I am retired and take educated guesses on all things financial.

February 27, 2007

February 28, 2007: "This time its different"? Remarks and ruminations

1987 TIME magazine cover.

Every time we have had a correction since markets became more regulated and structured following the 1929 so-called crash the following economic depression that many scholars say was the direct result of an isolationist trade policy coupled with an exit from foreign challenges (sound familiar?), the media has gotten a panic wrong. They are wrong again. This is a correction, which may end soon, or may not.
The only investors who need worry are the ones that thought they were invincible and invested in many risky adventures that deserved to be shaken out - similar to the South Florida housing melt that has speculators heading for the exits at any price.

Yes, we all took a licking to a certain degree. But instead of cashing out, I prefer to begin looking for values amongst North American and European companies that were oversold. This includes ETFs that whipsawed wildly in the afternoon yesterday. And what a ride it was. Look at EEBs chart.

I am not going to list individual issues tonight. You know your portfolio(s) better than me. About 11:30 a.m. tomorrow, check the market. Maybe prune a little. But be on the lookout for what could be a nice buying opportunity in non-Asian stocks and bonds. The only Asian markets that have my attention now are Japan and Singapore, when the correction reaches a point where it is just too tempting not to take a look at these "best of Asia" countries.

February 27, 2007: Internet bits and pieces, stock highlights

Here is some data for you Internet lurkers, plus a few stocks that might be watched for inclusion in your Speculative Portfolio.

Yahoo's new add ranking system is off to a strong start. Even Cramer likes this stock now, at the expense of Google. Entitled "Panama", click rates have increased almost 8% week to week this month.

Google is partnering with Dow Jones, Conde Nast, etc. to syndicate their video on other websites. Advertising revenue would be split.

Fox Interactive acquired ad optimization company Strategic Data Corp. to optimize graphic ads which will be served in conjunction with search ads from MySpace's Google partnership. Interlocking ads are occurring at a rapid rate now - a win/win situation.

WebMD is transforming itself into a brand new platform by the end of 2007.

I pulled down the list of top Internet web properties for February to date. Some surprises, to be sure.

In order of PVs:

Fox Interactive Media
Yahoo! Sites
Time Warner Network
Microsoft Sites
Google Sites
Viacom Digital
EA Online
Ask Network
Amazon Sites
United Online, Inc.
Bank of America
Disney Online
Verizon Communications Corp.
Cox Enterprises
Weatherbug Property
Weather Channel, The

In regards to comScore Clicks through rate data for Dec. 06,

Top five:

Google 54%
Yahoo 24%
MSN 11%
AOL 8%
Ask Jeeves 3%

Some stocks I am looking at:

Bankrate (RATE)
Monster (MNST)
NewsCorp (NWS)
Yahoo (YHOO)
Google is a stock everyone likes...I see it cooling down and flat lining for a while

When E-Trade begins trading directly into several international exchanges, there will be some fantastic buying opportunities for Internet stocks, especially in New Europe and Frontier countries by proxy.

February 25, 2007

February 26, 2007: Aero Defense, USCG Deepwater program

Here are some of the highlights regarding recent contracts:

The USAF has submitted a $17B wish list to Congress. The unfunded items include $2.6B for aircraft modernization and monies for 20 C-130Js. Big winner here is Northrup Grumman (NOC).

USCG Deepwater program is presently being restructured. There have been problems from the onset with this ambitious multi-multi-multi-billion dollar program.
Several whistle blowers have made allegations (on You Tube and elsewhere) as to quality and security problems covering a range of issues. Officially, these issues are being either addressed or dismissed as sour grapes. Realistically, the program to modernize the USCG and to appropriately address its role in homeland security is already past due. Some Coast Guard ships are almost fifty years old and hopelessly outdated and inefficient to operate. Coast Guard personnel are doing a fabulous job maintaining some semblance of border and high seas security, in addition to their search and rescue efforts and drug enforcement responsibilities. The BIG WINNER in this Deepwater Program is Lockheed Martin (LMT). It is very likely that the Democratic Congress will fully fund the Deepwater program, as it is an integral part of the long term Homeland Security Department's border security role.

British Airways has ordered four Boeing 777s at $1.6B.

Virgin Blue is expected to close a deal for seven Boeing 777.

Meanwhile, Airbus wants to sell its SAS plant. So far, no takers. Good going, Airbus.

Japan Air has ordered 10 ERJ-170s, dealing a big blow to Canada's Bombardier, who had hoped to penetrate the fast growing Asian market for business jets.

MRAP awards are presently being issued to several companies. Oshkosk )OSK) and the General Dynamics (GD)/Force Protection (FRPT) jv seem to be getting the lion's

Reuters reports that Dyncorp(DYN) has won the F-16 support deal from the UAE.

Northrup-Grumman (NOC) has the inside track be awarded the $8.6B contract to manage the Lawrence Livermore Labs (seven year deal). To be announced in early March.

Recommended stocks:

BE Aerospace (BEAV) -note:they have an investor's conference March 23.
Goodrich (GR)
Precision Castparts (PCP)
Boeing (BA)
Esterline Tech. (ESL)
Armor Holdings (AH)
DynCorp (DYN)
General Dynamics (GD)
Loockheed Martin (LMT)
Northrup Grumman (NOC)

L-3 (LLL) seems fully valued now
Force Protection (FRPT) seems fully valued now
Raytheon (RTN) seems fully valued now

February 25, 2007: Gen. George Patton, a pertinent companion

I recently finished two books on General George Patton, of World War 2 fame. Many of us know him only through the award-winning portrayal by the late George C. Scott. Who can forget the opening scene, with Patton in his splendid uniform in front of a massive United States flag?

