Bill Cara: Saturday’s Commentary & Chat, 09/01/2007 12:02 PM ET

« Cara’s Commentary & Community Chat, Fri., Aug. 31, 2007, 7:23 AM ET | Main | Week in Review #35 (2007-09-01) »

September 1, 2007

Saturday’s Commentary & Chat, 09/01/2007 12:02 PM ET

The two free Dow 30 reports from Value Line this week are: (Cara 100) Johnson & Johnson (JNJ) and one that will never be a Cara 100, General Motors (GM).

(GM: Value Line Report Aug. 31: next one is due Nov. 30)

(JNJ: Value Line Report Aug. 31: next one is due Nov. 30)

Regarding my GM comment, this company goes from one crisis to the next. The latest one is their foray into sub-prime lending in the US real-estate market via the company's GMAC Mortgage unit and the country’s biggest online mortgage lender, ditech.com.

Ditech is the company that advertises ubiquitously on CNBC their first mortgages, fixed-rate second mortgages, and home equity lines of credit.

In 2006, GMAC got into such a state that GM had to sell majority control of the unit to Cerberus Capital Management and Citigroup. In any case, 25 years ago when GM (and Ford and Chrysler) was watching Honda, Toyota and Nissan meet the needs of the car buying American public, while keeping control of costs, their management thought the better plan was to build a nationwide network of financial services and banks.

So, among the auto manufacturers, who understands the customer best? Isn’t that the issue? Commitment, focus, serving the customer…

Thirty-five years ago, while at undergraduate business and MBA school, I recognized that education in North America was built on a faulty premise. Students were challenged to get involved in intellectual games rather than being taught street smarts, simple things like meeting the needs of customers.

The arrogance of some of these professors and their leading academic students caused them to dismiss the most simple, elegant solutions to problems that were sitting on the end of their noses. Instead, they ventured into theories that went from the sublime to the ridiculous. In the financial field, the random walk and efficient market hypothesis theories are good examples.

I played the game and won the business school medal, and then immediately went into public and management accountancy programs with KPMG and PricewaterhouseCoopers to get a practical education for five years. From there I spent nine years of building a street-smart management advisory before I felt ready to tackle the white shoes world of high finance.

Today I laugh at the deer-in-the-headlights look of the finance students who, having been immersed in a mumbo-jumbo of theories at school, can’t get their heads around the simplest problems of the world of business and finance.

Certainly, nobody has taught them how to trade in capital markets. As an example, I happened to watch a few of the CNBC MBA challenges. The students in this CNBC game excelled at anything to do with rote memory and regurgitation, but when the two winning school teams (Yale and Texas) were required to invest about $100,000 in five stocks for six weeks, the results were so embarrassing the show’s producer did not even tell us the summary results. There were however nine losers of the students’ ten top picks, and the one winner was about 2 pct while the losers were doozies that would have decimated any portfolio in that brief time. By sitting in a hypothetical 30-day T-Bill, which may have been an effective tactic at that point, a school would have won $200,000 real USD. They couldn’t think outside the box however because of their schooling and the social pressure to do what was expected by Wall Street and the media.

These are the brightest students in America, apparently, and some, presumably, are going to be managing portfolios in the largest financial services companies in the world. So, they are ill-equipped to start; when are they going to learn something practical? When are they going to learn that life is about standing on your own two feet, and doing things that you believe are needed to be successful?

At the end of the day, these students will become successful only if they join the right work teams, keep their mistakes in check, and slog away building on the little things that work. In other words, they have to toss aside their theory-based $250,000 education and start from scratch on practical stuff.

General Motors and their American counterparts have to do the same thing. They need to get out of the financing business and stick to the auto manufacturing business. They need to build plants around the world to serve customers in the local markets, with products built by local people, and American technology and financing. They need to adopt the Frank Stronach Magna Industries business model, where each plant/business operation is a separate profit center.

Until I see the rapidly becoming smaller Big 3 auto manufacturers do the common sense thing, I’ll never put them into the Cara 100.

I’ll discuss in the Week In Review tomorrow the reasons why Johnson & Johnson (JNJ) stays in the Cara 100 year after year, despite my concerns that the operating metrics have been retracting in recent years.

Table 1: Cara ETF List

Sorted by 1-Week Price Performance
Symbol Close 1Day
Change 1Day
%Change 1W
%Change 2W
%Change 4W
%Change YTD
%Change 3M
%Change 6M
%Change 12M
%Change

XLE 69.70 0.80 1.16% 0.81% 3.26% 5.41% 23.19% 2.27% 22.50% 25.20%

XLY 37.12 0.60 1.64% 0.60% 4.42% 2.06% -3.63% -7.25% -2.90% 12.76%

SMH 37.89 0.49 1.31% 0.56% 3.67% 2.16% 12.87% 3.21% 10.15% 11.15%

IYZ 33.19 0.25 0.76% 0.06% 3.46% 1.16% 11.90% -3.88% 8.46% 23.66%

XLI 39.31 0.48 1.24% 0.00% 3.45% 0.41% 11.58% 0.46% 10.98% 21.89%

XLB 39.35 0.60 1.55% -0.13% 6.64% 2.42% 13.70% -3.79% 5.07% 23.35%

XLP 27.06 0.23 0.86% -0.18% 1.54% 1.54% 2.97% -2.49% 2.89% 6.03%

IYH 68.59 0.38 0.56% -0.22% 1.92% 2.14% 3.20% -5.16% 2.48% 5.69%

XLU 38.81 0.17 0.44% -2.02% 0.47% 2.27% 5.40% -7.11% 0.94% 11.62%

XLF 33.70 0.35 1.05% -2.43% -2.32% 5.12% -8.72% -11.01% -6.26% 0.69%

Table 2: Senior oil & gas equities

Sorted by 1-Week Price Performance
Symbol Close 1Day
Change 1Day
%Change 1W
%Change 2W
%Change 4W
%Change YTD
%Change 3M
%Change 6M
%Change 12M
%Change

