Friday, December 28, 2007

A vacation from the stock market

I am away celebrating the holidays. I shall return on January 2nd, 2008. From thence forth, I'll be posting only twice a week, on Tuesdays and Fridays. This should improve both the length and quality of my postings. Also, many new changes will be forthcoming to the look and content of this blog in the new year. Until then, happy holidays and stay safe.

Thursday, December 20, 2007

Nothing biting in the stock market

Maybe it's because I've been preoccupied with Christmas, but I can't seem to find any stocks worth buying. Many stocks are down from their 52-week highs, but are still expensive. I'm going to hang on to my money until things get cheaper, just hang up my spurs until a fat pitch comes along. I might consider adding to my E*Trade(ETFC) position. Citadel and I might be the only ones who believe that this company will survive.

Monday, December 17, 2007

What lies ahead for the economy?

Now is the time of year that every investing/personal finance magazine publishes their "what stocks to buy for the upcoming year issue" or their roundtables. Fortune recommends buying Berkshire Hathaway, while Barron's says sell Buffett
I, however, am asking reader for input. Feel free to comment and make references to the yield curve or other indicator. The more obscure the better.







Will there be a recession in the United States in 2008?
Current results

Thursday, December 13, 2007

Still no love for Bernanke from the stock market

Major League Baseball got hit with a bat today. The Mitchell Report came out this afternoon and some big names(Roger Clemens, Andy Pettite, Miguel Tejada)were outed as steroid users.

Wall Street is still reeling from not getting its way. Peter Coy wrote a piece on BusinessWeek.com explaining the deficiency of the Fed's latest move.

In fact, the only good news that has anything to do with America is the last few days is the death of Ike Turner.


European stock markets were down sharply. Apparently, no one is impressed by this multinational bailout.

The Nikkei was off 2.5%; It appears that subprime may reach all the way to the land of the rising sun.

So where can an investor find good news? Russia of all places. Putin is moving towards more economic liberalization.

Wednesday, December 12, 2007

The Dow down 290 or Money Honeys?


I thought about talking about the plunge the averages took after yesterday's quarter point federal funds rate cut by the Fed. Since it's not really that important to me, I will only give it a cursory treatment. The stock market is reacting like a spoiled teenager who was expecting an Audi R8 for their birthday, but instead got a Mercedes C300. They are both beautiful cars, but the former will cost you about $70,000 more. The Fed even threw in lowering the discount rate, the interest rate at which banks lend directly to each other from 5% to 4.75%. Additionally, they didn't leave out the possibility of another cut in the future. Still, Wall Street pouted and whined. In this morning's Wall Street Journal, Morgan Stanley economist David Greenlaw was quoted as saying that clients and traders he'd talked to felt that the Fed had 'fallen way behind the curve.' Then I read Martin Feldstein's interview with Maria Bartiromo in BusinessWeek. Wall Street is calling for a bailout from all corners of the land. Well it appears that the stock market's rich Uncle Ben will provide the cheap money/liquidity it is crying out for.

I am reminded of the words of Colonel Jessep from A Few Good Men as Lt. Kaffee is cross-examining him just before the movie's climax. He said:

"I have neither the time nor the inclination to explain myself to a man who rises and sleeps under the blanket of the very freedom that I provide, and then questions the manner in which I provide it. I would rather you just said thank you, and went on your way, Otherwise, I suggest you pick up a weapon, and stand a post. Either way, I don't give a damn what you think you are entitled to. "

This is probably how Bernanke feels about Wall Street right about now.

Personally, I'd rather write about the beautiful women talking stocks and finance, however. I decided that it was time to review my previous list of top ten money honeys. After all, Fox has debuted its business channel and I need to incorporate worthy members of their team. That said, here is my new revised money honey list:

1. Liz Claman
2. Erin Burnett
3. Bambi Francisco
4. Alexis Glick
5. Maria Bartiromo
6. Jenna Lee
7. Farnoosh Torabi
8. Brittany Umar
9. Shibani Joshi
10. Sandra Smith

Fox has made a really strong debut, as far as putting attractive women on TV. Liz Claman has made a Mike Huckabee-like surge if you will. Their reporters make up half my list, pushing out the babes of Bloomberg TV. Also, please don't look at these rankings as indicative of a loss of attractiveness on anyone's part. Farnoosh Torabi has fallen in my latest rankings to seventh from third. She is no less beautiful. This merely reflects the strength of the new entrants to the field.
8.

Tuesday, December 11, 2007

The Dhando Investor

Da Vinci is credited with saying, "simplicity is the ultimate sophistication." This quote definitely applies to Monish Pabrai's slim volume, The Dhando Investor. Quite simply, this is the best investing book that I've read this year. The book is only 183 pages long, but has more insights than a book twice as long. Monish Pabrai is a hedge fund manager based in Southern California who has shamelessly adopted the tenets of Graham, Buffett, and Munger with a great deal of success. The title of the book comes from a Sankskrit word which effectively translates as "business." Therein lies the crux to Pabrai's approach. Like the value investing masters he emulates, he views a stock as a share of a business. Ideally, he wants to buy a simple business with a moat, in a distressed industry, at a discount price. He then generally holds on to the stock for 2-3 years while the market catches up with its intrinsic value. This patient approach has netted his investors 28% returns during the life of his funds. Pabrai is obssessed with minimizing the downside in his investment decisions. He rejects the old saw about low risk, and low return. Pabrai also doesn't trade excessively or own a large number of stocks. He runs a focused portfolio and makes only a few big,infrequent bets whose size are dictated by the Kelly formula. When there is nothing to buy, he buys nothing. When something attractive comes along, he invests with conviction. Simply put, he is a rational investor, the most rare of birds in any market.

Tuesday, December 4, 2007

Seth tobias

Wow! This is a Shakespearean story. Seth Tobias, a Jupiter, Florida-based hedge fund manager and frequent CNBC guest, was found dead in his pool this morning. He was only 44 years old. Was it a suicide? Did he have a heart attack? Did his new wife murder him? A male go-go dancer named Tiger?

Wednesday, November 28, 2007

Wall Street finally sees a recession coming

That's all the financial press has been writing about for the last few days. I don't think that this is any more newsworthy than Helio Castroneves winning "Dancing With the Stars." Actually, it's less important because so many people have been predicting it. Hell, Jim Rogers for months has been saying that we're already in a recession. If the press is now writing stories about it, than it must be an old story. Don't fixate on the magical 10% number for a correction, or get caught up in these huge sucker rallies that happen once a week it seems.

Monday, November 26, 2007

E*Trade and TD Ameritrade hooking up?

