Day 4

I heard two significant comments.

First from Bill Seidman: he oversaw the clean-up and resolution of the commercial real estate mess of the early 1990s. He said that (1) banks are probably overstating write-downs for their mortgage backed securities and CDOs, and (2) the losses on the Aaa/AAA classes of mortgage backed securities are not going to be large, or any. The fact that there is a house as collateral for the loan supports that. These are not junk bonds - subordinated debt. They have solid collateral that reduces the loss realized upon default.

If a home first mortgage loan had 80% LTV and the Aaa/AAA classes are 80% of the pool, then the average losses on the entire pool would need to be 1 - 80% x 80% = 1 - 64% = 36%. That is not going to happen, except for rare cases. So most of these bank holdings will eventually suffer no losses. Most of the write-offs will be reversed unless they sell now.

Second, Bernanke: He definitely signaled more rate cuts overnight.

We get the PCE inflation numbers today. Those are important. We need to core inflation number to stay low.

Be patient. Buy dips.

Day 3

A rally attempt is in progress - today is day 3. We await a "Sign" that the elephants are moving out to a new waterhole and have finished stomping in the mud at the old hole. A big jump in the major indices on higher volume on Day 4 or later is the "Sign".

Until then, if you are trader stand aside or just hit a few singles. When we get the sign, climb onto the backs of those elephants and ride the trend. For long term investors, you know what I think. Energies, miners, big fins, select Internet related tech are where I think I'll get my 30% feeding for 2008.

The confirmation day might not come until the FOMC meeting on December 11.

Hmmm ... on that day I'll be in Vegas on the craps & blackjack tables and eating fine food. When I was traveling on the date of the September Fed meeting we got good news. Is this an omen ?

Be patient, buy good stocks on dips.

Energy and Miners

The beefers are rotating out of the energy and miner groups, creating the potential for good entries for long term buys. I've followed these groups for years and have seen this game played out several time. As long at Asia demand is strong these groups will outperform long term [in my humble opinion].

If you don't own any of these and are a long term investor, I suggest watching them over the next few weeks or couple of months. There is a some seasonal basis for the pullback, too. No rush to buy - the stocks usually bounce around a bottom awhile building a base for the next leg up. I already own a lot of them, so likely won't buy them this time around. I might trade some through options.

Here are my positions in energies and miners.

Oils: CVX, DVN, XOM, COP, MRO, HES
Oil Sands: SU
Pure Gas; CHK
Deep Water Drillers: RIG, GSF [these two are merging soon], DO, NE
Refiners: VLO [HES and MRO have refining, too, as do the big integrated oils]
Oil Service: NOV
Miners: BHP, RIO, RTP, FCX, PCU, AA
Uranium: CCJ

CVX and DVN have really good properties in the deep water Gulf of Mexico, so have great prospects for substantial adds to reserves. The deep water drillers have great long term prospects as that is the only place that really large oil finds are likely to be made.

Gasoline prices will likely rise in the spring, so stocks with refining could move then, viz., VLO, MRO, HES and the integrated oils.

I think PCU will eventually be bought by China. I think someone will buy AA - either another miner or a Russian aluminum firm. There have been rumors that BHP will buy FCX ... and AA ...and they are trying to buy RTP. I think MRO and HES could be bought by a major integrated.

These are all long term positions for me and I expect to hold them into 2009 or longer.

Here's a bit more rationale: these companies produce raw materials that are costs for the rest of the world economy. And the demand is going up as are the prices. So overweighting these stocks is the only way to capture the value in that sector and to offset the increased costs that negatively affects other stocks. So I overweight them through my Alpha Fund holdings.

PS: yesterday was another in a long line of "Day 1" for potential rallies. This one had higher volume. As before, these mean nothing until a follow-thru day occurs.

Gold Mist

The new Cadillac is really a fine car: roomy, powerful and very tasteful. So far I'm very pleased. Cadillac seems to be in the groove again. And the quality surveys show they are very strong.

Abu Dhabi to invest $7.5 billion in C - the security is like the old "equity notes" of the early 1980s. Technically it's a mandatory convertible note. The coupon is high - 11% - but the mandatory conversion price being over yesterday's close negated most of that premium in the "all-in" pricing. This is very reminiscent of that Saudi sheik's investment in C at the bottom long ago.

At some point Ms. Market should tire of the bears having their way with her, get off her back and climb onto a vigorous bull ;-))

I also wonder if some powerful groups really want to create a crash. That story in the WSJ yesterday was really odd. The purpose of the Federal Home Loan Bank board is to provide liquidity to saving banks for mortgages. That system was created in the depression around 1932 to do just that. So why is a story put out to complain about it and why does a NY politician complain when a governmental institution performs according to its purpose is ?

A market seer and others on Babblevision say that the Fed is pumping money out like a madman. Here's a fact: the year over year growth in the monetary base is ... 2.15% [source: data in Barron's Online]. That's not excessive growth - it's tight money since year over year GDP growth is more than that !!!

