From Guest contributor: Stephen Giauque
06/01/07
- A major retail brokerage merger, and yet another bell ringing moment
- Wachovia (WB), top-ticking fools?
- Greatest Story Never Told growing at 0.6-percent annually
- Donovan: Poof, like magic, he's gone.....Later Gators
- Precious metals awaken
**No e-mail next week and just a brief early e-mail the following Thursday. **Very unedited. Sorry for the spelling and context errors.
Headline: S&P Does It, While the Dollar Still Don't Hunt
Markets: The marquee event of the week was clearly the S&P 500 surpassing is all-time high on Wednesday, surpassing the previous high of 1527, that had stood since late March 2000. As we've taken out these old benchmark highs, the level of giddiness as displayed on Bubblevision continues to grow exponentially. From my vantage the level of obnoxiousness against a backdrop of weakening economic conditions and disconnected asset values compares reasonably well with what I witnessed in late 1999 and early 2000 as it concerns stocks and late 2004 through much of 2005 as it concerns the real estate markets. Meanwhile, the U.S. economy, aka, the Greatest Story Never Told, reportedly grew at a 0.6% annualized pace in the quarter, revised down from the initial estimate of 1.3%, the government said in its second estimate of quarterly GDP (gross domestic product). This was the smallest quarterly increase for GDP since the third quarter of 2001 when the economy was in a recession. Bull's seemed to be please with the dull number evidently concluding that the Fed would have to be nuts to raise rates under such funky economic conditions. I can only imagine the bash they would have thrown had the number been negative? Conspicuously, markets also applauded news of hearing that the Chicago PMI (Purchasing Manager's Index) jumped to 61.7 versus a 52.9 reading last month. So as you can see, bulls are feeling pretty invincible when both good and bad news is good. Sentiment has been this way for some time now, but as I've said before, the longer folks feel invincible the more time folks have to pile on miscalculated risks and the bigger these risks continue to accrue at an unsustainable pace. Unfortunately, I'm sensing that playing the devil's advocate is also becoming passe' just as it did in the very late stages of both the tech and housing bubbles. But I also contend this is usually an important ingredient to any substantial top of any market--- for the nay-sayers to essentially become irrelevant (see Warren Buffet, circa 1999). And I have that uncomfortable (or is comfortable) feeling that we're fast approaching that point in time.
Wednesday's market was especially sprite following the release of the FOMC minutes from their May 9th meeting (see Fed below), even though the Chinese market declined about 6-percent. Again, like Teflon. Tuesday saw a fresh new batch of M&As (mergers and acquisitions). The most absurd being an LBO of thinly-margined, CDW Corp. (CDWC). I have been short this stock at various times over the last couple of years. Whatever it was that kept me away from it in recent months has me counting my lucky stars. Frankly, when a stock starts acting manic on the upside like it had been, I find its best to clear the decks and lick your wounds. I'm glad I followed that discipline in this instance. See Bubble Watch for more details. This morning, we were treated to the latest of the non-farm jobs market. There are some pretty wide-gaping inconsistencies that I was able to find. See details below in the jobs section.
Shanghai surprise sends stocks skidding for 5-minutes
Stocks sank nearly 6-percent on the Shanghai Composite Index on Wednesday and was blamed on a decision by China's finance ministry to triple the "stamp tax" on stock trades from 0.1% to 0.3%. The sell-off sent financial planners in China scurrying to readjust their retirement cash flow discount rates from 326-percent annually to just 300-percent which of course means that million of Chinese will be forced to work well into their early twenties before retiring.
So buyers of the S&P 500 on March 21st, 2000 finally have a gain for their perseverance. Per Bloomberg, the average stock in the S&P 500 (as opposed to the market-weighted average) is trading at an eye-pooping 23.5-times earnings and 4.5-times book value. This is a different take on the usually quoted "market-weighted" S&P 500 price earnings ration which is in the upper-teens (also historically lofty) and much more skewed by the lower P/E of its largest component, financials. It's a little bitter-sweet to finally getting back to where you were seven years ago. The only other periods in the last 80 years that have taken this long to reach new highs were the Great Depression in the '30s and the hyper-inflationary '70s to early '80s. Its worth looking back at other investments that since that dreadful day in March 2000 that would have been far more fruitful. How about these for starters:
Australian Dollars: 36.74%
Wheat: 54.53%
Corn: 58.54%
Gold: 144.98%
US Energy Index: 163.48%
Precious Metals Funds: 384.44%
*Past performance is no guarantee of future returns.
