It's Friday!!! Happy Halloween!!!

Some music for the scantily-clad ladies tonight ;-)

And something for the guys

Another "liquidation list" name....BEAV

Have to run to class, but BEAV is trading below it's $14 book value. This is largely due to the Boeing strike. As the picture indicates, BEAV makes seating and interior equipment for planes and has huge contracts with Boeing.

I have read that the 27,000 strong machinist union that walked out on Boeing will be voting this Saturday on whether to end the strike (Boeing seems to have caved to most of their demands, so this is a catalyst).

Position: Bought some BEAV at $12.62

Liquidation watch list...CETV

I am running screens to find stocks that are trading below their liquidation value (ie lower than Book Value). In this market/economy many of the stocks trading at P/B's <1 are probably going to die, but there are some stocks that are solid cash flow generating value picks (ie they have decent business models with large enough moats to stay alive during this financial meltdown).


One stock that stands out to me is Central European Media Enterprises (CETV). Yes, I know Europe is falling apart just like the U.S. and I know the Internet will ultimately replace TV in the future, yet CETV has a liquidation value of $39 a share but is currently trading at well below $30!

In case you are unfamiliar with CETV here's their company profile (courtesy of google finance/Reuters):

Central European Media Enterprises Ltd. (CETV) invests in, develops and operates commercial television channels in Central and Eastern Europe. As of December 31, 2007, the Company had operations in Croatia, the Czech Republic, Romania, the Slovak Republic, Slovenia and Ukraine. Its assets are held through a series of Dutch and Netherlands Antilles holding companies. In each market, in which the Company operates, it has ownership interests in license companies and operating companies. Operations are conducted either by the license companies themselves or by separate operating companies. CETV generates revenues primarily through acquiring programming for broadcast by the corresponding license company and entering into agreements with advertisers and advertising agencies on behalf of the license company. Other than in Slovenia, the license company also acts as an operating company. On October 17, 2008, the Company completed the purchase of the remaining 10% of the Studio 1+1 group

I also like that CETV has no direct Russian exposure (Putin is one gangster motherf**ker) but Russia could still invade any of those former Soviet satellite Republics. Returning to the numbers, CETV did just report a shitty quarter (like I said, their business is in Europe), but top line growth was still respectable (up %15 qoq). The company also guided down EBITDA forecasts from $425 million to $370 million but I am pretty sure that doesn't justify a stock trading 30% below its liquidation value.

POSITION: None....yet

Taking profits in Gafisa...

Still like the name for the long haul, but it's north of $16.50. GFA hase rallied off a $9 handle (as in trading at $9 dollars a share - not $90 :-) earlier this week so that is a huge move.

Depressing revelations everywhere....

In 1992, Edward J. Markey, a Democrat from Massachusetts who led the House subcommittee on telecommunications and finance, asked what was then the General Accounting Office to study derivatives risks.

Two years later, the office released its report, identifying “significant gaps and weaknesses” in the regulatory oversight of derivatives.

“The sudden failure or abrupt withdrawal from trading of any of these large U.S. dealers could cause liquidity problems in the markets and could also pose risks to others, including federally insured banks and the financial system as a whole,” Charles A. Bowsher, head of the accounting office, said when he testified before Mr. Markey’s committee in 1994. “In some cases intervention has and could result in a financial bailout paid for or guaranteed by taxpayers.”

Volkswagen says: "What global financial meltdown?"

Apparently those Brooke Shields commercials are working. A truly amazing chart (in this tape it's nice to see the shorts get killed once and a while):

Shares in Volkswagen have hit incredible heights as Porsche prepares to take over Europe's biggest carmaker because speculators who bet the auto stock would slump have been burned, analysts say.

VW shares spiked by 93.27 percent to 1,005.01 euros in early morning trading on the Frankfurt stock exchange Tuesday in an ongoing reaction to details from Porsche on how it planned to take over the company.

"What we have seen this week is definitely short covering," UniCredit equity analyst Christian Aust told AFP.
"Nobody else would buy Volkswagen shares at those prices. It doesn't make any sense."

