• The Market Is Not a Market
    Posted by on November 17th, 2010 at 12:11 pm

  • The Battle for GM 1910-1915
    Posted by on November 17th, 2010 at 11:38 am

    Thanks to heavy demand, the GM IPO has been increased by 31% to 478 million shares.

    An overallotment and an offering of preferred shares may increase the total amount raised to about $22.7 billion. Agricultural Bank of China Ltd.’s $22.1 billion initial sale is the largest common-stock IPO in history.

    The initial sale, scheduled for today, will bring Chief Executive Officer Dan Akerson closer to his goal of returning the $49.5 billion GM received in a taxpayer bailout last year. The Treasury, which is taking a loss on its portion of the sale, will break even only if the shares climb at least 60 percent, Bloomberg data shows.

    One of the most exciting and rollicking periods in Wall Street history was the battle for control of GM between 1910 and 1915. Billy Durant had founded the company but was tossed out by the bankers in 1910. He then partnered up Louis Chevrolet to start Chevrolet. He soon bought him out, then bought a controlling interest in GM and by 1916 was president again. In 1914 shares of GM were going for as low as $37 each. Thanks to Durant’s raid and WW1, the stock got as high as $558 by 1915.

    In his battle to regain control, Durant used DuPont as an ally. This tactic was to become common in the 1980s. The problem was that by 1920, DuPont had control.

    Still, it’s a great story. Check out this NYT story from December 1915 when Durant finally gained control of GM.

  • Trading Volume in NICK
    Posted by on November 17th, 2010 at 10:53 am

    Trading volume in Nicholas Financial (NICK) has been pretty slow. Make that very slow. As in zero volume yesterday and none so far today.

    Yep, that’s real slow.

    Update: Oh Em Gee! 200 shares at $9.99!

  • Buffett Says “Thank You”
    Posted by on November 17th, 2010 at 10:47 am

    Here’s part of Warren Buffett’s “thank you” letter to Uncle Sam in today’s New York Times:

    When the crisis struck, I felt you would understand the role you had to play. But you’ve never been known for speed, and in a meltdown minutes matter. I worried whether the barrage of shattering surprises would disorient you. You would have to improvise solutions on the run, stretch legal boundaries and avoid slowdowns, like Congressional hearings and studies. You would also need to get turf-conscious departments to work together in mounting your counterattack. The challenge was huge, and many people thought you were not up to it.

    Well, Uncle Sam, you delivered. People will second-guess your specific decisions; you can always count on that. But just as there is a fog of war, there is a fog of panic — and, overall, your actions were remarkably effective.

    I don’t know precisely how you orchestrated these. But I did have a pretty good seat as events unfolded, and I would like to commend a few of your troops. In the darkest of days, Ben Bernanke, Hank Paulson, Tim Geithner and Sheila Bair grasped the gravity of the situation and acted with courage and dispatch. And though I never voted for George W. Bush, I give him great credit for leading, even as Congress postured and squabbled.

    You have been criticized, Uncle Sam, for some of the earlier decisions that got us in this mess — most prominently, for not battling the rot building up in the housing market. But then few of your critics saw matters clearly either. In truth, almost all of the country became possessed by the idea that home prices could never fall significantly.

    That was a mass delusion, reinforced by rapidly rising prices that discredited the few skeptics who warned of trouble. Delusions, whether about tulips or Internet stocks, produce bubbles. And when bubbles pop, they can generate waves of trouble that hit shores far from their origin. This bubble was a doozy and its pop was felt around the world.

    So, again, Uncle Sam, thanks to you and your aides. Often you are wasteful, and sometimes you are bullying. On occasion, you are downright maddening. But in this extraordinary emergency, you came through — and the world would look far different now if you had not.

    Your grateful nephew,

    Warren

  • We Don’t “Make Anything” Anymore
    Posted by on November 17th, 2010 at 9:24 am

    One of the biggest myths about the U.S. economy is that we don’t “make anything” anymore. This simply is not true. The U.S. is a manufacturing powerhouse.

