My conviction that the Cardinals should win Superbowl 43 has not changed one iota since the inst-analysis following the conference championship games. Speaking of conviction, an obscure Steelers player managed to get arrested last week, thus bolstering my confidence level according to my police blotter indicator, as will the forecast of sunny and humid weather.
Its also been shocking to learn that part of the Cardinals vast defensive improvement is being attributed to extra player film study. The lack of commitment is in the past; a team that believes is dangerous. In the end we still have 2 fairly weak teams in a Superbowl matchup so neither should be able to withstand a negative turnover differential.
Money Management. Assuming Cardinals are +210 to win, and -115 to cover (+7) I advocate a 53.5%/46.5% split on the two plays, respectively. A bettor would gain 144% if
Larry Legend. Since I also dared to compare Larry Fitzgerald to Jerry Rice, the undisputable best receiver in NFL history, and perhaps even the best player overall, I found some interesting parallels:
All eyes will be on the U.S. this week as the East celebrates Lunar New Year for the week (or so) as of yesterday.
We are now entering the teeth of earnings season for the cyclical industries including coal, steel, machinery, energy exploration & production, and paper/packaging. Since current conditions are punk, and the outlook is impossible to discern without added clarity from
In the meantime, bad company results will be viewed as a positive since it will help ensure the expedient passage of the Stimulus package. As we saw with drillers Noble (NE) and Schlumberger (SLB) last week, it will therefore be hard to disappoint investors in the aforementioned industries. As long as a company doesn’t have short-term solvency issues I expect lots of pops. Missing consensus EPS estimates, suspending revenue forecasts, cutting dividends, anything short of declaring bankruptcy may be swept under the table. Collectively, none of the above violates the great (false) hope of a 2H recovery. That being said more listening versus acting is warranted this week.
Disclosure: No positions.
Buy GOOG. After reviewing the recent earnings conference call transcript and financial statements I think it’s time to start paying attention to the stock as a technology sector or media industry-related GARP investment.
In a word Google has chutzpah, but it ain’t bragging if you can back it up, right? From the beginning the internet search pioneer gave Wall Street the proverbial finger by using a Dutch auction for its 2004 IPO. Ultimately, the actual mechanics of that deal were slightly modified that enabled an otherwise impossible (theoretically) first day pop, but they still sent a clear message by giving the investment bankers at Goldman Sachs (GS) the shaft.
Retail can be forgiven for being brainwashed that buy-and-hold is a robust strategy, and is the surest way to achieve early retirement if you can just hit that one grand slam stock; GOOG’s prospects were obviously peerless, right?Traders are just renting the stock and following the action. The smarter ones at least seek some insight from bona fide tech geeks online (they would not be found amongst their circle of friends, of course), and the brightest of the lot may even be capable of constructing some plausible industry comparisons. Meanwhile, PM’s of growth funds, in my view, are the true pioneers of behavioral finance since they utilize an awareness of the above, and the existence of other growth-style managers, to employ the greater fool theory. And lastly (sadly?), the prototypical MBA suffers from all of the above afflictions to some degree. There is a reason why someone has already created the contrarian “Harvard MBA" indicator. And it was even invented by an alum.
Getting Back to Basics. While playing hard to get may be a good tactic for a beautiful young woman with many suitors, it’s not a sustainable strategy to find true love. It would seem that GOOG has finally matured into young adulthood. Namely, the company is finally forthright that its business is not recession-proof. Cost control has been a major issue since the stock started to tumble over a year ago, and now there is finally some concrete evidence that a quaint metric like operating margin is foremost in the mind of management. Measuring performance of continuing operations by this metric sure comes in handy when you announce a gigantic investment write-down (or two).
On the subject of management, it was also announced in the earnings call that “Larry and Sergei” will no longer be a featured every quarter. Good. If they ever want to convince the world that CEO Eric Schmidt has a meaningful role beyond a figurehead the engineers need to be off the call. More importantly, the tacit suggestion that the founders are going to be sticking to “engineering” suggests GOOG's deal-making track record has a chance of improvement. Who can be impressed by the major deals done so far in the equity investments of AOL and Clearwire, or acquisitions of YouTube and DoubleClick? To wit, the easiest way to gain a small fortune is by starting with a large one.
