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This Week’s Top 5 Fron VIN

Here are the week’s “Top 5 Favorite Stories” as voted on by members of the Value Investor’s News website. It’s owner George has been kind enough to let me post this and I am thinking it will become a weekly feature for me since I find much of what is posted there very valuable. So, if it is good for me, why not you? With that said, here they are, enjoy them this weekend

1- Author Says Work “Has Been Wonderful” Omaha.com
2- Google: Caveat Emptor– ValuePlays
3- Buffet Never Makes Bet With Sucker Odds– Financial Times
4- Sears Holdings To Spend Cash Hoard– ValuePlays
5- Notes From The Wesco Meeting– Gurufocus

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Circut City: Ripe For Buyout

Circuit City (CC) released results last Monday an holding true to current managements history, they disappointed. They restated earnings for the past two quarters and revised its guidance for fiscal 2008. The restatement of earnings took a backseat to news of “substantially below-plan sales” of large flat panel and projection TVs in April, resulting in a larger forecast loss from continuing operations before taxes of $80 million – $90m for Q1’08 (ending in May). It withdrew its previous guidance of an H1 loss of $40m$50m with a “strong recovery in the second half.” Circuit City said if business trends improve and restructuring efforts are effective, then it expects FY’08 earnings from continuing operations (before taxes) as a percentage of sales at the low end of its prior forecast of 1.4% to 1.8%. News now has them replacing the 3,000 highest paid associates.

Shares, now down almost 50% in the past year are priced for a buyout and have great value, sans current management. CC is sitting on $4.05 a share in cash (after LT debt is subtracted), $2.94 a share in owned inventory and last year generated another $2.11 a share in cash from operations. At today’s price of $16.72, the cash on hand and value of the owned inventory would give a buyer a 42% return almost immediately or, assuming a buyer would have to pay a premium for the shares, CC’s cash and inventory values would more than finance it.

Act one of the new buyers would be to show current management the door. Julian Day at RadioShack (RSH) has shown what good management can do for investors and a buyer of Circuit City woulds have the same opportunity. CC has appealing stores in good locations with a nice product mix, they are just abysmally run.

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Some Friday Housekeeping

With summer coming upon us a few tidbits.

  • Weekend readership is expected to plummet so my posts on the weekend will be more of the quick read variety
  • Forbes Online pickup another article. You can read it here. I have agreed to provide them the articles first before they hit the blog going forward so they have them “hot off the press” so to speak. They will be published under the Personal Finance section in an area they call the “Adviser Soapbox” . I will let you know going forward when they appear. Currently it looks like every couple weeks, depending on my output.
  • Has anyone heard from Geoff Gannon? As one of my favorite blogs to read (Gannon On Investing), it has been while since his last post. Here is hoping everything is ok.
  • Some of you may have noticed that I have also been providing the site 24/7 Wall St. some exclusive content. I do not know how long this will last but if you keep an eye out there, you will find some additional articles. I tend to give them one or two articles a day. Some of them will appear here after they run there first. Others do not really pertain to the focus of this blog so they will not.
  • I have received some fantastic email questions lately and are in the process of turning them into posts. Due to the news cycle and the timing of events it may be a week or so until they reach the blog but rest assured I am working on them.
  • Please keep the email comments and questions coming. I take criticism as well as compliments as long as it is constructive and not petty or nasty. I have taken suggestions from viewers and implemented them into the blog. I like to think I am smart enough to know I do not know everything…..
  • Over the coming week I will attempting to make some changes to the blog layout. If you log on and things look bizarre, it is just me fumbling my way through computer code and learning it on the fly. Rest assured any oddities are temporary and hopefully the end result will be better..

Thank you for reading, have a great weekend and Happy Mother’s Day to all out there.

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Sell Your Wireless Phone Service Stocks

What? Why would I advise you to sell your wireless phone service stock at a time when more and more people are using cells phones for everything? We now get our emails, news alerts, text messages via our cell phones and more and more people are even forgoing their land lines to use a cell phone exclusively. If you have been out lately, people cannot seem to function without their cell phones. How can I possibly advise people not to own stock in this industry?

One word: SKYPE

On Thursday Research In Motion (RIMM), in an stunningly under reported event announced:

SHAPE Services announced today the release of a new version of its IM+ for Skype Software for BlackBerry® smartphones from Research In Motion (RIM) (Nasdaq: RIMM; TSX: RIM).

IM+ for Skype Software by SHAPE Services is a mobile client for Skype Software. It enables voice and text communication with other Skype users as well as cost-effective calling to landline or mobile connections. IM+ for Skype Software uses SkypeOut credits for voice communication ensuring cost-effective calls to any number around the globe. For users of Skype Unlimited plan (only USD 29.95 per year) IM+ enables almost free calling from a BlackBerry smartphone to any PC with Skype or any landline/mobile number. All you need is a BlackBerry smartphone and IM+ for Skype Software installed.

Providing desktop-like access to a familiar Skype experience from any mobile device is the plan of SHAPE Services. In the nearest future the company is going to release versions for Windows Mobile Pocket PC, Windows Mobile Smartphone, Palm OS, Symbian OS and J2ME devices. A WAP version for universal access from low-end devices is also in the company’s plans for the upcoming months.

I guess it was only a matter of time in retrospect as technology in our cell phones advances, desk top like functionality should also.

A $30 annual fee for unlimited calling? The only question here is how fast people will begin buying blackberries and switching to the lowest cost cell plan from their providers. You can buy a blackberry from any provider and instead of paying $100 a month for cell service, pay $30 a year.

Once this catches on cell company profits will tumble..

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Using "Stops": Are You Stopping Gains?

I got a great email from a subscriber a few weeks ago. He asked me about the use of “stop-loss orders”. To paraphrase:

“Do you use stops to protect yourself from a drop in stock prices and protect profits? If you do, where do you set them 10%, 20%?”

Let go to the basics. What is a “stop-loss order”? In its simplest form, it is a standing sell order place for a security you own at a set price below its current price. The theory is that they enable you to avoid a “meltdown” in the stock and protects you from a lost, or if you have a profit in the stock, preserve it. We need to look closer at this strategy though to see if it really delivers.

Investing vs. Trading
First things first. I am a value investor, not a trader. I only buy stocks in stable, fiscally strong companies that have a history of success. I have no use for fad stocks or 90% of technology stocks (I adhere to Warren Buffets thought process, “how can I invest in something that two 18 year olds writing code in their parent’s garage can destroy”?). Because of that, I have no use for stops. The reason is simple. When I buy stock in a company, whether it be 100 or 10,000 shares, I do it with the thought in mind that I am now buying a part of, and becoming an owner in, the company. This is no different than were I to buy a Dairy Queen franchise for example. I only consider selling my shares if there is a fundamental negative change in the company’s prospects or share prices become irrationally overvalued. This causes my outlook and perspective to differ dramatically from the trader who buys shares in the morning with the thought in mind to get rid of them in the afternoon. I fully expect the prices of my shares to fluctuate in value throughout my ownership period which in most cases is several years. Because if this thought process, dips in the price of my shares are for me, great opportunities to purchase more shares at a now discounted price. I always find it funny that Wall St.is the only place in America where buyers get upset when the things they want to purchase go on sale. If you consider yourself a long term owner of a company, think of a drop in the price of the stock simply as a “sale” and not a loss of money.

