Dodd, Graham and Dodd (not Chris), Lenny, Gumshoe
– This is great…
– 6th edition of Security Analysis
– More on Dykstra
– More “junk mail”
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Dodd, Graham and Dodd (not Chris), Lenny, Gumshoe
– This is great…
– 6th edition of Security Analysis
– More on Dykstra
– More “junk mail”
p style=”margin-top:10px; margin-bottom:0; padding-bottom:0; text-align:center; line-height:0″>
Visit the ValuePlays Bookstore for Great Investing Books
In a word…..nothing.
Why?
Think about it. What is the rational for the Fed raising rates? To slow the economy by reducing credit. Well, I’m not sure about about you but from what I am seeing, that is already happening. One could make the argument and be very accurate in doing so that the current credit environment is far in excess (in its restrictiveness) when compared to the 2% Fed funds rate.
Raising rates in the current situation when placed in a risk reward scenario doesn’t work. The risk that a rate increase would push a teetering economy into recession outweighs any inflation decrease you may get.
We do not need to slow down growth to fight inflation now. When you look at it, we really do not have any real growth to slow down. Q1 GDP was .9%. That really leaves very little room for error.
The singular problem here is commodities driven by demand for food and fuel and stagnant supply. A .25 point rate increase will change neither. When one looks around the world currently we have US gas demand falling over 2% vs last year, China is reducing fuel subsidies (will raise domestic prices there and kill demand) and other nations are considering the same. US consumers are not buying SUV’s and trucks and replacing them with smaller cars and even motorcycles. The effects of those actions on gas and oil (USO) demand will be felt down the road.
Before Bernanke can begin raising rate he needs to be sure the US is not slipping into recession. Despite what people are saying, we are in a recession when we are, not when “it feels like we are” or the media proclaims one. That being said, according to the data, we are not even as of yet in the beginning of one. Now, if Q2 GDP slips into the negative, then we may actually have a modest one. Should it come in flat, then we most likely will escape it. Bernanke will not raise rates until he has more clarity.
This meeting will feature no change in the Fed funds rate and a change in the statement saying future action are tilted towards fighting inflation and a rate increase.
Disclosure (“none” means no position):None
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UPGRADES
Centurytel (CTL)- Stanford Research Hold » Buy
Cheesecake Factory (CAKE)- Wedbush Morgan Hold » Buy
Global Industries (GLBL)- CapitalOne southcoast Add » Strong Buy
Pioneer Natural (PXD)- BMO Capital Markets Market Perform » Outperform
Raytheon (RTN)- JP Morgan Neutral » Overweight
RC2 (RCRC)- Piper Jaffray Neutral » Buy
Key Energy (KEG)- RBC Capital Mkts Sector Perform » Outperform
UST Inc (UST)- UBS Neutral » Buy
Invitrogen (IVGN)- JP Morgan Neutral » Overweight
Marvel Enterprises (MVL)- RBC Capital Mkts Sector Perform » Outperform
Telecom Italia (TI)- Bernstein Mkt Perform » Outperform
Clearwire (CLWR)- Citigroup Sell » Hold
Credence (CMOS)- Citigroup Sell » Hold
Complete Production Services (CPX)- JP Morgan Neutral » Overweight
Huntsman (HUN)- UBS Neutral » Buy
Puget Energy (PSD)- Robert W. Baird Neutral » Outperform
DOWNGRADES
Oceaneering Intl (OII)- CapitalOne southcoast Strong Buy » Add
Stanley Inc. (SXE)- BB&T Capital Mkts Buy » Hold
Mentor Graphics (MENT)- Needham Buy » Hold
Visa (V)- Avondale Mkt Outperform » Mkt Perform
Marshall & Ilsley (MI)- Fox Pitt Outperform » In Line
NYMEX (NMX)- Fox Pitt Outperform » In Line
SAIC (SAI)- JP Morgan Overweight » Neutral
Fuel Systems Solutions (FSYS)- Broadpoint Capital Buy » Neutral
HOKU Scientific (HOKU)- Broadpoint Capital Buy » Neutral
Emerson (EMR)- Credit Suisse Outperform » Neutral
Corn Products (CPO)- Citigroup Buy » Hold
BJ’s Wholesale (BJ)- Citigroup Buy » Hold
Affiliated Managers (AMG)- Wachovia Outperform » Mkt Perform
UPS (UPS)- Robert W. Baird Outperform » Neutral
Third Wave (TWTI)- Robert W. Baird Outperform » Neutral
Visit the ValuePlays Bookstore for Great Investing Books
UPGRADES
Centurytel (CTL)- Stanford Research Hold » Buy
Cheesecake Factory (CAKE)- Wedbush Morgan Hold » Buy
Global Industries (GLBL)- CapitalOne southcoast Add » Strong Buy
Pioneer Natural (PXD)- BMO Capital Markets Market Perform » Outperform
Raytheon (RTN)- JP Morgan Neutral » Overweight
RC2 (RCRC)- Piper Jaffray Neutral » Buy
Key Energy (KEG)- RBC Capital Mkts Sector Perform » Outperform
UST Inc (UST)- UBS Neutral » Buy
Invitrogen (IVGN)- JP Morgan Neutral » Overweight
Marvel Enterprises (MVL)- RBC Capital Mkts Sector Perform » Outperform
Telecom Italia (TI)- Bernstein Mkt Perform » Outperform
Clearwire (CLWR)- Citigroup Sell » Hold
