I forgot how this thing works. Since I’ve last written, I took the CFA exam again, we’ve had fiscal cliffs, an election, and all sorts of other stuff. I meant to write a post called “All I want for Christmas is not to go over the fiscal cliff…” but alas, holiday season intervened.

Regardless, there’s some news that came out earlier this week that the former CEO of AIG, Maurice Greenberg, was going to sue the Federal Government for parts of the bailout. Among them were the was a high 14% interest rate that they had to pay on funds and the fact that the previous shares were diluted when the government provided the funds.

Thankfully, AIG has decided not to partake in the lawsuit.

The complexities in this case can not all be explained in the space I have here. One thing I do want to say is that I’ve been against bailouts in general. I don’t see why taxpayers should have to front the bill for bad business practices, no matter how bad the economy will go down if a corporation goes bankrupt.

That being said, AIG’s bailout was good for both the firm itself, government, and to an extent, taxpayers! How is it good for government and taxpayers? Very simple. They made a profit. Our government is still heavily in debt and I see us approaching another debt ceiling before we actually get our ducks in a row, but this at least helps. Additionally, the country (and the world) does not have to endure the economic pains of a major financial institution going under.

For AIG, they still exist. They did not file bankruptcy. Share prices are not only higher than they were back in 2008, but the company itself is in another position. I’d considering actually owning this stock now. I mean, PE at under 3 for that big of a firm?

And now the former CEO is complaining that he didn’t get enough. Yay America.


I read an article today about Amtrak saying that instead of asking money from taxpayers so keep afloat, it would ask for far beyond its means. I couldn’t help but think of a quote from High Fidelity:

It was like trying to borrow a dollar, getting turned down, and asking for 50 grand instead. 

Now, where I grew up in South Florida, trains aren’t exactly used all that often. Everything is so spread out that it just doesn’t make any sense to use rail. But I’ve lived in DC and by far the easiest way to get to New York is to take a train. Many people act like they need to fly, but trains are easier when it comes to travel between these two cities. Why? EWR, LGA, and JFK are all a good distance away from Manhattan. Amtrak on the other hand is right in the middle of the city, under Madison Square Garden.

Union Station also is smack in the middle of downtown Washington, walking distance from the Capitol. Compare this to DCA, IAD, or BWI. Simply put, it’s just easier to get around that way. I only mention this for those who think rail transit is passe.

Obama had tried to get Congress to plug a bunch of money into Amtrak to put bullet trains across the US in some feeble attempt to get votes. I try to stay as neutral as possible when it comes to politics (trust me, I have many complaints about the W era), but you’d probably be better off using those Benjamins as toilet paper. It’d be more useful.

Why? Other than in the Northeast, specifically between Washington, DC and Boston, MA, the need for rail is just not there. So why spend money on it? Even in between these routes it may not even be feasible.

Consider this, if I wanted to book a ticket tomorrow from New York to Boston, it would cost me about 130 for a three and a half hour ride on the Acela Express, the quickest train Amtrak offers on this route. Compare this to 200 for a flight from Newark to Boston or 192 for JFK to Boston, both less than an hour and a half flight time. Add two hours (getting to the airport), and its a wash. But for something like NY to Chicago? NY to Miami? Have fun on a 12 hour train ride.

I’ll have had a nice steak with a good wine by the time you get there. And a couple other meals too.

I promised last week that I would actually write a bull opinion on a stock rather than going around and ripping the social media space. So I’m gonna force my attention over to financial institutions and recommend a buy. Beware: most of my posts are written as a result of something I see in the market. This time, however, I’m writing because I want to be bullish on something.

I was tempted to do something in Europe but given the turmoil and uncertainty, I could not think of anything I’d actually recommend.

So how about Bank of New York Mellon? It’s great asset manager that has gone through a lot of M&A, acquiring asset managers around the world. This does two things: it diversifies their holdings and gives them increased economies of scale. Given that it is in an industry that is going through much consolidation, worldwide research and economies of scale is a good thing. Add to that a wide economic moat and its an attractive company.

So how are the stats? At 21.44 it’s trading at 3/4 book value of 28.51 (ttm). Compared to the S&P 500 it’s trading below PE, Price/Sales, and Price/CF ratio averages also. Therefore, it’s a pretty cheap stock with regard to those metrics.

As I mentioned before, the company has done a large number of acquisitions lately but is not planning any future acquisitions. I believe this will give the company some opportunities to grow organically as these acquisitions settle into place.

Overall, it looks to be a great stock. While it is an “asset manager”, it also is a custodian for a number of funds, giving it the ability to collect fees at low risk, unless something like financial crisis of 2008 happens again and banks start refusing trades from people. But I don’t see that happening any time soon.

As I mentioned before, I took Level 1 of the CFA exam on 2 June 2012. What I did not mention was that I lost my exam ticket during lunch after the morning session. I think it blew away in the wind and into a drain. Ouch.

For those of you that don’t know, taking the CFA exam is a highly regulated procedure. They clear your calculators upon entry. You can only check in with a valid passport, not with a drivers license. You can only bring certain things onto the testing floor.

So, when I lost my exam ticket, I freaked out. The reason I’m writing this post is for any future CFA takers have some sort of protocol for what to do in my situation.

First of all, try as hard as possible to do whatever you can to find your exam ticket.