However, even as the senior U.S. stock indexes are pegging fresh new highs there is beginning to be a noticeable lack of participation by the rest of the market.
10, 5 & 2
There is growing frustration among the bulls concerning the underperformance of their beloved tech stocks. Having taken many stabs at the short side of tech many times over the past few years with mixed results; from my perspective, tech remains excessively overvalued relative to their fundamentals. And as chronicled in recent months, my current focus on the short side has been decisively focused on the tech area, especially the semiconductor space. But out of curiosity, given all of the so-called "underperformance" angst among the tech bulls, I went back to check to see how well the tech-heavy Nasdaq has performed relative to the Dow Industrials, S&P 500 and the S&P 400 Midcap Index. Not surprisingly, the Midcaps, which are peppered with a fair amount of energy stocks, have clobbered the returns of all of the other three indexes over a 2, 5 and 10-year period thru the end of April 2007. But among the other three, the Nasdaq, S&P 500 and the Dow Industrials, the Nasdaq has a narrow advantage over the other two senior indexes over the same 2, 5 and 10-year periods. In fact, the cumulative return for the Nasdaq Composite over the five year period was 49.57% versus 31.34% and 37.65% for the Dow and the S&P 500 respectively. It appears that the "underperformance" banter is being clouded by the fact that the Nasdaq is still 50-percent from its all-time high of 5132 in March of 2000 and the tech proponents are forgetting the enormity of that bubble. And recall, the Dow and S&P are only pegging new all-times at a time when the value of the thing it's priced in, the U.S. dollars, is 30-percent lower than its value the last time the two indexes scaled such heights.
Out of sight, out of mind
Last night, Dell Computer (DELL) reported "preliminary" fiscal first-quarter earnings. As you probably know, fully audited financial results were unable to be released by the company because of an ongoing SEC investigation into accounting irregularities. Dell had been among my favorite tech shorts up and until the day they received their Wells notice from the SEC last year on the hunch that in the interim, news for Dell probably would not get much worse from there. The company said "preliminary" 1Q profits were $759 million, or 34 cents a share. This was down from the $762 million or 33 cents a share it reported a year ago. Dell said revenues rose less than the real rate of inflation (if we knew what it was) of 3% to $14.62 billion from last year's first-quarter sales of $14.22 billion. Dell also said that business looks so bright, that it plans on cutting 10% of its workforce, or about 8,800 jobs, over the next year. Incidentally, Motorola (MOT) also announced another 4000 planned layoffs bringing its 2007 total to 11-percent of its workforce. I have recently been adding back my Dell short, which for now looks a bit premature, but I harken back to their recent decision to break from a long-held tradition to sell their wares direct. I still believe their decision to sell some desktop PCs through Wal-Mart (WMT) smacks of desperation. Interestingly, their stock, indeed, has performed better since the company has been unable to release audited financials. Out of mind, out of sight.
Jobs Report: The news du jour was that Nonfarm payrolls reportedly expanded by 157,000 in May slightly higher than the 135,000 to 150,000 expected. Average hourly earnings increased 6 cents, or 0.3% to $17.30. Economists had been expecting a 0.3% gain. Earnings are up 3.8% in the past year. The average workweek rose slightly to 33.9 hours from 33.8 hours in April. The glaring abnormality with this particular jobs report was the fact that the net change in construction jobs was unchanged even as housing starts are down by a-third year-over-year. I find so many inconsistencies in government-backed reports; it's incredible that grown men and women, some with children and SUVs, actually make life-changing investment decisions based on it. Manufacturing again lost 19,000 jobs. Service-Providing sectors accounted for more than 100-percent of the reported net new jobs in May, 176k. Education and Healthcare were the largest sub-sectors among the service jobs, 54k. Retail actually lost 5k. Also, their little guesstimate Net Brith/Death model accounted for fully 129% of the headline 157,000 net new jobs. Their model of unknowable jobs created that their survey was unable to account for was for 203,000 jobs, of which, 40,000 of those jobs were "guessed" to have been created in the construction sector again as new housing starts crumble. Again, I believe it's probably unwise to base long-term financial decisions on the data that gets spit out by the Bureau of Labor Statistics. But that's just me.
