Sunday, November 2, 2008

I'm Back, after a Very Bleak October

It's been over a month since my last post, and i have been very busy. School has been hectic and I have had many (thus far fruitless) internship/co-op interviews, so blogging had to take a back seat to more important matters.

I've missed out on commenting on a very noteworthy month of market activity. Taken from

The Dow rallied a whopping 11.3% for the week, even as it plunged 14.1% for the month, its worst October since the stock market crash of 1987. See The Month that Was.
The S&P posted a monthly decline of 16.9% -- its worst month since 1987, but a weekly gain of 10.5%. The Nasdaq slumped 17.7% in October, its worst month since 2001, but it rose 10.9% from last Friday's close.

If not for the rally this week, the final statistics would have been much bleaker. Still, October had many spooky moments (note: obligatory Halloween joke is now complete). The VIX (an options volatility index) still sits in previously-uncharted territory; after hitting highs above 80, the index closed at 60 on Friday. Prior to this month, peaks had been made around 40 with a normal range between 10 and 25. The VIX measures options premiums (which can represent sentiment or "fear") - readings this high show that traders expect big moves, and are either trying to capitalize on swings directly or are hedging longer-term bets with options.

Because of a busy schedule (or at least I'll use that as an excuse) I have largely ignored the market over the past month. I have generally held all of my long-term positions (though I did need to meet a margin call due to declining prices) as I was comfortable with long-term valuations and prospects. This past week, I did well with buying and selling some MRO and VLO calls (I sold Friday fearing a Monday selloff and a decline in options premiums), but energy companies are grossly undervalued right now.

Valero, a refiner, made $1.86 per share during this past quarter (after backing out one-time items and other extras). The stock was trading at $16 earlier in the week ahead of earnings and ended around $20.50 on Friday. It had traded below $15 earlier this month. As a refiner, Valero actually does better in an energy environment like the one we have now - crude oil prices are falling faster than gasoline (and other distillate) prices are. With oil at $60-70, Valero makes a very desirable margin on the difference between input costs and output prices.

Marathon Oil (MRO) has equally bright prospects. MRO has both upstream (finding/drilling oil) and downstream (refining, gasoline retailing) operations, which helps buffer the impact of a fluctuating price of oil. Marathon reported adjusted net income of $2.76 per share for this quarter - once again, before the announcement, shares were trading at less than 10x QUARTERLY earnings. Marathon is expected to make about $6/share this year - a reasonable 8-10x earnings valuation would put MRO shares around $48-60, where they were trading before this market mayhem. Additionally, Marathon is moving to possibly break up the companies upstream and downstream components into two different publicly traded companies. Jim Cramer estimates that the market values of the two companies would value current shares between about $70-$100, though trusting that pundit is always risky.

I will happily reenter calls for either company if there is market weakness early this week. Long-term valuations are wonderful - Price to Cash Flow for the trailing twelve months is just 2.8 compared to a 10-year average of 4.6. MRO is currently trading at book value, while the 10-year average for that metric is a price-to-book of 1.7. There isn't much money available to flow into the market and buy great stocks like these, but shares should clearly appreciate over time.

That's all for now, but a lightening schedule should lead to frequent posting once again. There's certainly a lot to write about, so I hope to continue to commentate during this wild market.

Wednesday, September 24, 2008

Automakers Receiving Government Money?!

Rather than write my own article, I'll direct you to an already-written one on

Click to read Article

The most noteworthy thing about this is how the government and media have allowed this to happen silently. Though, as the author states, $25 billion isn't much compared to other recent events, I think that the terms are what's most interesting. These loans are low-interest and don't even require repayment for the next five years, while AIG is paying 11% on all of their $85 billion line of credit (even monies not used) while forfeiting 80% ownership of the company.

I guess the auto lobby is better than the insurance lobby.

Monday, September 22, 2008

CIT Added to "Do Not Short"

Along with GE, GM, American Express, and more, CIT was added to the unshortable list this morning. The SEC also gave the NYSE and Nasdaq further authority to continue to add companies as necessary.

Friday, September 19, 2008

It's a Wonderful Day

...When you're almost irresponsibly long AIG, ETFC, and energy.

I've never listed my full portfolio here and I don't plan to, but here are some things that I have been doing lately:

  • I sold more of my once-huge BWLD position today as the stock notched a new 52-week high. I still hold some BWLD, but the stock is definitely fairly valued here, so there are better opportunities for this money elsewhere.
  • I sold COP $75 calls this morning that I had purchased during the oil panic of last week. I bought the contracts for $.40 and sold for $1.70 - having a nice win after losing on my TTWO position definitely helped.
  • Speaking of TTWO, I bought equity earlier this week at $15.50, but my big options position will expire worthless this afternoon. Long-term prospects are great and share valuation is ridiculously low, but I don't expect a near-term catalyst (or at least I'm not willing to bet on one via options after getting burned).
  • I progressively backed up the truck with AIG this week, buying different lots at different times. My first purchase was at $7.50 - ouch. But thanks to averaging down, my average cost is now $3.25/share. In addition to the temporary end of short selling and general euphoria, shares are rallying today as some investors are attempting to block the government's dilution of the company. I see it as a win-win; even if the company is diluted and liquidates, the sum of parts is much greater than the current valuation (I have seen $10 cited as a reasonable estimate). If the government agrees to less or no dilution (considering that the 11% interest on the $80 billion loan should provide them with some nice income anyway), shares will obviously be worth even more.
  • I added to my CIT position today (increased it by 75%, it's still a small portion of my portfolio) when the stock was down earlier in the day. Wells Fargo provided CIT with a $500 million line of credit yesterday; I see that as a sign of confidence and relatively-clean books. Also, CIT has asket to be added to the list of companies that can't be shorted (I don't understand why it was left off in the first place). If their request is granted, the near-term floor should be right here at 10.
  • I added to my ETFC position earlier this week; my average cost is now just above $3. Like CIT, ETFC has done a better-than-average job of selling assets to create a capital cushion, and their retail business is thriving. Continued writedowns on mortgage-based assets they still hold may be a short-term issue, but I see no bankruptcy risk anymore, which the market still seems to imply.
  • Other energy: At the end of last week, I held COP, MRO, and CEO shares. I sold the COP earlier this week to avoid a margin call, but still hold MRO and CEO, with costs of about $40 and $118. $100 oil seems to be the sweet spot for integrated companies (MRO), and CEO (CNOOC, a Chinese oil company) doesn't have to deal with as many government controls as PetroChina does. It also pays a nice 5% dividend.

I have a few other positions, but that covers my major actions of the past two weeks. With all of the aforementioned purchases, I have fairly long-term timeframe; with a predator-free trading environment for the next few weeks and ample government-provided liquidity, financials may finally get their act together.

Tuesday, September 16, 2008

Lehman Sells a Limb; AIG Sells Out

Lehman sold part of itself this evening to Barclay's for $1.75 billion.

"Barclays' purchase includes Lehman's North American sales, trading, and research and investment banking businesses, as well as its midtown Manhattan headquarters and two New Jersey data centers." Source

Lehman still has other assets, including international units and its famed asset-management firm.

"Barclays said it intends to immediately begin discussions with international authorities to acquire similar operations of Lehman outside of North America. Barclays also has agreed to provide $500 million of debtor-in-possession financing to Lehman.

Meanwhile, Lehman said it's in advanced talks to sell its investment management division, which includes money manager Neuberger Berman, to a third party.

The division was once valued by as much as $10 billion, but now could fetch much less considering Lehman's bankruptcy, the Associated Press reported. Source

Lehman has about 700 million outstanding shares, so the assets sold today represent about $2.5 per share. (I'm not stating that the shares will trade at that level tomorrow - that's just the asset prices divided by shares.)

Considering Lehman still has other valuable assets to sell off, it seems like shares should continue upward from the $.30 closing price today. Barclay's bought Lehman's North American business for just $250 million - roughly the closing price - implying that a lot of the troubled assets were packaged in that deal. The relatively clean parts - buildings, investment management firms - should fetch nice premiums.

I also added to my original AIG position, but that may not turn out so well. AIG agreed to accept $85 billion in government financing in exchange for warrants representing 79.9% of shares. The $85b isn't payment for the shares - rather, it's a loan, which accrues interest at Libor + 850 basis points (currently totaling over 11%).

So the good news is, AIG will definitely survive, and they have plenty of assets to sell to repay the loans. The bad news is that current shareholders - myself included - will be substantially diluted.

However, the credit rating agencies should upgrade AIG's ratings tomorrow morning after this capital infusion, and AIG will have time to sell assets in a orderly fashion. I don't expect a FRE/FNM-like 90% haircut to $.30 tomorrow morning, but the reaction will probably be negative. However, the government did imply that their goal was to maximize shareholder value, in contrast to the explicitly statement that common holders came last with the FRE/FNM situation.

Considering AIG's after-hours closing price under $3 represents a 95% decline from the top, the dilution may be pared with the survival of the company.

