Blockbuster's Kiosk Idea: Doesn't Suck, ButThat's All

At least it is a step away from dvd's in a store. That being said, it is far from an answer to what ails the company.

Dan Frommer had a great review of Blockbuster's (BBI) product:

"Then will it fix Blockbuster's problems? No.

Why not? Because there are very few use cases for a kiosk that rapidly transfers a digital movie to your iPod. It might make sense at the airport, where you can quickly grab a few movies before a long flight. But beyond that, it will rarely be the most convenient way to obtain digital media.

At home, an over-the-Internet movie download like Apple's (AAPL) iTunes, Amazon's (AMZN) Unbox, or Netflix's (NFLX) streaming service makes much more sense -- especially if there's a way to play the movie on your TV. Why would you drive to Blockbuster -- or anywhere -- to download a movie to watch at home when you could do it from your living room?

And on the go, we imagine that over-the-air movie/TV services will develop/mature just as quickly as Blockbuster's kiosks. So they won't help much there, either."

The key here is is still requires me to go somewhere to get a movie. While admittedly it will be great for travel locations, other than that, its use is limited.

The kiosk prototype, which will begin testing within the next three weeks, was developed by NCR Corp. (NCR). For the pilot launch, the kiosks will be compatible only with an Archos portable device. Blockbuster said it plans for the kiosk to be an "open system" and widely compatible with a range of devices. If it does not work with Apple's (AAPL) ipod, it will fail. Folks will not go out and buy another device for this.

Blockbuster's real and lingering problem is its core business, the DVD. Check out this interview with NetFlix (NFLX) CEO Reed Hastings about the new video streaming product.



Netflix is moving on full force into the future, Blockbuster, dipping its toes in the water..still




Disclosure ("none" means no position):None

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ADM Prices Takeover Fund

The pricing of Archer Daniel's (ADM) stock offering is pretty telling. Yes, I know is is not officially a "take over" fund, but, what else do they really need it for?

Archer Daniels Midland announced that it has priced its offering of up to $2 billion of equity units. ADM will issue 35,000,000 equity units with a stated amount of $50 per unit and has granted the underwriters an option to purchase up to 5,000,000 additional equity units to cover over-allotments. The equity units carry a total distribution rate of 6.25%, and the threshold appreciation price of the equity units is $47.83, which represents a premium of approximately 20% over the closing price of ADM's common stock of $39.86 on May 28, 2008.

The equity units will initially consist of a contract to purchase ADM common stock and a 5.0% beneficial ownership interest in a $1,000 principal amount 4.70% debenture due June 1, 2041. Under the purchase contract, holders are required to purchase ADM common stock no later than on June 1, 2011.

With all the discounted equity offering we are seeing in the financial sector at Citi (C), Washington Mutual (WM) and USB (USB), it is refreshing to see an offering at a premium (and a pretty substantial one) to the current price.

The pricing reflects the core strength of ADM's business and its prospects.

The only thing left is to see who they will buy or partner with........



Disclosure ("none" means no position):

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What Goes Into $4 a Gallon Gas? (video)

Interesting stuff........

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The Week's Insider Buys

The week's top insider purchases by dollar amount

Chesapeake Energy Corp (CHK)= $8,197,837
Autonation Inc De (AN)= $8,108,089
U S Auto Parts Network Inc (PRTS)= $5,479,067
Masco Corp (MAS)= $5,373,467
Advance Auto Parts Inc (AAP)= $4,027,086
eLoyalty Corp (ELOY)= $3,643,883
General Electric Co (GE)= $3,519,818
Colonial Bancgroup Inc (CNB)= $3,231,103
Gentek Inc (GETI)= $2,078,775
Extra Space Storage Inc (EXR)= $1,962,000
Flagstar Bancorp Inc (FBC)= $1,866,900
Integramed America Inc (INMD)= $1,790,000
Energy Transfer Equity L P (ETE)= $1,325,946
Prospect Capital Corp (PSEC)= $1,238,194
Liberty Media Corp Capital Group (LCAPA)= $1,219,004
Compass Diversified Holdings (CODI)= $1,112,150
Sepracor Inc (SEPR)= $1,048,000



Disclosure ("none" means no position):

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MBIA & Abmac: Tilson Clarifies Position

Got an email from Whitney Tilson in which he clarified the apparent long position on his 13-F.


"The reason MBIA and Ambac show up as longs in our 13-F is that it can be hard to get the borrow on the short, so when we can get the borrow, we short more than we want, and then buy the stock long to bring the net short position down to the level we want. Then, every time we want to increase our short position, we don't have to get the borrow -- instead, we simply sell down the long position."

Simply put, he adjust the positions portfolio weighting with the long side..

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Whitney Tilson and Bond Insurers (ABK), (MBI): Corrected

In the filing, T2 has a $176 thousand stake in Ambac and $388 thousand in MBIA.

Both are new holdings since the previous filing.

Tilson's clarification:


"The reason MBIA and Ambac show up as longs in our 13-F is that it can be hard to get the borrow on the short, so when we can get the borrow, we short more than we want, and then buy the stock long to bring the net short position down to the level we want. Then, every time we want to increase our short position, we don't have to get the borrow -- instead, we simply sell down the long position."




Disclosure ("none" means no position):None

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Weekend Reading At VIN

The week's best at Value Investing News

1. Magic Formula Weekly Roundup: 5/18 - 5/24

(via www.magicdiligence.com)

Weekly roundup of stocks moving in and out of the Magic Formula screen.

2. The Next Buffetts

(via www.canadianbusiness.com)

This article covers Prem Watsa, Tim McElvaine, Michael Burry, and Ian Cumming as the potential next Buffett's. Hat tip: Controlled Greed.com

3. Jaclyn, A Profitable Going Private Transaction

(via www.fatpitchfinancials.com)

Look at how this value investor made a 33% return in just 49 days for a simple workout. The Jaclyn going private transaction provides a great example of an almost perfect reverse split going private transaction.

4. The Next Buffetts? Maybe. Also, 3 Simple Rules from a Canadian Investor

(via circleofcompetence.blogspot.com)

After finding an the Moneysense article The Next Buffetts though Controlled Greed, I reflected on the superinvestor that is Tim McElvaine.

5. Kimberly Clark Corp (KMB) dividend analysis

(via dividendgrowth.blogspot.com)

Kimberly Clark Corp is a dividend aristocrat as well as a component in S&P 500 index. It has been increasing its dividends for the past 36 consecutive years. KMB has delivered an average total return of 6.60 % annually to its loyal shareholders. over the past 10 years

6. Pepsi Co (PEP) looks attractive

(via dividendgrowth.blogspot.com)

Over the past several weeks the company has traded below 68 on a couple of occasions. I am considering buying some PEP this week, as long as the price is below $68.

7. America's hottest investor: mutual fund manager Ken Heebner - May. 27, 2008

(via money.cnn.com)

The best mutual fund manager around - a.k.a. Ken Heebner of Capital Growth Management - looks restless. He is sitting in a conference room at Goldman Sachs's Boston office, listening to a young analyst pontificate about all the trends he thinks will sweep the markets in coming years. Oil demand outpacing supply. The rapid growth of agriculture. The increased sway of sovereign wealth funds.

8. What’s Chipotle trying to pull here?

(via www.footnoted.org)

Normally, anything filed late on a Friday means that a company is trying to bury something pretty juicy. That’s doubly true when that late Friday filing happens before a holiday weekend when the markets are closed. So you can imagine my surprise to see this 8K filed by Chipotle (CMG) at 5:27 pm on Friday afternoon.

9. Video: Warren Buffett's News Conference in Madrid

(via www.cnbc.com)

Among the topics covered: his continuing effort to get the word to large family-owned businesses that he may be interested in buying if the family needs to sell, the U.S. economy and 'financial weapons of mass destruction.'

10. Jean-Marie Eveillard's Musings On Japanese Equities

(via valetudoinvesting.blogspot.com)

Notes from May conference call at First Eagle

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David Einhorn on Wealth Track

You've got to like Einhorn. 25% a year since 1996.......p

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ValuePlays Most Read Posts for May

Here are the most read posts for May

1- Todd Sullivan's - ValuePlays: Leucadia Releases 13-F: Can you Spell Concentrated Portfolio?

2- Todd Sullivan's - ValuePlays: NetFlix Beats Blockbuster Again (update with video)

3- Todd Sullivan's - ValuePlays: Circuit City On The Bankruptcy Express

4- Todd Sullivan's - ValuePlays: Warren is Everywhere, Why?

5- Todd Sullivan's - ValuePlays: "Complete Turtle Trader" Book Review

6- Todd Sullivan's - ValuePlays: Phillip Morris Int. Tender Offer: Just How Dumb Does TRC Capital Think We Are??!!!??

7- Todd Sullivan's - ValuePlays: Lampert Reports Sallie Mae Stake

8- Todd Sullivan's - ValuePlays: GE to Sell Appliance Unit, Lampert Interested?

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Seth Klarman Buys Borders

More big-time investor are taking stakes in Borders (BGP)

Baupost Group, a hedge fund run by deep value investor Seth Klarman, showed a 8.22% stake in (4,971,600 shares) as of the quarter ended 3/31/08. The firm did not show holdings in Borders at the quarter ended 12/31/07.


Baupost Group manages $7+ billion and has returned approximately 20% annually since its inception. Klarman was in the first group of inductees to Alpha magazine's Hedge Fund Hall of Fame.


Klarman is the author of "Margin of Safety", one of the hardest finance books to track down today. Published in 1991, it is now out of print, and sells on Amazon and Ebay for over $1000. It is even one of the most-stolen library books, making it very difficult to find a copy to read.





Disclosure ("none" means no position):

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Pat Dorsey's "Little Book" Review

I was sent a copy of Pat Dorsey's "Little Book That Builds Wealth" for a review. Loved it.



Dorsey spend the bulk of the book talking about moats. What are they, how to spot them and what do fake ones look like.

Perhaps the most valuable lesson a potential shareholder can learn is what is a business moat and why does it matter.

Dorsey says: "Durable companies- that is, companies that have strong competitive advantages- are more valuable than companies that are at risk from going from hero to zero in a matter of months because they never had much of an advantage over their competition...... Companies with moats are more valuable than those without."

He goes on the tell readers how to identify a and more importantly, how to recognize an advantage that is not enduring but temporary giving potential investors a "false sense of a moat". He give great examples from the dot.com era as evidence of what seemed at the time like an enduring advantage but proved fleeting in the end, leaving shareholders crushed.

Chapters 8 and 9 are the key ones and they talk about "eroding moats" in businesses and how to actually find a business with a moat. In both chapters he gives concrete examples to illustrate what he is talking about.

There are other chapters such as valuation tools, what does management really matter, and when to sell. for me though, all of those chapter are secondary to the identification of a moat in a business. Without that, the other lesson and tools seem to me to be secondary as those calculations, if based on a flawed initial premise mean nothing.

The book is worth reading more than once if for no other reason the lessons in it are so important, it behooves investor to really understand them.

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Sears 10-Q

So, Sears (SHLD) released its 10-Q today and there is nothing really that was not disclosed yesterday save 1 item.

On page 7, there is a $23 million "investment in equity securities" classified as "Level 1 inputs—unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. An active market for the asset or liability is one in which transactions for the asset or liability occur with sufficient frequency and volume to provide ongoing pricing information. "


Here is the filing:

from the annual report, as of Feb. 2 "We purchased 5.3 million shares of common stock of Restoration Hardware, Inc. (“Restoration”), a specialty retailer of hardware, bathware, furniture, lighting, textiles, accessories and gifts during 2007. Our investment of $30 million represents an ownership interest of 13.67% of Restoration’s total outstanding shares."

Based on Restoration's (RSTO) share price on 5/2, the date of the valuation on the 10-Q Sear's still holds its Restoration stake.

It also appears that Sears may end up being able to take their buyout proposal directly to shareholders and the current buyout is being contested in court




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

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Friday's Links

Chou, Obama / McCain, Rachael Ray, Master's

- Need to look into this guy...

- Barak, you just need to avoid this subject... you cannot win here...

- We are officially pathetic

- Always good

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Friday's Upgrades and Downgrades

Upgrades
Bankrate (RATE)- Pacific Growth Equities Neutral » Buy
Autodesk (ADSK)- AmTech Research Neutral » Buy
SunTrust Banks (STI)- Stifel Nicolaus Sell » Hold
Orbitz (OWW)- Stifel Nicolaus Hold » Buy
Expedia (EXPE)- Stifel Nicolaus Hold » Buy
MFA Mortgage (MFA)- Keefe Bruyette Mkt Perform » Outperform
Flagstone Reinsurance (FSR)- Citigroup Hold » Buy
American Axle (AXL)- Deutsche Securities Hold » Buy

Downgrades
Applied Signal (APSG)- BB&T Capital Mkts Buy » Hold
Thor Industries (THO)- Avondale Mkt Outperform » Mkt Perform
Drew Industries (DW)- Avondale Mkt Outperform » Mkt Perform
Colnl BancGrp (CNB)- Janney Mntgmy Scott Buy » Neutral
Men's Wearhouse (MW)- Wedbush Morgan Buy » Hold
CEMEX S.A. (CX)- JP Morgan Overweight » Neutral
Chico's FAS (CHS)- Citigroup Hold » Sell
Shanda Interactive (SNDA)- Citigroup Buy » Hold
Vivus (VVUS)- Wachovia Outperform » Mkt Perform
Juniper Networks (JNPR)- UBS Buy » Neutral

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"Fast Money" for Friday

FRIDAY'S PICKS
Jeff Macke recommends getting long J. Crew (JCG) $46.91

Guy Adami prefers Tesoro (TSO) $23.26

Karen Finerman likes Citigroup (C0 $22.04

Pete Najarian thinks Chesapeake Energy (CHK) $52.31 is a buy.