I believe that for Sunday reading a few of his quotes are both entertaining and timely:

"It is very easy for ignorant people to think that success in war may be gained by the use of some wonderful invention rather than by hard fighting and superior leadership."

"War is the culmination of convergent commercial and political interests. Wars are fought by soldiers, but they are produced by businessmen and politicians."

"Fires are not put out by disbanding the fire department and wars are not prevented by destroying a country's armed forces."

"I am firmly convinced that we must have a universal system of training. The only hope for a peaceful world is a powerful America with the adequate means to instantly check aggressors. Unless we are so armed and prepared, the next war will probably destroy us."

"May God deliver us from our friends. We can handle the enemy."

"It is too bad that the highest levels of command have no personal knowledge of war."

"If we have to fight them, now is the time. From now on, we will get weaker and they will get stronger."

"Politicians are the lowest form of life. Liberal Democrats are the lowest form of politician."

"Any politician should be put in jail who votes for an appropriation bill and then fails to vote the tax to pay for it."

"The too often repeated remark that "the country owes me a living" is nothing short of treason. The nation owes all of its citizens an equal chance, but it is not responsible for the faults and follies of those who fail to avail themselves of these opportunities."

"The pacifist actually refuses to defend what defends him;his country. In the final analysis this is the most basic immoral position."

"To be a successful leader, you must know history."

"Genius is the immense capacity for taking pains."

"Always do more than is required of you."

"Everything is a 'final heat'".

"There is but one international law; the best Army."

"As long as you attack them, they cannot find the time to attack you."

"There is nothing more pathetic and futile than a general who lives long enough to explain a defeat."

"Success in war depends on the 'golden virtues of war': speed, simplicity, and boldness."

"It always made me mad to beg for opportunities to win battles."

"War is not run on sentiment."

"It took me a long time to realize just how much a student of medieval history could gain from observing the Arab."

The day will come when we may need another Patton to step forward.

February 22, 2007

February 23, 2007: Sub-prime debt: A mess and getting worse

There are continuing signs of deterioration in the sub prime mortgage market. It is bad now, and 2006 was much worse than previous years. Spreads on subordinated sub prime have widened by 700+ basis points. Worse, the following companies have SHUT DOWN their sub prime mortgage operations recently.

Acoustic Home Loans
Meritage Mortgage (Net Bank sub)
Sebring Capital Partners
Ownit Mortgage Solutions
Harbourton Mortgage Investment
Mortgage Lenders Network
Preferred Advantage
Secured Funding Corp.
Origen Wholesale Lending
Popular Financial Services
Bay Capital Corp.
Funding America, LLC
EquiBanc Mortgage (Wachovia unit)
Rose Mortgage
Mandalay Mortgage LLC
Summit Mortgage
Millenium Bankshares
DeepGreen Financial
Lenders Direct Capital
Concorde Acceptance
ECC Capital/Encore Credit
ResMAE Mortgage Corp.
Silver State Mortgage

I suspect many more to follow in their footsteps. IMO, the only sub-prime companies likely to survive will be those affiliated with more diversified institutions.

Sadly, many major diversified institutions have substantial sub-prime exposure and may be left as the "last man standing...holding the bag".

Sub-prime exposure in some of the brokerage mortgage business has increased recently with acquisitions by Merrill Lynch, Morgan Stanley and others. It is even more pervasive in the banks and speciality finance companies, consumer finance and credit card operations. CompuCredit (CCRT) and AmeriCredit (ACF) are two with a whole lot of sub-prime exposure. Washington Mutual (WM) has added sub prime exposure lately, to over $19 Billion (7% of loans).

Resource Capital (RSO) and Deerfield Triarc (DFR), however, have increased their exposure to alternative investment portfolios and are NOT reliant on sub prime assets to be able to meet growth objectives.

Weeks Fargo, a suspect for many sub-prime loans is, in fact, not financially responsible for the loans themselves. They have provided mortgage services to small mortgage brokerages - not the loan itself.

National City Bank (NCC) sold its First Franklin sub prime unit to Merrill Lynch in late 2006. National City retained $7.5 Billion of First Franklin loans due in part to deteriorating credit quality trends which caused these loans to revert back to National City from ML.

This is the tip of the iceberg in the sub prime mortgage business. More tidbits, courtesy of CSFB research:

Sub prime Exposure:

Bear Stearns (EMC Mortgage)
Lehman Bros. (Aurora, BMC Mortgage)
Merrill Lynch (GPC unit, First Franklin)
Morgan Stanley (Saxxon Capital)
Citigroup (Citifinancial)
JPMorgan sold most operations in 2006, some residue
US Bancorp

This is a sampling and is not to be used for comparison with other companies. Parsing sub-prime from non-performing loans at this stage is as difficult as guessing a property appraisal. I can't do it.

Many brokerages have BUY ratings on companies with sub prime assets. True, the very large companies mitigate risk through massive diversification. But many of the medium and small companies should be researched with a watchful eye towards sub prime loans, and the loss reserve for a continued massive default from customers that should have never been given a loan to begin with. Not stated in any report I reviewed -appraisal fraud.

February 21, 2007

February 22, 2007: Money and knowledge (some quotes)

Time for something different. The constant chorus of catatonic cacophony needs a respite. These are some of my favorite quotes on the topics of MONEY and KNOWLEDGE.

