Daily Archives: March 7, 2008

The $200 Oil Call… Outrageous or Circumspect? (GS, EP, UPL, FST, EAC, KWK)

If you thought oil prices of today are high with oil prices north of $105/barrel, imagine what a $120/barrel, or $150/barrel, or even $200/barrel oil would do.

A firm called United Energy now has a $120 target near-term for oil, and recently and at the end of February we saw Deutsche Bank ponder the thought of a $150/barrel price for oil.  Now we have Goldman Sachs (NYSE: GS) joining the fray with a call that at least ponders (not predicting) prices far north of its last $135 super-spike call that had been raised from $100/barrel.  Goldman Sachs isn’t really predicting $200 oil, but they are discussing the possibility of such.  One thing it has done is raised the lower-end floor of its 2008 to 2012 band to $60.00 per barrel.  It even noted that average selling prices were going to remain high: 

  • Average $95/barrel in 2008,
  • Average $105/barrel in 2009,
  • and Average $110/barrel in 2010.

Keep in mind this call was very much of a hedged call today that is more of a possibility and conceptual call, so don’t go out thinking that this was a do or die prediction.  Goldman Sachs did issue some favorite stocks in the oil patch as well, and it is keeping its predictions high for the sector and the commodities in there as well.  This would allow for more of these to oils to hike their dividends.  but we would note that less than a month ago we saw Goldman Sachs cut its coal targets.

It added Ultra Petroleum (NYSE: UPL) and Encore Acquisition (NYSE: EAC) to its America’s Buy List, but it simultaneously removed Forest Oil (NYSE: FST) and Quicksilver Resources (NYSE: KWK) from the list with neutral ratings.  Most refiner estimates were lowered as a result and is neutral on integrated oils in hopes of a pullback. It still has an attractive coverage view for these.  El Paso (NYSE: EP) was also raised to Buy in the coverage today to the Americas Buy List.

With oil north of $105 today, T. Boone Pickens is feeling major pain IF he is still short like he recently noted.  He’s been right the whole way up calling for $80 before he’s 80 and then calling for $100 in different calls in 2007.  Pleas keep in mind that Goldman Sachs has been making more positive calls in the group since mid to late-February so considering all of these as fresh calls is not really the case.  But a mere notion of $200/barrel is something that has many traders talking, and traders are using technical patterns and fear more and more right now.

Traders have been using oil and gold to hide out in to avoid the weakness in the U.S. Dollar.  If we see prices go that high, the United States will have to change the name of the currency to the US Peso.  We’ve already seen how OPEC is blaming the U.S. for current prices.  This would do wonders for Jim Cramer’s latest natural gas pick.

True die hard contrarians would be clamoring for this as an opportunity to sell, but being vocal about that right now would be no different than painting targets on their bodies head to toe.  In fact, finding any that are calling for the party to be over in oil is rather difficult.

Jon C. Ogg
March 7, 2008

Posted on: March 7, 2008 – 4:58 pm in Analyst Calls, Oil & Gas, , , , , ,

The 52-Week Low Club (WM)(NT)(BX)

Reddy Ice (NYSE: FRZ) Offices raided by Feds. Drops to $12 from 52-week high of $32.21.

Washington Mutual (NYSE:WM) One of the largest mortgage brokers. Falls to $9.91 from 52-week high $44.66.

Nortel (NYSE: NT) Telecom equipment company continues to struggle in a bad industry. Sells off to $6.71 frm 52-week high of $28.61.

Blackstone (NYSE: BX) One of the worst IPOs of all time. Down to $14.16 from 52-week high of $38.

Angiodynamics (NASDAQ: ANGO) Weak forecast for earnings. Sells off to $9.80 from 52-week high of $23.92.

Peoplesupport (NASDAQ: PSPT) Bad earnings and two brokerage downgrades. Off to $6.77 from 52-week high of $22.48.

