The people at OPEC don’t seem to worry about an interruption of oil supply at all, whether it is from the weather or falling production from large countries like Indonesia. The cartel has no plan to increase output. Oil at $115 is just fine.
Libya’s oil minister even went so far as to say that the market was "oversupplied".
Through the weekend the management of Lehman (LEH) is desperately meeting with any investors who will hear its case. According to the Telegraph, these includes Korea Development Bank, Chinese broker Citic Securities, and "a number of sovereign funds from the Middle East, which have been invited to participate in a capital-raising. These are understood to include investors from Abu Dhabi and Qatar."
If the US economy looks anything like the one in the UK, Americans should brace for the worst recession since WW II. That would probably mean unemployment of close to 15% and negative GDP growth which could last the better part of two years.
Britain is facing "arguably the worst" economic downturn in 60 years which will be "more profound and long-lasting" than people had expected, Alistair Darling, the chancellor, tells the Guardian.
The media is trying to make the case that Hurricane Gustav could drive gas prices back up, perhaps beyond mid-year levels and toward $5.
The argument is fairly simple. When Katrina hit the Gulf and shut down drilling and refining capacity, gas went from $2 to $3. One the back of an envelop, gas should go from its current level of $3.75 to $5 if all the same basics hold true.
Gas hit a high of $4.11 a gallon in early July. According to the AP, Jeff Rubin, chief economist at investment bank CIBC World Markets, said that record could be shattered if Gustav seriously disrupts offshore energy production.
There was some ray of hope that the second half of the year would be OK when the government revised GDP up 2.2% for the second quarter. A number of economists looked at the figures and said they meant nothing. What is past is past.
When the inflation numbers and personal income figures came out today, they virtually assured that the period from Labor Day to New Year’s is going to be a hard road. Nothing in the latest data from housing to earnings shows a scintilla of a sign that the economy is improving.
If the market is likely to drop and earnings are likely to continue in a flat spin, investors probably do not have many places to go, especially for investing in individual stocks.
There are a few that should out-perform the markets by a reasonable margin.
GE (GE) The bear case on GE is that its stock is low, and that earnings have been slightly disappointing. There bull case is much stronger. GE has made a persuasive case that it is in the process of selling off dogs like its appliance business and building its huge infrastructure operation. Management says that growth in Asia will be nearly spectacular. The company’s medical supply business may have had only modest earnings recently, but health-care will continue to be a growth industry. Wall St. does not like GE’s ownership of NBCU, but the Olympics demonstrated that the division has a future in digital broadband programming. Of all the advertising media, internet-based content is likely to do the best over the next decade. GE is at $28.50. A decent third quarter and Q4 forecast should push it to $35.
Hurricanes Katrina and Rita in 2005 forced a halt to about 25% of US oil and natural gas production. Now Tropical Storm Gustav, which is predicted to gain hurricane status by the weekend, is drawing a bead on Gulf of Mexico production facilities and crude oil prices are beginning to rise as companies shut down operations and evacuate workers.
Exxon Mobil (NYSE:XOM) has not yet begun to evacuate workers from its offshore platforms, but has begun planning a staged evacuation as Gustav gets closer. Transocean (NYSE:RIG) has already brought about 400 workers ashore and plans to move its remaining eight semi-submersibles, with 1,500 more employees on board, out of harm’s way. Royal Dutch Shell (NYSE:RDS.A/RDS.B) has already evacuated 750 workers from Gulf platforms and plans to withdraw the rest today. ConocoPhillips (NYSE:COP) has already shut-in its only Gulf platform, and Chevron (NYSE:CVX) has begun evacuating workers for some of its platforms. Plans are also being made to close down the 57 onshore refineries along the Gulf coasts of Texas and Louisiana.
The federal government finally discovered what everyone already knew. The economy has gone to hell in a hand-basket.
Personal income fell 0.7 percent in the month, the sharpest decline since a 2.3 percent plunge in August 2005.
Inflation, as measured by the year-over-year rise in the personal consumption expenditures index, rose 4.5 percent, the steepest since February 1991, the government said.
Poor Michael Dell, CEO of Dell (DELL), only made $2.3 million last year. Of course, he is a billionaire and owns over 227 million shares in the company he runs.
His shareholders have not done so well. Dell announced a drop in earnings of 17%. Profit margins were bad. That means that companies like Apple (AAPL) and HP (HPQ) are lunching on Dell’s customers.
Nintendo made money, really big money, in the last quarter. Then, it had the audacity to say that things would get even better.