All I can do at this point is dream for good opening prices tomorrow. Both of these purchases represent timing and speculation more than Buffett-like investing. I couldn't keep my hand out of the cookie jar. Tomorrow, and continuing onward, we'll see if I enjoy sweet rewards or endure stomachaches.

Tripling Down on AIG

Quick update between classes:

I tripled my original (small, speculative) AIG stake this morning at $1.82/share.

I wish I could have purchased more, at a lower price, but Ameritrade's software was acting funny.

I'll have a longer writeup some other time on why I'm plowing capital into AIG at this level, but my general, one-sentence thesis is that it's a company whose core business is not affected by the "mortgage meltdown."

I believe (correct me if i'm wrong) that AIG doesn't even have to mark their positions to market, since they intend to hold to maturity, but when another company, like LEH, updates the values of their positions, S&P, Moodys, and other ratings agencies apply those valuations to AIG's books and draw their own conclusions.

So my average cost for AIG is $3.7 now, and I may continue to add below that. I'm hoping shares recover quickly enough that I don't get to see prices below that level again, but, I'm at the mercy of the markets.

Monday, September 15, 2008

A REALLY, REALLY Terrible Morning

The red ink is stunning, almost breathtaking.

As of 9:05 A.M.(Thanks Marketwatch):

Pre-market indications:
• Dow industrials: -353
• S&P: -46.2
• Nasdaq: -52

Crude oil: -$5.15
Gold: +$14.50
Dollar vs. yen, -2.4%
Euro vs. dollar: -0.4%

The destruction of paper wealth this morning is incredible. The indexes are off 3%. Oil is down 5%, the first business day after a major hurricane continues to shut down 20% of the nation's production and even more of our refining output. The Yen has spiked due to "safe-haven" buying.

At this point, it seems like we're all in this together. Wall Street leaders put in a 40-hour weekend trying to open their doors this morning. Lehman Brothers has filed for a form of bankruptcy. Merrill Lynch has agreed to be consumed by Bank of America for $29/share; the street doesn't believe it, based on the MER quote of $22 that I'm getting right now.

Ten banks set up a $70 billion fund that they can draw from during times of stress. Some of those banks will be using it this morning.

"Big" companies have fallen. Bigger companies have lost almost everything; AIG's market cap is $20 billion this morning, compared to nearly $200 billion less than one year ago. LEH's $200 million morning market cap is laughable. (I have to believe that there's more value in the company than that, but I chose to buy AIG this morning instead of LEH.)

I'll drown in the sea of red ink this morning along with most investors. My FSLR short and DUG shares will hedge losses, but not offset them. As I mentioned, I bought a little AIG pre-market at $7.50 and TTWO at $15.50 (as they are reeling from ERTS' walkaway, not this general weakness).

Hopefully the VIX will spike, and at the very least, this trauma will create a bottom. With quotes for nearly every company I can think of down 5% before the bell, maybe this is capitulation. Then again, this is probably the third or fourth time that I've hoped for a bottom.

Sunday, September 14, 2008

TTWO's Response

Below is the response that TTWO released after ERTS announced that they are done with merger talks.

Strauss Zelnick, Chairman of the Board of Take-Two, commented, "We remain focused on creating value for our stockholders and our consumers. This has been our goal since EA launched its conditional and unsolicited bid six months ago, a bid which was repeatedly rejected by our stockholders. As part of that commitment, we remain actively engaged in discussions with other parties in the context of our formal process to consider strategic alternatives. We're especially proud of the success we've enjoyed over the past eighteen months and we remain confident in our ability to generate value for stockholders."

"Take-Two's business has continued to strengthen since the time EA first made its offer. We have delivered terrific products to our consumers and we've been rewarded with very strong financial performance. We have an exciting future ahead of us, powered by our profitability, a significant cash position, the absence of debt, an undrawn credit facility and a terrific lineup of games. We are confident in the unique value of our business given our strong position in what is a growing and dynamic industry," said Ben Feder, Chief Executive Officer of Take-Two.

Electronic Arts Walks from TTWO Talks

"Electronic Arts Inc today announced that while EA continues to have a high regard for Take-Two's creative teams and products, after careful consideration, including a management presentation and review of other due diligence materials provided by Take-Two Interactive Software Inc., EA has decided not to make a proposal to acquire Take-Two and has terminated discussions with Take-Two.

John Riccitiello, Chief Executive Officer of EA, said: "EA is tracking toward a record breaking year. We're launching 15 new games including award-winners like SPORE, Dead Space and Mirror's Edge, great new titles from the Sims, new family titles with Hasbro, and the highest quality slate of EA SPORTS titles on this generation of consoles. We're also expanding beyond our core business with a series of direct-to-consumer launches including Warhammer Online."

(Taken from

First, I think that the tone that ERTS used is noteworthy. Though the reaction tomorrow may still be negative for TTWO shares, ERTS said nothing to that effect in their statement. In fact, from my point of view, it was mildly positive - ERTS seemed to say, "We're more focused on turning around our money-losing business right now than spending the appropriately-large amount of money on TTWO's successful one."

It will be interesting to see TTWO's reaction tomorrow. Though I have a long bias, I must admit that an initial drop will likely occur. I'll be buying if it does. TTWO is on track to make $2/share this year; no other company in the video game industry (and really very few companies besides integrated oil industry) trade at a 10 p/e. TTWO has a steady stream of releases for the rest of the year, the holiday season, and beyond.

Though I initially and continually touted a possible merger, I recognized that value may be better maximized when ERTS stopps capping TTWO shares with the $25 merger ceiling. Therefore, I think that going forward - whether at 3:30 tomorrow, this friday, or next April - TTWO share should be trading at a higher price than they were at Friday's close.

It looks like my calls may expire worthless, but it was a gamble that I don't regret taking. The earnings TTWO reported about ten days ago were unbelievable, and the street could have, under other circumstances, applauded loudly. Observing the ERTS' Take-2 tango was certainly a good experience for this young, often-speculative investor to experience.

I'll be sure to disclose any new position I take if conditions are ripe enough tomorrow morning.

Monday, September 8, 2008

Interesting Week for Oil...This Time, I'm Playing for Real

Oil prices snuck higher today, but the real action should be forthcoming.

OPEC begins meeting tomorrow, and the usual troublemakers (Venezuela, Iran) are looking to milk some more money from their barrels. The cool, calm, and in-control Saudis will be expected to propose holding production steady. As oil rose exponentially earlier this summer, Saudi economists and oil ministers affirmed that they believed that $80-100 was a good price for oil, but as barrels begin to approach that range, they too may step up the rhetoric a little bit. Countries like Venezuela and Iran have called oil too cheap, but the Saudis control enough of OPEC production to really be the deciding party.

Though any big change in production is unlikely to occur, the degree of rhetoric may have some influence on market movements going forward starting tomorrow.

And as news outlets have informed you, there's another hurricane brewing in the Atlantic - Ike. Ike just crossed Cuba and weakened, and it will cross again, but at some point it will enter the gulf and (supposedly) begin to strengthen. Right now, the track takes Ike into the middle of Texas, a little south of Houston. If this forecast proves accurate, then oil and gas production will be disrupted.

Wednesday is the weekly inventory report, and the numbers will be a little funny due to our ol' pal Gustav. However, Gustav didn't affect production or refining to the extent that was originally expected (hence the big drop in energy prices after my post about it), so the numbers may be bearish.

With my funds, I took a long position via my favorite vehicle - Conoco Calls. Unfortunately for me, Conoco announced a big, expensive parternership dealing with Liquified Natural Gas in Australia last night, so COP shares fell while those of other oil companies rose today.

Last time I was dead wrong; Gustav was a dud (relatively speaking - unfortunately, peoples in ocean countries beared the brunt of the once-powerful storm). This time, multiple events will be in play. I'm taking the contrarian stance - it's in my nature, for better or worse - after energy prices and related shares have fallen dramatically over the past two months. A quick pop tomorrow, Wednesday, or anytime soon, and I'm out - I'm still not convinced that oil's true value is $108/barrel.

To follow up:

As oil shares crashed on Tuesday, I bought shares of COP around $70 and Marathon Oil (MRO) Around $41 as long-term purchases. It looks like crude and oil equities will open lower today, but oil companies are looking dirty cheap.

Thursday, September 4, 2008

Results? Check. Reaction? Nope.

TTWO blew out the quarter, reporting earnings of 67 cents per share compared to an analyst consensus of about 54 cents.

TTWO raised guidance for the year, and released their pipeline, which should provide strong sales during the next quarter and through the Christmas season.

Investors were unimpressed, however, and shares are flat.

The withdrawn-bid of $26 continues to cap the stock price. Hopefully analyst upgrades or commentary (which I expect to be forthcoming) will inspire investor interest; otherwise, ERTS needs to bid reasonably ($35+, now that TTWO is set to make $2/share this year), or admit that TTWO is too expensive for them so that the stock price can rise organically.

Wednesday, September 3, 2008

Almost D-Day, and TTWO is Jumpy

Today's session featured some strange exchanging of TTWO shares, just one day before the company is set to release earnings.

There was no news released (though Barron's later said that the price decline was due to rumors about ERTS walking way from merger talks), though ERTS had an executive speak at a conference right around noon.

