Dave Barry Publishes His Always Hilarious Year in Review

Humorous columnist Dave Barry published his always hilarious year in review column yesterday. Check it out here.

Ken Heebner - Bloomberg Interview

Ken Heebner, whose CGM Focus Fund is up 80%+ this year, was interviewed by Bloomberg TV recently to discuss some of his investment ideas and his thoughts on 2008. See the interview here.

Winner in Bidding Race for Genesco May Already be Loser

A judge ruled that Finish Line can't back out of its bid to acquire Genesco.

Interestingly, UBS is trying to get out of financing the deal by stating that a merged Finish Line - Genesco would become insolvent.

Economist's Annual "World in ___" Issue

Not sure when this went live, but the Economist has put it's World in 2008 issue online. See the special issue here.

New Futures Exchange in the Works

Several days ago, the WSJ reported that several investment banks and trading firms are planning to start their own futures exchange to rival the CME/CBOT's stranglehold on the futures business. The Trib had a good update on the situation as well.

Economist Jumps on Poker Popularity

While many announced the death of poker's popularity following the US government's attempts to curb online gambling last year, the Economist reports in its most recent issue that poker is alive and well.

Searching for Returns: Flipping Horses

Sorry to the several of you that emailed me about the lack of updates on the blog. I was in India for the past two weeks and am just now catching up on reading and market activity.

Bloomberg had a pretty interesting article on the increasing interest in investing in thoroughbred horses to generate returns.

"The average return on a thoroughbred purchased as a one-year-old, or yearling, and sold as a two-year-old climbed to 47 percent in 2007 from 30 percent in 1999, according to TBH MarketWatch, an industry newsletter put out by the publishers of The Blood-Horse magazine, based in Lexington.

Outperforming Hedge Funds

By comparison, hedge funds globally gained an average of 13 percent in 2006 and 8.8 percent in the first three quarters of 2007, according to Chicago-based Hedge Fund Research Inc."

Barron's Columnist: End of Market Trends Tough to Predict

Barrons' issue this past weekend included a guest columnist's view on market trends, and the media/prognosticator's tendency to predict the end of trends. The columnist, Dick Davis, is quick to point out that trends are difficult to time, especially bullish trends, which tend to be prolonged secular stories.

Bullish Outlook for 2008 from Wall Street

Even with Intrade placing 40%+ odds on a recession in 2008, Wall Street sentiment for 2008 is high.

Bloomberg summarized the overall bullishness from Wall Street strategists in this article.

Here is a link to Lehman's Global Strategy Outlook for 2008.

In other news of note:
- High end retailers call this one of the worst holiday shopping seasons since 2002
- MBIA secures fire-sale type financing from Warburg Pincus

Barton Biggs: Ignore the Naysayers - Now is Time to Buy

Barton Biggs has a highly bullish piece in Newsweek that advocates that we ignore the bearish sentiment and talking heads and view right now as the time to buy.

Barron's Covers a Sarasota, FL Premium Home Auction

How bad is that state of the housing market? Barron's aimed to find out by going to one of the most negatively effected areas: coastal Florida. The columnist documents the results of an auction of luxury homes in Sarasota, Florida. While many market statistics talk about 10-15% home declines, the houses in the auction often went for less than half the asking price. It makes you wonder if the 10-15% price declines in certain markets is really credible. I'm reminded of Kelley Blue Book values for used cars. Ever notice how you can never sell your used car for the Kelley Blue Book value that should be applicable to it? Perhaps on some level that same principle applies to selling your home.

Rebound Since the Correction - Losers Have Been Winners

Interesting post from Bespoke Investment Group today regarding the stocks in the Russell 1000 and their performance since the correction "bottomed" on November 26th. Bespoke noted that the worst decile of stocks during the market fallout from October to late November has actually been the top decile since 11/26.

The Nintendo Wii - Modern Day Juggernaut

So it's been just over a year now that the Wii has been available to consumers, and yet, unless you are willing to pay-up on EBay, press your luck that you'll randomly get one at Best Buy, or you use Wiitracker.com frantically, it is unlikely that you'll find the console on shelves.

The WSJ had a nice column on the Wii hysteria for this Christmas season. Given the inability for consumers to find the Wii on its shelves, many feel Nintendo may be doing a disservice to itself because they are losing would-be customers and disgruntling many of them, the article notes. However, the article goes on to state that the allure of scarcity value with the product forces consumers to attach a higher value to it (i.e. people want what they can't have), and this helps drive continued traffic and a sense of obsession from consumers. It's sort of a Catch-22 for Nintendo.

