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July 2008

Recs

13

Link Masta Ace / The Linkmeister / Linkman / Link-o-rama

July 31, 2008 – Comments (0) | RELATED TICKERS: NOV , GE , RIG

Well, my stay-cation is over starting tomorrow morning.  My e-mail inbox is bursting at the seams with amazing articles that I have sent myself over the past week.  Here are some of the best pieces that I have come across:  [more]

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11

One of the most important things that you will read about investing in 2009 and beyond

July 30, 2008 – Comments (3)

I am in the middle of reading a surprisingly reasonable, less over-the-top than I had expected book on the current credit crisis titled “The Trillion Dollar Meltdown” by Charles R. Morris.  It provides a great overview of the current mess that we find ourselves in.  That’s not exactly why I am bringing it up though.   [more]

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13

Two industries that reside in the "Land of Make Believe" / Quick Hits

July 30, 2008 – Comments (1) | RELATED TICKERS: BWLD , COP , TSN

Checking in from day three of my stay-cation.  Yesterday I took the family to an amusement park called “The Land of Make Believe.”  With a name like that, I kept looking around for Big Ben Bernanke’s Helicopter ride and strong man wearing a Paulson costume and carrying a huge dollar.  Despite the fact that neither of these things were anywhere to be found we had a great time.

Companies in two industries seem to have been making frequent trips to the Land of Make Believe lately, refiners and chicken producers.  The companies that comprise both of these industries are completely out of touch with reality.   None of them are cutting production fast enough and they are getting killed by low profit margins.  Refiners are have been absolutely crushed as they continue to produce gasoline (refinery utilization was actually up this week) in the face of high oil prices and reduced consumer demand for gas.   [more]

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18

A way to profit from crumbling bridges? / a crumbling dollar / a bear market rally / mysterious crumbled bills

July 28, 2008 – Comments (9) | RELATED TICKERS: URS

Today is day one of my scheduled four day "stay-cation."  My family and I drove across the Tappan Zee Bridge to visit the The Maratime Aquarium in Norwalk, Connecticut (we had a great time).  The reason that I mentioned the Tappan Zee Bridge is when we were on it I thought to myself, "Man this bridge is really a piece of ship.  I hope that it doesn't collapse."  A timely report on the current state of bridges in the United States was published by the American Association of State Highway and Transportation today.  It claims that the United States' bridges are in such a state of disrepair that it would cost more than $140 billion to repair all of them if work started immediately.  [more]

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22

There's cheap and then there's CHEAP! / Goodbye Big 3 leasing?

July 27, 2008 – Comments (11) | RELATED TICKERS: GCI , TEX , VLO

While the current bear market has been painful for everyone who is invested in the market, one benefit is that there are some amazingly cheap stocks out there right now.  More than 100 companies in the S&P 500 (which according to my calculations is over 20% :) ) currently have single digit 2009 P/E ratios.  This week's Barron's had an outstanding article on super cheap stocks.  I don't like any of the financial stocks that the article mentioned because it talked about companies in relation to their book values and I definitely do not trust the book values of financials like Lehman Brothers or XL Capital, but here are a couple that I did find interesting:  [more]

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18

The mystery power company is... / Investors flee Russia / Quick Hits

July 25, 2008 – Comments (5) | RELATED TICKERS: EXC , UTX , MTL

Over the past couple of months I have been talking about my new found love for power companies, especially clean power companies with little or no exposure to coal that have large unregulated generation capacity (see post: Put a charge into your portfolio by playing this trend).  I like this sector for a number of reasons, including the fact that demand for power is growing in the United States while the number of power plants is not, the possible passing of some sort of carbon tax or cap and trade law by an all Democratic government, and the eventual introduction of plug-in electric vehicles.    [more]

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35

Am I bearish, or just right? / Rates are up / These companies are on a roll / Get your own freaking phone

July 24, 2008 – Comments (14) | RELATED TICKERS: MO , NUE , SYT

There has been a lot of talk about how negative the tone of a lot of the CAPS bloggers has been lately.  While I think that we are likely to see a short-term rally in the major indices through Labor Day (or that they will at least remain flat through then), I remain EXTREMELY pessimistic on the current state of the U.S. economy, particularly the U.S. dollar.    [more]

