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Showing posts from September, 2008

Mark to Market Accounting Clarification from the SEC

Reuters reports No need for Fire Sale Pricing which very possibly would've saved Wachovia Bank (WB). The substantial marks taken by JPM on the WM loans all but doomed WB. Now the SEC claims that a distressed sell wouldn't be classied as a market between willing parties and wouldn't count as a 'market'.

U.S. securities regulators provided initial guidance on fair value accounting and reminded financial services firms that they don't need to use fire sale prices when evaluating their hard to price assets, according to a document first obtained by Reuters on Tuesday.U.S. accounting rule makers assume that fair value inputs are based on an orderly transaction between willing market participants. The SEC release indicated that the agency does not believe distressed, or forced liquidation sales are orderly transactions.The SEC's guidance says that sometimes the level 3 inputs may be more appropriate than the so-called level 2 or observable inputs.This is a good si…

Stat of the Day: Money Market Assets at Record Levels

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As of last week according to http://www.sentimentrader.com/, money market assets alone would amount to 27% of the value of the S&P500. This almost doubles the last housing crisis in the early '90s of 14%. It's also considerablely higher then the 22% reached after 9/11. In fact, after yesterdays historic drop we're likely over 30% now. All of these assets will have to leave the bomb shelter at some point.

Poll of the Day: Was the House correct to not pass the bailout bill?

It's interesting that as the day closes this Smartmoney.com poll is actually very close to 50/50. We've been led to believe over the last few days that 100:1 of constituents for these House members involved in this vote are against the bill. Ironically this poll tells a different story. CNBC.com also had a poll that earlier today actually showed more people in favor of passing the bill. With CNBC having more of hardcore investor following, I find the Smartmoney.com poll more compelling and reflective of the general population. Goes to show that people for a bill aren't as likely to complain. Or just maybe a lot of people changed their mind today after seeing the market reaction. With the markets being the ultimate real time polling mechanisms, just maybe we'll see a re-drafted bill approved. After all, these polls suggest the House members voting for the bill won't be in such bad shape come voting time after all.

Edit: The poll ended up at 46% for the bill. Maybe t…

Stat of the Day II: Bonds fall more then equities

In what was a miserable day in the stock market, bonds fell even farther. While the S&P 500 fell 8.8% the index of investment grade corporate bonds (LQD) fell an astonishing 9.4%. Now who holds a lot of bonds...hmm. Let me guess that a lot of retirees might be a little disturbed to see their bond holdings decimated. Weren't we told this wouldn't impact Main Street. My guess is that a lot of people begin to change their tunes on this rescue plan. It clearly impacts everybody. See the chart at Bespoke, Bespoke - Corporate Bonds.

Lots of more once in a century stats if I had the time to post.

Stat of the Day: VXO hits 45 again

Not hardly a week removed from hitting 45 on 9/18/08 and the market is back to this extreme level. Usually hitting the 40 level has historically been a huge buy signal for at least the next 4-6 months. Below are the times that 40 has been hit and only 2 times did it exceed 45 in the prior 20+ years until this month. Guess time will tell if this one leads to a huge rally.


Date High
10/19/1987 152.48
8/24/1990 40.01
10/27/1997 40.04
8/27/1998 41.46
4/14/2000 41.53
3/22/2001 41.99
9/17/2001 47.7
7/11/2002 41.64
9/18/2008 45.81

The Money Making Bailout

It seems very ironic to me that while most of the media and politicians keep harping about the size and scope of the 'Bailout' proposal, alot of well respected investment pros continue to harp on how this deal would potentially be profitable to taxpayers. So while certain politicians want to protect the taxpayer, they are actually just pandering to the uninformed or at least thats what their doing according to these people.

Andy Kessler wrote the follow in the WSJ Mother of all Trades


My analysis suggests that Treasury Secretary Henry Paulson (a former investment banker, no less, not a trader) may pull off the mother of all trades, which could net a trillion dollars and maybe as much as $2.2 trillion -- yes, with a "t" -- for the United States Treasury.


You can slice the numbers a lot of different ways. My calculations, which assume 50% impairment on subprime loans, suggest it is possible, all in, for this portfolio to generate between $1 trillion and $2.2 trillion -- t…

Net Payout Yield Focus: Boeing (BA)

Another day, another drubbing for Boeing (BA). BA is now down 47% from its 52 week high due to plane delays, machinist strike, and a weak overall market. All of this is good news for somebody wanting a high yielding stock. BA has been buying back stock at a rampant pace of late. Over the last 12 months, BA has bought back nearly $4B of stock with a current market cap of just over $42B. This gives BA a buyback yield of nearly 9%. Add on the 2.7% dividend and you get a net payout yield of nearly 12%. This yield is incredible considering the market position and financial strength that BA claims.

It's possible the strike goes on longer than expected and causes huge financial disruptions to BA, or maybe the global growth story will continue to erode and plane order will be canceled and pushed out. Regardless, BA has the financial strength to outlast the issues and will continue to buyback stock at these lower levels and issue a nice dividend. The longer the stock remains this low, the m…

Net Payout Yield Focus - Microsoft (MSFT)

Yesterday, Microsoft (MSFT) announced a significant share purchase program and an increase to the quarterly dividend. MSFT was up 1% yesterday during a horrible market providing a relative gain against the market of 480 basis points. Very impressive, considering that MSFT didn't annonce better results or a revolutionary product. It was all because MSFT has the financial liquidity to make shareholder friendly moves. This is one of the reasons a net payout yield portfolio can be very attractive.

Lets analyze what MSFT announced:
Declared a quarterly dividend of $0.13 per share, reflecting a two cent or 18 percent increase over the previous quarter's dividend. Approved a new share repurchase program authorizing up to an additional $40 billion in share repurchases with an expiration of September 30, 2013. Authorized debt financings from time to time of up to $6 billion. Pursuant to the authorization, the company has established a $2 billion commercial paper program.
The increase in t…

The Advantage of Net Payout Yields

The Dogs of the Dow Theory has long interested me in its simplistic nature of eliminating the emotion of the stock market and systematically investing in the out of favor or contrarian stock. What least interested me was that an investor was suppose to buy the 10 highest yielding stocks amongst the 30 stocks in the Dow Jones Industrial average on presumably January 1st and hold them for a year.


While this compelled to my ‘lazy’ nature and was tax beneficial, it seemed overly simplistic and too focused on larger stocks that underperform smaller stocks in the long run. Why not adjust on a monthly if not daily basis? Or buy smaller stocks? If Pfizer (PFE) increases 50% by June and the yield consequently shrinks below the top 10 yields why continue holding till January and potentially give back that gain.


Another compelling concept was to extend the selection beyond the Dow and into the S&P 500 where more growth exists and the selection widens. For this method to work, the underlying st…