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USDA Report: Sweet For Sweetener & Ethanol Producers

The USDA released it’s Sweetener Outlook yesterday at 4pm and if you are an investor at ADM (ADM), The Andersons (ANDE), Corn Products (CPO) or other HFCS producers, the news was indeed good.

Expect profits from HFCs to continue to rise. The Renewable Energy Act was signed in November 2005. I will be looking at it’s effect on HFCS since them and take into account recent events in Mexico.

The Details

– Total deliveries of all corn sweeteners (HFCS & Dextrose) rose from 9,004,000 tonnes in 2005 to 9,084,000 tonnes in 2006.
– Percentage of total corn crop acreage dedicated to corn sweeteners dropped from 6.8% to 6%
– Total acres dedicated to corn sweeteners was flat at 758,000 acres
– Price of HFCS rose 32% from 11/2005 to 5/2007

Let’s take a visit down memory lane to Econ 101. When you have decreasing supply of a product and increasing demand, what has to happen to price? It goes up. That has been precisely what has happened to date. Now we need to gaze into our crystal ball.

Mexico

In July 2006 the US and Mexico settled a NAFTA dispute over sugar and HFCS. Under the agreement, Mecixo dropped an 20% tariff on all products made with US HFCS . From July to December 2007 US HFCS makers may export 500,000 tonnes of syrup to Mexico and in January of 2008, all restrictions are lifted. What does all this mean? First we need to look at HFCS demand in Mexico, since 2005, demand for the syrup has risen 112% to 750,000 tonnes a year. What has held back a further increase? Supply. With the new agreement that supply problem in now cured allowing this market to expand even faster.

When US producers export the 500,000 tonnes allotted this years that equates to an almost 6% decrease in available supplies in the US. Back to Econ 101, when you have stagnant levels of production inputs, decreasing supply of the finished product and constant or increasing demand you inevitably have? Increasing prices!

Expect more price increases for HFCS for the coming years and with the USDA projecting corn prices to begin a steady decline after 2008, HFCS production will become very profitable (I should say even more profitable that it is now). Now this also assumes no increase in the renewable fuels standard that I think we all know is coming which will further restrict corn available for HFCS production pushing prices higher. The also means investors in Coke (KO) and Pepsi (PEP) are looking at substantial cost increases without any real way to offset them.

More Good News?

The USDA also released the Crop Progress report yesterday and the corn progress (emerged) was at 94%, ahead of last years 93% and well ahead of the 2002-2006 average of 88%. What is important is that this is 94% of the largest corn crop since 1944. Even better news is that 78% of the crop is rated “good ” to “excellent”, well ahead of last years 71%.

All the economic and political factor are lining up perfectly for ethanol and HFCS producers. When you add the fact that many of these companies are currently selling at bargain valuations, the upside for shares is tremendous.

Expect corn prices to begin to fall as the record crop comes in and syrup and ethanol makers profits to expand further.

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Cramer Talks About Manipulation.

Portions of an interview between Jim Cramer and Aaron Task of “Wall Street Confidential” (a video feature on TheStreet.com) have been published in the June 2007 issue of Harper’s Magazine. Many folks will be furious at what Jim reveals, but I think from a pragmatic view, this is a wonderful learning lesson

“You’ve really got to control the market. You can’t let it life. When you get a Research in Motion (RIMM), it’s really important to use a lot of your firepower to knock that down, because it’s the fulcrum of the market today. You can’t create, yourself, an impression that a stock’s down. But you do it anyway, because the SEC doesn’t understand it… This is just blatantly illegal.

But when your company may be in doubt because you’re down, I think it’s really important to foment an impression that Research in Motion isn’t any good, because Research in Motion is the key today. When your company is in survival mode, it’s really important to get the people talking as if there’s something wrong with RIM. Then you would call the Journal and you would get the bozo reporter on Research in Motion. And you would feed him a rumor that Palm’s got a killer it’s going to give away. Theses are all the things you must do on a day like today, and if you’re not doing it, maybe you shouldn’t be in the game.

What’s important when you’re in hedge-fund mode is to not do anything remotely truthful, because the truth is so against your view that it’s important to create a new truth, to develop a fiction… The great thing about the stock market is that it has nothing to do with the actual stocks… It’s just fiction and fiction and fiction”.