CEO 122.90 5.80 4.95% 4.44% 19.81% 8.25% 30.37% 30.69% 52.61% 40.99%

PBR 61.84 2.55 4.30% 4.32% 14.35% 0.11% 24.10% 14.35% 36.81% 37.94%

SU 89.39 2.19 2.51% 2.44% 3.52% -0.31% 20.94% 2.53% 25.67% 15.22%

STO 28.78 0.57 2.02% 1.30% 7.27% 0.10% 12.03% 5.42% 12.60% 6.47%

TOT 75.09 1.38 1.87% 0.93% 4.49% 1.67% 5.81% -0.48% 11.54% 11.36%

CVX 87.76 0.57 0.65% 0.62% 4.03% 8.32% 23.66% 7.69% 27.91% 36.27%

XOM 85.73 0.33 0.39% 0.05% 1.89% 4.45% 15.68% 3.08% 19.60% 26.69%

IMO 43.83 1.11 2.60% -0.16% 8.04% -1.48% 22.91% -5.86% 22.77% 16.04%

ECA 58.50 0.45 0.78% -1.55% -0.22% -4.82% 29.03% -4.72% 20.37% 10.92%

Table 3: Senior metals and steel equities

Sorted by 1-Week Price Performance
Symbol Close 1Day
Change 1Day
%Change 1W
%Change 2W
%Change 4W
%Change YTD
%Change 3M
%Change 6M
%Change 12M
%Change

PKX 153.31 5.22 3.52% 8.62% 18.04% 12.69% 93.01% 28.51% 65.38% 146.84%

RIO 49.33 1.36 2.84% 3.79% 23.02% 5.50% 71.17% 8.54% 44.58% 130.08%

GGB 24.04 1.12 4.89% 3.18% 17.84% -2.91% 46.41% 5.72% 40.17% 65.56%

MT 66.20 1.75 2.72% 2.89% 19.65% 4.93% 62.25% 10.35% 30.16% 93.28%

BHP 63.15 1.34 2.17% 1.38% 15.24% 3.98% 62.46% 19.97% 46.79% 50.00%

RTP 274.80 10.40 3.93% 0.28% 12.30% 3.13% 34.64% -6.20% 26.83% 36.41%

AA 36.53 0.38 1.05% -0.44% 9.73% 0.97% 24.55% -11.51% 9.34% 27.77%

TS 46.93 0.36 0.77% -0.68% 4.99% 0.62% -3.28% -5.48% 3.35% 27.84%

TCK 42.63 1.60 3.90% -1.77% 9.96% 1.00% -38.44% 0.92% -39.46% -36.20%

NUE 52.90 1.02 1.97% -4.01% 6.63% 2.96% -2.94% -21.68% -13.09% 8.25%

Table 4: Senior capital goods makers and transportation

Sorted by 1-Week Price Performance
Symbol Close 1Day
Change 1Day
%Change 1W
%Change 2W
%Change 4W
%Change YTD
%Change 3M
%Change 6M
%Change 12M
%Change

ERJ 45.16 1.18 2.68% 6.86% 5.34% 1.92% 10.74% -6.85% -0.42% 16.99%

ABB 24.66 0.61 2.54% 3.44% 12.14% 5.75% 38.38% 14.86% 47.31% 84.86%

MMM 90.99 1.63 1.82% 2.06% 3.60% 3.92% 16.27% 3.44% 22.83% 26.90%

HON 56.15 -0.14 -0.25% 0.63% 3.10% -3.49% 24.50% -3.04% 20.91% 45.02%

UTX 74.63 0.79 1.07% 0.40% 1.10% 0.95% 18.82% 5.78% 13.71% 19.01%

CAT 75.77 1.11 1.49% -0.72% 4.31% -4.04% 23.89% -3.58% 17.62% 14.20%

FDX 109.68 0.71 0.65% -1.26% 1.56% 1.03% -0.08% -1.74% -3.94% 8.56%

GE 38.87 0.47 1.22% -1.37% 1.09% 2.13% 2.37% 3.43% 11.31% 14.12%

BA 96.70 -0.15 -0.15% -1.80% 0.80% -7.23% 8.44% -3.87% 10.81% 29.11%

Table 5: Senior consumer discretionary equities

Sorted by 1-Week Price Performance
Symbol Close 1Day
Change 1Day
%Change 1W
%Change 2W
%Change 4W
%Change YTD
%Change 3M
%Change 6M
%Change 12M
%Change

JCP 68.76 2.77 4.20% 4.42% 1.79% 4.61% -11.91% -14.56% -15.23% 9.07%

NKE 56.34 0.58 1.04% 4.10% 3.43% -0.28% 15.38% -0.72% 7.85% 39.52%

EBAY 34.10 0.50 1.49% 0.06% -0.12% 2.34% 13.03% 4.73% 6.36% 22.40%

SBUX 27.55 0.20 0.73% -0.14% 3.18% 4.71% -21.84% -4.37% -10.73% -11.16%

BC 25.15 0.27 1.09% -0.24% 1.41% -7.74% -21.21% -26.95% -22.97% -12.37%

CCL 45.59 0.59 1.31% -0.57% 1.09% 4.54% -10.52% -9.62% -1.79% 8.81%

TM 115.68 2.39 2.11% -0.78% 1.02% -2.71% -14.50% -4.21% -13.35% 6.77%

DIS 33.60 0.13 0.39% -0.80% 2.82% -0.88% -1.75% -5.19% -1.93% 13.32%

WHR 96.41 1.26 1.32% -1.69% 2.97% -1.39% 13.88% -13.65% 9.30% 19.16%

Table 6: Senior consumer staples equities

Sorted by 1-Week Price Performance
Symbol Close 1Day
Change 1Day
%Change 1W
%Change 2W
%Change 4W
%Change YTD
%Change 3M
%Change 6M
%Change 12M
%Change