Savings rate dips again
Also, Personal spending in the U.S. rose in April and a measure of prices increased less than forecast. The 0.5 percent rise in spending followed a 0.4 percent increase in March that was greater than previously estimated. Personal incomes fell 0.1 percent in April after a 0.8 percent gain the prior month that reflected unusually large bonus payments and the exercise of stock options, according to the Commerce Department report. Stock-based and option-based incomes have skewed the "average" higher by so much; it's been hard to decipher how the median income earner is actually doing. As you can guess, a $1-million bonus by one CEO can pull up the average earnings of 99 other folks earning $50,000 that saw no increase in pay. Because spending increased while incomes fell, the savings rate worsened to minus 1.3 percent, from minus 0.7 percent the prior month.
Bonds: Quietly, the slow moving story seems to be that interest rates have been backing-up. The 10-year Treasury rate has trade back to levels last seen in August 2006; nearing a 5-handle. This doesn't gibe with a slowing economy, like it apparently is, but it does gibe with foreign lenders searching for alternatives to a nearly guaranteed annual currency-adjusted losses in U.S. Treasury bonds. A substantial back-up in rates has the potential to exacerbate the housing situation and choke-off the absurd lending currently functioning as the engine for the current levitation in stock prices: LBOs.
Last weekend, Argentina and Brazil announced their intentions to drop the dollar as a regional currency in their bilateral trade agreement. This follows last week's announcement out of Kuwait of its intentions to de-link from the U.S. dollar. These developments hardly get a nod in the mainstream press, but are indications on the margin that the world is choking on dollars.
Fed Watch: On Wednesday we got a chance to appraise the latest ramblings of the members of the most powerful bank on the planet during their May 9th meeting. Below were some of the highlights:
"The information reviewed at the May meeting suggested that economic activity had expanded at a below-trend pace in recent months. Gains in payroll employment had moderated, and the unemployment rate appeared to have stabilized after a period of decline. Housing construction remained under pressure from weak demand and large inventories of unsold homes, and consumer spending appeared to have slowed in recent months. Business fixed investment remained subdued. Manufacturing production, however, showed signs of strengthening after a period of considerable softness. Rising energy prices pushed up total PCE price inflation in March, while the twelve-month increase in core PCE prices was just slightly above its year-earlier pace."
"The average monthly increase in payroll employment through the first four months of this year was well below the relatively strong pace recorded in the fourth quarter of 2006. In April, the construction industry continued to shed jobs, manufacturing employment declined further, and retailers reduced hiring after a large gain in March's.....By contrast, new home sales fell sharply in the first two months of the year and had recovered only a bit in March. All told, recent readings on home sales suggested that housing demand had weakened further. House-price appreciation continued to slow, and some measures were again showing declines in home values. The projected gradual acceleration in economic activity largely reflected the expected waning of the drag from residential investment, although recent readings on sales and inventories of new homes had been interpreted by the staff as suggesting that the ongoing contraction in residential investment would continue for longer than previously expected….The incoming data on new home sales and inventories suggested that the ongoing adjustment in the housing market would probably persist for longer than previously anticipated. In particular, the demand for new homes appeared to have weakened further in recent months, and the stock of unsold homes relative to sales had increased sharply. That said, participants also noted that sales of existing homes appeared to have held up somewhat better since the beginning of the year."
