Wall Street Finally Calls a Bottom on Banking...5 days after I did

As readers know, I correctly called a short-term bottom in banking and was one of the few people to do so in the country. See July 14, 2008 post: "I am calling a bottom in well-capitalized regional bank stocks."

http://willworkforjustice.blogspot.com/2008/07/colonial-bancgroup-cnb.html

And here:

http://seekingalpha.com/article/84988-well-capitalized-regional-banks-the-bottom-is-in

Now, after most bank stocks have jumped 20 to 50 percent, Wall Street deigns to tell the masses the bottom is in:

http://bigpicture.typepad.com/comments/2008/07/its-unanimous-b.html

It just goes to show you don't need specialized training to correctly pick stocks. Peter Lynch and Warren Buffett made billions picking stocks at the right time. The best skill as a stock picker isn't being able to discern a company's future cash flow prospects, but to know when to buy a stock. It took me over ten years to get some intuition on the market. Timing beats good research--as we've just seen.

Choose Life. Choose a job. Choose your future.

Paul Kedrosky (from http://paul.kedrosky.com/) cited Sterling Hayden's Wanderer in his blog recently:

Little has been said or written about the ways a man may blast himself free. Why? I don't know, unless the answer lies in our diseased values. A man seldom hesitates to describe his work; he gladly divulges the privacies of alleged sexual conquests. But ask him how much he has in the bank and he recoils into a shocked and stubborn silence.

"I've always wanted to sail to the South Seas, but I can't afford it." What these men can't afford is not to go. They are enmeshed in the cancerous discipline of "security." And in the worship of security we fling our lives beneath the wheels of routine---and before we know it our lives are gone.

What does a man need---really need? A few pounds of food each day, heat and shelter, six feet to lie down in---and some form of working activity that will yield a sense of accomplishment. That's all---in the material sense. And we know it. But we are brainwashed by our economic system until we end up beneath a pyramid of time payments, mortgages, preposterous gadgetry, playthings that divert our attention from the sheer idiocy of the charade.

The years thunder by. The dreams of youth grow dim where they lie caked in dust on the shelves of patience. Before we know it, the tomb is sealed.

Where, then, lies the answer? In choice. Which shall it be: bankruptcy of purse or bankruptcy of life?

Here's the direct link to Paul:
http://paul.kedrosky.com/archives/2008/07/16/words_to_live_b.html

It sounds a bit Communist in places ("brainwashed by our economic system"), but the overriding idea is true: when we remind ourselves what's really important in our lives, money won't be at the very top of our list.

In case you didn't recognize the title of this post, it's from Trainspotting, a film about the horrors of drug addiction (far better than any "Just Say No" government campaign). The addict in the film, Renton, has a less eloquent way of bashing an existence based on materialism. I've edited the curse words from his monologue after a reader complained. If you are interested in the full version, check out the video link below.

Choose Life. Choose a job. Choose a career. Choose a family. Choose a big television, choose washing machines, cars, compact disc players and electrical tin openers. Choose good health, low cholesterol, and dental insurance. Choose fixed interest mortgage repayments. Choose a starter home. Choose your friends. Choose leisurewear and matching luggage. Choose a three-piece suite on hire purchase in a range of f*cking fabrics. Choose DIY and wondering who you are on a Sunday morning. Choose sitting on that couch watching mind-numbing, spirit-crushing game shows, stuffing junk food into your mouth. Choose rotting away at the end of it all, pishing your last in a miserable home, nothing more than an embarrassment to the selfish brats you spawned to replace yourself.

Choose your future.

Choose life.

http://www.youtube.com/watch?v=T3g9nTOV9KM

(Link above may not work after a while, but you can do a search using "Trainspotting Intro" to get a fresh link.)

Renton, as film-lovers know, chose heroin, making the materialistic existence he refers to above seem better to him. Ironically, his jaded view of "life" drew him to heroin, and had he been more materialistic, he might have been better off.

Icahn's Board has Mark Cuban!

Carl Icahn's proposed Directors slate includes none other than Mr. Cuban. I am excited! I previously wrote about how Mr. Cuban had his eye on the ball:

http://willworkforjustice.blogspot.com/2008/05/mark-cuban-on-ceo-pay.html

What will happen if Mr. Cuban gets elected? Will he subject Jerry Yang to public criticism on a daily basis? Will he make Susan Decker work in a Dairy Queen for a day? With no commissioner to rein him in, this could be the beginning of a fun period at Yahoo...

I just realized Cuban might be at this year's shareholder meeting. I might wear my old Mav's Michael Finley jersey. "Fin" seems like one of the league's classiest players. He also majored in business management at University of Wisconsin.

Joe Nocera Has a Blog

Barry Ritholtz pointed his readers to a new business blog that looks promising:

http://executivesuite.blogs.nytimes.com/

Joe Nocera is a business writer for the NY Times. Of course, his blog is not as good as Barry's, at least not yet:

http://bigpicture.typepad.com/

If you read one economics-related blog, read Barry's "The Big Picture."