Money is like an arm or a leg - use it or lose it. --Henry Ford

The use of money is all the advantage there is in having money. -- Ben. Franklin

It requires a great deal of boldness and a great deal of caution to make a great fortune, and when you have it, it requires ten times as much skill to keep it.--Ralph Waldo Emerson

If you know how to spend less than you get, you have the philosopher's stone. --Ben. Franklin

When I was young I used to think that money was the most important thing in life; now that I am old, I know it is. -- Oscar Wilde

Knowledge of what is does not open the door directly to what should be. --Albert Einstein

The greater our knowledge increases, the greater our ignorance unfolds.-- John F. Kennedy

The next best thing to knowing something is knowing where to find it. -- Samuel Johnson

One thing only I know, and that is that I know nothing. -- Socrates

He who knows little quickly tells it. -- Giuseppe Verdi

There are two times in a man's life when he should not speculate, when he can't afford it, and when he can. -- Mark Twain

I don't like money, actually, but it quiets my nerves. -- Joe Louis

Money is like manure. You have to spread it around or it smells. -- J. Paul Getty

A billion here and a billion there and pretty soon you're talking about real money. --Sen. Everett Dirksen

Our favorite holding period is forever. -- Warren Buffet

--------------------And a few from my favorite----------Winston Churchill

Personally I am always ready to learn, although I do not always like being taught.

Any man under 30 who is not a liberal has no heart, and any man over 30 who is not a conservative has no brains.

The inherent vice of capitalism is the unequal sharing of blessings. The inherent virtue of socialism is the equal sharing of miseries.

Kites rise highest against the wind, not with it

We get to make a living; we give to make a life.

The nation will find it very hard to look up to leaders who keep their ears to the ground.

This report, by its very length, defends itself against the risk of being read.

and one of my favorites:

I may be drunk madam, but in the morning I will be sober, and you will be just as ugly.

February 20, 2007

February 21, 2007: Croatian equities, CENT and CEDC of Eastern Europe

Dubrovnik, Zagreb, Zagreb(Croatia)Stock Exchange, where in the world is Croatia? and a speck of the hundreds of miles of beautiful Croatian coastline

The time has come for investors to discover Croatia. Croatian stocks have enjoyed for the most part a very under-reported bull market that shows little signs of turning bearish. Make no mistake, this is a "frontier market" with the pitfalls and lack of transparency most investor shy away from. However, the tradition of Croatia is much in tune with Western Europe - more so than her neighbors. The core of the government is encouraging investment and partnerships to assist Croatia in reaching its economic potential. Europeans have made Croatia their number one tourist destination. European industry has begun to tap her well-educated, hard working workforce to produce high quality, value added goods and services.

My choice to begin a Croatian investment journey is to visit the FIMA website ( and explore the contents of this major investment firm specializing in Croatian securities.

Probably the best known Croatian stock is the pharmaceutical company Pliva. The ADR rarely traded is PLVDF. The last trade was at $14.06/share. Pliva has expanded into western markets through product partnerships and through acquisitions such as Dominian Pharma in the UK. The strategy is to push high quality generics into the west through established sales networks. Pliva also has some interesting drugs in clinical trials that may propel forward with enhanced EU membership. The company, already up 100% since Feb 2006 is just getting started, IMO. A Dr. Reddys Labs. (Indian pharma) on steroids.

Another stock to look at is Adris Grupa, d.d. Rovinj/ Maistra d.d., one of the top five stocks in market capitalisation and the second most widely traded stock in Croatia. This is a conglomerate of the former state tobacco company and several large tourist companies. The company grows and produces its own cigarettes selling over 15 billion annually with no end in site thanks to government protection. The tourist companies hold over 5% of available beds and campsites and 22% of Isrian tourist capacities with more development and acquisitions in store.

If frontiers have limits, I recommend two stocks for research if you are moving into Central Europe:

Central European Distribution Corp. (CEDC) operates as a distributor and importer of alcoholic beverages in Poland. It is fifteen distributorships and seventy-eight satellite branches throughout Poland. It has import rights to many first quality western brands such as Jim Beam, Sauza Tequilla, Concha y Torro, etc. Through the acquisition of Bols and Polmos in 2005, the company became vertically integrated. Zubrowka vodka is exported from Poland to the rest of the world. This company will be the dominant liquor and wine behemoth in most of Europe east of France. It will be expanding into the "frontier markets" no doubt, where alcohol is needed for mental health as well as a kick on Friday nights. Trading at $28.44/share and headquartered in the US, it is enticing indeed.

Central European Media Enterprises (CETV) together with its affiliates and subsidiaries invests in, develops and operates national commercial television channels and stations in Central and Eastern Europe. The company has operations in Croatia, the Czech Republic, the Slovak Republic, Slovenia and the Ukraine. Located in Bermuda, the company is transparent and has outstanding growth prospects outside of it's present sphere. Trading at $86.00/sh, it is still inexpensive, IMO.

I like a few Hungarian companies as well which I will save for next time on this topic.

No doubt, the next wave of BRIC-type action will be from frontier markets. Doing your due diligence and using some Speculative Portfolio monies on the above securities or others you find (esp. through FIMA or examining current frontier portfolios of funds) may be financially worthwhile - and a cultural education in itself.

February 19, 2007

February 20, 2007: Gloat (Converium and Sirius Bonds) and bloat (replication in ETF land)

I am a happy man today. Converium, the Swiss-based insurance company in a successful re-structuring mode is now in play as a takeover candidate after refusing quite a generous total offer from French insurer Scor. And the proposed merger between Sirius and XM bodes very well for the Sirius 9.62% Bond prospects, especially its 104 optional call feature. Both were prominent in my Speculative Portfolio, which is exactly what both investments are (were). Of course, nothing has closed yet, and there are several hurdles - especially for the satellite radio deal. This type of action is what one, ideally, should hope for on the speculative side of the ledger.

