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Lampert Looking For $3 -$5 Billion

CNBC reports that Eddie Lampert, Chairman of Sears Holdings (SHLD) is raising money through his former firm Goldman Sachs (GS)for a hedge fund. For folks looking for him to begin to spend Sears’ cash hoard, this is real good news.

It clearly means he sees investments he wants to make out there. I my opinion it smells of him wanting to do a mega deal and is adding dollars to his coffers. Between the money he raises, the $4 billion in Sears cash he has available and multiples of that in potential additional debt, he will now be able to do a much larger deal. It was not clear if this was a new fund or more cash for ESL Investments, the fund he has racked up 29% annual return for over a decade with. No matter either way. It does give Lampert the ability between the various entities he controls to take a controlling stake or buy completely a much larger company now. I would love to see him get his hands on the Gap (GPS) now. Still no new CEO there, sales have stabilized and great value in both cash on hand and real estate. He could do wonders there.

Coming off the heals of his recent Citi (C) purchase and the revelation he is back buying Sears shares, it is clear he is in a buying mood.

The fund requires a $25 million minimum investment, a 5 year lock up and a 6 month notice to withdraw. I am thinking about investing but can’t seem to find that $25 million I had laying around this weekend.

As a Sears shareholder, it does make thing very interesting.

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Deutsche Bank on Mcdonald’s (MCD) and Starbucks (SBUX), Where Ya’ Been?

Upgrading it’s rating on McDonald’s (MCD) shares to “buy” from “hold,” and bumping it’s price target to $61 from $45 (20%) saying the company “is poised to capitalize on global economic growth and key consumer trends in the United States”, Deutsche Bank enlightened clients to the obvious in a note Friday. Yeah. If I was a “client” I would be asking, “You are just only getting this now?”

Just in case “clients” were not mystified enough, the firm cut its price target on Starbucks Corp. (SBUX) shares to $32 from $37, saying “The downside of McDonald’s getting coffee right is material to both same-store sales and the global growth opportunity,” they said. “We see several obstacles to higher returns and valuation for Starbucks.”

The timing of this for investors is nice as Starbucks shares now sit at multi-year lows and McDonald’s sits at multi-year highs.

“McDonald’s sits at the crux of key positive trends in the U.S. restaurant industry, including Quick Service Restaurant resurgence, an expanding beverages opportunity, and a health/wellness slant (with a focus on women and kids), Deutsche Bank said. No kidding!?!

I have been stumping this very line of thinking since January here, here and here and other times but I think you get the point. In the meantime Starbucks shares have fallen over 20% to levels not seen since October 2005 (they will fall further) and McDonald’s shares are up by some 20%. If you are a Deutsche Bank client, you may want to be asking them what happened.

Apparently the only person who is farther behind the curve here is Starbucks CEO Jim Donald

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Dow Stocks YTD: Who Hasn’t Participated In The Run?

Now that we are nearing the 1/2 way point in 2006, let’s take a look at the stocks that make up the Dow Jones Industrial Average (DJIA) and see who has not benefited from the record breaking run so far this year.

Value if $1,000 Invested at the end of 2006 (largest loser first):

1- Johnson & Johnson (JNJ)= $953

2- Home Depot (HD)= $956

3- Citigroup (C) = $977

4- Proctor & Gamble (PG) = $992

5- Disney (DIS)= $988

Not bad. 5 out of 30 stocks in the red. The big winners? Caterpillar (CAT) at $1,292 and Alcoa (AA) at $1,355

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Sirius (SIRI) / XM (XMSR) : Dead

The FCC announced it is “seeking comment ” on the proposed merger between the only two satellite radio companies in existence. Am I the only one who wonders they are even bothering?

Based on recent decisions like the one in which the FTC contested the Whole Foods (WFMI) and Wild Oats (OATS) $560 million buyout, I cannot fathom a scenario in which the only two companies in an industry are allowed to form only one. While I feel the Whole Foods opposition is nonsensical, the fact there is opposition to it is what it is. The merger between XM (XMSR) and Sirius (SIRI), valued at $4.7 billion is currently being opposed by both consumer groups and the National Association of Broadcasters and really, I cannot find anyone who favors the merger except folks and shareholders of XM and Sirius.

