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FRPT 4.50 11.56% almost 500k vl...Keep it coming
FRPT 4.49 11.41%
FRPT 4.45 +10.42% Shorters trying to cap it, but could be seeing a nice squeeze here
FRPT 4.42 +9.93% Patience sometimes is truly a virtue
JRCC 50.99 Go Go Go!
FRPT 4.31 +6.15% Liking this day so far! :)
WM 6.90 3.45% Pushing $7 again
CFC 5.05 4.34%
BAC 30.25 1.58%
SOLF 20.07 7.10%
AKNS 5.85 7.34%
Solars green across the board...Hopefully,they make a complete day of it
DRYS 75.99 3.05% Shippers green across the board
Oil hits record near $140 a barrel on dollar, fire
Monday June 16, 9:41 am ET
By John Wilen, AP Business Writer
Oil futures shoot to a record near $140 a barrel on falling dollar, North Sea fire
NEW YORK (AP) -- Crude oil futures hit a record close to $140 a barrel Monday as the dollar weakened against the euro. Retail gas prices rose to a record $4.08 a gallon.
Light, sweet crude for July delivery rose to $139.89 before retreating to trade up $3.62 at $138.48 a barrel on the New York Mercantile Exchange.
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Many investors buy commodities such as oil as a hedge against inflation when the dollar falls. Also, a weaker dollar makes oil less expensive to investors dealing in other currencies. Many analysts believe the dollar's protracted decline is a major factor behind oil's doubling in price over the past year.
The euro bought $1.5504, a sizable increase from $1.5354 late Friday in New York. The British pound rose to $1.9668 versus $1.9469 in New York.
Also supporting prices was an overnight fire at a StatoilHydro ASA drilling rig in the North Sea, which could affect as much as 150,000 barrels of daily oil production, said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn.
But prices of North Sea-produced Brent crude oil, while higher, were lagging Nymex crude's advance, suggesting to analysts that the dollar was the main driver of Monday's rally.
"We have a weaker U.S. dollar, and the buyers are out in force right now," said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com.
Saudi Arabia, the world's largest oil producer, told U.N. chief Ban Ki-moon over the weekend that it would boost output by 200,000 barrels a day, or by 2 percent, from June to July. In May, the kingdom raised production by 300,000 barrels a day. That increase was largely ignored by traders amid strong global demand and falling production elsewhere.
It appeared as if the same thing happened Monday.
"They have to increase by north of 1 million barrels per day (in order to have an impact on prices), and the market doesn't think they have it," Cordier said.
At the pump, meanwhile, the national average price of a gallon of gas rose 0.3 cent overnight to its latest milestone, according to AAA and the Oil Price Information Service. Gas prices are following crude prices higher, and likely have several more cents to rise before catching up with oil's latest advance. If oil prices pass $140 and head even higher, the pain consumers are feeling at the pump will intensify.
Associated Press writers George Jahn in Vienna, Austria, and Eileen Ng in Kuala Lumpur, Malaysia, contributed to this report.
mbi 6.03 2.73%
BAC 30.04 Back over $30
CFC 4.99 3.10%
JRCC 50.94 2.30%
NCOC 9.24 2.67%
MBI 5.98 1.87%
ABK 2.18 2.81%
IDEV 1.46 +2.82%
JRCC 50.02 2.84% That was quick
Looking for JRCC to break $50 and NCOC to head to $10 this week..
Solar sector should be back in play...Had a good Friday, a good bit of news over the weekend, and would think it will continue to rise
Yahoo investor urges board compromise with Icahn
Monday June 16, 8:49 am ET
By Anupreeta Das
SAN FRANCISCO (Reuters) - Dissident Yahoo Inc (NasdaqGS:YHOO - News) investor Eric Jackson on Monday urged fellow shareholders to vote for a board comprising five existing directors and four nominees from billionaire investor Carl Icahn's slate.
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Jackson, who leads a group of 146 investors holding 3.2 million Yahoo shares, said that while he supported Icahn fully, he recognized that major shareholders may not. So he proposed a "third option" to create a new board that is more responsive to shareholders' concerns.
Icahn, who owns more than 4 percent of Yahoo, launched a proxy battle in May to replace the Web pioneer's board in the wake of Microsoft Corp's (NasdaqGS:MSFT - News) failed effort to acquire the company.
"Neither side running for election can guarantee that Microsoft will ever come back to the table with an offer for Yahoo," Jackson said in a statement. "We must accept that reality and select a board to do the best job in the current situation (even as distasteful as the situation is)."
He added: "I want Icahn to win outright, but I am putting forward this "Third Option" because I fear several large shareholders will worry about the operational abilities of Icahn and his team."
Jackson said his move was aimed at major Yahoo shareholders, including Capital Research, Legg Mason and Vanguard, as well as proxy advisory firms like RiskMetrics and Glass Lewis.
Yahoo last week signed a Web search advertising deal with Google Inc (NasdaqGS:GOOG - News) after talks with Microsoft broke down. The news sent Yahoo shares plunging more than 17 percent.
Jackson became the star of Yahoo's 2007 annual meeting when he accused then-chairman and CEO Terry Semel of mismanaging the company and failing to do more to revive its falling stock price. He also spearheaded a campaign against board-nominated directors, resulting in a hefty minority vote against the re-election of Semel, who stepped down soon after.