ABV 69.97 2.55 3.78% 4.97% 18.13% 7.41% 42.51% 3.20% 44.66% 55.97%

DEO 85.42 1.77 2.12% 2.71% 8.22% 4.86% 7.41% 0.04% 7.60% 19.47%

BUD 49.40 1.00 2.07% 2.07% 4.55% 0.92% 0.37% -7.39% 0.65% 0.04%

MO 69.41 0.16 0.23% 0.32% 2.69% 4.22% 6.92% -2.38% 9.74% 10.72%

WAG 45.07 0.45 1.01% -0.07% -1.31% 2.22% -2.17% -0.13% 0.81% -8.88%

WMT 43.63 0.31 0.72% -0.25% 0.32% -4.15% -8.24% -8.34% -9.67% -2.44%

PEP 68.03 0.17 0.25% -0.28% -1.95% 2.35% 8.47% -0.44% 7.73% 4.21%

KO 53.78 0.38 0.71% -0.41% -1.23% 0.94% 10.70% 1.49% 15.21% 20.02%

WFMI 44.26 0.11 0.25% -0.63% -0.09% 9.72% -2.68% 7.69% -7.35% -17.46%

PG 65.31 0.30 0.46% -0.94% -0.06% 3.86% 1.19% 2.77% 2.87% 5.51%

Table 7: Senior healthcare equities

Sorted by 1-Week Price Performance
Symbol Close 1Day
Change 1Day
%Change 1W
%Change 2W
%Change 4W
%Change YTD
%Change 3M
%Change 6M
%Change 12M
%Change

DNA 74.81 1.28 1.74% 1.77% 3.02% 1.89% -8.55% -6.22% -11.42% -9.34%

AET 50.91 0.44 0.87% 1.64% 3.81% 3.24% 18.73% -3.82% 15.00% 36.60%

UNH 50.01 0.96 1.96% 0.81% 0.42% 5.28% -4.87% -8.69% -4.20% -3.73%

PFE 24.84 0.29 1.18% 0.40% 3.76% 5.66% -5.52% -9.64% -0.48% -9.87%

BMET 45.83 0.00 0.00% 0.31% 0.50% 0.84% 10.51% 5.07% 8.32% 40.11%

GSK 52.22 1.00 1.95% 0.00% 3.02% 2.37% -2.95% 0.08% -7.03% -8.03%

JNJ 61.79 0.19 0.31% -0.15% -0.37% 2.05% -6.94% -2.34% -2.00% -4.44%

NVS 52.65 0.42 0.80% -0.17% -0.02% -1.57% -9.44% -6.28% -5.02% -7.83%

AMGN 50.00 -0.08 -0.16% -0.54% -0.16% -1.77% -26.90% -11.43% -22.14% -26.38%

BMY 29.15 0.35 1.22% -1.35% 5.39% 4.11% 10.50% -3.83% 10.46% 34.02%

Table 8: Senior financial company equities

Sorted by 1-Week Price Performance
Symbol Close 1Day
Change 1Day
%Change 1W
%Change 2W
%Change 4W
%Change YTD
%Change 3M
%Change 6M
%Change 12M
%Change

HBC 90.31 1.22 1.37% -0.97% 0.37% -1.21% -2.86% -2.93% 3.09% -0.69%

DB 124.00 2.40 1.97% -1.51% -3.64% -7.64% -8.38% -18.47% -5.57% 8.48%

UBS 52.24 0.68 1.32% -1.93% -1.40% -3.40% -14.90% -19.93% -11.52% -7.98%

GS 176.01 4.63 2.70% -2.07% 0.58% -2.04% -12.31% -23.75% -12.69% 18.41%

CS 65.64 0.99 1.53% -2.34% -2.02% -0.03% -6.38% -13.55% -5.21% 0.00%

JPM 44.52 0.55 1.25% -3.11% -5.30% 1.99% -7.39% -14.10% -9.88% -2.50%

MER 73.70 1.52 2.11% -3.24% -3.08% 5.21% -21.27% -20.52% -11.93% 0.23%

C 46.88 0.65 1.41% -3.34% -3.95% 2.54% -15.15% -13.97% -6.98% -5.01%

MS 62.37 2.21 3.67% -3.36% 0.22% 2.89% -23.58% -26.66% -16.75% -5.20%

LEH 54.83 1.06 1.97% -9.18% -5.64% -1.70% -30.27% -25.28% -25.20% -14.07%

Table 9: Senior technology equities

Sorted by 1-Week Price Performance
Symbol Close 1Day
Change 1Day
%Change 1W
%Change 2W
%Change 4W
%Change YTD
%Change 3M
%Change 6M
%Change 12M
%Change

ADBE 42.75 0.53 1.26% 5.79% 6.03% 10.32% 7.09% -2.97% 8.92% 31.78%

QCOM 39.89 0.81 2.07% 4.34% 6.26% -2.16% 6.49% -7.12% -0.97% 5.89%

SNDK 56.06 1.40 2.56% 3.81% 4.45% 4.92% 34.37% 28.73% 53.93% -4.85%

INTC 25.71 0.43 1.70% 3.71% 8.48% 7.53% 26.34% 15.92% 29.52% 31.58%

CSCO 31.84 0.41 1.30% 3.61% 6.17% 8.08% 14.78% 18.28% 22.74% 44.79%

ORCL 20.28 0.07 0.35% 1.71% 4.81% 3.15% 15.82% 4.64% 23.43% 29.58%

ADSK 46.32 0.92 2.03% 1.69% 3.16% 14.46% 14.20% 1.91% 12.54% 33.26%

INFY 47.71 1.27 2.73% 1.47% 1.23% -0.52% -14.53% -3.13% -12.07% 6.38%

SAP 54.07 1.30 2.46% 0.99% 3.05% 0.71% 1.64% 13.26% 17.62% 13.26%

CTSH 73.51 1.58 2.20% 0.08% -1.92% -11.27% -5.47% -6.43% -18.50% 5.15%

Table 10: Yahoo Finance U.S. Treasury Debt, Municipal and Corporate Bond Yields

Table 11: Interest-sensitive securities

US Treasury Bonds

Sorted by 1-Week Price Performance.
Symbol Close 1Day
Change 1Day
%Change 1W
%Change 2W
%Change 4W
%Change YTD
%Change 3M
%Change 6M
%Change 12M
%Change

