Monthly Archives: May 2008

Kerkorian’s Folly: Putting Money Into Ford (F)(GM)(MOT)(BBI)(YHOO)(MSFT)

Kirk Kerkorian may be able to join Carl Icahn as a billionaire who has taken a lot of mad gambles recently. According to Reuters, "Kerkorian’s investment vehicle Tracinda Corp said it would continue to tender for 20 million Ford (F) shares at $8.50 each, despite an 18 percent decline in the shares since the offer was launched on May 9."

Over the last year or so, Icahn managed to dump money into Motorola (MOT) on the assumption that its handset business could be fixed or sold. Neither has happened. Its global share has gone from a peak of 22% to under 10%. It has no products to keep the slide from continuing. MOT trades at just over $9, down from a 52-week high of $19.58. Based on any available information, there is no reason to think the stock price has a future at better levels.

Icahn has also dumped money into Yahoo! (YHOO) on the assumption that he can win a proxy fight and take control of the company. At that point, Microsoft (MSFT), which tried to purchase the portal company for as much as $33 but was turned down, can do a deal with Icahn. The trouble is that Redmond now says it has lost interest in the acquisition.

Although the event was longer ago, it is worth remembering that Icahn took a big piece of Blockbuster (BBI) and put some of his own people on the board. The digital age has ruined the movie rental company’s business model and competition has put it into a box.

Kerkorian must not have spent enough time in Detroit. Ford and GM (GM) are on a death watch. They may not have the capital to make it through the next two years. Domestic car sales are in deepening trouble because of a recession and the high price of gas. Ford recently abandoned its own hope of making money in 2009. The US auto makers will cut more costs, but there must be a limit to that.

Kerkorian is living proof that the very rich can be stupid.

Douglas A. McIntyre

Posted on: May 31, 2008 – 6:59 pm in Uncategorized, , , , , ,

Our Man Greenspan: On The “Bubble” Watch

Alan Greenspan has frightened away the specter of economic "bubbles." He spoke and the economy must obey.

According to Reuters, the former Fed head said "he does not expect another "bubble" in world markets for a long time, and that central banks at any rate do not control the long-term interest rates that can be related to bubbles."

The statement, along with others about housing and the recession, are likely to help him sell his new book.

Greenspan’s point, which may have the benefit of being true, is that central banks cannot always stop sharp increases in market prices simply by raising rates.

For all he knows, he theory is being proved correct as he speaks.

Douglas A. McIntyre

Posted on: May 31, 2008 – 6:27 pm in Economy

Pension Funds Find Another Way To Lose Money

Pension funds are outstanding when it comes to losing money. Tired of the old ways of just putting money into stocks and bonds, they now invest in private equity, venture capital, derivatives, and commodities futures. Perhaps they have forgotten that they invest on behalf of old people who need that money.

Recently the managers of cash for the retired and future retired have put money into mortgage-backed paper and auction-rate securities. No risk is too good for them.

Now, it appears that the funds have loaded up on bets that commodities and oil will move up. With these prices finding tops, at least short term, it is fair to ask how bad things could get if the bet on something going up ends up going down.

According to Reuters, "Pension funds and other investors who rushed into oil through commodity indexes this year chasing big returns as other asset classes tanked could face steep losses if prices fall from record highs."

All of that money rushing in almost certainly helped create a bubble in commodities prices. When the cash begins to rush out again the crash may be remarkably brutal.

Douglas A. McIntyre

Posted on: May 31, 2008 – 6:19 pm in Research

Tivo (TIVO): More Trouble It Can’t Afford (DISH)(SATS)

Tivo (TIVO) was such a promising consumer electronics start-up. The firm owned the digital video recorder business and then that was taken away from it by the cable companies, satellite companies, and products ranging from PCs to the Slingbox. There isn’t much of Tivo left.

Tivo has been able to get a few licks in with the competition by taking them into court for patent infringement. The fighting over IP issues has gotten so bad that it extends to suits over what each company says in public about the others.

