Red Sox, Fed Cut, Festival, Google Phone
– Yes, they are
– I just find this one hard to believe.
– Here is the information for the next Festival of Stocks.
– A “Google Wireless” would be very good for all..
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Category: Articles
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Warren Buffett’s Tax Math Fuzzy at Best
Time to take “The Oracle” to task.
CNBC has an interview today in which Buffett describes the taxes on his office. He pays 17.5% tax “on average” on his income and that the rest of his office pays 32%. This is the “unfairness” in the tax system he alludes to.
Here is the flaw, the higher taxes those people pay? It is social security taxes, a “tax” for a program those people will need far more than Buffett ever will. After $85,000 in income you no longer need to pay the 7% tax on your income. Buffett takes a $100,000 income from Berkshire plus the thousands he makes from board seats and dividends in stocks he owns privately. It also does not take into account any tax free income Buffett may receive from Federal or Municipal bonds he owns which would dramatically lower his “percentage”.
Now, Buffett has said 90% of his net worth is in Berkshire stock which means he has some $5 billion in other investments which could generate $10 million in income taxable at 15% if invested in dividend paying stocks that have an average 2% yield.
I do not know what the secretary in the office makes but lets say she is paid a fortune in Omaha, $85,000. Her “average” tax will average the 32%. Now Warren, will pay the same percentage of his first $85,000 and then pay only 25% on the next $15,000 since no SS tax is paid. Now, if we add the dividend stocks scenario, we lower his “average” tax rate to 15.5%.
I have no idea what Warren has the $5 billion invested in but the exercise is meant to show not that the “income” tax rates are “unfair” or tilted to the rich (although they all should be lowered) but that Warren’s wealth allows him to invest vast sums in investments that lower his “average” rate easily. It is important to note that these investments are perfectly legal and available to all people and everyone can lower their average rate by using them.
The bottom line is that the only way for Warren’s argument to have any real legitimacy is for him to detail his income sources. Without the details, the whole argument has no merit.
Another note: The last time congress tried to “sock it to” the fat cats, we got the AMT which is systematically now killing the middle class.. be careful what you wish for…
Just lower all the rates and we all win…
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Big Oil Dipping Toes Into Renewables
In case you have missed it, the oil majors are quietly investing in the renewable fuel sector.
ConocoPhillips (COP) has made the largest foray with it partnership with Tyson Foods(TSN) to produce biodiesel from chicken fat and a recently announced deal with Archer Daniels Midland (ADM) to produce fuel from biomass (farm waste)
Exxon (XOM), while publicly downplaying and almost mocking the role of biofuels for years is currently funding research at Stanford University
Marathon Oil (MRO) has actually partnered with ethanol maker The Andersons (ANDE) and the two are producing ethanol from corn at a plant they plan to retrofit when additional feedstock are viable.
BP (BP) has pledged $500 million to research at the University of California at Berkeley and its partners, the University of Illinois at Urbana-Champaign and the Lawrence Berkeley National Laboratory and is attempting to make bio-butanol commercially viable.
Royal Dutch Shell PLC has two separate joint ventures, one in Germany and one in Canada, aimed at producing ethanol from noncorn sources.
Now, are the investments huge? No. Did they exist three years ago? No. Biofuels are both politically popular and extremely popular with the consumer. They big takeaway here is that the alternative energy companies are not alone in this effort today. It all but assure a permanent place for biofuels the only question that remains to be asked it what the market looks like. Currently it is extremely fragmented and consolidation is inevitable and necessary. It is becoming a global market like oil and the players who are first to begin the global consolidation will prosper. Bunge (BG) is in South America and ADM has made no secret of its desire to acquire large scale Brazilian production and has even made public pronouncements about acquiring additional US facilities.
One thing for sure, it will be exciting to watch..
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Target’s Odd Campaign
This one had me shaking my head.
Target (TGT) plans to market its fall and winter designer apparel in a strange fashion show. Clothes and accessories will dance and prance their way down the runway without models and without actual clothing.
Instead of models or the clothing they are trying to sell, Target will stage the fashion show using holograms, two-dimensional moving images that give the illusion of having three dimensions. They will be projected in a section of Grand Central Terminal in New York City on Nov. 6 and 7 and will be repeated every 10 minutes from noon to midnight the first day and 6 a.m. to 7 p.m. the second day. Target plans to post a video of the show on Google’s (GOOG) YouTube, Facebook and Target’s own Web site to get more eyeballs on it.
