Daily Archives: March 5, 2008

Ubiquitous 20th Century Brands That Will Disappear

Several brands which were extremely powerful during the last few decades are about to disappear. Many of them no longer drive big sales. Some are a part of companies that are in trouble. Some are part of industries which are falling apart.

Big brands disappear all the time. Sometimes we simply miss their passing. Cingular Wireless was on most Top 100 brands lists. Once AT&T (T) took over BellSouth, it dropped Cingular completely. Compaq was one of the most visible PC brands in the world. It began to fade away after it was bought by Hewlett-Packard (HPQ). The IBM PC brand, one of the original PC brands, no longer exists since it was acquired by Lenovo, a Chinese company, several years ago.

Here is a list of brands, most over them a decade old, and some much older, which are likely to go away in the next year or two.

XM Satellite Radio (NASDAQ: XMSR) will disappear either in a merger with Sirius (NASDAQ: SIRI) the acquiring company will use its brand for both services or because without a merger XM may not make it. The company has over $1.2 billion in long-term debt. XM has always been the service with the largest number of subscribers. The XM brand could begin to disappear a few months after the potential marriage is complete.

E*Trade (NASDAQ: ETFC) has survived in a discount brokerage business where a number of famous brands, like Quick & Reilly, have gone away because of mergers. For the time being, management at the company says it does not want to sell out, but the firm’s $12 billion in home equity loan exposure may make staying independent impossible. The most likely buyers of E*Trade would be TDAmeritrade (NASDAQ:AMTD) and Schwab (NASDAQ: SCHW). It would be ironic if a discount broker brand disappears because it was scuttled by its mortgage business but the housing crisis does things like that.

K-Mart is one of the two big brands at Sears Holdings (NASDAQ: SHLD), Eddie Lampert’s failing retail play. Based on same store sales for last year, K-Mart is the less successful of the two retail operations. Spending to promote K-Mart and Sears may cost more that the holding company can afford. It certainly makes sense to kill off the K-Mart name and re-label all of the stores with Sears. It could save hundreds of millions in promotion dollars every year.

Dodge is part of the Chrysler company which was recently bought out by private equity firm Cerberus. Chrysler management has already said that the company has too many brands and too many dealers. It is trying to cope with a vicious downturn in the US auto market. Keeping a car brand means huge advertising and marketing costs and product development. Dodge vehicles will probably be re-branded as Chrysler and Dodge will go the way of the Dodo.

Circuit City (NYSE: CC) has been synonymous with electronics retail, but companies like Best Buy (NYSE: BBY) and Wal-Mart (NYSE: WMT) have brought too much marketing muscle and wholesale buying power to the industry. Outside investors are already circling Circuit City trying to "improve shareholder value". That means that there is a good chance the chain will be sold. The price of the company’s shares has already dropped from over $30 less than two years ago to just over $4. Best Buy could be the most logical buyer by keeping the locations that do well and closing the rest. Virtually all the merchandising, management, and public company costs would go away as would the Circuit City brand.

Gateway was recently bought by Taiwan PC firm Acer. Some investors may not remember when Gateway was considered a peer of both Dell (NASDAQ: DELL) and Compaq. In 1993, Gateway was in the Fortune 500.  Acer will not keep the Gateway brand and its own. The dual promotion costs are too high. Starting soon you will be buying an Acer PC online or at your electronics retailer.

Vonage (NYSE: VG) almost invented VoIP. It certainly made it popular. Then cable companies began to market the service to existing customers and much of the "first mover" advantage Vonage had went away. Patent suits from companies like Verizon (NYSE: VZ) and other big telecom companies bled away most of the cash that Vonage raised in its IPO. Two years ago, the stock was above $17. Now it trades at under $2. Vonage still loses money. One the large cable companies is likely to take over the Vonage customer list and let the brand disappear.

Yahoo! (NASDAQ: YHOO) is still trying to keep itself out of the hands of Microsoft (NASDAQ: MSFT), but with a $31 offer and no other bidders even close, Redmond is going to take over. Microsoft is not generous about letting other brands have the limelight. Yahoo!’s brand will last while the e-mail and instant message operations are integrated, but soon enough it will all be MSN.

