http://finance.yahoo.com/q?s=caf
MORGAN STANLEY CHINA (CAF)
Prospectus:
http://www.morganstanleyindividual.com/Markets/IPOCenter/Prospectus/?DocID=p_CAFMS
This close-end fund allow you to invest in the China A share market. Unlike many other funds that invest in China, which most of them are buying H share (Chinese companies that are listed on Hong Kong Exchange). Currently, only Chinese citizens and qualified institutional investors are allowed in investing in China A share. Be extremely careful, that the Chinese stock market (A share in particular) is extremely over-valued by traditional metrics. The fund is also very thinly traded (avg vol: 400k). This makes CAF a extreme risky trading instrument IMHO.
I personally think FXI is a better way to invest in the Chinese market.
Prospectus for FXI: http://www.ishares.com/content/stream.jsp?url=/content/repository/material/prospectus/ftse_xinhua.pdf&mimeType=application/pdf
Here are the reasons why:
1. FXI is a index tracking ETF- low expense and not as thinly traded (avg vol: 6m)
2. The valuation is way more reasonable due to the fact the fund invest in ADRs/H share.
Monday, December 31, 2007
Wednesday, December 26, 2007
January Barometer
"Since 1950, there have been 20 down Januarys for the S&P 500, all of which preceded a new or extended bear market, or a flat market, except for one year, according to the Almanac. But in eight of those years, the broader market ended flat or with slight gains."
http://money.cnn.com/2005/01/26/markets/january/index.htm
http://www.google.com/search?hl=en&q=january+barometer&btnG=Search
The January Barometer is one of the more "reliable" indicator. Of course, there is no sure thing in the market (nothing has 100% guarantee). Your job as an investor/trader is to extract the most return for the risk taken. Risk is defined by the chance that sh*t can fall apart (unpredictable events ei: 9-11). No one can predict the future accurately, but you can always react to the driving forces of the market - greed and fear. Warren Buffett and other "investment gurus" are very good at "gaming" the market knowing the driving forces behind it.
"View Mr. Market as having a disorder and being in a manic depressive state and take advantage of this state of disorder." (See SEA's April 1998 newsletter for full quote.)
- Warren Buffett
Most of these gurus are can be label "contrarian" to a certain extend. It is by going against conventional wisdoms that these gurus were able to be successful in investing. Does that mean shorting everytime the market goes up and buying everytime the market comes down? No.
As to how to be a contrarian or add contrarian flavor in when building a style of investing/trading...that's for us to figure out.
http://money.cnn.com/2005/01/26/markets/january/index.htm
http://www.google.com/search?hl=en&q=january+barometer&btnG=Search
The January Barometer is one of the more "reliable" indicator. Of course, there is no sure thing in the market (nothing has 100% guarantee). Your job as an investor/trader is to extract the most return for the risk taken. Risk is defined by the chance that sh*t can fall apart (unpredictable events ei: 9-11). No one can predict the future accurately, but you can always react to the driving forces of the market - greed and fear. Warren Buffett and other "investment gurus" are very good at "gaming" the market knowing the driving forces behind it.
"View Mr. Market as having a disorder and being in a manic depressive state and take advantage of this state of disorder." (See SEA's April 1998 newsletter for full quote.)
- Warren Buffett
Most of these gurus are can be label "contrarian" to a certain extend. It is by going against conventional wisdoms that these gurus were able to be successful in investing. Does that mean shorting everytime the market goes up and buying everytime the market comes down? No.
As to how to be a contrarian or add contrarian flavor in when building a style of investing/trading...that's for us to figure out.
Monday, December 24, 2007
Randomness continues: Closing out 2007
Recently, I took a 24 hour road trip from FL all the way back in NY in a little Japanese coupe/hatchback - Toyota Celica. How on earth can this trip has anything possibly do with investing? Sit tight...
First, let me reflect on my friend's Toyota Celica. It was a used car with a good amount of mileage on it. I must say, the Celica isn't as roomy and practical as a Honda Accord, it doesn't accelerate as fast as a Ford Mustang, and it certainly can't handle corners as quickly as a BMW 3 series. But it doesn't matter. The car was very well-built. On the highway doing some-what-over-the-limit speed, the car was as steady and reliable...well as a Toyota should be. Everytime I open up the throttle, the little Japanese hatchback just bugging for more. No squeaks, no rattles. This little bugger can't outhandle a BMW, but when you grab on to its steering wheel it takes you right where you wanted. This car sure as hell isn't perfect, but for $7k, it is amazing value and after spending 1200 miles with it, I simply adore it.
This car, a 2000-2001 Toyota, also marked the end of an era. It was the last time where Toyota has built something that is cheap, fun and reliable. Toyota has since turned into a generic corporation with numbers/goals to reach every quarters to satisfy the on-going ambition of being the world's largest car maker. No longer does Toyota build "cars". They now build what I call "econbox" or Box with wheels. Every cars in the current Toyota line-up are as boring as your daytime television program. Not to mention Toyota also started cutting corners on the quality of the cars they build. I sat in the new Camry and I just wasn't impress by its interior. And I wasn't the only one. If you browse around for Camry reviews, there are a lot of complains about the new Camry interior fit and finish. And then there is the new Scion brand. Scion isn't about building quality and fun cars, its just another marketing scheme by Toyota. I can go on about how Toyota is no longer the humble Japanese car maker from the 80s that try to enter the U.S. market with quality built cars. But to tie to my point: I would not invest in Toyota at the moment. Sure, it has gained a sure foothold of the U.S. market since the 80s. Sure, it is stealing market shares from the Big 3(2.5). But Toyota is no longer a corporation with personality. No longer does this car maker need to make desirable cars because they already in-still its brands in the consumers' mind. No longer does it need to build a fun car- only need to market another generic car in a diff. brand. And don't even get me started with the Prius. Toyota was the underdog, the new kid on the block, now it's all grown. No longer does it need to be recognized, no longer does it need to be humble. Toyota has forgotten where it came from.
My investing/trading philosophy is very much the same as my philosophy on cars. I like to buy and trade what I understand, what I know. I like companies and cars that provide "value". I like underdogs that struggle to be recognized. And if I didn't make the point already: you are who you are. Your trading/investing style should reflect who you are. For example: I am impatient- hence, I don't look to hold a stock/position for more than a couple months. My style of trading doesn't fit anyone but me (or someone with similar personalities).
Note: In closing out 2007, unless there is some disaster waiting to happen next couple of days, I'm proud to announce that our return has trounced the S&P500. We have met our goal on beating the index with a good amount of cash waiting to be deploy. And we are fortunate to dodge the Credit crunch bullets. 2008, here we come...
Have a Happy Holiday/New Year.
First, let me reflect on my friend's Toyota Celica. It was a used car with a good amount of mileage on it. I must say, the Celica isn't as roomy and practical as a Honda Accord, it doesn't accelerate as fast as a Ford Mustang, and it certainly can't handle corners as quickly as a BMW 3 series. But it doesn't matter. The car was very well-built. On the highway doing some-what-over-the-limit speed, the car was as steady and reliable...well as a Toyota should be. Everytime I open up the throttle, the little Japanese hatchback just bugging for more. No squeaks, no rattles. This little bugger can't outhandle a BMW, but when you grab on to its steering wheel it takes you right where you wanted. This car sure as hell isn't perfect, but for $7k, it is amazing value and after spending 1200 miles with it, I simply adore it.
This car, a 2000-2001 Toyota, also marked the end of an era. It was the last time where Toyota has built something that is cheap, fun and reliable. Toyota has since turned into a generic corporation with numbers/goals to reach every quarters to satisfy the on-going ambition of being the world's largest car maker. No longer does Toyota build "cars". They now build what I call "econbox" or Box with wheels. Every cars in the current Toyota line-up are as boring as your daytime television program. Not to mention Toyota also started cutting corners on the quality of the cars they build. I sat in the new Camry and I just wasn't impress by its interior. And I wasn't the only one. If you browse around for Camry reviews, there are a lot of complains about the new Camry interior fit and finish. And then there is the new Scion brand. Scion isn't about building quality and fun cars, its just another marketing scheme by Toyota. I can go on about how Toyota is no longer the humble Japanese car maker from the 80s that try to enter the U.S. market with quality built cars. But to tie to my point: I would not invest in Toyota at the moment. Sure, it has gained a sure foothold of the U.S. market since the 80s. Sure, it is stealing market shares from the Big 3(2.5). But Toyota is no longer a corporation with personality. No longer does this car maker need to make desirable cars because they already in-still its brands in the consumers' mind. No longer does it need to build a fun car- only need to market another generic car in a diff. brand. And don't even get me started with the Prius. Toyota was the underdog, the new kid on the block, now it's all grown. No longer does it need to be recognized, no longer does it need to be humble. Toyota has forgotten where it came from.
