Jonathan Christopher

Is Another October Surprise in the Works?

There are many factors as to why the market plunges in October. One not mentioned in these remarks is the fact that many funds and partnerships close their books for the year between the middle of October and the end of the calendar year. This means they take their profits, declare their losers, declare distributions and begin to build their portfolios for the next year. At the same time, people are selling stock to take loses and profits. The net of this is downward price pressure for much of the month of October, and improving fundamentals in November, before people start to take vacations and celebrate the holidays.

This is not a "Proof"s to why prices decline in October, but it is one factor.

10 Global Oil Stocks Seeing Changes in Short Interest

The Chinese have the better part of a Trillion in a depreciating asset (dollars). They are in a panic to trade those dollars for appreciating assets ( natural resources and pipelines) everywhere. Don't be surprised at any reasonably sized purchases anywhere in the world, but ENT is probably a bit too small.

Why I'm Long Mortgage REIT Chimera

Financial Hippie is correct that CIM is presently a relatively low risk purchase with a current dividend of about 8% and potential for increase in stock price and dividend as the investment environment improves and they can expand their leverage.

Additionally, since their P/B is 1.31, they can continue to increase earnings, and earnings per share by issuing more stock without dilution of equity.

I purchased CIM right after the initial offering and had a big loss in the stock as the error in timing became apparent. I had thought they would wait to invest (considering the uncertainties at that time) and was very disappointed in their performance. I am willing to give them one more chance, especially since I have been a long tern investor in NLY and think that Mike Ferrell does a good job.

Currently long on NLY and CIM

Deploying Cash for a Slight Upward Market Bias

Just some thoughts about how I look at the Petroleum Market and crude prices.

There are several forces acting on the market simultaneously, and short term prices bounce around based on those forces, in the same way particles in a liquid bounce around due to Brownian Motion, flicking one way or another as hit by incoming atoms.

In the case of oil prices we have the following:

1. Current production
2. Current consumption
3, Expected production
4. Expected consumption
5. Permanent storage (tanks)
6. Transient storage (tankers on voyages)
7. Temporary storage (tankers with cargo - Contango)
8. Current overseas value of the dollar
9. Expected overseas value of the dollar.

Recent prices (6 weeks or so ago) were low because current consumption was low, expected production was low, the value of the dollar was high, and excess oil production, (which had been going into Contango, but was no longer going there since many tankers were full), was high. At the same time the oil put into contango months ago was being delivered, creating excess supply.

Now, the dollar looks week going forward (In July the FEDs spent $330 Billion but had an income of only $150 Billion), this is creating a lot of dollars. Like bananas, when you have too many of them, the price goes down, and eventually, they go bad. In addition there seems to be some feeling that China and the US will be increasing usage of Crude.

The increasing price of future oil delivers is set to create a new round of contango, as the cost of oil storage, loosely calculated at $0.40 per day, is less than the price of oil for guaranteed delivery in the future including the cost of storage.

The result is upward pressure on oil prices as increasingly bad dollars are attempting to buy Oil.

Understanding the 'Q' Recovery

Recovery? What recovery? We are in the eye of a hurricane, and the windwall is heading in our direction. We have the following things to consider:

1. There is very little excess spending or borrowing capacity in the US Consumer - Who comprise 70% of the GDP.
2. We are now a service economy and must sell our services overseas to those economies that are expanding - and those are the NATURAL RESOURCE rich economies: Canada, Saudi Arabia, The Emirates, Brazil, Nigeria, Australia, etc. To do that our cost must drop, and the US government is doing just that, by devaluing the dollar.
When the dollar gets to about $2/Euro, and $1.20/100Yen, we will start to get a recovery.
3. The stock market recovery in the US and Europe is a Bear Market Rally. The PE ratio of about 40 in Europe and 17 in the US needs to drop to about 7 in the US, (the traditional market low PE) and dividend yields of about 4% (versus the current 2%).
4. This drop in the value of the dollar and in the value of stocks will devastate individual's net worth and cause oil and commodity prices to skyrocket. Since we are the world's breadbasket, US farmers and food producers will do well. However, most of us will not. (at least not initially)
5. However I am an OPTIMIST, and am investing in commodity producers outside the US, and holding the MAXIMUM debt I can safely service (at fixed interest rates).
SUMMARY:
Decreasing value of the dollar overseas.
Increasing Commodity prices
Decreasing value of the doller inside the USA
High Inflation (same as above)

One of the best opportunities in the past decade to make tons of money.

In Praise of Sheila Bair: Financial Regulator Who Gets It

I agree. Keeping Blair was one of Obama's better decisions.

