latest news (DFR and others)

Sorry about the delay in posts -- still having computer troubles with the Internet access. One of these days I'll get around to trying to fix them.

DFR - certainly nice to see the stock run up to the $8.70 area. Good and bad news this week -- first TMA sells down a bunch of their portfolio -- sounds like they couldn't do a repo rollover and decided to sell instead -- that shrank the portfolio by $20 bill and the book value by over 1/3 since the end of June. That would equate to some where around $9 for DFR so we are near 1X book value which is where the stock generally traded except for the couple of times it spiked to $17. Why assume DFR's book value has dropped too? because the value of all mortgage securities have dropped even those of the highest quality. Leverage that DFR is using magnifies the drop in assets.

H&R Block had trouble with their funding and had to use their line of credit. another sign that liquidity is not there.

On the good news front -- BAC buys a big stake in countrywide financial through a convertible preferred stock which they got on great terms -- they earn 7.3% yield and they get to convert at a price that was a discount to where the stock was trading (most converts are done at a premium to the current stock price). That provides them with $2 bill in new capital and gives a vote of confidence in their survival.

There is always the chance that DFR could do a similar deal -- raise equity from the Dart family or some other big investor that provides liquidity at a steep price. If DFR was smart, they sold some of their AAA non-agency mortgages and reinvested in agency mortgages but I doubt they did. collateral requirements are lower on agency so that would give them breathing room. But they would have to be able to sell their non-agency mortgages at a price that is not too big of a discount from their previous value otherwise DFR would struggle to pay off the repo's used to finance the purchases. all speculation at this point. Got 6 days to go before the dividend is actually paid -- wish us luck.

I still have no idea what the next dividend will be -- depends on liquidity, how much the portfolio has dropped in value and changes in the interest margin they are earning. we know that short rates are dropping and that mortgage rates are rising -- means their spread should be widening unless their repo's are costing them more due to the liquidity issues in the market.

I am still digesting the MDT quarter so I'll comment on that in the next couple of days.

AB -- only concern is where the hedge funds they manage now stand on year to date performance -- are they still eligible for a big incentive fee or not? quant funds have taken a hit so its possible they won't see the almost $2 in earnings in Q4 that is part of guidance. worst case is that the quarter is $1 instead of $2 so when the stock is near the low $70's its full discounted -- near the mid $80's and not so much.

CME -- first we get concerns about growth in derivatives but now its concerns about buying the NY merc. certainly possible. the company has a pretty good track record of doing what is best for the business. CME is already clearing the electronic trades for NY Merc so they have pretty good knowledge of the situation.

I used factset recently to do Greenblatt's screen based on the little book that beat's the market that was published a few yeas ago. He looks at valuation (price to cash flow) and return on capital. I saw several of my stocks on that list -- LH, TSRA, GGG, UEPS, which was pretty cool.

UEPS -- another week before results come out for the June quarter plus any day we can hear what happened in the welfare tender in south africa. I believe pricing will hold up at least in line with expectations and they will earn new business that no one is really expecting now. if the tender turns out favorably and the quarter goes well, this could be a low 30's stock -- easily.

EPD and MMP. MLP's that have been hurt by recent hedge fund trading (need for liquidity) more than any concerns specific to the companies.

ILMN -- should take some profits given the stock is up 50% since purchase but I still think the product cycles have a long way to go in terms of driving upside to results. translation -- I have decided to stand pat so far, which based on history is generally the wrong call. ABI is going to have a competing product in another few months so its possible ILMN's growth will be impacted then and that makes it harder to blow out epxectations.