Blogystyle, Drunk, Cough Remedy, Herb Greenberg
– A great collection this week.
– Why did this take so long?
– I did not know this but when you actually think about it, it makes perfect sense.
– Usually I do not agree with much of what Herb says but I have to admit he nailed it on this one.
There is an interesting political event coming up that may be the impetus shares in Harley Davidson (HOG) need to go on a ride (yes, pun intended and sorry it is so bad).
NY Sen. Charles Schumer, Pennsylvania Sen. Robert Casey and Democratic Sens. Herb Kohl of Wisconsin and Claire McCaskill of Missouri are all calling for China to relax municipal regulations that limit or even ban heavy-duty motorcycle use in urban areas in a letter sent to Commerce Secretary Carlos Gutierrez and US Trade Representative Susan Schwab. The letter was sent just one week before Gutierrez and Schwab are set to lead a delegation to Beijing, where the Joint Commission on Commerce and Trade (JCCT) will take place.
The JCCT is generally held twice a year as a way of resolving trade disputes between the two countries, although China has failed to implement many pledges it has made to lift trade barriers at recent JCCT meetings.
Harley Davidson has been in China for nearly two years now but the regulation have lead the company to recognize almost no sales from its efforts.
How big could it be?
Currently Harley ship about 330,000 bikes a years with about 20% of them going to foreign countries. They shipped 13,300 motorcycles to Japan in 2006, up from less than 5,000 in 1997. Harleys have now become a “status symbol” in Japan. What happened? Japan dropped some regulatory barriers that had throttled sales, said Wayne Curtin, Harley Davidson’s government affairs director recently.
Curtin also said that opening foreign markets is a top priority for Harley Davidson. The Senate approved a free trade pact with Peru trade pact Tuesday, which should boost motorcycle sales there, Curtin said.
The U.S. also has free trade deals pending with South Korea, Panama and Columbia. These deals would make Harleys more affordable in those countries, Curtin said. “The free trade agreements take tariffs of 8 percent to 20 percent and takes them to zero,” he said.
This is huge for Harley Davidson. With the US credit situation not going away anytime soon, opening foreign markets is a must for the company to grow. Now, I am not going to jump into shares just because Peru has opened up, that will not offset US weakness. China is the big dog here.
The opening of the China market could prove immediate returns. Why? The infrastructure to market and sell the bikes is already there. The only thing that is waiting is not a willing buyer for them, but a buyer who can legally ride them.
Should we jump at shares now? No. Even the Peru pact with have to be ratified by both countries and that could take months. Any action next week in China, as large as the potential is, would probably not show up in results for at least two quarters. That gives us plenty of time to buy shares.
With the credit situation still deteriorating, Harley may see more downside before it turns around. I still think we will see shares in the lower 40’s. Then I am a buyer.
Here is my last post on Harley after Q3 results.
For some reason I just am not in the 50 point cut camp like most folks are. As a matter of fact, as I speculated last week, I am not even sure I think a 25 point cut will happen.
Why? Today’s reports show the the current economic situation is not nearly as dire as people think.
Productivity in the nonfarm business sector increased at a 6.3% annual rate in Q3 the government said in its second estimate of productivity. A month ago, the government said productivity rose 4.9% annualized.
Unit labor costs, a key gauge of inflationary pressures from wages, were revised much lower, showing a 2% annual decline in the third quarter compared with a 0.2% drop estimated a month ago.
Unit labor costs in the second quarter were also revised much lower, from a 2.2% gain to a 1.1% decline, reflecting more up-to-date compensation information. The revised data show inflationary pressures from tight labor markets are much milder than previously believed.
Now this does give the Fed room to move rates lower and relieves the worry that inflation may spike. But, with the economy going at a healthy pace, are rate cut really even necessary?
Consider today jobs report.
Private payrolls grew by 189,000 in November following a revised 119,000 gain in October an ADP report said today. The increase was well above expectations for job growth of only 60,000 in November.
