What Is A Better Investment, Biotech or Big Pharma?

In my view Biotech has been the winner the past 4 years or so but that will slowly change. Big pharma has a war chest of cash as was seen in the recent M&A in the sector. Drug giants like Pfizer, Merck and Sanofi have had a harder time pushing out new drugs but that too will slowly ebb. One thing that scares me most about biotech is their lack of funding which makes many of the names takeover targets by the big drug companies. Bottom line, I think big drug is the place to be going forward. Many of the large diversified drug companies are trading at historically cheap levels. With the population aging here in the US and abroad consumers will be increasingly looking for medicine and treatments to combat their diseases and ailments and I think big pharma will benefit accordingly. * Currently own a position in Pfizer (pfe) and Sanofi-Aventis (sny)

Stocks For The Long Term

There are many stocks out there in the investing universe, and not just US listed securities. The global stock markets are home to thousands and thousands of listed companies available for investment. Some large, some small, some just downright colossal. It is my investing thesis to own great companies and managements at great prices and hold them forever. 

If my thesis sounds familiar it should be, it is value investing which is the basis for great investors like Warren Buffet and Benjamin Graham. Value investing is not easy because it makes the investor dig down deep in research in order to come up with investments that hold the test of time. Now first lets get something straight. No investor is always right, there will always be investments that turn out to be duds, Mr. Buffett himself has had his share of disappointments, but it does not take a genius to realize what his hard earned research has gotten him over the decades. 

Currently, global markets are down in a big way which leads to asset values being depressed. We area in the mist of a great worldwide recession and even though we don't know when it will end we know that asset and stock prices are historically cheap. Armed with that weaponry, an investor must scour the investment world and find quality companies at attractive valuations. So far I have identified a handful of companies which to me are cheap by historical standards. 

They include:

Pfizer -  Once deal for Wyeth is completed it will have annual sales of over $70 billion with the bulk of sales coming from overseas markets. Its financial position is strong even after financing 1/3rd of the Wyeth deal with bank financing. This drug giant will have free cash flow in the billions in the years to come, and in my view will see the recently slashed dividend grow in the years to come. 

BP - The European oil and energy giant is a company that has operations all over the world. Its proven reserves are immense and has recently seen its operations improve via deep operating cost cuts. Even in the mist of lower energy prices across the complex, the company achieves high returns. It's Alternative Energy unit should be a valuable unit in the decades ahead. BP's dividend is one of the generous in the entire industry. 

Altria - The company has a mere 50% market shares in the US smoking market and recently with its acquisition of UST, it brings smokeless products to the masses. The company has terrific management who know the industry like the back of their hand. Even in the face of rising taxes on cigarettes the company still enjoys high margins on their products. I own the company for its large yield and treat it as a Bond that yields 7%. The company also owns 28% of SAB Miller, one of the largest beer makers in the world.

Dupont - Shares of the chemical maker were slashed in half in 2008, which gave me the opportunity to buy this great American company at historically a very cheap price. In the face of a global economic downturn its business has suffered. But once the economy gets better, so will Dupont's bottom and top line. Its agricultural business is growing at a healthy clip even during the downturn and will lead in the future to higher profits. The company is a dividend aristocrat and will continue to be a darling for investors in the future in my view. Its further entry into the solar market will create more opportunities for the company in the future. 

Coca- Cola - The beverage giant has seen its shares trade lower with the rest of the market. Which will afford me the opportunity to pick up shares at attractive prices. Even though the bulk of growth is behind this great company,  I still feel the company can make more products in more markets going further, especially in China. Coupled with an attractive yield it is a great name to hold onto for the future. 

Phillip Morris International - Once part of Altria, PMI can now tackle the world and grow unbound from its former parent. What makes PMI such a great company is not only its management talent pool, but the fact that there are millions upon millions of smokers in the developed and emerging markets. This will lead to profits for the company as it tackles growth in all corners of the world. With potential rising taxes and backlash against smoking, the company knows that its product sells, and with that notion the company plans on growing more in the future. While I look at Altia more as a income stock, PMI is both a growth and value stock, and one I feel should be owned for a long time to come. 

Unilever - This consumer products company sells its products all over the world. Its sells food products, home products and personal care products. In a world where there are more and more people buying goods at the local store or market this will play directly into the hands of Unilever. In developing countries like China and India more people are working and therefore need to eat and take care of their bodies and homes. The company's diverse product lines will give the company a deeper product footprint and make the company somewhat recession proof. It also pays a hefty dividend which currently yields over 5%. 

Johnson & Johnson - JNJ is mostly a pharmaceutical giant, but it also has some other large products in its portfolio, including consumer products and a large diagnostic business. JNJ is run by excellent managers who focus on product innovation and investing in the business which in turns makes shareholders happy. JNJ is a stock for the long-term. Buy on significant pullbacks. Sports a yield of 3.60%.

