Paper Horticulture

D-Wade and Bernie the Mascot: Beauty in Motion

2009-04-29T06:10:00.006-04:00

Dave "Unfrozen Caveman Lawyer" Hensel returns to reflect on the surreal and sublime his unthawed mind witnessed from the stands at Game 3 of the Miami Heat-Atlanta Hawks series. -pH

Television Makes Dwayne Wade Look Slow

I counted at least four highlight reel plays by Wade – two trampoline dunks and two beautiful blocked shots (including one with two hands, like a volleyball player stuffing ba spike). Still, the best play I saw that night came on a missed layup. That is because I witnessed, in person, Dwayne Wade’s crossover dribble.

Television does not do this move justice. Wade had the ball at the top of the key, waited for his defender to lean right, and then exploded to the left. He missed the ensuing layup but, as only Dwayne Wade can, drew the foul. Now, I’ve watched Jordan in person. I’ve seen John Stockton, and Reggie Miller too. I viewed White Men Can’t Jump. I’ve never seen anything like Wade’s crossover. It’s effortless and lightning quick, like watching Mike Tyson throw an undercut in the first minute and thirty seconds of Mike Tyson’s Punch Out. It alone was worth the price of the ticket.

And seriously, is there anyone better at drawing a defensive foul than Wade? The game’s best player at drawing offensive fouls is potentially looming in the second round – the Cleveland Cavaliers’ Anderson Verajao. If that turns out to be the matchup, it will be like watching a crash test dummy take on the wall.

Jermaine O’Neal is a Very Serviceable 35 Year Old...

Problem is, the team guide lists him as 30.

During a timeout, the Heat brought a group of geriatric dancers called the Golden Oldies to perform a routine in Phantom of the Opera facemasks (and yes – it’s as creepy as it sounds). I could have sworn Jermaine O’Neal was up there. He plays basketball the way a 65 year old dances – stiff, slow, and self conscious.

All this raises an intriguing question. The Indiana Pacers drafted O’Neal 12 years ago out of high school, and although he’s only 30, he’s played in a lot of games. Kevin Garnett seems to be breaking down at 32. Going back a little farther, Darryl Dawkins and Shawn Kemp, both drafted extremely young, broke down early. Do games played matter more than age? Is Kobe next? (Probably not.) Especially considering all the playoff games already under his belt, will LeBron make it past 30? (Yes.) Is Kwame Brown in for a tough second act to his career? (Couldn’t be as bad as the first act, could it?) With the first wave of high school draft picks hitting there 30s, this is definitely something to look out for.

Joe Johnson is Most Definitely Underrated

Joe Johnson is so quiet on the floor, you look up and he’s scored ten points, and you haven’t seen any of them. He looks nondescript. He plays nondescript. His name is nondescript. And yet, I love his game. There’s nothing flashy or insincere about him; rather, he’ll get you points when you need them, pick up his teammates when they need it, and lead without showing off.

If his name were Octagon Hammertime and he wore headband and played in Los Angeles, sports talk radio hosts and fans alike would be talking about him. But his name is Joe Johnson and he plays in Atlanta. This is his lot in life.

Bernie the Mascot is a Beautiful Dancer

Speaking of nondescript, how does one describe Bernie the Mascot? He makes the Philly Phanatic look downright human. He’s also a jerk. Seriously. Years ago, I once watched him reach into some guy’s back pocket during a game, pull out his wallet, and toss it into the upper deck. This begged the question – what on earth do the Heat see in him.

Now I know. During a timeout, he danced to a medley ranging from Tchaikovsky to Baby’s Got Back. The, uh, guy’s got moves. He’s everything Jermaine O’Neal is not.

Black is Back?

Before the game, I was handed a tee-shirt by Heat staff that reads: “Miami Heat, Black is Back.” I can’t tell if this is offensive or awesome. My PC radar is on the fritz. Can I wear this around New York? It’s hot this week.

CHALK IT UP: TAR HEELS SHOULD DOMINATE

2009-04-06T02:20:00.003-04:00

[Men’s NCAA Basketball Championship] April 6, 2009 @ Ford Field. Detroit, MI. Year-to-date: Cumulative 13-3. +9.5 units

That’s why they play the game.

That is the answer to the age-old question of why one should look forward to watch a championship game. At any level of competition, the emotions stirred and pressures unveiled when glory is at stake is as good a reason as any to enjoy being alive. Team or individual endeavor it matters not.

As best put by a fan sign I saw during the MSU-UConn semi-final game last Saturday: Heroes die; legends live forever.

In our nation’s sports culture the underdog is embraced like nowhere else, and when the Michigan State Spartans face the North Carolina Tar Heels tonight, sentimentality will extremely favor the de facto representatives of Detroit, the most economically brutalized metropolitan area in these historically bad economic times. Not surprisingly, MSU has been tagged as a team of destiny having already upset two other regional #1 seeds to arrive at this evening’s championship.

However, Ford Field provided little in the way of home-field advantage four months ago when North Carolina schooled MSU by 35 points. The extenuating circumstances pointed out in this article are legitimate so expecting more of the same for a team that has played so well recently is naïve, but the underlying point, as I’ve said before the tourney began, is that at their best North Carolina can make any team in the nation look amateurish.

NORTH CAROLINA (-7.5) vs Michigan State. 1 unit. The real problem for the Spartans tonight is that the Tar Heels are NOT defending champions. The four NBA draft-ready starters from Chapel Hill have been biding their time since last year’s embarrassing semi-final loss to Kansas for this precise moment. There is no entitlement-risk by taking the favorites tonight. Since we’re dealing with college-aged “student-athletes,” and not hardened professional, this is a factor that can’t be overlooked.

The great equalizer on any given night is great point guard play and sublime 3-point shooting, but it’s impossible not to give the distinct edge to the likes of PG Ty Lawson, SG Wayne Ellington, and G/F Danny Green who are frequently take wide-open shots because teams have to respect the interior play of host of post players, not the least of which is four-time All-America Tyler Hansbrough; does it really matter if he doesn’t project to be a NBA stud?

While most will be watching looking for an upset and some sort of karmic signal that our economy is on the path to recovery, I’m going to enjoy watching a college team that I’ve actually been able to see develop as a team the last three years assert their dominance and earn their deserved coronation as 2009 champions. Prediction: 84-72. Actual final: 89-72, pretty damn close!

GOODBYE S&P 500 at 800. HOPE TO SEE YOU AGAIN SOON.

2009-03-30T06:26:00.003-04:00

Unfortunately, nobody took me up on my dinner wager offer on March 9. And even after a ~2% decline last Friday, S&P500 sits north of 800. Ok, that was fun. Hope everybody had the sense to sell before the weekend as there is no way that last Monday's boffo performance will be repeating itself anytime soon.

Cars, Inc. - FAIL. Unfortunately, March 31 is not only the end of the 1Q, but the deadline for the auto companies to impress the "Task Force" why they should warrant an additional lifeline from the government. Would it be too obvious to suggest that this will just be a stark reminder that there is no coherent economic recovery plan? Are we supposed to take the news that GM CEO Rick Wagoner was finally (albeit politely) kicked to the curb as progress? Chrysler doesn't even have a reason to exist: the Daimler de-merger annihilated its engineering talent (shifted to Deutschland) and overseas sales presence. It's hard to see how the latest auto sales figures to be released this Wednesday will be anything, but ugly; not seeing "at least they beat consensus" potential, either. In other words Xenon headlights can't illuminate the proverbial end of the tunnel.

The day also marks the end of the Japanese fiscal year. I think it's safe to say the passing of this "marking up period" will also mean the appetite for fresh buying will have passed. Speaking of which, I still think Sony (SNE) is one of the worst well-known companies to own on the planet. Even its Playstation franchise has to compete head-on with cash-rich MSFT and highly profitable niche player Nintendo (NTDOY).

Guilty. Unfortunately, we're coming upon corporate confession season in the United States and this will also not be pretty. In particular the stimulus pacakge is still a non-event and the outlook for the balance of 1H, let alone 1Q, will be brutal. So brutal that everybody should snap awake to the reality that any future positive GDP forecast will be a 2010 event at best; calling for an upturn by December is laughable. When it comes to bad news, I guess there is only so much appetite to heed the warnings of the Nouriel Roubini's of the world.

Telepresence. Frustration is thy name for this industry. The benefits seem legion, but the results have always been piss poor. First after 9/11, and again today when travel budgets are truly viewed as an extravagence, I'm still waiting for pure plays like Polycom's (PLCM) of the world to perform (CSCO is a major player, too). I have seen some positive analyst comments on Tandberg (trades in Europe), but when will I get to eat the proof in the pudding? Alas, the bar to spend on telepresence increases rapidly as reasonable substitutes emerge and strenghten, and extracting non-critical (let alone essential) capital expenditures is just not happening right now.

The bottom line is its extremely difficult coming up with plausible leaders for the next bull market right now, which is why the market the last few weeks can only be considered a mere bear-market rally. Cash remains king.

MADNESS MEETS THE LOTTERY, PART 2

2009-03-26T08:09:00.006-04:00

Part 2; a continuation from yesterday's piece.

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ERIC MAYNOR, VCU

Unlike the other players I watched this weekend, VCU’s Eric

Maynor had only one opportunity to showcase his talent, since VCU lost to UCLA. On paper, the 6’3" point guard looked good, scoring 21 points, pulling down 6 rebounds, and dishing 7 assists. But a closer inspection of his game gave me some cause for concern.

First, the positives, though. Maynor has a beautiful shot in which he extends his arms over his head while in the air, floats for a bit, and then releases a tight spiral. It’s difficult

to guard, particularly when he’s falling away from the basket. He also has a knack for drawing fouls after penetrating into the lane. And Maynor can be explosive to the basket when he feels like it. Still, Maynor seemed to lack two essential ingredients necessary to succeed on the NBA level as a point guard – ball control and decision-making. Maynor will often head down the court like a frightened deer, darting in and out of defenses. He can be trigger happy on both his passes and his shots. At times, he seemed out of control. On top of this, he dribbles high off the ground, increasing the likelihood of steals or turnovers. He can get away with some of this at the college level, but Chris Paul, Rajon Rondo, Deron Williams and their peers will not be so forgiving. To compound this issue, his basketball judgment needs improvement. The final play of the UCLA game serves as a great example. With 12 second remaining and VCU down by a point, Maynor came off a screen and dribbled inside the three point line. With one man to beat, he could have dribbled into the lane and drawn a foul (he is, after all, a 79% free throw shooter). Instead, he double clutched and took a floating jumper with a man in his face as time expired. In one of the most

important game of his life, Maynor’s shot came up short. (Yes, I realize that Maynor beat Duke in the last second in 2007 – I’m not saying he isn’t clutch, just that his decision-making can use a little fine tuning.) From an NBA-readiness perspective, I was actually more impressed with Maynor’s teammate Larry Sanders. The guy plays like a spitting image of Dikembe Mutumbo, sans finger wagging. From what I hear, Sanders isn’t likely to come out this year, but he looked to me like a top-ten pick in the 2010 draft.

Is he worth a top-five pick? Sanders is closer than Maynor, in my opinion. But I wouldn’t rule out a mid-first round selection for Maynor. A team like the 76ers, for example, could use a young point guard.

HASHEEM THABEET, Connecticut

We all know you can’t teach height. At 7’3, Thabeet has this covered anyway. But what was crazy about watching Thabeet last week, first Thursday against Chatanooga, then Saturday against Texas A&M, is that you can teach this reed of a center pretty much anything else, and fast.

It’s jarring to think that two years ago as a freshman, Thabeet couldn’t catch the ball well. He’d get pushed around with his back to the basket. More often than not, his low post game consisted of throwing – using the word shooting doesn’t quite capture it – the ball in the vicinity of the hoop, and using his height advantage to stuff down the rebound. He also passed the ball poorly.

Against Chatanooga and Texas A&M, I watched a different athlete. Thabeet had much better body control. Six minutes into the Chatanooga contest, Thabeet took a bounce pass on a fast break, pumped faked once while a defender blew by, and dunked the basketball. Two minutes later, same thing, although this time with a wonderful catch under the basket. Two years ago, the pass would have sailed out of bounds.

He also handled the double team well, either taking a short hook shot, powering to the basket for a score (on his first attempt), or passing the ball out to teammates A.J. Price or Craig Austrie. He ran the court well for his height. And Thabeet’s well-documented defense is NBA-ready; his ability to block shots and, more significantly, keep the ball in play (ala Alonzo Mourning) will keep NBA executives salivating.

So the tournament thus far showed NBA franchises a few constants – Thabeet is tall, he’s coachable, and he can swat a basketball. But the Texas A&M game in particular demonstrated the risks of taking him as a top-five lottery pick. First, he shoots an ugly, parabolic mid-range jumper. Especially at his weight, Thabeet can’t expect to dominate inside three feet of the basket like in college (Chatanooga had only player on their team taller than 6’8, for example – in the NBA, not happening). This necessitates developing a stronger jump shot, or at least a more consistent hook shot. He also needs to work on his free throw percentage – 63% from the line can win you a contest at a county fair, but it won’t cut in it the NBA (unless you are Shaq or Ben Wallace – Thabeet is neither).

Is he worth a top-five pick? This year, definitely. Last year, meh…. Teams like the Kings, Warriors, or Knicks will be tempted to use their pick on Thabeet to shore up their porous defenses, and rightfully so.

