Thursday, September 30, 2010
Wednesday, September 29, 2010
Truckers Lost Speed In August
Yesterday I had something halfway decent to say about the prospects for LTL truckers like YRC Worldwide and Arkansas Best. Today gives us news that's less than halfway decent. Truck tonnage just declined mightily:
That's not good for those two companies because they just raised their rates. Oops! The economy just slammed on the brakes; doing that in a big rig can make it jackknife. Tonnage for the last mile is going to get scarcer as evidence mounts that shippers will face weak demand going into peak shipping season. Retailers must have re-stocked inventories to the point where they have all they need and then some. They can see the handwriting on the wall for the Christmas shopping season as consumers default on their debts. No more credit-driven holiday shoping splurges for those folks.
It's going to be a "blue Christmas" all right, especially for companies in the supply chain.
Full disclosure: No positions in YRCW or ABFS.
The American Trucking Association's for-hire truck tonnage index fell 2.7 percent in August from July, its largest month-to-month drop since March 2009.
That's not good for those two companies because they just raised their rates. Oops! The economy just slammed on the brakes; doing that in a big rig can make it jackknife. Tonnage for the last mile is going to get scarcer as evidence mounts that shippers will face weak demand going into peak shipping season. Retailers must have re-stocked inventories to the point where they have all they need and then some. They can see the handwriting on the wall for the Christmas shopping season as consumers default on their debts. No more credit-driven holiday shoping splurges for those folks.
It's going to be a "blue Christmas" all right, especially for companies in the supply chain.
Full disclosure: No positions in YRCW or ABFS.
Tuesday, September 28, 2010
Teamsters Knuckling Under At YRCW?
YRC Worldwide may be on the cusp of doing something right for a change. Their Teamsters have tentatively agreed to . . . well, something. The substance of the agreement will be telling once revealed. If it's an indefinite delay in the resumption of pension plan contributions, then YRCW may keep enough cash to make it into 2011. If it's more union greed manifested in demands for contributions, then YRCW stays a troubled penny stock. The union vote will come just in the nick of time to impress the NASDAQ's delisting committee, so maybe the rank-and-file drivers will show some common sense by preserving their employer. Unions are prone to doing dumb things, like these Philly longshoremen shutting down NY/NJ ports even in the face of an arbitrator's decision. Let's see if truckers are smarter than dockworkers.
It's no wonder William Zollars wants to retire as soon as possible from the CEO job. Putting up with the Teamsters' endless huffing and puffing would eventually grate on any businessperson's nerves. He did have the nerve to raise YRCW's rates, but that move speaks more to the improving health of the entire LTL sector since ABF Freight System is following suit with its own rate increases. Short haulers are hoping for a bright Christmas.
Full disclosure: No position in YRCW or ABFS.
It's no wonder William Zollars wants to retire as soon as possible from the CEO job. Putting up with the Teamsters' endless huffing and puffing would eventually grate on any businessperson's nerves. He did have the nerve to raise YRCW's rates, but that move speaks more to the improving health of the entire LTL sector since ABF Freight System is following suit with its own rate increases. Short haulers are hoping for a bright Christmas.
Full disclosure: No position in YRCW or ABFS.
CEOs Batten Down The Hatches
Take it from captains of industry (at least the ones who didn't have the top job handed to them by their parents). CEOs are pulling out their worry beads:
The data is from the Business Roundtable, which can sometimes sound like an echo chamber where CEOs magnify the concerns they share only among themselves. That caveat makes their reports seem like overreactions but the general lessons they tease out are still useful. These big shots aren't willing to throw away cash on new workers that they'll need to pay their bills as conditions worsen.
People at the opposite end of the compensation ladder from CEOs are showing similar nascent signs of despair. Consumer confidence is slipping back into doldrum land:
Those numbers also show once again that consensus forecasts from economic experts aren't worth the hot air expended in their generation.
Forget the recovery! It's not here! Go look for it in Versailles-on-the-Potomac instead where federal government salaries now exceed private sector salaries.
U.S. chief executive officers' view of the economy darkened in the third quarter, with top executives saying they were less willing to hire new workers as they fear sales growth will slow.
