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January 2008

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9

dwot blog?

January 31, 2008 – Comments (6)

what is this? I check my favorites list for "most recent blog post" and dwot hasn't posted.....
She posts something like everyday.  What is the world coming tooo....
just kidding... everybody needs a break here and there. and dwot I do enjoy your posts.

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Economy Coming to a halt.

January 30, 2008 – Comments (0) | RELATED TICKERS: GE , BAC , BSC

Just wrote about it this morning, The Volatility Soma.

  

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Bear Stearns & LVS

January 28, 2008 – Comments (1) | RELATED TICKERS: LVS , BSC

Bear Stearns has a Level 3 assets worth $27 billion, investments in SIVs of $41 billion, and off balance sheet SIVs of $21.3 billion. I believe they have understated the severity of the implications of thier real estate exposure. They are lacking clarity in recent financial statements. Oh yeah they are left with the possibility of a criminal indictment (no Wall Street firm has ever survived a criminal indictment). Bear stearns is going to be the star of the bears......

Disclosure. the author of this owns puts on Bear Stearns.

One of my new fav. picks LVS - Stole from abitaracatania. this is my response to his pitch  [more]

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The Pirate Bay

January 28, 2008 – Comments (0)

One of the funniest pictures I have seen about The Pirate Bay.  The articles are kind of crazy also.

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Chinas Pollution Problem

January 26, 2008 – Comments (0) | RELATED TICKERS: FTEK , GLW , STPFQ

Some comments on Chinas pollution problem...

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Some Comments on Lowes and the current economy

January 26, 2008 – Comments (2) | RELATED TICKERS: LOW , HD

Some Comments on Lowes and the current economy at my blog.

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Tenents of a Business

January 23, 2008 – Comments (3)




Is the business simple and understandable?

Does the business have a consistent growing history?

Does the business have favorable long term prospects?

Is the management rational?

Are they candid with shareholders?

Does management resist the institutional imperative?

For every dollar retained has the company created at least one dollar of market value?

What is important to this business?

The certainty with which the long term economic characteristics can be evaluated.

The certainty with which management can be evaluated, both as its ability to realize full potential of the business  to wisely employ its cash flows.

The certainty with which management can be counted on to channel the rewards from the business to the shareholders rather than itself

Are the goals of management in the best interest of the shareholders.

The price of the business

Who follows the company from the financial community and what are their attitudes towards the company?

Draw a basic organization chart showing how the business works and what functional responsibility each officer is responsible for.

Break down the markets by product type?

Why do customers buy this companies products versus those of their competitors?

What level of technology exists in the companies products and what is the technology employed at the company?

How is the selling effort conducted and how are sales made?

From the time an initial customer is identified, how long does it take to close the sale?

Are there any important sectors of their market that the company dosent address?

What is the market share by product area, what are the shares of leading competitors.  Who does the company see as their main competitor.

How do these market shares compare today with several years ago?

Have there been any new entrants into these markets in the past few years?

How does pricing vary by product, has price cutting been a significant factor in the past?

Are there a significant amount of revenues derived from servicing the customer base other than is shown on the income statement?

What is the quarterly history of earnings and backlog?

Is there any seasonality other than reflects in orders and backlog?

What are sales in the top 5 foreign countries and who are the top 5 customers?

Is the marketing effort different overseas?

What is the process through which a product idea passes as it moves from initial inception to initial shipment?

How much do typical sales people earn and how much of that is based off of commission?

How long has the average sales person been with the firm?  Where did they come from? How did the firm recruit them?

What is the long term objective of the company?

What are the long term objectives for profit margins and how do they intend to achieve these?

Over the next few years how would the company expect to the components of its income statement to change in relation to each other?

Should the investor expect to see major acquisitions or divestitures as part of the plan for the next several years?

Do the mangers envision any major functional audits to the senior management staff?

What are each managers strength and weakness?

What are plans for capital expenditures in the next few years?

Which of these areas are going to be stressed?

If any officers have left in the past few years find out why they left and where they went.

Who are the most active members of the board?
Find the number of employees per area: R & D, Marketing, Field Sales, Service, Production, Finance, Other

Will research as a percentage of sales be greater or less than it currently is in future quarters or years?

What areas is the company currently spending its money on in R & D.

how much of the cost of goods sold represents purchases of finished goods and how much represents in house fabrication and assembly?

Is there any crucial part or component of the business with only 1 or 2 vendors that could come into short supply?

I love bear markets and recessions because most Asset decline and I can start looking for value long term plays.
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5

Worlds Largest Land Machine

January 22, 2008 – Comments (2)

Worlds Largest Land Machine check it out it is so crazy.

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5

Tommorrow Will be Ugly

January 21, 2008 – Comments (2)

Tomorrow Wil be Ugly

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caps is soo slow

January 21, 2008 – Comments (6)

does caps ever piss ya'll off because of how slow it is??

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MER 4Q

January 18, 2008 – Comments (3) | RELATED TICKERS: MER , JPM , WAMUQ

I can't believe peolple are dumb enough to be buying this stock right now.

Read how I feel about MER's 4Q

 

Hope too many people didn't get caught up in the choppiness of the market this week. 

 

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Ben Bernake NYT

January 16, 2008 – Comments (2)

Just posted in my blog some links to a very interesting article that is going to published in the papers this weekend.

  

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A little speculation...

January 14, 2008 – Comments (4)

 

 

 

I am speculating that South Africa will be the "new new" thing in 2008.  Note that EZA and GAF are picks that I added money signs next too.  Lets see what happens.

