I had been articulating a posture earlier this year on Street Insight that advocated liquidating substantially all my holdings into the markets run up.My view was that we were in an 88-89 style market. Doug Kass and Tom Au more eloquently postulated that were in a 30s scenario. In any case I think we all had the basic position correct. I wanted to be cash rich when the inevitable boot dropped. I learned this practice from one of my old clients,a financial genius by the name of Dr. Henry Singleton.Now that the boot has dropped I am spending time searching out potential opportunites that will provide relatively high yields on an interest or dividend basis,solid book value and some reasonable upside without little or no down side risk,in short searching for value!
Now that we are moving into the 1990 scenario ,I believe it is essential to keep an open mind to potential opportunities.Carefully distinguish between fact and emotion. Clearly we are not in the shooting fish in a barrell stage yet,but it is important to make your shopping list now. The reality of modern markets is that the opportunties are fleeting.
Position: none
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Noah Blackstein |
| What are these guys running an oil refinery?!? |
8/3/2007 7:55 AM EDT
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"Flash - ah
Gordon's alive
Flash - ah - he'll save ev'ry one of us"
Last night a major power outage at Samsung took six line of NAND flash out. As if Apple's major purchases weren't bad enough it looks like a tight supply situtation is only going to get tighter. Bad news for the Flash bears.
Position: Long Apple and ticket stub to the 1982 Queen with Billy Squier show at Maple Leaf Gardens. Reds.
Central European Media Enterprises (CETV) reported second quarter revenues and EBITDA above estimates. However, the composition of the results caused concern among investors leading to a sharp 5.4% decline in the stock on above average volume. I think investors overreacted and remain very bullish on CETV shares. I was adding to positions in my client and personal accounts yesterday.
CETV report a 38% increase in revenues and EBITDA, both comfortably ahead of my estimates. Second quarter results represented an acceleration form the first quarter when revenues and EBITDA grew 21%. The Czech Republic, Slovakia, Romania, Slovenia, and Ukraine all matched or exceeded estimates. However, Ukraine had a very poor quarter due to political turmoil and weak ratings. First quarter results in Ukraine were also poor.
As a result of the weak first half in Ukraine, continued low visibility with elections coming up on September 30, and uncertainty on ratings in the fall TV season, management dropped the bottom end of its guidance range for revenue and EBITDA. I believe this is the reason for the negative reaction of the shares. Getting less notice was the fact that management did not adjust the upper end of guidance. In other words, management feels that it is possible to make up the shortfall in Ukraine in the other five countries. Given the momentum in those countries revealed in their exceptional second quarter results, I am extremely confident that full year results for all of CETV will be in the upper half of guidance. The bottom line is that despite assuming Ukraine moves from 12% of 2006 EBITDA to a small loss in 2007, CETV will still make at least what I expected prior to the second quarter report.
I still expect CETV to report 30% growth in revenues and EBITDA in 2007 excluding a $10 million investment in developing the company's internet properties. Excluding Ukraine, I expect revenue growth of 35% and EBITDA growth of 55%. High growth should continue in 2008 where I am looking for 18% and 25% growth in revenue and EBITDA excluding Ukraine. Should the September elections lead to a stable government, CETV's results in Ukraine in 2008 are likely to bounce back with revenue growing more than 30% and a return to EBITDA profits even assuming no rebound in ratings. History would suggest that ratings improvement would occur.
CETV is trading at 11 times my estimate of 2008 EBITDA assuming breakeven results in Ukraine and Croatia. Those two markets will have 2008 revenue north of $150 million combined. Ukraine had $21 million in EBITDA in 2005 and $30 million in 2006 while 2008 will represent breakeven for Croatia after several years of significant investment. The 11 EBITDA multiple implies that there is no value to Ukraine or Croatia which is absurd. I am certain that if CETV held an auction for its stations in those two countries, bids would more than $500 million which equals $12 per CETV shares.
Yesterday's stock price decline and the uncertain outlook in Ukraine creates more risk in achieving my $130 target for CETV shares in 2008. However, my experience with this company and its management team since 2001 leaves me confident that the stock will achieve my expectations.
Position: Long CETV
Today will be quite the interesting Non-Farm Payrolls report. Consensus is for 127,000 new jobs, with a range of 60,000 to 160,000.
Why "interesting?"
Well, first, there is a general economic gloominess amongst the populace, as reported in yesterday's WSJ/NBC poll. There is "broad public pessimism," and while at least some of it is related to Iraq, that hardly explains the deep and broad negativity. (I disagree with NRO's Jerry Bowers, who claims its a market sentiment buying signal). Two thirds of Americans beleive we are in a recession right now, or will be within a year. It is simply hard to imagine robust job creation occurring with that sort of widespread sentiment.
Second, there was the rather sour ADP Report (chart). A month-over-month gain of 48,000 new private sector jobs is fairly punk. Unless the government itself created 100k new jobs -- suspect tho that might be -- we are set up for a disappointment.
