Tuesday, April 29, 2008

Are We Broke Yet?

Some alarming data has surfaced over the last week that I'd like to bring to your attention. Foreclosures are one thing, but the depth of this recession is yet to be realized. Not that it should be glossed over as bank auctions are failing at new highs every month. Even the NAR has admitted that "bank-owned" homes, aka foreclosed on/short-sales, are soaring and RealtyTrac thinks they will approach 40% of the market's inventory in the future.

New pockets of disruption have occurred. Utility delinquencies are at an all-time high. "Xcel Energy says 17%-19% of its 1.1 million Minnesota customers and its 280,000 Wisconsin customers are in arrears." This Midwestern utility company is turning off the lights on over 600 customers a day and expect things to get worse.

In an article written by Liz Pulliam Weston of MSN Money, she asks people to not think so lightly of their neighbors being foreclosed on. "Landlords are taking Section 8 people, people on government assistance, and moving them into 4,000-square-foot houses with five bedrooms and three bathrooms," said Steve Steele, the pastor of Oak Tree Community Church in Elk Grove. In many cases, Steele said, neither the landlords nor the new tenants have maintained the properties, which once sold for $500,000 or more." This sounds awful, and also suspiciously like my own neighborhood where some desperate flippers are moving people in without even notifying the developer. When called on it, they simply dare the community to throw them out.

Student loan access has dried up due to increasing defaults and high-risk lendees. Even the President was on today touting the necessity of getting these kids money.

With oil and food at new highs (again), I followed my own advice and shorted COF as previously mentioned. The stock has continued to rally on the coattails of AmEx's results, but I believe it will be short lived. Consumer confidence lowers daily and one bill after another continues to go into default for Americans. First, it was the mortgage. Then the car. Now utilities. Even if people are holding out for the credit card, eventually those other things must come first. Take a company that is exposed to auto, home, and credit, and I think the 40% jump from its lows is begging for a retest.

IOD: Let's keep watching gold. 17% of its highs.....




Friday, April 25, 2008

Alpha Male

Without a bit of shame in self-promoting my opinions and my blog, I refer you to my article published yesterday at seekingalpha.com:


For my loyal readers, this is no new information, simply a more cohesive article covering the rapid rise in energy and ag stocks over the last year. I would also refer you to the commentary for 2 reasons. Look at how not to respond to an article if you disagree. Simply saying you suck and you're wrong without an argument makes you look stupid. Also, look into Jack Yetiv's articles covering the solar arena. He is very thorough in his analysis and outlines his argument for many of the companies mentioned in my article. Even though he disagrees with me, he admits that some of these stocks are carrying huge P/Es.


Microsoft got bashed after yesterday's close. However, simply falling below 30 doesn't throw it into the immediate buy category; it's still up from $26 a few weeks ago. I would hold out for a return to those levels before buying, with or without a Yahoo resolution.

A long-time favorite of mine finally hit the mark today. When COF broke $50, I bought Jan 09' puts against it as I've been advising for some time now. Amex came out with crummy earnings and they are a much better run company than COF. Furthermore, COF's continued exposure to auto loans leaves another shoe to drop and I expect much volatility over the next 9 months. Consumer confidence hit a 26-year low this week. Ouch.

P.S. My info was correct. Options on TAN began trading today.....only out to 10/08 however. Back to it's IPO price in the $25s and worth a look.

Wednesday, April 23, 2008

Wabbitt Season

Might as well be, because it's sure not earnings season. Our old friend Ambac was out today with a mere loss of almost $12/share. UPS said the economy stinks and guided lower. Drugmakers are getting hammered as Schering-Plough and Glaxo earnings diminished significantly. Delta lost $6 billion dollars. Yahoo made a whole 11 cents. RBS and NCC had to raise $24 billion and $7 billion respectively to stay afloat, diluting their shareholder value to 0. The Brits are following our lead by allowing banks to swap out crummy MBSs for treasuries. Aside from Google, can anyone point to earnings anywhere? Yet financials continue to weather and homebuilders are returning a huge profit so far this year. Makes sense. No one can borrow money or sell a house.