Employed workers are spending workers. Now, much of the rate cut talk has been focused around mortgages. The simple explanation was that millions of resets of adjustable rate mortgages were coming and high rates woulds cause high resets and million of foreclosures. The argument was that lower rates would help mitigate that. Word today is that Treasury Secretary Hank Paulson is working on a deal to freeze resets for 5 years. If that happens, then we now know the scope of the problem out for the next 5 years. We can assume based n historical data what will happen in the mortgage markets with some degree of accuracy.
If we know the scope of the problem, the impetus to lower rates to stave off a catastrophe is now gone. With that being gone, we now go back to the old fashioned reason for rate cuts, growth vs inflation. Right now, both seem to be just fine and if they are just fine, is there really a reason to tinker with rates?
While I do not feel a cut is necessary, with the market 100% sure a 25 point cut is coming, I would assume Bernanke gives it to them if for no other reason that to avoid an end of years sell-off.
Should he give them 50, the only thing that would justify it would be an accompanying statement saying the Fed is essentially “done” unless things “dramatically deteriorate”. Either way, Tuesday will be one hell of a day
UPGRADES
Tollgrade TLGD Ferris Baker Watts Neutral » Buy
Vocus VOCS Ferris Baker Watts Neutral » Buy
Blackboard BBBB Wedbush Morgan Buy » Strong Buy
Saba Software SABA Maxim Group Hold » Buy
Agrium AGU BMO Capital Markets Market Perform » Outperform
Biovail BVF BMO Capital Markets Underperform » Market Perform
Collective Brands PSS Caris & Company Average » Above Average
Take-Two TTWO Kaufman Bros Hold » Buy
Airgas ARG KeyBanc Capital Mkts Buy » Aggressive Buy
JDS Uniphase JDSU Roth Capital Hold » Buy
Verint Systems VRNT JP Morgan Underweight » Neutral
AmerisourceBergen ABC Banc of America Sec Neutral » Buy
Applied Signal APSG CIBC Wrld Mkts Sector Underperform » Sector Perform
Teekay LNG Partners TGP Citigroup Hold » Buy
DOWNGRADES
Comcast CMCSA JP Morgan Overweight » Neutral
Northern Trust NTRS Sandler O’Neill Hold » Sell
First Marblehead FMD Sandler O’Neill Buy » Hold
Electronic Arts ERTS Kaufman Bros Buy » Hold
Comcast CMCSA Kaufman Bros Buy » Hold
XM Satellite XMSR Stifel Nicolaus Buy » Hold
SK Telecom SKM Bear Stearns Outperform » Peer Perform
United Thera UTHR Brean Murray Buy » Hold
Ruths Chris Steak House RUTH Piper Jaffray Buy » Neutral
Famous Dave’s DAVE Piper Jaffray Buy » Neutral
Fannie Mae FNM Piper Jaffray Buy » Neutral
FPL Group FPL UBS Buy » Neutral
Freddie Mac FRE Credit Suisse Neutral » Underperform
Fannie Mae FNM Credit Suisse Neutral » Underperform
Johnson Controls JCI Deutsche Securities Buy » Hold
Thursday’s Picks
Jeff Macke likes Gamestop (GME). Open $57.90
Guy Adami recommends Intel (INTC). Open $27.22
Karen Finerman prefers Crocs (CROX). Open $42.82
Pete Najarian says EMC Corp. (EMC) is a buy. Open $19.44
Wednesday’s Results
Jeff Macke thinks Guess (GES) is a buy. Open $43.48 Close $45.78 GAIN
Guy Adami likes Nordstrom (JWN). Open $36.45 Close $36.67 GAIN
Karen Finerman recommends getting long Goldman (GS) Open $215.22 Close $218.26 GAIN and short Lehman (LEH).Open $59.61 Close $60.01 LOSS
Pete Najarian thinks Fannie Mae (FNM) is a buy. Open $35.18 Close $36.13 GAIN
Guy Adami= 50-42 = 56%
John Najarian= 13-4 = 76%
Jeff Macke= 55-35 = 63%
Pete Najarian= 38-38 = 50%
Tim Seymore= 6-7 = 57%
Karen Finerman= 32-25 = 54%
Stacey Briere-Gilbert= 3-0 = 100
Ned Riley= 1-0 = 100%
Carter Worth= 0-1 = 0%
So, if we are going to freeze subprime interest rates at their original rate for the next 5 years. A question.