Lastly, there is the Birth/Death factor. January and July are the two months of the year where BLS puts this hypothetical job creation machine into stasis for a month due to seasonal factors. We typical see a negative or flat B/D number in January and July.
Why does this matter? As we noted in The Accelerating BLS Birth/Death Adjustment, this adjustment has been an increasingly large proportion of BLS reported NFP. In 2006, it was responsible for a large minority of BLS reported new jobs. In 2007, the B/D adjustment is responsible for more than half of all new reported jobs! The report is out in ten minutes . . . Sources:
America's Economic Mood: Gloomy
JOHN HARWOOD
WSJ, August 2, 2007; Page A4
http://online.wsj.com/article/SB118600572789185278.html
ADP Report
Wednesday, August 1, 2007, 8:15 am EDT http://www.adpemploymentreport.com/report_analysis.aspx
Position: ∞
Here are the numbers -- July nonfarm payrolls are up 92,000, July average hourly earnings were up 0.3%, and the July unemploment rate was 4.6%.
Position: none
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Bob Faulkner |
| Taking care of the little things |
8/3/2007 8:33 AM EDT
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All the NAND and DRAM companies are up in the pre-market this morning due to a power outage at Samsung that will shut down 6 manufacturing lines at one facility. I'm reading in a Citigroup rept that this was caused by a blown fuse. It never ceases to amaze me that the more we become reliant on technology in every aspect of our lives, the more susceptable we are to the "dumb stuff."
Position: Long QI, the Telecom Connection Model Portfolio is long QI
Government jobs fell 28,000 in July, owing to a 15,300 decline in local education jobs. The drop is almost certainly because of problems adjusting for recent changes in school calendars across the nation.
Adding back the figures, which is quite rational given the health of state and local fiscal situations and the fact that there is no basis for believing education-related employment should fall, the payroll figure met expectations, at least as far as job growth in the private sector is concerned.
In fact, private payrolls actually expanded at a faster pace in July than in June, increasing 120,000 in July compared to 107,000 in June when the overall payroll gain was 132,000, considerably higher than the 92,000 gain for
July.
More in my blog later.
Position: none
I hate to always find the silver lining on things but this hedge fund fallout has some potential benefit to equities. About two years ago every fund of funds manager was calling me up and saying, "James, we have to get out of equities. What are all the good asset-backed hedge funds out there." I had just written about asset-backed funds for my book "Supercash" (fortunately I left out the chapter on John Devaney, which ended up in an FT article instead). There were FoF managers who had always been traditionally with equity hedge funds. now they were suddenly all about asset-backed paper.
Well, its come full circle and now the FoF managers are all looking to get back into plain vanilla equity hedge funds. Activists, value funds, etc.
Position: none
Rate-cut odds have increased slightly, very slightly, despite the "weak" payroll number, possibly a reflection of the large influence that the government sector played on the data.
| FOMC meeting |
Today |
Yesterday |
| August 7th
|
5% cut
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5%
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| September 18th
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34% cut
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30%
|
| October 31st
|
62% cut
|
60%
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| End of year |
100% for one; 10% for two |
100% for one; 2% for two |
Position: None.
Heading to Boston tonight. A bunch of people from Stockpickr want to do an informal "first Boston Stockpickr Meetup". We're going to meet at the Omni Parker Hotel in the "Parker Bar" to hang out and talk stocks. Drinks/Coffee/peanuts on me!
Position: none
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Bill O'Connor |
| Will the big 3:30 equities buyer return today ? |
8/3/2007 10:05 AM EDT
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Somehow , the 'preplaced electronic orders' placed to execute at 3:30 the last 2 days surely smells 'not quite right' to me . While i dismiss my conspiracy theory readers telling me its 'Helicopter Ben' in the basement of the Fed smashing the BUY button , i would surely suggest that yesterday's rally despite deteriorating financials news out late in the day really should make you go 'hmmmmm' .
Low grade ABX indices all hit new record lows and AHM news came out that they were shutting the doors and i watched as i saw the single biggest one-day drop in AAA MBS bonds i can remember and yet stocks ( including financials ) flew higher as somebody sprinkled huge buy orders around like a sugar daddy throwing candy to kids in the last 30 minutes .
If sugar daddy does not return today , i expect alot of folks whistling and pretending 'all is fine' are going to cash out or at least be inclined to lighten up.
On a positive note , the Baltic Dry Index is up yet again to new lifetime highs . 10yr rate swaps are tighter by half a bp again , the jobs number wasn't too hot or too cold ( all the goldilockers breathing a huge sigh of relief , zinc inventories fell yet again to lowest levels seen on the LME in 17 years (buy ya some Breakwater) and its a hot Friday in the summer so many of NYC's 'masters of the universe' will be slipping out the door by noon .