The Real Economic Moat. Instead I much rather see the company continue to preserve its reputation as a great place to work for the best engineering talent available. Its human capital is the true wealth creating engine, maybe more so than financial firms, if it can maintain its entrepreneurial culture. If offering the options exchange program was deemed to be the most effective way to bolster employee morale than so be it; it’s not shareholder friendly per se, but the intangible benefits should be the payback down the road when the market for its most valuable employees opens up more broadly again. At worst, it enhances its budding alumni culture that highly respected firms in other industries like Goldman and McKinsey flog however they can. I also object to the
MHP Pair Trade. When market conditions are this challenging, however, I still favor a market-neutral strategy. Shorting an old media stock such as McGraw-Hill (MHP) to offset long exposure to GOOG would be my recommendation. MHP not only has a stable of magazines, but also owns a market leading bond rating agency franchise, Standard & Poors. This is hardly breaking news, but it doesn’t seem plausible that S&P’s business, along with Moody’s (MCO), not become potentially crippled by conflict of interest reform pursued by the Obama administration. I would short MHP now, but save some some buying powder on GOOG in case it pulls back to $280-300 amidst a general market selloff; GOOG is susceptible to be hurt as an easy source of fund-raising.
Disclosure: No positions.
A) Negative macro picture. The economic news released overnight in
B) Crowded Super-contango Trade. Demand for oil tankers is artificially supported by the super-contango in crude oil. It is currently profitable to pay for storage by selling forward later month oil contract as cheaper storage on land is at capacity. However, the above news suggests that a recovery in oil prices is less likely despite stimulus spending planned around the world thus compromising the level of contango. We also expect OPEC to continue announcing production cuts at it next meeting on March 15, to add upward pressure to the front month contract relative to later months.
On 1/19/09 it was reported that Morgan Stanley busted a trade to charter a VLCC for storage.
C) Supply growth overhang. A big factor in supporting the oil tanker market in 2008 was mildly negative tonnage growth due to vessel conversions. This factor will definitely reverse this year. Conversion activty to dry bulk vessels are dead along with the dry bulk market collapse, and FPSO/FSO conversions require commitment to expensive offshore drilling projects, which obviously is also punk. Scrapping of single-hull vessels will be a factor during the seasonally slow spring/summer period ahead of the 2010 IMO mandate, but will probably continue being a nuisance for at least a couple of months.
D) Unfavorable product mix: VLCC vs. Suezmax. NAT only owns Suezmax tankers (1 million barrel capacity) that primarily operate on the spot market, which don’t benefit directly from “contango storage.” Further, the Suezmax tanker orderbook is considerably larger. The credit crisis may considerably be slowing the activity in the shipyards, but is unlikely to reverse the scheduled delivery of vessels over the near-term (1H09).
E) Industry facing tough y/y comps. The 1H08 was a very strong period of tanker rates (data presented along with orderbook above). As an illustration, 1Q08 daily market rates for VLCCs began at $200,000 and was between $60-100K on balance. 2Q08 was also very strong in what’s supposed to be a seasonally weak quarter. According to Euronav (1/20) 4Q EPS report, VLCCs in the Tankers International pool are only earning ~$70,000 1Q09 with the material benefit of storage demand described earlier. The suezmax market normally lags the VLCC market whenever supply considtion are not constrained.
F) 1/22/09 Crude inventory report expected to be very bearish.
G) Recent Negative Industry News: 1/21/09
Risks: The conclusion of super-contango dynamics is difficult to predict, as are the benefits of the various stimulus plans announced or being contemplated around the globe.
Disclosure: No positions.
PALM update: Closed full position on 1/20/09 @ $7.9725. After threatening prior trading day's intraday high from a poor open, the stock fell toward $8 psychic stop more rapidly than comfort. Interpreted as indication that short squeeze/momentum trade was over; bad market day backdrop, too. +32.5% from 1/9/09 before commissions.
Dear President Barack H. Obama,
Let me extend a heartfelt “Congratulations” for your historic achievement. I hope you can hear me over the deafening chorus. Our country deserves and needs a pragmatic leader at the helm at this precarious juncture in history. We especially appreciate that you’ve taken as much responsibility as decorum allows since the election because there is no time to waste addressing this global economic crisis.
