First, let’s take a look at mortgage exposure.

A Variable Dividend

Progressive introduced the idea of a once-per-year variable dividend that will be based solely on the performance of the company.  This type of dividend will award shareholders for their belief in the company and appears to actually treat shareholders like owners by offering up a piece of the profits in good years and leaving them high and dry in bad years.

Let’s start with Hudson City Bancorp. What’s your outlook here?

click to enlarge

On Tuesday night, we learned that AIG's (AIG) former Chief Executive, Martin Sullivan, whose "retirement" was announced on June 15th, will be receiving a $47 million severance package. Poor AIG. Imagine how much better the shareholders would have fared if, instead of Sullivan, the board had promoted "any idiot" to the CEO position 3 years ago.

Merrill, rated “underperform,” faces “headwinds of deleveraging and the next disruptive step of restructuring.” Ms. Whitney cut her estimate for the broker’s second quarter earnings per share from a gain of $0.20 to a loss of $4.21, including an estimated total writedown of $5.8-billion.

F3Q08 Earnings Call

F3Q08 Earnings Call

Q1 2008 Earnings Call

In a new report Fitch “examines the case for potential separate complementary indicators and ratings that may be offered in three areas to enhance the meaning and usefulness of existing structured finance ratings.” The proposals build on earlier ideas announced in April.

Don't get me wrong, I understand the value in acquiring a mortgage lending network as large as Countrywide's, and Bank of America did need to act in order to protect its investment in the company. However, it’s going to take a significant investment well in excess of the acquisition price to clean up Countrywide, and I have to wonder if it would’ve been cheaper for BAC to eat their investment, buy pieces of the company via bankruptcy auctions and/or build their own lending network to replace the void left by CFC. Looking at the likely banking environment over the next 2-4 years, I wonder if it’s even smart to take on a rehab project like Countrywide. 

Over $140 and climbing…playing hell with all sorts of investments…Bond vigilantes emerging from the land of nod…no country for old men with money…Letting the undertakers decide when you are ready to die… no such place as ‘nowhere’…and more!

Surprisingly, the US does have some representation on the positive list.  Oritani Financial (ORIT) out of New Jersey and Dime Community Bank (DCOM) of New York are both up about 30% on the year, while Capitol Federal (CFFN) (out of Kansas) is up 23.8%.

Believe it or not, the US misery index has only gone up .5 from 9.18 to 9.68.  Only four banks have failed so far this year. This may seem like a lot, but as you can see from the chart above, 2002 was much worse, and if we see a failure a month the rest of the year, we still won't match the 2002 numbers.

That is why I have been thrilled that one of the premier father-son duos in value investing has been investing along side of me in the Resource America companies (REXI), (RSO) and the Atlas America companies (ATLS), (AHD), (ATN), (APL).  For those who are interested my investment thesis on Resource America can be found here, my Atlas America thesis here and my Atlas Energy Resources thesis here. 

CardioDynamics (CDIC)

F2Q08 Earnings Call

Visa (V) would benefit from such credit card use, as it already has. The stock has recently pulled off its high of $90 and sits a good 12% lower. Meanwhile, credit card issuers will not fare so well. Companies like Capital One, which issue unsecured debt, will see increasing amount of delinquencies and loan defaults. Capital One (COF) is sitting a mere 10% above its 52-week low and has collapsed from $53 to $39 within 5 weeks.

After posting four consecutive quarterly losses, CIT Group Inc. (CIT) took a step in the right direction Tuesday, announcing it struck $1.8 billion in separate deals with Lone Star Funds and a subsidiary of Warren Buffet’s Berkshire Hathaway Inc. (BRK.A, BRK.B).