Category: Articles

This is really just too hard to believe.

At 7:10 on Fed decision day CNBC’s Jim Cramer have an interview and said a 50 point Fed rate cut would “be catstrophic” and signal “things are much worse than they have lead us to believe” See the full interview here

Then, after the 50 point cut later that day Cramer was on CNBC the same day acting like a 17 year old virgin in a whore house with a suitcase of cash. Watch this video here. To quote him “This is what we wanted”. “It is good, these guys get it”, he continued.

What? What is it Jim? “Catastrophic? or “just want we wanted” or did we want a catastrophe?

He has lost all credibility after this one. He has been famous before for his flip flops and has been called out on them but was alway able to explain it away by saying “things have changed since then”. The question now has to be, what the hell changed this time in the 7 hours between this interview, the Fed action and your exuberant “Stop Trading” segment? Answer? Nothing………

We just cannot take him serious anymore as person we should listen to for advice. As a freakishly spastic TV persona that my kids laugh at he has value, but as someone who’s advice we should heed, not anymore…

This is the problem when you stop trying to be an honest analyst and enter into the entertaining character mode, you cross the line from saying what you may really believe into doing stunts for ratings like his famous “they know nothing” rant about the Fed.

PS Jim, We were laughing at you, not with you on that one. I give it 6 months before he is on the next “WWF Smackdown”with Vince McMahon, the only difference between the two is their topics covered.

After a week of complaining, when the problem finally gets solved, I ought to give the recognition for it.

After reading my blog posts at Dell’s(DELL) HQ in Texas, I was contacted by a “Dell Customer Advocate”. After several emails back and forth as she tried to locate my order (I was giving her our current address and Dell had apparently still not changed this) she found the order. She also managed to find the printer I was promised by the Customer Service Manager who “promised” to get in touch with me the day after we talked (the day of first blog post)to give me the details and as of today, has not bothered despite having my home and cell and office numbers and email. Maybe he is trying to get me at my mom’s house? I’ll be there next 4th of July, talk to you then Mr. Supervisor. The nice part was that unlike the computer, the printer was actually delivered to our office and we did not have to “go pick it up” at the shipper.

So, when all is said and done the Customer Service Advocate, Marie did the job it took a team of folks and 4-5 hours to do on the phone in about an hour’s work. Thank you, I have to give a commendation where it is due. Thank you for your help.

On another note, I was contacted today by a second advocate who read the blog posts also and offered to help. Hmmm.

Here is the thing. I said this in a previous post but I think its importance bears its repeating. If I did not have a megaphone to voice my displeasure, I have to wonder how this would have ended. Without the fear of of a couple hundred thousand people reading about my “experience”, would there have been the rush to make it right? I have to wonder since the urgency did not seem to be there prior to the posts hitting. I just don’t know and hate to assume the worst but the evidence is what it is. At least it is solved now.

I do know this, do not take things like this lying down. If you let them get away with it, the impetus to improve and avoid these situation is gone. Don’t take it and be sure to give credit where it is due, it means just as much.

This is what happens today when you do not have the international exposure you need

Morgan Stanley (MS) posted 17% drop in fiscal third-quarter net income, weaker than expected. Morgan reported net income of $1.54 billion, or $1.44 a share vs. $1.85 billion, or $1.75 a share, a year earlier. On a continuing operations measure, the company reported third-quarter earnings of $1.38 a share, versus $1.50 a year before.

Why? The firm had write downs that reduced earnings by 33 cents a share. The losses consisted of its institutional securities unit having sales and trading losses of $877 million related to loans it made to companies making acquisitions, the oft mentioned “bridge loans”. They said the losses were the result of its writing down the value of loans on its books by a total of $940 million saying that the “losses of approximately $940 million (were) due to the marking-to-market of loans as well as closed and pipeline commitments.”

Now, it should be pointed out that Morgan did have a record quarter for revenues as they increase 13% to just shy of $8 billion. However, Morgan’s earning profile is clearly to levered toward the US M&A markets which are currently hitting the brakes. Unlike Lehman (LEH) and Goldman (GS) who reports tomorrow, not enough of their earnings are coming from international activity.

In 2006’s letter to shareholders CEO John Mack said one of his goals was “Leveraging our global franchise to build out key growth areas, including businesses where we already have strong leadership positions, such as commodities and prime brokerage, as well as other areas where we have started to close the gap with our peers, such as leveraged finance, residential mortgages and equity derivatives.