According to Reuters, "Nintendo said it now expects an operating profit of 650 billion yen ($6 billion) in the year to March, up from its previous forecast of 530 billion yen."
The news is spectacular for Nintendo, but it begs the question of how many video consoles the market can absorb.
Microsoft (MSFT) has not been able to home grow its own online business so it has decided to buy the solution a piece at a time. Yahoo! (YHOO) was supposed to be the largest contributor to Microsoft.com. That did not work out.
So far, the largest and most sensible M&A transaction from Redmond was its buy-out of Aquantive, a large display advertising operation. Not much has happened since that transaction closed.
The government in Japan is not going to fall into recession, not if the government can help it. It has introduced a stimulus package worth over $100 billion. A comparable figure for the US would be well over $400 billion.
The pillars of the new program are tax cuts and programs to improve energy conservation.
Robert Lutz, the oldest car company executive in the history of the industry, recently said that Detroit could not raise the money it needs to retool its plants to build fuel-efficient cars. The businesses are too badly damaged and the capital markets are in tatters.
Lutz probably has a point which is why he is heading off to Congress to ask for $50 billion in loan guarantees. He has also looked across town to see big auto parts company Delphi head down the road to liquidation, an ignominious end, especially since in is already in Chapter 11.
Energy Conversion Devices (NASDAQ:ENER) reported its fourth quarter and full year results this morning, and the stock is up more than 2% in early trading. It’s no wonder. EPS of $0.24 beat estimates of $0.16, and revenues of $82.4 million crushed estimates of $77.47 million. Compared with the fourth quarter of 2007, revenues were up 129%, and EPS surged from a net loss of -$0.33/share.
For the full fiscal year, Energy Conversion increased revenues by 125%, from $113.6 million in 2007 to $255.9 million in 2008. And full-year EPS was reported at $0.10, up from a loss of -$0.64 in 2007.
According to Reuters, Lehman (LEH) may fire 1,200 workers.
Reuters reports that Dell (DELL) said its Asia business was fine but offered a cautious forecast.
Reuters reports that Starbucks (SBUX) will offer more promotions and discounts.
Markets in Asia were sharply higher.
The Nikkei rose 2.4% to 13,073. Canon fell 5.2% to 5040. ANA fell .3% to 394.
The Hang Seng moved up 1.7% to 21,331, China Life (LFC) rose 2% to 27.55. China Unicom (CHU) rose 2.5% to 26.80.
The Shanhai Composite rose 2% to 2,307.
Data from Reuters.
Douglas A. McIntyre
If there are any more bugs or flaws in the new Apple (AAPL) 3G iPhone, the company’s investors are going to start to notice.
According to MSNBC, "A security flaw in Apple Inc.’s iPhone allows unauthorized users to gain easy access to private contacts and e-mails even when the device is locked." Getting in is apparently easy even for a child.
Dell (DELL) was the last of the big tech companies to report this summer. If it did well it meant that the PC and chip businesses would be OK. Dell sells so many computers and servers to enterprises that strong numbers would have meant IT spending had not collapsed.
None of that worked out. Net income at Dell dropped 17% to $616 million in the quarter on a revenue increase of 11% to $16.4 billion. And, the company bought back more shares.
Williams-Sonoma (WSM) Profit drops. Down to $16.26 from 52-week high of $34.81.
Nexmed (NEXM) Drug trial failure still pulling shares down. Dips to $.19 from 52-week high of $1.75.
Genaera (GENR) Several clinical trials suspended. Falls to $.82 from 52-week high of $3.09.
Neurogen (NRGN) Gets notice on Nasdaq delisting. Sells down to $.25 from 52-week high of $5.24.
Douglas A. McIntyre
Lehman (LEH) will lay off about 6% of its work force according to The New York Times. That is about 1,500 people, but it is not nearly enough.
Earlier in the day an analyst from Fox-Pitt Kelton said that Lehman would be one of three firms which would "together write-down $6.1 billion on their "problem assets" across leveraged loans, and commercial and residential mortgages." The other two companies are Goldman Sachs (GS) and Morgan Stanley (MS).
After trading at $4.40 last Friday, Fannie Mae (FNM) moved up to $6.45 yesterday. The markets had come to realize that the mortgage company might be able to raise enough money in the capital markets to make it through the current housing crisis. Even better, it might not have to raise any significant cash at all. By avoiding a total bail-out by the Federal government, FNM’s common shareholders would be saved instead of watching the value of their stock go to zero.
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