If that fails and you know its gone (like a dog ate it), get back to the testing center as soon as possible. Find out how you can get a handwritten ticket and who you need to talk to. I mention get back as soon as possible because those people are incredibly stressed out with the protocol they have to go through.

As soon as you found the person you need to talk to, fill out the information. The only thing you might need is your Candidate Number but if you’re like me, I had that memorized by that point already.

Before the afternoon session of the exam, I really wanted to grab a cup of coffee. To my benefit, after the whole mess with the exam ticket, my adrenaline was so high I didn’t really need it. I really don’t recommend this as a way to “wake up” after lunch as its stressful and no one needs that. Just go for the coffee.

I mentioned I’d talk about another social media stock NOT to buy. Very simple, it’s Linked In.

Before people start going off on me, let me get something straight. I love LinkedIn’s business model. It provides a great service, possibly more useful than Facebook. Also unlike Facebook, they have premium accounts which people in business will pay for (I’m thinking recruiters and people in HR). While it is not as social or developed as Facebook, it does provide some services and fills a gap that FB lacks.

On the flip side, it is trading at 600x earnings. Yeah. I know with regards to technology companies a lot of people say you have to through out the P/E ratio but when something is trading that high compared to earnings, you have to wonder whether its worth it. While FB is somewhere around 65-70x earnings, LI is 9 to 10 times that. Yikes.

I have this shirt given to me from Pink Sheets from when I was a market maker and used their product. On the back of it in big letters it says “CAVEAT EMPTOR.” So just a quick Latin lesson, it means “Buyer beware.” Here’s a fun cartoon about it found:

Now LinkedIn is a great company, just not at the prices its trading at. When the Price Earnings, Price Book, Price to sales, and Price to Cash Flow ratios are all out of this solar system, I stay away until it comes back to Earth. Still, it’s a company to watch.

I promise to write some things that are uplifting, particularly about something to actually BUY.

Image comes from:
The Bunny System

OK, so it has been awhile. I apologize, as I was gearing up for Level I of the CFA exam. Afterwards I was in New York visiting people and just got time to write a quick post… to say..


Back in February, I had estimated Facebook’s value to be about $25 a share. And I thought that was being generous. At the close on 14 June, the shares were at 28.29. I noticed a big drop occurred on the day that the options on Facebook started trading. While options prices derive from the price of the stock, I believe it also works the other way around.

If people start driving up the price of puts (the right to sell a stock at a certain price, think of it like an insurance premium you pay to get some value if your car gets in an accident or a tree lands on your house), then the value of the stock will go down. Likewise, if people crush the price of calls (the right to buy a stock at a certain price, or think of it like reverse insurance, like paying something so you can own a house at a reduced price if the cost soars for whatever reason), then the price of the stock will also go down.

There’s a reason why Warren Buffet doesn’t invest in technology stocks. And while Google and Apple may have crazy valuations. And while Google and Apple may seem sky high, at least they have some steady revenues and aren’t trading at 90x earnings.

Anyway, I mean to write some more posts, including one social media stock that I think is in more danger than Facebook and some global macro opinions. I also am thinking about writing a small opinion (treading carefully) on my CFA experience. I may write about my exam day experience and what I think about the level I material.

Le Crackberry

Remember when you responded to 100 emails a day using this?

Remember when it seemed every banker, business person, politician, and anyone else that needed email on their cell phone all seemed to be on Blackberries? Those days are starting to go away. Research in Motion, the producers of said “Crackberries” posted earnings yesterday and they were dismal. So how did the great Crackberry go down?

First, RIM can blame Steve Jobs. Apple came out of nowhere and started the iPhone. A smartphone that was almost as good as Blackberry for the technical side but winning on the social side. I mean, the best Blackberry had for social was being able to connect for chatting and not to mention the Blackberry Messenger. BBM remains important, but it’s lost out to Apple’s iMessage in a way… though I think it would be better if iMessage was more separate than text messaging.

Second, and maybe part of number one, RIM can blame Google’s Android. Android came out as a respond to the iPhone, but with a lot more open programming. The tech geeks (whom I know plenty of) love Android because of the open source attitude they have. Don’t forget about the tech geeks. Maybe it’s the business users that drive the market in the short run, but its the geeks that drive innovation in the short and long run.

Third, they jumped into changing their game too late. Only now they are starting to dramatically change things. They acquired a company with a new OS, QMX, that has been going on since 2010. But Apple released the iPhone in 2007. That’s way too late, especially when things change all the time, especially in social media.

In the end, what does this mean? Right now, RIM’s book value is 19.00 per share or so and it’s trading at about 13. This is not a good thing. I’d be short RIM long term, which is sad in my opinion. I love the fact that their OS is very technical. The problem is there’s no market for it. MS-DOS got beat out by Windows. Windows is close to being beaten out by MacOS. It’s the circle of life. While I love the technical side of RIM and Blackberry OS, it just won’t stand. Phones are meant to be social and for business. Apple and Google got it. RIM only focused on the business, and that’s they’re downfall. While I still think they can compete, I mean I’d rather have a Blackberry for work than an iPhone (if only for the keyboard), Apple will win out. Or Google will, seeing as they have phones with keyboards.

If this were a chess game, I’d say, RIM, check (and your options are limited).

Fun links:
iPhone vs. Burrito – and the Burrito wins!