Tuesday, April 29, 2008

The Rich are not like the rest of us


They are more delusional.

Why do we pay any attention to the investment mores of the rich? Are they really anymore informed than the small odd-lot investor? Aren't their financial advisers and brokers just as likely to give them self-serving advice? Didn't they get burned by the tech bubble too?

This MSNBC story claims that the rich are feeling the effects of the reeling economy just like everybody else. I'm not doubting its veracity, but there's a big difference between having to go on a less expensive vacation and facing foreclosure. So what if they are more pessimistic about the economy? They have the means to ride out a downturn and pick up some incredible bargains to boot.

This passage from the article is particularly illustrative of the disconnect between their perceptions and reality:

'Tellingly, about 19 percent of the people surveyed do not consider themselves wealthy, even though they have, on average, $3 million to invest and earn at least $270,000 a year.'

This reminds me of a Steve Schwartzmann's quote from a February 2008 profile in The New Yorker:

'I don't feel like a wealthy person. Other people think of me as a wealthy person, but I don’t. I feel the same as when I was a fifth-year associate trying to make partner at Lehman Brothers. I haven’t changed. I still think of Blackstone as a small firm. We have to prove ourselves in every deal. Every piece of paper is important. I’m always still trying.'

I can't make up my mind about this quote. Either a)his publicist told him to say something self-effacing,or b)he is one of the most ambitious/paranoid people on the planet. Remember, this was coming on the heels of his 60th birthday party that was something straight out of ancien régime France and the $700 million he had selling shares in the Blackstone IPO.

So I'm going to start ignoring the results of the latest survey about what the rich are doing. These people are no better at market timing than the rest of us.

P.S. This is what the other of the two Americas that John Edwards spoke of thinks.

Friday, April 25, 2008

Don't be fooled by Ford


This was supposed to be a picture of the famous blue Ford logo, not Willa Ford, but oh well. It's not completely unrelated though. Willa Ford is married to hockey player Mike Modano, who is from the suburbs of Detroit.

Anyway, yesterday was a big day for Ford. It announced a surprise profit of $100 million, while Wall Street was expecting about a $400 million loss. The stock jumped about 12%. Well on the surface a profit, when they hadn't made one since Q2 of last year, sounds like great news. As with any earnings release, you need to look beyond the raw numbers.

When you do, you notice that Ford operations in Europe and Latin America led the way. This no doubt has been helped by strong currencies in those regions and the weak dollar. North America continues to be s sore spot for the automaker. This morning, JPM and Bear Stearns have downgraded them F saying that the shares, which are up 25% YTD, are at fair value.

Wisely, CEO Alan Mulally has warned that 2008 will remain a challenging year, as U.S. auto sales are soft, especially those of high margin SUVs and trucks.

While Mulally's "Way Forward" has produced significant results, the company still faces major headwinds in the form of a U.S. and possibly, worldwide recession or economic slowdown, increased steel prices, increased oil prices, and a difficult credit environment.

Friday, April 18, 2008

Citi sucks, is up 7%


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 "players coach" who will keep things relaxed.

CEO hirings are no different. American companies alternate between hiring vision guys or operations guys. Sandy Weill was the classic charismatic CEO that the 1990s business turned into a messiah. Unfortunately, he went a little too far with his vision. So the board hires Chuck Prince, the loyal soldier/counsel who spearheaded the bank's efforts to make nice with regulators. Then he got cute and got in over in his head with derivatives exposure.


So in comes Vikram Pandit, who cut his teeth at Morgan Stanley as an investment banker. He's got some tough guy plan to return Citigroup to its past glory. He'll have a 1-2 year honeymoon before the press and shareholders really start to grade his performance. In the meantime, all he need do is talk tough, slash the payroll, and wait for the market and/or the Fed to save his skin. If that happens, then he ends up looking like El Cid.

It is interesting that twice in a row, Citigroup has went with a non-banker, non-CEO to lead the company.

Citigroup Q1 2008 earnings release.

Tuesday, April 15, 2008

I don't get this market


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.

Friday, April 11, 2008

Opportunity knocks


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 the hard working people
Lets drink to the uncounted heads
Lets think of the wavering millions
Who need leaders but get gamblers instead

Don't we deserve better from our leaders than more corporate welfare for people who are already overpaid? Does anyone know what Alan Schwartz stands to gain, if anything, from selling his piece of crap firm to JPM? I'm sure that the board will reward him handsomely for crashing the plane.

Tuesday, April 8, 2008

CNBC Feels Your Pain


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 other three. Susan Krakower, who produces Fast Money, made her bones in reality TV and trashy talk shows.

There's nothing wrong with watching the channel; just lower your expectations. Don't expect analysis any better than, "the market hates uncertainty," or "there was a lot of profit-taking today." Also, don't expect it to make you a better investor. If a stock recommendation is being touted on CNBC, it's probably too late to buy it. You'd be better served by focusing on a few companies and their industries, learning them inside out. That's how you get an edge.

This is not to say that Fox Business News or Bloomberg TV are any better. CNBC just happens to be the biggest kid on the block so I'm taking aim at them.

Tuesday, April 1, 2008

E. Stanley O'Neal


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. He was the first black CEO of a major Wall Street firm. Even the many enemies that she made at Mother Merrill would conceded that he was a smart, hardworking man. I didn't feel sorry for Stan O'Neal after reading it, but I did feel that I better understood his actions and the institution that he led.

Like many men of power, O'Neal seems to have been an imperious control freak. This is forgivable when profits are up, but when the lean times come, people are reluctant to stomach such behavior.

Last month, O'Neal(along with a rogue's gallery of disgraced former CEOs) appeared before the House Committee on Oversight and Government Reform to discuss the mortgage mess and CEO compensation. Here are his remarks.