My investing/trading philosophy is very much the same as my philosophy on cars. I like to buy and trade what I understand, what I know. I like companies and cars that provide "value". I like underdogs that struggle to be recognized. And if I didn't make the point already: you are who you are. Your trading/investing style should reflect who you are. For example: I am impatient- hence, I don't look to hold a stock/position for more than a couple months. My style of trading doesn't fit anyone but me (or someone with similar personalities).
Note: In closing out 2007, unless there is some disaster waiting to happen next couple of days, I'm proud to announce that our return has trounced the S&P500. We have met our goal on beating the index with a good amount of cash waiting to be deploy. And we are fortunate to dodge the Credit crunch bullets. 2008, here we come...
Have a Happy Holiday/New Year.
Friday, November 30, 2007
How to get RICH $$$
Notice how every "millionaire" books talk about what it takes to be rich? Persistent, hardworking, willing to take risk... these are your very typical characteristics of "millionaire-next-door".
I must, however, point to a very big flaw all these how-to-get-rich books and websites all shared. These websites and books only interviewed and researched the people who actually succeeded. And it makes sense because we want to know their "secrets". HOWEVER, for every millionaire next door, there is a failed entrepreneur (perhaps 7-8 failed entrepreneurs for every 1 millionaire).
I can bet that if you interview these failed entrepreneurs, you would find they hold the very same characteristics you see in the millionaire next door. That is, they are also hardworking, persistent and ambitious. Give it a second to think about it. Do you really think that people who start and own businesses (even tho it failed) are bunch of lazy bums that don't want their businesses to succeed? So what causes their failures? No one wants to know. I mean, would you like to purchase a book called "How to start a business and fail?" or maybe "Failure-next-door", or "Entrepreneurship was not for me"? The problem is, we don't want to hear about/acknowledge these failures. But they exist.
So what separate a millionaire next door from a failed hardworking ambitious entrepreneur?
Sometimes, I think it's just LUCK (timing, other variables that you are simply not in control of). Take this guy for example:
Stephan Paternot
http://www.smartmoney.com/mymoney/index.cfm?story=20010806&hpadref=1
He started the whole "social networking" concept. Where as myspace and facebook succeeded, he failed. Why? Because he came to the party to early. It was 1999. Noone was ready for Myspace type of thing. So it never took off. And look where these social networking websites are now. (Facebook was valued at $10bil by Microsoft).
And how about fiber optics? Verizon started to lay miles of fiber optic line recently and spent billions to get everyone hook up to the new and faster network. And everything seem to be successful as more customers were signing on their "Fios" service. However, back in 1990s, there were bunch of smaller companies went around and did the same thing as Verizon (laying miles of fiber optic lines)- all of them went bust.
So what's the problem with these failures?
"Ohh they were too early, they should've waited"
"Ohh, the time wasn't right"
"Ohh, noone was ready for it then"
"Ohh, they should've would've could've......."
Hindsight is always 20-20.
I'm not advocating that hardwork is useless, persistent is garbage and carrying ambitious is like carrying sack of bricks- but be ready to fail, the downside risk is there. We just don't want to see it.
I must, however, point to a very big flaw all these how-to-get-rich books and websites all shared. These websites and books only interviewed and researched the people who actually succeeded. And it makes sense because we want to know their "secrets". HOWEVER, for every millionaire next door, there is a failed entrepreneur (perhaps 7-8 failed entrepreneurs for every 1 millionaire).
I can bet that if you interview these failed entrepreneurs, you would find they hold the very same characteristics you see in the millionaire next door. That is, they are also hardworking, persistent and ambitious. Give it a second to think about it. Do you really think that people who start and own businesses (even tho it failed) are bunch of lazy bums that don't want their businesses to succeed? So what causes their failures? No one wants to know. I mean, would you like to purchase a book called "How to start a business and fail?" or maybe "Failure-next-door", or "Entrepreneurship was not for me"? The problem is, we don't want to hear about/acknowledge these failures. But they exist.
So what separate a millionaire next door from a failed hardworking ambitious entrepreneur?
Sometimes, I think it's just LUCK (timing, other variables that you are simply not in control of). Take this guy for example:
Stephan Paternot
http://www.smartmoney.com/mymoney/index.cfm?story=20010806&hpadref=1
He started the whole "social networking" concept. Where as myspace and facebook succeeded, he failed. Why? Because he came to the party to early. It was 1999. Noone was ready for Myspace type of thing. So it never took off. And look where these social networking websites are now. (Facebook was valued at $10bil by Microsoft).
And how about fiber optics? Verizon started to lay miles of fiber optic line recently and spent billions to get everyone hook up to the new and faster network. And everything seem to be successful as more customers were signing on their "Fios" service. However, back in 1990s, there were bunch of smaller companies went around and did the same thing as Verizon (laying miles of fiber optic lines)- all of them went bust.
So what's the problem with these failures?
"Ohh they were too early, they should've waited"
"Ohh, the time wasn't right"
"Ohh, noone was ready for it then"
"Ohh, they should've would've could've......."
Hindsight is always 20-20.
I'm not advocating that hardwork is useless, persistent is garbage and carrying ambitious is like carrying sack of bricks- but be ready to fail, the downside risk is there. We just don't want to see it.
Tuesday, November 27, 2007
Desparate for money, Citi goes Junk
Citi took out a loan that pays 11% coupons today. When an investment grade company has to take out a loan/capital infusion at junk rate, you know the credit market is in trouble. Especially when we are talking about a financial service company, which expertise is in managing interest spread and capital.
Sorry for all the Citi's shareholders and soon to be lay-off employees. I feel your pain.
However, the former CEO of Citi won't be feeling the pain with a severance package that is worth $40 mil. Good job, Chief Value Destroyer Chuck Prince.
Friday, November 16, 2007
Goldman the magnificent
Goldman Sachs is an unstoppable beast.
First, they're the #1 investment bank on Wall Street.
Then they navigate the subprime mess with speed and efficiency unheard of in the Street (although the practice of taking the opposite side of the trade .... on their clients, is heard of) and was the only bank with heavy subprime exposure to turn a profit.
Third, all of their alums are heavily court at by their competitors and are turning up in CEO suites everywhere on the Street including Rubin (Citi), Thain (Merrill), Duncan (NYSE), Lampert (next coming of Buffett?).
And this last event is what really pops out at me .... Goldman Sachs' partners helping to play a hand in grabbing back the best player in baseball, A-Rod, from the grasps of Scott Boras and into the hands of the Yankees again.
I think this past quarter has been a great one for GS. Stay tune as I would not be surpise if Goldman somehow rescues the Knicks from being the NBA's black sheep into a powerhouse again by buying out the team from under the Dolan's eyes (Cablevision is a public company and the BoD hates the Dolans), firing Isiah Thomas, jettisoning Marbury, and getting LeBron James in 2009.
New York New York is soon becoming Goldman, Goldman.
First, they're the #1 investment bank on Wall Street.
Then they navigate the subprime mess with speed and efficiency unheard of in the Street (although the practice of taking the opposite side of the trade .... on their clients, is heard of) and was the only bank with heavy subprime exposure to turn a profit.
Third, all of their alums are heavily court at by their competitors and are turning up in CEO suites everywhere on the Street including Rubin (Citi), Thain (Merrill), Duncan (NYSE), Lampert (next coming of Buffett?).
And this last event is what really pops out at me .... Goldman Sachs' partners helping to play a hand in grabbing back the best player in baseball, A-Rod, from the grasps of Scott Boras and into the hands of the Yankees again.
