I'm In Love With a Hooker

Q:
What is a smokingly hot Manhattan strumpet to do nowadays? The boys are broke (their bonuses either disappearing or crashing - as they were often partly in company stock the vests over three years)?

A:
Go to Vegas and take it off for strangers. Be proud of what you are. A two dollar ho!

http://www.nypost.com/pagesixmag/issues/20081123/Desperately+Seeking+Sugar+Daddies


As for us, in the words of the immortal Dean Martin when describing his time prior to fame and fortune, "I never needed any money, I was good looking."

World's Most Overvalued Speculations

Well perhaps we have exaggerated, as that is reserved for modern and contemporary art.

Until prices collapse, we don't' view any of these as good speculations:

http://www.iht.com/articles/2008/11/24/business/24Forbes-homes.php

Remember the post 2003 bull market touched modern art, waterfront homes, collections of wine, rare musical instruments, rare furniture and American Muscle cars (another extremely over valued asset).

Shocker of the Century : Citi Bailed out!

Surprise, Citi is getting bailed out.

Even bigger news for those that lack a brain. The entire US financial system is defunct and only kept alive by the gov. The trillions in mortages, commercial real estate loans, credit cards, and derivatives, all of these big boys are bankrupt. . . save some back office gov deals to keep them afloat and prevent bank runs.

Hint . . . buy yourself at least some physical gold and put it in a very safe place.

http://bloomberg.com/apps/news?pid=20601087&sid=aoAIRJWrcnO4&refer=home

I Banking to Back Office Monkeys

Goldman Sachs, per clusterstock.com, is moving its first year I banking analysts into Back Office positions, which are the lowest of the low on Wall Street.

We have often wondered why low level I Bnakers make so much? Other than their hours, their jobs are back office anyway. Pitchbooks and Excel sheets. The higher ups, we get. They manage relationships and bring in deals. We have no problem with thme earning a good living.

http://clusterstock.alleyinsider.com/2008/11/goldman-sachs-gs-moving-the-youngsters-back

Two Differing Approaches to Latin America

The Russian and Chinese approaches to this very resource rich region are contrasted:

http://www.iht.com/articles/2008/11/21/america/russia.php

http://www.iht.com/articles/2008/11/20/opinion/edshambaugh.php

Short on the Next Bounce

We would advise a short on TROW and BEN (Franklin Resources) on the next rally, as these are two asset managers that have not yet collapsed.

We believe the long-term trend is away from mutual funds, as they have proven to not be able to preserve capital in this down market. Many are in fact under performing the indexes which are heavy with financials or commodity related (energy, materials, industrials) exposure.

We believe that the long-term trend is CLEARLY away from active management - save the very best and the value added in small cap selection, towards passive indexing. There has been a proliferation of etf indexes.

As we have often stated, the fund managers are paid on fees, not by having the bulk of their own net worth in their funds. Lets call them out for what they are!

Thomas Jefferson On Banking

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." -Thomas Jefferson

Stocks for The Long Run, Redux

Henry Blodget does a nice job analyzing "real" or inflation adjusted stock prices. Clearly from the chart we can see that the 1990s returns were a complete historical aberration.

Unfortunately too many fund managers and investors are hoping against hope. They never studied history.

A lot of the returns over the very long-run come from dividends being reinvested, so returns would be higher than we see. . . too bad dividends (until the crash) had been pitifully low.

Stock prices seem like they need a long basing period before any true secular bull market appears.

http://clusterstock.alleyinsider.com/2008/11/stocks-for-the-long-run-part-3

What Does A Market Bottom Look Like?

We are often asked, is this the bottom? When is the bottom? To which we reply, we don't know. We let the market go where it wants to go.

A secular bottom in most asset classes - the kind that long-term investors should be most interested in buying - does not look like a V. It does not occur over days, weeks or even months. It often takes years or decades.

A true secular bottom occurs not only when prices have collapsed, but when there is zero interest in the asset. Investors won't be asking where the bottom is, because they won't care. They will have long moved forward.

That is not say that there isn't money to be made in sharp V bottoms. There is, but these are usually trading bottoms. Investors should be nimble, and prepared to sell when the market shows them a good profit.

