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Five Things That I've Been Wondering


...don't forget that despite headlines to the contrary, the US really is just a little less important on the world's stage each day.


1: Which white line is a lie?

Click to enlarge

Sotheby's recently auctioned off this Mark Rothko painting called White Center for David Rockefeller who had purchased it in 1960 for $8,500. The painting fetched $72 million, breaking estimates by over $30 million.

  • In other auction news, the white in the center of this chart below paints a different image and is not receiving as many bids. It produced another break with a 30 in it. The artist formerly and currently known as Sedacca drew this 10-year Treasury bond breaking a 30-year trendline.

    Click to enlarge
  • So are we breaking out or breaking down?
  • Blue Nile (NILE) recently sold a 5-carat diamond engagement ring for $140,000 and a 6-carat pair of diamond earrings for $130,000, and its stock has more than doubled over the past 12 months. Meanwhile…pawnshop operator EZCorp (EZPW), is up almost 300% over the past 24 months.
  • The average butler makes more than $95,000 now, I am told. The average wait time for a Ferrari is 24 months. Meanwhile…there are about $300 billion in adjustable-rate mortgages about to reset for homeowners who did not plan on the 10-year moving from 4.5% to 5.2% in less than three months while foreclosures jumped 90% year-over-year before that even happened.
  • I learned from Pepe Depew... or was it his driver?...that there is a parking space in New York that costs $1,183 per month. Meanwhile…my parking space cost $50, and that was before I decided it was not worth it so now I park for free and walk a few extra steps.
  • That's the thing about this market and life in general – we have choices. There is not good or bad in my book, just different choices. Choices like how we define bubbles and values. Two to consider: A bubble is what you don't own, a value is what you do.
  • My choice is to be long each end of the extreme, while avoiding or shorting the middle of a chasm between consumers that I believe is currently shallow compared to the deep divide we will witness going forward.
  • We will spend even more time in the US arguing and taxing and hoping to close the divide. But there is a 12 member jury that sits in my office every day that has already reached its verdict. My quote screens say it is not right or wrong, it is a trade.

2: Haven't we seen this movie before?

  • I buzzed while shopping for some wedding gifts for Wachovia (WB) and AG Edwards (AGE), and promised some follow up, so here goes. I decided to save my money, but there are some fine choices from the Chicago Board of Options, a "Putsky" line of stemware tempted me.
  • I was reminded of the mandatory "together forever" seminar before our church would allow me to marry my wife. Somehow I doubt Goldman Sachs (GS) and other dealmakers are requiring the same for their newlyweds.
  • You can look back to Sears, Roebuck & Co.'s purchase of Dean Witter Reynolds to chart just how well these marriages have worked. The great idea was called "Socks and Stocks," putting brokers in Sears stores. What was supposed to happen? "Madame, now that you have some new tires, may I ask if you are growing tire-d of your mutual funds and would like some advice from me? You'll notice I have an oven on the next aisle over and…well… shall I warm up a transfer form?"
  • Remarkably what the congregation on Wall Street seems to agree on most right now in that sector is how well spin-offs of banks and brokers would work at precisely the same time Wachovia discusses the synergies between a bank and a broker.
  • Wall Street is begging Citigroup (C) to divorce the bank and the broker and they had the best chance of anybody to pull this off in my opinion with separately superior operations. The most recent ill-fated attempt to please the Street was Citigroup announcing a stealth move in Boston to put brokers in bank branches. Shh…don't alert the others, but there are deposits in those banks they've discovered. Yes, a big mystery uncovered in a town with banks that are a few hundred years old. Once the plan is complete, I have a sneaky suspicion that they will learn a bank's and broker's biggest customers do not have a problem getting in touch with a banker or broker. But I do applaud any decision getting out of this committee. What kind of conference table do they have?
  • I continue to believe and the market seems to agree that specialty finance sits in the sweep spot to pick off customers from traditional finance.

3: What sport is Canada playing?

I used to have a Montreal Canadien's flag in my room as a kid. Did you know they were the last Canadian hockey team to win the Stanley Cup, and that was 14 years ago!?!? What in the world are they doing up there to pass the time?