This rumor sent ETFC up 25% on Friday. It has since given back 10%. I think this is a very real possibility and that's why I bought the stock in the thick of it's mortgage problems. TD Ameritrade had been eyeing E*Trade for years now. The brokerage business scales incredibly well so being able to spread costs over an increased asset base will make the combined company more profitable. It's still unclear however, if TD Ameritrade wants everything or just the brokerage assets.

Tuesday, November 20, 2007

Freddie Mac gets the knife

Shares of Freddie Mac(FRE) hit the skids this morning. Fitch Ratings is has put the rating on their preferred stock on negative watch. This is not a downgrade. not yet at least. Fannie Mae(FNM) also got a haircut. Defaults are rising at both outfits. They are government sponsored-enterprises(GSEs). That doesn't mean that they are government-owned, but it does give them access to great interest rates and the perception that the government won't let him fail. I think that Uncle Sam will live up to this perception. At some point, another bailout is coming. These are the last bastions of liquidity in the housing market so everyone has a stake in them being healthy companies. I'm adding both these stocks to my watchlist. If they get under $20, then I'll pull the trigger.

Freddie Mac Conference Call

Monday, November 19, 2007

Dipping my toe in the E*Trade pool


After some more research, I've decided that the sky is not falling at E*Trade. Despite the kick in stomach it got from a full-page Wall Street Journal ad by TD Ameritrade, I know that the stock resembles Jan-Michael Vincent right now, but E*Trade is not down for the count. So far this morning, it's lost about ten percent. That's perfectly fine with me. I have no problem averaging down on this one. This company isn't going bankrupt. The only way it's folding is through a merger, probably with someone like TD Ameritrade. I don't see any better values out there. This stock is selling for half of book value. I know that more writedowns are coming in this sector, and maybe at this company. It's going to require patience to make money on this position, especially when things get uglier and the market as a whole is convulsing. It's these times of market uncertainty, when astute value investors step in and buy good companies for practically nothing.

Thursday, November 15, 2007

Paul B. Farrell vs. Jim Cramer


Today is the Great American Smokeout, but let me suggest that we also declare it National Get Over Jim Cramer Day. Paul Farrell is the latest member of the financial media to take a shot at Jim Cramer. Last week, Paul Farrell wrote a MarketWatch column attacking Jim Cramer's trading strategy. In it, he acknowledges that he has only listened to "Mad Money" once but found it insufferable; I doubt if he's read Cramer's books. Farrell then goes on to make the usual anti-Cramer attacks: he trades to frequently, he's an irresponsible idiot, my passive approach is cheaper and takes much less time. Nothing new really.
So Cramer responded to Farrell's attacks, also on MarketWatch. Here is Cramer's defense of his picks. As usual, Cramer painted himself as a man of the people, the Huey Long of the stock market if you will, giving the people the means to live out their dreams. Farrell made the mistake of insulting Cramer's viewers, which allowed Cramer to break out his anti-elitist screed; his viewers are not idiots, they are fairly level-headed and sophisticated, they do their homework.
Cramer is part entertainer. He has never shied away from this role or denied it. He's not trying to be the august and patrician Louis Rukeyser. He is not the genial and folksy Warren Buffett and he knows it. He goes with what he has, manic enthusiasm and a near-autistic recollection of stocks. To this he adds sound effects. The show is not completely worthless fluff. Cramer's critics need to look past the buffoonery for just a minute. Cramer is one of the rare celebrities whose detractors' efforts to expose him only make him more popular. So just get over it.

Wednesday, November 14, 2007

Best-performing stocks year to date

This list of stocks was compiled by Bespoke. There are no real surprises; Solar power, mining/materials, and infrastucture stocks dominate the list. At this point, I wouldnt' touch any of these stocks, but I am going to put Mosaic and General Moly on my watchlist. I still believe the commodities story, but am waiting for some sort of pullpack. I own National Oilwell Varco and will continue to do so for the next few years.

Monday, November 12, 2007

Contemplating an investment in E*Trade?*%#@!


Surely you've seen that iPod Touch commercial featuring the song, "Music is My Hot Sex." That song is the work of a Brazilian band called Cansei de Ser Sexy which translates as, "tired of being sexy." That's exactly what's happened to the brokers. For the last five years, these stocks have been on a tear. They were like a "beautiful" woman that you met in dark bar and took home for one hell of a one-night stand. When morning came, you had a chance to really look at her and she wasn't pretty at all. Most of her was fake, and those parts that weren't were ugly in fact. E*Trade(ETFC) is now considered coyote ugly. It looks as if there are more writedowns on the way then they'd thought back on October 17th. So is the worst over? Maybe? Some analysts are predicting bankruptcy and it can't get much worse than that. Maybe not? Management once again guided lower, the fifth time in eight quarters. Looking at E*Trade's most recent monthly activity report for October, you'd surmise that this was a fairly healthy company. There will be the inevitable dead cat bounce, but I'm not talking about a trade. It's trading at 3x earnings and might might a good long term holding if they can avoid bankruptcy. This is a very hard call to make. A big, one-time, fixable problem is what every value investor love, but it's unclear if the term "fixable" applies to this situation.

Friday, November 9, 2007

Stephen Brown has sage advice to offer stock investors once more

Stephen Brown of NYU's Stern School of Business tells us how to remain safe and calm when the stock market seas get choppy. This is especially timely advice given the recent gyrations in the market.

Thursday, November 8, 2007

Waterboarding and the market

There's been a lot written and said about waterboarding recently. The US Senate has been the locus of the discussion. Waterboarding is a torture technique that simulates drowning. It's also what investors and traders do to themselves when they follow the market too closely; they're drowning themselves in information. Living and dying with every tumultuous turn of the market is not only painful, but is less than profitable. I can't tell you how many stupid trades I've made based on bad news that ended up being noise. More information doesn't automatically lead to better decisions. Right now I have position in National Oilwell Varco(NOV) that I've been checking just about daily. I'm expecting it to keep pace with the price of oil. While this isn't a bad thesis, it's one that might not be evident on a day-to-day basis. It's completely counterproductive, worse than watching a pot boil or grass grow. So now I'm going to practice what I preach; I'm only going to check the price of stocks I own once a month. Just in case something happens, I'll set price alerts on my E*Trade account. I think that I'll make better decisions and ultimately make more money.

Wednesday, November 7, 2007

Do you have a mancrush on Warren Buffett?

Do you remember the Seinfeld episode, "The Boyfriend," when Elaine starts dating former Mets great Keith Hernandez. Jerry gets to meet him and beforehand is fretting about his shirt. Jerry worries that it was too early in the relationship to help Keith move.

As with many Seinfeld episodes, it was a very funny rendering of a true life situation. Investors get mancrushes as well, especially value investors. Perhaps you don't have it bad for Buffett, but what about Ben Graham? Do you think that David Dreman is dreamy? Joel Greenblatt? Marty Whitman? Seth Klarman? Eddie Lampert? It goes without saying that you've read the books. Do you religiously read GuruFocus in order to see what these guys are buying? Do you feverishly Google them searching for articles or blog posts for information about their latest moves or philosophical treatises? Have you been to the Berkshire annual meeting in Omaha?