THURSDAY'S RESULTS
Guy Adami recommends Celgene (CELG) $58.53 CLOSE $60.555 GAIN

Karen Finerman prefers WellPoint (WLP) $55.48 CLOSE $56.55 GAIN

Pete Najarian suggests Amylin (AMLN) $30.98 CLOSE $32.38 GAIN

Jeff Macke thinks Yahoo (YHOO) $27.16 is a sell. CLOSE $27.07 GAIN

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 1-1
Jon Najarian= 4-3
Jeff Macke= 41-34-1
Tim Seymore= 17-14
Guy Adami= 43-36
Pete Najarian= 39-37
Karen Finerman= 38-31-1
Joe Terrenova= 1-3

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

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Lampert ,AutoNation (AN), Another Buy

I finally get to change the disclosure at the end of this now daily post. In a just released SEC filing Sears' (SHLD) Chairman Eddie Lampert upped his AutoNation (AN) stake to 71.245 million shares or 39.9% of the total.

Combined with my purchase of AutoNation shares today, Lampert and I effectively have control of, well, 39.9% and change (small change) of the company giving us a controlling interest in the nations largest auto retailer....

So this is what power feels like...... :)



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

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Ooopps, Gasparino Swears on Air

Nothing to do with investing but go to wonder how this got out....Minute 2:27

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Target's CFO: Why?

I just do not understand, given what has happened to those recently who have opened their mouths, why someone would do this.

Target's (TGT) CFO said earlier this week the company could potentially pay a higher dividend, following an increase to the payout last year. "I clearly think that there's room to increase the dividend," Chief Financial Officer Doug Scovanner said at a conference broadcast on the Internet. But he added: "I do not believe that we are likely to fundamentally alter the dividend yield in any abrupt kind of way."

Last June, Target increased its quarterly dividend by 2 cents per share to 14 cents per common share for a current yield of 1%.

Target has been using excess cash to buy back shares as part of a $10 billion share repurchase plan announced in November after agitation from Bill Ackman. It has said it expects to complete half or more of the stock buyback program by the end of the year.

Why is even talking about a dividend that yield 1%? It is out there now. Because you were ambiguous about it, people will want it increased and will be upset when you do not deliver. Why create an issue over a 56 cent annual payout? Now, admittedly this is not a onerous as a earnings "guarantee" but the fact that hew did not dismiss it, and actually gave it credibility will give it life.

If that is not in the plans, just say so. Dismiss it, put it to bed, and move one. Do not let it linger for people to run with.

Anything short of doubling the dividend keeps it insignificant for shareholders, ignore it. To be honest, they would probably do better by shareholders by scrapping the stupid thing and using the same cash to repurchase shares. I mean 1%?

Think about it. Target will spend about $460 million this year on dividends. At current prices they could use that to repurchase 8.2 million shares of 1% of the outstanding total. I would argue doing that each year would benefit shareholder more than a 1% yield will. Now, as they continue to repurchase the shares, that same money would by incrementally more of the outstanding number on a percentage basis.

There is a reasons that investors like Ackman, Lampert and Berkshire's (BRK.a) Buffett never talk about 1% yields when talking about investing. There are better uses for the cash.



Disclosure ("none" means no position):None

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Q1 GDP Revised ............................ UP!

So, where is that recession?

Not only did we not contract in Q1 like most had thought we would, we actually grew at a faster rate than we had previously been reported.

Gross domestic product rose at a seasonally adjusted 0.9% annual rate January through March, the Commerce Department said in the second estimate of first-quarter GDP. A month ago, Commerce said GDP increased 0.6% in the first quarter.

The best news? Inventories fell in the first quarter instead of rising as reported a month ago. Stockpiles of all goods shrank by $14.4 billion. In the original first-quarter GDP report, Commerce had said inventories January through March rose, up $1.8 billion; that estimate meant a GDP boost of 0.81 percentage point. While the revision led to a smaller GDP boost, it was a positive in a way, indicating businesses weren't sitting on a backlog that could grow in the second quarter, swamp their shelves, and reduce GDP in that April-June period.

Short answer? Lean inventories mean that businesses and consumers are aligned in their purchases and large scale layoffs that would really hurt the economy aren't likely to happen.

Evidence of this can be found today in the jobs report showing that the 4 week moving average for jobless claims actually fell by 2,000. It is going to be real hard to have a recession is unemployment does not rise substantially.

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Buying AutoNation (AN)

After watching value investors dive into the market, time to join them.

Almost exactly a month ago I took a look at AutoNation (AN) and at the time said "I think one could wait until summer to pick up shares at and not pay too much more than today." Shares sat at $15.96 then a today sit at $15.80.

Having just cashed out of our oil (USO) position there are funds laying around for investment. Being hesitant to put more into the retail sector currently, the retail auto sector does look very appealing.

When you have investors like Lampert, Berkshire's (BRK.A) Buffett, Leucadia (LUK) and Wilbur Ross entering the sector, it pays to monitor them.

Why AutoNation then? Back in March CEO Mike Jackson did an interview and here is the jist of it:

Forecasts this year call for about 15.5 million cars to be sold. Now, interesting tidbit. On CNBC, CEO and Chairman Mike Jackson was speaking of running his (or any) business. In the interview he said he runs his business for "a 1,000 year flood". He then said that if auto sales dropped to 10 million units, "a depression" he called it, his business would be "cash flow neutral". That is his basis for decision making.

As a potential investor, this is fantastic news. It simply means that the business will still produce cash even in an almost devastating economic climate. Wonderful...

A positive cash company in the current economic climate makes for tremendous flexibility competitors will not have. Jackson can reduce debt, repurchase shares or expand. In fact, Jackson has reduced share count by 30% the last two years. The repurchases have allowed EPS to stay flat at $1.44 despite the downturn in the auto industry during that time frame.

In the past two years, U.S. auto retail sales have declined 12 percent, Jackson said in early February and he said that economic downturns run in cycles of 30 to 40 months, and the market is currently 24 months into the downswing.

AutoNation's markets in California and Florida, who account for half of new vehicle sales drove down earnings last year. The two states account for 20 percent of industry-wide new vehicle sales.

When things get better, investors ought to see an amplified increase on the other end due to the repurchases. Hold flat in down times and explode up in good ones, very nice.

The demand for auto related items can be found in recent news from auto parts retailers like AutoZone (AZO) and Advanced Auto Parts (AAP) who both reported increased earnings in the latest quarter. The things is, people have to have cars, the demand will always be there and Jackson has built a business that can capitalize on all demand scenarios.

Trading at 9 times earnings AutoNation will be a winner when demand for auto's returns. That, it turns out may be sooner than we think. $4 a gallon gas is already changing people behavior and there just may be a rush to trade in that SUV for something much more affordable on gas. Whether it happens now or year from now, AutoNation currently trades at a multiple that assumes it just may never happen, that is wrong..

What Jackson said today on CNBC clinched it for me:



The guy has his business set to profit no mater what happens. Electric cars? Ok. Hybrids? Sure. SUV? Got 'em. People must have a vehicle and Jackson is there to provide whatever they need from whoever produces it. With his scale it come very close to a toll bridge business. He provides people a necessity that they must replenish fairly often at considerable expense...




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

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Sears' Results and Some Interesting Statements

Sears reported a 43 cent loss (53 cents without items) today vs a $1.15 gain last year. Lousy but not surprising..

Our first quarter results reflect the difficult economic environment and intense competition for consumer business. That said, since May 3, 2008, our sales declines have moderated somewhat,” said W. Bruce Johnson, Sears Holdings’ interim chief executive officer and president. “As a result of actions we have taken and will continue to take to manage our costs, our current forecast for 2008 reflects higher EBITDA than we achieved last year. At the same time we are managing costs, we will continue to invest in our future by hiring talented leaders and improving our online and multi-channel capabilities.”

Cash Position
They had cash and cash equivalents of $1.4 billion at May 3, 2008 (of which $656 million was domestic and $757 million was at Sears Canada) as compared to $3.5 billion at May 5, 2007 and $1.6 billion at February 2, 2008. The $0.2 billion net decline in cash and cash equivalents since the end of fiscal 2007 primarily reflects $517 million of cash used in operating activities, capital expenditures of $178 million and total long-term debt payments (net of new borrowings) of approximately $131 million. These amounts were partially offset by a $646 million increase in short-term borrowings, primarily through borrowing on our $4 billion credit facility. As of this date borrowings on the facility have been reduced to $400 million.

Inventories
Merchandise inventories at May 3, 2008 and May 5, 2007 were $10.3 billion. Domestic inventory levels declined from $9.5 billion at May 5, 2007 to $9.4 billion at May 3, 2008. Sears Canada’s inventory levels increased from $0.8 billion at May 5, 2007 to $0.9 billion at May 3, 2008. The increase in Sears Canada’s inventory is primarily due to the change in exchange rates.

Share repurchases:
The Company also announced today that our Board of Directors has approved the repurchase of up to an additional $500 million of the Company’s common shares. This authorization, when added to the $143 million remaining as of May 3, 2008 under previous authorizations, provides us with a current aggregate authorization of $643 million. Share repurchases may be implemented using a variety of methods, which may include open market purchases, privately negotiated transactions, block trades, accelerated share repurchase transactions, the purchase of call options, the sale of put options or otherwise, or by any combination of such methods. Timing of repurchases is dependent on prevailing market conditions, alternative uses of capital and other factors.

Bruce Johnson added, “We continue to have a strong balance sheet which, when combined with our expected free cash flow generation in 2008, enables us to take steps to invest in our business, consider other alternative investment opportunities, pay down debt, and repurchase our shares.”

Sears repurchased 0.4 million common shares at a total cost of $40 million (or $94.19 per share) under the share repurchase program during the first quarter of fiscal 2008. Since the third quarter of fiscal 2005, when the repurchase plan was first approved, they have repurchased approximately 33.1 million of the common shares at a total cost of $4.4 billion pursuant to the program. As of May 3, 2008, they had approximately 132 million common shares outstanding.

Now the hysterical folks out there will screaming about a loss that ought not be all that surprising. Those of us who invest in the business, look at the balance sheet and cash position and recognize those are a solid as ever. As a mater of fact, when compared to competitors JC Penny (JCP), Kohl's (KSS), Macy's (M) and even Home Depot (HD), Sears has by far the strongest balance sheet. It also is the largest appliance retailer by FAR. Since that category currently is being hit very hard by housing, it only stands to reason that they will suffer more than the others.

The balance sheet is what will position Sears to capitalize when retail finds footing and rebounds. Also, nothing has been said about the brand positioning the company is undertaking.

I will be a tough ride in the near term. The question is "would you be better off as an investor of any of the about companies"? No. Your investment would be impacted the same or worse and of more importance, the balance sheet of the company you are invested in has been more negatively impacted as well.

What to do? Hold on. Maybe we get lucky and be able to get more in the mid 70's. It all comes down to your time frame. If it it years then this is just a blip on the screen and a great buying opportunity. If it is months, then you are panicking and if you invested in a big box retailer for the short term in the current environment, you should be.

It should be noted they are forecasting higher EBITDA than last year (an unusual move) and Johnson said they are going to "consider alternative investments". Something will happen, just a matter of time...




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

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Thursday's Links

Spam, Greenie, Mortgages, Travel

- Still selling

- On my god..... why won't he go away?

- Doesn't stuff like this mean the worst is behind us?

- Will the 4th make it two in a row?

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Leucadia (LUK) Adds To AmeriCredit (ACF) Holdings

Leucadia (LUK), in three transactions added an additional 1.01 million shares of auto finance company AmeriCredit (ACF).

Leucadia now holds 30.347 million of the 115 million shares oustanding.



Disclosure ("none" means no position):None

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Thursday's Upgrades and Downgrades

Upgrades
Medarex (MEDX)- RBC Capital Mkts Underperform » Sector Perform
Midas (MDS)- BB&T Capital Mkts Hold » Buy
WebMD Health (WBMD)- Citigroup Hold » Buy
NVIDIA (NVDA)- JMP Securities Mkt Perform » Mkt Outperform
Frontier Oil (FTO)- Bear Stearns Underperform » Peer Perform
Adobe Systems (ADBE)- Jefferies & Co Underperform » Hold
Amylin Pharms (AMLN)- Lehman Brothers Underweight » Equal-Weight
Progressive (PGR)- Lehman Brothers Underweight » Equal-Weight
Royal Bank of Scotland (RBS)- Credit Suisse Underperform » Neutral
Alaska Comms (ALSK)- Banc of America Sec Neutral » Buy

Downgrades
Iowa Telecom (IWA)- Soleil Buy » Hold
Entercom (ETM)- Stanford Research Buy » Hold
Edenor (EDN)- Citigroup Buy » Hold
Basic Energy Services (BAS)- UBS Buy » Neutral
OmniVision (OVTI)- Oppenheimer Outperform » Perform
Exelon (EXC)- Citigroup Buy » Hold
Lloyds TSB plc (LYG)- Credit Suisse Neutral » Underperform

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Another Day, Another Lampet AutoNation (AN) Buy

Sears' (SHLD) Chairman trough his ESL and RBS Partners hedges funds purchased another 1 million shares of auto retailer AutoNation (AN)


Lampert now holds 70.66 million shares or 39.6% of the total outstanding.