For a little history we only need go back to the attempted Direct TV (DTV), Echostar (DISH) merger a few years ago. There we had two companies attempting to merge to create more competition against other pay TV companies (cable) like Time Warner (TWC) and Comcast (CMCSA). . The FCC opposed and squashed it because they said the merger would eliminate competition in rural areas and the same scenario holds true in this instance. Also hurting this attempt is that we have no pay radio competition at all for the combined entity to argue they need to merge to help combat in other areas. The profitability with the two companies is not due to lack of consumer interest, it is due to moves like giving Howard Stern hundreds of millions of dollars to essentially do what he did for for a fraction of the price on free radio. Heck, if they had just waited the guy probably would have pulled an Imus soon enough and got himself tossed off the air anyway, then they could have picked him up on the cheap. The only difference now is that without the specter of the FTC coming down on him at any minute, the cache and risk is gone and so all you have is a middle aged guy swearing on the radio, it’s get boring after about 3 minutes. There is a reason he has not been in the news the last 2 years, nobody longer cares.

This attempt will be squashed and consumers will win in the long run. Short term, shareholders will get hit.

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Wall St. Radio Interview To Air Wednesday

Well, it is finished, my interview on Wall St. Radio. Click on this link to hear it..

I have put a permanent link on the blog to hear the other ones.

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Altria’s (MO) Marlboro Chew: A Mega Hit

The Philip Morris USA unit of Altria Group (MO) has decided to launch a smokeless product under the Marlboro name. In some corners this is being called “a substantial risk”. Not only is it not a risk, it is the closest thing to a slam dunk. Here is why.

Almost forty percent of the cigarettes sold in the U.S. are Marlboros. In order to truly appreciate the dominance Marlboro has on the industry, one had to consider #2, is only at 6%!! Now you also have to consider that it has been this way for almost 1/2 a century.

Let’s talk about smokers. There isn’t a more brand loyal lot out there than tobacco users, except for possibly scotch drinkers. Having both smoked and chewed (many years ago), I am speaking from experience. If you smoke or chew a brand, that is your brand, period, end of story. Only under the most extreme circumstances will you switch and it is doesn’t have anything to do with price, it has to do only with availability. If you cannot get your brand, you will use another and that is the only reason. This is the why Altria has been the single best investment in the history of the US stock market.

Now the new product. Smoking rates have decreased steadily for some time now while smokeless tobacco use is increasing 3%-4% a year and up until this point, Altria has not been in this market. The new product can be used in offices and restaurants since it does not violate any of the smoking bans enacted in recent years and it is not “wet” like other forms of smokeless tobacco so users do not have to spit juice. In April I posted about the product not then labeled under the Marlboro brand name and now that it is, I am more excited that ever. Chew users will gravitate to this brand as they can use it anywhere and not have to carry a plastic Coca Cola bottle around filled with spit. But that is not the best part. The kicker is: Since it is a dry product, smokers will use it when they are inside and do not want to have to go to the “smoking area” and be looked down upon like lepers. They can now sit at their desk’s and get their fix, no one will be any wiser and there will be no lost work time. There will also be the added bonus of not smelling like an ashtray all day (it’s the little things). What does all this mean? More tobacco sales for Altria. Simply put, you have the number one brand of tobacco giving it’s users the ability to now use their product in places they now cannot. Perhaps this is why the tag line “Flavor Anytime” is being tossed around. Ka-Ching..

So let’s address the elephant in the room. Cancer. Snus is widely used in Scandinavia, where numerous studies proved that it offers smokers an alternative way to get the nicotine and taste of cigarettes with less risk of cancer. A safer product that can be used everywhere smoking is banned and is spit free. Where is the problem?

Investing morality. When god created man he did so in his own image. This means he gave us “free will”. We are free to drink, smoke, gamble, eat lousy foods, drive like a-holes and smash our hands with hammers so should we choose to. Now there may be ramifications to any of those actions, but we are free to do them. Folks are free to smoke and I choose to watch my kid’s college funds grow from it, guilt free. I stopped, so can they.