 

Disclosure - Author is long EZA and GAF.

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4

Diamond Offshore

January 13, 2008 – Comments (2)

Face the fact we are dependent on oil.  Demand is going up because of developing countries who want to start exporting.  Aside from my bullishness on South America.  The supply and demand figures heavily for deep water drilling look pretty compelling.  Per day rig rental costs have gone up around 4 fold in the past  5 years.  Brazil wants to start exporting oil in the next couple of years and Petrobras (the 800 lb gorilla of oil in Brazil) goal is to stay 20% ahead of brazils oil needs.  Diamond offshore has good relations with Petrobras, where do you think the rigs for all this drilling is going to come from? Diamond Offshore' newest three contracts with Petrobras are all five years long, stretching into 2012 and Petrobras is already talking about extending the older four contracts, which are set to expire in 2009 and 2010.  This means contract terms of four to six years.  That would extend into 2014 and 2015.  It looks like Diamond offshore is sitting in a good position.  [more]

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The Blow Up

January 10, 2008 – Comments (4)

Last month (Dec.) the feature article of Technology Review was on Quant funds and the credit crisis.  I found it to be one of the best articles I have read a in awhile.  I am going to reference and outline the article in this post but if you want to read the full one (a copy scanned in) visit my http://encodable.com/cgi-bin/filechucker.cgi?action=landing&path=/The_Blow_Up_Article/&file=The_Blow_Up_Article.pdf.  The article starts off talking about how a bunch of quants met at this conference in August (all Quants).  “400 of the smartest people on wall street” as it says to discuss the credit crisis.  I am going to assume that anybody reading has some knowledge about about derivatives and wall streets addiction to them in recent years.  Quant funds have led to an explosion in the derivatives markets.  According to the Securities Industry and Financial Markets Association, annual issues of CDOs doubled from 2005 to 2006 from topping out at 488.6 billion in 06. Last time I checked there was something like 128 trillion of derivatives traded annually, I am not stating the 128 as a fact and forget where I saw it, so do your own DD on that one.    [more]

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Why Planned economics Suck

January 10, 2008 – Comments (0)

The Age of Turbulence had a great way of talking about the fundamental problem of planned economics and why they suck. I decided I would post it.  [more]

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Stock Screener

January 07, 2008 – Comments (3)

have had a little bit of extra time on my hand lately and have been building some screens which have been interesting to run.  I am designing and saving a couple of them.  It is neat because it allows me to find exactly what I want in an investment.  I run screens to find stocks to play LEAPs on I haven't found anything yet a lot of small cap companies are having warrants traded on them.  I have a (very) generic leap screen that consists of the following.  
#1)Mrk. Cap > 250 M
#2)Institutional Ownership < 20%
This is a rough example of why I have this criteria, Who does the real buying? Institutions, retail investors as a majority just don't have the kind of purchasing power to drive price by buying millions of $$$ in shares.  For example if a company has 90% institutional ownership there is no where for lots of buy side pressure to come from. They can liquidate their shares which would drive the price down, a bad thing if you are long call LEAPs.  They could buy more but this would have to be selling from more funds to offset this since so much of the float is fund owned, not much buy side pressure.  This is only part of catching a firm that is going for a big price run up.
#3) R&D more than 20% of Sales (I exclude all those tiny pharmaceutical companies and biotech firms, I stay far away from them, they are speculating not investing to me).  I want a company that is pumping money into R&D, hoping that this money will produce something that will blow away earnings.
#4) Doing due diligence on the general economics of the firms industry.
I also have a screen that looks for companies with daily option volume more than 10K and big changes in implied volatility and historical volatility.  Also some other variations of this.  
To me this is like putting together a puzzle.  It is very fascinating.  I have learned a lot about financial statements and what they really mean by running screens, also how important the footnotes are in financial statements, because so many things can be reported differently depending on company and industry.
Is it just me or do a lot of people tend to follow analysts that that hit earnings right on the dot.  I don't care about predicting earnings down to the last cent.  I want to find a firm that is going to blow their earnings away, that is what gets the attention.

George  [more]

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My Teacher and my caps blog

January 07, 2008 – Comments (0)

At the end of every english class we have to write a class meeting response to our teacher talking about what we did in class and what we thought of things such as class discussions, documentrys watched etc.  My teacher is out sick so we have a sub who has us watch this documentry.  This was my CMR for today:

Today we finished watching the movie.  Overall I thought it was interesting.  It did not hit me until today about how this movie ties in with our movement towards studying Asian culture.  I think it is more that I am a little slow regard.  I started thinking about how this movie ties in with the book of poems (book of puzzles as I like to call it) we read for hw and what that leads to.  I have yet to come to a determinate about the movie but am working my way there, might take awhile, a lifetime perhaps?  This leads me to ruminate on the notion that there is no determine when it comes to studying cultures, english or almost anything else even math.  I could write a lot more and bore you to death but I leave that to my blog, (note to self: thank google for all that free blog space).  Yes Dr. Keyes I did spend about 20 minutes on caps this morning in your class.  I believe your class goes by "honesty the best policy."
 I hope that you feel better soon. :)*George
*I can't believe I'm using smily faces, this New Hampshire weather really is getting to me I need to get back to Texas.My teacher gives me a ton of crap about caps but she has gotten to the point where she just laugh's at it.
  [more]

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Never mess with the market

January 07, 2008 – Comments (0)

About 15 minutes go I got into the inevitable cycle of thinking about "what drives markets".  I know I know it is one of the those open ended philosophical questions that nobody can answer, but at first I did think of some great ways that some of the pro's had put it  [more]

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WSJ article "an insiders view of the CDO market"

January 06, 2008 – Comments (4)

must read from wsj.
great insight on how the CDO game was played.


http://online.wsj.com/article/SB119871820846351717.html

Wall Street Wizardry Amplified Credit Crisis

A CDO Called Norma Left 'Hairball of Risk';
Tailored by Merrill Lynch

By CARRICK MOLLENKAMP and SERENA NG
December 27, 2007; Page A1

In recent years, as home prices and mortgage lending boomed, bankers found ever-more-clever ways to repackage trillions of dollars in loans, selling them off in slivers to investors around the world. Financiers and regulators figured all the activity would disperse risk, and maybe even make markets safer and stronger.

