Quick Thoughts

I was at the hospital most of the day today. My father was admitted to the hospital last evening. He had a high fever (104.5). His liver enzymes are not good. At least he is hungry and not in any pain. Of course, until they find the cause, they are not going to let him eat. Further, his fluid intake is limited. He's not happy on any front.

I've not much to offer but this....As the South American stocks are hot, I prepared for you the SA stocks that are listed on the NYSE, and included pictures. See the "New Stuff" tab.

Musical Chairs

The music has stopped and the commodity sector does not have a chair. I've been expecting this to happen, but as you know, I was early. Being early is not so bad, but one has to also has to have (a) conviction and (b) t. fortitude.

Here is where a picture is worth one thousand words:


The fast money moves with amazing alacrity.

Yesterday's Transport

Yesterday I started out at 7:45 a.m. and returned home at 3:45 p.m. I drove from my home to Emporia (which is 1.25 hours) and then from Emporia to Springfield (2.5 hours) and then back home again.

Here's a pic, admittedly not a very good one, of 4 of my charges at the Emporia stop. (I wished I had taken more pics). Last weekend I was at my Dad/SM's and I spied a collapsible cage. These cages are indispensable for dumping puppies into them while you clean out their cages. What is even more valuable is that they once they are removed from a cage an placed down they will pee and poop. They will then proceed to step all in it and worse. One has to be vigilant in getting it up.

All of these gals are siblings, so they can be together. As you can see, I have paper covering every square inch of ground to protect them from bio-hazards from other dogs who may have defecated there. (It's our regular stop and travelers and the Cracker B also relieve their dogs. Parvo lives in the ground and does not die, so these pups can get it easily from the ground as they've no immunity).

As you can see, they've drunk their water and turned it over. As short time later they did their number 2's and then squished between their toes. I cleaned them before returning them to their crate--two to a crate. I also had another fellow, "Bear", who was unbelievably cute, in addition to a mama cat and two kits, and and older cat, Morris.

As I was driving straight through, I was going to arrive early to the Springfield. The cats were getting off there, so that rescue came early. The other half of the originating transport (which stopped in Fredericksburg) was about 45 minutes to 1 hour behind me. The traffic between Fredericksburg and Springfield is horrible. As I was in the traffic, I imagined with not a little bit of trepidation, what would happen if my car were to overheat in high 80's with these babies in my car. With the exception of some intermittent mewing by the kit, the mom and Morris, my other charges slept like drunken sailors sans snoring. I reached back and put my fingers through Morris's cage and let him rub his face against them. He'd ask for my hand a few times, and I gave it too him when I could. It comforted him, and he would quiet down.

I made it to Springfield and handed the cats off. Our drop off is in a strip office park wI set up the pen, first for Bear. He relieved himself. I put him back in his crate--an act which he protested. I cleaned up the paper and then put fresh paper down for the 4 girls. They were happy to get out of their cage. Business was taken care of, fresh paper put down, and they romped and played. I took Bear out of his crate and put him on a large beach towel with me. It was a nice respite from the drive being on a grassy spot in the shade in the company of puppies!

Bear was an eager player, but he started getting overly excited and surprisingly aggressive and bit me rather painfully. He was so rough (though I could grab him by the scruff of his neck!), I had to put him back in his cage. Little Kudjo! He then went to sleep.

This Momma, her 11 new babies and her 1 year old son, JJ (see one of the pups snuggling on him?), were found by animal control in a house. They were left behind by the owners. JJ was very scared. They were traveling in the other 1/2 of the transport. In Springfield, JJ became scared by the male transporter for the next leg and backed out of his collar. You cannot imagine how quickly they can do that.

He then proceeded to find a hole in the fence--the other side of which is 395 (after a grassy buffer). It was a TERRIFYING moment. Luckily, he saw the traffic and was scared of it, and turned back to find the comfort of his mother. Had he bolted into the traffic and been hit. . . I perish the thought of it. I've been at that stop several times, and I did not know there was a hole in the fence (it is obscured by some trees/brush).

Everyone arrived safely. It was a long, but fulfilling day.

Today is my daughter's 20th birthday. It's hard to believe that she is no longer a teenager!


I'll complete the weekly sector spreadsheet tomorrow morning.

Wood Thrush have Arrived

On April 25, 2007, I reported to you that the wood thrush have arrived. You can see that post HERE. The wood thrush is my favorite bird. It's not a flashy bird. In fact, it is quite shy. It has a very distinctive song--very lyrical. In my area, this is one of the first birds singing in the morning, and one of the last ones to retire in the evening. There is no sound that I treasure more than the sound of their song.