I think this past quarter has been a great one for GS. Stay tune as I would not be surpise if Goldman somehow rescues the Knicks from being the NBA's black sheep into a powerhouse again by buying out the team from under the Dolan's eyes (Cablevision is a public company and the BoD hates the Dolans), firing Isiah Thomas, jettisoning Marbury, and getting LeBron James in 2009.
New York New York is soon becoming Goldman, Goldman.
Thursday, November 15, 2007
Tuesday, November 13, 2007
Don't buy what Steve Schwarzman is selling
A picture (chart) is worth a thousand words.Am I joking? or Do I mean it literally?
Monday, November 12, 2007
Life takes Visa, but Mastercard is priceless.
So, Visa has finally filed for IPO.
http://biz.yahoo.com/rb/071109/visa_ipo.html?.v=1
Visa is own by a group of well-known banks. JPM and BAC together own 34.8% of Visa. Citigroup, Wells Fargo, US Bancorp and National City own another 24% of Visa.
Now, this chart is a very rough comp. b/w Mastercard and Visa. We know that Mastercard IPO was a success. Mastercard stock went up 5x since its IPO. The problem with this chart is that I'm not sure if Visa is selling out all of its shares to public, which they value at $10 bil. Or if it's selling ~40% stake (60% own by the rest of the banks). If Visa is selling 40% stake and valued the stake at $10 bil. , then it would fetch a $25 bil. market cap. That is in-line with Mastercard's current market cap.
Assuming that Visa fetch the same price/market cap as Mastercard, then its IPO is NOT worth buying into. Even though Visa has a bigger share of the market, it fails to bring its top-line to its bottom-line. The lower net income margin is causing Visa to earn about the same amount as Mastercard (not looking too deep into the quality of the earnings). Visa has also agreed to settle a lawsuit recently- which would cost Visa ~$2 billion dollars. On the surface, Visa looks attractive because of Mastercard's previous success. However, Mastercard's successful IPO launch was due to the fact that it was vastly underpriced. But that is not the case for Visa (unless $10 bil it plans to raise = 100% stake, which I highly doubt at the moment).
However much I love IPOs. Visa is a no-go for me.
http://biz.yahoo.com/rb/071109/visa_ipo.html?.v=1
Visa is own by a group of well-known banks. JPM and BAC together own 34.8% of Visa. Citigroup, Wells Fargo, US Bancorp and National City own another 24% of Visa.
Now, this chart is a very rough comp. b/w Mastercard and Visa. We know that Mastercard IPO was a success. Mastercard stock went up 5x since its IPO. The problem with this chart is that I'm not sure if Visa is selling out all of its shares to public, which they value at $10 bil. Or if it's selling ~40% stake (60% own by the rest of the banks). If Visa is selling 40% stake and valued the stake at $10 bil. , then it would fetch a $25 bil. market cap. That is in-line with Mastercard's current market cap.Assuming that Visa fetch the same price/market cap as Mastercard, then its IPO is NOT worth buying into. Even though Visa has a bigger share of the market, it fails to bring its top-line to its bottom-line. The lower net income margin is causing Visa to earn about the same amount as Mastercard (not looking too deep into the quality of the earnings). Visa has also agreed to settle a lawsuit recently- which would cost Visa ~$2 billion dollars. On the surface, Visa looks attractive because of Mastercard's previous success. However, Mastercard's successful IPO launch was due to the fact that it was vastly underpriced. But that is not the case for Visa (unless $10 bil it plans to raise = 100% stake, which I highly doubt at the moment).
However much I love IPOs. Visa is a no-go for me.
Thursday, November 8, 2007
Financials dogged the market AGAIN
Looks like many of my potential employers (financial firms)are in trouble. I must say my employment outlook does not look good at the moment. The financials once again take a hit today. As I posted over the weekend; uncertainty clouds over the financials. Morgan Stanley wrote down another couple bil. bucks. No biggie. It's only ~5-7% of MS market cap as Morgan already lost ~40% of its market cap YTD. MS is trading flat throughout the day. Up 0.49% as of now.
This is a good time to bring up the topic of Level 3 assets.
Basically, these are difficult to value assets. These are probably private investments in other private companies, investment in exotic investment vehicles, investment in illiquid instruments. ..etc. So the banks have to "guesstimate" the value of these assets. In today's environment, the value of these assets the banks have to come out with can be ugly. If I didn't sound bearish enough, I will say it again, I'm staying away from the financials.
End Of the Day Update:
A fresh round of buying emerged this afternoon. The XLF finished positive for the day. But I'm still not convinced that the financials are bargain at this level.
Wednesday, November 7, 2007
A whole lot of Irrational Exuberance Part II
General Motors lost $39 billions?
Most of the $39 billions posted by GM today is accounting NON-CASH charges which is related to the write down of deferred tax assets on GM's book. The loss in GMAC is what concerned me. But even then, GM sold 51% stake of GMAC to Cerberus Group before the subrpime mess got messier. Smart move?
The automotive segment of GM actually made $122 mil during the quarter, driven by strong solid performance results from GM Latin America and GM Asia-Pacific segment. Surprise?
Toyota Motors trades at $200 bil market cap vs. GM $19.5 bil market cap. GM is on my list of stocks to buy if it get cheaper. Too many reasons to list in a blog post. You will definitely see a report on TM vs. GM from me soon.
Time Warner (AOL) mess
AOL division profit decline continued to drag down TWX's results. Disappointing to say the least, TWX replaced Dick Parson with Jeff Bewekes. Shareholders are probably looking at some sort of asset(s) sales in the near future (hopefully, someone would take AOL off TWX's hands). I must say, Steve Case (former CEO of AOL) sold the top. The man is a genius in destroying shareholders' value and enriching his own. I was tricked by Yahoo thinking that TWX is trading at P/E of 11. The company affirmed that guidance of $1.07 for 2007, which make the company trades at P/E of 17. No value here even if they sell AOL out (who will buy that crap?). Good luck to Jeff Bewekes. TWX is off my list.
The Big Red Umbrella?
I did not know that Citigroup sold it's big red umbrella logo to the St.Paul Travelers Group. Looks like Citigroup really need a big red umbrella now. They saved for rainy days, but it has been pouring every day since. On top of that, Citigroup's CDS is trading at the lowest of investment grade level, coupled with a downgrade from Fitch recently, the cost of capital at Citi must be rising. Citigroup is also stuck with $55 bil of CDOs and $135 bil of Level 3 assets (assets that don't have readily market value). I smelled more write downs to come. I'm staying away. If Citi trades at book value, another $10-15 bil write down will bring down another $10-15 bil market cap. That's roughly 10% of Citi $171 bil market cap. Citigroup, I will be waiting for you on the sideline.
I can't believe the automaker is the most attractive out of my list. Talk about Irrationality!
Most of the $39 billions posted by GM today is accounting NON-CASH charges which is related to the write down of deferred tax assets on GM's book. The loss in GMAC is what concerned me. But even then, GM sold 51% stake of GMAC to Cerberus Group before the subrpime mess got messier. Smart move?
The automotive segment of GM actually made $122 mil during the quarter, driven by strong solid performance results from GM Latin America and GM Asia-Pacific segment. Surprise?
Toyota Motors trades at $200 bil market cap vs. GM $19.5 bil market cap. GM is on my list of stocks to buy if it get cheaper. Too many reasons to list in a blog post. You will definitely see a report on TM vs. GM from me soon.
Time Warner (AOL) mess
AOL division profit decline continued to drag down TWX's results. Disappointing to say the least, TWX replaced Dick Parson with Jeff Bewekes. Shareholders are probably looking at some sort of asset(s) sales in the near future (hopefully, someone would take AOL off TWX's hands). I must say, Steve Case (former CEO of AOL) sold the top. The man is a genius in destroying shareholders' value and enriching his own. I was tricked by Yahoo thinking that TWX is trading at P/E of 11. The company affirmed that guidance of $1.07 for 2007, which make the company trades at P/E of 17. No value here even if they sell AOL out (who will buy that crap?). Good luck to Jeff Bewekes. TWX is off my list.
The Big Red Umbrella?
