Dec

12

Abelson: In a turn of events, there have been a lot of leaks out of the Whitehouse lately. The leakers were probably Rummy and Hadley themselves. However, Rummy’s memo makes him look like a fool. But who cares, the Iraq Study Group report came out. It says things in Iraq are pretty bad. Bush responded predictably, nobody has bothered to answer the real question - how soon do we leave? Meanwhile, there is something hilarious about the worlds biggest debtor preparing a vaudeville act to take to china. Meanwhile, the Russians want people to do business in Russia. As we pointed out a few weeks ago, our graph that charts how often the word “goldilocks” is used in the press (A chart that appeared useless on its face, by the way - GH) shows that the world is coming to an end. Wealth disparity is at an all time high, which is why wall street is bullish, they don’t see that main street isn’t doing as well. Some guy who buys into this has a bunch of put options on BBY, SNDK, TXN, GOOG, DELL, LRCX, AMAT, NVLS, RIMM. RIMM looks particularly silly when compared to MOT. The sky is falling.Page 19: A while back we told you to buy Mellon, you should have. We were negative a while back on Station Casinos. We were wrong. We told you to buy Intuit, you should have, even though it is down, it is still a good stock to buy.

Page 23: Guidant trades at the same multiples as its competitors, but it has more promise because it puts wireless stuff inside its pacemakers and other devices for easier treatment.

Page 24: Nortel was a big dot-com bust, and wall street still hates it, but a Jack Welch protege is cutting costs and focusing on core competencies, so you should buy it.

Page 26: Everyone likes upstart newspaper company Gatehouse Media because of the fat dividend, but the dividend is all of its net income, and other newspapers could up their dividends, so don’t get too excited about it.

Page 28: Alcon is down over short term issues, but the long term looks great. The baby boomers are getting older and will need the lenses they make for cataract surgery. Also, as wealth rises around the world, more people can afford cataract surgery. On the downside, Johnson & Johnson might enter the business. Still, you should buy it.

Page 30: A high stakes delegation is going to China, they want the Chinese to save less and spend more, as opposed to our old stance that China revalue the currency. (How a group of a couple of guys is going to convince a billion people how to run their households is beyond me … I guess that is what Washington does to your common sense - GH). Of course, a kazillion commentators have all sorts of hedged opinions on what might happen.

M3: In case you were fishing the Lofoten Islands last week, the market was up, and there has been a lot of M&A activity. WARNING, RARE USEFUL INSIGHT COMING: Milton Ezrati of Lord Abbett points out that this is a sure sign that stocks in general are cheap. “It remains very profitable to borrow and buy”. Also, the WACC for the S&P is unchanged from three years ago, while profits have exploded, says someone else. A collapse in the dollar could end the party. Typically, everyone loves Southwest Air, but lately the shares are trading cheap, and that is undeserved, so buy some. It used to be easy to screen for LBO candidates, but not anymore. The normal screens have missed a lot of the recent deals -”the rules of engagement have changed” says some guy. The Nikkei is down lately because the government is going to scrap a reduction in the cap gains rate, the US could be next now that the Dems. control congress.

M6: Unlike every other large corporation, Vodaphone looks abroad for growth. They have a good portfolio of assets in emerging markets, where the state run phone companies are even worse than ours, so consumers there like to go all cellular and ditch their landlines. Voestalpine, the Austrain Steel Company looks good, unless of course global steel demand drops.

M8: Can’t make money in the US housing bubble? Don’t worry, there is always China. CSFB thinks that the China housing market is in a structural bull run. Take a look at 0688.hk, 2777.hk, 2355.hk, and 3900.hk. Hedge funds like the Chinese property sector, too, as it is a proxy for the slow appreciation of the Yuan vs. the dollar. Lately, developers have been acquiring land banks aggressively, so take a look at those, too.

M13: Barron’s Classifieds, where opportunities meet their match. Or maybe not, since there is only one page of classifieds (3/4’s of a page if you count the Barron’s ad).

M16: Subprime mortgages and their issuers aren’t doing very well. Ford issues a convert, which was a hit with the convert-arb funds. (A smart move, these funds have too much cash, and have to invest in the strategy - GH). For you, buy the S series 6.5% convert preferreds.

