Tuesday, July 31, 2007

The unwinding continues---another 50% needed?

Of course the triggering news to today's afternoon sell-off was the collapse of American Home Mortgage, with the stock going from $10.47 to $1.04 after it finally opened. It's done. Six months ago this company was trading at $30 and one month ago at $18, and its top shareholder list was strong. The speed of this reversal is beyond unsettling. Tonight we see news of Bear Stearns needing to halt redemptions in a fund that investors have more or less taken a run at, even though the fund has just one half of one percent of its investments in subprime mortgage securities and it is not leveraged, no debt. That kind of looks like panic, both on the investors' part and on the market's part as there was obviously not the liquidity to soothe the investors fears. What else tonight. Australia's largest securities firm announced that two of its high yield funds are down 25% as a result of the U.S. mortgage market, and that company's stock is getting rattled. And can you believe this? The credit default swap market is now pricing the debt of Merrill, Bear, Goldman, and Lehman at below investment grade, euphemistically called junk by some.

The head of credit strategy at Bank of America, in a written opinion, warned of "an existential crisis for hedge funds". Sartre would have advised yet another 50%, that's 100 proof.

But hold on, this market is oversold already. The fear is almost strong enough for the turn. It just may not be tomorrow.

The unwinding continues...50% day

It was 50% day in the financial markets:
---Jeremy Grantham forecast that 50% of all hedge funds would shut down within 5 years as a result of credit market declines. That's about 5000 funds.
---Sowood Capital Management LP lost 50% in July or 1.5 billion and will liquidate, returning its remaining 1.5 billion to investors.
---Analysts speculated that Apple was cutting its I-Phone production by 50% due to less than expected demand.
---Jim Cramer stated on CNBC that as much as 50% of all mortgages originated in 2006 would see borrowers walk away due to their negative equity. That's all mortgages he was "careful" to say, prime, alt-A, and subprime.

If Hollywood had its hands on this there would also be strangely a 50% off sale at Brooks Brothers, a 50% chance of rain, and an NYT story reporting that 50% of Americans are overweight. Bring in Paul Haggis for the screenplay and Kiefer Sutherland to run around like a chicken with his head cut off, and you're headed to Sundance at a minimum.

And there's a 50% chance that the market will be down again tomorrow.

Thursday, July 26, 2007

The unwinding continues

While we were sleeping the Asian markets, after an encouraging first half of their day, fell apart. Every major European market is now down over 1% as we ponder whether another cup of coffee is a good idea. In a few hours yesterday's detritus may look like a lost foundation. That's the way it feels right now.

The credit markets have become unhinged for the moment. Sure, the U.S. residential real estate market is readjusting and related financing is being stressed but there is a bigger more all encompassing issue. The marginal financing markets for higher risk financings and carry trade speculation are shutting down. It may just be a needed adjustment that will reach a new equilibrium quickly or it may be a shake out that is extended. At points like these you never know which it is.

The immediate impact is ugly. From this perspective, the components have been: the stress on securities markets from the U.S. mortgage market issues; the beginnings of a new religion among reserve rich countries regarding asset allocation and return; the cyclical stretching of the financing market's rates, terms and conditions to a point at which end buyers balk; the loss of confidence in the dollar and the resulting unwinding of speculative trades financed by the yen that is occuring right now; and the fact that these events are putting stress on the world's leading financial institution's balance sheets and also removing the take out premiums from stock markets.

If recent history is any guide there will be a turning point at which market players are reminded of the reassuring facts: global growth; reasonable inflation; historically rational p/e ratios in most markets; and the sound foundations of the financial system today. Just at this moment we don't know when, noon or next month?

Wednesday, July 25, 2007

The mortgage market issues, thoughts and hopes

Two thoughts or hopes:

---The biggest catalyst of yesterday's market rout appeared to be Countrywide Financial's results and the comment of its CEO, Angelo Mozilo, that home prices were falling "almost like never before, with the exception of the Great Depression". This was like manna from heaven for the bears. The market should be reminded that Mozilo always talks in extremes. He's blunt, animated, at times profane, at times entertaining, and seems to love the attention he gets from being provocative. Yesterday he got the attention of the market and his name on the front page of the NY Times. Let's hope that his comments get put in perspective today, and of course that it turns out over time that they should be.

