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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.

As someone who works in the auto industry, I feel obligated to mention the disastrous auto sales that were announced yesterday.  U.S. light vehicle sales dropped 18% in June (see article: Auto sales plunge).  The SAAR (seasonally adjusted annual rate) of 13.6 million vehicles is the lowest reported in fifteen years.  Things are reeeeally bad for auto sales right now.  The observation that I made back in January and reiterated in April, "current market for light vehicles in the U.S. is about as bad as I have seen it in the past decade." certainly was accurate (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.").

While it is difficult to do during the current environment, I generally try to be an optimist.  I still believe that General Motors (GM) and Ford (F) will be able to make it through this whole mess without going bankrupt.  On the other hand, the worst of the major automakers, Chrysler (CRAP) is another story.  I would not be surprised at all if Chrysler went belly-up.  One can't take advantage of this by shorting it though because it is no longer a public company.  It's hard to believe, but Mercedes-Benz (DAI) actually looks smart for paying Cerberus (HAHAHAHAH) to take that mess off of its hands.


Speaking of cars (this ties into yesterday's blog about falling state revenue as well), I saw something like ten speed traps on my commute to work yesterday.  Man, they were all over the place.  When I commented about this to my wife, she forwarded me an e-mail that a friend sent her.  Normally I despise forwards and I wouldn't have believed this one if I hadn't seen it with my own two eyes. 

Apparently the state of New Jersey is so strapped for cash that it has rolled out a huge State Police ticketing initiative.  During the month of July, the state will pay troopers over a million dollars in overtime in hopes of generating an additional nine million dollars in revenue from speeding tickets.  I'm sorry, but this really rubs me the wrong way.  The state has wasted our tax money for years and now to make up for its mismanagement it has decided to harass productive people on their way to work to generate a little additional revenue.  Grumble, grumble, grumble.



Enough gloom for this morning.  Let's talk about some stocks that are going to go up.  I'm going to go way out on a limb here and say that $140 oil is good for drillers and oil services companies.  I have been more of a deepwater drilling guy myself, but land drillers are on a roll lately.  Here's a very impressive statistic that bodes well for them, according to the land rig count compiled by the Land Rig Newsletter (What's that you don't subscribe to it?  Yeah, I agree, when it comes to nerdy industry rags I'm more of a Rigzone guy myself ;) ) there has been a huge surge in land drilling activity over the past two months.  Its current land rigcount of 1,799 is at its highest level ever recorded!

The specific companies with the largest rig count increases during the quarter include Grey Wolf (GW), Helmerich & Payne (HP), Union Drilling (UDRL), Bronco (BRNC)... you know what I started writing out all of these companies and I realized that everyone and their mother had a blowout quarter.  The earnings for these companies should be amazing.  Despite a nice run, I have a feeling that land drillers still have a ton of upside, especially when their earnings start to come out later this month.



Lastly, here's something to keep an eye on tomorrow.  Trichet and the European Central Bank announce their decision on interest rates tomorrow.  After yesterday's report that inflation in the European Union surged to a record high in June (see article:  EU inflation surge fuels debate over interest rates), I have a suspicion that they will raise rates by a quarter point...despite the recent economic weakness there.  The ECB's sole mandate is to combat inflation, which is now sitting at double the target level.  A rate hike in Europe would be bad news for the U.S. dollar and good news for commodities bulls.



P.S. That title makes me think of my favorite palendrome: A man, a plan, a canal, Panama.

4 Comments – Post Your Own

#1) On July 02, 2008 at 8:38 AM, colonelnelson (33.94) wrote:

Or if you prefer.... A dog, a plan, a canal: pagoda!

Great post, as usual, Deej.

Live not on evil.

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#2) On July 02, 2008 at 9:46 AM, Gemini846 (34.90) wrote:

I always forget HP. They've been good to me in CAPS and RL.

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#3) On July 02, 2008 at 9:51 AM, TMFDeej (97.81) wrote:

Thanks colonel.  How about this one:

I'm a lasagna hog, go hang a salami.


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#4) On July 02, 2008 at 9:54 AM, TMFDeej (97.81) wrote:

Yep, Gemini, HP has been a great one.  I have made a ton of CAPS points off of it, but I'm still kicking myself for not buying it in the real world when I read a bullish Barron's piece early last year on how it will do well (pardon the driller pun) because it has a plethora of horizontal rigs.  @#$%^&*! :)


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