He also mentions ways in which someone could affect Apple’s (AAPL) stock via iPhone rumors.

Now the moralists out there are seething. “This is pure manipulation!” They are screaming. Yeah, and the sun will rise today also. This stuff has and will happen for ever. The moralist out there will throw up their hands in disgust and walk away from the game, the pragmatist will profit from it. An unexplained drop in a stock is now explained, a run with no news now make sense. In the past where you may have hopefully panicked and sold, you now will hold on and eventually profit.

I have said many times before that I am not a fan of Jim’s bipolar trading style but I do think when he takes off the “tv persona” and calmly talks about the markets and their machinations, no one is better. You can call it bragging, honesty or manipulation if you want, but the guy has been at the center of the game and anytime anyone from there “spills the beans”, learn from it.

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Apple (AAPL): Priced for Perfection

CNBC’s Jim Cramer was interviewed yesterday on his TheStreet.com video. He had a take on the iPhone that struck me as familiar.

Now, he was talking about the Apple (AAPL) trade before the release of the iPhone. I am going to skip the “trade” part of his talk because that is not what I do. As for his analysis, he specualted that Apple’s stock is priced for perfection of the phone meeting or esceeding the hype surrounding it and said that if the phone fails to meet the hype, the “stock gets crushed”. The chance of the iPhone exceeding expectations was only 20% which meant there was an 80% change the phone meets or fails to meet the hype, either of which will not benefit the stock at it’s current levels. He then speculated that people will not want to switch carriers to AT&T, which he claimed “is an inferior network” as easily and as fast as many people seem to beleive they will. He also said that many people have cell calling plans currently that “are not easily undone” and that will slow sales.

Now, where have we heard those arguments before?

One also has to take into account that in the NY Times reported yesterday “The anticipation, which is intense even by Jobsian standards, has led to some quiet, behind-the-scenes anxiety at Apple. Some Apple executives worry privately that expectations for the one-button phones may be too high and that first-generation buyers will end up disappointed.”

I said before that Apple shares are “priced for perfection” and it would seem at least seem that Jim Cramer agrees.

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USDA Report;

The USDA released it’s Sweetener Outlook yesterday at 4pm and if you are an investor at ADM (ADM), The Andersons (ANDE), Corn Products (CPO) or other HFCS producers, the news was indeed good.

Expect profits from HFCs to continue to rise. The Renewable Energy Act was signed in November 2005. I will be looking at it’s effect on HFCS since them and take into account recent events in Mexico.

The Details

– Total deliveries of all corn sweeteners (HFCS & Dextrose) rose from 9,004,000 tonnes in 2005 to 9,084,000 tonnes in 2006.
– Percentage of total corn crop acreage dedicated to corn sweeteners dropped from 6.8% to 6%
– Total acres dedicated to corn sweeteners was flat at 758,000 acres
– Price of HFCS rose 32% from 11/2005 to 5/2007

Let’s take a visit down memory lane to Econ 101. When you have decreasing supply and increasing demand, what has to happen to price? It goes up. That has been precisely what has happened to date. Now we need to gaze into our crystal ball.

Mexico

In July 2006 the US and Mexico settled a NAFTA dispute over sugar and HFCS. Under the agreement, Mecixo dropped an 20% tariff on all products made with US HFCS . From July to December 2007 US HFCS makers may export 500,000 tonnes of syrup to Mexico and in January of 2008, all restrictions are lifted. What does all this mean? First we need to look at HFCS demand in Mexico, since 2005, demand for the syrup has risen 112% to 750,000 tonnes a year. What has held back a further increase? Supply. With the new agreement that supply problem in now cured allowing this market to expand even faster.

When US producers export the 500,000 tonnes allotted this years that equates to an almost 6% decrease in supplies in the US. Econ 101, when you have stagnant production inputs, decreasing supply and constant or increasing demand you have? Increasing prices!

Expect more price increasing for HFCS for the coming years and with the USDA projecting corn prices to begin a steady decline after 2008, HFCS production will become very profitable. Now this also assume no increase in the renewable fuels standard that I think we all know is coming which will further restrict corn available for HFCS production pushing prices higher.

More Good News?