McDonald's - This fast food global giant needs no introduction. However most people don't realize how well of a executioner Mickey D's really is. In the last 6 years the company has gone through 2 CEO's, but not by choice. Two of the previous head honchos died on the job due to heart attacks. But it was the successor who had the job of pulling through what the previous executives wanted done at the food giant. The company has been firing on all cylinders for many years, sharply opening up new doors in emerging markets and making the company an even bigger icon than it already was. Growth is also a key for McDonald's as it continues to invest in other operating businesses such as McCafe's drawing competition with the likes of Starbucks. All in all, MCD is a stock to own for the long-term. Buy on dollar weakness. 

Others:

Verizon

Waste Management

Intel 

Oracle

HSBC Holdings

Lockheed Martin

* I do own positions in many of the companies mentioned. However these are investments and not short-term trades.

The Legendary Jim Rogers Speaks His Mind

Jim Rogers has long been debated in professional circles. Many believe his views are those of legend, others believe that he over hypes for his own personal fortune. Personally, I believe Jim Rogers is a legend on Wall Street, but must realize nobody is always right; he has been wrong many times in the past. 

For the better part of the past 3 years Rogers has been a big time bear on the US and the developed world while being a perma bull for countries like China. Right now the globe is mired in a coordinated slowdown the likes of which has not been seen in many decades. The US, UK and other developed countries are becoming more and more debtor nations, instead of creditor nations (something Rogers talks about in the video). While I agree that element will lead to potential dangerous issues for the big developed economies I do not share all the gloom Rogers alludes to. However, I am very much a bull for the China economy and some select emerging countries. 

All in all, the video is a good summation of what is wrong with the world on a economical and political scale. That is why I am an avid proponent of a diversified portfolio consisting of developed and emerging securities. 

AIG's Great Big Giveaway to Wall Street

By now we have all heard about the total collapse of one of the world's largest insurance companies; AIG. Its utter breathtaking collapse was center stage last fall amid one of the worst weeks ever to hit world financial markets. 

Spring forward just a quarter or so and we have nonstop talk about the $180 billion lifeline thrown to the company by the US Government. To set the record straight, AIG needed to be bailed out, a collapse in Chapter 11 would have sent vicious shock waves throughout the global banking and insurance industries. Just by virtue of AIG's demise, it would have taken many large and small firms with it due to their enormous trading book with hundreds of counterparties. 

To people that had knowledge of what brought down mighty AIG, it was more or less what brought down Bear Sterns, Lehman Brothers, among others. AIG's arcane and secret London office housed just a handful of investment players that bought and sold a litany of investment instruments. Those were CDO's, CMO's, etc. When the global economy came to a grinding halt, many companies were on the wrong side of the trade. To make matters worse, credit markets froze up to a point where those financial derivatives which had such a slim chance of becoming in the money in the future, suddenly did. Hence why AIG lost nearly a hundred billion dollars the past year. 

Over the weekend, AIG named names of many of the biggest banks and brokerages on Wall St. Those firms took in billions of dollars when AIG was on the wrong side of the securities trades. It is important to note that since the US Government owns the majority (80%) of AIG the money which went out to rescue the company was mostly US taxpayer money. What is mindboggling is that in essence the taxpayer is funding many of the recipients of TARP money already given out. To the amateur investor and citizen that may seem like an utter outrage, but for those on Wall St, that's just how it works in the canyons of Wall St. 

Financial instruments like CDO's and the like is akin to a big game of poker that is usually carried out in the long-term. There is a reason why the famed investor Warren Buffet called them "financial weapons of mass destruction. Below is a list of counterparties that AIG paid out more than $55 billion. 

Collateral Postings: $22.4 billion (Top 5 Listed)

1) Societe Generale $4.1 b

2) Deutsche Bank $2.6 b

3) *Goldman Sachs $2.5 b

4) *Merrill Lynch $1.8 b

5) Calyon $1.1 b

Overall Payments to Firms $43.7 billion total (Top 5 Listed)

1) Barclays $7 b

2) Deutsche Bank $6.4 b

3) BNP Paribas $4.9 b

4) *Goldman Sachs $4.8 b

5) *Bank of America $4.5 b

* Denotes TARP recipient. Other   TARP recipients also received funds, but were not on the top 5 largest. 

In addition to these payments, AIG also paid out $12 billion to US States coffers. The biggest winners were actually those of foreign banks and brokerages which in reality goes to show you have global this company truly is. In the end, taxpayers may seem perplexed by these amounts, but its just the way of life in the arcane world of high finance. We have seen events like AIG happen before, and we will see them again in the future. One lesson I have learned is that history always repeats itself.

* Over $105 Billion paid out in total since December 31, 2008. Does not include money paid out since. Listed above are parts of the total payout. 

A Word Or Two About Rallies

This week the stock market has rebounded sharply from the beating it has been given since January. Banks were among the biggest percentage gainers for the week, giving some of the biggest banks in the country a much needed boost to both its share levels and tangible common equity. 

Rallies come and go, in both bull and bear markets. Right now it seems that we are in a bear market rally. It should not be taken that the overall selling is done with at this point. I believe we will re-test the lows and possibly also set new lows. The US economy is still in very bad shape, and many experts believe economic data will get worse before it gets better. Even though theses rallies are good to see for the psyche of both the market and overall investors, it should be taken with a grain of salt. 

