• Energy Is Starting to Fade
    Posted by on September 6th, 2006 at 12:59 pm

    The Energy Sector is getting smacked around today, and frankly, it’s long overdue. Two weeks ago, I mentioned how the Dow Jones Oil & Gas Index (^DJUSEN) kept making charges at 500, but the index couldn’t seem to break through. Right after my post, it happened again. The index hit 500, and wham-o—it’s back down again.
    Today oil is down to $68.25 a barrel. Less than two months ago, oil came within a hair of $80. According to GasBuddy.com, prices at the pump have turned sharply lower in the last month. The average price for gas is down about 30 cents a gallon.
    What’s going on here? One of the reasons for the fall in oil prices is that we’re now at the end of the driving season in the U.S. There was also yesterday’s news of the huge oil reserve found in the Gulf of Mexico. Experts are saying it’s the biggest find in a generation. The well was drilled underneath 7,000 feet of water, and then another 20,000 feet of seabed.
    The Oil Services Index ETF (OIH) is down about 2% today. Big energy stocks like Occidental Petroleum (OXY) and Schlumberger (SLB) are down over 3%. So what is doing well? The second-best performer on the NYSE today is our very own Donaldson (DCI).

  • The Cost of the Back-Dating Scandal
    Posted by on September 6th, 2006 at 11:00 am

    From today’s New York Times:

    Three researchers at the University of Michigan estimated that backdating stock options between 2000 and 2004 helped sweeten the average executive’s pay by more than 1.25 percent, or about $600,000. But the fallout from the recent options investigations has caused those executives’ companies to fall in market value by an average of 8 percent, or $500 million each.
    “For about $600,000 a year to the executives, shareholders are being put at risk to the tune of $500 million,” the study concludes.

    This scandal isn’t going to go away. Christopher Cox will be testifying today on Capitol Hill about back-dating.

  • Donaldson Does It Again
    Posted by on September 5th, 2006 at 5:43 pm

    I’ve learned never to say “I love a stock,” but I’m in serious like with Donaldson (DCI). The company just had another fantastic earnings report. The company has now increased its earnings for 17 straight years.
    For the fourth quarter, DCI earned 43 cents a share, three cents more than the Street was expecting. The stock is up 10% after-hours.
    For the year, Donaldson earned $1.55 a share on sales of $1.694 billion. Here are the results going back to 1990:
    Year………….Sales……………..EPS
    1990…………$422.9……………$0.19
    1991…………$457.7……………$0.21
    1992…………$482.1……………$0.23
    1993…………$533.3……………$0.26
    1994…………$593.5……………$0.30
    1995…………$704.0……………$0.37
    1996…………$758.6……………$0.42
    1997…………$833.3……………$0.50
    1998…………$940.4……………$0.57
    1999…………$944.1……………$0.66
    2000…………$1,092.3…………$0.76
    2001…………$1,137.0…………$0.83
    2002…………$1,126.0…………$0.95
    2003…………$1,218.3…………$1.05
    2004…………$1,415.0…………$1.18
    2005…………$1,595.7…………$1.27
    2006…………$1,694.0…………$1.55
    Donaldson sees 2007 EPS coming in at $1.72 to $1.82 a share, which is above Wall Street’s forecast.

  • What’s That Hissing Sound?
    Posted by on September 5th, 2006 at 12:58 pm

    danville.jpg
    It could be a housing bubble coming to an end. Today we learn that home price appreciation had its sharpest pullback EVER. (Well, the records only go back to 1975, but still….)

    New evidence of a housing market slowdown emerged Tuesday – growth in the price of a single family home was just 1.17 percent in the second quarter, a decline of more than one percentage point from the prior quarter when prices grew 2.20 percent.
    The Office of Federal Housing Enterprise Oversight (OFHEO), which released the report, said it was the slowest quarterly increase since the fourth quarter of 1999 and was the sharpest quarter-to-quarter pullback since OFHEO began the index in 1975.
    The year-over-year price gain was 10.06 percent.
    OFHEO’s numbers are generally regarded as the most accurate gauge of housing prices. Instead of measuring the average sale prices of homes, it compares repeat sale prices of the same single family homes.

    Here’s how home prices are doing in 151 markets.
    Danville, IL is listed as the lowest-priced housing market. Sooo…I’d thought I’d help out the good folks there. Here’s a listing for a five-bedroom waterfront crib in Danville. That’s it in the picture above. It can all be yours for $599,000.

  • Inco Break Merger Agreement with Phelps Dodge
    Posted by on September 5th, 2006 at 10:01 am

    As everyone knows, the national sport of Brazil is soccer. Even though America always gets creamed in the World Cup, we know that it’s better that we excel at our national sport, business.
    Well, that may be changing. Phelps Dodge (PD) offered to buy Inco, a Canadian nickel miner, for $17.4 billion. Nickel, if you haven’t noticed, has been soaring to NASDAQian heights (Googlesque?). Today, Inco said that the deal is off, and they’re looking at a rival bid from Brazil’s Companhia Valo de Rio Dolce (or CVRD).
    The interesting thing is that both bids are for $17.4 billion. The difference is that PD’s is cash and stock, CVRD’s is all cash. Now Inco has a pay PD a termination fee.
    What’s next? The U.S. will lose an international basketball tournament?

