Tuesday, October 7, 2008

The Unwinding Of Greed

"But when the bailout that nobody wants, but everybody needs, is finalized, things will soon be back to 'normal'."

The Dow Jones has set two records for single-day decreases within a week. The volatility ("fear") index is at an all-time high. Perma-bull Jim Cramer capitulates: "Whatever money you may need for the next five years, please take it out of the stock market right now, this week."

But something else is going on here, beyond a financial meltdown. Something that might not be solved by throwing $700 billion at the problem.

All the greed of recent American history - whether its the past decade, 20 years, 40 years, post-WWII - is unwinding.

Wall Street invented "financial engineering", creating derivatives on top of derivatives, accelerating profits and ignoring risk; creating the false consensus for the new rules of doing business and making money. It paid itself unconscionable bonuses when things went well, and golden parachutes when things went poorly. It exhibited a brazen disregard for corporate transparency and personal accountability.

But its not just Wall Street in need of a "bailout".

Main Street has been living beyond its means, borrowing against tomorrow to get what it just "has to have" today. Living in homes and driving cars it can't afford. Scraping to get by, paycheck to paycheck, no matter the salary. Saving money is old-fashioned, and spending money is compulsory behavior. All the while, feeding the Wall Street casino, seduced by promises of fast money without risk.

The U.S. government has been unable to curb its spending, while lacking the political will to tax its citizens accordingly. Its ambitious foreign policy has proven to be unsustainable. It has destroyed the value of the dollar, effectively putting America up for sale and inviting sovereign wealth funds to buy assets at deep discounts. All the while, implicitly backing Wall Street, by stripping away regulations and "letting the free markets work".

What we are experiencing is failure of a society - its government, its citizens, its industry - all parties complicit. A society in default, unable to meet its obligations.

All due to greed.

The unwinding has begun. When it ends, no one knows.

Wednesday, October 1, 2008

Stocks Of The Month: AAPL, GOOG

You might have noticed that there was no Stock Of The Month for September 2008.

That's because I didn't buy any stocks - and hopefully you didn't either. But when the bailout that nobody wants, but everybody needs, is finalized, things will soon be back to "normal".

I sold two stocks last month. On Sept. 19th, Companhia Siderurgica Nacional (SID) was down 38% and its dividend wasn't compelling (i.e. large) enough to keep. On Sept. 23rd, Goldman Sachs (GS) was down 39% and went from the best investment bank in the world, to just another regulated bank. (Full disclosure - I'm very much in favor of increased regulation/transparency/accountability; I just don't want to own a stock whose future profit potential significantly diminished overnight. But if you need to own a bank stock, GS is the one.)

Apple (AAPL) and Google (GOOG) are arguably the two best brands in the world today. Their stock, like everyone else's, was washed out over the past month, declining 33% and 14% respectively. However, their long-term prospects are intact - Apple owns consumer electronics, and Google owns the internet. One bad month won't change that.

Here's my current portfolio. As always, I believe in all of these stocks - until I sell them.

Dominion Resources Black Warrior Trust (DOM) 13.27%
Google (GOOG) 10.01%
Terra Nitrogen (TNH) 9.66%
Southern Copper (PCU) 9.31%
Apple (AAPL) 8.34%
Ace Limited (ACE) 8.06%
Frontline (FRO) 8.01%
Tesoro (TSO) 5.54%
Tidewater (TDW) 5.21%
Hansen Medical (HNSN) 5.21%
Diana Shipping (DSX) 4.95%
Nintendo (NTDOY.PK) 4.28%
Apache (APA) 4.17%
Vestas Wind Systems (VWSYF.PK) 2.91%