Ignoring a great investment on moral grounds is just foolish. Profit from it and do something good with the money if you are so inclined. You will never stop smokers by not buying Altria shares. If you do buy them and profit you may actually be able to stop young smokers by funding programs at local schools. Avoiding shares because they “sell tobacco” is just putting your head in the sand and plain stupid. Poverty never cured society or it’s ills, wealth has cured plenty.

Will it sell? Will Apple (APPL) fans buy iPhones (they would buy a hell of a lot more at a reasonable price)? Will Diageo’s (DEO) Johnny Walker Black users buy Blue? Will Star Wars fans line up around the block for the next installment?

Need I go on?????

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June Top Stories To Date At VIN

Here we go. Is it just me or are the stories here getting better and better?

1- Sell Side Cliches– Market Prognosticator
2- Bestinver’s Paramus: Pitching Tips To Buffett Bloomburg

3- Spinoffs– Forbes

4- Lampert Buying More Sears Shares – ValuePlays

5- SAC Capital Accumulates 5.2% Stake in FreightCar America – Streetinsider style=”text-align: left;”>

You may view the whole list here:

I have receives some requests to not include articles from the MSM (main stream media) and only include those written by bloggers and the like. I go both ways on it as I am partial to bloggers but do recognize any information no matter where it comes from is valuable.

I am open to suggestions

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Greenspan & Subprime: Another Mess

Alan Greenspan was arguably the country’s most powerful financial cop in his 18 years as chairman of the Federal Reserve. But Mr. Greenspan’s regulatory record has received far less scrutiny than his management of the economy.

Article Originally Published in The WSJ

That may be changing. A former colleague says Mr. Greenspan blocked a proposal to increase scrutiny of subprime lenders under the Fed’s broad authority. That added scrutiny might have helped curtail questionable lending practices now blamed for soaring defaults by mostly low-income borrowers. Democrats in Congress are now turning up the heat on regulators, especially the Fed, for failing to do more to stamp out those practices, and the Fed appears increasingly likely to overhaul its approach.

Edward Gramlich, who was Fed governor from 1997 to 2005, said he proposed to Mr. Greenspan in or around 2000, when predatory lending was a growing concern, that the Fed use its discretionary authority to send examiners into the offices of consumer-finance lenders that were units of Fed-regulated bank holding companies.

“I would have liked the Fed to be a leader” in cracking down on predatory lending, Mr. Gramlich, now a scholar at the Urban Institute, said in an interview this past week. Knowing it would be controversial with Mr. Greenspan, whose deregulatory philosophy is well known, Mr. Gramlich broached it to him personally rather than take it to the full board.

“He was opposed to it, so I didn’t really pursue it,” says Mr. Gramlich, a Democrat who was one of seven Fed governors.

Greenspan’s Response

Mr. Greenspan, in an interview, says he doesn’t recall a specific discussion of the idea but confirmed his opposition to it.

There is “a very large number of small institutions, some on the margin of scrupulousness and very hard to detect when they are doing something wrong,” says Mr. Greenspan, who retired in February last year. “For us to go in and audit how they act on their mortgage applications would have been a huge effort, and it’s not clear to me we would have found anything that would have been worthwhile without undermining the desired availability of subprime credits.”

Mr. Greenspan adds that borrowers might get a false sense of security from a lender that advertised itself as Fed-inspected.

Ben Bernanke, Mr. Greenspan’s successor, told Congress in March that he has asked his staff for “a complete review of our powers and practices” in examining holding-company units. A Fed spokesman this past week said “that review is under way.” The Fed Thursday will conduct a public meeting on steps it could take to strengthen laws governing subprime lending.

On June 29, the Urban Institute will release a book by Mr. Gramlich, “Subprime Mortgages: America’s Latest Boom and Bust.” It argues, among other points, that all lenders affiliated with banks and thrifts could “be brought under the same supervisory conventions as their parents seemingly without major culture shock.” It wouldn’t be a huge undertaking by policy makers, and it would lead to more uniform, stringent practices.

