JosephN

$25 Million Worth of Defective Chinese Wallboard Will Cost U.S. Builders / Owners $3.2 Billion

Make no mistake, the Chinese will pay. If not directly, indirectly in damage to their export industry.

What builder would dare to use chinese drywall now? The potential liability far outweighs the cost savings. If I were buying a house, the idea that chinese drywall was possibly used in construction would definitely put a damper on any bid I might make, if I made one at all.

Joseph

Has President Obama's Mortgage Modification Plan Failed?

Not to turn this into a political debate, but what alternative did the republicans present us with?

A integrity lacking former torturee who now supports torture and his 'when the going gets tough I quit' quitter sidekick. And the candidates seem to get ideologically weirder and more incompetent, if not outright corrupt, by the year.

I voted for Obama because I knew he wouldn't let the banks fail, which has kept us out of great depression 2. Something that McCain has already said he would have let happen. And he is new enough to washington not to be completely corrupted by it yet.

Until the republicans jettison the religious crazies and corrupted ideologues and put forth the next Reagan I, and most sane americans, will continue to vote for the democrats.

The republicans brought it on to themselves, it is time for them to put their house in order but I still see no real effort to do the hard work it will take. Mostly because they cannot take responsibility for their own internal issues.

The Case for Shorting Bank of America

Best stretch those legs out and remain nimble, because if you are part of that 1% you might want to jump out of the way of the steamroller as it comes down the tape.


On Aug 19 11:04 AM District Banker wrote:

> Since when is the "smart money" decided by what the masses do? These
> are the same people that got toasted in 2007 and 2008.
>
> As for your comment on Lewis, I agree that it could actually take
> some overhang off of the stock - but that's difficult to quantify/measure.
> Could go either way.
>
> Bear markets never (seekingalpha.com/symbo...) go straight
> down, and banks are renegotiating CRE loans at a furious pace. You
> keep loading up... I need someone on the other end of my short sells!
>

The Case for Shorting Bank of America

Actually, its because of BAC's exposure to california real estate that I believe it is a buy. Its one reason I think BAC, JPM, and WFC have all had nice runs. Exposure to california home real estate is now a positive rather than a negative in my opinion.

I live in Orange County, CA. Probably one of the 'worst' areas of the housing bubble pop and I'm telling you it is over with here. People are buying or refinancing and the banks exposed to the market here will do very well on fees. I've even heard people are flipping foreclosures after only a few weeks from buying them at auction for 20-30% profits.

If Lewis were to go I suspect there would be a pop up in price rather than a pop down. So I'm not worried there either. Commercial real estate so far has been a red herring for keeping people out of the financials while others (like me) loaded up, but so far so good. Only the closing of the car dealerships really has me worried on that front, as these dealerships often occupy large amounts of prime land in central locations.

In any case, if you think 'insane to short BAC' is a little over the top that certainly is your opinion. Short interest in BAC looks to be around 1%, so maybe we could just agree that it looks like the smart money isn't taking the short side on BAC here.

On Aug 19 10:10 AM District Banker wrote:

> I don't know where to start with your post, Joseph.
>
> I agree, on a TBV basis, BAC is not that expensive. (As an aside
> to the author - TBV multiples are how bank investors look at these
> animals today - NOT P/E multiples.) But let's think about WHY BAC
> might be trading at a discount.... could it be CFC and the exposure
> to CA real estate that it added to the balance sheet? Could it be
> the toxic waste dump that was MER? Could it be constant rumors of
> Lewis being pressured to resign? Could it be the other shoe that
> is looming: commercial real estate?
>
> In any case, while I agree that when looking at a short, you MUST
> focus on fundamentals, (and WFC is many attributes of a potential
> short) - I reject your statement that "you'd be insane to short BAC."
>
>
> That's just a little over the top.

Credit Card Delinquency Wave Reaching Tidal Force

I have read that credit card defaults in july are actually down across the board for Citi, BAC and especially JPM. I believe JPM is actually poised for quite a pop up when the good news about 3rd quarter earnings are released.

(long JPM)

The Case for Shorting Bank of America

Shorting on technicals is like russian roulette. You have to look at the fundamentals.

On fundamentals, BAC is still trading below tangible book value and being a huge multinational bank there are money managers that will have to buy this bank as the economy turns as they are required to match this or that index. Throw in the fact that housing has bottomed and the fees from refinancing mortgages for some real earnings power and you'd be insane to short BAC.

WFC does look weaker though, trading above tangible book value and being USA centric with little overseas exposure. There is also a Buffett halo with WFC for what that might be worth. Maybe you could squeeze a small profit here on the short side.

Really though, shorting banks was last year's trade. This year's trade is to buy and hold the financials tight.

(long BAC)

Citigroup Looks Overpriced

I don't think the author understands the case for Citigroup as presented by Cramer, because honestly it has nothing to do with earnings power from what I can tell.

Citi is a huge multinational bank, it is so enormous that money managers who have strict investment guidelines about matching this or that index MUST buy Citi. It is only because these money managers eventually have to buy Citi, and buy it in spades as the economy and Citi recover, that Cramer is recommending it. He is not recommending it on its earnings power alone, which will be quite weak for some time to come.

Citi is also trading far below tangible book value, even taking into account how cooked that value might be. Banks that are not going out of business can very easily jump in price to the tangible book value. Otherwise the whole is worth less than the parts if you broke the business up and sold it, not counting earnings power at all.

I wouldn't short a bank trading below tangible book value unless I was sure it was going bankrupt. And that right now is off the table for Citi.

United Technologies Guides Lower

So many good things about UTX, where to begin?

