Author: ToddSullivan

Why is he doing it? Back in early April after Merrill Lynch’s (MER) CEO John Thain first made the same remarks, I wondered what good he thought they would do considering “no one believes what comes out of a banker’s mouth today anyway”.

Now, he is at it again telling anyone who will listen that Merrill will not need additional funds. If the last 10 months have tough us anything, it is that a CEO of a company tied to the financial system ought not be making proclamations about about its health.

Thain’s predecessor Stan O’Neil made them, Chuck Prince at Citigroup (C) did and today they are spectators. Recently GE’s (GE) Jeff Immelt and Wachovia’s Ken Thompson did and both were lambasted by both the media and shareholders when the statements proved to be less than accurate. Thompson is hanging on to his job by a thread. This is not to say there anything nefarious going on, it is just that with the system being so interdependent, events at Goldman Sach’s (GS) or Morgan Stanley (MS) could have a very detrimental effect on Thain’s firm.

If that were to happen, Thain may be force fed his words on a pink slip. Like I said a month ago, Thain gains nothing from making the statements, no one believes him. The only thing they will actually believe at this point are results and even those may be questioned at first.

What Thain is doing is setting himself up for a tremendous fall should events beyond his control turn against him.

Consider Merrill Lynch posted a $2 billion first-quarter loss last month. That just happened to be the third consecutive quarterly loss due to losses in subprime mortgages and collateralized debt obligations.

Also consider Merrill Lynch has recorded more than $30 billion of write-downs since the third quarter, and Thain has said they were planning for slower, more difficult next few quarters.

The bottom line is Thain ought to have learned by now that just because it is sunny today does not mean it will not rain tomorrow.

Disclosure (“none” means no position):Long C, WB, none

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Why is he doing it? Back in early April after Merrill Lynch’s (MER) CEO John Thain first made the same remarks, I wondered what good he thought they would do considering “no one believes what comes out of a banker’s mouth today anyway”.

Now, he is at it again telling anyone who will listen that Merrill will not need additional funds. If the last 10 months have tough us anything, it is that a CEO of a company tied to the financial system ought not be making proclamations about about its health.

Thain’s predecessor Stan O’Neil made them, Chuck Prince at Citigroup (C) did and today they are spectators. Recently GE’s (GE) Jeff Immelt and Wachovia’s Ken Thompson did and both were lambasted by both the media and shareholders when the statements proved to be less than accurate. Thompson is hanging on to his job by a thread. This is not to say there anything nefarious going on, it is just that with the system being so interdependent, events at Goldman Sach’s (GS) or Morgan Stanley (MS) could have a very detrimental effect on Thain’s firm.

If that were to happen, Thain may be force fed his words on a pink slip. Like I said a month ago, Thain gains nothing from making the statements, no one believes him. The only thing they will actually believe at this point are results and even those may be questioned at first.

What Thain is doing is setting himself up for a tremendous fall should events beyond his control turn against him.

Consider Merrill Lynch posted a $2 billion first-quarter loss last month. That just happened to be the third consecutive quarterly loss due to losses in subprime mortgages and collateralized debt obligations.

Also consider Merrill Lynch has recorded more than $30 billion of write-downs since the third quarter, and Thain has said they were planning for slower, more difficult next few quarters.

The bottom line is Thain ought to have learned by now that just because it is sunny today does not mean it will not rain tomorrow.

Disclosure (“none” means no position):Long C, WB, none

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Owens Corning (OC) reported results today and they were better than expectations, primarily because of the company’s intentional move to a more international model .

Owens posted a net loss of $15 million, or 12 cents a share, compared with a profit of $1 million, or 1 cent a share, a year earlier. Sales rose 20 percent to $1.35 billion, ahead of estimates for $1.22 billion. Adjusted earnings from continuing operations were 7 cents per share, which was 4 cents ahead of forecasts.

In the first quarter of 2008, Composite Solutions, Insulating Systems, Roofing and Asphalt and Other Building Materials and Services represented 48%, 26%, 22% and 4% of our total reportable segment net sales, respectively.

Net sales by end market in the first quarter were 18% U.S. and Canada new residential construction, 23% U.S. and Canada residential repair and remodeling, 20% U.S. and Canada commercial and industrial and 39% international. This marks the lowest level of reliance in US housing for the company.