The “Stop Effect”:
Let’s do a real life example to see how stops can negatively affect our long term results. Our investor owns shares in Archer Daniel’s Midland (ADM) and has a 10% trailing stop in the shares. This means that the stop “trails” the price of the shares up so that it automatically adjust up to preserve profits. Here is the chart:

To give the investor full credit let’s say he bought shares at their lowest point at $15 a share in August, 2004. He set a trailing stop at 10% and watched as shares slowly increased to $25 a share in mid February, 2005. In the third week of February, shares dropped from $25 to $21 a share for no reason. There was no earnings released, no warning, nothing. Now, because the investor had a 10% stop in place, his shares were sold at $22.50 (10% of $25 is $2.50 below the $25 price). He was right to have the stop in right because he saved himself the extra $1.50 a share they dropped, correct ? No, and here is why. Taxes. Since the investor owned his shares for less that a year he is not eligible for the long term holdings tax rate of 15%. He has to pay his effective rate and we will assume that to be 28% (most investors fall into this rate). His gains were $22.50 -$15= $7.50. He now must pay taxes on that $7.50 which equal $2.10. This reduces his gains to $5.40. Now, if we add his realized gain to his purchase price, he effectively sold his shares at $20.40 or a full $2.10 BELOW his stop price. To rub more salt in his wounds, AMD shares traded back up at $25 a share the next week, so he effectively lost $5 in potential gains.

Wait, there is more….

Our investor has learned from his mistake but still believes in “stops.” He rubbed his wounds and bought into ADM the following week but this time moved his stop to 20%. This way he will be saved from “disaster” but not hurt by normal price fluctuations. At the end of March 2005 ADM announces earnings and they fall 9%. The stock sells off from $25 to $17 over the next few weeks. Now, the earning miss was just due to short term commodity price issues and not long term problems with the company or its businesses. In fact, cash flow increased, debt decreased and the company reiterated the results were short term in nature. Our investor though, because he had a 20% stop, sold his shares at $20 (20% of $25 is $5) avoiding the extra $3 a share loss as the share sunk to $17. Smart? Not so much….

Let’s look closer. In the first transaction he ended up with a profit of $5.40 a share and after the second one, a $5 loss, his profit was reduce to a total of 40 cents. Now, if he had never had a stop placed on the shares, he would be at this point sitting on a $2 profit ($15 purchase price- $17 current price). Our investor is undoubtedly frustrated with ADM and like most investors gives up on it and tries another stock. In doing this he then ends up missing the greatest run in the history of the stock to the $39 a share it sits at today.

Without the “stops“, this frustration would not have been present and he most likely would have still be in ADM and wondering what to do with the over 200% profit he is now sitting on.

Who was our “investor” in ADM? None other than yours truly. I was lucky enough to learn from my mistake(s), purchase more shares at the $17 level and have held on for the very profitable ride since then. I have no stops in place for ADM currently (nor do I in any of my investments) because the stock is a long term pick based on two things, food and fuel and until the world need neither, I will be a shareholder.

Lessoned Learned: Sears Holdings:

I bought shares in Sears Holding (SHLD) in December 2005 for $120 a share. I bought them because of Edward Lampert and his ability to make is investors money and having been to Sears and seen the changes there (the Land’s End “store in a store” concept is a sure winner), believed in his direction for the retailer. Another fact that did not hurt was his hedge fund, ESL Investments, sports a 28% annual return for investors. Remembering my ADM experience I did not place a “stop” order on the shares. They rose to their peak of $169 in early June 2006 and then plunged 20% over the next 7 weeks to $134 a share at the end of July. Had I placed another 20% “stop” on the shares, I would have sold them for a profit of $14 a share ($10.08 after taxes) or 8.4%. I also would have missed out on the immediate reversal of the shares as they then climbed to $180 by Halloween.


There was no reason to sell the shares in July. Eddie Lampert did not loose his ability to make money and Sears Holdings did not suffer a deterioration of the metrics he uses to measure its success. Do you know what the Summer 2006 prices were? A “Sears Sales Event”. I did take my other advice and bought more shares while they were “on sale” and at their current level of $180 a share I am sitting on a very nice 9 month return of 30%.

If you are an investor buying quality companies for the log haul, it is my opinion that “stops” will do you more harm than good in most cases. If you are a gambler just trading stock symbols with no real idea of how the underlying company operates, placing a stop on those trades may save you from the inevitable terrible trade you will make.

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Blockbuster (BBI): NetFlix’s CEO is right…

Blockbuster’s (BBI) earnings call last week was a list of triumphs. To recap:

  • Total revenues for the quarter increased 5.4% to $1.47 billion
  • Worldwide same-store rental revenues increased 1.3%
  • Met aggressive online subscriber growth objective for the quarter and have added approximately 800,000 Blockbuster Total Access subscribers; our highest subscriber growth quarter thus far
  • Worldwide same-store retail revenues increased 14.3% during the quarter,
  • Our year-over-year comparison, our online revenues increased 116%, and we picked up 10 percentage points in market share going from approximately 20% of the online market to 30%. On the store side, despite the store-based industry’s first quarter decline, our customer visits and new membership sign-ups were both at the highest levels we’ve experienced in two years

    CEO John Antioco
    “We’re also attracting customers from outside the video rental category, customers who have been getting their movies from other sources,like satellite or cable pay per view services. Simply put, consumers are discovering or rediscovering Blockbuster in increasing numbers because of the flexibility, the convenience, and the value Total Access offers. As a result, we believe we will continue to pick up share in the overall rental market by attracting business from both our traditional and non-traditional competitors”.

    “We also believe it will be very difficult for our major online competition to impact our growth since we don’t think they have an answer to what we believe is a superior integrated service. Our competition has said they will simply wait us out until we change our proposition. They may have a long wait. We have no intention of making any changes to our Blockbuster Total Access proposition any time soon, unless we feel these changes will fuel our growth even faster or improve our cost efficiencies and service metrics”.

    Antioco was referring to NetFlix (NFLX) CEO Reed Hasting’s who said it’s “not a question if, but when Blockbuster will reset prices,” and that Blockbuster’s low prices weren’t “economically feasible.”

    Here is the issue, is everything is working as planned, why did Blockbuster’s operating loss for the first quarter totaled $18.4 million as compared to operating income of $32.1 million during the first quarter of 2006 and cash flow was also a negative $144 million, down from a positive $41 million in 2006.

    Unfortunately for Blockbuster, Hasting is right. They cannot add and subscribers and revenue and then increase losses and say “everything is working”. Blockbuster has two choices. They need to either rapidly accelerate the rate of store closings or raise prices because what they are doing now is just not getting it done. They were late to and continue to realize the stand alone video store concept is dead (or on its last breath). Technology is taking care of it. The race here is not to the mail, but to the download. When people are able to downloads movies to their TIVO’s (TIVO) or TV’s are internet enabled and they can do it that way, mail and store video rentals cease to exist. This technology does exist and will be more prevalent in the next 2-3 years. Click here for an article on it. The early bird price here ironically goes to neither of these companies but to Amazon. (AMZN)

Until Blockbuster acknowledges the realities of it’s business, I will avoid shares.

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Google Update: IL Caveat Emptor


As rapidly growing businesses become larger percentage growth inevitably declines. This is the law of large numbers

Back in January and February I had two posts on Google and it’s share price. Rather than regurgitate all of them you can view them here and here. Please read them before continuing so we are all thinking the same way. Let’s update with more recent numbers.