The USDA also release the Crop Progress report yesterday and the corn progress (emerged) was at 94%, ahead of last years 93% and well ahead of the 2002-2006 average of 88%. What is important is that this is 94% of the largest corn crop since 1944. Even better news is that 78% of the crop is rated “good ” to “excellent”, well ahead of last years 71%.

All the economic and political factor are lining up perfectly for ethanol and HFCS producers. When you add the fact that many of these companies are currently selling at bargain valuations, the upside for shares is tremendous.

Expect corn prices to begin to fall as the record crop comes in and syrup and ethanol makers profits to expand further.


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ValuePlays To Be Interveiwed on Wall St. Radio

I have been contacted and have agreed to be interveiwed for a Podcast (my first Podcast). I was contacted by Dennis Olson, the editor for Wall St. Radio.

Wall St. Radio is a part of WallSt.net. Dennis has been doing interviews of financial bloggers since April and has already interviewed some of my favorite bloggers like George at Fat Pitch and Paul Kedrosky at Infectious Greed. It is a great series as it gives insight into financial bloggers and their thought process.

The interveiw will take place tomorrow and I will post a link to it when I get an air date.

Here is hoping I do it justice.

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Oil, Pharma & Insurance in Dems Crosshairs

Politics influences your investments. At the Democratic Debate in New Hampshire Sunday the candidates were united in their attacks on insurance companies, oil companies and pharmaceuticals. The notable quotes were:

Insurance and Pharmaceuticals:

EDWARDS: And I believe you cannot cover everybody in America, create a more efficient health care system, cover the cracks, you know, getting rid of things like pre-existing conditions and making sure that mental health is treated the same as physical health, I don’t think you can do all those things for nothing. That’s not the truth.

OBAMA: So my emphasis is on driving down the costs, taking on the insurance companies, making sure that they are limited in the ability to extract profits and deny coverage; that we make sure the drug companies have to do what’s right by their patients instead of simply hording their profits.

CLINTON: What’s important, and what I learned in the previous effort is you’ve got to have the political will — a broad coalition of business and labor, doctors, nurses, hospitals — everybody standing firm when the inevitable attacks come from the insurance companies and the pharmaceutical companies that don’t want to change the system because they make so much money out of it.

Oil:

DODD: Well, what we’ve offered already, in fact, and that is, of course, we ought to be saying here that when the price of a barrel of oil gets beyond $40 a barrel, where there’s plenty of profit here, that those dollars ought to be returned to the consumers in a rebate or plowed back into the research that would allow us to develop alternative technologies.

EDWARDS: The first thing we got to do is find out what’s happening with these oil and gas companies. Because we know they’re making record amounts of money. We know that the same people that are refining the oil are selling it at the gas pump. So there’s a huge vertical integration in this operation.

I think there ought to be an investigation of the oil and gas companies by the Justice Department. I think if the laws that presently exist don’t deal with this problem and price manipulation, there should be some change in the anti-trust laws. I think we need states to enforce clean air laws against these refineries.

BIDEN: Take away the subsidy which I’ve introduced legislation to do. It’s about $6 billion, $2.7 directly to the oil companies, number one.

Number two, investigate, as president of the United States; use the Justice Department to go in an investigate this whole issue of price-gouging.

RICHARDSON: Here’s my answer: What would help in the short term, give us — the states — the authority to engage in serious price-gouging investigation.

This means that if Dems take the White house your investment in Exxon (XOM), Chevron (CVX), Cigna (CI), Aetna (AET)), AIG (AIG), Pfizer (PFE), Merk (MRK) and other in their industries will be under attack. Whether you agree with these policies or not is irrelevant. The facts seem to remain that Dems have their eyes on oil profits and the regulation that have allowed insurance companies to realize record return the past few years. Pharma, already seeing margins being crushed by generics looks to have their pricing power further eroded if a Dem enters 1600 Pennsylvania Ave.

Now, this could also be just sound bites that play nice to the choir but once in office, the tune may change. One never really knows. But, if you are making investment decision for the next few years, you have to pay attention to what these folks are saying.

Most likely the only true statement of the night that we can be sure of?

CLINTON: … when I become president, Bill Clinton, my dear husband, will be one of the people who will be sent around the world…

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Blockbuster (BBI) Still Playing Catchup To Netflix (NFLX)

In an analyst conference call Friday Lionsgate CEO Jon Feltheimer told industry analysts during a conference call, “We have nearly a dozen active agreements in place for digital delivery of our content with such major players as Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Blockbuster, Best Buy (BBY), and Wal-Mart (WMT), with more to follow.

