in which one ponders the merits of being a boat bitch

BB. That’s the common acronym around Kent Island for Boat bitch. A BB is an individual, like myself, that loves boating but has no boat. We have friends with boats. There are many reasons to be a BB. Some cannot afford the boat. Some, like my co-worker, have broken boats that will take awhile to fix. Me? Its simple. My love of boating is a lot like my love for baseball. Anyone who knows me knows I love the game, Watch it, read about it, study it. CanI play it? Lets just say I played a lot of right field as a kid. Played damn near every day. However I have the coordination and athletic ability of a piece of wood. Could field a little, but no arm and even I knew I was a guaranteed out when I came to the plate(except in wiffle ball. A wiffle ball I could hit and I had a really cool dipsy doodle pitch that was unhittable. Unfortunately there is no major league,or even high school Wiffle ball). So it is for boating. I love being on the water, and really enjoy go fast boating. I remain however a natural born klutz with terrible coordination and the response time of a lump of coal. To whit, none whatsoever. Giving me control of two 500 cubic inch motors would be like giving Hannibal Lechtor a sharp knife and a frying pan.So, its BB for me. To be a BB, you have to be blessed with a great group of friends who have boats, And I am. The crowd on Kent Island is one of the best groups of friends I have ever had in my life. The come form all walks of life but we all share one trait…we all refuse to grow up and often make peter pan look like a social security recipient.

Boat bitching is a great way to spend the summer. Hanging out with friends, riding up and down the bay, enjoying the incredible seafood of the midatlantic , adult libations, great music and of course, the bay itself. A summer on Kent Island is like living in a resort for 5 months. From May to September its pretty much non stop every weekend and several weeknights thrown in just for fun.Already this summer we have had some great adventures and times. Memorial Day at Buddy Harrisons on Tilghman Island. Captian Buddy in years past had always had what was generously called a bikini contest on this day and boaters came from all over Maryland. It has been the traditional opener of the power boat season .Last year his son was running for office and the contest was cancelled. This year, the son informed us there would be no contest this year to protect his political image. He forgot his dads health was much better. Buddy went into his pocket for a roll of hundreds and announced a contest. He raised the price until about ten girls were on stage and the familiar cry of “skin to win” filled the air. It’s a tradition and we refuse to allow some little political matter ruin such a fine upstanding cultural event! Little nervous on the way back when Rd decreed that he grew up here , it was his boat and he knew where he was going, Would have been believable if he wasn’t steering towards Annapolis instead of the narrows. FG has begun his annual assault on the bays fixed structures but a t least he hasn’t hit any bridges yet this year. DM picked up a new admirer and best little buddy who regaled us all with tales of his job as a pharmaceutical rep for various less than legal substances. He told us how much his watch cost, what his bar bill was the night before(although the number climbed by about a hundred bucks an hour each time he told the story). He let us know what fools we were for working when we could party like a rockstar full time like him. Best part of the day was when, as DM and I knew he would, walked off the swim platform straight into the water missing the dock he was aiming for by a good twenty feet. He ended his day as allof his type do. In a parking lot, shoeless in borrowed shorts and a towel, soaking wet, waiting his mommy come pick him up.A rock star indeed Seems for all his riches he lacked a car. It is not even July yet and we have had severall good trips, a bunch of breakdowns, hook ups and break ups. Summer on the island. I got a chance to introduce my daughter to go-fast boating courtesy of my regular ride JS. She loved it and we followed with traditional fathers day activities at red eyes. So I’ll never be father of the year,. We had a great time!

This past weekend, Gm was kind enough to invite some of us out for a boys day on the day on his beautiful new boat. We left the narrows headed for our destination when someone noticed a bad vibration. Bent Prop. Back to the marina. The crew at red eyes had us on the boat life and out of the water in a matter of minutes. Its good to have friends! The prop was indeed badly bent and the staff applied a high tech solution. They braced it with a block of wood and beat the hell out of it with a hammer until it was back in line . We were back underway in 30 minutes and had a great cruise down the bay to Annapolis and South river. Which brings me to this weeks lesson. Even in this hight tech world in which we live with all sorts of electronic solutions to our daily woes and tribulations, sometimes the best fix is the beat the hell out of the problem with a large hammer.

In the stock market the hammer continues to be price to book value and activist investing. Its working. We have had solid gains ion NSHA, SCX and Canadian trusts already this year. Selling puts on HDL, SHRP and PIR has filled the coffers with collected premium. SACS also are working well, with Ithaka closing their acquisition last week and are now an operating company dealing in medical devices that control body temperature using blood catheters. The company will now evaluated as an operating business and the warrants will price as a two year warrant with a $5 strike and not a deal making speculation. The esa warrants have moved up and I would hold off buying anymore at these levels. Thanks to Ryan Carlson for pointing out that the VRY SPAC deal was done by the same people who did EDA, a deal that worked very well with the warrants climbing from 1 to 5 in just a few months. We will add that one to the watch list. EDCI, PIR,PIR,HDL,BLG and GY all remain solid candidates for either outright purchase or selling puts. With the market a little shaky and volatility up,selling 1-2 month puts is probably best. I ran some screens last week for profitable companies that pay dividends and sell below book value. This is a simple screen I learned from the writing of notable value investor Peter Cundill. I will be writing more about the results and back tests of this method in the near future. Off this list I am adding two banks, Berkshire(BERK) out of New York city and Beverly Hills Bancorp(BHBC) out of California. Both are viable sale candidates and would be sold at much higher levels than they trade for in todays market. They are illiquid and hard to buy so caution is urged when placing orders.

I cant tell you exactly there the stock market is going to go. There are convincing arguments on both sides of the coin. We are hearing more rumblings about subprime mortgages and the consequences of a widening yield spread for investors and deal makers. These are the two biggest threats to stock prices right now. The economic signals remain pretty mixed right now with every piece of good news offset by bad. Home prices are weak and sales are forecast be slow as well. The bottom line is that the market has slowed in recent weeks, it is summer time, volatility is up and rates, although up from the highs remain above 5% on the five year. I am cautious and sticking to the hammer. Buying stocks and selling puts on stocks that sell below book value and are owned by smart, activist investors. I am keeping a strong margin of safety in the portfolios trying to own as many, heads I win a bunch, tails I break even or lose a little situations as I can find. So far, its working.

current thoughts

I really havent written much on the market since early in the year for two reasons. One, I really have not had much time to do much individual writing die to other projects and two, what was I going to say. Stock Markets up, film at 11?We have moved pretty much straight up all year long and there has been nothing much new to say and my core portfolio has stayed pretty much the same all year, Candian oil trusts, coal, activist stocks and spac warrants. With nothing much to say and no time to say I have been relatively quiet. That changes now however. Interest rate and inflation jitters have finally spook the stock market a little and we have seen some down days with increased volatility. The VIX is up about 50 % from January levels and it makes a little easy to fire off trades when you have some activity to take advantage of. For the first time in months I am finding puts worth writing on some undervalued stocks and I am happy to see the return of one my favorite trading methods. Puts on SHRP and PIR have looked especially attractive, although PIR is up sharp today reducing the opportunity for new positions somewhat.

The fed says that the main concern in the economy remains inflation and have pretty much eliminated the hope of a r ate cut, in fact hinting at the possibility of an increase. I think too much of an increase here whether it it imposed by the fed or the marketplace will have serious consequences. Energy costs for industry as well as consumers are already well above average and to now push borrowing costs higher will further squeeze margins, shrinking profit margins and reducing profits. Lower profits, in theory, are going to mean lower stock prices. I am not doom and gloom by any means but I think rising rates will be difficult for the stock market to contend with in the short run. In addition my main summertime economic indicator tells me the consumer is cautious. I have not encountered one back up at the by bridge this year. Not on Dover race weekend. Not on Memorial day. Not one Thursday or Friday have I even had to tap the brakes until I got to the toll booth. Im glad I don’t have a business in Ocean City this year. I suspect it is slower than usual. Having said that, it is a well know fact that I am the worst macro guy on the planet and have successfully been wrong in my prediction of market movements with something near perfect levels. So I will stick to my knitting with deep value and special situation investing.