Are they fools or knaves ? I'm leaning to the appellation of "knave" to these bomb throwers. When a simple check of facts contradicts a charge, the knave appellation fits better.

I'm doing nothing. I might re-buy EDU soon, and add to YRCW and CSCO. If they knock the big fins down more into the end of December, I will buy a boatload of call options on them - probably one or two strikes in the money around six months out.

PS: I'm getting really tired of the stupidity of Babblevision commentators. Idiots ! They have no idea what they are talking about. The BAC investment in CFC was a convertible preferred stock with a dividend of 7.5% - that dividend has a low tax rate and optional conversion. The Abu Dhabi investment in C is a mandatory conversion in a few years at a substantial premium. And C has a big dividend [7% as of yesterday] that Abu Dhabi foregoes until conversion. So the 11% is fair, being a net of 4% over the common to compensate for the higher mandatory conversion price. I just wrote CNBC that I knew more than their commentators 25 years ago as a rookie investment banking associate. I would have gotten fired for saying the crap their commentators say in front of a client.

PPS: Here is a fair analysis of the Abu Dhabi investment in C. From the WSJ article, the average conversion price is about 34.53 and the yield is 11%. The average mandatory conversion date is about three years [between 3/2010 and 9/2011 being a mean of about 12/2010]. Taking a stock price of 30, the conversion premium is about 15%. First subtract the dividend from the coupon: 11% - 7% = 4%. So Abu Dhabi gets 4% per year for three years to pay 15% over today's price for the stock. That's a 3.75 year payback. And that's fair. Another way to look at it is to multiply the three years that Abu Dhabi gets 4% more than the dividend they get if they bought the stock today: 4% x 3 = 12%, which is 3% less than they must pay in three years. Why is this bad ? To me, it seems like C is getting that 3% extra premium vs. selling common today. That is a good deal. I suspect there are tax benefits, too.

P^3S: Here is the comment I just sent to the FOMC Board members: "I see the overnight rate for Fed funds is 4.5% while core year over year PCE inflation is 1.8%. So that spread is 2.7%. And I see the year over year growth in the Monetary Base is 2.1% vs. GDP in current dollars grew at 4.9%. And I note that consumer confidence is dropping fast. So why can you not see you have an excessively tight money policy in a weakening economy ? Even if the prospects for the economy was moderate growth in 2008, your policy is still very tight. I don't understand why obvious facts are so cavalierly denied in public statements by Board members?"

Here We Go Again

Friday was another Day 1 for a possible rally. So now we wait for a confirmation day, preferably in Days 4-7, which requires a 1% gain in the major indices on higher volume.

The WSJ says European banks are having more funding problems. It seems that community expects a bank failure. The ECB seems to be doing its job, pumping in euros. But my guess is the banks need dollars. And I think the Russians and Mideast are sucking those out of European banks. Hence the funding problems in Eurodollars.

Of course, a smaller US current account deficit also reduces the flow of Eurodollars to Europe and beyond.

RTP stock is up on a rumor that a China consortium might buy them. Materials stocks are up.

Gold is up to $836. Oil is up to almost $99. Futures are up ... so far.

GOLD MIST will be picked up this afternoon - perhaps a good omen ? The correction began about the very day I ordered it.

New Mac

I am writing this from my new Mac computer - it's very nice.

The screen was huge - 24" and the resolution is outstanding.  So far no problems, but I haven't done much yet.

This morning I spent a long time waiting for my rather new Vista PC to do it's thing - updating, downloading, etc.  So I had to wait while it fixed itself - Grrrrrrrr

The Mac starts up really fast.  So over time I am going to try to do everything on this computer to see if I can mostly junk my Windows PCs.  I think it might take a year to get really confident.

Next step is to transfer some files and make sure my iPhone synchs OK with this.  I think I should transfer the songs first, though.

I'll post more over time about this experiment.

Perception vs. Reality

The financial press keeps talking about huge losses in subprime & CDOs and CLOs. And the major financial institutions get painted with that tar brush, as if they are holding the risky paper.

The reality is that as the subprime mortgage loans default - there are very few corporate defaults still - the real losses go to the subordinated layers of the structured debt first. And those layers are rather thick before the Aaa/AAA paper gets any.

I'm talking about real losses, not perceived market losses created by a selling panic.

So who owned the subordinated classes - the AA, A BBB and lower rated classes? The beefers - hedge funds - and some managed accounts for pension funds. That is where the "real" losses will be put.

Billions and billions of real losses go to and will go to classes owned by many beefers and they are being liquidated. That will be done by year end, or sooner.

Have you noticed how no one is talking about that paper? I haven't heard a single story in the financial press about that paper. How much of it is there? Billions and billions upon billions. And it bears the first, second, third and more layers of losses before the Aaa/AAA paper bears even $1 real loss.

When the dust settles and the actual losses show up in the trustee reports, as a group those Aaa/AAA classes are NOT going to show much, if any, real losses.

Golly, if I was paranoid, I'd think the beefers were feeding misleading stories to the financial press.