  • New York Farm a Front in Foie Gras Fight
    Posted by on September 1st, 2006 at 2:28 pm

    From the AP:

    Three times a day, workers at the Hudson Valley Foie Gras farm wade into duck pens, grab birds one at a time and slide a 15-inch metal tube inside the animals’ long necks. The force feeding fattens the ducks’ livers, which is sold as foie gras.
    This sprawling farm northwest of New York City is the nation’s No. 1 producer of the velvety delicacy — and a target for force feeding opponents trying to build on recent successes in Chicago and California.
    The farm faces a series of legal complaints from the Humane Society of the United States that, if successful, would cripple business. Operators of the farm are fighting back and trying to show that the feeding process is not the animal torture portrayed by foes.
    “It’s not harmful to catch the ducks. They’re not going crazy,” said operations manager Marcus Henley. “There’s no pain evidenced when I watched it.”
    These are difficult days for foie gras (fwah-GRAH), French for “fat liver.” High-wattage celebrities like Paul McCartney oppose it. California is banning force-fed foie gras starting in 2012 and Chicago in August banned foie gras sales. Similar bans are proposed in other states and cities.

    Yep, it’s a slow news day.

  • Wachovia, Golden West shareholders OK merger
    Posted by on August 31st, 2006 at 4:25 pm

    The shareholders have spoken:

    Wachovia Corp. and Golden West Financial Corp. easily won shareholder approval on Thursday for their merger, which would combine the fourth-largest U.S. bank with the No. 2 U.S. savings and loan.
    The acquisition of Oakland, California-based Golden West would give Wachovia its first significant branch presence on the U.S. West Coast, and significantly expand its mortgage operations. Wachovia is based in Charlotte, North Carolina.
    Regulators still must approve the deal.
    At separate shareholder meetings, about 93 percent of Wachovia shares cast and 99 percent of Golden West shares cast voted in favor of the merger, representatives for the companies said.
    The companies valued the merger at $25.5 billion when they announced it in May and expect it to close in the fourth quarter. Golden West shareholders would receive 1.051 Wachovia shares and $18.65 in cash for each of their shares.

  • Random Thoughts
    Posted by on August 31st, 2006 at 11:08 am

    I hope things are as quiet where you are as they are here on the 81st floor of the Crossing Wall Street Tower.
    Here are a few completely random thoughts for this morning. Do you realize that 2006 is already two-thirds over? That means this decade is also two-thirds over. Scary! We’re entering the late-aughts!
    The yield on the 10-year T-bond (^TNX) dipped below 4.75% this morning. Wow. That’s a drop of 50 basis points since June. (Of course, June was way back in the mid-aughts, so that may explain it.)
    Yahoo Finance has gone all blinky. Take a look. I think it’s a good thing, except it seems harder to scroll down longer portfolios.
    One month ago, Wall Street was expecting a GDP report of 3% growth. It came in at 2.5%, and the S&P jumped 1.2%. Yesterday, the GDP report said “no, you were right the first time—it was 2.9%.” Yesterday, the S&P did nothing. Weird.
    The Census Bureau came out with its big yearly report yesterday. You can geek out to the data. Here’s something that probably surprises most people, but not me. The median family income for Prince George’s County, MD is $74,767. For Orange County, CA, it’s $74,396. In other words, the PG is richer than the OC.

  • First Industrial Realty
    Posted by on August 31st, 2006 at 10:20 am

    Congratulations to Warren Buffett who not only turned 76 yesterday, but he also got married.
    Here’s a quick Buffett story. In late 1999, a man paid $210,000 for a wallet, in what could have been the worst wallet investment in history. There are, however, a few facts I need to add. First, it was for charity. Second, it was Buffett’s old wallet.
    Oh…and did I mention the stock tip? I guess that could help explain the price tag. Inside the wallet, Buffett left a stock tip. The stock he recommended was First Industrial Realty (FR).
    The wallet buyer graciously made the stock tip public. I don’t have a reference to the exact day, but I think I’m going to go with December 17, 1999. The records show that shares of FR had one their biggest jumps ever on eight times their normal volume. After all, this is a sleepy Real Estate Investment Trust (or REIT).
    Now I have to remind you that in late 1999, no one was buying REITs. No one. Tech was king. To add some perspective, Morgan Stanley has a REIT Index (^RMS). In October 1997, the index got over 365. By December 1999, it was down to 265. To reiterate, no one was buying REITs.
    REITs aren’t supposed to move a whole lot. They have a special tax advantage, and the trade-off is that they must pay out almost all of their profits as dividends. So while every dot.com was soaring, the high yield stocks weren’t standing still, they were falling. The higher tech went, they lower these stocks fell.
    On December 16, 1999, FR closed at $24.39. For the previous 12 months, it had paid four quarterly payments of 60 cents a share. So without even looking at the company, we know it was yielding 9.8%. Plus, the company had just raised its dividend to 62 cents a share, so investors could count on a yield of close to 10.2%.
    Not only did FR jump on December 17, but the news of Buffett’s recommendation lifted the entire REIT sector. Who knew that real estate was about to take off?
    Yesterday, First Industrial closed at $43.35 a share, so the stock has climbed over 67% from the price after the Buffett news was made public. If you include the very generous dividends, which are now at 70 cents a share, the investment in FR would have made you over 180%. Over the same period, the S&P 500 is down about 8%, although dividends have given the index a slight gain.
    If the wallet buyer started with a portfolio of $350,000 (let’s consider the $210,000 an advisory fee—60% would embarrass even a hedge fund manager), and the remaining $140,000 was all put into First Industrial, he would be ahead today.
    So maybe it wasn’t the worst wallet investment in history.

  • RadioShack Lays Off Employees Via E-Mail
    Posted by on August 30th, 2006 at 3:38 pm

    The New Economy kinda resembles the old:

    RadioShack Corp. followed through on its announced plans to cut about 400 jobs, but the electronics retailer has been forced on the defensive about its method of notifying laid-off employees by e-mail.
    Employees at the Fort Worth headquarters received an e-mail Tuesday morning telling them they were being dismissed immediately.
    “The work force reduction notification is currently in progress,” the notice stated. “Unfortunately your position is one that has been eliminated.”