In the first quarter, Composite Solutions represented 107% of Owens Corning’s total reportable segment earnings (loss) from continuing operations before interest and taxes. Sources of revenue for Composite Solutions in the first quarter were 6% U.S. and Canada residential construction, 20% U.S. and Canada commercial and industrial and 74% international. The worldwide composite market is expected to grow 1.5 to 2 times the rate of global GDP.

Sales outside the United States represented 43% of total sales for the first quarter of 2008 compared to 27% for 2007. The increase is due to incremental sales outside the United States related to the acquisition of the Saint-Gobain Group’s reinforcements and composite fabrics businesses and increases related to favorable foreign exchange rates combined with lower sales of building materials products in the United States in 2008.

On February 21, 2007, the Board of Directors had approved a share buy-back program under which Owens is authorized to repurchase up to 5% of outstanding common stock. During the three months ended March 31, 2008, there were no repurchases of stock under the share repurchase program.

Owens is struggling principally because of US housing. The good news is that due to the earnings diversification to more international business, that pain is muted. It also means that when housing stops the decline and begins its turn, earnings will jump. Let’s also not forget we have had two years plus now of zero hurricanes. The number one repair from even a moderate storm? Roofing. With production across the industry low, a rapid increase in demand due to a storm will cause rapid price increases and expanding margins.

While I do not wish for a severe storm, we do have to look at reality when it comes to this stuff.

Disclosure (“none” means no position):Long OC

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The likes of Research in Motion (RIMM), Apple (AAPL) and Nokia (NOK) are going to prefer Sprint’s new network for their web-enabled phones.

Sprint (S), Clearwire (CLWR)and cable companies Comcast Corp and Time Warner Cable Inc are set to announce a joint venture using WiMax, a technology that promises to support Internet access at speeds up to five times faster than traditional wireless networks, and can support a range of mobile and video applications.

Contribution to the JV are expected to be: Comcast (CMCSA), $1 billion, Time Warner Cable (TWC) will $550 million, Intel (INTC) $1 billion, Google (GOOG) $500 million and Bright House Networks, the sixth-largest U.S. cable provider, $200 million.

What Sprint has done with this is created, for the makers of web phones, which is clearly the future of devices, the preferred network. For users of the products, Sprint ought to see a migration of them to the network as the incrementally faster speeds will trump any past issues the company might have had.

Now, until we know how the JV is formed and the timing of any release of it, investing in Sprint simply because of the announcement is very premature. There still is that nagging Nextel issue. It just may be the Clearwire is the way to go. Without knowing details, it is a guess.

One thing is for sure though. Sprint has gone from the scrap heap of history to potentially the industry leader in a very, very short time…

Disclosure (“none” means no position):None

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Recession, College, Jerry Yang, Berkshire (BRK.A)

– Documenting the “recession” we are not in..

– Am I the only one who hopes that the last place my kids want to go is Ivy? I mean, the only “exchange of ideas” these folks want are those they agree with… Witness the Friedman pie incident last week..

– Just sell to Microsoft (MSFT) and fade away already…

– “Woodstock” meeting notes

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Recession, College, Jerry Yang, Berkshire (BRK.A)

– Documenting the “recession” we are not in..

– Am I the only one who hopes that the last place my kids want to go is Ivy? I mean, the only “exchange of ideas” these folks want are those they agree with… Witness the Friedman pie incident last week..

– Just sell to Microsoft (MSFT) and fade away already…

– “Woodstock” meeting notes

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Upgrades
Comerica (CMA)- FTN Midwest Neutral » Buy
Comstock (CRK)- BMO Capital Markets Market Perform » Outperform
Advent Software (ADVS)- Needham Buy » Strong Buy
Agrium (AGU)- RBC Capital Mkts Sector Perform » Outperform
Wachovia (WB)- Stifel Nicolaus Hold » Buy
Sprint Nextel (S)- Cowen & Co Neutral » Outperform
INX Inc. (INXI)- Brean Murray Hold » Buy
Methanex (MEOH)- UBS Neutral » Buy
TEPPCO Partners (TPP)- Citigroup Hold » Buy
Omniture (OMTR)- Piper Jaffray Neutral » Buy
Citizens Rep Bancorp (CRBC)- Oppenheimer Perform » Outperform
Ness Tech (NSTC)- Susquehanna Financial Neutral » Positive
Citizens Rep Bancorp (CRBC)- Keefe Bruyette Mkt Perform » Outperform
Preferred Bank (PFBC)- Friedman Billings Underperform » Mkt Perform
SLM Corp (SLM)- Lehman Brothers Equal-Weight » Overweight
Stellent (STEL)- Robert W. Baird Neutral » Outperform

