Saturday, February 24, 2007

Possible Developments

2/25/07 Possible Developments

According to the Financial Times, Kohlberg Kravis Roberts and Texas Pacific Group were on Friday night in advanced talks to acquire TXU, one of America’s largest power companies, in a massive leveraged buy-out that could exceed $40bn including debt. People involved in the negotiations on Friday night described a “dream scenario” in which an agreement could be reached as early as Sunday or Monday morning. But they cautioned that a number of issues still needed to be resolved, which could delay an announcement.

Howard Schultz, chairman of Starbucks, has warned that the world’s largest coffee chain is “watering down” its brand by opening too many “sterile, cookie cutter” stores that lack soul and authenticity.

Vice President Dick Cheney said the U.S. is committed to a diplomatic course to resolve a nuclear dispute with Iran and warned that ``all options are still on the table'' to halt the country's atomic aspirations. It's fair to say all options are on the table to remove Cheney and Bush from office.
In a blunt memo to senior executives, titled “the commoditisation of the Starbucks experience”, Mr Schultz said the company’s expansion from 1,000 stores to 13,000 stores over the past decade had come at a heavy cost.

Doug Noland: "The Fed is not in control of any "general price level" and they certainly aren't in command of Credit Bubble and speculative asset market boom and bust dynamics. Contrast the old banking system where Fed tightening would reduce industry loan portfolio profitability, thereby inducing a general system tightening - to that of the current securities-based system where waning financial profits in one asset class simply induces greater lending, securitizing and speculating elsewhere (one boom and bust leads naturally to the next). And I'll further hypothesize that the more protracted the global Credit boom, the less reliant the world becomes to the U.S. economy and Credit excess. This has important implications for prospective U.S. and global inflation, dynamics increasingly outside the purview of our policymakers. I wouldn't go rambling on about the Fed's lack of control if grossly inflated asset markets weren't so convinced of the polar opposite. Perhaps the greatest Indictment should be reserved for highly over-liquefied and speculative marketplaces."

A top Israeli official Saturday denied a published report that Israel has a plan to attack Iran's nuclear facilities. Deputy Defense Minister MK Ephraim Sneh said Israel is not laying the groundwork to take out Iran's nuclear facilities, despite a report saying so in the British Daily Telegraph, the Jerusalem Post reported. The Telegraph said Israel has asked the United States for permission to fly over Iraq as part of the attack on Iran. The Telegraph quoted an Israeli source saying, "We are planning for every eventuality, and sorting out issues such as these are crucially important. "The only way to do this is to fly through U.S.-controlled air space. If we don't sort these issues out now we could have a situation where American and Israeli war planes start shooting at each other," said the source described.

The Supreme Court of Canada ruled Friday that the procedure used to deport suspected terrorists is unconstitutional.
The court ruled unanimously that detainees under security certificates have the right under Canada's constitution to know the evidence against them and to provide a defense, the Toronto Globe and Mail reported. The justices gave Parliament a year to revise the system, but they said detainees have the right immediately to a bail hearing within 48 hours of detention.

Friday, February 23, 2007

This Week

2/24/07 This week

The number of rigs drilling for oil and natural gas in North America fell by 25, or 1%, to 2,357, according to a weekly update by Baker Hughes Inc. The number of active oil rigs rose by 11 to 278, while the number of gas rigs fell by one to 1,472. The U.S. rig count rose by eight to 1,754, while the Canadian rig count fell by 33 to 603. The offshore rig count increased by one to 89.

Gold futures closed up $3.70 at $686.70 an ounce on the New York Mercantile Exchange. The contract has gained 2.1% on the week. March silver ended up 34.5 cents at $14.595 an ounce and April platinum closed up $7.60 at $1,237.60. March platinum rose $7.60 at $1,237.60 and March copper finished up 7.4 cents at $2.84 a pound.

With respect to a possible sale of Chrysler, Apollo Management, Blackstone, Carlyle and Cerberus Capital Management were contacted by DaimlerChrysler last week, according to the Financial Times. General Motors has also had talks with Chrysler while others, such as Volkswagen, Hyundai and Renault-Nissan, have said they aren't interested in buying the troubled U.S. automaker.

