Whitney Tilson Called the Bailout in March 2008, Now He Has More to Say

October 31, 2008

Whitney Tilson’s name spread like wildfire on the web after his firm T2 Partners released what was then a controversial bearish outlook on the economic impact of a rapidly deteriorating mortgage market.  He was so spot on, I have no problem giving him an unsolicited gratuitous plug.  Whitney Tilson is the founder and Managing Partner of T2 Partners LLC and the Tilson Mutual Funds.

This is the excerpt from a post he wrote on Seeking Alpha in March:

We’ve been working on nonstop for the past two weeks on a presentation entitled: “Why We Are Still in the Early Innings of the Bursting of the Housing and Credit Bubbles – And the Implications for MBIA and Ambac.”

Amherst Securities provided us with some incredible – and very sobering – data that leads us to the following conclusion (see page 19):

‘In summary, today we are only seeing the tip of the iceberg: an enormous wave of defaults, foreclosures and auctions is just beginning to hit the United States. We believe it will get so bad that large-scale federal government intervention is likely.’

Another implication, covered starting on page 57, is that MBIA and Ambac (which remain among our biggest short positions) are in big trouble.

Well that presentation is no longer available, but in its place is a new one.  In an October 8th, 2008 presentation titled “An Overview of the Housing/Credit Crisis, Why There is More Pain to Come, and Three Investment Ideas”  Tilson outlines that we are not out of the woods yet.

Defaulting Subprime and Alt-A Loans Are Responsible for the Current Mortgage Crisis and Credit Crunch. The Next Leg Down Will Be Driven By Defaulting Prime Loans, Primarily Option ARMs, Home Equity Lines of Credit (HELOCs) and Second Liens (Closed-End Seconds)

This presentation is really worth a read.  When you are through, you will understand why Steve Schwartzman told his traders to go home until next year.  Although Tilson has recently been quoted as saying that he is buying stocks like Warren Buffett, hand over fist.  Nonetheless, his overview offers a sobering perspective on why it might be wise to sit on the sidelines, at least for a little while longer, particularly if you don’t have the stomach for the current roller-coaster.

He does make three very strong conviction calls, also worth reading it for.  I don’t get paid for this, nor any form of remuneration, but you do have to sign up for the Value Investing Congress’ website to gain access to the pdf.  To access the presentation, click here.  If you don’t like where that link takes you, go to the prior page here, and look for the presentation on the lower right hand side.

If you have trouble accessing the presentation or would like a copy of the old one, please just email me at greenewable@gmail.com, or post a comment with your email address.

Sources:
An Overview of the Housing/Credit Crisis, Why There is More Pain to Come, and Three Investment Ideas
Whitney Tilson, T2 Partners LLC, October 8, 2008
http://www.valueinvestingcongress.com/downloads/ny08/t2_partners/index.php

Why We Are Still in the Early Innings of the Bursting of the Housing and Credit Bubbles – And the Implications for MBIA and Ambac
Whitney Tilson, T2 Partners LLC, March 10, 2008
Unavailable Link

Why We’re Still in the Early Innings of the Bursting of the Housing and Credit Bubbles – And Implications for MBIA and Ambac
Whitney Tilson, Seeking Alpha, March 8, 2008
http://seekingalpha.com/article/67665-why-we-re-still-in-the-early-innings-of-the-bursting-of-the-housing-and-credit-bubbles-and-implications-for-mbia-and-ambac

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Nice Post on Market Movement Measured Only on the First Trading Day of the Month (1995-2008)

October 31, 2008

I stumbled on a new blog.  O.k. it’s not really new at all, but it was new to me.  But I found this to be very interesting.  Original text from Crossing Wall Street by Eddy Elfenbein:

The First Trading Day of the Month

As we get set for the weekend, I’ll remind you the first trading day of the month has performed very well. Over the last 13 years, the S&P 500 is up 64.1%, but the combined return of the first trading day is up 68.6%. The first day of the month makes up slightly less than 5% of trading days.

S&P 500 and the First Trading Day of the Month

S&P 500 and the First Trading Day of the Month

If I’m reading this right, Eddy says to load up on Halloween and sell on November 1st at the close.  Trick or Treat?

Thanks Eddy!

Source:
The First Trading Day of the Month
Eddy Elfenbein, Crossing Wall Street, October 30, 2008
http://www.crossingwallstreet.com/archives/2008/10/the_first_tradi.html


Seven Weeks of Financial Turmoil

October 30, 2008

This link to a New York Times multimedia project looks back at 2008 and highlights the events leading up to today.

