SubscribeThe Flawed Housing Bill - How we will pay
August 22, 2008
Danger Will Robinson…. Warning..Warning….Stay off the Road!
Recently, after I reviewed and wrote about the recent passage of the Housing Bill, I began to look at it more closely. I spoke with a few colleagues to try to understand what seemed to me to be a flawed plan. They agreed that something was afoul. Either the plan was rushed in order to get something on the books or some concessions were made to provide a benefit to a few of the financial firms that have been getting clobbered.
The truth is that I am disgusted with this plan as it has become a game where the winners have been predetermined - and we all know that they are not going to include you or me. Just the other day, in my quest to provide an easy and adequate answer to what is going on I tried to explain my thoughts to a client using metaphors.
I explained that what has been going on in the financial sector is can be somewhat compared to a time when you were driving down a straight road. Foot after foot, mile after mile, you drive flawlessly. When you are directed to accelerate, you speed up. When at a stop sign, you stop. Yield, turn, accelerate, stop, put your blinker on, pass a car, look left and right and continue on your way. All is fine with your driving. Then, you realize that the road you are on doesn’t actually exist. Panic sets in and then you see that it is there again, like it never left. So, you continue on your way with a scant remembrance of the bizarre occurrence.
When you pull into town and explain what happened, the Mayor tells you that they know that this is something that occurs, but they always fix it immediately to make sure no one gets hurt. So, you drive on. A few miles later the same thing happens. This time though, it last longer and is much scarier. Again and again, the same sequence of events unfolds and each time the road disappears, you get a Mayoral promise and so on… Read more
The Steak is Perfect, but The Big Apple is Rotten
August 12, 2008
This is way overdue. I have been writing this over the past few weeks and have been researching New York’s financial woes. This is definitely on my watch list… But truth be told, my travel plans have prevented me from getting this posted. So, in light of the recent announcement by Mayor Bloomberg, here is the start to my lunatic fringed discussion about New York’s coming problems.
(Now, I am looking for ways to short this for profit. I am not coming up with good answers just yet..more to come)
Steakous-Interruptous
I sit and write this in the center of the action. Sunday night in the Big Apple and the buzz at Rue 57 is high. This is one of my favorite French Bistro style restaurants on par with the likes of Balthazar, Les Halles and others that serve superb steak and the freshest seafood - so fresh that you may need to slap it ! 
After mulling the great choices, I think that I will order a standard, Steak pomme frits au poivre. (Steak with a green peppercorn sauce and fries). Usually this is a New York strip but here it is a mouth pleasing sirloin. The preparation is simple, crusted with peppercorns and then served with a brown sauce finished with a dash of brandy and saturated with green peppercorns.
Somehow I have always felt this is the perfect combination as both the sauce and the meat dramatically enhance each other. To be perfectly honest, if this had to be my last meal, it would be just fine. I mean, unless something is really off, you can’t go wrong with this. So, if you have never had this dish, I highly recommend it at this particular restaurant. Just add a glass of your favorite Cabernet or Merlot and life will slow down be perfect.
While this was a wonderful memory, the fact that it appears that New York is about to have some major financial problems cannot be avoided. MSNBC is reporting:
New York Gov. David Paterson is summoning lawmakers into an emergency session in mid-August to deal with a “mammoth collapse in revenue,” including a 97 percent drop in banking taxes from a year ago. He ordered a hiring freeze and called for a $1.23 billion cut in state spending that could affect such things as colleges and hospitals. He has also proposed leasing state roads, bridges and tunnels as well as the lottery to outside companies.
The problem is much greater. Selling the Brooklyn bridge and the tunnels may sound funny, but this is done all of the time. In the world of finance don’t they do this through revenue bonds? Sure, but the problem is that New York will need to sell off a revenue producing assets and one that may be financed through Municipal revenue bonds. But this is highly improbable.
Economists are warning of further revenue losses in the months ahead that could force lawmakers in many states to reopen their budgets and make midyear cuts.
Don Boyd, a public policy researcher with the Rockefeller Institute of Government in New York, said states will face the second wave of lost revenue next year when residents and businesses file tax returns reflecting their heavy losses on the stock market.
“You should expect significant proposals from governors, certainly for spending cuts, probably for more tax increases and certainly for more gimmicks,” he said. “And I’m sure you’ll see hiring freezes and layoffs.”