JORDAN HILL, Arizona I’m not going to waste too much time on Jordan Hill. He’s a perfectly nice NBA role player. The 6-10 forward is scrappy. He sets picks well. He’ll scratch for rebounds. He has a pretty solid drop step. He follows-up his shot well, and on the other end of the court, he can block a shot or two. He accomplished all this in his first two rounds against Utah and Cleveland State, and wound up with an admirable 17 points and 13 rebounds, and 16 points and 9 rebounds, respectively. In the NBA, though, this effort will result in about 5-10 points and 4-6 rebounds, and maybe a block here or there. On top of this, Hill has some major flaws. He commits cheap fouls. He’ll sometimes get lazy in the paint and forget to box out. He can’t shoot from outside five feet to save his career.

We’ve all seen Jordan Hill before. Next time you’re bored, try this parlor game. Flip over a boggle hour-glass and see if you can name how many Jordan Hills of the world have floated through the NBA over the past decade before it bottoms out. Just off the top of my head, how’s Chris Wilcox, Joakim Noah, Shane Battier (but without the brains), Josh Boone, or Erick Dampier. I’m sure you can do me one better. These are all nice players with solid careers, but…

…are any of them worth a top-five pick? No. Neither is Hill.

Sadly, with this year’s mostly underwhelming crop, he might just find himself there. Maybe he can match up with Beasley.

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PH blog loved the candid insight. Thanks!

MADNESS MEETS THE LOTTERY, PART 1

2009-03-25T06:12:00.009-04:00

Today's post is Part I of a contribution from Unfrozen Caveman Lawyer. Currently an attorney for the federal government, UCL visualizes dunking over Ruben Boumtje-Boumtje as a self-motivational tool. So far, his entire Final Four remains alive.

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Sprinkled throughout the crowd during the first two rounds of the NCAA tournament last week were NBA scouts, executives, and perhaps even a coach. Last year, Pat Riley temporarily left his coaching duties in Miami to observe potential draft picks in the first few rounds of the tournament (and look where it got him – Michael “Semi-Fraud” Beasley!).

So I figured if Riley could do it, I could too. Reviewing the first two rounds of the tournament is an imperfect science; the sample size is small, and a streaky player may get overrated. But the tournament also serves to demonstrate a player’s leadership and ability to cope under stress better than any NBA combine. Below are my reviews of five players – Blake Griffin, James Harden, (part I) – who most draft experts currently rate as potential top-five picks that are playing in this year’s NCAA tournament.

BLAKE GRIFFIN, Oklahoma

Blake Griffin has his critics, much like democracy, god, and freedom have their critics. After watching his first two rounds against Morgan State and Michigan, this much seems clear – in a weak draft, Griffin is the one player with NBA All-Star potential.

The first thing you notice about him is that on nearly every offensive and defensive series, Griffin contributes. The guy is ubiquitous. He’ll set a high screen on one series, rope in a rebound on the next, post up in the box while double teamed and still score after that, steal a pass at the top of the key on the following drive, hit a mid-range jumper on the next (he has a surprisingly fluid jump shot), and take a charge after that. He’s got the energy of a particle accelerator, but he’s also in control of his game. For example, while he kept himself out of foul trouble against Michigan, his opponent, Manny Harris, had two fouls within five minutes of tip-off, and never factored into the game after that.

Two aspects of Griffin’s game, however, really stand out. The first is his feet. They are like granite. I haven’t seen a college player with Griffin’s ability to position himself in the paint, set a screen, or box out since Tim Duncan. You can’t teach that.

The second exceptional aspect of his game is his toughness. Against Morgan State, forward Ameer Ali flipped Griffin over his shoulders like a lumberjack disposing wood. He played through it. Against Michigan, with 15:09 to go in the first half, Griffin had his knees undercut, fell back, but still held on to a rebound. A few minutes later, a dive on the court resulted in a bloody elbow. A few minutes after that, he’s got gauze shoved up his nose to stop it from bleeding. Griffin still played 39 minutes.

Griffin’s most glaring weakness is his free throw shot, which looks like he’s casting a fishing line. He could also use another two inches. His 6’10 frame puts him in NBA no-man’s land – too small for a post-up center, but his outside shot isn’t consistent enough yet to succeed as a prototypical power forward. Still, Griffin is the one player in this draft with immediate break-out potential.

Is he worth a top-five pick? He’s worth the top pick. He can help any team in this draft with a starting power forward not named Bosh, Duncan, or Stoudemire.

JAMES HARDEN, Arizona State

Griffin’s doppelganger this weekend was Arizona State shooting guard James Harden. He had all the energy of a burnt out light bulb. In his first round match-up against Temple, my notes read as follows: 15:00, first half – three is blocked, looks like Pendergraff’s team; 13:44 first half – hangs around the three point line like a ghost; 13:44, second half – cheap foul, still no energy; 11:45, second half – Harden travels; 9:45, second half – Harden drives, passes out, deflected, stolen by Christmas; 9:21, second half – airball, Pendergraff bails him out again; 8:43, second half – they’ve stopped double teaming Harden, still sleep-walking; 6:26, second half – Harden stood outside the three-point line for a good 4-5 seconds without moving (shouldn’t the NCAA amend the rulebook and consider this a turnover?); 2:35, second half – Temple is forcing the ball to Harden and away from Glasser, pathetic.

So for all you Harden apologists, please don’t give me that Harden was “contained” by Syracuse’s fabled 2-3 zone defense two days later, resulting in his eye-poppingly pathetic 10 points on 2-10 shooting (and no points in the first half). He was doing the same thing on Friday against Temple’s match-up zone. Frankly, Harden just played without motivation, in two of the most important games of his life. He also lacks that burst of speed off the dribble that you would want from an NBA shooting guard. Harden runs up and down the court like he is stepping through burnt marshmallows. His shot was consistently off. Even his court awareness, apparently his greatest asset, seemed spotty.

Meanwhile two other future NBA players shone on the court against Harden. On Friday, Temple’s Dionte Christmas looked like a raw version of Reggie Miller. On Sunday, Syracuse’s Johnny Flynn (showing no worse for wear playing all those OT minutes in the Big East tournament) demonstrated a level of explosiveness that should have taught Harden a thing or two about elevating one's play for the NCAA's, but didn’t.)

Is he worth a top-five pick? If he was auditioning for a stint in Moscow or Tel Aviv, maybe. In the NBA, not even close. I can’t image his draft status not suffering heavily after this weekend.

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Editor's Note: Come back tomorrow morning for the breakdown of Eric Maynor (VCU), Jordan Hill (Arizona), and Hasheem Thabeet (UConn).

SO MANY EMPTY SEATS

2009-03-23T08:42:00.005-04:00

Today's post is a contribution from my friend, Shogun (Youtube). Follow him and BK drop some soccer science on Twitter (RoadtotheCup) or their biweekly podcasts on the www.roadtothecup.com. Meanwhile, his entire Final Four remains alive.

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Yackin with my man J.J. last nite - he asked me what I thought the biggest thing that had happened at the NCAA tourney so far... without any hesitation I said "it has to be the empty seats." Not just one or two of them - but hundreds and hundreds of empty seats at every venue in the tournament. Now don't get me wrong - the enthusiasm of the crowds are just as rabid as always for college basketball but the realization of a gripping recession has finally played itself out at our gut level. It is hard to be more passionate about earthly things than Americans are to their alma maters in this annual countrywide basketball tournament, but in this place and time even the most devoted have opted to "watch in HD" which means the recession grip has not loosened and will not be over tomorrow or the next day...stay tuned and don't let CNBC fool ya - their is little confusion amongst the common people - hard economic realities will be with us past 2009 - but like so many of the exciting games in the tournament thus far - doesn't mean we still can't enjoy ourselves... strike up the band!!!

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Related link: [7 FEB 2009] SPORTS LEAGUE PAIR TRADE: Short MLB, Long MLS

MARCH! MADNESS!

2009-03-19T10:17:00.006-04:00

In about two hours worker productivity in the U.S. should become muffled by the phenomena of March Madness. We’re in the midst of a minor Depression so good working girls & boys will be minding their p’s & q’s, but make no mistake that those lucky enough to be following over the internet on the sly will be more preoccupied than usual. I theorized to a hedge fund manager friend that the high of the week on the indexes would take place yesterday partly because I knew from experience Wall Street traders are amongst the worst offenders of becoming distracted by the men’s college basketball tournament. The guise of settling positions and staying away from the potential volatility of a quadruple witching this Friday is just the elegant professional cover needed to eye the hi-def TV instead of stock screens; CNBC viewership will temporarily plummet.

Over the course of March Madness I am also happy to announce that the Paper Horticulture blog plans to introduce its first guest contributors. Although not college basketball experts per se the writers are outstanding sports generalists. Unfortunately, I think this is a function of being acutely aware, as yours truly, that nobody would ever care much what we could do ON the field.

Without further ado, our final four selections:

Paper Horticulture

East: (1) Pittsburgh
South: (1) North Carolina
Midwest: (4) Wake Forest
West: (11) Utah State

Champion: North Carolina over Wake Forest

UNC was the unanimous pre-season #1 team for a reason: The core squad, more than capable of winning last year, returned to the Chapel Hill campus intact on a mission to complete unfinished business and build on the already staggering Tar Heel basketball legacy. Of course, a big reason is that the four aspiring pros in the starting lineup don’t project to be anything special in the NBA, but when playing at their collective best has the potential of embarrassing any collegiate opponent. Without the artificial pressure of maintaining a pristine record, or a letdown from winning an emotionally draining ACC tournament, I think the conditions are ripe for the best team in the nation to rip through a final 6-game winning streak. PG Ty Lawson sitting out round 1 should be a non-event, although his play will be critical to bring home some hardware.

Dark Horse: I project Utah State reaching the final four due to my forecast of an unlikely string of favorable matchups, including an encounter with BYU in the 4^th round.

Unfrozen Caveman Lawyer (nom de guerre of my choosing)

East: (2) Duke
South: (1) North Carolina
Midwest: (1) Louisville
West: (1) Connecticut

Champion: Connecticut over North Carolina. [Editors note]: I can’t penalize someone who is picking with his heart and not his head when it comes to Coach Jim Calhoun’s Huskies program.

Dark Horse: Midwest (6) West Virginia. “I have them beating both Kansas and Michigan State and reaching the Elite 8 before getting tired and falling to Louisville. I think Louisville is vulnerable, but they happen to be in a weak bracket. As for West Virginia, as much as I hate having to root for Bob Huggins, the Mountaneers play tight defense despite some size problems, and have some quality wins this year over Pitt and Villanova. They've also been toughened up by their ridiculous schedule, which is much tougher than what Michigan State or Kansas had to go through. I think the bracket shapes up well for them until Louisville. Now watch them go lose in the first round.

The Shogun Ill Emperor (www.roadtothecup.com)

East: (1) Pittsburgh
South: (2)Oklahoma
Midwest: (1) Louisville
West: (2) Memphis

Champion: Pittsburgh over Louisville. [Editors note]: From experience, I can attest that the Shogun is not a chalk player. However, despite the romance of the Cinderella team that has made this tourney so popular, there is no reason not to expect a 1- or 2- seed not to take the championship.

Dark horse: East (11) VCU. Sometimes it’s best to let others speak for you: "VCU, I think, has been playing strong, and I hate to say this, because my brother-in-law [Craig Robinson, Oregon State] is in the Pac-10 right now, but the Pac-10 has been looking pretty weak this year," said President Barack Obama. "I like that as an upset." It also helps that this little known program features potential NBA lottery picks in 2009 (PG Eric Maynor) and 2010 (F/C Larry Sanders).

Good luck!

DEPRESSION NOT YET GREAT

2009-03-09T07:39:00.002-04:00

Last week I was mildly positive about the market and consider the subsequent action, albeit volatile, as pretty decent confirmation as there was ample opportunities to go long. Right now I feel GE is the stock to watch because it best reflects the challenges of an AAA-rated industrial company hounded by overarching concerned of “financial” exposure. To wit, it has backed into regaining its status as an important market bell-weather company.

I always find it very instructive to constantly review my own“trader mentality” since nothing goes straight down/up, which is why, on occasion, I offer a market view diametrically opposed to my intermediate term views (6-24 months). When I’m ready to publish a book is when I’ll start commenting on my longer term visions (for suckers to buy).

Bull in a China Shop: Buying on the Rumor. The bull case right now lies in the hope that China’s stimulus plan is the Real McCoy. It stands to reason that due to its relative size (vs GDP) and mechanism (Hu Jintao doesn’t have to deal with Congress) it should be more timely and effective. Therefore it must work before we get really excited by Obama’s plan. Until this view is discredited I think we can at least take a market meltdown off the table. For the brave few with market exposure remaining I believe that is substantial enough of a reason to look for a rally. Does anybody believe there is any meaningful selling pressure overhead between 700 and 800 on the S&P 500? I think not. I’m definitely open to dinner wagers that we see 800 before 600.

Nonetheless, I note that under more normalized conditions the collective size of the myriad entitlements offered in the U.S. is generous while China’s is still effectively nil (explains the savings rate). Without 8% GDP growth China is very concerned about social stability, and the consensus estimate is 20+ million have recently lost jobs , and the hope still is to encourage more domestic consumption to offset the global slowdown?! I fear that a higher proportion of the monies set aside for economic stimulus (short-term) will soon be shunted over to China’s nascent entitlement programs, as has already been initiated with basic healthcare. Meanwhile Chinas leadership disappointed markets last week by (tacitly) insisting a supplement to stimulus planned announced last November was unnecessary. Let’s hope so, but I’m not holding my breath.

