Thursday, October 30, 2008

Good Credit Crisis 101 Material

I spend some of my days at the office up at the white board designing, explaining, or simplifying problems with some of my fellow team members. It's a great exercise at the office, but when I come home from a long day, the last thing I want to see on TV is the UPS guy do more white boarding. I left the office not to come back to it. I don't care if the guy can draw straight lines and nice boxes... However, I came across some good white boarding videos explaining the credit crisis. These videos are mainly geared towards "Joe Six Pack" which is not a bad thing. I picked this up from a blog I frequent (Presentation Zen). These videos come by way American Public Media:

CDO's explained:

Credit Crisis explained:

Understanding Credit Default Swaps:

Now, on to another great resource covering the crisis as it unfolds in simple laymen terms, the Globe and Mail. A fine Canadian newspaper that has a good stable of writers. I don't like people yelling at me like some other major financial networks, and the Globe and Mail does well to inform without screaming. You can find their coverage in one long update of Q&A. Albeit a Canadian bent to it, it's well written and covers the issues nicely.

What's happening with DeVry?

It's the one shining light in the Ten Grand Chicago portfolio. The weak economy is playing to their favor. More layoffs may lead to a higher number of people heading back to school. An article published in the WSJ the other day brought to light some other challenges prospective high school graduates are facing with the credit crisis. Some families simply can't afford a 4-year private college program and electing to go to state institutions or 2-year community colleges in the mean time.

Strayer, another for-profit University has taken off this past week. I'm not suprised by this action considering all the goods things they are executing on.

Friday, October 24, 2008

More shopping, finally with DeVry

DeVry reported a very impressive quarter. Net Income increased 30%. Graduate course enrollment jumped 12%, and 8% with their Ross Medical school segment. Shares are down this morning, and after reporting news that the DOJ wouldn't be filing the lawsuit on submitting false claims to the Department of Education, the downward risk is more acceptable. As layoff news trickles through from the likes of Merck, Ebay, Yahoo, Goldman Sachs and the like, the small and medium sized businesses will definitely take it on the chin. Some people will be heading back to school retool their skills. Private Lending exposure is minimal for DeVry, and the recent quarter and morning slide in share price presents a good opportunity. I have a more detailed analysis of DeVry I did a few months ago which you can find here. I'm hoping my patience pays off. Picked up at $42.15/share

Friday, October 17, 2008

ING Direct

ING Groep NV (ING) is getting hammered this morning due to preliminary 3Q results coming out today. Time to pick up a position here at $10.29 / share.

Sunday, October 12, 2008

Herman Miller's Embody and Dealer Network

Disclosure: I own MLHR

Herman Miller (MLHR, a Ten Grand Chicago pick) has been making some news lately with its latest super chair called the, "Embody". Judging from the comments about this new skeleton like vertebrae, there will be die-hard fans shelling out $1,600 for this thing.

The company has also struck a deal to sell a few of its older chairs through Costco, with the hopes of extending sales life. In doing so, the company has to strike a clean balance between Costco, brand perception, and the remainder of its dealer network which pushes the high end stuff like the Embody. This move may come at the right time where discount retailers like Costco are demonstrating earnings strength as the economy slides into the doldrums.

Lacking from the news, are Herman Miller's dealers themselves. As much as the analysts were pinging the company during the Q1 earnings call about gross margins, SG&A, and their recent partnership with POSH (Office furniture dealer in Hong Kong covering the mainland China market), they seemed to have forgot to ask about the company's dealer network. 70% of the company's sales comes through it's dealers. Some of these companies may not be around in a few quarters if the overall credit conditions continue to worsen. Herman Miller may strike up better arrangements with their dealers if troubles do arise. This is definitely something to keep an eye on in the coming quarters. I do not have an accurate pulse on the company's dealer network, and there wasn't much mention about the state of their network during the last earnings call. Maybe I am overreacting. Let's just hope that their dealers have good liquidity and cash positions to ride this out.

Friday, October 10, 2008

Reaching for the Bottom

September 2008 will go down as one of the most gut wrenching rides in stock market history. I remember during the tech boom when many analysts said that the fundamentals were thrown out the window during those lofty times. These days, it seems as if fundamentals have also been thrown out the window, but in the sell side direction. The famous words of economist John Maynard Keynes ring so true these days, “The market can stay irrational longer than you can stay solvent.”

For those who have kept capital on the sidelines for these once in a lifetime opportunities, then kudos to you. When I refer to “capital” I am talking about plain old cash, and not the pretend stuff coming out of a HELOC. My next set of plays will involve easing into the SPDR S&P500 ETF (SPY) over the course of the next year, to year and half. I will be taking up equal dollar positions in the S&P 500 every quarter, if it gaps down more than 5%. This will come up to about 4 to 6 buys. I don’t know where the bottom is, but the downside risk is decreasing by the week.

A study of the last 3 market crashes in history helped with my strategy. I wanted to see what happened 12 months after the S&P 500 hit bottom. Now I won’t pretend to predict a bottom, but easing into it is more of a possibility (I took up my first SPY position a few days ago… could have waited :)

One year after the tech bubble crash, the S&P 500 rose 28%

One year after the Asian currency crisis, the S&P 500 rose 21%

And this is what happened one year after “Black Monday”

Let’s hope history treats us kind.

Thursday, October 2, 2008

$9,685 (Q3 2008) Peformance Update

It has been one rough ride with weakness across the board. The two most punishing stocks to the portfolio have been Research in Motion (RIMM) and my once high flier Southern Copper (PCU). The company currently demonstarting relative strength is TurkCell (TKC) of all companies.

All sights seem to be on the vote for the bailout bill. Less attention is being paid to some of the basic economic factors. Jobless claims are at a 7 year high, and the ISM Manufacturing index which reports overall manufactuing activity within the US came in at 43.5 (anything below 50 is a contraction).

Performance to date:

Taking the approach of easing-in, trying to pick those well managed companies seems to have limited the damage. Compared against the S&P500 the portfolio is fairing better:

Back to work...

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