We bought our house a year ago with a 30 yr. fixed mortgage. Why? We thought rates were going up and the ARM’s that were being offered were 3 yr. ARM’s at about a point lower that our ended up being.
Now, had we gone with the 3 yr. ARM at the time we would have saved just under $200 a month. My question to Hillary and Paulson is: If you are going to bail out those of us who got in way over their heads or just speculated and lost, what about those of us who made the right decision? Aren’t you just stoking the irresponsible behavior that spawned the current situation? Are we going to get a pat on the back of making the right choice?
In our case choosing the ARM and then getting the 5 year freeze the gov’t will be offering would have put an additional $14,400 in our pockets. That will teach me to do the right thing.
This is the problem when gov’t steps in the market. They end up screwing those who have done nothing wrong to protect those who bought something they either did not understand, gambled and are losing or just bought a house they could not afford.
I am sorry but when you become the backstop to irresponsible behavior you do not solve it, you cause it to proliferate. This is like your kid driving like a lunatic despite your constant warnings and then crashing the family car. Do you rush out and buy him a new one? Hell no! Give him or her a bike, tell them to suck it up and buy the next one themselves.
Same with these homeowners. If you bought a house you clearly could not afford just to impress the folks at work, used the low “teaser rate” to get in and either:
A) did not read the document you signed that told you when and by how much the rate would adjust to and what those payments would be,
B) figured the housing market would go up forever and you would eventually have the equity because of that to refi into a better loan (gambling) or
C) neither and “just had to live in that house”
Then what is happening to you is just too bad. If you are dumb enough to just roll the dice with the largest single investment you will ever make, then if the dice come up seven, sorry but you crap out.
There is no reason me and the rest of us who are responsible both with our spending and the house we bought ought to be forced to subsidize your stupidity. That is not the way this game is supposed to be played. Some win, some lose. This bailout? We all lose.
Why?
These folks will just have the eventuality of foreclosure put off a few years. housing turns like a supertanker. In areas where prices are down 40% to 60% from their peak, it will take the better part of the current decade and well into the next for these folks to have the equity they need the actually refi into a better loan.
You now will have people at the margins, folks who made the right decision but were not really sure about it deciding that riskier is better. Rather that being satisfied with their decision, they will resent the folks across the street whose rate has been frozen below theirs and will decide “next time, I am doig what they did”. Now we proliferate the problem.
The “bailout” and yes, that is exactly what this is, will not solve the problem. Pain and suffering will. As long as people think there is a safety net, they will continue to do the things that get them into this problem. All you are doing is guaranteeing this happens again.
SRG Seanergy Maritime Corp 9.33
SMRT Stein Mart Inc 4.77
SEH Spartech Corporation 12.83
SCVL Shoe Carnival Inc 10.68
SCSS Select Comfort Corp 9.94
MEG Media General 21.96
MBI MBIA Inc 26.25
LYV Live Nation Inc 12.59
IHP IHOP Corp 45.16
IAR Idearc Inc 16.35
HRZ Horizon Lines Inc 18.54
DPZ Domino’s Pizza, Inc. 13.13
DNA Genentech Inc 66.20
CMCSA Comcast Corp New 18.22
CKR CKE Restaurants, Inc. … 13.81
CKEC Carmike Cinemas Inc 10.77
BBI Blockbuster Inc 3.24
ATCO American Technology Corp 2.48
Oprah, Weird, Mr. Bethel, The press,Blog Power
– Will Oprah anoint the Democrat’s candidate?
– Why is it that whenever we see these stories, it is always about someone who has so much opportunity?
– I have heard rumblings about others possibly doing the same thing.
– The press wonders why no one wants to work together. When they do, stories like this get run.
– How powerful are blogs becoming? A change of venue request has been filed due to them in Knoxville.