COF has gotten bashed this week as there is some realization that their business is in trouble. My sometimes friend, sometimes mortal enemy of TheStreet.com, Doug Kass, who likes to tell you what he did the day after the market moves, wrote that he shorted the RTH yesterday heavily. This index is very similar to XLY.
In case you missed it, another Ag boomer hit the market yesterday, Intrepid Potash. What makes fertilizer intrepid I'll never know, but pegged to debut at $32, it finished the day over $50. The ball is rolling fast now with new solar ETFs and fertilizer companies making the best IPO debuts of the year. I just spoke with Claymore today to find out when options might begin trading on Tan. They told me as early as tomorrow. Giddyup! I am getting closer to pulling the trigger on a hedge strategy of buying TAN now and shorting some of its components 6-12 months from now. I will search for an equivalent Ag strategy and let you know.
In an interesting note, Canada lowered their interest rates yesterday. The EBS has been fighting this for months, but the BoE recently capitulated. Nobody wants to see our dollar go to zero. They'll start their printing presses as well to keep that from happening. Should be fun....
IOD: Check out http://www.edge.org/.

Tuesday, April 22, 2008

The Heroic Theory of Invention

This theory postulates that only a few selected individuals have had the genius to come up with most of the innovations that have led Western societies to dominate the world (although that is quickly changing). Guys like Einstein, Edison (this dude), the Wright brothers, Gates, etc., have had undue influence over the masses. Why do I mention this? It seems there have been few investors who have understood the market in any area with the depth it deserves, not influenced by momentum and trends, but a core understanding of why companies do well. If we can tune out the continuous stream of "what's next" information and try to assess the horizon 1,5, and 20 years down the road, I believe we'll be in a much better place. The analysts don't have this horizon. They tell you about next month and next quarter. Money managers continually underperform benchmarks because they chase results, often buying high and selling too late. Let's review some of my suggestions here and see how those trends have changed or remained on target.

12/13/07 My initial blog pick: Shorting XLF. That week, this financial index was trading at $29.35 and went over $30. I sold in March with the price at $22. Things have changed since then. XLF is now $26. Banks continue to report dreadful earnings, raise cash to stay afloat, and are rewarded for it. This sector is scary right now and I can't predict a precipitous rise or another Bear like event that will cause disaster. My recent strangle on NCC is working well as the company has not been able to find a buyer and they had to raise $7 billion yesterday to stay afloat. I still need a bigger drop in price though to cover my call, which I'm hanging onto in case of a future rise.

12/18/07 Long PXJ, $26.93 that week, fell to $21.75 1/22. Now $30.67. Good opportunities arose several times to buy this oil services ETF that owns winners Transocean, Schlumberger, and Halliburton. I have recommended it several times, but even my initial reco would have yielded an 11% gain.

1/4/08 Short COF Jan 50s and 55s. Capital One has been hugely volatile over the last 3 months, but their huge exposure to auto, credit card, and home loans leaves them vulnerable. Trading at $46 at the time, the stock plummeted to $39 and rapidly rose to $56 in the same month. I recommended shorting it again when it got over $50. It's now at $47. You could've made money both times.

1/16/08 XLY puts, $30 that week. I have and continue recommending shorting this retail ETF. Now trading at $32, it has dipped into the $28s over the last 3 months. While no returns yet, I still believe this economy is dead and these companies will suffer over the next few quarters. With that said, a more specific retail index, XRT, might have been a better hedge, but the results have been the same.

1/24/08 QID, $47. Admittedly late to this party, this double inverse NASQAQ play still yielded good results. A mere 7 weeks later, sold at $55 (went to $56), a 16% return. It's now at $42.

SRS, several times, now $87. I've gotten hammered on this one. This double inverse commercial real estate index has been beat down over the last few months. But, in reading my posts, you'll see I reco'd this as a 2-3 year play. I bought it well over $100.

3/17/08 See list of puts that paid and didn't. 5/6 for 20% return over 77 days.

Current: Still trying to workout ag/solar angle. New solar/energy ETF may present hedge opportunity by buying basket long and shorting individual solars like FSLR and TSLR.

One more thing. Happy Passover to my fellow Hebs! Know I have one reading the blog currently....

TOD: Do not, repeat do not, use cloves of garlic to cure ear infections.

Saturday, April 19, 2008

Googily Moogily

First, I apologize for my brief, semi-lame, and incomplete last post. I am still figuring out how to work this thing and I will consult Google and my fellow bloggers to figure out how to make this thing a little fancier with graphs and pics.