I continue to play in the SPAC space and have recently taken an extensive look at the field We have profits in 4 of 5 positions taken over the last year in the warranst os special purpose acquisition companies, including a nine bagger in great lakes dock and dredging with only one small loss. Although this type of investing is pretty ..okay..very speculative, a small portion of capital applied here can be very rewarding, As I go through all the listings and recent events it is obvious that the biggest danger is a no vote to deal forcing the liquidation of the company and the warrants going worthless. Big firms such as fir tree and baupost own a lot of spac deals to play the arbitrage. If they like the deal, they vote yes and the stock usually goes up . If they don’t, they vote no and block the transaction and lock in a 10-12% profit in the liquidation. Win-win, unless you arelike me speculating on the warrants. To avoid this, Im only buying warrants where the deal is announced, there is insider buying and not a large institutional presence in the stock. Tough criteria but there are a couple that Pass. ITHK, EHHA and SHA pass this test. I also like ESA as there is not a large presence of arbitrage guys in the stock and Marshall Reynolds, the chairman has a long track record of successful deals. I ll add the warrants of all four to my speculative, you should buy this list.

On the pure value side I like SCX, LS Starett. This is one boring business, hand tools, saw blades and gauges but at exciting valuations. Two thirds of book, 50% of revenue, enterprise value to ebitda a takeover worthy 6 times. Debt to equity is 10% and they are profitable. When I am long stock I like to see the institutions with me and in LS Starret they are. Brandes, LSV, Bruce Sherman at Private capital and Charles Royce all have decent positions in the stock. I also like Adaptec here.The data management and storage company’s shares are trading around book value and are attracting attention. In addition, the company, trading at 3.76 a share has almost three bucks in net cash. Steel Partners filed a 13 d on the company yesterday and are getting close to the 10% ownership level. They have requested seays on the board and are very critical of current management. A s ale here would not be a huge surprise. Likewise, Educational Distributors has come under fire form the activists of late with both Robert Chapman and Daniel Loeb taking aim at the company and pushing for a sale or merger to take advantage of the over 4 bucks a share in Net Operating losses on the corporate books. To avoid change of control, it would have to be some type of reverse merger but it can and probably should be done. At 2.05. I think the hares are a good long term selection here. HDL, the music and dvd distributor alos looks very cheap here at half of book value, 10% of revenue and generating free cash flow. Marty Whitman recently bought 15% of the company and I think we should join him in owning this cheapie for the long term.

I am still long the three liquidations here and will keep them all the way through the runoff. Ecc capital, tripos and remec will, in my humble opinion, provide decent returns from these levels as they sell off the assets and give us the cash. I am looking for a chance to sell puts around here on real networks, Gencorp, Borders and BLG if I can get it done at a good price.


If you haven’t read it yet, Monsih Parabrai’s new book, the Dhando investor is out and is an excellent primer on the type of low risk high potential return investing. I attempt to practice. The central idea is if I am wrong I lose a little bit, if I am right I make a ton. The returns tend to be as Warren Buffet once said, lumpy, with gains accruing in a very frog like fashion. Periods of boring sideways followed by leaps as situations work out and are ecognized by other investors(thanks to Louis Navellier for the frog analogy. He of course was using it to refer to small stock in general but I find it an excellent analogy for seep value and special situation investing.). I think the stocks and securities mentioned above have these characteristics and have the potential for superior long term returns for patient investors.

With that it is summertime on the island and we are back to resort living. I spend most of my weekends begging and bumming for boat rides and hanging around dock bars with an great group of friends, indulging in cocktails, seafood ,conversation and of course the constant and futile search for the next incantation of the one true love of my life. It truly is a lot like being in a resort around Kent Island in the summer time and if you haven’t ever made it, it is getting to the time. The Bikini contests start at the red Eyes Dock bar this Sunday in my favorite ritual of fathers day( okay so I ll never be father of the Year but it is a good time). Also if you get the chance and inclination, the big grills will be lit and most likely so will we. The girls will be out, the bands rocking, the boats rumbling and it should be one hell of a time.

trip report redux

Finding myself, as I always do this time of year, sitting in the Lexington, Ky airport after a weekend of drinking gambling and carousing with fellow after dark specs, I find my thoughts turning to the weekend just past. This is a different kind of trip report this year as it was a much calmer trip.we were a week earlier thn usual due to some members family and school commitments so it wasn’t the makers mark Mile and Toyota Bluegrass stakes. It was also freakishly cold with a wind that had artic iciness to it. Coupled with the fact that it is easter weekend and Lexington was not as crowded and rambunctious as past keeneland trips.There were no Purple PT Cruisers, skinhead bars or even female arm wrestling championships this time. Just great friends, good food and good times. There were long conversations on the various markets, trading ideas, systems and strategies, as well as the latest chapters of the new hit series, Life in Deltaville starring the voodoo prof and Elena. Seems Deltaville is kind of hee-haw meets tha bay as told by a slightly mentally disturbed version of garrison keiler. We hear tales of streetlight shooting, coon killing and exploding handymen. Buying the wrong type or color of car..that’s is to say anything but a white pickup truck..is cause for being accussed of “turning”, a deltavillians way of saying hey ther boy that’s one gay ass looking toyoter you got there.It was decided during the first part of the first night as the stories spilled out all overt the table reeking of stale Budweiser and crab pots that a trip to deltaville to check out the Tide Inn and various drinking and boating establishments of the town must be forthcoming. The two CAICs(Chief Alcoholics in Charge) namely Crossman and myself rendered this unchallengeable ruling sometime between the restaurant and th bar and so a trip there to change small town mid atlantic life forever will be planned for later this summer.

Little tim and his gorgeous and pleasant fiancé sarah joined us for the first time. As they had an 8 hour plane trip for one day of frozen horse racing and it was more sedate that I think they expected, no drunken uk grad students or melvinian misadventures of any sort, I hope they will nevertheless join us again in future years as they were an excellent addition to our band of travelers, drunkards and miscreants. The voodoo prof, he of the legendary eatery discoveries and dining delights, showed the first ever sign of weakness in his ability to select unusual and outstanding eateries chose a carrabass, an Italian CHAIN located around a huge mall for our first evening gathering.To make matters worse, they had some sort of weird cable tv system and fred couldn’t even watch the masters and hiss and curse at tiger while discussing subprime mortgages, mortgage collapses and shorting overpriced vitamin multi level companies. Still, the food was god and the regular crowd quickly assembled, in from new york, chicago, Cinncinatti, Maryland and yes the lovely metropolis of Deltaville, Virginia. The talk ranged from markets, to sports and back again, boring the hell out of the women in the group to our usual total unawareness that they were sleeping with their eyes open.A decent evening and Crossman and I even got new underwear out of the deal. Leaving the voodoo profs unusual dining choice we made one of the weekends greatest discoveries, LIQUOR BARN. Picture a Sams Club Or BJ’s size warehouse. Now, Fill it with booze. Liquor, wine , beer of every possible variety. We were so awestruck we took pictures of each oter in front of the football field size isles of high quality scotch and bourbon.. We all bought stuff naturally, Scotch, Butternut brown ale, irish Whiskey, Woodsford 1792 special issue Kentucky Derby Bourbon signed by the brew master whoever he is. I don’t really like bourbon but is a cool looking bottle.. We love the liquor barn.Back then to the hotel bar, in years past the scene of much ribald and hilarious adventure involving me , whiskey , coeds and women of the racing world. Dead. Totally and completely dead. Oblivious to the lack of activity a geetar strumming troubadour struck up the tune at a decibel level more appropriate for the Lexington arena than a small hotel bar. Offthen to the Hyatt through the rabiits warren and maze of hallways, skywalks and stairs that VP and elenahad discovered to talk and drink in relative peace and quiet. As a bonus they had masters coverage which goes a great way towords calming Crossman.