One final note : For all you youngsters who weren't around back in the late 80's when Drexel Burnham imploded , it was their inability to place their commercial paper that was the coup d'etat . The bulls yesterday claimed that CFC rumors of CP problems was nonsense and just a little haggling between buyers and sellers over a few basis points that delayed paper getting sold . I don't know about you but i would find it virtually irresponsible of any money markets manager to buy CFC 90 day commercial paper for a mere few bps over LIBOR .
Speaking of which : how many of you out there have had a good look of late as to what your broker is putting your cash in ? You might be shocked at some of the corporate names you are getting paid 5% to give them short term loans . Buying some 3 month riskless T-Bills at 4.75% area (tax free at state level too) sure sounds smarter to me than giving yourr cash to ANY mortgage lender for the next 90 days .
Position: long : SDS SRS
As has been widely reported, Take-Two Interactive (TTWO) announced it is pushing back the release of key title "Grand Theft Auto IV." In turn, I tossed the position from the a Breakout Stocks newsletter this morning for a loss.
This turn of events is an unmitigated disaster. Just a month ago the company emphatically said GTA4 would ship on time while announcing a $100 million credit facility. Well the timing of that credit facility was pretty convenient given hundreds of millions in revenue just went right out the window for a couple quarters!
In terms of fallout, it's a minor negative for the industry since it will mostly impact PS3 hardware and software sales. The Xbox 360 lineups is very robust and won't see an impact. And of course, the Wii and DS won't see an impact.
However, competing software publishers like Electronic Arts (ERTS) will benefit as a good chunk of October time frame is now open for sales of other titles. Any publisher that can shift a release into that time frame could benefit tremendously. The GTA4 delay is a negative for THQ because the company pushed "Saint's Row 2" out to 2008 to get away from GTA4 and they could go head to head.
Position: none
I have been listening in disbelief to the talking heads this morning. They are once again going on about all the bad news on subprime is out, so there will be no more panic selling and it should be onward and upward. Portfolio Managers are coming on talking about how cheap the market is at XXX (you fill in the blank) earnings. I have for the past several weeks has said the full impact on the economy will not be felt until 4th quarter of 07 or 1st quarter of 08. Hedge funds owning up to some failures and a couple of mortgage stocks getting hit does not cleanse the sysytem of the impact. That is the tip of the iceberg. Although I am not in the Jim Rogers camp of the "biggest bubble of all time" but the affect on retailers, autos and other consumer related industries has not been evaluated. I do expect earnings estimates to start to drop. There willl be a time to start shopping for good high quality stocks as the market as it is prone to do will take no prisoners on the downside. This is offering investors an excellent opportunity to draw up their wish list. They may even find some solid values in the financials and housing sectors----just not yet!
Position: none
Onyx Pharmaceuticals (ONXX) has been strong over the past two days, leading to all kinds of speculation. The company reports quarterly results on Tuesday.
Amongst the rumors: Deal talk with Bayer (a mainstay rumor.) Nexavar sales should be strong, so the quarter should look good. Also, there is some vague buzz about Third Point's Dan Loeb taking a bigger stake in the company. He already owns about 1 million shares.
Position: none
Volcano (VOLC) is certainly a lot more interesting at a 15% discount today for those of you following this company. I feel pretty comfortable that the technology is top-notch, and their business strategy is in the right direction considering their end market. I just have old-fashion concerns on valuation with regard to the fact that I don't know when/how/if they will ever make a meaningful amount of money. I hope to take a quick jaunt to their offices soon to find out more. In the meantime the turmoil in the drug-eluting-stent market (let alone the rest of the stock market) probably gives those of us interested some more time to find out.
Position: none
As i posted two days ago , recent revelations of a huge upcoming change in profit splits between TNH and its general partner TRA completely soured me on TNH future and i had exited my position and even put on a small short .
When i called company management and verified the split details that were brought up in their conference call and found out that management was even going to add these details in the 10-Q to make sure nobody could accuse them of hiding this info , i realized that myself ( and the marketplace) had completely missed this .
Fortunately , even the day after the conference call (last Friday) , TNH closed unchanged and it enabled many to get out of positions well over $100 .
Feedback from Silver readers has run the full range from 'thank god you posted this and i got out with a good profit' to some who took issue with me that i had missed a very key detail and failed in my due diligence . To these folks , i would add that given this info was publicly available on the company web site for years , the info was discussed openly at a conference call last Thursday and stock was unch'ed on Friday , that in fact the entire marketplace and squadrons of Street analysts also missed this crucial info , i throw myself on the same cold linoleum floor and say 'guilty as charged' .
Fortunately , most folks seemed to do OK . But for those who didn't or those who have been uninvolved , TNH is creeping back up today as we approach next week's ex-dividend date and i believe this offers an opportunity for you . While this could be shorts covering , i would suggest that many players in MLP are small investors who get lulled into stocks with high dividend yields thinking a stock down from $137 to $96 about to pay a quarterly dividend of $3 is a BUY .