---Whenever financial stress hits an area of the banking system there are calls for increased regulation. Often that is a rational response to the issue but unfortunately in implementation the pendulum can swing too far. The implementation can be driven by politics and then handed to overzealous bureaucrats. For a current example of our regulators in action, with history as a guide, see Tom Brown's piece "Long is Wrong" at http://www.bankstocks.com/. Let's hope that whatever regulatory action evolves is not destructive.

Tuesday, July 24, 2007

Correction to last post --- Television is the answer

On this miserable market day I switched on CNBC while eating a sandwich and realized that the prior post was mistaken when it said that individual investors now have more limited resources. I forgot. They have Jim Cramer, Eliot Spitzer's big supporter, good friend and college buddy.

On CNBC the Mad Money man Cramer was just spouting off about how he is totally against the financials and he'd been saying so, short JPM, forget the financials for now. As for Apple, anybody who held on to Apple after the recent run-up was a pig and pigs get slaughtered. For anyone with a memory, not over two months ago Cramer said that there was no question that investors should just buy the big five investment banks(Goldman, Morgan Stanley, Merrill, Lehman, Bear) and hold on for the long term. And as for Apple, at that time it was a core technology holding that everyone should own.

So don't trouble yourself with doubts about what you've accomplished Mr. Spitzer. The gap has been filled.

Happening to a nicer guy

Yesterday afternoon it was announced that the office of New York Governor Eliot Spitzer was under investigation for improperly or illegally using the NY State Police to dig up negative information about Spitzer's rival, State Senate head Joseph Bruno. The NY Times article stated that Spitzer "came into office less than seven months ago with a reputation for integrity...". That statement would come as news to many in the financial services industry who dealt with Spitzer's self promoting attacks in his stint as Attorney General. It is ironic that now, as Governor, Spitzer is meeting his match against someone with a similar level of "integrity".

As was widely reported, Spitzer forced a significant realignment of the brokerage industry research function, as well as levying huge fines. While there was definitely room for improvement in the functioning of and independence of the security analysts' roles, Spitzer's approach was to demonize the entire industry, keep himself on the front pages, spread information that was priviliged, and propagate rumors and innuendo. He was able to do this by staying on the attack against an industry that he regulated and an industry, financial services, that must always protect their reputations. He had a rival that for the most part couldn't fight back.

It is now known, and was eventually known at the time, that some of the Wall Street Journal's many scoops and comments from "sources close to the investigation" came directly from Spitzer. In fact, some say that he regularly met with the lead WSJ reporter at the time, Charles Gasparino, while jogging around the reservoir at Central Park. Gasparino and Spitzer would both presumably be energized by the exchange and morning after morning the securities firms would deal with these "authoritative" attacks in print.

In Bruno, Spitzer is now dealing with a veteran of the notoriously corrupt Long Island Republican machine, once run by Al D'Amato. It's a different playing field in Albany and he doesn't have the same leverage.

It should be noted that the Spitzer "reforms" of the research function on Wall Street have had mixed results at best. While the barrier between research and the bankers has possibly been strengthened, research has to some extent been neutered. The research department is now seen as a stepping stone to a career at a hedge fund or in investment banking, not as a long term career itself. There are a number of analysts still who have a veteran's perspective on the industry they cover as their salary levels were somehow "grandfathered" at the time of the changes. That experience will diminish over time. The many so-called independent research firms that were established and funded by the settlements are out there but it seems that few if any have been embraced by the institutional investment community as being credible. Individual investors can see their opinions on analyst summaries, but can have no insight into their stature because they have none to speak of. Perhaps some will develop track records over time that make them meaningful contributors to the market, but will that happen before their free ride runs out. So what has happened has been an acceleration of a process that had been underway for many years. Pension funds increase their investments in hedge funds not only to get their investment performance but also to get access to their opinions. Mutual fund complexes beef up their own research departments. The individual investors that Spitzer championed are left with less resources, but Spitzer defenders would counter that there's less chance that those limited resources are biased.

The main winner in all of this was Spitzer, who rode the issue to Albany. At some point he may wish that he had burned a few less bridges to get there.

Sunday, July 22, 2007

What's next

Well, Friday certainly wasn't nice so to heck with the weather analogy. Caterpillar and Google took chunks out of the averages but that's done, and their earnings were not bad at all, just not good enough for this edgy market. The credit markets are the key as the banks, the securities firms and the to date resilient consumer are all on investors and traders minds in a big way. With another earnings announcement week starting, the news risk appears to be more downside than upside for the market. Even good earnings with good trends(C, JPM) were met with a "sell on the news" attitude this past week, as in "let's get out when the liquidity's good". That's the negative tone, but cut through all of this news driven trading and there's opportunity.

