Monday, December 31, 2007

No sex. No drugs. No wine. No women.

Or perhaps, more wine. Lots more wine.

Via the excellent housing blog, Calculated Risk:

Times: Top economist says America could plunge into recession.


Losses arising from America’s housing recession could triple over the next few years and they represent the greatest threat to growth in the United States, one of the world’s leading economists has told The Times.

Robert Shiller, Professor of Economics at Yale University, predicted that there was a very real possibility that the US would be plunged into a Japan-style slump, with house prices declining for years.

Professor Shiller, co-founder of the respected S&P Case/Shiller house-price index, said: “American real estate values have already lost around $1 trillion [£503 billion]. That could easily increase threefold over the next few years. This is a much bigger issue than sub-prime. We are talking trillions of dollars’ worth of losses.”

P.S. The Vapors.

P.P.S. Love Heebner, but I'm worried like Schiller.

Friday, December 28, 2007

Heebner: I'm Cuckoo for Petrobras.

Kenneth Heebner of CGM Funds apparently really likes Brazilian oil producer Petrobras (PBR), and he's bullish on the economy of Brazil in general. The Fortune article I highlighted earlier mentioned Heebner is a fanatical researcher, that's on display in these videos.

Note: I believe there is an error in the CNBC video. CNBC displays the chart of PZE, which subsequently rose 15% today. But PZE is a subsidiary of Petrobras, and I believe it is focused on Petrobras' Argentina properties. PBR is the right symbol for Petrobras, and it is the symbol that Bloomberg uses.

CNBC: Focusing on Return$.

Bloomberg: Kenneth Heebner.

P.S. As mentioned before, I own Petrobras.

Tuesday, December 25, 2007

Wolves in mutual fund manager's clothing.

Both Kenneth Heebner of CGM Funds and Robert Rodriguez of FPA Funds run mutual funds, but they are both by nature hedge fund managers; highly intelligent with strong opinions, they are not afraid of going against the grain (or tides) by concentrating their bets in certain areas or avoiding certain areas entirely, and neither one toes the 'I must remain diversified" line.

There are differences; Heebner is a growth oriented manager, with an 'anticipate and ride the momentum' style, while Rodriguez is value oriented and generally more conservative. Both have participated in the energy sector over the past few years, Heebner with a mix of production and service, Rodriguez a little more tilted to service. Both also managed to avoid the housing/financial debt crisis, Heebner by riding and then shorting the homebuilders, Rodriguez by dumping his mortgage bond related investments before the slaughter.

Of the two, Heebner has the super hot hand right now, up 60%+ this year, and up a Warren Buffet like 24% over the past 10 years. Rodriguez is having a bad year this year, but has a solid long term record.

It's interesting to note how different their calls on 2008 are. Heebner believes the economy will escape recession in 2008, and continues to be bullish on global growth and the energy sector in particular. His favorite energy stock right now is Petrobras, but note that Heebner can and does change his mind on a dime. Rodriguez, on the other hand, believes a recession in 2008 is likely a certainty.

Personally, I am leaning more towards Robert Rodriguez's outlook, but I will let the market guide me in my positions. Disclosure: I also own Petrobras. Heebner's World View.


Ken Heebner played the market like a fiddle in 2007. His CGM Focus fund (symbol CGMFX) gained nearly 70% to November 12 (when the January issue went to print), crushing the S&P 500 by 65 percentage points. As of December 17, the fund was up 66%. We visited Heebner at his office, high above Boston Harbor, to get his take on the current environment.

Although the U.S. housing market is mired in a depression, says Heebner, he thinks the economy will still escape recession in 2008. "It really takes a sledgehammer blow to turn this economy down, and I don't think the housing market itself is that blow," he says.


His favorite sectors -- energy, industrial raw materials, infrastructure builders and agribusiness -- satisfy the voracious appetites of fast-growing emerging markets. For instance, he recently had 30% of his fund's assets in oil-production and oil-services companies. "As people go from bicycles to motorcycles to cars, there is a big increase in fuel consumption," he says.

Heebner is bullish on Petrobras, an oil giant half-owned by the Brazilian government. He reckons that Petrobras will be able to raise production significantly over the next five years, based on deep-water offshore discoveries. It announced recently that one of its deep-water sites may contain up to eight billion barrels of oil and natural-gas equivalents. Heebner also likes oil-services outfits, such as Baker Hughes and Schlumberger, that are able to sell globally to national oil companies, such as Saudi Aramco. "The oil-services company has really replaced the international oil company as the Western face of oil production," he says.