Take the time to read the latest TNH 10-Q out and focus on the part at bottom on the change in profit sharing that is rapidly coming and then apply your own due diligence .
Strangely , while TNH is up 3.5% today , TRA is getting whacked 3% . As some readers told me , they think selling TNH to buy TRA is the trade since TRA will get 10% more of the total profits from TNH once the new splits kick in yet here is Mr Market going the reverse of logic .
Position: short TNH (small size)
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Doug Kass |
| The IndyMac Tell? |
8/3/2007 11:13 AM EDT
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Funny thing, a "tell" is in the eyes of a beholder.
To some, when IndyMac (IMB:NYSE) is up 13%, it's a positive "tell."
And when IndyMac is down 12%, isn't it a negative "tell"?
Inquiring minds want to know.
Position: none
Does anyone have a clue about the close today? I sure don't. I might hit the bid on any rally back closer to even. Just wondering about this dead cat bounce life span.(n.p.i)
Position: none
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Jordan Kahn |
| Looking For More Of A Bounce |
8/3/2007 11:57 AM EDT
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Bob, I have no clue about today's close either. I would be happy with a small, quiet pullback.
Beyond that, I am looking for more of a bounce. I second Gary's comments about the spike in the put/call, VIX, etc. Sentiment is hitting some extreme levels here, imo.
I think it is possible that the BSC credit downgrade could mark a short-term bottom for that group as well, which would help the overall market. (GS looks to be stabilizing as I type)
Some might say the last 2 days constitutes a bounce, but I am talking about something bigger. I am looking for a rally that takes the SPX above its recent consolidation, and closer to the its downsloping 50-day before hittin resistance. Is this a lonely view today? Yeah.
Position: long GS
Dougie, you have been around here long enough to know there is no such thing as negative tells-- just buying opportunities.
Position: none
The 30-Year has tested the 200-day simple moving average at 4.872.
Gold is above my monthly pivot at $675.8. Crude oil is back down between quarterly pivots at $74.48 and $76.48.
The dollar versus the Japanese yen remains below its 200-day simple moving average at 119.59.
Unless there's a strong afternoon rally all equity averages will close below their five-week modified moving averages, which keeps the weekly chart profiles negative.
The Stealth Bear Market for Financials is spreading to other sectors, and is becoming a global event. The good news is that these averages have stayed above their August 1 lows.
America's Community Bankers Index (ACBQ) - The August 1 new 52-week low is 251.57. The weekly chart shows that ACBQ traded below its April 2005 low this week.
PHLX Residential Housing Sector Index (HGX.) - The August 1 new 52-week low is 169.99. The weekly chart shows HGX approaching its May 2004 low.
PHLX KBW Banking Index (BKX) - The August 1 new 52-week low is 103.40. A close today below 104.04 would be the first weekly close below the 200-week simple moving average since May 2003.
Street TRACKS DJ Wilshire REIT (RWR) - The August 1 new 52-week low is 72.63. Weakness appears headed for its 200-week SMA at $67.95.
Position: none
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Gary Morrow |
| Las Vegas Sands Jumps 5% |
8/3/2007 12:14 PM EDT
|
Las Vegas Sands (LVS) is moving well again today after surging over 7% yesterday. The company released its second-quarter results Wednesday after the bell and has been on fire since then. With today's surge, LVS is now up 12% in the last two days.
Volume on Thursday's jump was well above its daily average, and it's likely today's will be impressive as well. This high-volume breakout has pushed the stock well above the descending channel it has been consolidating in since its major collapse back in February.
LVS began to bottom in late June as downside volume began to ease. On June 29, one day prior to being added to JPMorgan's Focus List, upside volume spiked to its heaviest level in six weeks. Since then, LVS is up about 25% including today's gains.
The latest portion of this impressive rebound has left behind solid support near the $90.00 area. A pullback down to this level on light volume will likely be a low risk buying opportunity.
LVS will encounter some heavy overhead supply near the $103.00 area. This is the breakdown point from Feb. 6 when the stock gapped down on its heaviest negative volume since March of '06.
Position: None
It's another bleak day for the mobile network sector - ALU and NT continue tanking after the Nokia and Nortel commentary kind of yanked the rug from under the sector. Ericsson is surprisingly resilient - we're seeing "higher ground" buying as investors switch from smaller infra names to ERIC. This is always an interesting phenomenon. Sometimes it ends when the last pillar of strength crumbles, sometimes risk appetite returns and investors flock back to speculative names like ALU.
I have my doubts about how this afternoon is going to end. We've had two consecutive days of 3 PM buying frenzy. I don't think it's Santa in the chimney this time around. Back when we had Middle East turmoil people were afraid to stay long over the weekend - this time around the lurking horror is your friendly neighborhood mortgage lender rather than Hezbollah. A week ago, American Home Mortgage made a late-Friday sneak announcement that was something of a bombshell in the pre-market trading on Monday. Not sure people want to stay long financials over the weekend, particularly since we just had a bout of short-covering in the sector. And this is what leads even Nasdaq these days.