Even Target acknowledges it is a risk. “I hope it won’t creep people out,” Said Laura Sandall, Target’s director of events marketing and publicity.
It won’t creep them out but it will be worse, ineffective. Clothing is a “visual and touchy feely” purchase for the vast majority of people and what Target is doing is taking that away from them. Folks need to see what it will look like on someone to be intrigued and “want to look like the model” in the cloths. Watching a virtual pair of pants dance across a screen won’t do much to satiate the basic needs people have to be propelled them to buy clothing. In order to keep folks attention the clothing must end up doing something exciting which will then restrict the ability of people to actually make a judgment on the item. Who wants to buy but they can’t see?
Target will save a bunch not paying models and actually using cloths but when compared to what they may actually end up selling from the promo, it may end up costing them dearly as the holiday season, make or break for most retailers is a very risky time to be trying such a daring, unproven and admittedly “odd” strategy.
Watching pants dance will not spur a buying decision for people… not in the numbers they need to prevent Q4 from being a bust..
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Tuesday’s Downgrades and Upgrades
UPGRADES
Total System TSS First Analysis Sec Equal-Weight » Overweight
Atheros Communications ATHR Collins Stewart Market Perform » Buy
Convergys CVG Stifel Nicolaus Hold » Buy
Cardinal Health CAH Credit Suisse Neutral » Outperform
American Axle AXL KeyBanc Capital Mkts Buy » Aggressive Buy
ManTech MANT Cowen & Co Neutral » Outperform
Potash POT Banc of America Sec Neutral » Buy
NTT DoCoMo DCM Citigroup Sell » Hold
Western Refining WNR UBS Sell » Neutral
Harvest Natural HNR Jefferies & Co Hold » Buy
Washington Post WPO Deutsche Securities Hold » Buy
DOWNGRADES
Steel Dynamics STLD Longbow Buy » Neutral
Suntech Power STP Brean Murray Buy » Hold
Tesoro Corp. TSO BMO Capital Markets Outperform » Market Perform
Office Depot ODP JP Morgan Overweight » Neutral
EuroBancshares EUBK Kaufman Bros Buy » Hold
P.A.M. Transport PTSI Morgan Keegan Outperform » Mkt Perform
Somerset Hills Bancorp SOMH Stifel Nicolaus Buy » Hold
Office Depot ODP Credit Suisse Neutral » Underperform
Puget Energy PSD Soleil Hold » Sell
Sadia S.A. SDA HSBC Securities Overweight » Neutral
Penn Natl Gaming PENN Brean Murray Buy » Hold
PharmaNet Devlpmt PDGI Jefferies & Co Buy » Hold
VeraSun Energy VSE Calyon Securities Buy » Add
Clayton Holdings CLAY JMP Securities Mkt Outperform » Mkt Perform
NVIDIA NVDA Lehman Brothers Overweight » Equal-weight
Dvlps Divers Realty DDR Deutsche Securities Buy » Hold
Stanley Inc. SXE Citigroup Buy » Hold
LIFE TIME Fitness LTM Banc of America Sec Buy » Neutral
Kensey Nash KNSY Oppenheimer Buy » Neutral
Oil States OIS Oppenheimer Buy » Neutral
Baker Hughes BHI Friedman Billings Outperform » Mkt Perform
Puget Energy PSD Robert W. Baird Outperform » Neutral
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"Fast Money" for Tuesday
Tuesday’s Picks
Jeff Macke recommended selling some EMC Corp. (EMC).Open $25.37
Guy Adami thought Gilead (GILD) is a buy. Open $45.96
Karen Finerman preferred Washington Group (WNG). Open $ 95.10
Pete Najarian thought Merrill Lynch (MER) is a buy. Open $67.42
Monday’s Results
Jeff Macke liked Intel (INTC). Open $25.94 Close $26.26 GAIN
Guy Adami preferred Dell (DELL). Open $28.98 Close $29.47 GAIN
Karen Finerman recommended shorting the United States Oil Fund (USO). Open $71.17 Close $72.50 LOSS
Pete Najarian said Baker Hughes (BHI) is a buy. Open $91.05 Close $87.99 LOSS
Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation weeks). The percentage is the percentage of successful picks
Guy Adami= 38-23 = 63%
John Najarian= 13-4 = 76%
Jeff Macke= 43-31 = 57%
Pete Najarian= 29-25 = 52%
Tim Seymore= 4-3 = 57%
Karen Finerman= 21-13 = 60%
Stacey Briere-Gilbert= 3-0 = 100
Ned Riley= 1-0 = 100%
Carter Worth= 0-1 = 0%
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Monday’s 52 Week Low’s
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ADM Enters Chemicals
Did not see this one coming but that does not mean it is a bad thing…
Archer Daniels Midland (ADM), the world’s largest biofuel producer has formed an industrial chemicals group with a focus on exponentially increasing ADM’s presence in industrial markets. The new business will take advantage of ADM’s processing expertise and global distribution network to expand ADM’s product offerings in industrial chemicals. The goal is for ADM to commercialize additional chemicals from renewable feedstocks.
