Who to trust?

Things are hard all over the place. The market rallies, then declines, then rallies, then declines. It's positively Sisyphean. The banks keep on saying the worst is over. The homebuilders keep saying the worst is over. Pundits and permabears live in fear of the dreaded "r" word(recession). So who can you trust, when no one will tell the truth?

The debt collectors. These guys are on the front lines. They've heard every excuse in the book and they know what's going on with the American consumer. Read this quote Asset Acceptance Capital Corp.'s CEO:

Looking ahead to the remainder of 2008, we are encouraged by the opportunities presented in the current economic climate particularly with regard to both the supply and pricing of charge-offs.

He is encouraged. Remember, this guy's business is to buy debt on the cheap and then collect on it. He sees a lot more bad debt in the future.

Asta Funding, another publicly-traded debt collector had a terrible Q2. They all did actually. Anyway, it said they were going to be careful about purchases and focus on retiring debt. These guys are vultures and if the carrion doesn't look all that great to them,that should give all of us pause.

This tells me a lot about the consumer. While lower gas prices are helping, people still aren't paying their debts. They're using that money to eat.

Not all the financials suck

If you've own BAC, C, AIG, LEH, or heaven forbid,BSC, you've taken quite a bath. The money center banks, the regional banks, the savings and loans, insurance, investment banks, brokerages, pretty much have all gotten hammered( notable exception, Hudson City Bancorp-HCBK. However, on group within financials have actually done well over the last year: asset managers. The worst haven't suffered as much and the best have far outpaced the sector and the general market.

I've put together a small watchlist of names that I plan to buy on a pullback:

EPHC
BLK
TROW
GROW*
JNS
IAAC
EV
WHC
VALU
BEN
IVZ

* This mutual fund company is wedded to commodities and emerging markets. YOu might want to wait for the current correction in these markets to end before buying.

Correction in Commodities?

Yes. It's hear. It's not the first and it wont' be the last. The secular bull market isn't over though. How will we know when it's over? When everyone believes that commodities are the place to put your money. Try to remember back to 1999, 2000, and even 2001. Everyone still thought names like JDSU, CSCO,and MSFT would go up forever. We aren't close to that yet when it comes to commodities. I'm going to take this opportunity to pick up some great stocks at great prices. This is what my watchlist looks like right now.

RIG: P/E of 7
XOM: P/E of 10
EXM: P/E of 5
FCX: P/E of 10
COP: P/E of 7

Two names that are non-commodity related that I'm buying are MO and its spinoff PM. The former has a P/E of 4 while the over is trading at a P/E of 1. Yes, 1!. Philip Morris has been on the greatest American stocks of all time and I can't get it for next to nothing.

Ignore talk of a bottom

... in financials, in housing, in the market as a whole. Does this statement mean that I am Nostradamous of the Amazing Kreskin and know where the bottom is? No. In addition to not being either of those guys, I'm also NOT a technician.

I am basing my pessimism on the lack of pessimism on Wall Street. Take Yahoo! for example. Chairman Roy Bostock has the stones to defend his actions in the proposed merger with Microsoft. He claims that $30 a share wasn't a "compelling offer." Yahoo! just doesn't get it. Tney are are puzzle at a yard sale with a couple of pieces missing. This is not the Yahoo! of 1997 that ruled the search roost.

GM lost $15 billion in the second quarter, nearly twice as much as Ford... and still they won't throw in the towel and declare bankruptcy. Bankruptcy could give them the breathing room they need to take the drastic measures that they need to take in order to survive.

The peso is gaining strength against the dollar. Oil is at $125.10/bbl and people are relieved.

My point is that the market is delusional. Wave after wave of bad news hits the wires and the markets shrugs it off. Supposedly, it's all been priced into stocks. If the four horsemen of the Apocalypse descended, the talking heads would claim that this was priced in. Note: I would myself call such an event the bottom.

There will be no bottom until the optimism has been killed. When Cramer turns bearish, that might be a good indicator of the bottom. Or maybe not. The famous BusinessWeek cover, "The Death of Equities" came in 1979, three years before the '82 bull market began.

