The Worst Acquisition in History

It’s good to know the financial markets, and the government’s legions of economists and statisticians, have a sense of humor.

No sooner do I say that the economic "soft patch" we’ve been experiencing may be ending (based on UK and German manufacturing data), the jobs number comes in absolutely awful.

Ironically enough, I received this email from a Daily Profit reader John M:

I truly hope that you are correct that the soft patch is over. Unfortunately in my little world, I do not think that is the case.

I am in textile sales, where I bring in containers of fabric from China & Pakistan. I also have a number of garment programs (primarily to the Industrial Uniform market ) along with a towel business (shop towels, bar mop towels etc.) Today cotton had fallen some 12 pts ending in the $1.36 lb range. not bad considering it was @ $2.17 lb 3-4 months ago. This recent drop in cotton is because retailers and Uniform manufacturers are canceling orders or just plain not ordering.

I am not an economist, just a salesmen. Over the last thirty years I can tell you that when the Industrial Uniform manufacturers slow down they are the leading scout party, giving us fair warning, we are heading toward another recession. Time will tell, and I hope you are right and I’m totally all wet.

Take care of yourself, I enjoy your insight.

I will admit, I never considered uniform rentals as a leading indicator, but I like it. I would say that fewer orders for uniforms might certainly have foretold today’s weak jobs number.

I would also like to point out that I said the "soft patch" may be improving, not over. In my opinion, the U.S. economy will be in a `soft patch" for at least the next 12 months and probably longer.

But of course, let’s not confuse weak growth with a weak stock market. The rally we’ve enjoyed since June 27 has been broad-based. It looks like it’s for real, despite today’s employment numbers.

While I’m on the subject of reader mail in response to yesterday’s letter, here’s one from Gary M.:

I read your letters and research reports and find them very helpful in navigating this market and my investment portfolio……..In this last report you talked about the banks and specifically CitiGroup (C)…….

How would you play that investment………options or the equity and WHEN????

Would you buy the CALL options and also buy the PUTS as a hedge?

I must start my answer by acknowledging that, since I don’t anything about Gary’s risk tolerance, there’s no way I can recommend and option position over an equity position in Citigroup (NYSE:C).

Options contracts expire, and so it’s hard to classify them as an investment. I have no problem with people who want to trade options. It goes without saying that timing is very important.

You could opt for LEAPs, which are options dated a year out. That will certainly give you time, and also reduce the price volatility.

But for investment purposes (or trading purposes), somewhere around $40 looks ideal on the chart (there’s a big gap up from $40.15 on June 28).

Warren Buffett is saying that housing recovery will begin within 12 months, and that will push the unemployment rate down to 6%. He’s also saying that he sees no double-dip of recession on the horizon.

I almost feel sorry for Bank of America (NYSE:BAC) Brian Moynihan. He’s having to clean the mess of what could go down as the single worst acquisition in stock market history. Of course, I’m talking about the Countrywide purchase that former CEO Ken Lewis championed.

Sure Countrywide was a cheap purchase, at $4 billion. Or so it seemed at the time. I’m not going to do the math, but it’s clear that Countrywide has cost much, much more.

If anyone can think of a worse acquisition, drop me line. This little contest could be fun.

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