Once the dust had settled around VW, Aust forecast: "We'll see a drop of course, but its not falling back to the 150-200 euro level."

Full Disclosure: My family once owned a VW :-)

This market....

is gayer than Richard Simmons scarfing down a banana while in a clown costume.



Not that there's anything wrong with that:

Goldman Sachs finally comes around to the impending solar glut...

"The risk of oversupply in the solar market will soon become a reality as considerably less generous demand subsidies take hold just as a wave of supply and tight financing hit the market," Goldman Sachs wrote in a note. "We believe that liberal subsidies of the past in markets like Germany and Spain are unlikely to be replicated in the future given fears of their ultimate cost in a bad world economy."

What took you guys so long? I've been saying this for months now. Wait; does this mean I am smarter than the "smartest guys in the room?"

It's Friday...

Some Comedy:




And some Music

Faith in stocks is difficult to find, but I am trying...

I hate this market's future but that won't stop me from looking for alpha and compelling firm-specific risk. Therefore, I threw some money at Gafisa (GFA) yesterday. The stock is trading well below its book value, has a forward P/E ratio of 4 (I estimate 09 EPS @ $3.00) and its PEG is below 1. GFA is so cheap that Sam Zell has invested some more money into the company as well (increasing his stake to 18.7%). I figure if GFA is good enough for Zell (who made his money in real estate) then GFA should be good enough for me.


Once again this is a long term investment (minimum 5 year horizon). I don't expect a V-shaped recovery in GFA anytime soon, but the stock is down 49% YTD (about as close to a washout as possible). Therefore I figure that GFA will be higher in 12-24months than it is right now. Of course if there is a spike up to $20 I will not hesitate to sell some shares, because 30%-40% moves do not come often...unless we're talking about this market ;-)

Position: Long GFA (only have 1/3 of a desired position in this stock - will dollar cost average in over next few quarters)

P.S. I am still holding onto my Mosaic position (MOS) for the exact same reasons. Cheap stock, but wrong time (unless you're willing to wait it out - I am only 21 yrs old :-)

Message to Kirk Kerkorian: 91 year-olds don't play the game!

Stories of 91 year-old billionaires taking extremely risky gambles on stocks (which is exactly what Kirk Kerkorian did with Ford) further strengthens Karl Marx's argument that bourgeoisie elitists only care about making money (ie their rapacious greed knows no bounds and will damage our system). Of course Marx also believes that socialism is superior to normally regulated capitalism, which is where I draw the line. Nevertheless, here's a greedy old man who deserved to lose his shirt, and he still has 133 million shares of Ford outstanding - nice one Kirk!

NEW YORK (AFP) – Billionaire US investor Kirk Kerkorian announced via his holding company Tracinda on Tuesday that he had begun selling shares in car group Ford and was considering divesting his whole stake.

In a sharp change of strategy, Tracinda said it had sold 7.3 million shares in Ford for an average price of 2.43 dollars per share -- representing a huge loss for the 91-year-old investor.

The group said it also "intends to further reduce its holdings of Ford common stock, including the possible sale of all of its remaining 133,500,000 shares" which amount to a 6.09 percent stake.

Tracinda said it has hired an investment bank to help it with the divestment, but did not name the firm.

In two major operations announced in April and June, Tracinda built a position in Ford, paying 8.50 dollars a share.

P.S. That was the least creepy picture I could find of Mr. Kerkorian for this post...yikes!

Mosaic is terribly undervalued right here...

in fact they are so undervalued that they might be bought out very soon by their majority shareholder, Cargil. Recently I bought some shares of Mosaic figuring that I'd kick myself for not pulling the trigger on a stock that was trading at a sub 3 P/E and sub 1 PEG (turns out Cargil, who already owns 65% of MOS, might be facing the same decision to buy MOS soon).

Hat tip to Notable Calls for bringing this to my attention...