  • Uber-Minyan Michael Santoli had a terrific take in Barron's a few weeks ago that I thought was worth chiming in on. Agreeing with his fine points, I would note that 60% of the issues listed are from the energy or mining sectors and the exchange itself may offer an un-crowded trade to capture those secular markets. The TSX Group operates the Toronto Stock Exchange and trades in Canada under the ticker there (X).
  • But I'll add a Texas twist to the story. More than 50% of the business comes from outside Canada. Its CEO was recently quoted as saying, "Our goal is to make securities lawyers and investment bankers think not just about the U.S. Exchanges or London, but to add TSX to the mix." No surprise in that comment perhaps, but the surprise may come from outside energy and mining.
  • TSX just took a healthcare company from Houston public in a deal that attracted my attention. A small ambulatory surgery center chose to list its shares in Toronto. The CEO said the choice had much less to do with Sarbanes Oxley than you might imagine and more to do with the fact that Canada, a country with socialized medicine offers investors little exposure to for-profit medical services as an investment. My hunch would be that it works in the market and then ON the market, with centers on the ground perhaps.
  • He also noted that Canada's currency had a lot to do with the decision, along with a recent tax ruling that I have written about which spooked the market and devastated energy income trusts on Halloween day last year - providing some terrific entry points, which Jeff Saut and I have each scribbled about. What I did not know was that the ruling was to tax income trusts EXCEPT real estate trusts, so an expected 9% yield from this healthcare company's "real estate" would be a good alternative to funds that have relied on those types of yields in Canada for many years.
  • The point is not this stock, and I am not buying it for full disclosure. The point is that regulations, currency, taxes can really foster or repel business and the ability to move geographically even for the smallest of firms has never been greater. So, don't forget that despite headlines to the contrary, the US really is just a little less important on the world's stage each day. The US market has been good, but it's been better just about everywhere else and the relative paired trade of Kaizen vs. Complacency that I have on is one that should continue to work for a long time.

4: Which one are you?

Click on the link below to witness a truly amazing clip. Watch for the surprise predator in the middle.

  • You may not be in to this sorta thing, but for anyone to truly appreciate just how rare this video from Africa is, I spent 10 days on a remarkable safari in Namibia both hunting and photographing with an incredible guide and we never saw anything like this.
  • I really feel like this video below does as good a job of describing this market as anything I could possibly write. You've got the bears, played by the lions, who can easily find weak prey right now among the bulls, played by slow-footed water buffalo. But just when it feels like an even fight, you've got the private equity guys coming out of the water and shocking both sides. Eventually, however, the true surprise to me is just how many friends the bulls have right now.
  • Here it is.

5: Am I having a heart attack?

Reluctantly, I share this next story to add to my opinion on keeping your eyes open and asking the right questions, research can be done in some unusual positions for a variety of positions. I make several questionable analogies but this is not one of them.

I actually thought I was having a heart attack several days ago. I have no family history, have a grueling workout schedule that I occasionally follow, and apparently am the only shopper that still goes to Whole Foods (WFMI), and I go five times a week.

As luck would have it, since my doctor was unavailable I was heading to the hospital with my wife who wanted me to be there for a check-up. Mini-Minyan #3 is on its way and I wanted to lend my rock solid support. Little did she know she was about to be holding my hand. I had not really told her how bad I had been feeling, and she's never known me to be sick and I have not been stressed out since she agreed to go on our first date (she said no three times) many years ago.

Maybe it was stress, but I was calmly sending in a few trades from my Blackberry while the market sank 200 points, while we were actually having a very good day, so I was confused. Since we were in the middle of the exam I could be accused plenty, but keeling over during an ultrasound wasn't going to be one of them. Finally I confessed to the Doc and Special K, and I was thrown in the table in seconds. They started taking my blood pressure after describing how I felt. At this point I think I'm checking in.

She pokes with fingers and questions and after the blood pressure reading came back she cracks a small smile. Maybe I'm slipping away, what was happening? Would I ever find out if it was a boy or girl? Did my last trade get filled? Maybe I do have some issues. Toddo was right about those mindful moments, I should have listened to that bearded prophet!

She was smiling because she realized after talking to my wife that I had a severe allergic reaction to two little puppies she had just brought home from the pound for our kids.

Delighted, I replied, "Thank God. Now, can you hand me one of those Pap smear test kits?" The doctor looked at me like I was not a health risk but now a security threat. Figuring I was completely nuts at this point and staring at me on the table with stirrups and all (surprisingly comfortable, not sure what the fuss is about), she hands one to me feeling very sorry for my wife at this point.

Yesss. Just as I had hoped, the kit was made by the fine folks from Cytyc (CYTC) which one of my favorite companies, Hologix (HOLX) had just acquired. I started to ask her about the digital equipment HOLX was rolling out (they make cutting edge mammography equipment). We had a great visit. Because of the overlap in offices just like hers and tremendous opportunities to replace analog machines I came away even more bullish. Only 13% of the machines have been converted to digital.

I am not sure what she was writing while we spoke, but I'm pretty sure I have a file now. I did understand quite clearly her whispering to my wife, "Don't bring him next time."

I hesitated to include this story, for a variety of reasons, some rather obvious, but not the least of which is that I think buying what you know is grossly over-played and downright dangerous. I prefer to make sure you figure out something you DON'T know. No matter how many strange looks you get, keep asking questions, and keep your feet elevated.

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