The day at the track was a good one, if you could ignore the numbing cold.The insode grandstand was packed while the outside seats and even the rail were virtually empty. It was in the low 30’s with a wind-chill in the teens. Winds whipped, occasional snowflakes spilled across the track and we bet on horses all day. The listmaster had the best day cashing 3 out of 4 tickets.They were all strong horses at good odds to show, a chicken bet to me but given I was stuck a hundred by the end of the day I bow to his prowess. I got caught in the switches this year. In the past I was able to bet exactas all day and hit three or four every outing. This year I had thw e winners as one of my two exacta picks in five races, Instead of boxing the exacta bet had I bet them both to win I would have had a huge day. It will be worth going over past trip to the track to see if this is a more lucrative approach than just betting all exotics all day. We will not however discuss the superfecta missed by one stinking length or my one large win bet at 17 to 1 that led wire to six inches short of the wire. A Maryland horse at that. I admit that I love horse racing and in spite of the bitter temperatures, Keeneland is still a beautiful track and we got to watch some of the best horses in the country today run. Next year, only win bets and cheap superfecta bets for me.so if you go to keeneland with us, you should probable just box my win selections in an exacta bet and plan on retiring from your winnings.

I have come to the conclusion we need a sober scribe to accompany us on the se outing. The trding ideas and life philosophies that are tossed around over the course of a weekend are both a meal for day and a lifetime. This weekend alone we had conversations about the reverse carry trade, selling options on value stocks..(one of my pet theories that has worked well in practice but I have no idea how to obtain the data needed to totally test the theory, It does seem to me that if you do the valuation work first and locate stocks that are undervalued and then sell mispriced puts on them that the worst thing that happens is you buy a stock you like at a lower price. Best case you collect premium every month,, or get put the stock art a lower price. He problem with value stocks is that they can tend to linger for long periods of time until there is a catalyst to unlock the underlying value.), the almost absolute guarantee that trades with real high t factors, things that happened “always “ or “all the time” are an absolute lock to fail in the future.We covered gamble ring, bet sizing, money management ( we all pretty much felt that absolute bet sizing didn’t add much. There were observations that most CTA’s and funds used volatility based risk management systems that lowered position size as vol rose, and decreased as it rose…probably the exact opposite of the correct way to handle it.Somebody needs to write this stuff down. I would suggest a recording device but there are parts of the conversation that really do need to stay right at the table.

Lexington is one of the most unique towns in the world. Two things matter here and only two. Horse racing and Kentucky basketball. When good old Billy Clyde Gillespie left the texas a&m aggies this week to take the UK job, the town erupted. Some 5000 attended the news conference announcing his hiring. The Saturday newspaper had a six page special section on the coach, the team and the prospect for the wild cats next year. The Sunday editorials were not about the economy, the gubernatorial elections oe even the war in Iraq. All Billy Clyde, all the time. The basic statement seems to be, Welcome Billy, we love you. YOU BETTER WIN. In Kentucky it is not enough to make the dance. You have to win it after dominating the SEC all year. Gillespie is a great coach and an even better recruiter. I suspect we will be seeing Blue clad Kentuckians at the final four before too very much longer. The other great love here is racing. All the bars have horse racing on all day long. Tracks form all over the country are shown and these people watch it all day. They know the horse running at the Aqueduct, at laurel and Mountaineer Raceway. They discuss horseracing the way other towns discuss their baseball teams. Hey know their horse here. During the two three week racing sessions each year keeneland is THE social scene in Lexington. If you don’t have to work at one of the bars pouring ungodly amounts of Woodford reserve and makers mark for race fans, you are at the track for the days racing. They don’t save for family vacations in Lexington. They save for wagering money at keen land. Lets see, irish bars, horse racing, beautiful women and college basketball. All this and the liquor barn Its almost like heaven.

So another spring trip winds down and I sit in the airprt waiting for the plane to be called. It has once again been a weekend of great friends, incredible conversations with some of the most intelligent people I have ever had the pleasure to know. Lessons have been learned, methodologies discovered for trading and fro living as they always are on these trips. To the world at large I know it appears we are just drinking and carousing, gambling and dancing our way though the weekend. Of course we are. But along the way we learn much form each others conversations and discover a lot of things together. Not the least of which is that good friends, good whiskey and fast horses make the kind of memories we will cherish forever.

As always the trip home provides some of the more amusing moment. Sitting in the Detroit airport waiting for my connection to BWI, I sit in the fox sports bar, a civilized place where one can have a smoke with your beer. Sitting at the bar talking very loudly are three guys, pie eyed as hell just back form overrseas waiting for domestic connections. They are all back from the far east .I am listening to them discuss the merits of which type of wife one should buy, Korean, Chinese or Phillipines. The one fellow has drug out his computer to show his new buddies his design for a personal aircraft. His “bird” is going to put the aviaition industry out of existence. It worded well in a flight simulator under all circumstances, can be built out of balsa wood in his garage , his external airbags, programmable gps flight controls so you don’t actuualy have to know how to fly it, just plug in the course and go. It has luxury seating, cup holders and a Bose stereo system. He is quite passionate about building it, in spite of the fact that he feels very strongly the government will kill him for damaging the aviation industry.The fact that it appears form what I have heard defies the laws of basic physics and advanced engineering he has fric and frac as welllas the bartender ready to invest money. The bartender does have a concern being from Michigan. that’s all the snowbirds and old people flying south for the winter will be as serious a hazard in the sky as they are on the road.Our intrepid inventor admitted he had no knowledge of how to build a plane except on a simulator computer point and click program but he was going to seek out people who would teach him what he needed to know. Because knowledge should be free and he would find someone to teach him aircraft engineering for free out of their love of humanity. I am telling you, you cannot make this stuff up.

warm weather,fractured livers and stock markets

It’s a good day here. The first 80-degree day of the summer and life is good. I drive out to lunch today with the windows down and the ramones cranked on the stereo and could taste summer in the air. Somewhere off in the distance I can hear boat engines firing off and catch a trace of the familiar smell of an island summer, high-octane fuel mixed with the smoke billowing off the grill at Red Eyes. One’s mind turns to rock and roll nights at the dock bars, LD getting us all tossed out just as the band starts and all the other things that makes summer so special on Kent Island. There are other signs that Spring is here and summer not far behind. Saint Patrick’s day has come and gone with all the usual bacchanalia and I have survived. True, my liver did successfully sue for a restraining order following all day watching the NCAA tournament and then the nights festivities, but its not like I fell asleep in the hallway at Annie’s Steakhouse while waiting for the cab, or cartwheel through a restaurant. That would be ridiculous! All in all it was a quite Saint Paddys on the Melvin scale (using a normal scale would make me look bad, nit that I do not do a fine job of that anyway). No bar top singing. No secretary kissing. No bagpipe stealing. There’s always next year. It is less than one week until opening day and the Orioles head north with an improved lineup and actual pitchers in the bullpen giving a sense of hope that will doubtlessly be crushed by Mid-June. At which point I will invoke the Anybody But The Red Sox clause and begin rooting for the Yankees. Only two weeks away is the traditional first warm weather trip of the year as the after dark crew heads to Lexington for the Horse races at Keeneland with all the attendant bourbon, gambling and female arm wrestling that marks the event. It is almost summer. I can taste it in the air and I cannot wait.

Other reasons for an all around good day abound. Randy Wayne Whites newest Doc ford book is out today, always an important occasion around Chez Melvin. The package tracker tells me that Amazon has delivered a stack of research material for my latest project idea and it looks like I ll be able to get in a shirt sleeve Happy hour at Big Als Dock bar, formerly known as the shanty. It’s still just a shack on the end of a pier but a great place for warm weather after work gatherings. And the stock market has finally begun to slip off as I have suggested it would to much criticism for the upward drift bunch. True, there is an upward bias to the market but it’s not linear and the concerns over housing and the current geopolitical situation needed to be reflected in prices after 9 months of pretty much straight up. Volatility spiked up this month as well and although it has come back down since I think that going forward we will have a little more recognition of the price of risk in the stock market. With the SP 500 showing only marginal gains for the year, and the Dow actually negative, I feel somewhat vindicated for my bearish forecasts.