But, while we're talking Google, it's not everyday a stock jumps $90. I bought Google long ago at a very high price, so no one was happier than me yesterday. Google is not a trade, it's an investment. Even with yesterday's gain, it's still only 8x higher than it's IPO debut. If you look at Apple, Microsoft, IBM, etc., those companies have returned thousands of percents over their histories. Is there any reason to believe Google should be any different? NO. Google literally has a chance to make world change and they are the most innovative company in the world. They blasted earnings projections and apparently they're still able to sell a little advertising.

The market did not present the buying or shorting opportunities I was hoping for this week. False optimism catapulted stocks on such great news as a $5 billion dollar loss and the cutting of 9K jobs at Citi. Microsoft is back over $30, XHB is over $23, and COF approached $50, but actually lost yesterday. If we review a past reco, PXJ, an oil services stock that owns studs Halliburton, Schlumberger, and Transocean, has been up almost 30% over the last few months. While thinking about "new energy" and peak oil, even if we do find new technologies, it's not like Exxon and Conoco are just going to go away. No, I think they'll be able to find some use for their $11 billion/quarter earnings. Just look at the excitement over Petrobras' potential 33 billion barrel discovery.

Some of ag/solar companies I posted recently hit 52-week highs. This bodes well for our shorting plan. The only question is will this boom last 1 year or 5 years? We can short out til' 2010, is that a long-enough time frame? I think so. As P/Es hit triple digits, they won't sustain for very long. We'll keep following these guys for the most mispriced/biggest potential losers going forward.

An interesting thought arose on the credit crunch this week. Students can't get loans anymore. Who will this hurt the most? On-line and pseudo schools that have popped up everywhere over the last few years. Karen Finerman brought this forward on CNBC, and while I'm not a big believer in the Fast Money crew (Macke said Google was a dead trade, and Finerman has been recommending Crocs all the way from $60 down to $10), she is the most conservative of the bunch, and probably the most pessimistic.

A little fun has been attached below as it's never too early to think about opening weekend!



Tuesday, April 15, 2008

Little Tuna?

With the NFL draft fast approaching, the only decent professional one at that, the #1 pick has become a burden, not a gift. Aside from Darren McFadden, there is not one true legit #1 pick talent wise. The Dolphins, after speaking with the commish, may opt to pass on their pick as they don't need a running back and The Long brothers don't excite anyone. As MK Jr. pointed out, Gholston used Jake Long as a cardboard cutout during the OSU-UM game. The Commish has said it's perfectly fine for the Fins to pass and pass and pass until they feel like jumping in, saving millions on a pick that might be a bust. Hilarious.

I'm going to post some numbers here out of anger. If I have to hear one more time that "The Captain" is a leader, or brings the intangibles, or slept with Mariah Carey, I'm going to be ill. The guy has and never will be the best player on his own team, especially now. Let's see how he stacks up against other SSs.....

Ok, I was going to post some numbers here but I can't figure out how to download graphs and charts. That will be my weekend project. Suffice it to say compare Jeter's best 5 with Tejada, Nomar, Hanley Ramirez (just getting started), and A-Rod, and it's not even a contest. If you were that guy 2 years ago who said Jeter was better in a the year A-rod hit a mere 35 HRs, shoot yourself...

Monday, April 14, 2008

No Soliciting

Here we go. For the first time today, I received a direct mail piece for a home being auctioned in my city. I have never participated, signed up for, or requested info on a home auction. I don't know from what list my name was purchased. I do know beyond the telling details of "OBO" in the piece, that this is the beginning, not the end, of foreclosure armageddon. This isn't a yard sale. This is someone's house, albeit, a house they could never afford in the first place.

Another weekend article on MSN Money detailed the "poor lots" of 3 homeowners who suddenly couldn't afford their half-million dollar and up homes. Never mind that they didn't put any money down or didn't make $100K between them. The theme of the article was actually walking away from your house and a website that can help you do it. Sure, if you don't mind little things like a 300 point credit hit or maybe being turned down for a job because no one could actually think you're an adult after doing something like this.

Wachovia is bankrupt. Big surprise there. Guess that purchase of a California sub-prime lender 2 years ago didn't quite pay off. National City is floundering while it looks for a buyer, my puts have almost pulled even with my call loss with considerably more room to fall....COF was a bargain put at $53, waiting for another up day to short again. XHB has fallen into the $21 range, looking for another dollar or two more to go long. MSFT is back down to $28, need a few dollars more.