I am very long BAC, C, WB and JPM for long term. I have a trading long in CFC.

Over a long time frame, reality will rule over perception.

A Day of Thanksgiving

I have much to be thankful for on this Thanksgiving Day: family, friends, felicity of the past and present, and old and new, and good fortune. I spent some time this morning thinking about the past year and what I have to be thankful for.

And I again read the "Review & Outlook" of the Wall Street Journal that has published the same pair of columns on the day before Thanksgiving annually since 1961. These superb expressions of some of the deep meaning behind Thanksgiving Day help one put this day into a larger context. The title of the first is "The Desolate Wilderness"; the title of the second is "And the Fair Land." I highly recommend them. I began reading them in 1981 when my partner first showed them to me. And I have read them almost every year since - every word again and again.

Cut Rates Now !!!

I carefully read articles about the Fed's minutes and extended forecasts. They forecast 2008 growth as 1.8 to 2.5% real growth, while expecting headline inflation to be 1.8 to 2.1% and core inflation as 1.7 to 1.9%. Unemployment is forecast as 4.8 to 4.9%. The current overnight Fed funds rate is 4.5%, which is 2.7% over the midpoint of the core inflation forecast for 2008. In Note A below from a variety of data I educe the range of reasonable "neutral" real interest rates as 1.5 to 2.5% with 2% as the central neutral level.

The inflation forecasts of the Fed itself show they have won the war on inflation: price levels are forecasted in the zone of stability - the "Comfort Zone".

The core PCE is now 1.8% year over year and the Fed midpoint forecast for 2008 is the same. So the "neutral" Fed funds rate is 3.8%. But why should the level be at "neutral" ? The Fed's own forecast shows subpar growth for 2008 and higher unemployment. So they are violating their mandate to maximize employment with stable prices. The Fed should be maintaining either below neutral real interest rates or at least a real rate at the low end of neutral, viz. either at 3.3% or lower.

Mirabile Dictu !!! Ms. Market concurs !!! The two year Treasury note is trading at 3.06% !!!

So why can't the FOMC figure this out ? Surely Ben Bernanke is as smart as his college classmate, Bunkerman. Maybe the FOMC members are still fighting the last war - inflation - and still shooting though they admit they've won. Some Fed big mouths do say that. Or it's something else. Hmmm, what could that be ? From the screeching of the press and some politicians, it's the dollar ! They are afraid the dollar will drop considerably more. Grrr, they have no statutory authority to support the dollar.

How many common men must lose their jobs & homes to support the dollar ? I'd like to hear Barney Frank ask Ben that in sworn testimony.

Let no common man be crucified on a cross of dollars ! *[see note C]

Cut rates now at least 125 bps ! Or cut 50 bps and signal continued cuts !

**********************************
NOTE A - REAL INTEREST RATES
There is a range of Fed interest rate levels due to error and inaccuracy in knowledge. So accepting the core PCE inflation level of 1.8% [which corresponds to the recently released Fed "central tendency"], what range of real returns should be put onto that for overnight money ?

I remember learning in B-school that a 0% real return for T-bills was the empirically mean over long periods of time. Adding 1% for a bank risk makes sense. And I know that current Treasury inflation indexed notes give around 2-2.25% for multi-year money. And I know that old gold notes have long term rates of around 2-3%. So suppose a reasonable range is 1-3%, midpoint 2%. Let's take the range and divide by two to get a core centroid: (3% - 1%)/2 = 1% core centroid which is + or - 0.5% on the midpoint, viz. 2% real rate plus or minus 0.5%.

So higher math gives a neutral real interest rates as between 2% + or - .5%, viz. from 1.5% to 2.5%, midpoint 2% for overnight bank lending.

NOTE B - $10 words
For definitions of educe, adduce and conduce, see blog post "The 'duces" for November 19.

NOTE C -
Reminiscing the famous "Cross of Gold" speech of the "Great Commoner", William Jennings Bryan, whose only vice was an inordinate fondness for a third plateful of food :-)) [I think that's a quip from H. L. Mencken - I saw saw it a few years ago & saved it.]

"Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests, and the toilers everywhere, we will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold."

Source: William J. Bryan, _The First Battle: A Story of the Campaign of 1896_ (Chicago: 1897), 199-206.

On and on

The Rich Man's Panic continues. Sigh ...

HPQ beats earnings and revenue estimates and guides both up. No recession there. Sigh ...

Fed minutes come out today, plus the increased forecast disclosure. Those might be really interesting.

CFC got hammered again. I suppose that more rumors abound about liquidity and downgrades. I'm thinking about re-buying it. I didn't notice until too late yesterday that it was so low. If I can get a good entry, I'll buy some for a TRADE. I figure that someone will definitely buy them - the question is at what price. I think 18 is the logical minimum, viz. the BAC owned preferred stock strike price for conversion. This will not be a huge position.