TLT 88.88 0.09 0.10% 1.09% 2.41% 1.08% -0.21% 2.89% -1.41% 0.91%

IEF 84.14 0.02 0.02% 0.94% 1.34% 1.82% 1.77% 2.86% 0.79% 2.04%

AGG 99.82 0.06 0.06% 0.78% 0.94% 1.12% -0.09% 0.60% -1.03% 0.27%

TIP 101.18 -0.04 -0.04% 0.48% 0.69% 0.88% 1.97% 1.56% 0.19% -0.42%

SHY 81.12 0.00 0.00% 0.36% 0.23% 0.85% 1.35% 1.31% 0.93% 1.08%

FNM 65.61 2.21 3.49% -2.35% -2.44% 15.86% 9.61% 2.64% 15.65% 24.62%

FRE 61.61 1.54 2.56% -3.13% -3.28% 10.61% -9.25% -7.76% -4.00% -3.13%

CFC 19.85 0.21 1.07% -5.48% -7.37% -20.60% -52.86% -49.02% -48.27% -41.27%

Table 12: Senior gold equities

Sorted by 1-Week Price Performance
Symbol Close 1Day
Change 1Day
%Change 1W
%Change 2W
%Change 4W
%Change YTD
%Change 3M
%Change 6M
%Change 12M
%Change

AUY 11.06 0.18 1.65% 6.24% 14.85% 3.85% -10.30% -17.77% -24.51% 7.90%

MDG 27.77 0.40 1.46% 4.60% 12.07% 2.85% 5.63% 8.27% 1.20% -6.62%

KGC 12.22 0.49 4.18% 4.00% 8.05% -3.70% 7.01% -8.40% -13.21% -12.84%

AEM 44.45 1.41 3.28% 3.18% 15.88% 3.66% 14.21% 22.25% 13.02% 17.75%

NEM 42.26 0.74 1.78% 2.67% 5.94% 3.33% -4.39% 3.88% -6.23% -17.54%

GFI 15.16 0.28 1.88% 1.13% 5.28% -2.76% -17.29% -12.47% -14.01% -23.74%

GG 23.57 0.46 1.99% 0.60% 8.77% -4.65% -13.79% -2.16% -12.09% -14.79%

BVN 38.23 1.42 3.86% 0.50% 6.67% -3.04% 38.46% 14.02% 37.91% 36.78%

ABX 32.52 1.13 3.60% -1.81% 6.55% -2.08% 9.02% 11.64% 8.73% -2.87%

Table 13: International equities perspective

Sorted by 1-Week Price Performance
Symbol Close 1Day
Change 1Day
%Change 1W
%Change 2W
%Change 4W
%Change YTD
%Change 3M
%Change 6M
%Change 12M
%Change

FXI 150.25 4.23 2.90% 4.60% 20.78% 15.43% 29.08% 33.73% 51.61% 89.64%

IFN 46.45 1.13 2.49% 3.57% 3.45% 5.45% 2.45% 7.30% 18.71% 17.00%

EWZ 61.39 2.08 3.51% 2.32% 15.66% 0.80% 31.46% 3.59% 33.98% 56.73%

QQQQ 48.87 0.54 1.12% 1.39% 5.53% 3.06% 13.02% 3.08% 12.79% 25.73%

TRF 62.83 1.50 2.45% 1.03% 0.80% -2.41% -29.05% -8.61% -11.31% -11.18%

EWU 24.74 0.56 2.32% 0.94% 5.28% 1.56% 5.05% -2.52% 6.55% 12.10%

EWJ 14.05 0.28 2.03% 0.57% 3.31% 0.00% -1.06% -3.96% -4.81% 2.48%

EWC 29.90 0.48 1.63% 0.44% 5.21% 1.01% 21.05% -0.66% 17.03% 20.81%

IEV 113.28 1.83 1.64% 0.28% 4.45% 0.90% 7.27% -3.66% 8.09% 18.06%

SPY 147.47 1.32 0.90% -0.55% 1.91% 2.55% 4.31% -3.87% 4.64% 12.88%

Table 14: Dow 30 List

Sorted by 1-Week Price Performance
Symbol Close 1Day
Change 1Day
%Change 1W
%Change 2W
%Change 4W
%Change YTD
%Change 3M
%Change 6M
%Change 12M
%Change