Oh, yeah. Retail. The market in its continued ignorance actually applauded a huge March increase of 0.2%, flat when you take out gas. Not so fast, smart guys. If you factor in inflation, which the government hates to do along with food and energy prices, sales look pretty bleak. Just ask Irwin Kellner, Marketwatch.com's senior economist. I have attached his thoughts below. Didn't we just go over this Friday. No money means no sales. I like my Jan 09' 38s more everyday....

Tomorrow, maybe a little football and a an anti-Derek Jeter rant just to mix it up a little, TC, will continue to evaluate our combined lists....



Friday, April 11, 2008


Following on a theme from yesterday, I'd like to list some of the alt energy/ag boom stocks of the past year or so to evaluate for potential bubbling. Please feel free to add any I've missed:

CompanyCurrent$52-wk low52-week high P/E 3-year low

First Solar $270 $54 $290 133 $28
Flowserve $106 $57 $118 24 $27
Monsanto 123 56 129 40 28
Potash 179 57 179 53 24
Dupont 50 41 53 15 39
Mosaic 123 27 125 37 13
Syngenta 61 34 62 26 20
MEMC 73 49 96 21 10
Trina 37 26 73 24 16
Solarfun 15 8 40 35 9
Yingli Green 20 10 40 62 10
JA Solar 21 6 25 53 6
Sun Power 87 50 165 861 28
Suntech 45 28 90 48 28
Canadian Solar 24 6 31 neg 6
LDK 33 20 76 23 19

Furthermore, in comparing XHB components to what I think are the top 3 positioned builder(cash/limited land exposure) stocks, Toll, NVR, and MDC, we'll see that you'll pay to avoid having losers like Lennar, Centex, and Standard Pacific attached:

Company Jan 10' Calls

XHB $22 15s 9.30-9.80
MDC $42 40s 11.20-12.10
30s 16.70-17.90
Toll $22 15s 10.20-11.10

NVR $639 has no options

New Day, New Rules

What's today? Friday? Just as good as any other day to make up some new rules for the market. I'll get to this in a minute, let's start with eye-popping horrible news across the board.

GE actually lost 6% last quarter. Part of the blame game falls on BSC's effect on its financial units, but in fairness, CEO Immelt simply said we could've done better. This is particularly horrible news because GE is so diversified that they're usually able to mix and match writeoffs and gains into a consistent 12-16% earnings boost. The stock is down 10% pre-market, and I think if we go near or under 30, might be time to take a look. GE is one of the few AAA companies left, and they are moving aggressively to dump financial assets to focus on industrial/turbine/appliance growth in emerging markets. This will eventually pay off, but you have to be a lot more patient than I am to wait on this plan.

Despite ridiculous optimism/short-covering in retail yesterday, let's review a few numbers:
BBB quarterly profit down 16%
Tween Brands cut earnings forecast by over 50%
Saks same store sales down 3%
American Eagle same store sales down 12%
Target same store sales flat
Stein Mart same store sales down 17%
Bebe same store sales down 7.6%
What's scary is that aside from Saks, all of the others are mid to low-price retailers. I did leave the successes of Walmart and Costco out because we've covered their obvious advantages in this environment already.

Getting back to the new rules. Bernanke is acting like a 4-year old who loses a game at his own birthday party. Let's play again, but this time whatever I say goes. Lehman brothers repackaged a bunch of bad debt into a garbage bag and threw it into the Fed's dumpster. They called that debt package "Freedom," as in freedom from ever having to be responsible for that debt again. In response, the Fed wheeled out shiny new treasury backed dollars in the form of $2.8 billion. What else will they take as collateral, used needles and dirty diapers? Still think the dollar is ever going up again?

In another shocker, GS actually recommended short-selling WaMu today. Great advice. Advice I gave you 5 months ago with the stock at $20, not $11. Where was this note last year when the stock was at $45? Nice work, genii. I guess you have to be an investment banker to think up these strategies.


Thursday, April 10, 2008

For Sale

As I said, shorting the retail sector still remains a good idea after several months. The store best positioned to gain traction from Linen & Things bankruptcy is BBB (Bed, Bath and Beyond). Instead, they came out with horrible earnings and lowered projections. Walmart and Costco had meager growth, but are still gaining customers as the low-price option will continue to win out over the next few years. Clothing retailers such as Cache and Limited, which also owns Victoria's Secret and Bath and Body Works, had terrible quarters and lowered projections. Circuit City is bankrupt. On-line retailers are slumping. This is no mystery. People fund most of their purchases with credit card debt. As rates increase and limits get lowered, there ain't much room left for discretionary purchases. COF was down 5% yesterday.