Four U.S. soldiers were killed Friday in attacks in Iraq, the military said. Three soldiers died Thursday in combat operations in Iraq's al-Anbar province, the military said. Another soldier was killed Thursday by an improvised explosive device in a separate incident near Diwaniyah, a city about 100 miles (160 kilometers) south of Baghdad, the military said in a further statement. Three soldiers were wounded in that attack. The total number of U.S. deaths in the Iraq war totals 3,146. When is the Congress going to call a halt to this insanity?

nearly 800 civilians working under contract to the Pentagon have been killed and more than 3,300 hurt doing jobs normally handled by the U.S. military, according to figures gathered by The Associated Press.

Winston Churchill: “It is a mistake to look too far ahead. Only one link in the chain of destiny can be handled at a time.”
Peter Schiff: "The current Wall Street bull market hype ignores the fact that all the major stock market averages are underperforming the price of gold. For example, year to date, while the Dow is up about 1.5%, the price of gold is up about 8%. Going back to January of 2000, while the Dow is only up about 15%, the price of gold price is up 150%, literally ten times as much. Even if you compare the Dow to gold starting from the Dow's October, 2002 low of about 7,200, the Dow is up about 75% verses 125% for gold. Call me crazy but how can we be in a bull market if investors are making more money owning gold than owing stocks?"

Chrysler Group plans to cut 1,000 salaried jobs by the end of June, the first action under a previously announced turnaround plan that targets a total of 13,000 job cuts, the automaker said on Friday.

Dominion Homes Inc. reported a fourth-quarter net loss of $17 million, or $2.09 a share. In the same quarter last year, the homebuilder posted a net profit of $991,000, or 12 cents a share. Revenue dropped to $54.2 million from $111.5 million. The company delivered 284 homes and sold 131 in the three months ended Dec. 31, compared with 571 homes delivered and 230 sold in the comparable period last year.

Crude for April delivery closed up 19 cents at $61.14 a barrel. Oil ended 2006 at $61.05.

"Enough is enough. If we do not demand impeachment of Bush and Cheney for war crimes, the entire world will be facing endless death and devastation," said supporter Elaine Brower, mother of a U.S. Marine who has served in Afghanistan and Iraq.
"We are allowing our government officials free reign to wreak havoc unless we, the people, get a backbone to stop them," Brower said.

National Impeachment Day is April 28.

International Herald Tribune: "Despite a quadrupling of Iran's oil revenues since 1998, the Islamic Republic's budget has grown eight-fold over the same period. Making matters worse, Iran's oil exports fell to a new low in December, and production is now 500,000 barrels per day below the OPEC quota."

Bush: "If the Iraqi regime is able to produce, buy or steal an amount of highly enriched uranium a little larger than a single softball, it could have a nuclear weapon in less than a year."

Thursday, February 22, 2007

The Cloud

2/23/07 The Cloud

Bronco Drilling had a terrific earnings report for the quarter and for year. The stock is significantly under-appreciated. Here is a link to the report:

``There are too many soft markets at this stage of the selling season to call a general upturn in the new home market,'' Robert Toll, CEO of Toll Brothers, said in the statement. ``Demand varies greatly from week to week in individual markets.'' Toll forecast earnings of $1.46 to $1.85 a share for fiscal 2007. The company said it will probably deliver 6,000 to 7,000 houses during the year, compared with an earlier forecast of 6,300 to 7,300 properties.
In the fiscal first quarter, Toll wrote down the value of assets by $96.9 million and took a charge of $9 million relating to an acquisition in Detroit in 1999. Excluding the writedowns and charge, earnings fell 27 percent to 72 cents a share. Revenue dropped 19 percent to $1.09 billion.

J.C.Penney said first-quarter profit would be about 99 cents, less than the $1.05 estimated by analysts.