I now have fullfilled the "Plan" for my big fin long term purchase program. The positions are BAC, C, WB and JPM in order of position size. The first three [BAC, C, WB] are rather close, though. I don't want to become a "Stakhanovite" here for these. If I decide to become one, I'll be doing it thru options and for a trade.

Otherwise, nothing has changed. Beefers with winning positions are still shedding them in panic to hold onto gains to keep their fees for the year. Find good stocks & groups on buy dips for long term positions. There are quite a few good opportunities out there. Use patient time diversification. This correction will clear soon as time and price are both playing out.

PS: yesterday's S&P drop broke the recent low, hence erasing the potential rally. So we're back to waiting for a new "Day 1"

PPS: This big cap fins position is now my largest group in my Alpha Fund, even larger than the energy stocks. Big cap fins are 33% of the Alpha Fund. Energy stocks including deep water drillers are about 30%.

P^3S: Just so all know I can admit when things go wrong, my Alpha Fund is now up only 43% year to date, vs. 68% at my year high. So that's quite a drop. The sales & partial sales I made for money management around September certainly helped keep my numbers up as all those stocks are under the selling prices. All my early buys in the big cap fins are well under water. :-(( I don't mind the first buys, but the adds in Sept. to Mid Oct. still burn me, as those violated my buying plan.

The 'duces

No, not deuces ! This post is about words formed by adding a prefix to "duce". I seem to have trouble remembering these so I thought that writing a blog & comparing them might help.

Here are the $10 "duce" words that are in my word card file: adduce, conduce, and educe. $0 words are induce and introduce. I wrote about "adduce" a few days ago.

Adduce: to offer as an example, reason, or proof in discussion or analysis; to cite as an instance or as proof or evidence.

Conduce: To lead or tend to a particular end usually desirable result: contribute

Educe: 1. To bring out or develop from latent or potential existence; elicit. 2 infer; elicit a principle, or number from data.

So can I use these words in some sentences about beefers ? :-)

Bunkman's long observations of stock movements educed the "beefer" as a prime mover of markets short term. Bunkerman further adduced recent wild swings in major groups in substantiating the profound effect of beefer actions. Investing tactics such as dip buying that recognize beefer moves conduce better long term results.

A hat trick ! :-)))

Nothing is new; nothing has changed. Be patient, buy dips, wait for the smoke to clear. When the beefers cease stomping the mud around this drying water hole, a new trend will emerge. We are waiting for a "follow thru" day to confirm a rally.

BAC

I read some research on BAC [Bank of America] that was published on Barron's Online. Punk Ziegel & Co. wrote that BAC has a large investment in China Construction Bank with the option to increase it to 19.9%. Under the new accounting rules, they will be able to write it UP in Q4. This gain will flow directly to the bank's equity and increase its capital ratios quite a bit. The total increase is ... $35 billion [sic]. BAC's market cap is less than $200 billion now. So this is huge and that capital can be used to increase loans and earnings power in the future.

Combined with the pain inflicted on the non-bank loan markets, such as CDOs, SIVs, and mortgage companies and other structures that let non-banks s compete with banks, I think BAC's earnings power in the future is really a lot more than today's excessively bearish mindset puts it.

So I am thinking of buying more BAC. I have a lot but have about 17% left to add to the big banks from the "Plan" amount (100%). Either JPM or BAC will get it. JPM is the smallest position of the "four horsemen" in my big fins holdings [BAC, WB, C, JPM]. So I have some real thinking to do.

WSJ story says Russian oil production growth is slowing very much. No surprise. Oil demand is growing and has to ration the relatively fixed supply. Oil demand elasticity is well known to be quite small - it's "inelastic". This means to reduce desired demand just 1% it takes a multiple % move in oil prices. Since oil/energy demand is highly correlated to economic growth, oil prices are going up over time. For example, if economic growth would naturally increase oil demand by 1%, oil prices must increase a lot to cut that demand to 0% as no more supply is available.

This is why oil prices are high. It's not fear or speculators. If those were causing high prices, lots of oil would be moving into storage or OPEC could not sell all it desires. But OPEC is selling every barrel. Boone is correct.

Stocks:
Nothing has changed. Beefer actions can make Ms. Market dance anything they wish short term. Buy good stocks & groups on dips. There have been some good dips in oils and miners and deep water drillers. Take a look if you don't own them.

PS: Per yesterday's late day comment, I bought more C around 34.50

PPS: per the comment posted, on this AM's dip I bought more BAC, WB and JPM. Around 15 I'll add to YRCW.

Hylomorphism

Listening to my course on CDs, "Great Ideas in Philosophy" published and sold by The Teaching Company [see http://www.teach12.com/ ], I learned an interesting concept and word: the noun, hylomorphism, and its related adjective, hylomorphic. In simple terms, hylomorphism is a theory that all physical objects are composed of matter and form. Aristotle developed this theory in his book De Anima and a few other books. I'm not going into his usage as that involves concepts of the body and soul.

Let's see how modern elementary particles fit this theory .. and stock prices !