I did not know that Citigroup sold it's big red umbrella logo to the St.Paul Travelers Group. Looks like Citigroup really need a big red umbrella now. They saved for rainy days, but it has been pouring every day since. On top of that, Citigroup's CDS is trading at the lowest of investment grade level, coupled with a downgrade from Fitch recently, the cost of capital at Citi must be rising. Citigroup is also stuck with $55 bil of CDOs and $135 bil of Level 3 assets (assets that don't have readily market value). I smelled more write downs to come. I'm staying away. If Citi trades at book value, another $10-15 bil write down will bring down another $10-15 bil market cap. That's roughly 10% of Citi $171 bil market cap. Citigroup, I will be waiting for you on the sideline.
I can't believe the automaker is the most attractive out of my list. Talk about Irrationality!
Tuesday, November 6, 2007
A whole lot of Irrational Exuberance
Google has gained 40% market cap over the last month or so. That is a gain of $90 billion. It is safe for me to say that the G phone factor has been priced into the stock. And Google has yet to bid on the spectrum.
http://techland.blogs.fortune.cnn.com/2007/11/06/verizon-and-att-no-shows-at-the-google-party/?source=yahoo_quote
Verizon, on the other hand, is trading at $120 bil market cap. This $120 billion market cap includes Verizon landline, DSL, Fiber Optics and Verizon Wireless. It boggled me as to how Google can find $90 billion off an already competitive wireless market.
$1 Trillion Company? Really?
Petro-China is now worth $1 trillion dollar. That's more than 2x what Exxon-Mobile is trading at. If the Chinese aren't selling gas at 2x the price what Exxon get in the U.S., how can you explain the 2x market cap? And if we (U.S.) is complaining about $3.0 a gallon gasoline, how can the Chinese afford $6.0 a gallon when their GDP/Capita is one of the lowest in the world. I'm perplexedly confused.
More Financials Carnage
So Chuck Prince finally quitted, and Citigroup's shareholders might finally get a relief. Not so fast. In the same day as they announced Chuck's resignation, Citi mentioned that it will write down another $8 billion +. Citigroup has lost about $100 bil market cap since the beginning of the year. I'm more than glad to announce that Citigroup will be in my "soon-to-be-too-cheap-and-attractive-value" list. (put that down with TWX)
It's Tuesday morning, I'm jobless and all I care about is $100 a barrel crude oil. Perplexed and Confused? I'm too.
Saturday, November 3, 2007
I am not bottom fishing (on the financials).
For the first time in five years, the financials are lagging the broad market indices. 
The sub-prime mortgage virus has successfully spread itself to the entire financial system. Any financial intermediaries are feeling the pinch. However you want to be known to the outside world (investment bank, commercial bank, specialty finance company, mortgage lender, or all of the above), you did not escaped the effect of the recession in the housing market. The business of borrowing money short term (and cheap) and lending it long term (at a higher rate) has been very lucrative in the past few years, thanks to the low Fed Funds Rate and a robust housing market.
The party has come to an end as the Fed started to move interest rate back up and as the housing market went down the drain. And most banks are just feeling the pinch now as they are stuck with packages (ABS, CDO) that nobody wants. Each of these financials have recently written down billions dollar of value.
Dude, where’s my value?
Source: Seekingalpha.com
The question is, are we done writing down?
Many of us want to believe that this is the last of it. The fact is, I simply don’t know what methods these guys used to write down their books. Which one of these guys are more conservative in their approach? Which one of them are stuck with a lot of bad loans (leveraged buyout loans/mortgage related CDOs)?
Until I get a better picture of these write downs, I’m in the same trench as Michael Mayo, the DB analyst who believed that this isn’t the last of it. (http://www.bloomberg.com/apps/news?pid=20601087&sid=ajoV.anbChd4&refer=home)
I refuse to go bottom fishing in the financials. I can vividly remember the recent turmoil in the housing market and how optimistic we were to believe that the housing market would bottom in 2007, or was it 2008, perhaps 2009 and beyond? The risk in buying these stocks remains high in my case since I don’t really know how to look at the financial companies nor do I have any experience in it. Investors tend to be overly optimistic in the beginning of every bubble burst. I am staying away from the financials for the time being. And not to mention a recent interview Jim Roger did with Bloomberg. He mentioned that there are "level 3" assets that have yet to surface on the books of these banks and brokers. And he is currently shorting the investment banks. I'm going to do my research on these "level 3" assets and in the meantime I'm going to sit tight on the next roller coaster ride.
All banks are not created equal:
XBD: Amex Broker Dealers Index http://finance.yahoo.com/q/cp?s=%5EXBD
BKX: Phlx Banks Index http://www.kbw.com/research/BKX.asp
Wednesday, October 31, 2007
A Quick Look: Textron Inc. (NYSE: TXT)
Textron (NYSE: TXT)
Business Profile: Textron Inc. (NYSE: TXT) is one of the world's largest and most successful multi-industry companies. Founded in 1923, we have grown into a network of businesses with total revenues of $11 billion, and approximately 40,000 employees in 32 countries, serving a diverse and global customer base. Headquartered in
Textron’s Business Segments:
Textron 2006 Revenue breakdown
Textron 2006 Segment Profit Breakdown
Source: Company website.
-Textron might unable to effectively mitigate pricing pressures. (Industrial segment)
-Delays in aircraft delivery schedules or cancellation of orders. (Cessna)
-19% of revenue derived from U.S. Government. (
-U.S. Gov’t can terminate contracts with Textron at anytime. (
-Cost overruns on U.S. Gov’t contract
-Interruptions of production and supplies chain and labor disruptions (All manufacturing segment)
-Disruptions in the capital market. (Finance segment)
-Macro economics factors: interest rate, currency and raw material prices
-Legal proceeding and claims.
Overall, Textron is a very solid industrial company that is more aerospace and defense oriented. The management was able to keep cost under control as we saw segment profit margin expanded during times of high commodities prices and higher labor costs. The big question for TXT's future is how well can the non-military related segments weather out a potential slow down in the global economy? That has yet to be seen.Monday, October 29, 2007
3,2,1..... CHINA!
We love China. Why? The Chinese stock market is making new high everyday. And if you were invested in Chinese equity in any way in the last couple of years, you should have done quite well.
Now, I have personally developed this stock market indicator. This indicator is quite accurate. It has accurately predicted the Tech Bubble of 2000. The indicator is called, my dad indicator. The best thing is, the indicator is free.
I remembered that my pop got very vocal about the market in 1999. He was complaining to my mom about selling stocks out too early, and not buying the next best stock. So, he took control of the family savings soon after. He bought some awesome companies. First, he bought Yahoo (Nasdaq: YHOO) at $200 a piece. Then he bought Lucent (Nasdaq: ALU) for about $60 a share. This was, of course, in the early 2000. Well, needless to say, not too soon after he made those trades, everything crumbled into pieces.
All of this bring me back to last couple days where my pop got very vocal again. He was constantly arguing with my mom. They usually argue about b.s. like most married couple, but these days, he was complaining about my mom management of the family savings (which is, for the most part, invested in Chinese equity through H-shares listed Chinese companies). He started to grill stock quotes every night. And he would flip through the finance pages of Chinese newspaper. He would make believe that he is the Chinese Warren Buffett.
I've recently suggested to my mom to buy into a Chinese railroad company (NYSE: GSH HKEX: 0525.HK). So she bought it and it went up about 12-15% since she bought it. It was a nice profit in a short period of time. Yesterday, my pop, would go through his usual routine and checks his stock quotes, and he would complain to me about how bad my pick had lagged the best performers (such as PetroChina NYSE: PTR HK: 0857.HK). I would simply ignore him and tell him to sell it and buy something else. Which he did.
Last Sunday, my pop read about a Chinese coal producer in a Chinese newspaper. The company name is China Shenhua (HK: 1088.HK) and the article in the paper mentioned UBS has just upgraded the stock and gave it a target price of 2x from where it is trading right now. My pop came into my room and inquired about the company. I pulled up the info. on the company real quick on Yahoo Finance and saw that the stock is trading at a P/E of 50. Immediately I said, "expensive, Google is only trading at 30-35 P/E, I would rather have Google if I want to pay that much." He would go on and complain about low P/E stocks never moves.
