Sunday, December 30, 2007

Presidential race #6 - Pakistan and Iowa

The tragedy in Pakistan seems to have shaken up U.S. politics a bit.

Eager to show their foreign policy chops, several candidates have tripped. Joe Biden- the most knowledgeable of the crowd, doesn't seem to have figured out a way to benefit.

But on the Republican side, both Thompson and McCain appear to have captured a little momentum .

I don't know about you - but I wish the Iowa results were tomorrow- it has gotten tiresome - actually I wish Iowa and New Hampshire were both over - we need to see where some of the larger pop states stand.

Performance-enhancing drugs

The baseball drug scandal has vanished from the news startingly quickly. Lost I guess in football playoffs, college bowl games, Pakistan turmoil and election politics.

My view is a little off-center: let the best drugs win. If somebody wants to juice up - have at it. The way I see it, what better way to determine long-term side effects? If someone uses some steriod or whatever, and is running marathons at 125 years old, well, then we know that is a good one. On the other hand, if they start sprouting some unattractive appendages, no thanks.

Don't give me all of this "integrity of the game" stuff. This is a sport with spit balls, pine tar and signal stealing, and no instant replay. As we all know, they still have to run, hit, pitch and catch. The drugs just help muscle development/recovery - you still have to lift the weights.

If they want to be a test tube, all the best of luck. Just publish the results for the rest of us.

Friday, December 28, 2007

Stradivrarius Cigars

Dave and Suzanne Duncan gave me some Stradivarius cigars for Christmas. (The logo actually has the final "s" backwards, which I probably could do in Blogger, but I don't know how).

I'll admit that I wasn't familiar with the brand. It turns out that it is a very limited edition stick from General Cigar (Cohiba, Macanudo, etc.). Angel Daniel Nunez is the President of General Cigar (now a division of Swedish Match) and periodically stashes some bales of tobacco for extended aging.

Stradivarius has a Connecticut shade wrapper that has aged for a whopping 15 years.

So I'm saving these for an opportunity to smoke them at a leisurely pace - and I'll let you know how they turn out.

Thursday, December 27, 2007

Econorama - Sub prime mortgage

I've been playing with the math on sub prime. I can easily come up with $50 billion of total announced write-downs - and I'm sure that I don't have them all. However, I'm skeptical of two things: first, that the losses will really be this big; and second, that the losses are entirely related to mortgages.


If we assume that the typical sub-prime loan is $250,000, then 200,000 homeowners would have to default, pay nothing, and the houses sell for less than the disposal cost - i.e. - so that the bank receives none of its principal back, for the losses to be $5o billion.


I can see more than 200K homeowners defaulting, but it is harder to imagine that they (that is, the lenders) get zero proceeds from foreclosure sales. In researching this, one thing kept coming up - it isn't clear that all the loans that are being reserved are related to mortgages. The terms in the bank and security firm press releases and filings are more than a little murky. So, don't be surprised if it eventually comes out that some of these reserves actually covered other bad loans - e.g. LBO's etc.


Or, as the markets gradually recover over the next 2-3 years, that banks get to take some of this back into income. Not an unusual tactic: e.g. the stocks have already been hit; no matter what performance you as a bank CEO turn in, the market will overlook it because your group is out of favor, so take the biggest reserve you can justify. This will juice results in future periods because your reserves are so flush that you don't have to reserve as much, say, in 2008-2010, raising earnings in those years, and further, if those reserves prove unwarranted, release them back into earnings in a future year.....

If I'm right, then the beaten-down banks should be a good play - except that they are sourcing new capital at extraordinary costs. I'll post on that in a bit.

FD: I'm long JPM, MS, WB, and BAC.

Macanudo Serie R

Here it is a couple of days after Christmas and my humidors are bulging. My staff gave me a box of the new Macanudo Serie R cigars for Christmas. Dwight and I broke them out Christmas night. These are a small ring gauge and about robusto length.

At the foot, it produced a stronger than expected flavor, but then burned quite mild. A nice short smoke. It burned flawlessly: nice long ash and only had to be lit once; a very well made cigar. (In pleasant contrast to some others I've commented on here recently).

While it won't replace the No. 2 in my selection, it is nonetheless a good smoke.

Monday, December 24, 2007

Charlie Wilson's War

Just saw Charlie Wilson's War this pm.

A really good, really informative, really fun movie.

And a little bit of a lesson for those of us who may be personally religious, but think the religion in the campaign may be overdone.....

I could vote for a guy (or a girl) who likes a drink, and a pretty face.

Presidential race continued #5

Wow - things have gotten interesting!

I've been on record that it is Senator Clinton's election to lose - but I'm not so sure.....

One of the more interesting aspects of all of this is that the more experienced candidates - e.g. time in office, military service, etc., have been trailing or not even in the hunt - i.e.: Biden, Dodd, McCain, while inexperienced have lead - i.e. - Obama, Romney.