Seasonally adjusted initial jobless claims fell by 27,000 to 332,000 in the week ending Feb. 17, the Labor Department reported Thursday. But the four-week average of new claims rose by 1,250 to 326,250. It's the highest since Dec. 2, 2006. At the same time, the number of people collecting unemployment benefits in the week ending Feb. 10 fell by 45,000 to 2.50 million, the lowest in two weeks. The four-week average of continuing claims rose by 6,750 to 2.52 million, the most since Feb. 4.

Seasonally adjusted initial jobless claims fell by 27,000 to 332,000 in the week ending Feb. 17, the Labor Department reported Thursday. But the four-week average of new claims -- which smoothes out one-time events such as holidays or weather -- rose by 1,250 to 326,250. It's the highest since Dec. 2, 2006. At the same time, the number of people collecting unemployment benefits in the week ending Feb. 10 fell by 45,000 to 2.50 million, the lowest in two weeks. The four-week average of continuing claims rose by 6,750 to 2.52 million, the most since Feb. 4.

“There is a cloud over the vice-president,” Patrick Fitz­gerald, special prosecutor, told the jury on Tuesday. “He sent Libby off to the meeting with Judy [Judith Miller, a New York Times reporter] where Plame was discussed. That cloud is something that we just can’t pretend isn’t there.”

From The Int'l Herald Tribune Opinion Page on making martial law easier:
"A disturbing recent phenomenon in Washington is that laws that strike to the heart of American democracy have been passed in the dead of night. So it was with a provision quietly tucked into the enormous defense budget bill at the Bush administration's behest that makes it easier for a president to override local control of law enforcement and declare martial law.
The provision, signed into law in October, weakens two obscure but important bulwarks of liberty. One is the doctrine that bars military forces, including a federalized National Guard, from engaging in law enforcement. Called posse comitatus, it was enshrined in law after the Civil War to preserve the line between civil government and the military. The other is the Insurrection Act of 1807, which provides the major exemptions to posse comitatus. It essentially limits a president's use of the military in law enforcement to putting down lawlessness, insurrection and rebellion, where a state is violating federal law or depriving people of constitutional rights.
The newly enacted provisions upset this careful balance. They shift the focus from making sure that federal laws are enforced to restoring public order.
Beyond cases of actual insurrection, the president may now use military troops as a domestic police force in response to a natural disaster, a disease outbreak, terrorist attack or to any "other condition."
Changes of this magnitude should be made only after a thorough public airing. But these new presidential powers were slipped into the law without hearings or public debate. The president made no mention of the changes when he signed the measure, and neither the White House nor Congress consulted in advance with the country's governors.
There is a bipartisan bill, introduced by Senators Patrick Leahy, Democrat of Vermont, and Christopher Bond, Republican of Missouri, and backed unanimously by the nation's governors, that would repeal the stealthy revisions. Congress should pass it. If changes of this kind are proposed in the future, they must get a full and open debate."

The current farm bill, written in 2002, expires Sept. 30.
A proposal released last month by U.S. Agriculture Secretary Mike Johanns would cut agriculture spending by $18 billion over the next five years.
The Bush administration's plan would cost $87.3 billion over the next five years, not counting food stamps and other nutrition programs, compared to $105 billion spent on farm programs over the past five years.
Most payments go to growers of five major crops — corn, soybeans, wheat, rice and cotton.

Crude inventories rose by 3.7 million barrels to 327.6 million barrels in the week ending Feb. 16, the Energy Information Administration said Thursday. But gasoline inventories fell by 3.1 million barrels to 222.1 million barrels, and distillates, which include heating oil and diesel, fell by 5.0 million barrels to 128.3 million barrels. Oil prices briefly surpassed the $61 a barrel mark Thursday for the first time this year after the U.S. government reported surprisingly large drops in gasoline and heating oil inventories.

Mike Shedlock: "Here's an alarming fact about Sacramento's housing market: About one of every five existing homes on the market is a "short sale." That means the home is worth less than the value of the mortgage, and the lender is willing to accept less than full repayment of the loan to avoid foreclosure, says Tracey Saizan, president of the Sacramento Association of Realtors. That, in turn, puts pressure on the remaining 80% of sellers, who have equity in their homes, to cut prices. The median price in the state capital, one of the most overheated metro areas during the real estate boom, fell 4.3% in December compared with December 2005. "Sellers are having to give concessions and cut prices," Saizan says. "It's all about making the house show the best it can and aggressive pricing."

