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March 2008

Recs

13

Barron's is wrong, the price of corn is going up (alternate title: the Government's Nuts)

March 31, 2008 – Comments (7) | RELATED TICKERS: DE , CNH , SYT

I just had an opportunity to take a look at this morning's USDA Planting Intentions Report.    [more]

Recs

12

Annoying Buzzword of the Day: "Contrarian"

March 31, 2008 – Comments (3)

Before I start my rant, I realize that some of the world's most successful investors have been "contrarian" in the true sense of the word, such as Peter Lynch when he purchased stock in S&Ls after the crisis or when he made big bucks by purchasing Chrysler when it bottomed out years ago.  I understand that purchasing stocks when they're cheap, at the bottom of a cycle or after they have experienced a major short-term problem is obviously an outstanding way to do very well in investing.  [more]

Recs

5

Deej's Top Pick Update: The day has come, Philip Morris International is here

March 30, 2008 – Comments (2) | RELATED TICKERS: MO

The day that I have been waiting for since I wrote up and purchased Altria stock back in Nov. (http://caps.fool.com/Blogs/ViewPost.aspx?bpid=21743&t=01001019292467236494) has come.  Today Altria's spin-off of Philip Morris International starts trading under the ticker symbol PM. Altria's U.S. tobacco business and its 28.6% stake in SABMiller will continue to trade under the ticker symbol MO.    [more]

Recs

10

CAPS players are smarter than German banks

March 29, 2008 – Comments (4)

I came across a funny, short article in Barron's this morning that talks about how a German bank called Nord/LB had to take a charge of 82.5 million Euros (what is that, like a billion dollars by now?) to cover possible losses related to the purchase of OTC stocks.  One major holding of the bank was RemoteMDX (RMDX.OB).  Some of you will recognize it as a favorite of CAPS short sellers.  Here's a link to its page on CAPS.    [more]

Recs

8

Deej's Top Pick Update: Chicago Brige & Iron Upgraded by Goldman Sachs

March 28, 2008 – Comments (2) | RELATED TICKERS: CBI

While I normally take what analysts say with a large grain of salt, Goldman Sachs is usually pretty good. So I'm happy to say that Goldman added a company that I have been very high on, Chicago Bridge & Iron (CBI), to its "Conviction Buy" list this morning. Goldman raised its earnings estimates for 2008 and 2009 for the company and it stated that it believes that most other analysts' estimates are too low. Goldman also stated, as I had discovered earlier, that CBI is the most highly leveraged infrastructure play to the energy industry and that we are in the middle of a "long-run energy investment cycle." Not only that, but CBI's shares are trading at the lowest multiple of the energy-focused infrastructure group that Goldman follows. Goldman sees a whopping 50%+ upside to CBI's stock from today's price.  [more]

Recs

13

The $53 trillion asteroid

March 27, 2008 – Comments (7)

Oh boy, am I on a roll today.  Blog post #3.  I have become more and more fascinated with the big picture lately, rather than focusing on the minutia and picking apart individual companies' balance sheets (not that that isn't important), I have been trying to figure out where the trends are and where the economy is headed.  I'm in the middle of an interesting book on the U.S. dollar right now, Biography of the Dollar by Craig Karmin, and I'm actively looking for something on Social Security and Medicare.    [more]

Recs

13

Corn and Soy Bean Prices are Headed Lower…for Today

March 27, 2008 – Comments (6)

Watching the price of grains lately has sort of been like riding the Scream Machine at Six Flags Great Adventure, up, down, up down.  We started off on a huge bull run with the price of corn, wheat, and soy beans hitting record levels...not just hitting records, shattering them.  For goodness sake, prior to this year spring wheat futures had never traded over $7 per bushel and they have been trading in the $20s.  [more]

Recs

8

Commodity Prices are Headed to the MOON!!!!

March 27, 2008 – Comments (4) | RELATED TICKERS: USO , GLD

The dollar has been dropping and U.S. growth has been slowing.  Few can dispute these facts.  The question is will these things continue and if so, for how long. 