Old Navy is one of Gap’s (NYSE: GPS) three brands and it is the one that is pulling down overall sales at the big clothing company. Old Navy has a little over one thousand outlets. Maintaining the costs of separate buying, marketing, and management costs just isn’t worth it. Soon, the Old Navy stores will just be Gaps.

Countrywide (NYSE: CFC) had an operation on almost every street corner, or so it seemed. The mortgage bank would give almost anyone a home loan.They were not so generous when foreclosure time came around. Bank of America (NYSE: BAC) is buying Countrywide. The CFC brand has so much negative baggage and such a poor image that BAC will be smart and quickly put its name on all of the Countrywide branches.

Motorola (NYSE: MOT) is still likely to sell its large handset unit to someone. It simply loses too much money and it is dragging the company under, As Motorola’s stock price drops, the amount it will take for its handset operation will drop. LG, Sony Ericsson, or Samsung are probable buyers at some price, and that price gets more affordable as Motorola’s global market share drops. That Motorola phone is likely to be called an LG handset sometime next year.

Douglas A. McIntyre 

Posted on: March 5, 2008 – 7:49 pm in Consumer Goods, , , , , , , , , , , , , , , , , , , , ,

Cramer Goes Trolling For High Yields (ED, PBT)

On tonight’s MAD MONEY on CNBC, Jim Cramer was talking about the decline and fall of the value of cash compared to being invested, and in particular how to avoid the value of the declining dollar.  His answer here is chasing high yield stocks because you yield less and less in cash right now.  He thinks this is even more the case with only 15% income tax on dividends.

His first stock noted was Consolidated Edison Inc. (NYSE: ED) with its 5.7% yield and steady and solid business in power supply.  This jumped almost 1% after he noted it in after-hours to $41.38 and its 52-week trading range is $40.57 to $52.90.

His second stock is a US energy trust because the companies here (LP’s usually) do not pay taxes as long as they pay out almost all of their income.  With oil prices staying high he likes the U.S. trusts better than the Canadian trusts because the 15% tax penalty for U.S. citizens that buy these. His favorite is the Permian Basin Trust (NYSE: PBT) because of a mix between oil and gas located in Texas.  But this one has a 12% yield and he thinks it could actually become a higher yield.  This popped 3% in after-hours to $20.00 after he talked it up, and that is above the 52-week range of $12.45 to $19.43.

A while back, Cramer gave some of his Canadian picks in the group he thought that could be acquired in the space.

Jon C. Ogg
March 5, 2008

Posted on: March 5, 2008 – 6:32 pm in Cramer, Dividend, ,

Delta (DAL) And Northwest (NWA) Pilots Talk Again

Late word is that Delta (NYSE: DAL) and Northwest (NYSE: NWA) pilots have re-started talks about seniority in a combined airline. Failure of negotiations helped kill earlier merger talks between the airlines.

According to Bloomberg, "The sessions were the first between the airlines’ work groups since negotiators failed to agree two weeks ago on how to combine the seniority rankings of 12,000 pilots."

The news may actually be bad for NWA and DAL shareholders. It is not clear that merging two airlines benefits shareholders. Fuel costs stay at present level. Labor costs often go up as groups including pilots look for ways to improve contracts with the new company.

Customer service virtually always deteriorates sending consumers to other airlines. Revenue erosion becomes a real possibility.

Douglas A. McIntyre

Posted on: March 5, 2008 – 5:13 pm in Airlines, ,

Mercadolibre, An Earnings Jumping Bean (MELI)

MercadoLibre, Inc. (NASDAQ: MELI) posted quarterly revenue increased 73.9% to $26.9 million, with an operating income margin increase to 27.1%. It also reported income from operations of $7.3 million and a net income increase of 188% to $5.3 million.  First Call had estimates pegged at $26.88 million for revenues.