My opinion was and is that Google shares will be stagnant of fall near term (1-2 years). This is not due to a failure of management, products or execution. It is due to the share price getting ahead of the laws of math (large numbers)

% of Income From Revenues:
Net income as a percent of revenues fell from 29% in 2006 to 27% Q1 2007. This is probably due to the YouTube acquisition and the Doubleclick one will further deteriorate this metric but we will use it as so as to not being accused of fudging numbers to make a point.

Let’s do some numbers. Consensus estimates are for 2007 earnings of $15.12 a share (48% EPS growth over 2006). So the question is, “what revenue number do we need to get there”? I am going to use 329 million shares outstanding at year end to be consistent with the share dilution the last year. This number will turn out to be too low as there will be more dilution but again, don’t want to be accused of fudging. This gives Google net earnings of $4.97 billion in 2007. This is 60% net earnings growth but the continued share dilution will prohibit this from all dropping to the bottom line. At net income of 27% of revenues, Google must produce revenues in 2007 of $18.4 billion.

I should note here that that the $18.4 billion dollars represent 80% revenue growth of $8.4 billion dollars and is almost equal to the total revenue growth of 2005 and 2006 combined. Won’t happen. It is an especially large nut to crack when you consider that 2006 revenue only grew 73% and Q1 2007 only 63%. We also need to consider that Google is coming into the slower summer months which will put real pressure on the last 3 months of the year to produce revenues equal to almost the entire first 9 months. I get this by taking the $3.6 billion from Q1 and giving Google $3 billion for Q’s 2 and 3 to reflect the anticipated seasonal slowdown. This leaves us with $9.6 billion left at the end of Q3, $9 billion short of the revenue needed for our $18.4 billion to give us $15.12 a share eps. Even if we allow for Google to turn Q’s 2 and 3 into Q1 beaters and give them $4 billion in revenues each, that still leaves them $7 billion short for the Q4. Just too much.

Other Share Price Headwinds:

Dilution:
Google used stock to purchase YouTube and as of q1 2007, basic shares outstanding have increased 2.6% to 308 million since Dec. 2006 (13% since 2005 and 60% since 2004) and the employee option program will expedite the rate of increase of this dilution.

From the Google site:
“If an employee chooses to sell options in the TSO program, he or she will use an internal online tool built by Morgan Stanley to sell them to the highest-bidding financial institution. The financial institutions buying the options will then likely hold them until maturity and then settle with Google. Google’s employee stock options typically have a ten-year term from the grant date. Under the TSO program, Google’s employee stock options, upon transfer, will have a lifespan of the lesser of two years or up to the remaining term under the original grant.”

What is very interesting here is that in January, the Google site speculated that buyers of the options would short the stock to hedge the option purchase. This now has been has been eliminated from the explanation.

Now, Google could offset this dilution by buying back huge blocks of shares but this is highly unlikely since they re using the shares as currency to make purchases. This implies that they feel a dollar of stock is currently valued at more than a dollar of currency. This is another valuation warning

Acquisitions:
A large acquisition from Google could blow EPS estimates out of the water. But, looking at past history, Google did overpay for YouTube and did the same thing for Doubleclick and neither will do anything for earnings anytime soon and YouTube will likely turn into a litigation drain on cash well before it actually makes any money. Based on history, we need to discount this possibility as acquisitions are one thing Google has not done very well at all so far.

Analysts:
I cannot find a single “hold” or “sell” rating on shares of Google. As a bit of a contrarian, when I see that I instantly get alarmed. No company is flawless and when there are no dissenting voices, people hear the same positive drumbeat repeatedly. That leads to overconfidence in the company and its shares and make the inevitable mistake harder on everyone.

Now, let’s talk multiple on the shares and prices. Last year, Google grew EPS 97% and traded at a PE multiple of roughly 2/3 that in the 60’s. Companies with declining growth rates trade at multiples that are a discount to those rates. Let’s say I am wrong on everything and they do end up hitting the $15.12 estimates. That would mean EPS growth in 2007 of 48%, down from 97%. If we apply the same 2/3 multiple we get a PE of 31 times earnings or a price of $468. It is not unreasonable to expect a multiple contraction of 50% for a growth rate reduction of a like amount especially when you consider EPS growth in 2008 will be even slower.

In January I wrote:
“You should expect the multiple for Google to contract to a range commensurate with its growth rate. If that rate this year is around 30% expect the PE to shrink to about 30 times 2007 earnings. That gives us a price for Google shares of about $450 a share.”

Google hit $450 not long after (it was $500 when I wrote it) and has bounced around the $460 to $470 range most days since then. I cannot see any reason that Google deserves to be priced at any higher than that anytime soon.

I recently had an email conversation with a hedge fund manager who will remain nameless since I did not get his permission to air our discussion and have no desire to anger anyone. In that discussion he stated “…Google is at a new pace, one of none other than Google’s…” When I hear talk like that, I instantly flash back to 1999 and 2000. “New” seldom is new, only “different” and that means the same laws of finance and math still apply. In our digital age competitors catch up more quickly and tech titans reign at #1 become shorter and shorter. This is rather ironic because it is the same digital technologies that enable their meteoric accent to begin with. IBM reigned for almost 30 years, Microsoft for about 12 and Google has been there for about 5 now. Growth slowed for all as they grew and matured and Google has proven to be no exception. It shares, however, have not realized that fact yet as they have already priced in this years earnings. Should Google stumble one quarter as all companies eventually do, look out below.

I will reiterate my closing statement from my January post. Great company, great products, it’s shares are just over priced.

I await the angry emails and comments.

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Sears Holdings To Spend It’s Cash Hoard

Sears Holdings announced Thursday it currently expects that net income for its first quarter ending May 5, 2007 will be between $200 million and $235 million, or between $1.30 and $1.53 per diluted share. In the first quarter of fiscal 2006, the Company reported net income of $180 million, or $1.14 per diluted share. At those numbers we will have 14% to 34% EPS growth. Excluding one time items from 2006 and 2007, the high end range of the estimates gives us 13.5% EPS growth in a challenging quarter.

What did the street focus on? Domestic comparable store sales (as usual) for the first twelve weeks of the thirteen-week fiscal 2007 first quarter which ends May 5, 2007 for its Kmart and Sears stores. Kmart comparable store sales decreased by 4.7%, primarily due to lower transaction volumes across most businesses.

Results were buffeted by an improvement in children’s apparel sales and this marks the second consecutive quarter an apparel segment’s sales have increased. Last quarter it was women’s apparel. This is huge because once mom’s start going there for their kid’s and themselves, the retail results begin to really pick up. Home appliances and lawn and garden were down. No kidding. We are in a housing slump and had miserable weather to this point this spring. Lawn and garden will pick up now that the weather has changed for the better and housing will turn around this summer spurring increases in both segments. When you add this to improving apparel results, the second half of this year looks to be very exciting for us shareholders

Lampert has several options available aside from retail results to boost EPS and share price this year.

