The Doctor Evil Financial Report – January 2009

The world is about to end…I just checked with Dr. Evil Financial and we are going to need one ga-jillion dollars to bail out all the insolvent banks around the world.

The world is about it end…unemployment will shoot past 20%, bringing down the “average working hours a week” to an unheard of number, otherwise known as 2.6 more hours a week more than France has averaged since World War II.

The world is about to end…one of George W’s last acts as president was to put a 300% tariff on Roquefort cheese. Protectionism will lead us down a scary path, but at least now it will smell a whole lot better.

The world is about to end…over the past 7 years the absolute yield for a European company to issue debt has averaged 5.04%. Today, it is at the “end of the world” rate of 6.20%.

The world is about to end…Nokia, that cell phone maker that some of you who don’t own IPHONES or BLACKBERRIES, still use issued 1.75 billion Euros of debt, and orders for 9.0 billion Euros of that debt.

The world is about to end…the gall of companies like Amazon, Google, Netflix, Barclays, McDonalds, IBM, and Apple reporting decent earnings. How dare they!

The world is about to end…the consensus now estimates it could take between $2 and $4 trillion dollars to clean up this mess, and yet no one must have told the market because it moved 20 points.

The world is about to end…bond default insurance prices has been dropping like a stone and yields on investment grade and junk bonds have been contracting quicker than Jessica Simpsons waistline will need to contract before the next tour. Seems the people with Black Swain money and shadow banking money know that companies actually will exist in 2010.

The world is about to end…Coke just scrapped the use of “classic” from their cans and bottles to “take one source of confusion away (that younger consumers may have)”. Really, the “classic” label was added in 1985 after it introduced New Coke. That means anyone born circa 1985 only knows Coke as Coke Classic since New Coke only made it long enough to be a footnote. We should bring New Coke back and call it “Thriller Coke”.

The world is about to end…Obama is scathing Wall Street for bonuses in a time like this, when his new right hand finance man Tim Geithner just got a $500,000 severance for leaving the NY FED, in addition to his $500,000 salary.

The world is about to end…Do you think Blagojevich’s recent purchase list at Amazon includes “Jedi Mind Tricks – Focus and Happen It Shall”.

The world is about to end…Jim Goldman almost wrote a critical sentence about Apple. 462 blog posts and we almost got him to question his BFF Steve Jobs and how Apple handled the Jobs illness. Wow, what is the world coming too?Good Luck Chuck download Riff-Raff download

From Hell video

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“Buy and hold, Mr. Market will correct itself!”. If anyone out there tries to have a conversation with a value investing friends and it seems to turn into a religious or cult like debate. Send them over to watch this video.

Why did value investing fail so much this year? Why does it hurt so bad? Well, it only takes one horrific year to wipe out 5 years of “Mr. Market correcting to intrinsic value”. Why so much pain this time around? Well, how long ago did the baby boomers start retiring? Hmm…how about 5-7 years ago. Throw in the fact that the baby boomers are the most active retirement generation ever, they probably let their investments ride in “safe” managers like Warren Buffett, Mohnish Pabrai, Bill Miller, and Ezra Melkin.

I mean, if you buy something at a discount to intrinsic value, how much farther can it go down? The whole reason you are buying the stock is that it is already beaten down, so haven’t we limited our downside?

Problem #1. Mr. Market can take a very long time to correct
Problem #2 Time cost money, in order to stay with your value investments you need cash
Problem #3 What if Mr. Market doesn’t correct to historic valuation, but instead is efficient in telling you the company you just bought a discount, is at a DISCOUNT for a reason.
Problem #4 Value investors usually have a strict rule on when to sell, like a company reaching intrinsic value or once they get a 10% return on investment. They never usually “let it ride”. So when they have a year where they lose 45%, they don’t have the upside to get it back very quickly. Unlike sector funds like biomedical or technology funds, you may have a -34% on year, but the next could be up 40%.

I thought the song “When I’m Right….I’m Right” by Slotmachine was perfect for this video.
The song is used with full permission and was very enjoyable to the band!

Update on January 27th…

Just to let everyone know I am not the only bat in the bellfry..

http://seekingalpha.com/article/116331-berkshire-hathaway-failing-business-model-points-to-a-35-decline?source=front_page_short_ideas#comment-368064

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Morgan Stanley
Senior Floating Rate Notes due 2012
Non-Callable U.S. Inflation Index Linked Range Notes

This looks like a serious no brainer. We have CPI at or below 1% and crashing down.  We have Bernanke talking in London about how he will raise rates quicker than you can say “Paulson’s Plan” as soon as a recovery has started to show its early face.  The government and Wall Street are clearly worried about deflation (ie massive stimulus) than inflation right now.  So you are telling me we are going to go through a deflationary cycle, turn it around, show enough growth to start raising rates, and then have CPI shoot through 7%…all in 36 months?  That is the life on the note.

All you are betting on here is Morgan Stanley doesn’t go out of business, which with there recent bank holding company status and merger with Smith Barney, seem like a pretty good bet.