Position: none
How does a stock trading at supposedly 3 times analyst estimates of earnings, with a billion in revenue and a 19% return on equity and an average 5 year 6% dividend yield sound? Well that was American Home Mortgage Investment hours before it disappeared into bankruptcy. Did the dividend protect you? The P/E ? Anyway the company will be wiped off the records and 5 years from now everybody's back test on what works will exclude the stock because it no longer exists. Don't be sucked into the value propaganda - you can lose everything in low P/E stocks. Focus on the businesses you own, pay a reasonable price based on a distcounted cash flow model, and reall know what you own.
Position: Short Graham and Dodd, Long Philip Fisher
Tero,Can you think of any reason why NT & ALU shouldn't be tanking? They've both been on life support for years. One talks about using its cost savings for inventments to compete and the other announces it needs acquisitions to grow. Maybe NT should buy ALU?
Position: Not even in my worst nightmare!
Yeah, Bob - I'm still trying to figure out why Nortel went to $31 in spring. There was a lot of enthusiasm about the mobile network market even though every company was discussing the global rev growth cooling down in every conference call. Maybe it was the China hope? This winter will be extremely interesting. Network margin collapses of Nokia and ALU indicate that the bidding wars for mobile network deals are already at the level where only Ericsson is making money.
I have a very hard time seeing Pat Russo letting go of ALU - and obviously she would be kicked to the curb in any merger, Nortel is that much stronger. I guess it's going to take a real crisis to trigger further mergers in the sector.
Position: none
I love Noah Boychick Blackstein.
You know why?
Three reasons:
Firstly, he has conviction.
Secondly, his analysis, which underlies that conviction, is rigorous.
Thirdly, his results speak volumes about Nos. 1 and 2.
And your success reminds me of a story once told to me by Jim "Smails" Seymour (LINK to opener)...
(It is why I gave him his nickname!)...
Judge Smails asks Ty, "What did you shoot today?"
Ty responds, "Oh, Judge, I don't keep score."
Smails comes back, "Then how do you measure yourself with other golfers?"
And Ty says, "By height."
Boychick, you ride tall in the saddle (sorry for being so mushy. You talk the talk when others walk the walk.
Ergo, we need more Boychick ideas!
Position: none
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Gary Morrow |
| Wynn Reports Monday Afternoon |
8/3/2007 1:32 PM EDT
|
Here's a quick look at the technical set up for Wynn Resorts (WYNN) going into Monday's report.
The action in Las Vegas Sands (LVS) today has spilled over into other gaming stocks, especially Wynn. The stock is now above its July highs and looks to be in good shape ahead of earnings.
A strong report should easily propel the stock back up to its yearly highs of $114.60 in the next few weeks. Support is now in place near $100.00.
Position: None
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Michael Comeau |
| RE: Christmas Comes Early for Nintendo |
8/3/2007 1:58 PM EDT
|
Tero, those lousy Lair reviews are a great catch. Sony honchos made a big deal out of Lair being a great exclusive.
But I don't view Sony's weakness as a boost for Nintendo. The Wii is so supply constrained that the competition doesn't really matter at this point. The PS3 could be at $300 and the Wii would still sell just fine.
The current PS3 buyer is a unique beast - a PlayStation fanboy, a Blu-ray seeker, or someone who likes year-old Xbox 360 titles with worse graphics. The current Wii buyer, on the other hand, is basically the rest of the population, including hard-core Nintendo fans (yes, there is such a thing).
Position: none
Noah, one always has to be skeptical of financial companies that grow rapidly. One can report GAAP earnings at the same time that economic value is being destroyed, because the accrual entries hide the decay. This is not just a problem for value managers, but I have seen growth managers trip over this as well.
For non-financials we can use normalized operating accruals and compare earnings versus cash flow from operations in order to reasonably appraise earnings quality. But financials are different, and earnings quality with financial stocks is difficult to discern. Conservatism is always warranted; low quality financial stocks are often killers.
Value investing works, but it works even better when we measure the earnings to gauge their quality. Low P/E investing by itself is no panacea, though it works on average over the long term, which few are willing to live with. Financial valuation ratios need some business judgment behind them to avoid the traps inherent in the necessary imperfections of GAAP accounting.
Position: none mentioned
Tero,The only difference between PR and the other dead-wood that's been restructured out of ALU is that when she goes, she'll be quite wealthy courtesy of her Golden Parachute for all her good works. What amazes me from an investment perspective is the ignorance or denial of history. Ninety-nine percent of tech companies that stumble, bumble and fall, never recover. They spend years crawling along producing mediocre results and everytime they change CEO's there's a new strategy to chew up investor's assets. Ultimately, they wind up in the scrap-heap of history and get used for trivia questions. Why does anyone think that either of these two are going to be the exception?
Position: I stand by my prior position!