Lehman added a mere $1 billion of bad debt to their balance sheet today as 3 of their funds failed. Where was this news last week? Oh, they forgot to tell us. They're getting hammered in pre-market trading. Also, GS reported an increase in Level 3 assets to $96 billion yesterday. That's great. What the hell is a Level 3 asset? Here's the definition taken from a Bloomberg article yesterday. "Under accounting rules, Level 1 assets are those for which market prices are readily available. Level 2 holdings are valued based on ``observable inputs,'' or prices of similar assets traded in the market. Assets are placed into the Level 3 category when there are hardly any observable inputs, and the firm has to rely on in-house models to calculate potential gains or losses." So basically, GS, using their own models to evaluate whatever these securities are, said they rose 39%. Wow, I wonder what model BSC was using to evaluate their Level 3s? Obviously an accurate system to let the creator of securities with no discernible model to also let them create models for valuing those securities..

The Yahoo story is getting interesting. AOL might buy a 20% stake in the company and they'll experiment with Google advertising in an effort to thwart MSFT. MSFT in turn, may enlist the help of Rupert Murdoch to make an offer that can't be refused by shareholders.

Longer-term, let's get back to trying to get ahead of the curve. This is not easy to do and we operate from a disadvantaged information standpoint. My recommendations that have worked well were hardly crazy contrarian calls. I simply believed that much more bad news was yet to come and that Wall St. simply wanted things to get better more than they thought things were better. Had I made similar observations 2 years ago, I could make much greater claims. Overly optimistic expectations for a recovery led me to point a finger at COF, and the potential for gov't intervention makes me think owning a homebuilder index 20 months from now is not a bad idea. I've also thought about ferreting out the top 2 or 3 builders cashwise (either limited land holdings and/or no drawdowns on their credit/revolvers) and just going long with them instead of getting some of the riffraff that comes with the index.

What about commodities? We've seen gold correct about 20% from its high and now start to run up. Oil quickly bounced back to make a new high yesterday. Rice, corn, wheat all at new highs. Coal is back in vogue as an energy source. Grain and fertilizer companies are setting new highs every day. Too late? I'll leave food out of this for now, but oil has a long way to go before it's finished. I'll refer you to a John Markman article where he talks about incredible shale deposits full of oil right here in the US (and some in Canada). If you reference his oil/gas calls from his 2004 article, you'll see he hit a few homeruns and struck out a few times. But, as I've repeatedly pushed, a homerun at 4x your money far outweighs a strikeout, where you just lose 100%. I've done some research as well into these shale deposits and if we're going for the fences, the more stable of these companies are worth some dollars.

Our gov't clearly has a policy of deflating our dollar for the sake of inflating imports/value of goods. The Fed is pondering a plan where they print more money to buy our own treasuries since the gov't can't buy treasuries directly. Huh? Sounds like an inflationary move to me. If that's our goal, gold can only go up as the value of the dollar dries up. I would like to see a bigger correction first, back into the 800s, before jumping in. That time may have passed unfortunately.

Alt energy is the next possible bubble according to Eric Janzsen of itulip.com. Along with Ag stocks like Monsanto and Potash, solar and wind companies have had extraordinary runs in the last few months. Several decisions have to be made concerning these entities. One, are we running out of food? Demands from exploding populations in China and India certainly raise the possibility, but are we really going to run out rice? Does it matter? If the perception is there, companies that provide synthetic seed and fertilizer certainly stand to gain. Are we really heading to new sources of energy and will those sources be subsidized? Yes, and probably yes. However, is it too late to get in and too early to short? I think so. Had you ever even heard of First Solar before last year; now it's a $300 stock. Let's wait until things get outrageous and the checkout clerk is talking about the wind corridor. Then we'll get our shorts out.



Tuesday, April 8, 2008

How Do You Say Latte in Mandarin?

No, I'm not referencing Starbucks "new" brew or their global reach. I'm referring to the impending takeover of Western civilization by the Chinese if we continue to run our dollar into the ground. I've made mention of itulip.com before. If you want to read something really scary, read the attached article to see what deflating our dollar and inflating our assets might lead to. The economist interviewed already establishes that the Chinese are dumping our treasuries indirectly through 3rd world purchases of mines, drilling facilities, and infrastructure. That's what happens when Helicopter Ben cranks up the presses. For a guy who's supposed to be the authority on avoiding recession, he sure seems to be following Japan's blueprint. Except of course, the average Japanese citizen had positive savings during their 17-year fall. The average American is drowning in debt....