Now you know that I'm all about Davincian Principles here--and I found this nifty website that I wanted to share with you: http://www.usgs.gov/ It's the site of the U. S. Geological Survey. They have some 'stuff' on the wood thrush that you can find HERE.

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P. S. Within the last few posts I shared with you that I was really happy with my blog colors (except for a wayward text hue on emphasized text). The other night my husband and I were on the deck--just before this latest bout of downpours. The sun was setting, and the sky was this lovely slate blue and the dark brown bark of the trees stood in sharp contrast. I realized at that moment that the blog colors mirror that image in the inverse.

Also, on Sunday a tornado touched down not 1.5 miles from me as the crow flies. It destroyed an outbuilding (a sturdy pole shed--I guess the roof was like a parachute) and tossed it on the other side of the road; the roof was taken off the house; and a barn damaged. The son, who lives next to his parents, was under the shed. He was tossed about and ended up with a bruised shoulder.

Heuristics and the Importance of Confessing Stupidity

I don't offer this definition to treat you like an imbecile. The first time one of my colleagues mentioned that we were going to embark on a discussion and example that had heuristic value, I had to ask him what it meant.

But, it is a very good word, which I've used here before. I did something so unbelievably stupid, that I'd really prefer NOT to share it with you. However, if I were NOT to, then I would not be true to the purpose of my blog nor to my commitment to being honest about my process. As you know, I share with you one account which I call my spec account. It is here where I take license with spec positions. However, it is still real money. I started out with 5-7K, and it went has high as $23K (kissed it for a moment). My account is now about $16.3K. This account has suffered mightily from my entry (early) into SMN when I thought that it had bottomed, but it was merely resting. While my account was crawling on it's knees in a weakened state, I introduced LNG--I'll skip why I thought it was a good idea. I've got to control my public humiliation!

Below behold the LNG chart, and my notation of where I capitulated. Of course, I was on an entire boat-load filled with such such ninnies as you can see from the volume bar. There's a reason why they tell you not to sell into a panic. In fact, I'm generally more likely to buy into one (yeah, I know that falling knife thing). And for several volume bars, I was pretty darn cool. I reminded myself that you don't sell into these rampages. Then, my inner dumb ass got very courageous told my anti-DA alter ego to step aside. You'll remember, of course, that this is the very same joker that told me that my shoes were just fine when I did the dog rescue and broke my foot.


Lack of discipline translates into lack of money. But I was already chastising my inner DA for not researching this a bit better. There was a terrible, horrible Barron's article on Thursday that I missed. I rarely miss those. Anyway, that is today's heuristics.

While in the middle of my post, my daughter called me with a vital piece of information that I wanted to share with you. This piece of information had to do with the smell of one's urine after eating asparagus. Her information was that one of her friends told her that there is a specific gene that determines whether or not you can smell this odor--a gene that makes you smell blind. I found this article, which you can link to HERE.

As archived in the Boston Globe at www.boston.com, below are more details about why asparagus causes urine to have a unique odor:

Asparagus is filled with sulfur-containing amino acids that break down during digestion into six sulfur-containing compounds. These can impart a unique smell to urine as they are excreted. "It's the same sulfur group that makes skunks smell," said Barbara Hodges, a dietician with Boston University's nutrition clinic, the Evans Nutrition Group.

Scientists remain divided on why people have different urinary responses to eating asparagus. One camp thinks only about half of the population have a gene enabling us to break down the sulfurous amino acids in asparagus into their smellier components. Others think that everyone digests asparagus the same way, but only about half of us have a gene that enables us to smell the specific compounds formed in the digestion of asparagus.

"There's something of a dispute," said Dr. David Stollar, chairman of biochemistry at Tufts University Medical School.

Now, in honor of the title of this post, we could conduct a pretty easy experiment. All of us in our family appear to have the gene that both allows us to process AND smell the compound. Not that I would want to volunteer for an experiment to smell another's urine, it would seem to me that you would ask someone like me to smell the urine of one who claims to be unaffected by the noxious chemical breakdown to validate if that is indeed the case--or if that person's urine smells, but they just cannot detect the odor (bad breath and armpits come to mind).

There. I've confessed about my selling into a panic as well as some chemical processing and detecting proclivities of mine. Please do not judge me harshly, but understand that I'm laying myself prostrate on the alter of heuristics.

"The Low"

2nd_Ave notes that Brinker thinks that March 10 was the low. Could be. Richard Russell recently disclosed that we were in a massive bull market from which we only took a breather. I no longer look to market technicians or pundits to accurately predict which way the market winds will blow. I remember when BC in November of 2006 basically 'guaranteed' that we had seen the top. We hadn't. After Cara, Pring, Murphy among others were wrong on their top calls (though Gary K hit it right on the money), I became an agnostic. I don't say any of that to be "nanny, nanny booh-boohish" in any way. I merely want to point out that there are lots of smart, experienced, people we should listen to because they have good insights. And, those people make predictions--some will be right and some will be wrong. The market is very good at making a fool out of most folks from one time or another.