Many have mass, or more precisely, rest mass. And they have other fundamental quantum numbers such as spin and charge. An electron has a rest mass and spin 1/2. A W and Z particle has rest mass and spin 1. A photon has no rest mass and spin 1. A quark has rest mass, spin 1/2 and charge -1/3 or +2/3. And some particles have "colors" and "flavors". A graviton (not discovered directly yet) has no rest mass and spin 2.

I suppose we could generalize "matter" to be "energy" as the special theory of relativity does by making energy the fourth component of a fundamental four dimensional vector with the three directions of momentum as the other three dimensions. But there really is a fundamental difference between rest mass and energy - that's why it's called, "rest mass".

So hylomorphism might partly right and partly wrong, or needs generalization. Not all fundamental particles have rest mass. But all fundamental particles have some fundamental properties one could characterize as "form", such as spin. I think latter day philosophers might have expected classical hylomorphism to fail on the other leg, namely that some physical objects would not have "form", but all would have "matter".

Hmmm ... can one call light a "physical object" ? Or a graviton ? We can observe light and feel gravity. But are we simply using the photon or graviton to sense a physical object that does have matter? I have to think more about that concept.

Hmmm ... what is a "stock price" ? It's the price of exchange of shares. So a "stock price" has no matter, but has form, like a photon. A stock price has two numbers, the price and the number of shares, and a time - when the transaction occurred. So it's three dimensional. The prices, share #s and times can be ordered but are not unique. At a single time, several exchanges can occur at different prices or the same price. This is analogous to a boson with integral spin - they can be stacked on top of each other while fermions with half integral spin cannot occupy the same "space". Interesting ... I'll think more about this.

Stocks:
Nothing is new. Wait for a confirmation day, or just buy dips of good stocks.

PS: I just realized my "beefer" theory of the stock market is a teleological theory - one that focusses on the purpose or design behind the actions :-)) I guess it sounds more intellectual now ;-)

PPS: I suppose if one includes the security identification number ["CUSIP" in the US], there are three numbers and a time - a four vector - asscociated with a stock price.

Whither Now ?

Hither, thither, whither, hence, thence, whence, - all are useful words now neglected as the literacy level of the US continues its decline from TV and video game induced zombie-ism.

Not here !

Whither combines the concept of "where" with the motion of going. Thus, "whither will stock prices trade now ?"

Tuesday was Day 1 of a rally attempt. IBD seems to have missed that, as they cited low volume, but a higher volume day is not required for a "Day 1". They missed the beginning of a great rally last summer for a few weeks, too. So now a confirmation 1% rise in a major index with higher volume day on Day 4 or later is needed. Friday is options expiration day and will be Day 4. Let's watch.

The PPI and CPI data will be important. Low numbers in the "comfort zone" will help give the Fed room to cut if needed.

PS: PPI number was fine - the month over month core was zero.

PPS: GE guides 2007 revenues up.

P^3S: Good retail sales numbers - uh ... I guess the consumer is normal.

P^4S: I am very pleased that Bernanke in his speech is really emphasizing the importance of the Fed's DUAL mandate: maximize employment and price stability. Too many eisegetes ignore the former requirement.

P^5S: I just bought a new top line iMac. Doing my bit to support the economy :-)

What's New ?

Nothing.

Japan growth was OK.

More "subprime" panic mongering.

There was some panic selling in former high fliers yesterday as all the beefers try to bail at the same time to save their years. Sigh ...

I might re-buy EDU if it goes lower. I sold it in October when I had a LT gain as I was lightening up. I really like that stock long term. I'll put a bid around its 200 DMA in the mid-50s. I'm in no hurry.

Be patient. Buy dips of good stocks and groups. Take your time in building a position.

I take Sky & Krypto to sheep herding today midday.

PS: WMT good earnings and revs up 8.8% year over year. Uh ... where is the pain in lower income brackets ? NFIB says no small business credit crunch. Sigh ....

Monday in the Bunker

Not much is going on.

Yesterday was Veterans Day. I sent some large donations to the USO, Operation Home Front and the "Fisher House" in Dayton, Ohio. Those are fine organizations that do a lot for servicemen and their families.

Asia was down big, but futures are up and Europe is up in early trading.

Barron's reported some large bearish sentiment numbers plus increased short interest. With so much money in beefer trading funds and no uptick rule, I think the shorts can have their evil way with Ms. Market at will. I noticed in the summer how large short interest eventually overwhelmed the markets. I think that might have happened again in early October. With trillions are their disposal, I suppose this is no surprise. We'll have to live with the increased volatility, unfortunately, since the SEC is in the pockets of the Street and the beefers.

What to do? Be even more patient in buying long term positions. I think we can expect beefer rotations and bear raids to create great buy points. So one should spread out buys even more and really wait for a bear raid to load up.

Dubai makes a huge aircraft purchase. Hmmm no slowdown there.

That big oil find in Brazil in the deep water shows that one should stick to deep water drillers for oil service buys. Long term, that's where the oil is and they have the expertise to get it out. I have RIG, DO, GSF and NE; RIG and GSF are merging soon, by the way.

