Heads You Lose, Tails You Lose
Posted by Eddy Elfenbein on November 27th, 2008 at 5:57 pm

Six days ago, The New York Times ran an article looking at the victims of lower prices for crops. Here’s a sample:

Now, with the suddenness of a hailstorm flattening a field, hard times are back on the American farmstead. The price paid for crops is dropping much faster than the cost of growing them.
The government reported this week that the cost of goods and services nationwide fell by a record amount in October as frantic businesses tried to lure customers. While lower prices are good for consumers in the short run, a prolonged stretch of deflation would wreak havoc as companies struggled to stay afloat.
In this lonesome stretch near the Texas border, farmers are getting an early taste of a deflationary world. They have finished planting next year’s winter wheat, turning the fields a brilliant emerald green. But it cost about $6 a bushel in fuel, seed and fertilizer to put the crop in. That is $1 more than they could sell it for today, and never mind other expenses like renting land.
This looming loss sharpens their regret that they did not unload more of this year’s crop back when they harvested it in May. They knew the boom would end, but not so soon.

Sounds pretty rough. Fortunately, just six days later, the same paper finds that food prices are expected to keep going up. Of course, that’s also bad news:

Government and industry economists project that the overall cost of food will continue to climb in 2009, led by increases for meat and poultry. A big reason, they say, is that food companies still have not caught up with the prolonged run-up in commodity prices, which remain above historical averages despite coming down from their highs early this year.
The Agriculture Department is forecasting that food prices will increase 3.5 to 4.5 percent in 2009, compared with an estimated 5 to 6 percent increase by the end of this year.
Some economists project even steeper increases next year. For instance, Bill Lapp, principal at Advanced Economic Solutions in Omaha, said he expected food prices to jump 7 to 9 percent next year.

Happy Thanksgiving
Posted by Eddy Elfenbein on November 27th, 2008 at 11:25 am

15 Stocks to Short
Posted by Eddy Elfenbein on November 26th, 2008 at 12:48 pm

Tim Sykes, my favorite short-selling blogger, has 15 names that he calls potential shorts:

RDNT is also nearly a double off its lows
CSUN reported bad earnings, but was probly priced in considering the stock jumped big, no w a double off its lows in just 3 days…I don’t like earnings plays, but I’m watching.
JRCC is also a double off its lows, just a stock that’s gotten wrecked, no other reason, potential short.
SRI was a great short for a 15% gain, $1,700 profit, detailed post coming, now the stock is dead to me.
STXS looked like it was gonna roll over yesterday, spiked last few minutes, support everywhere so shorting doesn’t look too good.
PRST up from $1 to $2 after a death spiral, potential short
FMD is waaay up off its lows but its also a finance company, no thanks
NCT is another finance place, ow with solid intraday support everywhere, no thanks, I need spiking action, much more likely to reverse!
KFS is a finance spiker, but only its first up day, watching it
TWB had its first up day, $2 to $3 after being in a yearlong death spiral, please oh God let there be a further squeeze.
LNC is a finance company that was trading at $50 just a few weeks ago, no thanks
YGE is like CSUN, alternative energy bouncer, almost a double off its lows.
YRCW continues squeezes shorts, I won’t be one of them.
SSW is up a bit off its lows, but it’s a real company, no thanks.

Most of these are low-priced stocks that are hemorrhaging money. One stock I recognize is Presstek (PRST) which was THE STOCK TO OWN in 1995 and 1996. The stock jumped about 25-fold in two years. At its current price of $2, let’s just say it’s come down since then.

Donaldson’s First-Quarter Earnings
Posted by Eddy Elfenbein on November 26th, 2008 at 12:42 pm

If you’re read this site for awhile, you know that I’m a big fan of Donaldson (DCI), the filtration company. The company has delivered record earnings for 19 straight years.
On Monday, Donaldson reported earnings for its fiscal first quarter and it looks like they’re on their way to a 20th record year. For Q1, Donaldson earned 60 cents a share That’s up from 53 cents last year. Revenue jumped 9.1% to $573.3 million. Wall Street was expecting 54 cents a share on revenue of $561.8 million.
Donaldson now expects full-year EPS to range from $2.16 to $2.36. Bill Cook, the CEO, said: “While we had a solid start to our new fiscal year, we also foresee a challenging global economic environment in front of us. As a result, we have been proactively managing our business and working aggressively to reduce our expense levels. Our progress to date is evident as our operating expenses decreased to 20.4 percent of sales this quarter compared to 22.0 percent in the fourth quarter of FY08. We expect that the combination of our continued focus on operating expense controls, product and process cost reductions, and the strength of our diversified portfolio of filtration businesses will allow us to achieve our 20th consecutive year of record earnings.”
The stock rose 7.0% on Friday, 6.5% on Monday, 6.7% yesterday and it’s up another 7.9% today.
Year……………..Sales………………….EPS
1999…………..$944.14……………..$0.65
2000…………..$1,092.29…………..$0.75
2001…………..$1,137.02…………..$0.83
2002…………..$1,126.01…………..$0.95
2003…………..$1,218.25…………..$1.05
2004…………..$1,414.98…………..$1.18
2005…………..$1,595.73…………..$1.27
2006…………..$1,694.33…………..$1.55
2007…………..$1,918.83…………..$1.83
2008…………..$2,232.52…………..$2.12
Here’s the earnings call from Seeking Alpha.