HD 38.31 1.27 3.43% 10.47% 15.01% 5.86% -6.72% -1.44% -3.26% 11.72%

INTC 25.71 0.43 1.70% 3.71% 8.48% 7.53% 26.34% 15.92% 29.52% 31.58%

IBM 116.69 1.32 1.14% 3.05% 5.22% 4.29% 19.97% 9.47% 25.46% 44.12%

HPQ 49.35 0.91 1.88% 2.60% 4.67% 4.09% 18.57% 7.96% 25.32% 34.98%

MMM 90.99 1.63 1.82% 2.06% 3.60% 3.92% 16.27% 3.44% 22.83% 26.90%

HON 56.15 -0.14 -0.25% 0.63% 3.10% -3.49% 24.50% -3.04% 20.91% 45.02%

PFE 24.84 0.29 1.18% 0.40% 3.76% 5.66% -5.52% -9.64% -0.48% -9.87%

UTX 74.63 0.79 1.07% 0.40% 1.10% 0.95% 18.82% 5.78% 13.71% 19.01%

MO 69.41 0.16 0.23% 0.32% 2.69% 4.22% 6.92% -2.38% 9.74% 10.72%

XOM 85.73 0.33 0.39% 0.05% 1.89% 4.45% 15.68% 3.08% 19.60% 26.69%

JNJ 61.79 0.19 0.31% -0.15% -0.37% 2.05% -6.94% -2.34% -2.00% -4.44%

WMT 43.63 0.31 0.72% -0.25% 0.32% -4.15% -8.24% -8.34% -9.67% -2.44%

MSFT 28.73 0.28 0.98% -0.28% 1.70% -0.79% -3.78% -6.39% 1.99% 11.83%

KO 53.78 0.38 0.71% -0.41% -1.23% 0.94% 10.70% 1.49% 15.21% 20.02%

AA 36.53 0.38 1.05% -0.44% 9.73% 0.97% 24.55% -11.51% 9.34% 27.77%

DD 48.75 0.31 0.64% -0.67% 3.04% 5.18% -0.59% -6.82% -3.94% 21.97%

CAT 75.77 1.11 1.49% -0.72% 4.31% -4.04% 23.89% -3.58% 17.62% 14.20%

DIS 33.60 0.13 0.39% -0.80% 2.82% -0.88% -1.75% -5.19% -1.93% 13.32%

PG 65.31 0.30 0.46% -0.94% -0.06% 3.86% 1.19% 2.77% 2.87% 5.51%

GM 30.74 0.41 1.35% -1.00% 0.62% -4.06% 4.38% 2.50% -3.64% 5.35%

T 39.87 0.11 0.28% -1.21% 2.10% 1.06% 14.08% -3.56% 8.34% 28.08%

MRK 50.17 0.51 1.03% -1.28% 1.11% -0.24% 13.97% -4.35% 13.61% 23.72%

GE 38.87 0.47 1.22% -1.37% 1.09% 2.13% 2.37% 3.43% 11.31% 14.12%

MCD 49.25 0.42 0.86% -1.74% 3.53% 1.50% 12.26% -2.57% 12.65% 37.19%

VZ 41.88 -0.05 -0.12% -1.78% 2.65% -2.04% 10.74% -3.79% 11.89% 19.04%

BA 96.70 -0.15 -0.15% -1.80% 0.80% -7.23% 8.44% -3.87% 10.81% 29.11%

AIG 66.00 0.40 0.61% -2.37% 0.06% 7.07% -8.52% -8.76% -1.64% 3.42%

JPM 44.52 0.55 1.25% -3.11% -5.30% 1.99% -7.39% -14.10% -9.88% -2.50%

C 46.88 0.65 1.41% -3.34% -3.95% 2.54% -15.15% -13.97% -6.98% -5.01%

AXP 58.62 0.90 1.56% -3.73% -0.46% 1.97% -2.88% -9.79% 3.08% 11.57%

Posted by Posted by Bill Cara on September 1, 2007 12:02:29 PM | Category: Saturday Report

Discourse

Aussieontop,,,

Just a thought on your spreadsheet.

I'm sure you've already thought of this, however the cost of production per oz.(ie, labor, etc., the oz's., and value of proven reserves in the ground.

Geographical locations of mines and number of ongoing projects.

tkx,

dab

Posted by: dabonenose at September 1, 2007 12:32 PM [link]

OG-looks like "Felix" may be the next threat, although current trajectory forecasts place landfall along Central America...

WTNT41 KNHC 011444
TCDAT1
TROPICAL STORM FELIX DISCUSSION NUMBER 4
NWS TPC/NATIONAL HURRICANE CENTER MIAMI FL AL062007
1100 AM EDT SAT SEP 01 2007

RADAR IMAGES FROM MARTINIQUE INDICATED THE CENTER PASSED VERY NEAR
GRENADA OVERNIGHT...WITH THE ISLAND OBSERVING 1005 MB BEFORE THE
WEATHER STATION STOPPED REPORTING. SINCE THAT TIME...SATELLITE AND
RADAR DATA INDICATE THAT FELIX IS FORMING A SMALL INNER CORE WITH
TIGHTLY-WOUND BANDS AROUND THE CENTER. IN FACT...AN AIR FORCE PLANE
JUST MADE IT TO THE CENTER AND REPORTED FLIGHT LEVEL WINDS OF 69
KT...CORRESPONDING TO ABOUT 55 KT AT THE SURFACE...AND 55 KT WILL
BE USED AS THE INITIAL INTENSITY.

ALL ATMOSPHERIC AND OCEANIC PARAMETERS SUPPORT A CONTINUED
STRENGTHENING OF THE STORM. WITH SUCH A FAVORABLE ENVIRONMENT...IT
IS LIKELY THAT FELIX WILL BECOME A POWERFUL HURRICANE BY THE TIME
IT REACHES THE NORTHWESTERN CARIBBEAN SEA. THE GFDL/HWRF ONLY
SLOWLY INTENSIFY THE SYSTEM...BUT THE SHIPS/LGEM MODELS SUGGEST
THIS STORM COULD BE A MAJOR HURRICANE IN ABOUT 3 DAYS. THE NHC
INTENSITY FORECAST GOES WITH THE LATTER SCENARIO AND IS JUST A
LITTLE LOWER THAN THE STATISTICAL MODELS FOR THIS FORECAST PACKAGE.

FELIX HAS BEEN MOVING BASICALLY TO WEST FOR THE PAST 6-12 HOURS AND
MY INITIAL MOTION ESTIMATE IS 270/16. A STRONG RIDGE IS FORECAST
TO STEER THE STORM A LITTLE NORTH OF DUE WESTWARD FOR THE NEXT FEW
DAYS. TRACK GUIDANCE IS IN GOOD AGREEMENT ON THIS SCENARIO. BEYOND
3 DAYS...THERE IS A QUESTION OF HOW MUCH RIDGING WILL BE PRESENT IN
THE GULF OF MEXICO. A FEW MODELS HAVE ENOUGH OF A WEAKNESS IN THE
RIDGE TO FORCE A WEST-NORTHWEST OR NORTHWEST MOTION NEAR THE END OF
THE PERIOD. HOWEVER...THE RELIABLE GFS/ECMWF ARE KEEPING A STRONG
RIDGE. THE OFFICIAL FORECAST IS A LITTLE SOUTH OF THE
PREVIOUS ONE DUE TO THE WESTWARD MOTION EARLY ON...BUT THEN
IS VERY CLOSE TO THE PREVIOUS FORECAST BY THE END OF THE PERIOD.

