Category: Articles

Forget the 60’s, Bloggystyle, Credit Cards, Hmmm…

– Jane Genova has some fascinating thoughts on what matter in today’s world.

– It has been a while and I for one have missed this…

– Credit card companies keep finding ways to screw you if you are not careful.

– And you thought you had a shi**y job?

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Since the turn of the century Citigroup has traded between 2.2 and 5.4 times its book value, usually around 3 times. It current price to book value? 1.16.

The market is essentially saying its expects Citi’s situation to deteriorate to the point its book value is decreased 60% from its current levels. That would bring the stock current price to book level inline with historic norms. Let’s talk dollars. Citi’s current book comes to about $172 billion or $24.36 a share. At 3 times that, the historical trading level, the stock would be trading at $73.08 a share. At 2 times book which is below the lowest level the stock has traded this century, the stock must rise to $48.72 or 69% higher than current levels.

At current prices, in order for Citi’s price to book to be in line with historical averages, Citi must shed $103 billion in book value. Am I the only one who cannot fathom that happening?

What does this mean? Citi’s book value will decrease after the next round of write-down’s is announced in January when earnings are released. That reduction will be a drop in the bucket of Citi’s actual worth. It also means that there is now a ton of upside in shares as they eventually drift back to normalized price to book values.

Punk Ziegel analyst Dick Bove said Wednesday he does not believe Citigroup needs to cut its dividend to retain cash and improve capital ratios. Instead he recommends the banks reduce assets to bolster capital ratios if necessary. “Citigroup will absorb its current earnings setbacks and then reconcentrate on its enormous earnings power,” Bove said. He went on the say on CNBC that Citi trading at these levels “was ridiculous”.

What else could Citi easily do? How about a stock dividend? I am enrolled in the DRIP program at Citi anyway so I get my dividends from them in shares anyway. Citi could easily take quarters 1 & 2, convert the cash dividend to a stock one and save itself $5 billion that would then pay for the second half of the years dividend. It would be a great way to keep shareholders happy and preserve capital while the credit market get sorted out.

Disclosure: Long Citi

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Typically the Fed raises rates in order to slow growth in an effort to curb inflation. Are $100 a barrel oil (USO) prices doing that for them?

The Fed released the minutes from their last meeting Wednesday. While the market interpreted that last statement from them to mean the Fed was equally concerned about inflation and growth, today’s minutes would appear to say the Fed is more worried about growth. From the release:

“The Committee agreed that the statement to be released after this meeting should indicate that economic growth appeared to be slowing, reflecting the intensification
of the housing correction and some softening in business and consumer spending, and that strains in financial markets had increased. The characterization of the inflation situation could be largely unchanged from that of the previous meeting.

Members agreed that the resurgence of financial stresses in November had increased uncertainty about the outlook. Given the heightened uncertainty, the Committee decided to refrain from providing an explicit assessment of the balance of risks. The Committee agreed on the need to remain exceptionally alert to economic and financial
developments and their effects on the outlook, and members would be prepared to adjust the stance of monetary policy if prospects for economic growth or inflation were to worsen.”

Now, there is a saying on Wall St. that “nothing cures high prices like high prices”. The simple explanation of that is that as prices climb, demand decreases. As milk climbs to $5 a gallon, people buy less of it sand the price falls. As oil climbs to and then past $100 a barrel, people will decrease gas use and the use of products that are affected by the price of oil. That will slow the economy and that slowdown ought to crimp inflation that seemed to rise in December.

We have seen this begin to happen and gasoline demand has actually fallen recently and this holiday shopping season was less than spectacular.

If that is the thinking of the Fed, then they are free to lower rates at the next meeting to meet credit and liquidity concerns of banks like Bank of America (BAC) and Wells Fargo (WFC) and businesses and to ease the burden on home owners and consumers with credit cards.

Oil may be doing 1/2 the Fed’s job and for a short time it may enable the Fed to ease rates without increasing in inflation fears.

Hmmmm.

Disclosure: Long Oil (USO)

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Friday’s Picks
Jeff Macke recommends Cypress Semiconductor (CY) $36.02

Guy Adami likes Intelb(INTC) $24.67

Tim Seymour prefers Tata Motors (TTM) $19.65

Jon Najarian says short Valero (VLO) Open $66.43

Thursday’s Results
Jeff Macke recommends shorting Bed Bath & Beyond (BBBY) Open $28.36 Close $27.40 GAIN

Guy Adami likes Intel (INTC) Open $25.35 Close $24.67 LOSS

Tim Seymour prefers Posco (PKX) Open $146.46 Close $147.74 GAIN

Jon Najarian recommends shorting KLA-Tencor (KLAC) Open $46.54 Close $45.81 GAIN

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 0-1
Jon Najarian= 1-1
Jeff Macke= 1-0
Tim Seymore= 1-0
Guy Adami= 0-1

2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%
Karen Finerman= 40-30 = 57%

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It looks like Sherwin Williams (SHW) will finally get a court date in Rhode Island. Expect them to lose.

