Is the sky falling...still?

Home prices are falling. Oil is trading north of $138/bbl. Banks are hard up for cash. Has the financial world been on a repeating loop for the last year? Weren't we supposed to be past ugly things like writedowns, dilutive offerings, shareholder lawsuits and arrests? Maybe we've fired up the DeLorean and no one told me. Let's see, the Celtics were playing the Lakers, that would indicate that it was the 80s. Donald Trump is ubiquitous and annoying. However, George Michael is out of the closet and I don't hear "Walk Like an Egyptian" everywhere I go. Alright, I've got my bearings now. It's still 2008.

So now I need to gauge how things are going in America. Luckily, Darden Restaurants, Kroger, Remy Cointreau, and Sonic are reporting today. That should give me a good sense of whether or not Americans feel rich or poor. After all, when you don't have money to eat out, but you just want a sip of Cognac to get you through the night?

My guess is that things are bad, but not quite this bad. Certainly, not Mad Max bad or Waterworld bad.

Unfortunately, this is how it's going to be for at least the next two years. It took a while for the excesses to build up and it will take a good while for them to be siphoned off. There is no miracle weight-loss cure for the American economy. Instead, we're going to get a steady regimen of rice cakes and exercise.

It's good to be king

It's good to be king and have your own way.- Tom Petty

Not only is Dick Fuld a billionaire who runs the 4th largest investment bank in the U.S., but he can also throw underlings under the bus when he screws the pooch. It's good work if you can get it. Don't tell me that Erin Callan wasn't doing her master's bidding while she was deliberately misleading investors about Lehman. Don't worry though, this is Wall Street. They're not being shown the door for leading the bank to a 3 billion dollar quarterly loss. They're just being reassigned, sort of like the Seinfeld episode where Elaine keeps promotes the crazed Vietnam veteran in the mailroom at J. Peterman because he's doing such a bad job. Where is the chorus calling for Fuld's head? Isn't the board supposedly looking out for shareholders?

Hollywood got it right about Wall Street 20 years ago.

Gordon Gekko: [at the Teldar Paper stockholder's meeting] Well, I appreciate the opportunity you're giving me Mr. Cromwell as the single largest shareholder in Teldar Paper, to speak. Well, ladies and gentlemen we're not here to indulge in fantasy but in political and economic reality. America, America has become a second-rate power. Its trade deficit and its fiscal deficit are at nightmare proportions. Now, in the days of the free market when our country was a top industrial power, there was accountability to the stockholder. The Carnegies, the Mellons, the men that built this great industrial empire, made sure of it because it was their money at stake. Today, management has no stake in the company! All together, these men sitting up here own less than three percent of the company. And where does Mr. Cromwell put his million-dollar salary? Not in Teldar stock; he owns less than one percent. You own the company. That's right, you, the stockholder. And you are all being royally screwed over by these, these bureaucrats, with their luncheons, their hunting and fishing trips, their corporate jets and golden parachutes.

Cromwell: This is an outrage! You're out of line Gekko!

Gordon Gekko: Teldar Paper, Mr. Cromwell, Teldar Paper has 33 different vice presidents each earning over 200 thousand dollars a year. Now, I have spent the last two months analyzing what all these guys do, and I still can't figure it out. One thing I do know is that our paper company lost 110 million dollars last year, and I'll bet that half of that was spent in all the paperwork going back and forth between all these vice presidents. The new law of evolution in corporate America seems to be survival of the unfittest. Well, in my book you either do it right or you get eliminated.

Dick Fuld owns about 2 million shares; LEH has a float of over 500 million shares. In total insiders control about 3.6% of the shares outstanding. Do you honestly think these guys are working for the shareholder?

Maybe ol' Gordon was right.

Plunging

The market is taking a beating today. Why? The jobs report and oil. Let's ask ourselves, are these new phenomena? Hasn't news like this been reported for the last twelve to eighteen months? Just about everybody is taking a beating, but especially financials. Isn''t this also an old story? You mean there are still lots of bad loans out there and people who won't be able to pay their credit card bills, and this matters?

It seems that we priced so much optimism into the market that reality is getting it killed. It's like admitting that your kid is ugly after all. It's embarrassing and it hurts.

What is working right now? Energy. Should you rush there? Maybe. Now would be a good time to review your asset allocation. What's your exposure to energy already, not just in individual stocks, but via ETFs and mutual funds. Include your retirement accounts in this calculation. Do you need to rebalance?