It’s like a greatest hits, or like a play by play.  Either way, its funny how quickly the media has been working to cement history.

This great project is interactive and updated as episodes prove worthy for inclusion.

Seven Weeks of Financial Turmoil

Seven Weeks of Financial Turmoil

Source:
Seven Weeks of Financial Turmoil

R.M. Schneiderman, Gregory Roth, Mark Getzfred, Erik Olsen and Elisabeth Goodridge, New York Times, September 28, 2008
http://www.nytimes.com/interactive/2008/09/27/business/economy/20080927_WEEKS_TIMELINE.html


Give Me a Gallon and I’ll Give You the World

October 29, 2008

With oil dropping to the low $60 range, and a number of analysts and pundits calling for $50 oil, there is a growing debate over the future of alternative energy investment.

The argument that green energy investing will come to a grinding halt, however, is no more shortsighted than the argument that $50 oil will be sustainable. Even if McCain were elected and oil subsidies had higher hopes for a continuation, a long shot at this point; the cost of a number of the current extraction technologies combined with strategic hoarding at the national level, and future cuts from OPEC are sure to drive current oil prices higher. And with an Obama victory a strong carbon-call option will begin to price itself into the marketplace.

After having experienced $150 oil, the world will unlikely return to the good old days any time soon.  Consumers, companies and countries have been pinched by the let’s not get there again bug.  The price spikes in oil in the 1970’s impacted worldwide demand for almost a decade, despite global growth. The result was extremely cheap oil in the years that followed.

However today the price of oil has become quite sensitive to a number of factors, not the least of which is the perception of peak oil and the smallest imbalance in supply and demand.  In addition, with the advent of two wars in Afghanistan and Iraq, a potentially unstable Iran, and a major contraction in the Russian economy, not to mention five sigma natural disasters, and the increasing costs of extraction, there are almost too many reasons for oil to go up for it not to have the occasion to do so again, in fairly short order.

Oh yeah, and lets not forget what helped drive oil that high to begin with: another two billion people who would like to live like Americans.  That amounts to about five more USA’s worth of emerging consumers, all of whom would like warm homes, infrastructure and personal transportation.  While economists are screaming “bloody recession”, we need to keep some perspective on what that really means.  Just because nearly every major economy may slow down for a short period does not imply that every economy will grind to a halt.  A country with GDP growth rates in the low double digits who slows to the high single or even middle single digits, is still growing awfully rapidly.

If any of these countries does believe in peak oil, there is still going to be an incentive to hoard reserves, particularly at today’s prices.

Add to all of that that a number of the hot extraction technologies of recent days, including tapping into hard-to-extract tar sands, and other such energy and labor intensive methods require higher oil prices to remain profitable.  Without those technologies, the supply falls anyway, pushing the price back up, again making them attractive.

Lastly one more catalyst for the rapid fall in nominal oil prices has been the quick acceleration in the strength of the dollar, in relative terms.  Oil along with other basic commodities has become the dollar hedge trade du jour.  With interest rates headed as close to zero as the fed can stomach and the massive amount of greenbacks being printed by the Treasury there is little reason to believe that a strong dollar will be maintain for any significant period of time.

At the end of the day, I’d bet the mid and long term price of oil is higher than today.


Nice Interactive Chart on The Rise and Fall of Home Prices, Nationally and by Select Cities

October 29, 2008
Home Prices in Selected Cities Through August ’08

Interactive Chart: Home Prices in Selected Cities Through August ’08

Source:
Home Prices in Selected Cities Through August ’08

Vu Nguyen, Seth Feaster, Kevin Quealy, The New York Times, October 28, 2008
http://www.nytimes.com/interactive/2008/10/28/business/20080624_HOUSING_GRAPHIC.html


Is the Greening of America Sustainable?

October 29, 2008

2008 will mark another record year for green headlines, green products, and green speak in general.  The media is selling green, ironically much of it on virgin paper using nasty chemical inks; and corporate America has figured out that there is a green demographic that spans ages, genders and races and that may in fact not be reachable through traditional advertising channels.  But what does all the green speak mean?  What is it for, and what is it after?

It seems that much of the greening of America, at least to the average consumer, and as conveyed by mainstream media, is a movement orchestrated by an endless array of bamboo toothpicks, each one stabbing at a different issue and each issue with its own subjective level of importance.  Recycling, organics, fair-trade, efficiency, alternative energy, waste, pollution, each of these are important topics, but unfortunately few of players in the mass-media have taken any time to tie all of it together.

