Wednesday, December 26, 2007

Easy Money

Yeah, if you were my offshore account last weekend. Yikes, I think the Pack and Texans lost by the most combined points ever for 2 recommended games, sound advice. I was dead on when I suggested the Texans would cover after the Colts pulled their starters, and feeling good when they quickly jumped out to a 7-0 lead. The Colts did pull their starters......after scoring 38 unanswered points.

As for my analysis of Favre and his cold weather conquering abilities, well, he threw for 9 yards in the first half. He would later whine like a little girl and say that those were the worst conditions he ever played in. Somehow Kyle Orton, who obviously read this on Friday and went out to spite me, hit 8-14 for over 100 yards. I did save a little face Monday night with San Diego, who I also teased with the Gators of course going forward.

P.S. After sewing little faces and feet all day yesterday, removing Q-tips from ears and metal from eyeballs, I can only ask this as a naive Jew. When did it become a Christmas tradition to open gifts and then go to the ER?

One more thing. If you bought your kid a trampoline, go-cart, or Heely shoes, or let your kid use the family pet as a horse, or let them run outside without shoes on, your parenting card should be revoked immediately. I'll see your kid in the ER with a broken wrist/ankle/foot next week!

Friday, December 21, 2007


Did you follow up on your task, calling the IR department? I did. A very pleasant gentleman named Tony Diaz, the Vice President of IR for Fortune Brands (FO), called me yesterday to answer three questions I posed before I'd consider investing in his company. For those of you not familiar with Fortune, they are a conglomerate who thrive in 3 environments: 1. Liquor (Jim Beam, Maker's Mark, Sauza, etc.) 2. Hardware (Moen and more) 3. Golf (Titleist, Cobra). Here are my questions and the answers to each.

1. FO is currently bidding to acquire Absolut. Do you expect to win the auction and if so, how long before the acquisition is accretive to earnings?

Mr. Diaz, in reference to analyst speculation that the acquistion may be too expensive, stated that FO had recently put out a press release that the company would not pursue the acquisition if it were to be dilutive to earnings of .50-$1.

Note that FO has previously partnered with Absolut and is considered the frontrunner to win the auction.

2. Your website lists new home construction as a driver for your home and hardware products. Clearly the new home market is in a freefall. How will this affect earnings for that division/entire company?

Mr. Diaz conceded that FO foresees the new construction slowdown extending through 2008, and expects an earnings decrease of 100 basis points in that division.

3. Why does the company carry $5 billion dollars in debt given its excellent cashflow?

Mr. Diaz noted that the $5 billion was almost entirely from the acquisition of Allied Domecq in 2005, a huge distributor of wine and liquor, that has become hugely accretive for the company. This is "investment grade" debt.

He also noted to look for corporate guidance for 08' that will be released 1/25. We certainly will!Thank you, Mr. Diaz. FO is also currently trading at its 52-week low.

As I am new to the options game , I would like to post a link to an interesting strategy suggested in an article about Walgreen's (WAG). The strategy employed is called a "strangle," and involves buying both puts and calls on a stock that you think will make a sudden move. Credit Suisse's Sveinn Palsson and Edward K. Tom recod this strategy due to the nature of WAG's conference call, the first in which they will allow analyst and investor questions. They suggest that this will provide necessary volatility to the strangle in either direction. Turns out, they were on the money as WAG has gone through the roof today on good earnings. Here is the link:

Now, did this blogger profit from such excellent advice? Errr...not exactly. It was my intention to make a very modest test ($500, $250 for each part of the strangle), but as luck would have it I was not working and my trusty home HP monitor flickered, then faltered to its death yesterday and I was not able to purchase a position. That simple investment would've provided a 1-day return of about $1,000. The only thing that feels strangled is my manhood/nuts.

Wednesday, December 19, 2007

Criminals: Banks and Bowden

Surprise, surprise, Morgan took a$10 billion dump today, and like many of their peers, sought overseas investors to supply them with cash as they continue to be less than transparent when reporting on future writedowns. How can anyone have faith that banks are not withholding billions more in future losses?

And while we're on the subject of criminals, let's talk about Bobby Bowden. How many years has this guy gotten away with passing students via cheating and pressures placed on profs and TAs? The football program is a sham, along the lines of Bob Huggins at Cincinnati (0% passing rate for his players, that's z-e-r-o). 25 players, that's like, half the team, will be ineligible for the upcoming bowl game. In a touching gesture to his players, Bowden will not make this year's redshirts lose their eligibility by activating them for the game. This way, they can cheat/skip classes/collect bribes for another year. FSU should've known Bowden went nuts anyways when he started wearing that sideline sombrero.

Not coincidentally, my pick of the day will be Kentucky, who, at -3, were already a solid play in The Music City Bowl.