“Renewable, biobased industrial chemicals fit into two major trends that we’re seeing in the marketplace: the desire to improve a product’s environmental footprint and the desire to reduce the use of petroleum-based products. In the short-term, we see opportunity to commercialize direct replacements for typically petroleum-derived chemicals. And in the longer-term, we see even more opportunities to develop new chemicals which provide increased functionality and are better for the environment. As one of the world’s largest processors of renewable feedstocks, ADM has a unique opportunity to succeed in this area,” said John Rice, executive vice president, Commercial and Production.
Interesting Hire:
To head the new business, ADM has hired Janet Mann as general manager, Industrial Chemicals, reporting to Rice. Mann joins ADM from Chemtura (CEM) where she was vice president and general manager, Performance Specialties. Mann previously served as business director for Dow Chemical (DOW) and executive vice president of Dow’s ANGUS Chemical subsidiary. She received a Master of Business Administration degree in finance from DePaul University and a Bachelor of Science degree in chemistry from Bradley University.
“The demand for biobased solutions is growing rapidly in the industrial segment. ADM has the assets and knowledge to commercialize many chemicals from renewable agricultural feedstocks, and I am very excited to join the team,” said Mann.
“Janet brings a deep understanding of the chemical and plastics industry to the ADM team. She has expertise in developing and implementing successful business strategies focused on growth in the chemical industry,” said Rice.
Now, two weeks ago I blogged on what Dow would find attractive in Chemtura’s portfolio and this move may be a sign that Mann is getting out before Dow takes over the specialties business there. Stay tuned…
As for ADM, this is great because it is opening yet another bio-based market for its products. Currently the leader is bio-fuels and bio-plastics, ADM now will enter the bio-chemicals arena. Any “bio” is a sure winner today and ADM is the first and largest player in that market. It will muddle the field for investors though. How will we value ADM? Is is a Ag Company? Energy? Specialty Chemical? What? The answer will be determined by the composition of earnings. One thing is for sure. They cannot be just lumped in with ethanol producers or food processors anymore. That valuation inadequacy will provide great opportunities at times so be both opportunistic when it is mis-valued and do not despair when the like happens.
They are entering a category of one here and that almost always is a very good place to be.
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Monday’s Links: Another Thank you
Greenie’s Book, Morningstar, Thank You, Sears Holdings
– It looks like Greenspan’s book isn’t going to be the big seller it was made out to be.
– Morningstar examine the investing styles a guess what comes out a winner?
– Thank you to NY Magazine for the mention.
– Here is another look at the potential real estate value in Sears Holdings (SHLD)
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Reynold’s Results Bode Well for Altria
A dig into the recently released results buy Reynolds American (RAI) should be very encouraging to Altria (MO)shareholders
Back in April I said that Altria would not make an attempt to purchase UST (UST) for it smokeless products and instead would capitalize on the Marlboro brand name a produce one themselves. In August, when Altria announced they would do just that (produce a Marlboro product) I said that the smokeless product would be a huge hit in the growing “chew” market and provide a key drive for Phillip Morris USA going forward.
So what about Reynolds results should Altria holders like? On the conference call discussing their Q3 results. Reynolds commented on their smokeless product “Conwood Company, the nation’s second-largest maker of smokeless-tobacco products, had operating earnings of $90 million, up 18%, boosted by sales of Grizzly moist snuff. Conwood’s moist-snuff volume grew more than 12% from the prior year quarter.
Driving Conwood’s growth were additional gains on Grizzly, which continues to be the growth leader in the moist-snuff category. Grizzly’s volume was up 18%, more than twice the growth rate of the moist-snuff category. As a result, Grizzly’s share of market grew quarter-over-quarter and sequentially to 21.23%.
To further build on Grizzly’s momentum, Conwood will begin testing two new styles, Grizzly Pouches and Grizzly Snuff.”
