When your opponent knows your playbook better than you do…..from the JedReport.com:

HT: Jim

Dow Industrial Average over three years. This is one UGLY chart!


There’s an old saw that’s used when talking about the stock market, it goes something like this: “When everyone is scared, be greedy. When everyone is greedy, be scared.”

About this time last year when the DOW hit 14,000+ points, everyone was feeling pretty good about things and I chose to liquidate our positions in the market. Why? I heard a local car wash attendant talking with someone about stocks and asking for tips. It reminded me of being in downtown Palo Alto at a restaurant when a busboy was talking to a VC about funding. Everyone was being greedy, I got scared. Did I get out at the top of the market? Nope.

Fast forward to August of this year as clouds were forming on the horizon and everyone was getting scared, that’s when I started to get back into the market. Did I get in at the bottom? Nope (we may not have seen it yet.) But I started nibbling then and I’m considering some big bites now. Here’s an example of the thinking (though I’m not considering the purchase of this stock.) Sun Microsystems. I make it a point generally not not write about former employers, but in this case, I’ll make an exception.

A market close yesterday Sun’s capitalization was just under $4B. This is a company that has Java, a full line of servers, a full storage line, chip design capability, profitable services, and a blue chip customer list. Has the company made mistakes? You bet. With sales of nearly $14B annually, it can’t seem to get or stay profitable. Suffice to say there are some pretty common sense decisions that could be made that turn Sun instantly and consistently profitable. Meanwhile, Sun’s plant, equipment, intellectual property, brands, and customer list themselves are worth more than $4B and the company has nearly $3B in cash on hand. So that’s right, for $1B a committed team could take Sun over, make the common sense decisions and have the $1B investment back inside a year, and then at a minimum, would see in excess of $1B/year in owner earnings flowing back into its coffers. A sharp team could triple that.

The point to this example? Sun is but one of the many companies that has been caught up in wildly negative sentiment and at present prices represent a bargain in the extreme. However, in Sun’s case, until and unless the Board of Directors determines it’s time to be profitable and forces the management team’s hands, owners are unlikely to see those returns. So there’s a bet to be placed in that regard.

When things are good, they’re never as good as people claim and the same is true when things are bad. Six days of triple digit losses on the DOW make people nervous, but they also result in unprecedented value available to people with intestinal fortitude. Don’t buy into the media hype, don’t give in to doom and gloom predictions by pundits who want you to tune in and read. Take a look at the basics, if a company has a good business model, a good product, good brand, and is being punished, now is a good time to buy at a steep discount due to mass psychology and fear.

Are we at the bottom? I don’t know. But I do know I see about 20 companies that meet my requirements for investment that are trading at 20-60% discounts over their prices 3 months ago and that’s making me feel a little greedy in a frightened crowd. I’m going long and entering the market with confidence. What do you think?

I’ve been a long-time reader of Rondam’s Ramblings and this is one of his best posts. It is well worth your time to read this tome and get a nuts and bolts understanding of what’s really happening in the economy. Here’s an excerpt:

All of the events of the past year have been, at root, bookkeeping problems. Let me explain what I mean by that. There are two aspects to any economy. There is the actual physical production of goods and services. And there is the bookkeeping that keeps track of who is entitled to what. The former is “wealth” and the latter is “money.” (Paul Graham has a really good primer on the distinction between the two here.) People fret over money, but at the end of the day what really matters is wealth. Money is just a token, a bookkeeping tool. I do not mean to suggest by saying that it is “just” a bookkeeping tool that money is unimportant. It isn’t. Money (and the bookkeeping it enables) is absolutely vital to the functioning of a modern economy. You can find breathless expositions on the web about how money is “really worthless” or “just debt” and that the whole of the modern economy is one big con game with a shadowy conspiracy of bankers at its core. But money introduces enormous efficiencies into an economy, indispensable efficiencies in fact. And in that respect, money provides (and therefore has) actual value. Saying that money is fundamentally worthless because it’s printed on paper is kind of like saying that software is fundamentally worthless because it’s “just bits” and doesn’t have any tangible manifestation.

The problem is that money has both actual value and a “proxy value” insofar as money is exchangeable for other forms of actual wealth like cars and sandwiches, and it is extremely difficult to separate the two. This can be seen with a simple parable: three kids (call them K1, K2 and K3) go trick-or-treating. Each ends up with a different kind of candy, C1, C2 and C3 respectively. Trick is, each of the children has a different taste in candy.

Read more…

You might wonder about the image of the character Gordon Gekko from the 1980’s film Wall Street. That’s my addition to Ron’s post, the whole situation is exacerbated when bad actors like the Gekko character are inserted into the candy market. The presence of such people catalyzes the downside as the market crumbles – they knew exactly what they were doing…It all smells the same as Enron and their “round trips” when fleecing California energy buyers out of billions at the turn of the century.

Well, the second debate happened last night and we saw McCain and all his maverick moves and Obama with his change express. Yes, we know Obama is a tax and spend liberal (ignoring his tax program is revenue neutral and provides relief to 95% of Americans) and that McCain is the 3rd coming of George Bush (ignoring he’s got his very own set of distinct flaws from W.)

What did we learn? Not much. People who were for McCain will continue to be for McCain. People for Obama will continue to be for Obama. McCain reinforced his image as a cranky old man. Obama reinforced his image as a clear communicator. And for undecided voters (hello – how could you be undecided if you haven’t been cut off from modern communications for an extended period of time) the choice should be clear between these two candidates. One is the greater evil. Choose already.

Full disclosure, we made it through about 50% of the debate last night and turned it off. It was simply too boring, no new information and the same tired lies and half-truths were being traded back and forth. I’ll watch the end tonight and will watch next week, but that’s it, I’m officially sick of this race for the Whitehouse. It’s been over since the Palin pick. Obama will win handily in the popular votes and very likely will have a landslide in the electoral college.

The next four weeks are going to be sad. Why you ask? Because we’re seeing the very public self-destruction of John McCain. I’ve been a big critic of the election process thinking it’s too long, too boring, too repetitive, and not effective. However, I’m wrong about that and the proof is what’s been happening to John McCain over the past few weeks, the pressure has finally gotten him and pushed him over the edge. It started with the selection of Sarah Palin, surely a decision that will go down in history as how fine the line is between genius and madness.

Then we move on to the stunt of suspending his campaign until the financial crisis is solved. Well, we’re still in crisis and McCain is still campaigning. I’d like to know how his actions square with his words. Clearly, it was nothing more than a cheap stunt. Meanwhile, he blew off David Letterman to do an interview about this stunt in the same studio complex with CBS News! Not smart.

Now we’re seeing a dredging up of old issues that didn’t stick the first time with Ayers, minister-gate, and race playing an issue in campaign ads. I can’t fault Obama for unearthing Keating & Co. – at least that has some bearing on real issues at hand and shows that McCain didn’t have good judgment in the 1980’s and with the decisions we’ve been seeing throughout the campaign, McCain’s judgment remains in question.

It’s really good that we’ve been able to see the real John McCain, under pressure and desperate. He’d make George Bush look thoughtful. Only the most blindly loyal, partisan creatures will vote for McCain in November – that means, and you heard it here first, Obama will win in a landslide.