Jane Genova reports:

Tomorrow, January 4th, will be a day of hearings at Rhode Island Superior Court before Judge Michael Silverstein on the arguments presented by the lead paint defendants in four motions. The hearings begin at 9:30 AM.

Judge Silverstein has set aside the entire day for the four motions filed in December 2007 by Sherwin-Williams, which NL Industries (NL) and Millennium Holdings also joined. Specifically, those motions are:

* Motion to strike the state’s proposed lead paint abatement plan
* Motion for Clarification of procedures
* Motion to value DuPont (DD) settlement, determine appropriate offset and disgorge misallocated settlement funds
* Motion to stay abatement proceedings pending Cyanamid trial.

Why will they lose? Fortunately, it has nothing at all to do with the law. Silverstein all but directed the verdict obtained against the defendants and has essentially acted as a prosecutor throughout the trial. That being said, the defendants are in front of him arguing motions against an abatement plan he asked for and was fast tracked in accordance to his wishes and the disgorgement of a settlement he blessed.

Essentially the defendant are going through this dog a pony show to better determine and document the breadth of his incompetence and judicial malfeasance prior to their date with the RI Supreme Court or US Federal Court.

Should the defendants get ANY relief as a results of the hearings that is huge news. Other than that, same ole’ story…..

Disclosure:Long Sherwin Williams

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Web Privacy,Ebay Fraud, Dick’s,Mac’s

– Is privacy on the web finally here?

– Beware, at least Ebay is trying to fight it.

– This is a great store and just may be an even better stock.

– And the beat goes on for the Mac.

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In a recent interview, Sherwin Williams (SHW) CEO Christopher Connor reassured shareholders that despite the US housing situation, his company would post another solid year.

Highlights:

* For 2007, the company expects to earn $4.70 to $4.75 a share, a more than 12% increase from 2006 earnings of $4.19 a share.
* Expects double digit EPS growth in 2008
* Management will recommend a dividend increase for 2008 to the area of $1.40 to $1.42 a share for a 2.5% yield at current prices.
* 2008 inventories will be below year-ago levels despite the housing slowdown
* The Global Group had strong sales and earnings gains in 2007 and the prospects for 2008 are good.
* The Paint Stores Group: Will produce about 62% of the company’s sales in 2007. A net of about 100 stores were opened in 2007 and an additional 170 were acquired through acquisitions. Sherwin will end the year with more than 3,300 stores and 8% increase from 2006.
* Through Q3, the company repurchased 10.2 million shares for about $650 million,

There were two key takeaways. One for the market, and one for shareholders. for the market, Connor said that while there is still some effect of the housing situation for Sherwin and while tighter credit may make it more difficult for homeowners to finance major home remodeling, “a few gallons of paint is the cheapest and most dramatic change in a family’s living environment.” While folks may not do a major remodel, that will slap a fresh coat of pain on a room to change it.

The markets seem to be missing this point as Sherwin now trades at 12 times 2007 earnings and 10 times next years anticipated. Can anyone name another company out there growing EPS at double digit rates, acquiring other businesses, increasing the dividend and buying back stock WITHOUT adding more debt that is seeing its multiple slashed? Me either. Sherwin is becoming laughingly undervalued…

For shareholders Connor added this tidbit when he said the company has spent $248 million of that cash to acquire six companies and “there could be another acquisition before year-end.”

That seems to have gone unnoticed by everyone out there. Sherwin is able to use the weakness in its industry now to increase its footprint in it a very attractive prices. That, is very good news…

Oh yea, lead paint? Done….

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I wonder when American investors will finally realize Chinese and Middle Eastern investors are on to something?

After the recent Abu Dhabi (investment in Citigroup (C) and China’s investment in Merrill Lynch (MER), word out of Kuwait is that KIA, the Kuwait Investment Authority is set to “speed up” its decision making process in order to beat rivals to investments in financial services firms. This is notable at the KIA sits on $213 billion in funds.

“Perhaps we are at the eye of the storm and close to the peak of the problem” said Bader Al-Sa’ad its investment head.

All this must lead one to remember the S&L crisis and Saudi Prince Alwaheed’s investment in Citigroup at a split adjusted $2 a share. Middle Easterners have proven deft investors in US securities over the years. One must contrast them to the Japanese who during the same time frame where running around buying golf courses and buildings at inflated prices.

When you are not at the vortex of the panic, it is far easier to see through to the the other side of it. Eastern investors are placing massive bets on US banks and financial services firms while US investors are running scared from them. The reason? My guess is that these foreign firms see the international operations of a Citigroup and recognize they are still earning money in their other areas of operations and that the US housing issue is a temporary one. They are not watching a friend try to sell a house or are hearing about another losing theirs and from that getting sucked into the panic. The nightly newscast they see does not recount story after story about the “housing crisis”. Because they are so detached, they are able to take a completely antiseptic look at the bank’s operations and invest accordingly.

That being said, temporary disruptions often times lead to mis-priced assets that can then be bought a bargain prices.

That is exactly what is happening in US financials now..

Disclosure:Long Citi

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