Credence (CMOS)- Citigroup Sell » Hold
Complete Production Services (CPX)- JP Morgan Neutral » Overweight
Huntsman (HUN)- UBS Neutral » Buy
Puget Energy (PSD)- Robert W. Baird Neutral » Outperform
DOWNGRADES
Oceaneering Intl (OII)- CapitalOne southcoast Strong Buy » Add
Stanley Inc. (SXE)- BB&T Capital Mkts Buy » Hold
Mentor Graphics (MENT)- Needham Buy » Hold
Visa (V)- Avondale Mkt Outperform » Mkt Perform
Marshall & Ilsley (MI)- Fox Pitt Outperform » In Line
NYMEX (NMX)- Fox Pitt Outperform » In Line
SAIC (SAI)- JP Morgan Overweight » Neutral
Fuel Systems Solutions (FSYS)- Broadpoint Capital Buy » Neutral
HOKU Scientific (HOKU)- Broadpoint Capital Buy » Neutral
Emerson (EMR)- Credit Suisse Outperform » Neutral
Corn Products (CPO)- Citigroup Buy » Hold
BJ’s Wholesale (BJ)- Citigroup Buy » Hold
Affiliated Managers (AMG)- Wachovia Outperform » Mkt Perform
UPS (UPS)- Robert W. Baird Outperform » Neutral
Third Wave (TWTI)- Robert W. Baird Outperform » Neutral
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The good news here is that the move is being done to “restore margins” and the previous 20% increases have stuck.
Watch CEO Andrew Liveris this morning on CNBC. He reinforces many of the same things we spoke about in my interview with him earlier this month.
Part 1:
Part 2:
Bottom line, Liveris is going to deliver earnings for shareholders in the long run. If that means he has to restrict supply and raise prices he will. If means he has to move production to nations that offer cheaper inputs for his products, he will (and is).
Short run, it will not be very pretty. You do not raise prices 35% to 45% on all product lines and reduce output in a month for any other reason than things are real tough. Liveris said as much in the CNBC interview when he said “we are fighting for our lives in the trenches right now”. Current estimates are for $.92 a share for Q2, do not expect that to be hit.
Perhaps it is me, but, Dow below $36 a share? Should it happen I will not be able to resist buying more. It has only hit that level twice since 2003, I will be buying.
What we are seeing simply is the result of years of Congressional neglect on energy coming home to roost. Congressional drilling bans, restrictions, refining permitting nightmares and the list goes on and on. It take 3.5 years to get a nuke plant approved in the US, a joke.
We have enough natural gas off our coasts to power us for generations but we are restricted from getting it. Want to save on oil? Lower the natural gas price so far below that of oil (by adding supply) and watch the millions of homes in the northeast that heat with oil, using over a thousand gallons each during a typical winter make the switch to natural gas to heat their homes.
Until that time, we are going to have to get used to higher prices for petroleum products, which, unfortunately cover a huge swath of the good we use daily.
The good news for Dow shareholders? Kuwait and Saudi JV’s. These price increases will stick and when production is moved to the Saudi and Kuwait facilities, Dow will be getting “the milk from the cow, not the farmer”. Essentially the equation enables Dow to get oil at below market prices and sell the finished good at market rates, expanding profits and margins. The other option, since input prices are lower, is keeping margins the same and sell finished good below market prices and capture share.
Either way, shareholders win big, eventually…
PS. On another note, how about Liveris standing there for not one but two interviews on CNBC today to announce the news? It was not some middle of the night press release followed by a “no comment” from management. Typical Liveris, “this is the deal and what we are doing about it” (quotes mine). You can count the number of CEO’s who do that on one hand.
For all his honesty and forthrightness regarding Dow, you would think more people would take what he says about the future of the company more seriously. No matter, either way, it will happen and by ignoring him, investors give me time to gobble up more shares, at a now rock solid 4.5% yield at sale prices….
Thank You
Disclosure (“none” means no position):Long Dow
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Here is a great post over at Seeking Alpha that takes Jim Cramer and compares him to Ben Graham’s Mr. Market.
The genesis was this classic flip flop from Cramer a week ago. It is making waves thanks to Don Harrold who put it together. CNBC has to do something about this guy. He will single handily ruin the credibility of the whole network.
Visit the ValuePlays Bookstore for Great Investing Books
Here is a great post over at Seeking Alpha that takes Jim Cramer and compares him to Ben Graham’s Mr. Market.
The genesis was this classic flip flop from Cramer a week ago. It is making waves thanks to Don Harrold who put it together. CNBC has to do something about this guy. He will single handily ruin the credibility of the whole network.