Below is a graph of TTWO's trades between about 11:15 and 12:05, when shares declined sharply, rebounded sharply, and then settled roughly 5% lower than where they opened.

Note: Right-click and open this picture in a new tab or window. Damned blogger margins!

As the stock crossed $24 about 8 minutes into the graph, the first pickup in volume can be seen, possibly by stop-limit orders being triggered. The price continued to slide on light volume until shares broke through $23, when volume accelerated to over 50,000 shares per minute.

As the shares dropped below $22, volume topped 150,000 shares per minute, which is impressive, considering only 500,000 shares traded during all of Friday and only 1.3 million exchanged hands yesterday.

Frantic selling and buying took place over the following ten minutes, as about 1.3 million shares were traded. It seems as though stop-limit orders first were triggered, panic selling insued, and finally, as the stock sat at $22, buyers came in to snap up shares.

Normally I wouldn't analyse the intraday trading of a stock so deeply, but the trading pattern certainly seemed odd. TTWO consolidated at $25 during the previous week, with Thursday's trading featuring a $.15 range.

If there was a news leak, or some sort of manipulation, I'd expect to see it in the options, as premiums are still low enough that a trader with information could make a killing. However, volume and pricing on the options seemed normal. The options with the greatest volume were the $25 and $27.5 September calls; premiums did decline, but the $25 call, which went from being nearly at-the-money to almost 10% out of it, only lost about 25% of its value, and ended the day with a trade at $1.10. Volume was a little high (relative to open interest) in some deep OTM Sept, Oct, and Dec puts (with trades at the $15 strike), but I can't see the shares falling that low.

So I backed up the truck a little further and bought a few more $27.5 calls at a cheaper price, adding to my unwisely-large position going into tomorrow. (Thankfully recent good trades with FSLR puts, AIG, AEO, and DDM calls have helped to offset any potential losses from TTWO.)

Once again, in my humble, bullish opinion, all signs (besides today's trading) point to good events tomorrow. I don't know why TTWO would have bothered setting up these secret meetings with ERTS if they weren't showing them something good, and I don't know why ERTS wouldn't have walked away already if they were wholly unimpressed. TTWO has historically beaten earnings, and they are still riding the success of GTA IV, with a decent slate of titles that will be released for the holidays this year.

Who knows, maybe TTWO will report a loss, and these talks were about some firesale price at $14/share, and some speculator (or inside-information-haver) will be chuckling as they rake in the bucks. However, TTWO's management has insisted on the strength of TTWO's business, and empiracle evidence doesn't contracdict their statements.

Considering that ERTS lost over $400 million last year while TTWO is expected to book about $140 million in profit this year, barring a disaster, I don't get how TTWO shares would move lower. An independant TTWO (without this takeover hangover) would be trading much higher than it is today, and TTWO should demand a price somewhere in the $30's if they are to be bought.

Prior to the after-the-bell announcement tomorrow, I'd expect that TTWO trades around $22.5 or $25, as those option strikes have been heavily traded. When they report at the close, a beat-and-raise (without any mention of a takeover) should send shares skyward; ultimately, there could be some announcement concerning the deal during the call tomorrow. Though there is the non-disclosure agreement, I can't believe that TTWO will be completely silent about a deal during the call tomorrow.

If I had a reputation, I'd be putting it on the line. Thankfully, if I'm wrong, no one really reads this anyway, and I'm young enough to lose some money. If I'm right, the profits, and vindication, shall be lovely.

Text of Palin's Speech at the RNC

It's time to get political with the election only two months away...

Mr. Chairman, delegates, and fellow citizens: I am honored to be considered for the nomination for Vice President of the United States...

I accept the call to help our nominee for president to serve and defend America.

I accept the challenge of a tough fight in this election... against confident opponents ... at a crucial hour for our country.

And I accept the privilege of serving with a man who has come through much harder missions ... and met far graver challenges ... and knows how tough fights are won - the next president of the United States, John S. McCain.

It was just a year ago when all the experts in Washington counted out our nominee because he refused to hedge his commitment to the security of the country he loves.

With their usual certitude, they told us that all was lost - there was no hope for this candidate who said that he would rather lose an election than see his country lose a war.

But the pollsters and pundits overlooked just one thing when they wrote him off.

They overlooked the caliber of the man himself - the determination, resolve, and sheer guts of Senator John McCain. The voters knew better.

And maybe that's because they realize there is a time for politics and a time for leadership ... a time to campaign and a time to put our country first.

Our nominee for president is a true profile in courage, and people like that are hard to come by.

He's a man who wore the uniform of this country for 22 years, and refused to break faith with those troops in Iraq who have now brought victory within sight.

And as the mother of one of those troops, that is exactly the kind of man I want as commander in chief. I'm just one of many moms who'll say an extra prayer each night for our sons and daughters going into harm's way.

Our son Track is 19.

And one week from tomorrow - September 11th - he'll deploy to Iraq with the Army infantry in the service of his country.

My nephew Kasey also enlisted, and serves on a carrier in the Persian Gulf.

My family is proud of both of them and of all the fine men and women serving the country in uniform. Track is the eldest of our five children.

In our family, it's two boys and three girls in between - my strong and kind-hearted daughters Bristol, Willow, and Piper.

And in April, my husband Todd and I welcomed our littlest one into the world, a perfectly beautiful baby boy named Trig. From the inside, no family ever seems typical.

That's how it is with us.

Our family has the same ups and downs as any other ... the same challenges and the same joys.

Sometimes even the greatest joys bring challenge.

And children with special needs inspire a special love.

To the families of special-needs children all across this country, I have a message: For years, you sought to make America a more welcoming place for your sons and daughters.

I pledge to you that if we are elected, you will have a friend and advocate in the White House. Todd is a story all by himself.

He's a lifelong commercial fisherman ... a production operator in the oil fields of Alaska's North Slope ... a proud member of the United Steel Workers' Union ... and world champion snow machine racer.

Throw in his Yup'ik Eskimo ancestry, and it all makes for quite a package.

We met in high school, and two decades and five children later he's still my guy. My Mom and Dad both worked at the elementary school in our small town.

And among the many things I owe them is one simple lesson: that this is America, and every woman can walk through every door of opportunity.

My parents are here tonight, and I am so proud to be the daughter of Chuck and Sally Heath. Long ago, a young farmer and habber-dasher from Missouri followed an unlikely path to the vice presidency.

A writer observed: "We grow good people in our small towns, with honesty, sincerity, and dignity." I know just the kind of people that writer had in mind when he praised Harry Truman.

I grew up with those people.

They are the ones who do some of the hardest work in America ... who grow our food, run our factories, and fight our wars.

They love their country, in good times and bad, and they're always proud of America. I had the privilege of living most of my life in a small town.

I was just your average hockey mom, and signed up for the PTA because I wanted to make my kids' public education better.

When I ran for city council, I didn't need focus groups and voter profiles because I knew those voters, and knew their families, too.

Before I became governor of the great state of Alaska, I was mayor of my hometown.

And since our opponents in this presidential election seem to look down on that experience, let me explain to them what the job involves.

I guess a small-town mayor is sort of like a "community organizer," except that you have actual responsibilities. I might add that in small towns, we don't quite know what to make of a candidate who lavishes praise on working people when they are listening, and then talks about how bitterly they cling to their religion and guns when those people aren't listening.

We tend to prefer candidates who don't talk about us one way in Scranton and another way in San Francisco.

As for my running mate, you can be certain that wherever he goes, and whoever is listening, John McCain is the same man. I'm not a member of the permanent political establishment.
And I've learned quickly, these past few days, that if you're not a member in good standing of the Washington elite, then some in the media consider a candidate unqualified for that reason alone.

But here's a little news flash for all those reporters and commentators: I'm not going to Washington to seek their good opinion - I'm going to Washington to serve the people of this country. Americans expect us to go to Washington for the right reasons, and not just to mingle with the right people.

Politics isn't just a game of clashing parties and competing interests.

The right reason is to challenge the status quo, to serve the common good, and to leave this nation better than we found it.

No one expects us to agree on everything.

But we are expected to govern with integrity, good will, clear convictions, and ... a servant's heart.

I pledge to all Americans that I will carry myself in this spirit as vice president of the United States. This was the spirit that brought me to the governor's office, when I took on the old politics as usual in Juneau ... when I stood up to the special interests, the lobbyists, big oil companies, and the good-ol' boys network.

Sudden and relentless reform never sits well with entrenched interests and power brokers. That's why true reform is so hard to achieve.

But with the support of the citizens of Alaska, we shook things up.

And in short order we put the government of our state back on the side of the people.

I came to office promising major ethics reform, to end the culture of self-dealing. And today, that ethics reform is the law.

While I was at it, I got rid of a few things in the governor's office that I didn't believe our citizens should have to pay for.

That luxury jet was over the top. I put it on eBay.

I also drive myself to work.

And I thought we could muddle through without the governor's personal chef - although I've got to admit that sometimes my kids sure miss her. I came to office promising to control spending - by request if possible and by veto if necessary.