Clearly, the Fed is having to readjust their own perceptions with the fluid state of reality as notes from successive meetings sound decisively more realistic as it concerns the state of the economy. Bulls clearly interpreted it as a signal to gorge themselves on risky assets since only a cabal of crazy bankers would raise rates now. At he same time, as they remain forced to do regardless, they defend the dollar with its cursory concerns pertaining to inflation, as if they might actually have the wherewithal to do something about it with housing crumbling.
Bubble Watch, aka "Just give me a sign":
Ironically, my Bubble section has become somewhat of a bubble in itself. Readers might recall my lengthy tirades in 2004 and 2005 in my Housing/Mortage.com section. The bulk of frenzied market activity seems to have migrated and mutated into a number of disparate markets, so I apologize for the length in recent weeks.
This morning's bubble news du jour is the ongoing saga of Rupert Murdoch's attempted takeover of Dow Jones (DJ). Apparently, members of the Bancroft family which control a majority stake in Dow Jones, owner of the Wall Street Journal newspaper, have been reluctant to relinquish control out of "journalistic concerns." Murdoch, as I'm sure you're aware owns the Fox Network. But members of the Bancroft family have come around to accepting formal talks with the media mogul. The most precious quote came from one member of the Bancroft family when he was quoted as saying, "Even if you love your house, if someone wants to pay you more than two-times what its worth, you have to consider it." At $60/share this morning, the proposed take-out price, shares of slow grower Dow Jones Co. trades at a price-to-earnings multiple of 43-times. I see almost no chance of making money with that company at that valuation.
Top-ticking fools Wachovia (WB) agreed to acquire regional retail broker/dealer AG Edwards (AGE) in a $6.8 billion deal that will create the second-largest retail brokerage firm in the U.S., with $1.1 trillion in client assets. The terms of the agreement has Wachovia paying A.G. Edwards shareholders 0.9844 shares of Wachovia stock and $35.80 cash for each A.G. Edwards share, for total consideration of $89.50. This is about 16-percent above its closing price on Tuesday. The deal will make Wachovia the second-largest American retail brokerage, after Merrill Lynch (MER) and propels Wachovia past Citigroup's (C) Smith Barney. You might recall that Wachovia (WB) has made one other major transaction in recent years—when they decided to buyout mortgage heavy-weight, GoldenWest Financial on May 8th last year. It's hard to pin-point when the peak in the mortgage business occurred, but it might have been on or around May 12th of last year when Washington Mutual (WM), another mortgage heavy-weight, reached an all-time high on that date. GoldenWest was among the largest mortgage lenders in the country. Of course, news of one of the last remaining regional brokers sent the Amex Securities Broker/Dealer Index to an all-time high.
What might be the most absurd private-equity deal to date would be an LBO of technology retailer, CDW Corp. (CDWC). It has agreed to be bought by Madison Dearborn Partners LLC for $7.3 billion. This is a company that last quarter earned $76-million on revenues of $1.859-billion--or a 4.13% net profit margin, and has come to rely almost exclusively on its growing sales to government entities as its only source of growth. Again, I can't help but think this might be another one of those "bell-ringing" moments for tech. Bill Fleckenstein summed-up the CDW buyout this way: "To pay 1-times sales for a company that has no products, and in essence just owns a mailing list and a couple of distribution centers, seems to me to be the height of folly."
Tishman Speyer Properties and Lehman Brothers (LEH) announced plans to purchase Archstone-Smith Trust (ASN), one of the nation's leading apartment real-estate trusts, for more than $12 billion. That would make the deal one of the largest privatizations of a public REIT. It comes on the heels of Blackstone Group's $23 billion buyout of Equity Office Properties Trust in February. News of the latest LBO in the REIT sector helped spark a nifty little rally in REITs after suffering a rare 15-percent retreat since mid-February. At last count, four of the top five most active months for M&A deals have occurred this year. The fourth most active M&A month occurred in June 1999. According to a friend of Bill Flecksenstein as quoted in his rap yesterday, the CDW deal was the 954th deal so far this year.