  • -He still has $604 million on the share repurchase plan left. This simply means that at today’s price of about $180 he could repurchase 3.6 million or 2.3% of outstanding shares.
  • -Cash on hand, the metric most Lampert followers watch will be “about $3 billion excluding Sears Canada”, essentially flat from earlier in the year. In March, the Sears Canada number was $700 million and I expect this to remain constant after the excellent quarter they just reported seeing a C$29 million swing in results from a loss to a profit. With this amount he could pay off 100% of Sears debt and complete the buyback program.
  • -He has also created over $1.8 billion in securities with the DieHard, Craftsman and Kenmore brands. He will use these when the time is right to make a big acquisition or sell them for additional revenue. With many retailers stumbling, there will be assets out there soon he can add at good prices.

Shares plummeted over $10 in after hours Thursday and those who bought in picked up over $2.50 a share Friday, and will see much more by year end. It is tough to get rich betting against Eddie Lampert. If you do not own shares, I would get some. Sears Holdings is in the infancy of what it will eventually become.

At the annual meeting on Friday, Lampert answered shareholder questions in a Buffet like Q&A session. Some notables:

  • In early March I opined “I am rapidly becoming convinced that the future of Sears retail operations will become predominately Land’s End merchandise”. It would appear I was correct on that one as Lampert announced they were doubling the “store in a store” Land’s End concept in Sears locations from 100 to 200 this year.
  • Kmart is bringing back the famed “blue light special” that was so successful for so long
  • Sears has a new marketing campaign entitled “Sears: Where It All Begins” with a new commercial that analyst Bill Dreher called “brilliant”. These begin Sunday, May 6th
  • Will expand the Craftsman and DieHard brands in Kmart locations

Personally, I feel the Craftsman and DieHard move should have been done long ago but probably was not due to production constraints with current suppliers. At any rate, the expansion of sales channels of these products will provide more value to the names and add more value to the recently created securities created from them. What does that mean? Essentially, Lampert created a bond – like instrument based on the Craftsman, Kenmore and DieHard brands. Holders of these “bonds” receive interest payments based on the performance of the brands. The better the performance of the brands (more sales) the more value these “bonds” then have. Here is the brilliant part. Currently these “bonds” are valued at approx. $1.8 billion and as these brands are sold through more channels, that only increases. In theory, Lampert could use them as cash to buy another company. Because there are future payments attached to the “bonds”, he would then be able to pay a discount for the company to it’s current price based on the future value of those payments.

Another way to look at it is Lampert now sits on about $4 billion in cash at Sears. By creating these securities, he essentially created another $1.8 billion “out of thin air”. The value of these brands was always there, he just found a way to monetize it.

2007 will be a seminal year for us shareholders, much like 2005 was for Kmart holders. My guts tells me that several acquisitions are on the way that will transform Sears holdings forever. Lampert seems to like brands so do not be surprised to see several smaller ones involving brands, not necessarily sales outlets. By doing it this way, he gives more people reason to go to Sears and Kmart locations to get those brands and by adding them to the “securtization bonds”, increases the value of them also.

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Don’t People Get Tired Of Doubting "Lampert U" Grads?

Another blowout quarter for RadioShack (RSH) and it’s Lampert University grad CEO Julian Day. Much has been written that past few weeks about The Shack in anticipation of its result and the sentiment was for of the end of the ride for shares. I will not point out those who wrote these articles but suffice it to say, wrong again folks. Results:

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LeapFrog (LF): Turnaround On Schedule


LeapFrog Enterprises, Inc. (NYSE: LFNews), a leading developer of technology-based learning products, today announced financial results for the first quarter ended March 31, 2007. For the first quarter of 2007, the company reported net sales of $60.9 million and a net loss of $30.4 million, or $0.48 per share. Cash and investments totaled $195.5 million at March 31, 2007.

“First quarter sales and gross margin were generally on track with our expectations,” said Jeffrey G. Katz, president and chief executive officer of LeapFrog. “Our cash balance at quarter-end remained strong and our new product milestones for 2007 and 2008 remain on plan.”

Highlights:

  • Net sales for the quarter ended March 31, 2007 were $60.9 million, compared to $66.5 million for the quarter ended March 31, 2006, a decrease of 8.4%. Net sales from the U.S. Consumer segment totaled $43.4 million for the first quarter 2007, compared with $46.8 million for the first quarter 2006.
  • Net sales from the International segment totaled $12.5 million for the first quarter 2007, compared with $12.0 million for the first quarter 2006.
  • Net sales from the SchoolHouse division totaled $5.0 million for the first quarter 2007, compared with $7.7 million for the first quarter 2006.
    Gross margin for the quarter ended March 31, 2007 was 40.5%, up 3.2 percentage points from gross margin of 37.3% for the first quarter 2006,
    Operating expenses totaled $54.9 million for the first quarter 2007, an increase of 1.7% compared to $54.0 million for the first quarter 2006. Higher research and development expense associated with new product development was partially offset by lower advertising expense in Europe.
    Loss from operations was $30.2 million for the first quarter of 2007 compared to $29.2 million for the first quarter of 2006. The $1.0 million increased loss reflects higher research and development expense, partially offset by lower selling, general and administrative expense and lower advertising expense.
    The company recorded a net loss of $30.4 million, or a net loss of $0.48 per share, for the first quarter of 2007, compared to a net loss of $23.6 million, or a net loss of $0.38 per share for the first quarter 2006.
  • Inventories, net of allowances, were $76.2 million at March 31, 2007, compared with $73.0 million at December 31, 2006, and $163.7 million at March 31, 2006.
  • Cash and investments totaled $195.5 million at March 31, 2007, compared with $148.1 million at December 31, 2006, and $202.3 million at March 31, 2006.

Key Performance Metrics and Outlook
Bill Chiasson, chief financial officer, stated, “Our first quarter sales decrease primarily reflects continued declines in LeapPad product sales as a part of our planned transition to a new reading platform in 2008 as well as the impact of our SchoolHouse restructuring strategy. As a result of the many operational changes we made last year, gross margins improved modestly and inventories at both LeapFrog and retailers remain at the lowest levels since 2001.”

The company reiterated its current expectations for full year 2007 results:
— Expects a modest sales decline from fiscal 2006 sales of $502.3 million, with sales being softer in the first half of 2007 pending shipments of new products in the second half of the year.
— Expects an improvement in gross margin compared with 29.3% for 2006 driven by inventory clean-up efforts in 2006 and an improved product mix in 2007.
— Operating expenses are expected to decline from $271.7 million for 2006 consistent with the expected sales decline.
Net loss is expected to show a significant improvement over 2006.

From the Call

  • Schoolhouse segment lost $600K in Q1 as most sales come in Q2 at end of school year
  • Retailer feedback on new items “very encouraging”
  • Inventories at historic lows
  • “Very encouraged” at progress and outlook for rest of year
  • Little competition in “learning segment” of business

Do not get excited about the 8 cent difference in earnings vs the estimates. With only 65 millions shares outstanding that only amounts to 5 million dollars and R&D was the reason. Sales are ahead of schedule and new product reception is excellent.

Things are looking very good here as both management and the analysts were all very positive on the results.

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Lead Found In Baby Bibs: Sue Paint Co’s?????

The discovery of lead in the fabric of a brand of baby bibs sold at Wal-Mart Stores (WMT) has resulted in a recall of the items, the company said. Jon Gambrell from the Associated Press reported today.

“The bibs, sold under the Baby Connection brand name, came in packs of two to seven bibs, with embroidered prints or images of Sesame Street characters. Some were sold as long ago as 2004. The bibs were made by Hamco Inc. exclusively for the Bentonville-based retailer.

