The Haiku of Finance for 12/25/09

Happy Christmas day
China gives me a present
Profits (if it's true)

Alpha-D Updates for Dec. '09‏

Some of my options expired unexercised over the weekend. I'm always glad to pocket the cash. The remaining option positions (KEX, TDW, ANV, LMT, IYR) remain in place. I've made a few updates for this month.

Sold Jan 10 covered calls on FXI and GDX.

Sold Jan 10 puts under FXI.

Sold Apr 10 puts under COMS.

Sold Mar 10 puts under EFA.

I tried to sell Jan 10 puts under Chattem Inc. (CHTT) due to an all-cash buyout by Sanofi-Aventis (SASY.PA) but this probably won’t get filled.

Most Of You Will Be Unhappy

Our betters continue to program us to expect less so they can have more of what's left. Consider this piece, instructing us on how much happier we'll all be once we're poor:

The Great Recession--which is technically over, economists insist--may be morphing into a broader epoch: the Great Humbling. Millions of Americans who felt prosperous just a few years ago are now coping with long-term unemployment, sharp cutbacks in living standards, foreclosure, bankruptcy, and a deep sense of failure. That could persist for years. "This is not like earlier recessions, where things fell, then they bounced back to where they used to be," says Dennis Jacobe, chief economist for the Gallup polling organization. "We haven't seen this before. It's the only time this has happened since the Great Depression."

I predicted last year on this blog that we'd see more of these heartwarming stories on how great it is to be downwardly mobile. I suppose it's fitting that the article's scene is set in San Francisco, my town, where plenty of wanna-be aristocrats enjoy slamming doors in the faces of people like me. The article gives Americans instructions on adapting to their new lifestyle as serfs. The only thing missing is a description of the proper length of a curtsy when addressing a millionaire, or a warning to avert one's eyes when being scolded by one's lord. It uses several classic sales techniques to drive the prospect (that's YOU, the newly poor) to "close" on accepting less from life . . .

"You'll really don't want to be successful anyway. Look how unhappy those business commuters are to be rushing to work."

"You don't need more than a few thousand dollars to survive."

"Think how much happier you'll be when you don't have to worry about what to do with your money."

There is a tiny kernel of truth in these very suggestive thoughts, which is why they're so effective as sales pitches. They have a natural appeal at some level that inclines one to agree just to be agreeable. Most people probably would be better off if they had less money to waste on materialistic lifestyles that deplete the planet's resources.

I am not most people.

These sales pitches sicken me. I'm not about to settle for less in life. I've had enough experience with hidden sales pitches - both delivering them and being duped by them - to see the manipulation. My bosses at major investment firms - all preppies who never had to prove themselves - spoke to me this way before they fired me and took credit for the work I had done.

I refuse to be duped. I will not succumb to this siren song. I will never settle for less. Civilization's progress depends entirely on people who refuse to settle for less. Get lost, preppies, before I vomit all over your stinking pedigrees.

Buyout Hunger and I-Bank Starvation

PE firms think they can find public equity bargains even in a stock market rally driven by hype:

Buyouts are finally returning for the deal-hungry private equity industry, which is looking at 2010 to deploy huge cash reserves into deals that buyers hope could get back up to double-digit billions.

Good luck with that search. Plenty of investment banks will jump at the chance to help, given the paucity of merger deal flow headed their way:

Advisory fees generated by M&A deals totaled $18.9 billion, down 46 percent from 2008 -- the worst annual level since 2003. For the first time in six years, M&A was not the main source of fees for investment banks, representing just 27 percent of all fees earned this year, according to Thomson Reuters.

The time is ripe for a bunch of fee-starved i-bankers to push questionable deals to PE managers desperate to show off for their clients. Gotta look busy to earn those fees. Deal pitchbooks in the near term will be long on optimistic growth assumptions (headwinds: declines in consumer spending) and short on explaining how PE firms can wring operational efficiencies out of public firms that are already cutting to the bone.

I Really Missed the XTO Boat

Here's still more evidence that Exxon's acquisition of XTO Energy was extraordinarily prescient:

Natural gas prices jumped Thursday after the government reported that supplies fell by the largest amount ever for this time of year as frigid weather chilled parts of the Midwest and Northeast.

There must be the Rockefeller DNA still left in Exxon (formerly Standard Oil) somewhere.

XTO Was Undervalued

I had XTO Energy on my watchlist for a while, particularly in Q1 2009. I didn't buy it because I wasn't sure if its long-term earnings prospects were predictable. Well, Exxon is a lot more sure of its prospects than I ever was:

Exxon Mobil, the world's largest publicly traded oil and gas producer, said Monday that it had agreed to buy XTO in an all-stock deal valued at $31 billion, the biggest oil and gas deal in four years.

This was a big missed opportunity for me. I briefly considered an arbitrage play, but the all-stock nature of this transaction has dissuaded me. I'd rather not take a chance on owning Exxon right now as I need room in my portfolio for other stocks. The end of the cheap oil era makes any other energy producer somewhat more desirable, regardless of the status of its business model. The energy sector bears watching. I'll keep an eye on other independent producers like Occidental Petroleum (OXY) in case the supermajors launch more surprise deals.

The Haiku of Finance for 12/14/09

Global food prices
Due for a much sharper rise
Get ready to pay

We Haven't Beaten Inflation

Let's not let the Fed be too quick to pat itself on the back for levitating the U.S. out of a Great Depression. Inflation in some commodity prices is waiting for us:

Global food costs jumped 7 percent in November, the most since February 2008, four months before reaching a record, according to the United Nations Food and Agriculture Organization.

Farm prices this year lagged behind copper futures that doubled and oil’s 57 percent increase.