For secular bottoms, we have yet to find a piece that sums it up as well as this one. And the author was right. Investors piling into Miami real estate in the fall of 2007 have been carried out. Prices continued to collapse. Not to mention the condo fees and taxes on buildings that sit 25% occupied.

http://www.dailywealth.com/archive/2007/oct/2007_oct_22.asp

Coming Collapse in London Real Estate

London . . . cultured, hip, extravagant. There is no more overpriced city on the planet.

The City is bleeding finance jobs, Russian oligarchs are seeing vast tracts of their fortunes evaporate, and steel stocks (steel barons love London) are plunging.

We will shout it from the roof tops, there will not just be a slow-down, but a Biblical collapse of London housing prices. Homes bought in 2007 will prove to be one of the worst investments of all-time. We sense Tokyo in the early 90s (the housing mkt crashed after the Nikkei which peaked at Christmas time 1989).

http://www.iht.com/articles/2008/11/12/business/city.php

R.I.P. Modern Art

As easy it was to see this collapse coming, we will still say told you so.

We watched the market breathless over the past several years, especially this past spring. Francis Bacon is not bring the bucks expected.

Ex -Lehman honcho Dick Fuld and his wife didn't get nearly what was expected for their recent art sale. The auction house though has guaranteed $20 million, so it has to eat the difference. Easy to see why Sotheby's stock has tanked.

http://www.telegraph.co.uk/news/worldnews/northamerica/usa/3453613/Francis-Bacon-portrait-pulled-from-sale-after-failing-to-attract-bids.html

UVA Endowment Gets Carried Out

We will let clusterstock.com do the narrating. The UVA endowment fund appears to be in huge trouble.

http://www.clusterstock.com/2008/11/uva-sorry-alumni-we-gambled-our-endowment-and-lost

Death of a Legend

Long time value Guru David Dreman has turned in an abysmal performance. Proving sometimes that stocks are cheap for a reason.

Right now he and Bill Miller remind us of Willie Mays in a Mets uniform.

Once great, but the game has "passed them by."

http://quicktake.morningstar.com/FundNet/Snapshot.aspx?Country=USA&pgid=hetopquote&Symbol=DRLVX

http://quicktake.morningstar.com/fundnet/Snapshot.aspx?Country=USA&Symbol=LOPEX

A Wasted $3.5 trillion

So the bailouts have now reached $3.5 trillion, approximately 25% of GDP. Guess what? It ain't working.

The only cure for this is time and for the government to step back and let the free market determine asset prices. The U.S. government doesn't have enough money to prevent the melt-down in home prices and various toic assets and derivatives. It is not there, so don't expect it to work.

http://finance.yahoo.com/tech-ticker/article/126117/Bailout-Price-Tag-3.5T-So-Far-But-'Real'-Cost-May-Be-Much-Higher?tickers=AIG,FNM,FRE,XLF,%5EDJI,%5EGSPC,C

Oh and yes, buying long-term gov debt at these prices is suicidal. Stick to the short-end or cash if you must.

Plus ca Change, Plus C'est La Meme Chose

Comrade Pelosi is ready with more of our tax payer money to bail out the automakers. U.S. automakers are set to receive more in bailout money than the entire market cap of the U.S. auto industry.

Another total waste of money by a fat and worthless government.

http://bloomberg.com/apps/news?pid=20601087&sid=aidowMGl4rUc&refer=home

Another Futile Effort

With Fannie and Freddie working on new plans to keep homeowners put, we call bullshit. Same with plans by Citigroup or any of the other banks for that matter.

The problem is that housing is too expensive. The only way the housing market will bottom is for prices to fall. They must fall to the level were they are attractive relative to incomes. The faster this is allowed to happen, the sooner housing will bottom.

We call this another hair brained government action that will only prolong the inevitable.

We often mention psychology, as it is the key to investing. Home buyer psychology has changed. The mania that preceded the crash was of unbelievable proportion. Every last man, woman, and child that wanted to buy, had bought a home. The psychology has changed. There is no need to buy "now", as prices are headed much lower still.

http://iht.com/articles/2008/11/11/business/mortgage.php

Within every mania there is fraud. There always has been and there always will be, as man's nature does not change. We will paraphrase Bill Bonner and note that the fall is proportionate to the deception that preceded it. The entire nation was complicit in the housing "affair."