Tonight Japan, Australia and Singapore are catching up with Friday's slide in Europe and the U.S. but the China markets and small Asian markets are holding steady.

Wednesday, July 18, 2007

Clearing skies

The forecasts were right. The rain this morning was extreme and the lightning was brilliant. The market dived for cover and hid from the light. The coming morning may bring calm and even energy but intermittant thunderstorms could be around in the afternoon. Friday will be nice.

Tuesday, July 17, 2007

Shaky start ahead, but what's the news

From this evening's vantage point tomorrow morning's market may be under pressure. Two reasons---First, Intel reported strong earnings and higher than expected revenues but margins declined as pricing pressure was greater than expected and second, the two Bear Stearns sponsored hedge funds that have been under pressure are reported to be almost total write-offs. The Intel news speaks for itself. The Bear Stearns hedge fund news may be a big deal as it's just the kind of news that will scare the market and cause traders to shoot first and ask questions later. Should it really be news at all?

The two hedge funds in question invested in CDO's composed of subprime mortgage loans on a leveraged basis. One fund was leveraged at approximately 18 to 1 and the other at 11 to 1. So it takes about 6th grade math to calculate that if these formerly investment grade rated subprime mortgage loan CDO's are now priced at, for example, 92 cents on the dollar, the higher leveraged fund is wiped out and the other is worth just pennies on a dollar of investment. It really should not be news that these securities are priced at this level or even lower at this point, if in fact a price can be had. The message is that the degree of leverage employed by the funds was extreme and left no margin for error.

Hedge fund investors are definitely grown-ups in an investment sense. They are required to be wealthy funds or individuals, they know what they are investing in, and should be well aware of the risk profile of their investments and the reason for the high returns that they had been earning. Their lawyers will of course be looking at going after Bear Stearns, but in a rational world they should have no case.

The biggest question remains the same question that has been around for the last month. Are there other funds out there with the same risk profile that the market does not yet know about. If so will that stress the fixed income market further and impact the financial institutions that have funded the leverage? To date, having no answer to this question has been good news.

So at the moment, the cosmetics for the morning look bad and cosmetics drive trading. Under the make-up, it's hard to see how anything has really changed but it may take some time for that thought to be sorted out.

Ain't no stoppin' it

Despite the surge in U.S. equity prices, the record levels of margin debt, and the ongoing growth of bets against the market through puts and shorts, the market may well continue to defy the skeptics view of gravity. The following news is on the wire today:
---Merrill Lynch earnings rise 30% and beat analyst estimates handily
---the producer price index falls easing worries about inflation
---data shows foreign buying of U.S. securities rising, with the greatest growth in equities
---Reid of the Senate announces that their will be no vote on hedge fund taxation in the Senate this year as any bill should focus not just on one sliver of the investing business but on the overall spectrum of activities, including venture capital and real estate and energy partnerships as examples.

This is all good news for the U.S. equity market. Eventually there must be a correction of some level as profit taking will become an option that is too compelling to ignore. Profit taking could be just that, and create another base for growth. For now it seems that any significant correction, however much the wise sandbaggers want it, will require some significant negative news as a catalyst.

Monday, July 16, 2007

D.C. Dayz

For the past few days we've been in D.C. visiting our older daughter and seeing old friends. Maybe the phrase should be "long-time" friends as I realized that the 13 year old views "old" as implying Webster's first definition which I guess is understandable from her perspective.

As the scene of a past life,Washington is a familiar place but the visit was a reminder of what a fine place it is. With those wide state named boulevards crossing the grid of streets it's a uniquely attractive town. While aware that D.C. has some not insignificant issues,the downtown and northwest areas are lively and easy to navigate. The subway is exceptional. Neighborhoods of townhouses, whether in Georgetown or other adjacent neighborhoods, are historic feeling and everything seems so clean. One could say, perhaps, that Washington D.C. is one of the most accessible cosmopolitan cities in the world.