FORECAST POSITIONS AND MAX WINDS

INITIAL 01/1500Z 12.3N 63.6W 55 KT
12HR VT 02/0000Z 12.8N 66.1W 60 KT
24HR VT 02/1200Z 13.4N 69.4W 65 KT
36HR VT 03/0000Z 14.1N 72.9W 70 KT
48HR VT 03/1200Z 14.8N 76.2W 80 KT
72HR VT 04/1200Z 16.0N 82.0W 90 KT
96HR VT 05/1200Z 17.0N 87.0W 100 KT
120HR VT 06/1200Z 18.5N 91.5W 55 KT...INLAND

$$
FORECASTER BLAKE/AVILA

Posted by: 2nd_ave at September 1, 2007 12:34 PM [link]

jock,

I have a hard time thinking any country will return to the gold standard...just not enough flexibility. The main metrics will be currency rates based on country balances of trade. Then again, I have NO idea. My bet is that it will be perception, emotion, and psychology that drives pog...more than a mechanical requirement. To ponder these issues is interesting but I for one could loose my way, as I don't want to become a gold bug and distract myself from all the other opportunities and asset classes. Then again, if I had a ton of money, i'd also have a safe place to keep the real stuff.

Posted by: jasper at September 1, 2007 1:06 PM [link]

ALOHA !!

Bill ... GM is one of the great US financial smoke & mirror acts! So much is at stake with this company. It is such a HUGE symbol of American manufacturing prowess! The old saying on Wall Street ... AS GOES GM SO GOES AMERICA ... which I am sure if Bush and Wall Street could find a way to erase our collective memory they would change it to AS GOES GOOGLE SO GOES AMERICA!

On their balance sheet as of 2006 there were $186bilUSD of assets and $192bilUSD of liabilities, net worth of negative $6bilUSD. Their EPS is (3.49)and just the interest expense on their debt in 2006 was $17bilUSD. Here is what I find interesting ... their balance sheet lists $300bilUSD of total debt in 2004 then it drops to $34bilUSD in 2005 and in 2006 it went up to $38bilUSD, yet how can this company be paying $17bilUSD annual interest on a $38bilUSD total debt? Also how did total debt go from $300bilUSD to $34bilUSD in one year? Thats a total debt reduction of $266bilUSD from 2004 to 2005. Where's the *footnotes??? Who signs off on such financials? Here you have a company running a (3.49)EPS with an annual $17bilUSD interest expense on their debt yet they persist in paying a 3.25% dividend ... Management needs to load the boat with put options on their stock and then one week later announce they will no longer pay a dividend! What sort of investors would own this stock now? Even Kerkorian bailed ... UAW and City Of Detroit pension funds? This company may be the next AmTrak ...

Posted by: kaimu at September 1, 2007 1:31 PM [link]

When I talk of the required General Agreement (among G-20 nations) on Currencies, I refer to a peg to a hi-lo range of prices of a global basket of commodities, like oil, metals, precious metals. Each country would agree to undertake fiscal and monetary policies of government that would maintain their currencies within a range.

There is no need to go to a single standard, like gold, when there are a host of available standards of value in the world today. Moreover, it may be appropriate to use standards other than gold because there are a few countries and a few companies that control most of the gold.

The bottom line, however, is that extreme moves in forex markets are rendering the pricing of currency useless for purposes of international trade contracts (ie, the purchase and sale of goods and services). Business profits on international transactions depend more on the currency price at the time than on a company's proper and skillful management of its business.

Business people don't know from one hour to the next if the contract they strike for selling/buying goods and services is going to be profitable to them. And that is wrong. So they have to deal, on a full-time basis, with banks to hedge their currency exposure, which adds to the cost of doing cross-border business. The bookkeeping costs escalate. The audit costs escalate. The customer ends up paying for this.

Of course the banks don't mind. They love the extra forex business, and the opportunity for trading gains made by their highly expert traders playing the forex market against business companies whose staff are not so expert.

It is time for the G-20 to step up and stop the nonsense going on in currency trading. If they don't, international trade and capital markets trading will get so affected/volatile that failures and disappointments will be the natural result. The G-20 can then blame themselves for not taking the necessary action.

Posted by: Bill Cara at September 1, 2007 1:36 PM [link]

According to BMO, junior gold miners trading this week at a 36% to NAV based on current gold price. Widest discount this year is 40% and has traded at a premium for a large part of the year.

So, unless gold tanks, these juniors should not have much room to drop and if gold does move up, there is great upside in these.

Perhaps Bill can comment further if there are better options, but from my perspective, I would strongly recommend BMO Nesbitt for doing research on the Canadian Gold Industry.

Posted by: bb at September 1, 2007 1:46 PM [link]

RE:Posted by: bb at September 1, 2007 1:46 PM

"According to BMO, junior gold miners trading this week at a 36% to NAV based on current gold price. Widest discount this year is 40% and has traded at a premium for a large part of the year."

CAN YOU SHARE THE REPORT ?

THANKS

Posted by: moneygenie at September 1, 2007 1:57 PM [link]

bb,
I'd also like to see the report. In the last BMO Report, shared by Bill, Gammon Gold (GAM) was favorably represented. I am particularly interested in whether BMO now thinks that Gammon's really poor production last quarter was due to correctible performance issues or whether the quality of their gold reserves has been vastly overstated. I'm long in both stocks.

Posted by: Fred at September 1, 2007 2:18 PM [link]

Another stock favoured in the last BMO report was Kinross. I'm thinking that BMO's position won't have changed on it unless their production costs have runaway.

Posted by: Fred at September 1, 2007 2:21 PM [link]

Re Bmo reports...Data without a dynamic understanding of the industry alongside networking is problematic, I think. Eldorado and Gammon were both rated as outperformers by BMO. Issues surface so fast, and the punishment is fairly tough, that I'm hesitant to think that even a well intended outsider can stay out of harm's way. And, looking back, for Harmony, an underperform rating would have been appropriate. Once problems surfaced for this company surprising how quick long term issues were identified. My own preference would be to use a fund with someone who has Bill's knowledge base and access to those that know which way the wind is blowing. Data is only as good as the reader. If, as many are contemplating here, that gold mining stocks are going to be a good source of alpha returns for the next 5-10 years, that is my thought as an intermediate term investor. Should the profit be there there is plenty value added to have a trusted professional at the helm.

Posted by: jasper at September 1, 2007 6:48 PM [link]

Agree with Jasper that you need to do additional research in addition to sources such as BMO, but BMO does do a great job of consolidating information about all of the gold players and is a great place to start your research. But the bulk of the readers here are trying to generate their own alpha above what could be generated by buying a fund (and paying the associated fees and giving up the benefits of being small and nimble).

