Warren, How Could You Let This Happen?

I'm pretty disappointed in one of my favorite business icons, Warren Buffett.  He's putting out plenty of spin right now to let the public really know that he had reservations all along about David Sokol's financial interests.  He's been around long enough to know how to play this game.  He must never have thought he'd have to play it himself.

Mr. Buffett has long bragged about how thoroughly he conducts due diligence before making an acquisition.  He's been doing that so long that he probably has shorthand rules and heuristics that help him focus on the value of a good deal.  The problem with old habits is that they can breed laziness, especially when they allow you to develop blind spots in your inner circle.  Trust is the ultimate shortcut.  When you trust someone, you tend not to second-guess their agenda or even look into their recent past.  

Warren Buffett trusted David Sokol and was betrayed.  Here's hoping the Oracle of Omaha doesn't wait too long to find another heir apparent.  I'm certainly available to fill those shoes if needed. 

Full disclosure:  No position in Berkshire Hathaway. 

The Haiku of Finance for 04/29/11

Reverse of empires
Chinese yuan hits a high
Dollar takes a drop

Kirby Beats On All Counts

Kirby Corporation (KEX) has hit its numbers out of the park this quarter.  They've beaten expectations on EPS and have raised their earnings guidance for the rest of 2011.  The high price of oil may be a factor in pushing up earnings for this oil products carrier, but a stronger factor may be Kirby's overwhelming dominance of Mississippi River barge traffic. 

KEX's surging share price gives it a strong currency it can use for all-stock acquisitions if it wishes.  This one bears watching for the right entry point. 

Full disclosure:  No position in KEX. 

Kinder Morgan And The Smart Transportation Of Ethanol

It's nice to see common sense in the energy industry, where there is often very little margin for error (just ask BP and Transocean).  Kinder Morgan Energy Partners (KMP) does ethanol transport the right way.  Railcars take it to ports, with a small amount of proprietary pipeline for the last hurdle.  Minimizing the distance ethanol must travel by pipeline is crucial given its propensity for water solubility and pipeline corrosion.  Kinder Morgan has had a handle on those problems for some time now. 
Ethanol is part of America's energy future provided its feedstocks are grown organically.  That's the only way it can have a positive EROEI.  The entire energy sector is well aware of the challenges posed by transporting ethanol, but it's good to see at least one company showing leadership in developing a transport approach that makes sense. 

Full disclosure:  no positions in BP, RIG, or KMP.

Please, No More Oil Subsidies At All

Washington is slowly drifting toward fiscal sanity, more by accident than by design.  There is now semi-serious talk of curtailing or eliminating subsidies to the oil exploration industry.  The gentle defense of tax credits for small explorers is disingenuous.  Small explorers who hit a big find would immediately achieve a size that makes them ineligible for such an oil depletion allowance, so such a distinction could easily disincentivize smaller explorers. 

The simple economic fact is that only one incentive matters to oil explorers:  the market price of oil.  America would be better off getting rid of the oil depletion allowance in its entirety.  This would effectively "bunker" America's remaining high-cost oil resources until the market needs them.  It would also immediately make renewable energy more cost-competitive.  Sanity awaits.  It's ours for the taking. 

Latin American Minerals Goes Gold Digging

Latin American Minerals is a long-shot exploratory gold play.  It's drilling for gold and other minerals in fairly unexplored areas in Paraguay and Argentina that bear geological similarities to producing properties elsewhere.  Several of their top execs have exploratory experience, which is of course nice to have in an exploration-focused company. 

Photos of the company's Paso Yobai site look interesting from an exploration standpoint, but profitable extraction is of course another story.  Visible gold mineralization at the surface implies heap leaching will meet with success, provided local environmental considerations are amenable. 

The hard part to review here is the paucity of financial data.  A company that's been active since 2003 should have some financial results as well as geological results.  Searching Yahoo Finance and Reuters reveals no financial data or even analyst coverage.  Shareholders can only hope that LAM.V shows enough exploratory promise to interest a major producer someday. 

Full disclosure:  No position in LAT.V at this time. 

YRCW Creditors Prepare For Bad News In April

YRC Worldwide is really pushing its luck.  Years without profits have put it perpetually on the brink of insolvency.  Its high debt load makes it unattractive as a takeover target.  Its creditors have little choice but to accept another restructuring deal that gives them the short end of the stick, unless one of them is willing to force YRCW out of business.  A new deal will make YRCW extremely fragile if the expected dilution puts it at risk of delisting. 

The end of April will reveal which creditors will feel the worst pain.  Hey Teamsters, are your board reps ready to vote for a deal that gives you more concessions in exchange for future promises of diluted shares?  That's the kind of representation your union dues have bought. 

Full disclosure:  No position in YRCW at all, ever. 

Container Spot Rates May Show Inflationary Pressure

All other things being equal, container spot rates should reflect trade balances between seafaring trade partners.  Consumer spending should feed demand for imported goods and drive shipping rates up.  With the American consumer flat on his back, you'd expect demand for finished goods from Asia to slacken.  The problem is that the Drewry Trans-Pacific spot rate for containers went up 6% this week.  How much of that is due to increased costs isn't clear, but it would be fruitful to examine whether commodity inflation (esp. in energy prices) is now showing up in transportation costs. 