However, his question in the Chinese coal company got me thinking. As a commodity producer, your top-line revenue growth comes from the price you charge for the commodity you are selling. And the price is determine by the market/demand for the commodity. So it makes sense that a coal producer in China can be very well off because of China's rising demand for energy. Then it hit me like a brick: at a certain price point, it would become cheaper for coal consumers to import coal from other part of the world- this would limit the demand and price paid for Chinese coal. I'm no expert on coal, but the coal in China can't be THAT much better than coal from the U.S. right? So why would anyone pay a premium for a Chinese coal producer over a U.S. coal producer?
The poor Chinese citizens in China are only allow to buy Chinese stocks (A-share and recently H-share). So they don't have access to the U.S. stock market. Poor folks.And looking at my pop and his recent behavior, I would say the Chinese stock market is closing in on a top (even if it's just a correction).
Saturday, October 20, 2007
The Good, the Bad and the Ugly
Output (GDP) = Consumption (C ) + Government spending ( G ) + Business Investment ( I ) + Net export ( NX )
The Good
Capacity Utilization- The assets are being used to produce. Although not quite at 1990s level, we are producing at a healthy rate. If we are producing, we are growing.
Unemployment Claim- Unemployment claims is at all time low: when people have jobs, they will spend. It’s not that difficult. What worries me is that this indicator is dangerously low- see 1999.
Unemployment rate and earnings- same story here. Earnings are at +4%. The more they make, the more they spend.
Business investment and consumption- No surprise here, both households and businesses are spending at a healthy clip. That’s the I and the C in the equation.
The Bad
Consumer sentiment – We are starting to see some deterioration in consumer sentiment. It is dipping a little bit low. This indicator seems to be more volatile in comparison to last economic expansion in 1990s. My guess is that the high oil price and War in
Consumer confidence – We are slightly above 100 here. These two consumers indicators are important because consumption makes up a good chunks of our GDP.
GDP and Chain Deflator – The weak
ISM- If it’s above 50, we are expanding. And if we are below 50, we are contracting. We are dangerously close to dipping below 50.
Construction – Commercial construction is still healthy, but it looks like we might be close to the peak. And we all know the residential construction story by now.
Durable Goods – If we aren’t buying durable goods, what are we spending on?
CPI – I don’t care about volatility, but how can you measure prices of basket of consumers’ goods without Food and Energy. Last time I check, I need to eat to survive.
Auto sales- We are trending down slightly since the peak at 1999. Why are we buying fewer cars?
Federal Budget – I’m surprised to see that we are actually creeping back to a balance budget. It is still in a horrible shape since we have a surplus in our last economic expansion.
And the Ugly
Housing Starts and permit – Partying like its 1995!
Median New Home Price – What do you want me to say? This is just plain UGLY.
Saving Rate – I suggest a couple of rate hike so we can see saving goes back up again. We are in a serious hole and a major down trend.
Export –
Well, so far, so good. We have consumption and business investment remain intact, but the problem is- How much longer?
High gasoline prices wouldn’t shake the consumers out of their spending spree. If we are to look at the cost of owning a car, we can easily pinpoint that gasoline is a minor cost in owning a vehicle (you just bought a $35,000 BMW and you can’t afford to put $50 gas in it?). Employment and outlook on employment is the key to today’s economy.
No jobs= no spending = ▼ C = ▼ GDP.
Note: Briefing.com is the best.
Friday, October 5, 2007
Leveraged Debt Boom
So I guess my predictions on the Yankees sweeping the hapless Indians is not going to be true. Little do you people know though that I truly do not care that the Yanks don't true. In fact, it may be even better that the Indians were ALLOWED TO WIN the 1st game of the series. Let's take a look at their record when they win/lose the first game of the ALDS.
2006 Yanks won first game to Detroit, lost series
2005 Yanks won first game against Angels, lost series
2004 Yanks lose first game to Twins, win series
2003 Yanks lose first game to Twins, win series
2002 Yanks won first game to Angels, lost series
2001 Yanks lose first game to As, win series
2000 Yanks lose first game to As, win series
1999 Yanks sweep Texas
1998 Yanks sweep Texas
1997 Yanks won first game against Indians, lost series
1996 Yanks lose first game to Texas, win series
1995 Yanks won first game against Mariners, lost series
Since the beginning of the ALDS series, the Yankees are 2-5 when they win the first game of the series and a PERFECT 5-0 when they lose the first game. Ladies and gentlemen, this is all set up for the Yanks to win the next 3 games (at Yankee Stadium no less and Steinbrenner gets to sell more tixs and concessions) and wipe the pathetic Indians off their playoff run.
Now that I have gotten that off my chest, back to this blog being more Wall Street oriented.
Here is an interesting article from the FT today on Citi selling part of their bridge financing loans to (drumroll) ........ KKR ...... of all entities.
http://www.ft.com/cms/s/0/a4075160-7081-11dc-a6d1-0000779fd2ac.html
http://www.ft.com/cms/s/0/68aa7404-72f6-11dc-b7ff-0000779fd2ac.html
http://www.ft.com/cms/s/0/9c737cfc-71ef-11dc-8960-0000779fd2ac.html
For those not familiar with bridge loans, they are promises to a private equity firm like KKR that the bank will lend them the necessary funds to buy out their target company. In the midst of the subprime loan scandal and thus a credit crunch, the banks were having a difficult time offloading these loans to the investors. PE firms like KKR of course would still benefit because they are getting the financing no matter what the credit environment is whereas the banks obligated to complete the loan. It then became a situation of the loans sitting on the banks' books and thus increasing their risk and aggravating shareholders everywhere.
Now Citi is turning around and attempting to sell off these loans (at discount of course) to .... the same private equity firm that are using the loans like KKR. Does this strike anyone being as ironic?
Think of it this way. Your parents promises to lend you the down payment on your house and it's a promise that you know they are good for. Before you can finalize the closing process, your parents were fired from their jobs and thus are in need of their savings. Now their original commitment to you to fund the down payment is in jeopardy but their word is their word. So what do they do? Instead of trying to decrease the loan commitment, they turn around and borrow the money from you to give back to you for the down payment. Is this odd or what? Basically the only person who benefits is you because you essentially have a free loan in that whatever interest you have to pay to your parents for the loan are negated by the interest your parents owe to you.
Now back to the scenario of Citi selling the loans to KKR which is even better because KKR obtains the loans on a discount, thus boasting the yield (in essence the true interest income) which would offset the interest expense owe to Citi for making the original loan commitment. KKR truly comes out on top as they would save (or even make) money on the deal from 1) interest income vs. interest expense and 2) fees and gains from opening the vulture leveraged debt fund.
Usually it's the investment banks like Citi who makes off good but this time it is heavily in the favor of their clients. Wall Street does not get any better than this. Stay tune for more on this developing drama of private equity fleecing the banks.
Go Yankees!
-Myth
2006 Yanks won first game to Detroit, lost series
2005 Yanks won first game against Angels, lost series
2004 Yanks lose first game to Twins, win series
2003 Yanks lose first game to Twins, win series
2002 Yanks won first game to Angels, lost series
2001 Yanks lose first game to As, win series
2000 Yanks lose first game to As, win series
1999 Yanks sweep Texas
1998 Yanks sweep Texas
1997 Yanks won first game against Indians, lost series
1996 Yanks lose first game to Texas, win series
1995 Yanks won first game against Mariners, lost series
Since the beginning of the ALDS series, the Yankees are 2-5 when they win the first game of the series and a PERFECT 5-0 when they lose the first game. Ladies and gentlemen, this is all set up for the Yanks to win the next 3 games (at Yankee Stadium no less and Steinbrenner gets to sell more tixs and concessions) and wipe the pathetic Indians off their playoff run.
Now that I have gotten that off my chest, back to this blog being more Wall Street oriented.