Now, I like both Obama and Romney - I actually met Mitt when I was CFO of a company owned by Bain Capital - and he is one smart guy. However, in a dangerous world where WWIII may already be underway, I'm not sure those are the right folks.

Curiously enough, it looks like McCain is making a comeback, starting in NH, after being dismissed. The Wall St. Journal mentioned him last week, not complimentary, but not a condemnation after all. So at least one guy who isn't seeing his first rodeo may be in the hunt.

Wednesday, December 12, 2007

Private Investments in Public Equity

Private Investments in Public Equity, known to underwriters and investors as "PIPE's", have been the ugly stepchild of the capital markets. PIPE's have been generally considered to be last ditch capital raising tools for cash starved companies. Generally, common stock owners reviled PIPEs with their dilution and high coupon. (PIPE's are normally executed with preferred stock. Further, the preferred almost always had a conversion feature).

It is a powerful comment on the state of some financial institutions that they would do PIPE transactions. Oh, they may not call them PIPEs and may even fight that label, but PIPEs they are. Citibank's new capital carries a whopping 11% coupon. And recall that dividends aren't tax deductible, so the after tax cost equals the pretax at 11%. My conclusion would be that they are in far worse shape than believed to accept that deal. UBS is in at a still rich 9%. WAMU - or Washington Mutual, just took a shot of high priced financial inoculation.

Desperate times call for desperate measures of course; my interpretation of these tea leaves is that times must be desperate indeed to pay these rates.

Monday, December 10, 2007

Stock trading update

Tallied up my trading positions tonight.

My Canadian I Shares (EWC) are still long and strong, and I feel great about the position.

Despite all the market turmoil, I'm pleased to say that my Power Shares QQQQ trade is still positive and I'm still holding.

However, my homebuilder trades are still seriously underwater. A couple have come back up throught their 50 day moving average, and the other two look poised to do so, but nevertheless I've got substantial losses in each and every one. I should have averaged down, but by the time I decided to do so, the rally was well underway.

I'll watch a few more days as tomorrow's Fed move gets announced, and then decide if I want some more exposure to this mess.

There is such a thing as being too early....

High Times

Looking through a magazine rack recently - at Barnes and Noble as I recall - but perhaps at an airport - I've been flying a fair amount lately - I saw a "High Times" magazine. I was surprised to learn those folks are still in business. Who advertises in that magazine? I should have looked.

And how could they possibly manage the business? Every pothead I know lost about, oh, say, 85% of their short term recall. They can't tell you the day of the week. How can they manage htting publishing deadlines, sell advertising and manage subscription sales?

Recently in Philadelphia police seized 16 pounds of marijuana so strong it is called AK47 and is known to send users to the ER. Don't let anyone convince you differently - a couple of years on that stuff you won't know your birthday...

Pretty amazing that High Times is still around....

Fox Business News

I'm a long-time CNBC watcher.

Most mornings I watch early, as I do what I call working out. (Hey - I'm doing all I can do).

I've surfed to Fox Business News a few times. The first few days were simply terrible. It was basically unwatchable - and I couldn't figure out who they were trying to reach. However, one can't sell Roger Ailes short - it is already better - and their stock scroll at the bottom is a much better feature than CNBC or Bloomberg.

I've noticed that Bloomberg has gotten better - competition is making everyone sharper.

Sunday, December 02, 2007

Sears Holdings

On the Fortune magazine website there is a piece on Eddie Lampert and the decline of Sears.

I'm not surprised. The only reason I haven't shorted the stock is that Lampert was too widely popular with his hedge fund friends who were convinced that he would work miracles there. So, too much risk in the short. However, the stock has worked its way down as performance has dwindled.

The question from my viewpoint is simple: why would anyone shop at Sears or Kmart?

The old reasons are gone unless Sears makes a serious effort to regain lost momentum in core categories. Let's examine: Sears used to be powerful in almost every hard goods category, and decent in soft goods. But Best Buy, Lowe's and Home Depot are talking them on in large appliances, and Lowe's and Home Depot have their own lines of high quality tools (e.g. Kobalt) to take on Craftsman tools. Best Buy, Tweeter, Circuit City, Costco and Sam's have to be winning in consumer electronics. Sears does seem to have awakened to all of this a little; I saw the first ad I've seen for a while for Die Hard batteries.

In soft goods, I simply don't understand why anyone would shop there versus Target, WalMart or Bed, Bath and Beyond. They made what could have been a very smart move with the acquisition of Lands End - a line with an outstanding reputation for quality - but screwed up store logistics to the point that I don't know that it mattered.

I expect that bit by bit, year after year, Target, Walmart and the rest will erode Sears market share, until it ends up with Caldor, Richway, Janesway, FedMart, The Treasury, Corvettes, Woolco, Gold Circle, Bradlees, Zayre, Alexanders - well, you get the point.