Downgrades
Cutera (CUTR)- Maxim Group Buy » Hold
Texas Industries (TXI)- BB&T Capital Mkts Buy » Hold
Gafisa SA (GFA)- Deutsche Securities Buy » Hold
Ryanair Hldgs (RYAAY)- Deutsche Securities Hold » Sell
Leapfrog (LF)- BMO Capital Markets Outperform » Market Perform
Verenium (VRNM)- Broadpoint Capital Buy » Neutral
Lev Pharmaceuticals (LEVP)- Susquehanna Financial Positive » Neutral
Harrington West Financial (HWFG)- RBC Capital Mkts Outperform » Sector Perform
ProLogis (PLD)- RBC Capital Mkts Top Pick » Outperform
MTS Medication (MPP)- Broadpoint Capital Strong Buy » Neutral
Sunoco (SUN)- JP Morgan Neutral » Underweight
Valero Energy (VLO)- JP Morgan Overweight » Neutral
HSBC Holdings (HBC)- UBS Buy » Neutral
Southern Copper (PCU)- HSBC Securities Overweight » Neutral

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Upgrades
Comerica (CMA)- FTN Midwest Neutral » Buy
Comstock (CRK)- BMO Capital Markets Market Perform » Outperform
Advent Software (ADVS)- Needham Buy » Strong Buy
Agrium (AGU)- RBC Capital Mkts Sector Perform » Outperform
Wachovia (WB)- Stifel Nicolaus Hold » Buy
Sprint Nextel (S)- Cowen & Co Neutral » Outperform
INX Inc. (INXI)- Brean Murray Hold » Buy
Methanex (MEOH)- UBS Neutral » Buy
TEPPCO Partners (TPP)- Citigroup Hold » Buy
Omniture (OMTR)- Piper Jaffray Neutral » Buy
Citizens Rep Bancorp (CRBC)- Oppenheimer Perform » Outperform
Ness Tech (NSTC)- Susquehanna Financial Neutral » Positive
Citizens Rep Bancorp (CRBC)- Keefe Bruyette Mkt Perform » Outperform
Preferred Bank (PFBC)- Friedman Billings Underperform » Mkt Perform
SLM Corp (SLM)- Lehman Brothers Equal-Weight » Overweight
Stellent (STEL)- Robert W. Baird Neutral » Outperform

Downgrades
Cutera (CUTR)- Maxim Group Buy » Hold
Texas Industries (TXI)- BB&T Capital Mkts Buy » Hold
Gafisa SA (GFA)- Deutsche Securities Buy » Hold
Ryanair Hldgs (RYAAY)- Deutsche Securities Hold » Sell
Leapfrog (LF)- BMO Capital Markets Outperform » Market Perform
Verenium (VRNM)- Broadpoint Capital Buy » Neutral
Lev Pharmaceuticals (LEVP)- Susquehanna Financial Positive » Neutral
Harrington West Financial (HWFG)- RBC Capital Mkts Outperform » Sector Perform
ProLogis (PLD)- RBC Capital Mkts Top Pick » Outperform
MTS Medication (MPP)- Broadpoint Capital Strong Buy » Neutral
Sunoco (SUN)- JP Morgan Neutral » Underweight
Valero Energy (VLO)- JP Morgan Overweight » Neutral
HSBC Holdings (HBC)- UBS Buy » Neutral
Southern Copper (PCU)- HSBC Securities Overweight » Neutral

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Wednesday’s Picks
Jeff Macke recommends the Financial Select Sector SPDR (XLF) $27.52

Guy Adami prefers Merck (MRK) $38.84

Pete Najarian suggests Apple (AAPL) $186.66

Karen Finerman thinks Kaiser Aluminum (KALU) $70.87 is a buy ahead of earnings.

Tuesday’s Results
Jeff Macke likes Hasbro (HAS) $35.66 Close $35.83 GAIN

Guy Adami prefers Anheuser-Busch Companies (BUD) $51.41 Close $52.04 GAIN

Karen Finerman prefers ValueClick (VCLK) $20. Close $20.48 GAIN

Pete Najarian thinks AT&T (T) $39.85 is a buy. Close $39.56 LOSS

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 1-1
Jon Najarian= 4-3
Jeff Macke= 34-27-1
Tim Seymore= 16-13
Guy Adami= 35-30
Pete Najarian= 34-28
Karen Finerman= 28-29-1
Joe Terrenova= 1-1

2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%

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Another Fed auction has gone off and for the third time in a row, banks are paying higher interest rates.