New confirmed registered users for the three-month period ended December 31, 2007 were 1.6 million. Total confirmed registered users increased to 24.9 million as of December 31, 2007, an increase of 37.1% over December 31, 2006.  Its gross merchandise volume was $461.0 million in Q4-2007, up 40.2% from Q4-2006. Successful items sold through MercadoLibre totaled 4.8 million during Q4-2007, up 17.9% from Q4-2006. Total payment volume was $56.8 million, up 86.8% over Q4-2006.

Some comments from Marcos Galperin, President & CEO were, "….we delivered revenue growth of 73.9% and operating income margins of 27.1%. Growth rates were strong across all of our business units as well as all of our key geographies. Clearly, we are continuing to benefit from the positive growth trends influencing internet,
broadband and PC penetration rates in Latin America, and we believe this course will persist for many years to come…. we intend to leverage our leadership position and the industry dynamics in Latin America to further drive top-line growth and sustain margins throughout the year…"

As of the close, its market cap was $1.64 Billion, so at $85.1 million in 2007 revenues this one trades at 19-times trailing revenues; and with analyst targets at $132.3 million for 2008, this trades at 12-times revenues.  Mercadolibre was featured by Jim Cramer as a winner, although the shares are far lower after running up initially from his "look at it now" point.  Shares closed up 3.5% at $37.12, and the initial response is slightly higher by less than 1% in after-hours trading.  Its 52-week trading range is $21.00 to $81.17.

Jon C. Ogg
March 5, 2008

Posted on: March 5, 2008 – 4:24 pm in Earnings, Internet, ,

The 52-Week Low Club (FNM)(MYL)(PDLI)

Moneygram (MGI) Deal to buy company falls apart. Drops to $2.45 from 52-week high of $30.67.

Universal American Financial (UAM) Cuts profit view for the year.Drops to $11.47 from 52-week high of $26.50.

Fannie Mae (FNM) Down on debt sales news. Drops to $23.84 from 52-week high of $70.57.

Mylan Labs (MYL) Weak outlook for upcoming period. Sells off to $10.67 from 52-week high of $22.90.

PDL Biopharma (PDLI) Cutting large numbers of jobs and halting M&A. Falls to $10.36 from 52-week high of $27.98.

UCBH Holdings (UCBH) Bank issues revision of loan-loss provisions taken during the fourth quarter. Sells down to $8.82 from 52-week high of $20.22.

Douglas A. McIntyre

Posted on: March 5, 2008 – 4:22 pm in HI/LOW, , , , , ,

ETF Launch: PowerShares India Portfolio (PIN, INFY, IBN, SAY, SLT, TTM, WIT)

We have now seen two Indian stock ETF’s successfully launch in the last few weeks.  This morning there was another ETF launch on NYSE, although you can see the February news release with the full details.  The PowerShares India Portfolio Fund Exchange Traded Fund listed under the ticker symbol "PIN" and began trading on NYSE Arca today.  This ETF is based on the Indus India Index and tracks the performance of the Indian equity markets as a whole with representation across the consumer products, information technology, health sciences, financial services, and heavy industry sectors.

According to the press release at NYSE, the following NYSE listed ADR shares are a part of the index currently included in the Indus India Index:

  • Infosys Technologies Ltd. (NASDAQ: INFY), ICICI Bank (NYSE: IBN) Satyam Computer Services (NYSE: SAY), Sterlite Industries (NYSE: SLT), Tata Motors (NYSE: TTM), Wipro Ltd. (NYSE: WIT)

As a reminder, because of percentage foreign ownership limitation rules and because of ADR conversions, many US-traded ADR’s actually trade at premiums to shares traded locally in India.  WisdomTree also recently launched an ETF that tracks Indians stocks at the local exchange level.

Jon C. Ogg
March 5, 2008

Posted on: March 5, 2008 – 12:58 pm in ETF, , , , , , ,

AbitibiBowater Ready To Tap The Money Pits (ABH)

AbitibiBowater Inc. (NYSE: ABH) has just set the stage to raise additional capital, although it was known that some of this may be coming down the pipe.  The company has filed prospectus for an open S-3 that would allow the company to sell securities either in debt, preferred, common stock, or warrants.  No dollar amounts were offered and no underwriters were named.