Douglas A. McIntyre

Posted on: March 7, 2008 – 4:01 pm in HI/LOW, , , , , ,

Goldman Sees Possible $200 Oil

Goldman Sachs says that several factors could cause oil to spike to $200.

"As the lack of supply growth and price-insulated non-OECD demand suggest a future rebound in U.S. gross domestic product growth or a major oil supply disruption could lead to $150-$200 a barrel oil prices," Goldman said, according to MarketWatch.

Douglas A. McIntyre

Posted on: March 7, 2008 – 3:46 pm in Oil & Gas

NYSE Amendment To Allow For SPAC IPO’s (NYX, NDAQ)

The NYSE Euronext (NYSE: NYX) has made proposed rule changes this week that would allow the listing of Acquisition Companies (ACs) on the NYSE.  They are describing special purpose acquisition companies, or SPAC’s, and blank check companies.  As the NYSE is acquiring the American Stock Exchange, this is probably going to be viewed as an expected formality.

But there was also a SEC filing proposal that would allow the NASDAQ OMX Group Inc (NASDAQ: NDAQ) to get into the SPAC listing process as well.  There are some differences in their proposal as far as the time allowed for a SPAC to find an acquisition vehicle.

While the NYSE does have holding companies and tracking stocks listed,it has not openly gone out on a campaign to attract SPAC listings.This will allow for that rule after the AMEX acquisition, if not before.

Read More »

Posted on: March 7, 2008 – 2:24 pm in Exchange News, IPOs, Mergers and Buy Outs, Private Equity, ,

How Does GE (GE) Hit A 52-Week Low?

On the face of it, there is no way GE (NYSE: GE) should be at a 52-week low. The company is as solid as a rock, a "safe haven" stock. Its yield is 3.7%. But, today the stock did hit its period bottom at $32.47 down from its high of $42.15.

In 2007, GE had revenue of $172.7 billion and operating profit of $22.5.

GE’s forecast for 2008 would be the envy of most companies. It expects 10% or better EPS growth and organic revenue growth of two to three times GDP. Of course, GDP may not grow much this year.

The real problem that Wall St. has with GE is that three of its six operating segments are doing poorly. That leaves the big infrastructure and the company’s two financial operations to pull the majority of the load. If the infrastructure business hits a bad patch, it could undermine the earnings forecasts for the entire company.

Last year, the infrastructure business revenue rose 23% to $57.9 billion. Segment operating income for the unit was up 23% to $10.8 billion. That full-year operating income was more than the total of the industrial, NBC, and healthcare units combined.

It is hard to get investors excited about the three units at GE that cannot boast even modest success. Last year revenue at the healthcare unit rose just over 2% to $17 billion. Operating income fell slightly to just over $3 billion. Revenue at NBC Universal fell a 5% to $15.4 billion. Operating income was up 7% to $3.1 billion.

At GE’s industrial business revenue was flat at $17.7 billion. In Q4, a small amount of revenue was transfered from this segment to the commercial finance operation. Operating income in industrial segment rose 8% to $1.7 billion.

GE has made a great effort to convince Wall St. that its initiatives in emerging markets will drive double digit growth in regions including parts of Asia and India. Those areas are politically and economically volatile, so there are real risks in those forecasts.

The amount of patience that investors have in the industrial, healthcare,and NBC operations has almost certainly worn out. Until GE does something to improve its prospects in those businesses, the shares are not likely to recover.

Douglas A. McIntyre

Posted on: March 7, 2008 – 11:53 am in Consumer Electronics,

AbitibiBowater Financing Bonanza (ABH)

AbitibiBowater Inc. (NYSE: ABH) is seeing shares surge after the open this morning.  The paper and wood products company secured a financing pact that it had made a filing for earlier.

The company noted that this refinancing plan will fulfill its upcoming liquidity needs and will provide "sufficient financial flexibility."  The total refinancing plan is roughly $1.4 billion.  While the company is now based in Canada, the following terms are in U.S. Dollars:

  • $400-500 million of new 364-day senior secured term loan secured by working capital and other assets;
  • $400 million new senior secured notes or a term loan due 2011 secured by fixed assets;
  • $200-300 million of new equity or equity-linked securities of AbitibiBowater Inc.

