Air Products & Chemicals, Inc. (NYSE: APD) is one beneficiary with the DOE share listed at $253 million, although Valero Energy Corporation (NYSE: VLO) is involved as well.  This one also includes Denbury Resources Inc. (NYSE: DNR).  Air Products will partner with Denbury Onshore LLC to capture and sequester 1 million tons of CO2 per year from existing steam-methane reformers in Port Arthur, Texas, starting in November 2012. As stated… “The CO2 will be delivered via a 12-mile connector pipeline to an existing Denbury interstate CO2 pipeline and sequestered via use for enhanced oil recovery in the West Hastings oilfield. The project team includes Air Products & Chemicals, Denbury Onshore LLC, the University of Texas Bureau of Economic Geology, and Valero Energy Corporation.”

Archer Daniels Midland Corporation (NYSE: ADM) was the second beneficiary, although this is smaller with a DOE share listed as $99 million.  The project will capture and sequester 1 million tons of CO2 per year from an existing ethanol plant in Illinois, starting in August 2012. As stated, “The CO2 will be sequestered in the Mt. Simon Sandstone, a well-characterized saline reservoir located about one mile from the plant. The project team includes Archer Daniels Midland, Schlumberger Carbon Services, and the Illinois State Geological Survey.” Schlumberger Ltd. (NYSE: SLB) is just too large to make note of for the size of this.

Leucadia National Corp. (NYSE: LUK) and Denbury Resources Inc. (NYSE: DNR) are listed as the third winners via Leucadia Energy, LLC and Denbury Onshore LLC with the DOE share being listed as $260 million.  It and Denbury Onshore LLC will capture and sequester 4.5 million tons of CO2 per year from a new methanol plant in Lake Charles, La.  As stated, “The CO2 will be delivered via a 12-mile connector pipeline to an existing Denbury interstate CO2 pipeline and sequestered via use for enhanced oil recovery in the West Hastings oilfield, starting in April 2014. The project team includes Leucadia Energy, Denbury, General Electric, Haldor Topsoe, Black & Veatch, Turner Industries, and The University of Texas Bureau of Economic Geology.”  General Electric Co. (NYSE: GE) is in this but is too large to make note of for this type of award.  Leucadia’s 2009 annual report noted regarding the Lake Charles project, “We have applied for U.S. Department of Energy (DOE) grants that will assist us with
working out a means to sequester the carbon dioxide (CO2) produced by the plant. We are in active negotiations with multiple parties for the sale of the plant’s output.”

Keep in mind that this is out to 2012 and is a continuation of smaller and previous pacts in what may total a $1.4 billion effort in total.

The full DOE report is here.

JON C. OGG

On May 17th and May 25th, the Chicago Mercantile Exchange stopped trading in lumber futures because the contract price had fallen by the maximum allowable amount of $10. On the 25th, lumber was halted at a price of $225/thousand board feet, which is the price that the contract opened at again this morning. The July contract is trading now at $234. Since April 21st, the contract price is down more than $100.

This price drop will have an impact on the four large US lumber companies, Weyerhauser Co. (NYSE:WY), Leucadia National Corp. (NYSE:LUK), Masco Corp. (NYSE:MAS), and Louisiana-Pacific Corp. (NYSE:LPX) as well as paper makers International Paper Co. (NYSE:IP) and Fibria Celulose S.A. (NYSE:FBR). Nor is this good news for the rest of the year for homebuilders such as Toll Brothers Inc. (NYSE:TOL), KB Home (NYSE:KBH), Lennar Corp. (NYSE:LEN), or PulteGroup Inc. (NYSE:PHM).

Traders believe that the homebuilders and paper makers, especially, are not buying in anticipation of even lower prices to come. The rush of buyers into the market in March and April was due to the expiration of the federal homebuyers’ credit on April 30th. That is expected to kill demand for new homes in the near-term, keeping the market for new homes soft for the next six months.

Just a few months ago, builders faced lumber prices that were rapidly rising, threatening their margins. With lumber above $300/thousand board feet, about $1,400 would have been added to the cost of new house. In a soft housing market, builders were confronted with the nasty choice of eating the higher cost or risking a rise in price.

Now that prices have fallen, the belief is that demand for new houses has declined and the builders don’t need to buy more. Suppliers, like Weyerhaeuser and Louisiana-Pacific were already planning for softer lumber prices in the current quarter which will weigh on profits.