Senator McCain also promises to use the power of veto in defense of the public interest - and as a chief executive, I can assure you it works.

Our state budget is under control.

We have a surplus.

And I have protected the taxpayers by vetoing wasteful spending: nearly half a billion dollars in vetoes.

I suspended the state fuel tax, and championed reform to end the abuses of earmark spending by Congress.

I told the Congress "thanks, but no thanks," for that Bridge to Nowhere.

If our state wanted a bridge, we'd build it ourselves. When oil and gas prices went up dramatically, and filled up the state treasury, I sent a large share of that revenue back where it belonged - directly to the people of Alaska.

And despite fierce opposition from oil company lobbyists, who kind of liked things the way they were, we broke their monopoly on power and resources.

As governor, I insisted on competition and basic fairness to end their control of our state and return it to the people.

I fought to bring about the largest private-sector infrastructure project in North American history.

And when that deal was struck, we began a nearly forty billion dollar natural gas pipeline to help lead America to energy independence.

That pipeline, when the last section is laid and its valves are opened, will lead America one step farther away from dependence on dangerous foreign powers that do not have our interests at heart.

The stakes for our nation could not be higher.

When a hurricane strikes in the Gulf of Mexico, this country should not be so dependent on imported oil that we are forced to draw from our Strategic Petroleum Reserve.

And families cannot throw away more and more of their paychecks on gas and heating oil.

With Russia wanting to control a vital pipeline in the Caucasus, and to divide and intimidate our European allies by using energy as a weapon, we cannot leave ourselves at the mercy of foreign suppliers.

To confront the threat that Iran might seek to cut off nearly a fifth of world energy supplies ... or that terrorists might strike again at the Abqaiq facility in Saudi Arabia ... or that Venezuela might shut off its oil deliveries ... we Americans need to produce more of our own oil and gas.

And take it from a gal who knows the North Slope of Alaska: we've got lots of both.

Our opponents say, again and again, that drilling will not solve all of America's energy problems - as if we all didn't know that already.

But the fact that drilling won't solve every problem is no excuse to do nothing at all.

Starting in January, in a McCain-Palin administration, we're going to lay more pipelines ... build more new-clear plants ... create jobs with clean coal ... and move forward on solar, wind, geothermal, and other alternative sources.

We need American energy resources, brought to you by American ingenuity, and produced by American workers. I've noticed a pattern with our opponent.

Maybe you have, too.

We've all heard his dramatic speeches before devoted followers.

And there is much to like and admire about our opponent.

But listening to him speak, it's easy to forget that this is a man who has authored two memoirs but not a single major law or reform - not even in the state senate.

This is a man who can give an entire speech about the wars America is fighting, and never use the word "victory" except when he's talking about his own campaign. But when the cloud of rhetoric has passed ... when the roar of the crowd fades away ... when the stadium lights go out, and those Styrofoam Greek columns are hauled back to some studio lot - what exactly is our opponent's plan? What does he actually seek to accomplish, after he's done turning back the waters and healing the planet? The answer is to make government bigger ... take more of your money ... give you more orders from Washington ... and to reduce the strength of America in a dangerous world. America needs more energy ... our opponent is against producing it.

Victory in Iraq is finally in sight ... he wants to forfeit.

Terrorist states are seeking new-clear weapons without delay ... he wants to meet them without preconditions.

Al Qaeda terrorists still plot to inflict catastrophic harm on America ... he's worried that someone won't read them their rights? Government is too big ... he wants to grow it.

Congress spends too much ... he promises more.

Taxes are too high ... he wants to raise them. His tax increases are the fine print in his economic plan, and let me be specific.

The Democratic nominee for president supports plans to raise income taxes ... raise payroll taxes ... raise investment income taxes ... raise the death tax ... raise business taxes ... and increase the tax burden on the American people by hundreds of billions of dollars. My sister Heather and her husband have just built a service station that's now opened for business - like millions of others who run small businesses.

How are they going to be any better off if taxes go up? Or maybe you're trying to keep your job at a plant in Michigan or Ohio ... or create jobs with clean coal from Pennsylvania or West Virginia ... or keep a small farm in the family right here in Minnesota.

How are you going to be better off if our opponent adds a massive tax burden to the American economy? Here's how I look at the choice Americans face in this election.

In politics, there are some candidates who use change to promote their careers.

And then there are those, like John McCain, who use their careers to promote change.

They're the ones whose names appear on laws and landmark reforms, not just on buttons and banners, or on self-designed presidential seals.

Among politicians, there is the idealism of high-flown speechmaking, in which crowds are stirringly summoned to support great things.

And then there is the idealism of those leaders, like John McCain, who actually do great things. They're the ones who are good for more than talk ... the ones we have always been able to count on to serve and defend America. Senator McCain's record of actual achievement and reform helps explain why so many special interests, lobbyists, and comfortable committee chairmen in Congress have fought the prospect of a McCain presidency - from the primary election of 2000 to this very day.

Our nominee doesn't run with the Washington herd.

He's a man who's there to serve his country, and not just his party.

A leader who's not looking for a fight, but is not afraid of one either. Harry Reid, the Majority Leader of the current do-nothing Senate, not long ago summed up his feelings about our nominee.

He said, quote, "I can't stand John McCain." Ladies and gentlemen, perhaps no accolade we hear this week is better proof that we've chosen the right man. Clearly what the Majority Leader was driving at is that he can't stand up to John McCain. That is only one more reason to take the maverick of the Senate and put him in the White House. My fellow citizens, the American presidency is not supposed to be a journey of "personal discovery." This world of threats and dangers is not just a community, and it doesn't just need an organizer.

And though both Senator Obama and Senator Biden have been going on lately about how they are always, quote, "fighting for you," let us face the matter squarely.

There is only one man in this election who has ever really fought for you ... in places where winning means survival and defeat means death ... and that man is John McCain. In our day, politicians have readily shared much lesser tales of adversity than the nightmare world in which this man, and others equally brave, served and suffered for their country.

It's a long way from the fear and pain and squalor of a six-by-four cell in Hanoi to the Oval Office.

But if Senator McCain is elected president, that is the journey he will have made.

It's the journey of an upright and honorable man - the kind of fellow whose name you will find on war memorials in small towns across this country, only he was among those who came home.

To the most powerful office on earth, he would bring the compassion that comes from having once been powerless ... the wisdom that comes even to the captives, by the grace of God ... the special confidence of those who have seen evil, and seen how evil is overcome. A fellow prisoner of war, a man named Tom Moe of Lancaster, Ohio, recalls looking through a pin-hole in his cell door as Lieutenant Commander John McCain was led down the hallway, by the guards, day after day.

As the story is told, "When McCain shuffled back from torturous interrogations, he would turn toward Moe's door and flash a grin and thumbs up" - as if to say, "We're going to pull through this." My fellow Americans, that is the kind of man America needs to see us through these next four years.

For a season, a gifted speaker can inspire with his words.

For a lifetime, John McCain has inspired with his deeds.

If character is the measure in this election ... and hope the theme ... and change the goal we share, then I ask you to join our cause. Join our cause and help America elect a great man as the next president of the United States.

Thank you all, and may God bless America.

Sunday, August 31, 2008

Shoulda, Woulda, Coulda, Gone Long Energy

In light of Gustav's increasing strength and imminent re-destruction of Louisiana coastline, I wish I would have gone long energy before the close on Friday.

I'd be absolutely shocked if oil and natural gas prices don't rocket upward by at least 5% during Asian trading tonight. Gustav has shut down the majority of energy production in the Gulf and a significant portion of refining capability on land.

Refining capability had been underutilized during the previous weeks leading up to the storm, so refineries not affected by the storm should be able to maximize production (if they want to) to compensate for shut-downs. The US Department of Energy plans to release oil from reserves if it is deemed necessary; so there should be no lines at the pumps next week.

My instincts say that futures will jump and oil company equity will drop Monday, so long both USO and DUG would have been a good trade. Higher prices don't help companies who are shutting down production and are enduring damage to their rigs, while the Saudis will reap higher prices for the oil they are pumping.

Thankfully I don't do much driving while here at school, but gas prices should surely be higher in the coming weeks and months, even if only due to the fear factor. The extent of Gustav's disruption and damage waits to be seen. I sympathize for lives and property in the path of the storm, and hope that the early evacuations minimize damage.

A Crucial Side Note: Multiple democratic pundits, from position-holders to the fat, shameless Michael Moore, have called Hurricane Gustav a "blessing from God." Below are two links. Please note that these are thoughts produced by the intellectual kin of Barack Obama when you don't vote for him this November. How heartless must a person be to claim that the destruction of homes and property and loss of life can be a positive event?

Thursday, August 28, 2008

Backing up the Take-Two Truck

I closed my last post, which was about Take-Two and Electronic Arts entering into a confidentiality agreement, with a cautious sentiment. I said that I was planning on maintaining my disclosed position, TTWO Sept $27.5 and $30 calls, or selling contracts as premiums rose.