AbitibiBowater produces a wide range of newsprint and commercial printing papers, market pulp and wood products in the U.S., Canada, and around the globe.  On October 29, 2007, Abitibi-Consolidated Inc. and Bowater Inc. completed their merger of equals.  If you have kept up with the newspaper and print publishing industry woes over the last 24 months and combined with a freshly-closed merger and a weakening economy for most of its products, this is no surprise at all that the company wants to raise funds.

The company did amend some credit facilities recently and had already noted that it was exploring multiple financing alternatives for additional liquidity in 2008 and 2009.  It also has debt maturities of more than $300 million coming up but the combined old-co filings rather than new-co filings need to be verified to see what maturities are still outstanding.  Its 10-K is still outstanding so we can’t compare this on an apples to apples basis.  Analysts are still cautious on this stock, although the target price looks much higher because of the huge drop seen over the last 6-months.  This stock has fallen sharply since being relaunched as a combined company as shares have fallen from north of $30 to under $10 before today’s 10% recovery.  Shares were north of $15.00 before earnings at the end of February.

Because of the way the economy is heading and because of the domestic newsprint industry in the U.S. and Canada, it’s just hard to get excited here.  The short interest is rather large at 12.77 million shares on last look which is about 10 days worth of average trading volume.  Only that huge drop and major short interest makes this one of any interest.  We’ll stay tuned for any further developments because this one would act like a spring board on anything that resembles good news. 

Our first suggestion for use of funds after repaying the upcoming debt maturities would be simple: a name change.

Jon C. Ogg
March 5, 2008

Posted on: March 5, 2008 – 11:59 am in Secondary Offering, , , ,

Auction-Rate Failures Rise

While the debate continues over whether banks and brokerage houses had any obligation to keep the auction-rate market open, almost 70% of the auctions failed this week.

According to Bloomberg yield on the muni-bond debt traded on the auction-rate market "averaged 6.52 percent as of Feb. 28, up from 3.63 percent before demand evaporated in January."

Douglas A. McIntyre

Posted on: March 5, 2008 – 11:33 am in Brokerage Firms

Sony (SNE) Seeing No US Recession

Sony (NYSE: SNE) is still selling its share of television in the US and a poor economy, to the extent that it exists, is not keeping people away.

"We have already had a solid January and February," said Stan Glasgow, president and chief operating officer of Sony Electronics, the company’s $12 billion U.S. unit according to Reuters. Sony also said it expects to sell five million Blu-ray players this year.

The comments by the large consumer electronics company indicate that there are still some pockets of strength in US. Video game sales were strong as of the last NPD data.

Perhaps people can’t stand not being entertained.

Douglas A. McIntyre

Posted on: March 5, 2008 – 11:27 am in Consumer Electronics,

Bad Day For Oil

For starters, OPEC decided to hold oil production steady. The US had begged for an increase.

Now, Venezuela is sending ten tank batallions to the Columbian border due to its dispute with the government there.

Two for one.

Douglas A. McIntyre

Posted on: March 5, 2008 – 9:42 am in Oil & Gas

Big Lots Short Sellers Run for the Hills (BIG)

Big Lots Inc. (NYSE: BIG) has managed to beat lower and lower estimates this morning and its guidance for fiscal 2009 has sent the short sellers scrambling.  The discount retailer posted $0.93 EPS for ite quarter-end in January, above the First Call estimates of $0.84. Revenues came in at $1.41 Billion, in-line with expectations.  These numbers are lower than last year’s results on both sales and net earnings, but this one was essentially spring loaded to pop up on any news that wasn’t bad.

Big Lots issued first quarter upside guidance as well with an EPS range of $0.30-0.35, above the consensus estimate of $0.26 EPS.  The guidance targets set for its fiscal year Jan-2009 came in at 1.70 to $1.80 EPS before non-recurring items, which is well above First Call estimates of $1.53 EPS.  Last quarter those same targets were $1.59, so this is still better than the expected numbers from even then.

We noted in our earnings preview over the weekend that literally any good news would send that huge short interest running to cover shares.  The company had been plagued by less good news from last year that began turning into bad news gone worse.  If you think about it, maybe a slowing economy is driving more clients to its stores.  For 2008 it is even forecasting a 1% to 2% gain in its comparable store sales, so it looks like the company’s strategy might finally be paying off.  It’s even calling for slightly higher margins.

The company completed its prior $600 million share buyback and has completed $113 million of its new $150 million plan.  It disclosed that it has since completed the remaining balance there.

Right at the open shares are up 15% at $19.80, and the stock has traded in a range of $12.40 to $36.15 over the last 52-weeks.  It appears nothing lasts forever, not even the bad side of a slowing economy for a company that has been plagued by bad news.

Jon C. Ogg
March 5, 2008

Posted on: March 5, 2008 – 9:36 am in Earnings, Retail,

Pfizer Sets Its 2008 Path For Analysts (PFE)

Pfizer Inc. (NYSE: PFE) has given some of its basic data points for its analyst meeting today.  For starters, the company has reaffirmed its guidance for 2008 that it previously offered.  That guidance is listed as a reported EPS of $1.78 to $1.93, adjusted diluted EPS of $2.35 to $2.45, $47 to $49 Billion in revenues, a cost decrease of $1.5 to $2 Billion, and free cash flows of $17 to $18 Billion.

We recently gave our own targets on this and others in the Dogs of the Dow, and also noted this one as a replacement to Merck for the first half of the year in a sub-sector of our "go to defensive stocks" that we assigned in the value stock sector.

The drug giant noted that it has 16 phase III programs today and that it plans to have some 24 to 28 trials in its Phase III pipeline by the end of 2009.  The pipeline covers targets from cancer to pain to diabetes and it also plans 15 to 20 regulatory submissions between 2010 and 2012.

It has also given three key compound targets that are expected to move from Phase II to Phase III:

  • CP-751871, an IGF-1R inhibitor to treat gastrointestinal, genitourinary, lung and breast cancer;
  • CP-690550, its JAK-3 inhibitor to treat rheumatoid arthritis, transplant rejection, psoriasis, Crohn’s disease, and asthma;
  • PF-734200, its DPP-IV inhibitor for the treatment of diabetes.

Pfizer said that it added 7 clinical candidates, which includes 4 biologics, during 2007 in prioritized disease areas, and it currently has 26 biologics which span 8 therapeutic targets.  The company’s efforts in pain medicines have a total opportunity of roughly a $45 billion market that is still untreated.

Pfizer also confirmed that it is establishing a new group to focus solely on oncology in its Worldwide Pharmaceutical Group.  It also outlined its Asian pharmaceutical market opportunity, which was listed as $47 Billion and it wants to take its current 4% market share up to 6% there by 2012.

Pfizer’s comments should be coming out most of the morning and later today.  In early pre-market trading shares are up 1% at $22.50, and its 52-week trading range is $21.56 to $27.73.

Jon C. Ogg
March 5, 2008

Posted on: March 5, 2008 – 8:32 am in Drug companies, Pharmaceuticals,

WiMax Gets Big Win In India (S)(CLWR)

Sprint (NYSE: S) and Clearwire (NASDAQ: CLWR) may want to move to India. According to The Inquirer Tata Communications plans to have 15 major cities using its retail WiMax solution by early 2009. It also plans to hook up 110 cities for business customers.

The company said that the reason it has picked WiMax is that it is the least expensive way to bring broadband to a wide area.

Pakistan is in the process of building a similar.

Douglas A. McIntyre

Posted on: March 5, 2008 – 8:27 am in WiMAX, ,

LP IPO Spin-Off: K-Sea GP Holdings LP (KSP)

K-Sea GP Holdings LP has filed to come public via an initial public offering this morning. It has filed to sell up to $100 million in LP units for filing purposes, although that number may change as it is a nominal amount for filing purposes.  The new LP will trade on the New York Stock Exchange and the proposed stock ticker has not yet been set.  Joint book runners are listed as Lehman Brothers and Citigroup.