Fred, Moneygenie, drop me an email at brent.barber@gto.net and I'll send you some info.

Posted by: bb at September 1, 2007 8:16 PM [link]

I just wanted to show this link.
http://www.institutionaladvisors.com/whats-new.htm
There is the weekly report from Bob Hoye (Institutional Advisor) delayed one week.
It is always worth reading, specially for metals.

Posted by: Lelik at September 2, 2007 5:31 AM [link]

Hi Lelik,

those reports aren't weekly, and tend to be much delayed and after the fact.(but still very important) I think the intention is to post on a monthly basis. Chartworks has been missing for quite a while from the reports in various locations on the web.

You can get monthly Pivotal Events at

http://www.victoradair.com

Back-dated issues can be had under this directory:

http://www.victoradair.com/pdf/

Look for the author here:

http://www.321gold.com/archives/archive.php

Another source is here:

http://www.safehaven.com/archive-32.htm

Something from the archives:

http://www.321gold.com/editorials/hoye/hoye032207.html

Some important target/dates have been missed/overprojected. The consideration should be that since Feb. 27, a 'pi' cycle date in the Princeton Economics business confidence cycle did not prove a market peak, there is either something very seriously wrong in the markets, or the 'pi' cycle is finally proven innaccurate. I believe that the theory and the market will eventually conform, but for the moment, there is something rotten in the state of Denmark. Then again, you can only be right for so long until you're proven wrong.

Its probable that the formula that resides in the very heart of the credit expansion must ultimately rely on sleight of hand in currencies. The agreement on currencies between G20 that Bill proposes probably already exists in some form, though not generally agreed upon by signatory nations. This is now in the process of unravelling. Nouriel Roubinin refers to this as the unravelling of Bretton Woods II.

This week I had occasion to watch the reports on CNBC and CNN, and the uniformity in the broadcast message between the two in the economic propaganda suggests that a major change is afoot.

The message has completely changed from the emerging markets paradigm and how the drivers of globalisation such as the emerging middle class in crushingly impoverished nations supports great american corporations and thus a higher stock market despite domestic foibles, to one of robust domestic economics and superior productivity. Suddenly its all good on the home front except for a few bad apples, and the massively profitable emerging markets that had hitherto provided such enormous returns is completely forgotten.

There is a definite shift in the wind.

Posted by: FranSix at September 2, 2007 8:17 AM [link]

Just posted some pretty good links (mostly macro) which as always may not help us traders much at all. The Plender article from Roubini's blog is a must read.

Best to all.

Ron

Posted by: Ron at September 2, 2007 9:34 AM [link]

Here's a comment that might help a trader. I am grateful to the traders for their point of view, because it helps set things straight. Please realise the date of the article is some time ago.

How A Currency Can Fight The Fed

http://www.safehaven.com/article-1410.htm

Posted by: FranSix at September 2, 2007 11:24 AM [link]

ALOHA !!

I have another published article that I want to share some info regarding these derivatives Bill speaks of in the Sunday WIR. SIV-Lites ...

First the five basics of SIVs-lites ...

FACTBOX-Five facts about SIV-lites
LONDON (Reuters) - The turmoil in the credit markets has put the focus on a range of structures that use short-term debt to buy longer-term securities.

Highly leveraged structures called SIV-lites have become a particular focus after Standard & Poor's downgraded two structures by up to 17 notches as they were being forced to sell assets at a loss.

On Tuesday, Barclays , a leading arranger, denied a report that it had exposures of hundreds of millions of dollars to the vehicles.

Following are five facts about SIV-lites, with data sourced from ratings agencies Moody's Investors Service and Standard & Poor's.

* STRUCTURE

SIV-lites use a mixture of technology from structured investment vehicles (SIVs) and collateralised debt obligations (CDOs). Like SIVs, they issue short-term commercial paper and medium-term notes to invest in longer-term securities. Unlike SIVs they are not perpetual, making them look more like CDOs, which have fixed maturity dates. CDOs however usually raise all of their money at the start of their life and are not reliant on short-term funding.

* INVESTMENTS

SIV-lites have invested the bulk of their cash in U.S. residential mortgage-backed securities, with some exposure to U.S. subprime debt, but with the vast majority of these securities rated triple-A or double-A, according to Moody's Investors Service. By contrast, traditional SIVs invest in a much more diverse pool of assets, including commercial mortgage-backed securities, CDOs and financial debt, and invest in a wider range of ratings categories.

* RETURNS

SIV-lites aim to profit from differences in funding costs. Firstly, they raise the bulk of their cash in short-term debt markets and buy longer-dated securities, benefiting from the spread between the two. Secondly, they issue very highly-rated debt and invest in a portfolio that has an average lower rating, again benefiting from the spread between the two.

This strategy has run into troubles as funding in the short-term markets has dried up and the value of the securities the SIV-lites has invested in has fallen, triggering forced sales of assets by some of the structures.

* RATINGS

S&P has only rated five SIV-lites, and initially rated all of their capital structure in the investment-grade category. The four structures that use short-term funding gained the highest A-1+ ratings, while the junior debt's highest ranking tranches came in at AAA. Last week, however, it cut ratings on the Golden Key and Mainsail II programmes sharply, and said it might cut its ratings on Sachsen Funding I and Cairn High Grade Funding I. It affirmed ratings on Duke Funding High Grade II-S/EGAM I, which has no commercial paper outstanding.

* MANAGERS

SIV-lites are managed both by banks and by hedge fund and CDO managers. Golden Key is managed by Guernsey-based structured finance specialist Avendis Financial Services, while Mainsail II is managed by UK hedge fund Solent Capital Partners. Sachsen Funding I is managed by Sachsen LB Europe, part of the German Landesbank, while Cairn High Grade Funding I is managed by Cairn Financial Products, a subsidiary of credit fund Cairn Capital. Duke Funding High Grade II-S/EGAM I is managed by Ellington Global Asset Management.
END

Also since SIVs are tied to CDOs and this whole mess is one big domino here is a link to a "wealth" of info on anything asset backed! It also includes phone numbers of banks with major exposure showing both the banks derivatives department and the banks "market maker" trader desk phone numbers. Now you can get up close and personal.