In May, Jackson launched a "vote no" campaign, reaching out to Yahoo shareholders via the Internet to urge them to vote against Yahoo directors.
RECOMMENDED CHANGES
Jackson said on Monday that the three members of Yahoo's compensation committee, including Chairman Roy Bostock, and a fourth director, Softbank Capital's Eric Hippeau, should not be re-elected.
"I frankly hold Mr. Bostock more responsible (than Yahoo CEO Jerry Yang) for the break-down in talks with Microsoft," wrote Jackson, who runs investment firm Ironfire Capital and personally owns only a handful of Yahoo shares.
"He supposedly has much more experience in such deal-making matters than Yang," Jackson wrote, "and I find it puzzling that he would choose not to attend that fateful meeting on May 3rd in Seattle, which led to Microsoft finally pulling the plug on their offer."
Yang met with Microsoft Chief Executive Steve Ballmer on May 3 in a last attempt to negotiate before the software giant rescinded its offer to buy all of Yahoo. Ballmer had sweetened the offer to $33 a share, but Yahoo would not go below $37, sources told Reuters earlier.
Jackson endorsed Yang's re-election, but left it to the new board to determine whether he should remain chief executive.
From the Icahn slate, he endorsed venture capitalist Adam Dell, who is Dell Inc (NasdaqGS:DELL - News) chief Michael Dell's brother; Harvard law professor Lucian Bebchuk; former Nextel CEO John Chapple; and former Grey Global CEO Edward Meyer.
Jackson said electing a minority of Icahn's nominees to Yahoo's board would also keep a $2.6 billion severance plan from being triggered through a change of control clause, which would happen if Icahn's entire slate was elected.
(Editing by Lisa Von Ahn)
SA:Apple's Balancing Act: 3G iPhone vs. Jobs' Health - Barron's
by: SA Editor Jonathan Liss posted on: June 16, 2008 | about stocks: AAPL Font Size: PrintEmail What a week it was for the world's foremost CE gadgets maker. Apple's (AAPL) guru, CEO Steve Jobs, unveiled its second generation iPhone at the company's annual Worldwide Developers Conference in San Francisco and it pretty much met or surpassed all expectations. Consumers can forget about all those complaints about the slowness of i-surfing the web via the 2.5G EDGE network when a faster WiFi network wasn't available; iPhone 2.0 comes locked and loaded for much faster 3G network access.
Another thing that has the Apple faithful riled up this time around is the 2.0's price -- or lack thereof. Despite the fact Apple's latest iPhone has features a-plenty that the pre-3G version lacks, such as built in GPS, a new and aggressive pricing strategy will run consumers just $199 for 8 gigs of storage -- half the price of the model it replaces. Instead of retailing the phone at full price and taking a monthly cut from exclusive carrier AT&T (T), Apple will forgo its cut and AT&T will subsidize the phone's price in exchange for a two-year service contract. The reduced pricing means barring unforeseen disaster, Apple should blow past the 10 million phone sales estimate it set for itself in FY2008.
Despite the bounce in share price the 3G's coming out party should have in all likelihood created, Apple shares spent the week selling off (-7.5%). The reason, according to Barron's' Eric Savitz, is simple: Steve Jobs-related health concerns. Following last week's 'Jobs-note', both the blog-o-sphere and mainstream media were filled with reports of a gaunt-looking Jobs, setting off a round of rumors that Apple's number one executive had experienced a relapse of the rare form of pancreatic cancer he suffered from four years back.
Apple's press team responded to the rumors by saying Jobs merely had a "common bug" but to Savitz, the stock's sharp reaction to what amounted to nothing more than hearsay and speculation (at least for the time being) alluded to a greater truth - Apple investors have serious concerns about the company's future prospects in a post-Jobs universe. According to Savitz, "More than any other company, Apple is viewed as a creation of its CEO; it's a cult of personality." Without Jobs in the Chairman's seat, Apple's share price could suffer a serious setback - 3G iPhone or not.
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TechCrunch's Michael Arrington ponders what will happen to the iPhone's rivals.
Author Eric Savitz discusses Apple's refusal to seriously engage in Jobs-related health speculation.
FP Trading Desk notes analysts are thoroughly impressed with the surprise change in Apple's carrier revenue sharing agreement, which should drive an additional $2 billion in free cash flow to the company in 2009.
SA:I Think Microsoft Is Bluffing on Yahoo
by: Mathew Ingram posted on: June 16, 2008 | about stocks: MSFT / YHOO
My friend Kara Swisher at All Things D seems convinced that Microsoft (MSFT) has shelved its offer for Yahoo (YHOO) for the last time, since a number of senior Microsoft executives “close to the dealmaking” told her they have walked away from the table for good, and have no interest in acquiring the troubled Internet giant — not even if Jerry Yang is ousted as CEO, or the stock drops below $20. I have no doubt that sources told Kara that, since her contacts are usually impeccable. But I think they (even this guy) are still bluffing, and are ready to pull the trigger on a Yahoo deal.
