"Fast Money" for Friday

Friday's Picks
Jeff Macke likes Google (GOOG) $564.3 but says to get out if it drops to a 4-handle.

Guy Adami prefers McDonald’s (MCD) $53.58

Pete Najarian thinks Alpha Natural Resrouces (ANR) $33.42 is a buy.

Karen Finerman recommends Broadridge Financial (BR) $21.66

Thursday's Results
Time to take profits, Jeff Macke said. Specifically, the Retail ETF (RTH) $91.77 is ripe for a sell. Close $95.14 LOSS

Guy Adami would buy utility giant Public Service Enterprise (PEG) $92.29 Close $96 GAIN

Karen Finerman said she’s still buying Altria (MO) $76.503 Close $75.79 LOSS

Pete Najarian expressed interest in E*TRADE (ETFC) $4.56 for a trade Thursday. Close $4.97 GAIN

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 0-1
Jon Najarian= 3-1
Jeff Macke= 7-4
Tim Seymore= 2-1
Guy Adami= 6-8
Pete Najarian= 6-5
Karen Finerman= 5-6

2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%
Karen Finerman= 40-30 = 57%

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52 Week Low's 1/31

(ZRAN) Zoran Corporation
(TLGD ) Tollgrade Communicati ...
(TKPU ) Polaris Acquisition Corp
(TELK ) Telik Inc
(RNOW) Rightnow Technologies Inc
(RDY ) Dr. Reddy's Labs, Ltd.
(RCRC) Rc2 Corp
(NEWP) Newport Corporation
(MTSN ) Mattson Technology Inc
(MSII ) Media Sciences Intl Inc
(HTCH ) Hutchinson Technology Inc
(HSTX ) Harris Stratex Ntwrks Inc
(HMG ) HMG/Courtland Propert ...
(HLDU ) Secure Amer Acquisiti ...
(GRVY ) Gravity Co Ltd
(BCRX ) BioCryst Pharmaceutic ...
(AWBC ) Americanwest Bancorpo ...
(AVRX) Avalon Pharmaceutical ...
(ARIA ) ARIAD Pharmaceuticals Inc
(ARAY )Accuray Inc

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Sherwin Williams Files in RI Supreme Court: BREAKING

As usual, Jane Genova is on top of this as the briefs were filed.

Read Jane's Post here:

From NL Industries' (NL) Brief:

"The trial court sanctioned liability without requiring the jury to find that any defendant acted negligently, or intentionally, or that any defendant knew or should have known of any alleged danger, or that any defendant ever sold lead pigment in Rhode Island or that any defendant's lead pigment was present on any building in this State at anytime, past or present." [page 1]

"If the trial court's jury instructions stand, the only question is which industry will be next. What happens if hair spray is found to be a problem five years from now? What about polyurethane?" [page 6]

From Millennium Holdings' Brief:

"If the aggregate presence of a product in the State is to be recognized as a new basis for liability, then certainly no person should be charged with responsibility beyond the extent to which that person's product is present in the State. Yet, here each Defendant has been held liable to abate lead pigments in Rhode Island that it never made or sold, and without any evidence as to whether that Defendant's product is in the State and, if so, how much." [page 1]

Excerpts from Sherwin-Williams' (SHW) Brief:

"The end result was a trial so stacked in Plaintiff's favor that Defendants effectively were forced to defend themselves with both hands tied behind their backs, while attempting to strike at a moving target - a trial so unfair in its conception and execution as to violate the U.S. and Rhode Island Constitutions." [page 7]

"It is impossible to know what comprises the alleged nuisance when the nuisance is an unidentified fiction over which Defendants exercise no control. It is impossible to challenge actual cause where there is no specifically identified nuisance or injury. It is impossible to argue that others are the sole or alternative cause of any harm, a key defense, when no particular injury, no specific property, and no other potential cause can be investigated. The conception of the nuisance thus relieved Plaintiff of required elements of proof and denied Defendants the ability to rebut any particular instance of the purported nuisance. It created, without fair notice and after the fact, limitless, endless liability, without proof of fault, actual causation, or proximate causation." [page 6-7]

"The suit and the legislative approach are very different universes about to collide. Based on the recognition that well-maintained properties are not dangerous, the Lead Poisoning Prevention Act places the responsibility for lead remediation on the property owners who have control over the condition of the paint and creates incentives to encourage owners to maintain their properties." [pages 3-4]

"A jury of six people was encouraged to issue a verdict, and Plaintiff insists that the jury has issued a verdict, tantamount to new statewide policies for public health and manufacturer liability. The common law is not filling a gap; it is trespassing on the legislative domain and creating conflicting rules.' [page 5].

More to come ...

Disclosure ("none" means no position): Long Sherwin, none

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Thursday's Links

Lead, Cramer, Mozillo, 60 Minutes

- More lead paint hypocrisy........

- More on Jim Cramer making investors dizzy.

- This is great. A "hats off" to Joe Ponzio.

- How do we know the sub-prime story has run its course? 60 Minutes did a story on it. Do they know Kennedy was assassinated?

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Altria Earnings Call Notables

Here are the notable items from Altria's (MO) earnings call yesterday

CEO Louis Camilleri

Regarding smokeless products"
"...Marlboro Moist Smokeless Tobacco. The latter introduction has [inaudible] much debating in ink in the recent past. While it is still early days, let me just say that we are very encouraged by the results to date, particularly in terms of the consumer response to the product and repurchase rates."

PMI
** 70% of PMI's top 25-income markets registered improved trends in the fourth quarter

Effect of share repurchases:
** "benefit of share repurchases in '08 is slightly less than 1% in terms of growth, and clearly it will impact 2009's growth rate a lot more."
** combination of the buybacks plus the dividends equals 20% of the market cap
** Altria will start in April and PMI will start in May

Litigation risk to PMI:
"No, it's certainly not non-existent. There has been litigation internationally as you are aware and as the disclosure showed. However, the industry has been very successful, and I think we will continue to be successful. That is not to say that there won't be claims and litigation internationally, but it's not something that I'm unduly concerned about."

Most of the really big questions were deferred until the investors conference on March 11th. At that time the details of both companies will be discussed.

Disclosure ("none" means no position):Long Altria

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Wal-Mart Tinkers With Clothing Again

Wal-Mart (WMT) will move clothing merchandising jobs to New York as it seeks to narrow its focus on basic clothes its customer base wants. About time...

Word from Bentonville is that a large number of workers are bring let go as the company has decided to finally put to rest its quest for "hippness". After trying for years to one up Target (TGT) in the style department, Wal-Mart is listening to its shoppers and rather than trying to sell them clothing, it will stocks its stores with the clothing they want to buy.

This is a good move for Wal-Mart. I do not think no matter how hard they try, Wal-Mart can ever hope to become a "fashion" stop for shoppers. You know what? That is ok. Folks still need underwear, t-shirts and the like and if they know they can get those items at Wal-Mart at a great price, they will shop there.

If nothing else, Wal-Mart will now save the millions of dollars they have invested in the pursuit of fashion and can put that cash to better use.

Disclosure ("none" means no position):Long Wal-Mart, None

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Thursday's Upgrades and Downgrades

Upgrades
Marsh McLennan (MMC)= Credit Suisse Neutral » Outperform
Smith Intl (SII)= Citigroup Hold » Buy
Washington Mutual (WM)= Fox Pitt In Line » Outperform
Marsh McLennan (MMC)= Stifel Nicolaus Hold » Buy
CyberSource (CYBS)= Wedbush Morgan Buy » Strong Buy
Callidus Software (CALD)= Northland Securities Market Perform » Outperform
Northern Dynasty Minerals (NAK)= BMO Capital Markets Market Perform » Outperform
HF Financial Corporation (HFFC)= FTN Midwest Neutral » Buy
Walt Disney (DIS)= Pali Research Neutral » Buy
Ivanhoe Mines (IVN)= BMO Capital Markets Market Perform » Outperform
Travelers (TRV)= Sandler O'Neill Hold » Buy
NuStar GP Hldgs (NSH)= Wachovia Mkt Perform » Outperform
NuStar Energy (NS)= Wachovia Mkt Perform » Outperform
Atlas Pipeline Holdings (AHD)= Wachovia Mkt Perform » Outperform
Oil States (OIS)= RBC Capital Mkts Sector Perform » Outperform
Regal Entertainment (RGC)= JP Morgan Neutral » Overweight
Avon Products (AVP)= Bear Stearns Peer Perform » Outperform
Quanta Services (PWR)= JP Morgan Neutral » Overweight
Albemarle (ALB)= JP Morgan Neutral » Overweight
Quiksilver ( ZQK)= JP Morgan Neutral » Overweight
Kinder Morgan Prtnrs (KMP)= JP Morgan Neutral » Overweight
Red Lion Hotels (RLH)= JMP Securities Mkt Outperform » Strong Buy
Electronic Arts (ERTS)= Bear Stearns Peer Perform » Outperform
Unisys (UIS)= Jefferies & Co Underperform » Hold
Eagle Test Systems (EGLT)= Broadpoint Capital Neutral » Buy
NRG Energy (NRG)= Credit Suisse Neutral » Outperform
DTE Energy (DTE)= UBS Neutral » Buy
Nike (NKE)= JP Morgan Neutral » Overweight
Dionex (DNEX)= Robert W. Baird Underperform » Neutral
Canadian Solar (CSIQ)= Oppenheimer Perform » Outperform
Qimonda (QI)= UBS Neutral » Buy
Albemarle (ALB)= UBS Neutral » Buy
BEA Systems (BEAS)= Bernstein Underperform » Mkt Perform

Downgrades
CNX Gas (CXG)= RBC Capital Mkts Outperform » Sector Perform
Canadian Pacific (CP)= CIBC Wrld Mkts Sector Outperform » Sector Perform
Hutchinson (HTCH)= Caris & Company Above Average » Average
Centex (CTX)= UBS Buy » Neutral
Natl Instruments (NATI)= Citigroup Hold » Sell
Cymer (CYMI)= Brean Murray Buy » Hold
Hutchinson (HTCH)= Brean Murray Hold » Sell
Yahoo! (YHOO0= Citigroup Buy » Hold
Conseco (CNO)= Credit Suisse Outperform » Neutral
Cabela's (CAB)= Wachovia Outperform » Mkt Perform
Columbia Sportswear (COLM)= JP Morgan Overweight » Neutral
T. Rowe Price (TROW)= Friedman Billings Mkt Perform » Underperform
Yahoo! (YHOO)= Oppenheimer Outperform » Perform
Hanmi Financial( HAFC )= Oppenheimer Perform » Underperform
Merrill Lynch (MER)= Oppenheimer Perform » Underperform
Scotts Miracle-Gro (SMG)= JP Morgan Overweight » Neutral
Cabot Micro CCMP (GARP)= Research Buy » Neutral

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"Fast Money" for Thursday

Thursday's Picks
Time to take profits, Jeff Macke said. Specifically, the Retail ETF (RTH( $91.77 is ripe for a sell.

Guy Adami would buy utility giant Public Service Enterprise (PEG) $92.29

Karen Finerman said she’s still buying Altria (MO) $76.503

Pete Najarian expressed interest in E*TRADE (ETFC) $4.56 for a trade Thursday.

Wednesday's Results
Pete Najarian said that Crocs (CROX) $30.61 was looking attractive again after losing more than half its value since that ugly sell-off in November. Close $32.5 GAIN

Guy Adami called Merck (MRK) $48.01 a “compelling” trade after its earnings Wednesday. Close $46.47 LOSS

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 0-1
Jon Najarian= 3-1
Jeff Macke= 6-4
Tim Seymore= 2-1
Guy Adami= 5-8
Pete Najarian= 5-5
Karen Finerman= 5-5

2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%
Karen Finerman= 40-30 = 57%

Disclosure ("none" means no position):

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More On Altria

Now that Altria (MO) has announced the spin details, let's look at some numbers.

If we assume a multiple of 15 times earnings, a fair one considering MO ought to grow at 9% to 11% and 20 times earnings for PM (PMI) as it ought to grow 12% to 14% and be free of litigation.

That gives us an initial share price of $22.50 for MO and $57.40 for PM. These will adjust slightly but the exercise is to give more details to what is being announced. Currently the combined entities trade at $76 and change so the above numbers are fairly accurate.

The dividend yield at those price levels will be 5.1% for MO and 3.2% for PM

As of 9/30 there were 2.1 billion shares outstanding giving MO a new market cap of approx. $47 billion and PM of $120 billion. The share repurchases will equate to roughly 16% of MO's outstanding shares and 11% of PM's.

The earnings call at 1pm today ought to be interesting...

Disclosure ("none" means no position): Long MO and will be long PM

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Altria Releases Spin Details

Altria (MO) just released the spin information we have been waiting for.

PHILIP MORRIS INTERNATIONAL SPIN-OFF EFFECTIVE MARCH 28, 2008

* Identifies new Board of Directors post-spin for both Altria and PMI
* Sets spin-off share distribution ratio of one-for-one


* Announces dividend policies, initial dividend rates and share repurchase programs

-- Altria dividend policy anticipates payout ratio of 75% post-spin

-- Altria initial post-spin annualized dividend rate of $1.16 per common share

-- Altria post-spin share repurchase program of $7.5 billion over 2 years


-- PMI dividend policy anticipates payout ratio of 65% post-spin

-- PMI initial post-spin annualized dividend rate of $1.84 per common share

-- PMI post-spin share repurchase program of $13.0 billion over 2 years

* To commence tender offer shortly for all outstanding Altria notes


* Forecasts 2008 earnings per share growth rates
-- Altria 2008 full-year diluted earnings per share from continuing operations projected to grow approximately 9% to 11% from a 2007 adjusted base of $1.50, excluding PMI, which will be accounted for as a discontinued operation for the full-year 2008

-- PMI 2008 full-year diluted earnings per share from continuing operations projected to grow approximately 12% to 14% at current exchange rates, from a 2007 pro-forma adjusted base of $2.78

Disclosure ("none" means no position): Long MO

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Sherwin Williams Earnings Call: Was Anyone Listening?

There were some interesting things said on the Sherwin Williams (SHW) call.

CEO Chris Connor:
"New residential consumption was down in a high 20% range for the year. Existing home turnover declined nearly 20%; consumer spending slowed dramatically, credit markets contracted, manufacturing activity turned negative. Consumer confidence sag and GDP growth stalled. In short, it was exactly the kind of year that we anticipated 12 months ago.

We entered 2007 prepared for the inevitable slowdown in end market demand and as a result of this preparation, Sherwin turn in, what I would describe, as a solid performance last year. Consolidated net sales grew a modest 2.5% to just over $8 billion in sale. Consolidated net income increased almost 7% and earnings per share increased more than 12% to a record $4.70 per share."

Regarding the dividend:
"I will be recommending a continuation of our policy of paying out approximately 30% of prior year's earnings per share in the form of a cash dividend in 2008. This would result in a quarterly dividend of $0.35 per share or $1.40 per share for the year, an increase of 11.1% over the $1.26 per share we paid out in 2007."

Sherwin will yield around 2.5% at those levels.

Earnings:
Sherwin sold off yesterday 1.7% based on this one sentence, "first quarter will be in the range of $0.72 to $0.80 per share, compared to $0.83 per share earned in the first quarter of 2007."

It ignored what followed "Full year 2008, we expect net sales will also increase in the low to mid single digits over 2007. With annual sales at that level, we estimate diluted net income per common share for 2008 will be in the range of $5 to $5.15 per share, compared to current analyst consensus of $5.03 for 2008, and $4.70 per share earned in 2007."

So, Q1 will fall 3 cents short but the full year looks to be above estimates and shares get whacked. This is the very reason you cannot let the market guide your investment decisions.

Had anyone bother to even listen to Connor, he explained the earnings later. "If we just look at our Stores segment which is we all know the lion share of our company. The southern divisions and Bob takes you through that on the call in terms of which parts of the Stores Group are performing the best and I think he made the comments that our southeastern division was the first performing of the geographic segments in the Stores division.

And typically it's been the southeastern division to a lesser extent to the southwestern division carried the company to the first quarter. This is where we have a better weather, flatter sales curve throughout the year and these are the parts of the country that are being impacted the most aggressively in particularly Florida which we've talked about in this call in the past.

So we are not getting the lift from the southern portions of our Stores segment, early in the year to carry the first quarter. Adding to that, the two acquisitions that we've made this past year are northern type acquisitions. And again they have a more traditional and a profit curve with a second and third quarter or the quarters when they make most of their contribution.

So we've added a significant number of stores that lost money in the first quarter. So stores that have historically carried up to or something through the market environment and for that reason we guided the first quarter down to expect all those things as they typically would do to catch up in the second and third quarter and that's why we have somewhere between 8% and just below 10% guidance for the year earnings."

Share Repurchases:
Expect about 8 million shares in 2008 (about 6% of outstanding shares).

In Q4 repurchased 3 million shares at "around" $60 a share.

Paint Stores:
Plan to open 100 more in 2008

I would expect 2008 to be an anemic year in term of repurchases as Sherwin digested to activity of 2007. Now, should housing turn ahead of expectations and the economy rebound, Sherwin, as it is positioned should see the incremental improvement to it own bottom line as it is currently geared for a poor 2008 operating environment in the US.

That being said, expedited share repurchases would most likely be first on the list with the stock at these levels.

Disclosure ("none" means no position): Long Sherwin

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Altria Earnings: One Question, The Spin

Altria (MO) reports later today.

Expectations for Q4 EPS are 97c on revenue of $9.19B. The consensus range for EPS is 96c to $1.01, and the consensus range for revenue is $8.9B to $9.62B. Comparisons to 2006 are skewed due to the Kraft (KFT) spin last year.

The spin. That is all we really want to know. I detailed the preliminary spin plans in October.

When will it happen and when will the re-capitalize both companies. What will the dividends be and how many shares will they repurchase. Do I expect to get answers to all those, no, but we usually get some hints later on the call.

Disclosure ("none" means no position): Long MO

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Wednesday's Links

Imus, Spears, Ethanol under $1 a gallon, Concentration

- Jesus, this stuff is just wrong....

- Wealth and brains, nothing in common

- Could this the answer to oil?

- Whitney Tilson makes a great case for a concentrated portfolio.

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Dow Chemical's Earnings Call Notes

Here are the key take aways from the recent call for Dow Chemical (DOW)

CEO Andrew Liveris:

* record equity earnings of $1.1 billion, up 17% from 2006 and topping $1 billion for the first time
* earnings reach has been lifted to well north of $3 per share and that we will not experience the trough in 2010, '11 (this is up from $2 to $3 earlier).
* Once the PIC JV closes, we will have a very strong cash position to fuel a share buyback if we want to versus our other options. Repeat, we will do share buybacks if we cannot find accretive M&A.
* two-thirds of sales are from outside the United States
* "US economy could go further south, especially through the first half of the year. My belief however, this is more a crisis of faith and not a crisis of markets, and as I stated the last week to the media, there are no signs of a recession in our production chains."

Liveris in response to a question about the deployment of cash to shareholders:

"Well, I think I was very clear in my prepared remarks. I think this year we are going to have to cross the river, so to speak. It really we've been very disciplined on the share buyback and dividend increases. We've had lots of organic growth that we are funding. You can see that in our expense increase. We've done some bolt-ons. We have targets we are interested in, but frankly if they are not at the right price, then we will just go to the deep old strategy and just keep increasing remuneration of our shareholders and that won't be several years out, that will be this year."