According to The Wall Street Journal "Dish Network Corp (DISH). and EchoStar Corp (SATS). filed a lawsuit against TiVo Inc. in response to what it said were statements by TiVo that the satellite television companies’ new digital-recording software infringes one of TiVo’s patents."

An outstanding use of shareholder money.

Douglas A. McIntyre

Posted on: May 31, 2008 – 6:10 pm in Consumer Electronics, , ,

This week on Stockhouse May 26 – 30

Wall Street started a short week off with a bang, as U.S. stocks rose Tuesday on upbeat new home sales data and falling oil prices. Wednesday saw better-than-expected durable goods data, which kept the Dow slightly in the green. On Thursday, Wall Street continued its uptrend as oil prices fell once again and encouraging GDP data was released. The TSX was quiet Monday with Wall Street closed for Memorial Day, kept in positive territory by oil and gas stocks. However, on Tuesday, weak earnings releases from both BMO and Scotiabank brought the Canadian markets down. Energy stocks picked the TSX back up again on Wednesday but caused it to fall on Thursday. Shares in the financial sector kept the TSX from going too deep into the red on Thursday, despite lower-than-expected earnings releases from more of the big banks. The Dow closed down on Friday as volatile oil prices made investors uneasy, despite Dell’s upbeat profits boosting optimism about the outlook for the big tech companies. Bay Street closed the week in the green Friday, spurred by rising energy and base metal stocks.

Read More »

Posted on: May 31, 2008 – 6:01 pm in Uncategorized

Kodak (EK): Inflation In a Tea Cup

CSX (CSX) is raising freight rates. So is Burlington Northern (BNI). Their diesel costs are up, and they need to pass them on to customers. Dow Chemical (DOW) said it would raise the prices of some of its products by 20%. The firm’s commodities and component costs have gone through the roof.

The latest American icon to say it would have to push up prices to customers is Eastman Kodak (EK). Unlike many other companies that want to recoup costs of goods, Kodak is financially weak and has customers who may simply walk away. According to The Wall Street Journal, the firm "will increase its prices on certain consumer products by as much as 20%, citing the soaring prices of raw materials and the rising cost of petroleum."

The people who buy cameras and printers may not have the scratch to upgrade or get the latest stuff from Kodak. Personal income is not spiking but inflation has gained steam.

The present commodity price boom is creating two great pools of companies. There are those who can pass many of their costs on. That would, in most cases, include chemical companies, oil firms, and some luxury goods operations.

But the "have nots" including the airlines and auto companies are likely to be joined by Kodak and others who don’t have strong balance sheets but do have customers stretched by the current environment.

Douglas A. McIntyre

Posted on: May 31, 2008 – 5:59 pm in Consumer Goods, , , ,

2008 to 2009: The Major Inflation Years (DOW, DD, HUN, EK, POT)

This week set one specific outcome in motion: price hikes equals inflation.  We saw several major producers announce price hikes, and that is on the heels of other price hikes elsewhere that have been announced since the first of the year.  Last weekend we noted how rates were pricing in a 100 basis point rise by the end of next summer.  We also noted how CPI actually looked ok earlier in May, so long as you don’t count food and groceries and other staples.

This week it was none other than Dow Chemical Co. (NYSE: DOW) that kicked things off with their "up to 20%" price hikes across the board.  After that, Huntsman Corp. (NYSE: HUN) came out and said that they would hike many prices by up to 25% and instill energy surcharges.  The DuPont (NYSE: DD) came out and said they were about service and communicating with customers, but then said the equivalent of "of course we’re going to raise some prices." Yesterday at the end of the day, Eastman Kodak (NYSE: EK) came out and said they’d hike prices up to 20%.

Earlier than this, Potash Corp. of Sasketchewan (NYSE: POT) has been raising fertilizer/potash prices steadily and it seems they may get one more kiss at the pig to hike prices again based upon the actions of major companies this week.  Every other ag-based company will pass one more round of price hikes too.

Here is what we have to get used to: those chemical price hikes are going to stick and they are going to influence prices in everything you have to buy like tooth paste, paper, cleaning supplies, hygiene supplies, and just about everything else.  Unfortunately that also means packaging for food, processing food, and even more hikes in clothing, batteries, fluids, equipment and so on.  Just get used to price hikes being announced in the coming weeks to months.  That IS coming, and companies now have a free pass to pass on price hikes to you and me.

