Thursday, August 14, 2008

Thoughts on Blackrock - BLK

I want to bring Blackrock, ticker BLK (chart above) to your attention. Their recent moves, which I outline below got me to thinking about them. The tape shows a significant run of late with the latest rally in financials. I want to draw a broadening top on this chart but I hesitate as it is not really clean. That being said a violation of yesterdays low of 218.9 with some vigor will draw me to the short side on BLK.

Some Facts.

Bloomberg reported yesterday that Blackrock is in talks with Lehman to buy a significant chunk of Lehman's real estate portfolio. About 15 billion out of a total of about 40 billion. Do remember that Blackstone also bought 15 billion in mortgage bonds from UBS back in May. Blackstone is reported to have doubled it's stake in Lehman common stock sometime in the second quarter this year.

Now these guys over at Blackrock, guys like Larry Fink and Bob Doll and very sharp market operators. I have taken Mr. Doll to task for his proclamations that the credit crisis being over and the propagandists at CNBC playing his comments over and over again, in the futile employment of the theory that if you repeat something often enough people will believe it. Kudos to Larry Fink, he of telling Merrill Lynch to go fly a kite, when offered their CEO job and requesting to see their books only to be told by Merrill no way. What does that say about John Thain but I digress.

Even with this formidable brain trust at Blackrock, which by the way Merrill owns 49% of and PNC Bank owns 34%, there are some cracks in the veneer. They seem to be very early in buying these mortgages as I, and others believe we are no where near to being over. That being said They bought a bushel of paper in May and are looking to go back to the trough again here in August.

Equally important is the doubling of their Lehman stake with their purchase in the 2nd quarter. the mortgage buy could be an average down but the Lehman common move is undeniably an addition to a losing position. Have we not enough empirical evidence to show us where this leads.
Let us learn from the mistakes of Mr. Yasuo Hamanaka of Sumitomo copper fame (flame), Nick Leeson of Barings Bank, Jerome Kerviel of Societe Generale and hope to not make their mistakes.

Now Mr. Fink and Mr. Doll may have unfettered access to the most reliable and precise information on the street. Maybe they believe Lehman is untouchable. If that were the case, I would own the debt and surely not he common.

My other issue is that quite frankly we have entered a bear market in paper. No not pulp and paper but rather paper financial assets. Just as many believed best of breed like Goldman Sachs were unassailable, even in the face of a fierce bear. Anyone worth any salt in the market know this to be folly of the first order for in a bear market, all succumb, just that some do it sooner rather than later. Blackstone and Goldman are of the latter category.

It is my belief that Merrill will regret selling Bloomberg and wish that they had sold Blackrock.

Is this long winded dissertation proof that I should not short this name? Possibly, for I think of my buddies political dictum that states, 'when you're explaining you're losing.'

Good speculating to you all and never ever forget that "an investor is a speculator who made a mistake and will not admit it".

Open Positions:
Long 1 unit of Powershare Agriculture ticker DBA @ $34.50 stop $32.79
Long 1 unit of XTO Energy ticker XTO @ $43.85 stop at $42.28
Long 1 unit Currencyshare SwissFranc ticker FXF @ $92.70 stop at $89.27
Long 1 unit SPDR Gold Trust ticker GLD @ $81.55 stop at $78.68
Long 1 unit ishares Silver Trust ticker SLV @ $14.60 stop at $13.64
Long 1 unit Ultrashort 20yr Treasury ticker TBT @ $68.35 stop at $67.29
Short 1 unit Int'l Bus Machines ticker IBM @ $129.05 stop at $130.54
Short 2 units FedEx ticker FDX @ $87.70 stop at $91.18
Short 2 units of Apple ticker AAPL @ $178.05 stop at $182.76
Short 1 unit of Lehman ticker LEH @ $19.65 stop at $17.11

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