Well what do you know, WaMu is bankrupt. But I've been telling you that for 5 months now. A mere $7 billion will keep them afloat. Of course, stock rose 30% yesterday with news of the infusion and this possibility is why I dumped it 2 weeks ago when it was around $9. National City is pondering several takeover options and has fallen precipitously since my strangle call. However, volatility is all over the map on these options, so be careful as the price is now under $9. I still think money can be made on both ends as hopefully it plunges to $5 or less, then receives a takeover bid propping it up over $10. Can't be too greedy though.

No updates on the Frank-Dodd builder bailout plan yet, but XHB is taking a 4% hit today. As the index or the few cash rich builders (Toll, NVR, and MDC) stumble back down, we'll keep an eye out for an entry point. Would like to see XHB get closer to $20.

Not surprisingly, neither my congressman or Cramer wrote me back when confronted with my emails about shooting down such a bill. Again, my call on this is documented back to February and thanks to my loyal readers, The Big Big Bet is living large on Google and yahoo search, so there's no denying our existence!

Linens & Things, kablooey, bankrupt. Retail will continue to dump. This is still a good entry point to short the XLY or RTH or overpriced retailer of your choice. First quarter numbers are going to be surprisingly bad for these guys, including Disney and Home Depot.

Tomorrow, long-term goals.


Sunday, April 6, 2008

Cramer's Been Stealing From Me!

Oh my god, it just hit me yesterday when reading CNBC to see what not to do. Cramer, in a shockingly bearish tone, rants that we should fight any homeowner bill from the gov't because it is in fact, just a large tax rebate for the builders. He suggests that you should call your house rep and insist that they vote no on any such legislation. Stellar idea! Too bad I had it months ago. May I refer you to my archives, 2/7/08, "Not a Pot to Piss In." Fortunately, I had taken to listing the task of the day (TOD) with each post because I can't archive them. I think you'll see that the TOD is "If you actually put money down on your house, write your congressman about not bailing out sub-prime losers." Ironically, that post also mentions how CNBC had trotted Cramer out that morning to blah blah blah the bearish news of the day....Geez, man, at least give the Ax some credit. Isn't it enough that you get to control 2 of the top 5 financial websites?

Keep faith, however. I will continue the good fight! Oh, to pile on the homebuilders a little more, here's some more S. Florida anecdotes about how abysmal the market is. Centex has a community that was supposed to open in 2006, but due to the houses being built on former farmland and a gun range, elevated lead and arsenic levels were found. After treating the soil and lowering prices by hundreds of thousands, the original purchasers/investors of homes were invited back to "preview" their homes. Of the original 70, 2 came back. Two. Yep, let's give these guys $6 billion, please.

Saturday, April 5, 2008


Even as a bill races through the Senate to "save" homeowners, foreclosures and delinquencies are mounting at never seen before rates. This bill is not for everyone. As a matter of fact, it's specifically for homebuilders, not homeowners. Senator Dodd, chief author of some of the legislation, admitted yesterday that the bill in its current state would not stem the foreclosure wave. It will however, amount to a $6.2 billion dollar tax break retroactive 4 years for the homebuilders. That's great. No different from a Bear bailout, the same people who flooded the market and helped create the bubble will recoup their losses.

Meanwhile, the attached article becomes a must read. Reported foreclosure rates are simply way too low because banks are taking forever, and in some cases, intentionally not foreclosing on delinquent owners. Just a few years ago, banks would hammer a foreclosure sign in your front yard after being delinquent for 30 days. Now, going 90 days over on your payments is the norm and banks weigh getting an occasional check versus the headache of kicking you out of your house. As I have mentioned several times, this sickens me. I continue to make timely payments while others squat in a house they're not paying for, or even worse, pay rent to an owner who pockets that money with no intention of putting it towards the mortgage. If we provide money to rewrite loans for these losers, I'll be a little more than enraged....

Perhaps I should have listened to my own advice. Homebuilder index XHB rose 12% this week on the possibility of legislation. I didn't see a good entry point for Jan. 10' calls, but with earnings season upon us, hopefully some dismal reporting will bring the XHB back to a current reality. NCC was down 8% yesterday and has been extremely volatile. That works well with my strangle as I hope to make money on both ends.