The data is from the Business Roundtable, which can sometimes sound like an echo chamber where CEOs magnify the concerns they share only among themselves. That caveat makes their reports seem like overreactions but the general lessons they tease out are still useful. These big shots aren't willing to throw away cash on new workers that they'll need to pay their bills as conditions worsen.
People at the opposite end of the compensation ladder from CEOs are showing similar nascent signs of despair. Consumer confidence is slipping back into doldrum land:
The Conference Board, based in New York, said its monthly Consumer Confidence Index now stands at 48.5, down from the revised 53.2 in August. Economists surveyed by Thomson Reuters were expecting 52.5.
Those numbers also show once again that consensus forecasts from economic experts aren't worth the hot air expended in their generation.
Forget the recovery! It's not here! Go look for it in Versailles-on-the-Potomac instead where federal government salaries now exceed private sector salaries.
Monday, September 27, 2010
Three Big Deals Make It Merger Mania Monday!
Wow, there's plenty of deal action to blog about today.
Wal-Mart wants to buy Massmart for $4.25B. Let's run some basic numbers on Massmart (MMRTY.PK). ROE is a whopping 36%, holy canole, and quarterly growth is an eye-popping 27%. Unfortunately the P/E is 28, astronomical for a retailer. Wal-Mart (WMT) is looking to shove their global supply chain into African wallets.
Unilever wants to buy Alberto Culver for $3.7B. Funny, I've never heard of Alberto Culver (ACV). Let's see what they're all about. Their P/E of 25 is almost at Massmart's nosebleed altitude. Are they worth such a premium? Their ROE of around 12% is less than the 15% I'd prefer. At least their net income is steady and healthy, and big kudos to them for whittling their long-term debt down to under half a million dollars. That's unheard of for a company with a market cap in the billions. Unilever (UL) likes what it sees, so this may be a halfway decent deal if they can get that ROE up after some serious cost-cutting.
Southwest wants to buy AirTran for $1.4B in cash and stock. Well, what's so desirable about AirTran (AAI) all of a sudden? Their ROE is a paltry 6.26%, which must look good to Southwest (LUV) whose own ROE is an even more lousy 4.15%. Southwest is assuming AirTran's debt, which could jeopardize its long run of profitability if a renewed recession hurts air travel. Finally, AirTran's P/E has climbed into thin air at almost 44. I wouldn't pay $44 for dollar's worth of earnings anywhere, certainly not up in the wild blue yonder.
All of these deals have something in common. The acquirers seem to be paying a premium for market share in mature industries driven by consumer spending. That is not at all a smart move if the world economy is headed for zero growth or a double-dip.
Full disclosure: No positions in any company mentioned at the time this post was published.
Wal-Mart wants to buy Massmart for $4.25B. Let's run some basic numbers on Massmart (MMRTY.PK). ROE is a whopping 36%, holy canole, and quarterly growth is an eye-popping 27%. Unfortunately the P/E is 28, astronomical for a retailer. Wal-Mart (WMT) is looking to shove their global supply chain into African wallets.
Unilever wants to buy Alberto Culver for $3.7B. Funny, I've never heard of Alberto Culver (ACV). Let's see what they're all about. Their P/E of 25 is almost at Massmart's nosebleed altitude. Are they worth such a premium? Their ROE of around 12% is less than the 15% I'd prefer. At least their net income is steady and healthy, and big kudos to them for whittling their long-term debt down to under half a million dollars. That's unheard of for a company with a market cap in the billions. Unilever (UL) likes what it sees, so this may be a halfway decent deal if they can get that ROE up after some serious cost-cutting.
Southwest wants to buy AirTran for $1.4B in cash and stock. Well, what's so desirable about AirTran (AAI) all of a sudden? Their ROE is a paltry 6.26%, which must look good to Southwest (LUV) whose own ROE is an even more lousy 4.15%. Southwest is assuming AirTran's debt, which could jeopardize its long run of profitability if a renewed recession hurts air travel. Finally, AirTran's P/E has climbed into thin air at almost 44. I wouldn't pay $44 for dollar's worth of earnings anywhere, certainly not up in the wild blue yonder.
All of these deals have something in common. The acquirers seem to be paying a premium for market share in mature industries driven by consumer spending. That is not at all a smart move if the world economy is headed for zero growth or a double-dip.