Why do I think that? Unlike Kara, I have no inside sources at Microsoft with knowledge of a deal. But I can’t help but think that if an acquisition of Yahoo made any sense whatsoever at $33 a share, how could it not make even more sense at $23 a share? (I’m not the only one who thinks so) Presumably Microsoft saw synergies between Yahoo’s search business and its own that made a takeover look worthwhile, or it wouldn’t have pressed so hard to get a deal done. So what has changed? Not much — except that Yahoo’s stock has tanked and the company needs Microsoft more than ever.
Yes, Yahoo has cozied up to Google and sold the soul of its search business. But the Google search deal isn’t exclusive, and there isn’t even a “kill fee” if Microsoft acquires Yahoo and then tells Google to take a hike. And I have to think that seeing Google get its hooks into Yahoo has to make Microsoft want the company even more.
SA:Whither Municipal Bond Insurance?
by: Felix Salmon posted on: June 16, 2008 | about stocks: ABK / BRK.A / MBI Font Size: PrintEmail On Friday, I said that there's a strong case to be made for the existence of municipal bond insurance, "since these bonds are generally bought by retail investors who can't be expected to do sophisticated credit analysis". Commenter efranco then asked a good question: what happens if and when the municipalities start getting triple-A ratings, as Moody's has indicated is going to happen? Bloomberg's Michael McDonald says there's a good chance that demand for bond insurance will plunge, and even the insurers seem to agree:
"If rating agencies level the playing field in terms of how they rate municipal versus corporate obligations, there will be little need for a financial guaranty insurance marketplace as we know it,'' Ajit Jain, head of Warren Buffett's Berkshire Hathaway Assurance Corp., said at a congressional hearing in March.
If this is true, then there shouldn't be a market for bond insurance. Bond insurance, if there's any point to it at all, is an insurance product, not a ratings enhancer: issuers buy it because investors are reassured by it, and can sleep safely at night in the knowledge that their bond coupons will be paid in full and on time - by someone.
After all, there's a world of difference between a credit rating, on the one hand - which is simply an opinion regarding probabilities - and a monoline wrap, on the other - which is a hard-cash guarantee that you'll get your money back.
And these days the money-back guarantee should be even more valuable than a triple-A rating than it was in the past, seeing as how the ratings agencies seem to have been very good at handing out triple-A ratings where they weren't deserved.
But there's a problem, of course. If you thought banks and hedge funds got highly leveraged, just wait until you look at insurance companies, whose claims-paying abilities are a minuscule fraction of their total potential claims. If municipalities for some reason started behaving a bit like the housing market and all defaulted at once, no monoline, not even Berkshire Hathaway (BRK.A), could come up with the money it needed.
So municipal bond insurance is insurance against any given municipality defaulting; it's much weaker as insurance against municipalities in general facing enormous difficulties which end up forcing them into default.
All the same, it's a useful thing to have, for one big reason: the monolines are much more involved and engaged in municipal finances than the ratings agencies are. When a municipality goes to a monoline to be wrapped, the monoline will make certain demands, similar to covenants on loans, which actively make the municipality more creditworthy. And if the municipality still ends up running into fiscal difficulties, the monoline has both the ability and the desire to step in early and force actions to avert default. Ratings agencies, by contrast, can do none of that, and certainly don't keep a close eye on municipalities after they've been rated, if they're not issuing anything new.
Municipal defaults are often caused by treasurers getting out of their depth in terms of derivatives they don't understand (Orange County, Jefferson County). If the deal with the monoline precludes such activity, then the county's bonds will become that much less risky. So it's a useful thing for investors to have.
On the other hand, if municipal bond insurance is really just a ratings arbitrage masquerading as an insurance product, then it deserves to die.
The irony here is that municipalities are finally getting their long-coveted triple-A ratings just as those ratings have never been less valuable. Maybe investors, used to having a contractual guarantee of repayment, rather than just a ratings-agency stamp of approval, will continue to pay a premium for wrapped bonds, even if the municipality in question has a triple-A rating. But in order for that to happen, they're going to need to rekindle their faith in the monolines first.
MBIA to keep $900 million at holding company
Monday June 16, 8:13 am ET
MBIA to retain $900 million at holding company, instead of transferring to operating unit
NEW YORK (AP) -- Bond insurer MBIA Inc. said Monday it is no longer considering transferring $900 million from its holding company to its operating subsidiary, according to a regulatory filing.
The $900 million was raised earlier in the year as part of an attempt to help the insurer keep its crucial "AAA" financial strength ratings, but with Standard & Poor's cutting that rating to "AA" and Moody's Investors Service saying it is reviewing the rating for a possible downgrade, MBIA decided not to transfer the funds.
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Earlier in June, S&P cut Armonk, N.Y.-based MBIA's financial strength rating to "AA" from "AAA" because MBIA faces reduced business and financial flexibility. Top-notch ratings are vital to helping ensure the generation of new business.
MBIA said in a filing with the Securities and Exchange Commission it is "pursuing opportunities" to help the beleaguered bond insurance sector as a whole, including working with the New York State Insurance Department and other industry stakeholders.
Rising defaults on mortgages has ratings agencies worried there will be a spike in claims payments in the coming months, as bonds backed by those mortgages are likely to default. The rise in claims would severely cut into cash reserves for some bond insurers and potentially put others out of business.
Ratings agencies began to review bond insurers operations late in 2007 to see if they were worthy of top-notch ratings. Most bond insurers have seen their ratings cut by at least one agency.