Mosaic (NYSE:MOS): Cargill Standstill Expires Wednesday October 22. Mosaic Buyout in the Offing?
Soleil's Gulley & Associates is out with a noteworthy call on Mosaic (NYSE:MOS) noting that Cargill's four-year standstill on Mosaic shares expires this Wednesday. The expiration sets up the possibility that Cargill could accept the gift that "Mr. Market" is presenting: accretively increasing its ownership stake in Mosaic.

How accretive? Buyout of the 35% minority stake could boost Cargill earnings by more than 20%, given the fact that Mosaic is currently trading at just 2.7x consensus calendar 2009E EPS of $12.25.


Knowledgeable buyer. Given Cargill's extensive knowledge of the global grain markets, any action it takes with respect to its Mosaic ownership position will be closely watched. Cargill is a leading global grain processor and one of the largest private companies in the U.S., with F2008 sales of $120 billion and net income of $4 billion.

Mosaic shares are down 80% from the mid-June peak of $163, during which time the S&P 500 is down 30%. With Mosaic's equity market cap of just $15 billion, down from the peak of $72 billion, the 35% owned by the public is currently worth just $5 billion, down from the peak of $25 billion.

Mosaic currently accounts for roughly half of Cargill earnings:
- Cargill reported 1QF09 net profit of $1.5 billion
- Mosaic reported 1QF09 net earnings of $1.2 billion; 65% of which is $0.8 billion, approximately half of Cargill's $1.5 billion.

Quoting from Mosaic's F2008 10-K filing filed July 29, 2008:"Standstill provisions in our Investor Rights Agreement with Cargill restrict Cargill from acquiring additional shares of our common stock from our public stockholders and taking other specified actions as a stockholder of Mosaic. These restrictions will expire on October 22, 2008. Following the expiration of the standstill period, Cargill will be free to increase its ownership interest in our common stock."

With Mosaic currently trading at a P/E of just 2.7x, Cargill's buyout of the minority interest it doesn't own should be highly accretive to its net earnings. Firm ran twocases, at $50 and $82.5 per Mosaic share.

We'll be selling into this rally sooner rather than later....

Listening to Hugh Hendry (an amazing fund manager) discuss this de-leveraging process only further confirms that this is a bear market rally and not the bottom everyone is looking for.



In case the link doesn't work here's a synopsis of Hendry's comments:

Banks won't return to their old highs for at least 25 years. Why? They will be regulated considerably (amen to that) so as to never repeat this meltdown again. The result is poor earnings potential and very modest ROE's. The exact same thing happened to banks after the Great Depression.

Hendry is a big believer of the current commodities super cycle (especially the ag names - fyi I got long MOS two days ago...more on that later)

but...

Hendry warns that the current environment is not hospitable to any stocks (regardless of how auspicious their future is) because we are in the deflationary stage of the cycle. First came the discovery process - we can all see that oil, coal, ag, copper, etc are not getting easier to find and brought to market. Next comes the deflationary stage as "hot money" gets overzealous with the trend (nothing goes straight up. Right hedge funds?)

The final stage is re-inflation as a result of low interest rates and excessive bank liquidity put into the system. However, this third stage won't likely come for at least another 2-3 years in Hendry's opinion.

In the mean time equities/stocks will suffer as deflation occurs (hedge funds, banks will delever and become more modest in their equity stakes - realizing that money and good credit scores don't grow on trees). Much to my chagrin Hendry claims that all finance guys are "perma bulls" and that they forget the Golden Rule of running funds - 1st priority to NOT to make money, but rather to not lose money (kinda like Buffett's "wait for your pitch analogy").

In the long run Hendry believes that this credit crisis will help the commodities super cycle because capital/funding is very scarce for all commodity projects and that will prevent more supply from coming on the market when we most need it.


I agree with Hendry's last point about this "credit freeze" prolonging the commodity boom. His reasoning about stock under performing in a recession/depression also makes sense (even if these stocks have PE ratios of 3-5 :-(

I guess the conclusion is that commodity stocks are now officially value stocks. They will produce adequate cash flows during this slowdown, and their true value will eventually be realized when we turn the page on this financial shit storm.

