Today’s CPI number is entirely unbelievable. However, it is a trading opportunity. The market is dominated by traders and not investors. So stop asking why this bogus inflation number is being believed by the market or suggesting that the market’s rally in response somehow validates or certifies the number as being appropriately bullish. It doesn’t matter whether the number is right or whether it fairly represents the consumer’s experience with rising prices. Traders do not need to believe in the long term realities - only the short term opportunities. If the CPI data would have not been manipulated or somehow had shown up as much hotter than expected, it would have been a trading opportunity for the downside. Regardless of how the CPI data is reported or used by the market, it does not change the real inflation rate being experienced by consumers. So for today, traders are exploiting the number….it doesn’t matter whether they believe the unbelievable number…it only matters that they believe they can trade the unbelievable number and make money on it. Can you imagine that today’s data would come out and traders would say - “We don’t believe the CPI and even though we could use it to make money, we are just going to skip the opportunity.”

I shipped a package from a UPS store today and asked the management whether their business was being affected by the economy in any way.  I was told that the shipping business was doing well and in fact, Mothers Day had been busier compared to past years.  Mothers Day!?!  Get this…. people were coming in and shipping their presents to Mom rather than driving as little as 6 hours round trip.  I asked whether this was a common thing that they had seen in prior years.  Nope.  The manager and another employee were told by many people that it was too expensive to pay for gas and visit Mom in person rather than having Big Brown deliver the package and following up with a phone call.  Add this to the anecdotal evidence about choices people are making due to high gasoline prices.

Since mid-March and the Bear Stearns bailout, the market has been remarkably strong…until now. There was a lot of damage done last week. Unless there is some positive catalyst or an unexpected show of force by bulls looking to put on new positions and defend the rally, I am less optimistic than I have been for the past few months. Good luck this week.

A creditor who refrains from enforcing a debt when it falls due is giving “forbearance.” How many forbearance agreements can one company get?

As long as the creditors benefit more from waiting than they do by taking action, the forbearances almost seem perpetually possible.

ACA Capital is on its fourth forbearance (12/20/07, 1/20/08, 2/19/08, 4/24/08) with “its structured credit and other similarly situated counterparties” who have decided that “waiving all collateral posting, termination rights and policy claims” was much better than causing a meltdown in the CDO and CDS worlds. Each press release announcing the new forbearance says how happy everyone is to give each other time to work closely “to develop a permanent solution to stabilize its capital position.” The current grace period is set to expire on May 30, 2008. Maybe they will have a permanent solution for its capital needs by then or maybe it’s just better to give another forbearance.

Despite not getting much attention from the media, ACA has been at the forefront of almost every aspect of the credit crisis. The Bear Stearns connection and using ACA as a conduit to push out its CDOs, the timing of the ACA Capital IPO in relation to the subprime / CDO problems, the underwriting of the ACA IPO, the Bear Stearns impact on corporate governance via execs and board representation, the timing of resignations by ACA execs, the A rating by S&P, the timing and withdrawal of a secondary offering in June, the impact of S&P downgrades (12 levels) in December, the writedowns at CIBC, Merrill, ANZ, et al caused by ACA downgrades, its role as the impetus for monoline bailout discussions, and on and on it goes.

ACA traded about $15 per share on the NYSE in June 2007. It’s now on the pinks at about 30 cents per share with a market cap around $10 million. Once it got delisted, I stopped covering the stock. However, I still watch the forbearance situation. As long as the extensions continue, I keep contemplating about how much more benefit there is to waiting than there is to enforce the obligations.

Chairman Bernanke and other politicians have repeatedly suggested that the mortgage lenders should “forgive” a portion of troubled home loans.  I struggle with the term “forgive.”  In my world, you “forgive” people that are guilty of something.  Yet over and over, I hear the politicians suggesting that the homeborrowers were just innocent bystanders taken advantage of by predatory lenders.  So “forgive” me for being guilty of not being very forgiving.

More importantly, I cannot help but wonder where the urge to “forgive” ends when it comes to the Fed.  If it is such a good idea for the Fed to recommend that banks take a haircut on loans made at ridiculously low levels at questionable valuations with shaky collateral, then I have to ask….is that going to apply to the loans the Federal Reserve has made.  Would the Fed be willing to take its own advice?