While this is definitely going to creep into the retail level by July or August, the good news is that the readings may actually be one-time for the next 12 month.  If prices in materials stabilize, that could set up and end of the inflation readings on a year over year basis toward the end of 2009.  The bad news is that your name would have to be Pangloss to think that is good news.

Jon C. Ogg
May 31, 2008

Posted on: May 31, 2008 – 11:30 am in Agriculture, Commodities, Consumer Goods, Economy, , , , ,

Apple (AAPL) iPhone Loses Share, RIM (RIMM) Gains

It may be the first bad news ever about the Apple (AAPL) iPhone, It is certainly good for RIM (RIMM), the maker of the Blackberry, According to research firm IDC, the iPhone lost smartphone market share in the US during the first quarter.

Reuters writes "According to the report Rim’s share of the U.S. market for advanced phones with computer like features such as e-mail rose to 44.5 percent in the first quarter from 35.1 percent in the fourth quarter while iPhone’s share fell to 19.2 percent from 26.7 percent in the fourth quarter."

Motorola’s (MOT) share fell from 7.5% in Q4 to 2.6% in the first quarter.

The iPhone shows a vulnerability. Whether the introduction of a 3G version, which many potential buyers have been waiting for, will push Apple’s piece of the market up remains to be seen. The newer version will run on AT&T’s (T) fast network instead of the current 2.5G infrastructure.

The study does support the strategy of RIM (RIMM). Its Blackberry, probably the best mobile e-mail device in the world, is doing well as the company introduces new, move consumer-friendly versions of what has been mostly a business device.

No wonder RIMM trades near a 52-week high.

Douglas A. McIntyre

Posted on: May 31, 2008 – 5:18 am in Wireless, , , ,

Eastman Kodak Tries Price Hikes, Good Luck (EK)

Eastman Kodak Co. (NYSE: EK) announced today that it will increase prices on certain consumable products by up to 20%.  You can guess the reason: soaring materials costs and the rise of petroleum.  Kodak’s implementation date is July 1, and this will be rolled out by groups and by geography over the next few weeks.

The company said the worldwide price increases should give it a break over some of the impacts of spiking costs in raw material.  As it is still a mega-consumer of silver costs and as it has energy intensive demands, it isn’t hard to fathom that this was coming down the pipe.

Unfortunately, Kodak already posted a first-quarter loss even outside of its restructuring charges.  The company thinks that it completed a multi-year restructuring process as it tries to shift its focus away from film and into digital.  Good luck on thinking that restructuring is done though.

The company managed to get these price hikes announced right before that solid wave of higher demand for physical film.  Oh wait, this is 2008 rather than 1988.  If the company can charge more and more for products that people are using less and less, then more power to them. 

Based upon the stock being down at $15.32 and with it having hit a 52-week low today, this price hike is probably going to be ignored and absorbed.  At least with the weak dollar Fuji is more expensive for the U.S. consumers in theory.

We have questioned what this company can do over and over to improve, even back when shares were at $25.00.  Good luck to Kodak, sounds like they’ll need it.

Jon C. Ogg
May 30, 2008

Posted on: May 30, 2008 – 3:51 pm in Entertainment,

The 52-Week Low Club (JBLU)(UAUA)(BC)

US Air (LCC) Airline breaks of talks with United (UAUA) and stock runs down to $4 from 52-week high of $36.81.

Brunswick Corporation (BC) Concerns about boating business and downgrade earlier in the week. Drops to $13.39 from 52-week high of $34.90.

Harris Interactive (HPOL) No visible cause but stock nose dives to $1.80 from 52-week high of $5.67.

Jetblue (JBLU) Raises money and causes viability and dilutions concerns. Sells off to $3.90 from 52-week high of $11.99.