It's good to have heroes or people that you emulate. Reconstructing the rationale behind past investments of the masters of capital allocation can be very instructive. Just don't forget that you are you. Coke or the Washington Post are not selling at a fraction of their intrinsic worth. You can't snatch up KMart bonds right after its bankruptcy. This is not to say that you can't match or exceed their long term records. As Buffett has pointed out many times, he has more money than ideas and he could get better returns if he weren't so big.

Take a cue from the latest Nike basketball commercial featuring Buffett pal LeBron James, "you don't want to be LeBron James, you wanna be better than me." So learn what you can from these masters, but don't be hedged in by their thinking. Just like they did, you'll have to find the style that works best for you.

Tuesday, November 6, 2007

Is the worst over for the banks and brokers?

I see the fat yields. Citigroup(C) is yielding 5.70%. So is Bank of America(BAC). I don't think so. I'm still staying away from bank/brokerage stocks. Citigroup has said that they aren't expecting the messed to be cleaned up until the middle of next year. Shares are at a 4-year low.
I think that there are a lot more writedowns in the offing. Stan O'Neal and Chuck Prince paid the price not so much for individual incompetence, but because the mortgage-backed security trade went bad for their banks. Goldman Sachs is the only one of these banks that has bounced back significantly from the August lows and woes. I would liket to see more disclosures before I plunk down my money in this sector. Although I agree with Bill Miller that this is a great opportunity to pick up great companies for fire sale prices, I think that he is still very early. I will keep shorting these stocks.

Friday, November 2, 2007

Was Jimmy Cayne playing the flute while Bear burned?

Yesterday's profile of Bear Stearn's CEO James Cayne in the Wall Street Journal has touched of a firestorm of criticism. Today, The New York Times published a memo to Bear employees in which Mr. Cayne defends himself against the allegations.

Thursday, November 1, 2007

Links of value

Do investors have anything to fear from sovereign wealth funds?

An interview with Vitaliy N. Katsenelson, author of Active Value Investing.

Previously unpublished shareholder letters from Warren Buffett from 1973 and 1976.

The good old days of bank stocks investing.

Erin Burnett interviews legendary Tiger Fund Management founder Julian Robertson.

Is the yen headed higher?

Value Investor haven analyzes Harvest Natural Resources.

Is the Fed done cutting rates?

ConsumerSearch rates the online brokerages.

What Stanley O'Neal's replacement at Merrill Lynch must do?

Is fear driving the prices of oil and gold?

Wave goodbye to the private equity boom?

America, the land of the cheap?

John Mauldin's take on structured investment vehicles.

Nassim Nicholas Taleb explains the black swan.

Smart Money interviews Marty Whitman.

A Ron Paul speech from last year about the death of the dollar.

Wednesday, October 31, 2007

We're still #1!

According to a poll encompassing 11,000 business leaders in 131 countries, the United States tops the latest World Economic Forum Global Competitiveness Survey. The top ten consists of:

US
Switzerland
Denmark
Sweden
Germany
Finland
Singapore
Japan
UK
Netherlands

The bottom ten consists of the following countries:

Zambia
Ethiopia
Lesotho
Mauritania
Guyana
Timore-Leste
Mozambique
Zimbabwe
Burundi
Chad

Monday, October 29, 2007

Buffett keen on South Korean market

Warren Buffet thinks that the Korean stock market is still undervalued. Should you take a look at EWY? Just a cursory look at the ETF shows that it's selling at about 13x earnings, 1.7x book, and 0.8x sales. and 6x cash flow. The won has appreciated significantly against the dollar. There might be a case here, but I must admit that I don't know enough about the Korean market to give the proper context to these numbers.

Friday, October 26, 2007

Chipotle Mexican Grille(CMG)

I just read this blog entry from Robert Walberg about Chipotle Mexican Grille. It really ignited a firestorm of responses. All Walberg said was that he doesn't understand the hullabaloo about Chipotle and that the stock was very expensive, especially compared to its peers. Now, in the interest of full disclosure, I must admit that I ate one their delicious carnitas burritos for dinner last night. Read the comments that readers wrote. They can't for the life of them understand how he could denigrate the quality of a Chipotle burrito. It's as if you called their child stupid. While I am primarily a value investor, there is a bit of Lynchian populist in me. This sounds like a classic Lynch buy what you know stock, not unlike his calls on Dunkin Donuts and KFC back in the 80s.
I would agree with the readers who said that Walberg hadn't done his research. If he had, he would've found that not only is the food delicious and the service quick, but he would've noticed the hordes of people(lines out the door often) at lunch and dinner time. Also, as several readers pointed out, many of them are teens, who have tons of disposable income to blow on fast food.
I haven't eaten at Moe's, but I've had Qdoba and it's clearly an inferior, Chipotle knockoff.
Right now, Chipotle is one of those rare growth stocks that is worth the price of admission.

Thursday, October 25, 2007

How do you sit and do nothing?

One of the keys to making money as a value investor is to not be afraid to just sit and do nothing. It's boring. It's hard. It's not remotely sexy. Especially in our age of online trading, it's so easy to update your positions or net worth every minute. It's incredibly easy to hear some bad news on Bloomberg TV, CNBC, or Fox Business News, get frustrated and make a dumb move. So how do you avoid this? Turn off the TV. Don't read message boards. Restrict the amount of sources that you read. Avoid information overload. Don't check your stocks every day. Take the broker off speed-dial. Get away from the market regularly and get some perspective.

Wednesday, October 24, 2007

Is it time buy the homebuilders?

Steve Sjuggerud is one of many contrarians floating this idea. In fact, he sees 500% gains in the sector over the next four years. He points out that after new home prices fell between 1979-82 and 1989-92, the shares of homebuilders soared. This is true, but this was also during a great bull market in general. I would love to know how an index of homebuilders did against the market during this same time period.

