Friday morning thoughts

WSJ out today with a negative article on Moody's -- will be interesting to see the stock's reaction. I can't imagine it won't be down but I suspect it won't be down by much -- really no new issues that haven't already been discussed by institutional investors. The main issue is the increased attention that comes from a WSJ article -- you get the issues back in your face and you get casual observers to now know about the issues.

It is troubling to realize they use to have smaller market share until they lowered their standards but the interesting part of that is that S&P -- their main competitor -- had apparently had lower standards all along! How else do you explain how they had such high market shares compared to Moody's? Of course if its due to better more friendlier service, then S&P and Moody's standards have been similar and Moody's just got rid of the reasons to avoid using them.

They are likely pro-cyclical meaning ratings standards are toughest at the bottom and easiest at the top -- that makes them just like everyone else in the market so I don't see that as a particular negative that fundamentally will change the ratings business.

Contango (MCF) announced they are putting themselves up for sale -- I sold 1/3 of my stock that day -- early obviously but I did it because the valuation in the press release of $1.7+ billion seems highly inflated since its based on a $9 nat gas price and most transactions in the Gulf are apparently closer to $3-4. The latter numbers suggest we are already very close to fair value.

Found another nat gas play that looks interesting -- similar strategy to MCF except they continue to produce where as MCF sells off reserves as they are discovered. Its called Carrizo or something like that (CRZO). Been a huge performer but could have more upside -- certainly will if you believe Nat gas will close its gap with oil -- right now natural gas is selling at half the price of oil on a energy equivalent basis. Probably need to get nat gas up towards $15 to get more in line.

But this makes nat gas one of the easy calls for undervalued energy at least on a relative basis. One more miss from the recent decline -- why didn't I buy more CLB -- was a cheap stock in the $100-115 area and I chose not to add more. ugh. Oh well. At least I had MCF, which has done pretty well too.

Oh, if MCO gets closer to $35 then I will buy back my calls.