Citi Investments

While looking over a recent Citi Smith Barney Monthly Report, I noticed the following box:


Neutral on Hedge Funds? THIS is why Citi is trading below $20. Would you trust your money to someone who told you to "underweight" or "overweight" an INVESTMENT VEHICLE? Since they are "overweight" equities, what would they say about an equity hedge fund? Ladies and gentleman of Citi Smith Barney, you don't underweight or overweight investment vehicles (have you ever heard someone say "underweight ETFs!"?); Assets classes are NOT the same as investment vehicles.

Kindly,

Someone who gets paid a lot less than you, and shouldn't have to tell you these things.

Update

A few MII members have asked me to occasionally post what im doing with my personal portfolio, so here’s what you’ve been waiting for.

Buying:

Global High-Yield bonds
International Inflation-linked Bonds
Independent NatGas (APA/CHK)
US BB-rated bonds

Pairs:
Selling NZ$ (Kiwi), buying AU$ (Aussie)
Selling March e-mini NG, buying April e-mini NG
Selling T-bills, buying GNMAs

Inflation

Many critics say that commodity speculation has caused dramatic inflation, but the smart guys, economists, think that it is just due to simple supply and demand. Go figure.

Source: WSJ

ETN: Bling

UBS recently announced two exchange-traded notes (ETNs). One will go long Platinum, while the other goes short. Little information is available regarding these new offerings, but stay tuned..

UBS Platinum ETNs

The Truth Behind the Numbers

Minyanville recently published the following article:

"Note the string of five consecutive months of 4%-plus inflation, and that the average for the 4th quarter was 4%, while for the first quarter of 2008 it was over 4.1%. Never mind whether that is the right number or whether there are problems with how it's calculated – that's a story for another letter. The key here is that if the BEA used the BLS number (remember, both groups are in the same Department of Commerce), it would show the economy shrinking by 1% in the 4th quarter and by almost 1% in the first quarter. That's not what the happy-talk analysts are saying.

But let's use the Fed's favorite measure of inflation, personal consumption expenditures, or PCE. The PCE has been about one-third less than the CPI since about 1992. The difference is in the way they are calculated. The CPI uses a weighted average of expenditures over several years. As I understand it, the PCE tracks changes in relative expenditures from one quarter to the next, assuming that consumers change their habits as prices rise and fall. In simplistic terms, if steak gets expensive, we substitute with hamburger or chicken. One index tracks those changes over years and the other (PCE) does it over quarters. Also, the PCE only tracks personal consumption and not imports or inventories.

If we use the PCE numbers (yet another measure using Commerce Department data), inflation was about 3.3% for both quarters, which would mean negative growth quarters by a few tenths of a percent. That would also mean two quarters of negative growth and a recession.

Further, GDP in the first quarter was helped by inventory build-up to the tune of 0.8%. In times of expansion it's good to see inventories grow, as that means companies are optimistic. But when the economy begins to slow, growing inventories mean that companies anticipated sales that did not materialize. That means that as inventories are allowed to fall in the second quarter, they will show up as a negative factor in second-quarter GDP."

The Truth About the Treasury Bubble

"The buying spree pushed yields to a five-year low even though rising commodity prices and a depreciating dollar were beginning to spark inflation. The co-head of Treasury trading at HSBC Securities USA Inc. has so far been proven right. U.S. government debt has lost 2.8 percent since March 17, including reinvested interest, according to New York-based Merrill Lynch & Co. indexes." - Bloomberg

While many are betting against the US Treasury, calling it "the next bubble", I question their analysis. With the 10-year yielding 3.86%, this is within striking range of last year's 400bp yield, hardly a show of investor fear towards Today's markets. The truth is, however, that investors are NOT as interested in taking risks as the Treasury markets might portray. I believe the movement out of Treasuries to be a simple function of REAL yield, as in order to get a positive real yield investors must look at investment grade corporates, with most, if not ALL Treasuries have zero or negative real yields.