I wonder how many Americans really have taken some time to understand the concept of sustainability and have a broader view of the problems facing us as we awaken into the 21st century. I have never actually seen anyone stop for a clipboard-armed Green Peace volunteer running interference on the sidewalks of Manhattan. Climate change, global warming, air pollution, peak oil, clean water or water shortages, and war, when lumped together, all sound like biblical prophecies espoused by some dogmatic nut-of-the-month outside of St. Patrick’s Cathedral in Manhattan.  I think it’s fair to say that many of us feel that our way of life is fine, as long as we make incrementally better choices.  Green is fashionable, and so is Project Runway.

Prior to the financial crisis the media would have had a visitor from Mars believe that every American was committed to building a greener and more sustainable country. Hundreds if not thousands of magazine and newspaper covers have had something green on them. Editors often try way too hard to coin the next cute headline like: A Brighter Future Begins by Turning Off the Lights. I wonder how far past the surface our collective green temperature permeates? Is it just a fad that people want to be connected to like Internet start-ups, bell-bottoms, big hair or smoking? Green is sexy. Green is cool. Green sells.

How many Americans really take the time to consider that the planet has another two billion people in China and India, not to mention the rest of the developing world, who are on the cusp of beginning to live the way we do? Globalization is raising living standards around the world. How many people realize that as of yesterday we needed three to five planets just to sustain our current lifestyle?  That is without the rest of the world jumping on the consumption bandwagon. Have we really considered how replicable American consumption is when it means that we will compete for natural resources with a population three to six times larger than our own? Capitalism is great, as is democracy.  But do we really need all this stuff?  I was at a party in the Hamptons last summer, and actually overheard a conversation between two people comparing how many homes each of them had, the winner had five.

I know that there are a host of brilliant and dedicated people committed to finding sustainable solutions for our future. As the internet changed our social, financial and political economics in the last decade, the ideology of sustainability can also rewrite the economics and business models of our future. The next revolution will be the greening of the first industrial revolution, and it will likely be of equal or greater impact on our social history.

However, I am forced to wonder how much faster we can transform an inevitable shift if we had a deeper and broader understanding of what it really means to build a sustainable future. I wonder if baby boomers today can even imagine the idea that most of their grandchildren will be forced to share the planet with two billion more people than they had to.

Green-washing in the media is not a bad start. As Hunter Lovins likes to say, hypocrisy is the first step. Organizations often get hooked on real sustainable endeavors that begin with hot air. The positive consumer response and cost savings resulting from intelligent green strategies becomes a positive feedback loop that forces more investment.  But such efforts only take care of the means of production.  To truly build a sustainable planet we are going to need to focus on sustainable consumption.

For most Americans, however, I’m willing to bet that the current green movement is not sustainable. It’s not sustainable because in practice our collective level of consumptions is not sustainable, but also because at some point, as we always do, we are going to get tired of hearing the message, particularly if we don’t notice a direct impact or see a discernible change.

So what if you fill your house with more environmentally friendly products?  Sure, maybe they’ll harm less people in their manufacturing or they’ll degrade faster in the landfill, but is that really going to solve the problem? A bigger problem is the McMansion that gets filled with all that stuff that no one needs or uses. Compounding that is the long commute to the job that is required to afford to pay off the mortgage on the McMansion. Or consider the eco-friendly yuppie who decides to throw away everything that isn’t green just so he can replace them with green equivalents.

In short, I’m afraid that in our current form all of the green-speak will eventually begin to sound like a bad commercial that has aired too many times.  I’m afraid we will grow numb to the messaging and in turn lose the message. That said, I think American’s need to begin to look a little deeper than the greener choices in their holiday catalogues. While I’m sure the recession will temporarily help us learn to live on less and with less, I hope that our collective mind graduates from green to sustainability in short order.


Green Festivals – The World’s Largest Environmental Expo

October 29, 2008

While many of us are looking to cut down on expenses, investing a few bucks to catch your local Green Festival may actually end up saving you more money in the long run.

Last year I made it to my first Green Festival in Washington D.C.  As a self proclaimed eco-geek, I was looking forward to it as much as kids anticipate Halloween.  I was even more fulfilled than I imagined, so of course this year my trip is now becoming an annual tradition.

The upcoming Green Festival in the Mid-Atlantic region is going to be in Washington D.C. over the weekend of November 8th and 9th.  Sure the speakers are a who’s who of lefty liberals, but the green gadgets are really cool!

For information on where Green Festivals happen, click here or follow the link below.

Source:
Green FestivalTM, a joint project of Global Exchange and Co-op America
http://www.greenfestivals.org/