Here’s a chart of the DJ US home construction index for the past 3 months:

Paper companies were already expecting a boost in demand this year, following five years of declines. The demand for corrugated and paperboard boxes for items like food and beverages is the main driver of the better forecast. Corrugated and solid fiber boxes account for more than 70% of paper good shipments.

In its quarterly earnings report, International Paper suffered from the high wood prices, but noted that its costs were moderating, that prices would rise because demand was up. As long as supplies are readily available, the paper makers should see improvement in profits and revenues.

Here’s a chart of the DJ US forestry & paper index for the past 3 months:

When you see the two charts together, the two paths they trace are almost identical. Lumber, home construction, and paper making are all dancing to the same tune. And that tune is concern about the US economy in the second half of 2010.

The end of the homebuyers tax credit, the almost invisible recovery in employment, tight consumer credit, and the lower predicted effects from last year’s $787 billion economic stimulus package are all going to weigh down the second half of the year.

Today’s market rebound, now up more than 2%, is almost entirely due to China’s denial of a rumor that it would no longer invest in European debt. Oil prices are rising again, to more than $74/b. The shares of the lumber companies mentioned in this article are up between 1.5% and 4.5%. International Paper shares are up about 3% and FBR shares are up more than 8%. Pulte is up about 2.5% and the other homebuilders are up less than 1%.

Today’s advancing stocks number 8x more than decliners on the first bit of good news in over a week. Prospects for the second half of the year are not as rosy.

Paul Ausick

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Berkshire Hathaway Inc. (NYSE: BRK-B) 319,851 shares worth almost $26 million.

Brookfield Properties Corporation (NYSE: BPO) 2,359,166 shares worth $36.2 million.

Goldman Sachs Group Inc. (NYSE: GS) 110,864 shares worth some $18.9 million.

Harvest Natural Resources Inc. (NYSE: HNR) 4,771,814 shares worth about $35.9 million.

Horsehead Holding Corp. (NASDAQ: ZINC) 1,358,498 shares worth $16 million.

Interactive Brokers Group, Inc. (NASDAQ: IBKR) 94,104 shares worth $1.5 million.

International Coal Group, Inc. (NYSE: ICO) 2,512,570 shares worth almost $11.5 million.

Leucadia National Corp. (NYSE: LUK) 791,074 shares worth $19.6 million.

Pinnacle Airlines Corp. (NASDAQ: PNCL) 2,002,902 shares worth $14.9 million.

Potash Corp. of Saskatchewan (NYSE: POT) 331,603 shares worth $39.5 million.

Teck Resources Ltd. (NYSE: TCK) 5,501 shares worth $245K…

Terex Corp. NYSE: TEX) 530,876 shares worth $12 million.

Wells Fargo & Co. (NYSE: WFC) 374,415 shares worth $11.6 million.

Other holdings are as follows:

• Capital Source Inc.  (?)
• Cresud S A  (CRESY)
• FAIRFAX FINL HLD SUB (FRFHF.PK)

JON C. OGG

The public company stakes in the U.S. are as follows:

• AmeriCredit Corp. (NYSE: ACF) 33,900,440 shares.
• Capital Southwest Corporation (NASDAQ: CSWC) 19,776 shares.
• Endwave Corp. (NASDAQ: ENWV) 70,000 shares; shares up over 9% today.
• International Assets Holding Corporation (NASDAQ: IAAC) 1,384,985 shares.
• Jefferies Group Inc. (NYSE: JEF) 48,585,385 shares.
• Millennium India Acquisition Company Inc. (NASDAQ: SMCG) 120,000 shares; stock up over 30% on this today.
• TravelCenters of America LLC (NYSE: TA) 275,308 shares.

This is a very eclectic mix for a company often thought of as a mini-Berkshire or Buffett mirror.  If anything, this might be a more like “Buffett’s alter ego” on the surface.  The company has operations in manufacturing (Idaho Timber), telecom (STi Prepaid), land based contract oil and gas drilling Keen Energy), property management and services (ResortQuest International), gaming entertainment (Premier Entertainment Biloxi), real estate activities (various), medical product development (Sangart, Inc.-hemoglobin) and it even lists winery operations (Pine Ridge, Archery Summit, Chamisal Vineyards, and development project).

As far as what else is there, Lecadia has its hands in many operations.  It has the JHYH venture with Jefferies which makes markets in high yield and special situation securities and provides research coverage on these types of securities.

The company’s investment in Fortescue and its subsidiary, FMG Chichester Pty Ltd., consists of 247,986,000 common shares (about 8% o outstanding shares) and a $100,000,000 note of FMG that matures in August 2019.

