Long BP, Short Obama

Long BP: because BP is currently trading below book value. As the Huffington Post put it yesterday, it is worth more dead than alive.
I consider this market valuation the result of a panic selling, a consequence of the media and Barack Obama's focus on BP as responsible for the oil spill.
And they might be partly right: it might be that BP is responsible for the mistakes that caused the spill. But the question is: how much will this cost to BP at maximum?
Considering that BP currently makes quarterly profits in the magnitude of $6 billions, they have plenty of room to "make it right".

I think there is currently a mob hysteria against BP that will have to calm down at some point. The hysteria might not have reached its climax yet: there could be a total boycott of BP gas stations, etc.
There could be a worsening of the oil spill, dozens, hundreds of law suits, etc.

But can we live in a world where hysteria goes on so far? If BP is brought down, there will be many negative consequences: will oil companies continue deep water drilling after the events of the last months? What will be the legal protection they will have? What will be the implications on the cost of the barrel of oils?


There were already several bad oil spills in the past, and the fact that we have a new one in deep water (which makes the fix so complicated) is the consequence of:
- the world addiction to oil,
- a depletion of oil sources in dry land and low water locations.

We want the oil, and BP was there to get it. Yes, they did a big mistake. But sooner or later somebody was going to make a mistake in one of the dozens or hundreds of deep water wells.
Obama should be careful not to go too far after BP because this fight might very well haunt him in the future.
There is a lot of hypocrisy in going after BP, and not blaming ourselves for wanting the oil, but not the spills that it might cause. We should know by now that oil spills are a part of this human activity.
Once people calm down on their witch hunt, they might look back in the current time and judge that Obama only played a role as a witch-hunt follower, rather than a wise leader.

If we truly want to protect the environment, I think we should acknowledge our addiction to oil and its risks and impacts on the planet. And we should acknowledge that we all have a responsibility in the oil spill, not just BP.

Long FP, XOM, GOOG, MSFT, RIMM, PGR, IBM

I like all those positions.

In average across those the current market PE ratio is about 12, which is very low considering the Fed Funds Rate is at 0.25%.

I consider these positions typical Warren Buffet plays: companies making consistently making profits, profits consistently growing, and low market valuation (PE about 10 to 15).

The only downside risk is really a 'Lehman' type event, perhaps in Europe with banks balance sheets, or sovereign debt issues.

Ideally one would have a hedge against such risk: PUT option on certain banks?
I have little hedge position right now: just PUT option on PCY, just in case the world markets tank.

World main economic blocks balance sheets (attempt)

Here is something I would like to complete...
It is an attempt to model the world's main economic blocks balance sheets.

By economic blocks, I mean:
- US/EU/JP/China/etc households
- US/EU/JP/China/etc corporations
- US/EU/JP/China/etc governments

The objective is to have the big picture on:
- who are the biggest economic actors? and how they compare?
- who is overleveraged? and potential consequences?
etc.


Here is my first draft.
I welcome any input, as I find it hard to get and verify some of the information.

Jim Cramer calls the housing bottom but forgets to mention Robert Toll is selling

Jim Cramer should have mentioned that Robert Toll is currently selling his shares of Toll Brothers.

Inestors beware.
Shame on Jim Cramer for this one.

Accounting made in USA - a cartoonist nailed it

source: http://immobilienblasen.blogspot.com/2009/04/emporer-has-no-clothes-but-who-dares-to.html
Thank you

Great interview with Dylan Ratigan

Great interview from Dylan Ratigan.

http://www.fedupusa.info/Dylan_Ratigan_Interview

President Obama, please listen to it.

(I think President Obama reads my blog)

KB Home short squeeze deja vu

the current rally could be a short squeeze, and it has the look and feel of the september 2008 rally...

US Homebuilders seem largely overvalued to me

Some points I would like to make:
- US homebuilders had a huge rally, and are now valued as much as they were a year ago sometimes.
- few bloggers mention it,
- it seems financial newspapers are not even interested to mention this, being too busy reporting about "green shoots" and recoveries, and Obama´s confidence,
- and very few people remind investors that homebuilders face a very tough market. US foreclosures are higher that last year. Housing prices are lower than last year and prices are still dropping at high speed. Unemployment is up and going higher. US households have lost 20 to 25% of their net worth since a year ago.
And some insiders are selling like mad: see Toll Brothers CEO insiders´trades.
I think it is a scandal that this CEO can get away with this kind of behavior without being called for it by mainstream media. When will CNBC, Financial Times, WSJ do their work?
This CEO should be invited asap by CNBC, Fox news, and grilled on why he has been selling shares of his own company for the last 2 years.

I see no fundamental explaining the rally in homebuilders.
The only reason the rally could continue I believe, would be short squeeze, or continued irrational rally...

Disclaimer: some short positions on US homebuilders.

Citigroup (NYSE:C) and AIG (NYSE:AIG)- short interest building up again

source: bigcharts.com

It seems the short sellers are choosing their preys right now. C and AIG are clearly among them.

After AIG political fiasco (with their wonderful idea of giving bonuses), I believe there is little chance the shareholders will keep a dollar.

Deutsche Bank (NYSE:DB)- short interest is building up

source: bigcharts.com

Microsoft (MSFT) market capitalization back to 1997 level

MSFT market capitalization is currently at less than $148 billion.