Disclosure ("none" means no position):None

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"Fast Money" for Thursday

THURSDAY'S PICKS
Guy Adami recommends Celgene (CELG) $58.53

Karen Finerman prefers WellPoint (WLP) $55.48

Pete Najarian suggests Amylin (AMLN) $30.98

Jeff Macke thinks Yahoo (YHOO) $27.16 is a sell.


WEDNESDAY'S RESULTS
Jeff Macke likes Border’s Group (BGP) $6.25 because “it was a dollar higher a week ago.” Close $5.80 LOSS

Guy Adami recommends Charter Communications (CHTR) $1.31 on a recent upgrade. Close $1.39 Gain

Karen Finerman suggests Alliance One (AOI) $5.83 but emphasizes that this trade comes with “tons of risk.” Close $5.85 GAIN

Pete Najarian thinks Washington Mutual (WM) $9.5 is an attractive stock in a toxic area. Close $9.40 LOSS

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 1-1
Jon Najarian= 4-3
Jeff Macke= 40-34-1
Tim Seymore= 17-14
Guy Adami= 42-36
Pete Najarian= 38-37
Karen Finerman= 37-31-1
Joe Terrenova= 1-3

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

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Altria, A 5.25% Yield and Double Digit EPS Growth: Nice

Altria Group (MO) reaffirmed its 2008 guidance for adjusted diluted earnings per share from continuing operations in the range of $1.63 to $1.67. This represents a growth rate of approximately 9% to 11% from an adjusted base of $1.50 per share in 2007. "This full-year earnings per share forecast reflects expected stronger earnings per share growth in the second half of this year when compared to the first half," said CEO Micheal Szymanczyk.

“Altria and its operating companies have dedicated employees, strong brands, remarkable cash flows, disciplined financial management, and an increasingly diverse tobacco product portfolio,” Mr. Szymanczyk continued and then said, “I believe that these strengths should enable Altria to deliver consistent annual total shareholder return in excess of 12%.”

Following today's Annual Meeting of Stockholders, Altria's Board of Directors declared a quarterly dividend of $0.29 per common share, payable on July 10, 2008 to stockholders of record as of June 13, 2008. The ex-dividend date is June 11, 2008.

For those of you not very math proficient, that makes a $1.16 annual dividend for a nice very fat 5.25% yield. A 5% (and very safe and growing) yield and double digit earnings growth. Anything not to like? OK, sure tobacco kills but last I checked, Coke (KO) and Pepsi (PEP) were not "healthy for you" and folks have no qualms about investing with them.

Szymanczyk also said, "As the company looks to the future, it has clear recognition of the fact that conventional cigarettes are harmful in society and we'd like to make some progress on improving that situation,". He said he plans on doing that by rapidly expanding the company's line of smokeless products. Szymanczyk said the company already has made a number of modifications to those products based on input from consumers in the test markets (Dallas and Indianapolis). "We're making remarkable progress," he said. "We've learned a lot that will allow us to efficiently develop our products further."




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

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Wilbur Ross on the Economy

Ross is one of the smarter ones out there. Ross talks about housing and oil. If you are in a good mood, don't watch...

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Netflix Pulls Further Ahead of Blockbuster

This is just beautiful......

Netflix (NFLX) CEO Reed Hastings gave a timeline for the company to convert its business to digital distribution: 5 years. After that, he believes the mail-order DVD business will peak and then start to decline.

"We think the by-mail business is very strong but will probably peak in the next five years. Our key challenge is growing earnings per share and subscribers while funding streaming which should give us years of subscriber and earnings expansion."

This comes less than two weeks after the company rolled out its set-top box to good reviews.

The news here is the contrast between two companies. One doggedly hanging on to an outdated business model and being dragged into the current one and another, a pioneer in the current model already looking down the road at the next one.

Rather than buying a heap of problems at Circuit City (CC) and trying to convert its video rental stores in Apple (AAPL) store look-a-likes, Blockbuster ought to be using that energy and the money involved to try to leap ahead of Netflix in the download game. It has not ruined its brand yet and any box that streamed movies into the home would get a try by folks.

But, the longer they wait, the more the current offerings become entrenched with consumers and the harder, and more expensive, changing their behavior becomes.

But hey, Blockbuster will always have the less than 1% of the population that actually still likes going to the video store...


Disclosure ("none" means no position):None

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Andrew Liveris (DOW) on Energy

Best line? "If the US had become as energy efficient as my company has in the last 5 years, it would not be importing a single drop of oil".....Nuff said..

This guy is awesome......will anyone in Congress actually listen? How about this. Rather than bringing the execs from Exxon (XOM) or BP (BP) to the hill for a lecture, how about inviting Liveris there so he can give Congress much needed caning? Think they have the guts to do it? Me either...





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

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Fed Governor Mishkin Resigns" Dodd Stonewalls Nominees

Mishkin, who has been a member of the Board since September 5, 2006, submitted his letter of resignation to President Bush. He will return to the Graduate School of Business at Columbia University as a professor of economics and resume teaching in the fall.

Mishkin, 57, was appointed to the Board by President Bush to fill an unexpired term ending January 31, 2014.

When Mr. Mishkin leaves, the Fed's will have just four governors, making it harder to conduct its business. Board meetings usually need a quorum of four governors, so the absence of just one could interfere with policy decisions and increase the work load on Chairman Ben Bernanke, Vice Chairman Donald Kohn, governor Kevin Warsh and Mr. Randall Kroszner.

The Fed normally has seven governors but currently has only five because Senate Banking Committee Chairman Chris Dodd (D., Conn.) in a typical partisan infantile action has refused to move on White House nominations to those seats. Wonder why we cannot get things done? Mr. Dodd has also refused to even schedule a vote on the nomination of a sitting governor, Randall Kroszner, to a new term. Mr. Kroszner's term has expired under rules is permitted to continue serving until a replacement is sworn in. Terms to the Fed board are 14 years, and members can be appointed to serve unexpired terms.

Essentially, Dodd would rather add to an already strenuous and understaffed situation at the Fed than let the President's nominees even come to a vote. Does Dodd actually wonder why no one thought he might a decent Democratic nominee?

Anyone sitting there complaining why the Fed "isn't getting more done" ought to send their inquiries to Mr. Dodd.

All governors have votes on the interest-rate setting Federal Open Market Committee, along with five of the 12 regional reserve bank presidents. Mr. Mishkin's departure is unlikely to affect voting dynamics on the committee as he has always voted with Mr. Bernanke.

What is does mean is that either Bush or the next President will have a host of vacancies to fill on the Fed

View Resignation Letter

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Borders Results: Bland and Good

Borders posted results last night and ,well, not great, but better than expected in some areas...


Borders posted a loss of 53 cents per share vs a 63 cent loss last year. Same-store sales at Borders U.S. superstores, or sales at stores open at least a year, fell 4.1 percent. Total consolidated sales, at $784.7 million, were down 1.0% over a year ago. At Borders domestic superstores, comparable store sales for the period decreased by 4.1%. Without the impact of music, same-store sales at Borders domestic superstores decreased by 1.7% for the quarter. The music decline was expected as Borders has made the decision to dramatically scale back operations there.

The really encouraging news was that debt was reduced to $591.9 million at the end of the first quarter from $722.8 million at the end of the year-earlier quarter and cash flow improved by $133 million.

"Considering the overall conditions, we were pleased," said CEO George Jones. "The sales environment was tough. We did a much better job managing inventory, we reduced our debt in the quarter by $131 million, and we had a big increase in cash flow."

Why not be discouraged?

The new website just went up a started yesterday. It will be a profit center this year and if you have not been there, it has been done very well.

Here is a video of the new site:




Also, the new store concept has only begun to roll out. Initial reports are very encouraging and given the rate at which they are opening new ones, one can only assume that what management is seeing it likes, a lot.

All in all, modest results and pretty much what one should have expected given the retail environment out there. That being said, one must look 2 quarters out for any real confirmation that the plan is working. By that time more new concept stores will be open so we will have additional evidence on them and the website will be functioning for 6 months, enough time to make preliminary observations on its effectiveness.

All this assume the company is still independent by then..... by no means a certainty




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

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Congress's Incompetance: Now We All Pay

This is not a Democrat or Republican issue. Both have held either the White house or Congress over the last three decades and neither has done anything. Now, we'll pay....

Today, after announcing a 20% price increases Dow Chemical's (DOW) CEO Andrew Liveris sai, "For years, Washington has failed to address the issue of rising energy costs and, as a result, the country now faces a true energy crisis, one that is causing serious harm to America's manufacturing sector and all consumers of energy. The government's failure to develop a comprehensive energy policy is causing U.S. industry to lose ground when it comes to global competitiveness, and our own domestic markets are now starting to see demand destruction throughout the U.S."

Although Government inflation numbers have remained relatively flat, chiefly because producers were not passing along prices increase, we are now seeing the end that phenomena. The are not too many products we consume today that do not contain a product DOW produces. That being said, producers now have the following option, decrease profits or increase prices. Guess what they will choose.

There is another, more unpleasant option. Move. Liveris started this at Dow three years ago and it is the reason they have been able to hold earnings constant despite 42% cost increases. In 2002 feedstock costs for Dow were $8 billion. This year that number is expected to hit $32 billion.

Natural gas has almost tripled and oil has doubled in that time frame. We are going to see an exodus of manufacturing out of the US to nations that offer cheaper input prices. We saw this in the labor markets in the 1990's and the exodus that may begin to happen now will be widespread.

Liveris gave a heads up into what is next...."In addition to these price increases," Liveris said, "the Company is continuing its aggressive cost-control plan internally and is accelerating its existing top-down competitiveness review for all of its businesses and manufacturing facilities in the light of these new feedstock and energy prices." Translation? More US job losses

Liveris saw current events happening three years ago and has railed against Congress during that time frame for a national energy policy. Congress rather than acting has done nothing.

Now, we'll all pay...



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

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Wednesday's Links

Iran, Sirius /XM, Mackey, Foreclosure

- This ought to make you think twice..no?

- This is criminal, make a decision and let people move on, this has been going on for years

- Just shut up and go away

- So, I guess we can expect more laws now?

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Wednesday's Upgrades and Downgrades

Upgrades
NGAS Resources (NGAS)- BMO Capital Markets Market Perform » Outperform
WellPoint (WLP)- BMO Capital Markets Market Perform » Outperform
Polaris Inds (PII)- FTN Midwest Sell » Neutral
AGCO Corp (AG)- Credit Suisse Neutral » Outperform Consolidated Comms Illinois (CNSL)- Credit Suisse Neutral » Outperform
Citizens (CZN)- Credit Suisse Neutral » Outperform
BCE Inc (BCE)- UBS Sell » Neutral
Knight Transportation (KNX)- Wachovia Mkt Perform » Outperform
EnergySouth (ENSI)- Brean Murray Hold » Buy
Newfield Expl (NFX)- KeyBanc Capital Mkts Hold » Buy
LCA Vision (LCAV)- RBC Capital Mkts Underperform » Sector Perform
Grupo Aeroportuario del Pacifico (PAC)- Deutsche Securities Hold » Buy
American Axle (AXL)- Citigroup Hold » Buy


Downgrades
United Comm Banks (UCBI)- Sterne Agee Hold » Sell
Liberty Prop (LRY)- Credit Suisse Neutral » Underperform
Duke Realty (DRE)- Credit Suisse Neutral » Underperform
Borg Warner (BWA)- KeyBanc Capital Mkts Buy » Hold
General Motors (GM)- Citigroup Buy » Hold
Anheuser-Busch (BUD)- Deutsche Securities Buy » Hold
BRT Realty Trust (BRT)- Friedman Billings Mkt Perform » Underperform

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Archer Daniel's Midland (ADM): Something Brewing?

Two billion dollars is a lot of cash for "general corporate purchases". Sounds more like it is for a "investment in long term opportunity".

Archer Daniels Midland Company (ADM) today announced that it plans to offer and sell, subject to market and other conditions, 35,000,000 equity units and to grant the underwriters an option to purchase 5,000,000 additional equity units to cover over-allotments. Each equity unit has a stated amount of $50, for a possible aggregate offering amount of $2 billion if the underwriters exercise their over-allotment option in full.

The equity units will initially consist of a contract to purchase ADM common stock and a 5.0% beneficial ownership interest in a $1,000 principal amount debenture due June 1, 2041. Under the purchase contract, holders are required to purchase ADM common stock no later than on June 1, 2011. ADM intends to use substantially all of the net proceeds from this offering for general corporate purposes, including repayment of short-term indebtedness and investment in long-term growth opportunities.

I have wrote in the past about possible ADM targets, the latest being this one about a possible Cuban investment. ADM has been pretty upfront about its desire to expand it capacity in other nations with lower feedstock costs.

One would have to pretty naive to think that a $2 billion capital raising was for anything but.

What will be really interesting is not the "are they or aren't they" question but the "where" they decide to do it. My guess is they will be taking a trip south........ outside of our borders...

Companies like Pacific Ethanol (PEIX) and Verasun (VSE) are not cheap by any means. Given their current predicaments, share price aside I would be shocked if ADM expressed interst. The most diversified of the bunch, The Andersons (ANDE) most likely has no interest in being sold. That leave Cuba and Brazil as the most likely targets...

