Vince Farrell of Scotsman Capital-Verbatim

From: vince farrell [mailto:vfarrell@scotcap.com]
Sent: Tuesday, February 12, 2008 2:36 PM

I heard a good one on the radio. Warren Buffet is the ambulance driver that pulls up to the scene of an accident and takes all the healthy patients. But, why not? The market loves the idea that the muni market will be "saved." The market didn't need saving though. Munis default very infrequently and insurance was simply a rental payment for a AAA balance sheet to help lower interest costs. I always thought that Wall Street knew the price of everything, but the value of nothing. Turns out that they/we didn't know how to price things either. Imagine taking a cash cow like muni bond insurance and figuring out how to screw it up by reaching for gain by underwriting insurance for things they knew nothing about. Good for Buffet. He again shows his genius. He'll provide a floor for things that should have been fine. I hear the bond insurance firms don't want to cede the business since it's pretty much dollar good, and that's why MBIA is trading down with the market up. The muni insurance market will have a home, and the idiocy that threatened MBIA and others yesterday, threatens them today still. No rescue on the subprime/CDO whatever stuff.

MMM raisied the dividend today by a bit over 4%. Not earthshaking news till you consider it's the 50th year in a row, that's right, 50, that MMM has raised the dividend. It's also the 366th consecutive quarter that the company has paid a dividend. That's 91 years !!!! The stock trades for a market multiple, pays an above market yield, and the consensus estimates call for low double digit growth. And the dividend goes back to the Paleozoic Age and is clearly important to management.

AIG's situation will unfold in due course, but one point. Even the bears on the stock have it earning money this year and estimates for next year float around $6.00. The book value at the end of November was around $39, and, while growth in book might be less than originally hoped, it will grow. This company is so profitable it can take the publicized hits (to earnings, not cash) and still report positive earnings. Trading at 1.2 times book, the valuation looks attractive to me. Extra thought, in times of extreme stress, price to book is a good way to look at this industry.

The idiot Chavez is making noise again. New readers to this letter should be told this guy has bothered me for years. Now he threatens to cut off oil supplies to the U.S. Should he do that, oil sold elsewhere will cause "elsewhere" oil to be sold here. Oil is "fungible." Also, Venezuelan crude is "heavy" and he needs the special refineries in the U.S. His stuff doesn't have a natural market. The guy is destroying a wonderful country.

Expect oil supplies to show another build tomorrow as we continue to correct the tax related inventory liquidation at the end of 2007. I still feel oil will find a bottom in the $80's and that oil equities are trading as though the price is going much lower than that.

In the "they didn't" category: A Florida memorabilia company minted 10,000 24-karat gold coins engraved with the words, "New England Patriots 19-0 Super Bowl XLII Champions." And, several Israeli soldiers were reprimanded for "mooning" folks in the West Bank to keep them away from a disputed area (I could do that!) And, lastly, Dean Tong, a self proclaimed domestic violence expert who has been featured on Dr. Phil and Nancy Grace, was charged with physically assaulting his wife.

Long: AIG,MMM