Mr. Gramlich, who is being treated for cancer, says, “There are certain things that unsupervised lenders do that a Fed supervisor would not let you get away with,” such as not escrowing taxes and insurance, not verifying an applicant’s stated income, or assessing the borrower’s ability to repay based on an introductory “teaser” rate. But he said the proposal’s reach would have been limited by the fact that many lenders would still have no federal supervision.

At the time President Clinton appointed Mr. Gramlich to the Federal Reserve Board, he was a University of Michigan academic who had served on commissions studying Major League Baseball and Social Security. Mr. Greenspan put him in charge of the board’s community and consumer affairs committee.

Mr. Gramlich often pushed the Fed to expand fair-lending and consumer-protection rules, winning the admiration of consumer groups that often accuse the Fed of being too supportive of the financial industry. Despite their differing philosophies, Mr. Gramlich says he got along well with Mr. Greenspan, who supported him on most initiatives, especially those involving increased disclosure.

Nonetheless, his remarks represent a rare insider’s criticism of Mr. Greenspan’s regulatory record. Mr. Greenspan says he didn’t get heavily involved in regulatory matters in part because his laissez-faire philosophy was often at odds with the goals of the laws Congress had tasked the Fed with enforcing.

“I basically listened to the staff and tried as best I could to support the staff’s recommendation,” he says. He notes that with one exception, on a highly technical issue, he always voted with the board majority.

Still, Mr. Greenspan’s views did color the regulatory environment, facilitating growing concentration in banking and a hands-off approach to derivatives and hedge funds. That approach, broadly shared by both the Clinton and Bush administrations, is coming under increased scrutiny.

The Fed has taken heat recently for not more vigorously using its power to write consumer-protection rules for the entire industry, not just the lenders it oversees directly. Before it proposed new standards last month, the Fed hadn’t conducted a broad review of its credit-card disclosure requirements since 1981 — six years before Greenspan took office.

In 2005, 52% of subprime mortgages were originated by companies with no federal supervision, primarily mortgage brokers and stand-alone finance companies; 23% by banks and thrifts; and 25% by finance companies affiliated with banks and thrifts, including units of bank holding companies.

According to Inside Mortgage Finance, an industry publication, in 2006 three of the eight largest subprime mortgage lenders were units of bank holding companies. The Fed is one of four federal regulators that supervises deposit-taking banks and thrifts. It also has oversight over bank holding companies, with the discretion to delegate authority over their operating units to other agencies.

Thus the Fed generally leaves regulation of nationally chartered banks to the Office of the Comptroller of the Currency; of securities-dealer units to the Securities and Exchange Commission; and of consumer-finance companies to the states.

However, state regulation is generally considered inconsistent and usually less rigorous than federal oversight. Moreover, 18 states offer some form of exemption from state regulation to bank holding company units, according to the Conference of State Banking Supervisors.

The Fed periodically examines the finance-company units to ensure that they pose no threat to the “safety and soundness” of their deposit-taking affiliates and to assess their controls for things like money laundering. In special situations, it does scrutinize their practices for compliance with consumer-protection laws. In 2004, it fined Citigroup $70 million for alleged abuses by its CitiFinancial unit.

But Mr. Gramlich fretted that extending those standards to holding-company units would create an unlevel playing field unless stand-alone lenders were subjected to the same thing.

Jim Strother, general counsel for Wells Fargo & Co., said oversight of bank holding company units isn’t “where the need is,” noting the Fed does examine Wells Fargo Financial, a major subprime mortgage lender. “The gap is for companies that aren’t in the banking system at all.”

