Amid present subprime mortgage carnage Delta Financial performance is impressive.

Sticking to their strategy of focusing on the fixed-rate loans niche (87% of their loans in 2006), the seasoned and conservative management achieved amazing results:

Today Abitibi announced that it agreed to merge with Greenville- (S. Carolina) based Bowater Inc. (BOW).

Bowater is the largest newsprint and mechanical paper producer in United States. It also produces pulp, speciality paper, timber products and other timber-related products in mills located in United States, Canada and South Korea. The company also owns 835,0000 acres of timberland in United States and Canada.

Newspapers, no matter how prestigious their brand is, whatever their business model or specific audience is, almost all are facing a secular decline in circulation and readership. From 1994 to 2004 more than 90 daily U.S. newspapers closed, circulation declined 8% and almost 5 million readers have been lost these last 10 years.

The only way to maintain readership and attract a share of the growing online advertising budgets is to, well, publish online on the paperless world wide web. Publishers also try to save as much money as possible on their newsprint paper costs. They are reducing number and size of pages and using lighter paper. The last 5 years daily newspaper consumption has fallen 1.5 million metric tons (1 metric ton = 2205 pounds) or about 15%. North American newsprint consumption for all uses declined 5% in 2005 alone.

First let's talk about Pfizer.

The company stopped clinical trials of torcetrapib. This anti cholesterol drug was supposed to replace Lipitor which represents 25% of the drug maker's sales. Suddenly, Pfizer's drug pipeline seems rather dry.

Rule no.1: if a company is doing fine, look at the balance sheet.
Rule no.2: if a company is in trouble, see Rule no.1.

Pfizer, the world leading drug maker has find a place in many of the major value managers portfolios. According to GuruFocus, below is a table of the most famous investors involved:

In a worsening environment, Delta obtained satisfying results by sticking to its disciplined business model: originating mainly (87% this quarter) fixed rate mortgage loans sporting low pre-payment and default rates, in large part through their in-house cheap retail channel (for about 50% of their loans).

3rd quarter 2006 highlights:

Since it's better to worry about the storm when the sun is still shining, now is the right time to consider how to hedge your stock portfolio against possible mediocre stock market returns.

The two major alternatives:

DELL shares crashed accordingly from the low forties to reach briefly a 5 years low at around $19 in July. Since then the stock has traded in a range between about $20 and $23.

Discounting weakness in the business model in the foreseeable future, the company is today approaching extreme low valuations.

The weakest home buyers have been lured by subprime mortgage banks with exotic proposals with strange names such as "interest only" loans, option or hybrid ARMs which a have a common point: very low first installments, then, when the installment is reset and reaches its normalized level, monthly payments that surge suddenly and start to cause the default of many borrowers and an ugly hole in the lenders balance sheet (see L.A. Times column of 8/15/06 "Sub-Prime Lenders' Shares Fall" or WSJ column of 8/30/06 (sub. req.) "Mortgage Market Begins to See Cracks As Subprime-Loan Problems Emerge" ).

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