This is a Delaware limited partnership that was just formed in December 2007, and its cash generating assets consist solely of partnership interests in K-Sea Transportation Partners L.P. (NYSE: KSP).  KSP provides marine transportation, distribution and logistics services for refined petroleum products that operates a fleet of 73 tank barges, 1 tanker and 59 tugboats serving oil companies, oil traders and refiners with about 4.3 million barrels of capacity.

At KSP’s current annualized cash distribution rate of $2.96 per common unit, or $0.74 per common unit per quarter, aggregate annual cash distributions to this news LP on the interests in KSP will be approximately $15.5 million, which represents some 35% of the total cash distributed by KSP.   That entitles the new LP to receive increasing percentages of its incremental cash distributed in excess of $0.55 per KSP limited partner unit in any quarter.

Jon C. Ogg
March 5, 2008

Posted on: March 5, 2008 – 7:56 am in Oil & Gas,

24/7 Wall St. Interview With TradeKing CEO Don Montanaro

24/ Wall St:. If the economy continues to drop and the markets sell off another 10% will there be a significant impact on discount brokerage earnings? What could the magnitude of that be for the publicly-traded firms?

Don:The answer differs from firm to firm.  Not all “discount brokers” are alike.  Some firms rely more on an “asset-gathering” strategy than a transaction-oriented model.  A firm like Charles Schwab, for example, derives a smaller portion of their revenue from trading-related revenues, and more from their share of the interest they keep on the client assets they hold.  So, if the effect of a market decline is less retail trading, that piece of the revenue pie shrinks for all, but matters to some more than others.  Similarly, reduced ability to make money from interest revenue due to the compression of those rates hurts players focused on that strategy more.  A further factor is the type of client each firm attracts.  Firms like TradeKing who cater to the needs of retail options traders, especially, have an army of clients that know which plays to run to make money in not only up, but sideways, volatile and down markets.  Finally, private firms, like TradeKing, are not under quarter-to-quarter pressure from the public markets to deliver X pennies per share earnings, so we enjoy the freedom not to have to change advertising or strategic course during a rough patch in order to make the next earnings announcement.

Read More »

Posted on: March 5, 2008 – 7:53 am in Uncategorized

Costco Mostly In-Line Earnings (COST)

Costco Wholesale Corp. (NASDAQ: COST) has posted earnings of $0.74 per share EPS on revenues of $16.62 Billion.  First Call had estimates at $0.74 on EPS and $16.85 Billion in revenues.

For Feb/March, Costco reported total sales of $5.11 Billion for the four weeks ended March 2, 2008, which was an increase of 11% net and its February same-store sales increased 7.0%.

As of last look, analysts still had a target of roughly $71.00 on the stock.  Costco closed at $62.39 yesterday and the 52-week trading range is $51.52 to $72.68.

Jon C. Ogg
March 5, 2008

Posted on: March 5, 2008 – 7:42 am in Earnings, Retail,

Top 10 Pre-Market Analyst Calls (DD, ELN, LOGI, MSFT, OMPI, PDLI, RRGB, RMG, WHR, XFML )

These are not all of the analyst calls moving stocks this morning, but these are the top ten individual analyst calls that 247WallSt.com is focusing on this morning:

  • DuPont (NYSE: DD) started as Outperform at Credit Suisse.
  • Elan (NYSE: ELN) started as Outperform at Credit Suisse.
  • Logitec (NASDAQ: LOGI) started as Buy at Citigroup.
  • Microsoft (NASDAQ: MSFT) started as Buy at Jefferies.
  • Obagi Medical (NASDAQ: OMPI) raised to Outperform at Oppenheimer.
  • PDL BioPharma (NASDAQ: PDLI) cut to Equal-Weight at Lehman Brothers.
  • Red Robin Gourmet Burgers (NASDAQ: RRGB) raised to Overweight at JP Morgan.
  • RiskMetrics Group (NYSE: RMG) started as Outperform at Credit Suisse; started as Neutral at Banc of America.
  • Whirlpool (NYSE: WHR) downgraded to Underweight at JPMorgan.
  • Xinhua Financial Media (NASDAQ: XFML) downgraded to Neutral at JP Morgan.