I think we have more work to do on the downside ahead. The impact of sub prime defaults is still not known, nor is the impact of any more carry trade unwinding in the weeks ahead. Iran has raised the stakes in the Mid East, not realizing that fro all the stiff upper lip bad food persona the Brits show, they are actually much less politically correct than the US in response to threats. The SAS, unlike Delta or Seals is allowed to go do the job when called upon. This has negative implications for the stability of the region, oil prices and ultimately stock prices. As far as portfolio moves, I really have not made any. I remain long and rite puts on the Canadian Royalty trust. They are all down over 50 percent from their highs, have dividend yields in excess of 10% and trade very low when measured against assets and earnings. I still have positions in the 3 liquidations that are ongoing. Tripos has moved up over the 70- mark once the deal was approved by shareholder vote and I think we get close to .90 payout over the next year. Remiss trades at 1.55 but has jumped around a bit of late. As the absolute end of the world worst case here is 1.35 and the best-case well in excess of two bucks, I think any chance under a buck and half should be taken. Of course I got waxed, whacked and badly beaten by the ECR Capital position. All that remains here is an interest in the securitization of a package of sub prime mortgages, the main mortgage business having been sold to Bear Stearns last month. Management’s original projection was a total payout of 1.60 per share but they have withdrawn that when sub prime went boom. They are looking now to sell the interest rather than let them run off. The exact number is hard to nail down but I do not thin 160 of value went to .40 however and think any further weakness is a chance to double up. I continue to think the activist game is the best in town and so far the results are holding true. I have used down days to buy stock and sell puts in stocks where activists such as Chapman capital, Barrington and Steel partners are active. I have had some huge winners using this approach and think it makes a lot of sense. Favorite names here include GY, GFF, BGP,IPAS,FINL,NSHA, OPMR. (For more on activist investing read http://www.thestreet.com/newsanalysis/stockpickr/10345801.html)Selling near term puts one strike down on bad days in the market is my favorite way to play this game as it generates cash flow and gives lower priced entry to the stocks. Until the market in general moves lower I am not implementing either the value line low priced or book value approach but it remains in the arsenal as a tremendous source of profits over time. For now I think it is still time to be reasonably cautious and trade special situation and sell puts in our favorite names on days when the market wants to pay us.

Two books forthcoming on the business front that I think are worth mentioning. One is the Way of the turtle in which one of Richard Dennis’ turtle traders reveals all. I have seen most of the so called turtle rules over the years and think they only work in those rare times like the 1970s when all markets are rapidly trending but it should be an interesting read anyway. I am really looking forward to the release of the The Dhando Investor by Monish Pabrai in the first week of April. I heard Monish speak last year in New York and he is one of the most Ben Graham I have met (outside of myself of course) I have seen in a long time. His returns run at the 30% annualized area and I am anxious to see what he has to teach us. His central idea is to make a lot when you are right and lose small when you are wrong. That’s very close to own focus of margin of safety investing and it should be a good read.


We have Final Four weekend coming up, although it is hard to care after North Carolina blew a double-digit lead to the monstrous thugs from Georgetown and took me from fist to last in the big pool. Having watched the way the Hoyas just wear down and beat up teams in the paint I could see them as the surprise winner this year. I think that whoever wins the battle of teams I really love to hate; the Hoyas versus the miserable ill begotten corn fed pea brained Buckeyes of Ohio state will end up as national champion this year. I no longer have a financial stake but will nonetheless probably catch the games.
So there we have it. There is a warn breeze blowing, the tents going up at red Eyes and there are string in the boat yards as folks begin to scrape paint, caulk, sand and de-winterize their cruisers, go fasts and even their blow boats. All the signs of Spring are popping up around the island, stock prices are acting in the manner and which I need them and good reading material abounds. It has been a decent winter, we had a great football season here in Maryland, the Terps regained some dignity, there were a lot of great dinners and (unfortunate) keno sessions with great friends but it is time for some summer. Put away the raven’s gear; break out the Orioles (until June), no more scotch and soda, time for white pants and gin and tonics is upon us. Put away the sneakers and break out the boat shoes and sandals. Sell puts on sell offs, sell stocks outright on rallies and bide our time. Summer time is coming.

Nothing on Earth that'll get me humming
Like a heat wave coming and I'll come runningW
ith her makin' that tan in the broad daylight
And every night is a Saturday night
And everything's right with the summer coming
I'm the first one standing in line
For my day in the sun I've been working til the sun don't shine

its time

As snow and ice pound through the mid atlantic region I try to keep in mind that winter will end. It always does. Just as the stock market seemingly always rallies and night turns to day, soon this blight of crappy cold weather will go away and bring sunshine and warmth. I am aided in this effort by the simple glorious fact that today and tomorrow are two of the most magical days on the calendar. That’s right. Pitchers and catchers report and spring training begins. See- even the word is there to help chase away the chill SPRING. Hope springs eternal.

Unless of course you are an Orioles fan. Its bad enough that we have to be in the same division as the Yanks and the DAMN red sox, now our most veteran pitcher is out for the year with a rotator cuff tear. Not what you want to hear the day before camp opens. We quickly signed Steve traschel as a replacement but he was an unsigned free agent nobody wanted.Meanwhile the red Sox continue to feature an unbelievable starting line up and have added pitching. The Yankees of course are the Yankees so again we seem to be playing for third at best before a pitch is thrown. One can hope one of the two giants has a disastrous season allowing us to slip in a wild card but I sure wouldn’t bet it that way.

This should be an interesting season. Will Big head barry break the record or go tojail? Could this be the last year for Joe torre if he doesn’t win World Series number 27 for the pin stripers? There’s four guys with a chance to hit number 500.. Frank Thomas (487), Jim Thome (472), Manny Ramirez (470) and Alex Rodriguez (464).Is matsuzaka worth 101 million dollars? Can Slamming Sammy actually make a big league roster this year? What month and where will Roger Clemens come back? Is Glavine up to the workload without Pedro in the rotation? Is Detroit for real and can they possibly repeat? Who is this years Cinderella team? Have the cubs spent enough money to finally field a winner? Will anyone jack 70 or more this year? Smart money says that a healthy Pujols, Ryan Howard have a chance and with Soriano hitting into the short porch a Wrigley you cant rule him out. It should be a great year. My prediction? Te Yankees. I think Clemens joins them in June, A-Rod earns his paycheck with a monster year and Boston falls to the wayside in September. The Orioles? Probably out of it by June First. Love the team but it’s the worst ownership in the game.In the national league I think the cubs did spend enough. They are this years Detroit

Another sure sign of spring. Just booked my tickets for the annual spring spec list after dark outing to the hallowed grounds of Keeneland raceways. It’s the Ashland stakes this year instead of the bluegrass but it will still be bourbon, gambling and all around fun.Maybe I can find once more the chain smoking, foul mouth hard drinking coed of my dreams that Crossman scared away a few years.Or at least have a hell of a good time looking.

Spring. Baseball. Ponies. Its almost here

Mcgee and markets

This is the time of year when things begin to slow to a crawl on the island. Summer, of course has been over with the hectic pace that comes from living in a place that runs at a frenetic pace to get as much pure fun into the warm months as can possible be done. Summers with the roar of engines, the swirling of bbq smoke drifting through afternoon skies resonating with music and laughter, the late nights with good friends checking out good music under the stars an amazing mix of cold beer, gin cocktails, good music, steamed crabs and great friends that are the hallmarks of an island summer. Then of course we have football season with mandatory Sunday barroom appearances to watch the ravens, along with Monday Night Football, college football Saturday afternoons. This brings us, of course into the Holidays and all the sorted get togethers, parties and shopping expeditions. Now, however for a brief period of time life around here slows down a bit. College ball ended a few weeks ago with Florida Stunning the corn fed boyos from OSU, The ravens are out of it entirely after losing to the Colts in the first round of the playoffs. There is this week’s super bowl and there will be a party for the game. I ll make some chili, have some drinks and watch the last game of the season. But it wont be the quite the same party it would have had the ravens made the game. After Sunday, nothingness, a black hole containing only Valentines Day and college hoops. I ll watch some college games but wont really care until the Acc tournament starts. Besides the Terps look to be sliding back into NIT hell again this year so what’s the point? So, life slows down now quite a bit. There will be some happy hours, and dinners but we will all catch our breath and settle down for a few months.

What to do with the time? Its winter now and the good weather has departed. Cold and snow in the forecast is the order of the day. Let me go on record here. I freaking hate the winter. There is nothing nice about it. It is cold. It is wet. People who profess to like winter and find the colder temps invigorating should be locked up for the own protection. Invigorating is a tropical breeze swirling through a tiki bar on a 90 degree day while I watch beads of condensation form on my ice-cold gin and tonic. I could sit around aided by a good glass of grouse and think deep thoughts about life, the world and the markets and some nights I shall do exactly that. If I want to depress myself I can always consider the ongoing search for the next incarnation of the one true love of my life and the comedy of errors that has become. It has been so weird and ridiculous that the WB turned it down when I pitched it to them as a comedy adventure series as too unbelievable. So, mostly reading for me during the long winter nights. I will read some non-fiction market and history relayed books but mostly it will be fiction.