Stocks Update, July 17, 2008

It's been a wild week, so I thought it would be a good time for a stocks update. Colonial Bancgroup (CNB) skyrocketed around 50% within three days after I called a bottom in banking stocks, and I recovered my losses and ended up making 10%. JP Morgan upgraded CNB today, causing a 20% jump. It's fun knowing I beat J.P. Morgan to the punch. Too often, investment banks upgrade stocks after an already-large run-up in the price.

I also sold Embarq (EQ), not because I dislike the stock's fundamentals, but because of a potential political problem. Congress questioned EQ about customer privacy. Apparently, some Congressmen believe that EQ covertly tracked users' internet activity. While there have no proven allegations, and EQ deserves the benefit of the doubt, I'm not willing to take the risk of a political fallout, no matter how nice EQ's dividend is.

Pinnacle (PNK), my largest loss in terms of percentage in the "Closed Positions" category, jumped 20% today. I sold earlier because the actual dollar loss was small and the market was being irrational. I don't know if I'd jump back in just yet--the market seems to be indiscriminately devaluing casino and restaurant stocks.

My major positions now are in PFE and CCT, with much smaller amounts in BLV and DBV. Preferred shares took a bath this week. I still can't figure out why. I picked up more CCT as a result.

You'll notice that BLV, DBV and CCT are not listed below in "Open Positions." I bought these stocks prior to publicly disclosing my individual buys and sells, so old positions are "grandfathered" for purposes of this blog. Prior to the recent market lows, I reduced almost all my positions, including mutual funds. Now, I hold no individual position more than 6,000 dollars, not even mutual funds (although one international bond fund will probably exceed 6,000 dollars due to dividend reinvestment).

I also changed the format of the statistics below. I spoke with a friend of mine, who correctly told me the overall averages between categories made no sense, because they valued completely different items. In order to have a proper average, I would have to go through and add up each and every trade and then divide them by the total number of all trades. For now, I am listing averages in each category only. Clearly, my ability to predict the market in the short term is much better than my ability to discern where the market is going long-term.

Numbers below are based on mid-day prices on July 17, 2008.

Open Positions
EWM = -10.84
IF = -11.8
PFE = -4.38

[Average of "Open Positions": losing/negative average 9.0%]

Closed Positions:
Held more than seven days but less than one year (from May 30, 2008):
CNB = +10.0
EQ = -8.83
GE = -6.4
INTC = 0.0 (excluded from averages and overall record calculations)
PNK = -16.7%
PPS = -2.8
WYE = +2.4%

[Overall Record: Lost an average of 3.73%]

Held less than 7 days:
GE (1.0%); ICE (2.0%), MMM (0.5%), MRK (0.1%), PFE (1.3%), SCUR (15%)

[Overall Record: Gained an average of 3.31%]

Daytrades:
PFE = +0.5%
GE = +0.5% (Updated on July 14, 2008; bought at 27.15, sold at 27.30)
XLF = +4.3% (Updated on July 15, 2008)

[Overall Record: Gained an average of 1.76%]

Compare to S&P 500: losing/negative 9.5%
[from May 30, 2008 (1385.67) to mid-day July 17, 2008 (1254)]

The information on this site is provided for discussion purposes only and does not constitute investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence.

Karachi Exchange

In America, when stocks plunge, we look for a bailout. In Pakistan, they let the market work out the kinks: "Investors have to learn to bear losses as they do gains," says a Pakistani money manager. See

http://www.bloomberg.com/apps/news?pid=20670001&refer=home&sid=a_.8H0oQOemI

One downside of free markets is someone bears the brunt of inequality. Here, the bourse had to call the police to protect it from unhappy investors: "investors broke windows, threw plant holders in the parking lot of the building and at least one protester was injured."

Pakistan's stock market has declined around 30% this year.

Colonial Bancgroup (CNB), July 16, 2008 Earnings

These last few days, I knew exactly how Gordon Gekko felt as he was getting screwed by Bud Fox on the Bluestar deal. Colonial Bancgroup (CNB) kept dropping for no reason, unfounded bankruptcy rumors swirling around it. But now, after a 40% (now around 30%) jump in CNB's price in just two days, having sold most of my position, I hopped in Bud Fox's shoes when he switched sides and worked with Sir Lawrence Wildman. In fact, I am so pumped, if someone gave me Daryl Hannah's phone number right now, I'd make that call, and I'd close the deal.

But wait--people forget Bud Fox didn't exactly have a happy ending. He got greedy and overconfident. That's why, after seeing CNB jump 40%, I sold most of my shares. The earnings release was not terrible--although CNB lost money (five cents a share), the bank still appears to be well-capitalized. The main information I wanted to see was the following: "Foreclosed assets rose by $94 million, bringing bad loans to 2.62 percent of loans and other real estate." A bad loan ratio of 2.62% is still far from the informal 5% threshold that indicates a bank won't be able to pay out a dividend or will need to take active measures to shore up capital.

I will wait until after the ex-dividend date, and then decide whether to hold the remaining shares. For now, however, it's good to be king, having correctly called a short-term bottom in well-capitalized bank stocks.