Mia Masten, a Chicago-based spokeswoman for Wal-Mart, said the vinyl portion of the bibs exceeded the lead levels set by Illinois for children’s products. She said the company had worked with the Illinois attorney general’s office to pull the items and later decided to expand the recall nationwide.

Masten said about 60,000 of the bib bundles were sold in Illinois without any reported injuries.

Masten said officials with the world’s largest retailer have been in contact with Hamco, but referred all questions about the products’ manufacturing to Hamco.

Officials at Hamco, a subsidiary of Crown Crafts Inc. of Gonzales, La., said the company has no comment and referred questions to Wal-Mart.

The Illinois attorney general’s office identified the bibs as being sold between June 2004 and the end of March of this year in Wal-Mart stores throughout the state. Tests on three styles of the bibs tested positive for lead more than 600 parts per million, Illinois’ standard for lead in children’s products, said Robyn Ziegler, a spokeswoman with the attorney general’s office.

While Wal-Mart pulled the product from its shelves nationwide, Masten said only customers in Illinois would be eligible to receive refunds or replacements. It wasn’t immediately clear why the refunds only covered Illinois.

Initially, Masten said the recall only pertained to Illinois. Later Wednesday, she said it was nationwide.

Wal-Mart’s recall comes after a lawsuit over the bibs by the Center for Environmental Health, based in Oakland, Calif. Alexa Engelman, a researcher there, said the center became aware of the bibs in September. Engelman said a report by an independent laboratory test contracted by the center showed the bibs contained 16 times the amount of lead allowed in paint.

Lead, used as a stabilizer in vinyl plastic, can be “easily substituted” for other products, Engelman said.

Public health experts consider elevated levels of lead in blood a significant health hazard for children. Studies have repeatedly shown that childhood exposure to lead can lead to learning problems, reduced intelligence, hyperactivity and attention deficit disorder. There is no lead level that is considered safe in blood, and recent studies have shown adverse health effects even at very low levels.

The U.S. Consumer Product Safety Commission issued a statement Wednesday saying that the bibs were safe if in good condition. However, if a bib “deteriorates to the point that a baby could pull or bite off and swallow a piece of vinyl containing the lead, then the amounts of lead consumed could approach levels of concern,” the agency said.

Those who purchased the bibs in Illinois can return them at their local Wal-Mart for a full refund or can receive a free replacement by calling (877) 373-3812.”

This is more proof that lead is everywhere in our society and to hold one segment of the business community, namely paint companies like Sherwin-Williams (SHW), Valspar (VAL) and NL Industries (NL) responsible for all the damage is causes, especially when they have not produced lead paint in 50 years, is irresponsible. These bibs contained more lead than paint ever did and may have been poisoning children since 2004 especially when you consider how often children chew on them. But hey, lets go after paint companies??

These suits have no merit.

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Owens Corning (OC) Earnings Call Notes & A Lesson

From the Call:

  • Roofing business will see a resurgence “soon”
  • Housing market has become a “bit more pessimistic” and may be a bit slower for a little longer but, second half seasonality of OC’s business will see a improvement (45% 1st half, 55% 2nd half).
  • Sign’s are out there that they market may have bottomed and is improving in certain areas.
  • A prolonged housing slowdown will not affect this years results (as long as there is no further dramatic deterioration)
  • Current housing downturn was unlike any other as it was very dramatic and was not caused by overall deterioration of the economy and commercial business was not affected materially.
  • Insulation sales are picking up
  • 07′ sales should mirror ’06 and improve throughout the year
  • Roofing inventory has been built in Q1 when asphalt prices are low (new strategy)

A Lesson:
Did you panic today after the earning were announced? A whole bunch of people did as shares dropped $1.57 each in the first 4 minutes of trading on volume 40,000 shares. Those folks then watched as shares immediately climbed out of that hole and ended the day up almost 20 cents for a $1.77 swing. Us “long termers” maybe picked up few more shares when they went on sale this morning? Kudos to you if you did!!

Today was a perfect lesson for us. Those with short term outlooks will get burned time after time by news and those of us with long term perspectives will use those very instances to by more shares on sale and ad to our gains…..

Great day today…

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Owens Corning (OC) Earnings: Nothing Unexpected

Owens Corning (NYSE: OC) reported consolidated net sales of $1.324 billion for the first quarter ending March 31, 2007, compared with $1.601 billion during the same period in 2006.
First quarter sales declined 17 percent.

“As expected, our performance in the first quarter reflected weaker volume in our building materials businesses associated with the significant slowdown of new residential construction in the U.S.,” said Dave Brown, president and chief executive officer. “We are focused on delivering value to our customers through innovation, and our productivity initiatives to drive operational performance in a weaker market.

“Our Composite Solutions business continues to deliver solid results,” said Brown. “Strong demand for glass fiber materials in North America and Europe delivered improved margins that allowed us to offset cost inflation. Our Japanese acquisition, completed in the second quarter of 2006, also improved our top-line growth.”

When reviewing the operating performance of the company with its Board of Directors and employees, management makes adjustments to earnings before interest and taxes (“EBIT”) and diluted earnings per share. To calculate “adjusted EBIT” and “adjusted diluted earnings per share,” management excludes certain items from net earnings and earnings before interest and taxes, including those related to the company’s Chapter 11 proceedings, asbestos liabilities, and restructuring and other activities, so as to improve comparability over time (the “Comparability Items”). As described more fully in the attached financial schedules, such Comparability Items amounted to charges of $28 million in the first quarter of 2007 compared to a credit of $1 million during the same period of 2006.

Consolidated First-Quarter Results
— EBIT in the first quarter of 2007 was $33 million, compared with $115 million during the same period of 2006. Adjusted EBIT for the first quarter of 2007 was $61 million, compared with $114 million during the same period in 2006. The decline was primarily due to lower sales as the weakening new residential construction market impacted demand for building materials, and higher material and delivery costs.

— Diluted earnings per share for the first quarter of 2007 were $0.01. Adjusted diluted earnings per share for the first quarter of 2007 were $0.14.


Quarter Highlights:

  • — Weakened demand in Insulating Systems and Roofing and Asphalt, combined with seasonal slowdowns in the building materials market, resulted in continued production curtailments at selected manufacturing facilities during the first quarter.
  • — Demand for glass fiber reinforcement products was robust in the first quarter, leading to higher capacity utilization and improved productivity.
  • — At the end of the first quarter of 2007, the company had $2.063 billion of short- and long-term debt, compared with $2.736 billion at the end of 2006. The company’s debt at the end of 2006 included a note payable to the 524(g) Trust of $1.390 billion, plus interest, which was paid in full on January 4, 2007, a portion of which was funded by borrowing $600 million under the company’s delayed draw senior-term loan facility during the first quarter of 2007.
  • — Owens Corning announced a share buy-back program in the first quarter under which the company is authorized to repurchase up to 5 percent of Owens Corning’s outstanding common stock. The company did not repurchase any shares during the first quarter.
Update: Proposed Owens Corning and Saint-Gobain Joint Venture
On February 20, 2007, Owens Corning and Saint-Gobain announced that they signed a joint-venture agreement to merge their respective reinforcements and composites businesses, thereby creating a global company in reinforcements and composite fabrics products with worldwide revenues of approximately $1.8 billion and 10,000 employees. The new company, to be named “OCV Reinforcements,” will serve customers with improved technology, an expanded product range and a strengthened presence in both developed and emerging markets. The transaction, which has been approved by the Boards of Directors of both parent companies, is subject to customary closing conditions and regulatory and antitrust approvals. Given the timing of regulatory and antitrust review, the joint venture is targeted to close during the second half of 2007.