Why fiction when there is all that great nonfiction to read. You can learn stuff, expand your mind and horizons perhaps but a lot of nonfiction is really just someone else’s opinion. It is a pretty good bet that I will eventually get around to Ken Fishers book and a writer and musician by the name of Gary marks has an interesting looking book on the way from Wiley called rocking Wall Street. So some non-fiction will make the list. For the most part I avoid a lot of the new market and finance related books because there is not that much new in them The basic readings of graham, Niederhoffer, brandes , Klarman, greenblatt and the like have given me a great base of knowledge from which to operate and extended knowledge lies at then of the phone line since through participating in the spec list all these years I have a great extended network of friends who trade pretty much everything under the sun.

Not only is fiction relaxing and much more entertaining than the garbage that spills from the television on an unending basis, there is in fact much to be learned from good fiction. Think pf previous discussions of lessons from Don Quixote, Moby Dick and the O’Brien series of Aubrey books. Real meaty stuff on living dying, loving and trading that stay with you long after the book is finished. There is a just released collection of Louis L ‘amour stories out that can teach you far more about self reliance and achievement than a stack of psychobabble tomes on the same subjects. Think of the lessons of robert parkers Spenser series and the code of honor and determination to always do the right thing based on your personal belief system, no matter what it takes. To say nothing of taking time to enjoy the good things of life, the love of a woman, cold beer, baseball and good food. Fyi, I f you pay attention there is always at least two very good recipes in every Spenser novel. I have tried a few of them and they are as good as parker makes them sound.

This time of year, with the skies gray and overcast and that damn artic wind finding its way southward I will no doubt revisit a few of the timeless John D. MacDonald Travis McGee series. McGee, the square jawed, deep water tanned sometime beach bum and part time r recover of lost items is one of the greatest characters in all of fiction. This is the series that created the genre now referred to as “Florida fiction”. McGee, happily ensconced in slip F18 of the bahi mar marina in Lauderdale has a unique approach to life, enjoying his retirement now while he can enjoy it and working only when the stash in the special hitting place in the hole of his beloved houseboat, the Busted Flush gets low. He finds things thought lost for half the value and along the way he usually helps some poor soul redeem themselves and put their life back on track. Along the away there are long conversations with Meyer the hairy economist, his best friend in the next slip over aboard the John Maynard Keynes. Consider some of these quotes for the series and see if you can find the lesson that lies in these superb books

The early bird who catches the worm works for someone who comes in late and owns the worm farm.

How true, how true. I have never been one to be able to work for someone else in the true sense of the word. Yes, I have a job but I work when I want, how I want and for the clients I choose to work for. I simply could not do it any other way. The mindset that allows a human being to have the terms of their life, their paycheck and so many other critical choices dictated to them by another person escapes me.

Education is something which should be apart from the necessities of earning a living, not a tool therefore. It needs contemplation, fallow periods, the measured and guided study of the history of man's reiteration of the most agonizing question of all: Why? Today the good ones, the ones who want to ask why, find no one around with any interest in answering the question, so they drop out, because theirs is the type of mind which becomes monstrously bored at the trade-school concept.

This kind of goes along with Victor’s assertion to only read hundred-year-old books. It also goes to why I like to read fiction. Only in fiction can we begin to understand the base motivations of humans and individuals. We can pick lessons and gleaning about the right way to live, to think in order to achieve out goals. So much of today’s nonfiction is the hey look at me, ain't I smart and wonderful and if you don’t agree with me then you are an idiot. Compare some to the best-selling life lessons claptrap books on the shelves today with the wisdom of just one sentence form Ishmael in Mob Dick

Nothing exists in itself. If you flatter yourself that you are all over comfortable, and have been so a long time, then you cannot be said to be comfortable any more.

More from McGee

Piss and vinegar can't be summoned on command. The muted colors of a muted life will not suddenly brighten because you think it a good idea they should.

You cannot expect to live a risk free life, content with your 9 to 5 job, the Simpson’s and a six pack every night, maybe a little bowling and poker and expect to rise up to a true crisis or event. The mindset and mental skills wont be there. By staying sharp, taking risks and seeing life, as it is each and every day is the only way to actually live it, enjoy it and overcome the obstacles. To give into mediocrity in life and attitude is to accept that you will pretty much just have to take whatever life gives you, as you will not have the juice to fight back.

One last one, from Meyer

In all emotional conflicts, the thing you find the most difficult to do is the thing that you should do

Doesn’t sound too heavy does it. Now run back in your mind all the serious emotional conflicts you have ever experienced and realize just how powerful the statement is. Hell, apply it to your trading and see how powerful it is. Breaking out the canes for example when prices are falling all around you and the doom and gloom guys are all over CNBC and the Journal. It is damn hard to do but it is almost always the right thing to do. Resisting the urge o jump in the pool when prices are racing higher is hard as well however jumping into the late phase of an up move when all seems happy and prosperous is a great way to make a generous donation to the mistress of the markets.


So, its winter. Time to hibernate a little bit, stock on some good scotch, some great books and let the calendar works its way to back to more acceptable temperature levels. Theres new books by my favorite writers due out, I have a bookstore across from my office, and I have good old Amazon ready to wade through the sleet and snow when I don’t feel like it. There are some classics to reread for the new lessons contained within their pages. I hate winter and cannot wait to see it leave. Until then I have books, I have scotch and I have an incredible set of friends in whose company I can wait out the long gray afternoons. Now, if only we had some contender for the next incarnation.

Oh well. Spring will be here soon enough.

call them chamipons

There is no one else who is saying anything about it, so naturally I will. How about those Gators? Florida whipped the ever-loving bejezus out of Ohio State last night to become the BCS college football champions. I love it when the underdog not only wins, but it also does so convincingly. Having been an underdog most of my life, I love to see a team that is told that they simply can't do something, and actually go out and do it well … Well guess what? Just as high school drop outs aren't supposed to be able to achieve a level of success in the financial industry or have several articles and a book published, Florida wasn't thought to be worthy of even being on the field with the brutes from Ohio State. Crown them champions.

There are lots of trading, market and life lessons here.
1. As always, you should have an edge. Florida found the passing seam in OSU's zone defense and exploited it.

2. When it's clear that your edge is working, exploit it ruthlessly. Once Florida knew where the seam was, it pushed the point and went back to it over and over again.

3. Respond to adversity by attacking. When OSU's phenomenal player, James Ginn Jr., ran back the opening kick for a touchdown, Florida could have been demoralized by falling behind such a heavily favored team. Instead they got a runback of their own and calmly drove in for the score.

4. Play great defense. Florida's defense refused to make mistakes last night. The Heisman trophy winner was 4 of 14 passing for 35 yards and they could never get going. Protect your bankroll at all times. Don't be afraid to push it when you have the edge (the continual blitzing last night kept Smith running for his life), but not until you know you have the edge. There have been a lot of times in the past few years where playing good defense, such as having cash on hand and selling as the market went higher, allowed me to jump on opportunities that led to profits.

5. Loyalty counts. Florida's kicker, after being all SEC last year, has had a difficult year. They stuck with him. He booted two from over 40 yards. OSU's head coach, Jim Tressel, refused to allow Troy Smith take the blame for the loss, and instead took it all for himself. People remember things like that and think better of you for it.

6. If you do lose, be gracious about it. Learn from it. Nobody likes to lose but it will happen. Jim Tressel's post game interview was a lesson in the behavior of a gentleman. There is no doubt in my mind that he will review, learn from this and be back with a top ten program again next year despite the humbling nature of being beaten so badly.

7. Know when the risk is too great. When asked about Boise State, Urban Meyer stated that he loved those guys, but he wasn't going to play them. Boise, by whipping Oklahoma, proved that they are indeed a top flight school. Florida is relieved they don't have to do a one playoff game with that tricky high octane offense.