Monday, October 22, 2007

The Asch Conformity Experiment, the Milgram Obedience Studies and value investing

Have you heard of this world famous experiments? They're featured in every Sociology 101 textbook. The first experiment deals with the powerful influence of group pressure. Solomon Asch presented showed a group of five students the following figures. Next, he asked a simple question. Which line(A,B,or C) on the right is equal to line S on the left? How could anyone fail this test? After all, the line lengths are clear and unambiguous.
Unknown to the fifth student, the first four students were in league with the Asch. They purposely gave wrong answers. Asch wanted to see, if their wrong answers would influence the fifth student. Well, it did. In 33% of the cases, the fifth student gave the wrong answer at least half of the time. 40% gave "some" wrong answers. Only 25% of the students consistently gave the correct answer.
The Milgram Obedience Studies deal with the tension between authority and conscience. In this series of experiments, test subjects were told that they would act as a teacher and present test questions to another person who was a student. Whenever the person, gave a wrong answer they were to administer an electric shock, one that would increase by 15 volts with each successive wrong answer. As was the case in the Asch Conformity Experiment, the test was simple.
The shock machine bore clearly visible labels that said Slight Shock, Moderate Shock, Strong Shock, Very Strong Shock, Intense Shock, Extreme Intensity Shock, Danger: Severe Shock, and finally, XXX at 450 volts. As the voltage rose, the "student" responded with squirming, groans, and then screams. If the subject wanted to quit, he would be told to continue with the experiment. As was the case with the Asch Conformity Experiment, the test was rigged; the "student" was working with Dr. Milgram.
Before conducting the experiment, Milgram asked psychiatrists, psychologist, philosophers, and sociologists how many subjects they thought would go to 450 bolts. The experts said about one in a thousand. What did Milgram find? He found that 65% of subjects were willing to administer a lethal shock. He later repeated this experiment several times, changing the venue from a science lab to a dingy basement so as to counteract the tendency of some people to defer to a scientist conducting a scientific study. Still, about one half of the subjects were willing to administer a lethal shock. He tried the experiment with women as the teachers. In subsequent experiments, he found that class, race, and ethnicity made no difference.
So how does this relate to value investing? One should be leery of following the herd. How many times have you bought a stock because of a tip, or an article in Forbes, or because some "guru" likes it. There's nothing wrong with taking advice from sources that you respect and trust. You just have to make sure that you're making the decision based on your situation, your financial goals, your risk tolerance, the investment approach that works best for you. The financial press(I am guilty of this as well) is very fond of setting up someone as an unimpeachable authority and then claiming their endorsement. Please remember to do your own due diligence, no matter how trusted the source is. If you lose money, and you will if you invest long enough, let it be by your own actions at least.

Friday, October 19, 2007

A lesson from the crash of 1987?

On October 19th, 1987 the Dow Jones Industrial Average endured the single greatest one day drop in its history: a staggering 22.6%. This day would be christened Black Monday. Some say the precipitous fall was caused by a market that had simple gone too far too fast, others blame portfolio insurance. Regardless, the market rebounded and actually finished up for the year. What lessons can you take away from such an event? Today in The Wall Street Journal, Justin Lahart examines the age-old creed to "buy on the dips." How much sense does that make? True, it worked in 1987, but I what could one have seen back then that would've told you that the country wasn't going into a recession? What signs were there that the bull market would last another twelve years? None. buying the dips would've been an act of more reminiscent of blind faith than calculated analysis. Buying dips works in a bull market, but becomes desperate averaging down in a bear market. That is not to say this tactic can't be judiciously applied. If you are a long-term value investor, you want to buy companies as cheaply as possible. Buying the dips helps you accomplish this.

Wednesday, October 17, 2007

Great advice from a finance professor

This video starring Stephen Brown was on TheStreet.com. Mr. Brown, is the Daniel S. Loeb Professor of Finance at NYU's Stern School of Business. It's probably the most practical, common sense approach to the debate over whether or not the market is efficient and how one should invest I've seen in a good long while. I am very suprised that it came from an academic. If only most financial advisors were at honest and candid as this guy.

Tuesday, October 16, 2007

China is a value play

This may seem like sacrilege, but it's true. China is just getting started. This bull has a long life ahead. I know that the market has been red hot. Don't ignore that. In fact, don't invest just yet in China. Wait for a pullback. It'll come. Just put FXI or CAF on your watchlist and be patient. If you're interested in individual stocks, take a look at PTR. It's trading at discount to both Western integrated oil & gas companies and Chinese ones.
I know that Warren Buffett just sold his stake. Many would say that he did so because he sees a top. I don't know why he sold. He's held this position for five years and has made seven times his money. Maybe he just decided that he wouldn't get greedy. Maybe he sold because he found a better place for Berkshire's capital. My point is, do not buy or sell these stocks or any stocks for any reason other than personal ones. Look at your portfolio and see how it fits.
There will be selloffs. Please don't get scared out of your position because everyone is predicting certain doom or an overheating of the market.

Monday, October 15, 2007

Citigroup earnings down 57%. Duh!

They pre-announced two weeks ago and came clean about how bad business was. The market loved them for it. Now the call comes out and they get hammered. Still, they say the market is efficient! Here's the transcript for the Citi earnings call. There is very little new information. The writedowns were a bit worse than the they thought, but not by a shocking amount. The earnings actually came in higher than expected. If you take the time to read the transcript, you'll find out that Citi is actually growing fairly nicely, a lot of it organically. They are expanding significantly internationally and high margin businesses like Global Wealth Management is growing at a good clip. This company is executing, but no one cares to notice. Chuck Prince is not Sandy Weil. This is not the 90s. Analysts need to de-anchor their thinking from that era.

Friday, October 12, 2007

Time to look at Ethanol stocks

Obviously, this is a contrarian play. If you've read BusinessWeek, The Wall Street Journal, Slate or The New York Times in the last few weeks, you know that things are getting worse in the ethanol patch. Corn ethanol is a boondoggle, there's over overproduction, distribution is bad, cellulosic ethanol is years away. These are all very true, but I think that they'll work these things out. Let's face it, the corn lobby is too powerful to let the money spigot in Washington from being turned off just when things are getting interesting. Ethanol, in some form is here to stay.
So how do you make money from it? First, you have to wait. Let the problems get worse. Don't worry, they'll get worse before they get better. Then, there will be a rash of bankruptcies and consolidation. A few strong players will emerge. Invest in those companies, the acquirers, as opposed to trying to figure out who the acquired will be. Right now, I have my eye on Andersons Inc.(ANDE). This company is already fairly cheap(P/E of 14, P/S of 0.45). Andersons is actually more than an ethanol play; they also sell fertilizer, are in the railcar business, and they also sell home and building supplies. While the rest of the sector has been getting killed for the last year, Andersons is actually up 35% The company has little debt, so I think that it shouldn't have problems buying one its rivals once things really get bad.

Tuesday, October 9, 2007

Google hit $600! So what?

Don't break out the champagne. Please, no confetti or balloons either. Six hundred is a nice round, big number, but does it mean anything? Maybe, if you're a financial journalist. Should you get excited? Not unless you buy new highs or are a momentum trader. Lehman Brothers has come out and said that it's going to $714. How in the hell do they know that, especially since Google gives NO guidance? Well, alot of it is tied to rumors of a GPhone. Also, The New York Times reported yesterday that Google is getting into the mobile phone software business. this is a bold move that will create new competitors for the company, ones like AT&T and Verizon who aren't bumbling fools like the gang at Yahoo!. I am not saying that the boys in Mountain View don't run a fine company or that it isn't a good investment. That's for you to decide for yourself. I'm just saying that hitting $600 is not news.