My investment thesis and approach is simple, I am a long-term investor who seeks value in companies and their underlying shares. In the past I have been both a short-term trader and investor, but in the past year or so I have focused wholeheartedly on value investing. At current levels there are plenty of value plays. I personally have picked up about a half a dozen or so. For a value player like me in these types of markets, you have to be able to sacrifice short-term losses for long-term gains. Re-investment of dividends is key and the longer time frame you have the better. Currently, many great companies are trading for around 6-10 times next years earnings, coupled with many names yielding as much as 10%. 

Focus, determination and discipline is key in all markets. Right now in these horrible times you must be keenly aware of those three aspects of investing. Fear must be checked at the door, fear is single-handily one of the greatest potential wealth destroyers out there in the investor's mind today. 

Good Investing to all. 

Markets Are Embodying A Death Spiral

Ever get that feeling that when things really don't go your way, they really don't go your way? Well in a nutshell that is what is happening in the financial markets. For the better part of a month, major averages were hugging their November lows, this past week or so they have broken those key lows. With the S&P trading below 750 and the Dow around 7,100 this is beginning to look like a death spiral, something of which I blogged about several months ago.

To give you a quick lesson on what a death spiral is, it is essentially when traders and investors alike go on a buying strike and sell everything they own at a feverish pace. To put it another way, think of a black hole (in space) and picture a small planet or honestly any size planet, as it gets closer and closer to the center (the black hole) the pace of movement accelerates faster and faster.

To me, this is possibly what the markets are going through. We have now lost over 1,500 points on the Dow since the start of the year, and at the current pace we can crater even more in the short-term. The danger in all of this is that confidence remaining with even the most optimistic investors, traders, etc that are out there right now (and there are alot less than the pessimists) will fall victim to the markets and create even more sellers. Much was made about everyday investors opening up their 401K and brokerage statements to see their holdings decrease by 55% or more, but if that happens again that could lead to utter disbelief. Sadly in my view, it will. The S%P is down double digits already this quarter and more may be in the offing.

Ive read alot of history of economies and of markets to know that it very likely will get worse before it gets better, but the utter feverish pace of the current decline is alarming. Confidence must rear its head again soon or else we could be looking at Dow 5,500 or worse before its all over.

Is Bank of America Salvageable?

Its just amazing how fast events happen in this fast moving market. Just four or five months ago, Bank of America was looking like a bank that was sitting pretty, waiting for assets to become cheaper and cheaper so executives could move and buy them for pennies on the dollar (ie- JP Morgan Chase). Fast forward just a little bit and you have a company on the verge of total collapse. Its CEO Ken Lewis, once heralded as one of the top bankers this side of the Atlantic is now barely holding onto this job. The bank he now runs enjoys a market cap of just $25 billion or so, a sliver of what it once was just six months ago.

Where Lewis really went wrong was with the purchase of Merrill Lynch at what was then $29/share. Executives and Lewis included noted that they were patriotic in buying Merrill, because if they didn't they do would of gone the way of Lehman. Correct me if I'm wrong but that does not make a lot of sense especially when the company is owned by shareholders with whom you drastically overpaid for a 'pretty asset'. I will say that Merrill is a fascinating organization, a firm that has thousands of well respected and talented brokers and a litany of quality investment bankers. But the truth of the matter is that Bank of America had no reason buying Merrill Lynch for what it did. Now we know that BofA inherited an outright mess from Merrill's books, which is chiefly what is making Bank of America so sick right now.

On top of Merrill's vexing issues, are Bank of America's own problems, which include Countrywide Financial ( of which it bought a couple years ago), its own balance sheet problems brought out by the horrendous economy and the strapped consumer.

Many experts on the street say that banks in general need billions in fresh capital, and BofA itself may need injections of at least $75-80 billion to withstand more losses going forward. To say that the new administration will go easy on the banks right now is an understatement, because the real issue is that if the banks (BofA) included need that much capital, I can't see how common equity holders come out of this happy. In BofA's case, going back to the government for fresh capital a third time would be deadly even if we get the so called 'bad bank'. Let us remember that this potential bad bank may not solve all the banks problems and that drastic action may have to be taken to fix the issues haunting the banks right now. As far as Bank of America I don't see this ending very well. The bank may have gotten too big too fast in the past two years or so. To put that point into perspective, for as large as Citigroup is, they did not make any acquisitions in the past year (their planned buy of Wachovia you remember was nixed by Wells Fargo). All the while BofA loaded up on problem institutions and continued to pay out hefty dividends until they were forced to stop. Sadly, as great a bank this is and for its great mix of businesses, shareholders may be left holding the bag and may blame excess as the main culprit for a once proud strong bank.