8. When the odds are against you, study, prepare and believe in yourself. Nobody thought Florida had a chance, and that could have demoralized the gators. Instead they were there to prove a point. They practiced, and they studied film (no one else found the seam in the zone all year, so they studied hard). They believed, they studied, and they worked. Call them a champion.

revew and preview

I usually sit down and review the year gone by in the last week of the year. This year however I was in South Florida with old friends eating drinking heavily and trying to win the heart of a certain young lady with the cutest damn Kentucky drawl and brightest eyes I ever saw. Me being me, of course this failed in typical tim like spectacular fashion( I am now completely convinced that my sole serious purpose in life is to serve as a warning for married guys about being single in your 40’s) but the weather drinking and eating was spectacular. To sail in 80 degree weather on New years day makes one wonder why I ever stayed up here in the cold during the holidays.
On just about all fronts its been a spectacular year. The markets have been fantastic to me. Its been a great year for my speciality weird twisted unusual securities(talk about matching style to type!)Lets face it, Biloxi Land and Marsh is not exactly a household name.It has however been a great stock along with such well know names as bexil, Optimal,Nashua and Ipas. Book value and high cash on the balance sheet continues to work very well. There was a lot of success early in the year selling options around activist stock and I continue took for situations to do that but with the vix at 10 theres not many trades around at the moment. It remains in the arsenal however. The SPAC rade. What can I possibly say about that? Aldabra,now Great lakes dredging. Up 400%. AQR up 30 % with wozniak and amelias completing a tech acquisition. ESA, up almost 50%. The truly scary thing is these warrants are so cheap ESA and AQR remain attractive ad I ll buy them on every down tick.I ll be reviewing all outstanding SPACS for new trades and will report back on any new opportunties as soon as Im done.On any pullback I thin shares of NSHA, FRN and FINL are worth picking up as there is strong activist pressure and the real values of these stocks seems much higher to me.With the Canadian government effectively shooting them in the ass with tax arrows, you amost have to own shares in some of the Cnadian Energy trusts. I like pDS, 5 times earnings and a 15% dividend yield and Peak energy. Rally har not to like a stock at 60% of book, 6 times earnings and..get this..a 23% dividend yield covered by cash flow.
Having said that, and knowing that my genral market calls have been spotty at best, I don’t see how we can go much longer without a pullback in the overall market. There are too many reasons for it to go down here. Housing,economic confusion and lack of direction (inflation,deflation,stagflation,its all on the menu. Just order the one you like and take your chances), increasing troop strength in Iraq and still the possibility of very real conflicts with North Korea and Iran I think we need to see volatility rise and prices pullback here to give us more a normal operating environment. Now all due respect from my good friends in Chicago, I don’t think the world will end, I just think some good healthy selling is in order. My official prediction. We will see some volatility come back, we will get one good strong sell off that will create an enormous opportunity along the lines of 2001-2002 in select sectors. The Dems being in control in Congress guarantes gridlock and the 90s proved that the inability of all those good folks and blundering idiots in Washington to get anything done is good for the markets.The interesting developments out of Argentina today with Chavez moving to nationalize companies heavily owned by foreign investors make bring some sense of risk back to the Emerging markets. It bears watching.
In Sports its been an incredible year. Maryland women winning the national title. The ravens in the playoffs with a great shot at the superbowl. The Orioles we will leave in the same category as women from Kentucky. I don’t want to talk about it.The tigers improbable run into the series was inspiring to everyone except televsion executives. T he kid Howard from Philadelphia was impressive at the plate and looks like a blak mickey mantle at the plate and in the field Boise Stae-Oklahoma. Nothing else needs to said there. Navy, 9-3 barely losing to Boston college. Maryland football revived under Ralph da fridge friedgen back to winning ways including a spanking of purdue in the trojancondomlatexunderwear bowl ( I have no idea which corporation bowl it was. Does anyone else miss when it was the orange Bowl, the sugar bowl etc?)Oscar de la hoya fought again and looked sharp setting up the mayweather fight later this year which promises to one of the best ever. Looking ahead we have the NFL playoofs with some dream matchups. Eagles SaintsThe Chargers patriots(you don’t watch this you re not a fan period. The Mayflower Bowl with the Colts coming back to Baltimore to be massacred by the Ravens. My prediction? This ones not even close. The Ravens keep manning running for his life instead of passing and crush the colts.Acc play starts this week with Maryland at 14-2 and looking like perhaps they will avoid the NIT this year.Maryland Women still ranked number one. 4 to 6 weeks when I can have hope the Orioles got better over the winter before they break my heart yet again.it been a good year to be a sports fan and I think 07 will be as good or better. Tonights game..Heart says florida but my god Ohio state is just so strong across the board.
Been a good year for books as well. Anew darker doc ford from Randy wayne white ( ate at this place in sanibel over years. Best Cuban sandwich I have had in years). Two romrm rober parker, one in the spenser series and one in the jesse stone. Solid new offerings from WEB griffin. Red the best book on insider buying and selling I hve ever read,Investment Intelligence by Nejat Seyhun, Christopher Moore had a new book that was predictably hysterical, The jokes over by Ralph Steadman was a sentimental journey for fans of the hunter Thompson lifestyle and body of literature.Strong suggestion one reads doctorows the march as well.07 looks as strong on the book front. New Parker this month. Christopher Moores follow up to bloodsucking firnds out this wee and a new randy Wayne White due in March.Mohnish Pabrau has one coming out as well and given his aggressive deep-deep value style is probably going to be a worthy read Bogles little book of value investing fue as well would should be a fune read since many of earn our living proving that indexing is for bonehead academics too damn lazy to do the work,.
06 was a good year for travel as well. Three trips to Kentucky, one for the annual booze fueled degenerate gambling trip ( where fred insisted .rounding up that damn female vet from Britain to arm wrestle me and baby faced mike Ott taking bets like a drug crazed bookmaker at a Tyson fight .Goddamn broad had shoulders like cannonballs but O perservered) and twice on my quixotic romantic quest(yeah I know I should no better but I just cant stop myself man those eyes!) Two to chicago, the mandatory deep winter Crossman melvin drinking and stock market binge and the air show with what I hope is annual tradition the party at pams. Great times with great friends every time I stray to the windy city. 3 to florida including the beemer adventure you may recall from earlier writings, an old friends wedding,made more special as it was the one friend everyone has who swore he would never marry. I always knew we would be together at a wedding someday but I thought it would be another one of mine. The Kentucky-Tennessee football game(see quixote,tim,oops),more time to new york than I can count. Again 07 looks even better. I ll be in Chicago soon for the annual mid winter deed, keeneland looms on the horizon, Mike has made plans for the Iowa football game for some of us(sorry Mike you may look like a choirboy but even I never left a chick in a Mexican jail),looks like I ll have more trips to Florida and possibly reno soon.I ll never log as many miles as Mcnabb but I ll be out and about in 07. If I cant get that freaking cheese head hillman to come east I may actually have to go to (shudder) Wisconsin.Marriage does not exempt one from his spec after dark duties.
All in all, 2006 was a great year. Not everything went the way I hoped but hell it never does.Thanks to Pam I finally got a chance to write a book. Granted it was a ghostwrite job but it was a thrill to see my work on the shelves of the bookstores.For such an irascible irrepressible little prick I have been blessed with friends like no other but from the spec and trading world and here on their island. It was a year of fast boats, long nights with loud music and louder friends, potters patch, as well as intriguing and rewarding markets. Managed to get tossed from the jetty(an impressive feat given the jettys clientele) twice for which I would like to express my appreciation to matt and darryl. Assholes. There were great books, some women of grace and beauty who moved through my life and I ll always be glad they did. There were a few who maybe weren’t that beautiful and damn sure weren’t graceful but hell, they were fun.
Whast next. Who the hell knows. I have another book in the works that is proving to be a lot of fun to write. Theres new books by some of my favorite authors. I am sure there will a couple of opportunities to allow some wonderful woman to kick my testes back up into my left ventricle and my dumb ass will be right there, there will be great games, incredible moments, sparkling sunsets and as always the group of friends who mean so much to me. There will be setbacks of course. But life is far too short to dwell on those so I prefer to look at the good things I see for the year ahead. The markets will be tricky but I think there will some incredible opportunities to make money this year as volatility picks up I cpntinue to be a boat bitch as willis calls me hopping rides at every chance ( I would buy one but really..do you really want to see some with my lack of dexterity and coordination and willingness to do stupid shit just because it sounds fun driving something with 1000 horsepower?To say noting of the two kids in college who might resent seeing daddy cruise around the bay in their tuition).I ll just buy the beer and kick in for fuel. Safer for everybody. So reach up and pull the belts tight boys and girls. New year, new goals, same mission. Prosperity, growth and two and a half shitloads of pure old fashioned fun and good time for everybody

