Over the Hump and Out of the Crazyness?

Three of five trading days this week are now over!

Hooray?

The fed cut rates by a quarter point...whatever. Apparently some people were disappointed and the market snapped back to flat/slightly down. That is what happens when less than 100% of people in the stock market are in agreement about the result of a certain future event.

*Rolls eyes*

Anyway, one can analyze what happened every minute after the decision, but again, its really not important. The important thing is that no one said the economy was going to tank. But in all of the anticipation and predictions of how much the fed was going to cut rates to and what a given percentage rate cut means over the long term, there are a few things that haven't been discussed this week by most financial outlets. I'd like to bring them up, simply to keep people abreast of what else has been going on in the market.

Radioshack

Apparently Radioshack still thinks that the following business model is a good idea:

1) Sells phones for a company that is losing 730,000 customers every THREE MONTHS. (Sprint)

2) Sell small TVs, I mean, who wants a big screen TV?

3) Sell radio controlled cars, kids don't buy videogames!

4) Sell HD radio (LOLOLOLOLOLOLOLOLOL)

5) Sell random electronic accessories that no one uses in any significant quantity (and price them like they are made of solid gold)

Their stock dropped over 10% after their earnings report this week.

I would just take my money and invest it into something I saw more likely to happen. For example, I think the possibility of breaking the first law of thermodynamics is more likely than the possibility of this company doing well.

I just want Radioshack to merge with Sprint and Circuit City (I'm still laughing at the proposed value of the Circuit City - Blockbuster merger which hit the press a few weeks ago). This way they'll all go under and I'll have three less stocks out of 5000 to track.

Garmin

This gets into an interesting discussion that we had at Intigril Capital Management. Now, this discussion happened a few weeks before this website launched, so I can't prove that this actually happened,you'll just have to take my word for it.

We had found that Garmin has great financials - low debt, high margin. However, after some investigation we arrived at the conclusion that Garmin was a bad investment.

Why?

The reason was that Garmin makes GPS devices and now cell phones, smart phones, and Iphones are now adding this functionality. Why spend another $200 on a device if you can spend an extra $50 on a cell phone that will do the same thing for you?

We chose not to invest. Good decision.

I would sell this stock if I owned it. It could rebound, but there are better bets out there. Although, I wouldn't bet against the first law of thermodynamics with this one.


The Bank of England

The BoE exchanged 100 million pounds (200 million US Dollars) of great British government bonds with the 100 million pounds worth of CDOs which British banks owned. In other words, the British Pound is now being devalued. What happens when the British Pound is devalued?

It makes the dollar worth more and less British people visit the United States!

There is no downside to the devaluation of the pound is there!?!

But seriously, the dollar has started to go up. Oil prices have started to go down. If this active form of devaluation occurs with the euro, which would be much more difficult as there is no central Euro bank, expect a much faster recovery of the American economy than currently expected.

Housing prices plummet and foreclosures skyrocket.

This is important to a recovery, because the lower the prices for homes = the higher the demand for homes = higher demand for mortgages = causes cash flow recovering at banks = more available money for business investment = improvement of the economy.

Microsoft and Yahoo

I still want that ice cream party. If Microsoft does chose to raise the bid, they should make it an ice cream AND CAKE party. I also demand sprinkles.

-Mansij Hans
Member, Intigril Capital Management

Disclosure: Intigril Capital Management, LLC is long Microsoft at the time of the "Over the Hump and Out of the Crazyness" publication.

Additional Disclosure: One of the degrees held by Mansij Hans is in chemical engineering and therefore he is a strong advocate of the first law of thermodynamics.

The Federal Reserve's Meeting Tommorrow

Apparently every day trader, senator, resident of America, and furry animal has made some disparaging comment about Ben Bernake over the last several months.

Yet no member of the Intigril Capital Management team has made such a comment public.

Ben Bernake did the best with what he had. Could he have lowered rates more aggressively? Sure. But I contend that even if the federal funds rate had been cut down to 3.5% by October, such an action wouldn't have stemmed the decline. Subprime borrowers would have still not been able to afford re-adjustments of interest rates to 7% or 8% instead of 9% or 10%.

The problem which lead to the housing crisis was NOT a matter of regulation. Lack of ENFORCEMENT of good lending practices led to the decline. Banks wanted to sell loans to people who couldn't afford them and Alan Greenspan did nothing. He has admitted that he knew of the problem and felt powerless to regulate it.