Here is an interesting article from the FT today on Citi selling part of their bridge financing loans to (drumroll) ........ KKR ...... of all entities.
http://www.ft.com/cms/s/0/a4075160-7081-11dc-a6d1-0000779fd2ac.html
http://www.ft.com/cms/s/0/68aa7404-72f6-11dc-b7ff-0000779fd2ac.html
http://www.ft.com/cms/s/0/9c737cfc-71ef-11dc-8960-0000779fd2ac.html
For those not familiar with bridge loans, they are promises to a private equity firm like KKR that the bank will lend them the necessary funds to buy out their target company. In the midst of the subprime loan scandal and thus a credit crunch, the banks were having a difficult time offloading these loans to the investors. PE firms like KKR of course would still benefit because they are getting the financing no matter what the credit environment is whereas the banks obligated to complete the loan. It then became a situation of the loans sitting on the banks' books and thus increasing their risk and aggravating shareholders everywhere.
Now Citi is turning around and attempting to sell off these loans (at discount of course) to .... the same private equity firm that are using the loans like KKR. Does this strike anyone being as ironic?
Think of it this way. Your parents promises to lend you the down payment on your house and it's a promise that you know they are good for. Before you can finalize the closing process, your parents were fired from their jobs and thus are in need of their savings. Now their original commitment to you to fund the down payment is in jeopardy but their word is their word. So what do they do? Instead of trying to decrease the loan commitment, they turn around and borrow the money from you to give back to you for the down payment. Is this odd or what? Basically the only person who benefits is you because you essentially have a free loan in that whatever interest you have to pay to your parents for the loan are negated by the interest your parents owe to you.
Now back to the scenario of Citi selling the loans to KKR which is even better because KKR obtains the loans on a discount, thus boasting the yield (in essence the true interest income) which would offset the interest expense owe to Citi for making the original loan commitment. KKR truly comes out on top as they would save (or even make) money on the deal from 1) interest income vs. interest expense and 2) fees and gains from opening the vulture leveraged debt fund.
Usually it's the investment banks like Citi who makes off good but this time it is heavily in the favor of their clients. Wall Street does not get any better than this. Stay tune for more on this developing drama of private equity fleecing the banks.
Go Yankees!
-Myth
Thursday, October 4, 2007
Yankees vs. Cleveland
This is completely unrelated to the premise of the blog but I'm posting it anyway because the Yankees are so great.
Here are some stats for you to chew on as you ponder how it is possible that the “experts” are wrong in predicting the outcome of the Yankees vs. Cleveland.
Game 1
C.C. Sabathia - Lefty
Career versus the Yankees in 8 starts is 1-7 with a 7.13 ERA and a whopping WHIP (walks plus hits per innings pitched) of 1.75 (meaning that he allows close to 2 base runners per inning, not good). Of course pundits will point to the fact that he had not faced the Yankees since 2004 and that his Cy Young caliber season this year (19-7, 3.21 ERA, 1.14 WHIP) makes him a completely different pitcher. I beg to differ as C.C will always be C.C. For proof, I can point to his other great season in 2002 where he went 13-9 with a 3.60 ERA and a 1.30 WHIP. In that season, the Yankees crushed him in his 2 games started and he went an ugly 0-2 with a 5.54 ERA with a 1.38 WHIP.
As for the Yankees hitters faring against this lefty, it is safe to say that A-Rod and Jeter will utterly destroy him as they have gone 474 and 583 OBP respectively in their lifetime. The only worry for the rest of the Yankees lineup is Damon and Abreu who really stinks against Lefty. This is more than countered by Posada, Cano, and Matsui who can hit lefty pitchers just as well as righty. The X factor in all this is Shelley Duncan who hits big (303 BA) against lefty pitching this season.
Conclusion: CC will lose game 1 yielding 5-6 runs although he will keep Cleveland in the game for a while.
Game 2
Fausto Carmona – Righty
Here is the fabulous sophomore pitcher that all the “experts” rave about in the Cleveland lineup. What these “experts” don’t know his that this guy sucks against the potent Yankee lineup. In the 2 games against the Yanks this season, he sports a mediocre ERA of 4.15 but this is a false statistic as he allows the Yanks to hit 292 off of him.
For the Yankee hitters, the reverse of CC holds true as all the lefty does phenomenal against him including Damon and Abreu with A-Rod stinking. Jeter though hits a robust 429 while getting on base 50% of the time.
The only positive for Carmona is that post All-Star he was nothing short of Cy Young like including an exclamation point of going 5-0 with a 1.78 ERA and a whimsy 0.99 WHIP in September. Of course this is all tempered by his other volatile months preceding it.
June: 5.82 ERA 1.50 WHIP
July: 1.74 ERA 1.09 WHIP
August 3.43 ERA 1.24 WHIP
Sep 1.78 ERA 0.99 WHIP
Notice the whipsaw up and downs in ERA and more importantly, WHIP. Seeing how this pattern would unfold, I sense that October would yield a bad month for him and greatness for the Yankees. I’m personally hoping for a repeat of his marvelous June performance.
Conclusion: Fausto will allow at least 5 runs as the heavy lefty hitting Yankee lineup will get to him as well as his see saw pitching history and he will lose the game.
Game 3
Jake “the castoff” Westbrook – Righty
Ah yes, Yankee castoffs. Of all the ones the Yankees had let go, which includes a nice lineup of Eric Milton, Ted Lilly, and Javier Vazquez, it is safe to say that none of them had much affect on the Yanks in the postseason (only exception is Kenny Rogers which is perhaps due to the steroids he is taking that is currently unknown to the press and MLB). Once a castoff, always a castoff, as they would never be good or why else would the Yankees let them go.
The story on Westbrook is pretty much the same as Fausto as lefty hitterse had feasted on him throughout the season. Yankee righties including A-Rod and Jeter also had success with him batting over 300. Coupled our tremendous hitting with the legendary heckling of Yankee castoffs and it is safe to say that Westbrook will falter … horribly.
Conclusion: Yanks will score at least 8 runs and blow out Cleveland.
I haven’t even gone into how horrendous their closer is (blowing the most saves in the regular season and close to singlehandedly killing my fantasy baseball team) so this only goes to prove that even if their starters last, their bullpen will give it right back up.
I smell a SWEEP. As they say, you could take the regular season away from the Indians (96-66 tied for best in MLB) but you can’t take the Indians away from being the Indians (0 championships in the modern era including the big choke in the 1997 WS).
-Myth
Note: My predictions are based on complete, unbiased, statistic backed proof on the greatness of the Yankees which does not include the aging starting lineup and the fragile bullpen aside from Joba so you can take it with confidence.
Here are some stats for you to chew on as you ponder how it is possible that the “experts” are wrong in predicting the outcome of the Yankees vs. Cleveland.
Game 1
C.C. Sabathia - Lefty
Career versus the Yankees in 8 starts is 1-7 with a 7.13 ERA and a whopping WHIP (walks plus hits per innings pitched) of 1.75 (meaning that he allows close to 2 base runners per inning, not good). Of course pundits will point to the fact that he had not faced the Yankees since 2004 and that his Cy Young caliber season this year (19-7, 3.21 ERA, 1.14 WHIP) makes him a completely different pitcher. I beg to differ as C.C will always be C.C. For proof, I can point to his other great season in 2002 where he went 13-9 with a 3.60 ERA and a 1.30 WHIP. In that season, the Yankees crushed him in his 2 games started and he went an ugly 0-2 with a 5.54 ERA with a 1.38 WHIP.
As for the Yankees hitters faring against this lefty, it is safe to say that A-Rod and Jeter will utterly destroy him as they have gone 474 and 583 OBP respectively in their lifetime. The only worry for the rest of the Yankees lineup is Damon and Abreu who really stinks against Lefty. This is more than countered by Posada, Cano, and Matsui who can hit lefty pitchers just as well as righty. The X factor in all this is Shelley Duncan who hits big (303 BA) against lefty pitching this season.
Conclusion: CC will lose game 1 yielding 5-6 runs although he will keep Cleveland in the game for a while.
Game 2
Fausto Carmona – Righty
Here is the fabulous sophomore pitcher that all the “experts” rave about in the Cleveland lineup. What these “experts” don’t know his that this guy sucks against the potent Yankee lineup. In the 2 games against the Yanks this season, he sports a mediocre ERA of 4.15 but this is a false statistic as he allows the Yanks to hit 292 off of him.
For the Yankee hitters, the reverse of CC holds true as all the lefty does phenomenal against him including Damon and Abreu with A-Rod stinking. Jeter though hits a robust 429 while getting on base 50% of the time.