Just popping into my head....maybe a rail investment? ADM already has extensive rail operations and is a huge user of the industry, maybe buying into it and profiting with it would help?

Either way, gonna be fun...



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

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Lampert Continues AutoNation (AN) Buying Binge

Another week, another post on Sears' (SHLD) Chairman buying AutoNation (AN) shares.

Lampert added over 500,000 shares bringing his ownership to 69.6 million shares or 38.9% of the total outstanding.



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

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Leucadia (LUK) Purchases Another 1m Plus Jefferies (JEF) Shares

In three seperate transaction, Leucadia (LUK) added an additional 1.4 million shares of investment bank Jefferies (JEF).

The purchases bring Leucadia's ownership to 48.585 million shares



Disclosure ("none" means no position):None

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"Fast Money" for Wednesday

Jeff Macke likes Border’s Group (BGP) $6.25 because “it was a dollar higher a week ago.”

Guy Adami recommends Charter Communications (CHTR) $1.31 on a recent upgrade.

Karen Finerman suggests Alliance One (AOI) $5.83 but emphasizes that this trade comes with “tons of risk.”

Pete Najarian thinks Washington Mutual (WM) $9.5 is an attractive stock in a toxic area.

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 1-1
Jon Najarian= 4-3
Jeff Macke= 40-33-1
Tim Seymore= 17-14
Guy Adami= 41-36
Pete Najarian= 38-36
Karen Finerman= 36-31-1
Joe Terrenova= 1-3

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




Disclosure ("none" means no position):

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Burnett's Disdain for Lampert on Display Again.....Why?

It has been 6 months since I first posted on this. Does anyone know what Sears Holdings (SHLD) Eddie Lampert did to CNBC's Erin Burnett? Watch below..




Now, I have never seem a "anchor" with such a snotty almost giddy reaction to a company or its head at news that is less than wonderful. Now, had Lampert been convicted of inside trading or fraud, it would be one thing and more than justified. But, Lampert has done nothing wrong except make shareholders very wealthy. Yes, despite the stock's recent fall, those who invested with him 4 years ago are still way ahead and he has an almost unmatched track record.

Does anyone know the back-history here?

I have yet to see or find and example where Burnett has reported on any of Lampert's investing successes. Anyone?



Disclosure ("none" means no position):Long SHLD.

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Oil: A Sale and a Discussion

First, I sold my Oil (USO) long today, 140% in 16 months is just fine. Second, watch this discussion on oil.

The thing that strikes me is that even the "pro's" cannot agree on the "what's and why's" of current events.






Disclosure ("none" means no position):None

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Borders.com Goes Live

Borders (BGP) has turned on its website today after a seven year absence.

The central feature at Borders.com is called the "Magic Shelf". Borders says the shelf captures the essence of shopping in one of its stores. Books are placed cover out and side by side on the shelf. Shoppers can move up or down and from side to side. Roll the cursor over a book and a box with details about it pops up. The shelf can be customized by the user and can show 20 shelves of titles and offers "just for you" picks based on past purchases.

"We wanted a real bookstore online," said Kevin Ertell, senior vice president for e-business at Borders, in an interview with the Free Press last week. "What we did to capture that bookstore feel was putting the Magic Shelf on the sign-in page." It is a unique feature and one that ought to lead to more sales.

Borders.com offers free shipping on some orders over $25 and also offers free shipping to its stores, where shoppers will be able to pick up a box containing their order about two days after buying. Ertell says the company expects this option to be popular in urban areas, for example, where people might not want a package left outside their home.

CEO George Jones expects the site to be profitable in 2009.
Q1 earnings will be released later today and the Q1 earnings call is tomorrow am.



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

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Tuesday's Links

Cramer, CBNC vs FOX. Icahn, OC vs USG

- spammer

- Jeff, the way to handle the competition is to ignore them if they are indeed so insignificant. By engaging them, you validate them, no mater what you sa

- Icahn is great.... he says what he thinks

- It isn't a "which one", it is a "buy both"

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Tuesday's Upgrades and Downgrades

Upgrades
Netease.com (NTES)- Pali Research Neutral » Buy
Dick's Sporting Goods (DKS)- UBS Neutral » Buy
EW Scripps (SSP)- Bear Stearns Peer Perform » Outperform
National Semi (NSM)- Deutsche Securities Hold » Buy

Downgrades
GTX (GTXI)- Cowen & Co Outperform » Neutral
Del Monte (DLM)- Longbow Neutral » Sell
Hansen Medical (HNSN)- Needham Buy » Hold
Brinker (EAT)- Stifel Nicolaus Hold » Sell
US Airways (LCC)- Credit Suisse Outperform » Underperform
Harte-Hanks (HHS)- Bear Stearns Outperform » Peer Perform
Pacific Sunwear (PSUN)- Piper Jaffray Buy » Neutral
Nalco (NLC)- JP Morgan Neutral » Underweight
Nordson (NDSN)- Jefferies & Co Buy » Hold
Alkermes (ALKS)- Robert W. Baird Outperform » Neutral
Linear Tech (LLTC)- Deutsche Securities Buy » Hold

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Biglari Adds to Steak n' Shake (SNS) Holdings

Just a week after adding 35,000 shares of Steak n' shake (SNS) Sardar Biglari is at it again.

He purchased an additional 46,000 share last week at prices between $6.71 and $6.82 a share bring is total ownership to 2.489 million shares or 8.7% of the outstanding total
of 28.71 million shares



Disclosure ("none" means no position):None

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Monday's Links

ADM, Money and the blind, Food prices, Oil driller

- A nice piece on Archer Daniels Midland (ADM)

- Are you kidding me? What is next, making TV illegal because the blind cannot see it? Radio because the deaf cannot hear it? Playboy because we cannot touch it?

- But, I though biofuels were to blame? This is becoming like Global Warming

- A gusher


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

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Weekend Reading at VIN

Here are the the week's best at Value Investing News

Value Investing News Button

(via www.fatpitchfinancials.com)

I just used the new Value Investing News Button to submit this link to Value Investing News. You can add this new VIN Button to your own site. It allows readers to submit your articles to VIN and it allows them to remotely vote on your articles. See it in action by following this story link to Fat Pitch Financials.

Setting the Record Straight on Buffett and Derivatives

(via collegeanalysts.com)

Why is Buffett so often misrepresented on his famous "financial weapons of mass destruction" comments?

Buffett Proclaims His Ignorance

(via www.fool.com)

The most surprising thing about Warren Buffett is that he can still surprise. After all, more ink has likely been spilled dissecting Buffett's strategies than those of any other investor. Buffett became the world's richest person while displaying both integrity and wit.

Another Attack on Eddie

(via circleofcompetence.blogspot.com)

I read an article called "Sears majesty to hedge-fund dust" at the behest of a reader on the gurufocus message boards, and I have to say it is one of the most uninformed and incomplete articles I've ever read.

Lampert Reports Sallie Mae Stake

(via valueplays.blogspot.com)

An amended SEC filing

4 Interesting 13F Buys (Q1-08)

(via www.futureblind.com)

Today is the day that the 13F’s are released for funds managing over $100m. Below is a list of 4 picks that I find interesting: WCG, SATS, WLP, AMWD

What do Buffett, Pabrai, and Jim Rogers Have in Common? They Look For the Obvious

(via circleofcompetence.blogspot.com)

It sounds crazy that Warren Buffett and Jim Rogers might have something in common besides intellect and wealth. Buffett has owned the Washington Post for 35 years, Coca-Cola for 18 years.

Why I Bought (and Sold) Graham Corporation

(via www.fwallstreet.com)

Joe Ponzio details his reasoning for buying the small company stock of Graham Corporation, the unique attributes of small caps, and why he decided to sell when he did.

Leucadia Releases 13-f: Can You Spell Concentrated Portfolio?

(via valueplays.blogspot.com)

88% invested in financials...

Special Situations Real Money Portfolio April 2008 Update

(via www.fatpitchfinancials.com)

The Special Situations Real Money Portfolio hits a rough patch in April. Thankfully, some profits were made on the recent Sybase tender offer.

Garmin: Growth at a Reasonable Price?

(via www.magicdiligence.com)

Garmin is the dominant player in the fast growing GPS market. The company has delivered nearly 50% annual earnings growth since 2003, and is expected to grow at 17% per year going forward. With it's current 11 P/E, is Garmin a textbook example of growth at a reasonable price?

Sick of Buffett Stories?

(via valueplays.blogspot.com)

VIN should be "Buffet Investing News" so far in May. Todd Sullivan explains why too much Buffett may be a bad thing.

Dr Pepper Snapple: Spin-off Bargain?

(via www.futureblind.com)

On Wednesday the 7th, Dr Pepper Snapple Group (DPS) officially began to trade. Its $25 price tag is lower than many expected after the soft-drink maker was spun-off of its parent company, Cadbury Schweppes.

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Dow Chemical's (DOW) Liveris Vents

Dow Chemical's (DOW) CEO pulls no punches when talking about Congress

After saying that more drilling needs to get done and more refineries need to be built, Andrew Liveris said, "In fact, it's almost the reverse under the current Congress, which is a joke," he said. "We're letting everyone else drill with our technology and we are not doing it ourselves. To me that is the insane asylum being run by lunatics," Liveris said.

"Inflationary pressures on the (U.S.) consumer through gasoline prices and food prices have reached the point where the consumer is clearly changing behavior," said Liveris told Reuters.

Liveris said Dow is within days of making statements about the sorts of actions it intends taking to deal with the cost escalation, he said, declining to specify those steps. The company had considered implementing an energy surcharge, but is unlikely to follow Rohm and Haas (ROH) who implemented one last month.

Based on past moves, this means more US jobs will be lost as Liveris exercises his only option, move production facilities to countries that actually value energy, rather than bitching about it.

The really sad thing is we have the oil (USO) and we have the gas, we just cannot drill for it. If you are upset about what it costs to fill your tank or heat or cool your home, look at how your Congress-person has voted. Chances are, they have voted to increase your costs by not allowing energy companies to get the cheap oil and gas we have sitting in our country and just off our shores.

If you voted for them, blame yourself. If you want things to change, let them know by voting against them in November...



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

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Why Mark-to-Market Sucks

While well intended, mark to market accounting in times of stress only serves to exacerbate market dislocations and confuse investors. For instance, check out FGIC's earnings release today.

From the release:

"In accordance with SFAS No. 157, which the Company adopted effective January 1, 2008, FGIC updated its mark-to-market methodology to take into account the market’s perception of FGIC’s non-performance risk. The adjusted methodology, which resulted in a reduction in the valuation of FGIC’s derivative liabilities, incorporated spreads of FGIC’s credit default swaps. In accordance with SFAS No. 157, the Company recorded a benefit of $1.56 billion in the fair value of credit protection contracts provided by FGIC that are considered credit derivatives, which more than offset the mark-to-market losses of $1.40 billion related to such credit derivatives and resulted in a net unrealized gain of $157.0 million in the fair value of such credit derivatives for the first quarter of 2008.

The first quarter 2008 mark-to-market loss of $1.40 billion consisted of approximately $228 million related to estimated credit impairments and $1.18 billion related to the widening of credit spreads in the structured credit markets. The estimated credit impairment of $228 million represents management’s estimate of future claim payments on certain ABS CDOs and other derivative transactions."

Got it?

All the numbers being thrown around, billions, yet what did the business actually do?

What mark-to-market has done in many cases is reduce earning for companies from actual earnings based on the functions of the business to "anticipated results". The credit spreads referenced are what the market feels about the insurance issue by the company. If the market feels good, the spreads contract, if they feel bad they expand.

This caused the "earnings" of FGIC to rise and fall based on these "feelings". They do not have any actual effect on the actual eps. Yet they are now becoming more powerful than the actual operations, especially for businesses like banks and insurance companies that hold large pools of products. Without selling anything and actually realizing a loss or a gain, they will see wild swings in earnings based on market perception of these products.

It is like Anheuser-Busch (BUD) posting a "loss" for the quarter because the market thinks the selling price of beer will fall casing profits to be affected negatively. What should happen is that the market votes on the stock price by buying or selling and then we wait and see what actually happens. What mark-to-market has done is take that speculation and transferred it from the price of the stock to the earnings of the company. Not right...

The good news is for those with stones, when these spreads contract and the huge write-downs become write-ups, boom go earnings.....

Oh, FGIC, actually had a loss of $279 million based on "reserves for estimated credit losses". That is what operations actually did irrespective of posted results and write-ups and write-downs.



Disclosure ("none" means no position):None

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Wal-Mart (WMT) Going Local

Wal-Mart (WMT), already on the top of consumer's minds when it comes to prices, is now trying to get there for specialty items also.



Once again Wal-Mart is ahead of the game. Wisely retreating from the previous gang busters growth strategy and already the low cost leader, this is a fantastic way to draw in more shoppers to its existing locations.

Now the first thing that people will say it that this will hurt margins. Well, yes and no. While the small number of specialty items that will be sold may be done at a lower margin, the additional sales of other items will lead to overall ales increases.

At the end of the day, isn't that what matters? By no means are the specialty items going to be sold as "loss leaders" so even at a lower margin , they will still be profitable. Now add in the additional milk, toilet paper and other ancillary items people going there will pick up rather than making an additional trip and you have the making of another win for Wal-Mart.