It’s refreshing that you address citizens as accountable adults instead of as immature children. Don't forget that sometimes you will have to scold us to do what’s right because we’re going to whine and whimper for candy when we should be getting out fiber. We expect to receive trophies for nothing. Meanwhile, the rest of the world is hungryand wouldn't mind seeuing us being knocked a notch or two even they depend on our prosperity. It might be hard for you to understand, actually, since your own girls seem to be so well-behaved and well-adjusted.
As I see it, this financial crisis is a prime opportunity to radically reform our entitlement system as opposed to the futile obsession of exiting this recession as soon as possible. Prioritizing the latter above all else has been the underlying cause that has led to today's predicament. The imperfections of the financial system and the lack of effective oversight are major problems, but ultimately manageable. Economic cycles, on the other hand, are not. We must pay the high price for learning nothing from Long Term Capital Management collapsing or responding to the Tech bubble with remedies that led to this credit/housing bubble. Former Fed Chairman Alan Greenspan put the cart before the horse believing bubbles can be managed more effectively than having to deal with the thorny issue of deflation; he failed to consider that a burst bubble could be the very cause of deflation.
The end of our long credit expansion cycle didn’t start on your watch so milk that for all its worth. Tacitly blame Bush when needed; he understands it’s not personal. However, as you may have noticed, no matter how hard our best and brightest are working on solving this financial crisis, it is an unprecedented situation that will probably take years, not months, to stabilize. Let’s try and live by that prudent assumption. As the outcome of executing the best possible fiscal and monetary policy would satisfy only a necessary condition for recovery, and nobody has any idea what’s going to happen in the longer term, we’re better off trying to focus on solvable problems that may be less politically expedient. Applying triage is about stabilizing the patient, not accelerating the rate of convalescence. Help keep real banks solvent, but rationalize the size of our “shadow banking system.”
The danger of depending on this stimulus plan is that at the end of the day it’s government spending and is probably spread too thin despite the large headline number of $825 billion. We understand politics demands you appear to be energetic dealing with the here and now, but what is must important is maintaining global confidence that the
On the other hand, we are certain that all prudent forecasts of future Social Security and Medicare liabilities project to be mind-boggling, but at least a window of opportunity has opened. What little I do know about politics is that fundamental reform only takes place in response to crisis; so we have to act now. If you want to merit a legacy of leadership comparable to a Lincoln or Roosevelt (either), you must find a way to force Congress to heel on these Third Rail issues.
To your credit you’ve already stated that reform is high on your to-do list and that you plan a FISCAL RESPONSIBILITY SUMMIT in February. I just fear that you need to try and push things through now, while Congress is still smitten with your charm and not by the fourth year of your term when you may be most vulnerable to the inevitable Democratic backlash. The burden of power cuts both ways when economic realities are less-than-ideal. As a history buff you also know presidents rarely have the opportunity of freely pursuing their own agenda.
It seems that the consensus view that the
The innate sense of optimism and hope is the essence of American culture, but we need to take some bitter medicine while what ails us is still treatable by conventional methods. Please don’t indebt Generation X and beyond any further than absolutely necessary. Emerging market demand (eventually) will attract a greater proportion of investment dollars so we must maintain our role of a safe haven while we are still the big dog wagging the tail that is rest of the world. We must always be the country of immigrants. The audacity of hope may have earned you the keys to the White House, but that by itself is a terrible investment strategy. If we keep our priorities in order everything else should fall into place as always. Best of luck!
Sincerely,
/s/ Paper Horticulture
“… Look,
The spectrum of mainstream American politics is very narrow relative to other functioning democracies. It’s no wonder then that single-issue, identity politics cumulatively generate a disproportionate amount of attention. Coupled with gerrymandering abuse, this leads to a bunch of relative extremists earning a trip to Congress. Although the average view is superficially balanced, our elected officials are rarely incentivized to work cooperatively. Hence, achieving Pareto efficient allocation of your hard-earned dollars is a process doomed from the start. In this reality the only objective measure of success is bringing home as much pork as possible. In the spirit of Martin Luther King, Jr's birthday I have my own vision for change to share.