Then along came Norma.

Norma CDO I Ltd., as its full name goes, is one of a new breed of mortgage investments created in the waning days of the U.S. housing boom. Instead of spreading the risk of a global home-finance boom, the instruments have magnified and concentrated the effects of the subprime-mortgage bust. They are now behind tens of billions of dollars of write-downs at some of the world's largest banks, including the $9.4 billion announced last week by Morgan Stanley.


Norma illustrates how investors and Wall Street, in their efforts to keep a lucrative market going, took a good idea too far. Created at the behest of an Illinois hedge fund looking for a tailor-made bet on subprime mortgages, the vehicle was brought into existence by Merrill Lynch & Co. and a posse of little-known partners.

In its use of newfangled derivatives, Norma contributed to a speculative market that dwarfed the value of the subprime mortgages on which it was based. It was also part of a chain of mortgage-linked investments that took stakes in one another. The practice generated fees for a handful of big banks. But, say critics, it created little value for investors or the broader economy.

"Everyone was passing the risk to the next deal and keeping it within a closed system," says Ann Rutledge, a principal of R&R Consulting, a New York structured-finance consultancy. "If you hold my risk and I hold yours, we can say whatever we think it's worth and generate fees from that. It's like...creating artificial value."

Only nine months after selling $1.5 billion in securities to investors, Norma is worth a fraction of its original value. Credit-rating firms, which once signed off approvingly on the deal, have slashed its ratings to junk.

The concept behind Norma, known as a collateralized debt obligation, has been in use since the 1980s. A CDO, most broadly, is a device that repackages the income from a pool of bonds, derivatives or other investments. A mortgage CDO might own pieces of a hundred or more bonds, each of which contains thousands of individual mortgages. Ideally, this diversification makes investors in the CDO less vulnerable to the problems of a single borrower or security.

The CDO issues a new set of securities, each bearing a different degree of risk. The highest-risk pieces of a CDO pay their investors higher returns. Pieces with lower risk, and higher credit ratings, pay less. Investors in the lower-risk pieces are first in line to receive income from the CDO's investments; investors in the higher-risk pieces are first to take losses.

But Norma and similar CDOs added potentially fatal new twists to the model. Rather than diversifying their investments, they bet heavily on securities that had one thing in common: They were among the most vulnerable to a rise in defaults on so-called subprime mortgage loans, typically made to borrowers with poor or patchy credit histories. While this boosted returns, it also increased the chances that losses would hit investors severely.

Also, these CDOs invested in more than simply subprime-backed securities. The CDOs held chunks of each other, as well as derivative contracts that allowed them to bet on mortgage-backed bonds they didn't own. This magnified risk. Wall Street banks took big pieces of Norma and similar CDOs on their own balance sheets, concentrating the losses rather than spreading them among far-flung investors.

"It is a tangled hairball of risk," Janet Tavakoli, a Chicago consultant who specializes in CDOs, says of Norma. "In March of 2007, any savvy investor would have thrown this...in the trash bin."

Penny Stocks

Norma was nurtured in a small office building on a busy road in Roslyn, on the north shore of New York's Long Island. There, a stocky, 37-year-old money manager named Corey Ribotsky runs a company called N.I.R. Group LLC. Mr. Ribotsky came not from the world of mortgage securities, but from the arena of penny stocks, shares that trade cheaply and often become targets of speculation or manipulation.




N.I.R. and its affiliates have taken stakes in 300 companies, some little-known, including a brewer called Bootie Beer Corp., lighting firm Cyberlux Corp. and water-purification company R.G. Global Lifestyles. Mr. Ribotsky's firms are in litigation in New York federal court with all three companies, which claim N.I.R. manipulated their share prices. Through its lawyer, N.I.R. denies wrongdoing and has accused the companies of failing to repay loans.

Mr. Ribotsky's firm attracted the attention of Merrill Lynch in 2005. The top underwriter of CDOs from 2004 to mid-2007, Merrill had generated hundreds of millions of dollars in profits from assembling and then helping to distribute CDOs backed by mortgage securities. For each CDO Merrill underwrote, the investment bank earned fees of 1% to 1.50% of the deal's total size, or as much as $15 million for a typical $1 billion CDO.

To keep underwriting fees coming, Merrill recruited outside firms, called CDO managers. Merrill helped them raise funds, procure the assets for their CDOs and find investors. The managers, for their part, choose assets and later monitor the CDO's collateral, although many of the structures don't require much active management. It was an attractive proposition for many start-up firms, which could earn lucrative annual management fees.