Non-current available for sale investments include 5,600,000 common shares of Inmet Mining Corporation in Canada (“IMN-TSX”) with a cost of $78,000,000 and carrying values of $325,500,000.

This morning came a filing that was as follows: Asset Put Agreement by and among Berkadia III, LLC (now known as Berkadia Commercial Mortgage LLC), Capmark Finance Inc., Capmark Capital Inc., and Capmark Financial Group Inc. and, with respect to Sections 2.5, 10.5, 10.7, 10.11, 10.16 and 10.17 only, Leucadia National Corporation and Berkshire Hathaway Inc. dated as of September 2, 2009… FULL DETAILS

Leucadia shares are down almost 0.5% at $24.30 on only 150,000 shares right at Noon today.  The 52-week trading range is $18.00 to $28.37 and the 52-week trading range is $5.91 billion.  At the March 31 quarter, the total assets were listed as $6.988 billion versus total liabilities of $2.408 billion.

JON C. OGG

In the Koenig & Strey deal, that firm will retain its name and become a franchisee within Brookfield Residential Property Services’ North American real estate network of almost 30,000 real estate professionals.  Koenig & Strey has approximately 900 agents located in 21 offices serving Chicago and the surrounding area.  Its sales were $2.6 billion in 2008.  The acquisition is the 21st for HomeServices, and it now has more than 15,000 real estate professionals and 21 companies operating in 20 states.

What is interesting is that in Buffett’s latest quarterly holding, Berkshire Hathaway lightened up in shares of Home Depot Inc. (NYSE: HD).  This is even more puzzling when you consider that he maintained his stake in Lowe’s Companies (NYSE: LOW) as the same as the prior quarter.  Another play and big bet tied to housing is USG Corp. (NYSE: USG) that Buffett holds some 17 million shares in which may be under-counted considering a preferred holding.  Buffett’s full list of public stocks is here.

Neither Buffett nor Berkshire Hathaway Inc. are new to this notion of housing and doing business around the housing market.  Some Berkshire Hathaway companies held as independent subsidiaries are Acme Brick Company, Clayton Homes, HomeServices of America, and Johns Manville.  Buffett also has significant operations in insuring and reinsuring housing, and he is no stranger to furniture and furnishings companies with several operations in the Berkshire family.

You can join our open email distribution list which goes out several times per week if you wish to be notified by email of guru investor data on Buffett and other key investment gurus, as well as key analyst calls, merger related activity, IPO’s and secondary offerings, and top day trader alerts in the morning.

As we noted last night with the mega-cap stocks holding some $335 billion in raw cash, Berkshire Hathaway probably has $50 billion that can be used for deals in the near-term and intermediate-term.  The full details of the Berkshire-Leucadia deal with Capmark are in the SEC filing.

JON C. OGG
September 3, 2009

Reuters:   A report blamed the SEC for not doing its job investigating Madoff.

Reuters:   The Fed says the risks to the American economy have dropped.

Reuters:   A Pfizer (PFE) whistleblower made more than $51 million.

Reuters:   YouTube (GOOG) may stream movie rentals from major studios.

Reuters:   Morgan Stanley (MS), Moody’s (MCO), and S&P (MHP) must defend fraud claims involving subprime mortgages.

Reuters:   AIG (AIG) board members are concerned about its CEO’s comments to the media.

Reuters:   BP (BP) made a huge crude discovery in the Gulf of Mexico.

Reuters:   Cerberus will ban withdrawals from its new fund.

Reuters:   Berkshire Hathaway (BRK.A) and Leucadia National (LUK) will buy Capmark Financial Group’s mortgage operations.

WSJ:   Brazilian beef giant JBS is negotiating a $2.5 billion deal for Pilgrim’s Pride.

WSJ:   The WTO is expected to rule that European governments illegally aided Airbus.

WSJ:  ”Treasury backed away from a standoff over the independence of the watchdog appointed to scrutinize how last year’s $700 billion financial bailout is being spent.”

WSJ:   The pace of monthly job losses is slowing.

WSJ:   The CFTC and SEC are seeking common ground

WSJ:   GM believe that Opel will get aid from three countries in Europe.

WSJ:   Cisco (CSCO) and EMC (EMC) may form a joint venture capital unit.

WSJ:   Amazon (AMZN) has criticized a legal settlement between Google (GOOG) and book publishers.

WSJ:   Nokia (NOK) will sell a premium-priced netbook.