Down around monument and mall land there were a few false notes. Around the perimeter of the field surrounding the Washington Monument there was a chain link fence, about four feet high and just like something that would be around any ball field or parking lot in the country. It was just out of place and ugly, presumably there for some security reason but it wouldn't stop a slow moving Ford Focus that wanted to go through it. Across the way the new WW II memorial, a first view for us, somehow didn't seem inviting despite the fountain and pool. Maybe it was the circle of metal wreaths on columns, or maybe it was the name of George W. Bush inappropriately carved into the entrance to the monument. Are sitting president's names part of other memorials? I certainly haven't noticed it at the aesthetically well-designed and moving Vietnam war memorial. Apart from those distractions the mall area and its museums are still a wonderful place to stroll and the fact that all of the Smithsonian related museums and galleries are free makes it easy to take a casual approach to popping in and out. Near our hotel we did pay to visit the Phillips Gallery and even with a modern expansion it's still one of the most comfortable museums around.

Our suite hotel was large, reasonable, well located, and had the somewhat uncommon feature of "complimentary" full breakfast buffet and evening cocktails. There were a few business groups with name tags there but the overall feeling was one of a convention of the large people of America club.

There were good restaurants for the evenings. The former Calvert Cafe is no longer invitingly drab, dark and smoke filled, and is now called Mama Ayishas, all dressed up, and the third generation family owners still serve wonderful Middle Eastern food. Washington Harbour is a great place to eat outside overlooking the Potomac on a beautiful night, which we had. That's not to say that Washington didn't live up to its reputation of being an oven in the summer. It was predictably hot and humid during the day but we lucked out compared to the temperatures approaching 100 a few days before.

Good trip.

Friday, July 13, 2007

Rally caps not needed?

No need to turn the cap around in front of the screen yesterday. The rally was stunning, especially in light of ubiquitous concerns about the waning receptivity of the credit markets to finance the m&a market. What happened?

The most immediate answer is that the shorts were squeezed big time. They had loaded up based on the "obvious", and they got clobbered. That certainly makes sense but if there is follow through today, or the market even holds its ground, that's not the whole story. A few retail sales numbers came through stronger than expected but they were not exactly robust. They did show that the consumer is still alive, and gave the bulls a data point for the day to demonstrate that as long as employment stays strong there is life at the mall. A much more macro view might suggest that the diversification of other countries reserves is just beginning and with the weak dollar there was a global panic to buy the U.S. equity market. That would have follow through that would confound traditional analysis.

Today's open, however, is not going to tell us about any macro themes. New retail sales numbers will likely trump yesterday's hopeful signs. Turn that hat around.

Monday, July 09, 2007

Another Bank of America acquisition?

Today's Wall Street Journal had a table entitled "How the Banks Rank". It ranked firms with investment banking revenues by totaling revenues from equity capital markets, debt capital markets, and mergers and acquisitions. In tenth place was Bank of America(BAC) with a 2.4% market share and $866mm in revenues. The two broad banking franchises that it is most often compared to are JPMorgan Chase(JPM) and Citigroup(C). JPM ranked first with a 7.2% market share and $2,559mm in revenues and C ranked third at 6.8% and $2,423mm. Goldman, Morgan Stanley, and Merrill were ranked 2, 4, and 5 respectively, the three big European banks were 6, 7, and 8 and Lehman 9. BAC's hometown rival, Wachovia, was not in the top ten as their investment banking is almost solely a U.S. based focus on mid-tier corporates.

So where is this going? BAC has aspirations to be a force in investment banking but deep pockets and a big balance sheet are still their main calling cards. They are not really global, their trading platforms have no distinguishing expertise, and their advisory clout is driven by their willingness to arrange loans. Any effort to climb up to a meaningful level in investment banking organically recalls that response to a request for directions of "you can't get there from here". That has, however, never deterred BAC in the past as first McColl and now Lewis have always been willing to step up and acquire to build.

There are two firms that scould possibly help BAC make this leap, Lehman(LEH) and Bear Stearns(BSC). Both are now stressed to some degree by the pressures on the mortgage market. Lehman's greatest long term strength has been fixed income and they are a leader in the mortgage securitization sales and trading markets. Bear is a also a leader in the mortgage securitization markets but they are much much more visibly stressed by recent events with their exposure to in-house hedge funds, one of which more or less has imploded. These are difficult days at Bear and presumably not the easiest at Lehman. Both firms have long established executive management that will ultimately need to transition out, and we're not just talking one person. Both are, long term, limited by their capital strength relative to all of their major competitors. They both trade at forward P/E ratios below 9 times. At the right price one could see how they might be up for sale.