Now, it is great that Blockbuster (BBI) is finally getting into the digital game, a sentiment I pleaded for after their latest earning announcement but there is just one problem. Industry leader Netflix (NFLX) has been doing it since January. So now Blockbuster, who has failed in it’s rumored attempt to acquire Movielink, not only must start a service from scratch, it must do so half a year behind it’s chief competitor. Now, under normal conditions, this may not be such a daunting task but when you are hemorrhaging cash like Blockbuster is in it’s quest to build subscribers, it then become daunting.

What is Blockbuster take? A Blockbuster spokesperson declined to comment on Feltheimer’s statement. “We intend to offer a movie download service, but we have not provided any details on timing or anything else,” spokesperson Randy Hargrove told Ars Technica. “It makes sense for us to participate in the download space, but we don’t see it becoming a huge business in the next year or two. That said, it’s something we think is important.”

I got news for him, it is important now. The dvd is going away faster than the video cassette did. Has he noticed what the iPod did to CD sales? When is the last time anyone bought a CD? Of course one has to consider that this is a company that has yet to realize the stand alone video store is also a dying concept.

Now, he may be playing possum but based on the chain recent history he isn’t and that is very bad news for the few folks who still hold shares.

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Discounting A Sign Of Slowing Sales

Sunday morning I picked up my newspaper and one thing instantly stood out. The coupon sections where excellent. The P&G (PG) stand alone coupons were for amounts I have not seen before. There were coupons there for $3 off Pampers, $4 off a razor, salad dressing coupons that were usually 50 cents off are up to $1 to $2 off now.

This matters because these discounts are for everyday items, not “father’s day” special sales event items. When you are a consumer products company like P&G or Church and Dwight (CHD) and have slowing sales, if you want to generate more of them, you have two options, advertise them more, or discount. When the discounts are this large, and the sections contain so many products, it tell me that sales are really slowing and they feel the need to slash prices to drive sales. Last summer, when things were humming along too fast and the Fed was raising rates to slow us down, not only were these discounts not as large, they were non existent. There were several weeks in which there were no coupon sections in the paper and if one did show up, it was minescule and only a new products were featured. Currently almost everything we shop for weekly has a substantial coupon for it in the paper. I have not seen discointing on such a wide aray of items in a long time.

Now, this may be a regional effect, but when you live in the heavily populated northeast like I do, that effect on producers bottom line is substantial. It is also important to note that these are not items that are being discounted on perishable items at a supermarket like Whole Foods (WFMI) where discounting is usually due to a shelf life determination. These are items that can sit on shelves, and apparently they are, for too long.

It will interesting to see what happens when this quarters results are released for these companies. If I had too bet, I would anticipate either falling profits, or if the deep discounting works and it drives sales, margin shrinkage.

Either way, the only people who come out ahead here are you and me.

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A Blogging Case Study

Here is something I though I would share (with the authors permission of course). I received it from Jane Genova and it depicts her journey in live blogging the lead paint trials. It is an interesting read for all bloggers, just substitute your blog subject for “lead paint” and you can get something out of this.

Jane blogs at Law and More

CASE STUDY OF LIVE-BLOGGING RI LEAD-PAINT TRIAL:

Insights into Applications of Digital Technology

Developed and Submitted by Jane Genova, Genova Writing & More, New Haven, CT, Mgenova981@aol.com, 860-280-5613 (cell)

From late October 2005 until the present, Jane Genova has been blogging about aspects of lead-paint litigation, including live-blogging the landmark Rhode Island lead paint trial.

She undertook this project in order to learn more about how to use digital technology as a real-time tool in event-coverage, advocating a point of view, developing new business for her communications boutique, enhancing her brandname, expanding her network, and integrating social media with mainstream media (MSM).

The four-month RI lead paint trial was conducted in downtown Providence, which was within commuting distance from her Connecticut residence. The four defendants – Sherwin-Williams (SHW), NL Industries (NL), Millennium Holdings (MNHG0 and Atlantic-Richfield – were corporations she believed were unjustly accused of creating a public nuisance. Her original stance was to be an objective Greek Chorus. But within about a week, she began to argue in favor of the defense’s position.