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10

A stock that makes me go ewwwww / Great deals on trucks / Operation retire when I'm 90

July 23, 2008 – Comments (8) | RELATED TICKERS: GE , NSANY.DL2 , SCI

As one can tell from my personal investments in casinos, alcohol, and tobacco I am usually not averse to investing in areas that other investors find repulsive, but I think that I may have met my match.  With its stock off 30% so far this year, a number of hedge funds have started building positions in Service Corp. (SCI).  For those of you who are not familiar with the company, Yahoo! Finance describes it as "as a deathcare products and services provider."  Basically they operate funeral homes.  The thesis behind an investment in Service Corp. right now is that its business will grow significantly as Baby Boomers begin to die in greater numbers.  After falling consistently for the past forty years, the National Funeral Directors Association estimates that the U.S. death rate will rise to 9.3 per thousand people in 2020 and 10.9 per thousand in 2040 (from a base of 8.1 per thousand in 2006).   [more]

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18

A funny look at a serious mess / A fortunate sale / My obsession, you’re my obsession / Still a believer in the ag boom

July 22, 2008 – Comments (6) | RELATED TICKERS: ALV , DD , FNMA

Yesterday I talked about what a disgrace this whole Fannie Mae and Freddy Mac situation is.  The following is a hilarious graphical depiction of my feelings on the subject (with a cartoon on the tomato industry getting screwed over thrown in for good measure):    [more]

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30

Everyone thinks that this was the bottom, so it must be true / Rumors / Quick Hits

July 21, 2008 – Comments (7) | RELATED TICKERS: C , CFC , WAMUQ.DL

Have the stock market and financials bottomed?  [more]

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18

Everybody likes a good stoning / The Electric Company / Bears running wild / Quick Hits

July 18, 2008 – Comments (2) | RELATED TICKERS: CC.DL2 , SLB

Whew, what a couple of weeks.  TGIF.  Volatility like this has to be a trader’s dream.  We’re seeing huge companies up 20% one day and down 20% the next.  Most of us aren’t traders though, the Motley Fool tends to attract more long-term investors, I certainly am one.  Times like this when the market is going haywire and nothing seems to work are emotionally draining.  Despite the pain, the current turmoil can actually be good for you…sort of like getting a shot at the doctor is not fun, but healthy.  [more]

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23

Cheap food trading at a cheap multiple / T. Boone's Crusade / Inflation Nation

July 17, 2008 – Comments (4) | RELATED TICKERS: KR , RAH.DL , SWY

Several weeks ago I mentioned an interesting tidbit that I picked up by looking at Kroger's (KR)outstanding earnings report (see post: It's amazing what one can learn by looking at the earnings of a grocery store).  Sales of the chain's cheap generic aka private label products were up during the quarter.  In its analysts' conference call the company's CEO specifically stated "We did see solid growth in Kroger corporate brand share in the first quarter,"  Safeway (SWY), which is getting absolutely crushed today reported something similar stating that it was experiencing “tremendous growth in our private-label products as consumers are looking for greater value in this economy.”   [more]

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9

Cheap food is trading at a cheap miltiple / T. Boone's Crusade / Inflation Nation

July 17, 2008 – Comments (2) | RELATED TICKERS: KR , RAH.DL , SWY

Several weeks ago I mentioned an interesting tidbit that I picked up by looking at Kroger's (KR)outstanding earnings report (see post: It's amazing what one can learn by looking at the earnings of a grocery store).  Sales of the chain's cheap generic aka private label products were up during the quarter.  In its analysts' conference call the company's CEO specifically stated "We did see solid growth in Kroger corporate brand share in the first quarter,"  Safeway (SWY), which is getting absolutely crushed today reported something similar stating that it was experiencing “tremendous growth in our private-label products as consumers are looking for greater value in this economy.”   [more]

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15

Should you buy a collapesd bridge? / Selling India / Big RIG

July 16, 2008 – Comments (5) | RELATED TICKERS: RIG , CBI

It's amazing what a slight, two-day drop in the price of oil will do for the overall market.  I sure am glad that I covered most of my shorts late last week and early this week.  Despite today's positive action it seems like investors can't catch a break these days.  The market doesn't like surprises right now and that is exactly what it got from Chicago Bridge and Iron (CBI) last night. CBI was hammered after announcing that it will once again have to take charges for the construction of its UK LNG projects, mainly the one at South Hook. The same thing happened last quarter, but with the projects nearing completion I was hoping that the problems were behind us.