Junk faxes

This morning at 5:48, a fax touting a company called Superlattice Power, Inc. came across my office fax machine. The fax came from The Energy Bull which is in the business of "providing bullish picks in the energy and alt-fuel sectors." According to the fax, Superlattice Power Inc.(SLAT) "is an emerging leader in the development and marketing of the next generation of lithium-powered batteries worldwide."
SLAT is much better than the usual junk penny stocks that cram fax machines. It's got actual SEC filings and a market cap north of $200M. There's still no earnings though(it lost a penny per share last quarter). Plus, there's barely any cash in the bank(just under 19K).

Who is The Energy Bull? My Google search turns up nothing. I can only assume that they are a penny stock promotion service. They're not even a good one, as their fax contains spelling errors and language that is evasive and overly enthusiastic.

Let's look at the fine print on the fax for some clues:

The Energy Bull is an independent marketing firm...This report is based on The Energy Bull's independent analysis, and may, or may not be the opinion of The Energy Bull...The Energy Bull has been compensated twenty thousand dollars by a third party for the dissemination of this report.

However, the company published this disclaimer on its website:

Unauthorized Fax Disclaimer
It has come to our attention that unsolicited faxes concerning Superlattice are being sent out by Alternative Energy Advisor, The Energy Bull, and other companies. Management strongly recommends that you disregard these communications from Alternative Energy Advisor, The Energy Bull or any other purported companies; Superlattice has not authorized and does not condone them. Management is attempting to locate Alternative Energy Advisor and The Energy Bull to request them to cease and desist from sending any communications of any type whatsoever concerning Superlattice.

I'm willing to bet the the disclaimer is part of the scam.

Google "stock promotion" and you'll get thousands of companies that make a nice chunk of change touting stocks about which they know nothing. I'm surprised that The Energy Bull was honest enough to fess up to being paid by a third party.

I'm not saying that there aren't viable, investment worthy companies trading on the OTCBB or Pink Sheets. They just don't use promotional services to pump up their share prices. That's what their products and earnings are for.

Bailout coming

Ignore the government right now. Paulson is speaking in both Wall Street and Washington gibberish. Bush said the mortgage giants are “very important institutions.” That's all I need to know. Despite its claims, this President is ot a conservative. He loves government interventions. Plus, he wants his party to win the next election. Bush is already being compared with Herbert Hoover and if he doesn't do something to try and save the housing market and the economy, they'll be linked as twins.

The Dow is under 11,000. Remember Dow 14,000? That's about where it was a year ago when I began this blog. The housing market is tumbling and might need another 25% shave in order to adjust to reasonable levels. Oil has hit yet another record high. The dollar is getting its ass handed to it. Unemployment is up.

Can we finally use the recession word?

The GE earnings release told me everything that I need to know about this economy. One of the best-run companies in the world which is a master of managing earnings, reached into it's hat and didn't pull out a rabbit. Earnings were flat.

Read this statement from CEO, Jeff Immelt:

"Led by double-digit segment profit growth in our industrial businesses and a strong relative performance in our financial services businesses, we delivered a solid quarter in a volatile environment," GE Chairman and CEO Jeff Immelt said.


"Many markets and industries remain healthy, while the U.S. economy is challenged," Immelt said. "Opportunities in emerging markets, infrastructure, commodities and global healthcare are creating demand for our businesses, while we fight through the difficulties of a burdened U.S. consumer, a tough housing market, inflation and volatile capital markets. Even with all this uncertainty, we still see growth opportunities ahead."

That's a nice summary of what's been working in the market and what hasn't. Simply put, if you live in an emerging market, then it's Everybody Wang Chung Tonight. If you live in the good ol' US of A, the song playing on your stereo is Drive by The Cars.

I think that Fannie and Freddie will rally on Monday. Some people with short this rally. I am not that brave. I am going to buy this bottom and wait for the cavalry.

Requiem

Noted value investor, Sir John Templeton is dead. Pneumonia struck him down at the ripe age of 95. Sir John is famous for having founded Templeton Growth back in the 1950s and making early bets on the rebound in Japan. Sir John was buying international equities long before Long before Mark Mobius or Jim Rogers trading securities. Sir John was not just about money however. Through his foundation, he gave away $60 million a year for research into religion and science.

For insight into his investment methodology, take a look at Investing the Templeton Way: The Market-Beating Strategies of Value Investing's Legendary Bargain Hunter by Lauren C. Templeton, his niece. It's a remarkable story of the value of thrift, patience, and truly being a contrarian.