have to find the style that works best for you.

Tuesday, November 6, 2007

Is the worst over for the banks and brokers?

I see the fat yields. Citigroup(C) is yielding 5.70%. So is Bank of America(BAC). I don't think so. I'm still staying away from bank/brokerage stocks. Citigroup has said that they aren't expecting the messed to be cleaned up until the middle of next year. Shares are at a 4-year low.
I think that there are a lot more writedowns in the offing. Stan O'Neal and Chuck Prince paid the price not so much for individual incompetence, but because the mortgage-backed security trade went bad for their banks. Goldman Sachs is the only one of these banks that has bounced back significantly from the August lows and woes. I would liket to see more disclosures before I plunk down my money in this sector. Although I agree with Bill Miller that this is a great opportunity to pick up great companies for fire sale prices, I think that he is still very early. I will keep shorting these stocks.

Friday, November 2, 2007

Was Jimmy Cayne playing the flute while Bear burned?

Yesterday's profile of Bear Stearn's CEO James Cayne in the Wall Street Journal has touched of a firestorm of criticism. Today, The New York Times published a memo to Bear employees in which Mr. Cayne defends himself against the allegations.

Thursday, November 1, 2007

Links of value

Do investors have anything to fear from sovereign wealth funds?

An interview with Vitaliy N. Katsenelson, author of Active Value Investing.

Previously unpublished shareholder letters from Warren Buffett from 1973 and 1976.

The good old days of bank stocks investing.

Erin Burnett interviews legendary Tiger Fund Management founder Julian Robertson.

Is the yen headed higher?

Value Investor haven analyzes Harvest Natural Resources.

Is the Fed done cutting rates?

ConsumerSearch rates the online brokerages.

What Stanley O'Neal's replacement at Merrill Lynch must do?

Is fear driving the prices of oil and gold?

Wave goodbye to the private equity boom?

America, the land of the cheap?

John Mauldin's take on structured investment vehicles.

Nassim Nicholas Taleb explains the black swan.

Smart Money interviews Marty Whitman.

A Ron Paul speech from last year about the death of the dollar.