Start studying Mandarin because...

while we (The U.S.) are facing economic ruin, the Chinese are growing at 9%! This number basically confirms that BRIC ain't going back to the stone age any time soon. China will continue to slow as recessions engulf their key export markets (U.S., Europe, Japan), but it is obvious that the Chinese have enough liqidity/reserves ($1.9 trillion dollars) and internal demand (1.3 billion people) to weather this financial storm (not to mention get easier credit terms from eager lenders).

Looks like the Chinese have got the hang of capitalism...wish I could say the same for the U.S. :-(


P.S. I will try to get even more long JOYG, JRCC and APWR tomorrow because this China news is bullish for the "Global growth" story. I love how the Bloomberg piece managed to turn 9% growth into a negative...lol...has he seen the U.S. and Europe.

A great illustration of how "frozen" the credit markets are...

But at least we're making some progress. Right?

Notice that even during the "best" case scenario (ie before the panics), the LIBOR spread was still around 250 bps over treasuries!!! This begs the question will we ever get back to past spread levels (50 bps)?

The answer is clearly no. 2001-2007 was the easiest access to credit ever in the history of capitalism and it will never be seen again. All we can hope for is that the companies that genuinely need credit get some. I especially hope that the alternative energy companies get funded.

*Graph courtesy of Wall Street Folley

*Some more info on LIBOR

It's Friday...

Is a Buffett bottom coming?

Must read material from the man himself.
His main points...

So ... I’ve been buying American stocks. This is my personal account I’m talking about...If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

This is one key question every investor must always ask him/herself...Am I using a stopwatch or a calendar to measure my performance? Apparently Buffett and I use a calendar, that's why I am buying stocks like APWR, JRCC, GAF and MOS down at these levels even after taking egregious losses.

More quotes...

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree.

I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

Profit making and taking still to come...

That rally was really faded (sold off) this morning. Despite the pullback, I expect this bounce to continue till around the 1070 level, where we will probably see a lot of resistance (graph courtesy of ibc)

Of course if this rally doesn't sustain itself up to 1070 the next support levels appear to be at the 970, 940 and 915. Lets see what happens.

How to play the hybrid revolution for the next decade? Metal stocks

I have been reading up on this stuff for my senior project and it's blatantly obvious that copper, zinc, nickel, lithium and cobalt demand will continue to be strengthened as more and more hybrids are bought and existing vehicles get replaced. This doesn't mean copper and its peers will double in two years but if we double in 10-15 years time, that implies a 4-7% CAGR on just the demand side (I like that visibility)

More developing on that front (my project won't be done for another month and half).

Nevertheless, here's something to think about: approximately 60-70 million cars purchased every year and more than 800 million cars on the road right now. The average car currently has about 50 pounds of copper, and the average hybrid has about 100 pounds of copper in it. Think there is some demand for hybrids coming with oil likely staying above $3.00 a gallon? The story is very similar for other metals as well.

Good night and good luck.

We just won the "Black Swan" lotto...

Woop-de-f**cking do!!!

The CHART OF THE DAY shows Bloomberg's Financial Conditions Index, which includes yield spreads and measures of the money, stock and bond markets. The index's drop this month is the kind of rare, devastating event described in Nassim Taleb's book ``The Black Swan: The Impact of the Highly Improbable,'' said Nigel Marriott, the founder of Bath, England-based Marriott Statistical Consulting Ltd.

``It's way off the scale, a one-in-billions chance,'' said Marriott, a fellow of the Royal Statistical Society. ``This is absolutely a black swan event.''

In statistical theory, about 68 percent of events are within one standard deviation above or below the average, 95 percent are within two deviations and 99.7 percent within three. Markets are currently 9.47 so-called standard deviations from usual levels, the Bloomberg index shows.

The measures indicate conditions so unusual that they're comparable only with winning the lottery twice in a week or the earth being destroyed by an asteroid, said David Watts, a strategist at CreditSights Inc. in London.

Ironically I can't find the "Chart of the day" so I'll just assume Bloomberg isn't lying to me

Fear and Greed

Efficient markets my ass. Markets are run by the "animal spirits" of massive funds (mutual and hedge) so they only efficient in the long run and in hindsight. IMHO I think this is a TEMPORARY BOTTOM, but I'd say it's a good 3-6 months before we retest it.

