In Search of the Perfect Investment

Here’s where the money was made in recent months — shorting the financials:

Why didn’t I recommend shorting these two obvious ones? The closest I got was recommending against investing in them. On that I was right. I never thought that they would fall this low.

I’m now prepared to believe that these two might represent an interesting buy at these low prices. Goldman Sachs has too many employees with stock to ignore its stock price disaster — without doing something dramatic. Perhaps a change in management?

Annaly gets a BUY. Cantor Fitzgerald has a report out this morning. They’re giving it a BUY, with a target of $16.75, slightly above Friday’s close.

Here is a paragraph from the report:

Major Differences from Peers

With a market cap of more than $15 billion, Annaly has more than 3x the market cap of the next biggest Agency mortgage REIT and 1.5x the combined market cap of all of the other Agency mortgage REITs. Indeed, Annaly’s market cap is nearly equal to the combined market cap of all of the other mortgage REITs (Agency and non-Agency), excluding Chimera Investment Corporation (NYSE: CIM, HOLD) (which is the largest non-Agency mortgage REIT, and managed by Annaly). For institutional investors seeking a large dollar position and/or liquidity, Annaly is the name of choice, in our view.

No Agency mortgage REIT other than Annaly has any true diversification of revenues. All except Annaly generate all of their revenue from their Agency RMBS portfolios and related hedges. Annaly, on the other hand, is already a horizontally-integrated fixed-income asset manager, with (a) subsidiary Fixed Income Discount Advisory Company being the external manager for the largest non-Agency mortgage REIT, Chimera Investment Corporation, and for commercial mortgage REIT CreXus Investment Corp (NYSE: CXS, NC), and (b) subsidiary Merganser Capital Management being a traditional institutional fixed-income asset manager. In our view, Annaly is also in the process of becoming a vertically-integrated mortgage origination/ securitization entity for conforming and non-conforming mortgages.

More than any other Agency mortgage REIT, Annaly prefers RMBS with fixed-rate mortgage collateral (mostly 30-year). This is not a voluntary preference, in our view, but a recognition that there is not enough liquidity in RMBS with floating-rate collateral for an entity of Annaly’s size (pro forma about $110 billion RMBS portfolio) to be able to get in and out of positions quickly and efficiently. Indeed, RMBS with floating-rate collateral comprise less than 10% of all Agency RMBS and thus are much less liquid. In our view, this preference for fixed-income mortgage collateral also constitutes a major shift in strategy for Annaly, away from Annaly’s so-called barbell strategy, where RMBS with floating-rate collateral were preferred in times of rising interest rates. This heavy weighting in 30-year fixed-rate collateral could be an issue for Annaly (a) when interest rates increase (due to the relative difficulty of hedging RMBS with 30-year fixed-rate collateral) and (b) when interest rates decrease (due to prepayment risk, especially given that as much as one-half of Annaly’s RMBS portfolio has recent-vintage collateral, with credit-worthy borrowers).

For the full report, click here:

Real estate distress fund is dstressed. My real estate “distress” fund has lost 4.08% since it was formed in August 2006.

Now, here’s the message. Invest in a fund. You buy a pig in the poke. Here’s why:

+ Funds typically go over several business cycles, including when things are distress and when they’re not.

+ If you raise $1 billion for a fund, you’re obliged to find a $1 billion of things to buy. Often you won’t find $1 billion of good things. You’ll end up with lots of bad things, bought in desperation.

+ Sometimes the fund can’t fill the fund, but has already obligated itself to buy stuff. So they fill the fun with crappy borrowings that will come home in three years to bite it.

My destress real estate fund lost money in the best of times (for distress real estate). Go figure.

Favorite marketing effort. Because we’re such a “valued customer” of Merces-Benz Manhattan, we are invited to a “Private Sale: a 3-day only event of in-stock automobiles with exceptional offers.”  Only problem: We received the invitation after the three-day sale. And I promise you. It wasn’t the post office’s fault. How can you be so dumb?

Climate Change and the End of Australia.

Want to know what global warming has in store for us? Just go to Australia, where rivers are drying up, reefs are dying, and fires and floods are ravaging the continent.

It’s near midnight, and I’m holed up in a rickety hotel in Proserpine, a whistle-stop town on the northeast coast of Australia. Yasi, a Category 5 hurricane with 200-mile-per-hour winds that’s already been dubbed “The Mother of All Catastrophes” by excitable Aussie tabloids, is just a few hundred miles offshore. When the eye of the storm hits, forecasters predict, it will be the worst ever to batter the east coast of Australia.

I have come to Australia to see what a global-warming future holds for this most vulnerable of nations, and Mother Nature has been happy to oblige: Over the course of just a few weeks, the continent has been hit by a record heat wave, a crippling drought, bush fires, floods that swamped an area the size of France and Germany combined, even a plague of locusts. “In many ways, it is a disaster of biblical proportions,” Andrew Fraser, the Queensland state treasurer, told reporters. He was talking about the floods in his region, but the sense that Australia – which maintains one of the highest per-capita carbon footprints on the planet – has summoned up the wrath of the climate gods is everywhere. “Australia is the canary in the coal mine,” says David Karoly, a top climate researcher at the University of Melbourne. “What is happening in Australia now is similar to what we can expect to see in other places in the future.”

From the latest issue of Rolling Stone. For the full piece, click here.

I like Firefox, but it sometimes gets sluggish. The solution is to Crl/Alt/Delete and close down a process called Plugin Container.

Apple 4s phone is actually available. Frankly, I think it’s worth upgrading. Better camera. Faster processor. And the Verizon version is a world phone, which means it runs CDMA in the U.S. Overseas you buy a local SIM card — for as little as $5 — and you’re ready to make calls.

I think this is funny:

Harry Newton who wonders why we are sending 100 “combat-ready” (up from 18) troops into central Africa to fight a 3,000 person-strong Lords Resistance Army. We will support Uganda’s army which performs the same atrocities Lords does. What can we possibly accomplish? How many fronts can we wage war on?

Occupy Wall Street demonstrations reflect huge global unemployment and miserable job prospects for the unqualified unwashed young. The sad part is that there are jobs. Every employer reports job openings, but a serious lack of qualified applicants. That’s sad. Think of that problem as another form of “deleveraging.” In the old days, it was super-easy to find a high-paying job with minimal qualifications in places like housing construction. No, no more, the skill sets required are engineering, marketing, business, etc. There’s a lesson here for your kids.  Occupy Wall Street as our “Arab Spring.”