These oil finds might replace lost production from declining fields over the years - they do take many years to get to production.

For US oil companies with serious deep water efforts in the Gulf of Mexico, I have CVX and DVN. Both have made large finds and have many leases.

The super SIV seems to have legs and is going forward. I would like to buy more C if I can get a good price. Plus, I want more BAC, WB and JPM. But I'm not hurry and will not buy unless I get a really good price as I already have a lot. Calling my original plans for these 100%, I recently doubled my plans to go to 200% and now have about 150%. So I have a good bit more that I want to buy.

Vista Sucks !!!

Look, if you have any choice, don't buy a computer with Vista. It totally sucks !

I get endless updates. The computer does those "waiting" signs [the little circle spinning] for long period when I'm trying to do something.

It crashes a lot.

Shutting down or restarts can take many minutes - even an hour.

You have to run a virus checker and firewall anyway - so you get those headaches, too.

Of course Dell loads all sorts of crap onto the computer and some doesn't work.

The Windows Photo Gallery is OK, but one has to search to find where it puts the photos when I download them from my camera.

I'm never going to buy a Windows computer again.

It's 2007 - PCs have been around for 25 years. One should just be able to turn it on and have it work, like a car. Why do we have to be a techie or know a lot to use them? That's crap.

I'm going to buy a new Mac - the biggest and best - and if I like it buy a couple more.

I'll keep the Vista as a reminder of why I shift to Macs.

I think Mac will eventually get 25% of the PC market. [Btw, I am long AAPL.]

The iPhone and iPods work great with the Macs.

Why would anyone own a Windows computer unless one was require to because of work ?

Back

I got back to the Bunker safely. I see more shelling in the markets. Sigh ....

Bought more WB, C, JPM. These are long term investments.

In the Belly of the Beast

I'm feeling a bit vulnerable here in the belly of the Beast aka Manhattan - no defenses or personal protection devices except my boxing and self-defense skills. I expected to see droves of zombies walking around with vacant stares wearing scars of subprime defaults and other doom and gloom. Instead, the streets are crammed with shoppers - many from overseas, yes. And the New York Athletic Club where I stay is still having many parties and events.

Gosh, maybe the world is not ending.

The Apple store on Fifth Avenue was packed at 3:30 PM - long, but organized checkout lines. Those stores are so well run - plenty of people around to ask for help and they are very knowledgeable.

I heard on Babblevision - golly that is so depressing nowadays with their endless fear and crisis mongering - that Moody's was downgrading some SIVs. That's all they said. So reading the WSJ this morning I spied a vital fact. "Moody's said it wasn't taking the ratings actions because of quality of the assets themselves. Instead, Moody's said the SIVs problems stemmed from the drop in the market value of the assets the SIVs own as investors shun those investments amid the credit crunch."

So the underlying assets are not showing sufficient defaults to impair expectations of full and timely recovery of interest and principal even under today's known stressed environment. That just sums up the situation - it's fear, not reality, causing the considerable drop in "market value" of these highly rated securities. Paraphrasing Clara Peller of "Where's the Beef" fame,

Where are the defaults?

I've worked with Moody's, S&P and Fitch in the past and I have a lot of respect for their intellectual and analytic abilities. They are not perfect and make errors. But AAA securities have defaulted in the past, viz, I remember Texaco defaulting due to the Pennzoil judgement. Nowadays, everyone is bemoaning that securities originally rated BBB- will default. Sheesh, statistically quite a few of those are EXPECTED to default over their lifetime.

So if unexpected waves of defaults were showing up in the trustee reports of structured securities - they are highlighted in those, by the way - it would be known and quickly reflected in ratings IF they were beyond the expected stressed levels for the ratings. That is particularly true now when so much attention is focused on these.

I heard this AM that Costco same stores sales were up 9%. Where's the consumer stress?

Where's the recession?

Phooey! This is Rich Man's Panic, round 3 or 4 - I'm losing count. This is getting boring.

Turmoil in Europe

European stocks are down quite a bit this morning and some asset allocation programs seem to be pushing US stock futures down a lot, too. S&P futures are down about 18 pts as of 5AM ET.

Gold is up $20 to around $840. Oil is up to about $98.6. The Euro is up to 1.468; the pound to $2.10

There doesn't seem to be any significant news yet. ECB tough talk is driving the Euro up.

Longer term, I think Persian Gulf and Russia money is moving into euros and gold to diversify. They spend most of their money in Europe, so it makes sense. There is talk of Chinese diversification, too. For that to happen, China must de-link from the dollar.

For decades the US with its free markets and low regulation has been a great place to invest. That is good, but it also led to an overvalued currency that hurt exports. That has been and is still correcting itself before our eyes. Exports are surging, export industries and jobs are growing. So far US consumer prices are not strongly affected as many imports are from countries with dollar links like China. Basic materials and oil are priced in dollars.

