Category: Articles

Just a quick not to those who use oil to heat their homes. If you can lock in your rate now, it will probably be a good idea to do it.

The EIA today predicted that heating oil will rise at least 37 cents a gallon to a price in excess of $2.85 a gallon this winter. This price, it should be noted does not take into account the possible effects of a hurricane(s), more middle east unrest (could it happen?) or additional refinery problems that have been so prevalent this spring and early summer. It would seem that the forecast is a “as long as things stay the way they are now” scenario.

This does not mean the forecast is wrong or irrelevant. If anything, knowing the methodology they use to predict the prices and what they base them on make it very useful. We now know that any combination of the above events OR extremely cold winter will most likely drive heating oil prices over $3 a gallon.

So, rather than pay Exxon (XOM), Chevron (CVX) or BP(BP) additional funds this winter, it is recommended that prices get locked in. If only I could do the same thing with the natural gas I heat my home with.

Tis’ the season and there is a ton of speculation out there about what the Fed will say and or do today. Sooner or later folks are going to realize that Greenspan no longer Chairs the Fed. Bernanke does not want the Fed to be the focus and has no desire to lower rates in response to imbecilic lending.

There is no “credit shortage” out there. There is a “stupid credit shortage” though and that is actually healthy. Sally and Paul who want to have $400,000 loaned to them with no money down, no credit check and pay interest only for two years probably will begin to find this more difficult if not impossible and you know what, this also is good. Bernanke will not finance stupidity by flushing the market with funds to bail these folks out.

What will he do? The same thing he has done since taking office, nothing. He is watching inflation and until that is under wraps, rates will stay where they are, at historically low levels. The economy is growing at a very healthy and retrained rate, unemployment is virtually non-existent, corporate profits are growing at near double digit rates and corporations are so flush with cash they are buying back their own shares at a pace never seen before. So, just because the DOW and S&P drop 4% we should just abandon the plan and lower rates to re-energize the fools who got themselves in a hole in the first place? No way..

Here is proof of why emotion should not rule the Fed. Watch Jim Cramer, in a WWF’s Vince McMahon inspired act have a Fed meltdown two weeks after saying sub-prime is “completely meaningless, it has no meaning whatsoever”. Laughable…..

Sam Zell was on CNBC last week and he was talking about housing. He said simply that there was no “meltdown” and that housing starts were slowing to historically normal levels. The last three years were an aberration and at 1.4 to 1.6 million starts, we have settled into a “normal” range. Since when did normal require a rate cut?

I think Greenspan enjoyed the market jolting effects of his incoherent ramblings when at the Fed. This is proven by his inexplicable clarity since he left office as exemplified by his call of a “1/3 chance of US recession in 2007”. He misses the rush of the market reacting to him. Bernanke has no such desire and if anything, seems to wish the Fed to fade to an after thought when it comes to the markets. If the Fed becomes real predictable, the effects of their actions is minimized. Once Wall St. figures out that rates will not come down until inflation is well under wraps, we can end this speculation every month or two. We can talk about a rate cut when we see proof that inflation is waning.

If you want to know when to panic it is easy, the day Bernanke surprises us with a rate cut, things are far worse than we think.

Home Depot (HD) had it’s credit rating downgraded last month because of it’s plans to tap the credit markets to accomplish it’s $15 billion share repurchase plan. With the recent credit market tightening out there, will that buyback or a substantial part of it be put on the shelf?

When they announced the ambitious plan, Home Depot said they would accomplish it “as soon as practicable”. Which means, well, nothing. They have announced a tender offer for shares but it remains to be seen how many people actually tender those share to the company. Moody’s (MCO)did say yesterday that they may downgrade Home Depot debt even further depending on how expensive corporate lending becomes. Another debt downgrade will have the effect of making borrowing even more expensive for Home Depot.

In July, there was only $29 billion in corporate bonds issued vs $128 billion in June. The reason? Tightening credit markets have sharply driven up the cost of issuing that debt. Now, the cost still is below historic levels but that is of little consequence when you announce plans based on yesterday’s levels. How has this debt figured into stock buybacks? Last year $602 billion in shares were repurchased and corporations issued a record $454 billion in cheap new debt to make those purchases. Just last month Expedia (EXPE) cut a previously announced buyback by over 20% saying “lack of available financing, on terms satisfactory to the company”. Translation: It was too expensive

It bears close watching whether or another large debt supported buyback at Proctor & Gamble (PG) of $24 billion will be slowed to a crawl as the cast of it also increases.

Now, not all buybacks out there are being debt financed but it is safe to say that when a billion dollar company is buying back 20% of it’s shares, a large amount of now more expensive debt is involved. Do not take those buyback plans into your thinking when deciding to purchase shares, there is a very good chance the buyback will not be accomplished now.

TUESDAY’S PICKS

Jeff Macke recommended selling Goldman Sachs (GS). Open $187.79

Guy Adami preferred Juniper (JNPR). Open $33.46

Tim Seymour liked iShares MSCI Brazil Index (EWZ). $61.10

Eric Bolling did not have a stock pick.