Geoffery E. Merszei - Executive Vice President and Chief Financial Officer responding to the same question:

"Well, I mean we will as we complete our current program, we will obviously, I would say, by the again depending on how rapidly we execute the existing $800 million, $850 million, so between now and middle mid-year we will announce another program. I think when Andrew was referring to our priority is as an accretive M&A in order to complete our strategy our transformational strategy, in the event that does not happen, then I think you can count on a sizeable buyback program, which you can relate to the proceeds of our asset-light ballot."

Bottom line? the market will not commit to Dow until they say "we are doing "x" on "y" date. Then they will pile into the shares. But, has Liveris done anything up until this point that would lead anyone to believe that either a major acquisition or a massive repurchase is not going to happen this year?

Dow currently sports a $35 billion market cap and by the time they get the $9.5 billion payment from Kuwait, they ought to be sitting on almost $12 billion (assuming no large acquisition before then). That would repurchase a whole boat load of shares. Maybe a special $3 a share dividend? With under 1 billion shares outstanding, it would cost less than $3 billion dollars and still leave plenty to repurchase shares.

This is going to happen, investors in this environment are just to skittish to commit until they are told "it will happen on this date". It is ok, I'll just sit back, collect my 4.5% dividend in the form of more shares and wait.

If this thing dips to $35 or $36 again, I think I may be a buyer. It is just too cheap at those levels.

Disclosure ("none" means no position): Long Dow

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Lampert's Letter To Associates: "No Direct Reports"

To: All Sears Holdings (SHLD) Associates

From: Edward S. Lampert, Chairman of the Board

"Today we announced that Bruce Johnson, currently our executive vice president for supply chain and operations, will serve as Sears Holdings' interim chief executive officer and president, replacing Aylwin Lewis, who will step down in February.

I want to thank Aylwin for his dedication and leadership since joining as the chief executive officer of Kmart beginning in October 2004. He led the integration of Kmart and Sears and helped meld these two cultures. He has exemplified the qualities that are core to our company and its principles: hard work and ethical leadership. I have enjoyed working with Aylwin over the last three years and I appreciate his contributions to the company and the support he has provided me personally.

Indeed, we appreciate the hard work and efforts of all Sears Holdings associates. We know we are facing a difficult macroeconomic and retail environment, but we also expect to come out of these challenging times as an improved and stronger company. As we recently explained, we are implementing some significant changes to our organizational structure which will bring us to the next phase in our company's history. In light of these changes, the Board and I believe that now is the right time to put in place new leadership to take the company forward and therefore we have begun a formal search for a new chief executive.

We are fortunate that we have such a strong interim leader in Bruce Johnson. Bruce will begin implementing the important organizational changes that will allow our business units to operate with greater independence, focus, and efficiency. Bruce is an experienced retail executive. He joined Kmart in 2003 after five years at French retail chain Carrefour, where he served as director, organization and systems and as a member of the management board. Before that, Bruce spent 16 years at Colgate-Palmolive in various positions. Bruce has worked hard not only to integrate and improve our supply chain and increase our direct sourcing of product, but in 2006 took responsibility for store operations as well. As interim CEO, Bruce will oversee the separate business units we announced last week.

I will continue to lead the Office of the Chairman and focus on identifying and attracting talented executives to our company, including the search for a new chief executive officer. I will also work to ensure that our new structure supports our objectives of greater accountability, faster decision-making, and increased profitability. I believe the reorganization will allow our leaders to be more productive and efficient and allow us to attract talented executives who are eager to take on the challenges of running their own businesses. As a result of these structural changes, I will no longer have any direct reports.

Given the number of changes that we have announced in recent weeks, I would like to provide you with some context for what is happening both at our company and within the markets generally and remind you of what we have accomplished thus far.

Most of you know from the news that the U.S. economy is facing significant difficulties and we are seeing a broad-based retail slowdown. We have also experienced disappointing financial performance in our business in this current fiscal year. However, we have significant opportunities and we must remain steadfast and resolute in our goal of becoming a great retailer.I never underestimated the enormity of the challenges facing Kmart and Sears and the hard work it would take to achieve our goal. I remain confident in our ability to ultimately succeed, even if there are steps backward along the way. We have been willing to make tough decisions and choose a different path from many of our peers and continue to do so. The leadership changes and the reorganization are examples of the important and necessary next steps to achieve our goals.

As you all know, both Kmart and Sears have been through many years of struggles. Those of you who were at Kmart before 2003 helped the company emerge from bankruptcy, despite the predictions of virtually all retail experts at the time. In fact, many of these experts predicted that the company would not survive at all. Instead, Kmart went from a company that lost over $1 billion in both 2001 and 2002 to a company that made almost $1 billion in 2004. Now, almost five years after emergence, Kmart still operates over 1300 stores throughout the United States, making it one of the largest retail companies in the country.

For the past three years, all of us have been charged with the very challenging task of integrating two very large companies. Each of you has made important contributions to this enormous endeavor. While we have a long way to go, you should take great pride in what you have accomplished to date. In fact, since May 2003, shares of what is now Sears Holdings have increased in value by almost ten times. It is easy to lose sight of how much value has been created over the past five years during a time of stock market uncertainty and tumult. Sure, our stock is off its highs, just like many department stores and other retail companies, but our shareholders have been richly rewarded over the past half decade.

While we continue to recognize and address the challenges ahead of us, we can also be proud that, thanks to our collective efforts, we saved almost 150,000 jobs in taking Kmart out of bankruptcy, a fate from which many retailers have failed to recover. Importantly, we also continue to believe that we can mold Sears Holdings into a successful, sustainable, and exciting company that will offer a compelling choice to customers. There will be many difficult decisions to come and the recent economic downturn which has affected practically all retail companies has set back our progress. However, it has not deterred us and we will continue to move forward with our strategy and take all appropriate actions to stabilize our business.

Sears Holdings is one of the largest retail companies in the world, one of the largest employers in the world, and one of the most profitable retail companies in the world. We remain focused on the creation of long-term value for our shareholders and have shown our ability to deliver since Kmart's emergence from bankruptcy. We feel that we have been very successful so far, yet success doesn't come without setbacks. We intend to make decisions to increase the probabilities of success in the future, although certainly not all decisions will lead to the outcomes we expect.

Our belief in our company is reinforced by the fact that we have invested over $4 billion since the third quarter of 2005 in repurchasing our own shares, while at the same time paying down debt and funding our pension plan. We have believed that investing in our own company stock has been a superior alternative to acquiring other businesses, and it has not prevented us from making investments in our stores and infrastructure. During that time we have also made significant investments in information technology as well as in building our design and online capabilities. However, making these investments requires us to believe that we will earn a return on them. We are not going to simply throw money at problems, as some have suggested and as others have done unsuccessfully. Instead, we are going to test and learn and when we find things that we believe can make a difference – such as Lands' End shops inside Sears for example -- we will roll them out aggressively and iterate along the way.

We are early in the game, and thanks to all your efforts, we have a great chance of victory. On behalf of the leadership of our company, thank you for your hard work and commitment, and we look forward to building a great company with your help."

The basic summation of the letter around the web is that this letter is an admission of Lampert's failure. That he will "no longer have any direct reports" somehow means that his vision has not succeeded.

What is missed is that shareholders who have been with him are still up ten-fold in their shares. Lampert and his discipline were precisely what both Sears and Kmart needed when he bought them. Let's not forget (it seems to have been) that both of these chains were on the road to extinction 5 years ago. Now they produce $50 billion in sales.

What the letter means is that Lampert recognizes he has taken the chain as far as he can. He knows what his strengths are and also is, as Berkshire Hathaway's (BRK.A) Warren Buffett has said, "smart enough to know what I don't know". Now, was this "the plan" all along? Who knows. But, if you look at how far Sears seems to be in the process already, one can only assume that this has been in the works for a while.

My gut says Lampert knew this day was coming and had the reorganization plans "on the back burner". The current state of retail in general and the US economy as a whole probably expedited their implementation.

Far from being an admission of failure, Lampert's move is simply a very smart man placing ego aside and doing what is best at this time for his company. Why is that a bad thing?

Disclosure ("none" means no position): Long Sears

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Wednesday's Upgrades and Downgrades

Upgrades
Evergreen Solar (ESLR)= Janco Partners Mkt Perform » Buy
Virgin Media (VMED)= Citigroup Hold » Buy
El Paso Electric (EE)= Soleil Hold » Buy
Chattem (CHTT)= Stanford Research Hold » Buy
Sysco (SYY )= Piper Jaffray Neutral » Buy
Zoran (ZRAN)= Needham & Co Buy » Strong Buy
CGI Group (GIB)= RBC Capital Mkts Sector Perform » Outperform
Toyota Motor (TM)= HSBC Securities Underweight » Neutral
Medivation (MDVN)= Stanford Research Hold » Buy
Estee Lauder (EL)= UBS Neutral » Buy
Sonic (SONC)= Credit Suisse Neutral » Outperform
Stealthgas (GASS)= Citigroup Hold » Buy
Novell (NOVL)= Jefferies & Co Hold » Buy
Flamel (FLML)= Merriman Curhan Ford Neutral » Buy
Take-Two (TTWO)= Lehman Brothers Underweight » Equal-weight
Con-way (CNW)= JP Morgan Neutral » Overweight
Arris (ARRS)= UBS Neutral » Buy
Geron (GERN)= UBS Neutral » Buy
ArQule (ARQL)= UBS Neutral » Buy
ADC Telecom (ADCT)= UBS Neutral » Buy

Downgrades
Union Banc (UBSH)= Ferris Baker Watts Buy » Neutral
American Community Bancshares (ACBA)= Stanford Research Buy » Hold
Sterling Banc (SBIB)= Morgan Keegan Outperform » Mkt Perform
Blue Nile (NILE )= AmTech Research Neutral » Sell
Morgan Stanley (MS)= Deutsche Securities Buy » Hold
VMware (VMW)= Caris & Company Buy » Average
PMI Group (PMI)= Wachovia Outperform » Mkt Perform
Triad Guaranty (TGIC)= Wachovia Outperform » Mkt Perform
Journal Register (JRC)= Wachovia Mkt Perform » Underperform
McClatchy (MNI)= Wachovia Outperform » Mkt Perform
Molex (MOLX)= Credit Suisse Neutral » Underperform
Walt Disney (DIS)= Citigroup Hold » Sell
Westamerica Banc (WABC)= Sterne Agee Buy » Hold
McDonald's (MCD)= Bear Stearns Outperform » Peer Perform
NYMEX (NMX)= Citigroup Buy » Hold

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"Fast Money" for Wednesday

Wednesday's Picks
Pete Najarian said that Crocs (CROX) $30.61 was looking attractive again after losing more than half its value since that ugly sell-off in November.

Guy Adami called Merck (MRK) $48.01 a “compelling” trade after its earnings Wednesday.

Tuesday's Results
Guy Adami recommends the NYSE Euronext (NYX) $78.04 Close $79.68 GAIN

Karen Finerman prefers Goldman Sachs (GS) $196.25 Close $195.05 LOSS

Pete Najarian likes Nasdaq (NDAQ) $44.07 Close $45.49 GAIN

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 0-1
Jon Najarian= 3-1
Jeff Macke= 6-4
Tim Seymore= 2-1
Guy Adami= 5-7
Pete Najarian= 4-5
Karen Finerman= 5-5

2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%
Karen Finerman= 40-30 = 57%

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52 Week Low's 1/29

(TVHU) Media & Entmt Holding ...
(TOMO) Tomotherapy Inc
(TKPU) Polaris Acquisition Corp
(STKL ) Sunopta Inc
(RLH ) Red Lion Hotels Corp
(RCRC) Rc2 Corp
(IKN ) Ikon Office Solutions Inc
(IIIU ) Information Services ...
(ICUI ) ICU Medical Inc
(HMG ) HMG/Courtland Propert ...
(HLDU ) Secure Amer Acquisiti ...
(CZFC ) Citizens First Corp
(CPI ) Capital Properties, Inc
(CPBC ) Community Partners Ba ...
(CCU ) Clear Channel Communi ...
(AVRX) Avalon Pharmaceutical ...
(AMLN ) Amylin Pharmaceutical ...


Disclosure ("none" means no position):

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Wal-Mart Beats Retailers for a Piece of the Stimulus Pie

Wal-Mart (WMT) got the jump on retailers like Target (TGT) during the holiday season by starting deep discounts in October. Now it has beaten them again for a piece of the upcoming stimulus plan.

Wal-Mart announced Tuesday that it will cut prices between 10 to 30% this week on groceries, electronics and other home-related products in an effort to "help with added savings throughout the year, focusing especially on what people want, when they need it,".

The initial cuts come during the build up to the Super Bowl and will focus on game related items. How big is the Super Bowl pie? Try $9.5 billion. This will be a blow to retailers like Costco (COST) and BJ's (BJ).

"We will have more of these during the busier shopping periods of the year like Valentine's Day and Easter," Wal-Mart spokeswoman Melissa O'Brien said.

Here is the genius of the plan. Wal-Mart said "it will offer no interest for 18 months on purchases of $250 or more with a Wal-Mart Credit Card. Now, folks can add and those who are looking at $300 per person can go to Wal-Mart and get a jump spending that money. Wal-Mart will be smart and keep most folks limits below $500 so that the bills can easily be paid when the checks come in.

Not only will Wal-Mart enable folks spend those checks and get a great value for them, they will front them the cash to do so.

Brilliant...

Disclosure ("none" means no position): Long Wal-Mart, None

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Tuesday's Links

McCain, Bloggystyle, HC, Apple

- The reason you cannot vote for McCain, he MUST get this stuff


- Adam's latest effort

- Funny how she calls a truce only when the barbs get turned on her.

- When a stock is at lofty levels and questions get raised, it gets whacked..

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Recent Fed Auction Show Rates Drifting Much Lower

12 days ago I documented the results of the first two auction of the Fed. In the latest auction, rates fell almost a full point.

On January 28, 2008, the Federal Reserve conducted an auction of $30 billion in 28-day credit through its Term Auction Facility. Following are the results of the auction:

Stop-out rate: 3.123 %

Total propositions submitted: $37.452 billion
Total propositions accepted: $30.000 billion
Bid/cover ratio: 1.25

Number of bidders: 52

The simple analysis of the results means that banks like Citigroup (C), Bank of America (BAC), Well Fargo (WFC) and Wachovia (WB) are getting access to capital well below what they can then turn around and lend it.

Disclosure ("none" means no position):Long Wachovia and Citigroup, None

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Sherwin Williams Continues to Defy Investors

Sooner or later investor are going to catch on to the fact that Sherwin Williams (SHW) is not a "housing stock"

First the results:
-- Consolidated net sales increased 2.5% in the year to a record $8.01 billion
-- Diluted net income per common share increased 12.2% in the year to a record $4.70 per share including a goodwill impairment charge of approximately $.08 per share
-- Earnings before interest, taxes, depreciation and amortization increased $100.7 million in the year to a record $1.148 billion
-- Net operating cash increased $58.7 million in the year to a record $874.5 million
-- Seven acquisitions completed during 2007 increased consolidated net sales 1.4% in the year and 2.9% in the quarter.
-- The Global Group’s segment profit improved 23.2% in the year and 34.1% in the quarter
-- The Company purchased 3,000,000 shares of its common stock in the quarter and 13,200,000 shares in the year.
-- The Company had remaining authorization at December 31, 2007 to purchase 27,000,000 shares (out of 124 million outstanding).

CEO Chris Connor said, “In the first quarter of 2008, we anticipate achieving a low-to-mid single digit percentage increase in consolidated net sales versus the first quarter of 2007. At that anticipated sales level, we estimate diluted net income per common share in the first quarter of 2008 will be in the range of $.72 to $.80 per share compared to $.83 per share earned in the first quarter of 2007. For the full year 2008, we expect to achieve a low-to-mid single digit percentage increase in consolidated net sales over 2007. With annual sales at that level, we anticipate diluted net income per common share for 2008 will be in the range of $5.00 to $5.15 per share compared to $4.70 per share earned in 2007.”

Simply put, at the low end of the earnings range, Sherwin will trade at a PE in 2008 of 11 and will grow EPS 6.3% to 9.5% and sport a 2.2% yield.

Connor and company made some brilliantly timed acquisitions that were immediately accredive in 2007 to earnings due to the prices paid for them. Sherwin sits on plenty of cash for either additional purchases or to finish to share repurchases. Sherwin has averaged about $200 million a year in share repurchases recently and given its cash from operations, that will be easily attainable in 2008 without the addition of debt.

Can you imagine what this company will do when housing does turn?

Disclosure ("none" means no position): Long Sherwin

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Leucadia Now Owns 19.4% of AmeriCredit

In an SEC filing this morning, Leucadia (LUK) disclosed its ownership stake in AmeriCredit (ACF).

From the filing:
As of the close of business on the date of this Schedule 13D (1/29), the
Reporting Persons may be deemed to beneficially own collectively an aggregate of
22,159,300 shares of Common Stock, representing approximately 19.4% of the
shares of Common Stock presently outstanding. All percentages in this Item 5 are
based on 114,162,314 shares of Common Stock outstanding as of October 31, 2007,
as set forth in the Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2007.

Disclosure ("none" means no position): None

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Dow Earnings: Vanilla

Dow Chemical (DOW)reported earning this mornings and the results were as expected.

-- Sales for Q4 set a new Company record, rising 16
percent from the same period last year to $14.2 billion.
-- Earnings for the quarter were $0.49 per share. Excluding certain items,
earnings for the quarter were $0.84 per share. Earnings in the fourth
quarter of 2006 were $1.00 per share. Excluding certain items,
earnings for that quarter were $0.98 per share (see supplemental table
at the end of the release for a description of these items).
-- Compared with the same quarter of 2006, price increased 12 percent,
with gains in all operating segments and geographic areas.
-- Volume was up 4 percent compared with the fourth quarter of last year,
with improvements in all operating segments and in every geographic
area outside of North America. Asia Pacific recorded volume gains of 10
percent, and Europe 6 percent.
-- Purchased feedstock and energy costs climbed $1.7 billion compared with
the fourth quarter of last year, the largest year-over-year increase in
the Company's history.
-- Equity earnings increased 21 percent year-over-year, totaling $294
million for the quarter.

2007 Full-Year Highlights
-- 2007 sales increased 9 percent compared with 2006, setting a new record
for the Company of $53.5 billion.
-- Dow reported full-year earnings of $2.99 per share. Excluding certain
items, earnings for the year were $3.76 per share. Earnings for 2006
were $3.82 per share. Excluding certain items, earnings for 2006 were
$4.25 per share (see supplemental table at the end of the release for a
description of these items).
-- Equity earnings rose 17 percent compared with 2006, to $1.1 billion,
exceeding $1 billion for the first time in the Company's history.

CEO Andrew Liveris said, "This was a good quarter ... a quarter in which our entire organization responded with speed and discipline to an unprecedented run-up in feedstock and energy costs, raising price to mitigate much of the $1.7 billion year over year increase. And our focus on price did not come at the expense of volume. Volume gains were reported in all operating segments, a testament to our price/volume management capabilities."

2007 is in the books and 2008 is what we need to focus on now. I had a number of questions yesterday and hopefully on the call at 10 am today they will be answered.