There was little spike in the stock price or options premium, so I decided to load up on more calls. TTWO has now set September 4th as the date of their earnings report and conference call for the quarter ended July 31st.

TTWO made $1.52 per share in during the quarter ended in April; much of that money was made during the few days that Grand Theft Auto IV was sold during the end of that quarter. However, sales continued to be strong during this quarter and TTWO's results should reflect this. The consensus estimate for this quarter is only $.55/share, which could easily be beaten; in fact, TTWO has beaten estimates handily each of the past four quarters. Full-year predicictions (currently $1.85) also may be revised upward; so far this year, TTWO has tallied -$.41 and $1.52, for a total of +$1.11. The estimes for the next two quarters, $.55 and $.19 could be easily crushed. TTWO is releasing GTA IV in Japan in early October and on the PC in November (which falls under the next fiscal year), so sales should continue to trickle down to TTWO's bottom line.

As long as TTWO comes in at least in-line this quarter, ERTS will have to re-bid at a much higher price or admit that TTWO is too expensive for them. If ERTS does make the $1.52/share that they're expecting to tally this year, the stock trades at about a 32 P/E. ERTS's asking price of $26/share for TTWO assigns a 14 P/E. Activision-Blizzard trades at a P/E in the high 20's. ERTS cannot expect TTWO to sell out at such a discount to itself and the industry.

So I am indeed speculating as this tango proceeds. If TTWO's management has presented its material to ERTS's board already, they could forseeably make an offer before earnings to minimize the influence of the investor community's reaction on a takeover price. If TTWO reports in-line or surprises positively, shares should jump for many reasons - TTWO's shares are deeply undervalued compared to its competitors, and investors like me may think that ERTS will pony up more for the company.

Shares currently seem to be hugging the $25 level, but I'd be surprised if they stayed there for long. It's time for ERTS to sack up and make a reasonable bid, or leave TTWO alone. The lead-lined takeover cloud capped TTWO's share price as it released the best-selling media release of all time and subsequently reported unbelievable earnings. It's time for the sun to shine on TTWO.

Disclosure: Long TTWO Sept. $27.5 and $30 calls.

Monday, August 25, 2008

Electronic Arts Wining and Dining Take-Two

According to a Reuters press release after-hours, Electronic Arts (ERTS) and Take-Two (TTWO) have now entered into confidential discussions regarding a potential merger.

This is the latest development in a soap-opera-like courtship that has disappointed TTWO investors as the share price has been stagnant since ERTS's first offer of $26 this spring. ERTS extended the offer multiple times throughout the summer. ERTS withdrew the offer earlier this month, but agreed to view a presentation of non-public material by TTWO's executives.

This disclosure of privacy should stoke investor speculation that a new offer may be in the works. Whether an offer is publicly made, however, remains to be seen. Electronic Arts seemed set on acquiring TTWO at $26, but many investors thought that the bid was a shrewed tactic to cap TTWO's share price as it released Grand Theft Auto IV, the biggest game release ever. But Electronic Arts shareholders may be disappointed by a higher bid, as each dollar increases the takeover price by about $75 million. A price in the $30s, which would represent a reasonable premium in light of GTA's success and TTWO's earnings potential, would represent a bid increase of hundreds of millions of dollars.

I may sell some of the options, likely the 30s, if TTWO share prices (or options premiums) pop tomorrow at the open. After speculating twice on this merger, I'm willing to take profits when I can (hopefully) get them. TTWO didn't move much after hours, so maybe longs aren't enthused by this hype anymore. However, TTWO and ERTS will probably clear the air with a new bid or a conclusive "not-interested" statement fairly soon.

I held TTWO calls that expired (worthless) at the end of August, and did buy September calls at both the 27.5 and 30 strike.

Wednesday, July 30, 2008

A New Search Engine: Cooler than Cuil

For some reason that I could not comprehend, a new search engine called Cuil (pronounced cool) debuted within the past week to much fanfare. TV and internet news outlets, including, picked up on this non-event.

In my experience, the search engine returned limited, irrelevant results.

However, I stumbled upon another search engine called Scour that I actually like. Scour, like other search websites, compiles results from the Big Three - Google, Yahoo, and MSN - and attempts to combine the results with internal metrics and package them relevantly. Scour combines the engine rankings along with user votes and comments to arrange results in a certain order.

Best of all, Scour pays users (albeit peanuts) to search, comment, and vote. One search results in one point, while commenting or voting can increase the total per search to four points; after 6,500 points, they'll send a $25 Visa. They do provide toolbar plugins for Firefox and IE, so it's easy to earn points without altering your usual routine. To me, the allure of Scour isn't making money, it's getting good search results (and being able to creep my websites' rankings all in one place) while diverting some revenue away from Google into a smaller company's pockets.

At least the people at Scour were able to pick a decent name. Really, Cuil?

Friday, July 25, 2008

Grand Theft... Vista?

My previous post addressed the possibility of another company bidding for Take Two (TTWO), a video game maker that currently has been offered to be bought out by Electronic Arts (ERTS).

Take Two's chairman said (in a press release) that multiple other parties were performing due diligence and TTWO was in early discussions with these potential suitors.

In my previous article, I threw out Viacom, as many pundits often cite them as wishing to become a player in the growing video game industry. However, I think that there's a more likely bidder.

I think that Microsoft is a likely bidder for TTWO. Microsoft already makes a video game platform (Xbox and Xbox 360) and also independently publishes video games. Years ago, they made a video game acquisition when they bought tiny Bungie studios, the company that developed the Halo series. Microsoft had already published the Halo games, but they decided to bring the production in-house to reap the benefits of vertical integration. I can't tell you how many dollars Microsoft has made, but Halo has now produced three best-selling games, and its exclusivity on the Xbox (it's also available on the PC, but no other console) has driven console sales too.

Besides Halo, Grand Theft Auto, TTWO's signature game, is the other dynasty of the video game universe. GTA IV, the most recent addition, released earlier this year, broke sales records that were set by Halo 3 last year.

Halo 3 generated sales of $170 million dollars during its first week last fall. (As previously discussed, virtually every component of creation, production, and distribution is internal, so much of this amount must fall straight to MSFT's bottom line). Compare that to a major blockbuster movie's debut weekend (the numbers are very similar), and the growing value of video games becomes clear.

However, that total, while impressive, is dwarfed by GTA IV's first week, as the game reported $500 million in sales.

For the mere cost of $2.5 billion (25% over ERTS's bid, or about $32/share), MSFT could absorb that massive revenue- and profit-generating game along with the rest of TTWO's portfolio. TTWO does make other games; BioShock was a surprise success this year, and its sports franchises, covering basketball, baseball, hockey, and tennis, are ranked highly and sell well.

Microsoft could become a serious player in the video game industry if they made a console and sold the two best selling games on the planet. Making GTA exclusive to the Xbox (like Halo is) would be a terrible decision, but providing some incentive, like an earlier release date, could drive additional Xbox sales too.

Such a takeover would be so insignificant to MSFT as a whole; unlike an overpriced Yahoo takeover, buying TTWO at $2.5b would only use up about 10% of their cash, in a transaction that's only as big as 1% of their market cap. However, their growing video game department would certainly flourish, growing to a point where it could be spun off if MSFT deemed that most profitable.

Microsoft has the cash, the takeover desire, and the rationale for making such a purchase. The Grand Theft Auto franchise alone is worth more than this current takeover price (which is why many people think that ERTS submitted the bid before the game came out, so that they could cap the share price), and TTWO has many other promising games and franchises that MSFT could continue to build and polish.

I'm long ERTS and now own TTWO calls, so admittedly, I have an interest in a higher bid (especially from someone other than ERTS). But it is in no way ridiculous to conclude that TTWO could, and should, be bought for a price much higher than it's current share price (high $24) and offer price (~$25.75).

Monday, July 21, 2008

Take Two's Takeover

Electronic Arts (ERTS) has been courting Take Two (TTWO for some time now; just yesterday they extended their current offer to buy out TTWO at about $26 per share just as it was set to expire.

Electronic Arts bid for TTWO when the shares were trading in the mid-teens, as TTWO struggled to do much of anything between releases of the different editions of Grand Theft Auto. However, the recent installment has been successful beyond expectations, and TTWO plans to ride that gravy train until its final stop.

In light of the success of GTA IV, TTWO is claiming that ERTS's offer significantly undervalues the business, which may be true. Here's what the chairman of TTWO said today:

"We are fully engaged in a formal process to evaluate strategic alternatives that have the potential to deliver greater value than EA's inadequate offer," said Strauss Zelnick, Take-Two's chairman. "As part of this process, we continue to engage in meaningful discussions with multiple parties, a number of whom have been conducting due diligence."

The chairman hinted, if falling short of explicitly stating, that there are other companies shopping for TTWO. In the golden age of the video game, traditional media companies like Viacom have been previously suggested/speculated upon being interested in such a purchase. Otherwise, ATVI would be the only likely suitor, though they just completed their own merger with another company.

However, since the chairman stated with more-than-hypothetical language that there is the possibility of another offer, I think it's worth it to gamble here. I bought TTWO August 27.5 calls for $.15 today; the shares closed at $24.66, a discount to ERTS's offer. September calls at 27.5 strike went for about $.70.