This presents an interesting paradigm shift. With many seeing the movement into corporates as a return to risk-taking by investors, we have begun to hear managers calling for an upward trend in equities. With this artificial show of confidence, I believe those moving into equities will soon learn that the buying confidence simply isn't there, and those individuals stand to lose their newly invested "pre-rally" cash.

The solution? As usual, look abroad. Investors looking to flee the absurdity of negative US Government yields should seek developed sovereign bonds, such as the newly investment grade Brazilian bonds, Euro-zone bonds, and my favorite, Australian bonds (the austrailian economy, backed by HUGE resource reserves, stands to profit hansomely from developing market trade).

Linens N' BANKRUPT

LNT Bankruptcy Filing



via PEHub

MICROSOFT + YAHOO? NO DEAL

May 3, 2008


Mr. Jerry Yang
CEO and Chief Yahoo
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089


Dear Jerry:

After over three months, we have reached the conclusion of the process regarding a possible combination of Microsoft and Yahoo!.

I first want to convey my personal thanks to you, your management team, and Yahoo!'s Board of Directors for your consideration of our proposal. I appreciate the time and attention all of you have given to this matter, and I especially appreciate the time that you have invested personally. I feel that our discussions this week have been particularly useful, providing me for the first time with real clarity on what is and is not possible.

I am disappointed that Yahoo! has not moved towards accepting our offer. I first called you with our offer on January 31 because I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace. Our decision to offer a 62 percent premium at that time reflected the strength of these convictions.

In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer.

Also, after giving this week's conversations further thought, it is clear to me that it is not sensible for Microsoft to take our offer directly to your shareholders. This approach would necessarily involve a protracted proxy contest and eventually an exchange offer. Our discussions with you have led us to conclude that, in the interim, you would take steps that would make Yahoo! undesirable as an acquisition for Microsoft.

We regard with particular concern your apparent planning to respond to a "hostile" bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons:

-- First, it would fundamentally undermine Yahoo!'s own strategy and
long-term viability by encouraging advertisers to use Google as opposed
to your Panama paid search system. This would also fragment your
search advertising and display advertising strategies and the ecosystem
surrounding them. This would undermine the reliance on your display
advertising business to fuel future growth.

-- Given this, it would impair Yahoo's ability to retain the talented
engineers working on advertising systems that are important to our
interest in a combination of our companies.

-- In addition, it would raise a host of regulatory and legal problems
that no acquirer, including Microsoft, would want to inherit. Among
other things, this would consolidate market share with the
already-dominant paid search provider in a manner that would reduce
competition and choice in the marketplace.

-- This would also effectively enable Google to set the prices for key
search terms on both their and your search platforms and, in the
process, raise prices charged to advertisers on Yahoo. In addition to
whatever resulting legal problems, this seems unwise from a business
perspective unless in fact one simply wishes to use this as a vehicle
to exit the paid search business in favor of Google.

-- It could foreclose any chance of a combination with any other search
provider that is not already relying on Google's search services.


Accordingly, your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path. Instead, I hereby formally withdraw Microsoft's proposal to acquire Yahoo!.

We will move forward and will continue to innovate and grow our business at Microsoft with the talented team we have in place and potentially through strategic transactions with other business partners.

I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.

But clearly a deal is not to be.

Thank you again for the time we have spent together discussing this.

Sincerely yours,
/s/ Steven A. Ballmer

Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation

Oracle? Yeah right.

While some call him the "Oracle of Omaha", I respectfully laugh in his face. A 62% drop in BRK's net hardly qualifies Buffet as an investing oracle. Oh yeah, he also managed to get hurt on the very derivative contracts he speaks so lowly of (calling them "financial weapons of mass destruction") . Investors, if you're listening, take a look at Leucadia National (NYSE:LUK) if you want a real holding company. Warren, if YOU'RE listening, please recognize that while the US provides a HISTORICALLY safe investment universe, the risk reward profile now favors a number of other international markets. By investing in the US, you sacrificing large performance gains, for a moderately safe economy. Like safe? Invest in Canada. The TSX 60 is off a mere 0.90 percent, while the annualized return since 1956 is 10.1% (Courtesy of Edward Jones).