This effort for growth look like it resulted in a lack of discipline that lead to the almost $1 billion in write downs in these very areas.

Goldman reports tomorrow, expect write down in the fixed income securities like the other brokers have reported to date. Also expect international activity and trading activities to offset that and surprise more than a few folks.

As the price of a barrel of crude marches higher each day it makes headlines, but is not really effecting our day to day lives all that much. In fact where oil to approach the 1980 recession levels, its price would need to rise another 25% to $100 a barrel (adjusted for inflation).

Now, do not get me wrong, the 41% gain we are sitting on in our US Oil (USO) investment since January is great, but I do not see another 25% coming soon. Gas prices have come down and heating oil prices are not much higher than last year at this time when oil was in the high $60’s and low $70’s. Why?

The price of crude is being influenced by traders, not necessarily supply and demand. Currently, that sentiment is towards the upside. When that sentiment changes, coupled with the demand reduction that is inevitable when the US economy slows, prices ought to fall, and fast. It has been another benign (non existent)hurricane season and for now, middle east tensions have subsided. Yes, I know there is a war going on but, isn’t there always? It will take more that a few gunshots over there to make a difference.

Demand from China and India is surging and this is a long term story, but, not 41% in 8 months. The Us ethanol industry lead by ADM (ADM), Bill Gates backed Pacific Ethanol (PEIX) and Verasun (VSE) will produce an additional 1 billion gallons of the stuff this year and that is cutting into demand for gasoline. Which is why despite oil prices surging, the price you pay at the pump has been stagnant or dropping. Further, as people have paid more for food, and other items and fear an economic slowdown, they have chosen closer vacation and are driving rather than paying for plane tickets. no matter what you may think, 250 people packing up and driving on vacation uses a fraction of the oil it takes to make enough jet fuel for the same number of people to get into a plane and fly there.

Now, Boone Pickens will be on CNBC soon and he will tell us the price is going up. Well, Boone is an oil man and high prices are very good for him. I am sure they will go up over time, it is inevitable barring a cellulostic ethanol breakthrough in the next few months that triples our ethanol yield overnight from 7 billion to 21 billion gallons making E85 an immediately viable option. This scenario will happen but it time frame is a few years, not months away.

Am I selling out of my USO position? No, but I do not see much upside from here for a while. Why not sell then? After 8 months I will pay short term capital gains taxes and lose 28% of that gain. Is oil stays flat and I sell in 4 months, that drops to 15% so I can gain 13% even if the price does nothing. Neat…

Long term oil is going up, it just is not the huge story it is made out to be now..

UPGRADES

Ventas VTR Stifel Nicolaus Hold » Buy
Apollo Group APOL Stifel Nicolaus Hold » Buy
Healthcare Realty HR Stifel Nicolaus Hold » Buy
LTC Properties LTC Stifel Nicolaus Hold » Buy
Cache CACH Brean Murray Hold » Buy
Greenfield Online SRVY Lehman Brothers Equal-weight » Overweight
RSC Holdings RRR Lehman Brothers Equal-weight » Overweight
ON Semiconductor ONNN Wachovia Mkt Perform » Outperform
Enbridge ENB CIBC Wrld Mkts Sector Perform » Sector Outperform

DOWNGRADES

EDO Corp EDO BB&T Capital Mkts Buy » Hold
FMC Tech FTI Wachovia Mkt Perform » Underperform
Veeco Instruments VECO Am Tech/JSA Research Buy » Neutral
Health Care Ppty HCP Stifel Nicolaus Buy » Hold
Conns CONN Morgan Joseph Buy » Hold
Medical Properties Trust MPW Stifel Nicolaus Buy » Hold
Getty Images GYI Kaufman Bros Hold » Sell
Advanced Analogic Tech AATI Needham & Co Strong Buy » Buy $11
Kellwood KWD Broadpoint Capital Buy » Neutral
Cameron CAM Wachovia Outperform » Mkt Perform
Wimm-Bill-Dann Foods WBD Credit Suisse Outperform » Neutral

A near 300 point up day and there even some new lows…

RT Ruby Tuesday, Inc. (G … 19.20
LABL Multi-Color Corporation 22.84
KWD Kellwood Company 15.23
GYI Getty Images Inc 27.49
GPIC Gaming Partners Intl Corp 9.65
AVR Aventine Renewable Energy 10.91

Bernanke wasted little effort today in cutting the funds rate & the discount rate 50 basis points. The statement said:

“Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.

Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

Developments in financial markets since the Committee’s last regular meeting have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.”

Big deal? Not so much. Remember the effective Fed Funds Rate has been below 5% for some time now and this action simply brings the stated rate in line with what is happening out there in the market. Stocks surged on the news but what else is new. The odd thing here is we are at a state where bad news is good. If the economy was not slowing down, no need for a rate cut. Since it is (that is not real good), we are cutting rates. Odd..

Too be honest, this concerns me. To me, it implies that things are weaker out there than we believe, either that or Bernanke isn’t playing games and the threat of weakness is just going to be stamped out. I hope the later is the case. It would mean that Bernanke accomplished what he wanted with the credit issue and now sees the possibility of this turning. Rather than pull off the band-aid slowly to see what happens down the road, he is just jumping ahead to be in front of any weakness and head it off.

Bernanke indicated as much in the statement when he said, “forestall some of the adverse effects on the broader economy that might otherwise arise”. This tells me he is heading off what “might” happen now that inflation has moderated and somewhat under control.

I like this guy, no games or teaser cuts. Just action.

– While I am not a fan of Greenspan, for Paul Krugman to question to moral honesty of any human being is laughable. Krugman is quite possibly the most dishonest person who has every walked the earth (the Clinton’s aside obviously).

– An economist gives empirical evidence that the Bush administrations troop surge is indeed working. It should be noted that this is an MIT professor so the chance of a “political bias” in favor of the administration is indeed remote..

– Still more on Greenspan

– You reap what you sow

Lehman Brothers (LEH) release earnings this morning and their results, and especially the configuration of them bolstered my confidence and expectations for Goldman’s (GS)on Thursday.

First the details. Lehman beat expectation by seven cents a share coming in at $1.54 vs the $1.47 estimates. Fixed income took the expected write-downs (revenues were off 47%) due to the current mortgage market “instability” but several other areas bolstered the firm and they are the very reasons I was so optimistic yesterday about Goldman.

Strong investment banking and retail brokerage fees pushed revenue up 3.1 percent to $4.31 billion and offset the $700 million hit from “substantial valuation reductions” in mortgage-backed bonds and other investments. In addition, the firm now gets 53% of it revenues from overseas operation, further insulating it from US housing.

The configuration of these results were the very ones I gave yesterday for my opinion that the current estimates for Goldman were too low, trading and overseas. There does seem to be an inability or refusal to see many of our international firms for what they are, international. Companies are seeing the prices of their shares decimated due to the US housing situation and in many cases, the effects of the housing market are not a significant determinant of earnings for them. When more than 1/2 of your revenues come from overseas, the conversation regarding earnings ought to be what is happening there, not in Peoria. This is also is true for the S&P that now gets over 50% of it’s earning from overseas.

Why is this important? Even though we may (that is a big may but for arguments sake let’s assume) be slowing down it the US, overseas is still booming. That means that 51% of earnings will be increasing and offsetting any potential decrease here. It is also important to note that this 51% is increasing so the international economy will begin to take on more importance. This is the reason the last few quarters estimates have been below reality. Folks are not quantifying international operations properly, or giving them enough weight..

This is ok though, it gives us more time to accumulate under-priced shares..

UPGRADES

Logitech Intl SA LOGI Avondale Partners Mkt Perform » Mkt Outperform
Fresh Del Monte FDP BB&T Capital Mkts Hold » Buy
Lexington LXP Stifel Nicolaus Hold » Buy
Equinix EQIX Needham & Co Hold » Buy
China Mobile CHL HSBC Securities Neutral » Overweight
Nokia NOK HSBC Securities Neutral » Overweight
Brocade BRCD Citigroup Hold » Buy
Tween Brands TWB Susquehanna Financial Neutral » Positive
Ford Motor F Bear Stearns Peer Perform » Outperform
Temple-Inland TIN UBS Neutral » Buy

DOWNGRADES

Maguire Properties MPG Stifel Nicolaus Hold » Sell
Ryanair Hldgs RYAAY UBS Buy » Neutral
Applebee’s APPB Oppenheimer Neutral » Sell
Aventine Renewable Energy AVR Soleil Buy » Hold
Alcatel-Lucent ALU UBS Buy » Neutral
British Amrcn Tobacco BTI Lehman Brothers Equal-weight » Underweight
Marsh McLennan MMC Citigroup Buy » Hold