WSJ:   The WTO will hand Boeing (BA) a win over Airbus.

WSJ:   The former president of Monster (MNST) was sentenced to prison for fraud.

WSJ:   The recovery in housing will be uneven.

WSJ:   Diane Sawyer will succeed Charles Gibson as anchor of ABC News (DIS).

WSJ:   Las Vegas Sands (LVS) raised new capital to help its troubled balance sheet.

WSJ:   GM expects 40% growth in China this year.

WSJ:   Wal-Mart (WMT) will pay some workers with debit cards.

NYT:   Customers of AT&T (T) are angry over the effect the Apple (AAPL) iPhone has on the telecom company’s  network.

NYT:   As older Americans keep jobs, jobs for the young are harder to find.

NYT:   The Administration is proposing larger reserves for banks, which will hurt profits.

FT:   Twenty percent of US shoppers are using coupons.

Bloomberg:   Sony’s (SNE) music player outsold the Apple (AAPL) iPod in Japan last month.

Douglas A. McIntyre

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Buffett told Fox Business News this morning that CIT serves a business function but its raw material — money — costs them far too much.  He then noted that the business has to be transferred to someone who has low funding costs.  He also noted CIT has been trying to find cheap funding but has failed to do so.

Buffett thinks that this business should go to essentially who gets government guaranteed money, and he noted how any bank with FDIC funding gets cheaper funds to borrow than Berkshire Hathaway.  He noted how some get money now at 1%, while CIT’s latest funding came around 13%.  As far as the business, Buffett thinks the CIT assets are not the problem, it its liabilities, and those assets need to end up at a place with a lower cost of borrowing.

We have our own take on this, and it we think it is not a Buffett or Berkshire Hathaway solution.  The obvious answer and solution is regional banks and some of the larger community banks that are closer to the bulk of the small and mid-sized CIT customers.  Those are the groups which can can absorb this business, but the issue is that it means there will be dozens or hundreds of lenders that ultimately replace CIT.  Investors love to look for “who wins if this group fails”….  In this case there is no single winner.

We would also go back to a prior notion that still holds true regardless of what Buffett or other might or might not be interested in.  The common stock of CIT Group is effectively nothing more than a long-term warrant on a very troubled company.  There are three alternative NYSE-listed securities, two preferred shares and one equity unit tied to senior notes, that at least give investors a higher spot in the food chain if CIT ends up in bankruptcy.  There is no assurance there will be much value left for them either, but you already know how much value a common shareholder has left after a bankruptcy.  Zero.

You can join our open email distribution list to hear developments on Warren Buffett, mergers, offerings, IPO’s, key analyst calls and more.

JON C. OGG
JULY 24, 2009

Jefferies posted a net loss of $60.5 million, or -$0.43 EPS on a 52% drop in revenues to $201.2 million.  First Call had estimates of $0.12 EPS on $313.6 million.  We thought maybe that there was a charge or something in the number, but the quote from Jefferies CEO, Richard Handler says it all: "Despite this quarter’s brutal market conditions and disappointing results…."

The company has also announced that Leucadia National Corporation (NYSE: LUK) has entered into a financing pact with the brokerage and investment banking firm.  Under the agreement, Leucadia will purchase 26,585,310 shares of Jefferies’ common stock.  On a fully diluted basis, this translates to a 13.7% stake in Jefferies.

Unless the board of directors approves any sale differently, Leucadia has agreed to hold these shares for two years.  Leucadia will also agree not to take a stake larger than 30% of the broker and investment banker.

On a Pro forma basis for this share sale, Jefferies’ shareholders equity at March 31, 2008
would have been $433.6 million higher with a new reading of approximately $2.16 billion.

Here is where the deal gets interesting.  Jefferies will purchase 10 million shares of common stock in Leucadia in exchange for the 26,585,310 Jefferies shares and $100,021,353 in cash. But Leucadia will register these shares promptly for discretionary resale by Jefferies from time to time.  In the release Jefferies noted that its balance sheet and liquidity are solid, but they wanted to strengthen their balance sheet in light of recent industry events and to take advantage of the many opportunities currently in the market.

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

Jefferies stock had already been cut in more than half, but that revenue shortfall is one of the wider ones we have seen from a broker or financial company this earnings season.  If the firm hadn’t announced this financing package, let’s just say this would have been far uglier of a pre-market reaction.

Shares are down over 4% at $14.30 in pre-market trading, and the 52-week trading range is $13.68 to $33.80.

Jon C. Ogg
April 21, 2008