Second U.S. 'Bank-for-Businesses' Faces Bankruptcy

I'm afraid that the truth lies somewhere between the author's position of a bank nearing bankruptcy, and CGM's that they are paying their bills and can pay off their debts by selling assets.

To make things clear, I have a position in ACAS, and like it long term - if it survives. However they will need to replace some of their outstanding debe in about a year. At that time they could file for bankruptcy, not because they are not current on their bills, bu because a balloon payment id due. Selling entire companies at this point is difficult, and if everyone knows you are a forced seller, you will not get anywhere near the book value or real enterprise value.

So be cautious, Since Aug 20, 2008 I have purchased the stock at 21.02, sold it at 23.32, bought it at 14.20, sold it at 14.29, bought it a week later at 8.21, and started buying more at 2.71. Sold part of my position today, and am up 30% from the first buy, including those lovely past dividends. I will buy it again when I feel more confident.. Profits can be made, but it will be difficult and depend on luck and timing. This is not a buy and hold stock!!

I did not want to sell - but the short term dangers, at times, overwhelm my interest in holding.

Ashford Hospitality Trust Remains on Stable Ground

While I generally agree that AHT has done an excellent job operationally and in managing their cash flow, I have a concern about their mezzanine loans.

The recent bankruptcy of Extended Stay was not a foregone conclusion, however the significant drop in REVPAR was foreseeable. However AHT made no attempt to protect themselves against that event - or at least there is no evidence that they made such an attempt. I consider that to be somewhat careless and raises concern about the rest of the portfolio.

Seth Klarman's Baupost Group Discloses Activist Stake in Breitburn Energy

Recently I was called by a management employee in response to an email I sent about current management and policies. While the person was scrupulously careful and did not pass on anything that could be considered insider information, I was impressed by the company's willingness to communicate with shareholders.

The company must re-negotiate/re-valuate their credit line every 6 months , and the very difficult financing market will, in my opinion, cramp their creativity. In addition, they now have two competing and potentially non-cooperative major shareholders: Quicksilver and Klarman, and are steering between Scylla and Charybdis. during a time when Natural Gas rates are extremely low, an limit their profitability.
Based on their past performance, we can expect that this company will continue to sell forward as much Gas and Oil as they can safely predict to produce. Roughly speaking, I expect that their recognized sales prices will be about $7.00 /K gas and $70.00/ BBL oil, and their interest expenses will likely increase slightly. This should result in an "OK" quarter, reduced debt outstanding, and still no dividend.

If they have firmed up their revenues by a continuing commitment to future contracts, I expect that dividends will return, though at a lower rate, at the end of the 3rd quarter.

Ford Realizes Higher Transaction Prices

Mulally is the name and and Productivity is the game. Alan Mulally was one of the two finalists to run Boeing, one of the best US companies ever. With him at the helm Ford has a real chance to regain it's position as #1 in US auto production - lost many years ago to GM.

Agreed that the financial numbers look really bad. But they are bad for every auto manufacturer. Auto production is a very high base-cost business. It cost hundreds of millions per day jsut to keep the doors open, so when sales drop, losses pile up at an unbelievable rate.

But the opposite is also true - when sales rise, profits skyrocket. When the economy recovers next year - and it will, Ford will go gangbusters.

I am long Ford (3500 shares) and long Ford bonds.

Geithner Smart Not to Confront Chinese Yet About U.S. Borrowing Needs

Dear Blind Reason: Thjink of the following scenario:

1. Chinese sell products overseas - get Dollars, Make profit
2. Chinese get dollars, purchase Treasuries - get interest
3. Chinese sell Treasuries to countries with weak currencies, and get their government agreement to allow them to buy commodities, etc with that countries currencies. Locks in value of currency.
4. Chinese buy commodity at bargain prices, with the country's over-valued currency. Locks in future profits
5. Chinese sell commodities to themselves, make Profits
6. Using cheap raw materials, Chinese make products, sells overseas, gets Dollars make profits.
7 Return to #2 above
Looks a lot like the modern version of the "Triangular Trade", and the Dollar gets to hang on as the Reserve Currency for a bit longer, based on Chinese largesse.

Bernanke 'Puzzled' by Collapse of Bond Bubble

Maybe someone is missing a very big point about US Treasury Bonds. I believe that the Chinese are trading longer term bonds for shorter term bonds, and then going to the governments of countries with weaker currencies and low foreign reserves, offering such a deal:

"We give you good US Treasuries for your local currency, and you allow us to buy, with your local currency, companies, commodities, and land. Not only that, but we will agree with you to sign long -term fixed (DOLLAR PRICED) commodity purchase contracts."

If the Chinese get to do this, they get rid of a lot of Treasuries, obtain land and commodities at a good price, and with those long-term contracts, assure themselves supplies at a low future price, as the dollar drops.