Monday’s Results

Karen Finerman liked Kaiser Aluminum (KALU) Open $60.34 Close $60.54 Gain $.20

Guy Adami preferred Tiffany & Co. (TIF) Open $48.52 Close $45.82 Loss $2.70

Jon Najarian revealed he made a bet that Fed Chief Bernanke makes a surprise rate cut.

Jeff Macke said get long the Financial Select Sector SPDR (XLF). Open $32.06 Close $33.70 Gain $1.64

Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation week)

Adami= 10-10 Gain $23.48
Bolling= 8-9 Loss $4.16
John Najarian= 13-3 Gain $15.54
Macke= 18-11 Gain $7.98
Pete Najarian= 6-6 Gain $16.98
Seymore= 1-1 Gain $.01
Finerman= 2-2 Gain $.88
Gilbert= 1-0 Gain $.29

It seems that JV’s are really gaining popularity for US companies as a way to establish themselves in a new region at a minimal cost while gaining immediate acceptance as a “partner” in the new country. Wal-Mart (WMT), the world’s largest retailer, said today it’s establishing a 50% held joint venture with Bharti Enterprises for a wholesale cash-and-carry back-end suppy chain management operation in India. The first wholesale cash-and-carry facility is targeted to open by the end of next year and over the next seven years they expect to open 10 to 15 facilities and employ approximately 5,000. A typical location will stand between 50,000 and 100,000 square feet and sell a wide range of fruits and vegetables, groceries and staples, stationery, footwear, clothing, consumer durables and other general merchandise items.

The venture will invest in setting up an efficient supply chain by linking farmers and small manufacturers directly to retailers, maximizing value for farmers and manufacturers on the one end and retailers and consumers on the other. It will support farmers and small manufacturers who have limited infrastructure and distribution strength, and the supply chain will enable minimum wastage, particularly of fresh foods and vegetables.

“We are delighted to partner with Wal-Mart for wholesale cash-and-carry and back-end supply chain management operations in India,” said Sunil Bharti Mittal, Chairman and Group CEO, Bharti Enterprises. “Wal-Mart’s global expertise in supply chain and logistics will bring enhanced efficiencies across the retail ecosystem. This venture promises to bring great value to millions of farmers, artisans, small manufacturers and retailers across India. We are pleased to be a partner in developing this sector which is set to become a significant engine of India’s economic growth.”

Bharti Wal-Mart Private Limited will bring modern supply chain and back-end logistics to India, bringing Wal-Mart’s practices in such areas as just-in-time inventory, retail information systems, cold chain infrastructure, GPS for truck and trailer tracking, and fuel management systems. Additionally, Bharti Enterprises’ 100% subsidiary Bharti Retail, who will own and manage the retail stores, has entered into a franchise agreement with Wal-Mart which will provide technical support to Bharti Retail.

Wal-Mart is entering the Indian market through the back door so to speak. By partnering with a local ownership they are establishing themselves not as a foreign intruder looking to take business from locals, but as a well financed partner helping those locals improve their business and provide residents better services. The positive reception they will get cannot be understated. When Wal-Mart eventually opens retail location in India, they will already have years of positive exposure to the market. India is a massive market and success there will be very good for shareholders indeed.

Another quick look at the ratings for Blackstone Group indicate that despite all current indications to the contrary and the potential for massive tax increases on the company by a Democratic congress, big banks still will not piss off a potential big customer

Here is the list (updated as of Friday)

Credit Suisse (CS)= Outperform

Lehman (LEH)= Outperform

Morgan Stanley (MS)= Overweight

Merrill Lynch (MER)= Buy

Deutche Bank (DB)= Buy

Citigroup (C)= Buy

Bank Of America (BAC)= Buy

Wachovia (WAC)= MarketPerform

All great ratings for a company with a deteriorating business environment, tightening credit markets, political hostilities, and increasing competition.

I have to wonder that if Blackstone did not generate almost all it’s business through loans made by these very companies that generate billions in fees for the banks, would the ratings be so good? If they sold candy, had no real use for the banks and had the same current business environment, would they still be a “outperform”?

I do not think so either…

Apparently there may be some apprehension over at the “House of Mouse” about their recent purchase. I received an email from the VP of Corporate Communications “chastising” me for not calling Disney (DIS) first.

I have omitted the email addresses assuming those who really want to find them will be able to.

From: Spelich, John
Sent: Friday, August 03, 2007 4:25 PM
To: todd.sullivan1@gmail.com
Subject: Shame you didn’t call

Todd:

It’s a shame you wrote your column today on “Stockmasters” about Disney and Club Penguin without calling us so you could understand the steps we take to protect children online.

Disney is, and always has been, committed to creating a safe environment for kids and families online, and Club Penguin shares this commitment. We intend to immediately begin combining best practices from both companies to further enhance the safety of the Club Penguin experience, including the continued aggressive use of filtering and monitoring of the site’s chat function to prevent the sharing of personally identifiable information.