Douglas A. McIntyre

Posted on: May 30, 2008 – 2:38 pm in HI/LOW, , , ,

Why The Reuters/University Of Michigan Consumer Poll Is Hogwash

The Reuters/University of Michigan Surveys of Consumers said the final reading in May for its index of confidence fell to 59.8 from April’s 62.6. According to Reuters, "May’s reading was the lowest since 58.7 in June 1980."

A look at the methodology makes the value of the results look very thin, even though they are picked up by thousands of media outlets and often move the stock market up or down.

During the survey, which is based on only 500 or so interviews, those being polled are asked 50 core questions. One has to ask what happens to the people who become frustrated and drop off the phone call, or those who rush though the later part of the survey to get on about their daily business.

The people surveyed are asked about personal finances, business conditions, and buying conditions. They are also asked about "expected" income changes, a very subjective assessment. Each subject polled is ask about their overall opinions and "in their own words their reasons for holding those views." In other words, intelligent people’s assessments are lumped in with buffoons.

The PR on the survey does indicate that those polled often hold opinions about the future of the economy which are confirmed by later events, but some of the deviations are meaningful. especially when it comes to views of changes in the prime rate and housing.

Much of what the survey’s researchers "sell" as the strengths of the poll is predictive. It is hardly clear that the information gathered is very good at reading the crystal ball.

Douglas A. McIntyre

Posted on: May 30, 2008 – 10:28 am in Research

JetBlue Sees Pressure From Convertible Debt (JBLU)

Shares of JetBlue Airways Corporation (NASDAQ: JBLU) are seeing some extra pressure this morning after the company announced the pricing of a previously announced convertible debt offering of 5.5% convertible bonds that mature in 2038.  The size of the offering was also kicked up from $160 million to $175 million. 

There were two separate issues of $87.5 million.  One series converts to 220.6288 per $1,000.00 in principal face value for a conversion price of approximately $4.53 per share.  The second series has a convertible rate of 225.2252 shares per $1,000 principal face value for a conversion price of approximately $4.44 per share.

Morgan Stanley and Merrill Lynch & Co. were listed as the joint book-running managers for this underwriting.

Shares closed at $4.15 Thursday, and shares are trading around $3.97 right before the open on more than 1.5 million shares.

You can join our open email distribution list to hear about IPO’s, secondary offerings, and other key special situations.

Jon C. Ogg
May 31, 2008

Posted on: May 30, 2008 – 8:32 am in Airlines, Bonds, Secondary Offering,

Oil & Gas Upgrades & Downgrades on Wall Street (HES, SUN, TSO, MRO, VLO, BRY, SWN)

We’ve seen several analyst calls on Wall Street this morning out of the oil patch, and here are some of the key calls:

  • Hess (NYSE: HES), Sunoco (NYSE: SUN), and Tesoro (NYSE: TSO) were all started as "HOLD" ratings at Citigroup.
  • Marathon Oil (NYSE: MRO) and Valero Energy (NYSE: VLO) were started with "BUY" ratings at Citigroup.
  • Berry Petroleum (NYSE: BRY) was started as Outperform at Morgan Keegan.
  • SW Energy (NYSE: SWN) was downgraded to Market Perform from Outperform at FBR.

Jon C. Ogg
May 30, 2008

Posted on: May 30, 2008 – 7:32 am in Analyst Calls, Oil & Gas, , , , , , ,

It Takes Two to Contango (ICE, NMX)

In the last week or so, everybody seems to have weighed in with an opinion on whether or not speculation is responsible for the rapid recent rise in crude oil prices. Until yesterday, however, the speculation about speculation resembled Mark Twain’s observation that everybody talks about the weather, but nobody does anything about it.

Yesterday, the US Commodities Futures Trading Commission (CFTC) announced that it had reached an agreement with the UK’s equivalent of the SEC and the ICE Futures Europe (NYSE:ICE) under which ICE would provide a daily report on large trader positions in the UK WTI crude oil contract. This report will include long-term contracts as well as the near-month contracts. ICE also agreed to notify the CFTC "when traders exceed position accountability levels, as established by US designated contract markets, for WTI crude oil contracts." In other words, ICE is going to start behaving more like NYMEX (NYSE:NMX).