I have a conference call scheduled with the VP of Investor Relations at Fortune Brands tomorrow, will post highlights and conclusions afterwards.

Tuesday, December 18, 2007


I almost had to vomit and lose money at the same time last night, a terrible combination. The Vikes, courtesy of 4 turnovers, managed to keep the Bears in the game until the very end despite them having almost as many 3 and outs as first downs. Thankfully, my tease with the Pack covered as well as keeping my tease with Florida alive in 2 weeks. As I mentioned earlier, UF will win by 1000 touchdowns, even if Rich Rodriguez is the new coach (he won't coach the game, so same old vanilla offense). I'll be watching the weather again this week as snow and sleet make it tough to put up points, even for Brady. What the hell happened to Romo by the way? Between his performance and Brian Westbrook taking a dive at the one inch line, I'm sure a lot of fantasy ballers actually did vomit on Sunday.

Hope you watched PXJ take a nice dip the last 2 days and scooped some up while it's similar counterpart XES had a good gain today. Also, good Goldman news will buoy banks for the day undeservedly, so again, a chance to buy XLF and watch as its competitors tank the rest of the week!

Cashed in my True Religion shares today for a 33% profit, but I held onto my 09' 10 LEAPS. Each store opening brings more success and I believe there's good run to their expanded product line even in a poor retail environment.

New picks coming....

Sunday, December 16, 2007


I'd like to talk about style. I'm 33, my wife and I have been working since we left college aside from a few years off for grad school. Our 401ks are maxed, we are no longer eligible for IRA contributions but those were maxed when the option was there. I argued that our investments outside of these accounts in accordance with our age should be risky, high risk/high reward. No mutual funds, no bonds, none of that crap that I have 20 years after retirement to be safe with. Fortunately, it was an easy sell. We're going for homeruns, and homeruns only.

Study after study shows that people are very adverse to loss, and will sell a loser too late and sell a winner too early for hopes of retrieving what once was, or "guaranteeing" profit. When friends and coworkers come to me for investment advice, I'm often shocked by how little risk they're willing to take given age and long-term expectations. They're simply afraid to lose money.

Did anyone see the Jets game last weekend? We see examples of this all the time in sports. Trailing by 5 points with less than 2 minutes to play, Mangini kicked a fg instead of going for it on 4th down from inside the 20. Great move coach! If you like losing by 2 pts. But wait, there's always the 25% hope of recovering the onside kick. The Browns got it and on the next play, after missing about 20 tackles, Jamaal Lewis rumbled for a t-dawg. Inexplicably, Mangini kicked yet another fg a mere1 minute later, insuring a 6 pt loss (and covering for me and my Brownies)!

Has anyone ever watched a Herm Edwards coached team? Infamous for his "you play to win the game" rant, it seems more like he "plays to lose by less than if I didn't punt." Same reason Marty Schottenheimer got fired, he just didn't have the nuts to stick it in.

Jim McMahon's coach attempted to pull him out of a game at BYU once when they were losing by 20 points late in the 4th quarter. After refusing to come out, Mcmahon led BYU on an apepoop comeback to win. He's a guy who played to win, always.

So what are you afraid of? Are you the guy who doesn't hit 16 against a ten (you know, the guy we all hate) because you're delaying the inevitable for a good 10, 15 seconds? Or are you the guy who knows that you have twice the chance of winning if you hit, even though you may go kablooey more often?

With that said, we won't be talking about candles or moving averages or chartist BS. You think Warren Buffet spends his spare time looking at graphs trying to find Rorschach patterns? Read about companies. Look for homeruns.

Bonus Early Task of the Day (will post tomorrow under heading): Read anything and everything by James B. Stewart.

WHY: This guy is a freakin' genius, his columns ooze intelligence and insight. He is currently the Bloomberg Professor of Business and Economic Journalism at Columbia University. We'll both make it a task to read one of his books.

WHERE: or find his books online.

Friday, December 14, 2007

Builders-No Bottom in Sight

This report was not put together by me, but by a trusted source. This info may be a day late and a dollar short, but for those of you eyeing a bottom, stop it. Standard Pacific is just waiting to go out of business, but I think puts provide too little reward at this point. Just to fill in a little info, SP and Lennar have tons of land in CA, AZ and FL. Enjoy.

I wanted to share with you guys some recent research I’ve done on the building industry with an eye on shorting some of these stocks, as well as who might be a good long-term stock purchase. My research was geared to determining who are the worst-capitalized builders and most likely to face liquidity problems/bankruptcy. My method was to look at: (1) the company’s cash on hand against total debt; (2) debt service burden; (3) available lines of credit and whether any of these lines have been drawn down.