As highlighted in last weekend's "Up & down Wall Street" by Alan Abelson, the institute for Charterd Financial Analysts disclosed that a record number of applicants, 140,000 "have queued up to take the exams" over the next year. This is significant given the current headcount of just 90,944 CFAs that currently occupy the planet. According to Abelson, applications in China have leapt by 57% since this time last year.
Musical bankers
Bloomberg ran a piece on Tuesday, "Looming Crash Prompts Most Hires for Distressed Debt Since 2002." The author chronicles the push by bigwig deal making firms to hire bankers for their distressed debt divisions, apparently in anticipation for the blowback that will come with the current environment of lending gone wild. What's ironic is that many of the firms partaking in the current LBO craze are frantically doing much of the hiring. A gem of a quote came from Iain Burnett, 43, managing director of Morgan Stanley's special situations unit in London, "When the turn does come, it will be unlike anything we have ever seen before....The scale of it could be considerable because of the size of some of these leveraged deals,'' said Burnett. Burnett, reportedly began his career in London a month before the October 1987 stock market crash, it seems he has been around long enough to recognize a mania when he sees one. Essentially, many of the folks doing the deals are already lining up teams of bankers that specialize in distressed debt to try to take advantage of the deals they made and then "off-loaded" before going ka-put. Apparently, they already know that their current product is flawed and will leave a trail of financial blow-ups in its wake....and therein lies their next opportunity.
Cabbies in a different light
New York Post, May 30th: "Owning a Big Apple taxi is one of the fastest rides to a huge retirement nest egg. A taxi medallion sold yesterday for a record $600,000 - making the lowly license-to-drive one of the fastest growing investments anywhere. The seller was a Pakistani native who decided to retire from his yellow cab career after cruising city streets for 25 years. When he started driving his first taxi in 1981, he bought his medallion for $30,000. He now can take it easy with his 20-fold gain, better than any blue chip mutual fund. The medallion's buyer is a big fleet owner in Queens, who already owns nearly 100 medallions. Medallions, as an investment, pay off better than fares the cabs collect, experts say. ‘Medallion prices have doubled since 2003,’ said Andy Murstein, president of Medallion Financial Corp., which financed the sale but didn't disclose identities of the parties. ‘I've yet to find any investment that beats that, even over the past 60 years.’ The city sold its first 11,787 taxi medallions in 1937 for just $10, but froze the number of medallions for six decades. Only in the past 10 years did the city hike the number of the coveted medallions, by holding three auctions to sell a total of 1,000. At the last auction a year ago, a medallion fetched an average of $514,327. Over the past six decades, medallions lavished owners with gains twice that of stocks, or 15 percent annually compared to 8 percent for stocks."
http://www.nypost.com/seven/05302007/news/regionalnews/600g_medallion_not_too_shabby__cabby_regionalnews_paul_tharp.htm
Housing/Mortgage.com: Florida's legislature is considering various plans to protect the mathematically challenged home buyer that failed to account for a step-up in his or her tax liabilities when they made their home purchases in recent years in the Sunshine State. Currently, Florida tax laws protects existing homeowners by capping the amount that their property taxes can rise from year to year. The debate ongoing concerns an increased burden on newer homeowners that effectively re-sets the tax based on the recent higher purchase price versus the old "capped" base. I for one, find that the debate boils down to a legislative bailout for ailing speculators that failed to account for the possibility of being "stuck" with their new purchase. Again, real estate is not like a stock or bond that has no "carrying costs" With speculative real estate investments, the clock is always ticking as taxes, insurance and community dues can pile up. But it's not like these folks didn't know the rules going in. Shifting the tax burden away from speculators and second home buyers just means a higher burden will be shifted somewhere else, that is if you still value services like police, schools and firefighters. Florida doesn't have a personal income tax, and its cities and counties depend heavily on property taxes to pay for services such as police and firefighters. And if you weren't among those speculating, the extra burden is probably being shifted to you. We need to once and for all assume the responsibility for making bad investment choices as individuals and let a few of these folks suffer the consequences instead of constantly shifting the burden of their financial bailout onto those that either opted to avoid the looming crisis out of prudence, or possibly just did not have the means to partake. In a recent research report, usually somewhat upbeat economists at Goldman Sachs in New York estimated that homes in Florida still are more than 40% overvalued, and prices are likely to fall by 10% to 15% this year alone.