In defense of Senator Clinton’s scheme of providing a gas tax holiday, CNBC’s Steve Liesman just went about as socialist as I have ever heard one of its “journalists” opine. For the record (one more time), CNBC can broadcast whatever crap they want. It’s a reflection of what so many voters viewers seem to believe and want to hear. The network is just trying to make money. If you are a socialist, you will probably like Steve’s comments and not like mine. If you are not a socialist but cannot stand big oil, you’ll probably still like Steve’s comments and not like mine. Do what you want with it. Please just have a firm understanding of where Liesman’s kind of commentary is taking our country.

Here’s the clip. The nonsense from Steve really starts coming in around the 3 minute mark.

Liesman - “I don’t actually have a tremendous problem with a windfall profits tax the way some people do.”

Steinhardt - I have a problem with windfall profits tax. I have a problem with governments deciding what level of profit is excessive - either on a dollar or percentage basis. I have a problem with governments deciding which industries can make excessive profits and which ones cannot.

Liesman - “I think we undercharge our oil companies for the oil they take out of our ground.”

Steinhardt - Where to begin. HMMM?! Maybe play a little Woody Guthrie “This Land Is Your Land” in the background. Liesman uses the “our” word in a very telling way. Are these “our” oil companies? Really? They aren’t mine. Does Liesman own the oil companies? Maybe a few shares? I really don’t need to know his personal holdings and supposedly CNBC “journalists” have restrictions on such conflicts. So I’ll just interpret it to mean that Steve believes the oil companies are “ours” - like for the common good. Like how the government is there for the common good. And then I move on to the really interesting comment about “our” ground. I am not sure if Steve owns any oil rich acreage (I do not), but I am just going to go with the idea he was talking in the figurative sense. Like how oil is a natural resource owned by all the citizens of a country. Just think about how that was handled in Russia and Venezuela. One interpretation is that Steve was only limiting his “our ground” comments to the oil removed from US government-owned property. That may be defensible but the percentage of oil removed from US government-owned property is a small fraction of what is produced around the world and therefore, increasing those royalty payments to whatever levels Steve feels would not cause “undercharging” would likely have no impact on the “windfall profits” he feels the government is entitled to.

…this land was made for you and me.

There has been a decline in my posting for the past month.  In the next few days, there will be a surge.  It is not a trend.  It’s more like a capitulation.

Last fall, the bulls tried to hype Black Friday retail sales and every once in a while, a Wal-Mart report gets spun as evidence that the consumer is doing great. The same thing goes for the monthly retail sales report…just check back to the February 13, 2008 data, how it was presented by the media and how the market responded. So if we have a positive reaction to the retail sales being reported today, it’s more of the same speculation that the consumer is “resilient”, “strong”, “healthy”, “not so sick” or whatever you want to believe. As I wrote in February, I expected the government’s fiscal irresponsibility stimulus plan would be seen in consumer spending data before the checks were sent and we would experience a surge in credit card purchases. If you didn’t read yesterday’s story about the humongous increase in consumer credit last month, please do that now by clicking here.  This will not be the last time that retail sales data is overemphasized and spun by the bulls/media.  However, this will likely be the last time I try to debunk it.

After rereading my previous post about getting “Yahooed“, I realize it seems that I expect YHOO will get whacked tomorrow. While that is certainly my guess, there is no guarantee. Over the past 3 months, many investors have gone on record as saying the fair value of Yahoo shares was above $31 and some said at least $40. Okay - put up or shut up time. It’s either “The Price is Right” or “The Price is Wrong.” Let’s see whether the market is right or the Yahoo Board of Directors or other YHOO optimists are right. Maybe Yang and some private equity biggies will offer to take the company out at $40 per share. Maybe Yahoo’s largest institutional investors who have been pushing for a few more dollars will ante up. Maybe the 11,000 + shareholders will refuse to sell for anything less than what Yang said was fair value. Maybe GOOG will just offer up a crazy deal like Yahoo tried to suggest was on the way. Maybe some other competitor will see this as a great opportunity. Maybe Microsoft will have “almost-buyer’s remorse” and apologize and increase their offer. Maybe the company will offer to make good on their claims by conducting a strange buyback program of a gazillion dollars at above market prices just to prove how right they are. Yes, I am just being sarcastic. I don’t believe any of those things will happen soon enough or ever or in sufficient quantity to prevent YHOO from getting whacked tomorrow. But I wanted to try to be fair and say that anything is possible. All the suspense will be over in less than 12 hours. And after that, we’ll see how many people claiming they wouldn’t sell to Microsoft for less than $33 or $35 or $37 or $40, whichever the case may be are willing to sell to anyone at prices below $31.  We will see who believes in Yahoo’s brand value and the company’s discounted cash flows. We’ll see who really believes in long term buy-and-hold strategies. We’ll be able to look at share volumes and block trades and later, 13-Fs to figure out what investors really did, not what they said others should do.