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

a holiday tradition..a dimal one perhaps but a tradition

Here we are, Early December. That can only mean one thing. That’s right dear readers it is time for Tim's annual holiday classic. Each year, for some twisted reason know only to myself..Well to be honest I don’t even know why I do it, I bastardize, plagiarize as just generally rip off some well known beloved Holiday yarn giving it a speculative, capitalist, libertarian and just plain weird spin. I of course insert characters from the spec world and sometimes from the real world to make it entertaining to all..or just because I think its funny. I like to do this early in the month so everyone has time to print it off in time for holiday bedtime reading. Surely even Mr., brooks needs a holiday classic to read this time of year eschewing those classics his kids love, the NRA manual and Bambi-He's What's for Dinner. The quest for a new story gets harder every year..We have done Yes, Virginia, It’s a Wonderful Life, naturally the night before Christmas and my all time favorite of them all, last years immortal yet easily forgettable rewrite of the grinch who stole Christmas. This year, I shall tackle the Granddaddy Christmas tale of them all..A Christmas Carol. And stand it firmly on its head

Our hero, Ebenezer Speculator sits at the end of the trading day, marking to mark his current positions. Good day for his egg nogg crack spread (long one, long one milk, short two bourbons) broke even on his march candy Cane short but as always the long Fruitcake trade settled heavily on his p and l. It seemed to him that he had been doing this forever and the watching of green and red blips fall across the screen seemed to be a non productive way to spend his days. I should be ding something productive with my life, something that adds value to the world, he thought to himself.” Feeding the poor, promoting world peace, teaching white men to dance, something that would add real and permanent value to the world. Sure, I am making money and all that and I employ a few people and helped others learn the tricks of the trade and make money. But what real value do I add to the universe sitting here greedily racking up profits for my own benefit while others fail and starve around the world. Surely, I could be a more productive member of society is some way.” At that point his nephew Fred burst through the door in his Cleveland Indians baseball cap, excited with the sprit of the season. “Quick, Uncle” he cried, “ housing starts are down, mortgage defaults are up and the world is awash in debt. We must short, we need to sell calls. Tis the season for economic collapse and profits all around!” Ebenezer look at his nephew and chided him for thinking only of profit for himself and not the plight of the poor around the world.”Bah Humbug. I am tired of all this buying and selling, selling and buying for no purpose other than to fill my own purse.”

The thoughts stayed with our hero as he made his way through the streets. He noted the homeless with their dire condition. He gave generously to the faux Santa’s ringing bells over little kettles, giving freely of his cash so they could continue the good work of forcing winos and degenerates of all forms to sing hymns to get a chicken supper and providing child care so the crack mamas could get to the corner and not worry about the fate of their little ones. He noted all the dregs and depressing things of the human condition. Of course had he lifted his eyes from the gutter he might have seen the towers of steel and glass that provided jobs for literally millions, the apartments full of people who earned their living through productive effort and cared for their families and raised their children to understand the value of education and hard work. He didn’t see the procession of cabs, buses and trains that provided cheap transportation to the public at a profit, or the store windows full of consumer goods, clothes, electronics and appliances that were sold at a profit to give us entertainment sustenance and make out lives easier while providing jobs for millions around the planet. That of course would negate the need for the rest of the story so he trudged homeward, eyes cast down not seeing the triumph of efforts and capital spread before him.

As he took his supper along with a generous glass of Irelands finest he read over the headlines of the evening papers. War here, war there, hunger, pestilence, disease. He knew that he must somehow find a way to make a difference in the world.


He awoke with a start to the clatter of chains and a soft moaning that grew increasingly louder. He recoiled in horror at the sight of a ghost, the ghost of his old trading partner when he first struck out on his own, the ghost before him was that of none other than Karl Lenin Marx Marly. They had separated after a few very profitable years when Jacob driven by the guilt of his wealth and desire to save the world. He had died in Outer Somalia when he was fried and eaten by a pack of savages who vastly preferred deep-fried ex day traders to the food presented by the various aid agencies. They were horrible fat(this was 2001. there was a excess of deep fried ex-day traders around) little men who dispatched of our crusader in quick order with a nice merlot on the side.“Karl,” cried our hero,” you have been dead now these many years. Why do you torment me at this hour? I must sleep as I have many fundraisers to attend this weekend for many liberal charities with heavy overheads and bizarre cost structures.”

“I am here Ebenezer to save form the mistake you are near making, the same fatal mistake of mistaking charity for a productive use of your time and effort..The type of mistake that leads to one being served up with a nice merlot deep in the darkest parts of the world.”

What chains are these you wear?

“The chains of every stupid do good welfare handout, government inspired relief programs that squelch the natural instinct of man to improve himself that I ever supported. The chains of every relief program that I ever collected money for only to have the cash sucked up in more fundraising drives and salaries for those who told us we were saving the world while what damn few supplies we ever sent to the poor were seized by roving warlords and midlevel bureaucrats. Tonight you shall be visited by three ghosts each with a lesson and warning for you. Take heed Ebenezer, take heed, lest you share my fate. The first shall be upon you at the stroke of midnight.”

As the ghost fade, or hero blinked in disbelief and swore he must be hallucinating. It must have been bad oysters or too much whiskey, a dream, nothing but a bad dream .Not as much of a nightmare of any his marriages, but still a bad dream. Back to bed, back to sleep he told himself.

At the stoke of midnight the first visitor did indeed arrive. Clad in pink slacks and a teal sports coat, he roused Ebenezer by smacking him firmly over the head with a copy of dimson marsh and stautons triumph of the Optimists, a most weighty tome capable of rousing one for sleep or knocking one back into it as the case demanded. “Come and see the past, of the profound impact on world history that speculators and investors have made.” With a flash they were gone into another time and another place. “But that’s me, as young man sitting at the ancient quotron cold-calling strangers to get business. Me, with no gray hair, no bifocals. Look at me so young and foolish thinking of nothing but making money.” And he watched himself as time and space compresses as I can do because its my story, watched himself in those first few years as a young salesman peddling stocks and bonds for companies no one had ever heard of, Golden Nugget, MCI, Microsoft, Amgen, Netscape. He watched as he helped raise money for companies that transformed the world with their technology and their medical devices and drugs. The specter whacked him now with Stigler Statistics on the table and they sped though days past seeing whole new industries, airlines, automobiles, computers created. Created with money raised in financial markets made possible by the liquidity provided by traders and speculated. Men who speculated to raise their standards of living and endowed educational institutions and libraries that made it possible for others to expand their knowledge, not with a hand out but an opportunity. He saw the million per cent a century return of the capital markets raise standards of living virtually around the globe and for the first time he began to realize that maybe, just maybe business and capitalism did far moregood than harm. Another smack to the head with a copy of Galtons Art of travel and he saw the history of other approaches, the complete and total failure of communist and socialist systems over the years and around the planet.

With a thump they land back in our hero’s apartment. “Why show me these things spirit. Surely in spite of these things I saw, I can still do more good acting out of charity than avarice.” With another smack of the optimist tome. Our spirit departs leaving Ebenezer crumpled to the floor.

As the clock strikes one, the second ghost, the ghost of speculative now shows. He looks disturbingly like Kenny Rogers and is wearing some sort of cheese apparatus as headgear with a twinkle in his eye like David Hillman might have if he ever did actually find someone incredible to actually agree to marry him..Oh wait that did happen and Hillmans been twinkling ever since. The spirit yanked Ebenezer from the floor, stuck a gin and tonic in his hand and off they went.

First to nephew Fred’s where he sat around with his boon companions and fellow traders Jason and Ryan. Jason sighed wearily: this market is killing me. After today’s trading debacle I m only up 913% for the year. I tell you I’m getting desperate..” Ryan was quick to agree ‘ If this keeps up next year I ll only be able to go to outer Mongolia and the north pole. I may actually have to skip paying a fortune to slip into communist dictatorships that are sworn enemies of the US. The horror of it all!”