Since December, MBIA has raised about $2.6 billion to help ensure it has enough money to pay out a potential spike in claims, while still maintaining enough excess capital to maintain a "AAA" rating.
Since ratings agencies started reviewing bond insurers' financial strength, MBIA has maintained it has sufficient capital to cover any and all policy claims.
"Last week, the actions taken and statements made by both Moody's and Standard & Poor's made it clear that, at this point, maintaining 'AAA' ratings for MBIA would be dependent on other factors besides the amount of capital or claims-paying resources we have," C. Edward Chaplin, MBIA's chief financial officer, said in the filing. "Our capital-raising efforts since the fourth quarter of 2007, which put us at the forefront of the industry, were completed to meet the rating agencies' capital requirements to maintain a 'AAA' rating."
MBIA still carries a "AAA" rating from Moody's as the agency reviews the insurer. MBIA is rated "AA" by Fitch Ratings.
Ahead of the Bell: SunPower upgraded
Monday June 16, 8:23 am ET
Analyst upgraded SunPower, says overall global demand will likely help offset dips in Spain
NEW YORK (AP) -- Shares of SunPower Corp. rose in premarket trading Monday, after n analyst boosted his rating on the solar power products company, saying it will likely see better-than-expected demand across the globe.
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Credit Suisse analyst Satya Kumar upgraded the San Jose, Calif., company to "Outperform" from "Neutral" and kept a $100 price target.
The new target implies he expects the stock to jump 29 percent in the next year over Friday's $77.75 close.
While demand in Spain will likely dip in the second half of this year, interest in SunPower's products may grow in Italy and other countries, he said.
Kumar expects the company to earn $2.27 per share for the year, while analysts polled by Thomson Financial, on average, expect earnings of $2.17 per share.
So far this year, the stock has dipped 40 percent.
A company representative was not immediately available for comment.
In premarket electronic trading, SunPower shares gained $3.65, or 4.7 percent, to $81.40.
SA:Lehman's Short Term Fundamentals Are Shaky
by: Michael Filloon posted on: June 16, 2008 | about stocks: GS / LEH Font Size: PrintEmail Lehman (LEH) had an impressive run on Friday. Investors were giddy for a turnaround in the company and traders couldn't wait to take their money. Most traders put a stop on $20.25 and many purchased it for not much more than that, watching the stock run up to just under $26. I believe many of the traders got out before the end of the day on Friday, logging an excellent return for the day as long term investors continued to buy the stock even after the market close. That is the beauty of institutions with a long and profitable track record; they inspire investors even when things look bad.
Private equity looks to have an arduous road ahead. This is based on the entire market rolling over, with most IPOs failing miserably with the exception of those placed in sectors that are doing well, as with Intrepid Potash (IPI) and Visa (V). The other problem is in the area of structured loans. This packaging debt into securities has scared everyone off, as many of these investments contained subprime and have dried the market considerably.
Global structured financing deals are down 82% in May from a year earlier. This is where the Goldman (GS), Lehman Brothers and JP Morgan (JPM) will watch earnings dry up. In some cases, financial institutions have already written off more than their companies have earned over the past decade or greater. Lehman had a broad exposure to the subprime markets, and this only adds to their problems. These problems are unseen by the likes of Goldman, so there are many better players in this arena.
Lehman's jump the other day was based more on short sellers unwinding positions than anything else, but a lower CPI was the main reason for the market rally. CNBC also announced that Blackstone (BX) was interested in buying a stake in Lehman, which fueled buyout speculation. Lehman also let go of its CFO, which in my mind was uncouth. She had nothing to do with the problems at Lehman as she wasn't there long enough. Since she had nothing to do with Lehman posting its first full year loss ever, it makes you question the reasoning.
The company pre-announced earnings a week early and its $3 billion dollar write down was more than the $2.8 billion that was expected. It also announced to raise an additional $6 billion in capital. Moody's recently changed its outlook on Lehman's credit rating to negative, which could reflect a downgrade in the upcoming months. Fitch recently cut Lehman's ratings to A+ and S&P downgraded its long term debt rating to A from A+. Reuters has Lehman's total outstanding bonds at $117 billion.
Looking at this sector, it is hard to get long Lehman. The huge run up on Friday will probably be met with a rebound in oil and a sell off in the financials, as people take profits. My hypothesis is that LEH stated quarterly earnings early to minimize the bad news this Monday. I believe we will hear there will be additional write downs, and it will try to blame company woes on the employees just ousted.
I also believe it will state a further deterioration of the real estate markets through the end of this year. This poses an increasing problem as the subprime mess is now a mortgage mess. The Fed has stated they will be looking to hold rates, and I believe they will, although the chances of a rate hike decreased over the past couple of days. Investment banks have only one real way to offset their mortgage losses, and that is through investment. They cannot invest if they have to raise capital. The secret is to look at firms such as Goldman that just offered a total return swap to CIT. These firms are not worried about their liquidity.
Since this is a trade, I would recommend putting a stop in at 29.48 as this point seems to be resistance, and even with the large move Friday, no new trend was started. I believe you can take profits at 20.25, but it may be safer to do it at $21 as $20.25 seems to be the bottom. I placed a short at $25.74 on theupdown.com.
