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The Peridot Capitalist

Stock market and investing blog written by Chad Brand of Peridot Capital Management

No, It Is Not A Bull MarketJanuary 7

I have heard it twice on CNBC already this morning, and the market has not even opened yet. For some reason people are claiming that since the market is up more than 20% from its lows that we have entered a new bull market. This idea that any rise of at least 20% constitutes a bull market is just plain silly. If a stock falls from $10 to $1 and rebounds to $1.20 it’s a new bull market? Oh, please! Sorry folks, but there is no bull market in stocks, or oil, or anything else that has been crushed in recent months but has recouped a small portion of the losses.

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Announcing the Peridot Capital 2009 Select ListJanuary 5

After a near 40% decline in the broad market in 2008, there are tremendous bargains for investors willing to commit capital when the headlines are dismal. With the spread between treasury bond yields and equity dividend yields the widest since the 1950’s (the S&P 500 pays 3.1% versus the 10-year bond yield at 2.1%), dividends have finally returned as a genuine return-producing strategy. Today’s market features scores of cheap blue chip stocks that offer strong dividend yields and low valuations.

As a result, the just-released 2009 Peridot Capital Select List focuses heavily on high paying blue chip stocks. To avoid looking too much like the S&P, there are some smaller, lesser known stocks too, but the breakdown is 7 large cap dividend-payers and 3 smaller names. The average dividend yield on this year’s list of stocks is 4% (including those that pay nothing, 5.7% average for those that do), which is one-third higher than the S&P 500 index.

As always, the list features one stock from each of the ten S&P 500 sectors. For the first time, however, rather than a static list throughout 2009, this year’s list will be managed online as an active portfolio for entire year. We will publish research updates along with any position changes and email them to Select List subscribers.

The cost of the 2009 Select List is $19.95 (flat fee for the list only, or monthly fee for regular updates), down from $29.95 last year since the weak economy ha

Retail Bottomfishers Have Better Options Than SaksJanuary 2

Last weekend’s issue of Barron’s highlighted a money manager’s bullish stance on shares of luxury retailer Saks (SKS). The stock is up more than 10% since then, and now fetches $4.50 per share. The manager in question believes Saks has normalized earnings potential of 50 to 60 cents per share, which he thinks will translate into a stock price of between $5 and $7 per share in more “normal” times.

I took a look myself and quite frankly I think retail bargain hunters have better options. Here are a few reasons why:

1) Normalized earnings of 50-60 cents per share seems high

Saks earned $0.42 in 2007, which most people would agree was the peak in the retail cycle. Therefore, assuming Saks will earn between 20% and 45% more than that during “normal” times is not a bet I would feel confident making.

2) In the red even during Q4

I am relying on analyst estimates here, but not only did Saks lose money in the second and third quarters of this year (before retail really started to get clobbered after the market collapse and subsequent increase in unemployment), but they are projected to lose money in the fourth quarter too. Good retailers tend to make money all four quarters even though the fourth quarter is by far the strongest. Historically, sub-par retailers have lost a bit or broken even during the first three quarters of the year and then clean up handily during the holiday season (bookstores and toy retailers fall into this cat

Lesson from the Bernie Madoff Ponzi SchemeDecember 31 2008

As more and more news comes out about Bernie Madoff and how he managed to defraud many very smart people out of billions of dollars, it is useful to ask a simple question; what should we learn from what happened? From my perch the answer is very basic.

The few people who avoided Madoff’s funds did so due to doubts over the highly suspicious consistent returns he claimed (many concluded he could not produce such steady profits from the strategies he claimed to be using). They avoided disaster because they lacked information and without knowledge of what their money was invested in, they were not comfortable investing with Madoff.

The others were not as fortunate, but it begs the question, does it make sense for anyone to invest money with a money manager if they are forbidden from knowing where the money is invested? I don’t think so. I know I certainly could never look one of my clients in the eye and ask them to stop receiving account statements so their holdings could be secret. Trusting someone, as Madoff’s investors have learned the hard way, is not a good enough reason to put a blindfold on and hand someone millions of dollars.

Now, many hedge funds will argue that disclosing their holdings strips them of their “edge” since many people will simply mimic top managers’ trades and thereby reduce returns for the people coming up with the ideas. To curb this concern it is certainly reasonable to allow a slight delay in the reporting of actu

General Motors Fighting Uphill Battle with Double Edged SwordDecember 30 2008

Shortly after the U.S. government lent the Big Three $17.4 billion, we learned Monday that an additional $6 billion of taxpayer money is headed to GMAC, the large General Motors finance arm. Where will this money go? Well, GMAC said Tuesday that it will immediately resume automobile financing for “a broader spectrum of U.S. customers.” That is code for “we are going to lend money to people who probably should not be getting it right now.”

If you think this sounds awfully strange given the current economic situation, you would be right. GMAC got into trouble in the first place by giving out loans to sub-prime borrowers for not only car loans, but mortgages as well (Ditech is owned by GMAC, for example). To stem bad loans, earlier this year GMAC increased its minimum required credit score to 700. This compared to the median credit score nationally of 723, so more than half the country qualified even after lending standards were tightened considerably.

Not surprisingly, auto sales sank after the new minimums were implemented, but I think it is unreasonable to attribute all of that decline to the new credit standards. The economy is bad, people are cutting back, and unemployment is soaring, so there are simply fewer people who can afford to buy new cars, regardless of what their credit score is.

As car inventories build and GM’s losses mount, the only way to boost sales is to lend to less creditworthy borrowers. GMAC said Tuesday it will modify i