Europe's is bigger than ours...

European governments say they are putting nearly $2 trillion on the line to protect the continent's banks through guarantees and other emergency measures.

Pledges by Britain, Germany, France, Spain, Austria and Portugal in recent days have reached a total of $1.96 trillion. The sums are considered a maximum, and might not all be spent if the financial crisis eases.

Many of the pledges came Monday, a day after the 15 nations that use the euro currency agreed on an unprecedented bank rescue plan

Europe's most unified response yet to the financial crisis dwarfs the the Bush administration's $700 billion rescue program.

I thought everything in Texas was bigger. Guess not.

It's a start...but spreads are still ridiculously high

Initial market reaction after announcement of coordinated policy interventions at the G7 and the Eurozone is positive: Credit spreads start to ease:

- O/N USD LIBOR: 246bp down from 463bp (17bp pre-crisis)

- TED spread (3m LIBOR-T-bill spread) slightly down to 456 from record 463 earlier on Oct 13 after Fed announces unlimited USD liquidity (17bp pre-crisis)

- 3M USD LIBOR-OIS slightly down to 359 from 364 (10bp pre-crisis)

- 3M EUR LIBOR-OIS narrows to 182bp from 207 (10bp pre-crisis)

Looking at how low spreads were before this crisis and where they stand today, it is obvious the credit markets will take years to fully recover. I'd say by the 4th year of an Obama Presidency ;-)

Don't think about the markets...

Think about this shit instead...

HERE'S THE CRAZY PART: THIS IS NOT PHOTOSHOPPED!!! OH MY GOD!!!

A lion rides a horse in a circus show in Xiamen in southeast China's Fujian province Tuesday Sept. 30, 2008. The circus shows are being held during a golden week holiday to mark China's National Day, the 59th anniversary of the founding of communist China. OH MY GOD!

More crazy pictures:

This handout from the Phnom Penh Post shwos a house sawed cut in half by a Cambodian couple as they were hoping to avoid the country's convoluted divorce process inPrey Veng province near Phnom Penh

In other more relevant news, here's some interesting thoughts about the future of hybrid technology.

There is mounting agreement among automakers, policymakers and environmentalists that the electrification of the automobile is inevitable and most of the major automakers are developing hybrid and plug-in hybrid vehicles. Although such vehicles currently make up less than 3 percent of the market, the report finds "some degree of hybridization will be evident in all vehicles produced in 2020 and beyond." That may seem ambitious, but other studies say interest in gas-electric vehicles is exploding and sales could hit 2 million a year by 2013, when there could be 89 different models on the market.

The VIX reached above 70! Wow...

THIS IS NOT A DREAM. This is THE most historical moment in global financial history since the GREAT DEPRESSION. I know the future will be painful for everyone but all I can say is "The only thing we have to fear is fear itself."


The world will continue to progress and innovate, albeit at a much slower rate. In these difficult times all you can control is how you "ride it out." For the next several years it's important that you take care of yourself and what's important to you AND STOP WORRYING ABOUT THIS SHIT, because you have absolutely no control over it. I am not saying don't read about the future expectations for markets, but don't let things beyond your control own you.

Don't let the fuck ups in the White House, Congress, and Wall Street break your spirit. People can do extraordinary things when they reach deep inside themselves and block out all the negative assholes in their life. Continue to repeat this mantra when you're faced with great uncertainty and fear. If you do you will then have the faith to ride out the shit storm perpetrated upon you by total moronic strangers.


P.S. Given yesterday's awful close, I knew the markets would gap down today. So I basically slept an extra 30 minutes so as to avoid the carnage (staying true to my don't let Wall Street's shit screw up your life - right?). I removed by JRCC stop loss order last night, so I did NOT get stopped out this morning. In fact when I woke up to see the VIX above 68, I said "no balls, no babies" and bought some more JRCC and APWR. I will enforced stops though on both of these going forward.