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Berkshire Rebuttal: Andy Kern

A while back I had a post on my thought that Berkshire Hathaway’s Warren Buffett has not recently been investing like, well, Warren Buffett. There was a time when 40% of Berkshire’s assets were in 1 stock, American Express. Now before you freak I do fully realize that given Berkshire’s size today, that is not possible. My point was, given the bear market we had after 9/11 (bottoming in 2003), Buffett really has not made any meaningful investments given Berkshire’s size. Yes I know $3 billion is a lot of money, but when you have $40 billion to play with, it really isn’t. You would have though I called the Pope a sinner. Many folks replied and I have been begging for a rebuttal, actually an intelligent rebuttal I should say as I do not consider “you a moron” necessarily a rebuttal. Finally I got one:

Andy Kern, over at the aptly named Berkshire Ruminations has posted a two parter, you can read them here. Read them and decide what you think. Andy has a great blog and I am a regular reader of it, I just still disagree with him. I guess one of us will be right and the really nice thing about what we talk about, we will be able to get an answer eventually .

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Ethanol Has OPEC Publicly Worried

Abdalla El-Badri, Secretary-General of the Organization of the Petroleum Exporting Countries (OPEC) said the biofuel strategy being pushed by President Bush and European leaders would backfire because “you don’t get the incremental oil and you don’t get the ethanol”. In this scenario, he warned, oil prices would go “through the roof”.

He said OPEC members had so far maintained their investment plans but he warned: “If we are unable to see a security of demand…we may revisit investment in the long-term.” Why the change? In the past OPEC had all but mocked biofuel’s potential. This is the first public expression of concern.

“They are really concerned,” said Julian Lee of the Center for Global Energy Studies in London. “Opec will continue investing, but with biofuels on the horizon, they may not invest enough.”

OPEC is caught between a rock and hard place. On the one hand,if they keep prices high like they have become accustomed to, the rest of the world will continue it’s quest for alternative sources. Should they ramp up production to bring prices down in an attempt to make biofuels cost prohibitive, their wallets suffer. What to do?

I think if anything this is proof positive that oil production is currently at a peak level. If OPEC could, it would flush the world with oil and dampen it’s desire for alternative sources and make them less profitable. The fact that they haven’t means they can’t.

Here is another odd point. With OPEC clearly scared about both the current reality and the future surrounding ethanol, why are US ethanol makers currently nowhere near 52 week highs? When you have the US and Brazil, who between them produce over 10 billion gallons a year of the stuff rushing to partner production practices, shouldn’t that excite us? When the world’s #1 producer of biodiesel, ADM (ADM) has set up shop in Brazil, will produce biodiesel there in August and is aggressively seeking an ethanol partnership, ought we not be more positive about the future of these companies?

Let’s not forget other US Agribusiness companies like Bunge (BG) and Corn Products (CPO) are in the process of producing from South America also.

Here is another miscellaneous thought. If the Dems take the White House (and even possibly if they do not) oil companies like Exxon (XOM), Chevron (CVR), and BP (BP) will once again find them selves in front of congress answering for record profits and high gas prices. Dems have wanted to grab some of these profits for years and may soon be in a position to actually do it. Can you think of anything that would get anyone of them off the hook faster than being able to say “We are also the #1 (or #2) ethanol producer in the US”? With half the ethanol sector near 52 week lows, valuations are ripe for buyouts by big oil flush with cash, looking for some real nice PR in their commercials and as a way to protect their profits from congress’s hands.

When you have the organization that controls 40% of the world’s oil publicly worried about ethanol, I find the current apathy towards companies that produce it odd. Maybe that is what a value investor is, finding the value in what others overlook.

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Lead Paint Litigation Update

Time for an update of the various lead paint suits winding their way to obscurity throughout the US.
The main defendants are Sherwin Williams (SHW) and NL Inustries (NL). I have taken this post in it’s entirety from Jane Genova’s Law and More since, as I have said here numerous times before, investigating the legal aspect of lead paint litigation begins and ends with Jane’s blog.

“These updates come by way of the monitoring, research and interpretation of LexisNexis [TM] Mealey’s Litigation Report. This Mealey’s briefing is focused totally on the lead issue. I have radically downsized the content of the original report. Also I have added my own commentary.

