Wednesday, December 17, 2008

Random Observations: Madoff, Sarah, EMO AND EHL/CIT/ISIS/VLO

I have been criticized just recently for writing a blog called "Stocks and Politics" with only a limited discussion of political matters.  The election is over for those who missed it, and the favorite target of my barbs has returned to Seward's Folly.  But I feel the criticism of me is unfair since I am constantly subjecting politicians of both parties, and Congress in general, to a constant parade of my Menchens.  

1.  Move Williamson County To Mississippi?: I do have some political commentary to introduce today's post.  I have a suggestion for the Democrats on how to carry Tennessee in the next Presidential election.  My first suggestion would be to move Williamson County Tennessee, including all of the fair citizens in the SUV Capital of the World, to Mississippi or just have Mississippi annex Williamson county.  Possibly a heavily Democratic county from New York state could then be moved to Tennessee in exchange since NY does not need all of its DEMs. Now, if moving Williamson County into Mississippi was a problem, some smarty pants no-it-all lawyer might thing it violated the Constitution and raise a raucous, then the Democrats, who will soon have all the power, could simply pass some law disenfranchising all Tennesseans who owned SUVs, which just might withstand scrutiny under the equal protection clause.  You know, the ones who drive around like a bunch of lunatics, the same ones with W  stickers on both the bumper and rear window who invariably try to get within five inches of my car, yelling get out of my f------ way Grandma-then swerve at the last moment going 70 miles per hour in downtown Brentwood talking on his cell to one of his mistresses while simultaneously playing video games over the internet with a five year old in Argentina-look ma no hands.  That is enough political commentary for the day.  

2.  Meaning of Words to the Masters of Disaster:  I have said, I could not carry on a conversation with one of Wall Street's Masters of the Universe, Titans of all things financial, Whiz Bangs to the millionth degree, for words in the English language have a different meaning for me than for them.  There would be simply no common basis to carry on a conversation. If I was investing say a billion dollars in a hedge fund based on a advisor's recommendation,  who was supposed to exercise "due diligence",  I would understand due diligence in a different way than the expert so there would be no basis for communication using the same language. 

3. Red Flags Shining Brightly on Madoff:   I would suggest that the red flags with Madoff would be apparent to any professional with his eyes open and I have discussed many of them already. 
My understanding of Due Diligence, for example, would include checking out the accountant who was certifying Madoff's financials or talking to respected professional traders in the options market to ascertain the likelihood that anyone could achieve 10 to 12% returns, year after year, employing the strategy used by Madoff, especially with large sums of money. So if I asked the financial guru, self titled financial wizard, whether due diligence on Madoff had been performed, I would expect one kind of investigation when the answer came back as a Yes. The advisor's understanding of that duty would be a cursory examination of Madoff's claimed strategy and purported historical returns,  a call to someone equally without a clue to determine he was a Mensch, followed by eighteen holes on the golf course and a subsequent month long  trip to the Riviera in a yacht for some sun and fun.  Due diligence apparently does not encompass an actual investigation and a few phone calls to real professionals,  judging from the continued flow of investors steered to this fraud by highly compensated professional advisors exercising what they will claim to be Due Diligence after they are sued.  

A story today in the WSJ also pointed out that the returns claimed by Madoff could not be accomplished with the amount of money that he was managing.  

4.  Sarah's Popularity in Alaska now with Oil Falling in Price: I wonder how popular Sarah will be in the frozen tundra state after she has to balance the budget with oil prices at $40 per barrel rather than $150 and Alaskans do not receive a check in the mail from their state government. Approximately 90% of Alaska's state revenue comes from royalties and taxes on oilBoston Globe  But, being somewhat attuned to self preservation, I did manage to keep my mouth shut, even nod my head up and down with a broad smile on my face, when confronted with opinions by those of the female persuasion that Sarah was the best candidate ever to run for high office including those less than stalwart candidates like Washington, Jefferson,  and Lincoln.  I learned long ago to keep my head down.  Apparently, memorizing a speech written by someone else and delivering it by reading a teleprompter proves ones qualifications to be President.  I did not even mention her inane gibberish during the Couric interviews while in mixed company. ( CBS News and summary quoted in this article ) That proves my self discipline and instincts for preservation.  

The gold standard in asset allocation strategy, the Yale endowment, reported a 25% loss since June 30th.

5.  Reactions to Fed Rate Cut: My first reaction yesterday to the Fed rate cut was to buy an intermediate and a long term investment grade corporate bond.  My second reaction today is to continue buying investment grade corporate bonds.  I do not always mention the ratings of the bonds that I buy since I do not place much faith in the rating agencies.    Investment Grade Corporate Bond Spreads/ CPI FLOATER: OSM  I would just pass on that the Fitch rating for the first mortgage bond from Entergy Mississippi, EMO, is BBB+ according to its web site.  Fitch Ratings  The higher yielding Entergy Louisiana, EHL, has the same rating.  Both of these bonds are callable now. 

6  ISIS:  ISIS, one of my recently added positions, announced that it was selling its remaining stake in Ibis Biosystems to Abbott for 175 million Reuters Yahoo! Finance  This is positive for Isis.  My discussion of its primary business can be found at ISIS PHARMACEUTICALS (ISIS) posted 12/3/08.  I now own 100 shares with another 50 finding a home in my main account.   Consequently, I may sale the 50 shares bought in my IRA at any time and invest the proceeds in a bond-but most likely not today. I started to question the wisdom of placing such a speculative position in a retirement account. It is best to continue assessing the wisdom of every decision with a clean slate and fresh perspective, made totally free of involvement or imput from the ego and the id, as if someone else made the original decision.   

7. Valero:  The news from Valero this morning was very negative for my small position so I am considering putting either ALJ or VLO on the sell block today.  MarketWatch
It is probably just as well that Delek lost its refinery until May 2009.  

8.  30 year Treasury at 50 year low:  The 30 year treasury bond hit a 50 year low yesterday with the 10 year yield falling to  Someone, other than me, will have to feed the beast at 2.44% for 10 years and at 2.89% for 30 years.  I am starting to think about moving up the hedge for my long  corporate bond position by taking a nibble on the inverse ETF for the long treasury bond. But, I am not able to focus enough attention on these matters this week to make an intelligent decision on such a change in direction. 

9 CIT Bonds:  One of the short bonds recommended by a panelist in the January SmartMoney issue was an issue from CIT (pp. 64-65).  I have a very small position in a short maturity CIT bond.  The news about CIT's stock issue and the move to convert to a bank holding company  may make it more likely that I will be paid and consequently narrow the current spread to par.  I am far from over-confident in my original decision to buy this bond, and would be happy now to just receive my money back. 

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