Will we be in a prolonged recession? I believe that we are in a recession, and I believe that it is in the early innings. I still believe that home equity borrowings shore the gap between what people make and what people want to buy. How can the average consumer's liquidity get more robust in the next 12 months--outside the fiscal stimulus--with credit contracting and collateral values declining?

If we are in the early innings of a recession, then we will see the bad news unfold over time. Bad news is (1) pitiful job creation; (2) increasing unemployment; (3) greater jobless claims of longer duration; (4) earnings misses. I will remind readers that last year retailers AFFIRMED their forecasts even though they missed on Q1 and Q2. It was not until August of 2007 that they came clean. Whatever the true depth and breadth of the recession, we will know as it unfolds over quarters--not weeks. Until the evidential matter piles up, I think that the market will use the interim as a time to get busy going up--and create the stories around it to be plausible.

Remember, too, that we've not seen the full effect of loan losses yet on the bank's financials. We've seen the asset writedowns for specious loans. And, to be fair, we may very well experience the dynamic that the asset writedowns may in fact have been too much--for that reason, there is no future performance on the loan that could be any worse than what was already wrung out. None of us would have any possible way of knowing that. But the market tends to overshoot. All I'm saying is that I still believe that the bank graphs that I shared earlier will come to pass, but the severely marked down assets held for resale (remember, those assets are not marked down into a reserve) will be written up and that will fund future loan losses on loans held to maturity. I could be wrong, but I think that it is more of a plausible chance of being right.

As the market is comprised of more than 30% financial institutions, and you can see the severity of that accident on those stocks, there may be a very good chance that so long as retail and banking reflect the worst of a the credit crisis and recessionary sales performance respectively we may very well have seen the worst. See, there's a story for you!

I think that this week will be a big tell for we don't have options expiration coupled with the first earnings reports as we did last week. The reactions to some earnings surprised me. I think that the psychology of the market is to have willed the past problems away. And perception becomes reality does it not?

If we are in a recession, and I believe that we are, likely we are in the early stages of it. I learned from mid 2006 - mid 2007 that the market's cognition of problems is a slow one and one of short duration. We've already had cautious statements from Fed Ex and UPS. Rail traffic is down though they are getting their due by charging fuel surcharges (and the market loves it). To me the most important numbers that we will need to watch is job creations and jobless claims/unemployment. Those numbers speak to the prospective health of the consumer.

So long as we get no nasty earnings surprises AND we don't get any news about slowing growth in the areas that are current the pilot light of the global economy, then the market may have a quarter of making hay. With so many underinvested, this is likely to create a feeding frenzy among stocks. You know what else we have not seen? We've not seen small/midcap companies being snapped up by foreign companies. The minute that starts to happen in a meaningful way, it will be an elixir that will cure all of the market's ills.

I think that the devil still needs to be given his/her due. But that devil is a patient one and is content to watch others revel while tapping out time.

The book that I mentioned, Value Investing, has some very good (and surprising) insights on recession and p/e expansion and contraction over market cycles. (I'm not equipped to discuss it yet, though, having not fully formed my thoughts on it).
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Gemmastar: In only buying companies that are 60 years old.....I forget the book that I read some years ago, but the average age of a corporation is 75 years. I wouldn't use the company's age as a criteria for investing, but rather look at the historical ability of the company to create shareholder value through a full range of a market cycle.

I do think that there is such a thing as too much diversification in a portfolio. In fact the PM's who are contrarian investors tend to have more concentrated portfolios.

I think that listening to conference calls and reading the 10-K (as opposed to the annual report) are critical if you are holding for the long term (traders typically snort at these). You'll learn alot about the industry--plus you can see how forthcoming management is in the analyst round. That being said, though, I take all management commentary with a grain of salt.

Ultimately, for the companies that you chose to own, you have to be able to answer the question of how does the company create shareholder value and how do you determine when that value creation starts to slow relative to others--meaning that there are more efficient vehicles to re-deploy your capital. Also, you should know what risks they have (country, customer concentration, product obsolescence, commoditization of product/service, product/regulatory liability, barriers to entry, access to funding....). You'd be interested in knowing that in the Value Investing book VK speaks to dividends being the primary creation of shareholder value during range bound markets!

