Debt, debt, and more debt

The SJ Mercury News published a chart about America's addiction to debt. As Barry Ritholtz would say, this is lovely chartporn.

If you're into credit cards, the chart also lists the market share of each major credit card company:

Visa 46%
Mastercard 36%
American Express 12%
Discover 6%

Take Two and EA Call It Off

The NY Times is reporting the EA/Take-Two courtship is no more:

http://www.nytimes.com/2008/09/15/technology/15deal.html?ref=technology

On top of the credit turmoil this weekend, this is really bad news for Take Two (TTWO). It's going to be interesting to see how far TTWO drops on Monday, and how much ERTS increases. I told the Board at this year's ERTS shareholder meeting the EA/TTWO merger was a fine idea prior to TTWO's numbers being released. Everyone knew the latest release of Grand Theft Auto would do well, which would cause Take Two to demand a far higher premium than its intrinsic value warranted. The simple fact is Take Two's pipeline is weak. Like Pfizer (PFE), Take Two has a great balance sheet, but not much in the way of forward growth. That being said, I expect EA to come back to Take Two when its numbers show a gradual decline in sales, forcing Take Two to be more reasonable. Someone will buy Take Two at some point--as I said before, it's just a matter of who and when.

I sold my Take Two shares on Friday, netting a 2.2% percentage gain in three days. As a trader, sometimes it's better to be lucky than good.

Disclosure: although I do not currently own TTWO shares, I may buy shares in the future.

The NAACP's New Man

Another blogger wrote a post about race in America and the new head of the NAACP. It's such a well-written post, I had to share:

http://politicalcolors.blogspot.com/2008/09/new-face-of-naacp.html

The writer makes a great point when she asks the rhetorical question, "What happens to high school dropouts? They become the chronically unemployed."

War, Teddy Roosevelt, and Wilfred Owen

On this tragic date, I provide you two perspectives. One is from a former U.S. president; the other, from a British poet.

It may be that at some time in the dim future of the race the need for war will vanish: but that time is yet ages distant. As yet no nation can hold its place in the world, or can do any work really worth doing, unless it stands ready to guard its right with an armed hand. (Quoted in Edmund Morris, The Rise Of Theodore Roosevelt, p. 594)

Dulce Et Decorum Est
by Wilfred Owen

Bent double, like old beggars under sacks,
Knock-kneed, coughing like hags, we cursed through sludge,
Till on the haunting flares we turned our backs
And towards our distant rest began to trudge.
Men marched asleep. Many had lost their boots
But limped on, blood-shod. All went lame; all blind;
Drunk with fatigue; deaf even to the hoots
Of disappointed shells that dropped behind.

GAS! Gas! Quick, boys!-- An ecstasy of fumbling,
Fitting the clumsy helmets just in time;
But someone still was yelling out and stumbling
And floundering like a man in fire or lime.--
Dim, through the misty panes and thick green light
As under a green sea, I saw him drowning.

In all my dreams, before my helpless sight,
He plunges at me, guttering, choking, drowning.

If in some smothering dreams you too could pace
Behind the wagon that we flung him in,
And watch the white eyes writhing in his face,
His hanging face, like a devil's sick of sin;
If you could hear, at every jolt, the blood
Come gargling from the froth-corrupted lungs,
Obscene as cancer, bitter as the cud
Of vile, incurable sores on innocent tongues,--
My friend, you would not tell with such high zest
To children ardent for some desperate glory,
The old Lie: Dulce et decorum est
Pro patria mori.

Take Two Options

The EA and Take Two Entertainment (TTWO) saga continues. Here is what my friend had to say about TTWO's options:

The number of call contracts (meaning, they can buy the stock at that price no matter how high it rises) are very high, way exceeding the puts contracts (meaning, they can sell the stock at that price no matter how far the stock drops). This is for September, October, and December. The number of open contracts is significantly higher for September than the other months, probably because a lot of these contracts were opened months ago when ERTS was rattling its saber particularly loudly. I think the drastic drop in open contracts means people are getting bored with ERTS' overtures. Buying the December 25 calls [might] be a cheap way to play this baby. You'd only tie up a nominal amount of money, and...if ERTS does buy TTWO it will be for at least 26, so it's pretty much a double-or-nothing type venture. The flip side is, the very small number of open put contracts suggests everybody's expecting ERTS' offer to remain on the table indefinitely.

I am blessed to have some smart friends (thanks, Jeff), and I think his analysis is spot-on. At a certain point, Electronic Arts (ERTS) must acquire other companies to grow, and the few potential targets in the video game sector mean ERTS will work hard to buy TTWO.

Also, ERTS is not playing it safe--it's been reporting a loss per share for some time now--so ERTS may end up offering significant cash per share to make the deal happen. TTWO, on the other hand, is cash-rich and just reported net revenue of 433 million. For TTWO, the only question is who and when--who will take them over, and when will it be? TTWO's high cash reserves make it difficult to place a takeover value on the company, and because it has been reporting reasonably good sales, TTWO may take the attitude that it can just sit back and wait for better offers. Yahoo's Jerry Yang tried that, too, with disastrous consequences for his company's share price. I can't wait to see how this particular drama unfolds.

Out of Fannie frying pan and into the fire

Think the government is spending our money wisely? Check out this CS Monitor article:

http://www.csmonitor.com/2008/0911/p01s05-usec.html

"[T]he Congressional Budget Office (CBO) projects that the nation will add more than $2.3 trillion to the national debt over the next 10 years."

Take Two (TTWO) and EA (ERTS)

To Merge, or Not to Merge, that is the Question

Take-Two Interactive (TTWO) closed at 21.77 today (September 9, 2008), far below EA's earlier offered price of 25.74. The DOJ's anti-trust division already blessed a merger, so the only question is whether the two parties will actually want to complete a deal. With Electronic Art's (ERTS) share price near a 52 week low, a deal may be difficult. Most deals this size require the target to accept an all-stock or partial-stock deal from the acquirer. ERTS does have about two billion dollars in cash, so it can do an all-cash deal if it chooses; however, its shareholders would howl worse than Allen Ginsburg ("I saw the best trades of my generation destroyed by a mad CEO, starving hysterical naked..."). Already, short sellers are taking positions in ERTS stock, dragging it farther down.

I bought 1000 shares of TTWO today, but I am not absolutely sure the risk/reward ratio is still in favor of a long-term TTWO hold. I plan on flipping my shares this week or next week. If I was planning on holding onto my TTWO shares, I would buy puts to be safe. The current option pricing indicates traders expect the stock to fluctuate between 20 and 25 dollars, or 20 and 27.50 dollars. The latest options expire on September 19, 2008, so expect significant volatility over the next ten days.

Update on 9/10/2008: Despite increasing over 3.14% today, ERTS was one of the most sold stocks today on strength. This indicates sellers believe ERTS will buy TTWO, which would most likely cause a decrease in its stock price due to the cash outlay required to purchase TTWO.