The company will start an exchange offer for some $500 million of the near-term maturities and will close out the maturities that were coming due in April, June, and August.

Shortly after the open, shares are up 17% at $11.81, which is above when the company announced its intent to refinance its debt and well above the $9.10 low that was recently put in.  As far as a post-merger performer, this has been a disaster as the high was $37.45.

Jon C. Ogg
March 7, 2008

Posted on: March 7, 2008 – 9:54 am in Secondary Offering,

Ciena, Maintains Strength in Weak Climate (CIEN)

Ciena Corp. (NASDAQ: CIEN) is one of the few bright spots out there in the market this morning.  The company beat earnings expectations by posting $0.47 EPS and revenues were up over 37% from the same quarter last year to $227.4 million.  First Call had estimates at $0.40 EPS and $225.6 million in revenues.

The company is noting that indications from customers suggest no change in the strength of its business and it remains optimistic about the year.  While this includes the gains from the buyout of World Wide Packets, the company expects annual revenue growth of up to 27% in 2008.

Ciena shares are up 4% at $26.00 in active pre-market trading and the company’s 52-week trading range for the stock is $21.40 to $49.55.

Jon C. Ogg
March 7, 2008

Posted on: March 7, 2008 – 9:01 am in Earnings, Technology Companies, ,

Short Sellers Take Long Knives To Newspaper Stocks (MNI)(JRC)

Short sellers went after newspaper chains with a vengeance based on data from the NYSE as of February 29. The coverage ratio for Journal Register (NYSE: JRC) hit 52 days. The stock trades at $.80 down from a 52-week high of $7.08.

At McClatchy (NYSE: MNI), the number of days to cover its short position based on average volume moved to 28 days. McClatchy trades at $9.07 down from a 52-week high of $35.97.

Both newspaper companies recently had negative changes in their debt by credit ratings agencies.

Douglas A. McIntyre

Posted on: March 7, 2008 – 8:49 am in Short Interest, ,

Top Upgrades & Downgrades (AA, RDY, FCX, GLBL, LIFC, MKTX, MDT, PRTS)

These are some of the top analyst calls this morning:

  • Alcoa (NYSE: AA) cut to Market Perform at FBR.
  • Dr. Reddy’s (NYSE: RDY) cut to Hold at Citigroup.
  • Freeport-McMoRan (NYSE: FCX) cut to Market Perform at FBR.
  • Global Industries (NASDAQ: GLBL) raised to Buy at Jefferies.
  • LifeCell (NASDAQ: LIFC) started as Outperform at FBR.
  • Marketaxess (NASDAQ: MKTX) raised to Neutral at Credit Suisse.
  • Medtronic (NYSE: MDT) started as Market Perform at FBR.
  • US Auto Parts (NASDAQ: PRTS) cut to Neutral at Piper Jaffray.

Jon C. Ogg
March 7, 2008

Posted on: March 7, 2008 – 8:39 am in Analyst Calls, , , , , , , ,

Fed Opens The Term Auction Facility To $100 Billion

The Fed announced this morning that the amounts outstanding in the Term Auction Facility (TAF) will be increased to $100 billion.  The auctions on March 10 and March 24 each will be increased to $50 billion–an increase of $20 billion from the amounts that were announced for these auctions on February 29.

In addition that agency initiate a series of term repurchase transactions that are expected to cumulate to $100 billion.  These transactions will be conducted as 28-day term repurchase (RP) agreements in which primary dealers may elect to deliver as collateral any of the types of securities–Treasury, agency debt, or agency mortgage-backed securities–that are eligible as collateral in conventional open market operations.