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Doug Kass |
| Ostriches of the Subprime |
8/3/2007 2:11 PM EDT
|
Separation of church and state?
Here is a shocker!
Two mortgage brokers are on CNBC talking about how credit is being restricted ... but not to worry.
The problem is transitory.
Don't worry, be happy.
Position: none
Yeah, Mike - it's almost unprecedented that Nintendo is guiding for 4Q 2007 supply constraints this long after the console launch. I'm just wondering if weak PS3 sales in 4Q might trigger some cataclysmic shifts on software side; could Square Enix finally get angry enough to announce the next Final Fantasy sequels for rival platforms? Could some multi-platform franchises simply drop PS3 support? It looks possible that it was the strain of supporting both PS3 and Xbox360 that sunk the Grand Theft Auto development schedule.
Sometimes there's a tipping point where software guys simply stampede away from a loser console. Obviously, signs of people tiptoeing in that direction are already clear among titles that were supposede to be purest Sony. SE moved the Japanese mega-series "Dragon Quest" to DS and "Devil May Cry" lost its PlayStation exclusive status. I'm just wondering if we're on the verge of a full-scale developer/publisher revolt.
Position: none
Bear Stearns scaring the pants off me with this conference call. I hope Bernanke's on it.
Position: none
Tero, for me the tipping point will be Metal Gear Solid 4. There has been a lot of speculation that MGS4 is coming to the 360, and if it does, the embarassment to Sony will be incalculable.
As far as GTA4 goes, I'm wondering if there are specific development issues on the PS3 version that may be slowing down the entire operation. Developing Xbox 360 games is much easier, and multi-platform titles tend to look better on the 360. And one recent item I found weird was that Electronic Arts' (ERTS) new football titles run at 60 frames per second on the 360 versus 30 on the PS3.
Position: none
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Doug Kass |
| Indy Mac Attack |
8/3/2007 2:54 PM EDT
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IndyMac (IMB) in a death spiral.
A tell?
Position: none
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Doug Kass |
| El Capitan Bellows the Truth |
8/3/2007 3:00 PM EDT
|
The reason I get apolpletic when sentiment or gut feel or whatever is the reasoning behind buying the dips -- especially in financials -- is that Jim "El Capitan" Cramer just told the truth in his CNBC interview with Erin Burnett.
It was the single best interview I have ever seen on the station.
And so did Bear Stearns' (BSC) CFO tell the truth on the conference call. I just got off.
He said that the fixed-income makets have seized up and are in the worst condition he has seen in over 20 years.
Yes, the markets can rally.
No, the fundamentals don't support a sustainable rally.
Good job, Jimmy.
As Grandma Koufax would say, "Jimmy, you just told the emis."
Position: none
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Doug Kass |
| What Do You Say Now, Hank? |
8/3/2007 3:06 PM EDT
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One last thing.
-- Lt. Columbo
As I mentioned earlier this week, Secretary of the Treasury Henry Paulson did the markets a great injustice by dismissing the notion that the contagion of subprime has moved up the credit ladder.
He is offically just another Chao, an administration cheerleader who can no longer be believed.
Fearleaders? Hardly.
Realists.
Position: none
We are an hour away from an important close for the PHLX KBW Banking Index (BKX) which I talked about in my column yesterday How the Market Is Technically Weaker showing that a close below the 200-week simple moving average at 104.04 on BKX would be the first such close since May 2003.
PHLX KBW Banking Index (BKX) is setting a new 52-week low more than a point below 104.04, which makes the last hour of the week extremely important.
The BKX has had weekly closes above the 200-week SMA since the end of May 2003 six months before the Dow did so at the end of November 2003. At 14,000 the Dow was 26.7% above its 200-week simple moving average at 11,047.
The BKX led the bull move by six months in 2003, and it the BKX continues a trend below its 200-week SMA, the Dow will be in a Bear Market targeting its 200-week SMA, which is 21% below 11,047.
Remember that you cannot have a bull market for stocks with financials in a bear market! This bear market is the next warning for a Recession in 2008 / 2009.
Position: none
Thanks Noah. Scare the heck out of em. Even though low p/e has proven the most successful discipline for investing, you go ahead and convice people to avoid it. Much less competition for me. Get people playing those mo-mo growth companies. Lucent, Nortel, Sun, and Yahoo are shining examples of how bullet proof growth stocks are!
Position: no positions in stocks mentioned
Looks like everyone is hitting the B.I.D, all at once. Like I wrote, bottom not in til someone other than Cramer says sell on CNBC.
Position: no stocks mentioned
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Tom Au |
| Subprime Was Set Up to Fail |
8/3/2007 3:34 PM EDT
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As reported on the Street.com site, Bear Stearns finally 'fesses up and says that certain market conditions "are as bad as I have seen in 22 years." In trying to tell the truth in this matter, they returned to being the company I used to know and love, even though I would characterize the housing bubble as the worst in twenty two decades (basically since the founding of the United States). I voted with my feet last week by selling the stock, (after having held it for nearly two decades). Yes, "decades," not "years," is the better description of the precedence of this shock.