Unfortunately it does not appear as though that is the case. A $317 million, $2.38/share charge isn't exactly chump change either. Yuck. CBI should definitely fire whoever is running these projects and whoever signed the initial contract for them. They have almost single-handedly taken the company's stock down from the $60 that it was trading at not that long ago to the $28.90 that it is sitting at right now.

The most disturbing aspect of these charges is this quote from the press release, "The project charges will cause CB&I to be out of compliance with its lender agreements. The company believes that based on the strength of its backlog and solid financial condition, it will successfully obtain the necessary amendments."

Is this a buying opportunity? I'm very tempted to say yes. As long as the lender issue can be straightened out quickly, this is nothing more than a continuation of known problems at two (mostly one) projects. It is certainly annoying and disappointing that CBI management can't seem to get these LNG projects right and as a result it keeps missing earnings estimates, but the rest of its business appears to be very strong.

CBI still expects to earn $0.40 to $0.60/share in 2008. This is fairly close to the $0.58 that analysts were looking for before this announcement. In response to the problems at these projects, CBI is making an effort to switch its future deals away from lump-sum contracts. During the past year, CBI has been able to adjust its portfolio mix from approximately 90% higher-risk projects to only 55%. It hopes to get this number down to 20% - 25% by the end of 2009. Hopefully this will protect it from any similar problems in the future.

CB&I Pre-announces Second Quarter Loss on Two UK Projects  [more]

Recs

13

Liquidity is drying up in the auto industry

July 15, 2008 – Comments (7) | RELATED TICKERS: F , GM

For more than a decade I have worked as a consultant for companies in the auto industry.  Back in January and again in April I wrote that the U.S. market for light vehicles is the worst that I have ever seen it and that it would likely continue to deteriorate (see article: Auto Industry Analyst: "current market for light vehicles in the U.S. is about as bad as I have seen it in the past decade.").  Man has it ever.  The other day I had a lengthy conversation with a smart individual who works for a major dealer group (how on Earth did I not short them?) who has worked in the industry for forty years.  He / she told me that this is as bad as they have ever seen it.  I have acquaintances who have worked at the same automaker for decades who are getting laid off left and right.  [more]

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20

Banks and Restaurants Swoon / Knuckles Boom / Two shocking articles

July 15, 2008 – Comments (2) | RELATED TICKERS: GM , TXRH , WAMUQ.DL

Man I can't believe the carnage in financials right now.  Take a look at the bloodbath that is Washington Mutual.  After trading as high as $41 per share last July it closed yesterday at $3.23!!!!  Ouch!  Guess who has been short WaMu...no it isn't me though it might be in my dreams tonight...it's our good friend Ken Heebner.  Man that guy has been knocking the cover off of the ball lately. 

I was perusing the holdings of his CGM Focus Fund the other day and I noticed that he has built substantial positions in two Brazilian banks Banco Itau (ITU) and Uniao DeBancos Brasilerios (UBB).  Both have taken a hit lately as Brazil's central bank raises interest rates to fight inflation, but Brazil is still my personal favorite BRIC.  This might be a good entry point for them.  I am going to try to cull my CAPS herd to fit them in.  [more]

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19

Multiples are falling / Chinese cement is rising / Quick Hits

July 14, 2008 – Comments (5) | RELATED TICKERS: DO , PBR , CRH

Stocks are obviously cheaper than they were, but they're liable to drop even more.  This is my takeaway from an interesting piece that I came across this morning.   Argus calculated that the S&P 500 currently trades at around 10.2-times its cash flow.  This is slightly higher than the 9.2 times that it hit during the bear market low in October 2002.  Since mid-'02 the S&P has bounced around in a range of 10 to 12 times cash flow.  However, in the 1990s the S&P traded as low as only 6-times cash flow.  Despite the fact that we are at the bottom of the range that the S&P 500 has traded in for the past several years, I suspect that its cash flow multiple...not to mention the actual cash flow of companies...are likely to continue to drop for the foreseeable future.  [more]