Visit the ValuePlays Bookstore for Great Investing Books
You know, if Congress would just listen to Jackson and Dow’s (DOW) Andrew Liveris on energy, we would be so much farther along the road than we are now.
We recently took a long position in AutoNation (AN). This interview Jackson did was what got me really looking into the company and considering a purchase.
This is a multi-year bet as auto sales do not look to turn soon but the demand will continue to build and when it releases, profits ought to flow…
It should be noted that famed value investors like Leucadia (LUK), Berkshire’s Buffett (BRK.A) are buying into the sector as it troughs.
Disclosure (“none” means no position):Long AN
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You know, if Congress would just listen to Jackson and Dow’s (DOW) Andrew Liveris on energy, we would be so much farther along the road than we are now.
We recently took a long position in AutoNation (AN). This interview Jackson did was what got me really looking into the company and considering a purchase.
This is a multi-year bet as auto sales do not look to turn soon but the demand will continue to build and when it releases, profits ought to flow…
It should be noted that famed value investors like Leucadia (LUK), Berkshire’s Buffett (BRK.A) are buying into the sector as it troughs.
Disclosure (“none” means no position):Long AN
Visit the ValuePlays Bookstore for Great Investing Books
Brown v Tilson, Meet the Press, Pledges, Paint
– Round 2
– Still won’t be the same
– Saw this coming
Visit the ValuePlays Bookstore for Great Investing Books
Brown v Tilson, Meet the Press, Pledges, Paint
– Round 2
– Still won’t be the same
– Saw this coming
Visit the ValuePlays Bookstore for Great Investing Books
UPGRADES
Sonic Solutions (SNIC)- Kaufman Bros Sell » Hold
Phase Forward (PFWD)- Needham Hold » Buy
Owens-Illinois (OI)- Banc of America Sec Neutral » Buy
Wimm-Bill-Dann Foods (WBD)- Credit Suisse Neutral » Outperform
JC Penney (JCP)- Deutsche Securities Hold » Buy
Cummins (CMI)- UBS Sell » Buy
Natl Oilwell Varco (NOV)- RBC Capital Mkts Underperform » Sector Perform
VisionChina Media (VISN)- Oppenheimer Perform » Outperform
DOWNGRADES
Perdigao S.A. (PDA)- Citigroup Buy » Hold
Cabot (CBT)- KeyBanc Capital Mkts Buy » Hold
Xyratex (XRTX)- Wachovia Outperform » Mkt Perform
Capital Trust (CT)- UBS Neutral » Sell
Motorola (MOT)- Piper Jaffray Neutral » Sell
MF Global (MF)- Keefe Bruyette Outperform » Mkt Perform
Xyratex (XRTX)- Robert W. Baird Outperform » Neutral
Acorda Therapeutics (ACOR)- Friedman Billings Outperform » Mkt Perform
Visit the ValuePlays Bookstore for Great Investing Books
UPGRADES
Sonic Solutions (SNIC)- Kaufman Bros Sell » Hold
Phase Forward (PFWD)- Needham Hold » Buy
Owens-Illinois (OI)- Banc of America Sec Neutral » Buy
Wimm-Bill-Dann Foods (WBD)- Credit Suisse Neutral » Outperform
JC Penney (JCP)- Deutsche Securities Hold » Buy
Cummins (CMI)- UBS Sell » Buy
Natl Oilwell Varco (NOV)- RBC Capital Mkts Underperform » Sector Perform
VisionChina Media (VISN)- Oppenheimer Perform » Outperform
DOWNGRADES
Perdigao S.A. (PDA)- Citigroup Buy » Hold
Cabot (CBT)- KeyBanc Capital Mkts Buy » Hold
Xyratex (XRTX)- Wachovia Outperform » Mkt Perform
Capital Trust (CT)- UBS Neutral » Sell
Motorola (MOT)- Piper Jaffray Neutral » Sell
MF Global (MF)- Keefe Bruyette Outperform » Mkt Perform
Xyratex (XRTX)- Robert W. Baird Outperform » Neutral
Acorda Therapeutics (ACOR)- Friedman Billings Outperform » Mkt Perform
Visit the ValuePlays Bookstore for Great Investing Books
While it may initially look a bad omen, the reality is that it is a very good move.
First, Marlboro and Marlboro Lights are the #1 cigarettes in the US, by a mile. Second, smoking is in decline and growth for the company will be had through increased market share of the above brands, cigars and smokeless products. Third where is the cash being used to develop and market this product better used?
The ongoing testing of smokeless products for the company are encouraging and being expanded to other markets.
This is where R&D dollars ought to be going. The company expects overall cigarette sales to fall at an annual rate of 2.5 percent to 3 percent in coming years. At the same time the smokeless market is experiencing growth of about the same percentage.
The move is a common sense one. Place dollars into a growth area vs a declining one. Eliminating smooth will have no negative effect on Marlboro sales for the company and having the flexibility to accelerate the smokeless products can only help.
Disclosure (“none” means no position):Long MO
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