Smokless is the only tobacco segment growing and it is growing at a very healthy clip. It is to the point now that companies are aggressively pursuing additional products to sell and the market is accepting them. Reynolds success will be Altria’s. When you have the number one tobacco product in Marlboro with almost 50% market share, any new product bearing that name will be used by consumers.
On another note, after the PMI spin, can’t we just change the name back to Phillip Morris?
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Wal-Mart to Start Grocery Delivery
After witnessing the success Amazon (AMZN) has had to date with its grocery delivery program, Wal-Mart(WMT) is following that model and entering the space.
Amazon, which currently undercuts local supermarket prices by some 30% at their online site ships bulk order of non-perishable items. Wal-Mart, whose service will be almost identical to Amazon and offer items like Perrier water, trade free coffee, Campbell’s(CPB) V-8 juice, Kellogg’s (K) snack bars, dried fruit and popcorn, as well other non-food items such as dish and body soap, will ship the items from their Sam’s Club division at prices 5% lower than those currently available at Amazon.
While amazon currently does not break out results of this division currently, the fact that they are testing expansion of the service to include a full line of grocery items in Seattle (HQ) would lead one to believe that it has been a success up to this point.
This is a good move for Wal-Mart as it is another growth avenue that will require minimal capital to enact. The items will be shipped by the post office or UPS (UPS) so no fleet of truck or delivery staff it needed until such a time they decide to do fresh foods (if ever). If nothing else, it is another reason for people to visit the Wal-Mart website and research has shown once there, people will buy something, even if it is not what they went there for in the first place.
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Monday’s Upgrades and Downgrades
UPGRADES
Sierra Wireless SWIR RBC Capital Mkts Sector Perform » Outperform
Western Refining WNR Banc of America Sec Sell » Neutral
Ikanos Comms IKAN Needham & Co Hold » Buy
Vistaprint VPRT Needham & Co Hold » Buy
Aetna AET Citigroup Hold » Buy
Panacos Pharma PANC Caris & Company Average » Buy
Sierra Wireless SWIR Piper Jaffray Market Perform » Outperform
DeVRY DV Bear Stearns Peer Perform » Outperform
Cummins CMI Credit Suisse Neutral » Outperform
Digital River DRIV BMO Capital Markets Market Perform » Outperform
Cummins CMI Citigroup Sell » Hold
Alexion Pharm ALXN Credit Suisse Neutral » Outperform
Foundry Ntwks FDRY JMP Securities Mkt Underperform » Mkt Perform
Novatel Wireless NVTL JMP Securities Mkt Perform » Mkt Outperform
DeVRY DV Piper Jaffray Market Perform » Outperform
General Mills GIS Deutsche Securities Hold » Buy
Hess HES Banc of America Sec Neutral » Buy
Taiwan Semi TSM HSBC Securities Neutral » Overweight
Discover Financial Services DFS Calyon Securities Neutral » Buy
Methanex MEOH CIBC Wrld Mkts Sector Underperform » Sector Perform
Blue Nile NILE Citigroup Sell » Hold
Nuance Communications NUAN Broadpoint Capital Neutral » Buy
Banco Santander Central STD Citigroup Hold » Buy
Infinity Prpty & Casualty IPCC Ferris Baker Watts Neutral » Buy
Corp Exec Bd EXBD Deutsche Securities Hold » Buy
DOWNGRADES
Zimmer Hldgs ZMH FTN Midwest Buy » Neutral
Covance CVD First Analysis Sec Overweight » Equal-Weight
Activision ATVI Janco Partners Accumulate » Mkt Perform
LSI Logic LSI Lehman Brothers Overweight » Equal-weight
Trident Microsystems TRID Longbow Buy » Neutral
Providence Service Corp PRSC Jefferies & Co Buy » Hold
Trident Microsystems TRID Needham & Co Strong Buy » Buy
CSG Systems CSGS First Analysis Sec Equal-Weight » Underweight
Avid Tech AVID Kaufman Bros Buy » Hold
Comcast CMCSA CIBC Wrld Mkts Sector Outperform » Sector Perform
Eli Lilly LLY Banc of America Sec Buy » Neutral
Level 3 LVLT JP Morgan Overweight » Neutral
Online Resources ORCC CIBC Wrld Mkts Sector Outperform » Sector Perform
Power Integrations POWI Citigroup Buy » Hold
eTelecare ETEL JMP Securities Mkt Outperform » Mkt Perform
LIFE TIME Fitness LTM Piper Jaffray Outperform » Market Perform
Penn Natl Gaming PENN Jefferies & Co Buy » Hold
Oil States OIS RBC Capital Mkts Outperform » Sector Perform
Tumbleweed Comms TMWD Roth Capital Buy » Hold
Bunge BG HSBC Securities Overweight » Neutral
MoneyGram MGI Calyon Securities Neutral » Reduce
AXT Inc AXTI Roth Capital Buy » Hold
Diamond Offshore DO Calyon Securities Add » Neutral
Trident Microsystems TRID Jefferies & Co Buy » Hold
I just the love the way these things are phrased
After writing off twice the amount pre-announced and having unauthorizes merger discussions with Wachovia (WB), Merill’s (MER) CEO Stan O’Neal has “decided” to leave the firm according to sources. On Friday I speculated “O’Neal may have been trying to negotiate himself a nice buyout severance package knowing what was coming down the pike.” It turns out there is quite a bit of truth to that. According to Merrill’s proxy, O’Neal would be entitled to about $200 million in total severance were Merrill sold or merged but should he decide to leave or be fired, his renumeration would be a fraction of that. One can only assume the Wachovia overtures were a desperate attempt on O’Neal’s part to walk away with as much in his pocket as possible.