Perhaps a prolonged downturn in the U.S. economy will help to slow the prices of commodities like oil, gas, and food.  Many people are placing this bet right now and we have seen a a dramatic drop in the price of commodities over the past week or two.  People seem to be forgetting that the Fed is coming out with both guns blazing during this election year doing everything in its power to prevent the U.S. from slipping into a deep recession.  The two 75 basis point cuts that the Fed has made in the Federal Funds rate in recent months are the largest moves that it has made in over two decades.  Plus the Fed has been singing the ABCs introducing all sorts of TSLFs, TAFS, and other ways to add liquidity to the U.S. banking system.  It is now accepting collateral that it has never welcomed in the past and it even invoked section 13.3 of the Federal Reserve Act to provide loans to “primary dealers” aka investment banks for the first time since the Great Depression.   [more]

Recs

6

You're invited to a STAG party...

March 25, 2008 – Comments (2)

As an older brother and the best man, I have been given the honor of organizing my brother's long awaited bachelor aka stag party in Washington DC.  We're going to have a great time, hitting a fancy steak house, enjoying some cigars, and hitting some bars (a few of them that have some interesting entertainment).  Don't feel too left out though, you're all invited to a different sort of stag party.  Unfortunately, this one doesn't involve beer, good food, and dancing ladies...it is a STAGFLATION party.  That is exactly where I think that the U.S. is headed  The dollar has been dropping and U.S. growth has been slowing.  Few can dispute these facts.  The question is will these things continue and if so, for how long.   [more]

Recs

11

How to make big bucks screwing up and dragging millions of people down with you

March 24, 2008 – Comments (2) | RELATED TICKERS: CFC , BAC

When I saw this article tonight I said to myself, "You've got to be freaking kidding me."  A former high level Countrywide exec named Stanford Kurland has been selected as the new CEO of a company called Private National Mortgage Acceptance Co. (aka PennyMac).  What will this new company do you ask?  Well, I'll tell you, but you won't believe it.  Apparently PennyMac was established to acquire and restructure distressed mortgages.  Yes, you heard that right.  A former long-time, high-level employee of a company that significantly contributed to the entire mortgage mess that is threatening to bring down the entire economy is profiting from purchasing messed-up mortgages.    [more]

Recs

17

Is the glass really half empty, or am I just seeing it that way?

March 23, 2008 – Comments (3)

I need a sanity check here.  Are things really as bad out there as they seem to me?  I really don't like being so pessimistic, I used to be a fairly positive individual but I can't seem to think of anything positive to write about the current state of the U.S. economy  Then I go and read Barron's on Saturday and almost every article was extremely optimistic, such as "we've hit bottom," "Are you Ready for Dow 20,000?," yada, yada, yada.  Most of the articles cited the high level of negativity that currently surrounds the market and the economy as the reason why we are due for a major rally.  I understand that the markets are forward looking and that even though things are bad now we may see a nice pop in stocks as people anticipate a recovery a couple of months down the road.  Well, what if that anticipated recovery never comes.  Poof goes the rally.    [more]

Recs

14

Here's why commodities have sold off over the past several days

March 20, 2008 – Comments (7) | RELATED TICKERS: USO , GLD

Look out below.  The prices of most commodities are falling faster Spitzer's pants at the Mayflower Hotel.  In my opinion, the main reason why commodities have sold off over the past several days is that hedge funds have been unwinding their over-leveraged positions.  A few major financial lenders recently instructed their hedge fund clients to reduce their “leverage” in the commodity markets.  Most of these hedge funds were very highly leveraged, holding the maximum number of futures contracts that their capital positions would support.  What started as the selling by a few hedge funds as theyn reduced their leverage snowballed into a mass liquidation of commodity positions as other investors got spooked and sold their positions to lock in their substantial gains.   [more]

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12

Step right up, place your bet...