Better still is that they are ahead of the competition like Target (TGT) in the implementation of it.



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

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Gap Earnings Call Notes

Gaps (GPS) earnings call was very interesting..

CEO Glenn murphy: "We here at Gap Inc., continue to be committed to our three financial tenants for the remainder of this fiscal year. Number one, driving a healthier margin business through a combination of tactics such as our commitment to solid inventory management, reducing and containing costs; it is obviously a critical tenant for us in 2008, and taking a more disciplined approach to capital spending in order to improve our ROIC.

We believe that our unwavering focus to these financial priorities will service well going forward, as we see no signs of improvement in the psyche of the American consumer. Having said that, we recognize and acknowledge that a company like Gap, with a leading market share, that we need to internally advance the dialogue of how we will at the right time begin the stem and then recapture our lost market share."

* Gross margin increased 150 basis points to 39.7% versus 38.2% last year.
* Operating expenses decreased by $92 million
* Repurchased 11 million shares for $216 million.
* Online sales grew 21% versus last year to $236 million for the quarter
* Merchandise margin improved 310 basis points in the first quarter,
* Ended the Q1 with $1.6 billion in inventory, down 14% versus the prior year.
* Inventory per square foot was $37, down 17% versus down 8% in 2007
* Ended the first quarter with about $1.8 billion in cash and short-term investments.

The Q&A session was a bit of a disappointment because they questions were not very insightful. Murphy and the rest of management were very forthcoming it is just that they were not asked anything that would give more light into the future.

It is almost like the analysts cannot recognize this type of retailing. They seem to think everyone must be a Wal-Mart (WMT) or Target (TGT) and cannot escape that paradigm. Too bad, Murphy seems like the kind of guy tht would answer almost anything...if he was actually asked.

That being said he is doing a tremendous job in a very difficult operating environment.


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

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Gap......Where Have We Seen This Before?

In March of 2007 I made a request for the new GAP (GPS) CEO, make him or her a grad of "Lampert U". Did anyone else have a flashback when looking at Gap's results yesterday?

Then I said "most important thing they can do is grow profits, not just sell merchandise. Somewhere along the way, retailers got the "bigger at all cost is better" mantra ingrained in them and began to chase sales over profits. Lampert and Day have said, profits matter most, not just sales. This has lead them to close under performing locations, sell off unnecessary assets, keep closer tabs on inventory and not just discount merchandise to drive unprofitable revenue growth. They then take this extra money and begin massive share buybacks, pay off debt and to re-invest in the current locations that are performing satisfactorily.

The potential here for a CEO like this to make shareholders very wealthy is just waiting to be had as Gap has $2 billion in the bank, produces another $1.5 billion of operating cash flow per year and is virtually debt free. If they would stop investing in trying to just get bigger and got smart, they could return a ton to investors via buybacks (I estimate 15%-20% in year one at current prices). Currently Gap (GPS) shares are trading over 10% below their early year buyout rumor highs."

In March of this year new CEO Glen Murphy laid out his plan. It included increase the share repurchase plan, increasing margins and halting square footage growth in the US. Hmmmm.

Yesterday:
Reporting after the closing bell, Gap (GPS) said it earned $249 million, or 34 cents per share, compared to $178 million, or 22 cents per share, a year ago. Even though it beat the Street with earnings, Gap's sales fell to $3.38 billion, compared with $3.55 billion a year ago. The retailer's same-store sales fell 11% in the first period, worse than the 4% decline it suffered a year ago. Gap did better overseas, with sales falling just 5%.

The company's Old Navy stores hurt the most during the first quarter, with sales tumbling 18% to $1.2 billion. Comparatively, sales at its North American Banana Republic stores fell by 4% from a year ago. Gap's so-called same-store sales have now declined in 15 consecutive quarters. Despite all this, Gap reaffirmed its 2008 earnings outlook of $1.20 to $1.27 per share. How? A more disciplined cost approach combined with lower advertising expenses, layoffs and other cost cutting has increased Gap's profits for four consecutive quarters.

"We are pleased with our first-quarter results, as we delivered solid earnings growth in a difficult environment," CEO Glenn Murphy said. "We are focused on bringing compelling product and shopping experiences to our customers while managing costs tightly. We believe this approach is proving even more prudent given the current economic conditions."

This is textbook Lampert (SHLD). One could even throw RadioShack's (RSH) CEO Julian Day in the mix. Effective cost management, share repurchases, margins control lead to increasing profits.

Back then (15 months ago) I said that if Gap hired a CEO along Lampert's way of thinking I would buy shares. Now I am not. I am hesitant to enter the category now already owning shares of Sears (SHLD), Wal-Mart (WMT), Harley Davidson (HOG) and Borders (BGP). There is way too much economic opaqueness out there to invest new money in retail but Gap is climbing to the top of the list when things clear out a bit.



Disclosure ("none" means no position):Long SHLD,HOG,WMT,BGP none

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Borders' Semantics

I always laugh at things like this.

Borders (BGP) CEO George Jones said yesterday that the company has had "no substantive talks" regarding a sale of the company. Rumor were swirling that Barnes and Noble (BKS) was preparing and offer.

Here is the thing. Jones clearly has had "talks", just not "substantive" ones. Now, what has to happen when one talks about selling the company at what point the talks go from "just talking" to "substantive".

Seems to me that the answer to that depends on the person qualifying the talks. Jones has multiple suitors and a company that seems to be on to something with its new concept. That being said, the longer he can drag the process out, allowing for the company's results to improve, he dramatically increase the price he can get for himself and his shareholders.

For Jones to shorten the process at this point would probably leave money on the table.

Borders is in a sweet spot for both private equity and strategic buyers. A good brand with valuable assets and an appealing price.

This will happen....eventually



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

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Friday's Links

Kids and Politics, NFL, Blogs, CSX

- Why do we do this every election? Kids just do not care about politics. Why do we always talk about "getting out the vote" or "rock the vote" and every year the same percentage of them actually do it. Did anyone actually think YouTube was a source of political news.....really?

- If only Jones, Kraft and Snyder had listened to Ralph Wilson...........

- Well, this is good news..

- Whenever I see the CEO of CSX, something just does not sit right...

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Friday's Upgrades and Downgrades

Upgrades
Methanex (MEOH)- Canaccord Adams Sell » Hold
UBS AG (UBS)- Keefe Bruyette Underperform » Mkt Perform
ArthroCare (ARTC)- Needham Buy » Strong Buy
DivX (DIVX)- Barrington Research Mkt Perform » Outperform
FLIR Systems (FLIR)- Boenning & Scattergood Market Perform » Market Outperform
America Movil SA (AMX)- Deutsche Securities Hold » Buy
EW Scripps (SSP)- Lehman Brothers Underweight » Overweight
VNUS Medical Tech (VNUS)- Roth Capital Hold » Buy
Ross Stores (ROST)- Piper Jaffray Neutral » Buy
Cost Plus (CPWM)- JMP Securities Mkt Underperform » Mkt Perform
Salesforce.com (CRM)- Jefferies & Co Hold » Buy
Level 3 (LVLT)- Wachovia Underperform » Mkt Perform
First Marblehead (FMD)- Friedman Billings Underperform » Mkt Perform


Downgrades
Network Appliance (NTAP)- Caris & Company Buy » Average
Advanced Analogic Tech (AATI)- Needham Strong Buy » Buy
FMC Tech (FTI)- Stifel Nicolaus Buy » Hold
Corn Products (CPO)- BB&T Capital Mkts Buy » Hold
Ashland (ASH)- Susquehanna Financial Positive » Neutral
Goldman Sachs (GS)- Ladenburg Thalmann Neutral » Sell
CDC Corp (CHINA)- Piper Jaffray Buy » Neutral
American Electric (AEP)- Jefferies & Co Buy » Hold
Barclays PLC (BCS)- Lehman Brothers Overweight » Equal-Weight
Merrill Lynch (MER)- Ladenburg Thalmann Neutral » Sell
Lehman Brothers (LEH)- Ladenburg Thalmann Neutral » Sell

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"Fast Money" for Friday

Friday's Picks
None


Thursday's Results
Jeff Macke recommends the United States Oil Fund (USO) $108.31 with a $105 stop. Close $105.63 LOSS

Guy Adami suggests AMR Corp. (AMR) 6.22 for a trade. Close $6.56 GAIN

Karen Finerman prefers getting long the Oil Service HLDRS (OIH) $213.88 Close $211.88 LOSS along with USO puts. GAIN

Pete Najarian thinks Disney (DIS) $33.66 is a buy. Close $33.61 LOSS

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 1-1
Jon Najarian= 4-3
Jeff Macke= 40-33-1
Tim Seymore= 17-14
Guy Adami= 41-36
Pete Najarian= 38-36
Karen Finerman= 36-31-1
Joe Terrenova= 1-3

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

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Leucadia (LUK) Files Amended 13-D in Jefferies (JEF)

Leucadia (LUK) filed a 13-d moments ago in regards to Jefferes (JEF)

From the filing
Item 5 of the Schedule 13D is hereby amended and restated in its entirety, with effect from the date of this Amendment, as follows:

As of the close of business on the date of this Statement, the Reporting Persons may be deemed to beneficially own collectively an aggregate of 47,142,100 shares of Common Stock, representing approximately 29.11% of the shares of Common Stock outstanding. All percentages in this Item 5 are based on 161,951,428 shares of Common Stock outstanding as of the date of this Amendment.



Disclosure ("none" means no position):none

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It May Be Time To Sell Oil

Last weekend I listened to the barber and cronies talk about oil for 20 minutes. Everyone is looking for a way to invest in it. You know what that means, time to sell....


Oil is up 38% this year. What has changed? Boone Pickens says that there are 85 mbpd and demand is 87 mbpd, thus prices must rise. But, 38% in 5 months? Really? It should be noted Boone was short oil in Jan. so even he errs. Even at those numbers, worldwide oil demand rose only 1% last year, yet USO is up over 100%....

On January 1 in my "8 for 2008" predictions I said oil "would sit at $135 by year end". I still believe it and think that things are a bit too frothy. We are up 137% in our USO investment and each day I am thinking about cashing out. Why?

Demand:
Demand is set to fall. News of American Airlines (AMR) cutting flights is only the beginning. Look for more airlines to follow suit. SUV's are sitting on dealership lots and that means American's are buying more fuel efficient cars. This weekend will mark the first time since 2001 that travel on the highways has decreases for the holiday. $4 a gallon gas will kill demand. The US economy looks to be slowing and that slowing may last for a while, again dampening demand.

Record numbers of people in the Northeast are looking at switching from oil to heating with natural gas and even electrical or a combination of the two. Looking at almost $4 a gallon to heat a home just is not acceptable. You are talking about $4,000 to $6,000 winter heating bills.

The dollar, while not a dominant factor in the price of oil, still does count. US rate cuts are over (rate increase are likely by the fall) and we may begin to see some cuts in Europe. That means an immediate reversal in the decline of the dollar and more downward pressure on commodity (oil) prices.

Since the US is 25% of the demand for oil, what happens here matters.

China has been hoarding diesel fuel in anticipation of the Olympics this summer. That has caused false demand for the product worldwide, driving up prices. Once that is over, demand will immediately slacken.


This:


When your neighbor is drilling for oil, just as if he was "flipping houses" or "buying tech", things have run ahead too fast.

Oil may still rise, but, when it begins to fall, it will collapse fast. Just look and the amount of futures speculation in oil. The fall will be vicious....

I am going to take my profits now, wait for the collapse and probably buy back in later...maybe



Disclosure ("none" means no position):Long USO (for now), none

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Barnes and Noble (BKS) Earnings Call Notes

Here is what a Borders (BGP) investor cares about in today's Barnes and Noble (BKS) earnings call call

Steve Riggio CEO: "Good morning. While our sales were less than we expected, it still remains that the book business is a relatively stable one which we’ve said time and again. We believe our comp sales, while slightly negative, held up well compared to most of the retail sector.."

If the book business is "stable". Then it logically follows that to increase share and earnings, physical growth is necessary. What better way to grow than to eliminate 12% of the market via an acquisition?

Charles Grom – J.P. Morgan: "And then just in terms of the speculation out there about Borders, I was wondering if you guys wanted to go on record and make a comment just to kind of clear the air, I’m sure it’s on everybody’s mind at this point."

Steve Riggio: "We’ve put together a team of senior management people and financial advisors to study the feasibility of a transaction with Borders. We’ll provide no further comments about any discussions we may or may not have."

Another regarding "Members:
Steve Riggio: "We don’t think it’s necessary. We think it’s more profitable to build business with a strong member base of highly motivated individuals that pay our annual membership fee and we continue to test and we’re learning quite a bit. Understand we have about seven years of history in this mailing hundreds of millions of emails and coupons of all different types."

He continued: "So we have tremendously sophisticated analysis about what works, what doesn’t, what drives traffic profitably, what drives traffic unprofitably. So it’s not something that we will completely back away from testing because it is a good thing to do. But we believe that the path forward is to focus on the everyday discount that the card offers and it makes a lot of sense to us, that’s what the numbers are saying"

Remember, Borders has over 1.75 million members in its "Borders Rewards" program. There is tremendous value to this for BKS. Aside from eliminating the only real competitor in the "big box" bookseller, transferring almost 2 million customers to your most fastest growing entity, "membership", is paramount.

