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It’s just to much fun to pick on Jim Cramer these days. When will people realize that he is just an entertainer, and knows nothing about the fundamentals of this economy?!?! Here is him over one year ago raving on Mastercard (MA). He tells the same “no credit risk” story as the other lunatics on CNBC. But one year later, it seems even Mastercard is not immune to credit risk, and their shares have weakened drastically as a result.

Related article:

• CNBC fails attempt to prolong Visa and Mastercard bubble

Warren Buffet is a brilliant investor, but it does not mean I would blindly follow his investments.  I am a Berkshire Hathaway (manged by Warren) shareholder, so in a sense, I am blindly following him.  But I don’t pay to much attention to the Berkshire stock holdings report, and when do I learn of new Berkshire holdings, I’m certainly not eager to purchase them in my own account.

As of June 30, 2008, Berkshire Hathaway reportedly owned 48 million shares of Moody’s Corporation.  According to the Yahoo Finance profile for Moody’s:

Moody’s Corporation, through its subsidiaries, provides credit ratings and related research, data, and analytical tools; quantitative credit risk measures, risk scoring software, and credit portfolio management solutions; and fixed income pricing data and valuation models principally in the United States and Europe

Today, Moody’s reportedly (and finally!) cut its credit ratings on Fannie Mae and Freddie Mac to just above junk status.  I’m not interested in investing in Moody’s, whose business model is based on providing accurate and timely credit ratings, but who does not cut ratings until after the damage is done.  Moody’s ratings to me are no better then the predictions of the average Wall Street analyst - calling a sell AFTER a huge sell-off and calling a buy AFTER something is overbought.

I’m happy to own Berkshire Hathaway stock, but I’ll stay away from Moody’s!

Does everyone at CNBC own shares of Visa and Mastercard? You would certainly think so the way they parade those two stocks on multiple shows virtually everyday. Manipulation anyone? You’ve heard the nonsense from Cramer on Mad Money, the Fast Money morons, and a multitude of others. Everyone is terrified of holding financial companies so CNBC continually advertises that Visa and Mastercard have no credit risk. They say that they are just a payment transaction company and the credit risks fall to other banks. Well it may be true that Visa and Mastercard do not carry direct credit risk, but to say there is no risk is foolish. As the card issuers that utilize Visa and Mastercard increasingly cut off their client’s credit, Visa and Mastercard will suffer accordingly. And with such lofty valuations in both companies stocks, any slight disappointment is bound to result in a bloodbath in the shares.

Just last night Cramer was spouting his mouth off with yet another bottom call, and made specific mention to Mastercard prior to their earnings release this morning.

“I am indeed sticking my neck out right here, right now,” Cramer continued, “declaring emphatically that I believe the market will not revisit the panicked lows it hit on July 15. and I think anyone out there who’s waiting for that low to be breached is in for a big disappointment and [they’re] missing a great deal of upside.” …Cramer’s predicting the rally continues Thursday thanks to great after-the-bell earnings from The Walt Disney Co. and First Solar. And who knows what could happen after Mastercard reports in the morning.

Guess what Cramer. It’s now morning, and we see that Mastercard reported a second quarter LOSS of $747 million dollars, or $5.74 per share. Mastercard shares were off nearly 11 percent (so far) as of 9:51am est, just 21 minutes into the trading day. So much for that “NO CREDIT RISK” thesis that CNBC shoves down your face. CNBC has failed its attempt to prolong the Visa and Mastercard bubble. Thanks for the advice Jim, but I’d rather stick to the much more accurate Big Mac for my trading advice.

The Starbucks stock price topped out near $40 per share twice in 2006, but has been steadily falling since that double top formation, and now sits at around $14.40 per share. By many accounts 2006 was also the peak of the housing bubble, and leaky home values have issued a strong blow to consumer spending since that time. Two of the hardest hit states in terms of housing are also two states that make up nearly 30 percent of the Starbucks stores in the United States. A $5 latte may not have been a stretch two years ago, but in the midst of this deflating economy and credit crisis consumers are definitely cutting back.