Venezuela and Argentina will offer a US$1.5 billion (euro1.1 billion) joint bond issue next week.

Gold for April delivery ended down $1 at $683 an ounce on the New York Mercantile Exchange. March silver futures fell 2.3 cents at $14.25 an ounce and April platinum ended down $3.20 at $1,230 an ounce. March palladium closed up $6.55 at $350.70 and March copper rose 11.2 cents at $2.766 a pound.

Wednesday, February 21, 2007


2/22/07 News

Tony Blair announced on Wednesday that Britain will cut the number of UK troops stationed in Iraq by about 1,600 – the first time the UK’s 7100 troop military presence in the country has been reduced since the 2003 invasion.

The Bank of Japan's policy board voted by an 8-to-1 majority to lift its overnight call rate by a quarter percentage point, bringing the benchmark lending rate to 0.5% Wednesday. The BOJ said the Japanese economy is likely to continue expanding moderately, noting that positive trends in production, spending and income continue.

Real average weekly earnings fell by 0.3 percent from December 2006 to January 2007 after seasonal adjustment, according to preliminary data released today by the Bureau of Labor Statistics of the U.S. Department of Labor. This decline stemmed from a 0.3 percent decrease in the average weekly hours and a 0.1 percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which were partially offset by a 0.2 percent increase in average hourly earnings.

Consumer prices in January rose 0.2 percent, while core prices, which
exclude food and energy costs, climbed 0.3 percent.

Bill Gross is so disenchanted with U.S. debt markets that
he's raised his holdings of cash-equivalent securities to the
highest level in almost two years. Cash equivalents including debt maturing in less than a year accounted for 43 percent of the assets of the $99.9 billion Total Return Fund as of Jan. 31, up from 26 percent at the end of last year and the most since February 2005, according to Pacific Investment Management Co.'s Web site.

Gross, chief investment officer of Newport Beach, California-based Pimco, has repeatedly said U.S. bond markets are too expensive in commentaries on the firm's Web site in the past year. The latest, published Jan. 29, said the prices of assets including bonds ``are increasingly being determined by value insensitive flows and speculative leverage as opposed to fundamentals.''

George Ure: "We are reading about how there is a propane shortage up in Maine. Doctors are in short supply in Alaska. Growth of industry in India has led to a shortage of good managers. And Esso stations in Ontario may run out of fuel this week due to not one, but two, refinery fires."

$3 a gallon gas has arrived in San Francisco. The stations couldn't wait for the summer driving season to begin.

Asda, the British supermarket unit of Wal-Mart Stores Inc , said on Wednesday it would create 8,000 jobs in the UK this year and build a minimum of 18 new stores.

Best Buy plans to open about 130 new stores in the U.S., Canada and China in fiscal 2008. The company estimates its store expansion plan will create about 12,000 retail jobs.

Scott Burns: "The average marginal tax rate on incomes between $20,000 and $500,000 is 40.3%, the median tax rate is 41.8%, and the standard deviation of all of those rates is 5.3 percentage points. Basically, most of us pay about 40%, plus or minus 5.3 percentage points."

Chief Justice Marshall: "The power to tax is the power to destroy." He might have added, if alive today, the power to print money is the power to destroy the value of our currency.

The index of leading economic indicators rose 0.1% in January after rising 0.6% in December and falling 0.1% in November, the Conference Board reported Wednesday. In January, the coincident index increased 0.1%, with three of the four indicators increasing. The lagging index fell 0.1%.

Kazakhstan threatened Wednesday to suspend Chevron Corp.'s license for operations at a giant Caspian Sea oil field and gave the U.S. energy giant a month to come up with a plan to remove hazardous waste.

Federal Reserve officials discussed dropping their inclination to raise interest rates, and rejected the idea because inflation was their ``predominant concern.''