Sunday Morning Musings

We are due to have rain today and that may wash some of the pollen out the air. I worship at the altar of the great god Zyrtec. Last Spring was debilitating even though I was on medication. Either pollen is getting worse (doubtful) or my allergic reaction is getting exacerbated by age (probable).

Today I'm a bit sore from dog transport. Fat puppies in crates make for some heavy lifting! And my lack of mobility (other than crutch maneuvering) has left me in some pretty poor shape overall. So the soreness is of the pleasant type that reminds you that your muscles are there for you to use!

I started reading Active Value Investing--Making Money in Range-Bound Markets. I saw it mentioned in one of John Mauldin's Missives--as the author, VNK, wrote a brief article on it which you can see HERE. I'd really encourage you to read the article.

I'm finding the book very insightful. You've heard me say in this space that the conclusions that many have drawn by studying past market downturns relative to this and that and paddy whack suffer from a rather major detriment in that the sample size is too small to draw any meaningful conclusions. I was grateful to see that VNK said as much. You so rarely see someone admit that. His book is data intensive, but not to be snooze inducing in the least, but rather to shine some light on some popular myths (I call them 'stories').

I was particularly interested in his discussion about P/E compression and expansion which he mentions in the reference above. In fact, the Loeb comment "The best stocks always seem expensive to most investors," is still resonating with me--with a sting of shame on my cheeks I might add. I'm not very far into the book, and I'm already moving through an inventory of flags for pages with pithy information that I want to share with you.

See, I want to move from being the Perplexed Investor to The Perspicacious Investor. I'm not in any danger of having to change my title bar anytime soon. At least I have some perspicacity about my biases that stand in the way. That's a step forward!

I include the definition not to insult my readers. I remember about 2-3 years ago, Bob Pisani used this word. His fellow anchors (Michelle C-B being one of them) did not know the word. I knew it, and it was the perfect word choice for what he was talking about. They also ribbed him for using it. The English language is much like our brain--we only use a small portion of it and accordingly are robbed of great richness in such underutilization.

I've a to do item to get the weekly sector spreadsheet completed. It will be later today or tomorrow morning--I'll place a note at the top of the blog so that you can see that easily. I regret that I was not very good about putting in the dailies!

As I look around my house, there are so many things requiring my attention. I'm going to have to adopt a 'quadrant' mentality. Meaning so much has piled up, that I'm going to have to do a quadrant or sector approach to keep from being overwhelmed.

So I lift my coffee this morning in a toast to all perspicacious and perspicacious-aspiring investors/traders.

Transport

Here are a few faces from our transport today:

This terrier fellow was a very sad guy. He was shell shocked to say the least. Roger is a volunteer who is very generous with his time. He has a van, and when he is not able to help he lets another volunteer use the van.

This is Juneo (above). A sweet young male. He stayed quietly by the light pole after being walked and watered. He received lots of pats and face rubs.

Above is Daphne a Chocolate lab/mastiff (I think pit bull). Is she not the picture of contentment? You wouldn't know it from the pic above that she was almost too scared to get out of the car. I had to picked her up. Once on the pavement, she rolled over. Sometimes these dogs are so scared they can do nothing but lay down and roll over on their back--so desperate to let you know that they are not a threat. Occasionally they pee on themselves. They will not even get up and walk. They just hug the ground. It is safe. It is heartbreaking to witness. It is only a handful of dogs this way, and they are generally young like our sweet Daphne.

I gave her an all over vigorous body rub--taking my fingers and scratching her from her tail base to her neck. Oh, she loved it. I then rubbed her belly and face and coaxed her up. She knew she was safe and walked. I earned her trust quickly. Another volunteer gave her a chew. She lay in the grass while we spent the next hour tending to all of the pups and kittens. It really helps when a tethered dog stays put. Some try to chew through the leash (which is why you see a steel cable here!) or back out of their collars. Juneau and Daphne were perfectly behaved. They will enrich some family's life very much by their being a a part of it.

I ended up not having to drive--but goodness knows an extra set of hands was needed. Our Ric/Springfield team is sorely delayed due to a wreck. Crawling traffic with pups is no fun. They are almost 1 hour behind. Wish them godspeed.

Market Miasma

Today I will do a dog transport. It's my first with this group since my injury, though I did do a single dog rescue for Chase, the English Setter. I'll drive from Richmond to Springfield. I'm looking forward to seeing my fellow volunteers and the passengers!

I get Colin Twigg's newsletter. I find it worthwhile. It is free, and you may want to take a look for yourself, which you can do HERE. In this week's missive he warns of a bull trap. As much as I yearn for clarity in the stock market, I've concluded that looking for clarity it is the equivalent of looking for a unicorn. Clarity in the market is mythical.

