Saturday, April 17, 2010

BAGAKOAA April 16, 2010 Im back and bloggin


April 16, 2010 Im back and bloggin

OK I am almost out of Masters mode and have written my note to Mark Parker CEO and President of Nike asking him to dump the arrogant, spoiled, unprofessional, rude, selfish, disturbed Tiger Woods. His disrespect for the game, its fans, and the event in Augusta should not go unpunished. If he never won or played another tournament the sport would be better for it. He has become the Mike Tyson of golf.

The market was basically on autopilot for the last few weeks. Not counting today which I will get to in a couple of paragraphs, the market has seen a 5% jump which I think was a little too much a little too fast. Regardless of what I think, there is a correction due and I do not think todays Goldman Sachs news has anything to do with that correction.

Let me share some of the plays in the Salve Lucrum portfolio over the last couple of weeks. Keep in mind that some of these decisions were tax based and not investment strategic. There were similar plays made in the various accounts I help manage. The last trade I described was a call and a long position on CCC Calgon Carbon Corp. They are a carbon material based water purification play I mentioned on March 28 in the blog. The call and the long were both in the green until today and now are even or slightly down.

On the 30th the ORP firm in DC insisted I take some profit and as a result I skimmed some cream from BA, MCD, GD, ARMH, GIS, RPM, COCO, CVX, INTC, and AAPL. So those proceeds were set aside for dispersement to the firm of Obama, Reid, and Pelosi, via their enforcement agency the IRS. Fortunately, they do great things with the money so I am glad and proud to give it to them because I am obviously not smart enough to determine where those funds should go. (Got sports handled, now politics, that leaves religion)

I also sold to close two very profitable calls on Home Depot and Intel. (Actually I sold 3 contracts at a nice profit and took the option on 7 of the in the money INTC calls.)

After determining my tax position for the 15th I was left with some cash to play. Between the 12th and today I initiated a position in a company called Bruker Corp out of Billerica Mass. I read about them in Spectrum the publication of the IEEE. They make scientific instrumentation products. What I liked about them besides the financials which I'll get to in a minute they have their fingers in quite a few places including pharmaceuticals, biotech, medical schools, nano-technologies, MRI/MRA technologies, petrochemical interests to name a few. In looking at 10Qs, their free cash flow is looking very healthy, they are paying down their long term debt, their ROE is a healthy 19%, and shareholder yield is steadily getting better and better. I am in at 14.69 and added to it several times over the last week or so. I am think and intrinsic value of about 23 for the next 6-12 months. I have a stop placed on all share at the 13.50 level. Do your homework and take a good look at the 115 million in long term debt and see how it is structured. PLEASE do your homework before committing to this speculative stock.

I also just established a new position on the iShares silver ETF SLV. A buddy of mine is a silver coin guy and was asking me what I thought about silver. I did some homework and felt a small position in this ETF as a volatility inflation hedge might be fun. Like GLD and gold, SLV tracks the per ounce price of silver currently selling at 17ish a share.

On top of those new positions I added to a few of my existing positions in KTCC COCO, SBUX, TQNT, HAS, CCC ( I added to that several times over the last week or so), INSM, INTC and GD.

I did take a fairly painful loss on a March 125 IBM call letting it expire worthless, but offset some of that loss by taking a nice profit from a May call on PNRA Panera Bread. I owe that one to Mr. Cramer. He pimped it, I did the homework, liked what I saw, got the call, it went up 74%, had a stop set at a 55% gain and the stop triggered.

Ok is today's correction market related or specific cause. My guess is this is GS specific. The only thing making me think other wise is the reaction of the VIX. By definition I guess the VIX, (Volatility Index measure by the Chicago Board of Option Exchanges-CBOE, easily traded with the Barclays iPath ETF VXX) should move with news like this but not 5-6% in one day. That usually indicates the hedge fund people and investment fund people are smelling something bigger than a 15 million dollar transaction for 2007.

The whole GS issue is a charge related to this 2007 synthetic CDO trade netting Goldman 15 million. That is not a lot of money for Goldman, but the deal stinks. Without getting to technical and believe me this is way over my head, a CDO is a collateralized debt obligation and are usually a bucket of fixed income assets like bonds or mortgages. In this case the CDO was not asset backed and it was misrepresented as an asset backed CDO. A non-asset backed CDO is called a synthetic CDO. Again this gets very technical and confusing but let me use a Las Vegas casino analogy since so many of you like gambling.

When you stand at the roulette wheel at Ceasars, you make a bet on any number, you know it is a gamble but if your number comes up you get 35 to 1 odds. (remember there are 38 numbers on the wheel so the house has an automatic 5.3% edge by taking two number out of play for a straight up bet.) Anyway at least you know you have a chance to win 35 dollars for every dollar you bet on each number. A CDO is much the same its a risky bet that you buy a mixed back of debt and hope to get the money back. The odds are probably better than 35 to one, but at least you know what the risks are because you would have a good idea of the underlying obligations that the CDO is based upon. A synthetic CDO is a little different as you dont know what the assets and there may be no assets at the end of the day. So lets go back to the casino analogy.

So there you are standing at the roulette wheel at Ceasars and you are ready to place your bet on the roulette wheel and Gary Loveman, CEO of Harrahs Entertainment walks up and says “Boys and Girls and Kids of All Ages, step right up and place your bet on the roulette wheel.” (I'll sue him later for using BAGAKOAA), but Gary goes on to explain they will be putting a cover over the roulette wheel so you can't see the ball spin or the ball drop, and they will put a cover on the numbers field so you can't see the numbers you are betting and quite honestly that is what a synthetic CDO is. Except Gary does not even need to spin a ball, he can call out any number he wants. He can make sure his buddy like Henry Paulson wins every time. And that is why the market took a hit today.

Now for the back story on the GS situation. Is it a coincidence that all of this is happening a week before a senate debate about investment banking reform. JPM and GS have spent millions building a defense via lobbyist on both sides of the aisles to keep investment banking reform to a minimum. Now the big bad investment brokerage firm of Goldman is portrayed as a slimy dishonest, greedy, back door dealing monster over one transaction in 2007 worth 15 million dollars. Is this a coincidence that SEC chose now and this small infraction to actually file charges?

Its good to be back.

Salve Lucrum


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