But consumer spending is not the only thing ailing Starbucks. They are also struggling with higher acquisition costs of their two staple ingredients - coffee and milk. In fact, over the past two years, the Deutsche Bank commodity index (DBC) and Starbucks (SBUX) appear to be an exact mirror image of each other:

McDonalds is another company affected by higher commodity input costs, but that fact is certainly not reflected in their share price which has hit several 52 week highs already this year. McDonalds healthy operating model allowed them to pay off $1 billion in long term debt in 2007. Yet Starbucks, who operated most of its life with insignificant near zero long term debt, suddenly racked up $550 million in long term debt during 2007.


McDonalds is also pursuing the high end coffee market through their aggressive expansion of stores offering the McLatte. And they are doing this at the same time that Starbucks is reversing their expansion into McDonalds traditional breakfast sandwich turf. It seems that every area where Starbucks is struggling and failing, McDonalds is thriving and conquering. But the struggle of Starbucks will not last forever. Howard Schultz is taking significant steps to reverse the downtrend - revising the menu, closing poor performing stores, and even offering a new customer loyalty program. Global commodity prices have also shown signs of leakiness, and any continued price relief on the milk and coffee front could be a potential windfall for Starbucks. If McDonalds is serious about their coffee expansion plans, then they need to take action now. The opportunity to acquire the biggest name in coffee during their weakest days won’t last forever. McDonalds needs to buy Starbucks now.

Disclosure: The author of the above article holds a long position in Starbucks stock.

If you don’t live in a cave, you have probably hears about the current crisis in banking and housing. Many banks and mortgage companies have already failed (Netbank, Indymac, and others), and many more are expected to follow. But if the banks hedged their risks appropriately, the pain of the housing crisis would be mostly limited to the private mortgage insurance companies, such as MGIC Investment Corp (MTG).

Traditional wisdom states that you need a 20 percent down payment to purchase a house. The 20 percent down payment is the method a borrower can use to prove loan worthiness. The large down payment, and a good credit score were the traditional means a bank used to establish credit worthiness for such a large purchase. If a borrower wanted a home loan with less then a 20 percent down payment, they were structured as a piggyback loan. The piggyback loan consisted of two loans, one for 80 percent of the value of the house, and a second loan at a higher interest rate for the difference between the smaller down payment (sometimes nothing at all), and 20 percent. In addition, banks and mortgage lenders issuing piggyback loans required the owner to purchase additional private mortgage insurance. The mortgage insurance premiums paid by the owner was a protective insurance policy designed to hedge the banks risk against default. Companies such as MGIC, who sold the mortgage insurance, would cover the first 20 percent of loss and the banks would cover the rest.

But just as in the DOT COM era, the bubble got a hold of bank CEO’s, and greed and stupidity took over. The logic seemed simple at a time when competition for home loans was fierce and banks were fighting for their share of the loot. You know how the story goes; everything that could be overlooked was overlooked. $500,000 no money down home loans, often structured as interest only arms with negative amortization, were freely given out to anyone with a heart beat, and sometimes the heartbeat was optional. But the banking CEO’s figured there was no risk because houses were increasing in value by 10 or 15 percent per year - or so they WERE. It was a borrowers market and given the choice of a loan from a bank that required the additional mortgage insurance purchase, and one that didn’t, the decision was obvious. Just as the commercials say, banks had to compete, and when banks compete, banks LOSE. They dropped their demands for private mortgage insurance, effectively killing the hedge and taking on all the risk themselves.

Fast forward to present day and banks are now learning the painful lesson that mortgage insurance policies won’t help them if they never existed. Meanwhile, the impossible has suddenly become the probable. Housing values across the country continue to drop, and borrowers who never had any skin in the game find it easier to walk away and hand the keys back to the bank. And the banks are left wishing they had the private mortgage insurance in place to buffer the pain.

How do you invest your money? Do you throw it at mutual funds and let someone else manage it? Do you throw it an index and just play the averages? Or do you try to out maneuver the market, and beat the averages by picking your own stocks? If you are in the latter category, the good news is that there are now free and simple tools available to everyone to help you filter out the losers, and narrow in on the winners. Yahoo, MSN and Google offer three of the most popular, well featured, and free stock screeners around. This article will help you get started.