As always, you should always look for bargains. The news often is as bad as the market would have you believe. Review the 52-week lows list. Try to identify beaten down industries. Set some price targets for favorite stocks.

As Gordon Gekko said to Bud Fox, "go to work."

Buffett's buys

These lists appear every quarter on investing websites, no doubt culled a lowly staffer burning the midnight oil, scouring the EDGAR database. Despite how much you might appreciate their efforts, ignore the info. It's not that helpful to know what Berkshire Hathaway bought after the fact. You'd want to know beforehand. What would be even more exciting would be knowing what is Mr Buffett's personal brokerage account, outside of Berkshire shares. I know that 99% of his networth is in Berkshire shares, but I imagine that he invests somewhat differently for just himself than for his shareholders. After all, he's dealing with a smaller sum, so he can buy all sorts of interesting, smaller stocks that he can't for Berkshire.

In others news, I was in the elevator at work and this index, the Tomo 300 flashed on the screen. It's an index that attempts to capture the value of intellectual property. Has anyone ever heard it referred to previously? I know that it's very new(it debuted in mid-December '06), but I can't think of ever hearing about it on Bloomberg or CNBC. There apparently are a few Claymore ETFs that license it and trade on the AMEX. The holdings are really all over the place: energy, telco, materials, consumer staples.

What is Kerkorian up to?

He's upped his stake in Ford. He's wiling to pay $8.50 a share. Either he is going to slash and burn the company to profitability(harder than it sounds) or he's going to flip it to another buyer like the Chinese or Indians. Interesting thing about Ford, their problems are only in North America. Unfortunately, that's the biggest car market as of today. If you read their last earnings release they doubled their income in Europe and south America. They even earned a profit in Asia.

Ford's biggest strength is that they get more of their earnings from overseas than Chrysler or GM. Like everyone else, they're going to have to kill several brands while creating new cars that can deal with the reality of higher fuel prices, This doesn't mean manufacturing rectangles with wheels. Inexpensive and reliable don't equal boring. Unfortunately, this whole industry is bereft of ideas. The last game-changing one they had was the minivan. That was back in the 80s.

How well do you know your stocks?

Seems like a stupid question, doesn't it? I'm being totally serious though. Maybe you can know ROA and ROE and other profitability rations, but do you know how the company makes those numbers?

Actually what I'm asking is how well you know the company's represented by the stocks you own? If you're a technician or a momentum investor, feel free to tune me out. This may begin to sound an awful lot like the teacher from "Peanuts."

Have you done more than read the Yahoo! Finance summary? Have you even checked out their website? You need to know more than "they're a Chinese telecom company."

Who are the top management? Who's on the board? What sort of experience do they have?

Do you know how they make money? No, really I'm serious. This is a more complicated question than what do they sell? For instance, General Motors makes most of its money from financing the sale of cars. What are their best-selling products? What are their margins? What's the five-year trend? Are they growing or shrinking?

What's the business model? What are its strengths and weaknesses? Who are the competitors? What're they doing that's different? Who are the customers? Are they dependent on a small number of key companies or segments? What about suppliers? Does your company depend on one source for a key component? Is its supply tight?

These questions are all great starting points for understanding the business that you now own.

What did I tell you about Ford?

Last quarter, they were so happy to announce that they turned a surprise profit. I wrote about it last month. Now it seems that they are going back on their pledge to be profitable in 2009, much to everyone but my own surprise. I guess high gas prices do matter after all.

"In a statement, Ford said rising prices for commodities, particularly steel, and an accelerating consumer shift from larger trucks and sport-utility vehicles would make it impossible to meet a key milestone in its efforts to turn around its money-losing North American operations."

Weren't higher commodity price forseeable? Don't they have economists and purchase agents who help them figure this stuff out? We're they the last people to know that steel has gotten more expensive, and that high gas prices were causing people to shift away from the SUVs and large trucks that are the only things that Americans still want to buy from Ford? How many restructuring plans will there be? It seems that every 18 months, they're going back to the drawing board.

Still, some observers still think that Ford is the best off of the Big Three. In a sense, he's right. Ford is the least tied to North America of the big Three. Their dealer network is the smaller than the other two.

Is it a bird? Is it a plane? No. It's Kirk Kerkorian upping his stake in Ford.