Making Lemonade. Since massive government stimulus is going to be the first major tool of Obama’s tenure used to slow the rapid deterioration of our economy I hope we can adopt some aspects as a template for future government spending methodology. Each state was asked to submit “shovel-ready” projects that are ostensibly capable of creating meaningful jobs. It doesn't take a cynic to realize we can expect the media to make sport of reporting on a host of “Bridges to Nowhere.” Government spending as we know it simply can't compete with the efficiency of private capital flows so why waste energy on outrage? I propose we accept this reality and consider how to build a better mousetrap.
Campaign finance reform is laudable in spirit, but is too vulnerable to loopholes. Meanwhile, Obama showed that “small ball” fundraising is not only an awesome validation of his popular support, but easily scalable with today’s technology and strong marketing. I submit this is exactlt the type of support anybody seeking higher office should be able to solicit.
Oink Oink. Corporate spending on lobbyists, in theory, is not inherently evil, but is rife with potential abuse without effective oversight; just like anything else including CDOs. My solution embraces pork spending. Instead of moralizing the issue, we should give every state a dollar allocation based on census population figures and put the burden of efficient spending on the state. 5% of a 4-year rolling average of federal tax receipts doesn’t seem overly generous based on a personal guesstimate that wasteful government spending hovers around 20% of total spending relative to private enterprise. This way Senators cannot claim credit for bringing in pork, and it would be incumbent on state officials to figure out what’s best.
Free Uncle Ted! I would take this incentivization plan further by availing a bonus pool of another 5%, using the same formula, that automatically rewards success as determined by gains in tax receipts. This would lead to lower levels of taxation (state, local and otherwise), as always, since that is the primary mechanism that any state/country uses to compete for investment dollars. If a state has an infrastructure or environmental liability that makes for an unfavorable comparison, it’s not a stretch to anticipate that those issues would be addressed by the basic state budget on a timely basis. After all, job growth is the lifeblood of any economy. An acillary benefit would be a crack down in tax avoidance abuse as the state would have more to gain than the face value of lost tax receipts. Finally, the august Senate would be freed to do more of what they are supposed to do: think big. Without mandating highly subjective age-limit policies, this also inhibits "small state" senators like Ted Stevens from being in a position to wield undue influence because of seniority.
Prudence. In this example the country would still be ahead by 10% versus the status quo. This is the pool of money savings that we can also split between spending and savings. 50% should be made available toward community projects/bailouts that Representatives can plead cases for on an individual basis, and the other half reserved for a rainy day/debt retirement fund to signal to the Treasury market that USD devaluation is not fait accompli. Obviously I demonstrate little “inside baseball” savvy here, but that's the whole point of the idea: increasing transparency and accountability of our spending practice will in itelf do most of the work of negating the importance of insider politics.
A tidal wave of idealistic energy helped usher in Obama to the White House. Hopefully he can spend this extraordinary amount of political capital efficiently and still continue accumulating more. Now we need to start figuring out how to encourage and enable more of the Barack Obama archtype to enter politics and transform the quality of Congress.
Year-to-date NFL: 9-1. +7.5 units; Cumulative 12-3. +8.5 units
[Super Bowl XLIII] February 1, 2009 @ Raymond James Stadium. Tampa Bay, FL.
CARDINALS (+7) vs. Steelers. 1 unit. The Steelers are 5-2 in prior Superbowl appearances and Superbowl XLIII will be the first appearance for the Cardinals franchise. Jumping on the Cardinals bandwagon has been a fun ride, but lack of pedigree notwithstanding is this matchup really THAT shocking? I observed before the divisional playoffs that:
“In case you haven’t been able to pay attention closely, there is not a single noteworthy team in the NFL this year. Sure, somebody had to earn No.1 seeds in each conference, but that’s purely semantics.”
Let me also add the immortal words of Herman Edwards, “You play to win the game!” I don't think the Cardinals are finished yet and may benefit from the underdog-leaning free agent population at Raymond James. The field and weather conditinos will closely simulate a typical Cardinals home game as well. If you've been following me throughout the playoffs it really shouldn't matter what happens because you're up big; so stay disciplined.