Certainly, a higher bid is far from certain, and ERTS could get tired of pursuing the stubborn TTWO and let its current offer expire. However, if another company does come in with a bid of, say, $30, owning either options contract will result in windfall profits.

Owning something like the Aug calls might actually be the safest way to play this; the enormous upside potential is preserved, while the downside from a the end of ERTS's extensions won't be too painful. I can't say that I expect a new bid to emerge - and for one to be announced within the next month is even less likely - but I'd rather lose a little money speculating than miss a hugely profitable trade.

(Disclosure and note: I am long TTWO Aug 27.5 Calls. If a new bid is made, I have a crystal ball for sale... but actually, any success predicting such an event is because of common sense and/or dumb luck.)

Tuesday, July 15, 2008

Google: Bad for Me, Good for Them

I'm an entrepreneur at heart, and I like when my little business ventures and investing happen to coincide. Running a business using products by eBay, Amazon, and Google allow me to have some additional insight into the actual usage and application of their tools.

I defended and then berated eBay, who has, through their own actions, distanced, scattered, or simply banned a growing number of important sellers.

I have written good things about multiple times - their Fulfillment by Amazon service allows small, medium, and large merchants to enjoy Amazon's world-class supply chain at a (somewhat) reasonable cost.

Now it's Google's term to get an in-depth, er, superficial analysis based on my experiences with Google's tools.

I've been using Gmail since before it was cool, run Adsense on multiple sites, use Firefox with a Google toolbar, post on Blogspot (which is owned by Google), have used G's free "analytics" service before, have watched way too many YouTube videos, have listed items on Google Base (a sort of online marketplace that they have been trying to promote), have accepted and paid through Google Checkout, and lastly, have advertised using Google Adwords. I'll be dwelling on the last service.

Google Adwords is the half of their advertising enterprises that serves merchants. By now, most heavy internet users probably are somewhat familar with Adwords. (If you didn't know, it's those advertisement boxes containing links strewn all over this, and other, websites). Adwords is used by everyone from lowly cottage-industry merchants like myself to Fortune 500 companies - everyone seems drawn by the promise of ten-cent clicks leading to unfathomable sales.

In my experiences thus far, I haven't been able to discern that Adwords is very effective, at least for my business (Whacks Wax). I earned allotments of Adwords credits as I've signed up and renewed hosting contracts over the past five years, and I'd use them as they trickled in. Clicks on keywords that aren't too sought after, like "hot ski wax," are pretty inexpensive, so I set up some programs and let them run.

Maybe it was a result of my lackluster website or undesirable product, but very few clicks ever resulted in sales. It wasn't until I spiffied up my metatags and did some other SEO tricks, earning my website a spot on the first page of Yahoo and Google searches for many keywords, that sales came flowing in. The organic traffic was much, much more effective than the purchased hits.

I just set up as a means of distributing Tim Horton's, the world's most delicious (but hard to find) coffee. Once again, I have $50 of Adwords credits to play around with; I hoped some free advertising could jump-start sales.

However, the impact of my advertising buck has been wittled away as Google's algorithms keep making my clicks more expensive. The first day, all search terms (from "Tim Horton's" to the more obscure "buy tim hortons coffee" featured minimum bids of ten cents. Some terms had some other advertising competition, but not very many people were competing for most of the terms.

However, the cost of many terms has inexplicably increased in the two days since then. "Tim Hortons" is now requiring a bid of 40 cents per click, even though there are currently no advertisements shown when the term is searched.

My assumption (which may be incorrect) is that Google identifies when advertisers start advertising, and it will then increase the cost as the term becomes demanded (even if only a single advertiser is using it). That way, it can encourage less-searched terms to be paid for cheaply while slowly milking all it can out of more desirable, though uncompetitive, terms.

This strategy is good for Google - in the last quarter, they beat estimates and expectations because they managed to earn more per click. But it's bad for merchants, who are looking to use Adwords to generate sales as margins and demand are squeezed in a tough macroeconomic environment.

But unlike my nasty experiences with eBay, I'll admit that what's bad for me isn't bad for Google at all. Many people and companies believe in the effectiveness of Adwords, and there really aren't many alternatives for little businesses with advertising budgets in the hundreds of dollars. Adwords has now expanded into print advertising (and radio and TV advertising), and it helps advertisers find space in major newspapers for huge discounts (I put an ad for Whacks in the major Salt Lake City paper last winter for like $10, thanks to Google).

As Google's search dominance continues to grow, and as Gmail continues to become the world's premier free email service, the revenues from advertising should continue to grow. Monetizing international markets, especially China, will be essential for Google's onward success. Google ponied up billions for YouTube, but they still haven't been able to figure out how to make money from it; luckily, the cash from their other operations makes the lack of monetization less of a problem for GOOG than it would be for another company. If Google can manage to start making money from these non-core businesses, their furious growth should continue.

Google's earnings are released Friday, and clarity into how revenues hold up during tough economic times will be seen then. On one hand, Adwords is a cheap way to advertise, compared to purchasing hundred- or thousand-dollar advertisements in newspapers or on TV. But there's a chance that the coupling of thriftiness from big companies - like mortgage lenders - or abandonment by many small advertisers (like myself) may pressure growth. I have no prediction to offer.

But as I listed all of the Google services I use, it became clear that Google has built an unrivaled internet kingdom. Its most popular services - Gmail, YouTube, Adsense and Adwords, and of course, the search engine - are the best that the Web has to offer, and they draw users in with little coercing. It's less-popular offerings, like Base and Checkout, are being bankrolled by Google's vaults in an effort to buy market share.

So in the end, my thriftiness may be indicative of one fact about Google - they make a ton of money. Don't hate the player, hate the game.

Monday, July 14, 2008

Shameless Promotion

Just as I have mentioned Whacks Wax (a separate venture of mine) or business of friends or family, I figured I'd post a link to Canada's Coffee sells Tim Horton's (THI) coffee, which is nearly impossible to find outside of Canada or US towns surrounding the country.

Thursday, July 10, 2008

Out with the Old, in with the New

I closed FRE around $12.50 and closed CIT around $7.80, both for ~$1/share gain over my entry points. If I would have held until the end of the day, I would have made about twice as much... but if I was still holding now, I'd be in bad shape.

I bought NTRI $12.5 July call and $7.50 July ODP call (shares had been crushed after advising that sales were very, very sluggish).

I’m playing the dead cat bounce with ODP while NTRI seems to be drunkenly staggering out of oversold territory. USO puts still open, and those have bled a little today.

Also bought CSCO Aug $22 call for $.90 when stock was at $21.60 yesterday, dropping 6% on the day. I figured it was oversold.

Why not try to take advantage of some market volatility?

Wednesday, July 9, 2008

Closing Positions

I sold my little CIT and FRE stakes yesterday into the strength at the end of the day. I don't not believe in their future prospects, but I'll take quick gains in the face of future uncertainty.

As a whole, the rally looked like short-covering to me... The parabolic gains heading into the close are one indicator, as people aren't usually as eager to initiate new long positions at ever-higher prices as they are willing to cover their shorts. Also, the performance seen yesterday from dogs like CROX indicates that many shorts may have thrown in the towel.

I'm still holding USO $104 Jul puts, and I'll see the value of that decline today as oil seems to be recovering modestly. If the inventory report at 10:30 is super bearish, oil should continue its slide; otherwise, it too may be pumped back up.

Monday, July 7, 2008

A Fan of Freddie

I picked up some shares of FRE, the quasi-government federal mortgage company as it was sitting near lows at $11.24. I had been waiting to jump into Freddie or Fannie (FNM) at such a time like this.

My thesis is that they are too intertwined with the government for anything really, really bad to happen, unless doomsday predictions come true. After a 25% intraday pop, I liked this entry point, whether I sell it off after a (potential) rebound or hold it for the long haul.

Thursday, July 3, 2008

PENN: No Deal

Today, Penn National Gaming (PENN) confirmed that its pending deal with Fortress Investment Group (FIG) and others was indeed terminated.

They will receive $200 million in cash (about $2/share) and over $1billion in preferred equity in 2013.

As I had speculated (when the stock was a few dollars higher), failure was priced in - the stock is flat today (at least in the opening minutes). I still like PENN, I like this cash infusion, and I like their prospects in a tough economy - why fly to Vegas when you can lose money close to home?

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When Bubbles Pop (or Lose just a little Hot Air)

Coal stocks, which I have identified as overheated for a while (but thankfully didn't short), all crashed yesterday as spot prices in Europe were less desirable than expected.

Here's a chart of CNX, Consol Energy, a huge coal producer in Appalachia:

Here's JRCC, truly a joke - it's a coal company that's losing money right now. Still, that hasn't stopped it from going from $3 to $60 over the past year:

Lastly, this is KOL, the coal ETF - so when an ETF declines 10%, you know that the industry is getting crushed.
Earlier this week when I had some fresh funds (which I eventually put into CIT for a profitable trade), I was checking out JRCC $50 july puts when the stock was around $57.50... and I talked myself out of them because I didn't expect a move that big. Though nine times out of ten (if not more) that $2 options contract would have been a wasted lottery ticket, it would have panned out nicely this time.