Mr. Ribotsky's entry into the world of CDO managers began at Engineers Country Club on Long Island. There, in 2005, he met Mitchell Elman, a New York criminal-defense lawyer who specializes in drunk-driving and drug cases. Mr. Elman introduced Mr. Ribotsky to Kenneth Margolis, then a high-profile CDO salesman at Merrill, according to people familiar with the situation. Mr. Elman declined to comment.

'It Sounded Interesting'

Mr. Margolis, who in February 2006 became co-head of Merrill's CDO banking business, played a key role in seeking out start-up firms to manage CDOs. He put Mr. Ribotsky in contact with a few people who had experience in the mortgage debt market. They included two former Wachovia Corp. bankers, Scott Shannon and Joseph Parish III, who left Wachovia and established their own CDO management firm.

Mr. Ribotsky decided to team up with Messrs. Shannon and Parish. "It sounded interesting and that's how we ventured into it," Mr. Ribotsky says. Messrs. Parish and Shannon declined to discuss specifics of Norma.

Together the trio set up a company called N.I.R. Capital Management, which over the next year or so took on the management of three CDOs underwritten by Merrill.

In 2006, Mr. Ribotsky says Merrill came to N.I.R. with a new proposition: One of the investment bank's clients, a hedge fund, wanted to invest in the riskiest piece of a certain type of CDO. Merrill worked out a general structure for the vehicle. It asked N.I.R. to manage it.

"It was already set up when it was presented to us," Mr. Ribotsky says. "They interviewed a bunch of managers and selected our team."

The CDO would be called Norma, after a small constellation in the southern hemisphere. According to people familiar to the matter, the hedge fund was Evanston, Ill.-based Magnetar, a fund that shared its name with a powerful neutron star. Magnetar declined to comment.

On Dec. 7, 2006, Norma was established as a company domiciled in the Cayman Islands. N.I.R., as its manager, would earn fees of some 0.1%, or about $1.5 million a year.

Norma belonged to a class of instruments known as "mezzanine" CDOs, because they invested in securities with middling credit ratings, averaging triple-B. Despite their risks, mezzanine CDOs boomed in the late stages of the credit cycle as investors reached for the higher returns they offered. In the first half of 2007, issuers put out $68 billion in mortgage CDOs containing securities with an average rating of triple-B or the equivalent -- the lowest investment-grade rating -- or lower, according to research from Lehman Brothers Holdings Inc. That was more than double the level for the same period a year earlier.

Buying Protection

For Norma, N.I.R. assembled $1.5 billion in investments. Most were not actual securities, but derivatives linked to triple-B-rated mortgage securities. Called credit default swaps, these derivatives worked like insurance policies on subprime residential mortgage-backed securities or on the CDOs that held them. Norma, acting as the insurer, would receive a regular premium payment, which it would pass on to its investors. The buyer of protection, which was initially Merrill Lynch, would receive payouts from Norma if the insured securities were hurt by losses. It is unclear whether Merrill retained the insurance, or resold it to other investors who were hedging their subprime exposure or betting on a meltdown.

Many investment banks favored CDOs that contained these credit-default swaps, because they didn't require the purchase of securities, a process that typically took months. With credit-default swaps, a billion-dollar CDO could be assembled in weeks.

Multiplying Risk

In principle, credit-default swaps help banks and other investors pass along risks they don't want to keep. But in the case of subprime mortgages, the derivatives have magnified the effect of losses, because they allowed bankers to create an unlimited number of CDOs linked to the same mortgage-backed bonds. UBS Investment Research, a unit of Swiss bank UBS AG, estimates that CDOs sold credit protection on around three times the actual face value of triple-B-rated subprime bonds.

The use of derivatives "multiplied the risk," says Greg Medcraft, chairman of the American Securitization Forum, an industry association. "The subprime-mortgage crisis is far greater in terms of potential losses than anyone expected because it's not just physical loans that are defaulting."

Norma, for its part, bought only about $90 million of mortgage-backed securities, or 6% of its overall holdings. Of that, some were pieces of other CDOs mostly underwritten by Merrill, according to documents reviewed by The Wall Street Journal. These CDOs included Scorpius CDO Ltd., managed by a unit of Cohen & Co., a company run by former Merrill CDO chief Christopher Ricciardi. Later, Norma itself would be among the holdings of Glacier Funding CDO V Ltd., managed by an arm of New York mortgage firm Winter Group.

A Winter Group official said the company declined to comment, as did Cohen & Co.

Such cross-selling benefited banks, because it helped support the flow of new CDOs and underwriting fees. In fact, the bulk of the middle-rated pieces of CDOs underwritten by Merrill were purchased by other CDOs that the investment bank arranged, according to people familiar with the matter. Each CDO sold some of its riskier slices to the next CDO, which then sold its own slices to the next deal, and so on.

Propping Up Prices

Critics say the cross-selling reached such proportions that it artificially propped up the prices of CDOs. Rather than widely dispersing exposure to these mortgages, the practice circulated the same risk among a relatively small number of players.

By early 2007, Norma was ready to face the ratings firms. Different slices of CDOs get different ratings because some protect the others from losses to defaults. A "junior" slice might take the first $30 million in losses on a $1 billion CDO, while a triple-A "senior" slice would not be affected until losses reached $200 million or more.

But the system works only if the securities in the CDO are uncorrelated -- that is, if they are unlikely to go bad all at once. Corporate bonds, for example, tend to have low correlation because the companies that issue them operate in different industries, which typically don't get into trouble simultaneously.