Brace Yourself for Depression. Yesterday, the World Bank announced it predicted global economy would be negative for the first time since WWII. To me this is an adequate proxy for declaring that we’re entering a period of Depression (term should always be capitalized). And although a spot check at the Federal Reserve will reveal that M2 money supply continues to grow at a rapid clip (signaling possible major inflation) we can’t lose sight of the fact that credit (personal or commercial) is what is most precious these days. My strongest recommendation for those still employed remains unchanged: Aggressively pay down high yielding debt (e.g. credit cards) after leaving enough liquidity available to satisfy minimum payments in lower yielding debt and an emergency cash cushion.

Don’t Forget We’re in a Buyer’s Market. Right now cash is king so those with the ability to pay in cold hard currency (especially before it may devalue!) should try to convert it to assets. Obviously great deals can be had not only in the housing market, but in autos and anything else that was formerly lubricated by easy money. Anybody shopping for a car not checking into LeaseTrader.com is doing themselves a disservice. And if even that’s a luxury, at least try renegotiating your rent. Landlords are always most concerned with “headline price” and utilization rate. Use this information to your advantage to negotiating a favorable extension (you have to give back a little); that’s some major pre-tax dinero to be saved. Be aggressive. Play up everybody’s worst fears to your benefit (for a change). If successful, you will know exactly what every banker in the world is doing these days. Good luck.

BEARD LUCK CHARM

2009-03-03T06:41:00.002-05:00

Issues of veracity notwithstanding, the only thing that has remotely "worked" for the market recently took place last Tuesday when FED Chairman Bernanke asserted that our major banks did not need anything remotely resembling nationalization. Today he's speaking again at 10 a.m. and all eyes will be glued on everyone's new favorite lucky charm. Believe me, the markets want to be seduced by anything or anyone to break this negative feedback selloff. Tim Geithner is also due to me making public comments at 12:30. If he, as Treasury Secretary, can give ANY indication that this administration is adequately chipping away at the herculean task at hand of saving the economy it will be off to the races this afternoon; UP! Unfortunately, it's hard to say what he's going to say, but Wall Street loves when expectations are surpassed! I wish I was joking.

I usually don't pay much attention to pre-market futures except when market psychology is very frail; I've been worried about market capitulation, though, especially after yesterday. However, futures are actually up right now so I think it indicates that the market receptive to the possibily of some good news. Since everybody and their mother is looking toward technical analysis to provide some guidance (and gaining little) I believe the conditions are ripe for a little rally. Finally.

I'm afraid that it appears the China, for the most part, has finished restocking on commodities (note how the dry bulk charter rates have moderated again), but I would expect the cyclicals/commodity plays to work best if the market rallies. There also has been increased chatter (of hope) that India is primed to take the mantle of driving commodity demand from the Chinese (gimme a break, they have huge national debt problems). Just getting dipping your foot into the shallow end of the pool with general market exposure would be my recommendation for right now though.

In the meantime, Legg Mason Value Trust (LMVTX) manager Bill Miller is eating some more crow after getting another another major market call wrong. I'm, of course, referring to his declaration that we reached a market bottom last fall. I think the odds that he is ousted (or retire if you want to call it that) by the end of summer has risen to 80%. How much damage will one man be allowed to inflict upon a firm? Why on earth would he make a market-timing call as a purported value investor? Just goes to show that the energy of developing a strong top-down view or and assessing the magnitude of near-term catalysts can't ever be overlooked.

SNOWED IN

2009-03-02T07:49:00.005-05:00

The major snowstorm that has converged upon the U.S. eastern seaboard overnight appears to be a sign that U.S. equity markets are far from removed from the carnage experienced YTD; March is unlikely to herald anything new and accordingly, the risk of the S$P 500 hurtling toward 600 (from 735.09 today) only increases. The signs of the apocalyse are legion: the U.S. dollar is the strongest currency in the planet (laymen would be shocked), a major financial institution requires capital injections (today, HSBC), and our Captains of industry (GE reversed it stance on a dividend cut within weeks) and a Legendary investor (Warren Buffett) plea mea culpa like its going out of style.

I even here the term depression being uttered on television to describe the current state of afffairs. I say when the three biggest economic zones (US, EU, Japan) are in a bad recession we have successfully achieved depression. All depressions need not be "Great".

All about the Benjamin. Benjamin Franklin noted long ago the inevitability of citizens confronting death and taxes. And if there is one certainty right now it is that taxes are going to be increasing. For the investor class the $200,000 annual income breakpoint is not a gigantic hurdle, let alone $250,000 for families. With the taste for equities souring and the trillions of wealth destruction that need to be recouped in order to become whole again (don't hold your breath) I strongly believe that the fixed income asset classes will be the first to recover. In particular, the municipal bond market due to its relatively favorable risk/reward profile, tax-adjusted yields, and the strong presumable support of local investment funding by the Obama administration. After all there is no more "shovel-ready" spending initiative than existing ones.

Normally I prefer to recommend specific securities, but right now I think people should be investigating bond funds because of the double discount factor. Funds own discounted to net present value (NPV) issues, which is the opportunity a value-oriented investor seek. This discount is fairly meaningful because bondholders are most interested in cash flow generation; capital appreciation is secondary. However, the demand for liquidity has caused many closed end funds (trade like stocks, not mutual funds) to trade at much steeper than normal discount to net asset value (NAV). Net asset value is a much more tangible metric than sentiment influenced ones such as price/earnings. I'm enough of an optimist to suggest that a) I do believe that normalcy will eventually return, and b) there is no reason to think successful, long-tenured fund managers have collectively become worthless so the double discount factor of NPV and NAV is the "fat pitch" a hitter is looking for. Trolling in this formerly unsexy corner of the investment universe today is appropriate for any investor. Cash is King; especially, the U.S. Dollar.

STRESS (TESTS)

2009-02-27T08:36:00.003-05:00

I opened the month of February noting the malfunction in the stimulus approval process, and since then little has been done to assuage the number one concern for investors: the likelihood of stabilizing our banking system in short order. The only thing we now know for sure is that Treasury Secretary Tim Geithner is a policy eunuch; he’s not even allowed to lie on behalf of the administration any more. Viva Hank Paulson!

President Obama’s de facto state of the union speech earlier this week also did little to calm the investor class. Although I acknowledge its true purpose was to provide a badly needed booster shot of confidence, his track record of boosting the markets from the bully pulpit is eerily similar to GWB’s. The public’s appetite for soaring rhetoric and grandiose plans of a Liberal utopia will lose its potency soon enough. As I recall this country’s competitive advantage was its ability to empower anybody to become wealthier than what one’s station in life at birth would suggest. The 35-hour workweek is in France.

Closing the month the operative word is “no” as in: No, we’re not going to nationalize banks. However, this morning it’s pretty clear that Citi (C) is now essentially under the aegis of government protection despite the Bernanke comment-induced rally earlier this week. And even worse, we now have to wait 6-8 weeks for the bank stress tests to be concluded. Since the lack of available credit is centered on the health of our banks, waiting for an updated diagnosis should dim the probability of any noteworthy rally occurring prior to 1Q09 earnings season. Just say "no" to a rally, too, I guess.

This is a major problem because without building up a buffer of short-term gains, the market is at greater risk of another major selloff as the indexes are already perilously close to technically significant levels. With quarterly index figures being substantially lower than the prior one, the specter of an early close cannot be dismissed either.

What to do? Without a no-compromise “stimulus” plan providing stimulus, deflation becomes a much bigger worry than I sense the consensus is anticipating. When deflation becomes a concern even gold is unlikely to do much other than lose its value at a slower rate than other asset classes. In the trading portion of one’s gold position I would take profits if one hasn’t already done so since it failed to break through $1,000/oz. Deflation is particularly scary for those carrying debt. Whether one’s financial condition is secure or not, paying down debt is really the best investment move to make right now bar none. On that note, I remain bullish on Treasuries as a safe haven (not TIPS!). And by no means was I suggesting earlier selling off one’s core D-Day position in Au.

THE YANKEES BETTER WIN

2009-02-26T08:03:00.003-05:00

Yesterday the 2009 New York Yankees debuted in their first spring training exhibition game. I may have noted recently why the team’s “gigantic edge in financial resources” is hardly the end-all be-all factor to assure a championship, but, in my view, they have no excuse not to win the World Series this year.

Of all years, the Yankees ability to outspend should “guarantee” a ticker tape parade in the Canyon of Heroes this November. I even consider it their patriotic duty considering the carnage Wall Street has been experiencing (tongue in cheek!). When the well-funded Boston Red Sox balk at making any serious attempt to acquire Mark Teixeira, an ideal long-term fit for their roster, things have clearly gone out of whack. At least for now the Yankees continue to operate in their own economic stratosphere, aided in no small part by the tailwind of opening the new stadium (beyond 2009 is anyone's guess). The Steinbrenner family has shown disdain for fiscal prudence before so I still expect them to wield there almighty pocketbook to procure any necessary parts as the season progresses; relinquishing young talent won't be required this year! This stands to reason becuse the family wealth is primarily concentrated in baseball and not other interests (like commodities trading) so they should be less affected by the economy (for now).

Even as a Yankee fan, however, I readily agree that the current system is perverse and not healthy for the sport despite the irritating fact that the Red Sox have been most vociferous in the call for a salary cap. Why are the Milwaukee Brewers, Oakland Athletics or Pittsburgh Pirates not pounding the table? Like I said before, the probability of contraction is not insignificant as this global depression will probably end in tears.

Without further ado, I would like to see the following lineup be the primary version by June:

LF – L, DAMON, Johnny (playing for a contract)
SS – R, JETER, Derek (can’t move left, so he better still hit)
1B – S, TEIXEIRA, Mark (nice to have Alex around to occupy the media, eh)
3B – R, A-ROID (sigh, please win the MVP again)
2B – L, CANO, Robinson (capable of besting Pedroia’s 2008 MVP campaign)
DH – L, MATSUI, Hideki (a nice luxury item to have around if knees hold up)
CF – S, SWISHER, Nick (great value signing, I project to outperform Nady)
RF – R, NADY, Xavier (playing for a contract)
C – S, POSADA, Jorge (38, I expect a new starter by year-end)

The Yankees are an old bunch so there will be plenty of AB’s for the bench, and I obviously have no faith in the stability at the catcher position. I also don't think there is a need to insert a mediocre offensive player to start the game at CF, like Brett Gardner, especially when a GB pitcher is on the mound or when facing a top caliber opposing pitcher. If healthy, this team should comfortable score over 900 runs.

I would like to see the following rotation by June:

L, C.C. Sabathia (it’s nice to have Alex around to occupy the media, eh)
R, Chien-Ming Wang (power GB pitcher to break up the power K guys)
R, A.J. Burnett (should thrive with a gaggle of bigger stars around)
R, Phil Hughes (we know he has it)
L, Andy Pettitte (still a huge mismatch vs other team’s #5s)

Clearly the omission of Joba Chamberlain from the above list is glaring. However, I believe he is still too immature to serve in an already well-stocked rotation. The Yankees are MUCH better served using him to firm up the end-game bridge to Mariano Rivera. At best, guys like Brian Bruney and Damaso Marte are suited for the 6^th or 7^th innings. There is also that minor issue of Rivera coming off of surgery at 39 and Joba being shut down last year himself with injury. He’s still a baby, and his arm needs to be protected until he grows up figuratively and literally. Please.

Conclusion: This year we should see a much worse-than-normal disparity between the haves and have-nots in MLB so I expect a healthy 2009 Yankees to sweep the floor with its AL rivals. In particular, I don’t expect the AL East to be nearly as competitive as most would expect by merely extrapolating last year’s results. The Yankees made massive upgrades while I forecast Red Sox offensive production to decline, and Rays to buckle from loftier expectations; not exactly wild predictions. All of the above suggests a realistic shot at a 108-victory regular season campaign.

WELCOME BACK TIGER

2009-02-25T10:00:00.003-05:00

As a golf aficionado it’s with awe I welcome back Eldrick “Tiger” Woods to competition to defend his WGC-Accenture Match Play Championship around noon. His past feats are, without a hint of hyperbole, truly legendary. If Woods was never to raise another trophy over his head again, he could eventually take satisfaction knowing that his 2008 U.S. Open victory would probably be considered the most remarkable achievement in the history of the sport while hobbled with a stress fracture and torn ACL in his left leg. However, as we all know, this week’s field is unlikely to enjoy such a luxury.

Despite the nearly nine month layoff, the prospect of Woods winning is offered at +400 on the moneyline at Sportsbook.com (info purposes only!). The next tier of favorites (Phil Mickelson, Sergio Garcia, and Anthony Kim) is each going at +1500, and Mickelson just won last week at Riviera. That’s [well-deserved] respect.

In a low-stakes “February Madness” game I’m participating in, my final four is: Tiger, Phil, Ian Poulter, and Robert Karlsson. Considering the unintended consequence of Mr. Cablasian 's layoff was an opportunity to improve his short game while regaining the facility to swing hard without pain, I don’t see any reason not to anoint him the winner right now. His ability to use golf-appropriate intimidation is yet another skill that is probably not as appreciated by the casual fan; in a 1-on-1 match play format in particular.