Her many dimensional approach to covering the trial – e.g. mixing legal analysis with gossip – came from her study of the techniques of Dominick Dunne. He had chronicled a number of high-profile trials such as the O.J. Simpson one.

Details:

During the 15 months Jane Genova has blogged about lead-paint issues, particularly litigation and threats of litigation, there have been over 1000 posts so far. About 490 of them were done during the four-month trial and so far about 510 more post-verdict.

This relative large number of posts – during the trial, about three to six daily – not only kept readers totally informed. It also functioned as a search engine optimization (SEO) tactic to attract high rankings on Google and other search engines. Search engines tend to be attracted to frequent postings each day.

In response to the posts, there have been about 3500 emails to her from security analysts, hedge-fund operators, employees at the defendants’ companies, shareholders, attorneys not involved in the case, attorneys who handle other legal issues for the defendants, a plaintiff attorney assisting with a similar public-nuisance trial in St. Louis, and those who wanted to comment off-the-record.

There have been about 175 phone calls. The lion’s share have been from security analysts and hedge-fund operators. Those calls were long and involved and, on the average, lasted about 35 minutes. A handful were from former Sherwin-Williams employees who wondered if the defense should have presented a case. Now and then the public relations representative from Prism Public Affairs Gregg Perry would call to alert the blogger of breaking developments. One was from media, CRAIN’S CLEVELAND, for an interview right after the verdict.

There were about 12 invitations to lunch.

Because of the legal sensitivities of the issue, there have been relatively few comments. The exception was immediately following the verdict. When the blogger registered her disagreement with that verdict, child advocates sent comments chastising her for not caring about the children. She personally responded to those making these comments through emails. That quieted things down.

Results:

On the first day of trial, that is during opening arguments, there were 1000 visitors to the blog. By the end of the week, that number of daily visitors when court was in session grew to about 3000. For the remainder of the trial, the average number of daily visitors when court was in session was about 4500. Most of these used RSS feeds, which picked up each new blog post on the trial automatically.

During the eight days of jury deliberation, daily visitors numbered about 7000. On the day of the verdict, there were 12,000 visitors. There were also a high number of visitors on each day of a posting of an interview with a juror. The total visitor count for the juror interviews was about 24,000. Several readers, including Gregg Perry, said that the jury interviews were the most helpful posts. THE PROVIDENCE JOURNAL reporter Peter Lord sent the blogger an email that he was upset that she had scooped him on the jury interviews.

Because of the large number of posts and heavy traffic into the blog, the posts made the first page of Google categories concerning the trial on a regular basis. They ranked number-one on Google about 600 times, in various categories such as “RI lead paint,” “Sherwin-Williams,” “NL Industries,” “lead poisoning.”

Wall Street bulletin boards, particularly those covering the defendants such as Sherwin-Williams and NL Industries, regularly picked up blog posts and linked to them. Insurance companies also had links on their bulletin boards, stating that the coverage was engaging on a subject that was “as boring as watching lead paint dry.”

High-profile blogs such as Overlawyered.com, Pointoflaw.com, and THE WALL STREET JOURNAL Law Blog cited coverage from her blog posts and often provided links to them. Those links further increased Google pick-up and high rankings. The Manhattan Institute’s Walter Olson provided an exclusive interview to the blog.

The mainstream media (MSM) frequently quoted from the blogs posts. It was widely noted that CRAIN’S CLEVELAND, which is based where Sherwin-Williams is headquartered, chose to interview only the blogger after the verdict. The clip from the interview had wide circulation.

Because of the blog, Jane Genova has been invited to give the keynote address at the Paint and Coatings Annual Meeting in 2007.

In addition, postings about the opposition frequently were picked up by Google and other search engines and placed in the sections of search engines covering the opposition. This gave the four defendants an opportunity to express its point of view on the opponent’s territory.

Digital Strategies:

The digital strategies which generated these results include

Frequent (three to six daily) posting of provocative material or breaking news on the blog. Use of keywords that would attract Google and other search engines. This served to scoop mainstream media and provide candid analysis of events. Readers seemed to like highly opinioned content.