ProShares introduced another twelve ultra long or short ETFs. The ultra generally indicated a 200% leverage in either a short or long position based upon a stated index. That makes over fifty of these vehicles to choose from marketed by ProShares. Good grief! I love ETFs, and we all knew that many more ETFs parsing securities would come to the public, but how much in one basic area is enough? It will be interesting to see how many ETFs on the increasingly narrow fringe actually survive five years hence.

I would be interested to learn how profits are made in ETF land. Fees are pretty low. Indexes are in place. Where is the money? Apparently there is lots to be harvested within ETFs, oe else why the rush to produce such narrowly focused and seemingly replicated funds?

Maybe the Elliot Wavers' can tell me why in the cycle ETFs are proliferating or why ETFs never occurred before.Perhaps the Fibonacci folks? A good astrologer? OK, any chartist.....

February 18, 2007

February 19, 2007: Is the best defense an offense? Portfolio ruminations

Maybe I'm just a fine arts person in an engineering world regarding investments. Lately, it seems that the average portfolio is parsed, numbered, sequenced and detailed to death by THOSE THAT KNOW MORE THAN US, claiming by their actions that the more convoluted and confusing a portfolio dissertation becomes, the better it will perform sometime in the future.

I have reservations about the overly complex.

#1. First off the tee, no one can predict the future. No one.

#2. We all should know by now that the best-laid investment plans usually go wrong - because of #1.

#3. Investment signals, signs, charts and other pseudo-science asset management tools (many back-tested several years) have no guarantee of working the next time. I once asked an investment guru why a specific plan worked. Her response was, "It always has". Voila.

#4. By the time we know a bear or bull market is definitely upon us, it has already had a good start.

#5. Many professionals call a bull or bear market incorrectly. Louis Rukeyser was fond of saying, "He has predicted nine of the last two recessions."

On and on we go.

I maintain that the best defense is a good offense for any manageable investment season (nuclear war and the plague don't count - no one cares at that point). Having a Permanent Portfolio of common stocks both domestic and international, bonds, hard assets and real estate in reasonable proportion that is adjusted quarterly for balance and a Speculative Portfolio for the other 25% or so of your near term powerful investment commitments gives one safety and the zest of both worlds. Playing offense with the Speculative Portfolio also means you can play offense with your Permanent Portfolio as well - through periodic rebalancing via buying low and selling high.

The Speculative Portfolio can be both "shaken and stirred". Here is where you can satiate your desires in the exotic by investing in BRIC, ROW (rest of the world excluding BRIC), low quality bonds and especially, at this juncture, a strong look at the ProShares' short ETFs. I like QID best for it's powerful short strategy (200% of the index stated) and liquidity. Unlike some exotic ETF's, this one is very heavily traded and is not going to go away. One thing for sure, it appears to have an equal and likely greater impact then the gazillion complex bear strategies competing for your attention. If indeed, a bear market is forthcoming.

I believe that you do not have to go into more than four or five reasonably chosen ETFs, perhaps a commodity or three, with a few additional stocks and junk bonds to secure a nice Speculative Portfolio.Your Permanent Portfolio, while more expansive, should not keep you up at night worrying about the next day's market - or the next complex strategy concocted by the guru community to turn you inside out in utter confusion and a lost sense of purpose.

There has never been a better time to intelligently invest then the present. Information at our disposal would have sent Benjamin Graham drooling with envy to his personal computer instead of to the then state of the art operator-assisted phone and ticker machine. Use these resources, keep your investments reasonably simple and enjoy your life away from $$$$$$.

February 17, 2007

February 18, 2007: Aero defense tidbits

Pictures: Global Hawk, the new DDG-1000 and Boeing's venerable 737-300

A very interesting week. For defense contractors, the sham of supporting military equipment quantity for the ground forces while screwing the War on Terror message from the House of Representatives was good news.

Rep. Jack Murtha sent a Congessional minion to the large defense contractor conference this week hosted by a major brokerage house and told the participants that Murtha was going to propose even more money for equiping the Marines and Army in 2007/08. Or, at least enough to placate defense campaign contributors not to worry about a Democratic strategy for surrender in Iraq. A sly man, Jack Murtha is.

> Two MRAP contracts went issued. One for $66.8m (125 Vehicles) to GD/FRPT and one for $55.7m to BA.L for 90 RG-33Ls. IMPORTANTLY, the DoD is going to spread out the contracts for MRAP's amongst several providers for a quicker delivery schedule. No one firm is going to get all the business. GD has already hinted that the MRAP contracts were not going to add anything significant to their bottom line. Force Protection should take a similar view, but since this company is in play with many individual traders, I expect the stock to be bid up to around 20/sh. Anything near 20 would be a good opportunity to take profits. MRAP contracts are now in play on a weekly basis, possibly due to the uncertainty over the length and intensity of the Iraq situation. Also, the new killing devices used by Iraq terrorists can easily penetrate existing MRAP armor, a significant problem.

>Raytheon (RTN) received a $308m contract for the DDG-1000 mission system equipment and engineering support.A very interesting ship.

>Northrup Grumman (NOC) won a $559m contract for a Global Hawk system from the German government.

Rumor has it that Congress may grant the USAF permission to retire older platforms.

>ERJ delivered 37 aircraft in 4Q 06.The year total was 130. ERJ is contracted for 170 this year, $14.8b in orders.