Winning a stroke play tournament is so difficult because no matter how good the best players are, on any given week one is also competing with “hot” players. This is the same reason why the Yankees can’t be expected to be fairly considered an overwhelming favorite to win the World Series despite the gigantic edge in financial resources at the franchise’s disposal. However, how can you not love Tiger’s chance to dispatch opponents one at a time? A little research will make the not-so-surprising revelation that he dominates in the match play format for just that reason.

Common Sense. Even Tiger’s return won’t solve the economic headwinds facing the PGA Tour this year, if not longer, so it’s good to hear former #1 Greg Norman suggest a pay cut for the players by lowering purses. Sports is typically a recession-resistant industry, but in this economic cycle discretionary income is like a unicorn; it exists only in fantasy. The major sports leagues – MLB, NFL, and NBA – have all had layoffs, and NASCAR’s growth trajectory has taken a dramatic reversal. Playing golf, let alone regularly and well, is still beyond the reach of most and to ignore today’s zeitgeist of thrift would be retarded. Hopefully PGA Commissioner Tim Finchem has rabbit ears on this matter.

SPORTS LEAGUE PAIR TRADE: Short MLB, Long MLS

2009-02-07T20:12:00.004-05:00

A-Rod/A-Fraud/A-Roid is in the news again, and in desperate need for some brilliant PR help. As paparazzi cannon fodder goes, he makes Tom Cruise look like Machiavelli.

At the end of the day, however, A-Rod still has his guaranteed millions to collect, if not the public adoration he desperately seeks. The real loser here appears to be MLB. Ultimately, I would not be surprised if the league’s special monopoly exemption gets revoked within the span of Obama’s administration unless it dramatically reforms itself. I envision the NFL league capitalism/franchise socialism model will be the only alternative. In other words, the Yankee spendthrift payroll strategy is about to come to an end.

Out of Touch. The demand for escapist entertainment is escalating with every passing day, but MLB has effectively conceded its ability to cement itself in the minds of an already highly distracted younger generation by doing its best to disgust the adults that currently support the sport. Even "better," both player union and league management is culpable for allowing the American Pastime become so vulnerable. The SI article (see A-Roid) makes it clear that union leadership probably tipped off players about to be “randomly” tested for banned substances, so any breach of ethics is imaginable. Regarding league management, Commissioner Bud Selig collected a $17.5 million base salary for the 2007 fiscal year ending October 31, 2007, and signed a three-year extension through 2012. I think we all know the direction, if not magnitude, of his future compensation. For what seems to be an absentee job relative to the visibility and engagement of NFL commissioner Roger Goodell, Selig’s income, the most lucrative among the major sports leagues by wide margin, is revolting. How is that acceptable for a league enjoying such a luxury as no competition? Considering the mood in Washington, I can’t see how this lasts much longer. The public should have access to the detailed financial condition of the league and all of its franchises.

It's the Economy, Stupid. Greed, impropriety and apathy aside, MLB has another problem: the economy. Sports may be recession-resistance, but hardly anything can withstand a depression. [The IMF has just reported that the global economy may be already in a depression] During the Great Depression baseball attendance fell dramatically. This time around it doesn’t even have the availability of a national icon like Babe Ruth. The nature of media and entertainment being so “long-tailed” as it is, that caliber of hero may only be reserved for a [successful] war-time President. In any case, the probability of at least one team contracting from the league seems better than even.

The Bigger They Are... The fallout of the financial and economic crisis disproportionately affects the NY Metro region so it will be very interesting to see how well the four new stadia opening will perform: new Yankee Stadium, Citi Field (Mets), new Meadowlands Stadium (Jets/Giants) and Red Bulls Arena (soccer team). I suspect Year 1 will be o.k., but disastrous for years following. After all, the impetus of all these fields was to capitalize on luxury boxes that catered to [formerly] deep-pocketed corporations. Now, I suspect I’ll soon be able to afford to rent one of these boxes for personal use.

Soccer is the Big Winner. The best a business can realistically hope for over the prolonged difficult economic period ahead is to gain market share. And within the sports leagues it would seem that Major League Soccer is positioned to be the big winner. Soccer is not only a global sport that Americans are rapidly becoming more fond of, but attending games is still family-friendly and affordable. Its popularity from the top-down is driven by the growing quality of the men’s national team; from the grassroots by the millions of kids playing the sport from a young age.

Over the course of his three month loan to AC Milan, MLS’ top (read: only) celebrity, David Beckham, has brought the league millions of dollars worth of free advertising as speculation of a permanent transfer took a life of its own. Whether he leaves or not is not that important; the L.A. Galaxy, and by extension MLS, is being mentioned in the same breath as a world famous club such as AC Milan of Serie A. As a player, Becks is not the caliber of LeBron James anyway, a bottom dwelling team like the Galaxy can lose just as many games without him. Sure, the reported $15m transfer fee (goes to the league) is being refused for now, but one superstar celebrity does not a team make, and saying no now is rule #1 in the art of negotiation (especially while you’re scrambling to construct a backup plan)

In a cash strapped environment, this is just the type of excitement, albeit somewhat insulting, a marginal league needs in spades. Besides, the election of Barack Obama could be a major consideration for FIFA to award Chicago the 2016 World Cup and thereby providing a turbo boost to the sports domestic popularity. Yes, if I had a few million to allocate toward an investment in a sports franchise, it would probably be toward one in the MLS.

4Q08.4 EARNINGS – STIMULUS MALFUNCTION, BUY GOLD

2009-02-02T00:24:00.007-05:00

“In this present crisis, government is not the solution to our problem; government is the problem. From time to time we've been tempted to believe that society has become too complex to be managed by self-rule, that government by an elite group is superior to government for, by, and of the people. Well, if no one among us is capable of governing himself, then who among us has the capacity to govern someone else? All of us together, in and out of government, must bear the burden. The solutions we seek must be equitable, with no one group singled out to pay a higher price.” -Ronald Reagan, Inaugural Address, January 20, 1981

Rightly or wrongly one needn’t sing the praises of Reaganomics other than in the privacy of one’s home for at least the next four years. Under Barack Obama’s administration the new speed limit for Wall Street is 25 MPH: no more autobahn; yield to all pedestrians. Accepting the spirit of this new world order, along with short term trading/risk management is the only constructive way to navigate the markets right now as the stability of our global economic infrastructure remains in jeopardy. The irony of this situation is that the clarion call of populism is being heeded when it’s least needed. The financial gulf between the middle class from the elite has taken a sharp reversal, and everybody is in a terrible bind; worrying about the top 1% is not constructive in this discussion, and they were the predominant victims of Madoff anyway.

A bigger message could not have been sent last Thursday when Obama declared that Wall Street’s behavior was “shameful” with an hour still remaining in the trading day; how about all the calls to cap "bonuses." Needless to say the market sold off heavily into the close as any number of his advisors could have predicted for him beforehand. Clearly, when it comes to strengthening the Mind, Body, and Spirit of our overall domestic economy, our largest most innovative industry, financial services, is going to suffer at least a few lashes for past sins. This is not to say profits (and bonuses) formerly inflated by financial engineering was an ideal foundation of growth, but an entire generation of our best and brightest (or at least most ambitious) has been disrupted, and probably forced to reinvent themselves. This may be a blessing in the long-run, but how does this possibly help expedite recovery in the short run? How does a TARP-funded firm like Goldman Sachs (GS) sustain its legendary reputation that driven by its risk/reward-loving culture?

To me the only short term remedies that should be funded are based on the principals of providing food and mortgage workouts of existing homeowners. Obama may intellectually understand that our banking system requires emergency surgery, but he's still insisting on bootstrappin more entitlement spending. How original to waste political capital on repaying your political allies. Considering the prospect of requiring more funds (preferably smart infrastructure related) down the road, we've got to preserve the health of our Treasury market as long as possible. His own prominent economic advisors (of note Larry Summers) preached a prescription of Timely, Targeted & Temporary measures, which earned him the trust of financial conservatives. To the credit of every Republican and about a dozen Democrats who voted against the House version of the Stimulus bill, a loud message was sent to Mr. Post-Partisan, and provided the necessary fodder for the Senate to fulfill its traditional role of breathing in some prudence to the process. As of late Sunday it seems that the Democrats won't be able to bully there way just yet.

Buy Gold. As was the case last week, there may be earning reports galore to ponder, but all eyes need to be fixed on Washington. However, “selling on the news” is not as straightforward proposition as it was for our anticipated Aggregator/Bad Bank rally (ended at 2:15 last Wednesday after the Fed held rates steady). This week it’s anyone’s guess what new plan Treasury Secretary Tim Geithner will unveil. There is a large risk that the Aggregator Bank idea may be rejected because it would require more taxpayer money to purchase illiquid, toxic assets. Under this administration, the nationalization route (wiping out equity shareholders) as was adopted by Sweden in the early 90’s may be prescribed for the likes of Citigroup (C) and Bank of America (BAC). After all, the Resolution Trust Corporation created to unwind troubled assets from the S&L crisis in the 1980’s was a Republican solution. The lack of policy consensus, the continuation of poor corporate and economic results around the globe, and especially the rapid deterioration of all non USD or JPY currencies (most recently the Mexican peso) suggests the conditions are ripe for a major rally in Gold (GLD) and other precious metals (e.g. SLV, PTM) is ahead of us. I will add this doesn't automatically suggests its time to short Treasuries: there's still plenty of demand for capital presercation, and the U.S. won't hesitate to meet it. However, Obama will soon learn that there is a limit to everything which is why Senate Republicans must find a may to hold the line on social entitlement dollars masquerading as stimulus.

Disclosure: No positions.

Super Game V.43

2009-02-01T22:52:00.004-05:00

Year-to-date NFL: 10-1, +8.5 units; Cumulative 13-3, +9.5 units

Considering the Cardinals had to play uphill the entire game, my strong conviction that they were capable of winning was more than justified. The Cardinals were almost too content to utilize Larry Fitzgerald as a decoy at first, but the deficit stemming from a huge penalty imbalance and that INT returned for a TD at the end of the half changed everything. Ultimately, Ben Roethlisberger's uncanny escapability, which seems to have a high component of luck, versus Kurt Warner's, or lack thereof, was most prominent in my mind. I couldn't even begin to handicap next year's favorite's so hopefully that bodes well for another wacky season. An entertaining game for all. Time to study for March Madness and the Masters.

DR. SUBLIME & mR. rIDicuLOus V090130

2009-01-30T10:45:00.005-05:00

Doomsday coming on 21 DEC, 2012? Even my economic outlook isn't that dour.
Use Facebook, because Craigslist doesn’t have assassins under “services”
I can help you Michael Vick. I welcome referral business, too.
Isaiah Thomas has solidified his new niche. Stick to it.
Mashup: Best of 2008 pop. (hat tip)
Kiera's naughty little secret. (hat tip)
My secret PPP economic indicator: Big Mac index.
Bacon Explosion recipe. Have a cardiologist on standby before gorging.

THE NEXT LARRY LEGEND?

2009-01-27T13:40:00.002-05:00

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 Arizona wins, but still breakeven if Arizona just covers. I see Cardinals winning 24-16 (o/u 46.5). MVP: Kurt Warner; major reputation boost: SS Adrian Wilson.

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:

Both were highly regarded out of college, but hardly considered freakishly gifted physically;
Both earned first Pro-Bowl appearance in their second year in the league, although Fitzgerald is 2 years younger at that stage;
Rice didn’t score the Superbowl XXIII-winning TD on the famous 92-yard drive in the 49ers 20-16 victory over the Bengals, but he did win the MVP after gaining 215 yards on 11 receptions, including 1 TD. At age 26, his reputation as a dominant performer in the most important/visible games would only grow;
Fitzgerald, now 25, is also at the top of his game and has been having his way against opponents throughout the Cardinals previously unimaginable playoff run while already breaking a total receiving yardage record fomerly held by Rice. The argument that "genius" Steelers defensive coordinator Dick LeBeau will be able to neutralize Fitzgerald (while not compromising the defense altogether) is magical thinking - everybody knew long ago he's their primary threat. Fitz is simply unstoppable right now. Scheme is very important from week to week, but talent and confidence should triumph where both sides has ample time for preparation;
One last factoid: the losing defensive coordinator that allowed Jerry Rice to first establish himself as a NFL immortal in the aforementioned Superbowl XXIII was no other than Dick LeBeau.

Update: 7 receptions for 127 yards including 2 TDs. Yup, Larry did his job.

4Q08.3 EARNINGS – STIMULUS, WHERE ART THOU?

2009-01-26T06:30:00.001-05:00

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 Washington, anything that contributes to sharpening our forecasting confidence will be deemed as a positive, albeit very short-term. Ultimately, we will have to rationalize a much lower “fair value” for the S&P 500 as 2009 and 2010 operating earnings continue to ratchet down; then there’s always the question of a proper P/E multiplier.

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.

Wednesday afternoon’s FOMC rate cut announcement may be a wildcard even though the 0-0.25% rate range is expected to be reiterated. In a speech in London couple weeks ago Chairman Bernanke expounded on the differences of the current situation in the U.S. with the Japanese quantitative easing policy of 2001-2006; ours is much worse and he favored calling our current tactics “credit easing.” In light of the growing support for creating an Aggregator Bank, I see a high probability that financials can enjoy a big relief rally if Bernanke reveals further support for purchasing toxic assets. You want to own the garbage for this trade: C, BAC, and STT.

Gaming the Indices. The Dow Jones Industrial Average (DJIA) index of 30 price-weighted stocks utilizes a dubiouus methodology as it is, and now a Bianco Research finding makes it apparent to me that it needs to be reconstituted post-haste. Better yet some traditions need to simply die - it's an absolute failure as useful market barometer.