This list runs from worst to best. All numbers are approximate:

Hovnanian: $2.5 billion debt; $25 million cash; appox. $300 million remaining on credit line (app. $450 million drawn)

Standard Pacific: $1.9 b; $22.3 m; $256m (after draw downs)

Centex: $5.3 billion debt; $380 million cash; $1.35 billion credit line (no draw)

Beazer: $1.76 billion debt; $224 million cash; $1.1 billion credit line (800 million drawn, so 300 million available)

D.R. Horton: $4.9 billion debt; $4.9 million cash; 1.7 billion credit (small draw); Note: According to Value Line, D.R. Horton is holding a large amount of land relative to other builders. This is a potential problem for a reason I discuss below.

KB: $2.8 billion debt; $272 million cash; $1.2 billion credit line (no draw down); Value Line: lots of sub-prime and entry level buyers

Pulte: $3.9 b debt; $74 m cash; $2.25 b credit (? Drawn)

Lennar: $3.6 b debt; $672 m cash; uncertain credit line (had trouble determining); Note: Value Line regards Lennar as one of least leveraged builders

Ryland: $1 b; $84.5 m; $871 m credit (small draw down)

NVR: $200 m; $74 m; $150 m available on credit line (after drawing $450)

MDC: $2 b debt; $670 m cash; 1.75 b credit line (no draw); Note: Value Line says lower land holdings than others

St. Joe: $428 m; $20 m; $500 m (small draws)

Toll: $1.9 b; $771 m; $2 b (no draw downs)

There is some information missing so, if anybody fills it in, let me know. I’ll leave everybody to draw their own conclusions here. One factor I have not quantified is how much land and constructed houses each builder is holding. This is important because builders holding lots of assets on their sheets now may be forced to write them down (as some have already done). Such write downs will affect borrowing limits (credit lines are often tied to value of assets). Some further projects if anybody is game:

Current value of land and unsold houses held by each builder;
Whether company has taken any asset write downs yet (if not, this could be a sign of bad news to come)
Where company’s land is located (Florida, Texas, Calif., Nev. are all experiencing steep property value declines)

The doomsday scenario here for builders is property values continue in steep decline, they can’t generate enough cash to operate their business, have to take asset write downs, the asset write downs cause credit to dry up, and suddenly they have to fold up shop

Thursday, December 13, 2007

Playtime is Over

Put the Nintendo controller down. Your fantasy football team has been eliminated. The writers are still on strike, so it's reruns again.

Every day you wake up with a chance to do something to make your life better. Did you make a list of things to do for today? Mine's sitting right next to me, and I'm crossing off #5 as I write this.

I'm far from an investment professional. What I know about the market I know from reading tons of stuff, from Value Line reports to Lynch to Dreman to Greenblatt, and from having the nuts to put my money down. I know enough to pay attention to the things around me. When I filled a prescription 5 years ago, my plan was with Advance PCS. What the hell is that? Turns out, it was a PBM, a pharmacy benefits management company, a middleman between the drugmakers and companies who negotiate prices. Sounded good, and 2 years later I had quadrupled my investment as Caremark bought them out. Turns out, Caremark would later be bought out by CVS, bringing even more money to the table.

I live in South Florida. I bought a house here 3 years ago. I was offered every ARM and alternative loan imaginable by guess who, Countrywide! So when their CEO said last year that those loans were not being offered by his company, I knew he was simply lying and badness was to come. I shorted Countrywide in the high 30s, nice!

Getting over to gambling... I mean, what else can you call investing when you're simply taking educated guesses at whether a company's value will go up or down (dividends hardly justify the arguments)? Neither am I a gambling professional. I can count 8 decks of cards and have used this skill to make some money. I've won betting football games the last 4 years (Super Bowl last 6). With that said, if you bet more than a few bucks on a game, you probably can't afford it. If your bets have 4 figures I'm sure that you can't afford it. But, gambling is lots of fun, so I'm gonna talk about it here.

Let's get started.

Investment of the Day: XLF
What is it? Banking Index
What to do? Bet against it, LEAP or short, but bet against it
Do I own it? Of course I do, silly! I bought the Jan 09' 39s, watching it fall as we "speak"

Bet of the Day: Florida against Michigan in The Capital One Bowl, -10
Why? Bet what you know. Living in Florida and watching the Gators' spread offense score gazillions of points every week, I'm sure that they can beat this coachless team that lost to Appy State.

Your Task of the Day: Call the investment relations department of a stock you own and ask them why the hell you shouldn't sell them in today's market.
Why: Once, when debating between buying Best Buy and Circuit City, I called CC and got some brutal honesty. They basically said, sure, we're a crappy company with little hope of ever reproducing BB's results, but hey, we're $4 with a ton of cash! We have nowhere to go but up. They were right, CC later topped $20 (damn, missed that one!)