>Boeing (BA) confirmed its order from UPS to deliver 27 of its 767-300 freighters.

The FAA proposed user fees, fuel taxes and new bonds to fund modernization of ops and traffic control systems at US airports.

Taking stock: recommendations

BE Aerospace (BEAV)
Goodrich (GR)
Precision Castparts (PCP)
Spirit Aero Systems (SPR)
Boeing (BA)
Esterline Tech (ESL)
Armor Holdings (AH)
DynCorp (DCP)
General Dynamics (GD)
L-3 Communications (LLL)
Northrup Grumman (NOC)
Raytheon (RTN)

With the Democrats taking the position of supporting the troops and not the mission, I may be adding to my defense stocks in short order. Support the stocks but not our country's interests and long term well-being, I suppose.

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February 15, 2007

February 16, 2007: Housing, foreclosures and status

The housing market is in a free fall in some areas, stagnant in others and up in precious few.

In January, 130,511 homes were in foreclosure, up 20% from last year. January's level was 19% above December's results. This is significant.

In January, five states represented 47% of all foreclosures in the country. For comparison, these five states represent 32% of the nation's total households. Texas had the most foreclosures, California second, Florida third, then Michigan and Ohio.

Looking at trailing three month statistics to forecast trends, foreclosures were up 41% nationally from last year. Key state changes include Michigan (up 109%), California (up 101%), Colorado (up 92%), Nevada (up 68%), Arizona (up 51%), Texas (up 21%) and Florida (up 8%). These are up from already high levels.

Across the country in January, there was one foreclosure for every 954 households based upon Census estimates. One major brokerage firm takes the position that the upward trend in foreclosures is indicative of the heightened leverage taken on by home buyers through the past several years of price appreciation and record-low interest rates. Easy money kills.

There is a concern amongst builders that the potential inventory overhang that will result from foreclosures will not be felt for another several months, as default notices take about five months to work through the system. Thus, the housing slump will continue past this summer well into fall with no significant relief.

With the sub-prime mortgage business practically ruined, lenders are tightening standards, thus lowering the number of individuals qualifying for a mortgage loan. This is a good thing long term, but it will have a negative impact on home sales across the nation.

Credit Suisse analysts feel that investors are not paying enough attention to this longer downturn in home sales and construction, and to the impact of tighter credit standards.I believe that home builders and many REITs are now overvalued - and then some.

Another tidbit of information. I reviewed all of the states' three month trailing numbers as of January 2007 foreclosures in comparison to the three month trailing numbers ending January of 2006. They are interesting.

Massachusetts is up 825% (9,720 to 1051)
Alabama is up 558% (1,999 to 304)
Louisiana is up 282% (1,409 to 369) much for blaming Katrina
Minnesota is up 223% (2033 to 629)...630 once Al Franken looses his
North Carolina is down 12% (4,666 to 5,322)
South Carolina is down 44% (1,277 to 2,270)
New Mexico is down 58% (895 to 1,619)

Eleven states recorded "down" numbers. Thirty-nine recorded "up" numbers.

I have additional state and region data. If you have a specific request, e-mail me.

February 09, 2007

February 11, 2007: Aero Defense/ Force Protection (FRPT)

The new USAF KC-X Tanker, the JTRS (Joint Tactical Radio System), the newest Boeing 747-8 and a version of the Force Protection Stryker

AeroDefense/Commercial aviation notes:

BEAV beat the street .28 to .29 estimate. Orders continue to roll in.

COL is doing the Boeing 747-8 avionics system.

NOC is bidding on the multi-billion KC-X program, to be awarded est. July. 07.

DCP beat the street .20 to .18 estimate.

Next week. Project HELIX (UK) LMT vs. LLL $900M.

Next week: AMF JTRS contract (BA vs. LMT).

late Feb.: LOGCAP IV (DCP, LMT, IAP, FLR) $5b.

March: Lawrence Livermore Lab Mgmt. (NOC likely) $8.9B/10 years.

March: Joint Cargo Aircraft -JCA (LLL vs. RTN) $1.7B.

Stock recommendations include:

BE Aerospace (BEAV)
Precision Castparts (PCP)
Boeing (BA)
Goodrich (GR)
Armor Holdings (AH)
DynCorp Int. (DYN)
General Dynamics (GD)
Lockheed Martin (LMT)
General Electric (GE)
TransDigm (TDG)


Force Protection (FRPT)

I have received a number of e-mails and comments from holders of FRPT stock. I was asked to comment on their board over at another prominent web site. I remarked extensively on the stock, indicating good, neutral and not so good aspects of the stock. I recommended selling some since the run up ($1.27-$24.30). Now trading around $19.00. In return, I received one line expletives, which may very well indicate the calibre of holders of the shares, but I digress.

Of four brokerages of note that follow FRPT, one has a hold, one has a sell and two have a strong sell according to tabulator Jaywalk. Reuters has a buy on it, as a news service opinion. It is ranked in the bottom 10% of desirable stocks in the industry. In the sector, it ranks in the bottom 1%. In the Jaywalk Universe of stocks it ranks in the bottom 1%. Their opinions - don't blame me.

Force Protection supplies badly needed mine armament-resistant vehicles and other protection for out troops. It performs a great function and is to be commended for that. I have three children and two of their spouses (five, for my FRPT pen pals) presently serving as active duty officers in the armed forces. I appreciate Force Protection more than many parents, I suspect. However from a strictly stock picking standpoint-

I stand buy my recommendation to holders of FRPT to sell some, maybe more than some of their positions. I believe the stock is priced to already account for near term contracts may be priced for perfection - that all contracts will go the FRPT way and that the Iraq War will last a lot longer. I do not believe either is the case. FRPT proponents are encouraged to respond.