"Subprime" was just the thin end of a mortgage industry that had gotten out of hand. Like games of musical chairs, hot potato, and old [person, usually female], subprime was set up to fail, because inevitably someone would be left holding the bag.
But the underlying problem was the mortgage industry itself. The old rule of thumb was that homebuyers could afford to buy a house costing three times income, or $120,000 for a $40,000 average family income. But lax mortgage lending has boosted the cost of the average family house to nearly six times income ($240,000). The other benchmark, of one-quarter of income spent on housing, is more like one-half for too many people, who expected continually rising prices and cash out refis to bail them out. That was fine as long as the game of musical chairs went on. But when the music stops, as it apparently has recently...
This is no time to be standing or holding a hot potato.
Position: No longer long BSC.
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David Merkel |
| Trading Collars in Effect at NYSE |
8/3/2007 3:39 PM EDT
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All basket trades must now be index stabilizing. Not that it will help much.
Position: none
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Christopher Atayan |
| Bear Stearns: Great Lions Of Wall Street Are Surrounded By Hyenas Which Is Their Just Reward |
8/3/2007 3:42 PM EDT
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At the risk of pouring salt into an open wound, I have to say that Bear Stearns greed is essentially what has caused a gaping wound in their ship. When their Bear Stearns Brand Name funds started sinking the proper thing to have done was to have put up more collateral. Bear Stearns has a huge market cap and could have essentially issued new stock to the fund and bailed the situation out quietly. Instead,as always, they think Bear Stearns first. So right now these great Lions of Wall Street are being surrounded by Hyenas which is their just reward.
Position: none
That was no Santa Claus - it was the Bear Stearns CFO lecturing investors about the "real" value of his company. It was a real flashback for me - executives of small Finnish sausage factories used to lecture investors about how much their companies are "really" worth. Then somebody clued them in about how useless and counterproductive that is and they stopped doing it circa 1990.
Position: none
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Tom Au |
| Value Trap Investors Are Not True Value Investors |
8/3/2007 3:54 PM EDT
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In his piece, Noah Blackstein noted the pitfalls of "value investing" when he mentioned mortgage lenders as value traps. I would respond by saying that this mistake (often made by "value investors") is a misapplication of value investing. Graham and Dodd rightly warned against such practices.
Yes, there have been bust-ups such as Penn Central, and more recently mortgage brokers that looked cheap on value metrics. But they were highly leveraged institutions, that were actually expensive on "enterprise value" (equity market cap plus debt), meaning that they weren't value investments at all. And dividends, while nice, are dividends only to the extent supported by earnings. Otherwise, they are analogous to returns of capital issued by a royalty trust (without the favorable tax treatment).
I run away from these situations, at least to the extent that I can identify them. My divestiture of Washington Mutual earlier this year was a case in point.
On the whole, I still prefer value investing. But Noah is right that a dumb "value investor" can get clients into serious trouble. In a forced choice between such a manager and a competent growth investor like Noah, I'd opt for Noah.
Position: No longer long WM.
If you are going to do anything investing-related this weekend, start making a wish list. There are going to be some high-quality values showing up.
Position: n/m
The most important article on this site and for that matter any financial news site is Jim Cramer's The Lie the Will Kill Hedge Funds. Read it twice this weekend - it is the most accurate and insightful piece you'll read anywhere.
Position: none
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Bill O'Connor |
| While Bear Stearns Gets Treated Like Its On Life Support.... |
8/3/2007 4:37 PM EDT
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Its worth noting that in the last 30 days (7/3/07 to 8/3/07)
BSC is down 24.53%
GS is down 19.84%
LEH is down 25.23%
MER is down 17.01%
Despite being at 48% cash , 17% short financials thus effectively 35% net long , i STILL managed to drop 30bps today .
Nowhere to run to . Nowhere to hide .
MFA preferred A at lifetime lows today . Its 88% FNMA/GNMA/FRE bonds and the next 10% is AAA rated private label mbs . Its now a 9.4% yield on agency securities as collateral . As stupid cheap as it gets ....
Unless FNMA and FHLMC are viewed as 'in trouble' ? Time for me to get on the sailboat for my weekly Friday night race , open a cold one and ponder .
Position: long SDS SRS MFA.prA
Today's metals market action was particularly telling especially as it relates to today's jobs news and the credit market unwind.
For the most part over the past few weeks we've seen the precious and base metals move in tandem. Not so today.
On one hand gold futures prices jumped over $10 to about $687 an ounce on the poor economic news and anticipation of further dollar weakness. Andy Montano at bullion dealer ScotiaMocatta in Toronto says his forex specialists are predicting 100% chance of a quarter-point cut by the Fed before year end, a critical factor relating to the dollar's relative strength against other currencies.