When you think about it, though, clarity in anything that we do in life doesn't really exist except for how we define it. We define it through our "stories"--the story of ourselves; our relationships; our purpose. As we change the story, we change the reality. Isn't that how the market works?

We build stories around investment/trading methodologies: follow momentum, invest for the long term; diversification; value investing; contrarian investing; investing by the stars; investing with the stars. And once we get the story right around the methodology we choose to follow, then we build stories around investment themes (global infrastructure, decoupling, currency moves etc). I think we spend more time finding the touchpoints that prove our story right rather than focusing on the touchpoints that call our story into question.

The Kirk report posted Gerald Loeb's trading tactics. You can find that post HERE. I think it is worth your taking a look. There were a few points that really resonated with me that I wanted to share.

You must trade with the actions of the market and not simply by how you might think the market should trade

My thesis that oil/basic materials would fall once the specter of recession was seen by all. Nope. Nope. Nope.
The best traders are usually psychologists. The worst are usually accountants

As an accountant by training, I do find that trying to ascribe logic and analysis to outcomes that one observes is frustrating and oft times unfruitful. I do understand market psychology better now, so I'm less frustrated and certainly less surprised. I consider that progress.

The stock market is more an art than a science and far more complex than most people understand

Roger that. Unfortunately, I think that many folks want to make it seem simple. In fact, it felt like to me that it should be simple and straightforward. Nope.

The best stocks will always seem overpriced to the majority of investors

If I can slay this dragon, I will have come a long way. Many of the market leaders I do not buy because they seem to expensive to me.

What everyone else knows is not worth knowing

I agree with this. And when I think of the opportunities that I've been able to exploit it is because I knew something that others didn't know. Two areas--bond insurers/mortgage lenders and HMO stocks--are where I expected a decline for good reasons. Unfortunately, we are told that there is no way that we could 'know' something that the market doesn't know. I don't buy that anymore.

But it does take the market time to figure it out--so it is best to take what you know and tuck it in your pocket, wet your finger periodically and stick it up to see which way the wind is blowing. When the wind shifts, and you can see that a few are starting to come to your realization (and watching the chart is the only way to do that in my mind), then make your move. If you are early, you might as well be wrong.

A Resource for Readers

I've been a subscriber to Real Money (The Street.com) for several years. There are a number of contributors over there that I enjoy reading. For some time I tried to participate on Jim Cramer's blog; however, it was more like being in a raucous brawl rather than civilized discussion. Though I do not consider myself a trader, I went over to Rev Shark's blog, and have been an active participant there.

One of the bloggers goes by the name of Yachtsman. He doesn't post there so much anymore, but he has created a blog in which readers might have an interest. He's an experienced money manager, with a disciplined, conservative approach. In addition, Yachtsman provides e-mail updates which you might find informative. I'd encourage you to take a look and see if you have an interest. You can find Yachtsman's website here (I'll also have it in the sidebar).

Earnings to Surprise and Delight Us

I'm not sure if we are in the Twilight Zone or not, but there is no mistaken that folks want to get a party started. It's never good to come to the party wearing the wrong stuff--DUG and SMN were definitely wrong. I got out of both, but note before a little damage. The DUG wasn't too bad, as I had bought it to hedge some energy stuff.

My BNI puts were my stupid stock trick. I don't understand the love for the rails. They are getting fuel surcharges. I guess it is no different than sales that exceed expectations due to foreign currency gains.

Last night and today, I went through charts. I cannot buy off of charts alone, I have to see some fundamentals. So my eyes hurt from too much screen staring. I've notice within the last 60 days the screen is not so easy to see. While I don't "need" reading glasses, I find that I can read longer at night before feeling the need to turn in. I have distance correction, and I have to take those glasses off to read. I take them off to cook and eat and that sort of thing. But I need them for TV. But the screen 'thing' which has never been an issue, now is.

I bought some CAGC today. It's a Chinese liquid fertilizer company. They have profits. It's a bulletin board stock that I bought at $2.77 Not a recommendation--you know that I do not do that. Why did I buy it? Good industry, profitable, and under the radar. I didn't see until two minutes ago this article. mentioning it. Here's the chart:





My spec account is $18, 6xx. SMN torpedoed it. So much for my 'thesis'. Some are good; some are just wrongheaded.

Today was a milestone day in one positve way---I was able to get my running shoe on my foot. No sock--in fact, my foot (I affectionately call it my Frankenstein foot, because it doesn't always 'feel' as though it belongs to me!) is such that I couldn't really tell that I didn't have a sock on it. But, to put this shoe on was real progress. I walked outside and in the woods with the puppitos. I was careful, but it was the best walk I've had sans cast. I'm amazed at how much stronger I get every day. Our bodies are damn wonderful at times. At times our bodies turn against us. Right now, I'm happy to be enjoying a body in reasonable cooperation, though I feel like 'Bride of Frankenstein" foot!