In the banking sector I think only a couple names (big banks) will come out of this strong. JP Morgan Chase, Wells Fargo (although I think they too will need more capital raising to heal Wachovia's horrible balance sheet) and US Bancorp. Citigroup on the other hand is a tough one to figure out chiefly because we still dont know the true damage that may occur. But in defense of Citi I must say that some assets will bring in some much needed capital once they are sold. Citi may look look a different bank in the next couple years, but we must remember they are a truly global bank with some tremendous busineses and assets.

Battle Of The Oil Giants: Exxon Vs BP

Major oil companies like Exxon, BP and Chevron have gotten a ton of attention in the past couple years, chiefly because of the billions upon billions they have earned every quarter. During 2008, Exxon was making roughly $10 billion every 90 days ($40 billion a year) due to the ever skyrocketing price of oil.

Prices at the pump were painful for consumers but delicious to executives and shareholders. The price of oil has had a precipitous decline since hitting an all-time high of $147 back in the summer of '08 to a current $42/barrel. Even though the drop in prices is a godsend to consumers especially given the state of the domestic and global economies it has sent severe shock waves around the world from New York to Dubai.

Oil majors such as BP and Exxon have had to slash Cap-Ex spending and used other means of controlling costs as a decline in liquid and gas prices directly impacts both the top and bottom lines. The world's largest private sector oil and gas company is Exxon Mobile mostly due to its sheer size and volume. British Petroleum (BP) is another tremendous giant that does business in a plethora of countries. But the investment opportunity I believe differs greatly. Since the swoon back down to earth in prices have started shares of Exxon have performed well versus many of its rivals. Currently around $78/share the shares have fared better than BP, whose shares trade around $42, well below its 52 week high of $77. From an investment perspective these two giants differ greatly in my view. BP is very favorable to shareholders mostly because of their rather friendly payouts of dividends and large shares re-purchases. Since 2000, BP has purchased close to 5 billion shares with a total cost of approx. $51 billion. In addition the company has been on a mission to payout a large portion of profits in dividends. Currently, the company sports a mere 8% dividend yield vs only 2% for Exxon. It should be noted however that given the tough market for oil right now, that payout may be altered to reflect lower profits in the coming quarters. For American holders of BP shares it is also worthy to note that there is no longer foreign tax withheld, this tax treatment was stopped in 2004, so in effect you keep the dividends in full, you just pay the current tax on qualified dividends.

Going back to the investment opportunity once more, one must look at the risk/reward for both these energy giants. For Exxon, given its rather muted price decline in its stock of late, the risk I feel is great due to the precipitous drop in oil prices and thus its infliction of damage to its top and bottom lines. In BP's case, the shares have already taken a brutal beating since oil's run of luck expired roughly 2 plus quarters ago. Sporting a hefty attractive yield is a reason why I feel the risk/reward ratio for BP favors slightly to reward. I base this on the following: Oil prices have seemed to show a some-what healthy floor of $28-40/barrel in the past quarter. Once global economies hit a bottom (I believe this could occur in the next 8-12 months) the demand side of the picture will finally start to tick up, which will lead to a mark-up in oil prices. Therefore, the downside risk for BP I feel is less likely when looking at the picture for Exxon, which I believe may be in for a tough Q1 and Q2. In addition, as I stated above BP is alot more shareholder friendly than Exxon which I feel in this market is very sough after. It is important to note that both Exxon and BP have units which focus on alternative energy, but many experts in the industry feel that BP has had a large head start on that side of the businesses than Exxon has.

After reading BP's rather large investor packet I realized that its alternative energy business is thriving which has lead senior management of the company to completely split that unit from its primary business units. In summary, I believe investors should steer away from Exxon and focus their attention on an already beaten down giant that yields roughly 4x its rival. Long-term I feel both companies will be viable attractive investments due to my belief that the recent drop in oil prices will not last very long. *Currently long shares of BP

Global Banks = Global Pain & Losses

Having nothing else better to do I found myself looking at historical charts of many of the largest global banks. Simply, the only thing I did was look at their all-time highs then looked at the closing prices of today's trading. I then calculated (approx.) the amount of market cap that has been lost on just those banking companies. Below is a rough estimate:

Citigroup: $260 billion
Bank of America: $204 billion
JP Morgan Chase: $93 billion
Wells Fargo: $36 billion


Lehman Brothers: Bankrupt, pieces sold off
Bear Sterns: Bankrupt, sold to JPM for $10/share
Washington Mutual: Sold for less than $2 billion to JP Morgan
Wachovia: Sold for less than $7/share
AIG: $255 billion, effectively nationalized, current $5 billion market cap
Merrill Lynch: Sold to BofA for $50 billion

HSBC: $140 billion
UBS: $120 billion
Credit Suisse: $54 billion
Deutsche Bank: $79 billion
Barclays: $89 billion

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Rough Estimate of Total Market Cap Loss = $1.4 Trillion.

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Figure does not take into account the bankruptcies of Lehman, Bear Sterns, Merrill Lynch, sale of Washington Mutual and Wachovia.

These are mind boggling losses to say the least, and sadly many of these banks are not done going down. One thought that I would like to leave you with is that at some point all these banks notched all-time highs that made up the difference of the numbers I laid out above, not so long ago these banks were healthy and making enormous profits, now sadly many of them are making billion-dollar plus losses each quarter.