March 18, 2008 – Comments (7)

Big day today.  It will be very interesting to see what the Fed decides to do with interest rates.  Let's get a little informal poll going.  What do you believe the Fed will do today.  Before this whole Bear mess it seemed like there was a lot of talk about a 50 basis point cut.  Now I hear a lot of talk about a full point.  I personally am splitting the difference and submitting a guess of 75 basis points.  So what do you think?  [more]

Recs

13

Deej’s semi-reasonably priced agricultural ETF (EATME)

March 16, 2008 – Comments (2) | RELATED TICKERS: DE , DOW , CNH

It’s no secret that agricultural commodities, like wheat, corn, etc… have been on fire lately.  The rapid rise in the prices of these things has been fueled by a number of factors, including the improved diets of people who live in emerging markets, the government ethanol boondoggle, and the continuing drop of the U.S. dollar pumping up the prices of things that are priced in it.  The media has absolutely beaten to death a number of stocks that will benefit from this trend, including Monsanto (MON), Potash (POT), and Mosaic (MOS) causing their stock prices to become unbelievably high.  They currently trade at P/E ratios of 52, 47, and 50, respectively.  After kicking myself for having seen this trend early on yet selling Monsanto way too early as its price became unreasonably high in my mind, I have been looking for more reasonably priced ways to get back into the game.  As the saying goes, a rising tide lifts all ships, so as an experiment I decided to create my own personal ETF of more reasonably priced stocks that will benefit from the rising prices of crops.  From looking at other ETFs I knew that it was important to come up with a catchy ticker symbol.  Unfortunately, MOO was already taken so I decided to go with EATME.  You won’t forget that one.  As a disclaimer, I personally have purchased smaller than normal positions in the companies that I am putting in my pretend ETF.  I would not consider any of these companies to be bargains in the traditional sense, however they are much more reasonably priced than the over-hyped stocks that I mentioned earlier.  The companies that I added include:  [more]

Recs

10

Tell me lies, Tell me sweet little lies...

March 14, 2008 – Comments (2)

I believe a quote from a song by the great Fleetwood Mack is very appropriate this morning:  [more]

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10

AHHHHH, LOOK OUT! Dollar's slide picks up steam

March 13, 2008 – Comments (2)

OK, so the title of this post didn't need to be so dramatic.  At first I was going to just call it "Dollar's slide picks up steam," but I've found that sensational titles get read more than boaring ones so I am shamelessly trying to pick up recs :).  Besides I think that this is an important subject that needs to be discussed.  I look forward to reading your comments.  Now onto the post:   [more]

Recs

14

Huge dividend + valuable assets + hated sector = BUY

March 12, 2008 – Comments (5) | RELATED TICKERS: PWE

Penn West Energy Trust (PWE) is the largest CANROY aka Canadian Royal Trust.  CANROYs are similar to the MLPs that are available here in the U.S. in that they pay huge dividends in exchange for tax benefits from the government.  The difference is that the Canadian government pulled the rug out from underneath CANROYs during the "Halloween Massacre" and decided to start taxing them despite campaign promises that they wouldn't.  That's why this is a much hated sector and many investors are staying away from it.  The new taxes don't kick in until 2011 and even then most CANROYs have built up huge pools of reserves that will enable them to avoid paying taxes for at least another year past that.  So by buying PWE today, one basically will be able to collect a dividend of at least 15% (paid monthly!) for the next four years.  By the time that 2012 rolls around the company will have to decide if it wants to try to reorganize as an MLP here in the U.S., change into a normal corporation and focus on growth, or do something else.  I'm not too worried about what form PWE assumes because oil will be over $150/barrel by then and the company's assets will be worth so darn much it won't matter what they do.  For goodness sake, oil has risen from $60 to $108 over the past year and yet PWE's stock had dropped from around $30 to under $28.  Here's the simple formula that I used to decide to purchase PWE

Huge oil and gas assets in a country that borders the U.S. + huge sustainable dividend for the next four years + hated sector that provides a discount versus other similar companies = BUY.