On May 5, 2008, the Federal Reserve conducted an auction of $75 billion in 28-day credit through its Term Auction Facility. Following are the results of the auction:

Stop-out rate: 2.220 percent

Total propositions submitted: $96.618 billion
Total propositions accepted: $75.000 billion
Bid/cover ratio: 1.29

Number of bidders: 71

For weak dollar foes, this is good news as climbing rates will give strength to the dollar and ought to help with rapidly rising commodity prices.

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LeapFrog (LF) really is doing a nice job here considering the headwinds in the economy.

The company reiterated its current expectations for full year 2008 results:

* New products introduced in 2007 and 2008 are expected to comprise
approximately half of 2008 net sales;
* Net sales are expected to grow at an annual percentage rate in the
mid-to-high teens;
* Gross margin is expected to continue to improve;
* Selling, general and administrative expenses and research and
development expenses are expected to decrease approximately 10%-15%
year-over-year;
* The company expects a nominal loss for the year;
* The first half results are expected to be weaker than the first half
of 2007, and the second half results are expected to show substantial
improvement over the second half of 2007, reflecting the impact of new
product introductions and cost reductions; and
* Cash and investments are expected to be approximately $100 million at
year-end.

“We entered 2008 expecting the first half to be weak ahead of new product launches. First quarter results were slightly better than our expectations due primarily to the continued strength of our Educational Gaming business, led by our Leapster product,” said Jeffrey G. Katz, president and chief executive officer of LeapFrog. “More importantly our 2008 product launches are on track. We begin shipments of our Tag reading system in less than two weeks and our new educational gaming systems, Leapster 2 and Didj, will ship this summer. We expect that these new products will contribute to significant sales growth and margin improvement in the back half of the year.

The key here is that the new products, which are awesome and have received excellent reviews are not even fully in the sales channel yet.

I am sure that a certain part of this is that unlike the Mattel (MAT) and Hasbro (HAS) offerings, lead induced brain damage is not an issue for kids playing with them. That and the fact that for a kid to actually break a Leapster takes a herculean effort.

Now LeapFrog is an insignificant portion of the portfolio and is there simply because of the great products they make and because people like Marty Whitman and Larry Ellsion are investors. Eventually this will pay off…

Disclosure (“none” means no position):Long LF, none

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Ever start reading a book and find yourself not wanting to put it down? Micheal Covel’s “Complete Turtle Trader” is such a book.

Covel takes an intimate and detailed look into the entire “Turtle” experiment. The book is filled with interviews with the participants, competitors and some of the greatest traders in history about the experiment.

Unlike Curtis Faith’s self-indulgent “Way of the Turtle“, Covel’s book plays no favorites and lays bare the experiment. Covel does a mini-biography of Richard Dennis, the experiment’s founder and goes into detail as to how Dennis created his fortune.

While the actual detailing of the experiment is very interesting, the best part of the book for me was Covel’s following of the Turtle’s after it was over. Here the book takes us into what the individual Turtle’s did to leverage their new cache after Dennis abruptly ended the experiment (despite the Turtle’s still trading successfully) and what how some went on to stunning success and how others essentially stopped trading. Here the book gives us lessons on entrepreneurship and how some Turtles “made that one phone call” that lead them to billions while others faded to obscurity.

The “Turtle” story is a fascinating one and in my opinion Covel has done a fantastic job telling it. I highly recommend this book.

PS: I knew the book was going to be something I might like when in the introduction Covel refers to Jim Cramer and his show as “total bullshit”.

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Bequests, Student Loans, ADM, Sizzlin’

– 3/4 of all estates are divided equally among children

– Rather than investigate lenders, why not look int the colleges? Tuition grows over triple the rate of inflation..Why?

– ADM declares dividend

– This company is very interesting

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Bequests, Student Loans, ADM, Sizzlin’

– 3/4 of all estates are divided equally among children

– Rather than investigate lenders, why not look int the colleges? Tuition grows over triple the rate of inflation..Why?

– ADM declares dividend

– This company is very interesting

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