Link to AB Alert: http://www.abalert.com/

The site is for subscribers ($2497USD/year)but you can use the search, just type in SIV and you can use "The Market Place" tabs that drop down. That is where you find the phone numbers I mentioned listed under "CDO Market Makers" and "ABS Market Makers"(both pdf files). Perhaps one of your banks are listed here! I could not find Bank Of Hawaii ...

What comes to mind now is the basis for all Warren Buffet's investments. He offered the following sage advice that has always stuck with me. "If you cannot understand the business model of the company you own stock in then it is best to not own their stock ..."

Well, that turned out to be oh so true for many internet and dot.coms, but I thought it would never be an issue with a short term cash CD. When cash becomes that complex its time to move to the most simple and uncomplicated investment of the past 6000 years, guaranteed never to file bankruptcy ... GOLD!!! Over the last couple weeks I have moved cash to British Gold Sovereigns and the Perth Mint.

Posted by: kaimu at September 2, 2007 1:48 PM [link]

some follow up on those 61,000 spx short sept07 700 calls... found @
http://mysnowpro.com/jonathanlawson/2007/08/8272007_back_in_the_saddle.php#more

THE SPX has 61,730 contracts of open interest. What is up? check out your broker's options chain on SPX (September Calls - all strike prices) and you'll see the rather curious amount of open interest at the $700 level. Although, after closer checking, I found approximately the same amount of Open interest in the Sept 1700 calls. The resembles a Box Spread
http://en.wikipedia.org/wiki/Box_spread

Posted by: score22 at September 2, 2007 2:00 PM [link]

In the FT, columnist Martin Wolfe wrote a couple of days ago that what's really behind this credit crunch is:

1. a game of "seek the sucker" - first the ones to borrow beyond their means, then the ones to buy successive tiers of sliced-and-diced-debt, and finally the ones to bail everybody out.

2. There's the "lemon" problem, drawn from the used car market. If you hear about too many "lemons", you may refuse to buy ANY used car. The second group of suckers now feel that ALL structured debt instruments are "lemons". (Ratings don't help & noone can pick apart and evaluate the debt pieces.) So, that 2nd group of suckers isn't buying anymore.

That just leave US the people to pay for the cleanup!
__________________________________

Especially after Rupert takes over the WSJ, the FT will be far and away the place to go for daily biz news IMHO.

They've been exposing new acronyms (SIV, SIV-lite) well before they crop up in US media. Also, they're not nearly so intellectually sold out to "the City" as the Journal is to Wall St.

Posted by: Jock at September 2, 2007 3:03 PM [link]

Seer suckers wearing suits. See yer!

You have to consider whether the European central bankers are going to continue circulating bullion when the offtake may overhelm any supply they provide, especially in light of how the discount window is being used to absorb collateral along with the reduction of reserve requirements to major investment banks in the U.S.

If there have been providers of liquidity who are unabashedly printing money while claiming they are sopping up liquidity, this would potentially seize up bullion distribution.

I wonder at this point just how low interest rates will dive.

For traders, here is a report you can get your teeth into:

ttp://tinyurl.com/3a543l

(via JS Mineset)

Posted by: FranSix at September 2, 2007 3:25 PM [link]

Sorry, missing h. I'll see yer suckers and raise you an old maid card.

Here are some cogent comments from Alchemy:

http://stephenvita.typepad.com/alchemy/2007/08/remember-back-a.html

Posted by: FranSix at September 2, 2007 4:01 PM [link]

Just a little more on the SIV-lites in the news...

TIMES ONLINE

Barclays Capital debt executive resigns as ‘SIV-lites’ struggle

by Christine Seib and Siobhan Kennedy

The head of one of Barclays Capital’s key debt groups has resigned in the same week that several investment vehicles he structured were hit by losses in the credit market turmoil.

Edward Cahill, the head of the bank’s European collateralised debt obligations (CDO) group, resigned on Monday after returning from holiday.

Mr Cahill had been with BarCap, which is the investment banking arm of Barclays, the high street bank, since 2004. He previously worked for JPMorgan. BarCap’s CDO group was responsible for the development of at least four highly leveraged structured investment vehicles, known as SIV-lites, that are thought to have run into trouble in recent days because they invested in US sub-prime mortgages.

A source said that Cairn Capital, a London fund manager, was working with BarCap on the restructuring of Cairn High Grade Funding I, a $1.8 billion (£900 million) SIV-lite. Cairn is understood to be talking to investors about lengthening the terms of the commercial paper backing the fund.

Mainsail II, a $2 billion fund structured by BarCap and run by Solent Capital, the hedge fund manager, said on Monday that it had begun selling assets after being unable to raise money in the asset-backed commercial paper markets. Another BarCap creation, Golden Key, a $1.9 billion fund run by Avendis, the Swiss fund manager, has had similar difficulties.

BarCap structured Sachsen Funding I, a $7 billion SIV-lite connected to Sachsen LB, the German bank, that needed a €17 billion (£11.5 billion) bail-out by other banks last week after its conduit, Ormond Quay, could not raise money in the commercial paper market. Stefan Leusder, Sachsen’s head of capital markets, resigned yesterday.

SIV-lites are similar to conduits – packages of commercial and retail loans used by banks and fund managers as collateral to raise short-term debt – but are often leveraged by between 40 to 70 times. Standard SIVs are typically leveraged 12 to 16 times. Mr Cahill was instrumental in developing the SIV-lite structure. His group is thought to have created as many as 15 of the vehicles.

BarCap’s SIV-lites have a “liquidity backstop” that allows them to ask the bank to fund up to 25 per cent of the value of the commercial paper it issues if the market turns sour. Investors are thought to be concerned about Barclays’ exposure to the failure of SIV-lites.

Posted by: bigwad at September 2, 2007 7:20 PM [link]

September 1, 2007

Saturday’s Commentary & Chat, 09/01/2007 12:02 PM ET

Discourse

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