Documents associated with these developments are available from Mealey’s at www.lexisnexis.com/mealeys or James.Cordrey@lexisnexis.com

RHODE ISLAND:

Abatement:

1. Defendants Sherwin-Williams, NL Industries and Millennium Holdings filed a joint objection to the state’s recommendation for special master of Mary Jean Brown, MD of the U.S. Centers for Disease Control and Prevention. The reason, say the defendants, is that it appears “from available information [Brown] has had from any years been involved in reviewing (and to some extent shaping) the evidentiary facts regarding childhood lead poisoning and lead abatement in Rhode Island.” The person functioning as special master, of course, should have no ties to any one party in an adversary proceeding.

2. On June 4, Superior Court Judge Michael Silverstein heard from plaintiff and defendants about their recommendations for a special master. He did not indicate when he would rule on this.

3. On May 16, plaintiff filed proposed abatement schedule indicating it would file a detailed plan by Sept. 15. Defendants have 60 days to file objections to the plan. The plaintiff also proposes defendants shall pay all fees and costs incurred by the function of special master.

Appeal to RI Supreme Court:

Both the plaintiff and the defendants had filed an appeal. On May 21, the RI Supreme Court issued an order and briefing protocol for the defendant paint companies.

The schedule requires the completion of the official transcript, certification of the original papers and exhibits and docketing of the matter in the RI Supreme Court. As we have been informed previously, this could take months. Sources predict this might not be done until early 2008.

After that, there will be a conference with plaintiff and defendants to work up a schedule for filing briefs. When that date is set and the briefs have been actually filed, then a date will be made for oral arguments before the Court.

Since the contingency issue has already been fully briefed, there is no additional filing related to this one matter. The other issues will be briefed in five phases:

* Appellants’ briefs
* Appellees’ briefs
* Amicus briefs
* Reply briefs
* Replies to amicus briefs.

WISCONSIN:

City of Milwaukee v NL Industries. Plaintiff rested its case on June 6. The jury returns June 8. Then the defendant will present its case. Since as part of the defense teams in the RI lead paint trial, NL Industries lead attorney Donald Scott didn’t present a defense, lead-paint watchers are curious who he will call as witnesses and what strategies he will use.

Steven Thomas et al. v. [Many]. On May 10, the judge ruled the defendants could compel Steven Thomas’ guardian ad litem to provide deposition testimony, subject to limitations. Defendants argue exculpation defense should be allowed. Atlantic-Richfield claims no liability since its lead carbonate was not sold in Milwaukee.

Called for short “The Thomas Case,” this upcoming trial is viewed as the most severe test the former lead paint industry and its former trade association Lead Industries Association (LIA) have encountered. Part of the challenge is how the legal concept of liability is being approached because of a WI Supreme Court ruling.

CALIFORNIA:

In County of Santa Clara, et al. v Atlantic Richfield Co, et al. the judge issued an order staying the case until the appellate review.

MISSISSIPPI:

The state Supreme Court denied Sherwin-Williams’ motion for a rehearing and the case [a personal injury one] will go to trial.

OHIO:

SS 117 Veto. The state Supreme Court, which heard oral arguments on May 1 regarding if Senate SS Bill 117 had become a law because of the former Governor’s not vetoing it, will probably rule by the end of June.

Preemptive Strike by Sherwin-Williams. On May 14, the city of Columbus and other cities in OH filed a brief seeking to prevent Sherwin-Williams from being allowed to take “the extraordinary step of prohibiting the defendants from engaging legal counsel of their choosing in pending state court claims.” It also requested a dismissal of Sherwin-Williams’ request for a preliminary injunction against litigation. The cities contend that this filing by Sherwin-Williams represents an attempt to evade responsibility for creating a public nuisance.”

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Top 5 Sectors Year To Date

Here are the top 5 sectors YTD ranked by return.

1- Chemicals / Fertilizers +68% (13 stocks)

2- Steel Producers +30% (22 stocks)

3- Trucks & Parts Heavy +45% (13 stocks)

4- Food- Dairy Producers +30% (9 stocks)

5- Transportation / Ships +20% (49 stocks)

Rankings are done by price performance of all stocks in the group. So, a sector that has 5 stocks, one up 100% and 4 up 1% will not be ranked as high as a sector that has 5 stocks all up 15%, thus the differential in rankings vs return.