My favorite tidbit of UTX right now is the F135 engine for the F35 lightning II. The estimates out of Lockheed are for about 5000 of these fighter jets when all is said and done and it looks like UTX has the only engine going in the jet after the senate killed funding for GE's alternate engine. (i know they've been 'killing' this engine for awhile now, but it finally looks like its dead for good).

In the Lockheed transcript they estimate 20% growth in aerospace each year for the next 5 years at least for the build out. UTX will be a big winner here on this contract.

Another plus is Otis has about 75% of the elevator market in China, my guess is elevators are not an item where you want to pick the low cost provider. The liability is too high not to go with the safest available. Just last week I used an Otis at the University of Amsterdam while at Cog Sci 2009. Fastest and smoothest elevator I've ever been on. When real estate development picks up again Otis will come back, big time.

Helicopter exposure is very good, defense might be cut but everyone including the US army is short on helicopters right now.

More on the research front, their coaxial helicopter demonstrator and geared turbofan are both pointing in the right direction for next generation aerospace efforts. My guess is aerospace will turn for a big cycle sometime in 2010, which UTX will ride right on up.

Disclosure: Long UTX

Five Reasons the Market Could Crash This Fall

Wow, the fear mongering in this article is palatable.

Yes without program trading there likely would have been no bid during the crash and the country could now be in Great Depression II. However the liquidity added by HFTP insured there was a bid, thereby propping the market up long enough to for us to try and fix it. And while some people claim to think this is a bad thing, I just smell 'short' when I see articles like this.

The bottom line if the banks are manipulating the market, they are doing so to save themselves, the world economic system, and the rest of us to boot, almost certainly in that order.

Nothing to do but buy the banks and sit tight.

And if they don't then a war is coming to realign the political and economic world. Its easy to see, deficit spending on the military to pull out of an economic malaise is a time honored tradition right out of Imperial Japan or Nazi Germany and all the way back to the Roman emperors.

In which case, buy defense, sit tight.

Now that's fear mongering!

Will Pickens' Scrapped Project Slow Wind Energy Momentum?

Lucius, Did you know Oil is one of the most heavily subsidized energy industries in the united states.

In fact, nearly all energy industries are subsidized by the government. Except many of the renewable forms, like geothermal which just got some help this year for the first time. Or Wind, which they take away the subsidies and give them back every couple of years.

Personally I would love to see Oil and Coal companies lose all their subsidies and that money go to future energy tech.


On Jul 09 11:16 AM Lucius Quintus wrote:

> It will take the BILLIONS of stimulus $$ to utilize the so-called
> renewable energy. It is not really patriotic to support projects
> that require subsidies to make them viable. The more one investigates
> investing ones own money in wind projects,the more reality appears.
> I suspect T. Boon found that out.

Beacon Power Lands $2M Flywheel Deal with New York State

BCON gets $43 Million loan guarantee today. Up 25% in morning trading is nice after getting thrown out of the russell 3000 and to the wolves just a few days ago.

Vindication at last, I'm glad the DOE is finally getting off their tuckas. From what I hear the DOE is stuffed to the gills with oil and coal Bushities running the show over there and they have been blocking all of the loan guarantees and grants for several years now.

I hope Steven Chu shows them the door, its time for a change. May coal be the first to go.

The Rambus Convertible Notes Offering

I'm afraid the decline today might trigger a long squeeze. You can't fight the tape so I'm torn right now as what I should do, sell a portion or double down.

I think shorters are hoping people will throw the baby out with the water, but as every short is a long eventually maybe this is just ammunition for the rise later.

Joseph

Warren Buffett Getting No Respect

I'm no expert, but the push for alternative energy and recently found abundance of natural gas should put the nail in the coffin for coal.

If demand for coal dries up, what will happen to Buffett's large holdings in the western railroads? Rail freight is already extremely low, and without coal demand it will go lower. Even the car industry restarting won't help as the number of cars produced will be greatly reduced and stay that way for a long long time.

I think BNI and UNP are both over hyped due to Buffett and Dow Theory. I just don't see any product that can replace rail freight demand if cars and coal drop off. You can have all the energy efficiency advantage in transportation you want but you need something to haul!

Forget about high speed passenger rail, it might work in europe but this country is just too big unless the train runs at least 500mph, airplanes are the way to go to move people around here. High speed rail will only work in the northeast corridor and maybe in california, but coast to coast is a pipe dream.

At any rate, I suspect Buffett's rail holdings won't pay off for a very very long time, if at all. Cap ex is too big for rails, unionized workforce, and a permanent drop in freight will squeeze them.

And lets not forget truckers with electric or nat gas engines will be strong competition.

Joseph

The Rambus Convertible Notes Offering

From the description I've read on the terms of the convertible notes it seems that dilution only occurs if when redeemed Rambus doesn't have the cash to cover the full amount of the notes. In which case the difference will be made up of common stock. The conversion date is also contingent upon certain events, most likely settlement of one or more cases. You can read what I read about it on Reuters here:

www.reuters.com/financ...

In other words, it seems that if Rambus has the cash to pay off the notes in full when they are called to be redeemed then there will be no dilution of the common stock. The terms of this deal seem super sweet for Rambus and my bet is the only way they got this deal is because they have a strong position in their court cases after the EU announcement.

Please correct me if I'm wrong, but down 12% today seems like a gross overreaction. I guess everyone wants to jump in and short anything they can.

Joseph

The Obama Effect: Is Clean Energy Outperforming the Market?

Your final comment to the article says you cannot find another geothermal play besides ORA. You might want to consider Raser Technologies (RZ). Their modular geothermal plant in Utah, the Hatch plant, has already won a 2009 award and is easily replicated to new fields. With their advanced technology and shovel-readiness I believe they will garner the lionshare of the collective 'geothermal stimulus' coming out of the government.

Joseph