Traderbill's Financial Markets Weblog

Bankruptcies: We all heard about WalMart doing better but did you hear (this is from Arch for Architects: 

The answer: in addition to have all filed for bankruptcy in the last couple quarters;

They all have recently experienced deteriorating gross margins, volatile credit and financing markets which have impacted the cash flow and corporation’s liquidity, rising costs, and have experienced aggressive competition and slowing revenues in this period of expectant recession. In many cases, the top Chief executive has been replaced, such as at Sharper Image (with crisis-management expert Ron Conway). 

Hedge funds and pension funds: First, Citigroup had to put their proprietary Falcon Funds back on the balance sheet and injected $500 million to save them. Then, two hedge funds have sued Yahoo! for not taking up Microsoft on its offer. Meanwhile, two US based union pension funds have filed suit in Canada against CPA giant Deloitte for negligently auditing Nortel Networks…there may still be time for TB to go back to law school to cash in on the coming gold mine. Also timely, with the Oscars tonight, hedge funds should get an award for Best Investor in a Supporting Role: they pumped $13 billion into 150 films. Good thing they are using OPM since everyone knows it is the actors and directors who make the money, not the investors…go see The Producers again…hmmm hedge funds and old ladies in the same paragraph. Meanwhile in London, the FSA is considering retail investors to invest in hedge funds…looking for more capital to take Northern Rock of the hands of the government? What a time to bring that subject up again. Transparency as even TB can see thru it.

Stock index scoreboard since 12/26/07:…much more shocking than year to date!, TB’s birthday and beginning of selloff: Dow -8.2%; S&P 500 -9.7%; Dow Utilities -7.5% -surprising!; AMEX Composite -6.5%; NYSE Energy -7.9%…also Oil Services (OIH); B400 of the strongest ‘fundamental’ companies -10.5%…talk about no place to hide; Russell 2000 -12.7%; Nasdaq 100 -17%. The Philly Semiconductor Index is off 15.9% and almost at a five year low Lest TB be accused of cherrypicking over the past 12 months some of these indices have done quite well: AMEX and NYSE Energy +20% for example. Oh what about the Dow Transports? …not a bearer of good tidings here especially if you are a believer in Dow Theory: unchanged for the 12 mos and down 4.5% since 12/10/07…note it sold off two weeks before the other indices…got it? It works!

Financial stock performance: Walnut Creek, Ca. based PMI Group, the big private mortgage insurer who TB reported a year ago had cut back to FIVE the number of insured mortgages an individual can have…five? what about ONE? Founder and former Fed Governor Preston Martin died about that time and being an old line conservative banker TB has an idea what killed him. What about private equity funds? Ah, we have a benchmark, Blackstone which went public on 6/21 and the stock is down 49% since the opening day close (59% from the session high) and 41% from the IPO pricing…Friday it had a new low and new low close. They have had 28 takeover targets since the IPO…and loans are now getting hard to come by to close the deals. Also, contractually they have to rebate fees from unsuccessful buyouts…oops. Blackie also advised Fortress Group (FIG), the hedge fund manager on their 2/21/07 IPO..a year now…and it is down 57.4% from the opening day close, just 55.7% with divvies reinvested. It is off the low set 1/22 when it was -60%. Countrywide (CFC) is down 81.6% over the past 12 months, while BofA which is buying CFC and down on their investment significantly is about unchanged from 12/26…but like Ken Lewis’ rookie who ran the investment banking division and was the fall guy for subprime, he has now appointed the head of CFC’s mortgage unit, David Sambol as head of the combined mortgage group! Heads are shaking…see WSJ 1/23/08 and ask yourself if you want to buy this stock! Oh almost forgot, golden Goldie is down 18% since 12/26…precisely what they are down over the past 12 months! Of course those big bonuses were paid off the 18% positive return they had in their fiscal year ended 8/31/07. Wonder if they will give back some of the bonus? NOT! Any discussion of financial markets wouldn’t be complete without mentioning Citigroup, the fully integrated financial company. It is down 53% over the past 12 months, 17.5% since 12/26, and 27.8% since 12/10. TB thinks this is priceless: on 7/20/2007 Jim Cramer said Citi was a buy…at $46! Then on Jan. 25 with a $26.50 close he gave it a buy with a $30 target which it hit for one day and has since fallen to $25. Follow his advice, ignore commissions and taxes and you might just break-even…if you are lucky.

Monoline bailout: Tell TB Wall Street isn’t creative! 20 minutes before the close Friday, CNBC announced a meeting of several banks to bailout troubled monoline insurer AMBAC with the suggestion that if it works it might extend to all the monolines. that is what produced the 242 point swing in the Dow. Isn’t that amazing…and the rally started 10 minutes prior as word obviously was on the street although CNBC in usual form laid claim to breaking the story…how sad…is that all there is? More likely, it triggered shortcovering as a bailout of the monolines is seen as the holy grail but if you think Only benefit TB sees to monoline stock is covering by shortsellers…any bailout will only be for the muni side which is the low risk side of the business. A great line TB heard: how can a company be rated AAA who has nothing to sell if they slip to AA?

TB has an admission: he was wrong about the stock market. Well, wrong in that he was not bearish enough! He read most of the weekend from some of the wiser people he knows who contend the problems we face are much worse than conventional wisdom holds. Interestingly, one of the bears on the monoline mess, David Kotok of Cumberland Adivsors, saw major problems a couple of weeks ago, yet on Thursday he was on CNBC…out of breath…literally…and saying he is bullish on stocks even though he thinks the bottom isn’t in and we might see nothing for quite a while…huh? This is a long only manager speaking…saying the only thing he can…someone may have chided him for his recent bearish stance. So, TB will spend the rest of the week on what’s wrong and wronger. A teaser: why are highly rated Collateralized Loan Obligations of major banks trading cheaper than junk bonds? Default risk is minimal. Supply and demand is the answer as what bank wants to buy the paper of another and the market is being flooded as they try to become more liquid…told you it is like a game of Whackamole! 

Truth?…can’t we handle the truth? Is that why no one running wants to tell us anything. Why are we being told things are better in Iraq as the government is coming around and proceeding with rebaathification? That is a good thing as the Baathists ran everything…but Bremer in his first official act there outlawed them! 50,000 armed highly trained troops who offerred to serve as police, most of whom were Baathists only to get the good jobs…not to mention teachers! Don’t take TB’s word, the original plan according to Bremer’s predecessor Gen. Garner was to let the Iraqi’s take out the bad guys since they knew who they were. Have you heard anyone admit to this stupid blunder? Not in D.C.

As for the Presidential race…when can we start discussing the economy…in real terms? We have 25 years of excess consumption, lack of savings and borrowing from the future to contend with…do it!

Hope you have a good week,

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and in no way reflect the views of anyone other than himself. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. No fee…nothing to sell…merely observations of events in the marketplace offering a non-mainstream viewpoint…sometimes…usually? Hope you find it useful.
Copyright TBD Capital LLC February 25, 2008