With that, how best to position a portfolio for profit and/or protection with this potentiality? Certainly the use of insurance through MBIA, FGIC, or AMBAC does not necessarily mean that holders of bonds are safe. In fact, a common misnomer as the interest is protected, not the principal.
Just recently, the CEO of upscale restaurant chain Smith & Wollensky was on CNBC explaining how New York is a different place than any other part of the country. In fact, he is predicting that there are no problems as he sees it with the foot traffic and the fact that people will still pay to eat. Yet, he forgets that now is the time to become cautious as the foreign money x-factor along with the confluence of factors that will bring in a nasty slowdown for the state.
Note: No Positions as of now
Still Diggin’ DUG
July 13, 2008
For the past several weeks, we have been adding to our position of UltraShort Oil & Gas ProShares (DUG) as we believe that the underling fundamentals for the Oil Sector are faltering. The fact that the price for oil is rising and DUG is rising continues to show that the thesis is solid. Here are some interesting points from economy.com:
* Rising energy prices have cut almost half a percentage point from real U.S. GDP growth in each of the past five years.
* The recent surge in oil prices is being powered by increased financial demand and not tighter underlying demand and supply fundamentals.
* Oil prices are expected to soon peak and to decline measurably by this time next year.
* Lower prices will allow the Federal Reserve to hold policy unchanged for the remainder of this year, and will help the economy find its footing by this time next year.
The fact remains that our general oil dependency will continue to prove difficult on our economy. More so, the fact that we cannot keep our financial house in order will continue to show the world that ours in not an economy worthy of investment. Once more it is easy to see why our dollar is so weak.
Now, add that to the crude reality that oil and the dollar are tied together and it becomes obvious that unless we can figure out a way to cause the dollar to strengthen, there will be higher oil prices to come. No matter, it is becoming clear that oil companies are still tied to the global economy and we are finally seeing the dislocation of oil prices to oil company share prices. Therefore: No longer will they be positively correlated.
Oil Index Set to Fall?
June 26, 2008
The ETF that tracks the US Energy Sector (AMEX:IYE) is starting to show signs that it may be ready for a real fall. As there has been a significant increase in the noise surrounding sky-high oil prices and regulators and politicians looking to increase oversight, they will surely end up trolling for a scapegoat.
Update 6/29/08 - Prof. Greenberger who has been testifying on Capitol Hill regarding the Enron Loophole is a Andrew’s guest on TDI Podcast #63. Listen Here
(CLICK CHART FOR LARGER VERSION)
Will that cause some of the recent froth to be lifted from the energy stocks? Maybe. Take a look at the index and think about the timing potential for ETFs that short similar indicators/indicies such as the UltraShort Oil & Gas ProShares (AMEX:DUG) which has a 200% negatively correlated price to the Dow Jones Oil and Gas Index. We have been adding that position to client portfolios recently.
The chart shows a recent break below the 50 day for IYE. All things considered, I keep on recalling the phrase: Trees do not grow to the sky.
Thoughts?
Disclosure: Clients of Horowitz & Company are LONG DUG at the time of publish.
Lehman’s Private Letter to Limited Partners
June 13, 2008
Lehman Brothers (NYSE:LEH) sent another “feel-good” letter to their clients that hold positions in Lehman sponsored partnerships. This is not the first of these smokescreens that Lehman published in an attempt to take our eyes off of the real problems. Is it me or is it terribly concerning how gullible many of these companies believe that we are. I still have not hear an apology for the blatant and disrespectful lies misinformation that was promoted by the overzealous PR team over at Lehman HQ. Below is the June 11 letter and my comments….
LEHMAN BROTHERS
399 PARK AVENUE, NEW YORK NY 10022 TELEPHONE (212) 526-0977 FACSIMILE (646) 758-4269
MICHAEL J. ODRICH, MANAGING DIRECTOR, HEAD OF PRIVATE EQUITYDear Partner:
As the second quarter comes to a close, financial markets remain under stress. Actions taken by the Federal Reserve have provided additional stability for capital markets, although the operating
environment has yet to revert to what we would consider normal. We write to discuss how Lehman Brothers has been impacted and to reiterate our confidence with where we stand as a Firm.My comment: Did they say confidence?
Click here to read the rest of the article on MSN Money/Top Stocks
Links
-
GoToMeeting