    The difference is that fewer people are employed in manufacturing. Productivity and output have soared. Since 1983, manufacturing production has doubled.

  • Six Losses in Seven Sessions
    Posted by on November 17th, 2010 at 8:42 am

    The stock market has now fallen for six of the last seven sessions. Yesterday was particularly ugly as the S&P 500 dropped 19.41 points or 1.62%. The index is now 4.66% off the high reached the Friday before last.

    I had thought the market might pull back in the wake of Quantitative Easing, but instead, the market rallied when QE2 was announced on November 3rd. I was either wrong or premature. In any event, I still believe the market is very inexpensive. Let me explain what’s been happening.

    There’s been a slow exodus out of the long end of the Treasury yield. Yesterday, the yield on the 30-year Treasury got as high as 4.40%. That’s a 94-point jump from the recent low reached on August 25th.

    Overall, this is a good thing. First, it shows that investors are turning against overpriced bonds and finding value in stocks. Just look at how many blue chip stocks have dividend yields that compare favorably with 10-year Treasuries.

    Second, investors are now willing to take on riskier assets. During the recent unpleasantness, investors crammed themselves into anything and everything that appeared to be safe. As a result, all assets that were perceived as even slightly below “bulletproof” were tossed overboard. That’s starting to correct itself.

    This is why growth has been leading value, why small-caps have been leading large, why cyclicals have been leading consumers and why stocks have been leading bonds. Very recently, we’ve seen a large shift away from mid-term bonds like the 5-year Treasury which is up 37 basis points over the last eight sessions.

    I caution you not to be rattled by the past few days. The stocks on the Buy List are very strong. In particular, stocks like AFLAC (AFL) and Reynolds American (RAI) are fairly cheap. Wright Express (WXS) also looks good. Yesterday’s close was at $43.12 which is a very good price.

    Interestingly, gold got hit hard yesterday. The contract for December delivery dropped over $30 per ounce which is 2.2%. This could mean that a Fed rate hike will come sooner than people think.

    The good news today is that inflation continues to be tame. Headline inflation was up 0.2% last month and core inflation was flat. Wall Street has been expecting rises of 0.3% for headline and 0.1% for core. I just don’t get the nervousness over hyperinflation. It may come one day, but for now, the statistics say inflation isn’t a problem.

    Here’s a very good clip of Tadas Viskanta on Stock Twits TV explaining that the stock market might have rallied over the past few weeks because things are really looking better.

    (HT: Jeff Miller)

  • Morning News: November 17, 2010
    Posted by on November 17th, 2010 at 7:45 am

    US Stock Futures Up Before Housing, CPI Data

    Fed May Hesitate on More Easing After Critics Question Mandate

    Consumer Prices in U.S. Probably Rose in October on Gasoline

    Currency Fight With China Divides U.S. Business

    Ireland Prepares to Open Books as EU Weighs Help for Banks

    China Acts to Slow Rise in Food Prices

    GM Increases IPO Size as Treasury, UAW Sell More Shares

    Roche Takes Knife to Costs, Slashes 4,800 Jobs

    Microsoft Investors Not Happy

    U.S. Sets 50 Bank Probes

    Managing Money is Hard…Ask Peter Thiel

  • The Muni Meltdown
    Posted by on November 16th, 2010 at 1:16 pm

    Check out the drop-off in the Muni Bond ETF (MUB):

    This chart is slightly deceptive. The ETF is normally very stable. We’re only talking about a drop of a few percentage points, but it appears more dramatic when compared with its normal stability.

  • Food production a bright spot in gloomy economy
    Posted by on November 16th, 2010 at 12:32 pm

    Boom times down on the farm:

    While the recession took a toll on manufacturing and other industries, one part of the economy has remained a bright spot over the past few years: food production.

    Across the nation, food producers are seeing enough growth that many are expanding and investing in new equipment.

    For cheesemakers, dairy farmers and vegetable growers, the slow economy has brought opportunities to expand while construction costs are low. Food makers have also benefited from having products that consumers still buy in hard times and from ongoing efforts to open up new markets overseas.

