Nov

30

Abelson: The O.J. episode happened. A handy chart tracks the number of times the press uses the word “goldilocks”. It is up lately, which might mean people are using that as a reason to stay bullish in the face of bad news. (Of course, a simple look at the chart shows basically zero correlation between the number of times goldilocks is used in the press and later stock market action.) The dollar has gone down, it will go down further, which will hurt the economy. Miracle of miracles, there is some good news: The world is awash in liquidity. In other news, the sky is falling.

Page 18 (follow-up section): We were wrong about B of A. The US Trust purchase was smart, and B of A stock is doing well. Avon stock is up despite lack of improved fundamentals, plus there are a lot of clouds on the horizon. Snap-On Tools has been doing great.

Page 21: One of the reasons there has been so much buyout activity is that corporate managers are risk adverse compared to the LBO guys. With debt financing so readily available, the LBO guys have been willing to load up their targets with debt… something that corporate and/or strategic buyers aren’t willing to do. This has given the LBO guys an upper hand in the buyout game. The Private Equity boom will end badly if the economy weakens.

Page 22: The Schwab Equity Ratings system has been doing great. The guy who designed it doesn’t focus on forecasting earnings, rather he looks for factors that help to predict earnings surprises. Free Cash Flow is the most important factor. He also compares inventories to sales. Profit margins have no correlation with future stock returns.. rather FCF to equity does. Another good indicator is comparing rates of change in sales vs. assets. The higher the capex rate, the lower the return over time, for various reasons. Tracking short selling in a stock also had predictive ability.

Page 25: Lots of people have Hepatitis C, and there is no cure. Wall Street is betting on Vertex to find one. However, the doctors think you should be looking at IDIX, ITMN, ACHN, VPHM, XTLB. You can read the rest of the article to learn about Hep. C, or you can just google it.

M3: For those of you cruising the Gulf of Bothnia last week, there were a lot of big buyout deals, Dell did well, and the dollar declined, resulting in profit-taking by Kirk Kerkorian and insiders in general. It was a good week for copper stocks, and it could get better. The Phelps bid could move higher. KFC has a new logo, and a nice start in China. Large cap stocks are finally outperforming small caps.

M6: Lots of reasons to worry about Google, mostly that we haven’t really seen any sort of big payoff to its non-cores businesses yet. Fred Hickey things consumer spending, which will hurt Google advertising.

M7: There are lots of people in China who don’t have mobile phones yet, so buy China Mobile and China Unicom.

M8: M&A activity is going crazy, and bondholders are taking it on the chin. It used to be you could buy the bonds of big, safe, companies and be ok. Not anymore. Deal sizes are huge, and getting bigger. Bondholders are fighting back, asking for better covenants.

M9: It used to be that options markets predicted takeovers, but that didn’t happen on the big deals last week. The reason is two fold: 1. The prevalence of all cash deals (that makes no sense to me whatsoever, the stock will still go up if the cash is at a premium), and perhaps there is so much option volume it is not as obvious that there are inside traders. The new technique for insiders is selling calls that go out more than a year.

M11: Air France-KLM is silly for even thinking of buying Alitalia. So silly, that people are speculating that there are political reasons behind the deal.

M14: Gasoline futures have been clobbered lately, but they should do well through the winter, better than crude oil.

Page 27: It used to be that philanthropists gave their dough to popular causes like hunger relief. Now people are tailoring their giving in a much more narrow manner where they feel they can have a greater impact and more personal meaning. There are 4 pages of various example of this, if you care.

Page 32: You don’t have to give away cash, you can give away stuff like rare books. You should talk to a lawyer to figure out if you should give them directly, or give them to your family foundation and then sell them, etc.

Page 34: A Mellon activist hedge fund wants ASM International to break up. ASM doesn’t want to. This is ironic because Mellon is having the same problem with its shareholders. Either way, ASMI shareholders should be winners.

Page 35: The Human Genome Organization needs help naming new genes. The CEO of Cyberonics stepped down.

Page 36: There is a pretty cool Wine service called Vintrust. You buy wine, and store it at their facility. Then, you can trade wine back and forth with people, and all it does is require the moving of the barcode on the bottles. They have about 2 million bottles under management.

Page 37: Buying insurance online is pretty cool, but you still want to take your time and know what you are getting. With a lot of these sites, after you enter all your info, etc. you get phone calls from insurance agents, which is a pain.

Page 38: The AMT was designed to snare people who used every trick imaginable to avoid taxes. However for a few reasons, including inflation, it is nailing all kinds of people. It is not fair, and needs to be changed.

Page 39: Hedge fund Roundtable. blah blah blah. Overview of strategy returns. Going forward, M&A activity will continue. A way to hedge against geopolitical events is to go long volatility by buying VIX options. If Volatility goes up, equity markets will sell off, credit spreads will widen, and the dollar will strengthen. Where are we in credit cycle? Defaults low but rising, when will it really head up - who knows? 50% chance credit cycle goes bust next year. Interesting take on Amaranth: Investors were screwed because the creditors were running the show with nobody looking out for the investors.

Page 44: Joe Queenan went to the $99 dollar wealth Expo at the Javits center that Trump spoke at. The two pages can be summed up as: “As you might have expected, it is one big fraud, and the people who pay many for this thing are idiots”.

Page 45: The democratic congress is going to try to force net neutrality, which is the dumb idea of forcing the fiber providers to charge the same thing to everybody, when really they should be able to charge more to access bandwidth clogging sites.

Page 46: Interview with Will Chester of the Westcore Select Fund. It is a midcap growth fund. He oversees $2.8 billion. He thinks midcap growth stocks are great. He likes DOX, CSE, ERTS, STZ, DVA, GHCI, DOV, OSK, TPX, COH. Also, CAL and AMR. He just sold TROW because of valuation. The playstation 3 and Nintendo Wii will help Electronic Arts and Gamestop. He has a positive outlook on health care.

Page 47: Everyone tells you to diversify, but if you want to build wealth you need to concentrate and leverage your investments. You also need to be a hard-core contrarian investor. For example, you should like GM and F better than Toyota or Honda. Sometimes, of course, beaten down companies stay beaten down, like Kmart. Take a look at the Forbes 400, most got there because of large concentrated bets.

Page 48: Silicon breast implants are back on the market, and Mentor and Allergan, who make them, are up, and could go higher.

Page 51 Editorial: Airlines lose lots of money in general, despite there being lots of travelers. They keep buying lots of new planes during the good times, and receiving them in the downturns. The US Air and Delta merge will be bad news, and synergies are never realized. The bankruptcy judge should liquidate Delta.


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