All things considered, with the explosion of oil prices in 2008, management did an outstanding job not letting costs destroy the year. Liveris called 2007 a "transformational year" and as so far as the structure of the company goes, it was. 2008 needs to be the "transformational year" for putting the plan into action and delivering on the bottom line.

Disclosure ("none" means no position): Long Dow

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Sears.com Emphasis a Logical One

for anyone following my retail online tracing posts here, this move by Sears Holdings (SHLD) makes perfect sense.

Sears.com tapped an ex-Microsoft (MSFT) executive to the head of Sears’ newly formed online division. The division will be one of the 5 announced as part of the retailer's recent realignment. James Barr, a 12-year Microsoft executive and general manager of MSN Shopping and Marketplaces, will take over the online unit effective Feb. 2 as a senior vice president of Sears Holdings.

Barr joins former Walmart.com (WMT) executive, Neil Day, the newly-named Chief Technology Officer for the Sears.com group.

The Sears.com and kmart.com combination ranked just behind both Walmart.com and target.com (TGT) during this recent holiday season. They consistently outdid rivals like JC Penny (JCP), Kohls (KSS) and Macy's (M). This is a area that Sears is seeing results and to place an emphasis here as they are freeing up their brands to chase results on their own makes perfect sense.

The addition of a walmart.com executive has to encourage investors as the Wal-Mart site has dominated the landscape the for quite some time.

Disclosure ("none" means no position):Long Sears, None

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Harley Davidson's Earnings Call: 2008 OK

Here are some of the more notable elements of Harley Davidson's (HOG) conference call.

International shipments:

* 22,114 units were up 20.5% compared to the same quarter last year.
* International shipments grew to 27.2% of total worldwide fourth quarter shipment volume compared to 19.8% in the fourth quarter of 2006.
* International shipments for the full year grew to 26.9% of the mix, up from 21.8% in 2006
* Europe was once again strong with a year-over-year sales increase of 10.9%, Japan was up 4.5%, Canada was up 45.9%, or 605 units, primarily due to better product availability during the quarter. The remaining 45 or so countries where motorcycles are sold were up a collective 28.6% for the quarter.

From the Q % A:
James Hardiman - FTN Midwest
Okay, and then my second question, I was wondering if you could just flesh out a little bit more sort of how you’ve been able to remain so strong internationally, and I guess especially in the Canadian market, and where you expect that to go if -- you know, when you look at some of the economies of some of the countries that you do business in, are they correlated to the U.S. market? Sort of what you are seeing internationally and whether or not we can expect that to continue?

James L. Ziemer
I’ll answer that question -- on retail sales outside the U.S., we are strong in all the markets outside the U.S. without exception when you look at it on a total year basis, whether it be Canada or Europe or Australia or Japan, and the markets of Latin America.

That’s driven by many different things. Their economies are doing well. Certainly the weak dollar has contributed to some of that but as we continue to build a distribution network and we acquire some of our independent distributors over the last five, six years, I mean, we are doing things and rationalizing the dealer networks in many of the countries we sell into. We’ve acquired in the last year the Australian distributors. We have just recently acquired the distributorship in Mexico, so we continue to take on that strategy so that as we own the distribution network, we can operate that for the long-term health of the business and sell customers the experience that helps make us strong and differentiates us from our competition.


Q & A 2008 Outlook:
Ed Aaron - RBC Capital Markets
A couple of questions; first, you said recently that your guidance for ’08 sort of operated under the assumption that 2008 economic environment would be similar to 2007, but you didn’t change your guidance. Is that still your assumption or are you now planning for a weaker economy in the U.S. but feel better about your international business?

Thomas E. Bergmann
Just to add on, I think Jim’s got it. There is no doubt we think 2008 is going to be a challenging year for us and for the industry. And you know, when we put the guidance out, things -- probably the indications have gotten a little, have deteriorated a little further, so it’s going to be a challenging year.

But as Jim said, our guidance was built around a cautious approach to the year and we are going to look at the environment very closely and watch it and we’ll make the appropriate changes if we need to at any point in time.

But the good thing is the international business, as you mentioned, continues to do very well and we are continuing to be very pleased with the progress we are making in the markets and it continues to deliver strong results and we see that continuing in 2008.

In response to another question:
Thomas E. Bergmann
Clearly there’s a lot that goes into the bottom line of delivering our EPS guidance and that’s really management’s challenge this year, is to work through the challenging economy here in the U.S., continue to grow our international business, allocate capital smartly, and the share repurchase activities or other business initiatives to drive growth. And we’re prepared to do that. It’s going to be a challenging year but at this point in time, with all the activities around the 105th and international, we’re at this point in time comfortable with the guidance.

Bottom line? HOG expects the US to be anemic again in 2008 but international operations to continue their upward surge. I have confidence in the 4% to 7% EPS growth estimates and that means shares will trade below 10 times 2008 earnings and continue to yield over 3% at this levels. For a company like HOG, that is a steal.


Disclosure ("none" means no position): Long HOG

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Tuesday's Upgrades and Downgrades

UPGRADES
NuVasive (NUVA)= SMH Capital Short » Neutral
Dime Community (DCOM)= FTN Midwest Neutral » Buy
Pantry (PTRY)= William Blair Mkt Perform » Outperform
WNS (WNS)= Janney Mntgmy Scott Neutral » Buy
Zoran (ZRAN)= Canaccord Adams Sell » Hold
Bill Barrett (BBG)= Deutsche Securities Hold » Buy
First Charter Corp. (FCTR)= FTN Midwest Neutral » Buy
DaVita (DVA)= Piper Jaffray Sell » Neutral
Whiting Petroleum (WLL)= RBC Capital Mkts Underperform » Sector Perform
UAL Corp. (UAUA )=Soleil Hold » Buy
EnergySolutions (ES0= JP Morgan Neutral » Overweight
Canon (CAJ)= Lehman Brothers Equal-weight » Overweight
Exterran Holdings (EXH)= Citigroup Hold » Buy
Tidewater (TDW)= JP Morgan Neutral » Overweight
Western Refining (WNR)= Credit Suisse Underperform » Neutral
Tesoro (TSO)= Credit Suisse Neutral » Outperform
Holly (HOC)= Credit Suisse Underperform » Neutral
Caterpillar (CAT)= Bear Stearns Peer Perform » Outperform
Eastman Chem (EMN)= UBS Neutral » Buy
Kimberly-Clark (KMB)= Lehman Brothers Equal-weight » Overweight
General Mills (GIS)= Citigroup Hold » Buy
Kellogg (K )= Citigroup Hold » Buy
Merck (MRK)= UBS Neutral » Buy
Plantronics (PLT)= JP Morgan Underweight » Neutral
Gentex (GNTX )= UBS Sell » Neutral
Weatherford (WFT)= Friedman Billings Mkt Perform » Outperform
Medarex (MEDX)= Jefferies & Co Hold » Buy
Cytec (CYT)= Jefferies & Co Hold » Buy
ICF International (ICFI)= Jefferies & Co Hold » Buy
South Fincl Group (TSFG)= Keefe Bruyette Underperform » Mkt Perform

DOWNGRADES
RC2 (RCRC)= Wedbush Morgan Buy » Hold
Old Second Bancorp Inc. (OSBC)= Sandler O'Neill Hold » Sell
H.B. Fuller ( FUL)= KeyBanc Capital Mkts Aggressive Buy » Buy
Raven Industries (RAVN)= Piper Jaffray Neutral » Sell
Allied Irish Banks, plc. (AIB)= UBS Neutral » Sell
Bank of Ireland (IRE)= UBS Buy » Neutral
Molina Healthcare (MOH)= Deutsche Securities Hold » Sell
Noble Corp (NE)= JP Morgan Overweight » Neutral
Shire Pharm (SHPGY)= Bernstein Mkt Perform » Underperform
Walgreen (WAG )= Citigroup Hold » Sell
Fed Investors (FII+ Keefe Bruyette Outperform » Mkt Perform

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"Fast Money" for Tuesday

Tuesday's Picks
Guy Adami recommends the NYSE Euronext (NYX) $78.04

Karen Finerman prefers Goldman Sachs (GS) $196.25

Pete Najarian likes Nasdaq (NDAQ) $44.07

Monday's Results
Tim Seymour recommends buying Sasol (SSL) $43.11 Close $44.90 GAIN

Guy Adami prefers United Technologies (UTX) $72.75 Close $73.73 GAIN

Karen Finerman likes Golar (GLNG) $17.57 Close $19.38 GAIN

Pete Najarian thinks investors should trade alongside Warren Buffet and buy Burlington Northern (BNI) $81.80 Close $83.14 GAIN

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 0-1
Jon Najarian= 3-1
Jeff Macke= 6-4
Tim Seymore= 2-1
Guy Adami= 4-7
Pete Najarian= 3-5
Karen Finerman= 5-4

2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%
Karen Finerman= 40-30 = 57%


Disclosure ("none" means no position):

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52 Week Low's 1/28

(YDNT) Young Innovations Inc
(XPRT ) Lecg Corp
(VTO ) Vitro, Sociedad Anonima
(VNDA) Vanda Pharmaceuticals Inc
(TPTX ) Torreypines Therapeut ...
(THOR ) Thoratec Corp
(TGAL ) Tegal Corp
(SYNP ) Synplicity Inc
(LNCR ) Lincare Holdings Inc
(LIMC ) Limco Piedmont Inc
(IKN ) Ikon Office Solutions Inc
(ICOP ) Icop Digital Inc
(CEBK ) Central Bancorp Inc Mass
(BHO ) B+H Ocean Carriers Ltd.
(AXGU) Atlas Acquisition Hld ...
(ADS ) Alliance Data Systems ...

Disclosure ("none" means no position):

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Target to Blogger: Piss Off...

Target (TGT) may have really stepped in it with this one.

The following article appeared in the NY Times today:

"That was the message the cheap-chic retailer seemed to convey in an abrupt e-mail message to ShapingYouth.org, a blog about the impact of marketing on children. Early this month, the blog’s founder, Amy Jussel, called Target, complaining about a new advertising campaign that depicted a woman splayed across a big target pattern — the retailer’s emblem — with the bull’s-eye at her crotch.

“Targeting crotches with a bull’s-eye is not the message we should be putting out there,” she said in an e-mail interview.

Target offered an e-mail response:

“Unfortunately we are unable to respond to your inquiry because Target does not participate with nontraditional media outlets,” a public relations person wrote to ShapingYouth.

“This practice,” the public relations person added, “is in place to allow us to focus on publications that reach our core guest,” as Target refers to its shoppers.

Word of the exchange quickly spread and the blogosphere did not appreciate the slight. “Target doesn’t participate in new media channels?” asked the Web site for the Word of Mouth Marketing Association. Target “dismisses bloggers” commented the blog for Parents for Ethical Marketing. “Ahem! So bloggers don’t count!” Ms. Jussel chimed in on ShapingYouth.

Could Target, the ever-hip, contemporary retailer, really have such a low opinion of blogs, the ever-hip, contemporary media channel?

Yes, at least for now. “We do not work with bloggers currently,” said a company spokeswoman, Amy von Walter, who agreed to speak with this traditional media outlet.

“But we have made exceptions,” Ms. von Walter said. “And we are reviewing the policy and may adjust it.”

Target’s policy is to focus limited resources on the big media outlets, like television stations and newspapers, which reach large numbers of shoppers. With a small public relations team, she said “we want to make sure we are making an educated decision and we live up to any promises we make, in terms of service.”

So what about the offending ad? Ms. von Walter said the ad — part of a marketing campaign that appeared in sales circulars and a large billboard in Manhattan’s Times Square — depicts a fully-clothed woman making a snow angel. Other ads featured a man skating over the bull’s-eye, she said.

Ms. Jussel, who described herself as a faithful Target shopper, was not impressed. “Any customer deserves a response to a concern, so I found this to be a shortsighted, ill-conceived judgment call,” she said.

Target does not plan to change its ads. "

Now, personally I feel the Target ad is a bit bland compared to any underwear ad out there but that is just me. The larger issue here is Target being so out of touch with its "core audience". Perhaps this is the reason sales are suffering so? Q4 and December's numbers especially were very disappointing and clothing sales, the surest sign of a retailers "hipness" were anemic.

Word lately has had Target scrambling for a new direction in clothing and cutting ties with Isaac Mizrahi, whose design were featured constantly it seemed on Oprah and lead women to the stores in droves.

The big issue hear is not the blogger getting blown off, is there any one of us who hasn't? The massive issue is Target not recognizing the scope and influence of blogs. It is stunning.

There are several companies I write about who have not returned a call of an email and then there are others who call me back almost immediately. If nothing else, the ones who call back can be assured what I write is accurate and do have the chance to give their opinion.

Target really "screwed the pooch" this time

Disclosure ("none" means no position):None

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Monday's Links

More iPhone "fuzzy math", Apple Value, Soros, IRS checks

- Just how many iPhones have been sold in Europe?

- Price always follows value.

- No George, you have it wrong now..

- Efile folks, Efile

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Dow Chemical Earnings: What Matters

Believe it or not, Dow Chemicals (DOW) EPS tomorrow has become secondary.

We know eps will be weak, here is what we really want to know..

There are several questions that need to be answered:
1- What were equity earnings? These are the earnings from Dow's various JV's across the globe. Are they still growing?
2- The dividend. Now it is $1.68 a share for a 4.6% yield. Is it going up?
3- $9 billion. That is the amount Dow is getting from Kuwait for 50% of its commodity business. What is going to happen to it?
4- 2008. What is the outlook? We know the US will be weak but international growth will be strong. How will the JV with Kuwait affect earnings in 2008?
5- What else is in the works? Dow will be sitting on almost $12 billion after the Kuwait transaction, that means a major deal is possible. Could we have a stunning share repurchase of almost 20% of the outstanding shares? That would still leave plenty to do big time deals.
6- How much farther is Dow going to push into the AG business with its seeds division? Will they become an acquirer (DuPont (DD)?) with all their new-found wealth?

Liveris was very coy on CNBC last week when he instructed Becky Quick to "be sure you ask me about our strategy" when she inquired about Dow's businesses. Liveris typically plays it close to the vest and this was an uncharacteristic statement from him.

This would lead me to believe plans are in the works and whatever it is, it is big...

Ought to be interesting tomorrow..

Disclosure ("none" means no position): Long DOW, None

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McDonalds: Another Oustanding Quarter

McDonalds has just enjoyed its 58th consecutive quarter of same store sales growth.

With Starbucks (SBUX) set to report dismal results this week, perhaps execs at the troubled coffee chain can finally admit they missed this one? By the way, going to an 8oz. $1 coffee is not the answer. If you claim to be upscale and want people to think of you that way, going low-scale in price is not the answer. Better service and larger less merchandise crowded locations are.

Back to Mickey-Dees:
-- Global comparable sales increased 6.7%, on top of a 6.3% increase in
2006
-- Growth in consolidated Company-operated and franchised restaurant
margins for the eighth consecutive quarter
-- Consolidated operating income increased 22% (15% in constant
currencies)
-- Earnings per share were $1.06, including $0.33 per share of income tax
benefits. Currency translation benefited earnings by $0.04 per share
-- The Company repurchased over $1.3 billion of its stock


Full year 2007 highlights included:
-- Revenues reached a record high of $22.8 billion on global comparable
sales of 6.8%
-- Company-operated and franchised margins rose by 110 basis points and 80
basis points, respectively
-- The Company returned $5.7 billion to shareholders through shares
repurchased and dividends paid

CEO Jim Skinner announced a change to the dividend structure. "Separately, given the substantial increase to the Company's dividend over the last several years, McDonald's Board of Directors has decided that beginning in 2008, dividends declared will be paid on a quarterly basis. On January 24, 2008, McDonald's Board of Directors declared a dividend for the first quarter of 2008 of $0.375 per share payable on March 17, 2008 to shareholders of record on March 3, 2008. The Board of Directors will continue to review the Company's dividend rate annually each fall."

McDonalds also plans to return $17 billion to shareholders from 2007 to 2009 through both dividends and share repurchases.


Disclosure ("none" means no position): Long McDonalds, None

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Harley Davidson: Bought

Harley Davidson (HOG) reported results Friday and they were as expected, anemic. The guidance for 2008, was, too be honest a bit more rosy than I would have expected.

Here is the nitty gritty:

Fourth-quarter net income fell 26% to $186.1 million, or 78 cents a share, from $252.4 million, or 97 cents a share. Analysts expected earnings of 82 cents a share. Revenue fell 7.7% to $1.39 billion from $1.5 billion a year ago.

For 2008, the company said it expects "moderate" revenue growth and earnings per share growth of 4% to 7%, compared to 2007. The company said for the first quarter of 2008, it expects to ship between 68,000 and 72,000 Harley-Davidson motorcycles, compared to 67,761 units in the first quarter of 2007, and for the year overall it plans to ship fewer motorcycles than it expects dealers to sell.

Financial Services Segment
Harley-Davidson Financial Services (HDFS) reported fourth quarter operating income of $38.6 million, a decrease of $9.1 million or 19.1 percent compared to the year ago quarter. The decrease is primarily due to a $6.4 million write-down of retained securitization interests. HDFS full year operating income was $212.2 million, a 0.7 percent increase over last year's $210.7 million.

Stock Repurchase
The Company repurchased 3.2 million shares of its common stock at a cost of $153.3 million during the fourth quarter of 2007. For the full year 2007, they repurchased 20.4 million shares at a total cost of $1.15 billion. On December 31, 2007, the Company had 238.5 million shares of common stock outstanding.

As of December 31, 2007, there are 23.1 million shares remaining on board-approved share repurchase authorizations. An additional board-approved share repurchase authorization is in place to offset option exercises. This is roughly 10% of outstanding shares.

Cash Flow
Cash and marketable securities totaled $405.3 million as of December 31, 2007. Cash flow from operations was $798.1 million, and capital expenditures were $242.1 million during the full year of 2007. In 2008, capital expenditures are expected to be between $240 and $260 million.

With the US market clearly going to be in the doldrums for at least the first half of 2008, HOG must be seeing very positive trends in international markets.

The stock was down after the news in a flat market. Trading at near 5 year lows and yielding over 3%, there is not much more downside to shares from here.

Time to buy for those who have been waiting. Now, the market has been trading in some wild swings lately and looks on Friday morning to be approaching its first winning week this year so expect a wild ride (inference intended). That being said, we have been waiting since shares approached $70 to buy Harley and the time is now.

We bought on Friday at $38.05 a share

Disclosure ("none" means no position):Long HOG

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Circuit City a Target?

Shares Circuit City (CC) surged over 20% last week on news that Hollywood Entertainment Corp founder Mark Wattles acquired a 6.5% stake.

According to a filing with the SEC, Wattles acquired the stake in Circuit City for "investment purposes and may buy additional shares, encourage the company to enter a merger, or nominate candidates for the board."

Wattles, who owns 32 stores of the Ultimate Electronics Stores chain and his affiliated companies acquired 11 million shares of Circuit City after they met with management, the filing said. This comes on the heals of the Classic Fund Management Aktiengesellschaft, a Liechtenstein-based asset management company, disclosing it holds a 5.7 percent passive stake in Circuit City.

Wattles filed for a “blank check IPO” in December and wanted to raise up to $200 million "to focus on potential acquisition targets in the consumer products and retail industry."