To say all these companies are a shadow of their former self (the ones still alive) is an understatement, but at the same time these global banking brands have a book value that in a healthy market will yield values substantially higher than current values. With that said it is important to note the current market and the dangers that we are living in. The US economy and the global economy are no doubt in disarray and not many people know what will happen next. It is my belief however that one day the economy will turn and banks will once again profit like they have been for 99.9% of their existence.

What Will 2009 Bring To Main Street & Wall St?

We have begun a new year on both Main street and Wall Street. Out with the old and painful and in with the continued malaise of a economic downturn the likes of which we haven't seen in many decades. What 2009 will bring in reality is really anyone's guess. This much we know. The US economy and the entire global economy faces economic uncertainty. Job losses are mounting, corporate profits are evaporating and consumers the world over are tightening their spending habits. All the while central bankers are flooding the banks with notes and cash. 

The US markets ended 08 down about -38%, the third biggest drop for the country ever. Many experts agree that the markets could have been down more severely than that if certain things did not happen to prop the market up (I am in that camp as well). So far the first day of trading in the new year has gone well, with the US major market indexes up about 2.8%. There could be a potent rally of about 12-16% in the short run, but I think that will be short-lived. Corporate profits are expected to drop significantly in 09 and I believe any gains made early on will be evaporated until the second half of the year when we could potentially see the economy start to recover.

Many will look at what President Elect Obama does the first 100 days in office. Never in history has a incoming Presidents actions meant so much early on. Obama's core principles on taxation must not take effect any time soon. I firmly believe that his goal to increase personal income tax (for certain individuals) and increasing the capital gains taxes would be certain death for the markets in 09. I believe Obama will try to do what I just mentioned some time in 2010 or beyond as a way to pay for the colossal stimulus spending that is already under way and that will get bigger once he is in office. 

Sectors I Favor in 09:

Consumer Staples {Altria, Coca-Cola, Pfizer, P&G, Wal-Mart}

Energy {BP, Connoco Phillips, USO}

Those two sectors and the stocks I mentioned above are all great managed companies with loads of cash, high economic moat and all pay good steady dividends, in some cases have yields of 6.5+. In this type of market and economic uncertainty it is smart to invest in companies that pay steady dividends as a way to play for the rebound, especially at theses attractive asset prices. 

Peering Into The Black Void That is the World Financial Markets

The markets have been rallying of late, keeping the Dow about 1,000 points above its lows for the year. Oil has retreated to the mid 40's and the government continues to hand out billions like its cotton candy. World markets for the time being appear to more tamed, but we have seen this play out before. 

I believe that the worst of the recession is now upon us. Consumers and businesses will really curb their spending as the new year approaches. Corporations have been laying off thousands each and every day. With more and more jobs being folded from the job force more and more people will be unable to pay their mortgage bills, credit card tabs and everything else that most of us pay. Banks will have to take additional write downs due to more people not being able to pay their dues. Most of the major banks in the US still have tens of billions of assets on their books that have to re-evaluated leading yet to more losses as the quarter comes to a close. It is my view that each one of the major banking institutions will need more equity from the world's biggest Sovereign Wealth Fund- The United States Treasury. 

I do not see a turnaround in the banks open hand from the government until well after 2010 is upon us. There are some firms that I think will have to be merged or shut down completely (Goldman, Morgan Stanley, Fifth Third, etc). The unsettling part of this is that many of the smartest people on the street and in the policy making roles do not know what to expect next which could lead to yet new lows in the stock market. 

What needs to happen in my opinion is a orchestrated attempt to halt the decline in the house sector. Mortgages need to be re-worked on a bigger scale than they are right now. Home values must stabilize and new buyers must come in the market while those that can't afford get put into lower value homes or rentals. We will get a new stimulus plan by our incoming President which will be dandy but the housing issue must be dealt with full bore. 

Until then we will have bear market rallies and potentially lower lows on the major market indexes. We will collectively as a global enterprise stare into the emptiness void that is a dark, bleak black hole. 

Banking Stocks: A Brief Note

This weekend marked yet another interesting event, the rescue of Citigroup by the US Government. For full disclosure I am hesitant to call it a full-blown rescue mostly because up until the past two weeks Citi was for the most part very well capitalized, even so heading into this weekend. But the sharp collapse in its stock price last week prompted C's executives to concoct a plan to restore investor confidence in the banking behemoth or suffer unknown dangers.

My opinion on the Citi so called rescue was positive, it showed the government was more than willing to come to an agreement in order for one of the world's largest banks to stabilize itself. In addition, it was accommodating for shareholders, as they will not get highly dilutive, something we did not see with AIG. The government will get preferred stock with a 8% dividend in addition to warrants of 254 million common(5.45 billion shares outstanding) stock valued @ $10.61/share. For that the government will backstop a large portion of $306 billion in assets. 