Fortune: The best stocks for 2008.



We're on record as saying that $95 a barrel is not a sustainable price for oil. Yet The Hottest Fund Manager in America - a.k.a. CGM's Ken Heebner- now has us hedging our bets.

For those unfamiliar with Heebner, understand that his stock picking over the past eight years has been genius (as it has been for much of his 30-year career). He made a bundle short-selling tech and telecom stocks in 2000. He bet big on homebuilders in 2001 only to get out just before they crashed. He plowed his homebuilder profits into energy stocks in 2005 and eventually doubled down on commodities with a big bet on copper.

The result: His CGM Focus fund was up 66% through early December - while juicing his returns with short positions on Indymac and Countrywide Financial, mortgage lenders whose stocks have been circling the drain.

With that kind of track record, we listened when Heebner laid out an argument that $100 oil is not only coming but will be here to stay. "There is still strong growth in Latin America, China, India, and a host of smaller countries like Poland and Thailand," he says.

That means a need for some 1.5 million more barrels of oil a day. The problem, Heebner explains, isn't just finding another 1.5 million barrels; it's finding them even as some of the most productive oil fields in the world are declining.

Heebner, who is a fanatical researcher, questions the conventional view that OPEC has enough spare capacity to fill much of that void. Heebner cites one Saudi Arabian source whom he declines to name who asserts that output at Ghawa r- a legendary Saudi field that produces about 6% of the world's oil - is declining at 9% a year. (The Saudi authorities vociferously dispute this.)

"So I'm connecting all the dots," Heebner says. "It's a tight situation to start with, but add to that a loss of a million barrels a day for the Saudis, and suddenly it gets very interesting on the upside for the price of oil."

That brings us to Petrobras (PBR), Brazil's largest oil company and the stock Heebner thinks is the best way to play oil right now. With petroleum prices so high, a big risk for oil companies is that host countries will demand a bigger and bigger share of the profits in the form of taxes or royalties. "One way you can avoid this," says Heebner, "is if the government owns half the company you've invested in. That's Petrobras."

Petrobras is cheap enough, at 16 times earnings, that it can be a winning investment even if Heebner is proven wrong about $100 oil. The company just announced a huge find offshore from Rio de Janeiro, a field said to have up to eight billion barrels of recoverable oil. (See correction.)

Morningstar: Top Value Manager Even Gloomier on 2008.


Just when you thought Bob Rodriguez couldn't get any gloomier, the highly regarded value investor has become even more downbeat.

Rodriguez, the hugely successful manager of FPA Capital, recently announced he put a halt to purchases of stocks and high-yield bonds at both portfolios on Dec. 14. His decision is a reaction to the subprime mortgage-induced credit crunch, which he expects to worsen in coming months. Rodriguez says he'll review his actions weekly, but he doesn't anticipate any change in course until February or March 2008.

Rodriguez's move is virtually unprecedented. Many investors, including Rodriguez himself, aren't shy retreating to cash when they're nervous. But few money managers have ever publicly foresworn stocks and bonds altogether.


As a result, Rodriguez's prognosis for the economy in 2008 is grim. In his September 2007 letter to FPA Capital shareholders, he wrote that the odds of a recession were 50% or greater. But in a conversation with Morningstar, he noted that as recently as a month ago, he would have placed the odds at 70%. Now he says the odds are closer to 100%.

Sunday, December 23, 2007

A chicken in every pot, and $1.5099 oil for every SUV in the garage.

When the race first started, I heard from a lot of people that this woman was going to win. I couldn't see it then, and I don't see it now.

This news byte is hilarious to me either way. Oil prices flit around in the short term, but longer term they are ultimately determined by supply and demand, not by speculators or pandering politicians.

If they really wanted to cut oil use they would put a straight tax on it, a significant one, as they do in Europe. But because they don't like to take tough measures (as we don't - they are elected by us), our politicians do quarter measures like raising the MPG requirements.

Daily news: Elect me and oil prices instantly drop, says Hillary Clinton in Iowa.

Thursday, December 06, 2007

Charles Nenner: 2008 to be rough.

In a bit of a hurry, but Charles Nenner predicting a stock market rally into the end of the year, then a pretty rough 2008, and a deflation scare.

There are no absolutes, but under most scenarios, a deflation scare doesn't have bullish implications for oil or oil stocks.