Is Circuit City a good takeover target? Yes, but only if current management is set free to "pursue other opportunities". I have repeatedly written about management's missteps and until it is clear they are gone, any speculation on the chain's recovery because of who owns shares is a total gamble. I have said before CC has a great brand, good stores in great locations but they are just abysmally run.

Different people owning shares will not change that.

Disclosure ("none" means no position): None

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Monday's Upgrades and Downgrades

UPGRADES
Sunpower (SPWR)= Janco Partners Accumulate » Buy
THQ Inc (THQI )=Janco Partners Accumulate » Buy
Elizabeth Arden (RDEN)= Wedbush Morgan Hold » Buy
AVX Corp (AVX)= AmTech Research Sell » Buy
Canadian Natrl Res (CNQ)= CIBC Wrld Mkts Sector Perform » Sector Outperform
XL Capital (XL)= Stifel Nicolaus Hold » Buy
Centurytel (CTL)= Stifel Nicolaus Hold » Buy
Astoria Fincl (AF)= Stifel Nicolaus Sell » Hold
Ctrip.com (CTRP )= Piper Jaffray Neutral » Buy
NYSE Euronext (NYX)= Piper Jaffray Neutral » Buy
Applied Bio (ABI)= Piper Jaffray Neutral » Buy
Sunpower (SPWR)= Piper Jaffray Neutral » Buy
Compuware (CPWR)= Piper Jaffray Neutral » Buy
Assured Guaranty (AGO)= JP Morgan Neutral » Overweight
ATP Oil & Gas (ATPG)= RBC Capital Mkts Underperform » Sector Perform
Co. Paran. de Energ (ELP)= Bear Stearns Peer Perform » Outperform
Cheesecake Factory (CAKE )= Friedman Billings Underperform » Mkt Perform
Methanex (MEOH)= UBS Neutral » Buy
Microchip (MCHP)= Credit Suisse Neutral » Outperform
ChoicePoint (CPS)= Sun Trust Rbsn Humphrey Reduce » Neutral
Emulex (ELX)= Friedman Billings Mkt Perform » Outperform
OmniVision (OVTI)= Robert W. Baird Neutral » Outperform
Textron (TXT)= Citigroup Hold » Buy
Arcelor Mittal (MT)= Citigroup Hold » Buy
Arcelor Mittal (MT)= Deutsche Securities Hold » Buy
Air Tran Holdings (AAI)= JP Morgan Neutral » Overweight
CKX Inc. (CKXE)= Bear Stearns Peer Perform » Outperform
ScanSource (SCSC)= Bear Stearns Underperform » Peer Perform
Tenneco (TEN)= Bear Stearns Underperform » Outperform
Federal Signal (FSS)= KeyBanc Capital Mkts Hold » Buy
Bronco Drilling (BRNC)= Friedman Billings Underperform » Mkt Perform

DOWNGRADES
SunOpta (STKL)= Northland Securities Outperform » Market Perform
Integrated Device (IDTI)= Longbow Buy » Neutral
Integrated Device (IDTI)= Citigroup Buy » Hold
Bronco Drilling (BRNC)= BMO Capital Markets Outperform » Market Perform
Electro Scientific (ESIO)= Brean Murray Buy » Hold
Bancshares Of Florida (BOFL )= Sun Trust Rbsn Humphrey Buy » Neutral
City National (CYN)= Bear Stearns Outperform » Peer Perform
Synovus (SNV)= Keefe Bruyette Outperform » Mkt Perform
Royal Dutch Shell (RDS.A)= JP Morgan Neutral » Underweight
Fairchild Semi (FCS)= Citigroup Buy » Hold
Celera Genomics (CRA)= Piper Jaffray Buy » Neutral
AT&T (T)= Citigroup Buy » Hold
Bronco Drilling (BRNC)= Jefferies & Co Buy » Hold
Frontier Airlines (FRNT)= JP Morgan Overweight » Underweight
Cabot Micro (CCMP)= GARP Research Buy » Neutral
Sonic Foundry (SOFO)= Merriman Curhan Ford Buy » Neutral

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"Fast Money" for Monday

Monday's Picks
Tim Seymour recommends buying Sasol (SSL) $43.11

Guy Adami prefers United Technologies (UTX) $72.75

Karen Finerman likes Golar (GLNG) $17.57

Pete Najarian thinks investors should trade alongside Warren Buffet and buy Burlington Northern (BNI) $81.8

Friday's Results
Tim Seymour likes refiners such as Tesoro (TSO) $39.81 Close $39.29 LOSS

Guy Adami prefers Cisco Systems (CSCO) $25.11 Close $24.22 LOSS

Karen Finerman says get long Goldman Sachs (GS) $199.20 Close $191.37 LOSS

Pete Najarian thinks ConocoPhillips (COP) $74.47 Close $74.13 LOSS

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 0-1
Jon Najarian= 3-1
Jeff Macke= 6-4
Tim Seymore= 2-1
Guy Adami= 4-7
Pete Najarian= 3-5
Karen Finerman= 5-4

2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%
Karen Finerman= 40-30 = 57%

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This Week's Insider Purchases

Goodrich Petroleum Corp (GDP)= $2,244,000
Lions Gate Entertainment Corp (LGF) = $ 1,685,000
Smithfield Foods Inc (SFD)= $ 1,500,000
Arbinet Thexchange Inc (ARBX) = $1,400,000
Biofield Corp (BZET)= $1,299,000
Monsanto Co New (MON) = $ 1,029,000
Ruby Tuesday Inc (RT)= $ 1,026,000

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The Weeks Top Stories at VIN

Here are the top stories this week at Value Investing News

1. The Only Three Financials Worth Owning, Part 1

(via collegeanalysts.com)

Only well-capitalized, conservative, and consistent (sorry, even Goldman doesn't count) are worth owning in that sector. Here are my three favorites, and the first analysis.

2. Michael Mauboussin : ROIC Patterns and Shareholder Returns

(via www.lmcm.com)

Sorting Fundamentals and Expectations

3. I'm No Longer Alone in Retail

(via collegeanalysts.com)

Four retail stocks you wished you owned today - but it's not too late...

4. Why it's fair weather for Fairfax investors

(via www.financialpost.com)

Picking companies to bet on to weather the growing financial crisis in the United States, noted value investor Whitney Tilson appeared on CNBC last week and named just three: McDonald's, Warren Buffet's Berkshire Hathaway, and Canadian financial services conglomerate Fairfax Financial Holdings.

5. Ackman's Letter to Moody's: A Must Read

(via valueplays.blogspot.com)

Ackman's entire letter to Moody's

6. Buffett buys 3% of Swiss Re

(via www.ft.com)

Swiss Re shares surged in on Wednesday morning after the world’s largest reinsurance group said Warren Buffett’s Berkshire Hathaway group had taken a 3 per cent stake as part of a broader business deal.

7. Leucadia Buys More Options on AmeriCredit

(via valueplays.blogspot.com)

An SEC filing late Friday

8. Sandar Biglari Issues Letter to Shareholders of the Steak n Shake Company

(via www.sec.gov)

Biglari issues a letter just before the Steak n Shake earnings conference call on January 24th accusing the leaders of Steak n Shake of destroying shareholder value. This fight is just starting to heat up.

9. How Buffett is playing this market

(via articles.moneycentral.msn.com)

But actions speak louder than words. And Buffett's recent actions provide four key takeaways for investors:

10. Leucadia Ups AmeriCredit Stake to Almost 20%

(via valueplays.blogspot.com)

Time to dig into AmeriCredit

11. Washington Mutual Is Troubled, But Tempting Too

(via money.cnn.com)

"We don't have a better crystal ball as to when mortgage problems will be behind them," Bill Nygren, portfolio manager for the Oakmark Fund, which has extensive holdings in the bank told MarketWatch Thursday. "But when it does, we think that investors will realize the franchise value far exceeds the current stock value."

12. Flagging Sears Plans Shakeup In Latest Bid at Turnaround - WSJ.com

(via online.wsj.com)

Excerpt:" In a fresh effort to halt a long decline, Sears Holdings Corp. Chairman Edward S. Lampert plans to reorganize the 121-year-old retailer into several businesses with broad authority to shape their own future."

13. Whitney Tilson: Strong stomach? Concentrate that portfolio

(via www.ft.com)

As in most subjects relating to money management, there’s a wide diversity of opinion on portfolio concentration versus diversification. Few, of course, would argue for the extremes: owning only one or two stocks invites potential disaster (ask those whose entire retirement portfolio consisted of Lucent or Enron stock), while owning hundreds makes it very difficult to outperform the market.

14. Lampert's Move: Yes Its About Brands

(via valueplays.blogspot.com)

Lampert's move will finally unlock the brand value..

15. Berkshire Files Friday on more BNI Purchases

(via valueplays.blogspot.com)

16. What happens to shareholders’ money at Steak n’ Shake?

(via www.noisefreeinvesting.com)

One picture sums up the current state of affairs. (even investors have a sense of humor)

17. Why banks can’t afford to save the bond insurers

(via www.moneyweek.com)

Rumours of a bail-out for bond insurers gave the Dow Jones a late boost yesterday. But before investors get too excited, they should consider one thing: where's the money going to come from?

18. Dollar's golden era is ending, warns Soros

(via www.telegraph.co.uk)

George Soros said that a recession in both the United States and Britain "will be very difficult to avoid". He was speaking on the fringes of the World Economic Forum summit in Davos, Switzerland, where many of the world's top politicians and businessmen are meeting.

19. Stocks to Buy in '08

(via online.barrons.com)

Barron's Roundtable members Meryl Witmer, Fred Hickey, Art Samberg and Mario Gabelli share their stock picks for 2008.

20. Wall St. Non-Sense

(via mikesnewsletterinvesting.blogspot.com)

Posted about two and a half weeks ago, but the thesis remains true. The three companies, K-Swiss, Sears Holding and Overstock.com are all illogiclly being pushed down well below liquidation value for Sears, below 1/3 of sales for Overstock and almost to 5x fcf for K-Swiss.

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Leucadia Purchases AmeriCredit Shares

In an SEC filing Friday after close, Leucadia (LUK) disclosed the purchase of 975,000 shares of AmeriCredit (ACF) at $11.59 a share.

This brings Leucadia's total holdings to 17,884,300 shares as of 1/23.

The 17,884,300 shares reflects 5,593,100 shares of common stock of the Issuer directly owned by Baldwin Enterprises, Inc. ("Baldwin") and indirectly owned by Phlcorp, Inc. ("Phlcorp") and Leucadia National Corporation ("Leucadia"), the Reporting Persons' obligation to purchase 11,316,200 shares of common stock of the Issuer on February 25, 2008 pursuant to the terms of a share forward transaction.

The agreement between Baldwin and Jefferies & Company, Inc., dated January 11, 2008, and the Reporting Persons' obligation to purchase 975,000 shares of common stock of the Issuer on the earlier of (i) February 15, 2008, and (ii) the termination of all waiting periods applicable to Baldwin under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, pursuant to the terms of a share forward transaction agreement between Baldwin Enterprises, Inc. and Ramius Capital Group, L.L.C. and its affiliates, entered into on January 23, 2008.

Disclosure ("none" means no position): None

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52 Week Low's 1/25

Not much today...
(YDNT)= Young Innovations Inc
(USAK )= USA Truck Inc
(STKL )= Sunopta Inc
(PEBK )= Peoples Bancorp N C Inc
(NSE)= Mexco Energy Corp
(BHO )= B+H Ocean Carriers Ltd.
(BCRX )= BioCryst Pharmaceutic ...
(ALO )= ALPHARMA Inc
(ACET )= Aceto Corporation

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Buffett Donates Shares

In an SEC filing today, Berkshire Hathaway's (BRK.A) Warren Buffett disclosed donations of 3,090 shares of Class B Common Stock to charity.

The donation dates are:
8/28/07= 120 shares
9/5/2007= 1,080 shares
9/14/2007= 805 shares
10/10/2007= 10 shares
10/31/2007= 1,000 shares
12/19/2007= 75 shares

The charity(s)that received the shares were not disclosed.

Disclosure ("none" means no position):None

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4 Million iPhones? Really Steve?

Here is an article that gives serious doubt to Apple's (AAPL) recent numbers.

The full article can be found here:

"The talk among Apple (AAPL) watchers today is Toni Sacconaghi’s dogged pursuit of the 4 million iPhones Steve Jobs claimed to have sold as of Jan. 15, the date of his Macworld keynote speech.

AT&T (T), the iPhone’s exclusive U.S. carrier, reported yesterday that it had activated “just at or just slightly under 2 million” iPhones. That’s quite a discrepancy.

Sacconaghi, Sanford Bernstein’s Apple specialist, did the math and concluded in a report to clients that there are roughly 1.4 million iPhones “missing in action,” either unlocked or sitting in inventory. Assuming that 20% of those iPhones were purchased to be unlocked (a generous assumption given that a jailbreak for the latest iPhone firmware was only released yesterday), he believes that there are at least 650,000 gathering dust somewhere — in warehouses, perhaps, or in closets, as unwanted Christmas presents waiting to be returned.

Here’s how he gets that number:

* 3.75 million iPhones sold as of Dec. 29 (per Apple’s Q1 report)
* minus 2 million iPhones activated through AT&T as of Dec. 31 (per AT&T)
* minus 350,000 iPhones sold in Europe via O2, T-Mobile and Orange
* minus 750,000 iPhones purchased to be unlocked
* equals 650,000 unaccounted for.

Sacconaghi concludes:

This is negative in two ways: (1) it indicates end-user demand for iPhone is lower than many investors may think based on Apple’s sales figure; and (2) it points to slower iPhone sales in the current quarter, since much of this inventory is likely to be drawn down.

Of course, compared to other Apple analysts, Sacconaghi is something of a bear. One day before the Q1 earnings report and the subsequent run on Apple shares, he went out on a limb and predicted that the company would sell only 7 million iPhones in 2008. That’s considerably less than the 10 million target Steve Jobs set — a goal COO Tim Cook said on Tuesday he remained “very confident” they would hit.

Most Apple watchers shared Cook’s confidence, given the 4 million number Jobs had trotted out at Macworld. Today they’re singing a different tune.

“Apple might have a demand problem,” writes Tom Krazit at CNET.

Russell Shaw at ZDNet says the iPhone is at a “crossing the chasm” moment, stuck between early adopters and the mainsteam, and predicts that to survive its price will have to come down to $299 by the end of May at the latest.

Ewan McLeod at the U.K.’s SMS Text News waxes positively elegiac in a post entitled “The Apple iPhone will only ever be a bit player”:

The geeks have all bought one and many have got theirs unlocked. The Nike wearing Soho crowd have splurged the cash. The wannabes and the I-must-have-that crowd have weighed in, swapped networks and got their devices. But that’s it. There’s a ton of people all sitting staring at the iPhone and — SADLY — (this is the bit that’s winding me up), turning their backs and walking away. (link)

This may be premature. A lot could change in the next 50 weeks. New apps. A 16 GB iPhone. A 3G model. New price points. New markets in Canada, Thailand, and maybe even China.

But one thing is certain: having promised and repromised to sell 10 million iPhones in 2008, there will be hell to pay in 2009 if Apple falls even a little bit short."

Has anyone heard this stuff before? I really like the "lower the price to $299" comment. Didn't I say that in May of 2007?

Disclosure ("none" means no position): Sold Apple $280 July calls when stock was at $165

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Friday's Links

Stockmaster's, WSJ, Sprint, "Under The Radar"

- A lot on bloggers "claim" results but these guys document their stuff.

- Good. A free site would have become clogged with ads and junk..

- This is really good news, the house cleaning has begun..

- For those who do not get it (it is free), Seeking Alpha has a great email they end out daily that contains the news you will not hear 10,000 times before lunch. I highly recommend it.

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The Case for Borders

Whitney Tilson was kind enough to send this to me regarding Borders (BGP)

Borders Group (BGP), Kian Ghazi, Hawkshaw, 9/07

Here’s a pitch on Borders…we’ve taken advantage of a significant pull back to ramp the position to one of the larger investments in our fund. We’ve been involved with Borders (BGP) for over a year now. Currently trading at ~$15.50, we believe BGP is worth at least $30/share with scenarios that could make it worth $35-45/share over time. Importantly, our view is in no way predicated on a merger or sale of BGP.


BGP has three divisions: Super Stores, Walden Books and an International Division (primarily UK and Australia). In March 2007, BGP management proposed a turnaround plan for the business that called for the divestiture of the International business, the closing of 250 of 564 Walden locations, and a renewed focus on every operational aspect of the Super Store business. BGP is in the midst of a multi-year capital spending program that has depressed historically strong free cash flows. However, we believe that the capital spending in the areas of inventory systems, store remodels to reduce sq. ft. to music (a major drag on comps the last few years), and development of an online channel represent the proper strategy to allow the Super Stores to generate a 9% EBITDA margin by 2009. This 9% margin is below past peak margins of 9.5-10% achieved as recently as 2004-2005. To generate this margin, one has to believe that the Super Stores can achieve a 2% comp and generate a 28.5% gross margin (vs 29.5% GMs in 2004-2005) as they reduce exposure to music and refine the loyalty program, which was launched in 2006.


BGP also has a significant working capital opportunity in the form of increasing inventory turns. BGP currently turns inventories at 1.6-1.7x vs. competitor Barnes and Noble at >2.5x. This gap represents a ~$500mm opportunity (vs the current EV of $1.3bn using average debt and cash). Importantly generating at least $200mm of this improvement is firmly with management’s control as they redefine current store level inventory management decisions and invest in new IT systems to go along with the recently added new distribution center.

Assuming that BGP can:

1. Get to 9% EBITDA margins in 2009 in its super store segment,
2. Generate $200mm of working capital from improved inventory turns.
3. Sell its International Business for $100mm [~0.2x estimated 2006 revs of assets for sale], and
4. Reduce current capex spending to ~$100mm starting in 2008,


Then:
Applying a 7.5x EBIT multiple to 2009 EBITDA-Maintenance Capex of $250mm (we use $75mm of maintenance capex to be conservative vs. management guidance of ~$50mm) suggests a value of $30 share. We use EBITDA less maintenance capex because depreciation is overstated.


The ~$40/share scenario comes from the possibility that BGP may be able to close the sales productivity gap between it and BKS. The $30 scenario assumes no improvement in relative productivity. However we believe that if BGP management can address the current problems in the business, it will then have a credible operating platform to attempt to address this productivity gap, which we believe is largely driven by BKS’ seasoned loyalty program, superior Starbucks productivity, and higher margin merchandise mix. In addition, a more rationale pricing posture between Borders and Barnes and Noble could dramatically improve the ROIs of both companies.
************************************************************************************

Now, with Ackman pushing his ownership to 18% and his economic stake to 26%, I think it is time to get on board here. These number make sense and are doable. With Pershing on the Board now, one can only assume management will begin to take step to accomplish these metrics.

Disclosure ("none" means no position):None

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Rick Santelli Calls Out Jim Cramer

Priceless...ypu have got to see this..





Adam Warner found this originally and has more commentary on his
site.

Here is another Cramer Classic:



Disclosure ("none" means no position):Agree with Santelli

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Netflix: Video Stores On The Way Out

When you compare Netflix's (NFLX) recent results to those of Blockbuster (BBI), you can only shake your head.

Netflix said Wednesday that its fourth-quarter profit rose 6% as subscribers increased. Net income was $15.8 million, or 24 cents a share for the quarter ended Dec. 31, compared with a profit of $14.9 million, or 21 cents a share a year earlier. Revenue rose to $302.4 million from $277.2 million, an increase of 9%. Subscriber acquisition costs in the quarter were $34.60 per gross add, down from $37.91 in the third quarter.

