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