According to this article from the New York Times dated June 1997, the market capitalization of Microsoft at that time was $142.8 billion:

"But Microsoft's closing share price yesterday was still a remarkable 45 times estimated fiscal year 1997 earnings of $2.63 a share, giving the company a market capitalization of $142.8 billion."

And a few months later it went above the current $148 billion.

The big difference is that the earnings are today much higher. Of course the earnings in the next 2/3 years might not stay at 2007/2008 high level, but the future still looks good for Microsoft in my opinion.

My take on the US housing plan

I am no expert but what I can see is:
- taxpayers will have more to pay,
example here:
"the government and Investment Bank share the cost of further reducing the interest rate so that the Family C’s monthly debt-to-income level is lowered to 31%"

- I do not see specific details on how the government will implement this plan so that speculators will not benefit from it.
The example sheet has three examples, all leading to a refinancing. There is no example of how the plan will handle someone who would not deserve to be helped by tax payers.

So the general idea seems kind (to help families facing difficulties), but what if half the money goes from the pockets of "reasonable" families (taxpers who did not buy houses) to "irresponsible" people who were gambling in the housing market?

The white house housing plan debate

The plan seems to be here.


Here is a link to the White House reaction to Rick Santelli´s rant.

Also interesting is this reaction:

I guess we will all have to make up our mind.

Can´t trust anybody these days.

Excellent interview from Chris Whalen

You can check it out here.

First time I see him in interview and he is very clear on what needs to happen and the extent of the potential losses as Citigroup, Bank of America, Wells Fargo/Wachovia, and JP Morgan.

His idea of receivership "a la WaMu" sounds good and realistic. It is the first time I hear someone who is realistic about the situation, and offers a clear path. Of course it´s a painful path, inclduing for bond holders: this 50% haircut on Citigroup bond holders, that will raise some fear to the bond holders. But it´s this or the american taxpayers take the costs.

The Wells Fargo case

I find the case of Wells Fargo (WFC) very interesting.



Yesterday we learned that Warren Buffet has been selling 0.1% of his stake in WFC.
Check it here.
Berkshire Hathaway stake in WFC decreased "to 290,244,868 shares from 290,407,668 shares".



Why sell 0.1% of his stake? It is such a small stake.
Is Warren Buffet currently trying to sell more of his shares?




It will be interesting to hear more on this from Warren Buffet.



Also at least four people, who's opinion I value quite a lot as well, being seriously doubtful or simply bearish or short on WFC:
- Mish (Shedlock)
- Reggie Middleton
- Nouriel Roubini
- Bennet Sedacca



Mish: here




Nouriel Roubini: here

"Today Citi and Bank of America clearly look like near-insolvent and ready to be taken over but JPMorgan and Wells Fargo do not yet. But with the sharp rise in delinquencies and charge-off rates that we are experiencing now on mortgages, commercial real estate and consumer credit in a matter of six to twelve months even JPMorgan and Wells will likely look as near-insolvent (as suggested by Chris Whalen, one of the leading independent analysts of the banking system)."



Bennet Sedacca: here

As Bennet Sedacca pointed out: "Alt-A is likely our next very big problem, which could pose a large problem for Wells Fargo (WFC) which inhaled $130 billion of Alt-A from Wachovia."





Disclosure: short WFC

Could it be that the banks "supported" this rally?

The rally of the last 4/5 days seemed to have "priced in" a lot more good news than it got today from the US Treasury.

Could it be that the banks "supported" this rally because they thought the Obama administration would be too scared to disappoint the market?

Sugar still going up

Silently, sugar is going up since a few weeks.

Sugar is up 17% over the last 12 months according to ft.com. See it here.

So much for all those who call the end of the commodities bull market.

How much damage can Ken Lewis still do?

Article and video interview of Bank of America CEO here.

Ken Lewis offers no mea culpa for overpaying for Merrill Lynch.

What was the rush to buy it at that price the interviewer asked. Oh, other people wanted to buy it ! Great.

And worse: he states he will not need more TARP money.

How long will he stay CEO ?

How much damage can he still do to BoA shareholder´s and taxpayers?

He did not see anything coming. How is he supposed the know the next problems?

Obama about to disappoint (me)

All the bad apples are rising:
- zombie financials: JPM, BAC, WFC, C, etc.
- and overbuilders: TOL, LEN, HOV, PHM, etc.

All these stocks are up 10 to 20% today.

If these are the companies who will benefit from the US administration stimulus, then it is really disappointing.

Bad economics as Jim Rogers would put it.

This would be supporting two industries that have inflated and led us to this mess. These industries benefited during the boom and can now afford lobbyists, and strong political backup it seems.

Not only these folks have their pockets full, they will now keep their jobs even longer.

I recommend Mike Morgan´s post. He seems even more disgusted than I am.

Ambrose Evans-Pritchard and the US homebuilders stocks

In this article, Ambrose Evans-Pritchard uses some weak reasoning:

But it is telling that the shares of builders D.R. Horton, Toll Brothers, and Lennar have begun to rally. The ITB builders share index has risen 45pc from its nadir in December.

I would argue that the ITB went up more than 45% at least two times in 2008:
- from 11Jan08 to 01Feb08,
- from 11Jul08 to 19Sep08.



What did it prove? Nothing.

Let's not try to learn information from what these stocks do. This is reasoning backwards.

The market is just moody, and the market can be wrong.