Analysts were expecting a profit of 14 cents a share on revenue of $301.7 million. Subscribers rose to 7.48 million from 6.32 million a year earlier.

On the conference call CEO Reed Hasting said, "For 2008, we expect to have more net adds than 2007, with a positive factor being less aggressive competition from Blockbuster Online ...."

He continued "Blockbuster Online is still active and still has several million subscribers. While they appear to have shifted to valuing profit over growth, they can change their mind again at any time. We are widening the gap between us however, and any further attack is unlikely to be as painful as their 2005 or 2007 thrusts."


Even he does not expect Blockbuster to get its act together online for the next year

Since December 2005 the subscriber base has grown by 79% to 7.5 million subscribers., revenue has grown by 77% to $1.2 billion and they have nearly doubled free cash flow to $46 million.

It would appear based on ALL evidence to date Netflix took Blockbusters best shot (twice) and has come out the clear victor. Now it is on the the online game. Hastings did say that they are seeing good business from their younger subscribers in downloads and should in 2008, have the downloads ready for the Mac, high-definition DVD players, to game consoles and to dedicated Internet set-top boxes broadening the audience further.

A note: Not once in the entire call did they once mention "getting into the video store game". The reason? It is over...

As a matter of fact, Hastings actually said "Unless video stores are reinvented, it may be that in five years, there are tens of thousands of kiosks, millions of online DVD renters and very few video stores."

I have been saying this since last summer, get rid of the stores Blockbuster!!


Disclosure ("none" means no position): None

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Friday's Upgrades and Downgrades

UPGRADES
St. Jude Medical (STJ)= Stanford Research Hold » Buy
Endo Pharm (END)=P Pacific Growth Equities Neutral » Buy
Informatica (INFA)= Pacific Growth Equities Neutral » Buy
Netflix (NFLX)= Utendahl Under-weight » Equal-weight
Quintana Maritime (QMAR)= Ferris Baker Watts Neutral » Buy
F5 Networks (FFIV)= Ferris Baker Watts Neutral » Buy
ITT Educational (ESI)= Barrington Research Mkt Perform » Outperform
Varian Medical (VAR)= Leerink Swann Mkt Perform » Outperform
Entercom ETM (SMH)= Capital Sell » Neutral
QLT Inc (QLTI)= Caris & Company Average » Above Average
NVE Corp ( NVEC)= Northland Securities Market Perform » Outperform
Intl Paper (IP )= Soleil Hold » Buy
NDS Group (NNDS)= RBC Capital Mkts Outperform » Top Pick
Range Resources (RRC)= BMO Capital Markets Market Perform » Outperform
EOG Resources (EOG)= Citigroup Hold » Buy
Thornburg Mortg (TMA)= Citigroup Sell » Hold
Microchip (MCHP)= Morgan Keegan Mkt Perform » Outperform
Intersil (ISIL)= Morgan Keegan Mkt Perform » Outperform
General Dynamics (GD)= Wachovia Mkt Perform » Outperform
Manhattan Assoc (MANH)= Jefferies & Co Hold » Buy
Cephalon (CEPH)= Soleil Hold » Buy
StatoilHydro (STO)= Citigroup Hold » Buy
Western Digital (WDC)= Deutsche Securities Hold » Buy
McAfee (MFE0= Bear Stearns Peer Perform » Outperform
Human Genome (HGSI)= Bear Stearns Peer Perform » Outperform
Sonus Networks (SONS)= Cantor Fitzgerald Hold » Buy
BioMed Realty (BMR)= Wachovia Mkt Perform » Outperform
Packaging Corp (PKG)= Deutsche Securities Hold » Buy
Repsol SA (REP)= Deutsche Securities Sell » Hold
AmSurg (AMSG)= Lehman Brothers Underweight » Equal-weight
Healthsouth (HLS)= Lehman Brothers Underweight » Overweight
Anglo American (AAUK)= Citigroup Hold » Buy
McAfee (MFE)= Citigroup Hold » Buy
Lifepoint Hospitals (LPNT)= Lehman Brothers Equal-weight » Overweight
Tenet Healthcare (THC)= Lehman Brothers Underweight » Equal-weight
Novacea (NOVC)= Broadpoint Capital Neutral » Buy
Stryker (SYK)= Robert W. Baird Neutral » Outperform
Human Genome (HGSI)= Robert W. Baird Neutral » Outperform
Garmin (GRMN)= Oppenheimer Perform » Outperform
Ametek (AME)= Friedman Billings Mkt Perform » Outperform
NVE Corp (NVEC)= Broadpoint Capital Neutral » Buy
Gilead Sciences (GILD)= Friedman Billings Mkt Perform » Outperform
F5 Networks (FFIV)= Robert W. Baird Neutral » Outperform

DOWNGRADES
Yamana Gold (AUY)= UBS Buy » Neutral
Google (GOOG)= Stanford Research Buy » Hold
THQ Inc (THQI)= Kaufman Bros Buy » Hold
Legg Mason (LM)= Credit Suisse Neutral » Underperform
Hospitality Props (HPT)= Wachovia Outperform » Mkt Perform
Hersha Hospitality Trust (HT)= Wachovia Outperform » Mkt Perform
Strategic Hotels & Resorts (BEE)= Wachovia Outperform » Mkt Perform
Apollo Investment (AINV)= Bear Stearns Outperform » Peer Perform
DuPont (DD)= Oppenheimer Perform » Underperform
Royal Philips Electronics (PHG)= Credit Suisse Neutral » Underperform
Vertex Pharm (VRTX)= Citigroup Buy » Hold
eBay (EBAY)= Citigroup Buy » Hold
Omnicare (OCR)= Lehman Brothers Equal-weight » Underweight
THQ Inc (THQI)= Broadpoint Capital Neutral » Sell
Motorola (MOT) Charter Equity Mkt Perform » Mkt Underperform

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Leucadia Buys More Options on AmeriCredit

In a filing after the close on Thursday, Leucadia (LUK) purchased 10,000 more options on AmeriCredit (ACF).

Leucadia now holds 32,500 contracts for 3.5 million shares. The options are exercisable at $9 a share and expire 3/14/2008

AmeriCredit closed at $12.76 on Thursday.

Disclosure ("none" means no position):

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"Fast Money" for Friday

Friday's Picks
Tim Seymour likes refiners such as Tesoro (TSO) $39.81

Guy Adami prefers Cisco Systems (CSCO) $25.11

Karen Finerman says get long Goldman Sachs (GS) $199.20

Pete Najarian thinks ConocoPhillips (COP) $74.47

Thursday's Results
Jeff Macke recommends buying the Financial Select SPDR (XLF) $27.9 Close $27.91 GAIN

Guy Adami prefers Apple (AAPL) $139.07 Close $135.60 LOSS

Karen Finerman suggests shorting Simon Properties (SPG) $90.19 Close $ 87.80 GAIN

Pete Najarian likes YRC Worldwide (YRCW) $18.72 Close $18.00 LOSS

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 0-1
Jon Najarian= 3-1
Jeff Macke= 6-3
Tim Seymore= 2-1
Guy Adami= 4-6
Pete Najarian= 3-4
Karen Finerman= 5-3

2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%
Karen Finerman= 40-30 = 57%

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Berkshire Still Adding to Burlington Northern Stake

In a recent filing moments ago, Berkshire Hathaway (BRK.A) added shares of Burlington Northern (BNI)

Berkshire bought 10,300 shares through its National Indemnity subsidiary on 1/22 at $75.51, bringing the total number of shares held to 63,785,418

Disclosure ("none" means no position): None

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A Question on Sovereign Wealth Funds

I have yet to get a good answer on this...

Can anyone tell me how Kuwait investing $10 billion in either Citigroup (C), Bank of America (BAC), Merrill Lynch (MER) or Morgan Stanley (MS) and owning in most cases less than 5% of the institution would enable them to enact any more "negative undue influence" than say China holding trillions of dollars of US treasuries gives them the ability to stonewall our goverment on trade, human rights, piracy etc....?

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Another KIVA Loan Payment Received

this is really fun, this means these loans are working for these folks..

From KIVA:
"The business you have loaned to, run by Yusif Musayev, has made a
repayment of $86.00. The total amount repaid is now $86.00. This
repayment will be divided amongst all the lenders who helped to fund
this business, depending upon the percentage each lender contributed."

View Yusif's business here:

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52 Week Low's 1/24

(FIGI )Fortress Intl Group Inc
(DUF ) Duff & Phelps Corp New
(DLX ) Deluxe Corporation
(BLD ) Baldwin Technology Co ...
(ATE ) Advantest Corp
(ALO ) ALPHARMA Inc
(RJF ) Raymond James Financi ...
(PLNR) Planar Systems Inc
(PEBK ) Peoples Bancorp N C Inc
(MXC ) Mexco Energy Corp
(MTSC ) MTS Systems Corporation
(MRCY ) Mercury Computer Sys

Disclosure ("none" means no position):

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Liveris on CNBC: "No Recession in US"

Dow Chemical (DOW) CEO Andrew Liveris told CNBC's Becky Quick this afternoon in an interview "From a trend point of view, we haven't seen anything that reflects a recessionary environment in the United States,".

This is an important proclamation as Liveris's Dow is invloved in virtually every industry in the US and his company is acutely sensitive to conditions here.

He continued, ""We've seen a slowdown that suggests there's a shallow drop, or soft landing ... in the back half of this year, we think there is a chance this slowdown will start reversing as the housing crisis abates."

Regarding US demand decreases for Dow's products he said "It's no more acute now than it was a few months ago. Therefore, the first half (of 2008) I think will be a continuation of this, which suggests that the overall year will be a slower year than last year -- there's no question about that,"

Offsetting the US slowdown will be "A global economy growing at 2.8 to 3 percent is probably the adjustment we are making to annual plans versus a global economy of higher than 3 percent, maybe 3.2 or 3.3," said Liveris.

As he left he reminded Quick to ask him about Dow current strategy after they release results next week. Hmmmm..

Disclosure ("none" means no position): Long DOW

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Thursday's Links

Financials, Blackrock, Retail, iPhone

- Eric makes a good case for financials..

- Sometimes boring is just better..

- James Cullen makes the case for retail stocks (some of them)

- May be just a rumor, or may be the reason for the disappointing projections

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Wachovia's Call: Oustanding

After reading Bank of America's (BAC) and now Wachovia's (WB) earnings call transcripts my optimism for this year for financials is stronger than ever..

Investors have focused on mortgage write-downs. On the call, CEO Thompson address that:
"Golden West acquisition, we looked at the Golden West experience of the early 1990s. At that time, California had 10% unemployment and 20% house price depreciation, and charge-offs peaked in 1994 at 20 basis points. Based on our portfolio today, that 20-basis point peak would translate to about $250 million in charge-offs. Our expectations for the this year are that charge-offs will exceed that historical peak. But even if charge-offs reach three or four times that peak, our Pick-a-Pay portfolio will generate very meaningful bottom-line profits in 2008. And I do not believe that investors grasp that fact today."

Wachovia's second lien home equity portfolio of $32 billion has a delinquency rate that is one quarter as high as the industry and currently has a higher Tier 1 capital ratio at the end of the year than it did at September 30th. The balance sheet should be further enhanced as A.G. Edwards FDIC sweep deposits will also be coming onto their balance sheet over the first three quarters of the year.

They have $4.178 billion of the super senior ABS CDO exposures, hedged with financial guarantees, of which $2.2 billion is hedged with mono-lines and $2 billion with AA-rated financial companies with market caps in excess of $80 billion each.

The Dividend (currently an 8% yield):
Again Thompson "Will Wachovia cut its dividend? And the answer to that question is we have no plans to cut the dividend, because we don't need to cut the dividend. We are confident in our ability to meet our 2008 business plan and that plan, as we have said before, will generate cash earnings that will cover our dividend payments, continue to build necessary credit reserves, improve our capital ratios and support growth in our business lines."

Housing:
Don Truslow - Senior Executive Vice President and Chief Risk Officer
"I hate to forecast just giving what's happening in the housing markets, but I mean I would not be surprised to see the same sort of pace that we have had in the last couple of quarters, for the next couple of quarters."

Earnings:
Wachovia is expecting to earn "in excess" of a dollar per share each quarter for about $4.12 a share total in 2008. The economic expectations they use for that prediction? "Overall, we are thinking it's going to be environment that has GDP growth of somewhere around 2%. We would expect it to be an environment with lower short-term rates and a steepening yield curve and that should be an environment, where can expect good net interest income growth driven by deposit loan growth, wider spreads and the dilution we have taken with the balance sheet."

Conservative..

Wachovia will hit the $4 a share in earnings and when the banks trade around the 12 to 14 times earnings they traditionally do, that equates to a price of $48 to $52 share or 40% to 50% higher than now. Oh yea.. buying today also gives you and 8% yield on your invested funds. Real nice..

Disclosure ("none" means no position): Long Wachovia, None

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Wal-Mart + Russia = Wow

Wal-Mart (WMT), may expand into Russia in the next two years in order to capitalize on a swelling economy and a stunning lack of competitors said UBS AG (UBS) analysts last week.

The bank said, "Open markets and independent grocers generate most Russian retail sales, according to UBS. The country's $145 billion food- retailing industry accounts for almost half of total spending and will expand on average by 17 percent annually through 2010 as rising incomes boost demand for better food".

The country is in its 10th consecutive year of expansion grew 7.6% in 2007, the Economy Ministry said in December, beating a prior forecast of a 6.7% pace. Auto sales in the country may rise 13% this year and surpass deliveries in the U.K.

Because the five largest chains control just 7.4% of sales, compared with 35% in the U.S. and as much as 80 percent in Europe, UBS said the country is "ripe for consolidation".

Wal-Mart will most likely use the JV format it has used in India or enter through acquisitions like it did in Japan. Like China, Russia present a host of difficulties in its bureaucracy, but also offer a stunning opportunity. When one looks at the near 20% annual sales growth of Wal-Mart's international operations, the thought that the rapidly growing Russian market could become part of that has to make shareholders excited.

I have long pushed the need for increased spending on international operation at the expense of domestic ones as the opportunities Wal-Mart has abroad dwarf those at home.

Disclosure ("none" means no position):Long Wal-Mart

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Thursday's Upgrades and Downgrades

UPGRADES
Amcol (ACO)= Wedbush Morgan Hold » Buy
Vistaprint (VPRT)= AmTech Research Sell » Neutral
MeadWestvaco (MWV)= Lehman Brothers Equal-weight » Overweight
Johnson & Johnson (JNJ)= Stanford Research Hold » Buy
Cache (CACH)= Sterne Agee Hold » Buy
Ariba (ARBA)= JP Morgan Underweight » Neutral
Cedar Shopping Centers (CDR)= BMO Capital Markets Market Perform » Outperform
BJ Services (BJS)= JP Morgan Underweight » Neutral
DIRECTV (DTV)= Kaufman Bros Hold » Buy
Apple (AAPL)= Needham & Co Buy » Strong Buy
DuPont (DD)= BB&T Capital Mkts Hold » Buy
Entergy (ETR)= Citigroup Hold » Buy
AK Steel (AKS)= Soleil Sell » Hold
LDK Solar (LDK)= Lazard Capital Sell » Hold
Lincoln National (LNC)= Credit Suisse Neutral » Outperform
FirstEnergy (FE)= Citigroup Hold » Buy
American Electric (AEP)= Citigroup Hold » Buy
Westar Energy (WR)= Citigroup Hold » Buy
PNM Resources (PNM)= Citigroup Hold » Buy
FPL Group (FPL)= Citigroup Hold » Buy
Exelon (EXC)= Citigroup Hold » Buy
DTE Energy (DTE)= Citigroup Hold » Buy
Edison (EIX)= Citigroup Hold » Buy
Alliant Tech (ATK)= Friedman Billings Mkt Perform » Outperform
Plum Creek (PCL)= Lehman Brothers Equal-weight » Overweight
TreeHouse Foods (THS)= JP Morgan Underweight » Neutral
Veolia Environnement (VE)= Brean Murray Hold » Buy
Heartland Express (HTLD)= Wachovia Mkt Perform » Outperform
SAFECO (SAF)= UBS Sell » Neutral
Teekay Shipping (TK)= Jefferies & Co Hold » Buy
Woodward Governor (WGOV)= Robert W. Baird Neutral » Outperform
Novo-Nordisk A/S (NV)O=Bear Stearns Peer Perform » Outperform
Choice Hotels (CHH)= Bear Stearns Underperform » Peer Perform
DISH Network (DISH)= Bear Stearns Underperform » Peer Perform
PetroChina (PTR)= Bear Stearns Peer Perform » Outperform
Union Pacific (UNP)= Bear Stearns Peer Perform » Outperform
Canadian Natl Rail (CNI)= Bear Stearns Peer Perform » Outperform
Burl Nrth Santa Fe (BNI)= Bear Stearns Peer Perform » Outperform
Canadian Solar (CSIQ)= Banc of America Sec Neutral » Buy
Molson Coors Brewing (TAP)= Banc of America Sec Neutral » Buy
Suntech Power (STP)= Banc of America Sec Neutral » Buy
L-3 Comms (LLL)= Friedman Billings Mkt Perform » Outperform
Northrop Grumman (NOC)= Friedman Billings Mkt Perform » Outperform $80 » $84
Kindred Healthcare (KND)= Friedman Billings Underperform » Mkt Perform
Canadian Natrl Res (CNQ)= Friedman Billings Mkt Perform » Outperform
Freeport-McMoRan (FCX)= Friedman Billings Mkt Perform » Outperform
A/S Dam TORM (TRMD)= Jefferies & Co Hold » Buy $43
Knightsbridge Tankers Ltd (VLCCF)= Jefferies & Co Hold » Buy
General Maritime (GMR)= Jefferies & Co Hold » Buy
ExlService (EXLS)= Jefferies & Co Hold » Buy
WNS (WNS)= Jefferies & Co Hold » Buy
DuPont (DD)= Deutsche Securities Hold » Buy
Anglo American (AAUK)= Citigroup Hold » Buy
Wipro (WIT)= JP Morgan Neutral » Overweight
National Fuel Gas (NFG)= Citigroup Sell » Hold
Repsol SA (REP)= Lehman Brothers Equal-weight » Overweight

DOWNGRADES
Peoples Bank (NC) (PEBK)= BB&T Capital Mkts Buy » Hold
Smith & Wesson (SWHC)= Wedbush Morgan Strong Buy » Buy
Qimonda (QI)= AmTech Research Buy » Neutral
Temple-Inland (TIN)= Lehman Brothers Overweight » Equal-weight
Northstar Neuroscience (NSTR)= RBC Capital Mkts Outperform » Underperform
McMoRan Expl (MMR)= Stanford Research Buy » Hold
Apple (AAPL)= Caris & Company Buy » Above Average
Mentor Graphics (MENT)= JP Morgan Neutral » Underweight
Corel (CREL)= JP Morgan Overweight » Underweight
Cadence Design (CDNS)= JP Morgan Overweight » Neutral
Principal Fincl (PFG)= Credit Suisse Neutral » Underperform
AmericanWest Banc (AWBC)= Sandler O'Neill Hold » Sell
PETsMART (PETM)= Wachovia Outperform » Mkt Perform
Texas Instruments (TXN)= Citigroup Buy » Hold
LoJack (LOJN)= Morgan Joseph Buy » Hold
Chemtura (CEM)= KeyBanc Capital Mkts Buy » Hold
Triad Guaranty (TGIC)= Piper Jaffray Buy » Neutral
Glimcher Realty (GRT)= RBC Capital Mkts Outperform » Sector Perform
First Cash (FCFS)= JMP Securities Mkt Outperform » Mkt Perform
First Cash (FCFS)= Jefferies & Co Buy » Hold
Plantronics (PLT)= Robert W. Baird Outperform » Neutral
Millipore (MIL)= UBS Buy » Neutral
Peabody Energy (BTU)= Banc of America Sec Buy » Neutral
Foundation Coal (FCL)= Banc of America Sec Buy » Neutral
Arch Coal (ACI)= Banc of America Sec Buy » Neutral