FRPT is a stock I want to like. I just can't rationalize it going more than a little higher than it is now, conceding that I missed the last 2000% of it by not purchasing it for my Speculative Portfolio. And it may have a huge downside risk, due to product variety limitations and competition from other, larger, players.

February 08, 2007

February 9, 2007: Real estate, a bottom...or a bottomless pit?

Yesterday, media elites reported what we involved in real estate have known for a long time. The sub-prime mortgage market is blowing up. Several stocks hit the skids. I will try to sort out the carnage and mention a few stocks that are worth studying for inclusion in your portfolio.

First, the initial point of contact lenders are the culprits here. They were not minding the store as mortgage brokers and their willing accomplices, appraisers, fed
them juiced appraisals, massaged loan applications and gave just about every warm body that walked in to buy a home 100% financing. Poor credit risks were given excellent terms at only slightly higher interest rates than the gold-plated client. Remember that real estate appraisal,like prostitution and and forgery,is an art and not a science. Thus, the art of appraisal, not monitored, encouraged schemes to pump up home values so that buyers would draw thousands of dollars cash back at close for "repairs" and brokers get higher fees for bigger loans,amongst other techniques. This has turned the sub-prime market into a Ponzi scheme. The larger banks are then stuck with bad paper and lots of foreclosures.

Second, the government is also to blame for mandating loans based upon ethnic class rather than a credit standard.Instead of holding to a standard, lenders throw up their hands and just say "sign here, you're approved" to keep the Feds off their back.This ultimately has a devastating effect on inner city communities,as foreclosures and "free money" often turn into blight and drug houses. Unintended consequences.

I have reviewed the latest housing statistics and a lengthy, respected brokerage survey on the housing market today. I traveled south last week to see the housing bubble first hand. The situation is grim for many areas. Florida is amongst the worst.Vacant properties are in the millions of units nation-wide. Foreclosures are at very high levels. Panic? No. Start looking now. First at banks, next at the housing industry.

Once the sub-prime and refinanced-at-the-top-of-the-bubble loans burst, I look for the industry to begin to move forward, gradually, by mid-summer. That said, some areas have so many excess housing units it will take a few years to work off the inventory. Look at some national and selected regional institutions, as follows:

No furniture companies. Sales are down everywhere, especially in the southeast.

Wait a bit before looking at any housing-centered REITs.

CapitalSource (CSE) Excellent company that is diligent in avoiding problem loans.
Lazard (LAZ) Moving forward doing good business. Not usually in the housing "mix".
Goldman-Sachs (GS)Pricey? Yes.Fully valued? No.Influence on housing industry? Yes.
Wachovia (WB) Buy it. Excellent positions taken in the home financing industry.
Capital One Financial (COF) They are in about every good credit risk's wallet.
Northern Trust (NTRS) Again, not usually grouped in housing, but its stake appears large and healthy.
Countrywide Financial (CFC) Excellent loan portfolio, I think. Good management.
First Horizon (FHN) Spike up as CEO has announced retirement. Finally! Buy on an pullback into the 41/share area.

Three home builders:
Lenner (LEN)
M/1 Homes (MHO)
WCI Communities (WCI)

and, a manufactured home/land REIT/ finance outfit
UMH Properties --I like this one a lot as a long term investment with a hefty divi- dividend. The Landy family has their tentacles in this stock.

I have information overload on this subject. I will throw out more data and potential stocks over the next few weeks. Importantly, get serious about investing again in this sector: SELECTIVELY.

February 07, 2007

February 8, 2007: Random thoughts/Cramer/stocks/bonds/ETFs

Here are a few straight forward opinions:

CNBC: Good entertainment for the investor hobbyist. Some good scoops. Don't run to your computer to buy or sell based upon a network opinion.

Cramer, James: Brilliant mind. Has brought many otherwise ignorant socialists to the capitalist investment table. Great with the quip. Today he came out against ETFs as being nondiversified and over-hyped, and I agree, to a degree (see ETFs). Boo-yah.

ETFs: Too many. Too soon. I use ETFs primarily for the Speculative Portfolio (see Portfolio). I really like wading through the growing mass of sector and index ETF portfolios. Investing is a hobby for me. Fun. I get a chuckle out of some of the new eclectic ETFs and can't wait for the next bunch to be even more parsed in sector splinters for the individual investor to comprehend. ETFs do have a place in a diversified portfolio, but watch the contents. Understand what you are buying, and why. Research at the website of the ETF and at

Mutual Funds: Don't need 'em anymore.

Stocks: There is nothing so precious as choosing a profitable individual stock, so long as you concede that at some point the relationship must terminate. Stocks should make up the majority of your portfolio. If you do not have time to review your positions regularly, strike the previous sentence. Do not rely upon one source for your selection process. Do a Clinton: triangulate. And diversify. I tend to choose value stocks. I also enjoy looking for speculative stocks that have had a past of collapse, have mixed analyst reviews and have a recent management change.
There is nothing inherently wrong about a stock that pays a good dividend.

Portfolio: I have several securities accounts (taxable and tax efficient), but a checklist of only two portfolios, the Permanent Portfolio (75%) mix of stocks, bonds,a few ETFs (value oriented); and the Speculative Portfolio (25%) mix of speculative bonds, ETFs that are country or sector specific and the occasional commodity. I think this mix works best for just about anybody.