According to the S&P/Case-Shiller home price index released Tuesday, U.S. home prices fell 1.4% in the first quarter compared with a year earlier. It was the first year-over-year decline since 1991. According to the report, thirteen of 20 cities have seen falling prices in the past year, and were led by Detroit and San Diego.
In a Bloomberg story earlier this week, it was reported that Atlanta-based Beazer Homes (BZH) was cited offering houses at a development outside Phoenix, Arizona, for $136,990, which was down 36 percent from the year for the same development when home there were being offered at a price of $215,490. In the same story, the author noted another big discount being offered by Prime Home Builders, a in Fort Lauderdale-based builder, that is advertising a 23 percent discount on a new four-bedroom townhouse with two and half bathrooms in Naples, Florida. According to the author, the price was reduced to $344,169 from $449,258 in a development where reportedly half the units had already been sold at the higher price.
Another bottom
If a bottom is in for homebuilding and U.S. residential real estate in general, giant U.S. homebuilder, Pulte Homes (PHM) will be navigating it with a much smaller payroll. Citing a difficult market for home builders, Pulte Homes said it would cut 16 percent of its work force. Also, last night, New Jersey-based, Hovnanian Enterprises (HOV) reported a fiscal second-quarter net loss of $28.1 million. Chief Executive Ara Hovnanian said the housing market has continued to slip further. Net losses in its latest quarter came in at $30.7 million, or 49 cents a share. A year earlier, the company said it made $101 million, or $1.55 per common share. Revenue was $1.11 billion, down from $1.57 billion in the same period a year ago. Ara Hovnanian was quoted by Bloomberg as saying, "The housing market has continued to slip further in many locations in terms of both sales pace and sales prices." And, "The housing market weakened in the latter part of the second quarter and the slower conditions have continued into May."
MBA mortgage applications fell 7.3%....... fewer mortgages usually means fewer houses being sold...
Lastly, this chart (below) was passed-on to Minyanville readers by Lance Lewis yesterday. It shows you the volume of ARMs (adjustable rate mortgage) due to re-set in ensuing months. The next six-months will see the highest volume of re-sets.
https://image.minyanville.com/assets/FCK/File/SG8/arm_reset_schedule.png
Currency/Precious Metals:
"Loonie" boom
As you can see in the boxscore below, owning sovereign Canadian bonds has produced a pretty snazzy 9.6% return in just currency gains versus the dollar so far in the first five months of the year. Adding the 5-months of accrued interest gets you darn near a 12-percent year-to-date return.
Gold's most recent slumber feels over With the world awash in fiat currency, the intrinsic value of gold is probably much, much higher than its current levels. But as chronicled in recent years, planned central bank liquidations have impeded its upward price movement. Silver is also enjoying a stout rally, up 2.3% today, following an overall pretty good week. Gold futures are about $10/ounce higher today and is trading at their highest level in more than two weeks. Interestingly, even though central banks don’t own silver, thus is not subject to intermittent central banking selling, the price appreciation for both gold and silver is nearly an identical 6-percent year-to-date. Mining stocks are also enjoying their first decent bounce after selling-off relative to the underlying metal.
According to Peter Grandich, editor of the Grandich Letter, there was a large drop in open interest on the Comex reported yesterday. Grandich suggests that this means someone took delivery of a large quantity of gold. This occurrence can cause consternation among gold bears because it reduces physical supply.