The CFTC is also trying to increase transparency in the area of index trading, most of which is done by ETF’s. The commission wants to determine if index trading is "adversely impacting the price discovery process" and if additional regulation might be needed to improve transparency for these traders.

Why now? When ICE started trading WTI futures in 2006, the CFTC did nothing to establish any oversight on the trades, claiming it had no authority to review ICE trades. The answer to the question is two-fold. First, it just takes this long to reach agreement on anything. Second, and more important, the crude market is moving into contango, a market condition where future prices are higher than current prices. If the future price of crude is higher than the current price, the current (spot) price has to go up in order to shake loose the physical crude.

Index traders are often blamed for this state of affairs because they never intend to take delivery of the physical oil, instead either taking their profit or, more often, rolling over their contracts for an additional month. This does distort the market for physical oil, but by how much? That’s what the CFTC wants to find out.

One other thing worth noting in the CFTC press release. The commission admitted that it is conducting a "nationwide crude oil investigation into practices surrounding the purchase, transportation, storage, and trading of crude oil and related derivative contracts." It is highly unusual for the CFTC to admit that it is investigating anything. As we pointed out earlier today, if there are bad guys out there, they’re probably be heading for cover soon.

George Soros noted that speculation is driving up energy prices, and we also saw T. Boone Pickens call for $150 per barrel for oil by the end of this year.

Paul Ausick
May 30, 2008

Posted on: May 30, 2008 – 7:13 am in Oil & Gas, ,

Top 10 Pre-Market Analyst Calls (ADCT, ANN, ASH, ASMI, CLHB, COST, IDTI, JCG, MRVL, NDAQ)

These are ten of the analyst calls we are focusing on this Friday morning:

  • ADC Telecom (NASDAQ: ADCT) raised to Overweight at JPMorgan.
  • AnnTaylor (NYSE: ANN) raised to Outperform at FBR.
  • Ashland (NYSE: ASH) cut to Underweight at JPMorgan.
  • ASM International (NASDAQ: ASMI) started as Underpeform at Jefferies.
  • Clean Harbors (NASDAQ: CLHB) raised to Outperform at Robert W. Baird.
  • Costco (NASDAQ: COST) cut to Neutral at Piper Jaffray.
  • Integrated Device Tech (NASDAQ: IDTI) cut to Neutral at Cowen & Co.
  • J. Crew (NYSE: JCG) cut to Market Perform at Wachovia; cut to Sell at Citigroup.
  • Marvell Tech (NASDAQ: MRVL) raised to Overweight at JPMorgan and raised to Outperform at oppenheimer.
  • NASDAQ (NASDAQ: NDAQ) raised to Overweight at Lehman Brothers.

Jon C. Ogg
May 30, 2008

Posted on: May 30, 2008 – 7:01 am in Analyst Calls, , , , , , , , , ,

Moody’s (MCO) Egg-Heads Say Ambac (ABK) And MBIA (MBI) Are Junk

Moody’s (MCO) primary ratings unit gives Ambac (ABK) and MBIA (MBI) "Aaa" ratings. Those ratings were in trouble, but when the two companies raised capital, they kept their Good Housekeeping seals.

It turns out that Moody’s has a small unit that looks at the credit markets much differently than most of the company’s other analysts do. The little skunk-works is called Moody’s Analytics.

According to Bloomberg, "The official ratings of these companies say the insurers are in great shape; the alternative ratings say they’re in dire danger of defaulting on their debts." That second set of ratings come from within the halls of Moody’s itself.

It will be fascinating to see whether the old line analysts at the ratings agency or the Analystics group. wins this debate. The "official"l Moody’s position could be very, very wrong.

Douglas A. McIntyre

Posted on: May 30, 2008 – 5:25 am in Financial Stocks, ,

Nokia (NOK) Pushes Into Africa

It would not surprise many people to hear that there are not a ton of cellphone in Africa, especially when Egypt and South Africa are taking out of the mix.