Full disclosure: No positions in any company mentioned at the time this post was published.
Sunday, September 26, 2010
The Limerick of Finance for 09/26/10
Some traders are playing both sides
For rebates a market-taker hides
This makes stocks volatile
In just a short while
Penny stocks will get taken for rides
For rebates a market-taker hides
This makes stocks volatile
In just a short while
Penny stocks will get taken for rides
Saturday, September 25, 2010
Bailing Out Credit Unions
Some folks may still think the credit crisis is behind us. Here's a wake-up call:
Taking over busted credit unions won't be enough to stop the bleeding. That's why Uncle Sam has offered an $80B backstop to the remainder of the nation's credit union network. I had thought credit unions were a safe alternative to banks up until now, thanks to their avoidance of leverage. Most of them still are. These actions are designed to ensure that back-office functions supporting the entire industry will still function if a major credit union fails.
There's still plenty of systemic risk left. Let's see a show of hands of anyone who wants to go long ANY financial institution right now. My hands are down at my sides (after I'm done typing).
Federal regulators took over three key lenders to U.S. credit unions, after losses on mortgage investments threatened to topple them. The move was a reminder that parts of the financial system are still burdened by the toxic assets two years after the financial crisis peaked.
Taking over busted credit unions won't be enough to stop the bleeding. That's why Uncle Sam has offered an $80B backstop to the remainder of the nation's credit union network. I had thought credit unions were a safe alternative to banks up until now, thanks to their avoidance of leverage. Most of them still are. These actions are designed to ensure that back-office functions supporting the entire industry will still function if a major credit union fails.
There's still plenty of systemic risk left. Let's see a show of hands of anyone who wants to go long ANY financial institution right now. My hands are down at my sides (after I'm done typing).
Friday, September 24, 2010
Thursday, September 23, 2010
China Uses Rare Earths As Economic Weapons
China has just escalated its diplomatic standoff with Japan over ownership of the East China Sea. The Middle Kingdom has just decided that rare earth metals will not be available to Japan at any price:
Any high-tech manufacturers with part of their supply chain in Japan will be very concerned about this news. Toyota's strategic plan of ensuring it can obtain sufficient rare earths for its projected Prius sales is now in doubt.
The ongoing China-Japan spat is about more than just China's assertion of historical hegemony in Asia. The China Development Research Foundation, a Chinese government think tank, published a report concluding that the urbanization of 400 million migrant workers over two decades will cost $300B per year. This commitment to development is absolutely essential if China is to maintain its internal stability. China has a short window in which to decide how it will pay for the infrastructure improvements it needs to meet the rising expectations of its people. Its options include offshore resource development in places like the East China Sea. Alternatives to that option include curtailing the amount of money China spends buying U.S. Treasury bonds.
This development gives renewed urgency to U.S. efforts to develop alternative sources of rare earths from Mountain Pass, California and elsewhere.
Sharply raising the stakes in a dispute over Japan’s detention of a Chinese fishing trawler captain, the Chinese government has blocked exports to Japan of a crucial category of minerals used in products like hybrid cars, wind turbines and guided missiles.
Any high-tech manufacturers with part of their supply chain in Japan will be very concerned about this news. Toyota's strategic plan of ensuring it can obtain sufficient rare earths for its projected Prius sales is now in doubt.
The ongoing China-Japan spat is about more than just China's assertion of historical hegemony in Asia. The China Development Research Foundation, a Chinese government think tank, published a report concluding that the urbanization of 400 million migrant workers over two decades will cost $300B per year. This commitment to development is absolutely essential if China is to maintain its internal stability. China has a short window in which to decide how it will pay for the infrastructure improvements it needs to meet the rising expectations of its people. Its options include offshore resource development in places like the East China Sea. Alternatives to that option include curtailing the amount of money China spends buying U.S. Treasury bonds.
This development gives renewed urgency to U.S. efforts to develop alternative sources of rare earths from Mountain Pass, California and elsewhere.