We are already the no. 1 destination on the web for kids and families with Disney.com (more than 20 million unique visitors a month). And we have had a similar multiplayer game, Toontown Online, in place for four years.

Sincerely,

John W. Spelich
Vice President — Corporate Communications
The Walt Disney Internet Group

My Reply

—– Original Message —–
From: Todd Sullivan
To: Spelich, John
Sent: Fri Aug 03 18:08:27 2007
Subject: RE: Shame you didn’t call

John,

I did not call because I have no doubt you are taking tremendous steps to eliminate a “worse case scenario” and I never alluded to the fact you may not be in the post. BUT, I doubt even you would claim “it cannot happen here”. My post is from a investing perspective and the downside here far outweighs the advantages of having it.

All the safeguards in the world cannot stop a committed pervert if they really want to find a way….

Sorry

His response to this was a simple “that’s not a good answer”. So, should I have called? No. Why? Because unless he can guarantee me “it cannot happen here” (he was given the chance and wisely did not do it) then my thesis stands that the risks this pose to the Disney brand far outweigh any potential bottom line increase it may produce.

Let assume Disney has gone far and above every other social networking site out there in it’s effort to protect children. I will go ahead in advance and grant them that they have and that the site is the safest out there. If history tells us anything and Mr. Spelich himself admitted through his omission of any answer to my statement, nothing is 100%. The Titanic sunk, the Jets and Joe Namath beat the Colts, the US hockey kids beat the Russians, the Red Sox came back 0-3 and beat the Yanks in the “House Ruth Built” and the Soviet Union did actually crumble under it’s own failures.

My point in the original post still stands that Disney can be 99.99999% perfect in this case and still lose, big time. All it will take is one singe example and as I told Mr. Spelich, “the 20/20’s and Dateline’s of the world will be all over you folks”. They will take the exception and lead us to believe it is either pervasive or “will happen to our kids” at any moment. It is what they do, make the oddities the norm for ratings. Whether it is right or wrong of them irrelevant in as much as that is what they do and the world we live in. Disney needs to recognize this. Their reputation will not get them a free pass here but just make them a bigger target. I can just see Dateline producers now sitting there setting up dummy accounts trying to lure kids so they can break the story and make the splashy headline.

I guess if we made a list like Ben Franklin used to do of “pro’s and con’s” of a decision, can there be enough “pro’s” for Disney to offset the potential “a pedophile meets and abuses a child through our site”?

I pray it never happens but based on the internet’s history in this area, they will be out there trying..

Here are Friday’s results and Monday’s picks

Monday’s Picks

Karen Finerman liked Kaiser Aluminum (KALU) Open $60.34

Guy Adami preferred Tiffany & Co. (TIF) Open $48.52

Jon Najarian revealed he made a bet that Fed Chief Bernanke makes a surprise rate cut.

Jeff Macke said get long the Financial Select Sector SPDR (XLF). Open $32.06

Friday’s Results

Jeff Macke recommends buying Callaway Golf (ELY) on the dip. Open $15.67 Close $15.63 Loss $.04

Pete Najarian likes Juniper (JNPR) ahead of Cisco (CSCO) earnings. Open $32.55 close $31.23 Loss $1.32

Guy Adami and Eric Bolling didn’t have any stock picks.

Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation week)

Adami= 10-9 Gain $26.22
Bolling= 8-9 Loss $4.16
John Najarian= 13-3 Gain $15.54
Macke= 17-11 Gain $6.34
Pete Najarian= 6-6 Gain $16.98
Seymore= 1-1 Gain $.01
Finerman= 1-2 Gain $.68
Gilbert= 1-0 Gain $.29

In a down week, here are the companies that had insiders step up top the plate and buy shares.

Jefferies Group (JEF)= $9,821,000

Gatehouse Media (GHS)= $6,310,000

Thornburg Mortgage (TMA)= $5,996,000

Equity One (EQY)= $5,356,000

Encore Bancshares (EBTX)= $3,620,000

Johnson Controls (JCI)= $2,400,000

On another note, did anyone out there notice Bill Gates sold $156,120,000 of Microsoft (MSFT) last week?

Here are the increases of note from last week.

Garmin (GRMN)= 50%

Molex (MOLX)= 50%

Amerigas Partners (APU)= 41%

Entergy (ETR)= 38%

Illinois Tools Works (ITW)= 33%

Harleysville Group (HGIC)= 31%

Murphy Oil (MUR)= 25%

Landstar System (LSTR)= 25%

Church & Dwight (CHD)= 14%

Here are the top stories for the month of July at Value Investing News.

1- Best 3 Investments Over The Past Year

2- Valuing Tyco Spinoffs

3- Value Creation or Destruction.

4- Risk Arbitrage

5- Biggest Losers of Today’s Stock Market Panic

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