Crude oil closed above $60 a barrel for the first time this year in New York. Crude for April delivery closed up $1.22 at $60.07. Fires and interrupted power supplies trimmed output at refineries in Texas, Pennsylvania, Colorado, Ontario and Delaware over the past two weeks. A pipeline supplying the U.S. Midwest and Northeast cut shipments.

Gold futures rallied to a seven-month high Wednesday. Gold for April delivery closed up $23 at $684 an ounce, its highest close since July 7. Silver futures rose 44.3 cents to $14.273 an ounce, platinum rose $14.10 to $1,233.20 an ounce and palladium was up $4.40 at $344.15 an ounce. Copper ended up 6.85 cents at $2.6545 a pound.

Whole Foods agreed to buy Wild Oats for $18.50 a share.

Corn rose to a 10-year high in Chicago. Ethanol was another brilliant government idea.

Janice Warman and Annunziata Rees-Mogg: "A typical meat-eating, milk-guzzling Westerner consumes as much as a hundred times their own weight in water every day," says Fred Pearce, former New Scientist news editor and author of When The Rivers Run Dry.That's because it takes between 2,000 and 5,000 litres of water to grow one kilogram of rice, 11,000 litres to grow the feed for enough cow for a quarter-pound hamburger, 50 cups of water for a teaspoon of sugar and 140 litres of water to produce just one cup of coffee. The world today grows twice as much food as it did in the 1960s, but uses three times as much water to grow it. Two-thirds of all the water taken from the environment goes to irrigate crops. "This is massively unsustainable, and has led many people to conclude that the apocalypse wasn't averted, only postponed," says Pearce.

Tuesday, February 20, 2007

More Deals

2/21/07 More Deals

Smart & Final Inc. agreed to be acquired by private equity firm Apollo Management. The deal values shares of the Los Angeles-based warehouse food store operator at $22 each, compared to Friday's close at $19.06.

Warner Music Group Corp. confirmed it's approached EMI Group plc about a possible acquisition. Warner said it made the overture on Jan. 24.

US contingency plans for air strikes on Iran extend beyond nuclear sites and include most of the country's military infrastructure, the BBC has learned.

Crude for March delivery fell $1.32 to $58.07 a barrel. The contract expired today and will be replaced by the April contract, which was down last quoted at $58.85 a barrel.Natural gas prices closed 1.1% higher at $7.58 per million British thermal units.

Gold for April delivery closed down $11.80 at $661 an ounce on the New York Mercantile Exchange. March silver closed down 16 cents at $13.83 an ounce, while April platinum gained 8.70 to close at $1,219.10 an ounce. March palladium ended down $2.05 at $339.75 an ounce. March copper ended down 5.85 cents at $2.586 a pound.

Hewlett-Packard Co.'s first-quarter profit jumped 26 percent as the company benefited from higher sales of laptop computers, printers and printing supplies during a robust holiday spending season.

An extraordinary large amount of BJ Services 2008 30 and 35 calls as well as 2008 22.50 puts traded on Tuesday-- at least 5000 of each.


2/20/07 Results

Wal-Mart Stores Inc. estimated that for the fiscal 2008 first quarter, it would earn 68 cents to 71 cents a share from continuing operations as U.S. comparable-store sales increase 1% to 3%. For the full fiscal year, Wal-Mart forecasts $3.15 to $3.23 of earnings from continuing operations. The company
reported fiscal fourth-quarter net income rose 9.8% on 11% higher revenue. Earnings from continuing operations rose 8.8%. For the quarter ended Jan. 31, the company earned $3.94 billion, or 95 cents a share, compared with $3.59 billion, or 86 cents, in the year-earlier period. Earnings from continuing operations were 95 cents compared with 87 cents.

In the latest quarter, Home Depot's earnings fell to 50 cents from 60 cents on a comp-sales decline of 6.6%.

Target Corp. expects February sales at stores open at least one year to climb between 4% to 6%, compared to sales in the same month a year ago.

XM shareholders would receive 4.6 Sirius shares for each XM share held, or a 21.7 percent premium based on the two companies' Friday closing prices.