For his part Wachovia CEO G. Kennedy Thompson said that “the timing was not right” as the bank is currently digesting other acquisitions.
Leading candidates for his job are Blackrock’s (BLK) Larry Fink and and the NYSE exchange President and former Goldman Sachs C0-President (GS)John Thain although it is unclear if either would be interested. One would be hard pressed to think Fink would not and Thain would be as has a nice place for himself at the NYSE.
Either way, isn’t nice of Fink to walk away for the mess he made without a struggle?
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Bank of America’s Over-Reaction
“While we are extremely proud of our strong track record in the wholesale business, we believe our long-term opportunity lies in maximizing our more competitive retail channels by introducing innovative products that meet the needs of Bank of America customers, ” says Floyd Robinson, president of Bank of America (BAC) consumer real estate.
Last week, BAC reported third-quarter earnings of 82 cents per share, a 32% decrease from a year ago. They then announced they would cut some 3,000 jobs, representing less than 2% of the company’s total employment. The majority of the layoffs will be in global corporate and investment banking. Continued disruptions in the credit market shellacked BAC’s global corporate and investment banking unit, where net income fell to $100 million, a 93 percent drop from $1.43 billion a year ago.
Cutting the investment banking jobs does make sense since that sector is slowing in general and cuts are happening industry wide. But, to completely exit the wholesale business is a bit much. It can be a profitable sector is run correctly and with a certain degree of restraint. The problem is not that the business s bad, but that those running it took unnecessary risks and got nailed.
With lenders like Countrywide (CFC) and Thornburg Mortgage (TMA) predicting greener pastures in the near future (next quarter), it looks as though BAC may be exiting this business just as it begins to turn around. Contrast this to recent news out of Wachovia (WB) who witnessed similar results in these areas but vowed to stay the course and heighten risk management to improve results, not give up on the business.
Personally, I have not seen too many examples of financial institutions shrinking their way to improved growth.
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"Fast Money" for Monday
Monday’s Picks
Jeff Macke liked Intel (INTC). Open $25.94
Guy Adami preferred Dell (DELL). Open $28.98
Karen Finerman recommended shorting the United States Oil Fund (USO). Open $71.17
Pete Najarian said Baker Hughes (BHI) is a buy. Open $91.05
Friday’s Results
Jeff Macke recommended Activision (ATVI). Open $22.95 Close$ 23.67 GAIN
Guy Adami “still likes” Intel (INTC). Open $25.89 Close $25.94 GAIN
Karen Finerman would own Estee Lauder (EL). Open $44.72 Close $41.11 GAIN
Pete Najarian recommended Under Armour (UA). Open $56.85 Close $59.57 GAIN
Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation weeks). The percentage is the percentage of successful picks
Guy Adami= 37-23 = 62%
John Najarian= 13-4 = 76%
Jeff Macke= 42-31 = 56%
Pete Najarian= 29-24 = 54%
Tim Seymore= 4-3 = 57%
Karen Finerman= 21-12 = 62%
Stacey Briere-Gilbert= 3-0 = 100
Ned Riley= 1-0 = 100%
Carter Worth= 0-1 = 0%