MATCHUPS
When the CARDINALS have the ball. I am not a Kurt Warner fan per se, but I’m pounding the table that he has no-brainer
When the STEELERS have the ball. I am not a Ben Roethlisberger fan, either, but one has to recognize that his play has risen to another level this year However, this year’s version of the offense has many deficiencies starting with a highly suspect offensive line and no Bus (aka Jerome Bettis) to earn tough yards rushing up the middle. This often forces one of their better receiving threats, TE Heath Miller, to stay in to block. The Eagles TE Brent Celek was able to run wild against the Cardinals so figuring a way to free Miller against them needs to be a high priority. Big Ben’s ability to extend plays with his nimble feet and plus size/strength is responsible for too much of the Steeler offense. Amazing things can happen when receivers have over five seconds to get open, but that is not something you want to rely on. Field and weather condition in
COACH. The surreal nature of the two weeks leading to the Superbowl means coaching experience and skill takes on added importance. Steeler’s Mike Tomlin and Cardinals’ Ken Whisenhunt, though, are both first time coaches completing their second year in the league. Whisenhunt clearly has had a larger role molding the formerly sorry Cardinals into what they are today. Merely selecting Kurt Warner as the starting QB over pretty boy Matt Leinert was a bigger strategic decision than Tomlin has ever had to face. Tomlin does have the best defensive coordinator in the league in Dick LeBeau on his side, but the most interesting question is if Whisenhunt still has any little nuggets of knowledge he can exploit against the Steelers from his stint as offensive coordinator [his last position]. Jon “Chucky” Gruden’s intimate knowledge of the Raider offense before taking over as the Buccaneers head coach paid huge dividends in Superbowl XXXVII, but that was after only one season elapsing.
MONDAY. Federal holiday: MLK birthday.
TUESDAY. Is IBM going to be beat EPS estimates for the 15th straight Q? Probably. Excellent snapshot of the health of corporate costumers; JNJ is the orphan-and-widows type stock that is supposedly ideal in this environment, but its rich 1.3 PEG ratio has me wary. Can only grow via large acquisition so that should temper LT enthusiasm as well considering "cheapness" is abundant. Update: No surprises
WEDNESDAY. AAPL numbers should report strong numbers, but I suspect the focus on CEO Jobs' future to dominate the earnings call and lead to a renewed sell-off. There is no reason to anticiapte that management will handle this issue any better than they have until the stock gets hammered; EBAY will get lots of press coverage, but this is a company still trying to fix its business even despite Meg Whitman's departure last year. I see minimal value of extrapolating EBAY news too heavily. The charts of both companies looks terrible. Avoid. Update: No surprises. AAPL bulls looking past CEO health. EBAY was a disaster.
THURSDAY. GOOG analyst call may be filled with as much discussion of cost control as growth prospects, despite its dominant position, which means it's hard to see the stock hitting $400 any time soon. That being said I expect EPS to handlily exceed consensus on aggressive cost cutting. We'll see if investors discriminate the quality of earnings or just be temporarily happy with a "beat;" Is MSFT monopolistic Windows cash cow showing any sign of obsolescence? Despite the recent good news of Xbox sales outpacing Playstation 3, MSFT is dead money until there is a major non-economic catalyst that can be identified. Update: No surprises. MSFT announced major job cuts, and stock opened down nearly 9%.
FRIDAY. GE stock is well underwater since Jeffrey Immelt became CEO in 2001. Timing wasn't favorable, but he has also done little to justify anything but a conglomerate discount by repeatedly disappointing Wall Street. GE became a wannabe bank, too, and is suffering accordingly. Avoid. Update: On a mixed day, GE was down almost 11% despite the ostensible relief of not announcing a feared dividend cut. The vehement denial was not confidence inspiring; start poking around $9.
THEME OF THE WEEK: Companies announcing that they are suspending revenue and earnings guidance. Don't expect a major move in the indexes as bad earnings news will be offset by the anticipation that the size of the stimulus may need to be increased [perverse logic, I know]. The view of measures helping consumers pay down debt won't be dismissed as ineffective because that needs to take place before discretionary spending can be justified since credit is still difficult to obtain and job markets continue to deteriorate.
Disclosure: No positions.
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