    The result is growth — both in sales and in facilities. The expansions include cheese-making operations in Wisconsin and Idaho and a sweet potato canning plant in Arkansas. Hershey Co. is spending $200 million to expand and update a plant in its namesake town in Pennsylvania, and General Mills Inc. has been pouring millions into yogurt plants in Michigan and Tennessee.

    “Even in tough economic times, people are still going to buy groceries,” said Barbara Gannon, a spokeswoman for Wisconsin-based Sargento Foods Inc.

    While Chrysler, General Motors and other companies tied to the auto industry have closed factories in Wisconsin in recent years, Sargento is among the food makers expanding there. It’s adding a multi-million-dollar building to its headquarters in Plymouth.

    Sargento is the fifth local cheese company to expand in the past five years, Plymouth Mayor Don Pohlman said. Their growth makes his job easier when it comes to attracting other companies, he said.

    “Businesses want to be around other businesses that are growing and expanding,” Pohlman said. “The cheese industry here really helps me sell the city.”

    Unemployment in surrounding Sheboygan County was 7 percent in September, slightly better than the state average of 7.8 percent.

    Gannon said Sargento began considering expansion a few months ago to keep up with demand that has remained brisk even as the economy stalled. The company, which is best known for its cheddar, Swiss and provolone cheeses, had about $900 million in sales last year and projects about $950 million in sales this year, Gannon said.

    Other cheese makers and distributors — from Vern’s Cheese Inc. in Chilton, Wis., to Jerome Cheese in Jerome, Idaho — also are expanding factories and office spaces, saying they expect their good times to last.

    That’s because cheese is recession food, said John Umhoefer, the executive director of the Wisconsin Cheese Makers Association. People are eating more frozen pizzas, he said, or adding string cheese to the lunches they’re increasingly packing at home.

    “Even we didn’t necessarily see this coming,” Umhoefer said, “where a recession is a net positive for cheese sales.”

    Another reason companies are expanding now is that constructions costs have come down. Edith Knoespel, who owns Vern’s Cheese with her husband, said their business hasn’t fully recovered from a dip two years ago but it’s come back enough that now is a smart time to grow. They expanded their retail store so the space that once held 10 customers can now fit 60.

    “It’s just a good time to invest in building costs right now,” Knoespel said.

    If it’s a good time for construction, it’s also apparently a good time to invest in heavy equipment.

    The Association of Equipment Manufacturers is a Milwaukee-based industry group whose members includes companies like John Deere tractor maker Deere & Co.

    Sales of 100-horsepower tractors, which cost about $75,000 to $100,000 each, were up 27 percent last month over the same month last year, said Charlie O’Brien, AEM’s vice president of agricultural services. Combine sales also have been up.

    “They’re purchasing the equipment because there’s pretty good optimism,” O’Brien said of farmers who raise commodities such as corn, soybeans, wheat and rice. “There continues to be good demands for their commodities.”

    That’s partly because China is importing more U.S. food, he said, and poor harvests because of bad weather in countries like Russia have led to even greater demand.

    Michigan, one of the nation’s top producers of fruits and vegetables such as tart cherries, blueberries, apples, dry beans and sugar beets, exports about $1.7 billion in crops each year. Officials said that’s provided some stability in the state with the nation’s second-worst unemployment rate of 13 percent.

    Food producers are “investing a lot of dollars here for the long term,” said Don Koivisto, the director of Michigan’s Department of Agriculture. “That’s led to lot of interest from other national industries about moving here. Agriculture has been one of the real backbones as we’ve struggled with the manufacturing downturn.”

  • GM to Price Between $32 and $33
    Posted by on November 16th, 2010 at 11:42 am

    The interest in the GM IPO appears to be strong. The underwriters have moved the offer range up to $32 to $33 per share. That should net the company about $12 billion.

    As I’ve said before, I’m very leery of this IPO. Jeff Reeves spots this gem in the offering prospectus:

    We have determined that our disclosure controls and procedures and our internal control over financial reporting are currently not effective. The lack of effective internal controls could materially adversely affect our financial condition and ability to carry out our business plan.

    That’s not a good sign.