Wednesday, November 7, 2007

Wednesday Morning Rant

So lets get started here. GM taking a 39Billion charge. Yeah, everything is okay there right. Heading for bankruptcy my friends. I hate to say it being the son of an auto worker (my day was a toolmaker at Ford Motor) but the facts don't lie. If you can make your way through GM's balance sheet and income statement, you will find that they pay a whopping amount in interest on their debt and this will be the death knell to them. Hope you didn't buy this stock on "the news" of the union agreement. If you did just get out, take your small loss now because it will get larger if you leave it be.

Michael Panzner had a great piece yesterday entitled "The Truth will set you Free" which is a must read on the financials of the financials. You can skip it if you are not into facts and continue to listen to Bob Pisani, and Charlie Gasparino et al for your news. By the way, tune out CNBC when Rick Santelli comes on cause he's another one of those darned realists who rains on the rah rah parade.

For those who have just come out of their cave to stock up on supplies, approximately 50% of the gains in Nasdaq this year have come from 3 stocks Apple, Google and Research in Motion. As terrifying as this should be to any serious student of market internals(breadth) it is lauded as business as usual on pompom tv(CNBC). Google looks to be in a parabolic blow off, which can result on 50% of its move in 10% of its time frame. All 3 will be shorts at some point but not now. Stay away !!

Bill Gross talked about 1 trillion in bad paper, not just sub prime but alt-A and near prime. We all have our reasons and faults but when the biggest bond manager in the world speaks you should at least hear him out.

Get ready for the screaming (again) for interest rate cuts. Yes the same medicine that got us into this morass is the same medicine that will heal us. As preposterous as this sounds it is exactly what all the highly paid pundits, movers and shakers want. You must check your common sense at the door when listening to these guys. I wonder if they have ever thought about what they are saying. Oh yeah, and $97/bbl oil is still good cause it represents a strong economy. I have a news flash for the chief strategists, head economists, and pundits alike, $97/bbl oil represents diminishing supply and ever growing demand, end of story. Unfortunately such a simple answer could never be satisfactory to the higher intellect of those.

Home builder news is bad and continues to be bad. I heard Miller from Legg Mason, who is as fine a fund mgr as there is out there, touting a bottom. He also thinks Countrywide is worth $45/share. Mr. Miller has probably forgotten more about the markets than I could ever dream of knowing but I will respectfully disagree and suggest that Countrywide is finished unless some brilliant financial outfit(B of A) decides to buy them out(averaging their losses).

I saw Ambac (ticker ABK) had a pop yesterday as the company rebutted the negative broker comments (I think it was Morgan). Boy, that should make all the Ambac longs feel much better.

I just want to say to all those trying to pick bottoms in the housing, financial, mortgage, lending, etc arena. Just as markets overshoot to the upside when things are nirvanic, markets will similarly overshoot to the downside when things get depressed. It the nature of the markets, driven by participant emotions. We are no where near that level. Go back and look at the tech darlings to see how far JDSU, Nortel, Cisco, fell. Many would argue far below intrinsic value but what is that value. Many have claimed the homies(home builders) are trading are great price/book levels. My question is what is the CORRECT book on these things. Write down, after write down on land positions has impaired these things and will continue to as/if market conditions worsen. Here is a little clue, when CNBC is running stories and has "experts" on telling you in detail how bad the home builders and ridiculing contrarians for buying them, it will be time to raise your antennae and pay attention. Until then let the apologists continue to cower.

Please read the following article regarding bond insurers. It may help you with your asset allocation decisions going forward.

Good trading to you all.

No comments: