Buffett, Donuts, Blogger vs MSM, Blogger vs MSM Part II
– Buffett on hedge funds
– I’d put my money on Annello
Visit the ValuePlays Bookstore for Great Investing Books
Categories
Categories
Tuesday’s Links
Buffett, Donuts, Blogger vs MSM, Blogger vs MSM Part II
– Buffett on hedge funds
– I’d put my money on Annello
Visit the ValuePlays Bookstore for Great Investing Books
Categories
Tuesday's Upgrades and Downgrades
Upgrades
CBRL Group (CBRL)- Avondale Mkt Perform » Mkt Outperform
Hanesbrands (HBI)- CL King Neutral » Strong Buy
Met-Pro Corp (MPR)- Brean Murray Hold » Buy
ASM Intl NV (ASMI)- Jefferies & Co Underperform » Hold
Novo-Nordisk A/S (NVO)- HSBC Securities Underweight » Neutral
Webster Financial (WBS)- Keefe Bruyette Mkt Perform » Outperform
Eaton (ETN)- JP Morgan Neutral » Overweight
Macrovision (MVSN)- Piper Jaffray Neutral » Buy
Downgrades
Nokia (NOK)- AmTech Research Buy » Neutral
Tercica (TRCA)- Stanford Research Buy » Hold
Clorox (CLX)- BMO Capital Markets Outperform » Market Perform
Microsemi (MSCC)- Needham Buy » Hold
Encore Energy (ENP)- Stanford Research Buy » Hold
Amylin Pharms (AMLN)- Jefferies & Co Buy » Hold
TEKELEC (TKLC)- Deutsche Securities Buy » Hold
ATA Inc (ATAI)- Susquehanna Financial Positive » Neutral
Spreadtrum Comms (SPRD)- Roth Capital Buy » Hold
Murphy Oil (MUR)- JP Morgan Neutral » Underweight
Visit the ValuePlays Bookstore for Great Investing Books
Categories
Tuesday’s Upgrades and Downgrades
Upgrades
CBRL Group (CBRL)- Avondale Mkt Perform » Mkt Outperform
Hanesbrands (HBI)- CL King Neutral » Strong Buy
Met-Pro Corp (MPR)- Brean Murray Hold » Buy
ASM Intl NV (ASMI)- Jefferies & Co Underperform » Hold
Novo-Nordisk A/S (NVO)- HSBC Securities Underweight » Neutral
Webster Financial (WBS)- Keefe Bruyette Mkt Perform » Outperform
Eaton (ETN)- JP Morgan Neutral » Overweight
Macrovision (MVSN)- Piper Jaffray Neutral » Buy
Downgrades
Nokia (NOK)- AmTech Research Buy » Neutral
Tercica (TRCA)- Stanford Research Buy » Hold
Clorox (CLX)- BMO Capital Markets Outperform » Market Perform
Microsemi (MSCC)- Needham Buy » Hold
Encore Energy (ENP)- Stanford Research Buy » Hold
Amylin Pharms (AMLN)- Jefferies & Co Buy » Hold
TEKELEC (TKLC)- Deutsche Securities Buy » Hold
ATA Inc (ATAI)- Susquehanna Financial Positive » Neutral
Spreadtrum Comms (SPRD)- Roth Capital Buy » Hold
Murphy Oil (MUR)- JP Morgan Neutral » Underweight
Visit the ValuePlays Bookstore for Great Investing Books
Categories
Icahn Sends Yahoo (YHOO) Another Letter
This is great stuff……….
Roy Bostock
Chairman
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089
Dear Roy:
After reading Yahoo!’s (YHOO) press release put out on Friday in response to my letter
of that morning, I cannot help but wonder if you even read my letter.
Again, Yahoo! keeps repeating misstatements in the hope it will convince its
shareholders that these misstatements are valid. I cannot understand why the
Yahoo! board feels so strongly about its “poison pill” severance plan and why it
continues to refuse to rescind it. How can you continue to repeat that your
severance plan is in the best interests of shareholders and employees? Indeed,
Yahoo!’s own compensation advisor called the severance plan “nuts.” Is it not
true, as the shareholder complaint stated, that Microsoft’s (MSFT) CEO earmarked $1.5
billion for employee retention (a benefit you neglected to tell your employees
about)? Is it not better to incentivize employees to stay in their jobs than to
quit? Instead of just continuing to repeat the mantra that we have made an
inaccurate interpretation of your severance plan, why do you refuse to go into
detail as to why our interpretation is incorrect? Additionally, a New York paper
reported this weekend that “sources close to Microsoft said the severance plan
was a “big issue” when deciding what price they could pay for Yahoo!”
In your press release from Friday, you stated again that I do not have a
credible plan for Yahoo! Did you even bother to read my letter, which went into
great detail on what measures I would ask the new board to take? Ironically,
while you keep inquiring about my plans, it is interesting to note that Yahoo!’s
board has been busy reaping great compensation benefits. Indeed, you made
approximately $10,000 per week last year – not bad for a board member. I believe
most of your shareholders would be interested in seeing your time sheets –
especially in light of the fact that, in my estimation, most of your so-called
“plans” over the last few years have been failures. Remember the old adage –
those who live in glass houses should not throw stones. Perhaps most
importantly, under my plan, I would ask the Board to bring in a talented and
experienced CEO to replace Jerry Yang and return Jerry to his role as “Chief
Yahoo!” It is extremely important to note that Google hired a great operator as
a CEO who helped to transform the Company into a giant at the expense of Yahoo!
According to publicly available financial information, while Google’s income
from operations grew 59% per year over the last two years, Yahoo!’s income from
operations shrank 21%. What was the board doing over this period? Where was
their great “plan”? I believe a new CEO with operating experience might well
have had and might still have a very salutary impact on Yahoo! I ask again what
your great “plan” has been over the last few years. Why did you permit Google to
leave you in the dust?
I outlined a number of questions in Friday’s letter. Why don’t you do me the
courtesy of answering my questions as I have answered yours?
Sincerely yours,
CARL C. ICAHN
Disclosure (“none” means no position):None
Visit the ValuePlays Bookstore for Great Investing Books
Categories
"Fast Money" for Tuesday
TUESDAY’S PICKS
Jeff Macke recommends Pier One (PIR) $5.26 as a bounce back play.
Tim Seymour prefers Tata Motors (TTM) $12.17 as a stock that’s been unfairly beaten up.
Pete Najarian thinks GameStop (GME) $45.83 is a buy.
MONDAY’S RESULTS
None
2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 1-1
Jon Najarian= 4-3
Jeff Macke= 44-37-1
Tim Seymore= 17-14
Guy Adami= 48-37
Pete Najarian= 43-39
Karen Finerman= 42-33-1
Joe Terrenova= 1-3
2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%
Visit the ValuePlays Bookstore for Great Investing Books
How stupid do those folks who slept outside for days for a phone feel? They could have waited a year, got a better phone from apple (AAPL) for 1/3 the price….
By the way, Jobs did not actually say it but we all know “actions speak louder than words”…..
Apple finally admitted its sales strategy was a failure today having only sold 6 million phones in year 1 and only 2.4 million to date.
Here is a photo we should have seen from day one:
Jobs botched this one big time. Has this been the price from day one, he would have crushed the market and not given time for competitors (Verizon (VZ) Research in Motion (RIMM) and Sprint (S)) to get their own versions of it working. It took a market share slide to finally convince him that just because something is from Apple, people are not dumb enough to pay whatever he wants to charge. Well some are, but most aren’t.
I expected my post last night to garner the typical Appleholic rage from supporters, I guess they are too busy licking their wounds today????
The real irony here? Even though the stock has sold off and probably will continue to do so for a while on the news, long term, this is the best thing. The phone would have NEVER been a big seller even at $399.
Disclosure (“none” means no position):Sold Apple July $280 Calls in January
Visit the ValuePlays Bookstore for Great Investing Books
I have not found a reason to doubt Einhorn yet and actually, if one is following it, one must believe him more as each day passes….
Listen to what Einhorn has to say first about Lehman (LEH):
Now listen to what Faber says CFO Erin Callahan says:
Here is how it priced:
Not for nothing but where is CEO Dick Fuld? Why aren’t the media demanding he be the face of the company rather than the CFO? The company is imploding and he is sending Callahan out there for crucifixion. Why?
There comes a point in time when the guy or gal in charge need to be out in front. I mean if they will get rid of Jimmy Cayne for playing bridge, is it now ok for Fuld to hide in his office? What is the difference really?
Here is what it comes down to. Lehman now is at a point where they are either not telling the truth, or, do not have a handle on what they hold. Either is very bad for shareholders.
This is the singular reason comments from Einhorn have so much weight. He right now seems to be the only one who is both being totally honest AND has a handle on what is going on there.
Disclosure (“none” means no position):None
Visit the ValuePlays Bookstore for Great Investing Books
In part three we discuss Dow Ag and the agricultural sector in general including DuPont (DD) and Monsanto (MON).
Todd:
Dow Ag. Roughly a third of earnings in the most recent quarter were Dow Ag. After you sell the commodity business we are looking well in excess of that. I have not been able to find what percent of future earnings you expect them to be and what type of growth and how far out, as right now you are at about 20-25% annual EPS growth at Dow Ag. Going out 2009-2010 and beyond, to me 20% -25% EPS growth there seems sustainable if not surpassable. Accurate or no?
Andrew:
I think you are more accurate than not, remember the current % of Dow earnings is because AG is front loaded. It tends to be a first half year event for all of us because we are in the northern hemisphere and that’s whether its Dow (DOW), DuPont (DD) or Monsanto (MON). The whole year happens in the first six months. We have some southern hemisphere exposure notably Brazil and Argentina and my country Australia, but most of it is titled towards the northern hemisphere as a % of total earnings. Those numbers are distorted at this moment, but if you take the whole year and you say in ’07 Dow AG earned about 10% to 15% of Dow’s earnings but their growth rate was like you said 20 some odd percent for the last five years.
They achieved that through 2 mechanisms one of which will continue to be a big plus that will ultimate if not continue that 20% ramp up it will get very close. The first mechanism is we have been levering Dow’s considerable operational efficiencies over to Dow’s Agroscience. Even though it is a small co. $3 to $4 billion in revenue it has the power of a $50 billion co. in terms of operational excellence in its manufacturing, plants and supply chain. In its governance and share services it operates with its access to big company infrastructure, that’s number one.
That’s helped a lot of the cost line. Number two, the most exciting part is its pipeline. I mean, four years ago we made a conscious decision we said,”look, we’re never going to be a big seed co. because its too expensive, one of these days we might be able to find an answer on U.S. corn, but between now and then let’s rev up the technology engine and frankly not just in bio and seeds and traits in germplasm, but also in crop chemicals.” I don’t care what people say, GMOs will not replace crop chemicals in totality because growers will always need variety in their toolbox, its about diversity of solution and biotech cannot answer everything.
So we said “let’s put R & D in focus on the pipeline that we now have” in crop chemicals in particular things that are not just in corn, but outside of corn, in cotton, rapeoil and canola, in seed ,in soy beans and of course over range and pasture. The crop chemical R & D pipeline we have right now and what we have done in traits and in particular our new traits that we have announced plus the SmartStax agreement with Monsanto, have put us in a tremendous position. By 2010 when SmartStax gets launched, when our new traits get launched and our crop protection pipeline comes through, the R & D engine will yield real margin expansion for Dow AG.
I happen to think that Dow Ag in many ways doesn’t need to have big revenues b/c its margins at 16%, 18%, 20% bottom line margins is packing a big punch in terms of its ability to deliver margin despite its size. We’re increasing the R & D spending there. Dow Ag has a quarter of the R & D spending as a company which is a phenomenal statement when considering the size of the company we are and out thee in the future Todd we might be able to find rationalization opportunity and I will say out there, we’ll find another one. In the meantime keep making that growth story.
Todd:
That was actually the next question. Ag sector valuations are stratospheric just now.
Andrew:
Oh yea, I mean look, what were seeing now of the whole food change now started by corn and ethanol, that whole thing. Having said that, we’re seeing China, this whole point about China’s surge and as the Chinese eat more protien, eat more animals, those animals have to be nutured on agriculture, agriculture comes from feed, feed comes from corn and you know, there you go.
The food price things is real because of China’s assention and I do think that’s going to get worse before it get better and I think the world is going to have to address it. I do not know what the systems will be. I do think the poverty side of it is big. The agricultural sector and the commodity boom in agriculture is compelling valuations to stratospheres, I mean Monsanto is the great flag carrier there, they are doing great and it wasn’t long ago they were on their knees.
Disclosure (“none” means no position):Long Dow, none
Visit the ValuePlays Bookstore for Great Investing Books
Do you know what 1.7 out of 10 equals. The number of iPhones Apple (AAPL) has sold in 2008 (Q1) vs the goal they have set. Now news comes of drastic prices cuts. Where is that crazy English guy who does the Sunday morning infomercials? He could move a few…
Because of this, it now seams Apple has realized the obvious and will accept iPhone’s being sold perhaps even below $200 and in an effort to help carries subsidize the price cuts, will be foregoing some of the monthly revenue they receive from subscribers.
Just over a year ago, before the iPhone hit the shelves I said “a $599 phone will not gain mass acceptance no matter what is does, lower the price to $299 and you’ll have something”
Not long after the launch, Apple dropped the price of the phone to $399 and was forced to issue $100 rebates to irate folks of questionable mental functionality who waited in line for days to BUY A PHONE.
Recent news has seen Apple fall farther behind Research in Motion’s (RIMM) Blackberry in the corporate market.
If that was not bad enough, Apple lost share to both RIMM and Palm in the total market for smart phones last month. Losing share to RIMM is one things, but Palm?
Apple fans will excuse this as Job’s and co. “emptying the shelves” of the old version to get ready for the new one. Right, because Job’s MO since day one has always been about willingly falling behind the competition. A better excuse is the 3G phone is just behind schedule and someone planned poorly. Remember, we have been hearing about this coming out “any day” since January.
Why did they fall behind? A pinched consumer will not pay $400 for a phone. I can get a Blackberry Pearl for $99 and a Palm for the same. Apple fails to realize (or only now has) that they are selling a phone, not a technological revolution. When you add recent and upcoming competitive products from Verizon (VZ) and Sprint (S), you further crown a market Apple is by far the most expensive in for a strapped consumer.
Apple fan will scream “tech talk” about why the Apple offering is so superior, pretty and “cool” at the top of their lungs. Guys………..IT’S A PHONE….PERIOD. You want to get $599 for it? Stop selling iPods, them folks will have to buy it in order to listen to their music. Not really too realistic though.
Steve Jobs will hit the stage Monday and reveal the “3G” that according the Apple fans will even be able to light my grill and flip the steaks. He will also for the first time accept massive price cuts on a superior product (to the old version). If this is not an admission Job’s and Crew misjudged the market, nothing is.
Apple fans will also claim this is some sort of “master plan” from Jobs. I seem to remember when I did not want to pay $399 for a ipod, I found one for $149 with less than half the memory and one for $99 for one with almost none. At no time did I have the ability to buy a superior version for far less money. Remember, an iPhone for under $200 will be a 50% price cut.
Will Apple hit their goal now? Probably. But, it is not because of a 3G version though. It is because they will most likely finally price the phone at a price point most sane people will actually pay FOR A PHONE.
Now that is done, Apple devotees are free to yell from the roofs at me, curse, swear, threaten, and take partial sentences mix them up to try to twist what I say all in an effort to ….well…..I do not know why they are like that.
Of, course what they could just as easily say is, “when we called you a $%#&$ last year for suggesting the phone was overpriced, we were wrong and you were right”. Doubtful though….
Disclosure (“none” means no position):Sold Apple July $280 calls in January
Visit the ValuePlays Bookstore for Great Investing Books
Do you know what 1.7 out of 10 equals. The number of iPhones Apple (AAPL) has sold in 2008 (Q1) vs the goal they have set. Now news comes of drastic prices cuts. Where is that crazy English guy who does the Sunday morning infomercials? He could move a few…
Because of this, it now seams Apple has realized the obvious and will accept iPhone’s being sold perhaps even below $200 and in an effort to help carries subsidize the price cuts, will be foregoing some of the monthly revenue they receive from subscribers.
Just over a year ago, before the iPhone hit the shelves I said “a $599 phone will not gain mass acceptance no matter what is does, lower the price to $299 and you’ll have something”
Not long after the launch, Apple dropped the price of the phone to $399 and was forced to issue $100 rebates to irate folks of questionable mental functionality who waited in line for days to BUY A PHONE.
Recent news has seen Apple fall farther behind Research in Motion’s (RIMM) Blackberry in the corporate market.
If that was not bad enough, Apple lost share to both RIMM and Palm in the total market for smart phones last month. Losing share to RIMM is one things, but Palm?
Apple fans will excuse this as Job’s and co. “emptying the shelves” of the old version to get ready for the new one. Right, because Job’s MO since day one has always been about willingly falling behind the competition. A better excuse is the 3G phone is just behind schedule and someone planned poorly. Remember, we have been hearing about this coming out “any day” since January.
Why did they fall behind? A pinched consumer will not pay $400 for a phone. I can get a Blackberry Pearl for $99 and a Palm for the same. Apple fails to realize (or only now has) that they are selling a phone, not a technological revolution. When you add recent and upcoming competitive products from Verizon (VZ) and Sprint (S), you further crown a market Apple is by far the most expensive in for a strapped consumer.
Apple fan will scream “tech talk” about why the Apple offering is so superior, pretty and “cool” at the top of their lungs. Guys………..IT’S A PHONE….PERIOD. You want to get $599 for it? Stop selling iPods, them folks will have to buy it in order to listen to their music. Not really too realistic though.
Steve Jobs will hit the stage Monday and reveal the “3G” that according the Apple fans will even be able to light my grill and flip the steaks. He will also for the first time accept massive price cuts on a superior product (to the old version). If this is not an admission Job’s and Crew misjudged the market, nothing is.
Apple fans will also claim this is some sort of “master plan” from Jobs. I seem to remember when I did not want to pay $399 for a ipod, I found one for $149 with less than half the memory and one for $99 for one with almost none. At no time did I have the ability to buy a superior version for far less money. Remember, an iPhone for under $200 will be a 50% price cut.
Will Apple hit their goal now? Probably. But, it is not because of a 3G version though. It is because they will most likely finally price the phone at a price point most sane people will actually pay FOR A PHONE.
Now that is done, Apple devotees are free to yell from the roofs at me, curse, swear, threaten, and take partial sentences mix them up to try to twist what I say all in an effort to ….well…..I do not know why they are like that.
Of, course what they could just as easily say is, “when we called you a $%#&$ last year for suggesting the phone was overpriced, we were wrong and you were right”. Doubtful though….
Disclosure (“none” means no position):Sold Apple July $280 calls in January
Visit the ValuePlays Bookstore for Great Investing Books
Categories
Lehman To Raise $5 Billion
Will Lehman’s (LEH) Erin Callahan try to blame Greenlight’s David Einhorn for this one?
Despite saying the last round of capital raising they did “wasn’t really necessary”, The WSJ reports that Lehman is about to hit up investor for another $5 billion.
Lehman “is close to raising more than $5 billion of fresh capital from an array of investors including the New Jersey Division of Investment, according to a person familiar with the matter.
The move comes as the firm is set to report a second-quarter loss of more than $2 billion, this person said. Until recently, most analysts who follow Lehman have been predicting a loss of about $300 million.
On Sunday afternoon, the firm was still pulling together final details of the capital raising, which could be announced Monday or Tuesday” according to the Journal.
The additional capital will be raised through the issue of common shares. With a market cap of $17 billion, Lehman is about to dilute shareholders by around 25% -30%, ouch.
Someone will pay for this and tops on the list are the face of the company, Erin Callahan. We are in a time now that if you say “A” and “E” happens, back up your desk. For Callahan, this will not only be the first but the second time she has told investors things are ok only to go out and raise billions soon after.
Doesn’t matter how well dressed you are, time to “look for other opportunities”. At least if she plays bridge she’ll have partners in Jimmy Cayne (Bear Stearns (BSC)), Chuck Prince (Citi (CC)), Ken Thompson (Wachovia (WB)), and Stan O’Neil (Morgan Stanley (MS)).
Soon or later these folks will learn, tell the truth, even if it isn’t pretty…
Disclosure (“none” means no position):None
Visit the ValuePlays Bookstore for Great Investing Books
Categories
Investing in Real Estate with Heebner
After all the recent real estate news, I have decided it is time to go into the sector.
Here is the thing. I lack the ability to properly value a builder (so do they it appears from recent results) and most of us investors do not have the access to some of the more esoteric products out there that can provide superior returns. When that happens, it is time to look at someone who does.
I am going with Ken Heebner at Capital Growth Management (CGM) and his CGM Realty Fund (CGMRX)
Definition
A company is considered to be in the real estate industry if construction, ownership, management, financing or sales of residential, commercial or industrial real estate account for at least 50% of its gross revenues or net profits. Companies in the real estate industry include the following:
• REITs that own properties or make or invest in construction, development or long-term mortgage loans;
• housing and building materials companies;
• real estate brokers or developers; and
• companies with significant real estate holdings, including hotel chains and mining, lumber and paper companies.
Management Style.
Rather than following a particular style, the Fund’s investment manager employs a flexible approach and seeks to take advantage of opportunities as they arise. In making
an investment decision, the Fund’s investment manager will generally employ the following method:
• it uses a top-down approach, meaning that it first analyzes the overall economic factors that may affect sectors of the real estate industry and potential investments;
• it then conducts a thorough analysis of certain realty industries and companies that the investment manager believes have stable or improving prospects, evaluating the fundamentals of each on a case-by-case basis and focusing on companies that it determines are attractively valued based on price to earnings ratios and growth rates;
• the investment manager will sell a security if it determines that its investment expectations are not being met, better opportunities are available, or its price objective has been attained.
Portfolio Turnover.
The Fund’s objective is to provide a combination of income and long-term of capital and the Fund does not purchase securities with the intention of engaging in short term
trading. The Fund will, however, sell any particular security and reinvest proceeds when it is deemed prudent by the Fund’s investment manager, regardless of the length of the holding period.
Additional Information
The Fund may invest up to 20% of its total assets in debt or fixed-income securities of a quality below investment grade (i.e., securities rated lower than Baa by Moody’s Investors Service, Inc. (‘‘Moody’s’’) or lower than BBB by Standard & Poor’s Ratings Services (‘‘S&P’’), or their equivalent as determined by the investment manager)
These may include securities commonly referred to as ‘‘junk bonds’’. Investing in junk
bonds is an aggressive approach to income investing. The Fund may also invest up to 20% of its assets in repurchase agreements, by which the Fund buys securities with the understanding that the seller will buy them back with interest at a later date.