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"Fast Money" for Thursday

Thursday's Picks
Jeff Macke recommends buying the Financial Select SPDR (XLF) $27.9

Guy Adami prefers Apple (AAPL) $139.07

Karen Finerman suggests shorting Simon Properties (SPG) $90.19

Pete Najarian likes YRC Worldwide (YRCW) $18.72

Wednesday's Results
Jeff Macke recommends getting long the Financial Select Sector SPDR (XLF) $26.05 with a stop out at 25. Close $27.90 GAIN

Guy Adami prefers Wachovia (WB) $31.91 Close $35.82 GAIN

Karen Finerman thinks investors should take a look at Macy's (M) $24.30 Close $25.41 GAIN

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 0-1
Jon Najarian= 3-1
Jeff Macke= 5-3
Tim Seymore= 2-1
Guy Adami= 4-5
Pete Najarian= 3-3
Karen Finerman= 4-3

2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%
Karen Finerman= 40-30 = 57%

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52 Week Low's 1/23

(ZBRA) Zebra Technologies Co ... =$27.80
(YHOO) Yahoo! Inc =$18.98
(VNR ) Vanguard Natural Reso ...=$ 13.69
(VLO ) Valero Energy Corp New =$49.86
(TLF ) Tandy Leather Factory Inc =$2.52
(TKR ) The Timken Company =$26.34
(TINY ) Harris & Harris Group Inc=$ 6.55
(SUG ) Southern Union Company =$25.84
(STO ) Statoilhydro Asa =$24.04
(STKL ) Sunopta Inc =$8.64
(ROK) Rockwell Internationa ...=$ 53.07
(ROG) Rogers Corporation =$31.29
(RIV ) Riviera Holdings Corp ...=$ 17.96
(RHT ) Red Hat Inc =$17.09
(RFMD) Rf Microdevices Inc=$ 2.89
(REP ) Repsol, S.A. =$28.30
(MPR ) Met-Pro Corporation=$ 9.80
(MOT ) Motorola, Inc =$9.56
(GSK ) GlaxoSmithKline plc=$ 47.33
(GRB) Gerber Scientific, Inc =$8.51
(GIFI) Gulf Island Fabricati ... =$25.40
(DELL) Dell Inc =$18.95
(DBD ) Diebold, Incorporated=$ 23.55
(CIEN ) Ciena Corp =$21.83
(CENX ) Century Aluminum Company=$ 39.69
(CEM ) Chemtura Corp =$5.79
(AMGN) Amgen Inc =$44.45
(ALY ) Allis Chalmers Energy Inc=$ 11.21
(ALXA) Alexza Pharmaceutical ... =$6.71
(ALU ) Alcatel-Lucent =$5.61

Disclosure ("none" means no position):

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Wednesday's Links

Bloggers & MSM, Recession?, Bears, 33 things

- Interesting, speaking from experience, I think the number is actually higher.

- Chad Brand makes a great point about the current hysteria.

- Let them pile on, based on history, the more folks that pile into a thesis, the sooner the reverse happens

- This is pretty good

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Apple: Playing Games is Hurting Shareholders

The recent slide in Apple (AAPL) shares can be attributed to one thing: Steve Job's playing games with expectations.

For too long Steve jobs has played games with the guidance he offers investors and analysts. Now it is coming back to haunt shareholders. Here is how it typically goes. Jobs give guidance that he knows is too low and then Apple blows it away and the stock surges. Analysts have relied on those expectations to make their estimates and have traditionally been too low.

Not being idiots, they caught on to the game and have ratcheted their expectations higher than they expect Jobs to "guide them".

A funny thing happened this week. Apple guided analysts lower than what they thought the "low ball" expectation would be. Now, Apple was trading at almost 50 times earnings on Jan. 1 and have lost over 20% in the 23 days since then and look to get slashed about another 10% at the open today. The problem is that people just do not believe what Jobs is telling them.

What if he is finally telling the truth and the guidance is right on? What if iPod sales which are basically flat, despite new products stay that way or decline? iPhone sales in both France and the UK have been disappointing, is there a larger issue? Is this the reason for the lower estimate? What if the analysts have over estimated the expected "beat" Apple will produce next quarter and earnings growth is indeed going to slow? Does Apple expect the consumer slowdown to take a bigger chunk out of sales?

In the current environment, indecision equates to fear and shareholders are suffering.

If you are going to give guidance, conservative is one thing but playing games like Jobs has with it is just wrong because eventually it comes back to bite you. No one can doubt his genius or showmanship, it was hubris that was his downfall once and is hurting him again now.

Does this mean Apple will not beat the lower expectations? No. It does mean that because of Jobs's actions shareholders are in for a real unnecessarily rocky ride..

Disclosure ("none" means no position): Sold July $280 2008 calls on Apple when shares were at $166

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Ackman's Letter to Moody's: A Must Read

Below is a copy of the letter Bill Ackman sent to Moody's rating agency regarding MBIA (MBI) and Ambac (ABK). Marty Whitman can call him what he wants, but the guy knows his stuff.

January 18, 2008

Mr. Raymond McDaniel Mr. Stephen Joynt
Executive Chairman and CEO CEO and President Moody’s Corp. Fitch Ratings
99 Church St. One State Street Plaza
New York, NY 10007 New York, NY 10004

Mr. Deven Sharma
President
Standard & Poor’s
55 Water Street
New York, NY 10041

Re: Bond Insurer Ratings

Ladies and Gentlemen:

As a Nationally Recognized Statistical Rating Organization, Moody’s, S&P, and Fitch have been granted a level of authority that capital market participants and Federal and State regulators have historically relied upon in evaluating the safety and soundness of corporations, regulated financial institutions, and structured finance securities. To state the obvious, because of your critical role in the capital markets, it is essential that the ratings you publish are the result of comprehensive and accurate analysis.

As you well know, we have privately, in meetings and correspondence with you, and publicly in various presentations that we have made, called into question your ratings of the bond insurance industry, in particular, the ratings for MBIA Insurance Corp. and Ambac Assurance Corp. and their holding companies.

Each of you, according to your recent public statements, is in various stages of updating your ratings of the bond insurers. Unfortunately, however, your previous ratings assessments have erred materially in their omission of certain critical analysis and the inclusion of outright errors in your work. As you conduct your most recent revisions of your analysis on the bond insurers, it is vital that you conduct a thorough assessment of all aspects of the bond insurers’ business lines, their reinsurers, and investment portfolios so that the rating decisions that you ultimately publish can be relied upon by capital markets participants.

Below we highlight a number of factors that you have failed to consider in your prior assessments of the bond insurers’ capital adequacy:

1) Impact of Losses Should be Measured on a Pre-tax Basis

We believe that each of you overstates the bond insurers capital cushion due to tax benefits you include in calculating the impact of RMBS and CDO losses. For instance, in S&P’s recent press release update published yesterday, MBIA’s losses on RMBS and CDOs are expressed as “after-tax” losses. In order, therefore, to determine the actual cash losses implied by S&P’s after-tax estimate, one must gross up the reported $3.18 billion of after-tax losses. Assuming a tax rate of 38%, it appears that S&P is estimating MBIA’s actual cash losses at $5.13 billion, nearly $2 billion more than the losses adjusted for tax benefits.

Insurance claims must be paid in cash. A bond insurer is only able to obtain tax benefits if the insurer is a going concern and is able to generate sufficient taxable income in the current or future years to offset the losses from paid insurance claims. Your analysis makes the aggressive assumption that the bond insurers will remain going concerns and will therefore be able to continue to write new premiums and generate income in the future.

Based on recent industry developments – including Berkshire Hathaway’s entrance into the business – it appears unlikely that MBIA, Ambac and many of the other bond insurers will be able to continue as going concerns. In a runoff scenario, we do not believe that the bond insurers will generate sufficient taxable income to offset the net operating losses generated by paid losses. While U.S. corporations can receive tax refunds by carrying back tax losses up to two calendar years, the amounts that could be refunded from carrying back losses are de minimis relative to claims payable. Even in the event the bond insurers generate taxable income in future years, it may be many years before these tax benefits can be realized, if ever, particularly in the event of corporate ownership changes caused by capital raising or stockholder turnover.

Net operating loss carryforwards are not cash and are not available to pay claims and should therefore not be deducted from losses in calculating bond insurer capital adequacy. By using after-tax loss estimates rather than pre-tax losses – the amount that will need to be paid in cash – you are understating the actual losses payable by more than 60%.

Your updated rating assessments should be adjusted to exclude tax benefits in your calculation of capital adequacy

2) Covenant Violations and Loss of Access to Liquidity Facilities

As a result of recent losses, both MBIA and Ambac have triggered covenant violations on their liquidity facilities. As a result, Ambac has lost access to $400 million of funding and MBIA to $500 million of capital. The impact of the loss of these facilities is material to the liquidity profile of the holding companies and their insurance subsidiaries and must be considered in your credit assessment.

3) Loss Estimates Must Incorporate Reinsured Exposures

Your ratings of the bond insurers are based on the bond insurers’ net credit exposures. That is, you reduce their credit exposure by those exposures that have been reinsured. This is best understood by example.

As of September 30, 2007, MBIA has re-insured approximately $80 billion of par value
of its exposures. More than $42 billion of this reinsurance was purchased from Channel Re, a Bermuda- based reinsurer whose only customer is MBIA. The two most senior officers of Channel Re are former executives of MBIA. MBIA owns 17% of the company and has two representatives on Channel Re’s board of directors.

On recent conference calls, Moody’s and S&P have stated that they have not yet updated their ratings of the monoline reinsurers including Channel Re. Earlier this week, on January 16th, Partner Re and Renaissance Re, the majority equity owners of Channel Re, wrote off the entire value of their investments in Channel Re due to losses it has recently incurred that substantially exceed Channel Re’s capital, an impairment that Channel Re’s two majority owners have concluded is “other than temporary.”

Despite the fact that Channel Re has negative book equity and $42 billion of MBIA’s credit exposure – $21.5 billion of which is CDOs of ABS or CLO/CBOs – Moody’s and S&P continue to rate the company Triple A with a stable outlook. Fitch does not rate Channel Re and apparently relies on S&P’s and Moody’s stale Triple A ratings in its
analysis of MBIA’s capital adequacy.

Captive reinsurers whose ratings are not regularly updated offer the potential for abuse.

We believe that MBIA reinsured on a quota share basis 25% of its 2007 CDO transactions with Channel Re. As a result of Moody’s and S&P not updating its ratings of Channel Re, these exposures do not appear on MBIA’s list of exposures and have not been included in your calculation of MBIA’s capital adequacy.

MBIA’s second largest reinsurer is Ram Re which has reinsured $11 billion of par as of September 30, 2007. While the rating agencies have not updated their credit ratings of Ram Re, the market appears to have already done so. The publicly traded stock of Ram Holdings Ltd., the parent company of Ram Re, has declined 92% in the last year. The company currently trades as a penny stock with a market value of $32 million.

We believe that Ram Re is substantially undercapitalized and therefore, like Channel Re, is unlikely to be able to meet its obligations to MBIA.

We also note that MBIA reinsures Ambac, and Ambac reinsures MBIA. You must also consider the iterative impact of downgrades of one on the other with respect to both reinsurance and their respective guarantees of each other’s investment portfolio assets which we discuss further below.

In your updated assessment, it is critical that you update your ratings of the bond insurers’ reinsurers and reconsolidate and calculate the losses on these exposures that have been reinsured with reinsurers that are inadequately capitalized.

4) Investment Portfolios are Riskier Than They Appear

As you are well aware, the investment portfolios of the bond insurers include a substantial amount, often a majority, of bonds that are guaranteed by either the bond insurer itself or by other bond insurers. The bond insurers include these guarantees in calculating the weighted average ratings of their investment portfolios. We note that a minimum average Double A rating is a key rating agency criterion for the insurers’ Triple A rating.

A guaranty to oneself is of course worthless and therefore you should exclude the bond insurers’ guaranty of its own investment obligations and use the underlying ratings of these instruments in determining the portfolios’ credit quality.

You should also carefully calculate the impact of a downgrade of the bonds held by one bond insurer that are guaranteed by other insurers in your calculation of capital adequacy. In light of the general distress in the industry, we believe that the rating agencies should evaluate the bond insurers’ investment portfolios as considered on an underlying rating basis.

5) Commercial Mortgage Backed Securities (CMBS)

To date, you have limited your analysis to RMBS securities and other structured finance securities with exposure to RMBS (CDOs). This limited review of exposures ignores the fact that the same lending practices and flawed incentive schemes that fueled the subprime lending bubble have been very much at work in CMBS and corporate finance.

On January 17, 2008, Fitch commented that it believed that CMBS delinquencies are “likely to double, and perhaps even triple, by the end of 2008.” As of September 30, 2007, MBIA had insured $43 billion net par of CMBS securities, the vast majority of which was underwritten in the past two years. Failing to consider the potential for losses in this portfolio in your calculation of capital adequacy is simply negligent.

6) Claims-Paying Resources Definition Overstates Capital Available to Pay Claims

The rating agencies have adopted the bond insurance industry’s definition of capital in the form of “Claims Paying Resources” or “CPR.” We believe there are significant flaws with the calculation of CPR used by the industry and the rating agencies.

First, bond insurers include the present value of future premiums discounted at extremely low discount rates ~5% in their calculation of claims paying resources. Substantially all of these premiums are from structured finance guarantees. We believe that the bond insurers and the rating agencies do not adequately consider the facts that:

(1) when structured finance obligations default, accelerate, or otherwise prepay ahead of schedule these premiums disappear,
(2) purchasers of secondary market guarantees are likely to terminate their periodic premium payments because of the deteriorating credit quality of the bond insurers,
(3) the reserves for losses on these exposures (for example 12% of premium for MBIA) have proven to be inadequate and therefore overstate the net premium income, and
(4) there is no provision for overhead, remediation, legal or other costs required for the bond insurers to run their business going forward.

There is also no mechanism whereby the bond insurers can borrow against these potential future premiums to be used to pay claims in the present day.

There is no other financial institution in the world which takes the present value of interest spread income on loans in its portfolio and adds it to its capital. For all of the above reasons, we believe that the present value of future premiums should not be included in CPR.

CPR includes the bond insurers’ so-called depression lines of credit. As you well know, depression lines of credit can only be drawn to pay claims on municipal obligations and only after a substantial deductible. In that the losses are occurring primarily on structured finance obligations, these lines of credit should not be included in CPR

The Capital Base included in CPR is also likely to be overstated because the investment assets of the bond insurers consist primarily of bond insurer guaranteed obligations that are valued inclusive of the guarantee, when they should be valued on an unwrapped basis. The high degree of balance sheet leverage for certain bond insurers means that small changes in the values of these portfolios have a large impact on the bond insurers’ capital base.

You should adjust your estimate of CPR for each insurer to reflect the above factors in order to accurately establish the capital available to pay claims.

7) MBIA’s $1 Billion Surplus Note Issuance

Last Friday, MBIA priced an offering of surplus notes at par with a 14% yield. Within one week the notes traded down to the mid-70s and have a yield to call of more than 20%. Previous to their pricing, the notes were rated by Moody’s and S&P at Double A.

The MBIA surplus note issuance is perhaps the clearest example of the failure of the rating agencies to accurately assess the creditworthiness of a bond insurer. MBIA is still rated Triple A by all three raters. The notes received a Double A rating because of their subordination to the other obligations of MBIA Insurance Corporation. That said, how can a billion dollars of Double A rated obligations sell in a cash transaction between sophisticated parties at a 14% yield, and then trade to yield of 20% or more — a rate consistent with a Triple C or near-to-default obligation?

Bank of America 5 ¾% bonds due 2017, obligations of a financial institution that is also rated Double A, closed today at 5.55% yield, a more than 15 percentage point lower rate than the MBIA surplus notes. This is prima facie evidence that your ratings of MBIA are overstated.

8) Billions of MBIA’s CDO Exposure Require Payment on Default

You have stated that bond insurers have no accelerating CDO guarantees and that all of their contracts are structured as “pay-as-you-go.” I quote S&P from a paragraph entitled, “Time is On Their Side,” in their December 19, 2007 report: “Detailed Results of Subprime Stress Test of Financial Guarantors.”

“As for swap exposure, except for ACA there are no collateral posting requirements and swaps are written in pay-as-you-go format.”

On January 9, 2008, MBIA filed a copy of a powerpoint presentation which was used in the Surplus Notes offering road show. On page 8, MBIA states that $8.1 billion of its Multi-sector CDOs require payment with “Credit events as they occur.”

The liquidity demands of accelerating CDO exposure create extreme liquidity risk and must be considered in the context of the bond insurer ratings. We encourage you to examine all of the bond insurers CDS/CDO exposure to determine the amount of exposure that is not pay-as-you-go, but rather accelerates, and consider the liquidity demands of such exposures in your rating assessments.

9) Holding Company Liquidity Risk

In light of recent events, we believe it is likely that most bond insurers will be prevented from upstreaming dividends to their holding companies as a result of regulatory intervention, as regulators work to preserve capital for policyholders.

Most bond insurer holding companies have limited cash, have lost or will lose access to liquidity facilities, and have substantial cash needs for interest payments, operating expenses, and dividends (for so long as they continue to be paid). In addition, bond insurers with substantial investment management or swap operations have additional liquidity needs in the event of a downgrade.

We believe that both MBIA and Ambac have substantial collateral posting obligations in the event of a holding company downgrade. For example, MBIA has $45 billion of derivative obligations at the holding company that relate to currency, interest-rate, and credit default swaps that the holding company has entered into. The combination of volatility in each of these markets and the increased collateral demands required in holding company downgrade scenarios will put a severe strain on holding company
liquidity.

The bond insurers’ muni-GIC business is also a large potential liquidity strain as municipalities withdraw funds from these GIC programs, assets must be liquidated, and/or collateral must be posted. Various MTM programs also create liquidity risk as assets may have to be sold to meet redeeming bondholders. The liquidity risks of these programs and the underlying assets should be carefully examined.

ACA’s immolation is but one example of what happens to a once-investment grade bond insurer which, if downgraded, is required to post collateral.

In addition, as a result of shareholder, bondholder, and/or surplus noteholder litigation, we expect holding company legal expenses and eventual litigation claims to rise substantially. Because the holding companies typically provide indemnities for employees and directors, we would expect that directors would be loathe to allow liquidity to leave the holding company estate, depriving directors and employees of the resources to protect themselves from claims. In these circumstances, we would expect companies to seek bankruptcy as a means to protect the allocation of value among various stakeholders.