Sales at Barnes & Noble.com were $99.6 million for the quarter, a 7.2% comparable sales increase and gross margins there improved 80 basis points this quarter. I have to believe the average online customer spends more than $45 dollar a year. My guess would be at least twice that but lets just go with that. I also could not find how many BKS online "members" there are, if anyone knows, please let mew know. That being said, if that is all they spend, BKS would double its online presence immediately.

Let's then for fun add the $25 annual fee and now we have another $43.5 million flowing to BKS.

The whole of Borders right now is only valued at $403 million yet its upcoming site alone must have a value of 30% of that.

Riggio may want to do this mow if for no other reason, a revitalized Borders will add severe headwinds to his business. Based on results from its new concept to date, that is happening...



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

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Tilson on Mortgages

Whitney make a good point.....Glad I do not own Washington Mutual (WM) shares (






Disclosure ("none" means no position):None

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GE May "Spin" Appliances Unit, Not Sell It......

It is apparent that the potential bids GE (GE) has received for its appliance unit are far from what it expected..

With sales of $7.2 billion last year, GE had hoped to get $6 to $8 billion for the unit. The fact they have now decided to consider a spin, an option not originally specified, can only mean conversations with potential buyers have resulted in prices much below that.

In an spin scenario, if it is a tax free exchange like the ones Altria (MO) has done with Kraft (KFT) and Phillip Morris International (PM), GE receives nothing in the exchange. It is shareholders who receive proceeds. They could opt to retain a percentage of the business and profit from its future growth that way if they opted. Perhaps they would spin 50% of it and retain the other half to sell at a later date when the market for it improves. This option may just be a move to pacify shareholders who have been frustrated for the better part of the decade.

No matter what they do, it is clear this is not unfolding as they expected. Immelt is out stumping the "brand" as if to remind potential buyers the value of having GE on an appliance. I am not sure this is in doubt in the appliance world.

The problem is buyers know he has to do something because he has already stuck his neck out and had it swiped at. He is also trying to sell into a very weak market. Add those two together and you have a seller who has a problem.




Disclosure ("none" means no position):

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VIN Botton.....

Attention All Readers: Please read this post ...

I have installed the following button from George for the Value Investing News site.

It is at the bottom of all posts. It allows you easily to send a post to VIN or vote for it from ValuePlays if you like it. If you are a blogger it is easy to install and readers ought to use it for its convenience...

Here is the link for it:



Disclosure ("none" means no position):

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Annello Sets "Asia Times" Straight on Lampert and Sears (SHLD)

Wish I had wrote this one......Great job Jeff

"I read an article called "Sears majesty to hedge-fund dust" at the behest of a reader on the gurufocus message boards, and I have to say it is one of the most uninformed and incomplete articles I've ever read. There are so many misguided and shallow statements that it's hard to know where you'd even start to refute the allegations. Before you read my refutation, please read the article for context. Please read my refutation through before commenting.

I’ll start with a quote from the article, and continue on down from there:


“But as all readers of this site well know, things sure changed in 2007. Many of the hedge fund strategies that paid off like slot machine jackpots in the previous two years, such as huge heavily leveraged bets on subprime mortgage paper, came up lemons last year.”



Leveraged bets on subprime mortgage paper? What on God’s green earth does subprime mortgage paper have to do with ESL Investments? While this reporter basks in the failure of many hedge funds last year that were doing things extremely far removed from what ESL does, I question if he actually looked at any other ESL investments outside of Sears and Citigroup. If he did, then it’s a classic red herring argument fallacy; he is using irrelevant information that doesn’t have anything to do with the argument at hand."


Read rest of post here:



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

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Cullen Sets the Record Straight on Buffett & Derivatives

This is beautiful.......nice job James

"Ever since Berkshire Hathaway (BRK.A) reported earnings earlier in the month, a number of people have been abuzz about the “losses” generated from marking-to-market some of the derivatives on the books. Barron’s had a Q&A with short hedge fund manager Doug Kass (one of my favorite contrarian voices) where Kass said he was short BRK because of Buffett’s “investment-style drift,” which has led him to take large positions in derivatives instruments - which he famously derided as “financial weapons of mass destruction” in his 2002 letter to shareholders. And while I’m not sure of his positioning, Mish Shedlock echoed similar thoughts, saying that Buffett’s mark-to-market derivatives loss has given him “$1.2 billion less to invest because so far he is underwater on his short…”

I think Kass and Shedlock are taking their bearish act too far – perhaps because they are doing some unconventional style drift of their own and backing off their normally-sharp research. As Buffett notes in the section of his letter dealing with derivatives, the term “covers an extraordinarily wide range of financial contracts” and range from simple puts, calls, and futures to exotic agreements on any number of reference points, such as total return swaps. Actually reading the two-plus pages of Buffett on derivatives, it becomes clear that the concern centers on long-lived or extremely complex contracts that need to be marked-to-model, allowing for fudging profitability. Buffett isn’t talking about the simple derivatives contracts that Buffett has been increasing Berkshire’s involvement in – namely equity index puts and credit default swaps. I don’t have any explanation why so many people get this wrong, other than to assume they didn’t actually read the relevant passage."

Read the remainder of the article here



Disclosure ("none" means no position):None

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Mozillo's Email Furor & Mr. Bailey's Idiocy

I have a hard time feeling sorry for Mr. Bailey.....

First things first. Angelo, disable the "reply" button in outlook. Less problems going forward.

"This is unbelievable," Angelo Mozilo, Countrywide's (CFC) CEO wrote Tuesday. "Most of these letters now have the same wording. Obviously they are being counseled by some other person or by the Internet. Disgusting."

Mozilo apparently clicked "reply" instead of "forward," sending his comments back to Bailey rather than forwarding them to the intended recipient. Baily then posted the email on online forums.

Daniel Bailey Jr., asked the company to modify his adjustable-rate mortgage. He said he didn't fully understand the terms, was wrongly told he could refinance after a year and was on the verge of losing his home of 16 years because of unaffordable payments. His e-mail went to 20 Countrywide addresses and he used language from a form letter from a website, which offers advice to borrowers in trouble.

Now, had Mr. Baily been laid off from a job, or disabled he would garner sympathy. But, let's be honest. He decided to refi the house and cash out equity to the max and repay is as cheaply as possible. Greed. The market turned against him and now he is holding the bag. Oh well....

He admits he signed documents "without understanding them". Why? If he is a big enough boy to borrow hundreds of thousands of dollars he ought to be big enough to either understand what he is signing or suffer the consequences of his actions.

While a terrible PR move given the current political environment and the pending Bank of America (BAC) merger, Mozillo is right, being stupid is no reason to be given a break.....



Disclosure ("none" means no position):None

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Barnes and Nobel Reports

Results in line. The real news will be made on the conference call in a few minutes.

Barnes and Nobel (BKS) reported sales for Q1 increased 1.1% to $1.2 billion. Barnes & Noble store sales increased 1.1% to $1.0 billion, with comparable store sales decreasing 1.5% for the quarter, marginally below guidance for slightly negative comparable store sales. Barnes & Noble.com comparable sales were $99.6 million for the quarter, a 7.2% increase compared to the prior year period.

In Q1,the company acquired 6.5 million shares under its share repurchase program at an average price of $30.57 per share or $199.7 million in total.

Although the company lowered its sales forecast, it continues to expect full-year EPS to be in a range of $1.70 to $1.90 based on a reduced fully diluted share count of 58.5 million shares as a result of the share repurchase activity noted above. Second quarter earnings per share are expected to be in a range of $0.08 to $0.13.

I will comment on the earnings call later



Disclosure ("none" means no position):

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Dow Chemical EPS Outlook

Last summer Andrew Liveris predicted Dow Chemical (DOW) would earn "in excess" of $2 per share at the next industry trough. Last fall that was increased to $3 a share and in this winter, "north of $3 per share". Yesterday Liveris supplied new numbers.

$3.50 per share is the latest number. It should be noted that only takes into account 3% volume growth that, without the commodity business that will be sold, looks painfully conservative. Consider Dow Agro, which will constitute almost 50% of earnings after the commodity sale is growing at a double digit rate, 3% looks like a cake-walk. The specialty business, the other main driver after the commodity sale last year grew 8%.

If we just take a slight discount to current growth rates then we are looking at $4 a share rather easily.

Looking down the road a bit, 2005 was the last industry "peak". 2015 will be the next. Liveris yesterday said Dow ought to earn in excess of $10 a share at that time. If we take a typical 12 times earnings multiple (for chemical companies) we arrive at $120 a share for Dow stock. One also has to account for the current 4.5% yield that is growing.

Liveris said Dow will about $57 billion in cash between 2008 and 2015 and approximately 70% of this will be generated through cash from operation. Liveris intends to use roughly $29 billion of it toward acquisitions and share buybacks. Just under 25% of it will go into dividends. That gives us $14.25 billion for dividends $15 a share based on Dow's 930 million shares currently outstanding. One also has to take into account the massive share repurchase expected once the Kuwait deal closes. Liveris has consistently alluded to its likelihood. Even if just $10 billion of the $29 is used for that, it would take just under 1/3 of Dow's stock off the market.

Doing so would cause the per share dividend calculation to increase $5 per share in the example above.

The rest will be used for capital spending.


View presentation here:


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

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Thursday's Links

College, StockMasters, Brands, Icahn

- We value the exchange of ideas (as long as they are ideas we agree with)

- Another nailed pick

- Yes it can

- Would have been great to listen to this

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Thursday's Upgrades and Downgrades

Upgrades
Baker Hughes (BHI)- CapitalOne southcoast Neutral » Add
Tesco (TESO)- CapitalOne southcoast Add » Strong Buy
Key Energy (KEG)- CapitalOne southcoast Add » Strong Buy
Central Garden (CENT)- Piper Jaffray Neutral » Buy
Wolseley (WOSLY)- Deutsche Securities Hold » Buy
Arris (ARRS)- Friedman Billings Mkt Perform » Outperform
China Sunergy (CSUN)- Jefferies & Co Underperform » Hold
National Fuel Gas (NFG)- UBS Neutral » Buy
Micron (MU)- Deutsche Securities Hold » Buy

Downgrades
Aracruz Celulose (ARA)- BMO Capital Markets Outperform » Underperform
Pride Intl (PDE)- Wachovia Mkt Perform » Underperform
AMR Corp (AMR)- Soleil Hold » Sell
Continental Air (CAL)- Soleil Buy » Hold
UAL Corp. (UAUA)- Soleil Buy » Sell
First Solar (FSLR)- Friedman Billings Mkt Perform » Underperform
Smart Modular Tech (SMOD)- Lehman Brothers Overweight » Equal-Weight
Continental Resources (CLR)- JP Morgan Overweight » Neutral
Smart Modular Tech (SMOD)- Oppenheimer Outperform » Perform
Intuit (INTU)- Citigroup Buy » Hold
Nucor (NUE)- UBS Buy » Neutral
Enersys (ENS)- Merriman Curhan Ford Buy » Neutral
Sappi Limited (SPP)- UBS Buy » Neutral

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"Fast Money" for Thursday

Thursday's Picks
Jeff Macke recommends the United States Oil Fund (USO) $108.31 with a $105 stop.

Guy Adami suggests AMR Corp. (AMR) 6.22 for a trade.

Karen Finerman prefers getting long the Oil Service HLDRS (OIH) $213.88 along with USO puts.

Pete Najarian thinks Disney (DIS) $33.66 is a buy.

Wednesday's Results
Guy Adami thinks Public Service Enterprise Group (PEG) $43.91 is a buy.Close $43.66 LOSS

Pete Najarian recommends getting long Excel Maritime (EXM) $55.03 Close $53.10 LOSS

Joe Terranova suggests shorting Hess (HES) $133.8 Close $103.78 LOSS

Jeff Macke likes getting long the SPDR Trust (SPY) $141.89 with a $139 stop. Close $139.79 LOSS


2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 1-1
Jon Najarian= 4-3
Jeff Macke= 40-32-1
Tim Seymore= 17-14
Guy Adami= 40-36
Pete Najarian= 38-35
Karen Finerman= 35-30-1
Joe Terrenova= 1-3

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

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AmeriCredit (ACF) Deal: ABS Market Thawing

It would seem that credit markets, frozen at the beginning of the year are beginning to shake loose..

AmeriCredit, who provides financing to car buyers with poor credit, raised $750 million in the year's first public sale of bonds backed by subprime auto loans.

The offering was increased from the $500 million initially planned. The simple explanation is that investors are once again looking for asset backed securities. The AAA portion of the sale with a three-year maturity priced to yield 365 basis points over benchmark rates. The bonds were being marketed at a spread of 380 basis points over the benchmark. The weighted average coupon on the Notes to be paid by AmeriCredit is 6.0%. It is the first sale since September for ACF.

The co-managers are Barclays Capital (BCS), Lehman Brothers (LEH) and Wachovia (WB). Net proceeds from securitization transactions will be used to provide long-term financing of receivables.

This is good news for ACF investors like Leucadia (LUK) and still more evidence that auto related investing ought to hold up in the current environment and excel as we come through it.

Bloomberg reports "Demand is also returning for bonds backed by car loans made to borrowers with good credit. The finance arms of Ford Motor Co., GMAC LLC and Chrysler LLC have raised a total of $9.7 billion since April 15 by selling asset-backed debt, including a $5 billion sale by Ford, its biggest since 2002."

Time to get serious about the sector.