I am also happy because I'm happy with the way the blog looks. I really like the shade of brown as the background and the text color. If you only knew how many hours (and of course you've suffered through my many choices) I spent, you'd shake your head and laugh!

From My Notebook... Gap Analysis

It's been a while since I've pulled my notebook out. My blog has now become my notebook. It's nice because I can search for stuff.

This particular entry was in a Journal (I've confessed to you before about my paper and pen combined fetish) that I called my transformation journal. Well, I only have about 3 8x10 pages filled in. Short transformation! But in the first entry dated 09.18.04 it said: "I have decided to leave my job at the first of the year". I did tender my resignation in April of 2005. It took until December to leave.

What I was happy to find is this--I wished I had referenced where I pulled this from. And...it is funny to find this, for I was looking for the book. Nevertheless--I'll write for you what I have. I think that it is important, and I hope that you'll find it inspirational or at least thought provoking.

How can you best express you?

The first test is knowing what you want, knowing your abilities and capacities and recognizing the difference between the two.

The second test is knowing what drives you, knowing what gives you satisfaction, and knowing the difference between the two.

The third test is knowing what your values and priorities are, knowing what the values and priorities of your organization are and measuring the difference between the two.

The fourth test is having measured the differences between what you want and what you are able to do, and between what drives you and what satisfies you, and between what your values are and what the organization's values are, are you able and willing to overcome those differences?

For me, I did that and said that the organization's values and mine were too far apart (not that the organization was doing anything wrong, but the NEW focus was not what I enjoyed doing). Anyway, I wanted to share these with you as well as put them someplace I can access them. As soon as I find my book, I'll ascribe the correct credit for these words, and regret that I'm currently unable to do so.

Banking and Loan Charge Offs

Long-time readers will remember that I'm fond of the FRED site (click graphic to be transported there), and when I was doing my uber-nerd banking/mortgage/insurer/bond insurer research and boring you to death with that I would show you this stuff.

The following schedule shows the percentage of the Loan Loss Reserve to Total Loans. The current number has a ways to go still.



Now, have you heard one banking analyst talk about the above schedule? I think not. The last time I pulled this schedule out was to remind readers that when the analysts said about 16 mos ago that "loan losses are low" (1) we are at the peak of a cycle AND (2) that means that there is one place to go (like low unemployment rates). I'm tempted to say that with the crappy underwriting we are likely to see numbers that exceed the one from the recession in early 90's. Hard to know WHAT these numbers would look like if there were not so many of them sitting in REIT's as collateral for bondholders.

Here's another schedule that shows the Nonperforming loans that are over 90 days. The plus non-accruals refers to loans that are no longer accruing interest.


We'll look at these handy dandy schedules as the year wears on. If you have an interest, you will also want to look at what the banks are doing with the negative amortization on loans.

Ravings from Leisa-Land

Or and Immodest Proposal for dealing with the debt crisis.

There is no question that "all of us are in this" whether we made a choice to be or not. Also, it is a zero sum game--so let's spread the pain first to those who were original parties and not have predatory capital swoop in and scoop off the cream and leave the taxpayers with the sour stuff.

So here's my proposal--admittedly roughly hewn. I was inspired by NG's comments--as I was crafting a response to certain of his points, I thought of this. While not terribly well thought out, (I don't have the background to think more on it and produce a better result), I do think that there are some meaningful nuggets here.

The underlying premise, which might be totally ludicrous, is that by aggregating more, you will spread the losses out among more folks who directly participated in the issuance of, purchase of, or speculation in these securities.

• Create some transparency and have some trustworthy place where every frickin swap and the related sellers and buyers is recorded;
  
• Round up all the underlying debt that these swaps are based on and catalogue it;
• Find some meaningful way by some credible third party (I'd like to see a group comprised of investment bank advisor(s) NOT involved in this stuff, public accounting firm(s); SEC and Treasury among others) to create some sort of to create homogeneous pools of the underlying debt--not by issuer, but rather by risk profile. (Perhaps cold fusion would be easier). Assign interest rate (a haircut can be taken here too).
  