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17

If seeing the obvious makes me a whiner, wahhhhh / the dollar is a Fannie / Taiwanese values / Wrong on BUD

July 13, 2008 – Comments (12) | RELATED TICKERS: BUD , FNMA , AUO

I’m sure that most of you have seen that one of McCain’s top economic advisors…make that former top economic advisors, Phil Gramm said last week.  For those of you who missed it, he referred to America as “nation of whiners” and said that the problems with our economy are only in our minds.  It’s one thing for someone who is involved in a campaign to be so idiotic as to call the everyone that they are trying to get to vote for their candidate whiners, but to be a Ph.D in economics and be so mind-bogglingly wrong about the state of the economy is even worse.   [more]

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19

Chicken producers are starting to crack / A theory that is whack / A big fat zero for Indymac / Back to the crack

July 11, 2008 – Comments (12)

A funny thing happened on the way to the meltdown in restaurant stocks caused by higher meat prices, a higher minimum wage, and a slowdown in consumer spending that I predicted...the entire stock market imploded.  Many of my real-life chicken producer and restaurant shorts were up around 30% in only a matter of a couple of weeks despite the fact that my thesis has yet to play out.  To quote Monty Python and the Holy Grail, Let's not bicker and argue about who killed who, or in this case about what reasons they are down...30% is 30%.  After going back and forth on the issue several times, late last week and early this week I began to close them all out, in real-life not in CAPS.    [more]

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18

Plug it in, plug it in / A company that expensive gas actually benefits / Quick hits / A sign of the end of the world

July 10, 2008 – Comments (6) | RELATED TICKERS: COP , PGR , RIG

Plug it in, plug it in.  No, I'm not talking about a Glade air freshener, I'm talking about your car.  A number of automakers are hard at work on developing the next big thing in cars, plug-in electric vehicles.  We have all seen the articles which state that even with $4.00 per gallon gas, purchasing conventional hybrid vehicles does not make economic sense, but these articles are focusing on current technology and I always try to look to the future when investing.  I personally strongly believe that the price of gas will continue to rise in the coming years. While $5.00/gallon gas was considered impossible in the past, that's less than a 25% increase from here.  At five bucks a gallon current Hybrid technology, like the Toyota Prius becomes very intriguing.  Not only that, but in other areas of the world, like Europe gasoline already costs much, much more than it does here. Hybrids are much more economically viable there.

Anyone who dismisses hybrid vehicles is ignoring the possible (in my opinion likely) advances in technology that eventually cause them to be even more efficient.  Besides, I'm not talking about traditional hybrids here anyhow, I'm talking about plug-in electric vehicles.  It's too early to say what the per-mile cost of driving them will be. It is very possible that it will cost less per mile to drive one than it currently costs to drive hybrids.

Many consumers consider much more than the cost per mile when choosing their new vehicle. Plug-in vehicles will help reduce our country's dependence upon foreign oil and they will be much better for the environment (assuming their power doesn't come from coal plants).  Many consumers will find these attributes attractive enough to justify paying a few cents more per mile...and there's no guarantee that plug-ins won't eventually be more efficient.

As someone who has worked in the auto industry for well over a decade, to me plug-in electric vehicles have the potential to be the the most excising new product introduced in years. I strongly believe that the company that is first to market with an affordable, well executed plug-in will have a home run product.  [more]

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16

Still short Mexican airports / Breaking up is hard to do, but in this case it's good

July 09, 2008 – Comments (11) | RELATED TICKERS: GE , PAC , OMAB

The trend of slowing passenger traffic growth at Mexican airports continued in June.  OMAB reported its lowest year-over-year increase yet last month, up only 3.1%.