Diversification: Practicing diversification admits that you are fallible. Being diversified does not mean simply owning stocks. It means owning some real estate (preferably direct), some stocks, some bonds, some commodities and anything else of value that does not truly depreciate. It also means to lead by example, to be fair and honest to all and to have a variety of interests. Having a lifelong partner makes diversification meaningful. Having children makes the meaningful blessed. Diversification cannot reach fruition until it is approached holistically.

Politicians: Vote the principles. That is why I tend to vote Republican. Not a big fan of high taxes, class warfare and pandering.

Timing: Timing is everything, in stocks and to a large degree, in life. Timing is also luck for most of us.

Blogs: I like most of the financial blogs. My favorite is Random Roger (random The few I do not like are filled with a bunch of elitist crap that dulls the mind, and is crammed with pseudo-facts for the One Who Knows Better Than The Rest Of Us, usually the Blogger.

February 06, 2007

February 7, 2007: ETF (bright) ideas, maybe

Here are a few ETF ideas that may be worthwhile to take a look at, sooner or later.

For those that want to hedge against a sudden downdraft in the market, ProShares ETF's are a good bet, as they present a buffet of short choices:

Short Dow 30 (DOG)
Short MidCap 400 (MYY)
Short QQQ (PSQ)
Short Russell 2000 (RWM)
Short S&P (SH)
Short Small Cap 600 (SBB)
Ultra Short QQQ (QID)----"ultra" has 200%, or double the inverse, power
Ultra Short Dow 30 (DXD)
Ultra Short Mid Cap 400 (MZZ)
Ultra Short Russell 2000 (TWM)
Ultra Short S&P (SDS)
Ultra Short Small Cap 600 (SDD)


Many of these ETFs are thinly traded. I prefer the UltraShort QQQ (QID),giving your bet an added punch if you are correct about a market heading south.

Looking at other ETFs, I would encourage you to take stock of the following:

Vanguard Small Cap Value ETF (VBR)
Wisdom Tree Europe Total Dividend ETF(DEB)
Powershares Buyback Portfolio ETF (PKW)
Powershares Dividend Achievers ETF (PHJ)
Powershares International Dividend Achievers ETF (PID)
iShares GSCI Commodity ETF (GSG)
Healthshares Enabling Tech. ETF (HHV)
Healthshares Diagnostics ETF (HHD)
Claymore Zacks Sector Rotation ETF (XRO)
Claymore Oil Up ETF (UCR)
Claymore Oil Down ETF (DCR)
Rydex Swiss Franc ETF (FXF)

Each of these funds have unique characteristics and portfolios that may qualify for appropriate insertion in your diversified portfolio. As stated many times during the course of this blog, portfolios of the ETF's make the difference - look at them closely before you leap. Increasingly, timing will be important as the bull market gets a bit worn and tired.

Note that Proshares have just introduced over twenty funds from various sectors that will be either "double long" or "double short" in nature. Big risk, but big reward. A true hedge.

February 05, 2007

February 6, 2007: Making the best of it.Defense budget, quantitative earnings summary and a few stocks

You either laugh, or you cry.

President Bush has asked for an 11% increase in defense spending for 2008, which should benefit defense contractors. The caveat much will Congress cut?

One item that received a 17% cut was the anti-missile system, which impacts Boeing(BA) to a degree.

LMT fared well with fifty C-130J's planned. The F-35 funding jumps 23% to +$6B and the F-22 rises to $4.6B. The C-5 upgrade program was fully funded at $603M (up 59%). Boeing's C-17 falls from $4.8B 07 to $650M 08. A dozen F-18s are also funded.

Funding for ground equipment for 08 is DOWN, again supporting my ongoing commentary of less boots on the ground (thus less armor, etc. needed)and a presumed withdrawal from most of Iraq by late summer. OSK should be about the only beneficiary of this proposed budgetary area.

Body armor, a political topic of conversation, received good 08 funding support. Chief beneficiaries are CRDN and AH.

Homeland Security was well treated, rising 8% to $US47B.

Shipbuilding is up across the board. The Coast Guard Deepwater project, under a cloud for design flaws, appears to be back on track.

Readers wanting more specific information my e-mail me. I have lots more data to share.


Large-cap earnings to date beat expectations for the fourth quarter. Earnings growth was 11.3% versus a forecasted 8.3% heading into earnings season.

S&P 500 64% beat estimates 22% missed estimates 14% in-line
Russ.1g 64% 22% 14%
Russ.2g 47% 37% 17%

Revenue Summary:

S&P 64% above estimates 36% below estimates
Russ.1g 61% 39%
Russ.2g 51% 48%

My thoughts on defense policy is that the United States is going to retreat some from international shows of force.Instead, the US will focus on Homeland Security upgrades and a huge upgrade in technologically "star wars"-quality weapons systems to avoid ground causalities and keep Chinese expansion in check. President Bush is tacitly admitting that the US population and the World do not wish to have a superpower to be the final arbiter of regional conflicts. And, sometimes you unfortunately will get what you wish for. The world will become an increasingly dangerous place, which will impact investor decisions worldwide, especially in the newly developing regions and the Middle East.

February 03, 2007

February 5, 2007: Investor beware (and a few stock tips)

Illustrations above include the occasional bazaar idea that works, the Kondratieff Wave Theory in action (sic) and an investor hearing the cacophony of "experts" and refusing to question the accuracy and intent of the information source.

