Boring Portfolio

Boring Portfolio Report
Wednesday, December 10, 1997
by Greg Markus (TMFBoring@aol.com)


ANN ARBOR, Mich. (Dec. 10, 1997) -- Stocks tumbled on Wednesday amidst worries about weakness in Asian economies. Up until today, the focus has been on companies that earn a large share of their profits overseas. Now the concern is spreading to companies that sell to companies that sell overseas. And so on.

Technology stocks, a fuzzy but not entirely meaningless term, are potentially the most vulnerable, both directly and indirectly to the Asian flu -- or at least that's the conventional "wisdom." Hence, today's 1.48% drop in the Nasdaq. The S&P 500 fell "only" 0.61%.

The Boring Portfolio's daily drubbing came in between those of the Nasdaq and S&P: -1.17%. Part of the loss is attributable to the $2 3/16 drop in shares of network giant Cisco Systems (Nasdaq: CSCO), but even more sharply hit were shares of Tidewater (NYSE: TDW) and Green Tree Financial (NYSE: GNT).

Tidewater sank $2 7/16. Oil-related issues were generally weak, as crude oil futures prices sagged. Benchmark West Texas Intermediate fell $0.53 to $18.14. To add insult to injury, a self-styled "boutique" investment bank said that its "state-of-the-art computerized technology" indicates that Tidewater is a "sell." What the firm failed to disclose is the size of its "short" position in the stock.

Having said that, I don't want to imply at all that I think Tidewater is without a care at this moment. Driller and marine services companies had a great 1997, and some profit taking is to be expected, particularly as oil and gas prices have eased back under the $20 -- and now, $19 -- mark. We're holding Tidewater here, but we're also watching the situation closely.

As for Green Tree, now a mere bonsai version of its former sequoia status, it appears to have suffered collateral damage as subprime lender Firstplus Financial (Nasdaq: FPFG) imploded. Firstplus saw 18% of its market capitalization vanish after the company discussed with analysts its desire to "explore ways to reduce or eliminate its use of gain-on-sale accounting."

We've discussed this controversial, but mandated, accounting method in recent Boring recaps. When financial service companies like Firstplus, Green Tree, and others sell to investors part of the expected cash flow coming from bundles of recently-made loans, they record a "gain on sale." The quality of those gains depends, of course on the quality of the assumptions about future defaults and prepayments that the securitizer makes. Garbage in, garbage out.

According to a story released this evening on Dow Jones wire, Firstplus admitted to analysts that its current earnings projections would necessarily have to be revised downwards if it were to change its accounting principles. Presumably, though, the multiple attached to those earnings would also rise, since the "quality" of those earnings would be much improved.

Personally, I think that Firstplus has put on the table an idea that merits careful consideration. The mere mention of revising earnings estimates downward sparked the predictable reaction from the Street, however, taking Firstplus, Green Tree, and anyone else in the vicinity due south.

Oracle (Nasdaq: ORCL) bounced all of a half-point in continued trading of historic proportions. CEO Larry Ellison treated a gathering at a New York trade show to his pep talk about the Network Computer, which was about the last thing in the world that Oracle shareholders want to hear about these days.

The Borefolio did not sell today but will sometime within the next four trading sessions, as is our policy.


TODAY'S NUMBERS
Stock  Change    Bid
CGO   -  3/4   27.13
BGP   +  13/16 30.44
CSL   +  1/16  44.63
CSCO  -2 3/16  85.31
FCH   -  3/8   37.94
GNT   -2 1/8   27.00
ORCL  +  1/2   23.38
PMSI  -  1/4   13.13
TDW   -2 7/16  58.50

                   Day   Month    Year  History
        BORING   -1.17%  -1.01%  11.78%  28.63%
        S&P:     -0.61%  -0.51%  30.92%  56.01%
        NASDAQ:  -1.48%  -2.09%  23.67%  53.38%

    Rec'd   #  Security     In At       Now    Change
  2/28/96  400 Borders Gr    11.26     30.44   170.41%
  8/13/96  200 Carlisle C    26.32     44.63    69.52%
  6/26/96  100 Cisco Syst    53.90     85.31    58.28%
   3/8/96  400 Prime Medi    10.07     13.13    30.35%
 12/23/96  100 Tidewater     46.52     58.50    25.74%
   3/5/97  150 Atlas Air     23.06     27.13    17.64%
  11/6/97  200 FelCor Sui    37.59     37.94     0.92%
   2/2/96  200 Green Tree    30.39     27.00   -11.15%
 11/21/96  150 Oracle Cor    32.43     23.38   -27.93%

    Rec'd   #  Security     In At     Value    Change
  2/28/96  400 Borders Gr  4502.49  12175.00  $7672.51
  8/13/96  200 Carlisle C  5264.99   8925.00  $3660.01
  6/26/96  100 Cisco Syst  5389.99   8531.25  $3141.26
   3/8/96  400 Prime Medi  4027.49   5250.00  $1222.51
 12/23/96  100 Tidewater   4652.49   5850.00  $1197.51
   3/5/97  150 Atlas Air   3458.74   4068.75   $610.01
  11/6/97  200 FelCor Sui  7518.00   7587.50    $69.50
   2/2/96  200 Green Tree  6077.49   5400.00  -$677.49
 11/21/96  150 Oracle Cor  4864.99   3506.25 -$1358.74

                             CASH   $3021.10
                            TOTAL  $64314.85