Remember, this is not a long term position, as I am still bullish the price of corn on major inventory problems this year due to flooding and a late frost in the Midwest. Long positions include POT, IPI, MON, and DBA. Soybeans were crushed on Friday and look good on a rebound. My current trades in the Goldroom on DBA, MON and POT are up 13%, 10% and 23% respectively. Stick with what's working until there is a reversing of trend, don't be a hero.
Disclosure: none
SA:Mid-Year Picks and Pans From Barron's Roundtable
by: SA Editor Eli Hoffmann posted on: June 15, 2008 | about stocks: BAC / BDC / BOLT / CFC / CTV / FRP / JPM / SLB / TYC / VZ / WFC / WMT Font Size: PrintEmail Barron's magazine returns to its 11 Roundtable participants, who weigh-in with their mid-year thoughts, and updated stock picks (see parts II and III).
Bill Gross
Tepid growth should keep the Fed from hiking rates despite relatively high inflation. Foreign reserves, bolstered by another $500B in oil money, will continue propping up equity prices -- because they're not buying bonds.
He likes: Fairpoint Communications (FRP), which acquired substantial properties from Verizon (VZ). JPMorgan's (JPM) 7.9% preferred stock ("The Fed loves Jamie Dimon, why shouldn't you?"). And Countrywide (CFC) at a 10% to future parent Bank of America (BAC).
Oscar Schafer
Debt deleveraging, falling housing prices and high gas costs will keep consumers at bay -- a benefit to discounters like Wal-Mart (WMT).
He likes: Tyco International (TYC), which is undervalued, underlevered, and has great international potential. CommScope (CTV) has a superb, aggressive management team.
Archie MacAllaster
Three bank stocks: conservative, growth, and speculative. Conservative: JPMorgan (JPM) should climb by 50% over the next 12-18 months. Growth: Wells Fargo (WFC) shares are down too far considering it's well run and has a diverse business. Speculative: Bank of America (BAC) buying Countrywide (CFC) will be a positive 18-24 months out; it will turn a big profit on its $15B stake in China Construction Bank.
Scott Black
Despite real GDP growth, for Main Street this is a recession.
He likes Bolt Technology (BOLT), a relative unknown in oil drilling, it fetches a cheap 10x earnings vs. Schlumberger's (SLB) 20x. And Belden (BDC), a cable manufacturer which earns 59% of its revenue outside the U.S.
SA:Beware of the Allure of Ethanol Investing
by: Neal Dikeman posted on: June 15, 2008 | about stocks: AVR / SUN / TSO / VLO / VSE Font Size: PrintEmail I am a fan of ethanol. The addition of corn ethanol to our US fuel supply chain has had a significant impact on keeping gasoline prices way lower than they otherwise would have been, and has paid for the subsidies many times over. But that has not translated to gains for ethanol stocks, which are down on the order of 50% over the last year according to the Camino Energy index, and it won't change anytime soon.
As the bellwether US ethanol pureplays are finally down to earth, my predictions have come to pass. Two years ago ahead of Verasun's (VSE) IPO, I blogged an analysis saying I thought Verasun should trade in the $3 to $8 range, depending on the margin, PE, and growth assumptions. The bankers and the market thought I was nuts, treating VSE and Aventine (AVR) which listed near the same time as technology style growth stocks.
The company listed at several times my target range, and then traded way up from there. But as I had predicted, the margin pressures from a range of commodity price movements and the relatively low barriers to entry for capacity additions came to bear. But the fall is probably not over.
I stated then and reiterate now that ethanol companies are basically small refiners with potentially worse economics. And refiners traditionally trade at single digit PEs, and single digit PE. Worse, refiners don't always do well when commodity prices rise or their markets grow fast, as the spreads they make their margin on are often affected as much by relative capacity constraints as the raw commodity prices themselves. In fact, fast moving commodity prices in either direction in either refined products or feedstocks can sometimes bode ill for refining profits, depending on what's happening in capacity.
VSE now trades under $5. Right in the middle of range I predicted it should. And the PEs for VSE and AVR are finally down in the range close to the independent refiners group I follow, Valero (VLO), Sunoco (SUN), and Tesoro (TSO). BUT,and there is a but. The TEV/EBITDA multiples for VSE and AVR, which are way down, are still 2-3x those of the refiners, and the PEG ratios are still richer as well. This likely means more room to fall, or at least languish.
The next wave of venture backed ethanol companies, mostly cellulosic, are beginning to break ground on pilot plants, and given the penchant for certain ethanol crazed venture investors to IPO deals when windows open, it is likely we will see some of these soon. And it is likely that they will be sold to the market the same way, as high growth stocks based on great technology and macro conditions justifying stratospheric PEs on unsustainable margins. Then they'll hit their first commodity cycle, the margins will compress, the bloom will come off the rose, the multiples will come down, and the investors who bought and held post IPO will get crushed.
We've seen it before and we'll see it again. Try not to get caught this time.
SA:Indicator Points to Higher Gas Prices - and 3 Potential Power Plays
by: Keith Fitz-Gerald posted on: June 13, 2008 | about stocks: HOC / VLO / WNR Font Size: PrintEmail At Money Morning over the past six months, we’ve talked a great deal about oil and gasoline prices. We’ve offered our predictions about how high those prices were going, and have detailed a number of investment opportunities - chosen as much for their margins of safety as for their profit potential.