Update: Strategic Business Review: Siding Solutions Business & Fabwel Unit
Consistent with Owens Corning’s ongoing review of its businesses, the company announced during the first quarter that it will explore strategic alternatives for its Siding Solutions business, which includes its vinyl siding manufacturing operations and Norandex/Reynolds distribution business, and the company’s Fabwel unit, the leading producer and fabricator of components and sidewalls for recreational vehicles and cargo trailers. The company expects a midyear completion of this review process.

2007 Outlook

Based on current estimates by the National Association of Home Builders (NAHB), the slow down in U.S. housing starts is expected to carry well into 2007, which will continue to impact the company’s Insulating Systems business. Demand for Owens Corning’s Roofing and Asphalt products is driven primarily by the repair of residential roofs, with lesser demand coming from housing starts. Owens Corning is assuming a more normal level of demand associated with storm activity in 2007.

Owens Corning expects that the Composite Solutions segment will benefit from strong global demand for glass fiber materials throughout 2007. In addition, the recent introduction of new products has the potential to positively impact this segment in 2007.

Upon emergence and the subsequent distribution of contingent stock and cash to the 524(g) Trust in January 2007, Owens Corning generated a significant U.S. Federal tax net operating loss of approximately $2.8 billion. Based on current estimates, the company believes its cash taxes will be about 10 to 15 percent of pre-tax income for the next five to seven years. Owens Corning anticipates that its effective tax rate will be approximately 36.5 percent for 2007.

Allowing for continued uncertainty and based upon the NAHB’s current 2007 estimate of 1.45 million housing starts, the company continues to project that 2007 adjusted EBIT should exceed $415 million, not including the impact of the proposed Owens Corning – Vetrotex joint venture or other strategic organizational changes. This forecast will be updated and communicated quarterly.

First-Quarter Business Segment Highlights

Insulating Systems
— EBIT for the first quarter was $53 million, compared with $122 millionduring the same period in 2006. Results were unfavorably impacted by a decline in sales volumes, changes in product mix, idle facility costs resulting from production curtailments, and increases in material and labor costs. In addition, results were negatively impacted by $11 million, primarily related to depreciation and amortization costs, resulting from the adoption of Fresh Start Accounting.

Composite Solutions

— EBIT for the first quarter of 2007 was $26 million, compared with $14 million during the same period in 2006. The improvement was primarily the result of stronger demand, manufacturing productivity, improved margins and lower marketing and administrative costs. Results for the first quarter of 2006 also included approximately $6 million in expense resulting from downtime to repair and expand the company’s Taloja, India manufacturing facility, and $8 million of gains on the sale of metal. Results were negatively impacted by $1 million resulting from the adoption of Fresh Start Accounting.

Roofing and Asphalt
— EBIT for the first quarter was a loss of $8 million, compared with record first quarter earnings of $29 million during the same period in 2006. The decrease was primarily driven by lower volume resulting from declines in new construction activity in North America, combined with lower storm-related demand and the impact of higher material costs. Results were negatively impacted by $1 million resulting from the adoption of Fresh Start Accounting.

Other Building Materials and Services
— EBIT for the first quarter of 2007 was a loss of $1 million, compared with a loss of $3 million during the same period in 2006. The improvement was primarily due to increased earnings in the company’s Cultured Stone® business. The adoption of Fresh Start Accounting had no significant impact on this segment during the first quarter of 2007.

Synopsis:
As expected, a lousy quarter. As value investors we buy businesses when they are hopefully at their worst. Owen’s clearly is at that level yet it is still making money. The real important takeaways is that full year guidance was unchanged. The St. Gobian merger will go through later this year. An active (or even moderate) hurricane season will really bolster the stock and any revival in housing will help. Essentially all business segments (except composites) are bottoming. as value investors this is the perfect spot to be in as we will ride the wave when they rebound laster this year. Like I have said many times before, ignore today’s price activity in the stock. If it gets hit hard enough, buy more, the downside from here is minimal. This investment in a two year one at a minimum, do not let one quarter or one half a year shake you out of what will end up being a very profitable investment down the road.

I will be on the call today at 11 and update with any important announcements.

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ADM: Long Term Outlook Fantastic


From The Press Release:

  • Net earnings for the quarter ended March 31, 2007 increased 4 % to $ 363 million — $ .56 per share from $ 348 million –$ .53 per share last year.
  • Third quarter segment operating profit increased 8 % to $ 593 millionfrom $ 549 million last year.
  • Oilseeds Processing operating profit decreased due to lower softseed and biodiesel processing margins.
  • Corn Processing operating profit increased 15% due to lower operating costs and increased ethanol and sweetener selling prices partially offset by increased net corn costs.

“We performed well in a challenging quarter,” said ADM Chairman and CEO Patricia A. Woertz. “We are particularly pleased with continued strong performance in our corn processing segment. Our results also
benefited from actions to strategically align our portfolio and our outlook on future opportunities remains quite strong.”

From The Earnings Conference Call:

  • 15.4 million shares repurchased at $34 a share
  • US corn crop production up from 74 to 90 million acres
  • Brazil corn production up 7 million bushels (42 to 49 million)
  • Argentina, China will also have larger corn crop production in 2007-2008
  • Corn yields per acre will jump significantly either this year or next due to new seeds
  • There are still more acres under the conservation program that can be planted with corn
  • 4th Q 2007 will start selling HFCS to Mexico in large quantities.
  • Worldwide Soybean supplies adequate for 2007-2008
  • Washington will expand the RFA (Renewable Fuels standard) to 15% of all gasoline sold
  • Current studies indicate Flex Fuel car fleet expansion will not be necessary to accomplish this
  • Oil Processing results will correct itself this year as rapeseed production recovers from abnormally low levels currently
  • Ethanol expansion when complete will produce over 1.5 gallons annually billion annually or approx. 19% of US total (estimated at 8 billion gallons by the end of 2008)
  • Additional business and governmental partnerships “will most definitely” be announced this year.
  • HFCS pricing will remain at current historically high level throughout year (are contacted)
  • Ethanol prices will increase throughout year. Demand is very strong
  • Biodiesel demand will double between now and 2012
  • ROE is targeted at 13% which is “well above cost of capital” (q1 was 13.8%)
  • Long-term opportunities are “very strong”. Woertz “this quarters results actually increases my confidence in our ability to manage through any difficulty and make me more optimistic about our future”
  • Two cellulose ethanol project are continuing

A “challenging quarter” for ADM. Is it a “bad” one? Consider this, ADM encountered it’s highest corn prices of approx. $2.75 to $3.00 per bushel since 1984 yet still managed to increase profits in that division over a prior year comparison of $2.37 a bushel which was below the 35 year average of $2.57 a bushel. With a record US and worldwide corn crop planted this year (the most since WWII), prices will fall and ADM’s profits in this division will explode. ADM managed this price spike brilliantly and CEO Woertz ought to get kudos from investors for doing so.

