A NYT Piece everyone should read

Roger Lowenstein's Piece on the snafu's of the ratings agencies. There are some classic quotes by agency executives. Most notable is an S&P executive claiming that this whole mess started due to "ahistorical behavioral modes"by buyers of homes. Riiight.... yet another example of America: the land devoid of personal responsibility.

Lowenstein on Mortgage Ratings Agencies

Ed Wallace Telling it Like it is

Definitely worth reading. It seems to me that Oil is becoming a better inflation proxy than gold... which is very puzzling to me.

Ed Wallce on Energy

Interesting Data Point

Courtesy of Bloomberg:

The S&P 500 dropped almost 10 percent in the first quarter, the worst start to a year since 2001, as increasing unemployment, record mortgage delinquencies and a retreat in consumer confidence signaled that the economy is falling into a recession.

Even with the decline, analysts' recommendations to ``buy'' or ``hold'' U.S. shares climbed to 94.5 percent, the highest rate in more than five years.

If that isn't a contrary indicator I certainly don't know what one is.....

A differing View

I'm more than happy to entertain those whose views differ from mine so long as they are somewhat grounded in reality and accruedinterest has a great post today explaining how we've probably seen the last of the large swings and width of spreads.

Its against my programming to call bottoms

Friday's discussion on bearish market sentiment was really great. Thanks for all who commented.

Most of the comments seemed to focus on stock prices. As a bond pro, I spend my time thinking more about yield spreads, both in credit and other sectors. As discussed many times (many, many, many times), there were two elements causing spreads to widen: poor liquidity and weaker economics.

Liquidity has improved dramatically since the Bear Stearns bailout. The feeling is totally different than in some of the other false rallies (in credit) we've experienced since September. Previously, any hiccup would cause spreads to move drastically wider. There were times when we moved a bit tighter, then some writedown would be announced, and it would all go to hell again. It isn't as though we haven't had hiccups the last couple weeks. The 200 point sell-off on GE's earnings is an example (I wrote about this here). Or Wachovia's need for more cash. Or Bank of America's weak earnings report. Now these events are taken in stride. Spreads have moved wider on certain days, but its controlled, more reasonable. Not panicky. I won't say that spreads (especially in CDS) aren't still volatile. The massive amount of shorts in CDS that have been or are being covered is seeing to that.

Plus the correlation of spreads has broken down. Now it isn't necessarily true that agency debt, MBS, and credit all move the same direction on any given day. Hell municipals had become highly correlated with credit spreads. Now it seems that these spreads are moving on their own supply and demand conditions, not on liquidity fear.

So am I calling a bottom? Well, I don't really invest that way, so if I didn't have a blog, I wouldn't really think about a "bottom" very much. I try to stick to fundamentals and spend only a little time on technicals. Liquidity is part of any fundamental analysis of a bond, so indeed it became tough to value many different bonds in recent months. And deep fundamental investors tend to be a little early, seeing the fundamentals shift and/or pricing (un)attractive before the market actually shifts.

But yeah, if you stick a gun to my head, I'd say we've seen the wides in credit spreads. Not because the economic problems are solved, but because liquidity has improved to the point that people are willing to be opportunistic. That will put a lid on how far investment-grade names will move before yield hungry investors come in. Issuers will be able to come to market with new issues, and the wheels of the credit market will continue to churn.

I personally think he may be right for the next couple quarters, however liquidity is a coward and when the economy as a whole starts to deteriorate I do believe we'll find far less people willing to "be opportunistic". I think that we are more in a wait and see approach an the bond market reflects this.

Now thats a pricey Meat-a-ball

just found this article and I'm stupefied that someone would actually pay that much... I guess absurd valuations are not a thing of the past when it comes to the web.

Updated: Bebo's Revenue Numbers: Not So Big; AOL Paid 160 Times EBITDA: Report

By Rafat Ali - Thu 13 Mar 2008 09:28 AM PST

So we reported on the return the investors got, but not on Bebo's actual revenue numbers. Kara digs in and reports on some of the real revenue numbers: Bebo's revenues for 2006 were only $7 million with $3 million in EBITDA...In 2007, the results are still small, with $20 million in revenues and $5 million in EBITDA. Based on these numbers, AOL (NYSE: TWX) paid a huge 42.5 times revenues and 160 times EBITDA.

Even looking at projected numbers (which of course may or may not materialize)--$50 million in revenue and $10 million in EBITDA in 2008; $117 million in revenue and $48 million in revenue in 2009 and $193 million in revenue and $92 million in EBITDA in 2010-- it is a very rich deal, for the founders and investors.

Kara says that the high asking price (around $1 billion) and smaller U.S. presence (big in UK and Europe) made others like News Corp (NYSE: NWS). MSFT and others pass on the deal. Allen and Co was hawking the firm.

Updated: comScore (NSDQ: SCOR) also reports Bebo's increase in total unique visitors in 2008 compared to 2007:

-- In January 2008, Bebo had 22.4 million unique visitors worldwide with visitors averaging more than 3 hours and 30 minutes on the site during the month.
-- In February 2008, Bebo had 4.8 million unique U.S. visitors with visitors averaging 1 hour and 40 minutes on the site during the month.
-- In January 2008, 60 percent of Bebo's traffic came from Europe, followed by North America with 22 percent, and Asia-Pacific with 16 percent.
-- In January 2008, there were 11.4 million unique visitors from the United Kingdom to Bebo, representing the largest proportion of the site's worldwide traffic.

I heart John Williams

M3 is something that everyone should be conscious about. It was what Volcker based his entire regime on yet Bernanke decided it was the first thing he'd get rid of.




You can enjoy all of John's commentary at his site
www.shadowstats.com

Friday April 18, 2008

Well as it turns out I'm not very good at posting with any real regularity as my almost 8 week absence has shown. Very long procrastination and short relevant information aggregation (shout out to LOS Capital on that last sentence). So with that said I'll make a more conscious effort to at least put together a bunch of posts relevant to what I've learned today.

ES up 15.75 on a very easy money day and I only managed to make 1.75 points.
(Spent too much time attempting to study my CFA books rather than watching the market)

Mulling current Ideas...

Short Consumer monthlies (eg subscription content as well as other services)

Best Working Idea (Short Public Storage PSA)

Risk is appx 5.25%
1st buying support is 85-80 (Reward of 10.53%-15.78%)
2nd support is around 70-65 (Reward of 26.32%-31.58%)