This time we’re going to detail three energy stocks with the potential for double-digit - or even triple-digit - profit gains. Admittedly, these are longer-shot, speculative plays. But we used a special energy indicator to help ferret out these energy plays.
This indicator is known as the “crack spread.”
In case you’ve never heard the term before, the crack spread is the difference between the price of crude oil and the value of the petroleum products that refiners can make from it. The crack spread can widen or narrow over time, depending upon various combinations of supply and demand.
If the spread is positive, that means the price of the products that result from the refining process - gasoline, diesel fuel, aviation fuel, heating oil, kerosene and asphalt, to name a few - is greater than the cost of the crude oil needed to make them. But if the spread is negative, it suggests that the cost of crude is higher than the end-game value of its derivatives.
Right now, the crack spread is narrowing. In fact, it has been for some time as governments around the world and gasoline companies actually try to hold down the pain motorists feel at the pump.
Granted, governments and major oil players make for strange bedfellows. But they have a common interest right now: Both are trying to prevent “demand destruction,” the plunge in oil demand that would result if millions of motorists - fed up with high oil and gasoline prices - just stopped driving. Governments want to prevent an economic collapse, while the integrated oil companies simply want to avoid being branded as the “bad boys” of the soaring-oil-price era - making it much easier for the incoming presidential administration to slap the entire sector with an “excess-profits tax” (something that’s already being discussed by Washington insiders).
But we can also see another scenario, one that’s very different. Peering into our crystal ball, we can see a situation in which the crack spread begins to widen, and gasoline prices run away anyway - eventually reaching $7 or even $9 a gallon.
For motorists, the pain would be excruciating. For investors, however, there’s a chance for double or even triple-digit profit gains.
Let me explain…
The Subsidy Gambit
It turns out that a number of Asian governments - most notably Taiwan, Malaysia and China, for instance - are actually reducing or eliminating fuel subsidies designed to shield their consumers from crude oil’s relentless march. Ostensibly, this is designed to control demand, but history suggests this will merely give those with the money access to increasingly large supplies that they’ll gobble up. In other words, we believe that demand may be growing fast enough to override the prices that governments around the world still believe to be inelastic.
Combine that possible new reality with the fact that a developing Asia accounts for as much as 70% of the increase in global oil consumption, this end of subsidies would probably hammer worldwide markets, including our own.
Given that Asia represents a mere 20% of current global usage, Asia’s growth is critical to how the rest of the world uses and prices petroleum-related products - particularly gasoline. Incidentally, this stands in stark contrast to how Japan and much of Europe do things where high taxes on fuel and transportation are used to blunt demand.
The economic forces that will be unleashed when these subsidies are removed have the potential to make the Great Tunguska Blast that took place 100 years ago this month look like a wet firecracker.
Indonesia, for instance, spends nearly 20% of its budget to underwrite fuel costs and has telegraphed a 30% hike in fuel prices when those subsidies are removed. It’s much the same story in China, India and the Philippines, where separate figures for fuel subsidies are hard to come by, but where it’s safe to say that the net effect of these price controls have contributed to artificially low prices and artificially high levels of demand.
In China, where the government caps gasoline prices, for instance, motorists pay about half of what their U.S. counterparts pay. All in all, governments around the world will spend about $100 billion on oil subsidies this year - meaning about half the world’s population is benefiting from “cut-rate” petroleum prices. This year, those folks will account for all of the growth in global oil demand, equal to an additional 1 million barrels of oil per day, says Deutsche Bank AG (DB).
Now, pressure is escalating globally for countries to end the subsidies the world economy can ill-afford. The International Monetary Fund [IMF], for instance, is “calling on governments to let consumers face market prices in order to kick-start conservation and reduce official spending,” says The Christian Science Monitor.
As I hinted earlier, this change has the potential to jam a lot of consumers personally. But it would allow world markets to function as, well, markets. And that, in turn, would afford investors one of the biggest turnaround opportunities available in the energy sector today. The reason: As the subsidy removals, pricing changes and demand shifts work their way through the global economy, the crack spread would widen again… and fast.
And the biggest beneficiaries could well be the oil refiners, which have seen their profits get zapped along with crack spreads in the past year.
The Best Way to Play the Shift From Subsidies
If there is a sector turnaround, the upside could be huge. And the three firms in line to benefit are Western Refining Inc., Valero Energy Corp. and Holly Corp. Let’s take a closer look at each of the three:
Western Refining Inc. (WNR): The El Paso, Tex.-based Western is an independent crude-oil refiner that owns and operates four refineries, and that also owns and runs 155 retail service stations and convenience stores in the Southwest. Although Western’s shares rose 77 cents each, or nearly 7.1%, to close at $11.66 yesterday (Thursday), the stock is down 82% from its 52-week high of $66.13. Independent researcher Soleil Securities Group Inc., this week initiated coverage of Western with a “Sell” rating and a target price of $8, contending that the company is highly leveraged and has seen its shares suffer in concert with its peers as part of a general sector downturn. That underscores the sentiment these companies face. But a return to its 52-week high would represent a 467% gain.
Valero Energy Corp. (VLO): The San Antonio, Tex.-based Valero Energy owns and operates a total of 17 refineries spread across the United States, Canada and Aruba, and its products run the petrochemical gamut. At yesterday’s closing price of $44.42, Valero’s shares are down 44% from their 52-week high of $78.68. A return to that 12-month peak would represent a gain of 77%.