Works for the US too. Keeps the Dollar as a reserve currency for the next few years.

Inflation Hedging: How to Protect Your Portfolio

First thing to understand is that we have been in an inflationary environment since the end of WWII. The current dollar is only worth about 2 cents compared to a dollar at the end of the war.

What we are seeing now is an increase in the rate of inflation to levels not seen in several decades. What will work for individuals is the same standards for investment that have work for me for the past thirty years.

Summarized the rules are simple, and in no particular order.

!. Own assets that have a value separate from the dollar. Examples are: Farm land, Gold, silver, oil, copper, uranium, and other real property.
2. Don't overpay. If you buy a building, be sure that you purchase it at a price at or below the cost to put up a similar building in the same area. Be sure that the building, if rented out would have a positive cash flow.
If you buy a gold mine (shares) be sure that the price you pay is less than the cost to build a similar mine, and that the gold in the mind is fairly valued. Be sure the company is comfortable cash-flow positive.
3. Borrow as much FIXED RATE debt as you can support during the worst likely future. As the value of the dollar goes down, so does the value of the debt you owe, leaving you with greater net value (equity)

4. Do not assume that government pensions will hold value. The impulse to change the method of inflation adjustment by government will be irresistible. Don't be surprised if the government eliminates things like food, housing, fuel, energy, and medical costs from the Consumer price index as "too volatile" ie: their prices are going up higher than the government wants to admit. That will result in your Social Security, Military Pension, and State pensions going down in real purchasing power.
5. Strongly consider transferring assets or moving to countries whose cost of living (measured in dollars) is much lower than the United States, and whose economies are dependent on a large variety commodity based products.
6. Do not buy bonds, except as a short-term investment, unless the bonds are fully inflation protected.
7. I am not a "Gold Bug" - so this last suggestion is at the far-end of the un-likely. Consider that the US government may again make the owning of Gold coins and similar portable sources of wealth illegal. While this is of low probability, consider this as the endpoint before a re-issuing of the currency. It would provide the US government a way to collect additional reserves by forcing people to accept soon to be worthless paper for Krugerands, silver dollars, gold ingots, platinum bars, etc. Placing assets overseas will reduce this risk, and may be one element of your program af asset re-deployment.

NOTE: If the situation really gets bad, the government could resort to a tactic used by other countries, such as Japan. People with incomes based on production from companies or with pensions guaranteed by the government could be forced to accept "equal value" of government treasuries, providing equivalent income. In the event of dollar re-valuation, these incomes would essentially disappear, impoverishing those groups that had accepted the Treasuries.
The Chinese are very aware of this possibility. As a result they are trading long term Treasuries for shorter term Treasuries, and then trading Treasuries with other governments for real assets (commodities, commodity production contracts, land, etc.)

Cramer's Mad Money - Two Tell Stocks for Crude Oil (5/15/09)

For contango to continue, the cost of holding oil in ships needs to be lower than the difference in the forward price compared to the spot price. One thing that reduces shipping cost is low demand compared to shipping capacity.

If shipping rates hold at low levels (compared to the peaks of last year), that confirms low near-future demand, and prospective oil prices.

The profits available from contango are decreasing (look at the oil futures curves, and the difference between spot and future prices).

Expect contango to vanish by December, freeing up tankers and resulting in a sharp decrease in shipping rates and shipping company stocks?

Hotel REITs: The Most Contrarian Idea I Have

If you want to invest in REITS at the present time, I suggest that you look at the cumulative preferred stocks of the REITS. These preferreds pay an amount based on the issue price, nominally 7% on a share issued at $25 . (Though the is a wide range of rates). With many preferreds depressed in price, the current rates are very nice. A specific example is AHT, mentioned earlier. AHT, in a director's meeting specifically voted to buy bck their AHT C and AHT D at market, a wise investment. Since the shares currently sell at about $12 per, and pay 8+ % based on a $25 share price, the annual return is about 18%, and it is cumulative. If the company does not pay it for a quarter, it accumulates and the accumulation pays interest at the same rate (18% based on current prices.).

At current low rates of interest, you can bet that AHT will eventually buy back all of them, and you can, if you hold on long enough, double your capital investment while earning 18% while you wait. Not a bad deal.

There are a lot of these Preferreds around, though you need to be sure the Company will be able to continue to fund the payments.

An example of one which has not is Impac Mortgage Properties. Though not in Bankruptcy (they came close and their shares sell for about $0.50 per share) their preferred shares have also collapsed in price, and do not pay a dividend. I mentioned this company specifically because they have good, tough managers, and may still survive. In which case this would end up being a 10 banger from the present price.