1) The Yahoo Finance stock screener is a basic screener that allows you to search on 13 criteria, and also allows for limiting results based on either industry group or index membership.

2) MSN Money goes a step further and offers pre-defined Power Searches, as well as the manual stock screener where you enter each specific search criteria. If you believe in the power of momentum, then perhaps the MSN stocks at new 52 week high power search is for you. The power search automatically orders the results with the highest prices at the top. The disadvantage with the power search is that the resultant data is limited to only price and market capitalization info. If I could limit the power search results to only US based companies with high liquidity (> 500,000 shares/day), and stocks priced above 20, then the MSN power searches would be a regular stop for me.

3) The google stock screener has a very simple look and feel, but certainly not lacking in sophistication. I especially like the distribution graphic for the various parameters.

I also like google’s choice for the default search criteria using 4 simple parameters - market cap, p/e ratio, dividend yield and 52 week price change percentage. For my own screen, I used the following parameters:

• Market Cap: 2B to 100B (not to small and not to large)
• P/E Ratio: 10 to 40
• Dividend Yield (%): 1 to 3 (why invest at all if they are not sharing the profits!)
• 52 week price change (%): -5 to 50 (stay away from major losers, and bubbles in the making)

The above 4 criteria resulted in 111 companies. If I add a criteria for average volume over 500,000 shares, and stock price greater then 20, the results are then limited to 82 companies. To see the most recent results of the above search, use this google search link.

4) The Marketwatch stock screener also has a very simple look and feel, but goes a step further by allowing a user to enter both screening data and output data. The screening data entry is very easy to use and allows criteria based on price, volume, fundamentals, and technicals. It also allows results to specific exchanges or industries. Once all the search criteria are selected, you can then choose how to display the results, selecting which fields are displayed as well as which field to key the sort from.

Food and fuel prices got you down? Stock market driving you broke? Don’t despair, just hedge your bets with some commodity exposure. It is now easier then ever to play the commodities market - without learning the complexities of the futures market.

Invesco Powershares offers several simple exchange traded funds to gain exposure to the commodities market, and to hedge the rest of your portfolios. One that is doing very well is the Deutsche Bank commodity index, with a 5 year annual average return of over 31%. DBC has exposure to the following:

• Aluminum - 12.5% base weight
• Corn - 11.24% base weight
• Gold - 10% base weight
• Heating oil - 20% base weight
• Light crude - 35% base weight
• Wheat - 11.25% base weight

Be sure to check out the powershares site for more information.

It’s information overload in the financial markets, and out of control marketing from the maniacs on wall street. What kind of returns are you looking for? Do you want Mad Money from the likes of Jim Cramer (“BUY BUY BUY”)? How about a daily dose of insanity from the Fast Money Team? When all else fails, there is always the 10 million plus links from the “Stock tips” google search. Beating the markets shouldn’t be to difficult this year, since the S&P, Dow Jones, and Nasdaq are DOWN 9%, 7% and 14% respectively so far this year. Those types of “returns” start to make the 1% bank yields look mighty attractive!

Is there any reliable way to achieve outsized returns in any market? Sure, plenty of sophisticated, experienced and good options traders continue to make 50% or more per year in any market, up, down or sideways. And many of those great traders and firms will try to sell you their systems and educate you on how to match their 50% returns. When you add it all up, however, it is nothing more than a market sum game. While some exceptional traders will continue make their living from trading in the markets, many more will go broke trying. The dollar sum (positive and negative, commissions withstanding) of the returns of all the traders in the world will always net out to the total return of the markets, year after year.

Trading the markets can be fun, but often consuming and addictive. The brokers will always win with the commissions they charge, assuming their expenses are lower than net commissions. For everyone else, it’s a market sum game. If you want an easy way to match the markets year after year, just throw your money at the index funds that do exactly that. If you can’t resist trying to beat the markets, then be prepared to learn everything you can, filter out the nonsense, and most importantly be careful!

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