The Fed's deflation-fighting tactics will only accelerate the price increases driven by the natural forces described in the article. This is probably good news for gold (I still own ANV and GDX).

The Haiku of Finance for 12/10/09

Raise the debt ceiling
Forestall financial collapse
Pretend to pay bills

Taxes Reflect Reality, And Soon So Will Bonds

It's only a matter of time before you can strike "Greece" out of this article and replace it with "U.S.:"

Greek government bonds slid for the fifth straight day, sending the 10-year yield up by the most in more than a year, as Fitch Ratings said Prime Minister George Papandreou’s government doesn’t grasp the debt crisis’ severity.

Meanwhile, state tax revenue fell in FY 2008:

U.S. state government collections fell 16 percent to almost $1.7 trillion in fiscal 2008 from a year earlier, while spending increased 6.2 percent, according to the U.S. Census Bureau.

The original press release from the Census says it all. Data on current state tax receipts probably isn't any rosier. That hard dose of reality is going to smack a lot of bond ratings - both state and federal issues - upside the head soon enough. How soon is anybody's guess. You can only inflate so many bubbles before you suck all the air out of your economy. Greece's news today is the U.S.'s news in 2010.

The Haiku of Finance for 12/08/09

Greek debt may default
A crushing burden to bear
Stocks and bonds both slide

Inching Toward the Sovereignty Crunch

You wouldn't know it from the shape of the yield curve, but Treasuries and gilts are getting increasingly risky:

Moody’s Investors Service said its top debt ratings on the U.S. and the U.K. may “test the Aaa boundaries” because their public finances are worsening in the wake of the global financial crisis.

Think a sovereign debt downgrade can't happen in the Anglo-West? Think again! Look how quickly the possibility of a Greek sovereign default ramped its yield curve and took the air out of that country's equity market. We'll see action like that in the U.S. sooner or later (probably sooner).

The Haiku of Finance for 12/07/09

Discount brokers win
Grab clients from prestige firms
Take down those preppies

Full-Service Brokerages Lie About Losing Clients

The big full-service wealth management firms can't break their old lying ways. Even in the face of independent evidence, they continue to lie about their market position vis-a-vis discount brokerages:

The ad campaigns appear to have worked: Discount brokers took in 25 percent more assets from full-service advisory firms than they lost over the past two years, Aite said.

But full-service brokers claimed they were winning the war for clients, the financial services consulting and research firm said.

This does not surprise me. The brand-name, white shoe firms have lied about their products, research, solvency, and everything else under the sun, so it makes sense that they like to lie about their relative attractiveness over self-directed investing. Only idiots and trust fund babies (same difference) need a full-service advisor to hold their hands. The rest of us (the vast majority) are better off with index funds and a handful of stocks we know well.

The Haiku of Finance for 12/05/09

Short sale on a house
Bank takes a loss on mortgage
Clear out all that debt

Banks Pay Execs to Lose Even More of Your Money

We can always count on our mandarins to clue us in to something obvious:

Treasury Secretary Timothy Geithner disputed claims by Goldman Sachs Group Inc.
executives that the bank could have survived the financial crisis without government help and said it and other Wall Street firms should show some restraint in handing out bonuses this year.

Why didn't Treasury insist on pay caps for these undeserving bankers when it TARPed them up? The moral hazard remains. Bankers probably think they'll earn their bonuses with more money-losing gambits like these:

Banks are beginning to go along with short sales in increasing numbers, three years into a U.S. housing slump that pushed the economy into a recession and cut resale values by 30 percent from the peak in July 2006. Short sales almost tripled to 40,000 in the first six months of 2009 from the same period a year earlier. Yet for each short sale, there were 25 foreclosures started or completed in the first half of this year, according to data from the Office of Thrift Supervision and the Office of the Comptroller of the Currency.

At least short sales will clear bad mortgage assets off the banks' books. The bad news is that they'll lower the values of remaining homes. The Fed's attempt to reflate the housing market is looking increasingly troubled. All of this is good long-term news if it clears the debt overhang from the economy. It can't help but be bad short-term news for homeowners and economists looking for green shoots of recovery.

Nota bene: Anthony J. Alfidi has no position (thankfully) in GS at this time. He does not owe any mortgage debt at all.

The Haiku of Finance for 12/04/09

Whoa! Dollar rally
Spurred by good jobless report
Mortgage yields jump too

Preppies With Guns at Goldman Sachs

This makes me shake my head. These preppie fools are just now realizing that their business decisions have placed their lives at risk:

“I just wrote my first reference for a gun permit,” said a friend, who told me of swearing to the good character of a Goldman Sachs Group Inc. banker who applied to the local police for a permit to buy a pistol. The banker had told this friend of mine that senior Goldman people have loaded up on firearms and are now equipped to defend themselves if there is a populist uprising against the bank.

I have a couple of decades' worth of experience with firearms. Buying a handgun offers little protection without the willingness to use it at the moment of truth. Then again, pulling the trigger won't be difficult at all if Goldman Sachs' heavy hitters are really as amoral as they're often depicted.

I'll offer some free advice for preppies who're serious about enhancing their chances for survival against an angry mob. Forget the firearms, as they will only delay the inevitable if the plebes are at the gates with guns of their own. There are concrete steps you can take right now that are far less aggressive. Do the following. Unwind your firm's credit default swaps, interest rate hedges, and other derivative positions. Shut down your TARP-supported firms and allow the U.S. Treasury to assign their assets to local banks and credit unions. Deploy the bulk of your net worth to build resilient communities in your local area. In other words, taking highly visible steps now to distance yourself from Wall Street's greed is a better insurance policy in desperate times than arming yourself against your destitute neighbors.

Don't even think about fighting an angry mob all by your spoiled, arrogant self. The global guerrillas can easily defeat you.