With all the bashing of Sears Holdings (SHLD) Eddie Lampert recently, I was reminded by a reader of an article from Barron’s in 1999 about the demise of Berkshire Hathaway’s (BRK.A) Warren Buffett.
The whole article can be found here:
The lead sentence goes “After more than 30 years of unrivaled investment success, Warren Buffett may be losing his magic touch.”
It then continues,
“Shares in Buffett’s Berkshire Hathaway are set to experience their first annual decline since 1990 and their second-worst year of performance, relative to the Standard & Poor’s 500 Index, since Buffett took control of what had been a struggling New England textile maker in 1965.
At around $54,000 a share, Berkshire’s Class A stock is off 23% in 1999, against an 18% return for the S&P 500 (including dividends). Berkshire has been hurt this year by weak operating results at its core insurance operations and by a rare annual drop in the company’s famed investment portfolio, which includes such stocks as Coca-Cola, Gillette and American Express .
Warren Buffett’s distaste for technology has soured performance.
But there’s more to Berkshire’s weak showing than just the operating and investment performance. To be blunt, Buffett, who turns 70 in 2000, is viewed by an increasing number of investors as too conservative, even passe. Buffett, Berkshire’s chairman and chief executive, may be the world’s greatest investor, but he hasn’t anticipated or capitalized on the boom in technology stocks in the past few years.”
Now, hindsight always being 20/20, in retrospect this article is just foolish and Buffett was indeed proven correct as shares have almost tripled since then. Great long term investors do not “lose it” overnight, they just have a bad year. Now, here is the important part. The bad year is not necessarily because they made bad investments, it is because the market during that year went against those investment. The two are not directly related.
In fact, for investors like Buffett and Lampert, the two must be at times indirectly related. Unless they are, there can be no “value investing” as all securities at all times are accurately valued.
Let’s not forget that even with Sears’ recent slide, it is still up over 100% since Lampert combined the companies 2 1/2 years ago. Sears as a retailer is not “dead” as folks like to say. The retail environment has deteriorated dramatically the last year with virtually all retailers save Target (TGT) and Wal-Mart (WMT) suffering dramatic declines.
Since Sears is the nations #1 appliance seller (over 25% market share and 40% of revenues), the housing situation has hurt it more so that the other retailers (seen Home Depot’s (HD) or Lowes (LOW) results lately?). These are high price, high margin items and this is the principle reason for the earnings situation. When housing turns around in 2008, Sears EPS will jump dramatically as at the rate Lampert is buying shares, there ought to be almost 20% less of them on the market by then.
Sears is not “dead”. How can the #1 appliance seller be a dead retailer? Can it get much better? Sure. Is putting Lands End “store in a store” concept a winner? Yes. But let’s not forget, there are 2600 locations and currently just over 200 have the concept. That is not going to turn a $53 billion operation around in a quarter. It takes time to retrofit locations and order merchandise to stock them. On this scale that process takes a year, not months. The expansion of the concept was announced in March and already the number of locations has already more than doubled.
Is Lampert on the right track? Yes he is. Lands End results have been setting record year after year. People love the stuff.
Sears is being hit on both ends with appliance sales suffering and retail clothing suffering to. Both segments of retail are being hit and with Sears largely into both, their hit is worse. Now, the same can be said of the turnaround in both, when the resume, Sears gets a double boost.
Lampert is thinking like an owner of a company, not a short term investor. That is a god thing for those of us who like to think the same way,
Dow Chemical (DOW) CEO Andrew Liveris has stated the goal of ridding Dow of marginally profitable businesses to focus the company on its specialty ones.
Liveris said “Today’s announcement reflects our commitment to prune businesses that are not delivering appropriate value and tackle tasks more efficiently across the entire organization … freeing up capital and resources that will be re-directed toward value-creating growth opportunities”
He continued, “Our focus on financial discipline and low cost to serve remains as sharp as ever, and we will continue to seek ways to refine our organizational structure, asset base and business portfolio to ensure Dow’s competitiveness on the world stage.”