As far as other banks go I'm hesitant to call Citi's rivals such as JP Morgan Chase and Bank of America healthy. Both firms suffer from much the same as Citi did, although both JP Morgan and BofA have a better group of mangers running their respected banks. During 2009 I believe we will see more bailouts that reflect what Citi just went through, potentially with both JPM and BAC. Once again I do not think any rescues will be highly dilutive to current shareholders. 

Financials certainly are living in a different world, long gone are the days of excessive leverage and rampant compensation. Even though the global economy is in a deep recession (or starting to go into one) we will one day grow again and many global large banks will once again perform and make tons of profits. With that said I believe there is long-term value in all names listed. In the meantime we will have to deal with more losses on the majors balance sheets due to the crippled housing market and the sick consumer.

A Few Thoughts on the Markets & Select Industries

It seems the market appears to be a bit more calmer than they were during October. Yes we are still having wild swings in the market, and a 3o0 point swing is common. But we are not seeing new lows and the VIX hit new all-time highs.

It seems the global rate cuts coupled with the infusion of billions of dollars is helping the market. The credit markets appear to be settling, with LIBOR rates coming down in a big way the past 3 plus weeks. As the central bank and policy makers continue to focus on opening up the credit markets further and try to accommodate consumers I expect the markets to continue to trade in the current manner. I perceive their being yet more domino's to fall in the market, which leads me to my next point.

Many experts are divided on what to do about the big 3 automakers. Some say have the federal government bail them out with a $25 billion loan, others say let them file Chapter 11. I am with the latter. I believe Ford, GM and Chrysler have the wrong business model. With GM and Ford, they have been slowly dying for the better part of a decade. They make cars nobody wants, they employ way too many people and offer contractual retirement benefits to millions. Why bail out these companies when in honesty it seems it will only delay the inevitable. 

For those that compare the big 3 to AIG, just let me say that I believe AIG is a totally different animal. A collapse of AIG would have meant catastrophic defaults all over the globe. In addition, AIG was a totally solvent company, which can't be said for GM, Ford and to some extent Chrysler. 

The Tale of Two Types of Market Participants

Earlier this month the Oracle of Omaha told the public to buy for the long term much like he was doing. We are down roughly 7% since Warren Buffets call. But is he wrong? Perhaps its how you analyze that. I myself now am a long term investor, a value investor at that. Right now I see values aplenty, and have been a buyer of equities for the better part of the year (dollar cost averaging on high-quality consumer staples mostly). I sacrifice short term pain for long term substantial gain. For clear honesty I have also been a short term trader.

This is what the current market entails for investors. There are long term investors and there are short term traders. Both have the same principle of wanting to make money. Traders can make solid gains in seconds or minutes, and maybe even a few days. Investors however have a long term view of 1-15 years depending on their investment approach. 

For more than a year traders have performed a bit better than buy and hold investors, hence all the volatility from minute to minute in the markets. Its a great tug-of-war that shows no signs of letting up. Until the economy and credit markets stabilize we will see this type of activity. For buy and hold investors many of them will dollar cost average in order to gain a lower average price paid per share. The reason behind this is because value and growth investors know that in the future the markets will pick back up and economic activity around the world will one day gain steam leading to substantially higher equity prices.

The Market's Death Spiral

If there is any good to come out of what is happening right now in the financial markets it is this. We can say to our children that we witnessed a catastrophic decline in equity markets. It happened during the first Great Depression in the 1930's and its happening today. An era of excess and outright sick greed has led up to this. But I will say this, this market has the same characteristics of alot of other markets that we have lived through. The dot-com boom was witness to an unprecedented rise in technology and Internet stocks. The fall-out that followed the run-up was more or less the same thing we are seeing right now.

I don't know when this market will stop falling, but there will come a time when it does and the relief rally we will see will be nothing short of breathtaking. I foresee the market rallying as much as 1,500 points on the Dow. Fear for the most part is at every nook and cranny of the financial markets, not to mention hitting home on every block in America. 

As far as the economy goes I believe we have more pain to go through, and much of the painful malaise will not abate until late 2009. The government has been doing plenty to help alleviate fears and the frozen credit markets, but it will take time to work through the system. 

Until then expect more or the same, more uncertainty and fear. Stick it out and be wise. Those that pull out of the market always wind up missing the ride up!

Jamie's Vision: Best of All The Rest

Jamie Dimon has struck again! The king of Wall Street late Thursday announced that JP Morgan Chase will be taking over Washington Mutual's assets for $1.9 billion. JPM's CEO has been nothing short of a genius over the past couple years. Not only has he side-stepped most of the toxic waste that has littered most heavy hitters on Wall St, he has orchestrated a stunning path to long-term growth via his acquisitions. 

About 100 years ago JP Morgan himself was bailing out the nation's financial system, today Jamie Dimon has been the man Washington is coming to for rescue. Bear Sterns a little more than six months ago, Washington Mutual this week. 