For those who insist on relying on passive investing and want stock market exposure, I recommend going long of QQQQ. The “Qs” gains exposure of the top-100 non-financial Nasdaq stocks.

Disclosure: No positions.

THE GOOGLE OF MY EYE

2009-01-24T10:07:00.005-05:00

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.

However, any stock capable of rising above $700 from $85 within 3.5 years is quickly forgiven. Even after the spectacular collapse of the Tech Bubble indelibly seared into every investor’s memory, we still saw analysts leaning on bespoke valuation methods versus traditional cash flow to justify GOOG’s ascent. Analysts may know deep down in their hearts geometric growth rates are unsustainable, but few are incentivized to be the party pooper. Besides, why fight the rising tide of a stock that is the favorite of retail investors, traders, growth managers, and above all, freshly-minted Ivy League MBA’s?

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 Silicon Valley truism that publicly traded Internet companies can only “lead” for four years. In this case, the recession/low-growth economic climate, which I believe will persist for a long time, should insulate GOOG's incumbency, especially as MSFT, YHOO, EBAY, IACI, NWS, et al. fumble about.

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.

DR. SUBLIME & mR. rIDicuLOus V090123

2009-01-23T06:00:00.000-05:00

Why men are better... dieters.
Apparently everybody may have a stable skinny weight and fat weight. Does it matter, though, if you're always dissatisfied?
L.A. homeowner promiscuity.
Hooker free-zone? I would have thought fluffed prices during inauguration week.
Next time Charles Barkley gets pulled over for suspected DUI he may want to offer a more tasteful excuse.
Look good, feel good. Obama vanity takes charge (card).
Jon Favreau: Hollywood actor; screenwriter; director; fat; and Obama's speechwriter?! haha.
Donovan McNabb knows no home-field advantage. Poor guy.
Add shady to the list of Dolan family superlatives.
Stephon Marbury-opoulos?

SHORT Nordic American Tanker Shipping (NAT)

2009-01-22T09:00:00.006-05:00

A) Negative macro picture. The economic news released overnight in Asia was horrendous. The bourses closed positively across the board probably only due to the spectacular rise in the U.S. earlier.

China’s 4Q08 GDP was reported to be 6.8% (consensus estimate: 6.9%), and substantially below 9% recorded for 3Q08. Clearly, achieving 8% (the rate the government believes is required to mitigate civil strife) for 2009 will be a serious challenge. We think the observed rate of deceleration makes the feat impossible. The structure of the economy is too heavily geared toward exports to allow the announced stimulus to cover the deficiency by encouraging domestic spending. To wit, 2007 GDP was revised upward on 1/13/09 to 13% from 11.9%. That makes the current 2008 figure of 9% an even more precipitous decline. Meanwhile, 4Q GDP reading in Korea was even worse: -3.4% (-3% expectation); and a strong yen continues to be a headwind for Japanese exports: -35% in December.

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.

According to Frontline (FRO), as of 1/14/09, there were approximately 40 VLCCs currently being used for storage up from 6-10 last summer when the contango condition arose.

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

Daewoo shipyard sale scrapped
S&P cuts Overseas Shipholding Group (OSG) ratings outlook. Affirmed "BB" long-term corporate credit and senior unsecured debt ratings.

H) Valuation. The tanker industry's high volatility means historically CF or earnings metrics are often ignored in favor of NAV and/or dividend yield. NAV metrics of assets in current credit market conditions is unreliable, so this analysis reflects an event-driven thesis.

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.

OPEN LETTER To POTUS #44

2009-01-20T00:01:00.003-05:00

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 U.S. is the most credit-worthy nation on Earth.

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 U.S. will emerge from recession in 2H09 is irresponsibly optimistic. We may have The Great Depression and the Japanese Lost Decade as instructive case studies, but it’s going to take more than a few years yet before the housing market bottoms. And, if anything, our situation may be more comparable to the former due to global synchronization; what happens if China, Russia or India also crash? We haven’t even stabilized our banking system, so as far as I’m concerned, the countdown to recovery hasn't even begun. Keynesian economics fell out of favor in the past for a reason: The efficacy of federal capital injection is limited without complimentary pickup in the velocity of money (i.e. lending activity).

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

TRANSFORM WASHINGTON BY EMBRACING HUMAN FOIBLES

2009-01-19T21:00:00.005-05:00

“… Look, Washington is broken. …So we’ve got to transform Washington. And we’ve got to do some house cleaning. But what we also want to do is to remind young people that if it weren’t for government, then we wouldn’t have a Civil Rights Act. If it weren’t for government, we would not have the interstate highway system… so part of my job, I think, as president, is to make government cool again.” -Barack Obama, ServiceNation Presidential Forum

Columbia University, September 11, 2008

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.

SUPERBOWL XLIII: The CARDINAL RULE(S)

2009-01-19T09:30:00.008-05:00

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 HOF credentials. When healthy and equipped with a strong arsenal of weapons, his production has always been at an elite level relative to the best of all-time. How soon people forget that he already has two MVP’s in the trophy case back home flanking a Superbowl MVP award. His ability to read and exploit the blitz will be essential because he has the mobility of a statue. The Steelers zone blitz scheme will require different tactics than the Eagles man blitz version, but Arizona will still have to keep their commitment to the run enough to keep the defense honest. I think the running back committee can accomplish this; a 100+ yard effort. In particular, I was impressed how the Cardinals actually ran in “running situations” against the Eagles instead of trying to substitute it with the short passing game. The prudent, and sometimes inspired, play-calling to-date gives me confidence that the Cardinals offense can actually thrive. The Steelers scheme is the best in the NFL, but the overall talent in the secondary is not close to the Eagles. The Steelers are playing with fire if they think they can single-cover Larry Fitzgerald and rely on tricking Warner all day. Fitzgerald has already broken the immortal Jerry Rice’s record for most receiving yards during the playoffs. If the Steelers do take the prudent route, Warner is more than happy to throw at #1b Anquan Boldin or #3 Steve Breaston, too, if Larry is smothered. However, Larry may truly be an unstoppable force judging by the regularity with which he’s been making circus catches and running like a man possessed after the catch. LeBeau’s defense is vulnerable to deep sideline bombs, and the Cardinals have the tools to challenge it even into double coverage.

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 Tampa Bay is expected to be ideal, so stopping the pass rush will be that much more difficult. Meanwhile, Arizona has been very efficient in stuffing the run over the last month, which has been the crux to their winning streak. Not a great blitzing team, the Cards can negate the Steelers running game regardless as they already have against superior run offenses in the playoffs.

SPECIAL TEAMS. The vital third leg of the game may have a big impact, but the matchup is even. Both teams have solid kickers, although Neil Rackers probably has longer range. The returners are both solid, too, while both punters are inconsistent.

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.

4Q08.2 EARNINGS - ALL ABOUT OBAMA HALO

2009-01-19T07:03:00.019-05:00

As investors anticipate the coming week, I daresay US market participants will enjoy a welcome, albeit temporary, boost in optimism. The fervor in DC for Obama's inauguration should be palpable to the rest of us watching it on television. Recalling the heroics of a pilot called Sully will help as well. The third factor, as corny as it sounds, is that the woebegone Arizona Cardinals franchise has just earned its first Super Bowl appearance. If they can go on to win it all, perhaps it could be a sign that our economic outlook is not beyond despair after all. As the late Louis Rukeyser noted ahead of Superbowl 36 when heavily favored (14 points) St. Louis "Greatest Show on Turf" faced New England, who else could win but a team named "Patriots" in the aftermath of the 9/11 WTC attacks?! Ironically, Kurt Warner will be a starting QB this year for the underdog Cardinals as he was seven years ago for the "mortal lock" Rams.

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.

DR. SUBLIME & mR. rIDicuLOus V090116

2009-01-16T00:01:00.017-05:00

No capital gains tax for Paulson? Now I get why Goldman guys have worn out a path to DC.
The Mayors of the Ravens and Steelers could form a band: Crooks & Dumb.
Surprise surprise. Mankind hasn’t perfected the game of playing God.
You're wife is so fat, she belongs in a zoo [to get a MRI].
This is the reason why Mattingly is back in baseball.
Hat’s off to Rickey Henderson’s HOF election. Not corporate, not Rodman, but one-of-a-kind. Loved the neon-colored Mizuno padded batting gloves he popularized when I was a kid.
Articles about Russia are always like reading an abridged Dostoevsky novel. BTW The Brothers Karamazov is absolutely worth the investment.
Road kill is a legal dining options in more states than you would think. Broiled raccoon, anybody?
… or squirrel for the Brits. They can't get enough of those furry little guys.
Think outside the bun: Unintended consequences of internet dating.
A Whopper sacrifice?!! Facebook is baffled.
Then there's the Whopper Virgins [SNL spoof below]. Crispin Porter + Bogusky is brilliant.
Hyundai is on a roll. Genesis won North American Car of the Year.
Battlestar Galactica is back tonight. Hello Grace Park.

FLYING HIGH - Airlines (LCC), PALM, Not: AAPL, JPM

2009-01-15T18:22:00.031-05:00

Late this afternoon an emergency landing by a US Airways (LCC) flight from NY (LGA) to NC (CLT) in the Hudson River was executed to perfection upon engine failure (flock of birds). As accidents go, the circumstances could not have been more ideal as the pilot adroitly landed the plane intact and a slew of commuter ferries readying for the PM rush were immediately available to assist in the rescue. Apparently everybody got off the plane safely. The ultimate cost to the company not covered by insurance should be de minimus. The positive PR boost ($1-3 MMs?), on the other hand, probably more than offset said cash cost. What a great story to bump Mad-off from the news (re)cycle. My hat's off to responders.

Source: CNN.com, Inset: Pilot Chelsey B. "Sully" Sullenberger

The immediate investment implication for the airline sector at-large, and LCC in particular, would seem to be very positive as investors have an incentive to check-in on the industry. Many are in the Warren Buffett camp of forsaking the sector altogether, but I consider George Soros a better role model as he embraces the roles of investor, trader, or speculator as context dictates; he was an original investor in JetBlue. Therefore, it seems timely to reiterate my strong intermediate-term support for buying the airlines (as long as the overall market isn’t tanking).

The story is straightforward for the “bad” airlines (e.g. not LUV). The companies coming out of bankruptcy over the last few years face what appears to be a minimal threat of labor strife and have been manic about controlling costs ex-fuel; capital restructuring (less debt) opens the door for consolidation; and the gigantic headwind of last year’s jet fuel costs are going to drop off the cliff in 2H09 as hedges expire. Further, the airlines have pricing power right now as the industry can cut suppoly at a rate on par with the fall in demand. Passengers may sometimes find it more economical to ship luggage ahead via UPS, but people still have to put up with the a la carte pricing schemes as seat capacity is limited. Also, first/business-class is being filled by full fare customers (except morons like Stephon Marbury) that were previously flying chartered jets, which crowds out the “upgrade” crowd; massive airline mile deflation also support margins. If only OPEC could be so successful.

If you care to geek out on the analysis further consider a visit to this analyst/ex-pilot’s site.

PALM. Being long a high-beta, heavily shorted name in the midst of a terrible market was no fun on WED especially since the stock closed below the post-CES pop from last FRI. Not good, but being a slave to technical analysis on a fundamental idea isn’t my style and I didn’t panic; it’s the wrong move when a company reaches an inflection point. Today’s +35% move was a sweet confidence boost, but taking profits now would be too early. Data from ShortSqueeze .com indicates that 38% of the float is short (12.7 days relative to average daily volume), and you can bet more was added amidst the high volume yesterday. The whipsaw bounce today accelerated into the close so I can virtually guarantee that the stock gaps up tomorrow. At $8.50/sh I would sell at least 1/2 the position. Place the limit order now, because PALM may hit that tomorrow.

AAPL. Acted well despite my screed yesterday, but this company needs to join the world of dividend-players. Growth stocks with decelerating growth rates are “value traps.” This goes for GOOG as well, who just axed 100 people from HR.

JPM. Opening above yesterday’s close was a “win” on my preview prediction, but I would have sold all trading longs at the open today. C is rumored to be promoting the bad/good bank idea. The last prominent company to do so was Lehman Brothers; I’m just saying. Financials remain firmly in day-trading territory at least until Treasury/FED hammers out a more definitive game plan. Bernanke suggested revisiting TARP on Tuesday, which is fine with me, but let’s see what happens in Congress.

INTC. After pre-announcing results twice this Q, they managed to "meet" consensus EPS of $0.04. If things are that bad for INTC think just how much worse the outlooks are for NVDA & AMD.

Disclosures: Long PALM.

NFL CONFERENCE CHAMPIONSHIPS

2009-01-15T07:30:00.008-05:00

Year-to-date NFL: 7-1. +5.5 units; Cumulative 10-3. +6.5 units

At this point in the road to the Superbowl attrition due to injury, self-inflicted or otherwise, is a major factor. The Ravens may have won the battle last week, but could have sacrificed the war if LB Terrell Suggs (bad shoulder) and CB Samari Rolle (groin) can't go full-bore on Sunday. Sometimes a team can exceed expectations by showing an ability to "rally" around a fallen leader for a game or so, but I expect the Ravens will need every ounce of its talent on D to finally beat the Steelers this season. My experience suggests not to expect much from these impact players even if they play; painkillers won't do much for these injuries. On the other sideline stud S Troy Polamalu's bum ankle offsets things a little. In the other matchup, I expect WR Anquan Boldin (hip/hamstring) to be recovered in time to play the Eagles. Three seasons ago the Cincinnati Bengals rose from the ashes of NFL purgatory and may have reached (and won) Superbowl XL if Carson Palmer wasn't injured by a dirty play. That's why we watch the game.