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Top 5 Sectors By % Reaching New Highs

Here are the top 5 sectors ranked by the percentage of the group reaching new highs

1- Retail- 25%

2- Chemicals / fertilizers- 17%

3- Internet-isp- 13%

4- Apparel-shoes- 12%

5- Electrical, military systems- 12%

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McDonald’s US Sales UP 7.4%

McDonald’s (MCD)Chief Executive Officer Jim Skinner remarked, “May marks another month of strong sustained sales and shows how well we are providing solutions for today’s busy lifestyles, with the convenience and value that customers expect from McDonald’s. The chief reason given for the US business growth? Breakfast, or as I spell it c-o-f-f-e-e. Is Starbucks (SBUX) CEO Jim Donald paying attention now?

After their last earnings announcement, in an interview on CNBC, Donald said “we do not really consider or discuss our competition.” He’d better start. They are stealing his business. Attracting only 1% more people per quarter will not fuel the long-term growth rate of 21.9% that analysts expect.

When you compare Starbucks recent quarter with today’s statement by McDonald’s Skinner who said, “We’ve re-energized our worldwide business with new food choices, redesigned restaurants and relevant marketing. Around the world, demand for McDonald’s continues to grow as we now serve 6 million more customers every day than we did in 2002. We are working to attract more customers, more often, through innovation, added convenience and greater menu choices.”

This upcoming quarterly announcement by Starbucks will be very interesting. They are officially entering the “reduced comps” phase. This means that when they are comparing quarterly sales growth, the comparisons they are going up against now become easier as this quarter marks the beginning of the recent slide. It also coincides with the improved coffee offering at McDonald’s, but do not expect to hear that on the call.

While McDonalds is consistently blowing away improving numbers, Starbucks investors are hoping to beat diminishing ones. Not good. I am expecting bad news for investors this quarters and look forward to whatever excuse management comes up with. Last quarters anemic numbers were excused away as being “up against a tough comparison”. Now that the comparisons are getting dramatically easier, we need to take that one off the table.

Should be interesting..

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Will Tobacco Get A Refund from The States?

The New York Court of Appeals on Thursday ruled tobacco companies who are part of the 1998 agreement that settled tobacco litigation with most states can go to arbitration to try to reduce their settlement payments. The $246 billion Master Settlement Agreement required tobacco companies to make annual payments to the states and also placed restrictions on how cigarettes are marketed but, if the tobacco companies that signed the agreement lose market share because of those restrictions, they are entitled to a refund of payments.

“It’s clearly spelled out in the Master Settlement Agreement that a dispute over a payment, which this is, should be resolved through binding arbitration,” said David Howard, a spokesman for R.J. Reynolds who has spearheaded tobacco’s fight for reimbursement. Altria had no comment.

Thursday’s ruling, which is in line with decisions by other state courts, means the tobacco companies can now try to reduce their 2003 payments through arbitration.

An auditor previously found in March 2004 that the companies who signed the settlement lost market share in 2003 and determined restrictions from the agreement were “a significant factor contributing to this loss”.

Among the companies that signed the master Settlement Agreement are Altria (MO) and Reynolds American (RAI) although neither was part of Thursday’s litigation.

One of two things will end up happening. Either the states will have to fork over hundreds of millions of dollars back to tobacco companies, monies that they just do not have or, the Master Settlement will be redone to both assure market share for it’s signers, and further insulate the industry from future litigation. The second is the most likely scenario as states are pitifully dependent on the tobacco monies and simple to not have the fiscal ability to part with it. Assuring market share gives growth back to the signers and a more ironclad agreement cements their stranglehold on the industry.

Altria is letting today’s plaintiffs, Commonwealth Brands, King Maker Marketing and Sherman and do it’s dirty work while it plays good corporate citizen by supporting the FDA’s potential regulation of cigarettes. The best part is? They are not only willing to do it but they are winning. Altria can rides their coat tails, avoid the legal expenses associated with it, and reap the rewards.

I simply cannot remember a time in which the litigation environment surrounding tobacco was this good.