Douglas A. McIntyre

Posted on: March 7, 2008 – 8:27 am in Banking

Europe Markets 3/7/2008 (RTP) (SI) (AXA)

Markets in Europe were down sharply at 6.40 AM New York time.

The FTSE fell 1.2% to 5,697. BHP Billiton (BHP) dropped 4.4% to 1606. Rio Tinto (RTP) fell 3.3% to 5613.

The DAXX sold off 1.2% to 6,512. Siemens (SI) was off 1.6% to 81.9. Thyssen Krup was down 3.5% to 36.8.

The CAC 40 dropped. 1.1% to 4,625. AXA (AXA) was down 2.7% to 20.55. Veolia Environnement was down 6.5% to 51.37.

Data from Reuters

Douglas A. McIntyre

Posted on: March 7, 2008 – 6:46 am in International Markets, , , ,

As Blackstone (BX) Shares Fall, Analysts Cut Ratings

Analyst Michael Hecht of Bank of America has cut his earnings estimate for Blackstone Group (NYSE: BX) by half for the next quarter from $.25 to $.11. Blackstone’s stock now trades at just over $15 down frrom a 52-week high of $38.

The reason for the drop, according to The New York Post is "leveraged buyouts plunged by more than two-thirds in the second half of 2007 from the first half."

Douglas A. McIntyre

Posted on: March 7, 2008 – 6:33 am in Brokerage Firms,

Microsoft (MSFT) And Google (GOOG) Bidding For Digg?

Digg, the huge user-contributed content site, is up for sale, according to TechCrunch. The likely bidders are, of course, Microsoft (NASDAQ: MSFT) and Google (NASDAQ: GOOG), who seem to be willing to make any land-grab they can to increase their internet footprints. The price is rumored to be $250 million.

The deal would be a chance for one of the companies to extend its search activity over another very large internet audience. Both companies have also made huge investments in companies which serve and target display advertising. The Digg users could help monetize the capital investing into those initiatives.

Now the question is what is for sale next?

Posted on: March 7, 2008 – 6:24 am in Internet, ,

As Boeing (BA) Pushes Congress, It Risks Business In Europe

The management of EADS sits in Europe watching pork-eating members of Congress talk about the hearings they will hold in an attempt to change the Air Force’s decision to buy $35 billion in air tankers from the Airbus parent and Northrop Grumman (NYSE: NOC). It should come as no surprise that the members leading the charge are from Washington State and Kansas where Boeing (NYSE: BA), which lost the contract, has factories.

The shouting about the Boeing set-back has turned surly and menacing. Some politicians believe that since the French did not support the US in Afghanistan and Iraq, they do not deserve to get US military money for the tanker project. Several House members are concerned that EADS may steal technology secrets during the project of building the planes.

The US has a complaint against Airbus at the WTO alleging unfair trade practices. Perhaps that is enough of an excuse for moving the contract back to Boeing.

The real argument, of course, is about jobs. The Congressmen and Senators in states where Boeing plants operate cannot go back to voters there and say that they did nothing to help the locals get better employment.

Congressman John Murtha, who chairs the House of Representatives Appropriations subcommittee, went so far as to say "This is as political as anything that we do. This committee funds this program. All this committee has to do is stop the money, and this program is not going to go forward," according to Reuters.

But, Congress risks an aerospace Cold War if it continues down it present path. All of the evidence from the Air Force shows that it got a much better plane and a much better deal from the Northrop Grumman group which included EADS. Reversing the decision would be arbitrary, a sign that the best bid means little.

On the other side of the Atlantic the French and German governments, which own large pieces of EADS have some leverage. They can encourage their flag carriers to cancel orders for Boeing commercial aircraft which would undermine the US company’s finances.

The tanker issue is uglier than it seems and could lead to a out-and-out trade war.

Douglas A. McIntyre

Posted on: March 7, 2008 – 6:15 am in Defense, ,

Microsoft (MSFT) Talks Trash About Google (GOOG)

Microsoft (NASDAQ: MSFT) is going to take significant market share from Google (NASDAQ: GOOG) and cut the search company’s lead as the most successful internet company in the world, with or without a buy-out of Yahoo! (NASDAQ: YHOO). Thus says Steve Ballmer.

