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Seeking Alpha

Tuesday, February 12, 2008

American Innovation Drives Economic Resiliency


(Stocks in this article: AMEX: SPY, AMEX: DIA, Nasdaq: QQQQ, NYSE: MON, NYSE: GM, NYSE: MBI, NYSE: ABK, Nasdaq: YHOO, Nasdaq: MSFT, NYSE: BAC, NYSE: C, NYSE: CS, Nasdaq: COMS, NYSE: Q, NYSE: IMB, NYSE: MMC, NYSE: SGP)

Stocks found a guardian today. Good old Warren Buffet came to the market's rescue with an idea to help secure the municipal bond market, and make a little scratch at the same time.

America's Guardian, Buffet to the Rescue

God bless 'em! We do not care if his purpose is purely capitalistic or if he is seeking to help society and perhaps his own soul for the big banking meeting in the sky that eventually comes for all of us. All we know is that having Warren Buffet around is like having a Grandpa-like guardian to take care of us, should we falter.

Today, Warren proposed to reinsure $800 billion of municipal bonds now insured by MBIA (NYSE: MBI), Ambak (NYSE: ABK) and FGIC. He was right that this would bring confidence to frantic financial markets and put out the latest economic fire. Buffet also let the NY DA know about this proposal, since the District Attorney is focused on resolving the issue. Investment banks would face further charges tied to rating supported bond values, should the AAA ratings of the insurers be lost, as many rating agencies have forewarned. Buffet is offering the insurers a 30-day period to find a better deal, but if they do, they'll also be liable for a cancellation fee. Warren is a savvy businessman, and this is a business deal, so he's leveraging his wealth and his insurance operations for his favor. However, Grandpa is also helping your portfolio by proposing a resolution to the muni-bond issue. There's a saying about a gift horse we should not have to remind you about. Thank him.

Economic Data & Analysis

The International Council of Shopping Centers - UBS today offered its weekly same-store sales report for the week ended February 9, 2008. Sales rose 1.8%, year-to-year. That's a good number folks. We grew 1.6% last week, and have wavered at times this year flirting with a sub-1.0% dip. Retail sales for January are scheduled for report later this week, and they are widely expected to show poorly.

Greek gets philosophical

Sailors understand best the challenge of changing direction when facing drift that results from the momentum of initial direction. Navigation is only further challenged by wind and current, some of which can be unpredictable. So, the market now attempts to estimate how well our power driver of Fed rate reduction, fiscal stimulus and system consolidation can offset the drift of economic recession and the unpredictable wind and tide. The good news is in what we know. We have shifted gears, and we are on the gas pedal. At some point, the economy should benefit.

The other positive is found in the fact that the American economy is the most advanced and evolved in the world. Its resiliency should never be underestimated. The creative skills of American bankers, corporate executives and government guardians are astounding and unwavering. We can count on the unknown resolution presenting itself in America. It does so consistently in positive response to negative consequence. God bless America!

Evidence

A group of banks led by Bank of America (NYSE: BAC) and Citigroup (NYSE: C) today announced an initiative intended to mitigate foreclosures. Too many troubled home owners miss their opportunity to forestall foreclosure due to their own error and misunderstanding. These banks are helping resolve this problem by offering a 30-day freeze period, in which banks will attempt to work with borrowers to mitigate foreclosure. Foreclosure helps nobody, and banks do not want to hold property as assets. They just want their loans paid back. This should aid that process, and help forestall the flow of homes to the already flooded marketplace. This is unfortunate for real estate vultures only, and should limit foreclosure prospects. However, it helps the distressed of America, and that's a good thing.

Greek Personal Aside:

The Greek once wrote to Buffet after finishing graduate school. I had been mailing out 20-30 resumes a week (for a full year), including research reports to best prospects. It was costly, and I was delivering pizza part-time in order to focus on getting my dream job in the equity markets. So, I wrote Buffet and offered to help out around the office for free. I figured I could deliver pizza just as well in Omaha as I could in Philadelphia, and in the meantime, I could learn an awful lot.

Buffet actually responded. He wrote something like, "We appreciate your offer, but we have a small office and team, and not much room for more help." This was to me a sign that this kind-hearted soul could not even conceive of taking free help. I imagined he must have been inundated with letters like mine, but Warren perhaps missed an opportunity for one rare moment of his life. He missed a chance to make a good friend and to hire a prodigy who had chosen the market path at age 13. The Greek was molded out of the Graham, Buffet and Lynch lot. However, people like this usually have to find their own way, and that is perhaps the critical ingredient to development. So if I can offer some advice to aspiring market mavens, don't sit around waiting to get adopted by your mentors. Become your own mentor.

I keep that letter and treasure it to this day, along with another from the office of Peter Lynch. I still would love to meet both Warren and Peter, and hope the opportunity avails in the future.


Market-Moving News


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posted by The Greek | 10:49 AM

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