Heebner has a 38% annual return the last 5 years during both up and down real estate markets. The funds expense ration is .9% and has a $2500 minimum or $1,000 for IRA’s.
Disclosure (“none” means no position):Long CGMRX
Categories
"Fast Money" for Monday
MONDAY’S PICKS
None
FRIDAY’S RESULTS
Jeff Macke is bullish on Microsoft (MSFT) $28.30 CLOSE $27.49 LOSS
Guy Adami recommends getting long Intel (INTC) $23.87 after Nat Semi revenues topped expectations.CLOSE $22.90 LOSS
Pete Najarian likes Excel Maritime (EXM) $52.77 on increasing shipping rates. CLOSE $49.09 LOSS
Karen Finerman thinks J. Crew (JCG) $36.89 is a buy. CLOSE $35.02 LOSS
2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 1-1
Jon Najarian= 4-3
Jeff Macke= 44-37-1
Tim Seymore= 17-14
Guy Adami= 48-37
Pete Najarian= 43-39
Karen Finerman= 42-33-1
Joe Terrenova= 1-3
2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%
Visit the ValuePlays Bookstore for Great Investing Books
In this section Mr. Liveris and I discuss US energy policy (or lack thereof) and
Todd:
US energy policy. I had several questions planned here but you have been all over TV the last week and a half answering them for me..
Andrew:
(Laughing) And I am not done yet, I am determined to shake this all loose because we are just shooting ourselves in the foot very effectively as a nation.
Todd:
There was an “American Energy Production Act” Senate Republicans just introduced recently, have you seen it?
Andrew:
The drilling one right?
Todd:
Yes, they said it would produce an estimated 24 billion barrels of oil a day and 47 trillion cubic feet of nat. gas.
Andrew:
Certainly the bill recognizes the problem. It is a Republican bill and certainly I appreciate Senator Domenici’s work on it. However, the country need a bill both Democrats and Republican can support
I was in Washington yesterday and I had meeting after meeting. I actually think I might get deported here eventually [laughter] . You know I’m just screaming from the rooftops to get real with our energy policy.
Todd:
Let’s say you left Washington and they said “this guy is right, let’s do everything he said we should”. Even if they did that and they started at the earliest next spring, after the election, what kind of lag based on your experience is it 2 years, 5 years before anything they do now actually takes hold and excess production comes online.
Andrew:
Well we went through this in 2005 with the Lease Sale 181 in the inter-continental shelf of the US. The US gulf we were told that time and I think this is still very true that there are some known fields of oil and gas that can easily be tapped into current infrastructure especially on the US gulf they could be on the street in 12-18 months. Not as big as the numbers you just quoted, because on the outer edge that would be Anwar and that could be as far away at 4-5 years because of the pipeline.
We take a window and if you said “let’s go now” I think the earliest is 18 months and the latest is five years. But something else happens which is very important. The world as speculators look at supply very differently. We have a real supply issue because demand is surging and everyone thinks that there is not enough supply. Supply is bottle-necked in two places. One is availability of actual oil and gas of course in our Country we’re not accessing it and it will take 18 months to five years to accomplish that. Overseas its ships and freight and there are not enough ships on the water to get all this oil to everyone to get all this gas to everyone. So that’s one bottleneck.
The second bottleneck is refining capacity which as you know this country won’t permit refineries. I think the only one under construction today is Valero’s (VLO) in Texas. No one wants a refinery in their back yard. So you have this ridiculous situation of Reliance building the world’s largest refinery in India and all the products are for exporting to the United States.
So those two bottlenecks will take several years, if you take those two bottlenecks out by passing laws, I think there will be an instantaneous reaction to price.
Part Three: Dow Ag
Disclosure (“none” means no position):Long Dow, None
Visit the ValuePlays Bookstore for Great Investing Books