Mortgage securities, by contrast, have turned out to be very similar to one another. They're all linked to thousands of loans across the U.S. Anything big enough to trigger defaults on a large portion of those loans -- like falling home prices across the country -- is likely to affect the bonds in a CDO as well. That's particularly true for the kinds of securities on which mezzanine CDOs made their bets. Triple-B-rated bonds would typically stand to suffer if losses to defaults on the underlying pools of loans reached about 10%.

Easy Credit

When rating companies analyzed Norma, though, they were looking backward to a time when rising house prices and easy credit had kept defaults on subprime mortgages low. Norma's marketing documents noted plenty of risks for investors but also said that CDO securities had a high degree of ratings stability.

Beyond that, rating firms say they had reason to believe that the securities wouldn't all go bad at once as the housing market soured. For one, each security contained mortgages from a different mix of lenders, so lending standards might differ from security to security. Also, each security had its own unique team of companies collecting the payments. Yuri Yoshizawa, group managing director at Moody's Investors Service, says the firm figured some of these mortgage servicers would be better than others at handling problematic loans.

In March, Moody's, Standard & Poor's and Fitch Ratings gave Norma their seal of approval. In its report, Fitch cited growing concern about the subprime mortgage business and the high number of borrowers who obtained loans without proof of income. Still, all three rating companies gave slices comprising 75% of the CDO's total value their highest, triple-A rating -- implying they had as little risk as Treasury bonds of the U.S. government.

Merrill and N.I.R. took Norma to investors. Together, they produced a 78-page pitchbook that bore Merrill's trademark bull. Inside were nine pages of risk factors that included standard warnings about CDOs. The pitchbook also extolled mortgage securities, which it noted "have historically exhibited lower default rates, higher recovery upon default and better rating stability than comparably rated corporate bonds."

Most importantly, though, Norma offered high returns: On a riskier triple-B slice, Norma said it would pay investors 5.5 percentage points above the interest rate at which banks lend to each other, known as the London interbank offered rate, or Libor. At the time, that translated into a yield of over 10% on the security -- compared with roughly 6% on triple-B corporate bonds.

Network of Contacts

Mr. Ribotsky says the selling required little effort, as Merrill drummed up interest from its network of contacts. "That's what they get their fees for," he says.

Norma sold some $525 million in CDO slices -- largely the lower-rated ones with higher returns -- to investors. Merrill declined to say whether it kept Norma's triple-A rated, $975 million super-senior tranche or sold it to another financial institution.

Many investment banks with CDO businesses -- Citigroup Inc., Morgan Stanley and UBS -- frequently kept or bought these super-senior pieces, whose lower returns interested few investors. In doing so, they bet that the top CDO slices, which typically comprised as much as 60% of the whole CDO, were insulated from losses.

By September, Norma was in trouble. Amid a steep decline in house prices and rising defaults on mortgage loans, the value of subprime-backed securities went into a free fall. As increasingly worrisome delinquency data rolled in, analysts upped their estimates of total losses on subprime-backed securities issued in 2006 to 20% or more, a level that would wipe out most triple-B-rated securities.

Within weeks, ratings firms began to change their views. In October, Moody's downgraded $33.4 billion worth of mortgage-backed securities, including those which Norma had insured. Those downgrades set the stage for a review of CDOs backed by those securities -- and then further downgrades.

Mezzanine CDOs such as Norma were the hardest hit. On Nov. 2, Moody's slashed the ratings on seven of Norma's nine rated slices, three all the way from investment-grade to junk. Fitch downgraded all nine slices to junk, including two that it had rated triple-A.

Worse Performances

Other mezzanine CDOs, including some underwritten by other investment banks, have had worse performances. Around 30 are now in default, according to S&P. Norma is still paying interest on its securities. It is not known whether it has had to make payouts under the credit default swap agreements.

Ratings companies say their March opinions represented their best read at the time, and called the subprime deterioration unprecedented and unexpectedly rapid. "It's one of the worst performances that we've seen," says Kevin Kendra, a managing director at Fitch. "The world has changed quite drastically -- and our view of the world has changed quite drastically."

By mid-December, $153.5 billion in CDO slices had been downgraded, according to Deutsche Bank. Because banks owned the lion's share of the mezzanine CDOs, they bore the brunt of the losses. In all, banks' write-downs on mortgage investments announced so far add up to more than $70 billion.

For larger banks, holdings of mezzanine CDOs could account for one-third to three-quarters of the total losses. In addition to the $9.4 billion fourth-quarter write-down Morgan Stanley just announced it would take, Citigroup has projected its fourth-quarter write-down could reach $11 billion. UBS said this month it would take a $10 billion write-down after taking a $4.4 billion third-quarter loss.

Merrill, for its part, took a $7.9 billion write-down on mortgage-related holdings in the third quarter. Analysts expect it to write down a similar amount in the current quarter, which would represent the largest losses of any bank. News of the losses have led to the ouster of CEO Stan O'Neal and Osman Semerci, the bank's global head of fixed income. Mr. Margolis left this summer.

Mr. Ribotsky says he doesn't have plans to do any more CDOs at the current time. "Obviously, we're not happy about the occurrences in the marketplace," he says.
Everything above is from the WSJ and none my writing.hope you all like :)  [more]

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Pharmaceutical Plays

January 06, 2008 – Comments (2)

http://seekingalpha.com/article/59021-china-on-sale-discounted-pharmaceuticals?source=side_bar_long_ideas
I like his take on KG.  at $10.12. That's less than ½ the price it was trading last summer and less than 5% over its low for last year. This company is great at extending life of drugs that near their patent expirations and squeezing extra profit from them. They do very little R&D, instead preferring to buy rights & patents for established drugs, repackage them, market and sell, sell, sell! Current stock valuation assumes worst case scenario of the company loosing patent protection prematurely on all 3 of it's current top profit contributing drugs and no replacement revenues. This is a highly improbable scenario and it is far more likely that KG will continue to turn in great results and be trading 40% higher within a year.Enjoy :)  [more]

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European Central Bank [ECB] next Thursday?