Nokia (NOK) wants to fix that. The company believes that as handset sales slow in Europe and the US, Africa will be the next big thing. According to Bloomberg "Nokia’s bet that Africans will consider buying mobile-phone service to be as vital as paying 11 year-high corn prices stands a good chance of succeeding."

It is a cynic’s position and one that has a cruel underpinning as well.

The plan by Nokia may cost it at the bottom line. A push into Africa based on discretionary income will almost certainly be a bad move. People will eat before they talk.

Douglas A.McIntyre

Posted on: May 30, 2008 – 5:17 am in Wireless,

Oil Prices: Better Profits Through Cheating

Regulators are going to look more closely at the trading of oil. According to The Wall Street Journal "U.S. regulators disclosed a broad nationwide probe into potential oil-market manipulation and said they are expanding surveillance of energy markets."

Increased regulation can come from several things. One is a classic witch hunt in which someone must be blamed for problems which have created broad harm and suffering. Congress needs to show that it is doing something to keep down oil and gas prices. All of the members stand for re-election in November. They can’t go back to their districts and say there is nothing to be done about $5 gas.

Another explanation is that where there is smoke, there is fire. Commodities prices have been manipulated off and on since the beginning of time. Who can forget the fun in1980 when the Nelson Bunker Hunt and Herbert Hunt tried to corner the silver market? OPEC has claimed over and over that the weak dollar and market speculation are the main reasons for high oil.

Of course, speculation and manipulation are not the same thing, although they may be cousins.

Regulators believe, quite rightly, the the hint of investigations usually drives the bad guys underground. That is often enough to snuff out the creation of a bubble and get things back to "normal", whatever that is.

Douglas A. McIntyre

Posted on: May 30, 2008 – 5:03 am in Oil & Gas

Google (GOOG) Beats Yahoo! (YHOO) Like A Rented Mule

comScore (SCOR) and other analysts made the mistake of saying that Google’s click-through rates on the text advertising that runs next to its search results we not doing very well in Q1. Earnings from the search company showed otherwise. The stock soared and that was that.

Now, comScore has come out with it April figures and Google’s click rates are rising with its share price. The Wall Street Journal writes "according to comScore, Google saw better-than-expected 20% growth in U.S. paid clicks in April compared with the same period a year earlier."

The numbers for Yahoo! (YHOO) dropped 4.4% from the same month a year ago. Microsoft’s (MSFT) performance was off 9%.

Does it matter if Microsoft buys Yahoo!? Based on the fact that both are losing search share, a marriage may do little. Now it appears that the advertising systems at the No.2 and No.3 search operations are losing momentum while Google moves forward like a clipper ship under full sail.

The competition for search may be ending, so the portals like MSN and Yahoo! may have to find a new way to make money. Both are getting deeply into the targeted display ad business which could increase efficiency for that kind of marketing on the web.

It better work.

Douglas A. McIntyre

Posted on: May 30, 2008 – 4:51 am in Internet, , , ,

US Air (LLC), United (UAUA) On Again, Off Again Talks Are Off Again

The press alternates between reporting that United (UAUA) and US Air (LCC) are in merger talks one day, and not in merger talks the next. According to Reuters "United Airlines and US Airways have suspended merger talks due to concerns about labor opposition and integration costs." Of course, that could change tomorrow.

With the Delta (DAL) tie-up with Northwest (NWA) moving forward, it looks like other airlines believe that they are running out of time. High oil prices and a recession-driven loss of passengers means that operating income and cash flow in the industry could near $10 billion this year. Some of the carriers may not be able to weather that with with their current financial structures.

Airlines have quickly moved to two new strategies. One is very public and involves the cutting of routes and laying off of tens of thousand of employees.

The other planning goes on behind closed doors. This work is based on the idea that several carriers will have to go into Chapter 11. Each needs liabilities to greatly outweigh assets to make the move, but requires enough cash on the balance sheet to get through a restructuring.

Accountants with abacuses are sitting in windowless offices picking the best date for going into court and asking for protection. Based on current debt service and negative cash flow, some of them could be moving to bankruptcy in the third quarter.

Douglas A. McIntyre

Posted on: May 30, 2008 – 4:41 am in Airlines, , , ,