Eagles vs. CARDINALS (+4). 1 unit. Taking the points ["Don’t forget to put a little aside for an outright upset."] last week was a winning contrarian call that admittedly still gives me a warm and fuzzy for being an early supporter of the Cardinals quixotic quest. The line opened +3 as I expected, but the fact it creeped up to +4 has me scratching my head. A home dog situation this late in the playoffs is completely unheard of as it is! Perhaps the turmoil in the financial markets has people applying a de-risking mentality to sports speculation as well. [I note the herd is usually punished; underdogs are 5-3 in the playoffs to date]. I consider the 48-20 result in the regular season matchup mostly a product of circumstances that are irrelevant this week. If anything, it raises the probability of an Eagles letdown, especially after an emotional victory over a hated division rival.

For the Cards, a game played at home (7-2) in 70 degree weather in January is the dream scenario as they feature a HOF-caliber QB with a triumvirate or WR that gained 1000+ yards, including a Jerry Rice-like Larry Fitzgerald, at his disposal. The Eagles may have the personnel in the secondary to stick with its blitzing scheme, but I'm optimistic that the Cardinals coach (an ex-Steelers O-coordinator) will be able to counter effectively. Ultimately, I have confidence in the Redbirds mettle as demonstrated by the way they responded to allowing a soft opening drive TD last week. 33 unanswered points on the road against a heavily favored team is no mean feat.

Phoenix was the first victim of QB Donovan McNabb's redemption run since being benched for poor play. However, something bothers me about how he feigns his nonchalance since the benching (let alone the overtime rule fiasco) with his improved play. Donovan deserves credit for rallying, but he still has lots to prove while the stakes are highest and conditions are presumably in his favor. It's been a problem since starring at Syracuse. It's just a hunch, but I think he harbors too much bitterness to make a psychological breakthrough. The vastly improved organization and confidence of Arizona's defense has enabled this historic franchise run, but is still the worst of the remaining contenders. I'm just betting that McNabb will fail to exploit it. No PA-only Superbowl for you Governor Rendell, especially if RB Brian Westbrook’s knee ailment is a limiting factor. Follow-up: First off I'm glad McNabb is blameless. Arizona simply played one helluva game utilizing an A+ gameplan. The middle screen TD in the red zone was emblematic of sticking with low-risk, quick-hitting plays against an aggressive blitzing D. Running as much as possible to preserve balance was key. S-W-E-E-T.

Ravens vs. STEELERS (-6). 1 unit. Playing Round 3 between these like-minded teams would suggest another highly competitive brawl as the prior two outings were decide by a cumulative seven points. 0-2 thusfar, the Ravens revenge factor needs to be considered, but not blind the bigger issues at hand. Most worrisome is that the Ravens D is not only hobbled as mentioned above, but the Steelers are more than capable of marching down the field like the Titans did the week before. The O-line and RB are not as good, but the QB/WR/TE threats help offset that. Moreover, I find it improbable the Ravens get lucky again creating turnovers while backed near its own goal. Baltimore's D is high class, but nowhere close to the Superbowl-winning 2000 vintage.

On the other side of the ball I expect the difference in playoff experience to finally catch up with the Ravens rookie head coach-QB tandem. Flacco is due for a less-than-efficient outing, and Harbaugh may be tempted to rely on play-calling that I found way too conservative against a strong defense. While the game is still close, Baltimore must not simply rely too heavily on playing for field position and leaning on its defense; playing "not to lose" won't work. I forecast an favorable turnover differential for the Steelers leaas to a comfortable win, especially since the NFL's best pass rush can handily stifle the Ravens catchup offense. Follow-up: To paraphrase the illustrious ex-Cardinals coach Dennis Green, "The Ravens were who I thought they were." The Steelers were underwhelming and sloppy. My intial reaction is that the Cardinals will be installed as a very small (under 3) dog.

JOBS WAS OUT OF TOUCH

2009-01-14T18:31:00.024-05:00

After months of speculation surrounding the true condition of his health, Apple CEO Steve Jobs is taking a leave of absence through the end of June (at least) after suggesting everything was under control a few days ago. Despite the tremendous performance of AAPL stock since iPOD and iTUNES et al. captured the public's consciousness the company was short-sighted in allowing a Cult of the CEO environment to thrive.

For AAPL reluctant disclosure, obfuscation, and misdirection may be good marketing tactics for a product launch to keep its fanboys on edge, but was completely irresponsible in regards to Jobs' health; of course shareholder should have received an honest and timely appraisal when the issue first arose. The stock is being punished after-hours and deservedly so. If Jobs' prognosis is to never return, than $60/sh is not out of the question, especially with such a sour market backdrop. Bullish analyst loudly protest that AAPL has a deep bench, a fat balance sheet, and growing robustly, but so what? Most shareholders are putting as much faith in the CEO/Visionary that favors black clothing as in the product line. Steve Jobs, rightly or wrongly, was considered the company's economic moat.

More Repurcussions. Not to say that there are not ample reasons for gloom being confirmed basis (real estate, financials, retail, advertising, blah-blah-blah), but I'm afraid the outsized mindshare AAPL has will offer the perfect excuse for a another wave of major selling tomorrow. Hopefully investors avoided being fully invested (long) while the hypothetical road to stabilization in our financial system remains unclear. Selling all (or completely hedging) longs at the open may prove to be a prudent response all things considered. This is a trader's market and this possibility should not be beyond comprehensible.

Above: King Sanford Weill Medical Center

Citigroup. It's funny how little flack empire builder Sandy Weill has taken recently despite the official death of the Citi financial supermarket business model. Here's a reminder that when you, fair reader, become a billionaire don't forget to get out before the market turns, and spread your wealth to every worthy charity you come across, especially hospitals and schools. Of the two the latter is the more important part of your legacy. It also helps to have a villain like Bernie Madoff heavily occupy media coverage.

Disclosures: No position.

4Q08.1 EARNINGS - ZEP, Bullish: INFY, SCHW, JPM

2009-01-13T06:45:00.010-05:00

Last Friday's "sell into the close" call has been timely as SRS was up nearly 12% yesterday, while airlines (~5%) and dry bulk shippers (~10%) sold off in high volume. AMD continues its death march, and PALM gapped up 10% before finishing with a small loss. We expect the market to stay negative this week, with CPI, capacity utilization, and consumer sentiment data on FRI collectively punctuating the negative news. If the selloff is severe enough, however, I am inclined to go long hope/Obama into the long weekend heading into inauguration day.

MONDAY review. Alcoa (AA) has the undeserved honor of kicking off earnings season. The reults disappointed as usual, but a poorly managed company is not a good barometer of answering the question: “How bad are things really?” Zep (ZEP) was spun-out of Acuity Brands (AYI) in Nov/07 and provides cleaning/maintenance products mainly to industrial customers including autobody shops. The huge earnings miss based on raw material expense and a revenue miss was one thing, but the utter lack of confidence in a short-term outlook caused 25% to be lopped off the stock (closed weak). The company wasn’t cheap prior, but I expected more benefit from the trend of longer car ownership and DIY maintenance.

TUESDAY. The premier IT outsourcing company in India, Infosys (INFY), beat on earnings and revenues overnight to provide some relief in the Bombay SENSEX after the Satyam (SAY) accounting scandal rocked the country. With its 0.65 PEG ratio and very solid balance sheet it seems to be a worthy proxy for buying India and will probably be the primary beneficiary of market share gain from the SAY fallout. Worth a trade or start building a LT position as a proxy for the country.

WEDNESDAY. Judging from last year, Charles Schwab (SCHW) is expected to release earnings and DEC activity this day. Despite getting knocked down with the rest of the Financial sector lately, I'm expecting a very upbeat call (all things considering). The pool of potential independent advisors grows substantially for SCHW if the “Morg-ue”-Barney j.v. goes through as expected. Apologies for the cynicism, but a Salomen Smith Barney executive will probably head the j.v. as s/he would know how to cut most effectively. Meanwhile, as I noted on Jan 7, I expect SCHW's Institutional Services business to continue to drive growth. In November total assets had only fallen 4% Q/Q while net new assets actually grew by $5.9B (vs. $1.1T total). SCHW gained 30K new customers in October (+88% y/y). The new marketing campaign launched last SEP has clearly been resonating with investors. Lastly, I expect mgmt denies any speculation of its interested in buying optionXpress (OXPS) in the aftermath of TD Ameritrade (AMTD) acquiring ThinkOrSwim (SWIM).

THURSDAY. I am bullish on JPM (vs its peers) after moving up its earnings six days to get in front of the BAC’s on 1/20. My interpretation is they want to be able to distinguish its recent Q performance as “acceptably poor” by simply being able to confirm CEO Jaime Dimon’s recent public statements that the Q was terrible. I only recommend a quick trade as there may be a capital raise in the works this weekend as well. If you believe Oppenheimer banking analyst Meredith Whitney, it’s actually inevitable. Meanwhile, the probability of acquisition-happy CEO Ken Lewis of BAC announcing disastrous results seems very high. How smoothly could the Merrill Lynch integration be going in this market? There are already signs that Charlotte and NYC cultures are incompatible as the head of the Thundering Herd’s financial advisors is leaving to attend Yale law school.

FRIDAY. All about the aforementioned economic data. Gold and other commodities sell off if deflation fears take hold going into MLK weekend.

Disclosure: No positions.

CELTICS @ CAVALIERS, 8pm on ESPN

2009-01-09T15:45:00.010-05:00

Year to date: 7-1. +5 units

The NBA regular season is a 82-game grind. Knowing which team is better is one thing, but factors like player interest and travel are very important (and difficult to assess). Also, what incentive does a coach have to exploit an opponent mismatch or tendency to the best of his ability this early in the season? Tonight's marquee matchup on ESPN between the defending champion Celtics visiting the undefeated-at-home Cavaliers, however, is a statement game where you can be sure both squads will attempt to perform to its respective potential.

CELTICS (+4) vs. Cavaliers. 1 unit. Whenever a lesser team is favored by more than 4 points in the NBA, it is sending a major message in sentiment, and is a contrarian opportunity I seek to exploit. The Celtics may have been struggling since failing to preserve its franchise-record 19 game winning streak against the Lake Show on Christmas, but I think Boston prevails tonight in hostile territory because of its balanced offensive attack, superior defense, and a winner's pedigree. I hardly expect LeBronBron to choke, but, to me, there's more pressure on the home Cavs to prove they are an elite team that can actually win the championship. Although the speculation of LeBron's impending 2010 free agency departure has cooled since playing the Knicks, that doesn't mean his supporting cast doesn't face any less pressure today. Follow-up: LBJ was great all over the court, but this game was more of a farce for Boston. I can see the players actually lobbying to bring Stephon Marbury, as has already been rumored as his next team, after this performance. Rajon Rondo shouldn't be a starter in this league; he doesn't make anybody better and is pathetic on offense.

THE HOPE [aka OBAMA] TRADE IS OVER

2009-01-09T14:26:00.017-05:00

The market temporarily put in a meaningful bottom in mid-November after Obama was elected, and we are fast approaching the next major catalyst date: the inauguration. As it takes place after the long MLK weekend. The indexes have already risen over 20%+ off the bottom on weak volume so it's time to take profits. The leaders of the rally have been poor-quality companies and early-cyclical industries. Count your blessings and don't get hung up on original cost basis: it's a Sunk Cost! Reversing the trade to begin short exposure is appropriate as the fundamentals are on your side. It's difficult to see this earnings season providing a major short covering opportunity due to the recent gains, and the rate of change in 4Q EPS revisions continue on the eve of Alcoa officially kicking off earnings season next week rendering the consensus number somewhat moot. Obama may provide a refreshingly candid assessment of the challenges ahead on a regular basis, but ultimately the best he can do is mitigate the rate of impending job losses with sound policy. He may have a serviceable jump shot, but the scouting report says he can't drive to the rim with his offhand, let alone turn water into wine.

Last Hour Tactics: Take Profits! I'm pretty sure the market will continue rallying toward the close and finish positive on the day (maybe not Nasdaq), but that will only reflect light shorts covering IMO. Let's not forget the U.S. employment data the last two days was horrendous and hitting 10% is not baked in yet. This doesn't even factor the magnitude of the U6 figure ("discouraged" and "underemployed" ... Google it). How can the international markets not open terribly next week? Major retailers like Macy's are announcing store closings, and there is no chance January gift card sales will assuage anything. Internet sales were even down. Commercial real estate will be the next big industry facing a wave of bankruptcy concerns following the retailers:

Client customers crippled? Check
Overleveraged? Check
Late(r) cycle victim. Check
Benefitted from recent rally? Check

You can invest in SRS: an ultrashort REIT ETF. Take profits in all trading ideas I liked (airlines, dry bulk shipping). There's probably a short opportunity in the semiconductor industry, and a bankruptcy bet on AMD seems like a chalk bet. Despite the massive run, I would only start building positions in high yield (HYG) or corporate bond (LQD) indexes in anticipation of a selloff in US Treasuries that has been even more pronounced on a risk/reward POV. After all I don't see a major shift of bond money flowing into equities, only a rebalancing. It's only a matter of time when our Treasury auctions start to fail (not sell out) like Germany. I said Germany, not Botswana.

