Perkins’ Picks

These markets are crazy and anyone that continues to over sell them is also crazy. Everyone can’t be a seller, wait, no one can short sell, wait, they can, but wait, everyone can’t run to the same place until it is no longer safe to run there for anyone. You know how everyone in a bad murder thriller runs to the same closet, cuddles up together and then waits for the danger comfortably together to come. Stop selling. Every company did not sell mortgages. In fact, American Apparel sells t-shirts, not mortgages, and that goes for many other companies in a variety of industries.

GOOD NEWS IN THE MARKET

Despite the craziness, however, yesterday both American Apparel (APP), and Louis Vuitton (LVMH), two of my favorite stocks reported outstanding sales growth. APP’s same store sales were up 15 percent; while LVMH’s organic revenue growth was up 10%. Another company that looks interesting to me is F (Ford) at $2 per share you have to think will the government bail them out as well, or let them become a penny stock? Also interesting is lifestyle board sports company, Volcom (VLCM) trading up 8% today on a day the markets were down as much as 7% and saw below 8K on the DOW. I am telling you this cause no one else will and it is time for some independent thinking.

2 QUESTIONS THE FAILOUT PLAN FAIL TO ANSWER THAT THE MARKET NEEDS IT TO ANSWER

I am becoming very bullish right now but there are two big questions that no one seems to be answering that I need to get comfy with before I go head long into the markets.

1. Politicians are always talking figures. Why can’t anybody tell us what the average Americans’ average reduction in mortgage payments will be as a result of the bailout plan. This is a very simple question that should have a very simple answer, but can have very significant implications for turning the economy around because as you know our US economy is 70% consumer driven. Meaning we have to buy stuff in order for the economy to perform. Relief on mortgage payments combined with the reduced costs for energy as oil traded below $80 today could help Joe SixPack, some call this a version of a tax cut. I agree.
2. If that question can be answered then I need to know (before I sell my boxer shorts to raise more money to invest) if the infrastructure of the trading financial markets will be affected negatively by the financial institutions that make and control the markets that we trade in. What happens if I really want to buy and sell stocks, but the companies that allow me to do so are going out of business one after another. This is perhaps the only good case for having the government step in, interrupt free markets, and save institutions. Institutions… which is another way of saying that the government is preserving the infrastructure of the market system so we can keep thrasheing markets. A part of me says that the incompetent institutions should fail but then how would the markets continue? If Ralph Lauren went out of business, someone else could make shirts, but can someone else just make markets?

The government will most likely continue to bailout companies and industries like they are doing now, like they did in the 70’s and like they will continue to do. Are you thinking of how to get your portfolio in position?

At 4pm today, the headlines say “DOW, and S&P500 suffer steepest weekly losses on record”. Did the great discounting machine finally discount the biggest financial debacle on record, enough?

PUT MONEY IN REAL PEOPLE’S POCKETS

• The Bailout did not meet expectations for market psychology/ behavioral finance by not passing the first freaking time.
• This lack of clarity will continue to have markets under pressure for some time.
• Are we forgetting that the economy got so worrisome, that we actually had to send people a real check in the mail? Put money in their pockets.
• Now it continues to not answer real questions like, how much money will it put in my pocket after the government just put money in my pocket?
• How did the plan go from 3 pages to 400 and still provide no real answers or checks for real people.
• Quite simply how will the Bailout Plan affect Joe Six-Pack’s mortgage and help him juggle all the other economic hardships?
• Quite simply the above two questions have to be answered before the markets can turn around with any real confidence.

DON’T TALK TO WARREN BUFFETT: WHY WILBUR ROSS’ PLAN IS THE BEST ONE I’VE HEARD

The numbers don’t even matter anymore $700 billion, a trillion this?… even Kanye West has a Bailout Plan, in the song Swagger Like Us he says: “Mr. West is in the building, swagger on a hundred thousand trillion…”

• I think the U.S. swagger got out of control on Wall Street and Recently in D.C. as well.
• Get it? Swagger Like Us vs. Swagger Like U.S.

There are two types of investors:

• Charismatic ones that follow macro trends and keep it for the most part simple while value creation naturally happens, see Warren Buffet (to be fair he has also been an opportunistic investor as of late).
• And guys that pour through numbers and crap to unlock value or take a messy situation and clean it up, see distressed investor specialist, Wilbur Ross, who recently proposed a very clear Bailout plan.
• Now, I know why everyone is going to Warren. He knows money and is very rich, he is very likable, and can provide confidence in the market, which is what everyone initially hoped, including me.
• However, we, the U.S. need a distressed specialist’s opinion. The U.S. is in distress!

Wilbur Ross’ plan is the best one that I’ve heard first, because it is a plan.

• Next it actually spells out specifically who is involved, the government, the bank, and the mortgage holder.
• To over simplify, mortgages are written down to an actual number which the government will insure, 50% from loan value…
• Upon the first sale, the government takes a third on any appreciation, the banks take a third, and mortgage holder take a third.

WHAT ARE THE NEW NORMS IN THIS NEW ERA?

• The financial crisis for the US has reached heights that are more important than just Wall Street and extends now to an international public policy issue of saving face in front of the world stage.
• Our financial services are one of our most important exports, and along with our military presence which means our government will not let our financial institutions fail.
• The problem however is saving broad-reaching financial institutions vs. fixing the actual broad systemic problems. Mainly the mortgage and credit crisis.
• What will the new market norms be? We now have new trading ranges, new psychology, and new fundamentals. It is like figuring out my FW08 fashion look, some things can stay like Ray Bans and skinny jeans (aka healthy balance sheets and earnings visibility) but, some things may disappear for a while…
• One interesting point that I have also heard made, but like Ross’ suggestion too, not making any ground, was the concept that company valuations/ opinions/ ratings be pegged to dividends; hard to fake dividends.

WHAT TO WATCH

• Again, the key will be to judge how well the Bailout plan will go from A to Z and address consumer concerns and actual housing foreclosures, again not just banks balance sheets, but Joe Six Pack’s balance sheet.
• Our GDP still remains 70% consumer driven and the economy has recently begun to bleed jobs. We have some things that could continue to get real ugly real fast and there might not be any fighting off a Great Depression Part Deux.
• Watch unemployment figures and energy prices as the one, two that might knock us out.