“Guys”, said Fred, I am worried about Uncle Ebenezer. Why just yesterday I went into his office and showed him some great housing shorts and an ingenious way to be short stocks and long volatility at the same time. He didn’t pay any attention. He was too busy writing checks to the sierra club and the feed Sally Struthers s foundation! He’s losing his drive and mumbles all day of doing good.”

“Enough of the gloom” shouted Jason. “We shall go now to Melvin B’s and drink copious amounts of beer and then gather around a brightly decorated cell phone and call Chesapeake slim and berate him for his nefarious bad habits of drinking, smoking,and gambling, to say nothing of chasing women with Kentucky accents and only buying stocks under book value. It is after all, a holiday tradition.”

With the splash of a lime in a fresh G&T they were off again. They looked upon the voodoo prof and Elena living in Deltaville, va living a life of trading teaching and boating, said aforementioned Slim on his island, wring strange documents and perusing vague financial documents, mandatory glass of Famous grouse at his side enjoying the benefits of a capitalist society that allows a man to marry as many times as he likes and still figure out a way to pay for it, they saw the wiz and the Weston crew, trading and living lives, raising families, gaining knowledge as well as profits that enabled them to enjoy the fruits of their efforts, they passed over Hawaii where Mr. Sogi continues to trade and dabble in business enjoying the companionship of his incredible wife and the Pacific surf, Scott brooks , stalking profits all week and innocent fuzzy animals all weekend. All of them trading and investing in the markets, using the profits they reap for the betterment of themselves and the ones they love.


Thump back into the apartment, the spirit snatched way the gin and tonic mumbling about being in a hurry to get back and make dinner for Paula and departed. Before Ebenezer could compose himself the clock struck 2 and the last spirit appeared. With an I pod full of Cajun rock and roll tunes, a U of C bobcats sweatshirt and smelling of small town Chesapeake breezes he hurled Ebenezer into the future, a future where capital markets failed, there was no innovation. The poor die first and frequently as there are no innovators figuring ways to ever cheapen the cost of food and clothing, disease was rampant as the government stepped in and removed the access to capital markets and the profit incentive, no new drugs were discovered and those that remained were expensive. Energy costs were prohibitive as there was no capital to develop new alternative source or search for new discoveries of oil and gas. There were no new jobs created and the taxes collected to support the ever-declining system ensured that business could not expand and create new opportunites. It was a bleak world, one without the hope for improving the lives of ones self and loved ones. There were no traders or investors to put money into new ventures, no speculators to provide liquidity or generate profits that create jobs and support families. The only wealthy folks were those that worked at charities paying themselves fine salaries to collect what little money remained to dispense to those less fortunate..Which of course is everybody but you and I.

“This my friend”, spoke the spirit as he sipped a rare 30 year scotch from some obscure Scottish village” is what happens when there are no markets and no traders.” And he was off, back to fight the battle of the neighbors light pole.
“What a fool I have been” cried Ebenezer.” Thinking of my self as non-productive because all I did was trade an invest. How could I fail to notice that I have provided jobs for dozens of employees, taught many to make money in the market and support their families and put their children through school, or that the money I invested helped to create new technologies and industries, providing jobs and opportunities for literally thousands.”

He dashed to the window and cried to a young boy passing below.” You boy. What day is this” Saturday said the boy, Christmas eve” “Thank the gods I haven’t missed it..Boy do you know the newsstand around the corner. Take this 20 bucks and run round there and fetch me today’s Barron’s, FT and NY times. I must prepare for the next weeks trading.” Of course this being modern times and not dickensian London the kids was never seen again most likely spending the twenty on cheap booze and porno. We can only stretch our fiction so far. later our hero had to go to the newsstand himself to obtain copies and make his way over to starbucks to sip a large (grande,venti my butt. It’s a large coffee) coffee

An Ebenezer spent a nice Christmas with good friends and family, chatting with Jason, Fred, the voodoo prof and all the specs about trend and trades in the market, ready to return with a new zeal and new appreciation for the life of speculation.

“Heck,” he though to himself.” I may even call Slim and see if he’s got any of those weird little cheap stock ideas. It is after all the holidays.”

Best early wishes to all for a wonderful Holiday season and a may you trade well and learn much in the new year.

google swap

heres the list for this year. For the Google market cap of 149 billion, one could today buy in their entirety:
Walter Industries (wlt)
Peb Boys (pby)
Petrohawk (hawk)
Finish Line (finl)
Optimal group (opmr)
Nashua (nsha)
Precision Drilling (pds)
First data (Fdc)
Borders (bgp)
Friendlys (frn)
New York times (nyt)
Consolidated energy (cnx)
Fording coal (fdg)
Ipass (ipas)
Kingsway Fiinancial (kfs)
ADC telecom (adct)
United online (untd)
chesapeake energy (chk)
applied materials (amat)
Nabor drilling(nbr)
Patterson UTI (pten)
radio Shack (rsh)
Giffon (gff)
micron (mu)
Hudson city bank (hcbk)
cbs (cbs)
Genlyte (gy)
pacific sunwear (psun)
rosetta resources (rose)
Mirant (mir)

Google has about 3.5 billion in operating earnings. The portfolio sports 16.5 billion or so in same. If google can continue to grow at 30% a year for 7 years their operating cash flow will surpass that of the portfolio..providing of course that the portfolio rate of return remians stagnant and none of the excess 13 billion of operating cash flow is reinvested at any reasonable rate . should the portfolio rate grow at the 10 % level..not unrealistic considering the amount of excess avaible for reinvestment, it takes google 10 years to surpass in operating cash flow. again assuming that they can grow at 30% for the 10 years and no one comes along with better or new technology and reduces their competitive advantage. Of course we all know that in the stable world of technology that is unlikely to happen.

higher and higher

To the tune of the Jackie Wilson classic

your cash keeps lifting me
Higher and higher
Higher than I ve ever been before
So keep it up,quench my desire
To take the market higher and higher


Chorus

You know your cash(your cash keeps lifting me)
You know your cash(your cash lifting me)
Higher(lifting me,lifting me)higher and higher(lhigher)
I said your cash keeps lifting me(higher and higher)

Once I was down on the year
No performance fee in sight
But the your cash came in
And we’ll make so much it’s a sin..cause your cash keep lifting me

This market just wont go down. Bad economic numbers? Great, the fed will lower. Lets go higher. Good economic news? See..I told you things were okay..lets go higher.There are signs of inflation, deflation, we re losing a war to guys who ride camels and cant read, ttwo of the craziest men in the world have access to nukes, there is going to be gridlock with a lameduck president( okay..I ll grany that this may in fact be a good thing), housing prices are in disarray, we re seeing rising defauklts and late pays in the sub prime mortgage market and NO ONE CARES. Lets party, buy some stocks, bid em up. The market climbs a wall of worry my ass. Its climbibg a ladder of complacency right now. You might be able to sell me the fact that this market is fairly priced..providing I ve been drinking heavily.but undervalued. I can’t see it. The bond market and the dollar are telling you its just not that good out there right now.We have rallied alost 12% sonce August without a real pause of any length and anybody who is not cautious now pretty much deserves what they get.

So what to do now? Same things I ve been doing. I really like the Energy Services Acquistion warrants here. There are no institutional shareholders in this one at all as thi game out after the SPAC game had cooled down. Marshall Reynolds is the CEO here and has a reputation of being an astute buyer and seller of companies and running them profitably. Given that we can buy 4 and a half year 5 dollar warrants for less than .40 each it’s a good cheap call on him achieving success again. I am still long Walters (WLT)
and selling dec and jan 50 calls against it. A buyer of BXL although its hard to get more than a 100 shares at a crack , of Optimal (opmr), IPASS (IPAS), Nashua(NSHA) Secure computing(SCUR and petrohawk Energy(HAWK). Right now I am over applying the concept of margin of safwety and only buying stuff below book value with a stron catalyst, usually in the form of an activist or two in the deal.

At some point we will get a sell off. When we do I ll be looking to ramp up and get big long. But right now, being cautious is paying and paying well. Buying below book and in some cases selling options around the position has been very profitable this year and has kept the over all risk profile fairly low. I d like to be aggressive here but I just cant get complacent enough.