On the other hand industrial metals largely hit the skids on the London Metal Exchange reflecting the double whammy of worsening credit markets and the prospect of reduced industrial economic activity.
These following headlines are taken from BaseMetals.com should give a fairly clear idea of how metals dealers see the situation:
COPPER TUMBLES IN LME PM, DOWN 2.7 PCT AT LOWEST SINCE JULY ON LIQUIDATION
ALUMINIUM ENDS 2.9 PCT LOWER ON LME, AT FIVE-MONTH LOW ON SPECULATIVE LIQUIDATION
NICKEL FALLS FURTHER ON LME, DOWN 3.7 PCT AT NEW NINE-MTH LOW
Position: none
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James Altucher |
| last reminder: Boston Stockpickr Meetup |
8/3/2007 4:44 PM EDT
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After a day like today I need to relax. I'm up in Boston at the Omni Parker House hotel, meeting people at 7pm in the bar. All Stockpickr members welcome and we'll see if all three of us can fit in somewhere.
Position: none
You are right Noah it is much better to buy stock with 100% projected sales and earnings growth based on uncertain future demand than to buy a low P/E stock. Difference is true value investors doesn't invest on a number. They use something called fundamental analysis while growth is build on finding a bigger fool to buy a stock at higher level of being overpriced than you did. Wait we tried that, it was the dotbomb era.
Position: none
Yes, there are huge issues right now: credit, housing, hedge fund blowups, contagion, etc.
But, now is the wrong time to panic. Problems get solved, liquidity is ultimately found, and the market participants tend to throw out the baby with the bathwater.
I'll have more on stocks I think are cheap throughout next week's articles but I'm looking at big-cap guys like TWX (at least $2-3 too cheap), PFE, C, YHOO, etc
Position: none
I'm watching CNBC and just saw this weight loss drug advertised. The tag line they kept repeating over and over again is "eat all you want and still lose weight. WE COULDN'T SAY IT ON TV IF IT WASN'T TRUE!"
Is this commercial a joke? Are people really calling that 1-800 number right now thinking, "hmmm, they said it on TV so it must be true and I really do want to eat as much as possible so I might as well buy this pill."
Position: none
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Norm Conley |
| Something to chew on over the weekend |
8/3/2007 6:09 PM EDT
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As you're drinking your coffee over the weekend and reading the analysis of this significant pullback, here are a few things to think about.
The S&P 500 has pulled back almost 8% from its high. The pullback is large in a historical context, particularly given the speed with which it occurred (11 trading days).
There have been 14,478 rolling 11 day periods in the S&P 500 since 1950 began. The market has gotten blitzed by 7.9% or greater in only 85 of those instances. So we're in rarefied historical territory.
We haven't had this kind of a correction since January 2003. Prior to that, we had similar pullbacks in July 2002 and September 2002. Those turned out to be at or near good entry points in the market. With the clear benefit of hindsight, most of would have liked to be fully invested in equities late 2002 or early 2003. Of course, developing clear foresight is a lot harder thank looking to the past.
The million (billion?) dollar question is when the market will bounce. Who knows? But history gives at least a hint of a clue. In 76% of the 85 prior instances I cited above, the S&P was positive in the following 60 days, compared with 65% for the entire dataset. The average 60 day return following this kind of sharp corrections was 6.28%, compared with 2.12% for the entire dataset. In most cases, therefore, the next couple of months made money for stock investors, and the average returns were well above average.
The best bounce-back following a big 11-day decline occurred in the 60 days following 10/8/98. After getting hammered by 10% over the previous 11 days, the S&P rocketed to a 29.74% gain in the next 60 trading days.
On the other hand, a big decline proved to be just the beginning in July 1974. After falling 8.78% in the 11 trading days ending 7/10/74, the S&P experienced a 22.14% decline over the ensuing 60 days.
The fullness of time will tell us whether the bears and the headlines are right about the outcome of the 2007 Credit Crunch Crushing. This kind of correction is by definition be an emotional event. But financial decisions should be removed from emotion or righteousness or a one's own sense of justice in the world. For me, it is helpful to go back to historical data to gain some perspective. Others prefer the solace of cash. Whatever you decide to do with your portfolio, try to make an unemotional and informed decision, as opposed to a hasty and panicky one.
Position: none mentioned
I'm listening to a replay of the Bear call, and yes, it is significant. That said Bear is bigger in the areas that are being negatively impacted compared to most investment banks. The corporate bond market was in much worse shape in July and October of 2002 than it is today. Things are bad, but let's not overstate it.
Position: none
If you want to listen to the Bear call, you can hear it here.
Position: none
I agree with David Merkel with respect to the Corporate Bond market being a lot worse in 2001 and 2002 than it is today. During that period I was able to load up on high quality corporate issues with big coupons and real covenants in the high 70s and low 80s.Names like TECO,Georgia Pacific,Time Warner etc. We are not seeing those kind of values yet today.
Position: None
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