Is Nintendo making the right move? It's hard to say, but clearly demand is high enough for the layperson to make a tidy profit. The basic console retails for $249.99 (the Wii Sports package), but a quick search on eBay reveals that this same console is selling for around $340 (plus $40 for shipping).

I dug up an initiation piece by Goldman Sachs on Nintendo that someone had sent me a few weeks ago. The initiation piece is pretty recent (date 10/2/07). Check it out here.

Research Recap Review of Recent Bond Insurer Concerns

The bond insurers (MBIA, Ambac, FGIC, etc) have been under attack over the past few days, with Moody's issuing a negative report yesterday that MBIA could lose its coveted AAA rating based on the prospect of massive losses in some of the products that MBIA has insured.

For a summary of the situation, see Research Recap's post on its blog today.

BusinessWeek Reporting that Ticketmaster May Be Close to Exclusivity Deal with NFL on Ticket Reselling

BusinessWeek is reporting that TicketMaster seems to be the highest bidder for the opportunity to become the NFL's exclusive/preferred reseller of NFL tickets. As the article notes, currently ticket reselling among NFL teams is not centralized and thus teams have the choice to choose who they want to use (TicketMaster, StubHub, etc.).

Follow-Up on Ben Stein's Goldman Article

Over the weekend I had a post that directed readers to Ben Stein's negative piece on Goldman Sachs' tactics with the fallout in the housing market.

Since being published, the article has caused a stir, with most of the press being anti-Goldman. Below are some of the recent responses regarding the article.

1. Financial Times Article

2. Ben Stein Interview on CNBC's Kudlow & Co.

3. Senator Dodd is calling for an investigation into Paulson's role in Goldman's mortage strategy

Of course, not all the press has been bad

1. Financial Times Article Supporting Goldman's Risk Management Controls and Culture

2. One Blogger's Dissection of the Ben Stein Column

Good Summary of SIVs

Morninstar has a good description of SIVs and how the recent turbuence for many SIVs began.

Funds Continue to Look for an Edge

IDD had an article outlining the growing trend for funds to use less mainstream resources to get an "edge" when looking for investment ideas.

Blockbuster and Netflix's Next Worry - Not Downloadable Movies

The progression of the video rental business reads like most other industries that have been transformed by technological advancements. For years, even as Blockbuster has joined Netflix in creating a viable online rental business, prognosticators have claimed that even this aspect of the business (wherein users get videos in the mail) will get marginalized by Video on Demand on DVRs and the ability to download movies directly off the web. Bloomberg had an interesting piece out about the next threat to the video rental franchises - DVD kiosks. The business is simple: put kiosks holding 30 or so of the hottest titles and charge a dollar a day for the rental. It's a no frills method for people that like the convenience and price (Blockbuster rentals from the store can run you $4+). See an excerpt from the article below.

DVDPlay Chief Executive Officer Chuck Berger predicts the kiosks will garner up to 25 percent of the DVD rental market by 2011. With each machine generating annual sales of $30,000 to $40,000, the kiosks should top $270 million in revenue next year, or 3.4 percent of the DVD rental market, Adams said. There may be 50,000 in North America in five years, based on growth estimates from Redbox, DVDPlay and TNR Entertainment Corp., the three biggest companies in the industry, lifting total sales to between $1.5 billion and $2 billion.

Good Interview on the Credit Markets

Barron's a had a nice interview with a fixed income money manager on his views on the credit market. See the interview here.

WSJ Op-Ed Piece on Bailing Out Borrowers

The WSJ had a pretty good Op-Ed piece on Andy Laperriere's view on the prospect of the US government helping cash strapped subprime borrowers by freezing their rates. Laperriere is a managing director for ISI in Washington.

He makes some points that have brought out by other naysayers of the plan:
- it would be too hard to figure out who qualifies
- it simply isn't fair to those that don't get to freeze rates ahead of ARM adjustments
- while the mortgage banks may have used sketchy loan originating practices, people need to be held accountable for their actions and bad decisions
- setting precedents like this can create moral hazard issues
- the bailout would essentially try to delay the inevitable and not let economic forces dictate the value of homes ("Home prices were driven to unsustainable levels during the housing boom because imprudent loans created artificial demand for housing. It is inevitable that home prices will fall as that artificial demand is withdrawn.")

Activision Looks Into the Future

The NYTimes looks at Activision's new competitive position following the megamerger with Vivendi Games to formed Activision Blizzard.