Monday, October 8, 2007

Fund my Mutual Fund: The Run in VMWare (VMW)

Fund my Mutual Fund: The Run in VMWare (VMW)

I found this post and was flabberghasted by the earnings multiple on this company. It's straight out of the dot-com era looniness. VMWare, which was recently spun off from EMC, makes virtualization software. Don't be embarrassed. You're not the only person who was ignorant of what this is. In layman's terms, virtualization software makes it possible to run several operating systems and applications on the same computer at the same time. A common use of virtualization software is consolidating server space.
This looks like a tremendous short opportunity. It's selling at gargantuan multiples and the most recent 10-Q has hinted that greater competition from better capitalized companies and lower operating margins are on the horizon. Plus at some point, EMC is going to dump the shares; I can't see them wanting to hold on to 86% of this company forever. Cisco and Intel are also major owners of the stock. This probably won't begin to happen until next year, as tech usually outpaces the Q4 rally. Also, they do a large and increasing chunk of their business outside of the United States so they should escape alot of dollar-related pain. I'm going to follow this company, specifically insider sales by these three companies, until they next report earnings. They should provide a clue on how the operating margins are holding up.

Friday, October 5, 2007

Top 10 Money Honeys

1. Erin Burnett
2. Bambi Francisco
3. Farnoosh Torabi
4. Deborah Kostroun
5. Brittany Umar
6. Maria Bartiromo
7. Julia Boorstin
8. Margaret Brennan
9. Sharon Epperson
10. Louisa Bojesen

Wednesday, October 3, 2007

Jim Rogers and the value of patience in investing

If you haven't read the Jim Rogers interview in Market Wizards, you should do so immediately. It's a really good primer on a) sticking to your knitting and b) being patient. Jim Rogers co-founded the Quantum Fund with George Soros and retired before Soros became a household name. These two were an unstoppable paring; Rogers was the analyst and Soros did the trading. These guys invested in everything everywhere; they were global macro before the term came into vogue.
Rogers invests with conviction. He finds a cheap sector, studies the hell out of it, and then waits. If nothing looks good, he'll park his money in Treasuries. As he puts it, he"waits until there's money in the corner to pick up." It sounds simple, but it's hard, really hard. Most of us have to put in a order. We love the action, the sense that we are doing something brilliant that we can then brag about on message boards or to our friends. Activity is the enemy of the true investor. Warren Buffett has often said that he wouldn't care in the stock exchanges closed down for a few years. He buys a business, not a stock certificate.

Tuesday, October 2, 2007

Top Ten Investing Mistakes I've Made

When it comes to investing, just like Sinatra, "regrets, I've had a few." I've assembled the top ten of about a thousand that I've been inexperienced enough to make and in some cases, stupid enough to repeat. You'll probably see a few that you've done.

1. Investing money that would be better used for something else like paying of debt or building up an emergency fund of 3-6 months. There is no easier way to get an 18% return risk free; pay off your credit card debt.

2. Following stock tips. I am probably most ashamed of this habit. It's a lethal combination of laziness and greed.

3. Trading when I should be investing. I don't have the correct temperment to make money as a trader. I am either in early or overstay my welcome when it comes to short-term moves.

4. Not doing enough research. Screening is not research. It's just the beginning.

5. Not investing regularly. You should make investing a monthly bill that you pay to yourself.

6. Trying to get rich quickly by buying penny stocks. This is an excellent way to lose money...quickly.

7. Chasing performance. I have NEVER made money momentum investing. Many people do. I can't. I get too greedy.

8. Ignoring the benefits of diversification. The only free lunch on Wall Street. Don't go overboard though. Only have as many positions as you can monitor effectively. Also, don't forget about rebalancing.

9. Monitoring investments to frequently. There was a time that I checked the value of my holdings every day. Now I do it about once a week. Eventually, I'd like to make it quarterly.

10. Being inpatient. This is really important as a value investor. It helps your patience if your stocks pay dividends.

Sunday, September 30, 2007

Value-Stock-Plus: US bull market coming to an end: Rakesh Jhunjhunwala

Value-Stock-Plus: US bull market coming to an end: Rakesh Jhunjhunwala



Rakesh is a widely respected billionaire who has an uncanny knack for catching global macro trends. The Dow somehow has pushed past 14,000 despite major banks' warnings about earnings that will be off more than 50% from last year. Obviously, the Street thinks that the worst is over. It seems unlikely to me that we've gone from knowing very little about the extent of the damage to knowing everything and discounting it within a month.

Friday, September 28, 2007

David F. Swensen has done it again

The Yale endowment returned 28% for the fiscal year ending June 30th. It's now over 20 billion!. That's an amazing return for that amount of money. It shouldn't be that big a suprise though. In the endowment world, no one is better at allocating capital than Swensen. So how does he do it? This guy is the most astute picker of outside managers there is. Secondly, he is diversified beyond all belief. I highly recommend both of his books, Pioneering Portfolio Management: An Unconvential Approach to Institutional Investment and Unconvential Success: A Fundamental Approach to Personal Investment. They are a bit pedantic; this is not the breezy, conversational style of Peter Lynch, but they are definitely well worth the read.

Thursday, September 27, 2007

A cheap, fast-growing Chilean stock

Administradora de Fondos de Pensiones de Provida SA(PVD) is a Peruvian pension benefit administrator. It is the rough equivalent of a Prudential. It has a P/E of 7.8 with a 5.8% dividend yield(additionally, the dividend has been growing at a 12% annual rate for the last five years). The margins are enormous for this business. Return on Assets is 15.8%: return on equity is 26.4%. The margins are very healthy( operating margin of 35.6%), it's sitting on over $300 million in cash and has no debt. Oh, and let's not forget that year over year profits have nearly quadrupled. I usually don't like to recommend stocks that have just hit a 52-week high, but this stocks is just too cheap.

Wednesday, September 26, 2007

If you must buy a bank, look to the Great White North

Canadian banks are as solid as they come. They are a bit more expensive than their U.S. counterparts, but paying extra is worth avoiding subprime exposure. They have decent yields and great margins. This is also a good play on the strength of the Canadian dollar. Check out Toronto-Dominion Bank(TD), Bank of Nova Scotia(BNS), Bank of Montreal(BMO), Canadian Imperial Bank of Commerce(CM), and Royal Bank of Canada(RY).