"So it may be my last breath at Microsoft, but we’re going to be there, working away, building share," said Ballmer according to Reuters. He also defending the company’s bid for Yahoo! as the best way for both companies to challenge Google.

The most revealing thing about the comments from the Microsoft CEO is that he plans to chase Google under any circumstance. That raises the question of how much Redmond is willing to spend to be a strong No. 2 in search.

One way to look at Microsoft’s plan for picking up a larger part of the internet audience is that it is willing to spend $44 billion to buy Yahoo!. But, if the Yahoo! deal does not work, that leaves Microsoft with a huge pool of capital to move its position forward.

It is not beyond the realm of possibility that Microsoft would put several billion dollars into R&D to improve its own search technology. It is also likely that the company would be willing to invest hundreds of millions of dollars to build traffic to its MSN brand.

One of the most troubling aspects of the Microsoft culture, for both investors and competitors, is that it will spend a seemingly endless amount of money to move itself to the front of the line in industries where it wants to play. The Xbox may be the best example of that. The losses it has taken in its online businesses over the years is another.

Doubting Microsoft’s resolve to cut away at Google’s lead would be a mistake. Ballmer is clearly ready to spend his billions whether he gets his merger or not. He likes wars of attrition because he has won so many of them

Douglas A. McIntyre

Posted on: March 7, 2008 – 5:56 am in Internet, , ,

Washington Mutual (WM) Goes Begging For Cash

Washington Mutual (NYSE: WM) went and got itself a tin cup. Federal regulators want it to raise more money so that it can lend more money. The mortgage bank is making the rounds of private equity firms and sovereign funds looking for that elusive few billion dollars.

According to The Wall Street Journal "Regulators are publicly urging even healthy banks to replenish their coffers so that they can keep lending and expanding their businesses if the U.S. economy continues to weaken."

For once, the government is doing something which makes sense to drive the economy. New money will not only allow some banks to save themselves from insolvency. It will encourage them to lend money into the economy.

Washington Mutual has an especially significant role as one of the largest mortgage lenders. With news that Citigroup (C) will sharply cut its activity in the mortgage markets, the places for consumers to get home loans is dropping.

One of the most critical keys to improving the economy is getting home-buyers back into the market to suck up some of the huge inventory which is driving housing values lower. Banks which refuse to make loans or charge high interest rates to make larger spreads on the mortgages because they have cheap capital from the Fed are exacerbating the most damaging trend in the US economy.

If people won’t buy homes, prices fall and foreclosures rise. Rising foreclosure lead to more bank write-offs. More write-offs lead to a more cautious lending environment.

If the government can push Washington Mutual and its peers to raise more money, the vicious cycle might be broken.

Douglas A. McIntyre

Posted on: March 7, 2008 – 5:39 am in Banking, ,

Recession Over: Sharper Images Takes Gift Cards Again

When Sharper Image’s sales fell so low that it could not make its debt service, the retailer filed for Chapter 11. Part of its cost cutting was a decision to stop taking gift cards that unsuspecting customers had bought for their friends.

But, Sharper Image reversed itself and will allow the cards to be redeemed. There is a twist, a way to get some cash into the retailer’s bank account. According to the AP "In a statement, the company explained that a customer holding a $25 gift card could only use it to buy at least $50 worth of items." The gift card has not value for that $10 pocket knife. Customers will have to step up to the $150 line of kitchen knives if they want the $25 credit.

"While not a complete solution, it does provide immediate satisfaction to customers on a voluntary basis, Chief Executive Robert Conway said.

Very sneaky.

Douglas A. McIntyre

Posted on: March 7, 2008 – 5:23 am in Retail

Consumer Confidence Crashes

One of the key measures of consumer confidence fell through the floor. The RBC Cash Index dropped to 33.1 in early March, down from 48.5 in February.

