In Search of the Perfect Investment

Weekend research (so far). Positive on AGNC, NLY, PVR, PVX, ANH, DX, CMO, DEP, RSO and PBT.

The craziness that 2005-2007 was. Now for a true story. A syndicator buys a big property. He borrows money from the bank. So far, normal. However, the bank decides it wants in on the equity action. It becomes the biggest equity owner. But some of its clients also want in, so the bank sells the equity action to its clients.

Fast forward several years. The project is now in semi-trouble. It has breached its borrowing covenant — meaning its earnings are not what they should be above the interest payments. Fortunately, the project is still current on its only-interest mortgage payments.

But the synidicator needs to renegotiate the covenant or get the bank to ignore it. Something will get worked out. Imagine, however, if the project went south, imagine the law suits. Just imagine.

Meredith Whitney was on CNBC this morning. She remains ultra-bearish on the banks. She highlights a brand-new cultural/personal finance  phenomenon — don’t pay your mortgage. Whitney says she’s seeing a doubling of the number of non-performing loans on bank balance sheets. That’s not good for the banks, nor for the housing market, since it will mean that accelerating foreclosures will drive down housing prices (again).

iPad magic video from Japan. Worth watching.

Click here.

My replacement iPad arrived and works like a charm. It is remarkable item. How to think of it? For someone like me, who lives by his laptop, I think of it not as content creation, but as as content consumption. Watch movies. Show family photos. Read newspapers. Surf the web. Read books. Which brings me to its investment implications. The iPad is a Kindle killer. Hence, Amazon at $126 with a P/E of 54 is way overpriced. Check out the two charts.

Apple is at new highs:

Amazon isn’t:

Remember, too Apple has just introduced iPhone 4 and is, as usual, overwhelmed with orders. The iPhone 4 is a stunning phone.

This morning Barnes and Noble reduced the price of its Nook eReader to $149 for WiFi only or $199, if you also want 3G. I wonder why? The iPad is a much better eReader. It’s much faster and it does color.

You have one more week to see the Henri Cartier-Bresson exhibition. It’s at New York’s Museum of Modern Art, affectionately called MOMA. I put myself through college with photography. I idolized Cartier-Bresson. He brought us the world when there  was  no TV and no Internet, just magazines like Life. here are some of my favorite Cartier-Bresson photos. Note the exquisite composition. When you look at his photos, think of the Rule of Thirds.

Put your subject on the intersection one of the four intersections. Check out how Cartier-Bresson does it with the photos:

Bounty’s brilliant idea. Tear off a towel. It’s only 6″ versus the “normal” width of 11″. It’s brilliant. A narrower towel works just as well as the wider one. But you feel so good saving money. This is what the packaging looks like:

This is a close-up. Look for Select-a-Size.

I’m told it’s more expensive than normal 11″ towels. I’m not sure. I checked around a bit. This stuff is on “sale” all the time. So, who knows?

Chinese justice.
It all began when a vault manager in the Handan branch of the Agricultural Bank of China came up with a bright idea in October 2006. (Handan is an industrial city of 1.4 million in Hebei Province, about 250 miles south of Beijing.) With the “cooperation” of a couple of security guards, he decided, to “borrow” 200,000 yuan (about $26,000) from the bank’s vault and buy lottery tickets with it. His plan was to win enough that he could replace the money and keep the excess winnings for himself.

Not a wise plan, you might be thinking, but good enough for our manager friend.

And the weird thing is that it worked!

The manager replaced the 200,000 yuan, and that might have been the end of it.

Having successfully confirmed the viability of his scheme, the manager decided to go after some real money.

He enlisted another manager, and together they walked out of the bank with nearly 33 million yuan (about $4.3 million), of which they immediately dropped 31.3 million on more lottery tickets. This time luck was against them, and they won zilch.

They figured  their only way out of the mess was  … to steal more money.

This time they walked out with 18 million yuan (about $2.3 million), and immediately poured 14 million into lottery tickets in a single day. Their luck stayed bad. Their winning were only  98,000 yuan.

When their massive embezzlement was discovered, our heroes did the only logical thing, which is to buy fake IDs and used cars and hit the road. Unfortunately, China isn’t a place where desperadoes can take to the open road and disappear into legend.

The managers were found within two days and charged with misappropriating public funds (because the Ag Bank of China is a state institution).

The two were executed on April 1, 2008, which may be a bit of cosmic calendar irony.