The only positive for Carmona is that post All-Star he was nothing short of Cy Young like including an exclamation point of going 5-0 with a 1.78 ERA and a whimsy 0.99 WHIP in September. Of course this is all tempered by his other volatile months preceding it.
June: 5.82 ERA 1.50 WHIP
July: 1.74 ERA 1.09 WHIP
August 3.43 ERA 1.24 WHIP
Sep 1.78 ERA 0.99 WHIP
Notice the whipsaw up and downs in ERA and more importantly, WHIP. Seeing how this pattern would unfold, I sense that October would yield a bad month for him and greatness for the Yankees. I’m personally hoping for a repeat of his marvelous June performance.
Conclusion: Fausto will allow at least 5 runs as the heavy lefty hitting Yankee lineup will get to him as well as his see saw pitching history and he will lose the game.
Game 3
Jake “the castoff” Westbrook – Righty
Ah yes, Yankee castoffs. Of all the ones the Yankees had let go, which includes a nice lineup of Eric Milton, Ted Lilly, and Javier Vazquez, it is safe to say that none of them had much affect on the Yanks in the postseason (only exception is Kenny Rogers which is perhaps due to the steroids he is taking that is currently unknown to the press and MLB). Once a castoff, always a castoff, as they would never be good or why else would the Yankees let them go.
The story on Westbrook is pretty much the same as Fausto as lefty hitterse had feasted on him throughout the season. Yankee righties including A-Rod and Jeter also had success with him batting over 300. Coupled our tremendous hitting with the legendary heckling of Yankee castoffs and it is safe to say that Westbrook will falter … horribly.
Conclusion: Yanks will score at least 8 runs and blow out Cleveland.
I haven’t even gone into how horrendous their closer is (blowing the most saves in the regular season and close to singlehandedly killing my fantasy baseball team) so this only goes to prove that even if their starters last, their bullpen will give it right back up.
I smell a SWEEP. As they say, you could take the regular season away from the Indians (96-66 tied for best in MLB) but you can’t take the Indians away from being the Indians (0 championships in the modern era including the big choke in the 1997 WS).
-Myth
Note: My predictions are based on complete, unbiased, statistic backed proof on the greatness of the Yankees which does not include the aging starting lineup and the fragile bullpen aside from Joba so you can take it with confidence.
Friday, September 28, 2007
A-Rod will stay
Just to let you all know this is not just a pure Wall Street blog as I will discuss some sports business, specifically one that concerns the GREATEST sports team of all time ... the NY Yankees.
Now the biggest issue facing my beloved Yankees aside from planning their 27th parade down Boardway at the end of October is whether or not their MVP, league MVP, offensive player of the year, Alex Rodriguez will re-up with the Yankees. Now there are a lot of critics who will argue that Greedy Rod will leave the Yanks for another vaster field of riches like the Cubs who had doled up approx. $300 million to free agents in the past season and has a manager in Lou Pinella who loves A-Rod and vice versa. Again cause of concern for A-Rod is the constant criticisms NY has given him and how he would fare better in a more relax baseball environment like the LA Angels (or even Baltimore there are no standards there anymore) who have the financial flexibility to sign him.
Let me address those causes of concern on the Yankees signing their star player. My take is this: A-ROD ISN'T GOING ANYWHERE BUT TO THE NEW YANKEES STADIUM ACROSS IN THE STREET.
Say all you want about the baseball fans of NY, they hate you and boo you lustfully when you suck but would fall behind you and give you loyalty like no other when you can hammer it up. There is no better market to showcase your talent, skills, and marketability when you succeed in New York since few have. One only have to look at Derek Jeter, who is not even the best shortstop on the team as evidence of how players on the Yankees get overrated and overhyped by the rest of the country.
Everyone knows that the Yankees have money so naturally one would assume that money is not the problem with them. Then the media comes out and stating their sources, go on to say that the Yankees will not overpay A-Rod to keep him in NY and will only pay him a small increase relative to his current salary of $25 million per season. The writers then assume that that future pay would fall into the $27-$30 million range. Playing the shrewd agent that he his, A-Rod's go to guy, Scott Boras comes out and publicly stated that his client is looking for a minimum of $32 million per year before talking. Clinging to that line, the writers of NY pretty much blasted A-Rod and dismissing him for an ex-Yankee in a season in which he is lighting up the offensive numbers.
That my friends, are false assumptions to cling on to. I truthfully, to the bottom of my heart believe that A-Rod will stay as a Yankee with a contract in the range of around $32-$34 million per year for the next 6-7 years (probably an extra 1-2 year option thrown in as well). What leads me to say this is all due to the health of George Steinbrenner.
http://money.cnn.com/2007/08/01/news/companies/yes_sale.fortune/index.htm
The article correctly guesses that the owner is in distress shape and that the sale of the Yankees are eminent. My guess is that within 5 years, the Yankees will no longer belong in the hands of the Steinbrenner family. Of course, if George passes away sooner (may that day never come), all bets are off and within 2 years of that unfortunate event, the team will be sold. Now when the team is up for sale, the assets that you promote to boost the value of the team is the services/products that the team provides. For the NY Yankees, the service is an entertaining baseball team which is known around the world. The product, and this is key here, is the players. For the Yankees, their most marketable players are Derek Jeter and A-Rod. DJ could only get you so much value as he is not big offensive player (save me the whole Mr. Clutch argument) who can singlehandedly drive people to the stadium. In this day and age, people (not only chicks) dig the long ball and the most potent player at that is A-Rod. The Steinbrenners would be extremely foolish if they do not resign their best HR hitter which would thereby stabilize and or boost the values of the stadium. With a new stadium set to open in 2009, this only makes the case to get A-Rod to stay stronger as he would be a pivotal attendance grabber. The best example of how a team would spend to keep/lure in marquee players is the 2007 Chicago Cubs. For a team which historically is not a big spender in the free agent market, it came as a surprise to most baseball experts they would spend about $300 million to bring in a few big name guys. To me though it was not surprising as it was well known that the Tribune company is up for sale and thus the Cubs. Like I says earlier, what better to boost the value of your company then to have valuable assets like Alfonso Soriano, Ted Lilly (vastly underrated front line pitcher), and resigning Aramis Ramirez. In the end, the Tribune company was sold to Sam Zell and the team was up for sale. No sooner was it announced that already the Cubs have several suitors, namely Mark Cuban of the Dallas Maverick fame.
Look, the Yankees will resign A-Rod to give them a big time draw for the new stadium. Players like DJ, Joba, Posada, and A-Rod would help usher in future record setting crowds at the brand new Yankees stadium as well as MLB in general. Having a 27th and perhaps 28th championship banner would only serve to an additional catalyst in that effort. Here is my early congratulations Mr. Alex Rodriguez for remaining a Yankee for the rest of your playing career. In your HOF induction speech, please tell the NY media that I told you so.
New York, New York !!!!!
-Myth
P.S. - big props to Goldman for investing in the YES network early and recognizing the platinum value of the Yankees brand
Wednesday, September 19, 2007
Hail to the Chief ! Part 2
Here is another interesting article from Bloomberg quoting the opinions of 2 famed investors, Jim Rogers, and Marc Faber on the unnecessary rate cut.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aYBOOiT5mAO0&
Inflation will come back and bite us all on the behind ...............
-Myth
http://www.bloomberg.com/apps/news?pid=20601087&sid=aYBOOiT5mAO0&
Inflation will come back and bite us all on the behind ...............
-Myth
Hail the Fed Chief !!
Those of us who follow Wall Street knew that Helicopter Ben, our Federal Reserve Chairman slashed rates by 50 bps yesterday. May all the homeowners, speculators, bankers and debt-dependent companies be saved! Ben Bernanke, in modern term, "made it rain".
Obviously, "inflation risk remains a concern". And as consumer price index came out better than expected today (http://biz.yahoo.com/ap/070919/economy.html?.v=13). We can now all take a breather.
So far, so good? Not to mention the Dow rocketed 300 pts on a single day. Now we are really on a roll!
Whenever you flood the economy with cheap money, you turn the knob a little higher on inflation risk. But didn't they just report that inflation is lower than expected?! Ohh, of course, we don't want to take food and energy into account because they are all too volatile . So forget the fact that lowering interest rate cause the Dollar to tank and causing oil price to trade at $82 a barrel (because oil is quoted in dollar).