Coins We Have Been Buying

We have been accumulating as of late 1948, 1960, and 1961 NGC and PCGS Franklin Half Dollars. These are the non proofs in MS 65 graded condition.

PCGS has these coins priced from $100 (1948) to $150 each (1961). We have been able to stash away a few at $75, though it is getting much tougher as of late. We advise you put away a few for the future at any price under $80 per coin. We are also not purchasing the Full Bell Lines FBL) variety, as we feel there is little "value" left at current high prices.

Additionally, 1959 Proofs graded 67 make an attractive speculation if found for $50 - $65 or so. It will be hard to find these under $50, but a few are out there.

As usual only buy NGC or PCGS certified.

We use the PCGS Price Guide as a rough guideline.

http://www.pcgs.com/prices/

http://www.pcgs.com/prices/PriceGuideDetail.aspx?c=734&title=Franklin+Half+Dollar

What Might Work On Wall Street

The emerging markets have collapsed. This we know, as does everyone. At some point they will rebound. When, we don't know. There are plenty of guest on CNBC and Bloomberg that can give you the exact date.

We are too dumb, or rather too realistc to even guess. The market will do what she wants to do.

We do believe that emerging markets will be the future. W also know that Americans don't travel and don't speak foreign languages. Especially not financiers. Oh sure they are happy to buy Gazprom, Petrobras, L'Oreal, and any number of Japanese stocks. But have them visit the country and force them to leave their room at the Grand Hyatt in Tokyo or Radisson in Moscow and our fund analyst is totally stumped. He doesn't speak or understand a lick of the native language.

So how about actually learning one? if you speak English, you have an advantage as English is the international language of business.

While many of the world's elite politicians and business leaders are U.S. educated and well versed in English (especially in the Middle East and India) we find this to be far less so in Japan, Russia and FSU.

We have all heard the call to learn Mandarin. This makes sense as it is the Chinese Century.

We also advise French, Spanish, Portuguese, Japanese, Russian and Gulf Arabic.

Why French? it is the language of diplomacy and is spoken by elites globally. Besides France, Monaco, Switzerland and Quebec it is spoken in Lebanon, Algeria, Tunisia, Morocco and over a dozen West and Central Africa countries. For those adventuresome analysts looking to do work in Africa, French is essential.

South America has an abundance of natural resources. Indeed, almost all natural resources found in Africa and the Former Soviet Union ex diamonds, platinum and palladium is found in South America. South America also boasts the Guarani Aquifer, one of the world's largest fresh water Aquifers. Brazil has been referred to as the "Saudi Arabia of water."

Portuguese is spoken not only in Portugal, but is an excellent choice for those wanting to do business in or analyze Brazilian stocks. Portuguese is also an official language in resource rich Angola. It is spoken in Mozambique.

Why Japanese? Well, the older Japanese often don't speak English. Better yet, as of the end of October 2008, Japanese small caps are the value investors paradise. The MSCI Small Cap Japan index was trading at 0.7 times book value. And guess what, the financial statements are often only in Japanese? So you have a leg up on your competitors.

We also note the opportunities to use Russian in Russia, Ukraine, Serbia, Kazakhstan, Turkmenistan, even Mongolia, not to mention other smaller FSU states. The resource riches of the area have been told many times.

So go ahead, expand your horizons. Learn a new language. You will acquire a skill for life, be more likely to travel, and make new friends along the way.

What Doesn't Work on Wall Street

How about back testing data, then writing a best selling book about it. Yes, we know that value stocks win out in the end, but if any investor really had the magic formula, we would imagine that logically they would have it more locked down than the Colonel's Secret Recipe or the original formula for Coke.

The title is a play on Jim O'Shaughnessy's What Works on Wall Street. Jim back tested over 50 years of data and determined that investors should buy low price-to-sales value stocks with strong RSI (Relative Strength). Value was also denoted by low price-to-book and low price-to-earnings ratios. We are not picking on Jim. We are merely using him as an example.

http://www.amazon.com/What-Works-Street-James-OShaughnessy/dp/0071452257/ref=sr_1_1?ie=UTF8&qid=1226359089&sr=8-1

Lady Market is a tough Mistress. what she giveth, she taketh away. There is no magic formula that works year in and year out in all markets. The market is a living, breathing, organism. She does not care what past backtests tell us . . . but Jim's investors might.