Putting a human face on the trial. The blogger, before the trial started, explained her background in Jersey City, New Jersey, a political-machine town that mirrored corruption in Providence. She disclosed that as she grew up in a tenement, she chewed paint chips. Her mother and grandmother demanded the landlord supply paint to cover over the layers that were flaking. Gradually she let out details of her current life such as her intense relationship with her dog Molly Mittens. When Molly Mittens died on June 30th, there was an outpouring of condolence email from all sorts of readers, including lawyers, employees of the defendants and security analysts.

Providing drama in coverage. This was a technique the blogger from analyzing Dominick Dunne’s print coverage of court trials. Readers want the story. Therefore, she was heavy on narrative and on including tidbits of gossip such as hairstyles and sensible shoes.

Enhancing reach by copying, pasting, and emailing with a customized transmittal notes key blog posts to media, mainstream and digital, influentials in law, security analysts on Wall Street, and government representatives as well as interested parties who contacted the author about being on a “mailing list.” This was first done in late October, during jury selection, to announce the blogging effort. Then it was repeated on a regular basis.

Following up quickly to phone calls, emails and requests for lunch.

Developing and maintaining insider sources of information. This often entailed doing favors for them such as posting on her blog plugs for their special events, programs, and conferences.

Listening to readers who requested that trial coverage be split from the original communications blog and continued on a separate legally-oriented blog. Jane Genova then created the law and more blog.

Blog posts on the RI lead paint trial and post-verdict developments can be found at:

Http://janegenova.com, under “legal”
Http://lawandmore.typepad.com

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Dow Chemical (DOW): "Going Hunting"

“I want to have a water business that is $2 billion or $3 billion within two or three years (currently $400 million). I want a coatings business or a buildings solutions business that is equally as big in two or three years,” Said Dow Chemical (DOW) CEO Andrew Liveris in an interview with Reuters Television.. He continued, “These are the areas where we are going to go hunting.”

Liveras was being interviewed in relation to rumors that Dow was trying to acquire German rival BASF (BF). This comes on the heals of recent revelations that Dow made overtures to acquire DuPont (DD) last fall.

Liveras has spent the last three years cleaning up Dow’s balance sheet and now the company is in fantastic shape. With debt at it’s lowest level this century, $2.5 billion in the bank, producing almost $4 billion from operations annually and a $3 billion share buyback ongoing, Dow is now in position to acquire businesses. Is it BASF? Who knows. What is of interest here is what Liveras did not say, when asked he replied “We’ll never comment on a rumor like that, but I will say that between Dow and BASF you are looking at two of the world’s leading chemical companies and reality has to set in on do-ability, The barriers to doing deals like that are not just financial.” What didn’t he say? NO. When asked about the possibility of a Dow buyout in the past, Liveras has been crystal clear that it would not happen, this response is a bit muddy. What is clear? Liveras has made no bones about his desire to grow through acquisitions and partnerships like the one recently announced with Saudi Arabia and based on to date results, his deal making is far from finished.

If he wants a coating business, how about Sherwin Williams (SHW)? A buildings solutions? How about Owens Corning (OC)? Both could be had for a song at their current valuations, have international operations and are leaders in their business.

Now, as an investor who holds most picks several years, if not decades, normally I despise the thought of one of my picks being bought out. It means that I was right, it was undervalued and the purchase price will bring me a nice quick return at the expense of a bunch of future ones. That is the reason these folks buy them, they recognize this. But, when I own both sides of the equation (the buyer and the seller), go ahead kids, merge away. I get a nice quick return on my pick, and continue to benefit from it’s results with my ownership of the buyer and DOW gets a sweet return on it’s money sitting in the bank. Win-Win

One thing is for certain, by the time this decade is over, the Dow Chemical Company I know today will be far different and my kids college funds will be much larger.

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Altria (MO) Board Announces…… Nothing

The Board of Directors of Altria Group, Inc. (MO) Friday declared a regular quarterly dividend of $0.69 per common share, payable on July 10, 2007, to stockholders of record as of June 15, 2007. The ex-dividend date is June 13, 2007. The new dividend rate reflects an adjustment for the Kraft (KFT) spin-off, which was completed on March 30, 2007. Now don’t get me wrong, a 3.8% dividend that grows and is as close to money in the bank as you can get is nice, but not really what we were hoping for.