Monday, September 24, 2007

How to benefit from petrodollar recycling

The massive amounts of money being made in the Middle East will eventually(at least some of it) make its way back to the West These guys won't be buying Rockefeller center like the Japanese did or other trophy properties. So what are they going to buy? How can you benefit? Unlike the massive petrodollar recycling of the 70s and 80s, it won't end up in Treasuries. Some of it will be in gold. As we've recently scene, some of it will go into private equity firms and the exchanges. Alot of wealthy Arabs have been investing in the U.K. For there purposes, it's seen as a much more tolerant place than the United States. This is part of the reason that London real estate is some of the most expensive on earth.
I think that you should take a look at luxury manufacturers, which will also be getting tailwinds from the rise of rich Asians. The easiest way to do this is buy buying the Claymore/Robb Report Global Luxury Trade Index ETF(ROB). The index is made up of financial services companies, upscale retailers, hoteliers, resorts, and other companies that cater to the wealthy.
The company in this index that I like best is Embraer(ERJ). Embraer makes commercial jets, private jets, and has a defense segment.

Saturday, September 22, 2007

Penny stocks advertising in Forbes and Fortune

Why are these august publications displaying ads for bulletin board stocks like PetroSouth Energy? Or Fox Petroleum? It's not just these magazines. Fast Company runs ads for Sun Cal Energy. Is this appropriate? Are the publications paid as they would for any other full-page ad or or they given an equity stake?

Friday, September 21, 2007

The dollar under assault and how to benefit

The Canadian dollar has reached parity with the American dollar. The euro is at an all-time high vs. dollar. What should you do? Buy the currency ETFs like DBV, FXC, FXA. Also, don't forget gold. You can also buy U.S. multinationals that do most of their business overseas. Here's a list of some other Currency ETFs and ETNs:

PowerShares DB G10 Currency Harvest Fund (DBV)
PowerShares DB US Dollar Bullish Fund (UUP)
PowerShares DB US Dollar Bearish Fund (UDN)


CurrencyShares British Pound Sterling Trust (FXB)
iPath GBP/USD Exchange Rate ETN (GBB)
CurrencyShares Euro Trust (FXE)
iPath EUR/USD Exchange Rate ETN (ERO)
CurrencyShares Japanese Yen Trust (FXY)
iPath JPY/USD Exchange Rate ETN (JYN)
CurrencyShares Mexican Peso Trust (FXM)
CurrencyShares Swedish Krona Trust (FXS)
CurrencyShares Swiss Franc Trust (FXF)

Wednesday, September 19, 2007

Enjoy the Fed Rally while it lasts

So the market got a bigger cut than it expected and now everyone's singing Bernanke's praises. All he has done is stave off the inevitable. This problem is bigger than the Fed or even all the world's central banks put together. The system needs a painful cleansing, sooner or later. Bernanke's hair of the dog that bit you cure for the hungover U.S. financial system works in the short-term, but doesn't address the bigger issue which is our drinking problem.

Monday, September 17, 2007

Bill Miller's latest letter to investors

Has Bill MIller been needlessly contrarian? He still has refused to put any money into energy stocks. Not only, is he not buying energy stocks, he's buying housing stocks nad has large exposure to financials. Consequently, on the year, he is trailing the S & P 500. He explains his reasons in his quarterly letter to shareholders of Legg Mason Value Trust.
I am not saying that Bill Miller has lost it. He is doing exactly what great value investors do; he's buying extremely cheap companies that others don't want and being patient. He readily admits to being very early on his housing stock buys. Also, he isn't convinced that we're in the midst of a secular bull market for energy. He shouldn't buy energy stocks because they've been the market leaders for the last five years. He should buy them because they are still cheap and are throwing off record amounts of cash.

Thursday, September 13, 2007

Slow news day

The biggest story this morning is that Microsoft(MSFT) has raised its dividend. McDonald's(MCD) has hit an all-time following, following a 50% dividend increase. No big earnings news. Crude is down a bit. Gold is down a smidgen. The unemployment numbers were better than the abysmal ones analysts were expecting. The UAW might establish a trust fund for its members healthcare costs. These are not big, market-moving stories. Still the market is up huge. Perhaps buyers are desperate that they are looking for any hit of good news. This is a great example of how it makes absolutely no sense to try to parse meaning from the daily fluctuations of the market.

Tuesday, September 11, 2007

Festival of Stocks

The 53rd Festival of Stocks can be found at CollegeAnalysts.com this week.

Thursday, September 6, 2007

Traders and the poor

Michael Lewis' irreverent take on the subprime mess. Lewis pens his latest piece for Bloomberg from the perspective of a burned sub-prime credit trader. As always, Lewis is insightful and funny. I wish that he wrote more often for national publications.

Friday, August 31, 2007

Bernanke's speech

The text of Bernanke's speech today in Jackson Hole, WY which lifted the stock market.

Wednesday, August 29, 2007

Stop paying attention to Wall Street research!

Is it just me or are Wall Street analysts asleep during every bubble? First the equity analysts with theInternet bubble, now the ratings agencies(Standard and Poor's, Moody's, Fitch) with the current credit bubble. Why do investors, retail and institutional alike, rely on them for information? Well, I can see why the big boys would put such faith in research, since they're the authors, but the little guy should take a page from Warren Buffett and only read Wall Street research for laughs. Wall Street analysts and ratings agencies are not the SEC. They're not interested in protecting you or your money.

Tuesday, August 28, 2007

Dow down 280 points

So Wall Street didn't get the word of a rate cut that it wanted from the Fed. Boo-hoo! I say no welfare for the rich. A rate cut would help the markets temporarily, but in the end, no one can stop the inevitable correction that's coming this market's way. The FOMC can only delay it. The business cycle is real. It can't be outsmarted, not even by PhD. economists. Besides, why should homeowners and mortgage companies go belly up, while their Wall Street co-conspirators get bailed out?

Monday, August 27, 2007

Friday, August 24, 2007

James Altucher defends his friend and business partner Jim Cramer

On Wednesday, James Altucher, founder of Stockpickr, and an insider at TheStreet.com wrote a piece for the website defending Jim Cramer against this week's damaging Barron's article. He sets out to answer two questions:


1. Do Cramer's picks make money?
2. Does Cramer outperform the market?


He even goes so far to test Barron's picks during this time period.

He lays out a couple of rules. First, he recommends that you wait a week before buying Cramer's picks. In his book, Jim Cramer's Mad Money: Watch TV, Get Rich Cramer says to wait 5-10 days in order to avoid buying at an inflated price, something he calls the Cramer Effect. Altucher conducted this study by buying the stocks after 5 days. When it comes to selling, he tests the results after one month and then two months.
You can probably guess what the results were. Still its worth reading the piece. Altucher is kind enough to provide details about his methodology and the specific picks.

Thursday, August 23, 2007

Barron's gives Jim Cramer a "don't buy!"