Is PALM the next APPLE? If you have to have a long, I would venture into PALM, by and away the star of this week's Consumer Electronics Show in Las Vegas. Sure the massive short-covering spike is already behind us, but there is always room for a legitimate step-up device in the smartphone industry especially one that stands out in the crowd. To me, the new phone, exlusively offered with Sprint (S) service, delivers a clear improvement over the iPhone. PALM is a turnaround story in an area of major secular growth. How many stories like that are out there these days? Ride the wave.

Left: PALM Pre

Disclosures: Long PALM.

DR. SUBLIME & mR. rIDicuLOus V090109

2009-01-09T00:01:00.013-05:00

PAPER HORTICULTURE was 7-1 in its football picks.
Freida Pinto is gorgeous in Slumdog Millionaire. She’d better damn well be considering what her suitor goes through. Hype-worthy story of love, hope, and [welcome] Bollywood cheesiness at the very end.
Would-be Senator Roland Burris has the audacity of a young Don King.
Porn industry profits are not tumescent.
A divorce can cost an arm and a leg, but a kidney too?
The pinnacle of modern British cuisine: Squirrel. Would it be so hard to simply copy cassoulet?
NYers have a more palatable, recession-friendly marriage option.
The stench of hoops coach Tommy Amaker's aggressive recruiting tactics (for the Ivies) may actually be paying off at Harvard. That Jeremy Lin can play ball!
To celebrate a birthday there's no other steakhouse.

NFL DIVISIONAL PLAYOFFS

2009-01-08T14:39:00.019-05:00

Year to date: 6-1. +4 units

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. Recent history also has demonstrated that the bye week is nice to have, but hardly provides an insurmountable edge. It also wasn’t too long ago when the best team in the NFL was the NY Jets(!). They had just defeated the Patriots and Titans (on the road!) in a span of 10 days prior to Thanksgiving, and had maintained a healthy squad. Now the head coach’s job, let alone the moniker “Mangenius,” has been revoked, and nobody (read: me) would shed tears if legendary QB Favre finally retires. From top to bottom, with exception of the Lions, it’s all about “Any Given Sunday” so one’s default bias should be to take the points! Go Cards!

RAVENS (+3) vs. Titans. 1 unit. Besides K Rod Bironas, the Titans offense does not match up well against the Ravens. No WR playmakers and an immobile QB means the Thunder and Lightning running attack will probably be stifled by my favorite defense. Titans like to go to its TEs, but the Raven’s LB corps is the strongest in the league. The injury status of ancient C Kevin Mawae doesn’t help prospects and he was deemed a Pro Bowler this year. I like the Ravens skilled players just a little more, and as long as continually improving QB Joe Flacco holds his own, the birds should win a black and blue type game. Follow-up: Forecast didn't account for total lack of discipline by the home Titans. Ravens D is nowhere close to prime vintage. That being said I hope Rex Ryan is next Jets head coach.

CARDINALS (+10) vs. Panthers. 1 unit. The oft-quoted stat you’ve been hearing is thatArizona was 0-5 while playing in the East Coast this year; blown out three times. So what?Football players don’t specialize in geography, cartography, or anything to do with Rand McNally. Psychology is the only thing that really matters at this level. What’s important is that one of those games was a 4-point loss to Carolina that could have gone the other way. The injury to WR Anquan Boldin dampens my spirits if he can’t play at full strength, but nobody is giving the DL and secondary the credit they deserve for last week; they have a shot at taking away Steve Smith this time. A team playing with confidence and zero pressure is extremely dangerous. That’s enough for me to disregard the line that simply reflects a dearth of Arizona Cardinal fans. Don’t forget to put a little aside for an outright upset. Follow-up: Combination of Cards making plays and Jake Delhomme stinking up the joint was all she wrote. While 'Zona's D met my expections, the Panthers DC should be fired for not taking away Larry Fitzgerald.

EAGLES (+4) vs. Giants. 1 unit. The remarkable 180 degree reversal in perception of Coach Tom Coughlin and QB Eli Manning is breathtaking. Last year was a fairy tale run. This time around upholding the role of defending Champs and lacking the services of Plaxico "Sure Shot" Burress will be major burdens. Another big one is a hobbled Justin Tuck. The only reason why they had a chance against the Pats last season was that the pass rush simultaneously featured 3 DEs playing at a Pro Bowl level. What happens this year if the Eagles seize an early lead, and they have to abandon their dominating run attack? Depending on Eli Manning is still something to be avoided methinks. The Eagles D has been very solid over the past month+: It’s not like trying to stop Adrian Peterson last week was an easy task. And forget about being intimidated by a familiar division rival. If the Eagles shoot out of the gate early like I think they will and take advantage of the Giants’ rust, the consensus opinion of Coughlin will soon join mine again. The Donovan McNabb redemption run rolls on. Y’know kind of like Manning’s last year. Bring on the renewal of Chunky Soup commercials! Follow-up: When you face a great D, you have to try passing earlier in the game. Eli has always preferred up-tempo so why not explore that earlier? Coughlin needed to give Eli a chanve to get into rhythm despite the bad early INT.

CHARGERS (+6) vs. Steelers. 0.5 units. My take the points mantra is suffering a crisis of confidence for this matchup. I don't see superstar RB LaDainian Tomlinson playing with his injury, and last week's hero Darren Sproles is unlikely to provide a similar impact. It's just hard to repeat, the little man's probably beat up, and Heinz field conditions is unfavorable to benefit a "cutter." SD will need a big game from 3rd string speedster Michael Bennett. Said crappiness of field has always been a bane to opposing kickers, too. K Nate Kaeding is very talented, but also has a choking problem in the playoffs. Lastly, whenever a player is arrested during the playoffs (WR Vincent Jackson's DUI) the team has not played well. Despite the negatives I think Phillip Rivers should continue to be a major difference maker while I'm expecting less-than-stellar play from Ben Roethlisberger who is returning from a recent concussion. I would also think Steelers opt for a more conservative to protect its QB. Watch out for the trick plays in this game. Follow-up: The Chargers hardly embarassed themselves, and even snuffed out that trick play I was looking for. Steelers were both solid and opportunistic. I particularly liked how often they threw the ball deep with max protection. Controlling the ball 98.11% of the 3Q was all she wrote.

GOING TO DELPHI: Financial Sector

2009-01-07T22:13:00.019-05:00

The U.S. markets finally fell in 2009, but in the context of the last few months it was just a run-of-the-mill bad day: S&P 500 was down 3%. If you’re with me and sense that this rally has legs, I want to sift through the wreckage of the financials sector that probably suffered most from indiscriminant selling. Specifically I would want to build exposure in no-brainer intermediate-term trends like mutual funds companies capable of delivering institutional services, the accelerated rise of the independent advisor, and boutique investment banks.

Between charlatan extraordinaire Bernie Madoff, train menace Adolf Merckle (the German Warren Buffett we’re told), and the Satyam (accounting scandal (India's Enron), it is a minor miracle there hasn’t been a popular backlash of some sort. My theory is that schadenfreude is playing a large role as for the first time in recent memory the richest (and aspirational) have been disproportionately affected. When the zeitgeist is to help everyone but, hedge fund victims are probably deemed acceptable collateral damage. After all, although the wealthy are much less experienced in handling humiliation, frustration or distress, but are hardly helpless.

To clarify, I am not advocating a net-long position within financials as a goal, but I think it’s still too early to short the investment banks-cum-bank holding companies, credit cards, and REITs, especially chasing a big down day. Also, during the upcoming earnings season, it will still be premature to be able to challenge management’s veracity when everybody is going more or less get away with a) pleading ignorance about when to forecast a market bottom; b) confident in its ability to execute the business model [although conditions have changed dramatically]; c) is cautiously optimistic; and d) recently favored with a government-sponsored backstop.

Market Share Winners are Better Than Nothing. People still need to reach retirement, but today’s priorities are liquidity and transparency over the opaque hedge fund structure. No matter how much value they typically add, the arbitrary gate policy could not have been exercised at a worst time. Even though the limited partners should have better scrutinized the contracts they signed before handing off the money, LT legacy was sacrificed for ST expediency by the fund operators. That's expected, though. However, many fund-of-fund (FoF) managers were apparently collecting override fees for not doing what they were paid to do: conduct manager due diligence and provide strategy diversification. Whoopsie. Some long ideas:

Mutual Funds. In the aftermath, why can’t the bigger and better managed mutual fund complex fill this void? They already have pseudo FoFs with the popular target date funds. Bulking up their long/short offerings and adding market-neutral strategies should be easy as would be adding hedge fund refugees on the cheap. Talent probably would even consider relocating outside the Greenwich-Wall St. corridor to places like Valley Forge, PA (Vanguard) or Baltimore, MD (TROW, LM, setting of HBO's The Wire)!

Independent Advisors. Since people have neither time, capability, or inclination to manage personal wealth the role of the financial advisor has only strengthened now that the robustness of the buy-and-hold myth has been sufficiently debunked. Recently the only things keeping advisors or brokers from fleeing in droves from the brand name wire-houses were golden handcuffs and the benefit of prestige. Both have been rendered moot now and a well run independent asset manager with an appetite for entrepreneurship (and fatter profits) will put out there own shingle. Charles Schwab (SCHW) has a rapidly growing business servicing this precise cohort.

Boutique Investment Banks. How the mighty have fallen. In a market where the only M&A partners seem to be cash-rich strategic buyers, the league tables are going to be turned-upside down. Literally. I suspect an old brand name like Lazard (LAZ), which also has a well-established asset management business, is capable of returning to its prior eminence and newer upstarts like Greenhill (GHL) and Evercore Partners (EVR) can grow beyond their niche. I’m less sanguine on the public private equity or hedge funds for obvious reasons, but the consensus view of inevitable industry consolidation keeps me cautious right now until we see more developments at BX, OGM, FIG or GLGs of the world.

Lender Processing Services. LPS was spun-off from Fidelity National Financial (FNF) last July, and is theleading provider of integrated technology and services to the mortgage industry. Its default services business within its Loan Transaction Services segment is grew 97% y/y in the 3Q and is as anti-cyclical as you can get.

Net 1 UEPS Technologies. If you're looking for a spec long I suggest a look at UEPS. The company provides universal electronic payment systems using a proprietary smart card/reader platform. The target market is provide an alternative payment system for the unbanked and under-banked populations in South Africa and other frontier markets. Fast growing with plenty of cash, and no liquidity issues.

Disclosures: No position.

1H09 OUTLOOK: BE TRIGGER HAPPY

2009-01-04T23:14:00.020-05:00

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way--in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only." -Charles Dickens, A Tale of Two Cities

When one pauses and considers that the novel was published in 1859 and takes place in 1775 on the eve of the French Revolution, it serves as an eloquent reminder that crisis is an integral part of the human condition. The good news is that we’re all clearly better off living today, than anytime in the past Technology, hardly a stifling Big Brother, has served as an agent that both enables competition and innovation, and facilitates checks and balances. Ultimately, I interpret the election of Barack Obama as a referendum on the perception that President George W. Bush didn’t respect these norms.

[History will probably at least credit Bush for achieving his primary objective of preventing another domestic 9/11-style attack; it’s still way too early to keep score on the can of worms he opened in Iraq/Afghanistan].

Personally, I voted for Obama not because I believed what he said to egg on Liberals or naïve and relatively youthful base on the campaign trail, but what his non-political leadership track record indicated: he is driven by a sense of pragmatism first and compassion second. The miracle was not that a bi-racial man was elected, but someone of Obama’s intellect and character, having had to sully himself, albeit briefly, in the highest (and lowest) levels of politics could flourish in such a cynical ecosystem. This development surely is not a prelude to the disintegration of the United States of America vis-à-vis Emperor Caligula’s Rome. Not even close. So as everybody braces themselves for the first full week of trading in 2009, the contrarian perspective is to embrace the (relatively) positive developments that helped avert a total collapse of global capitalism.

The Great Recession. This is not to say that my current outlook isn’t grim. A Great Depression II scenario (e.g. peak unemployment of 25%) may be improbable, but still can’t be entirely dismissed as impossible. If the main source of global growth, China, suffers a hard landing the subsequent takedown of commodity-based economies like Australia and Brazil (Czar Putin's empire is already gasping for air) will be problematic. Dire outlooks are the norm globally with the possible exception of under-banked Africa. Although the consensus expects the U.S. economy bottoming around September, the odds are that this credit-led recession will last longer than the standard consumer-led variant as it normally does. The biggest problem is we’re probably in the early innings in a multi-year (decade?) credit deflationary cycle. Lower mortgage rates in the absence of demand by a credit-strapped, job-loss fearing consumer are no panacea for the oversupply of housing stock. FED Chairman Bernanke and Treasury Secretary Paulson were hardly prophetic handling the market meltdown, but reversing the commitment to a TARP-heavy strategy to one that emphasized shoring up the capital reserves of our major banks (and bank-like entities) and guaranteeing time deposits definitely qualifies as better late than never. There are times to police against the risks of moral hazard and now is not the time.