I haven't stayed on top of the coal market enough to speak more specifically than I have just done, but the stocks above demonstrate the power of bubble-deflation. Especially in the case of JRCC, a company with no earnings, it's astronomical price increase has been because of complete fabrication and speculation, and it should all come crashing down. CNX is a solid company, but it too has enjoyed a massive price increase because of tightening worldwide coal supplies.

The thing that makes coal from different from oil is that there's no talk of "peak coal" - we know that we have hundreds of years of supply left. Getting it out of the ground in a timely fashion can be challenging, as big trucks and tires are in short supply, but I'd have to believe that the CEOs, especially of companies like JRCC, know that this heyday will end sometime, probably in the not-too-distant future.

Tuesday, July 1, 2008

Two Trades

In my personal account, I did two things yesterday:

I put in an order at 6AM to buy these nice little illiquid tools called Fixed Return Options, a new derivative (how could that ever be a bad thing?!) invented by the administration of TradeKing, my online broker.

Anyway, how these things work, is that they are all-or-nothing contracts. If your contract finishes above the strike price (when you own a high-finish contract), you get $100 credited into your account. When it finishes below, it's worthless. The put-like options work the opposite way.

I bought Citi (C) high-finish options at the August 17.50 strike price. So, if the price (well, actually, a different metric that measures the average price of every trade that day, but basically price) finishes at $17.51 on expiration, I get $100. If not, it's worthless. The contracts were only $40 each, so the risk/reward was worth it to me. (I don't have a ton of confidence in Citi as a company, but I do think it's oversold, but regular options had premiums too high or were too far out of the money.)

The FROs can be sold before expiration, but since the market is pretty illiquid right now, it's best to hold as long as the trade looks like there's a good chance of success.

I also bought CIT after the bell at $6.88. It was down 15 percent on no real news yesterday; I figured it was just a financial company getting dumped as funds and firms window-dressed. This morning they announced that they are selling the home loan business, their most troublesome one, for some nice cash AND the forgiveness of lots of debt. It's over $8 right now.

As I wrote yesterday, I hope that this new month and quarter mark a turnaround for the market... but that doesn't look to be the case, at least during the opening of this first day. Hold on for the ride.

Monday, June 30, 2008

Calling a Bottom... Again

My call of a bottom in March seemed accurate until just the past few sessions as the indexes have tested or broken through their lows from about three months ago.

The Dow, helped by losers C and BAC did indeed break through its low. The S&P tested it, and it appears to be bouncing off nicely.

So why is now the (real, or second) bottom? I think that the planets are aligning - er, mutual fund window-dressing is ending, which will eliminate the recent downward pressure.

Such financial losers like LEH and CIT were down 10-15% today on little or no news. The dumping (and possibly subsequent shorting) seems to have little fundamental basis.

So as the S&P and Dow try to squeak out a positive day, maybe this will be the bottom. Many buyouts are failing (fingers still crossed for PENN!), Citi's now a sell, and nearly everyone has a negative point of view.

Other than the end of quarter, another stimulus, maybe an unexpected positive data point, Fed tightening, or a nice shower of oil that gives the US a nice 10mmb reserve, could cement a turn. Otherwise, the superficial causes of this extra pain may end, as investors rich with commodity gains might reinvest the proceeds into financial (if they follow the sheiks' leads).

Lunchtime Thought: "Wonderful Companies"

"It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

Warren Buffett bestows that nugget of knowledge upon us peasant investors. I believe that it's very important to reflect on such a quote during current market conditions.

I must admit that I dream of investing home runs; finding a company and having it double quickly, or appreciate many times over during a longer period of time. I have had a few such successes; a lucky timely buy of Vonage last year was one such trade.

However, chasing out-of-this-world performance usually does more harm than good. Whether due to a value trap or just a dumb investment, I'm down more than the market since my portfolio's inception due to some bad calls while hoping for huge gains.

Why not settle for solid appreciation from a great company? And Buffett's quote is now, more than ever, like a lighthouse's beacon, leading investors through this troubled sea. There are so many great blue-chips on sale - I'll focus on two - that long-term investors can buy now and (likely) look back in five years and realize how they pillaged Mr. Market.

GE is the American blue chip. It has made everything forever. More importantly, the company is trying to tackle future problems - its current portfolio of products include water purification and desalinization units, clean, efficient locomotives and aircraft engines, wind turbines, and more. It's possibly looking to drop its mature brands - like appliances - to free up cash, streamline the business and focus on its future prospects.

There are issues that GE faces in the short-term, namely its financial arm, but it won't cripple the business. But the toxicity of anything financial, coupled with an overall market downturn, has ripened GE's stock for a long-term thinker. The dividend yield, now nearly 5%, is enough of a reason to invest - earn a better yield than you would in a CD while exposing yourself to the possible capital appreciation.

The second company I'll mention is Toyota. Toyota looks like it will become the world's biggest automaker this year, as GM's horribly gas-guzzling lineup is passed over in favor of smaller vehicles. Once again, Toyota faces issues - a maturing (or mature) US auto market, competition from Honda, Nissan, Kia, Hyundai, and the American auto makers (if they can become competitive once again). Honda is releasing a Prius-like vehicle soon, but as of now, Toyota sells the number-one hybrid in the world, and backs it up with a popular lineup of reasonably-sized cars like the Camry. Though its trucks may currently be a burden on business, there will always be a market for trucks, and weakness in American companies' operations (like Ford delaying the new F-150) will benefit that part of TM's business, too.

So, in conclusion, diversified blue-chips do face challenges in this tough economic environment. However, specific issues (GE Finance) and overall market skittishness have probably pushed these gems down farther than they should be. Do what Buffett would do - buy great brands when they are at reasonable prices - instead of chasing bottom-feeders and dead cats.

Tuesday, June 24, 2008

Quick Thoughts: PENN, FSLR, BWLD

My apologies for no regular updates recently (if there's even anyone listening...) - I now work full time AND take an evening class (every day). What a fun summer!

Here are some noteworthy happenings:

PENN (Penn National Gaming), which has a pending takeover deal with FIG (Fortress Investment Group) and others at $67/share, has seen its share price crumble over the past week as other deals have fallen through (and maybe because of general market weakness).

Shares have fallen from about $45 this time last week to the current $33. Yep, that's right... if the deal somehow goes through, any arbitrager could make over 100%. That isn't an accidental inclusion of an extra "0."

To me, it seems like the deal failure is now priced in. (Then again, I said that yesterday, when shares were about $2 higher, to my father in an email). PENN trades at a 19x trailing P/E and a 15 forward P/E, which is a much cheaper valuation than when the deal was proposed!

As a regional casino operator, PENN should do well during tough economic times. People may not be able to drop a grand to go to Vegas for a week... but they can afford a little gas to drive to the nearest casino to gamble a couple dollars away.

I believe that the deal, in some form, will go through, whether it's a $67, $57, or $47. If it doesn't, PENN gets $200 million, which is about $2/share. I can't imagine the stock dropping that much farther if/when a non-deal is announced... but I've been thinking that for a while. Either way, I see either a huge short-term or steady long-term gain in PENN shares from this point.

FSLR continues to baffle me. After trending lower from a high of about $320, it has climbed back near the top. Most recently, FSLR jumped $17 yesterday because one analyst upped his price target, and claimed that one particular variable could lead to $30 million more revenue than previously anticipated.

So let me get this straight... the potential for $30 million more revenue leads to... a $1.4 billion increase in market cap?! Makes sense to me!

(I understand that market cap isn't really a metric that should be used on a day-to-day basis... but that statistic helps exemplify my opinion that FSLR's valuation is out of control).

I'm still short.... and hoping that the bottom falls out soon.

Lastly, BWLD is down 15+% over the past few sessions after an analyst downgraded on valuation and chicken-price concerns. However, BWLD has managed to keep growing earnings at its 25%/year target even as chicken prices increased in the past, so I see no material change to their business. I'd say that this is a good entry point for a great company.

I'll try to keep feeding any readers with more regular updates going forward.

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Thursday, June 12, 2008

eBay: Personal Dissatisfaction, Investor Doubt, and I'm Gone.

Just a few months ago, I defended eBay’s business as it was being attacked on all fronts; fee hikes had disenfranchised big sellers, who were being lured by Amazon’s fulfillment program.

I proclaimed confidence in eBay’s marketplace, even as they began to squeeze too many pennies out of small sellers like myself (peddling my ski wax, Whacks Wax), right as was allowing sellers to list their items for free.

I also noted that PayPal was much of the reason to invest in eBay’s stock. PayPal still is a great brand, but Google is pushing hard to popularize its payment processing service, Google Checkout, by offering new buyers a free $10 discount on their first purchase.

My problem with eBay, the corporation, has grown from a personal problem, but I feel as though it also sheds light on many of the issues currently facing eBay, and it shows that they may be failing to properly address those issues.