The VIX is above 50 - Do not short! Get long something

I picked up a lot of JRCC at 16.20.

Stop Loss set to 15
Price Target 19.50 (The upside is 2x more than the downside, but I could be wrong again...this market is a bigger tease than my first girlfriend ;-)

This could be a game changer for coal...

It's possible that the U.S., China, Russia and India won't have to scrap their enormous coal reserves because of underground emission storage technology (although "pipe it into the ground" doesn't sound all that technically innovative to me ;-)

Of course, we'll all eventually have to give up coal since it is a finite resource and is extremely dangerous to mine. Nevertheless, in the short term (say 5-10 years) I fully acknowledge the massive energy shortages currently facing the world. So anything that allows developing economies to burn coal, with minimal added CO2 emissions (not to mention sulfur and other nasty pollutants) sounds great!


It appears we won't know the full answer for another 3 years (that's how long this pilot program will take), but according to the NYTimes article, India fully expects to tap its coal reserves given that it currently produce less CO2 emissions than either the US, China, Japan, or Russia yet the country makes up 17% of the world's population (hard to argue with that logic).

Stock ideas: Long...
WLT (they do have credit exposure through their lending business though..WTF?)
ANR
JRCC
ACI
SSL

Position: None in any of the names...but thinking about it.

Al Pacino has a message for our esteemed government officials and financial CEO's (as played by Kevin Spacey)

"What you're hired for is to help us. Does that seem clear to you? To HELP US! Not to fuck us up! To help men who are going out there to earn a living. You fairy! You company man!"

Gambling sucks...and so does this market

that's all I've got to say.

Position: Sold 1/2 of my UBB for a fat loss

My bailout gamble...

This market is a pure casino (up big one day, down big the next). Lately we have the folks in Washington to thank for this extra volatility (remember the market's drop on Monday? It seems like a year ago).

Anyway, given all the pork that's been thrown on this bailout bill, I believe it will receive the 11 converts it needs to get passed. Consequently, I think this market will rally. Why? Because this is the "mother of all bailouts", I don't know if this bailout will work in the long run (this is RTC x 10 in size and scope) but I feel pretty confident that it will at least temporarily unfreeze credit markets and reduce libor (while the world digests whether it will truly end this vicious credit cycle we're in). So my play will be to go long banks.

However, rather than go long C, GS, MS, or even the UYG. I will go long UBB (a Brazilian bank). This bank has absolutely no exposure to subprime (so I feel a little more comfortable with my purchase) and it also has a beta of 2 when regressed with the XLF (financial sector spider index). That means in theory it should act like the UYG, except without the stupid 1% NAV fee the UYG charges (that's on top of the transaction fee mind you).

Of course, UBB's R-SQUARED when regressed on the XLF is only 25%. That means the XLF only explains about 25% of the total stock price variation in UBB. However, I feel it's safe to say that UBB and XLF are a little more correlated right now since we are on the brink of financial Armageddon (ie all financials are moving in lock step).

What is wrong with these people in government?

Our financial system is on the verge of collapse yet Congress is still loading up this bailout bill with pork projects (I guess these were all "must" have items):

Also included were more obscure terms extending tax breaks for motor-sports racing tracks, makers of wooden arrows for children, and the rum excise tax for Puerto Rico and the Virgin Islands.

Are you kidding me? Is this a dream?

This is the unemployment situation the U.S. can expect soon...

Our unemployment is 6.1% right now (keep in mind those figures are understated by our government), however, given the magnitude of this financial meltdown we should easily begin hitting the unemployment rates seen in Europe (which are north of 7%).

The biggest increase in unemployment came in Ireland, which already is in recession, where the rate rose to 6.2 percent in August from 5.9 percent in July.

Spain -- slowing after its housing bubble burst, hitting the construction sector -- saw unemployment rise to 11.3 percent from 11.0 percent.

The euro zone's second-biggest economy, France, saw an increase in the jobless rate to 8.0 percent from 7.8 percent. The biggest, Germany, was the only country to report a fall in unemployment, to 7.2 percent from 7.3 percent.