Jim Cramer was featured in the cover story of Barron's this week. The coverage wasn't flattering. Bill Alpert's depicts portrays Cramer as a manic-depressive clown. Based on a database compiled YourMoneyWatch.com by Michael McGown, a former stock analyst, Cramer's picks have trailed the market by 10% since the show began. These totals include picks made during the "Lighting Round" and MadMoney says that they shouldn't count as part of his record. Also, this analysis doesn't follow Cramer's caveat to buy on the second day after the recommendation, not the next day.
Alpert also examined a database compiled by TheStreet.com that covers the last six months. These picks were about even with the market, including commissions you'd be down if you followed Cramer's suggestions.
Overall, the piece is fairly evenhanded and reasonable. The writer merely wants Jim Cramer to be accountable for the picks he makes.

Part I & II of "Shorting Cramer".

Monday, August 20, 2007

Don't fixate on the United States

Yes, it's been a rough past few months for the S & P 500 and the Dow, but they represent only one market. There's still the rest of the world out there. Look at Europe. Look at Asia, ex-China. They've taken a hit too, but not as big a one as the U.S. YTD, these markets are up over twice what we are.

Saturday, August 18, 2007

Bogle hopeful

The father of indexing says that hope will return.

Friday, August 17, 2007

Bill Fleckenstein is absolutely right

Bill Fleckenstein has been warning of the impending demise of the current asset bubble for at least a year. Central banks have to stop bailing out the market. They are guaranteeing that we will will have even more egregious bubbles because idiots and crooks won't get punished. Whatever happened to capitalism? Creative destruction?

More on the Yen Carry Trade

Bryan Moore at SeekingAlpha writes that it's not dead.

How to play these rallies

Don't. Just sit on the sideline until the market has made a definite decision about where it's headed. Don't try to be a hero. There's nothing wrong with sitting in cash. It's safe and it's smart when the market is this volatile. Pick some stocks for your watchlist and try to pick up a screaming buy if you want, but don't get cute.

Thursday, August 16, 2007

Countrywide continues to fall

This morning, Countrywide Financial revealed that it has drawn down its $11.5 billion unsecured bank line of credit. In response, the credit rating agencies, Moody's and Fitch, have downgraded the company's debt rating. Shares are off about 15%.

The Yen Carry Trade explained

The Yen carry trade is a topic that is often bandied about, but is little understood by amateur investors. John Hughes and Scott Maragioglio over at the TheStreet.com do a good job explaining it and its significance. They even show you how the average investor can use it to protect his/her portfolio.

Wednesday, August 15, 2007

REITs on a buying spree buying back shares

Do not follow them into the breach. A lot of companies in this space or undervalued right now. A lot of them will be even more undervalued in the near future. The same goes for insider buys at troubled firms like Yahoo(YHOO). Yahoo is still a good company with a dominant, entrenched brand. However it is also a mess right now and has large problems. Susan Decker's $1 million ante, while encouraging, shouldn't be seen as a sign of a turn. Keep your powder dry for the moment.

Nasdaq Portal set to debut

The Nasdaq Portal is set to open today. It will be a private market free of Sarbox regulation for 144A private placements. Here's the official press release.

Merrill downgrades Countrywide

Merrill Lynch(MER) wants you out of Countrywide Financial(CFC), downgrading it from a buy to a sell. Like everybody else, they got spooked by Thornburg's(TMA) enormous drop yesterday. Countrywide shares have lost nearly half their value since February.
This morning on CNBC, Thornburg president/COOLarry Goldstone attempted to calm the waters. It may have worked for now. The stock is up about 47% thus far. Yesterday, they announced that they were delaying paying the second quarter dividend in order to preserve cash. Goldstone says that the company is not for sale.
These are stop gap measures. They are the appropriate actions, but they are bandaids on a massive head trauma. Yesterday, Goldstone said that they had no "intention" of filing for bankruptcy. What's that line about the path to Hell?

U.S. to miss out on Arctic Circle Oil Rush

Telis Demos recently wrote in Fortune about the chase for oil in the North Pole. The Arctic Circle could have 25% of the world's undiscovered oil and natural gas reserves. Why are these formerly undrillable areas in play now? Simply put, the polar icecaps are melting.
The Russians have taken the lead in making claims to the potential black gold bonanza. They've already claimed half the Arctic. Denmark is rolling up its sleeves. So why isn't the U.S. joining the fight? The Senate refused to ratify an obscure UN treat back in 1994 due to sovereignty issues. Oh well.

Tuesday, August 14, 2007

The Dow loses more than 200 points

Wal-Mart said that the consumer is reigning in spending. Home Depot warned that the slowdown in the housing sector would hurt its profits. No shit.
Quant funds are blowing up left and right. Everybody's trying to stop their partners from taking the money and running. blue chips are selling off as people try to raise cash. The credit crunch continues. The Fed and the other central banks don't have the firepower necessary to stop this run. They can put some speed bumps in the way, but the financial system needs an enema. They are only delaying the pain.
I'm still shorting the bank, brokerages, mortgage lenders, and mortgage insurers. Still, like any panic, there will be babies thrown out with the bathwater. Take a look at Goldman Sachs(GS). It's selling at 8x earnings and under 1 price to sales. Remember when this was a $230 stock? That wasn't that long ago. Or take a look at Sears(SHLD). That was a $180 stock at its peak. These are still two extremely well-run companies. Now they're significantly cheaper. I'm going to wait for them to get even cheaper, especially Goldman. They could both lose another $20-$30. We still don't know much about whete the dead bodies are in this sub-prime-credit crunch mess. Be patient during this downturn and try to find some gems that's been unnecessarily trashed.

You cannot invest like Harvard or Yale

This month, Smart Money ran article touting that you could invest like these two stalwarts of the endowment universe. They looked at the allocation models of the two endowments, spoke with the managers, and formulated a mix for the retail investor to follow. I'm afraid that this is an impossibility. You or I or anyone with less than hundreds of millions of dollars cannot ape Harvard or Yale. These institutions have access to the best managers in the world. They have large staffs who do nothing but analyze investment performance. A great deal of their endowments are invested in private equity, venture capital, oil & gas partnerships, timber, and other highly illiquid assets and strategies. You cannot get PE like returns by investing in the PowerSharesListed Private EquityPortfolio(PSP). Investing in Rayonier(RYN), is not the same as owning millions of acres of timberland. Unless you are willing to commit the time and money required to getting above-market returns, do yourself a favor and invest in index funds and ETFs. In fact, this is what David Swensen, Yale's chief investment officer, advises in his book, Unconventional Success: A Fundamental Approach to Personal Investment.