January 05, 2008 – Comments (3)

From Seeking alpha
Who wants to be in the shoes of the governing council of the European Central Bank [ECB] next Thursday?  Despite all statistical tricks Eurozone inflation remained unchanged at a record 3.1% (pdf file) last December, overshooting the ECB's target of 2% by a horrific 55%. As blogged Thursday, money supply M3 growth remained at a record 12.3% for the second consecutive month too. This is almost 3 times more than the target rate of 4.5% M3 growth.  If the ECB would really stick to its mandate of fighting inflation (which central banks with their unbacked fiat currencies create in the first place), it would come to no other conclusion than to raise its reference rate, currently standing at 4%.

Also take note that the deposit facility of the ECB pays a negative real interest rate at currently 3%. But I don't think European banks would have much to deposit anyway as it appears that Europe will drown in a sea of debt in 2008. Investors here have been good buyers of property related U.S. debt, relying on wrong AAA ratings and enjoying a moderate yield pickup compared to sovereign debt. It will cost them their corporate life.  [more]

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Will Gold Replace Platinum in Catalytic Converters?

January 05, 2008 – Comments (3)

As of December 9, 2007, platinum, palladium and rhodium were the best metals available for purifying the air through the use of catalytic converters… a fact that plays a huge role in the pricing of those metals. While we often associate platinum with wedding bells and Tiffany boxes, the truth is that platinum is actually an industrial metal – more than one-third of all platinum used is put into catalytic converters. Which is where platinum’s cheaper neighbor, gold, comes in. Gold shares some – but not all – of the pollution cleansing benefits of platinum. And with gold prices substantially lower than platinum, more and more people have been looking for ways to swap out platinum for gold. On December 10, the World Gold Council – which is always looking for ways to boost demand for gold – announced a partnership with a U.S.-based company called Nanostellar to use nanotechnology to create a gold alloy that will allow gold to edge into the catalytic converter market. In fact, Nanostellar says that its new alloy can reduce emissions up to 40 percent more than pure platinum catalysts … for a lower cost. Should platinum investors worry? What Is A Catalytic Converter? Think of catalytic converters as fairy godmothers, but instead of turning rats into coachmen, they turn nasty-smelling hydrocarbons, poisonous carbon monoxide and oxides of nitrogen (which contribute to smog) into the thoroughly less-offensive carbon dioxide, nitrogen and water vapor. They’re even more miraculous with diesel exhaust, converting 90 percent of hydrocarbons and carbon monoxide and 30 to 40 percent of deadly particulates (which can lodge in your lungs and cause cancer) into harmless carbon dioxide and water vapor. Since 1975 in the U.S., and building gradually through China in 2000, countries have passed clean-air laws which require vehicles of all sorts to install catalytic converters. Today, globally, more than 85 percent of new vehicles make their entrance on the market wearing catalytic converters. The way it works is simple: An auto catalyst is cylindrical in shape and contains a fine honeycomb structure formed of ceramic or metal. Platinum or a blend of platinum and palladium is coated onto the honeycomb. The parts are assembled and inserted into a stainless steel canister, which then becomes the catalytic converter, which is placed between the engine and the muffler. As the bad stuff flows past the pricey platinum, a reaction oxidizes the nasty materials and … poof! … turns into less-bad stuff. The rising price of platinum has lit the whole auto industry with the desire to find an alternative, which is where the gold approach gets interesting. On December 21 (2007), futures contracts in gold settled at $811.60 per troy oz., while platinum futures for January (2008) settled at $1536.30 per troy oz. Johnson Matthey, a leading London-based specialty chemicals company and producer of auto catalysts, which also sells the metals, forecasts the demand for platinum will rise to 6.925 million troy ounces this year (2007), according to Platinum Today, Matthey’s Web publication. Availability problems may force the price up even as this demand increases. “Global platinum supplies, at 6.66 million oz., will be lower than in 2006 by 135,000 oz.” They predict that the platinum market in 2007 will actually end up short 265,000 oz., which should put more upward pressure on the price. Nanostellar’s new gold alloy approach combines gold, platinum and palladium in an attempt to make gold a viable option. “Gold is a good oxidation catalyst at room temperature, but its activity is reduced at higher temperatures and by exposure to traces of sulfur (sulphuric acid) in diesel fuel,” says Jeremy Coombes, general manager at Johnson Matthey. Coombes says this is likely why Nanostellar announced that their catalyst uses gold alongside traditional platinum and palladium metals. “At this stage it is not clear whether Nanostellar’s experimental catalyst will meet the demanding performance and durability requirements of today’s emission control laws.” Nanostellar’s chief executive, Pankaj Dhingra, claims the company’s tests show that its gold alloy, called NS Gold, reduces carbon monoxide and hydrocarbon emissions in diesel engines by up to 40 percent more than pure platinum catalysts. Dhingra also said its use as an auto catalyst “could lead to an increase in industry demand for gold, which in 2006 totaled 16.1 million ounces (458 tons).” James Burton, the chief executive of the World Gold Council, said the council is delighted to play its part in helping to bring the first gold-containing auto catalyst products to the market. If it pans out, that could crimp demand for platinum and lead to a drop in prices. That shift is at least a few years out, however, and right now the idea of using gold in catalytic converters is more a hope than a reality. Still, it’s a hope that bears watching.  [more]