Jon C. Ogg
March 5, 2008

Posted on: March 5, 2008 – 7:12 am in Analyst Calls, , , , , , , , , ,

Europe Markets 3/5/2008 (HBC)(SI)

Markets in Europe were up about 1% at 6.35 AM New York time.

The FTSE rose .7% to 5,810. British Airways was up 3.3% to 258.75. HSBC (HBC) was up 2.5% to 788.

The DAXX rose 1.3% to 6,632. Siemens (SI) was up 1.9% to 84.34. Commerzbank was up 3.2% to 19.21.

The CAC 40 moved up 1.2% to 4,732. EADS jumped 3% to 18.77. Societe General moved up 2.5% to 69.09.

Data from Reuters

Douglas A. McIntyre

Posted on: March 5, 2008 – 6:41 am in International Markets, ,

An Energy User’s Guide To The Universe

Oil prices are at $100 and may go higher. OPEC says that is because of speculators driving the prices up. The US government says it is supply. Over time, supply wins the argument. At some point less oil is available and a lot of people will still want it. That may be a decade out and it may be two decades. Based on comments from some oil executives, it could be sooner.

The plan was that alternative fuels would start to replace oil. It was a good plan. Biofuels come from a renewable source. Grow more corn, grow more wheat. Oil supplies are finite. Crops are not.

The argument for biofuels has started to fall apart. Shares in VeraSun (VSE) have been driven to a 52-week low of $7.75, down from a period high of $.21.47. The high price of the commodities it needs is killing its prospects. Corn may be replaceable, but not at the rate that the alternative energy business needs. The drop in most stocks in the sector also restricts their access to raising new capital.

From an economic standpoint, biofuel are a bust. Since commodity prices could stay high for several years, the math to change that is not going to get better.

The good thing about biofuels is that they did not have the emotional baggage that sources of energy like coal and nuclear do. Coal is bad for the environment. Nuclear is dangerous. Whether those things are true of not, the prevailing wisdom is hard to overcome.

Solar fuel may end up being a good replacement for oil, but that is likely a long way off. It is a solution for home heating, but whether it will work for cars, trucks, and planes is a different matter. No one likes his car to stop working when it rains.

The pathway out of significant dependence on oil lead through the corn field to companies like VeraSun. Right now, the cost of goods is blocking that path, and will for a long time.

Douglas A. McIntyre

Posted on: March 5, 2008 – 6:32 am in Oil & Gas,

The Election Gets Bad For The Stock Market

Since the next President will not sit in his or her office until next January, there is little that person can do, directly at least, about the current economic crisis. Many, if not most, of the mortgages which will fail in the US will fail between now and early next year. There is a wave of ARMs that reset over the next few quarters.

Interest rate policy belongs to the Fed. The new President may have a bully pulpit, but it is not one which will be mounted until rates have been dropped at least two or three more times.

An economic stimulus package should be passed by mid-year. It will probably be worth $150 billion, most of its in tax rebates. Whether that will work to keep the economy going is a matter of debate.

What does bother the stock market is that there may be no decision on who the candidates will be until late Summer. Sen Clinton did well enough yesterday to make that likely. Traders hate uncertainty. The already face it in great bushel baskets as the economy loses steam, the dollar gets deeper into trouble and commodities prices take off.

Once each party has a nominee, the debate about what should happen to fix the economy can begin in earnest. The market will at least have a betting pool which is down to two horses. The number of options for economic policy that Wall St. will face in 2009 and beyond will be fairly clear.

Having three viable candidates is like having a hundred. Those still in the race will play off one another and pander to people in the parts of the economy that may give them votes. Pinning down three people is much more difficult than pinning down two. Two is a choice. Three is mayhem.

Wall St. wants to begin to make its plans for 2009. That is being put off as long as Clinton and Obama are both in. It give the markets one more thing to fret about.

Douglas A. McIntyre

Posted on: March 5, 2008 – 6:15 am in Economy