Bank of America has a market capitalization of $215 billion. Lehman now stands at $37 billion and Bear is at just $20 billion. Even if BAC chose to overpay for either, which might annoy current shareholders, it would from a financial point of be financially feasible to digest either firm without an impact on their financial flexibility or debt ratings. They would be two very different acquisitions. Lehman would likely take BAC's fixed income division to the top of the league tables and would give it more credibility in m&a advisory. Lehman brings a decent European investment banking franchise that BAC definitely does not have. Bear does not have any significant global franchise except in some areas of trading. It does, however, have trading and risk management capabilities in New York that rival the best firms. Like Lehman it has an equity franchise that has exploited niche markets to compete head on with the biggest. The biggest bonus of Bear is its significant operational businesses that revolve around clearing, trading, and asset manager and hedge fund facilitation.

Either acquisition would be more difficult than anything BAC has tackled before. They would likely take lots of flack on the Street about how they are destroying whatever franchise they possibly buy. With the usual financial handcuffs and, if not completely bungled, the benefits to the acquired firms players of having a huge balance sheet behind them(to jack up their bonuses) it could eventually work.

It would not be surprising, from this perspective, to wake up one Monday morning and see that the WSJ had "scooped" another merger announcement.

What's Core

Yesterday we went to the grocery store and, among other things, picked up one red pepper for $2.69 and afterwards filled up the sedan with $48.50 of gas. Food and gas are more or less essential aspects of our lives, although a red pepper could be passed on if we didn't want good omelettes, salads, or onion and pepper burgers.

When measuring inflation the Fed and the bond market focus most of their attention on the core inflation number, or price increase minus food and energy. The historic rationale has been that food and energy are volatile components and therefore a more reliable gauge of inflation is the core number. At times it seems somewhat of a misnomer since what is more core to most peoples lives than food, heat and transportation. That aside, the more important issue is this. What if food and energy are on a longer term upward trend, so that while there is volatility around that trend line, it is going up for the foreseable future.

There are many reasons why that could actually be the case. For starters, today energy is not pressured by some significant supply disruption but gasoline prices have been rising and in addition food costs are being impacted by energy, both in costs of production and transportation and in diversion of acreage to produce crops for ethanol(perhaps a questionable trade-off). The bond market's recent yield increases have been attributed by most to a stronger than expected economy but it would seem logical that there is some segment of the global bond market that actually looks at the total inflation numbers, and is in fact more concerned than the already anxious Fed. The outcome of this will be obvious in the coming months. In the interim, the consumer must allocate spending, according to economists, between core items and those annoying non-core items.

Friday, July 06, 2007

What language is that?

Walking back from the library just now I stopped to watch four men working on taking down a giant, I mean giant, tree. Two were halfway up in the tree hanging from ropes on pulleys connected higher up, and taking down the middle limbs. Guess what language they were speaking. Sounded to me a lot like the language of those men who dug an eight foot trench around part of my foundation last summer to correct a furnace room leak, in 100 degree heat, or two of the three men who put a new roof on my house three summers ago. I guess the suburban college kids around here will just have to buck up and sweat a little a few years from now. Yeah right, a thirteen year old says in the background.

Is the U.K. rate rise wise? We surmise not.

The Bank of England raised interest rates for the fifth time in the last twelve months, raising the main interest rate by a quarter point to 5.75%. The rationale is to combat inflation which remains above their 2% target.

It is not difficult to question this move. First it appears that the basis for the move was pressure on some industrial prices, but manufacturing is not what is driving the U.K. economy. Second, the U.K.'s main rate was already higher than any of the Group of Seven industrialized nations. Third, the pound had already gained significant strength against the yen and the dollar in the last twelve months making import price pressure on inflation a complete non-issue. Fourth, the U.K. is a bifurcated economy---there are the people in the financial markets and there's everyone else. Credit card holders, homeowners and small businesses get hit with higher interest rate bills and a more stressed balance sheet. Fifth, inflation is arguably being driven by the fact that London has become a capital markets center that rivals New York and that's where fortunes are being made and spent. A quarter point rate increase will have no impact on the willingness of those in this sector to bid up home prices, to dine wherever, drive in whatever and buy whatever. It must be noted that this financial sector is the most international one in the world at this point and is the European hub for U.S. investment banks and traders, the management center for an immense amount of Middle Eastern wealth, the refuge of many capital markets, especially derivatives, innovators and traders from continental Europe who get trained at elite colleges there but move to London for the opportunities and the constructive market governance that allows innovation, and London even has the primary trading platforms of some financial concerns from countries like Japan, Australia and others. All of the participants here are simply not on the page of honoring what Governor Mervyn King of the Bank of England is trying to do.