Sell in May and Go Away. Although the triage process appears to be making some progress as Libor spreads are at less than insane levels, there is only so much (inefficient) government stimulus can be expected to deliver while simultaneously crowding out private capital. Our economy is like Tiger Woods intensively rehabilitating his ACL: when healthy its capable of doing amazing things, but is just as feeble as the weekend duffer when seriously wounded. Hence, I believe sentiment will shift from relief back to a sense of prudent fear in anticipation of a brutal 1Q earnings season. The script of grim reality already seems clear; consumer discretionary spending is stalled as thrift is already being seen as “cool” while cautious CEOs dramatically scale back 2009 capital expenditure plans. In this environment there is no such thing as conviction and the market eventually revisiting last November’s lows seem inevitable. There may be brief stock specific short covering rallies during earnings season where strong managers will be able to distinguish themselves.

Bernie Madoff is Going to Hell. The sheer audacity of the Madoff Ponzi scheme should earn him the re-naming of the crime. After all, his last name is pronounced “Made-off.” Even if by some miracle the markets recover to pre-Lehman bankruptcy levels the painful reminder why Cash is King means one suspects the backlog of hedge fund redemption requests won’t abate soon. Unfortunately, the equivalent to a run on the bank is so destructive because of the negative self-fulfilling prophecy dynamic. This significant overhang of selling pressure cannot be ignored, and may last a long time if the net outflows during the mid-1970’s are instructive. Then again things seem to develop in a much more compressed time frame these days. And to the credit of the hedge fund industry, still did outperform the main indexes by a gigantic margin.

Why Bother? If you can adopt a bias that the U.S. equity markets will be bound by a wide-range for a multitude of years, not unlike Japan since 1990, there is still a massive opportunity to make good risk/reward decisions. If “investing” means you’re agnostic about going long or short that’s even better for the time being. If we’re lucky, our chosen leaders will apply the lessons of history and at least avoid repeating critical mistakes; I think we’re doing that. And lastly, the U.S. still has the trump card: we operate the world’s reserve currency, and nobody else has the stature to seize that from us. See how the vicissitudes of crude oil affects the arrogance and reach of hostile nations (e.g. Russia, Iran, & Venezuela). The audacity of hope at least makes it easier to get up every morning.

DO CHINESE-MADE CARS COME WITH CRASH HELMETS?

2009-01-03T15:53:00.015-05:00

During Winter 07/08 when the first spasms of a credit-driven recession was affecting the U.S., emerging market bulls suggested the rest of the world, especially China, would maintain high single digit GDP growth and continue climbing inexorably toward its destiny besides the U.S. as a superpower; maybe even usurp the leader completely faster than could be possibly imagined a year earlier. Meanwhile, the flaws of Communist-styled capitalism went unquestioned and the gold rush mentality persisted. Unfortunately, the effectiveness of directing capital by top-down command is like gauging the value of a car strictly based on its top speed. Steering, brakes, and air bags are almost superfluous while speeding on the Autobahn, but what happens when you encounter a steep, downhill, tortuous mountain pass without those features? Disaster.

The collapse of the commodity markets from the West’s POV, particularly crude oil falling from $147/bl to under $40, has been considered a welcome relief for consumers, but I’m afraid this is a pyrrhic victory. It only seems to confirm that the official explanation for China’s industrial slowdown preceding the Summer Olympics in order to alleviate air pollution is utter B.S. as the “on” switch has apparently broke.

While GDP was marching along at a low double digit clip China’s central government had only limited success controlling the local provincial power brokers from moderating its small-scale industrial ambitions, let alone heed environmental/pollution controls. The only measure that can possibly rationalize this wasteful overcapacity is an extended period of economic retribution. Purchase of materials need to be curbed at least until material stockpiles are consumed even if everybody suffers. Taking this bitter medicine appears may be a wise choice in the LT, but also reveals the extent that China’s growth was as primed by easy global financing dynamics as anybody else.

In November the IMF already lowered its 2009 GDP forecast to 8.5%, but this would appear to discount a best case scenario where the government perfectly manages the overcapacity and based on the assumption that the government's GDP statistics are robust; what if the results are less-than-perfect? As it is, many China observers suggest that an 8% GDP growth rate is the minimum needed to sustain civil stability as the mass migration from rural to urban centers continues en masse. If China’s GDP were to cross the proverbial Rubicon the negative consequences could factor geometrically and an actual GDP rate of 0-5%(!) comes into play. Unfortunately, I think this “very very bad” scenario can’t just be easily dismissed.

The big question then becomes: Will China cease buying U.S. Treasuries as a way to recycle its export profits? China already announced in November a $586B stimulus plan (~16% of GDP) to be spent over 2 years, and subsequent plans to restock base metals inventories. Unlike Obama who has the benefit of taking advantage of playing with the world’s reserve currency, China's spending is more or less a zero-sum game in a dead credit environment. During the Asian IMF crisis the above was a fruitful choice so I’m inclined to believe it bears repeating, but it’s hardly a no-brainer in a much more tightly integrated global economy. After all, they can’t possibly depend on a immature domestic consumer market with its savers mentality (no social safety nets) to spend its way out of a slowdown since a sell-off in U.S.Treasuries hurts the purchasing power of its best customer.

The Bottom Line: I don’t see a Goldilocks scenario. To date, the Treasury market has defied all expectations as a safe-haven asset class, but when a crowded trade reverses the consequences may be severe, including the US government’s inability to continue finance bailout funds at extraordinarily cheap cost. If the collective global stimuli plans are successful, going long commodities (TCK), seaborne transportation (NM), construction-related equipment (TEX) and consulting (ACM) could rally for the next three-six months, but if we fail to see confirmation (e.g. dry bulk shipping chartering activity - Baltic Dry Index - is a good proxy) or a sustained recovery in commodity prices soon, one should be prepared to not move cash to the sidelines, but reverse the trade. In the meantime staying long with limited gross exposure is the aggressive tactic.

Note: Representative small cap equities in ( ).

Disclosure: No positions.

FOOTBALL FRENZY

2009-01-02T16:24:00.032-05:00

Year to date: 1-0, +1 unit.

MAJOR COLLEGE BOWL GAMES

[Sugar Bowl] Utah vs. ALABAMA (-9.0). 1 unit. Despite suspending All-American left tackle Andre Smith, Alabama should comfortably control the line of scrimmage on both sides of the ball. That means by the second half the Tide the will have worn the Utes down and “Roll” into victory. In fact, I see the high profile suspension, along with playing in the Louisiana Superdome, as helpful toward keeping Alabama focused throughout. Follow-up: 'Bama forced to reshuffle entire O-line after backup LT when down early with injury.

[Fiesta Bowl] OHIO STATE (+8.0) vs. Texas. 1 unit. I’m taking the points, and wouldn’t be shocked to see an outright upset. Let’s face it: this is not the game Texas was looking to compete in. Without the carrot of winning the national championship due to the shortcomings of the infamous BCS system, I expect a battle-tested super frosh QB Terrelle Pryor wish the Longhorns still had Vince Young; VY probably wouldn’t mind being back in Austin either. Follow-up: RB Beanie Wells 2H concussion forced OSU to adjust, and it took just a little too long to figure it out. Almost pulled off the upset.

[BCS National Championship] FLORIDA (-3.0) vs. Oklahoma. 1 unit. Florida is more balanced, has the been-there-done-that leadership advantage of QB Tim Tebow, and playing in-state. The little things and an unending supply of speed demons should carry the day. Follow-up: Gator defense was outstanding. Tebow was resilient after chucking the early INT. Congrats.

NFL WILDCARD WEEKEND

The first round of the NFL features an unprecedented number of three “home dogs” and one pick’em. This weekend is normally good for two outright underdog victories, and for whatever reason the Sunday games usually seem to be blowouts.

Falcons vs. CARDINALS (+1.5). 0.5 units. Neither side has recent playoff pedigree so I’m focusing on likely QB performance. To me all Kurt Warner has to do is play within himself and take advantage of his receiver mismatches over a under-sized secondary, and avoid gambling and fumbling (not an easy task, I know). Offensive ROY QB Matt Ryan has tremendous poise, but he is still a rookie with no playoff experience that tried to do too much in the Big East championship versus Virginia Tech last fall. Remember? Follow-up: In the 'Zona! Congrats to its 1st home playoff victory since 1947!

Colts vs. CHARGERS (Pick’em). 0.5 units. The Colts offense is not as explosive as it used to be, which is why QB Peyton Manning was just awarded his third League MVP award. The Chargers also deserve lots of credit for showing tons of tenacity and salvaging a potential playoff run. LT is clearly not the same player [and may not play], but I love QB Philip Rivers’ development as a leader. Playing on a busted ACL in the AFC Championship Game last year is an indelible memory; they almost won, too. Follow-up: Punter Mike Scifres and a 5'6" RB Darren Sproles stole the show! Awesome OT game.

RAVENS (-3.5) vs. Dolphins. 1 unit. Kudos to Chad Pennington’s achieving Comeback Player of the Year for the second time, but I doubt the Wildcat offense will generate big-plays against the Ravens ball-hawking D. Let’s not forget that D-coordinator Rex Ryan is trying to impress so he can finally earn a head coaching job. Baltimore’s style of play also travels well, especially down to sunny Miami. I could even see the Ravens defense outscoring its offense; watchout for S Ed Reed. Follow-up: Ravens didn't allow a TD off an early fumble, and Reed had 2 INT, including a TD return. QB Joe Flacco showed impressive mobility.

EAGLES (-3) vs. Vikings. 1 unit. I think people typically ascribe too much credit to momentum in the NFL, but the Eagles performance against division rival Cowboys to secure the final wildcard berth in week 17 made a major statement. Donovan McNabb has been (rightfully) much maligned, but playing away from the infamous Philly fans provides the ideal conditions to build playoff confidence as the NY Giants did last year. Mediocre Minnesota QB Tarvaris Jackson will probably be running for his life against a relentless blitz. Very favorable Philly match-up, especially if Adrian Peterson can’t rush for 150 yards. Follow-up: A one-dimensional offense is not going to cut it during the playoffs.

A NEW YEAR

2009-01-01T14:26:00.025-05:00

Authoring a blog can be more trouble than its worth, but an alteration in my career path and recent encouragement from a friend/blogger has me writing today. The investing and sports punditocracy (idiocracy?) is already quite crowded, but these (not too dissimilar) subjects are my twin passions so I'm throwing my hat into the ring. Truly a new year's resolution.

A Little Philosophy

Our culture's embrace of technological innovation is a double-edged sword. Information continues to become commoditized at a rapid pace reducing all sorts of barriers to entry, which invites healthy competition, and thus innovation. The incessant creative destruction seems to be a positive public good, but is extremely exhausting on a personal level. To wit, what education/career path is "safe" enough for people to safely reach retirement nowadays? Certainly company loyalty is a laughable concept. Everybody is "burdened" with heavy demands on continuing education whether you accumulate sheepskins or not.

Normal people (irrespective of intelligence) don't handle volatility well, which is why "deep insights" (e.g. LT trends) is a goal that many pursue, as do I. The aforementioned is an important intellectual exercise, but tasting reward might not be timely enough. Since we must live on a human timeframe, I think the more important question is, "What's the intermediate term (e.g. weeks/months) reality?" These days it seems this is the only "sweet spot" that a hybrid qaulitative/quantitiave-based strategy has a chance to deliver.

Glimmer of Optimism

On the heels of the worst global market selloff since the Great Depression, I expect a tremendous amount of volatility in 2009. Without the benefit of the longest secular bullmarket in history providing a tailwind, most investment advisors will be at a complete loss how to service their rapidly fleeing customer base. Considering the prototypical incentive schemes and an utter lack of risk tolerance by investors, it won't be surprising that plenty of tears are to come for those less than nimble.

That being said, howver, I believe the market faces a low-risk for disaster at least until the U.S. presidential inauguration on Tuesday, January 20 when Barack Obama becomes the 44th POTUS. The FED, Treasury, and incoming administration have been aggressively implementing short-term stimulus plans to avert another Great Recession (or Japanese-style deflation). Knowing what mistakes to avoid repeating is ostensibly provides a great template, and many are loudly forecasting we should be coming out of recession by 2H09. Since "everybody know's" the market discounts events 6-9 months in advance, clearly going long the market is "right."

Due to the context of this recession I'm very skeptical the global recovery will adhere to that timeline, which is why I offer such a ST positive view, but sitting on the sidelines when I expect the S&P500 index could threaten 1000 (+10.7%) on a solid foundation of hope means I advocate full positions in selective areas: growth stocks like large cap biotech (GILD, CELG), and industries with favorable y/y comps (US airlines ex-LUV) are favorites.

Meanwhile, infrastructure stocks (FLR, JEC, URS, ACM, GVA) have already run up, and probably worth riding longer, but these are at risk of "selling on the news" after inauguration. I'd like to hear more concrete (no pun intended) details materialize from Obama before recommending something beyond a momentume trade.

Disclosures: No position.

LINE OF THE DAY:

[Rose Bowl] Penn State vs. USC (-9). 1 unit. I expect the Trojans to romp over the Nittany Lions. The mental letdown against Oregon State cost them at a shot for the BCS championship game, but is a scenario unlikely to be repeated with Coach Pete Carroll at the helm. It also doesn't hurt that the starting 11 on both sides of the ball for USC is chock full of pro talent, and they have dominated opponents consistently all year. Playing at the Rose Bowl, essentially a USC home game, is a psychological advantage that makes PSU's task all the more insurmountable especially since they don't have a good enough running game to "manage" a victory. Besides the standard disclaimer of avoiding giving up defensive TDs, this game should otheriwise be fun to watch as an early preview of future NFL talent if not for its competitiveness. Follow-up: One funky high snap on a punt while running out the clock was the only cause for concern.