The moves, which will result in a Q4 cash expenditures of $150 million include:
º Due to overcapacity within the industry, a disadvantaged cost position, and increasing pressure from generic suppliers, the Company will record an impairment charge related to its agricultural products manufacturing site located in Lauterbourg, France. As required, the Company has launched an information/consultation process with local employee representatives on the closure project.
º The Company has assessed the long-term profitability of its participation in the automotive sealers business and has determined that the projected results are inconsistent with the financial performance expected of a market-facing business. As a result, the Company will exit the automotive sealers business in North America, Asia Pacific and Latin America within the next 9 to 18 months, and will explore strategic options within Europe.
º The Company will write down its investment in a joint venture – Petromont and Company, Limited Partnership – due to an unfavorable financial outlook, reflecting significant long-term economic challenges.
º The Company has evaluated the economic and financial feasibility of its styrene plant in Camaçari, Brazil, and due to raw material competitiveness, the age of the facility, as well as the ready availability of styrene within the global marketplace, the Company will recognize an impairment charge related to this facility.
º The Company will close its hydroxyethyl cellulose manufacturing facility located in Aratu, Brazil, due to a number of factors, including capacity limitations, high structural and raw material costs, and older technology. After studying several options to improve the profitability of the facility, the Company decided to close the plant during the first quarter of 2008.
º Due to a number of factors, including the inability to secure a source of economically sustainable propylene and the use of older technologies at the plant, Union Carbide Corporation (a wholly owned subsidiary of Dow) has decided to shut down the polypropylene facility at St. Charles Operations in Hahnville, Louisiana, by the end of 2007.
The total charges including the above expenditures are expected to be $500 to $600 million. If all the charges are taken in Q4, the total comes to about 62 cents a share. Dow will save about $180 million a year from the moves. While not a huge number, the real advantage for shareholders here is the availability of cash for other uses. The move will allow Dow to now redirect millions of dollars into operations whose return on that investment is far higher than those bring shuttered. Other use could include dividend increases or additional share repurchases.
All in all this is a rather mundane event as far as earnings go but its importance is in Dow still delivering on the ambitious goals it is setting for itself.
In a late filing Tuesday, Eddie Lampert purchased an additional 467,609 shares of AutoNation (AN).
The shares were purchased between $16.11 and $16.50 a share today. This brings his RBS Partners stake to over 39,300,000 shares. Lampert controls an additional 17,000,000 shares through other entities. They are:
1. Shares of common stock, par value $0.01 per share (“Shares”), of AutoNation, Inc. (the “Issuer”) are held by ESL Partners, L.P. (“Partners”).
2. Shares are held by ESL Institutional Partners, L.P. (“Institutional”).
3. Shares are held in an account established by the investment member of ESL Investors, L.L.C. (“Investors”).
4. Shares are held by CBL Partners, L.P. (“CBL”).
5. Shares are held by ESL Investment Management, L.P. (“ESLIM”).
6. Shares are held by RBS Partners, L.P. (“RBS”).
7. Shares are held by Edward S. Lampert.
The Form 4 was filed on behalf of Mr. Lampert, ESL Investments, Inc. (“Investments”), RBS and Partners. RBS is the general partner of Partners and the managing member of Investors. RBS Investment Management, LLC (“RBSIM”) is the general partner of Institutional. Investments is the general partner of RBS and CBL and the manager of RBSIM. Mr. Lampert is the Chairman, Chief Executive Officer and Director of Investments and the managing member of the general partner of ESLIM.
The good thing about sentiment being against Lampert now? You can easily copy him and get in a very good prices.
Connecticut Democrat Chris Dodd has realized one thing, the NY Times still runs the agenda for his party.
Dodd, realizing 99% of American’s not only do not know who he is but also do not know he is running for President, found a way to get himself some publicity today. He decided to question the integrity of someone most American’s do know: Treasury Secretary Hank Paulson. On a side note, if more folks know who the head guy at Treasury is than know who you are, and you are running for President, stop, you are now officially wasting all our time.
Dodd said he was concerned because it appeared that Goldman Sachs (GS) was “aggressively pushing subprime mortgages that they knew to be of concern while simultaneously shorting collateralized mortgage obligations.” Maybe they were. If they were, so what? They are after all a brokerage that has a massive trading operation. Is Dodd suggesting investment houses can only take long positions?