Friday, April 4, 2008

All Talk

A lot of chatter, but not much action....Paulson's plan, like word of a stong dollar, is lipservice. Housing reform may happen, but not overnight. Growth estimates remain way overinflated despite a small acknowledgement from Bernanke that hey, we may be in a recession. The testimony on the Bear bailout was terribly unimpressive. Several execs were trotted out to say a complete bankruptcy would have melted down the financial system and permeated the entire world's markets, but no concrete evidence other than perceived pessimism was offered. We have a precedent of major banks failing without it ruining our economy. As a matter of fact, the S&L clearance paved way for the biggest bull market of all-time.

Sucked. In a word, that sums up the jobs report that showed a mere 33% more lost jobs than predicted. Unemployment is now over 5%. As auto loan, credit card, and home delinquencies spread and people continue to lose their jobs, how can analysts continue to be so optimistic about the second half of the year?

I put a strangle on NCC. Rumors continue to circulate about a buyout from Key and now 5th 3rd. However, analysts predict the company may have to sell some of its ugly assets first to become takeover worthy. Again, my thought was they will either get a nice offer and shares will get a short-term pop, or things will fall through and NCC will plunge Thornburg style into oblivion. I bought Oct. 11 calls and Oct. 8 puts, you can join my strangle today probably at better prices. Continue to watch COF as a long-term put. The stock was over $54 recently and is just waiting to tank....XHB has been soaring on the Frank-Dodd rumor bill so I have not found a good entry point to go long, let's wait to see if there's a 2-day dump from the jobs report.

IOD: NCC strangle, COF puts, XHB Jan 10' calls
TOD: Rate No Country for Old Men

Tuesday, April 1, 2008

Post-Market Update

Aside from Lehman blowing up 15% today and short-seller accusations, unbelievable developments with UBS up 10% on a day they lose $20 billion. In reference to today's post, Centex has found suckers, err, land partners in Cali and Nevada on a joint venture. The deal is worth $161 million, estimates are that they made back $.18 on the dollar, nice! Furthermore, Centex had valued this land at $528 million on their books. This should lead to immediate markdowns on other land assets. Also, the Frank bill is moving right along into the Senate and might make it through now that is has stripped judges of the power to rewrite loans in bankruptcy. In addition to helping homeowners, the bill will allow homebuilders to receive huge tax refunds. XHB up 7% today...we might be too late! Let's wait for a better entry point though, and 2010 still looks attractive as we might get the double bump of bailout and a true turnaround. Failed in my limit order to set up a strangle on NCC as they met with GS today. My thought is either they will be sold in pieces or be acquired. A decision may have to be made before earnings on 4/22, so I may severely shorten my time horizon.

New Quarter, Same Results

With Yogi Berra like clarity, Lehman explained their issuance of $3 billion in preferred shares at unbelievable returns by saying that they wanted to clear up any liquidity concerns by raising more capital. Uhhhh, errrr....doesn't raising more capital give the appearance of diminished liquidity? Maybe so, but possibly just following recent market reaction, they knew that this move would be rewarded under the umbrella of "the worst must be over."

New quarter brings new bullish optimism as analysts and bulls hope that most dirty laundry wasn't cleansed but burned in a bonfire last quarter. UBS answered that quickly by doubling their writedowns to $19 billion and asking for a mere $15 billion to stay afloat. Predictably, they are up with Lehman in premarket trading. Huh? Can anyone have confidence in these companies?

Worse yet may be the implementation or some form of the Paulson plan. Bill Gross, chief investment officer for PIMCO and generally accepted bond wizard, wrote an article yesterday discussing the potential profit hit for "shadow banks." This is synonymous with investment banks, who, under the new plan will have to deleverage and raise capital requirements. This will kill profits along with the potential for new Dem corporate taxes. This would be in an effort to prevent a BSC like bailout in the future.

Lost in the Paulson speech is the possible growing support for a Frank-like FHA homeowner bailout, detailed well by Diana Olick, one of the few reporters at CNBC apparently not forced into a bull stance. Given my diatribes on the incompetence of homebuilders, what I write next may be viewed as heresy. If such a plan becomes imminent, foreclosures or the threat of foreclosure will be stalled, reducing the housing glut. This will allow greater margins from homebuilders in the short-term, even if not allowing for a true bottoming of home prices. This perception would be all homebuilders would need for a big bounce. Thus, we'll follow the progress as XHB calls out to 2010 are cheap right now, and may be a good play even if I hate the whole sector.