I've been a firm believer in JPM for a long time. I last wrote about the bank several quarters ago (scroll down the page for latest article). Even though the short-term will bring with it alot of challenges, most notably with the tight credit markets and the weakening consumer I think JPM is on its way to long-term growth in all of its businesses. I believe WaMu will be a tough transition for the bank but believe it has the management team in place to get the job done in the quarters ahead. Many on the street have doubted Dimon before, but lately he has showed them just what he is made of. 

I've been following the company for the better part of my life, and believe great things are ahead in the future. In time the economy will turn, credit markets will ease and the housing sector will show signs of growth. In time, JP Morgan will be one of the most heralded banks in the country, if not the world. A world class institution ran by a world class banker. I believe JPM will be a $100 stock in the future. 

When You Fail---Rise Back Up Again

When you fail, it is my deep-hearted belief that you must dust yourself off and get back up. No matter how hard the fall, if your still breathing get up and do battle.

That is what Wall St must do. We live in an unprecedented era of capitalism, which leads to financial instruments that are so complicated that sometimes even the people who created them fail to understand them at their most complex state. 

Mammoth corporations dating back over a century find themselves starring in the depths of the abyss, being reminded that once beloved institutions become an afterthought in today's markets.

Companies are born, and companies are destroyed in a blink of an eye. If you are left holding the bag, get up and find a new bag to hold, and hope that it it doesn't occur twice.

Deep in the canyons of Wall St there are no feelings, just dollar signs. Markets change and evolve and one day soon the markets will turn and rebound. Stocks will one day find their groove and the economy will get back on track. 

Until then the markets will do what they do best--instill fear and greed into all participants.

And that's why its the greatest game in the world!

Let’s Remember What Wall Street Does Best---Make Mountains of Money

There are many people out there on the street that still won’t touch large globally diversified financial stocks. Just a couple weeks back, the markets marked the first anniversary of the credit crisis. That year has been marked by red--- lots of losses forcing many of the largest titans of Wall Street to raise tens of billions in fresh capital, not to mention countless cuts in head count and dividends paid to shareholders. Shares of many of the well-respected such as Merrill Lynch, Citigroup, AIG, Bank of America, UBS and many others have seen their share prices halved since the start of the year, many on this list have seen more than that chopped off their market values.

            But as a seasoned investor I see value in many of the names listed and countless others not mentioned. There are many reasons why I believe that to be the case. But I ask myself one simple question? What does Wall Street do best? The answer in its most simple form is making a whole lot of money. Even though the total losses announced by many of the banks and investment firms could potentially top $800 billion when all said and done (Global firms included)

            Even though I see value, I fully see the chance that financial stocks could trade even lower than current levels. That is of course the nature of the markets and the individuals that make them up. Nothing is impossible on Wall Street. With that said however since I see value I have been adamant that financial stocks will one day rebound. For the better of two-three quarters I have been buying bank stocks, and averaging down when they fall. I am a long-term investor who knows in the end that Wall Street always wins. The Citigroup’s and AIG’s of the world will one day soon regain their golden luster and be bonanza’s to shareholders. 200-300% returns are not impossible in many of the beaten down global giants.

            Markets and policies will evolve to better accommodate the companies that have a vested interest in the game. Even though Wall Street is stuck in the infirmary, in time it will be running free doing what it does best—making piles of money. New financial instruments will be created by the geniuses of the financial world, consumers will once again open up loans and take out credit cards, and the housing market will turn for the better. Domestic economic growth will show an uptick and the emerging markets that helped fuel an unprecedented level of growth in such markets as China and India will continue to dazzle, even though there will be pitfalls along the way.

            In  the end, long-term investors willing to withstand near-term financial turmoil I feel will be richly rewarded. Warren Buffet, the legendary investor recently said that sometimes the stock market god’s throw you a once in a lifetime opportunity, it is wise to seize cheap and quality companies. Even though Buffet is not gung-ho over bank stocks, I see some mega banks as screaming buys.

 

* Full Disclosure: Long shares of Bank of America, Citigroup, AIG, East-West Bancorp. 

These Interesting Times

The hurricane that hit Wall Street a little over a year ago has left an immense amount of carnage in and around the canyons of Wall and Broad. But like every other super storm that comes, cleanup always begins and people move on. The same can be said for big banks, investment banks, lenders, consumers and the entire global financial system as a whole. Opportunity always exists when fear is present. That opportunity has turned into what many believe is a bottom in the stock market. This past week, markets have rallied with the help of optimism from the banks and a lower price of oil.

But where do we go from here? I don't know the answer to that question but I look at some current issues and give my best educated guess. From my point of view, the US economy is certainly slowing down, and has been for the better part of 3 quarters. Housing continues to show slim signs of bottoming which leads me to think that the consumer will spend less. But given where we are as a country with all that in mind, I have to look at it and say we will be ok. Things will turn, housing will bottom and we will gradually see a shift in the economic cycle. From a time standpoint, I see a economic recovery starting in the second half of 2009. We must remember that Wall St is a discounting mechanism, so stocks will rise now and meander later. Thats why its always wise to buy when fear is at its most potent. The largest gains tend to come from a small percentage of rallies in a bull market!