Okay Greenspan, your succesor FORCED JP Morgan Chase to buy Bear Stearns and you are claiming that you couldn't stop a few guys (and it was just a few companies) from making crappy loans?

Anyway, who is responsible and what should have been done is largely an academic question. My interest today is to discuss the implications Federal Reserve Board Meeting which is taking place tommorrow.

Honestly, I don't care if the rate cut is a quarter of a percent or a half of a percent. You shouldn't either. The key here is what Bernake says, not what he does. Understanding his thoughts on how long it will take for the US economy to recover is more important. But I think that's really not that important in the grand scheme of things either.

So what is important about the meeting tomorrow?

Well, probably nothing. We now know that the US is not headed toward depression. If we were, it would have happened already. I know people are worried about the potential for credit card companies to tank next, but credit card companies have already been increasing fees and restricting new issuances of credit cards to prevent future losses. They may not grow during the second half of this year, but only the poorly managed ones are going to go under. Their stocks are so beaten down right now, they'll make plenty of money off of international growth, let alone the eventual recovery of the American market. It may suprise a lot of people to learn that Europe (save the UK) is largely untouched by the credit card industry.

So relax. The stock market may pull back some, but the United States is not going to tank. We may even have to put up with high gas and food prices for another 6 months. So chill out and buy a diet coke. The economy isn't going to hell. If it is and I'm wrong....buy air conditioner stocks.

-Mansij Hans
Member, Intigril Capital Management


Clarification: My views about Ben Bernake do not necessarily reflect the views of other individuals associated with Intigril Capital Management, LLC.

The stock market culture of agriculture.

The agricultural boom. Where on earth (no pun intended) did that come from?

Does the fact there are a bunch of New York day traders getting rich off of agriculture stocks strike anyone as odd? There is no one left that is bearish on agriculture. Not a single person. Once the housing crisis started with the down fall of American Home Mortgage, the only good news in the financial journals has been the agriculture sector. I almost want to move to Idaho and buy a farm.

The problem is that the agricultural boom started in 2002, not 2007 when most financial journalists started covering it. Thats right, for the last five years, the small farming towns are getting in so much money that they are buying spinning rims on their tractors.

The rise of Monsanto, Potash, Agrium, and the rest of the usual suspects was when oil prices began to quickly rise in 2002. As a result of the maturation of 3rd world countries, we are seeing an increased desire for high quality food. I do not dispute that. But the demand for fertilizer and herbicides, which has served as an incredible cash cow for these agricultural companies is largely dependent on the price of oil. Here is the profit calculation of a farmer:

Revenue from harvest- Cost of buying and planting seed - Cost of tilling soil - cost of irrigation - cost of equipment - cost of herbicide - cost of fertilizer = PROFIT

Farmers are profiting largely because of high revenue from their crops. What do they do when the revenue from their harvest skyrockets? They spend the next year buying more seed, more energy (oil) tilling their soil, more money on herbicide, more money on fertilizer. But farmers understand there are trade offs. If oil is expensive, you buy more herbicide and fertilizer, instead of tilling your soil. Utilizing herbicides and fertilizer to eliminate weeds and grow your crops are just as effective as tilling your soil.

I can't believe I know this much about farming.

What happens to the fertilizer and herbicide companies when the price of oil goes back down? Farmers will start using their tractors more and herbicide and fertilizer less. At least Monsanto has been smart enough to funnel a lot of money into genetically modified seeds. This sets up Monsanto for long term growth and stability. The other companies are just too obsessed about the absurd amounts of money they are getting to realize that no boom, no matter how essential to human existence, will last.

Honestly, I'm kinda glad the end of agriculture boom is near. I was hoping the increasing price of food would decrease the obesity rate, but apparently people are willing to pay a premium to slowly kill themselves.

Incredible.

-Mansij Hans
Member, Intigril Capital Management

Disclosure: Mansij Hans is employed by Monsanto at the time of publishing of the "The stock market culture of agriculture" article.

My Two Pence on 42 Billion

Hello again,

I wanted to put in my two pence about the Microsoft-Yahoo! 42-ish billion dollar merger before a decision to go hostile or merge or have a big ice-cream party (anything could happen) is announced by the boards.

Also, notice I said "two pence" instead of "two cents". This is not because I have any particular affiliation with the British government. Instead, as a result of recent devaluation of the US dollar, feel it would more prudent to work with the British Pound for the time being. Heck, I'll work with Canadian Cents if it gets really bad.

But I digress.