• Unitize each homogenous pool of debt (bond holders will also be homogenized, and they'll get units in a broader collateral pool--the goal is that the larger collateral pool is of better quality. Let's say all BBB mortgage backed securities are combined and throw them into a single pool regardless of issuer. Original unit value is par based on the current outstanding principle. The pool will be unitized on a monthly or quarterly basis based on the current value of expected future cash flows. Naturally maturity dates will have to be taken into consideration. The difference between par and the PV will be kept in loss reserve tied to each homogeneous pool.
• All bond holders of discrete securitizations will receive a new securitization of collateral from the appropriate homogeneous risk pool. Again, interest rates may be adjusted if needed. (Hey, they caused this problem too by not paying up for risk).
  
• Recalibrate swaps based on the value of the underlying risk pool. (This is very fuzzy to me).
  
• Issuers of debt within the pool will pay a monthly fee based on the original principle. Such fee will pay for administrative oversight as well as fund a loss reserve based on some model!; They were initiators of this, they should pay a fee to resolve this.
  
• Bond holders receive principle and interest payments relative to PV of their portion of their units. Bond holders will end up with an instrument that in re-secured by receive principal payments adjusted for the current expectation of the loan loss reserve. If it is 87%, then their principle payments when due will be adjusted accordingly. IF future performance is better, they can get a better payout. In no event will previously paid principle be adjusted downward. (Which means, the administrators better have good PV discounting models).
• For all investment banks that both underwrote and sold this debt in addition to betting against it: take the fees from underwriting, issuing etc PLUS their gains on betting against this crap that they were issuing and net it against their losses. Consider levying a reserve pool tax against the difference and put that in as part of funding the loan loss pool.
  

Meaningful role of the government:

• Provide appropriately minimal, but meaningful underwriting to loss reserves to provide some stability by removing large uncertainties;
• Ensure that there is a fair means of loan workouts that do not provide perpetrators of fraud to gain.
  

Link Test--disregard

This is a Link test.

Not so FAST and Lethal Promises

The smartest thing that I did this week was sell 3/4 ths of my FAST APR $45puts at $1.35 on Thursday. FAST was reporting on Friday. It was one of my rare moments where I acted and suspended thinking (I should do that more). I offered all 20, but only 12 were filled, then the stock started to gain, and I elected to keep my 8 which were almost entirely paid for. Though it is 'house' money, I know that it still represents a loss. But I was prepared to gamble 'house' money on an earnings miss. They didn't miss. So the puts were trading at one point at .10!

I listened to the conference call. FAST is a fantastic company. But I think that paying a 30+ p/e for 15% earnings growth is a bit much. I'd look for that stock price to drift down, but it will do what it wants to be sure.

The GE surprise was an unpleasant one.



WLP did the same thing. The CEO affirmed guidance and then delivered an Easter egg filled with dog doo.

As a CFO, part of my job was delivering promises to all sorts of people. The numbers I planned (along with team members) and had to execute (with team members) generally determined the bonuses for a great many people. Failure to deliver. . . writing it makes me shudder. I never failed to deliver. Though there are pressures--emanating from within ourselves and from others--to have numbers 'look' a certain way, it is best to have a very simple mantra: never create an expectation for a number that you cannot deliver. And it does sound simple, but in reality it is not. The nice thing about being a CFO is that you see all the moving parts (so help you somebody if you FAIL to see something), and you know what you can and cannot control. And it is always a good idea to have some "if A, then B" plans tucked away to be pulled out when the IF occurs.

I remember having to create a pro forma to show the banker. The owner said, "You cannot show him that number." I said, "I do not plan to be involved with or show him a number that we cannot deliver." [That's when you shut up and look directly at the person with an impassive expression and let them figure out the "what's next" comment]. When it doesn't come (because there really is NO retort to that) you go on to say, "He's our business partner, and we don't want to surprise him. But let's also talk about the upside opportunities." Well, that was probably one of the most important conversations I ever had in that position. The bankers and the creditors trusted everything that I said--and with good reason. Even when the news was bad, really bad.

As investors, we look at a GE and a WLP and immediately see the impact on the stock price when someone overpromises and underdelivers. What about our personal stock? What happens to our stock price when we overpromise or underdeliver to a friend, SO, spouse, child, colleague, employer? We cannot readily view the depreciation of the currency of our word so easily?

One of the things that I like about David Allen's system of organization is creating a place for promises. In my resolutions list, I've done that; and it has helped alot. No one wants to commit to something that they cannot deliver, but we pressure ourselves or allow others to pressure us into committing. We then feel stressed when we cannot fulfill the commitment or perform it to the standard it deserves.

At the risk of sounding preachy (but you know that the preachy gun is really aimed at me!), today would be a good day to review the commitments that you've made and

• ensure that you've written them down in order to
  
• construct a plan of fulfillment (time/tasks) so that you can
• relax.

