One Investor to Another

 The Blog of Ted Allrich

4:28 PM PST, June 26, 2008 - I'm still trying to get my head around a Goldman Sachs sell recommendation on Citigroup when the stock is trading at $17 a share.....I have great respect for Goldman people....very smart....very thorough....but I question the wisdom of this simply because of the timing....Citi will announce earnings (more likely lack of them...consensus among analysts is a loss of 14 cents a share with a range from a loss of 75 cents a share to a positive 63 cents a share....that's from 14 analysts who cover the stock) on July 18....furthermore, here are some basic stats on the stock: Book Value is $20.73 based on the most current quarter....there are 135 million shares short, up from 116 million last month....that's 2.7% of the float and about 1.6 days worth of trades (it traded about 89 million shares a day, on average over the last 3 months)....in the last 52 weeks the stock was as high as $52.97 a share and as low as $16.91 recently.....over the last 12 months, earnings per share were negative $1.33....analyst think C will have a loss of 21 cents a share for this year, then next year bounce to $2.63.....so that makes the forward P/E less than 7.....of course, the premise is that the analysts are right (one analyst thinks the company will make 91 cents this year and $3.40 next year)....analysts have been wrong and with such a wide range, it's obvious nobody knows what Citi will do this quarter, this year or next year...it's all a best guess...and that's not the analysts' fault because no one can know how deep the losses from the mortgages and credit loans will be....how bad things really are....can't know that until the company announces....then going forward no one can tell how bad it will get....but I do know that almost everyone has given up on Citigroup and most other financial institutions exposed to mortgages....my best guess is that investors with real concerns have sold....that any selling now will most likely be from short sellers who will add fuel to an upward rally if the news isn't as bad as Goldman predicts.....remember Citi has already taken large loan loss reserves...really major losses would have to occur in order to use up those loan loss reserves and then report a loss for earnings.....so Goldman believes the worst and has every right to...as well as good guesses to back up the opinion....they may be right...but if they're wrong, and waiting a few more weeks would tell them if they are, this stock will have a real bounce to it and lead the way for a rally in all financials....it could happen...or at least, the financials could stop going down....selling Citi at this level makes no sense to me unless the world as we know it is really ending....

10:28 AM PST, June 21, 2008 - Since I'm an eternally, totally positive, everlasting optimist, these are tough times.....reality bites and sucks at the same time....the headlines are loaded with terrible news, with seemingly no answers in sight, from the Mideast (Iran developing nuclear capability; Israel training for what looks like a raid on Iran) to subprime mortgages (how BAD can this get?...if someone knew, the markets would be heading higher rather than beheading investors)...to insurance companies downgraded and losing most or all of their capital on guarantees that are knocking on the front door to be paid.....to a never ending war in Iraq and Afghanistan.....to higher and higher oil prices....to higher and higher food prices.....the litany of horribles goes on and on...

...so it's tough to be an optimist these days....but I perservere, knowing that history is on my side.....that people will adapt....that inventors are scrambling faster than ever (after all, when there are more problems, there are more opportunities)....that living habits change, sometimes for the better without our even knowing it (remember when no one recycled, now everyone does and feels better about themselves)....that people are basically good and want to do what's best for the environment and each other.....that the stock market is a difficult place to be right now but that during the 90's it was a wonderful investment and that it will be again....that's a certainty...the timing is the unknown....it's not going to happen fast....there's no way to cure the housing industry quickly or the banking world.....time is required but after all the losses and the adjusting to the new reality, the strong will survive and thrive....they've done it before....if you think this is bad, try to imagine the Depression years when unemployment was over 30%, banks were shutting down without giving depositors money, and there didn't seem to be any hope anywhere...

...now there's more than hope....there's reality as in FDIC coverage for bank accounts.....as in competitive industries selling goods and services globally, that don't depend on the U.S. alone for success....that not everyone isn't paying their mortgages....that many banks are in decent to good shape....that some in the housing business are well capitalized and will make it through this challenge...no, the world isn't ending...it just feels that way.....and will for a while yet but by the end of the year, there will be new emotions surging through this country, ones of high hopes (always happens with a new president) and sure knowledge that we do have the brains and will power to overcome anything, even this mess that we've made for ourselves.....hang in there and don't get out of this market....when the rally comes it will strong and long.....