Lance Lewis a frequent contributor to Minyanville, pinged the MV community on Wednesday noting that the trade weighted dollar index had slipped to a multi-year low of 104.10 and was the first breach below its 200-day moving average since the early 1970's. See chart below:
https://image.minyanville.com/assets/FCK/File/Charts3/lance5301.jpg
Other Crap: Street Sense will skip the Belmont Stakes, the third jewel of the thoroughbred Triple Crown. Both connections from the Hard Spun and Preakness victor, Curlin, barns have committed to running in next weekend's mile hand-a-half contest. Street Sense's owner Jim Tafel and his trainer, Carl Nafzger, have instead set their sights on the "mid-summer's" Derby, and the Travers Stakes at Saratoga on August 25th. The others connections under consideration for the Belmont Stakes includes Slew's Tizzy, Santa Anita Derby winner Tiago and Imawildandcrazyguy, who finished a fast closing fourth in the Kentucky Derby. I also have a feeling Shug McGaughey's Sightseeing, may be a late entrant after learning of Street Sense's taking a pass. Since I will not be writing an e-mail next Friday, I'll try to cobble together another quick analysis of the race with the assumption that Sightseeing will also be entered.
Since Sightseeing is a late-closing plodder, he won't affect the early pace whether he is entered or not, so it's a little easier to handicap the race with or without him. Slew's Tizzy is an improving horse that is coming off consecutive stakes victories in Keeneland's Lexington Stakes and the Lone Star Derby. He likes to be on or near the lead like Hard Spun. Those two horses will clearly dictate the pace. If either one of the two decide to try to "rate" by letting the other grab the lead on a slow pace, I could see a possible wire-to-wire finish. But Curlin is the best horse in the field and his stalking style will probably prevent anyone from "stealing" the race. If jockey, Robbie Albarado, doesn't move too early, I think its Curlin's race to lose. Sightseeing, Imawildandcrazyguy and Tiago will trail the field into the far turn. Imawildandcrazyguy's only hope, in my opinion, is for a blistering pace up front and for Tiago and Sightseeing to breakdown. Sightseeing is an improving horse, but I believe his recent Peter Pan Stakes win was against a sub-par group of horses. Sightseeing's only hope is for a blistering pace and for Tiago to breakdown. I was impressed with Tiago's seventh-place Kentucky Derby finish and I think skipping the Preakness will make him a dangerous horse to pull off the upset in the Belmont. But Curlin's running style and the fact that I just believe he is superior to his competition will make him the victor. Tiago will get up for second and hard knocking, Hard Spun will hang on for third.
Lastly, Gator hoops coach, Billy Donovan, is taking his show to Orlando and the NBA. Ohhhh despair!!! Donovan agreed to a five-year, $27.5 million contract with the NBA's Orlando Magic yesterday. Being a Florida alumnus, and a huge Donovan admirer, my first reaction was to fall on the floor and flail like a child. But I have to say it was a great ride with him at the helm and I can only wish him the best of success. I guess it was a matter of time. If not now, next season or may the one after that. It seemed inevitable that Donovan, 42, would want to take a stab at the next level eventually. Who knows, maybe we'll see him on the rebound if things don't work out in the NBA. Former Gator's assistant Anthony Grant, who lead Virginia Commonwealth to the Colonial Athletic Conference Championship in his first season as head coach last year there appears to be the name floating around in the press as one of the front-runners to replace Donovan. Grant, is a Miami native who played for the Dayton Flyers. He worked under Donovan at Marshall University from 1994-96, and then at Florida thru last season before accepting his first head coaching job at VCU. Larry Shyatt, a current assistant at UF is the other top contender. Shyatt has head coaching experience at Clemson and Wyoming. He's credited with turning around the Gator's defensive play in recent seasons. Grant's VCU team knocked-off Duke in the first round of this year's NCAA tournament before losing by just 5-points to 2nd seed Pitt in the second round. Donovan came from Marshall when he was given his first big time coaching job at the University of Florida eleven seasons ago. Shyatt may be the guy since he's already there, and I would be satisfied with that. But I think UF athletic director, Jeremy Foley has earned the right to take another chance with a guy like Grant, that isn't necessarily a household name, but has a solid coaching base with lots of upside. Another intriguing replacement for Donovan would be Donovan's former mentor, Rick Pitino, currently at Louisville.
Read my June newsletter, "Fighting Bubbles" by clicking on the link below. Probably won't be posted until the middle of next week.
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