"Outside of food and energy, inflation remained well contained as well in August, rising by 0.2 percent. This core inflation rate had been up by just 0.2 percent or 0.1 percent for the past six months"
Lets not remind ourselves that UPS, Fedex and the railroad companies are passing on fuel charges to businesses and individuals alike (raising prices in the case of railroads, charging "fuel surcharges" in UPS/FDX case). And you wonder why Warren Buffett invest in these things? (http://www.usatoday.com/money/industries/2007-08-31-berkshire-railroads_N.htm)
And did Bernanke really "engineer" a "soft landing"? Or is he simply delaying a "hard landing"? (http://money.cnn.com/2005/10/24/news/newsmakers/bernanke/index.htm) Didn't we learn that business cycle would run its course in Economics 101? I sworn that's what my professor has taught me throughout the years. 
Booms are always follow by busts. Booms are created by the excess of GREED. Not the excess of cheap money, not the bubble in asset prices, it is GREED that get us. Or shall we use the term "irrational exuberance" coined by our previous Fed Chairman ? Do I have to remind you of 1998 and what happened follow in March 2000? Or the go-go Golden 20's that followed by the "Great Depression" in 1930s?
As a SMALL stockholders of many corporations, I'm all for the interest rate cut, which give a nice boost to my asset value and make me content about holding EQUITY. But with all the problems surfacing in the face of the economy (housing anyone?http://biz.yahoo.com/ap/070919/housing_construction.html?.v=3), it has me worry. And I'm not saying a recession is coming soon, but it will surface, when the time is right.
Tuesday, August 28, 2007
Helio Fools
At the time that I'm writing this post and more specifically this sentence, the S&P 500 is down 2.35% (per Yahoo! Finance with 15 minute delay). One of the few companies which had gone up in stock value is a once lovable little broadband high speed internet provider, Earthlink (ELNK) which is up approximately 7.14%.
The big news with ELNK is that the firm is closing 4 of its offices and cutting about 900 staffers, roughly half of its work force. The market is seeing this as a positive news item and signs that the firm will save about $30 this year with additional savings in the future. This couple with the annoucement that the firm will spend about $200 million to buy back shares are driving up the stock price on this otherwise dismal day in the market.
Here is my take on the loving the market is giving to ELNK:
The fools who invested in this company today are most likely going to lose their money. Although savings will come from cutting 900 staffers, this is actually have a negative affect on the firm. With the loss of half of its staff, how will this company operate efficiently. Customer service will suffer and people will be drive to other internet service providers such as their local cable companies and AOL. Additionally, how will the company have enough resources to re-focus on their core strategy (if they ever decide to back out of Helio). In saving approximately $30 million for the next 4 months, ELNK will take a $65M hit, leaving a net loss of $35M from the staff cut. Would future savings be enough to cover current year's loss and customer service?
Now let's take a look at their cash flow situation. Adding back D&A and net working capital, I've come to $33.161M in Net Operating Cash Flow. Subtracting out ELNK's capital expenditures (because it has to spend money to make money) of $23.879M, its FCF is a $9.282M. This is all kosher until you take into account that approximately $11M of this FCF is due to stock base compensation. I don't know about you but I certainly do not want my company to make money from stock options. As such its True FCF which backs out the stock compensation component is a negative $1.5M. With negative cash flow for the first 6 months of the year, how will the firm come up with the necessary funds to buy back $200M worth of stock. The answer would be to borrow the money but in this credit crunch environment rates will definitely be unfavorable. If ELNK was annoucing the funding of stock purchases 2 years ago I would applaud but in today's environment, I am definitely cringing at the thought of paying high interest rates.
In it's agreement with Helio, ELNK has already signed up to extend to them an additional $100M of working capital of which $30M has already been commitmented (as stated in the 2Q07 10-Q) in July. Although the new CEO promised to review all of ELNK's current strategies it is obvious that he is not looking at it thoroughly enough. Why else would he waste more money on a losing venture? Even though ELNK will be receiving a 10% interest on its loan, would Helio survive in business long enough to pay the interest + principal? Additionally, why is the CEO telling the public that ELNK will re-focus on its core strategy of being an ISP when it is making such large commitments to a losing venture that it will plan to shed? Hmmm......
There are just too many questions on about this company. The CEO is currently not performing up to standard on his due diligence. Although I fall short of buying put options on this ELNK, the operations of the the firm is in dire straits. The only positive is that the CEO may put the company back on its original business which would boost the company back to positive cash flow territory. Even if he does this though, how much would the firm be able to grow in this tougher competitive environment where its customer service will lag those of its peers.
For those who ELNK today, I suggest to you to sell now and take small loss rather than losing the entire ship in the coming quarters.
The big news with ELNK is that the firm is closing 4 of its offices and cutting about 900 staffers, roughly half of its work force. The market is seeing this as a positive news item and signs that the firm will save about $30 this year with additional savings in the future. This couple with the annoucement that the firm will spend about $200 million to buy back shares are driving up the stock price on this otherwise dismal day in the market.
Here is my take on the loving the market is giving to ELNK:
The fools who invested in this company today are most likely going to lose their money. Although savings will come from cutting 900 staffers, this is actually have a negative affect on the firm. With the loss of half of its staff, how will this company operate efficiently. Customer service will suffer and people will be drive to other internet service providers such as their local cable companies and AOL. Additionally, how will the company have enough resources to re-focus on their core strategy (if they ever decide to back out of Helio). In saving approximately $30 million for the next 4 months, ELNK will take a $65M hit, leaving a net loss of $35M from the staff cut. Would future savings be enough to cover current year's loss and customer service?
Now let's take a look at their cash flow situation. Adding back D&A and net working capital, I've come to $33.161M in Net Operating Cash Flow. Subtracting out ELNK's capital expenditures (because it has to spend money to make money) of $23.879M, its FCF is a $9.282M. This is all kosher until you take into account that approximately $11M of this FCF is due to stock base compensation. I don't know about you but I certainly do not want my company to make money from stock options. As such its True FCF which backs out the stock compensation component is a negative $1.5M. With negative cash flow for the first 6 months of the year, how will the firm come up with the necessary funds to buy back $200M worth of stock. The answer would be to borrow the money but in this credit crunch environment rates will definitely be unfavorable. If ELNK was annoucing the funding of stock purchases 2 years ago I would applaud but in today's environment, I am definitely cringing at the thought of paying high interest rates.
In it's agreement with Helio, ELNK has already signed up to extend to them an additional $100M of working capital of which $30M has already been commitmented (as stated in the 2Q07 10-Q) in July. Although the new CEO promised to review all of ELNK's current strategies it is obvious that he is not looking at it thoroughly enough. Why else would he waste more money on a losing venture? Even though ELNK will be receiving a 10% interest on its loan, would Helio survive in business long enough to pay the interest + principal? Additionally, why is the CEO telling the public that ELNK will re-focus on its core strategy of being an ISP when it is making such large commitments to a losing venture that it will plan to shed? Hmmm......
There are just too many questions on about this company. The CEO is currently not performing up to standard on his due diligence. Although I fall short of buying put options on this ELNK, the operations of the the firm is in dire straits. The only positive is that the CEO may put the company back on its original business which would boost the company back to positive cash flow territory. Even if he does this though, how much would the firm be able to grow in this tougher competitive environment where its customer service will lag those of its peers.
For those who ELNK today, I suggest to you to sell now and take small loss rather than losing the entire ship in the coming quarters.
Wednesday, June 20, 2007
Friday, April 6, 2007
Median Housing Prices
Chart of the Day
Recent press reports suggest that the US real estate market is slowing. For some perspective, today's chart illustrates the US median price of a single-family home over the past 36 years. Thanks, in part, to low long-term interest rates, the trend over the past decade has been impressive. Not only did housing prices increase at a rapid rate, the rate at which housing prices increased - increased. That brings us to today's chart which illustrates how housing prices have dropped significantly below their accelerated upward trend. Stay tuned...
The chart is free and often insightful. Sign up at www.chartoftheday.com. New chart comes out every Friday.
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