I have been selling various goods on eBay for over five years through three different accounts. I began selling trinkets, mirroring eBay’s promoted image as a worldwide 24/7 garage sale. However, a few years ago, I invented and began selling my own ski wax, and eBay was a great market place to promote a brand in its infancy.

Over the years, I have sold approximately $10,000 of goods through eBay. My average selling price was no more than $10, so I logged about 1,000 transactions through the different accounts. Considering that eBay charges a listing fee, a final value fee, promotional fees (I often did choose featured listings to attract attention), and most of my payments were processed through PayPal (which charges a base fee AND a percentage of the transaction), I would estimate that I generated $1000-2000 of revenues for eBay and its entities over the years.

Now, in an effort to promote “marketplace security,” the account that I sold ski wax through (which generated the majority of personal revenue and eBay fees) has been permanently suspended. The account’s feedback rating (the metric that eBay uses to establish confidence in transactions) is excellent, with a 97+% positive rating, including about 400 total positive transactions. The other two household accounts also may be suspended – each of them was sporting a 99% positive rating.

However, the very last transaction I conducted resulted in a negative feedback, and because of some silly computer search eBay must conduct, my account was blacklisted and suspended. (An aside: The circumstance was unusual, and I refunded the customer’s money right after negative feedback was left, so the transaction was resolved. My integrity as a seller remains intact.) eBay suspended the account because of a “result of your violation of site policy on Seller Non-Performance” because I “generated unacceptable levels of buyer dissatisfaction in your transactions.” This is solely based on the one most recent feedback.

A reasonable person could see that I have established and re-established credibility as a merchant. A reasonable company would allow real customer service people to review and overturn suspensions such as mine when their computers clearly take transactions out of context. However, eBay seemingly will not let customer service employees breach official policy, even if the situation merits it.

eBay clearly has issues policing its increasingly-dangerous marketplace, and this is an example of an overreaction that may have broader implications. As many larger sellers are already flocking to Amazon or other auction websites, fleeing the stranglehold of the new fees eBay has imposed, eBay should not be barring willing merchants from using the website. Yes, this may be an isolated, individual incident, but it is an example of policy and bureaucracy of an inefficiently-large corporation destroying the very nuances that led to its success.

Whacks Wax will survive. I already began using’s fulfillment system last year, which streamlines my operations and makes selling my product immensely easier. An eBay presence was certainly beneficial to the company, but this past winter it accounted for the smallest percentage of sales yet. The nostalgia of eBay, where I had built my company from the ground up, may have been one factor that continued to attract me to the increasingly expensive marketplace.

Bigger niche sellers have no need for eBay anymore. Amazon is a worldwide marketplace that attracts deal-seekers just like eBay, except they charge no upfront fees. Merchants leaving eBay can spend the money that would have paid on fees (in my case, between 10-40% of final selling price) to invest in their business or advertise, and probably more than make up for lost sales.

eBay will always exist as a marketplace to promote knickknacks, but its heyday as a serious marketplace seems to have already passed . Now, through websites like and (eBay owns the latter), consumers can quickly and easily find the cheapest price for a good, instead of having to devote hours to manual browsing as they would have to have done in the past (which led to bidding on eBay, a relatively-cheap marketplace). Powersellers with significant draw can simply promote their own websites, which requires a greater sunk cost but little (if any) incremental costs compared to eBay selling. As continues to expand into groceries, people may become accustomed to look there as a first place for anything they desire, not eBay, as may have been the case in the past.

Luckily for shareholders, eBay’s non-core businesses are continuing to grow the company as the auction marketplace has stagnated. PayPal is still the only widely accepted online payment processer, and no matter how many $10 credits Google throws at consumers to encourage them to use their checkout, PayPal’s dominance should continue. PayPal is also now being used unconventionally, as family may send remittances cross-border through PayPal, and traditional merchants (airlines, etc.) are now accepting it.

Skype also seems to finally be gaining some traction, and eBay has already written off most of the (ultra-inflated) value of the purchase it made a few years ago. Integration into the auction website has made Skype more relevant as corporations and consumers have simultaneously started to use it. Skype is now a positive contributor to the eBay brand, and if eBay chooses to get rid of it, they could probably sell it for more than the value they now have booked.

Still, the street continues to look at the auction website as the most important component of eBay’s businesses (which it is). That business is no longer growing. The exodus of Powersellers and banning of lowly, innocent, above-average sellers will not help stop the bleeding. eBay needs to focus on re-attracting the big sellers, possibly creating a different way for them to list items (think eBay stores, but better) that can rival the appeal of If the core business continues to decline, it will be hard to make up that gap with the growth of other the brands.

I am angry and disappointed enough by my ordeal to sell my stake in eBay. Investments shouldn’t be an emotional decision, but I cannot have confidence in a brand that has treated me, a shareholder and merchant, so horribly. With few exceptions, brands with poor customer service are eventually passed over in favor of competitors that treat them better - I had personal phone calls with an Amazon Fulfillment representative a handful of times before I even set up an account, but I can’t even get a non-automated response when I’ve made eBay thousands of dollars. My decision was made for me, but it was time to move on anyway. eBay, I don’t need you, and many other sellers don’t either. Even if you don’t kick them out, they'll eventually leave.

Monday, June 9, 2008

Oil Prices: Who will be the Biggest Fool?

From Wikipedia:

The bigger fool theory or greater fool theory (also called survivor investing) is the belief held by one who makes a questionable investment, with the assumption that they will be able to sell it later to "a bigger fool"; in other words, buying something not because you believe that it is worth the price, but rather because you believe that you will be able to sell it to some one else for an even higher price.[1]

In my honest opinion, I think that the oil markets, describable as a bubble, can now also be filed into the category of "bigger fool" investment vehicles.

Just this weekend, Barron's interviewed Arjun N. Murti, a top energy analyst at Goldman Sachs. In the interview, Murti said that we are now in the "later stages" of a "super spike," a dramatic short-term price increase where, he thinks, we will see a barrel of oil hit $150-200.

Murti argues that the price really is driven by supply, unlike the speculation-driven theories of other analysts. However, I took away too other noteworthy nuggets of information:

On the front page of Barron's website (I'm not sure about actual magazine layout), the subtitle of the article throws out a $5.75/gallon gasoline quote. However, in the article, Murti more conservatively states:

"Oil at $150 to $200 a barrel would imply between $4 and $5.75 a gallon."

Though not incorrect, Barron's focus on the maximum estimate is exemplary of the current fanaticism in the oil market. Ignore the reasonable or low-end expectations, but rather, shout the highest ones from the mountaintops.

Even more surprising and important was Murti's long term estimate, which does not get mentioned on the front page. In the article, Murti says:

"Our long-term oil forecast looking out 20 years is [for crude] to fall back to $75 a barrel, or some lower number."

This sentence perfectly states why I think that current oil prices are now reflecting a bubble, or now even a bigger-fool type of market. Murti, who did correctly call $100+ (and now even more expensive) oil, is forecasting that the era of $150 or $200 oil will not last long. Though not too many people could short oil today on the thesis that it will eventually, within five, ten, or 20 years, halve in price, the forecast of an eventually-lower figure shows that speculation does influence, if not control, the current market.

It seems as though investors aren't concerned if oil will be $120 in December or $100 in two years; what's important to them appears to be the prospect of selling their USO ETF (which allows any investor with a brokerage account to essentially buy oil futures) for a couple bucks more in a week or a month.

What started the two-day, $15+ rally in oil was an update price forecast from Morgan Stanley. Stating that Asia will consumer a greater share of Middle Eastern exports, they predicted that oil would hit $150/barrel by July 4th. I am admittedly not an expert, but that prediction, made midweek when oil was as low as $122/barrel, seems to me like MS was a little presumptuous - how could that small change merit a $30, or 25%, price increase?

Oil rallied through the end of the week, gaining $10 on Friday, on that report and a "weaker dollar." Yes, the dollar did drop as much as a few percent against the Euro, but why does a 1-2% drop in exchange rates trigger a 7% increase in the price of a related commodity? (Also, that same day, disappointing employment numbers were released. Normally, I'd expect a economically-bearish news nugget like that to move oil prices downward.)

On this hype, I attempted to short USO on Friday, but was denied as a significant percentage of my portfolio is currently short FSLR and CRM. Oil is down about $3 so far today, but as the previous contraction from about $135 to $122 showed us, all it will take for a nice surge in prices is another bullish report from experts.

My thesis remains that the price of oil resembles that of a bubble, or a "bigger-fool" type of market. In hindsight, I'm glad that I'm not short, because I don't want to be holding the bag if oil does appreciate another 10, 20, or 30%, as many individuals and experts are forecasting (or speculating). However, I agree with Murti's long-term thesis; expensive oil is making alternatives very viable, if not much cheaper compared to hydrocarbon solutions. Maybe $120 or $150 oil will eventually reflect the supply-demand equilibrium, but I don't think that that time is now. I think that the best option is to just sit on the sidelines; maybe you'll miss out on some fast money, but someone is bound to end up holding the bag when rationality defeats speculation.

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