Managing an economy with this dynamic is not a clear cut task, really hard one would think. Intelligent capital markets governance and regulation by the Bank of England is what has contributed to this problem of how to manage so much prosperity, if problem is the right word. There are no brilliant answers here but it's time for a little more creativity and patience than this latest rate rise suggests, creativity to find a solution that doesn't further divide the wealthy from the less than prosperous middle class and the patience to let the impact of the four previous rate hikes flow through the system.

Selfishly, from this perspective, the Bank of England's move puts more pressure on the dollar and more pressure on the U.S. bond market, so those Brits should take pause when taking actions that impact the consumer engine of the world's prosperity.

Traders' afternoon

Today is one of those light volume days(Friday of a holiday week, and in the summer) when the only professionals in the market are traders. The real investors are for the most part on the beach, at the pool, or in transit. They have left instructions with their trading desks to lay low unless there is some meaningful market news(and blackberry me if there is) or if a core position offers a real opportunity(and if so buy it or sell it in a small way). What this means is that professional traders who go in and out of the market multiple times a day on individual stocks are now free to play. The market swings up and down and it generally means nothing on Monday. Far be it from ENS to suggest that there are any coordinated buys or sells of indexes or stocks that allow for traders to pick up a wide margin. It is of course just market intuition moving in similar directions. What the light volume means, however, is that with limited risk and smaller bets traders actions can move stocks, especially mid-cap and small-cap stocks, more that a few pips and not have the big institutional players smooth things out. So up and down we go, and it's best just to watch and not try to read anything into the afternoon action -- unless of course there is some meaningful news.

Wednesday, July 04, 2007

The Fourth of July Presidential Candidate Review

The Fourth of July is a patriotic day that honors our democratic traditions and one that should presumably allow for differing opinions. So why not review our presidential candidates with a top of mind approach that is distinguished by a lack of any research. Here we go.


Rudolf Guiliani --- It was startling to many New Yorkers to see Guiliani jump to the top of the polls when he threw his hat in the ring. While generally effective as New York's mayor and a striking national presence on 9/11, he was also seen at times as a tyrant who required the red carpet treatment wherever he went. So far in the campaign he has seemed to behave admirably and in the "debates" he comes across as less wooden than any other serious candidate. His supposed achilles heel, his liberal views on social issues and abortion rights, actually may have the benefit of giving him, without competition from the start, the more moderate and liberal elements of the Republican party. Can he, however, actually get a majority of Republicans to nominate him, and could his personality actually survive a face-off against a Democrat if he were possibly to be nominated?

John McCain --- This early frontrunner is in trouble. His military record, admired independent stance and name recognition certainly gave him a chance, but now with his unpredictable comments(somehow not reassuring when uttered by the oldest candidate) and with his constructive approach to immigration reform that was out of line with many Republicans, his campaign is now damaged. The funds are evaporating and he needs some grassroots support to develop if he's going to come back to the forefront.

Mitt Romney --- So polished he almost shines, so clean he squeaks, so wealthy he could win the nomination and somehow all of this makes people suspect. He's certainly not a "good ole boy". His canned responses on issues also seem more abrasive than the canned responses of other candidates. The track record in business, as Massachusetts governor, and at the 2002 Olympics, however, all suggest that the Republican leadership could migrate his way in looking for an electable candidate, and his money will not hurt. Whether the issue of being a Mormon turns out to be a problem is hard to say, but one or two other candidates may take a behind the scenes low road on this.

Fred Dalton Thompson --- The man with the middle name is showing up well in the polls. In the absense of any of the other candidates really taking charge, he could be the default nominee, reassuring to Christian conservatives and the South, and with his Law and Order gravitas giving him national recognition and to some even credibility.

Sam Brownback --- He has no chance whatsoever unless there is a surprise showing in Iowa, and then maybe a Papal endorsement.

Mike Huckabee --- Huckabee is another long long shot but he's more disarming and straightforward with his comments than most. He asks that that Hope(AK) get another chance and unless it's a VP opportunity it will not.

Newt Gringrich --- He's not a candidate yet but he's wandering around the sidelines hoping that the team needs him. If he shows up with his esoteric, at times odd, and sometimes smart ideas, it's unlikely that he will have any impact with the exception of making the debates more entertaining.