Now, ADM is up 25% since I recommended it in January so expect the stock -to get hit because the “analysts” expected 60 cents a share. This will be a text book call by the analyst. Because of the run up, expect a downgrade or two in the stock and these folks only look out quarter by quarter. This is ok and expected. If you have been kicking yourself for not buying it sooner, you are now going to get a chance to get it cheaper. What does this mean long term? It means that even a spike in corn prices to 35 years highs cannot derailed this companies corn processing operations.

The Future: Massive Capacity Expansion (Completion Dates):
Missouri JV Biodiesel Plant : Completed 12/2006
N. Dakota Biodiesel Plant: 6/2007
Brazil Biodiesel Plant: 8/2007
Iowa Ethanol Plant: Phase I: 6/2007 Complete: 10/2008
Illinois Ethylene Glycol Plant: 10/2008
Pennsylvania, Cocoa Plant: Phase I : 3/2008 Complete: 1/2009
Nebraska Ethanol Plant: 11/2008
Nebraska PHA Plant: 11/2008
2nd Nebraska Etannol Plant: 12/2008

All are on schedule and on budget.

ADM has grown earnings spectacularly the past two years without adding any additional capacity. When this new production capacity goes online, earnings growth of 60% just from it alone is not only likely, but a in the end, probably a conservative estimate.

The ADM that reported to day is a shell of the company that will report earnings next year this time and will be dwarfed by the capacity of the ADM at the end of 2008. Long term shareholders are going to be richly rewarded as the long term fundamentals for all their businesses are favorable. One quarter does not a year make and smart investor will use the dip upcoming to buy more shares at artificially low prices.

Pentagon Wants Biofuels:
The U.S. Defense Department has launched an effort to reduce the military’s reliance on traditional aircraft fuel.

The Pentagon’s Defense Advanced Research Projects Agency has released a tender for the exploration of energy alternatives for the military. Officials said DARPA has sought proposals from companies and universities that would increase fuel efficiency and produce biofuel for military jets from agriculture or aquaculture crops.”DARPA seeks processes that use limited sources of external energy, that are adaptable to a range or blend of feedstock crop oils, and that produce process by-products that have ancillary manufacturing or industrial value,” the agency said.

Officials said commercial alternatives to traditional fuel have not met the higher energy density and wide-operating temperature range required for military aviation uses. They said the Pentagon has designed a program entitled BioFuels to convert crop oil to military aviation fuel, known as JP-8. Those invited to participate in the competition would deliver at least 100 liters of JP-8 surrogate biofuel for initial government laboratory testing.

Anyone want to bet this is the “governmental partnership” CEO Woertz spoke of being announced this year?

Summary:
Let’s not forget, despite the temporary headwinds, earnings still grew and even at $40 a share ADM only trades at 14 times trailing twelve months earnings. This stock is by no means overvalued. We have a company with fantastic long term fundamentals that is the world leader in all its product categories trading at a discount to the market. What is not to like?

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Where Did The Lead In Children Come From?

A question recently posed to me. “What can the lead paint companies (Sherwin Williams (SHW),and NL Industries (NL), do to preserve their image during these trials?”

In an word, attack. Punching bags get beat up. Go on offense and educate the public.

Three lead paint Facts the public is unaware of:

  • Master painters demanded lead-based paint, and government experts described it as the “best choice for house owners,” because it was washable and durable.
  • Federal and state governments recommended, and often specified its use – in the 1920s, the 1930s and all the way to the 1970s.
  • No U.S. public health official or government – federal, state or local –advocated restricting the use of lead in house paint until 1949, when public health investigations in Baltimore first identified the risks to children from chipping and peeling lead paint in poorly maintained homes. The federal government did not ban the use of lead-based house paint until the 1970s.

Lead Paint Was Recommended By US State & Fed Government- The Same Gov’t Now Suing Them For It’s Production:

The U.S. Departments of Commerce, Interior and Agriculture, along with other federal and state agencies, recommended lead paint for its durability from the early 1900s through the late 1970s. Fifty of the public housing projects built by President Roosevelt’s Public Works Administration in the mid-1930s specified use of interior lead-based paint to obtain the durability government paint experts found was best provided by such paint. “Public Housing,” “Unit Plans,” and “U.S. Housing Projects,” The Architectural Forum, 345-424 (May 1938). In 1939, the U.S. Forest Service said that lead paint is “the best choice for house owners who wish to allow very long intervals, longer than the durability of any other white or tinted paint, to elapse between jobs.” U.S. Forest Service, “Shopping For Paint,”Consumer’s Guide, Vol. 5, No. 16, at 6 (Feb. 13, 1939). In 1944, the War Production Board resisted the decrease of the amount of lead in paint.

“As a result of these formulation changes, the actual basic carbonate of white lead content of paints is already at an irreducible minimum. And any further reductions in the lead content could only be made at the expense of durability.”

In a 1945, Percy Walker, the chief of the Chemistry Division, and Eugene Hickson of the National Bureau of Standards, presented recommendations as to the use of painting materials to meet federal specifications. The manual stated:

“White lead, a component of almost all white and light-colored paints, is one of the most important white paint pigments.”

In 1933, the American Public Health Association wrote a publication responding to reports of childhood lead poisoning. The association recommended not using lead-based paint on baby toys, beds and carriages. However, it also said it otherwise had wide fields of usefulness like house paint:

“Although lead paint has many wide fields of usefulness, babies’ toys, beds and carriages are not the places to put it.”

The great majority of interior lead-based paint was applied before 1930. By 1940, very little lead pigment was being used for interior residences

Sherwin-Williams (SHW ) stopped producing lead pigmented paint in 1947, a full 30 years before it was banned!!

Beginning in the 1920s, industry sponsored no-strings attached research into risks from lead paint and worked with the American Academy of Pediatrics, the American Standards Association and other public health groups to develop a voluntary national standard to take most of the lead out of interior paint in 1955, long before the federal government required it. In fact, one of the State’s expert witnesses in Rhode Island – Dr. David Rosner – testified that the industry never hid scientific studies about the risks of lead paint from the public, the government or public health officials.

Only 12% of Children Are Even Tested for Lead:

How can we have a “public nuisance” that is so irrelevant that Dr’s and parents only have 120 in 1000 children tested for it and of those 120 children, only 1 of them even test positive for elevated levels? That is “elevated”, not dangerous. Of the 23.3 million children under 72 months in the US in 2005, only 2.9 million of them were even tested for lead in their blood. Of those, only 1.5% tested positive for lead in their blood. The question then needs to be asked: Where did the lead come from? Since there is no way to prove the source unless the possible contacts and sickness are immediately correlated, lead paint defendants need to show other source of possible lead paint exposure. If it is not the improperly maintained paint that is making people sick, then the paint can not be construed a “public nuisance” can it? Other proven sources of lead poisoning in children

From the CDC website:

The potential for children to be exposed to lead from candy imported from Mexico has prompted the U.S. Food and Drug Administration (FDA) to issue warnings on the availability of lead-contaminated candy and to develop tighter guidelines for manufacturers, importers, and distributors of imported candy. Lead has been found in some consumer candies imported from Mexico. Certain candy ingredients such as chili powder and tamarind may be a source of lead exposure. Lead sometimes gets into the candy when processes such as drying, storing, and grinding the ingredients are done improperly. Also, lead has been found in the wrappers of some imported candies. The ink of these plastic or paper wrappers may contain lead that leaches into the candy.