Saturday, August 11, 2007

The housing mess

Last week, BusinessWeek did a cover story on the meltdown in the U.S. housing sector, specifically the homebuilders, their overbuilding, entrance into the mortgage business, and even possible criminal misdeeds during the boom. It's worth reading. Unfortunately, this is just the sort of thing that occurs during any boom. Things become so good, so many people are making easy money, that no one notices fraud and other crimes being committed. These ugly realities are only revealed once the boom goes bust. Jim Cramer actually made a great point about this industry on Monday; this is a very small industry with a total market cap of 35 billion! Some homebuilders will go belly up, but that's not such a big deal. This used to happen all the time.
It's been tough shorting these stocks. Any hint of a rumor of good news sends these stocks through the roof. I've been up 40% on the position at times, and then the next day, been down 10-15%. I've hanging in there though. If you don't have the financial wherewithal to handle the swings, maybe you should look at buying puts as a way of reducing your cash exposure.

Thursday, August 9, 2007

Dow plunges 387 points

Subprime worries continue to rear their ugly heads. This time BNP Paribas was the bearer of bad news. They suspended trading in three of its funds that traded heavily in subprime mortgages. BNP did so because, "the complete evaporation of liquidity in certain market segments of the U.S. securitisation market has made it impossible to value certain assets fairly regardless of their quality or credit rating. " It added, "in order to protect the interests and ensure the equal treatment of our investors, during these exceptional times, BNP Paribas Investment Partners has decided to temporarily suspend the calculation of the net asset value as well as subscriptions/redemptions, in strict compliance with regulations, for these funds."

Tuesday, August 7, 2007

Morningstar interview with Mohnish Pabrai

Mohnish Pabrai runs the Pabrai funds and has written two books on value investing, and Mosaic: Perspectives on Investing and The Dhando Investor: The Low-Risk Value Method to High Returns.

Monday, August 6, 2007

Short financials and housing

I can't predict the fortunes of the broad market, but a blind man can see that these two industries are hurting. Added to this, the truth about just how bad things are is trickling out very slowly or not at all, as if that will somehow save their stocks from the whims of capricious investors searching for alpha. Short the big brokerages, money center banks, and homebuilders either the individual names or through an ETF like XLF, IYG, or XHB. The subprime mess and the credit squeeze are going to get worse before they get better.

Friday, August 3, 2007

Dow lost 280 points today

Everyone still worried about subprime and the jobs report was weaker than expected. The yield on the 10-year Treasury note fell from 4.77% to 4.70%. S & P lowered it credit rating on Bear from stable to negative. The financials continue to swoon(even Goldman lost 3.5% today). The apocalypse is not upon us. This doesn't even qualify as a correction. However, the market may be coming to its senses. It's long denial of the subprime and housing messes might be over. The sooner the better. I think the dow will end the year at 12,300, the S & P 500 at 1100, and the QQQ at 2100. I think that we are in bear market territory, but I'm not quite ready to short the indexes or buy puts. I'm still looking for a catalyst.

Thursday, August 2, 2007

Synalloy Corp.

Synalloy Corp(SYNL) is a small, South Carolina-based company that operates in two hot markets. The Metals division produces pipes for the chemical, petrochemical, pulp and paper, mining, power generation, waste water treatment, liquid natural gas, brewery, food processing, petroleum, pharmaceutical, and other industries. The Specialty Chemicals segment produces specialty chemicals, pigments, and dyes for the carpet, chemical, paper, metals, photographic, pharmaceutical, agricultural, fiber, paint, textile, automotive, petroleum, cosmetics, mattress, furniture, and other industries. As of Q2, the Metals segment was on fire, while the Speciality Chemicals segment experienced declining sales. The company has tremendous returns on assets and equity and sells at a paltry 11x trailing earnings. The company has little debt and has doubled its quarterly earnings growth year over year. Ovcr the last three months, the stock has taken about a 50% haircut. That seems to have been a bit much. If this stocks falls under $20, buy it! It's a steal.

Tuesday, July 31, 2007

Book Review: Commodities Rising by Jeffrey M. Christian

Commodities Rising is an excellent, hype-free primer on the commodities markets. Mr. Christian, who heads CPM Group, a commodities research firm that provides consulting and investment banking services to individuals, institutions, and corporations, and international organizations. Christian does not believe that we are in a commodities supercycle. I do not agree with these thesis, but I appreciate the thoroughness of his arguments and his long-term perspective on the markets.
The book does an excellent job with providing a general overview of the various ways in which to participate in the commodities markets, i.e. futures, forwards, stocks, ETFs, etc. The author shares two particularly interesting insights about the commodities markets. First, they are filled with misinformation and outright lies. The commodities markets are assymetric as regards information. Secondly, most transactions take place in the cash market in the form of forwards, not the futures market deliveries. The weakness of this book is that there is very little in the way of concrete counsel on how to profit from commodities. He offers no specific companies that he particularly likes, nor trading or options strategies. Also, it can be a bit repetitive and boastful of the author's intelligence and experience.

Monday, July 30, 2007

Buy the drillers

The entire oil & gas equipment sector is dramatically undervalued. Baker Hughes(BHI) has a PEG ratio of 1.00. Schlumberger(SLB), which has gone up 60% in the last year and has been the best of breed in this group, has a PEG of 1.15. Halliburton(HAL) is selling at a PEG of 0.89. These are fire sale prices. Cheap oil is a thing of the past and these guys are the picks and shovels merchants of this century's gold rush.
Maybe it's going to take some consolidation for the full value of these stocks to emerge.

Monday, July 23, 2007

How do you say cheap in Italian? Eni

Actually, it's a buon mercato, but you get the point.
Eni(E) is the cheapest major integrated oil & gas giant out there. Let's look at the numbers: P/E: 4.7, 11.3(forward) Yield: 3% Enterprise multiple: 1.95 Price-to-book: 0.97.
This is not a fast grower, but no major is. Plus, they're big in places like Africa and Russia which could be trouble. I can't think of another reason the market is valuing this company so low. BG Group(BRG), which has a slightly larger market cap, is being valued at 18x earnings. Last Friday, Cramer was singing the praises of Total(TOT). How can he love that company and not Eni? Eni operates in many of the same places at Total and Its margins are better. Additionally, JPM just downgraded TOT last Wednesday.

Saturday, July 21, 2007

An expensive but tasty Apple

Apple Inc.(AAPL) is on fire. The stock just passed the $140 barrier and some analysts say that they see over $200 in the near future. $200 may be a bit much, but I agree that the stock is going higher. Momentum players will ensure that. If you're a value investor, then this company looks awfully expensive(45x earnings, nearly 10x P/B). You're probably not going to want to go near it, EXCEPT, its PEG is 1.76. That's not bad at all for a company that's nearly doubling earnings year over year and selling the hottest product on the market.
They announce earnings on July 25th and everyone is expecting them to crush the estimates. If you've already been in the stock for some time, then you've made some terrific gains and should sell into the good news. If you're looking to get into the stock, I'd wait for a pullback of some kind before pulling the trigger.