Microsoft is often though of as an evil monopoly. There is no doubt they've had some questionable business practices in the past. For example, a long time ago, they made (in some people's opinion) a very low and hostile offer for a internet browser called "netscape". Netscape basically said no, Microsoft integrated internet explorer into windows and Netscape was later bought by AOL. Microsoft was slapped with an antitrust suit and lost money because of it.

Well, it turns out, Netscape should have taken Microsoft's offer. After buying Netscape, AOL continued to decline as subscribers declined and declined and declined to what is now pretty non-existent. AOL now uses Internet Explorer for its browser.

Microsoft may be an evil, aggressive, opportunistic company, but at the end day they are very very good at what they do. They hire the best nerds from the best schools. They have to deal with some of the most complex security issues across the widest range of applications.

Make no mistake, IBM made the personal computer popular... but Microsoft Windows made the personal computer work.

If the merger happens, hostile or friendly, Microsoft will (and should) fire every manager at Yahoo!. The computer science beyond Yahoo! is very strong and the image heavy advertising program which Yahoo! owns is more appealing to large business than Google's textbox ads.

Lets face it, Gooogle's ads are ugly.

Yahoo has some very profitable aspects to it. The world uses Yahoo! Finance. The Personals site is incredibly polished and profitable. Their new women's site, called "Shine", allows them to advertise with high efficiency to a defined demographic. They have stakes in companies outside the US such as Alibaba to bring in further revenue.

But Yahoo is losing advertising market share. In my opinion, this is a direct result of the in-ability for someone to slap a Yahoo-based advertisement program on small business and personal websites. Have you ever seen anything except those ugly Google textboxes on small scale websites? Why management hasn't come to this realization is beyond my comprehension.

Creating deployable software with easy integration is what Microsoft DOES. In fact, Microsoft gets anti-trust lawsuits ALL THE TIME because of it. You can have your PC with Windows XP transmit songs to your Xbox for God sakes!

I'm still waiting on Windows Refrigerator and Toaster edition with the cream cheese add-on.

What if the merger doesn't happen?

Microsoft has tons of cash in their bank account. In all likelihood they'll probably just watch Yahoo! fall further and make another, lower bid in a year. But in the short term, they'll probably spend some of the money working on a few projects (I won't go into detail on them) that focus on integrating Vista more with the internet. There is a good chance that they'll institute a buyback of shares (a buyback is when a company purchases its own shares to increase the value of the remaining shares).

Either way, Microsoft walks into this deal with a future great outlook, or walks out to do some great business as usual.

Oh, and if they have an ice cream party instead, I totally want an invitation. Can you imagine how much Ben and Jerry's 42ish BILLION could buy?

-Mansij Hans
Member, Intigril Capital Management

Full Disclosure: Intigril Capital Management is long Microsoft at time of publication of the "My Two Pence on 42 Billion" article.

Looking Under The Curve

Welcome to the first website for Intigril Capital Management!

Notice I said "first"

This blog will serve as a placeholder for a more comprehensive website which will be developed by Intigirl Capital Management over the next few months. Currently, we more focused on what is happening in the market than getting too worked up over our website.

Certainly, it wouldn't make sense to go through the hassle of registering as an LLC with the State of Virginia if Intigril Capital Management was no more than a website. So, what is Intigril Capital Mangament? Intigril Capital Management, or ICM, has three members and one analyst. We invest in stocks and stock options and are constantly researching and consolidating information on everything from why Japan can't ever get out of flat economic growth to why Yahoo! can't realize that it isn't worth more than a month's worth of gym fees.

But wait, that's a big deal!

Why you ask?

A partnership which invests in stocks and stock options is often known as a hedge fund. Hedge funds are a black box. They are a part of the nefarious culture of Wall Street shunned because of the complexities of the market and shroud of secrecy which Wall Street armors itself with. If you've ever watched Mad Money with Jim Cramer, he isn't a huge fan of hedge funds. In fact, he tends to throw eggs at pictures of hedge fund partners on his show.

Our goal for as long as we (and the internet) are in existence is to to be a hedge fund which is accessible and provides analysis for the masses which can be used as a factor in investment decisions. Investing involves risks and rewards, and thorough research is a critical component to make sure you obtain the latter, instead of being hurt by the former. Hedge funds keep their research to themselves. We do not intend to simply report on trends, but rather intigrate what is happening in the market so a 3% jump in a given stock doesn't look like voodoo magic.

Remember, don't tune out the market, tune out the noise.

-Mansij Hans
Member, Intigril Capital Management