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Bringham Exploration Research

January 03, 2008 – Comments (1) | RELATED TICKERS: BEXP.DL

A company I added today (BEXP) that is an oil play for me check out the investor presentation at http://media.corporate-ir.net/media_files/irol/99/99916/01_03_08_InvestorPresentation.pdf also I posted some stuff from research reports below  it is an interesting read.
Brigham Exploration (BEXP, Rated B, $7.34)Reiterate Buy rating. Recent share price appreciation attributable to enthusiasm related to Williston Basin Bakken shale oil play. The company is drilling three Bakken wells east of the Nesson anticline with initial results expected in late January. We anticipate the Bergstrom Family Trust 26 #1H (57% WI), located 6.5 miles northeast of the Parshall field and six miles southeast of a successful high-rate competitor discovery, should be fracture stimulated by year-end. Additionally, the company is drilling the Bakke 23 #1H (88% WI), 12 miles west of an industry discovery, and the Hynek 2 #1H (97% WI), 6 miles west of the Bakke well. We have assumed Brigham?s three initial high-interest Bakken wells commence production at approximately 500 Bopd, respectively, and thereafter the company conducts a one-rig drilling program over the remainder of ?08, drilling/completing three additional wells. In comparison, successful Bakken Dolomite wells drilled by industry in the Parshall area commence production at 1,000+ Mbopd and should recover 900 Mbo for a drilling and complete cost of $5 million. Notably, if BEXP Bakken wells rival industry results in the Parshall area, an active BEXP drilling program could support a $10+ per share target price. Relative to the E&P sector, BEXP trades at a 15% discount (EV/?08E EBITDA), has 20% poorer capital productivity, slightly weaker growth, 10%+ higher margins and 16% upside to our target price. E&P Equity Coverage (continued) Edge Petroleum (EPEX, Rated B, $5.51)Reiterate Buy rating. Recent indications suggest Edge management may be increasingly amenable to a sale process or change in executive management. Given the company?s somewhat constrained liquidity position, Edge appears likely to conduct a modest $130 million capital spending program in ?08. As a consequence, our 4Q08 production expectation of 71 Mmcfepd reflects only a slight increase from anticipated 4Q07 production of 70 Mmcfepd. The company?s limited capital program should largely be confined to an ongoing four-rig drilling program in South Texas (three rigs in Flores/Bloomberg field, one rig in Chapman Ranch) and a two-rig drilling program in Southeast New Mexico (one operated, one non-operated). Notably, assuming year-end ?07 proven reserves of 190-200 Bcfe, precedent South Texas M&A transactions ($2.50-$3.00/Mcfe proven reserves) imply $9-$12 in per share value. Relative to the E&P sector, EPEX trades at a 30% discount (EV/?08E EBITDA), has inline capital productivity, substantially weaker growth, 10% lower margins and 154% upside to our target price. Market Commentary NATURAL GAS - Front month: $7.04, up $0.01 (0%) Monday * The January NYMEX natural gas futures contract gained $0.01 to close at $7.04 while cash prices were mixed with most hubs experiencing only modest changes. Virtually the only region to exhibit significant uplift was the Northeast where gas for delivery at the New York Hub increased $2.39 to average $11.37. Following last week?s barrage of storms, near-term outlooks have turned decidedly bearish as forecasters anticipate arctic air from Canada to remain north of the border as warmer Pacific air moves through the country. While parts of the Northeast are expected to remain cold today, windier conditions should abate. Potential bullish developments include a Midwest snow storm headed on an easterly track that could bring further snow to the Northeast coastal areas later this week depending on the storm?s development over the Atlantic. Looking near-term at the gas complex, this week?s storage withdrawal appears to be about the only bullish catalyst on the horizon. Initial estimates suggest another triple digit draw, which though slightly lower than last week would still be well above the long-term average. OIL - Front month:  $90.63, down $0.64 (1%) Monday * Brent crude was up $0.76 to $92.05 at 1:00 GMT. * The January NYMEX crude contract, which expires at the close of trading today, fell $0.64 during Monday?s floor session to end at $90.63, while the OPEC crude basket price lost $0.69 to close at $87.28. Crude futures pulled back yesterday amid strengthening of the dollar and speculation that OPEC may consider increasing output at its February meeting in Vienna. Notably, the contract is up $1+ in electronic trading this morning as several hundred Turkish soldiers have reportedly launched an incursion against Kurdish rebels in northern Iraq. Overnight, Turkey carried out air attacks on two villages near the border in the Duhuk Province, allegedly causing material casualties. Although the news has reenergized market bulls, we anticipate the upward momentum will likely be short-lived and reiterate our belief that robust OPEC/non-OPEC supply in ?08 should deflate oil prices to +$70/barrel. Energy Market Data Commodity Price Deck Investment Risk Factors Crude oil and natural gas prices Global crude oil prices are affected by overall supply and demand, political developments worldwide, pricing decisions and production quotas of OPEC and the volatile trading patterns in the commodity futures markets. U.S. natural gas prices are affected by overall supply and demand, seasonal weather patterns and the volatile trading patterns in the commodity futures markets. In periods of sharply lower oil and natural gas prices, a company may curtail capital spending projects. Furthermore, changes in oil and natural gas prices can impact a company's determination of proven reserves and a company's calculation of the standardized measure of discounted future net cash flows relating to oil and natural gas reserves. To gauge the impact of the change in oil and natural gas prices on valuation, the section of this publication entitled ?Commodity Price Sensitivity? provides investors a range of oil and natural gas prices and corresponding share price valuations. Competitive nature of Exploration and Production (E&P) industry often  limits margin increases E&P companies compete with many other participants in the industry for the resources necessary to explore for and develop oil and gas reserves. These resources include everything from attractive leaseholds to drilling rigs to the human capital necessary to operate machinery at the drill site. These competitive pressures can force oilfield service prices upward, and thereby increase the cost of securing them. Consequently, given a high level of industry activity, a company could experience margin contraction. Oil and natural gas reserve estimates and corresponding reserve values  are inherently uncertain The stated quantity and value of a company?s oil and natural gas reserves is based on numerous estimates, which are subject to uncertainty. Reserve estimates are projections based on engineering data, the projection of future rates of production and the timing of future expenditures. There can be no assurance that the prices used to compile the estimate of a company?s reserves will be realized or that the estimated production volumes will be produced during the periods indicated. Actual future production, natural gas and oil prices, revenues, taxes, development expenditures, operating expenses and the quantities of recoverable natural gas and oil reserves will likely vary from original estimates. E&P operations have certain operating hazards and uninsured risks In addition to the substantial risk that wells drilled will not be productive, hazards such as unusual or unexpected geologic formations, pressures, mechanical failures, uncontrollable flows of oil and/or natural gas, pollution and other physical and environmental risks are inherent in oil and natural gas exploration and production. These hazards could result in substantial losses to a company due to injury and/or loss of life, severe damage or destruction of property and equipment and environmental damage. Companies typically carry insurance that they believe is in accordance with customary industry practices. However, as is common in the oil and natural gas industry, a company does not fully insure against all risks associated with its business, either because such insurance is not available, or because it is considered cost prohibitive. Foreign operations risk A company?s operations outside the U.S. are subject to various risks inherent in foreign operations. These risks may include, among other things, loss of revenue, property and equipment as a result of hazards such as expropriation, war, insurrection and other political risks, increases in taxes and governmental royalties, renegotiation of contracts with governmental entities, changes in laws and policies governing operations of foreign-based companies, currency restrictions, currency exchange rate fluctuations and other uncertainties arising out of foreign government sovereignty over a company?s international operations. Laws and policies of the U.S. affecting foreign trade and taxation may also adversely affect a company?s international operations.  [more]