Vulcan Materials to buy Florida Rock in a deal that values Florida Rock ata premium of 45% over Friday's closing prices. The deal, which values Florida Rock shares at $68.03, will pay 70% in cash and supplement that with shares in Vulcan on a pro-rated basis.

Brett Steenbarger: "We've had declining money flow, even as the S&P 500 Index has made new highs.".

Shire Plc, the U.K.'s third-largest drugmaker, agreed to buy New River Pharmaceuticals Inc. for $2.6 billion to gain the rights to attention-deficit drug Vyvanse. Shire will pay $64 a share for Radford, Virginia-based New River.

Jon Hussman: "Advances in overvalued markets are regularly given back at great cost to investors who overstay, and can be avoided at no cost to long-term investors. I believe that there are ways to capture a reasonable portion such advances at controlled risk. But there are also times when the attempt to capture speculative gains in overvalued markets would demand too much precision and leave risks poorly controlled. At those times, investors can and should sleep through them (or at least hedge their portfolios), comfortable that any missed, incremental market gains are unlikely to be retained over time."

Sunday, February 18, 2007

Another Refinery Explosion

2/19/07 Another Refinery Explosion

Valero, the largest refiner in North America, operates 17 refineries, 16 in North America and one in Aruba. The McKee refinery, located in Sunray, is one of six in Texas and has a capacity of 170,000 barrels per day. More than 400 workers were evacuated from the Valero McKee Refinery after Friday's explosion, authorities said.
At least 19 people were injured, but thankfully there were no fatalities.

Eight U.S. service members were killed and 14 wounded when a military helicopter crashed Sunday in southeastern Afghanistan after reporting engine failure, the U.S. military said.

Kentucky, Texas and Ohio are the latest to adopt versions of the tax on companies' sales or profits, levied at a very low rate meant to apply to as broad a swath of corporate earnings as possible. Michigan Gov. Jennifer Granholm has also proposed a version as part of a tax system overhaul.
"There were far too many companies doing profitable business here but not paying their fair share of taxes," said Brad Cowgill, Kentucky state budget director.

The U.S. imported 1.139 million barrels a day from Venezuela in 2006, down 8.2 percent from 1.241 million the previous year, according to the EIA. That's the lowest level since 1994, when the United States imported 1.034 million barrels a day.

A barge holding about 17,000 gallons of crude oil burst into flames Saturday, leaving one person burned and another missing. It took 4 1/2 hours to put out the fire. The accident occurred at Garden Isle Bay near Pass a Loutre -- a waterway heading east through the delta at the tip of the Mississippi River.

Congressman John Conyers, Chair of the House Judiciary Committee, has used the following rhetoric repeatedly in recent weeks:
"George Bush has the habit of firing military leaders who tells him the Iraq war is failing. But let me tell you something. He can't fire you. He can't fire us. But we can fire him! We can fire him!" he will favor impeachment if Bush attacks Iran.

Mike Burk: "The market is overbought and seasonally next week has been flat. I expect the major indices to be lower on Friday February 23 than they were on Friday February 16.

Robert McHugh: "We believe the intermediate-term risks in Bonds have moved away from a decline to a rise in prices, and declining long-term interest rates. This is frightening, as it means we are about to enter another recession, one that could be deeper than we have seen in a long time."

Qatar's $40 billion investment fund is seeking a ``strategic'' stake in J Sainsbury Plc and is studying exactly how much of the U.K. retailer it wants to buy, the Gulf emirate's foreign minister said.

Oil Drum: "The US military is completely addicted to oil. Unsurprisingly, its oil consumption for aircraft, ships, ground vehicles and facilities makes the Pentagon the single largest oil consumer in the world. By the way, according to the 2006 CIA World Factbook rankings there are only 35 countries (out of 210) in the world that consume more oil per day than the Pentagon."

Abraham Lincoln: “I destroy my enemies when I make them my friends.”

Robert Lynd: "The belief in the possibility of a short decisive war appears to be one of the most ancient and dangerous of human illusions."