Also M16: Folks are buying funds that own land in Brazil’s interior. It’s cropland. Interest is from institutional investors in it for the real estate and agriculture profits. Some guy thinks that he can always get cash for the land, since there is always interest in agriculture. He also thinks there is no currency risk since they are planting dollars since, Brazil commodities trade in dollars.

M20: When PFE went down last week, investors bought a lot of long dated PFE options. Some guy thinks you should buy PFE stock and sell long dated calls. Also, PFE might buy its way out of its problems so take a look at ISIS and NKTR.

Page 30: 2006 is shaping up to be a good year, so, naturally, prognosticators are saying that 2007 will be a good year, too. A bunch of people like Abby Cohen (I left out the Joseph just to annoy her) were interviewed on their predictions. Basically, they all think that the market is going up.( I could write a little bit more about this but I would be doing you a disservice by misleading you into thinking what they have to say is important -GH)

Page 41: Maserati Ad. You can get 1.9% financing on a Maserati Quattroporte. If you want to really show off your wealth, you spend it foolishly on a piece of garbage car. I know, when I was a kid my dad bough an XJ12, and it broke down all the time. Buy a nice car, you earned it, but there is nor reason for it to be a piece of garbage. A BMW will do just fine.

Page 44: ONE OF THE BEST BARRON’S ARTICLES EVER: (Last year, I was fortunate to attend a get together that Victor and Laurel had at Belmont, where I learned a great deal about horse racing. I have since read up on it quite a bit. It is fascinating, far more fascinating than the stock market. The problem is that the vig is roughly 20%, so it is hard to come out ahead). Anyway, according to the article, harness racing is making a comeback. Betting is not addressed, but you can buy horses for modest sums and recoup your investments easier than you can with thoroughbreds. The sleazy race fixing is on the way out.

Page 46: Pfizer is a value play because it is cash rich and has plenty of time to fix its problems, which it is already trying to do.

Page 49: For a smart bet on outsourcing, try EDS. It trades at old-world valuations but is getting into India and China in a major way.

Page 50: A Disney Patent filing suggests they might start making their videos available on Ipods. John Malone is showing interest in DirecTV. This is weird because as everyone knows, everyone who has DirecTV hates it and its customer service.

Page 52: Gene Epstein says that the economic numbers on employment all look good.

Also Page 52: Yum brands raised its dividend, so did Paccar and Stryker.

Page 53: Interview with Martin Barnes. Unlike everyone else in the late 90’s, ten years ago, he said that the US was at the start of a long growth spurt due to tech, and he was right. He has no insight on geopolitics. He still feels good about the tech driven economy. Short rates are not low by historical standards. There shouldn’t be much surprise the dollar has weakened. Productivity growth can not be slowing as much as thought since profits are staying high. Wages pose no threat to inflation right now. Housing was destined to weaken, the worst is not over. Labor market holding up reasonably well. The fed will cut rates. There is some potential for bond yield to come down, but not a lot. As long as Asian banks buy dollars, we are cool. Unlike everyone else, he likes Brazil, China, Singapore and Russia. He does not like India, South Africa, or Korea due to high leverage and raising rates.

Page 55: The managers of the Eaton Vance Income Fund of Boston think that the junk bond market rally is over, so they are on the defensive. In their opinion, junk yields have priced in zero probability of an economic slowdown next year. Morningstar likes them. They are on the shorter end of the curve, and they prefer senior debt. “When junk yields rise as prices fall, the pair’s strategy is to keep the senior cash bonds and either short the subs or buy credit default swaps protection on them” The like F bonds, asset coverage is significant. They also like Intelsat bonds, Gamestop, GP, and TRMP.

Page 58: This has been a surprising year in the fixed income market. Everyone has different opinions on what will happen next year, but most fund managers are defensive in various ways.

Page 60: There are some people you shouldn’t trade against, one is Sam Zell, so if he sold EOP, why did Blackstone buy? Because that is what they do, they take on tons of leverage that others wouldn’t. The PE boom resembles the junk bond boom of the late 80’s. This could all end very badly.

Page 63: Thomas G. Donlan goes on record as perhaps the first person ever who thinks that the “Blue Ribbon Commission” model for solving problems is a good one. He thinks congress should operate that way.


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