Let's see how the ECB reacts. They need to step up and provide Euros to meet demand. This will maintain the global money supply growth as the flow of dollars overseas contracts.

NOTE: I will be traveling to NYC later this morning until Friday around noon. So posts might be sparse. I should be able to post a blog tomorrow, but not Friday until later in the day. Good luck. Be wary - beefers are stomping the mud in search of a new waterhole.

PS: This looks like a euro-panic. Euro-beefers or big euro-investors are probably doing big asset alloctions out of dollar, US stocks.

Tracking

Quite a lot of recent market action is just beefer ping pong aka elephants stomping at the water hole. But some signs of real buying and selling do exist.

1. Clearly real sellers are moving out of the big banks. I suspect that growth & income funds are scared and selling a good bit to shift into other dividend payers like utilities. I also suspect that beefer shorts are magnifying this move. Notice the strength in the Dow Utilities index.

2. The weakness in the Russell over the past four week indicates that beefers are bailing out of that sector as a potential savior for their year end fees. The Russell is a favorite playground for them.

3. The strength in the Nazz 100 whilst all the turmoil has been occurring shows real buyers there, too. Big cap tech sells big money over seas, so perhaps that's the source of the real buyers, there: exports growth. But I suspect some amplification by beefers there, too.

4. The Dow transportation index has been roughly flat for weeks. If a recession was being forecast by major players, one would think that would be going down. It's not.

Interestingly, I heard a French analyst on Babblevision early who said the Euro was overvalued by 50%. Yes, 50%. He thought parity was fair value. I think the Euro strength is due to Persian Gulf money and Russian money who spend lots in Europe. Also, some of those have reasons to avoid the US$ and its banking system, viz. terrorist and organized crime connections.

Gold is about $820 as I write and oil is around $95.50. The all-time high for gold is around $850 for a closing price, but I think the intraday high was closer to $900. I'll do more research as it is getting closer.

The economic trajectory is strong and continuing onward. So it's a bull market, despite all the froth. Over time this fear should dissipate and the up trend continue.

I have sheep herding today so will be out from about 8AM EST thru 1PM EST.

PS: Back. Oil $97. Gold $825.

PPS: Sheesh. Gasparino says Dick Grass's favorite movie was Borat. That movie sucked - I turned it off after about 30 minutes.

P^3S: The S&P cash is looking like a W bottom pattern is forming. Cracking 1520 and holding two days would set it up. There must be a lot of beefer shorts out there - they could get hurt.

Monday Morning Rambles

Chuck Prince "retires" - C announces more write offs due to "subprime" . They say they held $50 billion of that paper at the end of Q3. The write off is around $11 billion. The stock is up about .67 in European trading.

Futures are down as of now [6 AM EST]. Hong Kong got smashed.

Oil is down a bit as is gold.

Nothing much in the news about the "real" economy. Friday's jobs number was quite good. Recent PCE inflation numbers are good. So the moderate growth trajectory seems to be continuing.

New England defeated the Indianapolis Colts in an exciting football game yesterday. I watched that game and part of the San Diego-Minnesota game. These fast, agile running backs are really exciting. Football has missed those for a few years in my memory. But I admit I'm not a heavy viewer.

I set up a Las Vegas trip for mid December. And I have to travel to NYC Wednesday noon thru Friday noon. I've asked a person to guest blog on Thursday and Friday. We'll see.

Sky is really amazingly good in sheep herding for a 10 month old puppy. He's now herding 10 big sheep in a big field - no nearby fence. He loves it and and does remarkably well, according to the instructor. Perhaps he's the best he's seen at this age. So I think that sheep herding will be a regular sport with us. Sky will probably be ready for trials next summer.

PS: C is trading down in Europe now.

PPS: It's darkest before the dawn. I'll probably hide in my bunker today - expecting shelling.

Early Totalitariansm

Reading about the French Revolution in the fine book, "Europe: A History" by Norman Davies, I was stuck by the description of the Jacobin phase of the French Revolution. This period and government had most of the aspects of a totalitarian system: revolutionary ideology, need for expansion, an endless stream of victims for terror, systems of spies and informers, "laws" that made everyone a criminal, rule by a core elite or one man, etc.

I was surprised how well that period fit Hannah Arendt's description of Totalitarianism. So far I'm unable to come up with earlier examples of Totalitarianism. If anyone has suggestions, I'd appreciate them.

Instincts

Often my instinctive, non-articulable "feeling" toward a situation of a problem has proven correct over the years. I suppose many "feelings" have been wrong, but I don't remember those ;-)

Here are three instances.

In the late 1990s, I was discussing Sandy Weill with acquaintances at a NYC club bar. The WSJ article had just appeared where his favoritism towards his daughter at Citibank had been unveiled. I stated that the story inferred he was untrustworthy. My fellow debaters/drinkers vehemently disagreed. Several years later, the Jack Grubman - Worldcom case proved me correct.