3:53 PM PST, June 6, 2008 - Did that just happen?....that almost 400 point meltdown?.....this nightmare isn't over, obviously.....oil hasn't stopped going up....neither has unemployment.....and the market hasn't stopped going down.....financial institutions haven't stopped losses......their prices are at levels every investor never dreamed of, at prices only hoped for 6 months ago if you were looking to buy, and now that they're so low, no one will touch them....with good reason: they could go lower.....zero is the final resting place for some of these if the doomsday scenario comes to fruition.....what's that look like?....it has banks, insurance companies, Wall Street firms, and thrifts all losing more than the capital they just raised plus the capital they had before the new injections.....they all go out of business....there are no more loans made because there are no more institutions to make them.....people don't use the banks, they've got special places built in the ground where they stash cash, at least those that still have jobs do.....the majority of houses are empty, abandoned long before the institutions closed their doors because mortgages couldn't be paid....people are roaming the streets, looking for food and shelter.....lawlessness is the order of the day since governments are bankrupt and no police are left to maintain order...any one with any wealth has hired private guards......vegetable gardens grow anywhere there's a plot of land.....schools close.....the U.S. as we know it now ceases to exist.....I don't think so......yes, times are tough.....yes there will be some failures in the financial sector....but not all financials are in dire straits...in fact, some of them are making money....they'll be able to buy (steal) the failing ones (see Bear Stearns as the model for this transaction).....credit will be tight for a while but it will be available.....the Fed, Congress, the Senate, corporate leaders, the new President, they're not going to let this doomsday happen.....only because it's in their best self interest not to...they like their jobs....they get paid quite a bit to do them....they don't want to join the unemployed sector....no, gentle readers, there is no doomsday for us....difficult times for a while (my best guess is through the end of this year at the most) and then once again, the great U.S. collective brain and entrepreunerial spirit will yell Enough!!!,let's get back to growing and making this the greatest country on earth...it's gonna happen, it's only a matter of when, not if.....investors with the ability to step in now will make a great deal of money over the next several years....guaranteed....

7:54 AM PST, June 2, 2008 - I haven't seen this kind of carnage in a sector since the dot coms were blown up in the early part of the decade....now it's the financials turn in the hot seat.....nobody likes them, everybody hates them, might as well buy some bills......no one is predicting things will get better any time soon, that the mortgage mess is almost cleaned up.....losses keep piling higher.....management is changed, so are members of the board.....still no one feels positive about the group......and therein lies the good news.....just as the winners of the dot com disaster eventually came back, so will the strongest of the banks and thrifts and insurance companies......the strongest ones: the ones with the most capital and the fewest losses and most important, the best management.....good management is the absolute key to finding a winner....strong, smart leaders will get through the mess, take advantage of the opportunities in the market, and come out with better results once the smoke clears...based on their records, you have to look at Wells, Fargo and BB&T and USB.....none is perfect but their approaches to the banking business should hold them in good stead throughout this challenging time....like the infamous baby, these have been thrown out with the rest of the financials for the moment.....they may turn out to be very strong swimmers....

2:00 PM PST, May 25, 2008 - It seems like everything is wrong.....oil is breaking new highs almost daily with absolutely no reason for it to go anywhere but higherl.....the war in Iraq drags on, with absolutely no resolution in sight....the housing industry continues to report worse news, with inventories growing daily and no relief in sight......financial institutions are crumbling under the weight of bad loans, not just mortgages any more, and there isn't any good news to be found.....Warren Buffett believes the recession is here, no matter what the economists' definition (two quarters of decreased gdp) and it will stay longer and be felt more deeply than most are thinking.......many of the earnings reports for the first quarter were OK for the first quarter but it was the exception rather than the rule for management to give a positive outlook, one that suggested better times were looming for a certain industry (except maybe the oil sector where everything is gushing)...some analysts predict oil at $200 a barrel.......the stock market has a day or two of recovery, even sees spurts of decent magnitude, only to lose that gained ground and go further down...........everything seems headed toward one conclusion: we're in for a tough time as investors....and that might be the best sign of all: when things seem to be awful, on their way to unbearable, that's when the market will sometimes begin to pick up a little, not being so concerned about today, but looking forward 6 to 9 months from now and seeing that many of these issues, if not resolved, may be well on their way to much better......certainly alternative fuels and less driving will help with the price of oil.....a new president will be in the White House so the strategy for Iraq will change.....housing inventories will have dwindled unless there's a full blown depression (which no one sees at the moment).......financial institutions will have written off many bad loans and reserved (most likely conservatively) for many more, thus punishing near term earnings but amply reserving for a worst case scenario......earnings for all companies should be improving and almost more importantly, management's outlook should not be nearly as gloomy as it is now (again, unless there's a severe recession)......my hope is that we're going through the worst of it right now, feeling the baddest we're going to feel as day after day we watch stock prices hit by more bad news.....it will end....it always has....and if it doesn't, and the worst case happens, it won't matter what you own, stocks, bonds, real estate, it will all be close to worthless.....unless you think the next Great Depression is coming (I certainly don't), then we're just about at the bottom for this market if you look ahead a half year or so.....that's what the pros are doing....