The index only captures a small minority of the Pacific's traffic, but signs abound that other shippers need to cover increased costs.  Carriers are hiking their rates all across Far East lines.  Hanjin explicitly states that it must hike rates to cover increasing costs.  Things could get ugly for American consumers over the summer if retailers have to eat these costs. 

Nota bene:  No positions in any companies referenced in this post.

The Limerick of Finance for 04/24/11

The global recovery is doomed
The West's economies are marooned
They're not going to grow
Future growth will be low
Thanks to debt levels that have ballooned

Hedge Funds Back To Taking Dumb Money In Overvalued Market

It must be great to be a hedge fund manager. You can lever up at rock-bottom rates thanks to ZIRP and reinvent yourself in a brand new guise no matter how many times you've crashed.

Never mind the massive fines flying for traders who sank their commodity funds.

Never mind the continuing parade of money managers indicted for running Ponzi schemes.

Never mind the hedge fund managers who continue to trade even after they're convicted of money laundering. 

Despite these and more systemic problems, new hedge funds launched at breakneck pace in 2010.  Accredited investors with more money than smarts show a never-ending willingness to entrust poor-performing money managers with even more money.  People who should know better are too credulous for words.  Specialists in behavioral finance need to research this phenomenon.  I suspect Bayes' Theorem comes into play.  Go look that one up. 

Shameless Labor Activists Plan To Harrass Port Employers

Port operators and managers have enough to deal with - environmental requirements for truck emissions, chassis parking and storage, security inspections, and other stuff.  They certainly do not need the headaches of harassment from anti-business union activists.  That's precisely what they'll face if a local union goes through with its plan for a protest at the headquarters of the Pacific Maritime Association.

The union might have a case if the protest were related to work rules, safety violations, pay negotiations, and other things that unions hold out to their members as justification for paying dues.  This protest is radically different from the norm.  It's about a court decision that prevented a one-day union walkout at Bay Area ports to express solidarity with greedy public sector employees in Wisconsin. 

Port union leaders have lost their minds.  They are blind to the frustration taxpaying Americans feel with public employee unions that demand endless pay and benefits for less performance.  Behavior like this by port workers makes America less competitive.  China and India are laughing at America for tolerating union stunts like this one. 

New Comment Policy For Alfidi Capital Blog: No Comments At All

I've reviewed the comments some of my readers have posted over the years and I've decided that enabling comments on this blog is more trouble than it's worth.  Many of the people leaving comments have engaged in juvenile, defamatory insults that contribute nothing of substance.  Other comments are just mindless spam.  I have disabled the comment feature for this blog and deleted all previous comments.  I have taken this action to maintain the professional quality of this blog. 

This is my blog and I make the rules.  There will be no more comments here at all. 

Gold Action Breaking Above $1500 Today

Gold is on the move . . . to price levels far higher than we've ever seen in modern times.  It's helped by zero interest rates in the U.S. that make bonds unattractive and force risky equities to become far riskier in response. 

Investors who seek to partake in serious gold action must proceed with caution when selecting a vehicle.  Search the web on GLD and you'll find plenty of questions about whether there's really gold or paper in there.  I can't blame the University of Texas for safeguarding $1B in physical gold with a custodian.  IMHO the safest place for gold is in mining companies' recoverable ore; it's pretty hard to fake it or steal it. 

Full disclosure:  Long GDX with covered calls.

Americans Want National Bankruptcy

The S&P has blasted its alarm in America's debt-ridden face and our citizens are responding as expected.  They want the deficit cut but don't want to cut the unfunded middle-class entitlements that are doing the most fiscal damage.  That would have been funny twenty years ago when we could afford deficit spending.  It's not funny anymore.  We've become addicted getting more from the government in cash than we pay in taxes. 

The public education system has done a wonderful job of preparing us all to handle budget math.  The consequences of this preparation will become apparent when the bond market forces our country into receivership.  The drama over whether federal spending hits the debt limit next week is a sideshow.  Washington will raise that limit and then the S&P's competitor rating agencies will start planning their own outlook downgrades (if they haven't written them already, just waiting to time the release). 

My fellow Americans are asking for everything and will get nothing - except economic pain.   

Debt-Based Malaise Creeps Up On America

It didn't take long at all for the S&P's downgrade of the U.S. debt outlook to creep into our zeitgeist.  The stock market fell yesterday in response.  That was the warm-up for whatever awaits the end of the Fed's quantitative easing policy.  Fears about sovereign debt haven't left Europe either, driving up yields over there. 

Joe Six Pack is now getting queasy about his government's profligacy.  Voters don't think either party has the chops to solve America's economic woes.  That won't stop them from voting for one of those parties in 2012 but it's nice to see some honesty leak out every once in a while.  JSP will have even more to worry about once he learns that U.S.-based multinationals continue to move American jobs abroad. 

Man, things aren't looking so good anywhere.  It's time for a stiff drink.