Another thing Chris. Goldman did not sell mortgages. They financed them and that is a huge difference. Goldman has also taken large writedowns on its CDO portfolio, they just hegded against that better than the other institutions.
Dodd said Paulson should “address the concerns” raised by the New York Times article and added a warning: “Failure to do so may be cause for a formal investigation.” Once again, the NY Times telling Democrats what is important and them following like a dog to a burger.
How about this. I would love to hear Paulson address him like this at the upcoming dog and pony show. Chris, let me explain things to you. You clearly have no idea how the real world works and we both know the only reason you are sitting there is because of your late father U.S. Senator Thomas Joseph Dodd. Without him we both know you probably would be asking me if I wanted to “super-size that for only one more dollar” rather than wasting everyones time on this subject.
That being said, you and the group of trained chimps you sit with pass laws on the sale securities. We follow those rules and oh yea, we also have a trading operation that takes all types of positions on all types of securities in almost every country in the world. As a matter of fact, more than 50% of the profits at Goldman profits come from overseas (that means countries outside the US).
You see Chris, almost every bank out there bought and sold these securities (including us) and most hedged these bets. Citigroup (C), Bank of America (BAC), Wachovia (WB), Morgan Stanley (MS) etc.. they all did it. The difference is we just did it better. They got greedy and we bet against the grain. Pretty simple really.
Now that we are on the subject, maybe you could help us out. Could you try to win the election? We just ask because the tax increase you are promising will definitely drive the economy into recession and we could really make a killing off these short positions then. Just a thought…
On a side note, speaking of possible “ethical issues” . We know you received more money from Arthur Andersen than any other Democrat — $54,843.00 — and aggressively worked to insulate Arthur Andersen and other accounting firms from liability to defrauded investors in cases like Enron. Now that Anderson is gone, where do you get your $$ from now?
Perhaps this is just payback for Goldman Chief Blankenfeld supporting Hillary for President? That is the only thing that actually would make any sense.
Wednesday’s Picks
Jeff Macke thinks Guess (GES) is a buy. Open $43.48
Guy Adami likes Nordstrom (JWN). Open $36.45
Karen Finerman recommends getting long Goldman (GS) Open $215.22 and short Lehman (LEH).Open $59.61
Pete Najarian thinks Fannie Mae (FNM) is a buy. Open $35.18
Tuesday’s Results
Jeff Macke likes THQ Inc. (THQI) on Monday’s Activision buyout. Open $24.90 close $24.99 GAIN
Guy Adami recommends betting against the Dow by buying Short Dow30 ProShares (DOG).Open $59.54 Close $59.82 GAIN
Karen Finerman prefers Kohl’s (KSS).Open $49.22 Close $50.58 GAIN
Pete Najarian likes U.S. Bancorp (USB) Open $32.93 Close $32.47 LOSS
Guy Adami= 49-42 = 55%
John Najarian= 13-4 = 76%
Jeff Macke= 54-35 = 61%
Pete Najarian= 37-38 = 48%
Tim Seymore= 6-7 = 57%
Karen Finerman= 31-24 = 55%
Stacey Briere-Gilbert= 3-0 = 100
Ned Riley= 1-0 = 100%
Carter Worth= 0-1 = 0%
WAG Walgreen Co. 35.93
VVI Viad Corp 28.60
VRNM Verenium Corporation 3.39
VFC VF Corporation 72.83
RUTH Ruths Chris Steak Hse Inc 11.32
RT Ruby Tuesday, Inc. (G … 12.60
RMIX U S Concrete Inc 3.60
ODP Office Depot, Inc 16.33
OC Owens Corning New 21.43
JSDA Jones Soda Co 5.93
JBL Jabil Circuit Inc 16.31
IIG Imergent Inc 11.36
IHP IHOP Corp 46.69
GEHL Gehl Co 15.72
GCI Gannett Co., Inc 35.63
BBI Blockbuster Inc 3.34