Hillary Clinton --- Everyone knows that Clinton is an intensely hard worker and an ambitious politician. She's the frontrunner for the nomination and her biggest problem now is convincing party leaders and voters that is she is not too polarizing to actually win the Presidency. Her seemingly absolute belief in big government solutions may be too rigid for even some Democrats, her willingness to attack business interests for political points would not especially be a plus for the economy, but she may well be, by far, the strongest candidate in either party on foreign policy, both in knowledge and assertiveness.

Barack Obama --- Recently Obama has kept a lower profile and has simultaneously raised a significant amount of money. These are both good for him, as he was peaking too soon and he needed to demonstrate his viability with powerful party supporters. His ability to intelligently simplify complex issues is a great asset, but despite this and his charismatic effect on audiences throughout the country, his debate appearances have been relatively unimpressive, just not the best format for him it seems. He needs to pick up voter support early and he must win some southern states and California to have a good chance at catching Clinton.

John Edwards --- The trial lawyer background is very troubling, the "good ole boy" posing is a little too much for someone who worked part-time for a New York hedge fund last year and who lives in a 28,000 square foot house(no that's not a typo), but he's a real candidate. He apparently has a shot in Iowa, he did ok in New Hampshire four years ago, and he's the only Southern candidate in Democratic primary contention. If he uses his trial lawyer tactics to work the electibility issues on Clinton and Obama it is not impossible that he could slide in.

Christopher Dodd --- He may have respectable showings in Iowa and New Hampshire but after that there's no chance. Is he really running for V.P. after such a long career in Congress?

Bill Richardson --- He's credible on many fronts but he has no chance---another V.P. possibility.

Al Gore --- Polls show that Gore would be in the fray if he chose to run. It's not out the question that he could be pulled in if later polls showed disarray among the candidates and in the minds of voters. He seems to enjoy the attention of being considered and he also seems to be enjoying his "Inconvenient Truth" role too much to go through a presidential race. It's unlikely.


Michael Bloomberg --- He's not a candidate but there's a real possibility that he could decide to join the fun. Historically speaking of course, third party candidates don't have a chance but if ever one did Bloomberg could be it. He has name recognition, immense wealth to fund a campaign, successful business and government experience, and a reputation for sticking with his beliefs regardless of political fallout and weathering whatever storm developed. He has the advantage, if he chose to run, of not having to go through the demeaning and tedious cycle of debates held for the primaries. He would have the huge challenge of organizing a national organization and going through the rigorous process of meeting state ballot requirements. If he runs he's of course certain to win his primary and he would not choose a numbskull for a running mate, as has been the tradition of third party candidates. His candidacy would change everything as its laid out today even though his chances of winning would be slim to none.

Any comments out there? Defend your favorite.

The Yonder 40

The Yonder 40 is not the forty acres behind the horse barns. It's a new stock index of rural America created by http://www.dailyyonder.com/, a web-based journal that focuses on rural America. The 40 stocks chosen will be invested in and tracked by the website, and looked at as a way to gauge the relative economic health of 55 million rural Americans by tracking the Yonder 40 against a few major indexes.

For comparison indexes most people are familiar with Dow Jones Industrials, the S&P 500 and the Nasdaq. Other well known indexes are the Russell 3000 which incorporates the large number of mid-cap stocks or the Wilshire 5000 which adds in a big chunk of small-caps. For more esoteric comparisons one could go to http://www.stockpickr.com/ and find everything from Warren Buffett's portfolio to the Lindsey Lohan index, from Viking Global's hedge fund portfolio to the Golf and Fishing index. And then there's http://www.stockerblog.com/ which has a broad range of portfolios and indexes, with today's being The UFO Index. Whatever one's preference, the Yonder 40 will be there to follow and use for any comparison.

Check it out.

Sunday, July 01, 2007

Beautiful day in Danville, VA

Visiting this historic town that history has now passed by, it's still really attractive on a nice summer day. You cannot believe the house prices here, and it's not a new event. Since the economy has diminished, really fine houses are inexpensive by any comparative measure. Its new industry will likely be retirees, as its deficits like poor schools and no public transportation are not a negative to that demographic, and the nice homes and location within 50 miles of vibrant North Carolina cities(and hospitals) make it a bargain. And then there's always the possibility that an Asian manufacturer will see the inexpensive dedicated labor force available here, and make an investment that would turn these cheap homes into good investments. Don't bet on it, but why not dream.