7:03 PM PST, May 18, 2008 - Musings on a Sunday evening......always a favorite time of the week, sort of the calm before the storm...having read the online Journal and MarketWatch, I anticipate another interesting five days of trading....Microsoft is back talking to Yahoo, not about a total takeover, but maybe a partial one....Yahoo is talking with AOL and Google and whomever else might be able to help.....Carl Icahn is bringing a big spoon into the board room to stir things up at Yahoo....he'll make money off this some way....many times, he's good for a company that can't exploit its own competitive advantage or can't maximize what it has....don't know if that's true for Yahoo but obviously he thinks it is.....am going to start looking at the publishers soon...the ones that put out newspapers and own tv and radio stations as well....some of the yields are outstanding (I mean the ones that can definitely pay the dividends from earnings, not just cash flow)....and many of them are down 50% in the last year....look for at least one of those in this week's Company Spotlight....I'm starting a new column this week called For Aggressive Investors...it will feature small cap companies, the ones with more volatility, more risk and of course, more potential for reward.....I'll probably feature a smaller publisher in there as well.....am expecting more excitement in the financials, especially if the House and Senate pass the current bill for helping homeowners....it's only round one of doing something that is supposed to help borrowers....we'll see....the real benefit will come to the lenders and the stocks will respond accordingly....have a good week and make some money....

1:38 PM PST, May 14, 2008 - The market tried to do better today.....started out with strength, buoyed by tame inflation numbers....but the moment passed, and the reality of where the U.S. economy really is took over.....housing is a disaster...more vacancies reported every day.....April was worse than March for foreclosures....while the rate of increase is decreasing, more foreclosures are adding on to ones sitting empty.....when foreclosures slow to normal, when homes for sale come into equilibrium with demand, when employment rises, then we'll have a real rally, one based on a positive foundation, one that has a chance of being sustained....however, there are bits of hope: the dollar is firmer against the euro and the yen with some argument that it has turned the corner....mostly based on the slowing economies globally....time will tell....in the meantime, exports are booming while imports are shrinking, good for the balance of trade.....keep in mind that this market is priced for the worst....the worst in losses for financials and home builders....investors anticipate more, bigger write offs for most of them....if and when the surprise is positive look for a quick and powerful correction....a glimpse of that came from Freddie Mac today as its loss was less than expected and the company raced up by 9.1% on the day.....we need more of those for this market to make real headway.....

12:45 PM PST, May 8, 2008 - Oh market, thou art sick.....or maybe it's just me....sick of watching cheap stocks go to bargain basement prices.....sick of seeing good stocks with good earnings get pounded from a minor bit of news....sick of the financials banging me over the head almost every day, the pounding stops only when there's whiff of hope in the air that not every lender is going out of business.....sick of stupid management....sick of investors afraid of their own shadows....sick of government officials pronouncing there is no recession or if there is one, it's very mild while people lose jobs and homes everyday.....sick of a government that thinks a cheap dollar is the best way to balance the balance of trade.....sick of oil going to new highs every day and taking the price of gas with it.....it's a sick time and maybe we'll all get a little sicker before we get better......but we will...in spite of the government and corporate leaders who can't lead.....Americans are the best at inventing new and better ways of doing almost everything....it's that creative energy that will turn this whole thing around....we just have to wait for it...or help it by investing in new technology or ideas....we have to take some risk and buy real estate that is cheaper now than it's been in years, maybe decades....risk takers always get the best rewards...and they also feel the most pain....I'm full of pain, just waiting for the cure to show soon.....

12:25 PM PST, May 2, 2008 - With high hopes and low expectations, we started the week anticipating a Fed decision on interest rates, a raft of earnings throughout the week, and an employment number on Friday....we got all of them and none was too surprising....none helped nor hurt too much....you can argue the employment numbers were better than expected and started a rally Friday morning. but it didn't last....the Fed rate cut was so predictable that by the end of the day on Wednesday the market traded down, then on Thursday, investors decided things were better than on Wednesday and drove the Dow Jones Industrial Average above 13,000 once again.....so we're better off than the end of last week but not by much....the after shocks of the mortgage earthquake are still being felt throughout the financial industry....loan loss reserves are being taken on top of actual losses.....new capital is being raised by the bigs (Citi, Wachovia, Bank of America all got theirs....is there any left for the smaller banks?)....hopefully with the large reserves, further earnings impairments will start to diminish, earnings will get out of the red and back into the black....but with prices for homes still falling in many regions as well as the highest vacancy rates for homes in recorded history, we're lucky if we're at the bottom now....no one thinks we've turned the corner yet.....real estate takes a while to heal, especially with the lenders so careful with new loans....there isn't any evidence of a rush to buy anything by consumers, housing or otherwise....without home equity loans to finance purchases of marginal goods or services, the economy is slowing and will most likely continue to do so for a while longer.....there isn't much real good news for investors to grasp and say "See, now it's time to buy stocks.".....until there's more evidence of a housing bottom and banks lending with fewer restrictions, the stock market will have a hard time going much higher......enjoy the NBA playoffs....