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Wednesday, December 20, 2006

scattered thoughts

Holiday greetings from the slim one. Professor mcnabb stuck me with that nickname a few years ago and I have perpetuated it as I prefer it some of the others I have picked up. Around the island for some reason virtually everyone has me in his or her cell phone as harry potter. An unfortunate nickname thrown out one night during a lengthy session at the jetty that has stuck like glue. I am convinced there will be guys at my funeral many years from now, saying, Damn that harry P.sure gonna miss him. This does make finding a Halloween costume easier as I just simply show up as myself and announce that I am a middle aged gray haired harry potter.The latest was thrown out by one of my younger co-workers when I was spouting and pontificating on some subject…Who wound up father Time? I ramble, onto more important topics

The stock market continues to just confuse me. I do not see the catalyst for the continued run. Given the current economic situation which appears to be showing slowing activity, weakening real estate (I had actually been considering buying a place but after listening to some folks who know a lot more on the real estate market than I do decided that holding off until later in 07 makes more sense), yet there are still inflation concerns, as well as the geopolitical scene, a nasty war in Iraq that we appear to be losing, pressure from the Saudis to continue fighting there, north Korea, the current Thailand situation I can give you no reasonable explanation for a vix of 10. Makes no sense to me. I find that the fact that Birinyi and associate blogger poll finds leading pundits to be bullish on stocks, yet bearish on the dollar and housing. They are also bullish on bonds. I find that position indefensible. I realize that private equity and M&A activity provide some sort of floor as these enormous pools of cash are vociferously looking for a home and buying everything in their path. But straight up for 5 months with a declining risk premium? Makes no sense to me.

Of course I have been skeptical about the market all year. If it was more than an intellectual exercise for me and I actually traded this way I would be living in a tent below a freeway underpass. Fortunately the only market timing I do is increasing positions when prices fall. My style of investing in the very cheap tends to lead to me finding more bargains in down markets and less as prices rise. Hasn’t always worked that way but it has this year. I have been able to find more than enough kinky, twisted and just flat weird securities to have had a very good year in the market. I am not really adding any new stuff right now but staying with the horses I have been riding for several months. Nice screwed companies with high uncertainty and low balance sheet risk. FRN, OPMR, FINL, TRPS (okay this is actually a new one, a liquidation trading in the 70 cents area where I think the payout is closer to a dollar), PBY,BZL,HAWK,SCUR,WLT,MWA I still love the SPAC warrant game and the warrants in esa and aqr are my favorite plays at the moment. 80cents for the aqr warrants and 50 for the esa. To get a handle on the potential, the aqr warrants have a 5 dollar strike. Now consider this report from think equity
THINK ACTION:Preliminary asset valuation estimates of Jazz Semiconductor ahead of theirmerger with Acquicor resulted in a significant increase of estimates fortangible and intangible assets. While increased asset valuations will resultin higher D&A, lower gross margins, and lower EPS estimates, our revenue andEBITDA estimates remain unchanged. We view the re-valuation of assets as apositive development and our thesis remains intact. In addition, AQR announcedthat its $145 million convertible issue has closed. Reiterate Buy rating and$8 PT.

That’s a one-year price target. If hit, the warrants are now 3 and change. With 3 years to run. Anybody with any touch of speculation in their soul and a few years to wait it out should own a basket of these. Some won’t work. You ll lose 50 cents or so. Some will. You ll make several dollars. Works for me.

Early this year I had success selling puts as an entry point for a lot of value situations. It has become very difficult to do with the vix at these levels but I continue to look for situations where it will.MWA and AMAT in particular are stocks where I might want toll one or two month near the money options on any sort of overall market setback.

Random Musings as we approach the end of the year

Here we are. The Holidays are upon us and at last I am getting a touch..just a touch mind of you of holiday spirit. I look at the week ahead and realize that I have so much to do its ridiculous. I am not sure what happened but somehow from a quiet family dinner it has blown up to 15 or so people at my house Christmas Eve. SO I have all weekend taken doing the cooking cleaning and all that goes with that many people in my tiny little condo. Which means tonight is the only time to wrap presents. So the plan is to blast rat Pack Christmas music as well as some rock and roll holiday cds, uncork a bottle of wine and get it done. Those whose presents are wrapped last will just have to deal with the mess. As I have shopped this year I find myself wondering the same thing one of my very sharp co-workers asked yesterday “ Why are they lowering prices so quickly. Everyone is out and shopping and there doesn’t seem to be a lot of attention paid to price. I can only reach the conclusion that retailers are scared to death of an inventory overhang going into the first quarter and just simply want the stuff off the shelves.