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

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More Thoughts on Borders (BGP) Sale

Some more thoughts Barnes & Nobel (BKS) and borders (BGP)

The timing of this is odd as Barnes and Nobel is scheduled to release results and have its earnings call tomorrow. Borders has it's annual meeting tomorrow also. Next Monday and Tuesday feature borders Q1 results and earnings call respectively.

It is very "coincidental" this news leaked out after months of silence just before both companies are schedules to speak to the public and media...no?

Another thing that Borders does have is 1.75 million (and growing) members in its "Borders Rewards" program. These are the "book people" and are the highest valued customers due to their purchasing frequency.

Back in March the following exchange took place during the earnings call:

Bill Armstrong - C.L. King & Associates: "Got it. Okay, obviously one of your biggest competitors, Borders, had a big announcement this morning. Would there be any interest on Barnes & Noble’s part in potentially acquiring Borders?"

Mitchell S. Klipper: "We haven’t been approached by Borders’ investment bankers and if we are, we’re certainly take a good look at the company and put it under review."


Here is a video with another take on it:




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

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Dow Chemical (DOW) CEO on Energy (video)

Andrew Liveris spoke on CNBC today about Dow (DOW), energy and jobs..



Liveris has been saying the same thing for three years. Based on the fact we have $133 oil (it was $35 when he started saying this) he bears listening too. That being said, as an investor having 66% of the business outside of the US is a good thing.

Now, let's look at the announcement of the Kuwait deal from December of last year. The reasoning for it was same thing that Liveris has been saying all along:



What is important to note is that 50% of the business is being sold is being done so at $9.5 billion, the commodity business being only 25% of profits. If we do the math, the deal values the whole of Dow at roughly $76 billion. The company currently has a market cap of $38 billion.

Now, the petroleum based business are the ones being sold to Kuwait. That means that the per dollar barrel of oil becomes less important down the road because Dow will access it at the source. But, the worldwide prices of the end products that are based on that still matter as Dow will profit from their price appreciation with oil.

Essentially it looks like the input price of oil will matter less and the prices DOW will be able to get for the products it makes based on the per barrel price will remain elevated.

Enough said???



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

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FOMC Minutes Released: No More Rate Cuts

Not a big surprise to readers (I hope).

This is the only paragraph that really matters:

"The Committee agreed that that the statement to be released after the meeting should take note of the substantial policy easing to date and the ongoing measures to foster market liquidity. In light of these significant policy actions, the risks to growth were now thought to be more closely balanced by the risks to inflation. Accordingly, the Committee felt that it was no longer appropriate for the statement to emphasize the downside risks to growth. Given these circumstances, future policy adjustments would depend on the extent to which economic and financial developments affected the medium-term outlook for growth and inflation. In that regard, several members noted that it was unlikely to be appropriate to ease policy in response to information suggesting that the economy was slowing further or even contracting slightly in the near term, unless economic and financial developments indicated a significant weakening of the economic outlook."

Full Transcript

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AutoZone Earnings Call Notes

The earnings call notes was enlightening as to the quality of this business and management.

Notables:
* Four consecutive quarter of positive sales growth in commercial business and that growth is acceleration through the year.
* Operating margin of 18%, up approximately two basis points from last year’s quarter
* Return on invested capital for the trailing four quarters of 23.3%.
* Did not see a material shift in sales mix to lower priced point merchandise.
* Have not seen any material change in the competitive landscape.


CEO, Bill Rhodes
"Return on invested capital is a key measure of our success. We have and will continue to make investments that we believe will generate returns that significantly exceed our cost of capital. We will not deviate from our efforts to optimize shareholder value over the long-term. We continue to be physically prudent with our investments while optimizing our earnings per share."

Regarding gas prices:
"Unfortunately we cannot control the prices of gas at the pump. However with more vehicles on the road than ever before, our ability to grow sales remains strong over the long-term and we believe consumers will ultimately adjust their spending habits to the higher prices. We will continue to develop marketing programs that support our customers’ needs during these high-price times."

What drives the company's business:
"Let me again reiterate the two statistics we’ve always felt had the closest correlation to our market growth; miles driven and the number of seven-year-old and older vehicles on the road. While miles driven had been challenged recently thereby causing a challenge to our overall business, there has been a positive impact from more registered vehicles seven years old and older on the road; quite frankly more than in our country’s history."

The reason for Eddie Lampert's investing in the company is becoming more clear every time I look at it.

Full call here

Disclosure ("none" means no position):None

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Biglari Adds to Steak n' Shake (SNS) Holdings

Sardar Biglari through his Western Investments funds added 35,000 shares of Steak n' Shake (SNS) at prices between $6.85 and $6.94 a share.

This brings is ownership to 2.443 million shares or 8.6% of the total outstanding.

For more on Sardar and Steak n' Shake, see here

Disclosure ("none" means no position):None

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Barnes & Nobel (BKS) looking at Borders (BGP)

The biggest part of this news is not the possible Barnes and Nobel (BKS) bid for Borders (BGP)

Here is the big news, according to the Wall St. Journal,30 people, including strategic buyers and private equity firms, have either signed confidentiality agreements or are in talks to sign agreements so they can look at a bid for Borders.

There are some anti-trust issue with a possible BKS bid. Amazon (AMZN) is the #2 book seller with 15% of the market and a BKS, BGP combo would then have over 30%. Based on recent results (Whole Foods (WFMI) & Wild Oats, XM (XMSR) & Sirius (SIRI)) however, even if the government did object, chances are the merger would still eventually go through anyway.

Just yesterday, Carlye's David Rubenstein said that, far from being dead, private equity deals in the $2 billion to $4 billion range will take precedence. "We are casting our net wider for $2 billion to $4 billion deals that will require little or no debt" said Rubenstein. He continued, "I think that the bottom has been hit in terms of private-equity investing activity and you're now beginning to see the upward swing".

Borders has a current market cap of $350 million and $580 million in debt. A deal that gave shareholders $12 a share would come in at $1.3 billion and change. At this price, the number of buyers who could purchase the chain is plentiful and perhaps the reason for the wide interest.

30 potential buyers will make for a very interesting and competative bidding process and is very good for shareholders.

We bought shares at $5 and change looking for this very possibility, not as a long term permanent holding. While sure this would eventually happen, I thought it was far more likely towards the fall as the Ackman financing and dilution deadline approached.

Either way, gonna be a fun summer with this one.

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

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Wednesday's Links

Hurricanes, RI Lead Trial, NFL CBA, Inflation

- Priceless, so now because of "Global Warming", we ought to expect "fewer hurricanes". But isn't that the exact opposite of what they said JUST LAST YEAR!!!! This is the very reason the whole things is just a guess...

- Maybe they are skeptical because Silverstein did not rule based on law?

- You know, Dallas's Jerry Jones and New England's Bob Kraft laughed at Buffalo's Ralph Wilson and Cincinnati's Mike Brown for voting against the CBA when they forced fed the horrible deal to the owners. It must suck to have to admit to two holdouts were the only ones who had a clue....

- Falling

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Wednesday's Upgrades and Downgrades

Upgrades
Consolidated Water (CWCO)- Janney Mntgmy Scott Sell » Neutral
Raven Industries (RAVN)- Dougherty & Company Neutral » Buy
ConocoPhillips (COP)- Credit Suisse Neutral » Outperform
Intersil (ISIL)- Longbow Sell » Neutral
Imperial Oil (IMO)- Credit Suisse Underperform » Neutral
Canadian Natrl Res (CNQ)- Credit Suisse Neutral » Outperform
Rudolph Tech (RTEC)- Piper Jaffray Neutral » Buy
Exelon (EXC)- Deutsche Securities Hold » Buy
Hertz Global (HTZ)- Soleil Hold » Buy
CNOOC Ltd (CEO)- Credit Suisse Neutral » Outperform
Progressive (PGR)- Wachovia Underperform » Mkt Perform
Charming Shoppes (CHRS)- Susquehanna Financial Neutral » Positive
Precision Drilling (PDS)- RBC Capital Mkts Sector Perform » Outperform
FirstEnergy (FE)- Credit Suisse Neutral » Outperform
Exelon (EXC)- Credit Suisse Neutral » Outperform
Reliant Energy (RRI)- Credit Suisse Neutral » Outperform
Public Service (PEG)- Credit Suisse Neutral » Outperform
Netflix (NFLX)- Lehman Brothers Equal-Weight » Overweight


Downgrades
Pacific Ethanol (PEIX)- Ardour Capital Hold » Reduce
Hess (HES)- Credit Suisse Outperform » Neutral
Universal Technical Institute (UTI)- Banc of America Sec Neutral » Sell
Career Education (CECO)- Banc of America Sec Neutral » Sell
Corinthian Colleges (COCO)- Banc of America Sec Buy » Neutral
ITT Educational (ESI)- Banc of America Sec Buy » Neutral
EMC Corp (EMC)- Bernstein Outperform » Mkt Perform
NRG Energy (NRG)- Credit Suisse Outperform » Neutral
Acergy (ACGY)- Citigroup Hold » Sell
Casey's General (CASY)- Friedman Billings Mkt Perform » Underperform
Woodward Governor (WGOV)- Robert W. Baird Outperform » Neutral

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Lampert Still Buying AutoNation (AN)

Eddie Lampert increase his stake in auto retailer AutoNation (AN) to 69.1 million shares or 38.7% of the total outstanding this week.

For more on this read this article:


Filing

Disclosure ("none" means no position):None

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Leucadia (LUK) Ups Jefferies (JEF) Stake

Leucadia (LUK), in a just released SEC filing disclosed it purchased an additional 1.15 million shares of investment bank Jefferies (JEF) in two transactions. There was a 400K block at $17.77 on 5/16 and a 750K share block on 5/19 at $18.27

The purchases bring Leucadia's stake to 45,492,100 shares.


Filing

Disclosure ("none" means no position):None

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"Fast Money" for Wednesday

Wednesday's Picks
Guy Adami thinks Public Service Enterprise Group (PEG) $43.91 is a buy.

Pete Najarian recommends getting long Excel Maritime (EXM) $55.03

Joe Terranova suggests shorting Hess (HES) $133.8

Jeff Macke likes getting long the SPDR Trust (SPY) $141.89 with a $139 stop.

Tuesday's Results
Guy Adami suggests getting long Boeing (BA) $87.07 Close $85.14 LOSS

Pete Najarian thinks DuPont (DD) $49.5 is a buy.Close $48.95 LOSS

Jeff Macke recommends shorting Electronic Arts (ERTS) $48.43 Close $49.05 GAIN

Karen Finerman likes shorting the British pound with the CurrencyShares British Pound Ster. Trust (FXB) $195.31 Close $197.25 LOSS

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 1-1
Jon Najarian= 4-3
Jeff Macke= 40-31-1
Tim Seymore= 17-14
Guy Adami= 40-35
Pete Najarian= 38-34
Karen Finerman= 35-30-1
Joe Terrenova= 1-1

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

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NetFlix Beats Blockbuster Again (update with video)

Well, NetFlix (NFLX) is once again ahead of Blockbuster (BBI).

A review from Time:
"This week, a consumer-electronics company called Roku, in partnership with Netflix, launched a set-top box that brings us tantalizingly close to my dream. The Netflix player ($99 at netflix.com) is a palm-sized, black device that connects your broadband network (wired or wirelessly) to your TV. For as little as $8.99 a month, you can access Netflix's library of 10,000 movies and TV shows on demand. Watch what you want, instantly, for as long as you want. You can even start a movie on your home TV, and finish watching it on your PC laptop at a hotel days later. Apple, which uses its own digital-rights management to copy protect films and TV shows, doesn't support the Netflix on-demand service.

Setting up the Roku was about as painless an experience as I've had, and took less than 5 minutes. I cabled it to my TV, powered up both, then followed the on-screen prompts. The Roku device found my wireless connection immediately and asked for my password. I watched video by logging into my Netflix account (you'll need one, which also entitles you to rent-by-mail DVDs) and adding movies and TV seasons to my "instant" queue; they show up on the Roku box almost instantaneously. I moldered on the couch for a few days, watching The Office reruns, some old Kubrick and Peckinpah movies and a Jimi Hendrix documentary. It was great."

The news device caused Lehman Brothers (LEH) to upgrades the company:



On their recent earnings call, Blockbuster CEO Jim Keyes said "Our acquisition of Movielink provided both digital content and a distribution tool. Movielink integration is going well and proceeding as planned. We have a new online service in testing, in beta testing now and we are planning to make it available to all customers in June. The extensive library of over 9,000 titles gives us one of the largest digital VOD and day date electronic sell-through libraries in the marketplace."

He continued "The remaining missing pieces of our digital offering are relating to subscription content. We are actively exploring opportunities to acquire content and to develop partners for distribution to the PC, the portable device, and ultimately to the home. These are just a few of the many examples of work underway in the digital space. I can assure you that Blockbuster has not at all backed away from an online strategy. We called a time-out from our by-mail initiatives, both to make that business profitable and to develop a plan for true digital delivery. I look forward to providing more updates to you in the weeks and the months ahead."

Jim, see above...

Is this box going to be the "new way" next month? No. Eventually it will be and it gives Netflix a start and an immediate advantage. The bigger issue for Blockbuster shareholders is that once again they have been outflanked by Netflix. Wouldn't it be nice if for just once Blockbuster was on the cutting edge of a new way to deliver content to the home? Second place is not all that bad unless you consider there are only two of you that really do it (three if you include Apple's (AAPL) iTunes in which case Blockbuster is now third) it means that you are last.