I've a mental model to share. First, think about your capacity to make commitments as a warehouse. You are the warehouse manager, and you are responsible for everything that comes in. Every item that comes in has to be inventoried in terms of date, time. As all of the inventory is pre-paid--meaning that it was bought with your word that you would deliver it--you have to assign a ship date that does not interfere with the ship dates of the other goods. Periodically you have to take inventory--particularly if your customers who are expecting a shipment (your performing your commitment) start to yell at you. And if your forklift is broken, or the warehouse is so full you don't know what belongs to whom, you, my friend, are in over-committed hell.

Now think of your commitments inventory as a gold brick. This gold brick has 'special' properties in that the longer it sits the warehouse of unfulfilled commitments it loses value. Some gold bricks have more volatile properties in that they lose value sooner, while others are more stable, but still subject to dissipating value. The amount of dissipated gold is YOUR currency devaluation in the eyes of those to whom you have unfilled commitments.

The keys to successful inventory management are these

• know your warehouse capacity--refuse new shipments if you cannot adequately manage them;
• keep good inventory records: when was the item received, who does it belong to, when does it need to be shipped;
• keep the warehouse clean and verify your inventory;
• If shipment dates are threatened; call your customers and tell them;
  
• Do not accept items into inventory that threaten the value of your inventory--accepting a drum of gold-dissolving solvent (a commitment that will way lay the fulfillment of all other commitments).

The last thing that you want is a drum of solvent to start leaking and dissolve the value of your currency. You'll become a third world nation with worthless debt.

Blog Friends Fur Friends

I wanted to share some pics of fur friends of Blog Friends from Rev Shark's blog on Real Money as well as from readers here. It's a nice way to personalize the online experience a bit and sharing something that you love (and loves you) with others. I've made this a permanent tab on my blog header area.

I'll let this picture of Macy as a pup grace the top spot. It is one of my favorite pictures that I've ever taken.

Here is one feathered friend that will always shock and surprise. Here is original art from Russell120--our friend, The Black Swan:








TA Kitty's able prescience with respect to coming market events is world renown. To the left, TA Kitty warns of an approaching black swan reminding us that though we should be vigilant, by its very nature, a black swan event cannot be anticipated in advance.







TA Kitty (like many technicians) utilizes different tools. At one time it was a sock, and once that caught on, it was no longer useful.

Colorful ribbon has proved to be a valuable though elusive tool. TA Kitty tires of trying to understand the tangled message in this presentation and is hoping that by resting she is also subliminating the important message. Or perhaps she is just reading the tape. Cats are elusive and are not quick to share their secrets.

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Here's a picture of TQ's, Sweetie

"This is the picture featured on the Rescue Shelter's website and told me this little girl needed a mommy." Scroll down to see me with my new friend!
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Below is Ron's (captronva) Muffy who contracted renal disease most likely from tainted dog food.

"Our dog (Muffy) for 11 years was the best pet we have ever had. I picked her out of a litter of five other puppies. She was so shy. I put her in a cardboard box in the back seat floor and brought her home for my daughter who was ten at the time."

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Here's Mary's Mollie Mae Louise--previously posted.

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Kingsnake's Chief Security Officer's name is Riley. I'm thinking Smiley!

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Here are pics of Sharpy's Rusty. He looks ready to tackle anything! (scroll all the way down to see Nautical Rusty and how he has flourished under the care of Sharpy and his wife).



And a blast from the past------Caddie---note the DOW. Caddie lived to be 23.


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Skimamma's Babies

Schnibbles
Schnibbles muscling in on the Cat's bed:


Daisy

Lucy


Harley and Daisy
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Leisa's two girls: Macy (left) and Daisey (right):

Lucy: The original MOB! 1993 - 2007

Macy with her "big dog friend" Greta (1997 - 2007)
Macy was just a pup when she came to our home. She ended up
out bigging her BDF's!

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Here are GatorDave's Puppitos:

"Bailey is 5 years and 80 pounds. Even though he has a bum hip he still manages full speed on all fours when he is defending the backyard from invading squirrels. He's never caught one but he never gives up. He's great inspiration for me."

"Pepper is 18 months and 60 pounds"

Pepper/Bailey


Chillin' Pepper

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Our Mary has given Emma a place in both her home and heart (added 06.30.08)

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Here's Luggy's Baby Wrigley (a Carolina Dingo)


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Updated Pics of TQ's Sweetie



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Leisa's New Kittens



Minnah


Wyatt

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Here are Lugnut's Bevy of Fur Friends


Moonshine and Grits

The pair in repose

Boeing in stock-picking contemplation

Wellington: Heck with that stock picking!

"Rorschach," Wrigley (Carolina Dingo)


Here is our Sharpy's Rusty @ his first birthday--See above for "before" pictures.