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Independant Oil and Gas Companies

January 03, 2008 – Comments (2)

I have been looking at and researching independant oil and gas companies, looking for a play in 2008.  I think that this along with Agriculture is going to be my big plays for 2008 and into 2009.
http://biz.yahoo.com/ic/121_cl_pub.html
Check the link out.

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Autozone Implied Volatility Change

January 02, 2008 – Comments (4) | RELATED TICKERS: AZO

Auto zone today had a huge change in Implied Volatility. This was combined with low volume, normal option volume is about 4552, where as todays was 1682. The IV almost doubled from 34 to 68. It is a stock that is on my watch list and came up. "Autozone is the nation's leading specialty retailer of automotive parts and accessories, primarily focusing on do-it-yourself customers. Each of the company's auto parts store carries an extensive product line for cars, vans and light trucks, including new and re-manufactured automotive hard parts, maintenance items, and accessories. Many of the company's domestic auto parts stores also has a commercial sales program, which provides commercial credit and prompt delivery of parts and other products to local repair garages, dealers and service stations."  [more]

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Caterpillar

January 02, 2008 – Comments (0) | RELATED TICKERS: CAT

Caterpillar's first-rate manufacturing capabilities, unparalleled distribution network, and renowned brand name have solidified its standing as one of the world's premier industrial firms. Although Cat competes in a capital-intensive and highly cyclical industry, its pricing capacity, product breath, and diverse customer base have allowed the firm to weather the industry's cyclical highs and lows better than most. During the last decade, Cat maintained positive earnings during the deepest of trough years, and its average return on invested capital during this period remained well above of its cost of capital. Even well-regarded rivals, such as Deere, can't make such a claim.  This is a more of a global play for me.  As countries infrastructure gets more developed, there will be a need for equipment to do this work, do the math.  [more]

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PLCM

January 02, 2008 – Comments (0) | RELATED TICKERS: PLCM

I am adding PLCM this afternoon, this is a long term growth pick for me. Fiscal third-quarter revenue increased to $240.1 million, up 38.6% from the year-ago quarter. Revenue growth was aided by the recent acquisition of SpectraLink in March of 2007. Not including acquisitions, organic growth was a respectable 16.8% year over year. Growth was led by the video business once again, which posted a year-over-year revenue increase of 22% (all organic) due to strong Internet-based connectivity and demand for high-definition. The voice segment returned to organic growth but continues to be sluggish versus historical growth rates. The gross margin continued to trend down from 62.2% in the year-ago period to 60.2% this quarter as a result of sales mix. Despite the slip in gross margins, operating margins remained stable at roughly 17% year over year, reflecting leverage on operating expenses.  [more]

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Steel Picks

January 01, 2008 – Comments (5) | RELATED TICKERS: AKS , RS , NUE

For 08 there are a couple of steel picks that I like, the main one being RS by far.  But am adding these other 2 to my caps tommorrow.  [more]

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Stock that I am thinking about and doing some DD on

January 01, 2008 – Comments (0)

I am adding it as a caps pick tommorrow.  [more]

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