* I do not believe oil is going to fall to the mid 80's likes I've been hearing of late. There has certainly been a shift in the mechanics of the trade on oil and natural gas. But from my point of view the long-term trend is still in place.  The geo-political landscape is still littered with uncertainty. Demand is still surging in emerging markets and will continue to do so for the foreseeable future.

* In the global markets there is a plethora of cash sitting on the side-lines which historically has always benefitted the stock market. 

Long-Term Portfolio- Updated from Feb 26th Post

In the past couple quarters I have revamped the portfolios I manage to better take advantage of what I am best at. That is long-term capital appreciation. The following companies I have made positions in. Since doing this the portfolios have out-performed the overall averages handsomely. 


Anheuser-Busch Companies (bud)- One of the world's largest brewers is cheap in my eyes. The company is aggressively expanding in international markets, especially in China where exits the largest beer drinking market in the world. The company in my view may even one day sell its Entertainment business, as I view it as a non-core asset. (avg share price $47.21) No longer own,  net return of 28.5% 

Citigroup (c)- The beleaguered bank still has a ton of issues, theres no discounting that. However in my view, I took a small position in a belief that in the long run, the global bank will be better than it was and currently is. Citi's global presence is amazing when one actually dissects it. For that reason I have no problem waiting for the stock to take care of itself. With its dividend, its a bond in the mean-time. (avg share price $16.71)

China Fire & Security (cfsg)- China's security market for fire systems and the like is in its infancy, CFSG is poised to benefit well in the future. The company is profitable and is inking deals with major steel and iron companies in China. (avg share price $8.11) Sold @ breakeven

Domino's Pizza (dpz)- Pizza maker Domino's shares are downright cheap in my view. Even though the price of input prices such as wheat and cheese have sky-rocketed in recent years, its international business is really picking up. The company is aggressively expanding in pizza-hungry India in addition to other markets. I bought the shares close to their bottom and so far am enjoying a solid run. (avg share price $12.84) No longer own, net loss of 2.54%

Fortress Investment Group (fig)- This private equity/hedge fund company saw its shares get battered in the face of the credit crisis. After dissection the company I felt that the shares were trading below their true worth. In addition to a attractive dividend, the shares I believe will be poised for long-term share appreciation. Its management I believe is one of the best out there. (avg share price $11.73)Breakeven on position

IMAX Corp (imax)- I've been a shareholder of the big screen movie theatre company for years. Recently the shares have been on a tear due to its digital business model catching fire. In the future, IMAX will be in a lot more places than they currently are. Its my view that the company will one day be apart of a biggerorganization, in my view Sony, Time Warner, and Disney are front-runners. (avg share price $9.82)

The New York Times Companies (nyt)- Shares of the newspaper and media publisher have been on a tear recently after a group of hedge funds have demanded four seats on the companies boards. The two investor groups have also bought a 19% stake in the company. I don't expect the shares to keep on going up the way they have, honestly the shares should start to retreat a bit from these levels. However, long-term I believe the company will offer a more balanced mix of media to consumers, more in the form of digital. A slowing economy does not bode well for its biggest part of its revenue mix, but that should abate when the economy starts to recover. So far I am up roughly 22% on this position. (avg share price $15.55) No longer own, net return of 20%

Pfizer (pfe)- The pharmaceutical giant has seen its fortunes slow in recent years. But one look at its shares tells me that much of the pain is reflected in its share price. Pfizer is close to my biggest holding now due to my belief that you buy quality companies at cheap prices. The shares currently yield over 5.5%, much more than a US government bond. The companies pipeline has been discounted by many analysts on the street, but it is my view that its pipeline will pay huge dividends for the company in the years to come. Pfizer is going to be a long-term hold for me, I don't see myself selling this company for at least 15 years! (avg share price $21.14)

Pengrowth Energy Trust (pgh)- Canadian income energy trusts were battered over the past year due to tax implications the Canadian government wants to impose on such companies starting in 2011. Its my view that even if the governments succeeds in doing this, the companies still will benefit. Most companies have merged, two of the prior companies I owned were bought out at steep premiums by other trusts and international investment groups. Pengrowth is quality energy company that currently pays out a 13.4% dividend. With energy prices on the gradual upward trajectory in the future, PGH appears to be primed for more growth. Oil in my view however will surely tests some lows on the way up! (avg share price $18.62) No longer own, net return of 15.82%

PennWest Energy Trust (pwe) - This trust is now North America's largest due to two recent acquisitionsCanectic was one that PWE recently bought, also owned that). The company in my view is one of the best managed energy trusts that is publicly traded. Its core operations are quality assets as well. The company offers a monthly distribution, that currently yields 14%. (avg share price $28.47) No longer own, gain of 29%.

China Digital TV Holdings (stv)- Talk about growth. The Chinese digital tv market is only in its infancy, and China Digital stands to garner much growth. The PRC has deemed all transmission to turn over to digital by 2015. The company is the largest conditional access provider (set top boxes) to the Chinese market. I feel comfortable enough to sit back and watch the company grow by leaps and bounds in the future. (avg share price $16.12)