Ouch . . . we doubt many are looking forward to the October numbers.


http://www.osam.com/pdf/osam_monthly_performance.pdf

Though we will note that his long-term numbers are certainly better than most of his competitors. Additionally, after watching him on Bloomberg, Jim strikes us as a downright decent guy.

Biggest Losers of Your Retirement Funds

Here is a roll call of the biggest and baddest safe and steady investors.

Look as of November 10, 2008. So glad these "star managers" have been entrusted with billions of dollars in retirement funds.

They all are all down more than 40%. Some as much as 55%.

What was their sin? Hubris. Double down on the financials! Give me one more hand and I can make it all back.


http://quicktake.morningstar.com/FundNet/Snapshot.aspx?Country=USA&pgid=hetopquote&Symbol=LMVTX

http://quicktakhttp://quicktake.morningstar.com/FundNet/Snapshot.aspx?Country=USA&pgid=hetopquote&Symbol=DODFX

http://quicktake.morningstar.com/FundNet/Snapshot.aspx?Country=USA&pgid=hetopquote&Symbol=DODGX

http://quicktake.morningstar.com/FundNet/Snapshot.aspx?Country=USA&Symbol=JCVIX

Little wonder that mutual fund managers get rich on their fees and not by putting their own money into their funds.

Joe DiMaggio: The Hero's Life - Recommended Reading

While we don't care much for baseball, in the past we enjoyed reading Joe DiMaggio's: The Hero's Life. Besides being a fine all around player, having great style and grace, Joe D carefully crafted his image.

The book is an exercise in psychology, which is why we recommend it as a must of investment reading. Investing is after a psychological affair. Stock prices are the result of supply and demand of irrational investors (human beings).

Think of any well-known fund manager or Wall Street strategist that is constantly on tv, rather than managing investors' money. Keep said fund manager in mind as you read the book.

You will never view your favorite on-air "financial guru" in the same way. As the book says, we gave Joe everything, as long as he was what we wanted him to be. Hmmm this indeed should be familiar to investors.

http://www.amazon.com/Joe-DiMaggio-Richard-Ben-Cramer/dp/0684853914

R.I.P. Dodge & Cox

No, we don't believe that Dodge & Cox (DODFX & DODGX) is going out of business, but we are calling them out along with Bill Miller (LMVTX), Richard Pzena (JCVIX). They are all Heroes of the Revolution.

What is the sin of all of these one time star managers? How about violating the simple rule . . . never double down into a losing position. And oh how they doubled down on financials. They did it over and over again. All of the above were idiots. Their hubris got in the way. It was not hard to see that financials were tanking and going to do so.

So what did these "stars" spend your retirement on? Bear, Lehman, Fannie, Freddie, Wachovia, Citigroup, Indymac.

Ahh yes, they have great long-term track records, which as we had stated made them more likely to underperform, as their flagship funds were the size of aircraft carriers. They had necessarily become index funds.

We particularly found Pzena's behavior appalling. We listened to numerous quarterly conference calls and investor calls on financials. How he made those not buying seem foolish. It was just like 1990. The riches to be made. Shame on him.

It is one thing to be wrong, it is another to stay wrong. All of the above stayed wrong, and continued to be wrong. As one of our most admired investors, Dennis Gartman, has often said, if you buy a stock and it goes down, you are wrong. So why would you buy more of it? Gartman notes that such a tactic often results in ruin.

Unfortunately Miller, Pzena, Dreman, Dodge & Cox could not accept that they were wrong. The tragedy of it is that they did it with the retirement money of many Americans.

Oh and let us not forget another one of our rules. Never try to catch a falling knife.

We will put it in print and stick by it. The most over valued commodity is a bottom-up fundamental analyst concentrating on mid and large caps. Not only US, but International and Emerging markets. They add no value and simply bloat the payroll.

We'll stick with the etfs.

Japanese Investors Follow Our Lead

Well, well, well, it seems that as foreign investors have abandoned Japanese equities, local investors have been piling in. Apparently, Japanese investors have been quite successful over the years, buying in when the Nikkei has been destroyed and then selling shares a year or two later. These investors have learned how to navigate markets when buy and Hold (pray), doesn't work. As we have stated before, if one can buy the Nikkei under 9,000 one should do so.

http://www.iht.com/articles/2008/11/07/business/07yen.php