What we really wanted was something about a share buyback, PMI spin, maybe a nice fat increase in that dividend? But, nothing.

Now based on Altria’s history, shareholders in all reality have nothing to worry about. These will come, we will benefit and the stock will rise. It is just when you get yourself ready for something and it does not happen, you feel a bit let down. Couldn’t you even have hinted about it guys?

Now the option players are betting on an announcement by January. Open call interest for the January options is huge and where some of the most active options traded last week. For the $90 strike price there over 100,000 contracts open and the $85 and $100 prices each have over 50,000 contracts open, representing 200 million shares.

The Kraft spin was officially announced in January of 2007 so it seems folks are betting on similar timing for these other moves.

I guess we will just have to keep collecting our fat dividend, sit back and wait.

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Current Markets P/E’s Show Room to Run

Much has been said of the run up in the past twelve months of both the Dow and the S&P to all time highs. But, even after this impressive run, are the stocks in those averages more expensive than last year, or are they still bargains? When you have components lime Alcoa (AA), Altria (MO), Caterpillar (CAT), Hewlett-Packard (HPQ) and Boeing (BA) all trading around their all time highs, should we be worried?

Dow Jones

Current PE= 18.1
Last Year PE= 21.11
Current Earnings Yield= 5.53
Last Year Earnings Yield= 4.74

S&P

Current PE= 18.42
Last Year PE= 17.74
Current Earnings Yield= 5.43
Last Year Earnings Yield= 5.64

So, where does this leave us? The DOW, even after it’s run is at the present time cheaper than it was at the same time last years on both a PE and an earnings yield basis.

The S&P 500, while slightly more expensive that the same time last year the difference is negligible so it is essentially flat.

All this means is that the large cap Dow is currently cheaper than a year ago, so if you believe earnings and the economy will improve later this year, there is still plenty of room for the Dow to run. The S&P 500, while just about equal to last year, is in the same boat.

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This Weeks Top Dividend Hikes

Here they are, the largest increases in shareholder payouts for the week

  1. Rogers Communications, 212% (RG)
  2. Knight Transport, 50% (KNX)
  3. Jackson Hewitt, 50% (JTX)
  4. Flowers Foods, 50% (FLO)
  5. Holly Corp., 20% (HOC)
  6. UnionBanCal Corp, 10.6% (UB)
  7. Cato Crop, 10% (CTR)
  8. Heinz, 8.6% (HNZ)
  9. AlnceBerns, 7.6% (AWF)
  10. Bank of Nova Scotia, 7.1% (BNS)

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Value Investor News: Top Posts For May- Final

Another month has gone by and here is the final tally for the month of May.

1-Buffett Never Makes A Bet With Sucker Odds- FT.com

2- Whitney Tilson: not To Be Missed Tips- FT.com

3-Wally Weitz on Berkshire and Dell- Youtube.com

4-Seth Klarman: World Class Worrier- NYtimes.com

5-Cheap Stocks: Value Investing Congress Recap- stocksbelowncav.blogspot.com

Please visit George’s fine site, Value Investing News

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Lampert Buying More Sears (SHLD) Shares

So you want to buy shares in Sear Holdings (SHLD) but aren’t sure if this is a good price level? Apparently Eddie Lampert feels the current price is just fine. Between May 5 and May 25 the share count was reduced from 153.7 million and 152,492,175 shares according to today’s 10Q. That means Lampert bought back 1.2 million shares at prices ranging from ranged from $175 to $182. This is the first meaningful repurchase of shares in 6 months as in the most recent quarter Sears bought back no stock and in the quarter before that it repurchased only 82,000 shares.

Accordig to Jim Cramer: “That means the lowest price Sears could have paid was $175, the highest price $182.52. Again, while we don’t know the average price paid for those 1.2 million shares, we do know that it is higher than the $164.91 paid in the fourth quarter. That’s very important. Sears has a ton of cash, more than $3 billion. At this pace, if Eddie miraculously paid the low for all of that stock, he would go through the part of the $600 million buyback authorization that remained as of the press release in about 60 days. When that’s gone, I believe he will authorize another one.”

I said on Wednesday that no matter what happened after yesterday’s earnings release I was not going to sell shares, good thing, I would have been selling more stock to Lampert. Lesson learned..