The figure was the worst since the survey began in 2002 according to the AP.

"The U.S. consumer is definitely in full defensive mode," said T.J. Marta, a fixed-income strategist at RBC Capital Markets.

Douglas A. McIntyre

Posted on: March 7, 2008 – 5:18 am in Economy

NYSE Short Interest Hits Record Led By Huge Increases In Financials

The short interest on the NYSE hit an all-time record for the period ending February 29. Figures by company compare to shares sold short on Ferbruary 15.

Financial firms had significant increases in short interest. At Citigroup (C) the number rose 25.8 million shares to 118.6 million. At Wells Fargo (WFC) the figure moved up 12.3 million to 108.8 million. At Wachovia (WB) short interest jumped 6.3 million shares to 103.2 million. At Fannie Mae shares short rose 14.7 million to 66.5 million.At Freddie Mac (FRE) short interest soared 13.4 million to 53.5 million.

Shares short in telecom companies AT&T (T), Verizon (VZ), and Qwest (Q) also rose by a significant margin.

Largest Short Positions

Company                                       Shares Short

Ford (F)                                         228.6 million shares short

Washington Mutual                        152.9 mllion

Citigroup                                       118.6 million

Wells Fargo                                  108.8 million

Wachovia                                     103.2 million

Countrywide (CFC)                        102.3 million

Qwest                                           98.4 million

AMD (AMD)                                   93.4 million

Micron (MU)                                   89.0 million

Home Depot (HD)                           66.7 million

Fannie Mae                                   66.5 million’

GM (GM)                                      66.5 million

EMC (EMC)                                  65.8 million

Largest Increase In Short Position

Company                                      Increase

Citigroup                                       25.8 million increase

Fannie Mae                                  14.7 million

Applied Waste                              13.5 million

Freddie Mac                                 13.4 million

Well Fargo                                    12.3 million

DH Horton                                      9.5 million

Largest Decreases In Short Position

Company                                     Decrease In Shares Short

Calpine                                        10.0 million decrease

Bank of America (BAC)                  8.1 million 

MGM                                            6.2 mllion

Delta (DAL)                                   5.6 million

Huntsman                                     5.4 million

Sprint (S)                                      5.3 million

Data from NYSE

Douglas A. McIntyre                                 

Posted on: March 7, 2008 – 4:02 am in Short Interest, , , , , , , , , , , , , , ,

Media Digest 3/7/2008 Reuters, WSJ, NYTimes, FT, Bloomberg

According to Reuters, falling home prices could keep buyers on the sidelines until they see a bottom.

Reuters writes that a Microsoft (MSFT) deal with Yahoo! (YHOO) could hurt Google (GOOG) in Asia.

Reuters reports that foreclosures hit a record as household wealth fell.

Reuters writes that the IMF sees a slowing US economy but no recession.

The Wall Street Journal writes that problems are getting worse at Carlyle Capital as lenders are liquidating some of the firm’s portfolio.

The Wall Street Journal writes that banks that loaned money to hedge funds are asking for some of it back and want more cash or assets on the balance sheet of firms before making more loans.

The Wall Street Journal writes that Washington Mutual (WM) and other banks are going to private equity firms and sovereign funds to raise more capital as regulator push financial firms to improve their ability to lend.

The Wall Street Journal writes that Apple (AAPL) has added new features to the iPhone to make it more attractive to business users.

The Wall Street Journal writes that Citigroup (C) will scale back its mortgage lending.

The Wall Street Journal writes that GM (GM) in increasing plant closings due to a strike at a parts supplier.

The FT writes that EADS is putting together by-laws that would restrict foreign investment in the Airbus parent.

Bloomberg writes that profits at Fortis dropped 45% on a $2.3 billion subprime write-down.

Douglas A. McIntyre

Posted on: March 7, 2008 – 3:40 am in Press Digest, , , , , ,