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As you anyone looking at my holdings can tell, I made a bottom call on housing way too early near the beginning of this year. This may not be the bottom here, but it looks like the price has stabilized after the relentless plunge this summer. When the housing market turns around, MTH will be in a prime position to take advantage because of its prominence in fast-growing regions, such as Arizona and California. It also holds relatively little land directly, preferring to use options to purchase plots instead. Not only does this reduce the impact of write-downs to the company's balance sheet, but they have also been able to renegotiate the terms of their option agreements as prices have fallen.

Primus Guaranty is a company whose main business is engaging in credit swaps, which are essentially insurance policies for loans. In other words, if someone purchases a credit swap from Primus on a loan they hold and the loan goes into default, then Primus has to pay up. You might be thinking, "Oh god! What a terrible business to be in at the moment! What with the subprime meltdown and all!" If you are thinking that, you are probably in agreement with most people trading Primus Guaranty's stocks and bonds, as the stock (PRS) and it's 7% senior notes (PRD) have taken major tumbles in the last month or so. But wait, let's all take a deep breath and look at just what exactly is in Primus' credit swap portfolio. Only 0.5% of its portfolio consists of obligations on asset-backed securities (read: possibly mortgage-backed). Most of its portfolio involves obligations on corporate and government debt, which carry an average credit rating of A-/Baa and low historical rates of default. Importantly, in the midst of the subprime implosion, PRS reported economic revenue growth of 25%, economic earnings growth of 19.8%, and economic book value growth of 16.5% to $9.42 for the latest qurater. Economic earnings are more useful to look at with PRS than GAAP earnings because GAAP results are greatly affected by changes in the resale value of Primus' credit-swap contracts and such changes are not all that relevant to Primus' day-to-day business. In short, PRS trading today at a price of $9.35 is very cheap (.99x book value). Additionally, I think their 7% senior notes (PRD) are also very cheap. I picked some up at $18.75, which is 25% below the par value of $25, which makes the current yield 9.33%.

Primus Guaranty is a company whose main business is engaging in credit swaps, which are essentially insurance policies for loans. In other words, if someone purchases a credit swap from Primus on a loan they hold and the loan goes into default, then Primus has to pay up. You might be thinking, "Oh god! What a terrible business to be in at the moment! What with the subprime meltdown and all!" If you are thinking that, you are probably in agreement with most people trading Primus Guaranty's stocks and bonds, as the stock (PRS) and it's 7% senior notes (PRD) have taken major tumbles in the last month or so. But wait, let's all take a deep breath and look at just what exactly is in Primus' credit swap portfolio. Only 0.5% of its portfolio consists of obligations on asset-backed securities (read: possibly mortgage-backed). Most of its portfolio involves obligations on corporate and government debt, which carry an average credit rating of A-/Baa and low historical rates of default. Importantly, in the midst of the subprime implosion, PRS reported economic revenue growth of 25%, economic earnings growth of 19.8%, and economic book value growth of 16.5% to $9.42 for the latest qurater. Economic earnings are more useful to look at with PRS than GAAP earnings because GAAP results are greatly affected by changes in the resale value of Primus' credit-swap contracts and such changes are not all that relevant to Primus' day-to-day business. In short, PRS trading today at a price of $9.35 is very cheap (.99x book value). Additionally, I think their 7% senior notes (PRD) are also very cheap. I picked some up at $18.75, which is 25% below the par value of $25, which makes the current yield 9.33%.

Mr. Market continues to misunderstand First Marblehead, a company which originates student loans. FMD is down almost 37% since the beginning of they year for two erroneous reasons: 1) FMD's two largest clients, JPMorgan Chase and Bank of America, are participating in the buyout of Sallie Mae and investors fear that these two customers would send their business to Sallie Mae instead of FMD. This is unlikely because Sallie Mae's business model is substantially different from FMD. However, even if JPMorgan and BoA did pull their business from FMD, it would not have that great of an impact on FMD's earnings, as each quarter those two clients make up a smaller and smaller fraction of FMD's revenues. 2) FMD is a financial companie that does loan securitizations and every trader and their mother is shorting any financial that has loan exposure, has a complex business model, and does loan securitizations. But student loans are nothing like subprime mortgages and, in fact, are among the least risky loans for lender. Not only because they are cannot be eliminated through bankruptcy, but also because student loans must have a parent or other suitable person with good credit as a co-signer. Additionally, FMD's proprietary TERI database has information on student loans that goes back decades through many different economic scenarios, giving the company a serious advantage in pricing its risks. I believe the market has got FMD wrong and that, even with the ~4% run-up since their quarterly earnings, the stock is extremely cheap. The student loan industry has tremendous growth capabilities as more and more people are going to college, higher education costs continue to increase at a rate that far surpasses that of inflation, and as the federal government pays for a smaller and smaller portion of those costs.

I was recently reading the latest edition (2003 I think) of Benjamin Graham's "The Intelligent Investor" with commentary by Jason Zweig. Zweig makes the point that even though we are living in a period of low inflation, there is no reason to believe that a period of high inflation will not occur in the future. He also makes the point that there are only really three asset classes that do well during period of high inflation. Here is my token allocation to one of them.

I was recently reading the latest edition (2003 I think) of Benjamin Graham's "The Intelligent Investor" with commentary by Jason Zweig. Zweig makes the point that even though we are living in a period of low inflation, there is no reason to believe that a period of high inflation will not occur in the future. He also makes the point that there are only really three asset classes that do well during period of high inflation. Here is my token allocation to one of them.

I was recently reading the latest edition (2003 I think) of Benjamin Graham's "The Intelligent Investor" with commentary by Jason Zweig. Zweig makes the point that even though we are living in a period of low inflation, there is no reason to believe that a period of high inflation will not occur in the future. He also makes the point that there are only really three asset classes that do well during period of high inflation. Here is my token allocation to one of them.

Although I think it says I am short here, I actually own this ETF and am just freeing up some cash by selling it.

Akamai (AKAM) hosts and delivers internet content for their customers, which include Adobe (ADBE), Audi (NSU.DE), and Clear Channel (CCU). I know you technophobes out there are saying, "What the !%&$ does that mean?" So, let me translate: Akamai's software and strategically-placed servers increase the speed at which people can access websites. Akamai is a first-mover in this field and controls about 20% of the market. This stock has had a spectacular run-up in the last few years, but has recently sustained a ~20% pull-back (largely because they didn't BEAT earnings estimates, but only met them...). I think because of the company's dominant position, they are only going to become much larger than they are today, especially as streaming content becomes more prevalent and bandwidth-intensive. Already the recent online video boom is driving growth for Akamai. Perhaps, most importantly, insiders have been ponying up their own cold hard cash to buy AKAM on the open market. I am definitely adding to my Akamai holdings at these prices.

Average Cost Basis: $77.56 With an expense ration of only 0.3%, this Vanguard ETF is a cheap and easy way to get a piece of the economic explosion in emerging markets without the risk of picking individual companies.