Deej
Long PWE  [more]

Recs

14

Who would have thought that ethanol producers would suck as investments...oh yeah the smart CAPS players did

March 11, 2008 – Comments (2) | RELATED TICKERS: VSE

The WSJ published an article this afternoon titled "Ethanol Boom Is Running Out of Gas."  I figured that I'd take the time to pat myself and the other smart players here on CAPS who collectively rated the ethanol producers one star investments on the back.  Here's a link to the pitch that I wrote for Verasun and Pacific Ethanol on 11/16/07:  [more]

Recs

10

If you think inflation is bad in China, you ain't seen nothin' yet

March 11, 2008 – Comments (2)

The rate of inflation in China hit 8.7% last month, its highest level in eleven years.  The rapidly skyrocketing price of food in the country, up 23.3%, was the main culprit.  The unexpected blizzards that hit China destroyed crops and slowed the shipment of food to cities added to rising global food prices.  In an effort to help slow inflation, the Chinese government imposed price controls in January on a number of agricultural products.  Excluding food, inflation in the country was supposedly a much more manageable 1.6% last month up slightly from the 1.5% increase in Jan.  Many economists are skeptical that the snow storms are the main cause of the food inflation, citing a dramatic increase in the Chinese money supply.

I have a strong suspicion that we here in the United States could be headed for a worse bout with inflation that China is experiencing.  The price of gas is going to go absolutely nuts this summer.  A few months ago I was saying that we are going to see $4.00/gallon gas at some point this year.  I would not be surprised if it goes even higher than that to $4.25.  

Watch out for the price of food as well.  The prices that we are paying in the grocery store, which have already increased considerably, do not completely reflect the surge in the grain prices that we have been seeing lately.  The cost of groceries is going to increase this summer as producers pass increased costs along to consumers.  And if we are unlucky enough to have a drought here in the U.S. this summer the price of grain is going to absolutely explode.  Then food will become really expensive.  I don't see how the huge run up in the price of gas and food won't put a serious crimp on discretionary consumer spending in the U.S.  Add the credit crunch and falling home values to this and it doesn't paint a particularly pretty picture.  I wonder if the massive rate cuts by the Fed and the rebate checks and whatever other action the government takes will be enough to avoid a recession, if we aren't already in one.

http://www.iht.com/articles/2008/03/11/business/11yuan.php

Deej
Long inflation  [more]

Recs

9

Use the mess in the U.S. to add juice your investment returns

March 08, 2008 – Comments (3) | RELATED TICKERS: HURC

Wow, two blog posts in one day.  I'm on a roll.  That's what happens when you have a sleepy, pregant wife and a three year-old who goes to bed early...Saturday night blogging.  Party time :).  All kidding aside, I love my family.  I think that I just need to go have a beer when I finish this post to make myself feel cooler :).  [more]

Recs

6

Cemex is looking mighty tasty right now

March 08, 2008 – Comments (0) | RELATED TICKERS: CX

Barron's published a bullish piece on Cemex this week. It contains some good information, but most of it is just a recap of recent events for anyone who follows the company.  The interesting points include:

- The reduction in its interest expense for the Rinker acquisition because interest rates are 2% lower today than what Cemex had anticipated they would be at the time the deal was announced. This change in rates will supposedly increase Cemex's cash flow by $300 million!

- The greater than expected synergies that Cemex is seeing from the Rinker acquisition.  The company stated that it expects to wring $400 million in savings from synergies as it integrates the recently acquired Rinker. Cemex believes that it will realize $200 million in savings in 2008. This is very positive news because when the acquisition was initially announced CX stated that it expected to realize only $130 million in synergies in the first three years after the deal is completed. So Cemex is saying that it will realize over 50% greater cost savings in the first year than it initially had expected to realize over three years!

- Increased spending on infrastructure in Mexico. Mexico announced that it plans to spend $7.5 billion on public works projects in 2008, a 34% increase over 2007. Approximately half of this expenditure will go towards projects that require cement, such as airports, water treatment facilities, and ports. This is important because Mexico is a significant market for Cemex, representing 18% of its sales.

- An impressive list of funds currently own Cemex, including Longleaf which owns an 8% stake and Muhlenkamp which owns 4.5%.

Cemex is currently trading at approximately 8 times its estimated 2009 earnings. A return to a more normal P/E ratio of 12 to 14 for the company would cause its stock to rise to between $38 and $44, which would represent a 50% to 75% gain from today's price.

Cemex's stock is has dropped over 30% since hitting its 52 week high back in June. I am extremely pessimistic about the U.S. economy and perhaps the negative impact that it might have upon Mexico, but this company is extremely well run and it looks like an excellent buy to me at today's prices.

Deej
Long CX  [more]

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