Wednesday, September 22, 2010
Tuesday, September 21, 2010
Fed Tries To Ease Quantitatively And Quietly
Shhhhhh . . . don't tell anyone, but the Fed is trying to execute a slow-motion, low-intensity form of inflation to speed the erasure of the enormous federal debt. It includes signals like this:
This comes on the heel of announced MBS purchases disguised as innocent cash management techniques. The Fed is walking a very thin tightrope. If it prints money too slowly or not at all, the economy slips into a noticeable double-dip and asset deflation resumes its destruction of Baby Boomer retirement assets. If it prints too quickly, China gets spooked and unleashes the nuclear option - an immediate selloff of Treasuries that causes a run on the dollar.
The Fed has no good options left and the Chinese central bank knows it. Other foreign investors are starting to figure out the impossibility of the Fed's success at this act, which is why the U.S. is sinking as a place to invest in this Bloomberg poll of finance professionals. We will see whether the Fed's tightrope strategy is working if the next Treasury auction has full Chinese participation.
The Federal Reserve signaled Tuesday that it's worried about the weakness of the recovery and is ready to take further steps to boost the economy if needed.
This comes on the heel of announced MBS purchases disguised as innocent cash management techniques. The Fed is walking a very thin tightrope. If it prints money too slowly or not at all, the economy slips into a noticeable double-dip and asset deflation resumes its destruction of Baby Boomer retirement assets. If it prints too quickly, China gets spooked and unleashes the nuclear option - an immediate selloff of Treasuries that causes a run on the dollar.
The Fed has no good options left and the Chinese central bank knows it. Other foreign investors are starting to figure out the impossibility of the Fed's success at this act, which is why the U.S. is sinking as a place to invest in this Bloomberg poll of finance professionals. We will see whether the Fed's tightrope strategy is working if the next Treasury auction has full Chinese participation.
Monday, September 20, 2010
Updating The Alpha-D for Sept. 2010
Today marked the first day of a new month for a short-duration options refresh. First things first.
My GDX went north of the strike price for the covered calls I wrote. I bought most of them back and will realize a long-term capital gain on the portion I did not repurchase. Cash proceeds will stay in cash. Yes, I'm waiting for the next leg down. It's just around the corner, sooner or later.
Now for the options updates.
I renewed covered calls and cash-covered short puts on GDX.
I renewed covered calls on FXI. No short puts this time, as China is overheating thanks to real estate flipping and insane leverage. I won't go long any more China / FXI for a while but I'll hang onto what I have and keep writing call options.
One new options position I opened was to write cash-covered puts under TDW at a strike price of 40. I still think Tidewater's intrinsic value is a lot higher than that so I wouldn't mind being forced to increase my stake. The covered calls I wrote on TDW last month will expire in Oct. 2010.
Now let's talk fixed income. I put a little bit of cash to work by going long Treasuries that mature in October. I also decided to give the State of California some confidence by going long California state munis maturing in Sept. 2011. I did this after months of considering the likelihood of repayment for state GO bonds, and I find that to be quite high. I believe the state government will starve every other program - including education - before it considers nonpayment of muni bond interest.
I keep looking at FLIR but I'm not ready to pull that trigger just yet.
That's it for this month.
My GDX went north of the strike price for the covered calls I wrote. I bought most of them back and will realize a long-term capital gain on the portion I did not repurchase. Cash proceeds will stay in cash. Yes, I'm waiting for the next leg down. It's just around the corner, sooner or later.
Now for the options updates.
I renewed covered calls and cash-covered short puts on GDX.
I renewed covered calls on FXI. No short puts this time, as China is overheating thanks to real estate flipping and insane leverage. I won't go long any more China / FXI for a while but I'll hang onto what I have and keep writing call options.
One new options position I opened was to write cash-covered puts under TDW at a strike price of 40. I still think Tidewater's intrinsic value is a lot higher than that so I wouldn't mind being forced to increase my stake. The covered calls I wrote on TDW last month will expire in Oct. 2010.
Now let's talk fixed income. I put a little bit of cash to work by going long Treasuries that mature in October. I also decided to give the State of California some confidence by going long California state munis maturing in Sept. 2011. I did this after months of considering the likelihood of repayment for state GO bonds, and I find that to be quite high. I believe the state government will starve every other program - including education - before it considers nonpayment of muni bond interest.
I keep looking at FLIR but I'm not ready to pull that trigger just yet.
That's it for this month.
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