Lead has been found in some traditional (folk) medicines used by East Indian, Indian, Middle Eastern, West Asian, and Hispanic cultures. Traditional medicines can contain herbs, minerals, metals, or animal products. Lead and other heavy metals are put into certain folk medicines on purpose because these metals are thought to be useful in treating some ailments. Sometimes lead accidentally gets into the folk medicine during grinding, coloring, or other methods of preparation. People selling a remedy may not know whether it contains lead. You cannot tell by looking at or tasting a medicine whether it contains lead. Consuming even small amounts of lead can be harmful. There is no safe blood lead level. Lead poisoning from folk remedies can cause illness and even death. Lead has been found in powders and tablets given for arthritis, infertility, upset stomach, menstrual cramps, colic and other illnesses. Greta and Azarcon (also known as alarcon, coral, luiga, maria luisa, or rueda) are Hispanic traditional remedies taken for an upset stomach (empacho), constipation, diarrhea, vomiting, and used on teething babies. Greta and Azarcon are both fine orange powders that have a lead content as high as 90%. Ghasard, an Indian folk remedy, has also been found to contain lead. It is a brown powder used as a tonic. Ba-baw-san is a Chinese herbal remedy that contains lead. It is used to treat colic pain or to pacify young children.

If swallowed or put in the mouth, lead jewelry is hazardous to children. In 2003, a 4-year-old child swallowed a piece of jewelry bought from a vending machine. The child became ill because the jewelry was made of lead. The potential for children to be exposed to lead from this source caused the U.S. Consumer Product Safety Commission (CPSC) to issue on July 8, 2004, a recall of 150 million pieces of metal toy jewelry sold widely in vending machines. In 2006, there was a death of a child from acute lead poisoning after ingestion of a heart-shaped metallic charm containing lead. The charm had been attached to a metal bracelet provided as a free gift with the purchase of shoes manufactured by Reebok International Ltd. On March 23, 2006, a voluntary recall of 300,000 heart-shaped charm bracelets was announced by CPSC and Reebok

Other Proven Lead Hazards That Have Nothing To Do With Paint:

  • Drinking water. Your home might have plumbing with lead or lead solder. Call your local health department or water supplier to find out about testing your water. You cannot see, smell, or taste lead, and boiling your water will not get rid of lead. If you think your plumbing might have lead in it:
    • Use only cold water for drinking and cooking.
    • Run water for 15 to 30 seconds before drinking it, especially if you have not used your water for a few hours.
  • The job. If you work with lead, you could bring it home on your hands or clothes. Shower and change clothes before coming home. Launder your work clothes separately from the rest of your family’s clothes.
  • Old painted toys and furniture.
  • Food and liquids stored in lead crystal or lead-glazed pottery or porcelain.
  • Lead smelters or other industries that release lead into the air.
  • Hobbies that use lead, such as making pottery or stained glass, or refinishing furniture
  • In 1979, cars released 94.6 million kilograms (kg; 1 kg equals 2.2 pounds) of lead into the air in the United States. In 1989, when the use of lead was limited but not banned, cars released only 2.2 million kg to the air.” “lead was banned for use in gasoline for transportation beginning January 1, 1996.
  • The potential for exposure to lead in canned food from lead-soldered containers is greatly reduced because the content of lead in canned foods has decreased 87% from 1980 to 1988.
  • Lead may also be released from soldered joints in kettles used to boil water for beverages. “The domestic use pattern for lead in 1990 was as follows: lead-acid storage batteries, used for motor vehicles, motive power, and emergency back-up power, accounted for 80% of total lead consumption; ammunition, bearing metals, brass and bronze, cable covering, extruded products, sheet lead, and solder represented 12.4%; the remaining 7.6% was used for ceramics, type metal, ballast or weights, tubes or containers, oxides, and gasoline additives (USDOC 1992).”
From a Lead Inspector:

I’m a service provider in environmental health and safety. I go out to collect the samples, and train other inspectors to detect the danger. In what follows I will describe about nature of the threat from lead.

From my perspective in science and measurement, there are many sources of lead in the environment. So although we focus on lead paint in housing, let’s not lose sight of the big picture. When I think of lead exposure, I think of a lot of sources, with houses being possibly one of them. But also there are major exposures to lead in industrial areas. If any of you drive along Interstate 95, you will pass by or under bridges, water towers, various steel structures with lead paint on them. In fact, when we go out and do air monitoring and soil testing, our worst readings are not in housing at all. It’s when we go out on a bridge painting or repair project that see sky-high exposure. Also, I spent six years in ship-building and overhaul, and in that industry—due to the small confined spaces and compartments six-decks down—there are major exposures to lead.

At A Bridge Construction Site:

I pointed out that each bridge would have a dumpster full of the contaminated abrasive, and what the benefit was to the public health of removing it. The EPA staffer said, “You got a darned good point.” But when I asked him if he could change the regulation, he said, “I can’t do that. Lead-removal is the state’s job.” And yet, the state says that they will do it if the federal people make them do it. This has really been a challenge, to get different state transportation departments granted EPA waivers.

Homeowners Responsibility?
Home ownership carries with it responsibilities as well as rights, including the duty to maintain property in safe and habitable condition. Rental property owners properly are held accountable when they endanger children by failing to control lead hazards. Lead paint, when properly maintained is perfectly safe. Our homes are filled with substances that when improperly maintained, can be lethal (gasoline, oil turpentine, bleach, Draino, chemical cleaners, prescription meds). Lead paint is no different. In Providence,. a recent study from Brown University suggests that the vast majority of houses in Providence coated in lead paint are owned by just 204 landlords. The control of the hazard lies with the owner of the property.

Who’s Lead Paint?
There is no way to tell who manufactured the paint on the walls of an apartment that is poisoning a child. A Duke law professor and former solicitor general under President Bill Clinton has repeatedly testified that any attempt to hold manufacturers liable for paint sold even 100 years ago—when we can’t identify what pigment and what paint is causing the harm—would violate the due-process clause of the United States Constitution.

States Could Enforce Existing Laws:
Almost all states have law requiring landlord to rid premises of lead where children can get to it. These lasw are not enforced though. Fortunately that’s not the case in Maryland, where the city and state have begun to prosecute offending landlords. Since the year 2000, the state Department of the Environment and the Baltimore Health Department have taken 500 enforcement actions against landlords, including fines and renovation orders. Owners have finally begun sloughing lead from windows, doors and walls.During the same period, the number of children statewide who tested positive for elevated lead dropped from 3,900 to 3,400. The trim line is very positive. That suggests to me where communities need to be headed in order to deal with this problem.

The lead paint defendants need to educate the public about these still present dangers in everyday life regarding lead. Many of those who appear to care most about these children are pursuing dead ends, playing the blame game (See RI AG Patrick Lynch). Yet we know how to solve the problem at a cost that, if not trivial, is certainly less expensive than the road through the court system, with all its hidden toll-booths.If we don’t solve the problem by statute, we will live through a litigation nightmare, and the children will not be winners. But if we do pass the right laws, and enforce them, we will have much as a country to be proud of. Perhaps eliminating childhood lead poison might not rank right up there with eliminating smallpox, as we thought we had done twenty years ago. But what a feat it would be to eliminate this poison from the lives of those children who are already at greatest disadvantage.

Portions of this post from:

http://www.leadlawsuits.com/index.php?s=home

http://www.cdc.gov/nceh/lead/surv/stats.htm

http://www.manhattan-institute.org/html/lead_paint.htm