More on TIP Yields
Posted by Eddy Elfenbein on November 26th, 2008 at 12:20 pm

Arnold Kling comments on the high short-term TIP yields:

The overall return on a seasoned TIP consists of three things. First, there is the coupon on the security. Second, there is the appreciation or depreciation of price. Third, there is the change in the accrued inflation factor. The coupon on the 1/15/09 TIP is 3.875 percent, so interest accumulates at that annual rate between now and then. So you can expect about 0.5 percent in interest (taking the number of days between now and January 15th, dividing by 365, and multiplying by the coupon rate). The price this morning was roughly 98.35, and if you hold it until January 15th it will effectively go to 100. So, you have a 1.65 percent gain from that. Annualize that number, and there’s your double-digit yield.
The catch concerns the accrued inflation factor. Because the bond has been outstanding for almost ten years, the accrued inflation factor as of December 1st is 1.33 and headed down, because of the decline in the Consumer Price Index in October, to 1.32 on December 31 or a little less than a one percent drop.
I am guessing that the inflation factor for January 1st through 15th depends on the November CPI. If the November CPI declines by, say, one percent, then my guess is that the inflation factor would decline by another 0.5 percent. If that happens, then by my calculation your yield will be 0.5 + 1.65 – 1.5 = 0.65, over a period of roughly 50 days. At an annual rate, it is something just over 4.5 percent. Nice for a short-term Treasury, but nothing like double digits.
On the other hand, if we get an enormous drop in the CPI (keep in mind that gas prices are certainly going to be lower), you could actually lose money. If I’m doing the arithmetic right, with a 2.3 percent drop in the CPI, the accrued inflation factor would go down another 1.15 percentage points, and your total yield would be zero.

Introducing the Free Lakota Bank
Posted by Eddy Elfenbein on November 25th, 2008 at 10:09 am

From their website:

The Free Lakota Bank is the world’s first non-reserve, non-fractional bank that issues, accepts for deposit, and circulates REAL money…silver and gold. All of our deposits are liquid, meaning they can be withdrawn at any time in minted rounds.
At the Free Lakota Bank, we issue, circulate and accept for deposit only AOCS-Approved silver and gold currencies. Silver & gold are a store of value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Since we deal only in real money, we do not participate in any central bank looting schemes.
Money is made possible only by those who produce. Paper is not money, instead merely a promise to pay. We hope that some day the rest of the world will awaken from the American Dream: the dream that a person can sustain life by consuming more than producing. We call it the American Dream because you must be asleep to believe it. Well, that dream now has a silver lining; as people discover the dream is really a nightmare, the only solution is a return to value: value that comes from production and honest trade.

Glad That’s All Cleared Up
Posted by Eddy Elfenbein on November 25th, 2008 at 9:41 am

Goldman’s Forecast
Posted by Eddy Elfenbein on November 24th, 2008 at 4:22 pm

Reuters reports:

Citigroup cut its 2008 target for the index to 850 points from 1,200 points. The 2009 target was cut to 1,000 points from 1,300 points.
Goldman cut its 2008 earnings-per-share estimate on the index to $55 from $65 — its third estimate cut in less than three months. The 2009 estimate was cut to $53 from $68.

What’s the point in making forecasts if you can instantly slash next year’s estimate by 22%?
I don’t mind estimates, and I don’t mind people being wrong. But I do mind frivolousness. There’s no value in that forecast whatsoever.

High Yield Rates Soar
Posted by Eddy Elfenbein on November 24th, 2008 at 4:13 pm

With T-Bills yielding less than 1 bip, look at the Vanguard High-Yield Corporate (VWEHX):

Google: A Value Stock
Posted by Eddy Elfenbein on November 24th, 2008 at 1:01 pm

Anyone notice that Google (GOOG) is going for 11.3 times next year’s earnings?