Why I Hope Tiger Woods Flops

Why I Hope Tiger Woods Flops
By Tom Dyson
February 13, 2008

I can't believe anyone would ever bet on the favorite...

Take the New England Patriots for example. They lost in the Super Bowl to one of the biggest underdogs in NFL history... and failed in their attempt to complete a perfect season.

But I'm not just talking about the Super Bowl...

As I wrote last month, the New England Patriots failed to "cover the spread" in any of their last six games of the NFL season. "Covering the spread" is a gambling term. The two sides are rarely equal in sports. So to make it an even bet for the gamblers, the bookmakers give the stronger team a handicap. Bookmakers call this handicap the "spread."

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When New England played Miami, the spread was the largest I saw all year: 22 points. Miami had only won one game all season. It was the worst team in the league. New England was the best team in the league. So to make it an even bet, the bookmakers gave Miami a 22-point head start. In other words, to win a bet on New England, the Patriots would have to win by more than 22 points.

As it turned out, the Patriots only won by 21 points. Anyone who bet on New England lost their bet, even though the Patriots still won the game by three touchdowns.

In the last six games of the season, including the Super Bowl, New England started every game as heavy favorite... but failed to cover the point spread in any of the games. Betting on the underdog was the right bet every time.

I only bet on underdogs... in sports or in the financial markets. That's why homebuilders, lumber, banks, and the U.S. dollar are among my favorite investments right now. Everyone expects the market will flush these assets down the toilet. I bet they go up... and for making this bet, the market will give me great odds: an upside potential three or four times greater than my downside risk.

Take homebuilding stocks, for example. Recently I read a study by one of the large Wall Street institutions that showed current homebuilder stock prices reflected a business environment that was worse than the worst-case scenario these analysts could imagine. There's only upside to this bet: You either win a little or you win a lot.

Underdog odds are why I always bet against Tiger Woods in major golf tournaments. He's like Apple or Google in the stock market... or the euro in the currency markets.

Tiger won the first two golf tournaments of the year. He's playing the best golf of his career. He's the best golfer in the world... by far. The Masters starts in April. It's Tiger's favorite tournament. There's not a person in the world who thinks he won't win... so you can get great odds by betting against him.

Best Golfer, Bad Bet

What the Worst-Case Scenario for Housing Looks Like

The bookmakers are giving 50/50 odds that Tiger will win the Masters right now. I think these odds are preposterous. There are more than 60 world-class golfers in the field. Augusta is the hardest golf course on the planet. Every year, they make it harder. The greens are faster than a billiard table and have more slopes than a ski resort. Anything could happen on that course – even if you're as good as Tiger Woods. There's no way that even odds on Tiger Woods is a good bet.

My advice, if you have access to a sports bookmaker, bet against Tiger Woods. If finance is your game, I recommend you always bet on underdogs. Right now, that means homebuilders, the U.S. dollar, banks, and lumber.

Good investing,

Tom

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THIS YEAR'S MOST FASHIONABLE TRADE

Around this time last year, we told readers about the fashionable trade of 2008... going long the Japanese yen.

For much of the past three years, traders have borrowed money in Japanese yen and sold it to buy high-yielding currencies and securities. Since the cost of borrowing yen is much lower than other currencies, this trade – called the "carry trade" – worked wonderfully.

Nowadays, the assets traders purchased with borrowed yen are doing something the carry traders didn't plan for... they're going down. And with financial institutions scared of just about any type of borrowing under the sun, the "sell the yen" trend is off... and the "buy the yen" rally is on.

Japanese Yen

While America's housing market slumps, sales of domain names, the real estate of the Internet, climbed 60 percent last year. More than 100 reported domain sales exceeded the $100,000 mark in 2007 – up from 70 the year before. And last May, an adult-themed domain sold for $9.5 million.

This fourth consecutive year of growth shows few signs of slowing, as venture capital and new investors invade the scene.

Online property can be developed into successful businesses, but this takes money, time, and talent. For example, an Internet firm bought the vacant business.com domain for $7.5 million in 1999. After years of branding and site development, the now-successful portal was sold last August for $350 million.

– Christian Science Monitor

Citigroup Inc. has never been held in such low esteem by debt investors, and that's why Prince Alwaleed bin Talal isn't the only one in love with the bank whose looks are deceiving.

Pacific Investment Management Co., manager of the world's largest fixed-income fund, and Calvert Asset Management Co. said Citigroup and Bank of America Corp. are attractive because yields on U.S. bank bonds are near record highs relative to Treasuries.

On Jan. 22, Bill Gross, manager of the Pimco Total Return Fund, said Citigroup, Bank of America and Wachovia Corp. were appealing.

Banks account for about half of the $2.3 trillion of securities in Merrill's investment-grade corporate bond index. Yields reached 272 basis points more than Treasuries on Jan. 23, the widest spread since at least 1996, after delinquencies on loans to the riskiest subprime homeowners triggered widespread writedowns.

– Bloomberg

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