Holly Corp. (HOC): The Dallas, Tex.-based Holly is another independent petroleum refiner that focuses on such “light” products as gasoline, diesel fuel and jet fuel. It operates several refineries, about 900 miles of crude-oil pipelines, and a number of other operations. At yesterday’s closing price of $40.44, Holly’s shares are down 50% from their 52-week high of $80.55. If the shares were to bounce back to that 12-month peak from yesterday’s close, investors would reap a return of 99%.
Clearly, these aren’t “slam-dunk” stock picks. But volumes are going up and many of the sector players have been beaten down to bargain-basement levels not seen in years.
Besides, for a shot - even a long shot - at a 467% gain, investors can afford to be somewhat patient.
SA:Disagreeing With Tilson on the Monoline Insurers
by: Tom Brown posted on: June 15, 2008 | about stocks: ABK / MBI Font Size: PrintEmail There are a lot of things I like about hedge fund manager Whitney Tilson. He’s a smart, articulate, and energetic man who devotes an enormous amount of time and energy to many worthy causes. He founded the Value Investing Congress, which is rapidly becoming a must-attend event for value investors, and has kindly asked me to speak at it. And Whitney has certainly had his share of success as a value investor himself.
But there’s one area in particular that Whitney and I differ: our views on financial guarantors Ambac (ABK) and MBIA (MBI). Whitney has earned a great return over the past six months (and longer, I suspect) being short the companies. The fund I run has been long recently, and our returns have suffered. But I believe the short-run returns will reverse as the companies’ fundamental business prospects become better-understood and fears about their future losses and alleged liquidity constraints diminish.
As it happens, Whitney is no shrinking violet when it comes to sounding off about companies he has strong views on. He sends out an email daily to friends and associates that highlights news articles he finds of interest, along with his comments. For months, the emails have contained a steady drumbeat of abuse against the guarantors. I’ve read a lot of stinging attacks against company managements over the years, and have written more than a few myself, but I can’t recall anyone who can match Whitney Tilson’s ability to ratchet up the level of personal vilification against corporate executives he doesn’t approve of. It’s really quite something.
Another of Whitney’s emails arrived on Wednesday; it led off with yet another whack on Ambac and MBIA. Normally, I let the attacks pass. Disagreements are what make markets, after all. But this broadside was so unfair, misleading, and factually inaccurate, I can’t let it pass.
A letter to shareholders
Whitney’s comments on Wednesday had to do with a letter MBIA CEO Jay Brown wrote to his shareholders this week that discussed the recent credit rating announcements by S&P and Moody’s. (S&P recently downgraded MBIA’s insurance unit to AA, you may recall, while Moody’s put all MBIA’s units on review for a downgrade.) As it happens, those moves caused the company to change its plans regarding what to do with $900 million it recently raised in an equity offering. When the company was still AAA, the company planned to downstream the cash to its insurance subsidiary to help maintain the rating. Now, though, it’s considering alternatives.
Notably, in their announcements, Moody’s and S&P cited factors other than capital adequacy, such as lack of new business and continued uncertainty in the housing market, to justify their decisions. In fact, the agencies had to cite something besides capital adequacy, since both Ambac and MBIA exceed the minimum capital level required by both rating agencies for triple-A ratings. What’s more, those capital ratios are rising, as old risk exposure runs off and little new exposure is added.
Anyway, back to Whitney’s email this week. “I haven’t been spending much time writing about MBIA and Ambac recently, as these companies sink into well-deserved oblivion,” he writes, “because grave dancing isn’t polite.” (Translation: “There’s nothing so enjoyable as a little grave dancing. Here goes!”)
Whitney, you see, simply has no choice but to comment on Jay Brown’s letter because it “so beautifully illustrates the company’s hubris and mendacity.”
Huh? I don’t know if Whitney has ever even met Jay Brown. But I do know Whitney can’t know him well. Jay is a smart, clear-eyed, common-sense operator, and the perfect person be leading MBIA right now. MBIA might have issues, but hubris and mendacity aren’t among them.
Fraud?
Next, Whitney slams the company for changing its plans for the $900 million. He argues the company once said it would downstream the cash, and is outraged it has had a change of heart without (until now) informing investors, customers, the rating agencies, and regulators. “Is this not the very definition of fraud and market manipulation?”
Say what? That’s as harsh as it is inaccurate. Here are the facts. Management only expressed an intention to downstream the $900 million, and didn’t do so right away so it could receive more clarity on future actions by the rating agencies. The New York State Insurance Commissioner was certainly involved in the discussion of where the money would go, since one of the company’s options under review was (and still is) the possibility of downstreaming the $900 million into new subsidiary to write new business. So this is not the “very definition of fraud and market manipulation.” It’s simple, above-board capital allocation.
Whitney goes on to claim MBIA has denied policyholders money that’s been promised to them so that management can keep their jobs. Policyholders are thus “screwed.” He then ends his tirade with a nice piece of thundering self-righteousness:
MBIA seems to have forgotten that they're a regulated entity and that they're not allowed to balance their "obligations to policyholders with optimizing returns to our shareholders". The deal with any insurance company is that policyholders come first and only if there's money left over does anything go to the holding company, which is why MBIA is a zero and why we're still short it.