10) MBIA - Warburg Pincus Transaction

You have assumed in your analysis that the Warburg Pincus deal and follow-on rights offering are certainties even though neither transaction has closed. While Warburg has made affirmative statements about the transaction, both publicly as well as privately, to surplus note buyers and the media, we believe there continues to be transaction closure risk for both the initial stock purchase and future rights offering, with the rights offering having greater uncertainty.

You have also assumed that 100% of the $1 billion Warburg deal will be downstreamed to the insurance subsidiaries and this, too, is not a certainty. You should receive assurances from MBIA and require it to contribute the full billion dollars to its insurance subsidiaries before you include the funds in calculating insurance company capital.

With the collapse in MBIA’s stock price and today’s downgrade of Ambac, we believe it will be difficult for MBIA to execute the rights offering, particularly before the March 31st, 2008 drop dead date. With the stock at $8.55 per share and the market aware that the $500 million in rights offering proceeds is insufficient to adequately capitalize the company, it will be difficult to set a market-clearing price. Assuming for a moment the price is set at $5.00 per share, the company would have to issue 100 million shares and may sell control to Warburg at a discount in the event shareholders elect not to participate. We believe a shareholder vote and approved registration statement will likely be required in such a circumstance, delaying the ability to consummate the transaction beyond the March 31st Warburg backstop drop dead date.

11) Future Business Prospects and Franchise Value Have Been Irreparably
Destroyed

Following the dramatic decline in share prices, widening of credit protection spreads, dismal performance of the high yield surplus note issuance, and recognition of multibillion dollar losses in a supposed “no-loss” business, the ability of bond insurers to market their “AAA” seal of approval has been permanently undermined. As uncertainty has grown, municipalities have raised capital without insurance and found that they can borrow at attractive rates as compared to historical insured bond issuances.

The entrance of Berkshire Hathaway is a devastating competitive reality that will capture the lion’s share of an already shrinking market for municipal bond insurance. While some commentators have suggested that this might create a pricing umbrella that will benefit the existing bond insurers, this is demonstrably false. Because Berkshire Hathaway already possesses a real Triple A rating, the bonds that are wrapped with its guarantee will trade with a tighter spread when compared to a bond insured by a traditional bond insurer, even one without legacy structured finance exposure.

Consequently, Berkshire will be able to charge higher premiums than the other monolines by taking a higher percentage of the spread (perhaps as much as 80% or more) that is saved through the use of insurance, and still provide the issuer with an overall lower cost of borrowing that if they bought insurance from a traditional monoline. As such, we believe that Berkshire Hathaway will likely quickly reach an 80%-90% market share of municipal bond insurance.

12) Going Concern Opinion

In light of all of the above and other current developments, we believe it will be difficult for MBIA, Ambac, and certain other bond insurers to obtain going concern opinions from their auditors. You should consider the likelihood of the insurers’ obtaining clean opinions and the implications if they do not in your rating assessments.

Lastly I encourage you to ask yourself the following question while looking at your image in the mirror:

Does a company deserve your highest Triple A rating whose stock price has declined 90%, has cut its dividend, is scrambling to raise capital, completed a partial financing at 14% interest (now trading at a 20% yield one week later), has incurred losses massively in excess of its promised zero-loss expectations wiping out more than half of book value, with Berkshire Hathaway as a new competitor, having lost access to its only liquidity facility, and having concealed material information from the marketplace?

Can this possibly make sense?

Please call me if you have any questions about the above. As usual, I will make myself available at your convenience.

Sincerely,

William A. Ackman

Disclosure ("none" means no position): None

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Borders New Board Member: The Details

Here are the details of Richard Mcguire's addition to the Board of Directors of Borders (BGP)

From the SEC filing:
"On January 17, 2008, the Issuer and Richard T. Mcguire, III, a partner of
Pershing Square, entered into the January 17, 2008 Letter Agreement, in
connection with the appointment of Mr. Mcguire to the Board. The January 17,
2008 Letter Agreement provides that it is intended solely for the benefit of the
Issuer and contains a series of undertakings by Mr. Mcguire, Pershing Square,
and the investment funds that Pershing Square advises, including the Pershing
Square Funds, which will be effective while Mr. Mcguire is a director of the
Issuer.

The January 17, 2008 Letter Agreement contains undertakings, including,
among other things, that relate to certain confidentiality and regulatory
issues. The January 17, 2008 Letter Agreement also provides that while Mr.
Mcguire serves on the Board, and for two weeks after notice of his resignation,
Pershing Square and any of the investment funds Pershing Square advises will not
cross the 20% beneficial ownership threshold with respect to the Common Stock,
unless two weeks' prior notice is given to the Issuer of Pershing Square's
intent to do so, and if Pershing Square and the investment funds Pershing Square
advises dispose of their interests in the Common Stock such that they cease to
own at least five percent of the Common Stock, Mr. Mcguire will offer his
resignation to the Board.

This summary of the January 17, 2008 Letter Agreement
is qualified in its entirety by reference to the January 17, 2008 Letter
Agreement, a copy of which is attached hereto as Exhibit 99.1 and is
incorporated herein by reference."

As of January 17, 2008, Pershing had direct ownewrship of 10,597,880 shares of Common Stock (approximately 18.0% of the outstanding shares) and total economic exposure on 15,403,343 shares (approximately 26.2% of the outstanding shares).

Disclosure ("none" means no position): None

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Bank of America's Earnings Call: Eye Opening

There were some things said on the Bank of America (BAC) call that has to make anyone investing in financials feel real good.

Bank of America, trading at just under 9 times 2008's estimated (by the company) earnings ($4 a share), yielding a very safe 6.8% and trading at 1.1 times book value, may be a screaming buy.

Here are some of the notables:

Dividend:
Mike Mayo – Deutsche Bank
"And then lastly, this is not just unique to you, but you intend to raise capital yet the dividend level seems kind of precious to maintain, I just conceptually, why is the dividend so important to maintain when you’re raising so much more capital and your tangible equity ratios at 3.6%?"

Ken Lewis
"Well just because, you know if you’ll think about over a broader term or have a longer term perspective, we’ll get back to the capital levels pretty quickly and return to a more normal state with where we think earnings will go, so it’s just, we think it’s so temporary that that’s a better way to go Mike."

Raise More Capital vs Acquisitions:
Meredith Whitney – Oppenheimer
"Okay, I’m sorry I lied, one last follow up. If you guys look at the option that you have on your CCB ownership and then look at the capital levels that you have now and the opportunities that come about because we are in a distressed market for financials, what’s your priority in terms of securing the capital levels to the 8% or taking advantage of an opportunity that may come about this year? That’s it and I’m done."

Ken Lewis
"It’s a combination Meredith."

On what type of economic growth is going into earnings expectations:
Betsy Graseck – Morgan Stanley
"Okay and just, a little bit bigger picture, what kind of economic environment do you have baked into your tier one ratio outlook?"

Ken Lewis
"Very, very modest growth, virtually none in the first half and then picking up in the third and fourth quarters to possibly get to a 2% growth rate by year end. But very modest growth but not a recession."


While folks are running around screaming about the "death of financials" those very institutions are quietly expecting a modest year. Now when you have catastrophic expectations baked into share prices and get modest results, you can get dramatic share price appreciation. We have heard from Wells Fargo (WFC) and Wachovia (WB) and both are optimistic about 2008.

Somebody is way wrong here...I think the doubters are



Disclosure ("none" means no position): None, Long Wachovia

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Wednesday's Upgrades and Downgrades

UPGRADES
Blackboard (BBBB)= Sun Trust Rbsn Humphrey Neutral » Buy
Openwave (OPWV)= Brean Murray Hold » Buy
QLT Inc (QLTI)= BMO Capital Markets Market Perform » Outperform
Ensign Group (ENSG)= Stifel Nicolaus Hold » Buy
CF Industries (CF)= JP Morgan Neutral » Overweight
NYMEX (NMX)= JP Morgan Neutral » Overweight
Netflix (NFLX)= JP Morgan Underweight » Neutral
Lowe's (LOW)= Bernstein Mkt Perform » Outperform
Kohl's (KSS)= Bernstein Mkt Perform » Outperform
Barrick Gold (ABX)= Credit Suisse Neutral » Outperform
Occam Networks (OCNW)= Merriman Curhan Ford Neutral » Buy

DOWNGRADES
Northstar Neuroscience (NSTR)= Jefferies & Co Buy » Underperform
Cheesecake Factory (CAKE)= MKM Partners Buy » Neutral
Bryn Mawr Bank (BMTC)= FTN Midwest Buy » Neutral
American Equity Investment Life (AEL)= Citigroup Buy » Hold
Mobile TeleSystems (MBT)= Credit Suisse Outperform » Neutral
Penson Worldwide (PNSN)= JP Morgan Overweight » Neutral
Oxford Industries (OXM)= Piper Jaffray Buy » Neutral
American Express (AXP)= Citigroup Buy » Hold
Medco Health Solutions (MHS)= UBS Buy » Neutral
NCI Building Sys (NCS)= UBS Buy » Neutral
Luxottica (LUX)= Lehman Brothers Equal-weight » Underweight
Kendle (KNDL)= Jefferies & Co Buy » Hold
Superior Offshore (DEEP)= Johnson Rice Overweight » Equal Weight
Lululemon Athletica (LULU)= BMO Capital Markets Market Perform » Underperform

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Wachovia is Optimistic

Wachovia's (WB) fourth-quarter net income plummeted 98%, as the company's deteriorating lending portfolio forced it to dramatically increase its loan-loss provision. Anyone surprised?

The Numbers:
* Reported net income of $51 million, or three cents a share, versus $2.3 billion, or $1.20 a share, a year earlier. Excluding items, earnings from continuing operations were 8 cents a share, versus $1.19 a share a year earlier.
* Increased its loan-loss provision to $1.5 billion from $206 million.
* Revenue fell 17% to $7.2 billion amid $1.7 billion in mortgage-related losses.
* Capital-markets business, which includes brokerage and asset-management operations, rose 42% to $350 million.
* Net interest margin, the difference between interest earned on loans and paid on deposits, dropped to 2.88% from 3.09%.

Chairman and Chief Executive Ken Thompson said "The continued turmoil in the capital markets and the dramatic change in the credit environment diminished our fourth quarter results substantially. We took active and prudent steps in the second half of the year to deal with the market disruption and credit deterioration, and we believe this allows us to move forward from a position of strength despite the uncertain economic environment."

Thompson seems much more confident that other banks executives. Bank of America (BAC) Ken Thompson said after todays results were released "We are cautiously optimistic about 2008, though we believe economic growth will be anemic at best in the first half."

Wells Fargo President and CEO John Stumpf said "We expect the environment to remain challenging in 2008, particularly in the consumer sector, but we're as committed as ever to satisfying all our customers' financial needs and believe we have the right strategy and team in place to do just that."

Citigroup (C) CEO Vikrim Pandit said, well, it did not matter what he said because until the bank has a stated direction, no one is listening.

Merrill Lynch's John Thain said, "as I look ahead to 2008, the firm is intensely focused on continuing this momentum and delivering growth and increased profitability for our shareholders and employees." Thain really did not say anything, it just sounds like he did. They all are "focused", what do you expect for results, John.

JP Morgan's (JPM) Jamie Dimon commented, "We remain extremely cautious as we enter 2008. If the economy weakens substantially from here - for which, as a company, we need to be prepared, it will negatively affect business volumes and drive credit costs higher."

So, Thompson is either living in lala land or Wachovia has wrote down assets to ludicrous levels and recognizes that the downside is virtually non existent from here. I am in the "write down" camp. If one listened to Merrill's Thain last week he stated their CDO's are written down to "interest only valuations" which is pennies on the dollar.

Now is the time for them to do it, clear the deck and move forward. The Fed gave them a big boost with the 75 point cut today and more is on the way. This ought to boost margins immediately and may stimulate new business in refinances and new mortgages, both good for banks.

Thompson has put himself out there more than once for 2008. His track record at Wachovia has been a very good one and until that changes, I will figure he has a handle on his bank.

Disclosure ("none" means no position): Long Wachovia, Long Citi, None

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Leucadia Ups Stake in AmeriCredit to Almost 20%

Leucadia (LUK) commit to purchase almost 20% of AmeriCredit (ACF) shares in an SEC filing Tuesday night.

From the filing:
"As of the close of business on the date of this Statement, the
Reporting Persons (Leucadia and its owned entities) may be deemed to beneficially own collectively an aggregate of 22,159,300 shares of Common Stock, representing approximately 19.4% of the shares of Common Stock presently outstanding. All percentages in this Item 5 are based on 114,162,314 shares of Common Stock outstanding as of October 31, 2007, as set forth in the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2007."

What does Leucadia think AmeriCredit may be worth? Consider this nugget:

"Baldwin (Leucadia subsidiary) and Jefferies (broker)have entered into a share forward transaction agreement, dated January 11, 2008, pursuant to which Baldwin will acquire an aggregate of 11,316,200 shares of Common Stock at a price of $12.90 per share on February 25, 2008. Baldwin paid $72,989,490 to Jefferies on January 11, 2008 as a prepayment and will pay an additional $72,989,490 to Jefferies on settlement
of the share forward transaction."

On 1/11 AmerCredit opened at $10.88 and close at $11.99. Leucadia, one of the best value investing firms out there are willing to buy shares at a premium to the market to be able to acquire enough fast enough. It should be noted that the 11.3 million shares are over 2X the daily volume so it would have taken Leucadia significantly longer to accomplish this on the open market. One has to conclude Leucadia has a significantly higher valuation than the $10.28 share trade at today.

Leucadia also used my favorite "acquisition" option strategy, the naked put:

"On December 13, 2007 and December 17, 2007, RCG Sextant and RCG
Enterprise (Leucadia subsidiaries) sold exchange-traded put options underlying Common Stock, pursuant to which they are obligated to purchase, but have no right to acquire, an aggregate of 261,600 shares of Common Stock and 38,400 shares of Common Stock, respectively, at a price of $7.50 per share. The put options are exercisable by their holders at any time prior to their expiration on May 17, 2008. RCG Sextant
and RCG Enterprise received $1.15 for each share of Common Stock covered by the
put options."

AmeriCredit deserves a much closer look...

Disclosure ("none" means no position): None

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"Fast Money" for Wednesday

Wednesday's Picks
Jeff Macke recommends getting long the Financial Select Sector SPDR (XLF) $26.05 with a stop out at 25.

Guy Adami prefers Wachovia (WB) $31.91

Karen Finerman thinks investors should take a look at Macy's (M) $24.30

Tuesday Results

No Picks
2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 0-1
Jon Najarian= 3-1
Jeff Macke= 4-3
Tim Seymore= 2-1
Guy Adami= 3-5
Pete Najarian= 3-3
Karen Finerman= 3-3

2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%
Karen Finerman= 40-30 = 57%


Disclosure ("none" means no position):

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52 Week Low's 1/22

(WYN) Wyndham Worldwide Corp = $20.03
(WYE ) Wyeth =$42.29
(WPZ ) Williams Partners LP= $96.80
(TLGD) Tollgrade Communicati ..=$. 6.74
(TLF ) Tandy Leather Factory Inc =$ 2.60
(SYMC) Symantec Corp =$14.98
(SWWC) Southwest Water Company =$11.00
(SWHC ) Smith & Wesson Hldg Corp =$4.18
(SLE ) Sara Lee Corporation =$14.06
(SJM ) Smucker J M Co =$44.52
(RHT ) Red Hat Inc =$17.65
(RFMD) Rf Microdevices Inc=$ 3.18
(REP ) Repsol, S.A. =$29.93
(PFE ) Pfizer Inc =$22.12
(NYT ) New York Times Company=$ 14.45
(NWS ) News Corp =$19.08
(MNST) Monster Worldwide Inc =$26.56
(LXK ) Lexmark International ... =$ 28.45
(KONA) Kona Grill Inc =$10.22
(KFT ) Kraft Foods Inc =$29.80
(K ) Kellogg Company =$47.59
(HMC) Honda Motor Co., Ltd.=$ 28.78
(HMA ) Health Management Ass .=$. 5.07
(GIS ) General Mills, Inc =$53.07
(DOM) Dominion Resources Bl ..=$ 16.43
(DNN ) Denison Mines Corp =$6.69
(DNB ) Dun & Bradstreet Corp ...=$ 80.93
(DBD ) Diebold, Incorporated =$24.18
(DB ) Deutsche Bank Ag =$111.91
(DAVE) Famous Dave's of Amer ...=$ 9.93
(CPB ) Campbell Soup Company =431.12
(CAKE) The Cheesecake Factor ... =$18.21
(CAG) ConAgra Inc =$21.54


Disclosure ("none" means no position):

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Fed Statement

Here is what the Fed had to say as it cuts rates 75 basis points.

Banks like Wachovia (WB), Bank of America (BAC) are lowering their prime rates today as a results of the surprise Fed cut. Expect Citigroup (C), Wells Fargo (WFC) and others to follow if not later today, then this week.

"The Federal Open Market Committee has decided to lower its target for the federal funds rate 75 basis points to 3-1/2 percent.

The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Eric S. Rosengren; and Kevin M. Warsh. Voting against was William Poole, who did not believe that current conditions justified policy action before the regularly scheduled meeting next week. Absent and not voting was Frederic S. Mishkin.

In a related action, the Board of Governors approved a 75-basis-point decrease in the discount rate to 4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Chicago and Minneapolis."

In early Jan I wrote
"that "nothing cures high prices like high prices". The simple explanation of that is that as prices climb, demand decreases. As milk climbs to $5 a gallon, people buy less of it sand the price falls. As oil climbs to and then past $100 a barrel, people will decrease gas use and the use of products that are affected by the price of oil. That will slow the economy and that slowdown ought to crimp the inflation that seemed to rise in December"

Oil has eased down to $90 a barrel and looks to be heading lower. This is the reason for the outlook that inflation has eased and the flexibility for a big cut. It is a double edged sword as poor growth necessitate the rate cuts that we all love.

Recession? Just talk. We need 6 months of negative growth for one. To date we have not even had one. We are getting way ahead of ourselves with that talk... way ahead...

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Tuesday's Links

Fear, iPhone, Farmers, Judgment

- Chad Brand has a great point about all the "doomsdayers" out there.

- First France's sales are below expectations and now the UK's are...

- The Brazilian farmer is becoming the world's best...

- People make the oddest choices

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KIVA Loan Payment Made

Ada Laura Zumaeta De Toguchi has repaid 17% of her loan..


From KIVA:
The business you have loaned to, run by Ada Laura Zumaeta De Toguchi, has made a repayment of $171.00. The total amount repaid is now $171.00. This repayment will be divided amongst all the lenders who helped to fund this business, depending upon the percentage each lender contributed.

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Get Ready

Hold on tight.....today has the makings of a crazy day..

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Who Will Buy Sprint?

With shares down 61% the last 6 months and a market cap of just $24 billion now, just how long will the nations 3rd largest wireless carrier, Sprint (S) remain independent?

Who would want them? Two main candidates.
Google (GOOG):
Reports are Google is going to bid $4 billion for wireless spectrum in an upcoming auction. At this point and price, why not take Sprint's spectrum and get 54 million subscribers to boot? With the gPhone launching soon, wouldn't a cheap Sprint be the perfect platform? Sprint's main problem is subscriber losses, if current subscribers thought they might get first crack at a new phone, that exodus would if not halt, be severely curtailed.

