Archive for July, 2005

  • CNOOC & Unocal
    , July 16th, 2005 at 5:38 pm

    This is starting to look bad. Now, CNOOC is meeting with Unocal’s board to get them to change their mind and support CNOOC’s bid.

    On Friday, Senator Dorgan said that he is going to introduce legislation that would block the deal no matter what. It’s hard to say how much support this bill would have.

    What’s not being said is that CNOOC is simply offering too much for Unocal. This is a clear sign of two separate tops. One is that the oil market is too hot. The other is that China has way too many dollars. Bear in mind that CNOOC’s deal is all cash, while ChevronTexaco is offering stock and cash.

    I fail to see how CNOOC’s ownership of Unocal is a threat to our national security? They can’t take the oil and run off. Most of Unocal’s oil is in Southeast Asia anyway. Why is Congress so worried now? For the last few years, the Chinese government has been gobbling up U.S. Treasuries. Perhaps they want a little more than 4%. Of course, paying $18 billion for Unocal, they’ll be lucky if they get 4%.

  • Procter & Gamble Wins European Union Approval to Buy Gillette
    , July 15th, 2005 at 2:18 pm

    The EU has approved the Gillette/P&G merger. It all came down to toothbrushes. To placate the Eurocrats, P&G decided to sell its SpinBrush line of battery toothbrushes. Otherwise, the combined P&G and Gillette would have over half the European toothbrush market.
    The Europeans concern isn’t that consumers might be harmed, but that P&G/Gillette’s competitors will be harmed. We—meaning the U.S.—used to believe that “portfolio effects” were important, but we gradually learned that it simply doesn’t hurt consumers. The Europeans still hold to this theory, and it’s what led the EU to block the GE/Honeywell deal four years ago.

  • Looking for a Bubble?
    , July 15th, 2005 at 9:29 am

    If you’re looking for an investment bubble, you might want to consider shipping stocks. The Holy Grail of the shipping industry is something called the Baltic Dry Index. Although most people have never heard of it, the index, which measures the cost of shipping goods by sea, is probably one of the world’s most-watched economic barometers.

    Thanks to the China’s insatiable demand for iron, the index has had an amazing rise since 9/11. The index rose from 900 in 2001 to over 6,200 last December. As you might expect, the shipping initial public offerings are coming fast and furious. There were three more in June alone. Earlier this year, a company went public with just two employees. As bubbles inflate, the quality of new offerings often tends to go down. The breaking point may be soon. The Baltic Dry Index has plunged over 60% lately. It’s now around 2,400.

    The reason for the fall may be signs of a slowdown in China. The lower shipping costs are felt all over the world, and the late IPOs may be left holding the bag.

  • S&P’s Four-Year High
    , July 15th, 2005 at 8:56 am

    The S&P 500 closed at a four-year high yesterday. And why not? Earnings are up and bond yields are down. That’s your formula for higher stock prices.

    There’s little reason to believe that bond yields are headed higher. That’s what ended the rally earlier this year, but now it’s clear that inflation has been tamed. Even though oil has headed up, it hasn’t translated into across-the-board higher prices for consumers. In fact, higher equity prices might be a sign that oil is headed lower.

    What will be interesting to watch is the future of short-term interest rates. Although the Fed has raised rates nine times so far, the yield on three-month Treasury bills is lower than the Fed Funds rate. This may mean that the market is getting uncomfortable with these rate increases. The futures market expects two more rate increases this year.

  • GE’s Earnings
    , July 15th, 2005 at 8:24 am

    GE reported earnings of $4.65 billion, a 24% increase over the $3.75 billion it earned last year. The company’s sales increased 13% to $41.56 billion. That means the company took in average sales of over $450 million a day. That’s more than most companies have in an entire year.

    The company reported strong growth in all of its sectors. GE is so big and so well-diversified, that any weakness in one area can be picked up in another. Last year, GE earned $1.59 a share. The company is exceedingly precise with its earnings forecasts. Today, GE narrowed its full-year forecast to a range of $1.80–$1.83 a share, instead of the old range of $1.78–$1.83 a share. Two cents may not sound like a lot, but when you have 10 billion shares, that comes to $200 million.

  • Apple’s Earnings Update
    , July 14th, 2005 at 1:04 pm

    Apple Computer reported very strong earnings yesterday. Profits jumped fivefold, and sales rose by 75%. Apple earned 37 cents a share, six cents more than Wall Street’s expectations. The company’s strategy has been to sell its iPods aggressively and hope customers stay loyal to the Apple brand. That seems to be working. Mac sales jumped by 35%, which is about three times the rate of the global PC market. The number of iPods sold increased by 616% from last year’s second quarter.

  • Jim Cramer’s Geography
    , July 14th, 2005 at 9:59 am

    I saw Jim Cramer’s Mad Money TV show last night. During the “lightening round,” a caller asked him his thoughts on PetroKazakhstan (PKZ). The stock has been a huge winner for the past few years, but it’s fallen on hard times recently.

    Cramer response was that he doesn’t trust the Russians. Hmmm…that’s all well and good, but PetroKazakhstan is based in Canada, and it does its business in Kazakhstan, which is not Russia.

    Here’s a quick geography lesson: Russia is one separate country, Kazakhstan is another. That being said, they’re not the same. They’re different. Yes, they’re near each other. They even share a border. But ultimately, they’re two separate, sovereign countries. Actually, the Kazaks are pretty insistent on this point.

    I did a little research, and it turns out those spunky little Kazaks have their own country, language and currency. Imagine that! Kazakhstan has lots of cities, too. With cool names! (I looked it up.)

    I can only hope that somewhere in, say, Astana—or maybe in Oskemen—some caller to a financial TV show asks the host about the Bank of New York. “Sell! I don’t trust those Mexicans!”

  • Small-Caps Shine
    , July 13th, 2005 at 3:10 pm

    What’s been the hottest sector on Wall Street? Small-cap stocks.

    The Russell 2000 Index of small stocks has been outperforming the S&P 500 since April 8, 1999. Since then, the Russell 2000 is up over 67%, while the S&P 500 is down over 9%. Small stocks underperformed the S&P from March 25, 1994 to April 8, 1999.

    The Russell 2000 closed at a new all-time high on Monday. It reached new a high on Tuesday, but has fallen some since then. There may be some more room to grow. On a relative-performance-basis, the Russell 2000 still has a ways to go to match the level from 1994.

  • CNOOC’s Bid for Unocal
    , July 13th, 2005 at 2:05 pm

    There’s growing concern over CNOOC’s bid for Unocal. The problem is that CNOOC is 70%-owned by the Chinese government. ChevronTexaco is interested in Unocal as well, but they’ve only bid $16 billion compared with CNOOC’s $18.5 billion. Unocal’s board has recommended Chevron’s offer, but now CNOOC is fine-tuning their bid.

    The House Armed Services Committee held hearings today on CNOOC’s offer. Some members of Congress think this is a national security. The House overwhelmingly passed a resolution saying that this deal “may threaten national security.”

    I think this is greatly overstated. China is an oil importer, just like us. They want low prices too. Jerry Taylor, of the Cato Institute, testified that this isn’t a national security issue.

  • Ebbers Gets 25 Years
    , July 13th, 2005 at 1:28 pm

    See ya in 2030!

    2027 for good behavior.