The good news is that, based on what I've read, NY State Insurance Commissioner Eric Dinallo is on to these guys and I assume won't allow these totally sleazy actions.
Whoa! Can we get back to Insurance 101 for a second? Whitney surely understands the difference between a holding company and an insurance subsidiary. Dinallo regulates the insurance sub; he has no jurisdiction over the holding company. What’s more—and I’m sure Whitney understands this, as well--Jay Brown and the other members of MBIA’s board of directors have a fiduciary obligation to their shareholders. It is very, very simple.
Overcapitalized
If the rating agencies don’t rate MBIA’s insurance sub AAA, then the insurance subsidiary (which was overcapitalized even when it was rated triple-A, recall) is extremely overcapitalized at its new rating. The last thing the board should be thinking about, therefore, is sending the unit another $900 million. Especially since, with the company writing little new business, its risk exposure is declining.
Don’t forget, MBIA already exceeded S&P’s stated minimum capital requirements for a triple-A rating by $900 million at the end of the first quarter, and exceeded Moody’s minimum by $2.8 billion.
Despite what vocal shorts like Whitney Tilson have to say, neither MBIA or Ambac have capital or liquidity shortfalls. Interestingly, in eviscerating Jay Brown’s letter to his shareholders this week, Whitney left the following comment stand: “we continue to feel comfortable with our economic loss estimates embodied in the reserve and impairment figures we provided to the market in our last earnings call.”
So the company is manifestly well-capitalized, and continues to be comfortable with its loss estimates.
Whitney, maybe, just maybe, MBIA won’t be a “zero” after all. It might pay to take a harder look!
Tom Brown is head of BankStocks.com.
Disclosure: Author manages a fund that is long ABK and MBI
US CREDIT-MBIA may benefit from new insurance arm
Fri Jun 13, 2008 4:20pm EDT Email | Print | Share| Reprints | Single Page| Recommend (0) [-] Text [+]
By Karen Brettell NEW YORK, June 13 (Reuters) - MBIA Inc's (MBI.N: Quote, Profile, Research, Stock Buzz) investors
are betting that the company will set up a new bond insurance
subsidiary, reviving the fortunes of the parent company, though
this will likely be at the expense of its existing insurance
arm, MBIA Insurance Corp. The world's largest bond insurer said on Thursday that it
is reevaluating its capital deployment plans, including how it
will use $900 million that had previously been earmarked for
MBIA Insurance. MBIA decided against passing the capital down to its
insurance arm after Standard & Poor's last week downgraded the
insurer from the top "AAA" and Moody's Investors Service said
it is likely to cut the firm. The capital "is not needed at the current operating company
for capitalization levels (given the recent downgrades) and
could be deployed in another fashion," JPMorgan analysts Arun
Kumar and Brett Gibson said in a report on Friday. "We believe there is a high likelihood that companies such
as Ambac and MBIA attempt to activate dormant subsidiaries
(over the next few months) in an attempt to capture some of the
new muni business to remain somewhat active," they said. MBIA and Ambac Financial Group (ABK.N: Quote, Profile, Research, Stock Buzz), the world's second
largest bond insurer, lost their ability to write new business
after the downgrades, which followed months of drama based on
concerns over losses from insuring risky residential
mortgage-backed debt. Concerns over their top ratings have devalued the more than
$1 trillion in insurance policies written by the two companies
on municipal, corporate, sovereign and asset-backed debt and
created widespread losses on these securities. MBIA's shares jumped more than 7 percent on Friday as
investors bet that the company may set up a newly top rated
municipal bond insurer, which can pay dividends up to the
parent company. In the past two weeks, debt insurance costs on MBIA dropped
lower than those of its fallen insurance arm, which remains
exposed to new write downs from mortgage-backed debt. This
indicates perceptions that the debt of MBIA Insurance is now
more risky than its parent's. The redeployment of MBIA's capital away from MBIA Insurance
is a sign the company is looking at other options to revive its
business, said an industry participant that declined to be
named. "You don't want to just be a punching bag for the
regulator, you want to be able to show 'we have some leverage
too,'" he said. Regulators are concerned that restructuring bond insurers
may harm existing policy holders, particularly holders of
insured municipal debt. JPMorgan views MBIA as most likely to activate its dormant
Capital Markets Assurance subsidiary to seek top ratings and
insure muni bonds. "While this structure is disadvantageous to both the
operating company and current policyholders, in our opinion,
the regulators are limited in their ability to prevent it
seeing as though MBIA does not need regulatory approval to use
the holding company cash as an investment," they said. Ambac, meanwhile, said last week that said it wants to
launch a new top-rated bond insurer, Connie Lee, which would be
funded by surplus capital from Ambac and potentially one or
more third parties. In this scenario, however, Ambac's insurance arm, Ambac
Assurance Corp, would benefit more than the holding company as
Connie Lee would operate as a subsidiary of Ambac Assurance,
JPMorgan said. "The biggest question is what (bond insurers) will decide
to do with existing policyholders and who will benefit the most
after the process has completely unfolded," they added. (Editing by Chizu Nomiyama)
MBI 5.90 11.11%
MBI 5.83 9.79% HOD...nice Strong finish