Yahooed - as in… You’ve been “Yahooed.” This is what happens to investors when the their stock price gets hammered by someone being greedy. And by “someone” - I mean a group of people.

It could be the Board of Directors who, for whatever reason believe they are acting in the best interest of shareholders. In case you own YHOO right now, you might want to know whom to blame, so here is where you can start - the Yahoo Board of Directors:

• Jerry Yang, CEO, Chief Yahoo and Director
• Roy J. Bostock, Chairman of the Board
• Ronald W. Burkle, Director
• Eric Hippeau, Director
• Vyomesh Joshi, Director
• Arthur H. Kern, Director
• Robert A. Kotick, Director
• Edward R. Kozel, Director
• Mary Agnes Wilderotter, Director
• Gary L. Wilson, Director

Shortly after the MicroHOO deal was proposed in early February, I wrote this post and asked…

I get a kick out of Yang and the Yahoo board. I know they are just trying to negotiate a higher price but consider that maybe Microsoft tells them to forget it. What will the board conclude then is the best interests for stockholders?

So Monday morning, when the market has a chance to “revalue” YHOO, I am looking forward to hearing how the Board was just looking out for shareholders when it tried to play hard to get.

Except for Microsoft’s offer, this stock has gotten hammered by failed optimism and mismanagement over the last several years while Google kicked its ass. On Monday, investors will get to experience that all over again.

Outside the Board of Directors, there are others who have “Yahooed” investors. Chief among them are the big YHOO shareholders like Bill Miller of Legg Mason who owns about 84 million shares of YHOO (approximately 6% of the company) and whose position represents about 4.4% of the Legg Mason Value Trust Fund. When this deal was announced, Bill was quick to opine that MSFT would “need to enhance its offer” and that $31 was just too low to get a deal done for a company that Microsoft needed. According to the great value investor, YHOO was actually worth closer to $40. Just Yahoo “Google” for the commentary of Bill Miller on this deal when it was announced and you’ll have a field day of seeing what it takes to get “Yahooed.” There comes a point where large shareholders overstep their bounds in pursuit of a few more bucks per share to juice their own performance and they run the risk of screwing things up. In my opinion, that happened here. The BOD listens to big shareholders like Bill and since their “hard to get” stance reflects the views of their constituents, you should not forget the impact of large investors when you get “Yahooed”.

Next on the list of groups that “Yahooed” this deal, are the arbs. I enjoyed listening to a few arb interviews this weekend where they whined about how this deal should have been done. “Live by the sword, die by the sword.” I absolutely hate dealing with the impact of arbs on most positions affected by M&A. Sometimes I am on the right side when the deal is announced and other times, it’s not pretty. As I have repeatedly written, I try to get out of the way of any transaction that has the attention of the arbs. So if a few of them have gotten hammered by playing the gap on this deal, I am enjoying it. I have great respect for the arbs and if they got “Yahooed” partly due to their own efforts, I am not broken up about it.

Lastly, I look to the group of speculators who “Yahooed” this deal. There were more than a few people that bought YHOO over the past 3 months (and even last week)betting that a deal would get done at a premium to market prices. Their optimism trying to play the buyout game probably contributed to the bravado of management. Sadly, they “Yahooed” themselves.

To all of you YHOO shareholders that were in this position prior to the Microsoft bid and who held on for a higher bid or a hostile offer, you got “Yahooed” - by the Board and by big shareholders, and by the arbs, and by the speculators and sadly, by your own willingness to hang on.