A couple of years ago, Weill's performance at Citibank was being discussed in a chat room. I posted that he had really done nothing but engage in merger-itis as the long term chart of C proved. The stock had gone nowhere for the time he controlled the company. I was challenged that he "built up the company". Now we see widely accepted in the business press that he just created a mess. And the mess will likely soon come apart as Chuck Prince is resigning.

About 33 years ago, I gave a talk on the mass of galaxies. I had learned much galactic dynamics in an advanced graduate course, including the mystery of the rotation curves of galaxies and the unseen virial mass of clusters of galaxies. Putting 2 and 2 together, I knew that a uniform, very heavy distribution of "dark matter" would explain both. So I gave a short talk on the problem and solution in another graduate course where the question had come up. Being rather young [I was just a junior in college], I was unable to answer quite a few of points that captious* fellow students tossed up. A few years as a graduate student myself and a teaching assistant, later I assigned a scattering theory problem to students to illustrate how some types of matter would be unobservable. In recent years, the existence of a uniform field of "dark matter" in the universe is now accepted by astrophysicists. Its makeup is still unknown.

So one must respect one's instincts, provided they have led one well in the past.

*see Thurday's word of the day

Beefer Madness

As a victim of irreversible senescence* I remember seeing that old movie, "Reefer Madness", from high school that was used to scare us from using marijuana. We had heard about it and its laughable claims, so enjoyed it immensely. The movie was sort of pointless for me, living in an isolated small town in Ohio. I never smelled it until my first day as a freshman at Harvard when the redolence** of an adjacent dorm room caused me to ask a NYC kid what it was.

Yesterday was another recurrence of beefer madness. Any recent beefer buys of big banks were dumped into the street as one analyst suggested the C dividend, though well-covered by earnings, might be cut. Panic selling. XOM was dumped citing production declines. Uh ... Boone has been saying for a long time that finding more oil was hard. Anyone paying attention would know that a "B" rated security has a 30-50% likelihood to default over its lifetime, yet reports of possible risk to junk rated retailers is "news". Sigh. And any CDO already includes such cumulative default risks in its ratings.

Even though beefers are at four year lows in net long positions, they dumped stocks mindlessly and shorted with abandon to protect their YTD numbers. Signs of the beefer: huge ETF trading, outsized moves by the Russell and S&P midcaps, huge drops in recent gainers.

There was a bit of news. WSJ reports the head of BS is a pothead and uses illegal Cuban cigars, hence supports the tyrant Castro. Today's WSJ reports Merrill Lynch used hedge funds to hide losses. SEC investigations for both. No surprises.

Recent economic data is either good [GDP, inflation] or OK [ISM mfg].

Today's employment numbers are important. One reason the Fed moved to neutral was the revision of that negative jobs number. Let's see if they were right or got faked out again.

I have large longs in BAC, WB and C now. I might add more. I'll buy more JPM on any decline. I think the dividends are safe and the mortgage and CDO turmoil will eventually lead to more profitable business for these institutions. I still think I'll make over 30% on these over a year.

Words of the Day:
*senescence [$10] - noun from the intransitive verb, "senesce", meaning "to grow old". the adjective is "senescent". Here's another sentence using that word - [referring to concepts of the decline of mankind applied to the Dark Ages] "... and that man's weakened mind ... is an infallible sign of the senescence of the species ..." {"Social Change and History", by Robert Nisbet, p 101}

**redolence [$10] - a noun from the adjective, "redolent" meaning (1) having or emitting fragrance: aromatic; (2) suggestive : reminiscent

The Day After

Futures are down this morning, as are European stock markets. This might be a correction of yesterday's enthusiasm or a re-thinking. I re-thought my initial annoyance of the Fed for not listening to me ;-)

To prove I am not an ingrained captious* commentator, I will say that "perhaps" the Fed made the correct move. One analysis that I heard of the Fed's actions was that they did not see much risk of a recession now. That "might" be correct. That would also explain yesterday's big move up. Much pressure on stocks had been due to recession-mongering by the bears. If the recession is fading like so many other bearish delusions, then much higher stock prices are justified.

Gold hit $800 yesterday intraday. Oil traded over $96 overnight.

An analyst downgraded C, saying they have a shortage of capital and have to cut the dividend. I'll have to check that out - since they are still profitable, I'm not sure how that makes sense.

Some important economic data come out today - the ISM manufacturing index is most significant to me. If it's under 50, then the Fed timidity will seem a bit more likely to be wrong.

Seasonal strength is upon us. Real buyers have money to put to work. The trend is up. It's a bull market. Buy dips. But be wary and pay attention !

*Captious is the Word of the Day. Captious: adj. given to finding fault or raising petty objections. I first saw that word reading Erasmus's famous work, "Praise of Folly". Here's how he used it re the Stoic philosophers - "... seeing they're so captious and far keener-eyed to pick out their friends faults than an eagle ..."

PS: WSJ story shows BSC leader Cayne as a .. prima donna jerk. No surprise.

PPS: C will probably go down until Chuck Prince goes. The WSJ article showed that his pal, Rubin, out of touch, too. He has to go, too.