Google was first rumored to be interested in Sprint when late last year when shares were more than twice their current level and the company sported a near $50 billion market cap. If they are interested, time is wasting. At these levels, a bunch of folks may begin sniffing around.

Comcast (CMCSA):
With both Verizon (VZ) and AT%T (T) encroaching on their cable TV subscribers, would not a tie up between the two be advantageous for both. Comcast would instantly be a player in the wireless game and Sprint would be able to offer wireless services bundled into Comcast's cable subscriptions. Comcast currently sports a $52 billion market cap and could do the deal. Indiviually, Sprint and Comcast cannot offer the breadth of services Verizon and AT&T are, together, they would be a very formidable foe.

Disclosure ("none" means no position): None

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Is Anyone Watching LIBOR?

Lost in all the wailing over Fed funds rate, a stimulus plan, the election, and bank rights off has been perhaps the most important news facing home owners with ARM's.

The LIBOR rate, the interest rate that most adjustable rate mortgages are tied to has fallen from a multi year high of near 6% in early 2007 to a level of 3.9%, the lowest since Sept. 2005.

What this means is that the $385 billion in mortgages tied to it that will reset in 2008 will do so at far lower levels than homeowners were looking at less than a year ago. Of all the news we have been assaulted with in the past three weeks, this news is what really matters most.

While Bernanke has been constantly criticized by stock investors this months, his actions at the Fed ought to be cheered by homeowners. The stabilizing of this market will help all our home values and in turn our stock portfolios.

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Tuesday's Upgrades and Downgrades

UPGRADES
Sprint Nextel (S)= Pali Research Sell » Neutral
Arch Chemicals (ARJ)= Wedbush Morgan Hold » Buy
Advanced Micro (AMD)= AmTech Research Hold » Buy
Perini (PCR)= BMO Capital Markets Market Perform » Outperform
BB&T Corp (BBT)= Keefe Bruyette Underperform » Mkt Perform
Columbus McKinnon (CMCO)= Rodman & Renshaw Mkt Perform » Mkt Outperform
LaserCard (LCRD)= Stanford Research Sell » Hold
Fluor (FLR)= Stanford Research Sell » Hold
KC Southern (KSU)= BMO Capital Markets Market Perform » Outperform
Endo Pharm (ENDP)= Citigroup Sell » Hold
Sealed Air (SEE)= Wachovia Mkt Perform » Outperform
Potash (POT)= Scotia Capital Sector Perform » Sector Outperform
Seagate Tech (STX)= Needham & Co Buy » Strong Buy $33
St. Mary Lnd/Expl (SM)= Sun Trust Rbsn Humphrey Neutral » Buy
Goodrich Petroleum (GDP)= Sun Trust Rbsn Humphrey Neutral » Buy
Bed Bath & Beyond (BBBY)= UBS Neutral » Buy
Staples (SPLS)= UBS Neutral » Buy
Research In Motion( RIMM)= Oppenheimer Perform » Outperform
Cerner (CERN)= Broadpoint Capital Neutral » Buy
Wrigley (WWY)= JP Morgan Neutral » Overweight
priceline.com (PCLN)= Citigroup Hold » Buy
Double Hull Tankers (DHT)= Citigroup Hold » Buy
Brookfield Asset Mngmt (BAM)= Credit Suisse Neutral » Outperform

DOWNGRADES
RPC Inc (RES)= Canaccord Adams Buy » Hold
PNC Bank (PNC)= Ferris Baker Watts Buy » Neutral
Security Capital Assurance (SCA)= Deutsche Securities Buy » Hold
MBIA Inc (MBI)= Deutsche Securities Buy » Hold
AMBAC Fincl (ABK)= Deutsche Securities Buy » Hold
Advanced Life Sciences (ADLS)= Lazard Capital Buy » Hold
AptarGroup (ATR)= Wachovia Outperform » Mkt Perform
Stanley Inc. (SXE)= Cowen & Co Outperform » Neutral
Medco Health Solutions (MHS)= Citigroup Buy » Hold
Express Scripts (ESRX)= Citigroup Buy » Hold
MBIA Inc (MBI)= Citigroup Buy » Hold
AMBAC Fincl (ABK)= Citigroup Buy » Hold
Stryker (SYK)= Piper Jaffray Buy » Neutral
Under Armour (UA)= Wachovia Outperform » Mkt Perform
Zymogenetics (ZGEN)= Oppenheimer Perform » Underperform
PrivateBancorp (PVTB )=Oppenheimer Perform » Underperform
Comerica (CMA)= Friedman Billings Outperform » Mkt Perform
AMBAC Fincl (ABK)= Banc of America Sec Buy » Neutral
Security Capital Assurance (SCA)= Banc of America Sec Buy » Neutral
MBIA Inc (MBI)= Banc of America Sec Buy » Neutral
Royal Philips Electronics (PHG)= Lehman Brothers Overweight » Underweight

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"Fast Money for" Tuesday

Tuesday's Picks (markets closed Monday)

None

Friday's Results
Macke, Adami and Finerman all recommend buying if the market gaps significantly lower at the open in the morning.

For example, if the Dow average .DJIA 12159.21 opens down 200 points that will be a sign of capitulation. Can't track this one.......

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 0-1
Jon Najarian= 3-1
Jeff Macke= 4-3
Tim Seymore= 2-1
Guy Adami= 3-5
Pete Najarian= 3-3
Karen Finerman= 3-3

2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%
Karen Finerman= 40-30 = 57%

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Monday's Liks

Goldman, Snipes, IRS, IRS

- What made them different when it came to mortages?

- Just goes to show you, brains and wealth are not necessarily connected.

- More people are getting audited

- Especially if you are a millionaire

Disclosure ("none" means no position):

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Sears Advertising Now Featuring Brands

Anyone else catch the NFL network today?

All season the shows have been sponsored by Sears (SLHD), the store.

Today, the pre-game show is being sponsored by "Craftsmen, available at Sears". The Craftsmen logo is all over everything..

The commercials, once the "Sears Book" variety are now Kenmore commercials, "available at Sears".

This would lead one the believe Friday's announcement about breaking up Sears into a Berkshire Hathaway (BRK.A) like holding company has been in the works for some time and Sears Holdings is farther ahead of this than many believe.

Ad campaigns are not altered on a dime.


Disclosure ("none" means no position): Long Sears, None

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Sprint: A Good Service Experience?

After blogging about the "shortcomings" of the customer experience being a Sprint (S) subscriber, something really different happened. I had a great experience...

After a recent ice storm both my cell and internet reception was affected. Usually when this happens, I begin to cry because I know what is in store for me. A static filled call to a foreign land with someone who cannot speak or understand the language I speak and seems ill-equipped to handle the problem I have (or any problem that involves me explaining it in English).

Imagine my surprise when I placed the call and the person who answered the phone had a southern accent. I was filled with a joy I had not experienced since the merger between Sprint and Nextel. The person on the phone was pleasant and helpful..

After a transfer to another department and the angst ridden wait on hold as I pondered the astronomical odds of yet another rep that spoke my language, I began to leap for joy as the voice on the phone said as clear as day, "can I help you?".

I explained my problem and they deduced it was a problem with the tower in my area and said they would send a crew to fix it. An hour later it was..

New CEO Dan Hesse has said his first priority is fixing the customer service issues plaguing the company.... so far so good from where I sit, finally.

With both Verizon (VZ) and AT&T (T) still adding customers, this is step one in any turnaround for the company. Last quarter Sprint lost 683,000 "post-paid" subscribers which are the most valuable customers. They have long-term contracts and pay bills each month. This was about three times the 250,000 that the Street estimated they would lose. These losses are especially damaging because those customers probably signed on to one or two year contracts with AT&T and Verizon Wireless and are gone for a while.

While the stock got hammered Friday, was anyone really surprised at those results? Sprint has bee rolling downhill for over a year now. The good news at least for shareholders is that they at least seem to be fixing their largest problem..


Disclosure ("none" means no position): None

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This Week's Dividend Hikes

BNC Bancorp-(BNCN)= 11.1%
Cintas Corp-(CTAS) =17.9%
First Busey Corp-(BUSE) = 11.1%
First Community Corp-(FCCO)= 14.3 %
Intel Corp-(INTC)= 13.3%
Schlumberger Ltd-(SLB)= 20.0%
Linear Technology-(LLTC) = 16.7%

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Lampert's Move: Yes, Its About Brands

Eddie Lampert's move at Sears Holdings (SHLD) on Friday is a big one in unlocking value at the retailer.

In November I stressed that Sears was not so much of a retailer story but a brand one. The general idea was that post and several others was that Lampert would eventually leverage the quality brands he has.

The Wall St. Journal reported Saturday that Lampert is doing just that.

Said the Journal, "A Sears spokesman confirmed the moves late Friday, saying the new structure will provide operating businesses with "greater control, authority and autonomy."

It continued, "The contemplated restructuring would create separate units to manage Sears's real-estate holdings and run brands such as Kenmore, Diehard and Craftsman. It isn't clear how the units would be divided or which unit would run the stores themselves.

The structure would allow Mr. Lampert to spin off or close business units more easily, said a person knowledgeable about his thinking. "He warmed to the idea of a spin-off strategy," this person said. The company also is willing to be flexible about how each unit will be set up, based on the skills of its operating executive. One practical effect of that could be to reduce costs."

He is essentially setting up Sears like Warren Buffett's Berkshire Hathaway (BRK.A).

This is probably the single best thing Lampert could have done. Why? Let's say I am the newly minted head of the Kenmore line. What is my first move? Pick up the phone and call Home Depot (HD) and Lowe's (LOW) and see who want to sell some of the best appliances out there. When I hang up, I tell them they can expect a call from the Craftsmen guy next. Will they license the brands to GE (GE) to expand sales even more?

Will we see Diehard batteries in Wal-Mart's (WMT) or Targets's (TGT) automotive sections soon? How about AutoZone's (AZ)?

With Wal-Mart consistently trying to upgrade it apparel options, could we see either Lands End, Joe Boxer, Covington, Structure or Canyon River Blues on the shelves? With Target looking for refreshed options after a very disappointing holiday season, might they take a stab at it?

The main issue with Sears as it is set up now is that the closing of questionable locations now dramatically impacts sales. If the brands are being sold through other locations, closing and selling stores can have a more positive effect on the bottom line as the sales impact is not nearly as great but the expense reduction is the same.

We know Target has been begging Lampert to sell them hundreds of locations. Could the newly separated real estate management arm rather than selling them become a landlord to Target? Rather than just closing a Kmart location, rent it to Target. In that respect, that division becomes a REIT to the holding company. With 3,500 locations under it, the options are incredible.

The point is that if the main brands that account for the majority of the profits currently are licensed and sold through other outlets, the importance of the physical stores are diminished. It also means that Sears now has more options for the marginal stores it may be carrying now. Sears could keep the best and most profitable locations while disposing of the lesser ones through leases or outright sales and keep merchandise sales and profits going through other retailers.

This is exciting..

Disclosure ("none" means no position): Long Sears, Long Wal-Mart, None in others

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This Week's Insider Buys

Ruby Tuesday Inc (RT)= $4,399,115
Smithfield Foods Inc (SFD)= $4,180,220
Antigenics Inc De (AGEN)= $ 3,912,969
Zhongpin Inc (HOGS)= $ 3,901,573
Hovnanian Enterprises Inc (HOV)= $ 2,060,639
Cheniere Energy Inc (LNG)= $1,830,000
Shoretel Inc (SHOR)= $ 1,278,979
American Capital Strategies Ltd (ACAS)= $1,275,289
Xtl Biopharmaceuticals Ltd (XTLB)= $ 1,262,070
Stein Mart Inc (SMRT)= $1,143,441
Iomega Corp (IOM)= $ 1,111,895

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Top Stories of the Week at Value Investing News

A long weekend so a nice long list. Some really interesting article this week...

Visit Value Investing News here.

1. James Altucher : Manage your anger and spot opportunities

(via www.ft.com)

It's easy to get angry at the markets. And the consequences of doing so can be just as painful. At present, the markets are down horribly on the year. I say "horribly" because the year has just started.

2. Hedge Fund Guru Pabrai Endures Tough Q4 Amid Subprime Crisis

(via biz.yahoo.com)

Mohnish Pabrai, an increasingly well-known investment advisor in the mold of Warren Buffett, got hit hard in the fourth quarter of 2007 as the subprime mortgage crisis wrecked one investment and weighed heavily on another.

3. Berkshire Adds To Burlington Northern Stake

(via valueplays.blogspot.com)

On Monday and Tuesday Berkshire added shares of the railraod

4. Don't Ignore The Assets

(via www.fwallstreet.com)

"There is a school of thought that says that the value of a business is entirely in its future cash flows and that all assets are tools that provide that cash flow. In essence, many people believe that assets and equity should be ignored entirely. Let's look at it from a private owner perspective and follow it up later in the week with an examination of Buffett's early partnership letters:"

5. Workouts Work Out In Down Markets - Part 1

(via www.fwallstreet.com)

"If you've read Mohnish Pabrai's The Dhandho Investor, you"ll likely recall a chapter entitled "Use Arbitrage!" If you"ve been following F Wall Street for a while, you"ll remember (and possibly have made money on) Use Arbitrage! The Tribune Company Example. Why do we say you should use arbitrage? In fact, what is arbitrage and is it a strategy for the faint of heart?"

6. I Like Big Moats and I Cannot Lie

(via www.fool.com)

A nice discussion of "economic moats" and four ways they are created. However, I don't agree that there are only four types of moats. The article missed at least one other type, toll bridges. I'm surprised Sellers didn't mention that one in his article. Are there any others types missing?

7. Kmart Sears Merger - Portfolio.com

(via www.portfolio.com)

Why Eddie Lampert's failing Sears-Kmart experiment could mean trouble for dealmakers everywhere.

8. Bill Ackman on MBIA

(via www.youtube.com)

Ackman discusses why he continues to be short MBIA on Bloomberg TV.

9. Are you a lazy thinker?

(via www.noisefreeinvesting.com)

Few things make more of a difference in investing than thought process. Unlike most competitions, the primary battleground for investing is the mind. Investors must deal with an obstacle course of emotions, psychology, temperament, and other forces acting to overwhelm rational thought.

10. What Does Goldman Know That We Don't?

(via www.bloomberg.com)

Does Goldman Sachs really have a higher intelligence that kept it from falling into to the same subprime trap everyone else on Wall Street fell into? I found this to be a very interesting and well thought out article.

11. Leucadia National bottom fishing in the credit industry ruins

(via www.arohanvalue.com)

Appears that Leucadia National is acquiring about 10% of AmeriCredit, an automotive financing provider. Does this signal that the credit concerns in automotive credit sector are overblown?

12. Financials: The Japanese Want In

(via valueplays.blogspot.com)

Now the Japanese have $10 billion to invest in US banks..

13. Barron's 2008 Roundtable - After the Deluge

(via online.barrons.com)

DON'T LET THESE MOSTLY SMILING FACES fool you. We just as easily could have called the opening installment of the 2008 Roundtable "Before the Deluge"-that is, before the great unwinding of a quarter-century of excesses that our panelists, to a one, predict will set the investment tone for much of this year. Their forecasts for the U.S.

14. Will new contrarianism benefit investors

(via www.commodityonline.com)

John Neff told the world, “It's not always easy to do what's not popular, but that's where you make your money. Buy stocks that look bad to less careful investors and hang on until their real value is recognized.”

15. Should We Abolish the Fed?

(via www.nabloid.com)

Why do we still have the Fed? It has failed us in its mandated goal to stop inflation. Why should a private corporation continue to control our interest rates and money supply? What is the Fed doing to our Dollar?

16. Bill Ackman on Target

(via www.youtube.com)

Ackman discusses why he is still long Target on Bloomberg TV.

17. Nassim Taleb : A focus on the exceptions that prove the rule

(via www.ft.com)

Conventional studies of uncertainty, whether in statistics, economics, finance or social science, have largely stayed close to the so-called “bell curve”, a symmetrical graph that represents a probability distribution.

18. Ackman Increases Target Stake and More Swaps

(via valueplays.blogspot.com)

Bill Ackman sticks to his guns....

19. Todd Sullivan's - ValuePlays: Ackman: Why the Swaps in Borders?

(via valueplays.blogspot.com)

Discussion on Ackman's use of swaps in building his position in Borders.

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Ackman In 3 More Swap Transactions in Borders

Pershing's Bill Ackman just can't get his hands on Borders (BGP) share fast enough.

In an after hours SEC filing Friday, Ackman acquired rights to another 1.064,163 share of Borders. This now gives him an economic interest in approximately 26% of outstanding shares.

Transaction details:
1. The reporting person, for the account of Pershing Square, L.P. ("PSI"), Pershing Square II, L.P. (PSII), and Pershing Square International, Ltd. ("PSIL"), entered into cash-settled total return swaps with a broker-dealer counterparty for a commission equal to $0.03 per notional share subject to such swaps. The first swap (the "First Swap") was entered into on January 17, 2008 and expires on August 5, 2009. Under the terms of the swap (i) PSI is obligated to pay to the counterparty any negative price performance under $9.99 for each of the 438,723 notional BGP common shares subject to the swap (the "First Swap Reference Shares"), plus interest, and (ii) the counterparty is obligated to pay to PSI any positive price performance over $9.99 for each of the First Swap Reference Shares, plus any dividends paid during the life of the swap.
2. The second swap (the "Second Swap") was entered into on January 17, 2008 and expires on August 5, 2009. Under the terms of the swap (i) PSIL is obligated to pay to the counterparty any negative price performance under $9.99 for each of the 619,419 notional BGP common shares subject to the swap (the "Second Swap Reference Shares"), plus interest, and (ii) the counterparty is obligated to pay to PSIL any positive price performance over $9.99 for each of the Second Swap Reference Shares, plus any dividends paid during the life of the swap.
3. The third swap (the "Third Swap") was entered into on January 17, 2008 and expires on August 5, 2009. Under the terms of the swap (i) PSII is obligated to pay to the counterparty any negative price performance under $9.99 for each of the 6,021 notional BGP common shares subject to the swap (the "Third Swap Reference Shares"), plus interest, and (ii) the counterparty is obligated to pay to PSII any positive price performance over $9.99 for each of the Third Swap Reference Shares, plus any dividends paid during the life of the swap.

Disclosure ("none" means no position):None

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Berkshire Still Adding To Burlington Northern Stake

Warren Buffett's Berkshire Hathaway (BRK.A)disclosed it added again to its Burlington Northern (BNI)stake in an SEC filing Friday.

In the filing Friday after market close, Berkshire disclosed it bought 1.2 million more shares of the railroad.

Purchases:
1/16: 44,200 shares @ $76.55
1/17: 205,800 shares @ $77.83
1/18: 996,100 shares at $76.97

This brings Berkshire total holding in the company to 63,775,118 shares

Disclosure ("none" means no position):More admiration, None

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Leucadia Again Buys Options on AmeriCredit

In an SEC filing moments ago Leucadia (LUK) increased its position in AmeriCredit (ACF)

Leucadia purchased options that expire 3/14/08 on 1.25 million Americredit shares.

The options have an exercise price of $9 a share. Leucadia now holds options on 2.25 million shares all exercisable at $9 a share.

Disclosure ("none" means no position): Admiration for Leucadia, None

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