On the face of it, the deal looks like a logical one:
- combines an online game specialist (Vivendi) with a standard video game producer (Activision)
- provides top-line visibility given recurring revenue to Activision's business model given Vivendi's online's monthly fee structure for several of its games
- World of Warcraft (Vivendi) remains one of the most attractive franchises in the business, and when combined with Activision's powerhouses (Guitar Hero series and Call of Duty, to name a few), the Company will have one of the most coveted repertoire of video games in the industry.
- Opportunity for operating leverage and margin improvement given the inherent scalability of the business

The Sell-Side is welcoming the deal with open arms, by the way. Anyone that wants to see research reports on this deal, shoot me an email.

WSJ Publishes its Monthly Mutual Fund Report

The WSJ published its monthly review of mutual fund performance yesterday and there were two pretty interesting articles that I suggest reading:

- Lessons Learned from a Wild Year
- Winning Funds Share Traits


The first article interviews a dozen fund managers to get their perspective on the year that was and what might lie ahead.

The second article dissects recent outperforming funds to see if there are certain traits investors should be looking for in funds when searching for tomorrow's great mutual fund.

S&P Earnings Growth Estimates Continue Downward Trend

Interesting post from the guys at Bespoke Investment Group that shows trends in S&P YOY growth estimates for the 4Q07, 1Q08, and 2Q08.

"On August 10th, Q4 growth estimates were 12.3%. Estimates are currently looking for growth of just 1.1%."

As the graph of 3Q07 earnings shows, part of the expectations of lower growth is likely due to uncertainty of further massive losses within financials, but interestingly, the 3Q07 growth stands at -2.5%. I'm trying to find what the consensus estimate was for the 3Q07 leading into earnings season, because I'm sure it wasn't a 2.5% decline.

Today's Important Analyst Reports

Several of you have asked to see several key research reports:

- BofA's downgrade of E*Trade (See the report here)
- Morgan Keegan's downgrade of Research in Motion (See the report here)

A quick rundown of the E*Trade downgrade:
- BofA doesn't sees diminishing value in the brokerage business
- E*Trade's home equity portfolio could be sold in a firesale (perhaps at 70 cents on the dollar) or E*Trade could be required to increase its loan loss reserve by $1B. An increase in the loan loss reserve would basically wipe out any earnings from brokerage in 2008.
- Fair value could be as low as $2 for the entire Company
- Seems to be a sweetheart deal for Citadel

"Despite Citadel’s $2.5B capital infusion into E*Trade, Citadel’s the clear winner here, getting a $3.0B ABS book which is ~80% 1st lien prime mortgages for $0.27 on the dollar, $1.75B of debt at 12.5%, & 84mm shares of common stock for nothing, as ETFC shareholders suffer 50%+ EPS & tangible equity dilution"

A quick rundown of the RIMM downgrade:
- Morgan Keegan thinks long-term RIMM is well positioned to pick up share and capture growth from the secular trend toward smart phones (currently RIMM has 1% of the entire mobile handset market and 10% of the smartphone market)
- However, Keegan is worried about broader global macroeconomic weakness and perhaps pressure from financial institutions to maintain demand for RIMM products
- The upgrade cycle for 8000 series phones (Pearl/Curve) seems to be in its later stages and thus the next growth story from RIMM will have to come from increasing appetite for the 9000 series of Blackberry phones, which is yet to be seen.

Bloomberg Covers the Plight of Sell-Side Analysts

Damned if you do, damned if you don't. That seems to be the quandary for sell-side analysts when it comes to putting sell-ratings on stocks. They want to be right, but being wrong on a company that you have a "sell" rating on can mean losing points with management and analysts. Of course, being overly bullish can be disastrous when the tide turns against you, but at least company management is on your side, according to a recent Bloomberg article. See the article here.

Ben Stein Questions Goldman's Tactics

Ben Stein assesses Goldman Sachs' tactics with regard to publishing bearish research reports on the macro economy (specifically Hatzius' piece that I mentioned earlier) and issuing securitized mortgage bonds while it was short the housing related industry.

Check out the article here.

NYTimes: Herd Mentality from Top Law Firms with Regard to Associate Bonuses Doesn't Make Sense

Interesting article from the NYTimes' Andrew Ross Sorkin on the recent trend of top law firms simply matching the bonus increases of other firms. Sorkin goes on to question why firms would do this if everyone matches the bonus increase (are the firms really better off?) and why most law firms pay the same bonus across the board every year to similarly experienced associates (i.e. pay not based on merit). Check out the article here.

Jim Rogers discusses China

Here is a decent interview from U.S. News with Jim Rogers. Rogers talks about his bullish thesis on China. See the link here.