Although long term I am very bullish on coal prices (it’s the only energy resource we have plenty off and coal to liquid technology is progressing nicely) short term it may be tough sledding. From today’s journal:
After a warm winter and a cool summer, the nation has amassed a Surplus of coal, causing a price slide that some analysts think has yet to hit Bottom. If demand doesn't pick up significantly this winter, it could mean trouble In 2007 for producers who've already endured a tough year. January was one of the warmest on record, and the summer was relatively cool. That lowered electricity demand for heating and cooling, reducing the amount of coal consumed by power plants. Coal stockpiles at power plants in the beginning of 2006 were precariously low. By summer, they were back to normal. By the end of the year, they could reach 138 million tons nationwide, or more than 14% above normal levels, according to John Hanou, vice president at the energy consulting firm Hill & Associates.
I like the group and follow it. I have done well selling puts on names like CNX and MEE but its also home of my single worst pick of the year ICO. I ll follow it as the year progresses.

Last night I had the most amazing dinner with my daughter. We sat and talked like adults and friends for the first time I can recall. We talked about books, her love of f Scott Fitzgerald and Hemmingway (this is huge for me. It took forever to get her to fall in love with reading and it didn’t happen until she was in her late teens. I had an able assist from haryy Potter and all those long hospital stays but I love it); we talked about ancient roman history and how she wanted to learn more about it; we talked about her career and school plans (she wants to teach and perhaps go as far as a literature professor); we talked about why men in their twenties as she so eloquently put it, suck (all they want to do is get drunk and have sex. I resisted the urge that this continues unabated pretty much forever. We just get a little more subtle about it); we talked pretty openly about while I m still single (hard to find good women who aren’t already involved after a certain age. That and the fact that I am somewhat of a handful to deal with). We talked and I realized that daddy’s little girl was no more. Although I will always carry the memories, she is now a woman in her own right. I saw for the first time a lot of the influence I have had on her over they years and thought to myself that if I have done nothing else right in this life, I had a big part of helping her grow into a great young woman. It was an awesome feeling.

I also had cause last night to reflect on how seemingly random events can have such a significant impact on our lives. Several years back I chanced across Victor Neiderhoffers column on the Internet. As Education of a Speculator was instantly my all time favorite investment book, I bookmarked his site and followed it for several weeks. One week I disagreed with something he wrote and emailed to say so. We had a most pleasant conversation and I was invited to something called “ the speclist”. A life-changing event. Not only has it vastly improved my trading and investing, taught me about statistics, introduced me to new books and opened up more intellectual avenues for me than you can imagine, consider this : first phone call of the night David Hillman to discuss how thoroughly I whupped him in Fantasy Football. Hillman and I have become close and talk often. Met him through the list. Traded a few Im’s with Ed Gross. Ed and I talk almost every day about markets,poker,sports and women. I stay with him in New York often. Met him through the spec list. Talked to a wonderful woman from the horse racing state. Met her because on my first visit to Chicago to visit my spec list friend Fred crossman we went, as we are wont to do, barhopping in the cold Chicago night and met her. I have made so many friends and gained so much knowledge as a result of that one simple email it is incredible. You just never know but it pays to look for opportunity in everything.

I had one other call last night. An old friend from back in my Jaycee days. He and I had spent a lot of nights in back rooms playing organizational politics, a lot of nights in hotel bars during conventions sharing scotch and stories. He fell out of touch after his wife died last year following a long bitter fight with cancer. Every once a while I tried to call him and just let him know I was around. Last night he answered we had a great conversation and plan to try and meet next week for drinks in Florida. It brings sharply to focus that we should never forget old friends or let people who have been important to us to walk too easily out of our lives. Not talking lost loves here..those are usually best kept far away I think, but those people with whom we have shared time, thoughts, goals and dreams. In this day and age time and distance are no real obstacle and it would be a shame to look back and say to yourself “ man I was really close to that guy. Wonder what ever happened to him. The old childhood song make new friends but keep the old/one is silver the other god seems somewhat apropos.

So now into the Christmas backstretch we go. I have wrapping to do. I need to go to the grocery store and get ready for the herd that descends on me Christmas Eve. I will spend the day cooking and griping about it as my kids their friends, my mom and sister come to the house. Frank and dean will be on the stereo, I ll be bitching, complaining about everything to hide the fact that I love every damn minute of it. Typical Melvin Christmas.

After the holidays I am off for Florida to start work on a new book project and then spend new years with friends. Looking forward to the good Florida sunshine and hopefully some soft Kentucky smiles. I will be back after the first as confused as ever about the market and eternally searching for weird little idea that just might makes us some money.

Happy Holidays

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