There are four types of ideas that the investor may elect to act upon:

The VERIFIABLE: The investor may not understand all the ins and outs of the law of gravity, but can verify its central thesis at any time by dropping an object and watch it fall to the ground.
The REASONABLE: The investor hasn't actually tested the idea that one will drown if staying under water too long, but it is consistent with what one knows about water, life and breathing - and cannot imagine a way for the idea not to be true.
The AUTHORITATIVE: The investor never checked personally to be sure that Australia is located where the map says it is, but one trusts Google Earth satellite's pictures of the world because Google verified the accuracy and because seeing is believing in relation to other pictures on that website.
The SUPERSTITIOUS: A superstition is a belief that hasn't been verified (and probably can't be verified)for which no one has a reasonable explanation.what a reasonable explanation might be, and for which no authoritative source has claimed that there in fact is a reasonable explanation.

Investing isn't easy work. It draws more on judgment than on science. There is no skill or technique that can be relied upon to work unfailingly - no rules that provide consistent knowledge of the way a market is going to move. Because the principles of economics and investing can't be proven once and for all, there is a lot of room for pseudoscience and superstition to work into our investing habits.

For example, the investor had better be very skeptical of:

Evidence that is incomplete. The investor is shown that event B followed event A four times in a row, but the investor is not shown the seven times event A wasn't followed by event B. Or, the investor is not shown the nine times that event B occurred without event A preceding it. Or, the investor isn't told that events A and B are just two of a large group of events that seem to follow whenever event Z occurs.
Evidence comes from an authority. The investor respects the person or institution that is promoting an idea because of a previously unblemished track record. Or, the investor may simply be bowled over by the authority's credentials as an economist, scientist or famous person or organization. Even a confident manner will influence the investor willing to trust implicitly the authority.
Evidence that is wrapped in an authoritative package. It's claimed that the investment idea has been tested extensively and verified beyond question. Or, perhaps the promoter of the investment idea dazzles the investor with mathematical and statistical techniques that are useful in the physical sciences but have no place in economics.

In other areas of the investor's life, one or more of these components might not be enough to overcome a natural reserve and skepticism. But ideas that promise to make investing easy or simple generally are welcomed because most investors want so much to believe that they are true. In order to find something they can count on, many investors are willing to set aside their skepticism, to give any idea the benefit of every doubt, to ignore the exceptions or logical flaws that would scream at them if the subject were something other than investing.

Thus, fallacies wrapped in authoritative mumbo-jumbo backed by the confident manner of the presenter and contained within HOPE for the investor become a large part of the "common knowledge" of the investing world.

As Ken Fisher states most recently in his bestselling book, THE ONLY THREE QUESTIONS THAT COUNT, the individual investor needs to question almost every type of investment wisdom - because it may not be so.

Three stocks to begin looking at:

Domtar (DTC) This Canadian company is re-domiciled in the US. Domtar has shed some assets and has begun to focus and expand on its stronger business areas and in forest management for superior product. Trading at $7.93/share, Domtar way come close to doubling in price over the next two years. Also a potential buyout is possible, which may be the reason Domtar is cleaning up the balance sheet.

Hanesbrands (HBI) This stock has the potential to double as it outsources more of its production overseas (as has the competition). Stock is down now because of a recent earnings disappointment. There are a lot of opportunities for upside if management decides to take advantage of them. Trading at $25.32/share with a strong balance sheet that will be great if the outsourcing begins sooner rather than later.
Also could be an interesting speculation on going private in the $40.00/share range.

Sunoco (SUN) Sunoco is trading at a substantial discount to the rest of the independent refiners. Cash return to shareholders is strong, but overall business momentum is lacking in part due to recent significant cost overruns in several projects. Trust has been negatively impacted with Wall Street. However, the company has solid numbers and no new cost containment issues are on the horizon. Trading at $63.86/share, SUN may well hit the $80/share mark by the end of the year.

The fact that I am beginning to reach a bit on stocks tips should indicate that the market is trading quite high now. An ETF, ProShares Ultra Short QQQ (QID), which I have on limit order to buy when the market gets too high for my taste, may be another investment vehicle to consider to strongly short the market.

February 02, 2007

February 4, 2007: Defense appropriation tidbits 07/08

1.Special robot (many more devices of this sort are in the pipeline),2. USCG Walnut coming home to Honolulu after meritorious service in the Gulf -2003, 3.Army in action in Iraq (undated) and 4. how some Democrats in Congress view our military.

The President will recommend a 10% increase for the 2008 military budget. The component that funds the defense industry will be up 12.4%.

Supplemental war spending for 2008 will be requested at $142B, a 10% increase from 2007.

The supplemental request for the War on Terror for 2007 will be about $93B, less than anticipated.

Including War on Terror spending, military spending will be requested to grow at 14% levels for 2008.

Congress approved only $382B of the President's 2007 $439B Baseline military budget, cutting most deeply into MILPER and O&M while increasing family housing a notch.
Then, they increased the Bridge Fund from a requested $50B to $70B, a budgetary slight of hand. A second supplemental request for $94B is expected the second half of the year. If things improve in Iraq, the President will probably get it.

One reason the 2008 budget request is high is that the Administration may have concluded it has limited time and resources to continue to fund and prosecute the war in Iraq. This may be the last shot to get it right.

Another reason is that the $100B projected increase in the 2008 baseline budget includes both the initial cost of expanding permanent end strength for the Army/ Marines and, the incorporation of significant portions of OIF Optempo expenses into the 2008 baseline budget as directed by Congress in the 2007 Defense Authorization Act.

WARNING: Companies that depend upon the present conflict in Iraq to support their coffers had better begin to diversify their product line. Quickly. Investors must execute precise due diligence before purchasing stocks of this genre.

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