Its international traffic rose only 1.2% during the month.  In its press release, the company stated that its airports in Culiacan, Mazatlan, Zihuatanejo, and Zacatecas reported lower traffic than a year ago "as a result of a cancellation of routes by U.S. carriers and a reduction in frequencies on some scheduled international routes."  It went on to add, "The continued increase in international oil prices has caused the cancellation of routes, reduction in flight frequencies, tariff adjustments, and other actions by the airlines, all of which affects traffic growth."  A reduction in flights by airlines that are getting crushed by the high price of oil has been one of my main concerns about Mexican airports.  [more]

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18

The dollar's doomed, pensions are doomed, but this company's OK

July 08, 2008 – Comments (7) | RELATED TICKERS: AMN.DL2

I am going to kick things off today with some more on why I expect the U.S. dollar to continue to fall, but as promised I came up something positive to say at the end of this post.  I am not completely convinced that the Euro is the best way to play the weak U.S. dollar, but unless the clashes between countries like Spain and France, which are having serious economic problems, and the more hawkish countries like Germany cause the whole European Union to crumble, I don't see how the gap between the two currencies doesn't continue to widen.  Even after eliminating the United States' massive current account deficit, national debt, and weak economy from the equation...which believe me is difficult to do, the interest rate difference between the ECB and the Fed right now is enough to make anyone want to own the Euro over the dollar.  Check out this chart:   [more]

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16

Everybody loves a good consipracy theory / The teen retailer falling knife

July 07, 2008 – Comments (10) | RELATED TICKERS: AEO , ANF , ZUMZ

Early Thursday morning I blogged about how the June employment report would likely be a mess and that the European Central Bank's would likely raise interest rates by a quarter point.  Both of these predictions, neither of them exactly going out on a limb, came true.  However, I went on to add that this would be bad news for the U.S. dollar.  Boy was that wrong.  The dollar has taken off like a rocket since then.  [more]

Recs

18

Now you must fight the bear

July 07, 2008 – Comments (9) | RELATED TICKERS: PBR , SLB

   [more]

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18

Today's numbers are likely to cause fireworks in the oil and stock markets

July 03, 2008 – Comments (5)

On Monday I wrote that I thought that oil had gotten ahead of itself, BUT that I would not be surprised at all if it hit $150 by the end of the week.  Well my friends, oil is sitting at $145 and change right now and we have a ton of news on tap today that could force it even higher.  Most of the rise that oil has experienced over the past several years has been about supply and demand fundamentals, but any movement in oil this week is all about the weak dollar.  [more]

Recs

12

Extremely bullish on natural gas

July 02, 2008 – Comments (5) | RELATED TICKERS: APA , XTO , PWE

Despite the astronomical rise in the price of natural gas over the past year, I continue to be very bullish.  Normally once winter is over, the demand for natural gas tapers off and we see a significant drop in its price.  The fact that there are many E&P companies partially hedged at sub-seven dollar natural gas this quarter and next illustrates just how sudden and rapid the its price has been.  I strongly believe that nat gas has a lot more room left to run.  Natural gas is currently trading a 40% discount to oil, on an energy equivalent basis.  Furthermore, it is trading at much higher prices in Europe.  These higher European prices are causing LNG (liquefied natural gas) to be diverted away from the United States, causing additional upward pressure on prices here.  [more]

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12

Automakers without a plan / Harassed by the man / An awesome quarter in the can / Dollar to hit the fan?

July 02, 2008 – Comments (4) | RELATED TICKERS: GM , GW , HP

Wow, there was a lot of negative news out there yesterday.  A bunch of fellow CAPS players have already mentioned the Starbucks massacre so I don't really need to get into that other than to say, yeah they weren't great jobs but they were still paying jobs with healthcare.  Not good.  [more]

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24

Hooray, Q2 is over! Boo, it's going to get worse before it gets better! / Earn "glowing" returns by investing here

July 01, 2008 – Comments (19)

It’s not often that a line is funny enough to get me to nearly spit my morning coffee all over the computer screen, but the opening line from today’s post by gold bug / dollar hater Addison Wiggin’s “5 Min. Forecast” is a classic:   [more]

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