Again.


Disclosure ("none" means no position):None

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Netflix Beats Blockbuster to the Punch Again

Well, NetFlix (NFLX) is once again ahead of Blockbuster (BBI).

A review from Time:
"This week, a consumer-electronics company called Roku, in partnership with Netflix, launched a set-top box that brings us tantalizingly close to my dream. The Netflix player ($99 at netflix.com) is a palm-sized, black device that connects your broadband network (wired or wirelessly) to your TV. For as little as $8.99 a month, you can access Netflix's library of 10,000 movies and TV shows on demand. Watch what you want, instantly, for as long as you want. You can even start a movie on your home TV, and finish watching it on your PC laptop at a hotel days later. Apple, which uses its own digital-rights management to copy protect films and TV shows, doesn't support the Netflix on-demand service.

Setting up the Roku was about as painless an experience as I've had, and took less than 5 minutes. I cabled it to my TV, powered up both, then followed the on-screen prompts. The Roku device found my wireless connection immediately and asked for my password. I watched video by logging into my Netflix account (you'll need one, which also entitles you to rent-by-mail DVDs) and adding movies and TV seasons to my "instant" queue; they show up on the Roku box almost instantaneously. I moldered on the couch for a few days, watching The Office reruns, some old Kubrick and Peckinpah movies and a Jimi Hendrix documentary. It was great."

On their recent earnings call, Blockbuster CEO Jim Keyes said "Our acquisition of Movielink provided both digital content and a distribution tool. Movielink integration is going well and proceeding as planned. We have a new online service in testing, in beta testing now and we are planning to make it available to all customers in June. The extensive library of over 9,000 titles gives us one of the largest digital VOD and day date electronic sell-through libraries in the marketplace."

He continued "The remaining missing pieces of our digital offering are relating to subscription content. We are actively exploring opportunities to acquire content and to develop partners for distribution to the PC, the portable device, and ultimately to the home. These are just a few of the many examples of work underway in the digital space. I can assure you that Blockbuster has not at all backed away from an online strategy. We called a time-out from our by-mail initiatives, both to make that business profitable and to develop a plan for true digital delivery. I look forward to providing more updates to you in the weeks and the months ahead."

Jim, see above...

Is this box going to be the "new way" next month? No. Eventually it will be and it gives Netflix a start and an immediate advantage. The bigger issue for Blockbuster shareholders is that once again they have been outflanked by Netflix. Wouldn't it be nice if for just once Blockbuster was on the cutting edge of a new way to deliver content to the home? Second place is not all that bad unless you consider there are only two of you that really do it (three if you include Apple's (AAPL) iTunes in which case Blockbuster is now third) it means that you are last.

Again.


Disclosure ("none" means no position):None

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Another Reason for Auto Related Investing

One word AutoZone (AZO), maybe technically two?

For a while now I have been speculating that the auto sector (not Ford (F) or GM (GM)) may be the way to go and that thee is value in the sector. Results from those companies may be confirming that.

AutoZone (AZO), the largest U.S. auto parts retailer, reported higher quarterly earnings Tuesday. Net income rose to $158.6 million, or $2.49 per share, in its fiscal Q3 ended May 3, from $151.6 million, or $2.17 per share, a year earlier. Expectation were for $2.44 a share.

AutoZone did not repurchase any shares of its common stock during the third quarter. The Company has $108 million remaining under the authorization. Year-to-date, the Company has repurchased 2.9 million shares of its common stock for $350 million (4% of total oustanding).

During the quarter ended May 3, 2008, AutoZone opened 32 new stores and replaced three stores in the U.S. and opened two stores in Mexico. As of May 3, 2008, the Company had 4,032 stores in 48 states, the District of Columbia and Puerto Rico in the U.S. and 130 stores in Mexico. The compnay actually saw margins increase from 49.9% to 50.2%.

Sears' Chairman (SHLD) Eddie Lampert increased his stake in AutoZone to just over 36 percent from near 31 percent recently. Lampert also increase his stake in AutoNation Inc (AN), the largest U.S. auto dealership group. He holds just under 39 percent of AutoNation.

This comes a week after Advance Auto Parts (AAP), AutoZone's chief competitor, reported that net income grew 7.9% while revenue increased 4%.

While auto sales may fall, the chief recipient will be the parts stores as older car will need to be repaired rather than replaced. Add the "customization" trend out there now, AZO looks to have momentum for the foreseeable future.

I will check out the earnings call later...

PS. Where are the CNBC pieces about Lampert's "savvy investment"? Or, do they only run stuff when they can bash him? Erin?



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

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Fed Auction Results

The interesting thing here is that rates actually fell for the first time this year.

On May 19, 2008, the Federal Reserve conducted an auction of $75 billion in 28-day credit through its Term Auction Facility. Following are the results of the auction:

Stop-out rate: 2.100 percent

Total propositions submitted: $84.438 billion
Total propositions accepted: $75.000 billion
Bid/cover ratio: 1.13

Number of bidders: 75


The previous auction had a 2.2% rate.

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Lowe's Earnings Call Notes

It is coming down to one thing for Lowe's (LOW), market share.


Lowe's continued to capture market share in Q1. During the quarter, they gained 70 basis points of total unit market share according to third-party sources (gained unit market share in 15 of our 19 product categories).

Larry D. Stone, COO
"I am also encouraged by our draw rate, or the number of times Lowe's [was in the consideration set] of customers buying the products we sell. Of our 19 categories, draw rates improved in 17, stayed flat in one, and declined slightly in one in the first quarter. These solid results suggest that we are moving ever closer to achieving our vision of become the customer’s first choice for home improvement."

Other Notes:
* No shares repurchased in the first quarter and our current plans do not contemplate any share repurchases for fiscal 2008.
* Cash flow from operations exceeded $2.5 billion, which represents a $399 million, or 18.7% increase over Q1 2007
* Expect diluted earnings per share of $1.45 to $1.55 for the year.
* Saw improvement in the negative comps in Gulf Coast and Florida over 2007 and that improvement continued into the first quarter of 2008.


It was more than a little disappointing that not a single question on the call from the "analysts" dealt with market share. Rather they focused obsessively on comp. sales. Guys, they will not be good until housing turns, unless you have a crystal ball that tells you when that will be, move on and ask something important.

Market share is what matters here. In a two horse race and this is essentially what it is, the company that performs the best when the environment improves will be the one gaining a larger piece of the total pie. With quarter after quarter of market share gains and now consumer awareness ones also, the winner will clearly be Lowe's.

With both HD and Lowe's trading at essentially the same premium to earnings, if one is looking to invest, where would you put your money? The company closing locations and losing market share or the one gaining share and opening new locations at a disciplined rate? Would you invest in the one with a clearly defined plan from management or the one who seems to make decisions based on what they see today?

Me too..

Full earnings call transcript here:
Disclosure ("none" means no position):

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Fed Vice-Chair Kohn's Economic Outlook

At the National Conference on Public Employee Retirement Systems Annual Conference, New Orleans, Louisiana, Fed Vice-Chair Kohn gave the following outlook this morning.


"The Economic Outlook
Although the current financial and economic situation remains quite difficult, I believe that the most likely scenario over the next year or so is one in which economic activity firms during the second half of this year and then gathers some strength in 2009. In the near term, consumer spending is likely to receive a boost from the rebates that are now flowing to taxpayers. Although the timing and the magnitude of the spending response are uncertain, economic studies of the previous experience suggest that a noticeable proportion of households respond reasonably quickly to temporary cash flows. Of course, the stimulus to domestic production will depend on the extent to which the additional demand is met by a temporary drawdown of inventories or an increase in imports rather than by an expansion in domestic output. But to date, businesses appear to be keeping tight control on inventories, and a reasonable assumption is that we will see a temporary lift to the economy in coming months.

The pace of activity should continue to improve next year, with an important part of the gains coming from the abatement of the forces currently restraining activity. That said, a number of factors suggest that the recovery could be relatively moderate. I've already mentioned my expectation that financial market functioning and risk appetites will continue to improve, but that recuperation will require some time. As all that happens, the policy easing the Federal Reserve has put in place over recent months will begin to show through more in reductions in the cost of capital and the greater availability of credit. The demand for housing is not likely to rebound substantially for a while after this episode, but the drag on growth from declining activity and prices in the housing market will ebb as excess inventories are worked off and affordability improves. Consumption should pick up along with the improvement in jobs and income, though a gradual increase in the saving rate would be expected now that households will no longer be counting on increases in the value of their homes to finance retirement or other future spending. With a lag, business investment should turn up as prospects for a sustained expansion of economic activity become clearer. And both households and businesses should benefit from a leveling-off in the prices of energy and other commodities along the path implied by futures markets."

Inflation
"My expectations for moderating inflation and limited spillover effects from commodity price increases depend critically on the continued stability of inflation expectations. In that regard, year-ahead inflation expectations of households have increased this year in response to the jump in headline inflation. Of greater concern, some measures of longer-term inflation expectations appear to have edged up. If longer-term inflation expectations were to become unmoored--whether because of a protracted period of elevated headline inflation or because the public misinterpreted the recent substantial policy easing as suggesting that monetary policy makers had a greater tolerance for inflation than previously thought--then I believe that we would be facing a more serious situation."

Full text:

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Home Depot Lays an Egg

Yesterday about Lowe's (LOW) I said "I thought earnings would have been worse". Today, after Home Depot's (HD) I am thinking "wow, that bad?"

The Home Depot reported Q1 consolidated net earnings of $356 million, or $0.21 per diluted share, compared with $1.0 billion, or $0.53 per diluted share, in the same period in fiscal 2007 (60% drop). These results reflect a nonrecurring charge of $543 million due to the recently announced closing of 15 stores and removal of 50 stores from the future growth pipeline. Excluding this nonrecurring charge, the Company reported consolidated net earnings of $697 million, or $0.41 per diluted share (22% drop).

Now, there are times that "charges" are just that and can be discounted. This is not one of those times. Consider store sales experienced a drop of 6.5 percent. Due to the 14th week in the fourth quarter of 2007, first quarter benefited from a seasonal timing change that added approximately $536 million to sales. Taking this extra week of sales out would decrease net income by another $10 million or another penny per share.

Home depot has been late in enacting cost cutting moves whether it be stores closings or operational ones. With housing looking to rebound not until next year, investors ought to expect more of both.

If you believe that Home Depot's service issues are behind it, think again.




Unlike Lowe's, Home Depot seems to be consistently playing catch up. There does not seem to be a plan here just a reaction to events. This all began last year with the sale of the Supply unit and the announced and now canceled share repurchase.

Until some type of plan emerges, I will be avoiding shares. Even if macro conditions do improve, management has not shown any ability to run things in a specific direction.


Disclosure ("none" means no position):None

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Tuesday's Links

Thank-you, Cells vs. Land Lines, DOW, Homebuilders

- Thank you for the mention

- Actually considering getting rid of ours...

- 4% yield

- This is a good sign...

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Tiuesday's Upgrades and Downgrades

Upgrades
beriaBank (IBKC)- Janney Mntgmy Scott Neutral » Buy
Echostar Holdings (SATS)- Stifel Nicolaus Hold » Buy
Union Pacific (UNP)- Stifel Nicolaus Hold » Buy
Trailer Bridge, Inc. (TRBR)- Stifel Nicolaus Hold » Buy
Anglo American (AAUK)- Citigroup Hold » Buy
Yahoo! (YHOO)- Needham Hold » Buy
Jetblue Airways (JBLU)- JP Morgan Underweight » Neutral
Alaska Air (ALK)- JP Morgan Underweight » Neutral
Equity Res (EQR)- RBC Capital Mkts Underperform » Sector Perform
Ariba (ARBA)- RBC Capital Mkts Sector Perform » Outperform
Monaco Coach (MNC)- RBC Capital Mkts Underperform » Sector Perform
Teekay Offshore (TOO)- Wachovia Mkt Perform » Outperform
Opnext (OPXT)- JP Morgan Underweight » Neutral
British Sky Brdcst (BSY)- Deutsche Securities Hold » Buy
Oplink Comms (OPLK)- Merriman Curhan Ford Neutral » Buy
National City (NCC)- Citigroup Hold » Buy
Texas Instruments (TXN)- Citigroup Hold » Buy
ScanSource (SCSC)- Robert W. Baird Neutral » Outperform
Compuware (CPWR)- Banc of America Sec Neutral » Buy


Downgrades
beriaBank (IBKC)- Janney Mntgmy Scott Neutral » Buy
Echostar Holdings (SATS)- Stifel Nicolaus Hold » Buy
Union Pacific (UNP)- Stifel Nicolaus Hold » Buy
Trailer Bridge, Inc. (TRBR)- Stifel Nicolaus Hold » Buy
Anglo American (AAUK)- Citigroup Hold » Buy
Yahoo! (YHOO)- Needham Hold » Buy
Jetblue Airways (JBLU)- JP Morgan Underweight » Neutral
Alaska Air (ALK)- JP Morgan Underweight » Neutral
Equity Res (EQR)- RBC Capital Mkts Underperform » Sector Perform
Ariba (ARBA)- RBC Capital Mkts Sector Perform » Outperform
Monaco Coach (MNC)- RBC Capital Mkts Underperform » Sector Perform
Teekay Offshore (TOO)- Wachovia Mkt Perform » Outperform
Opnext (OPXT)- JP Morgan Underweight » Neutral
British Sky Brdcst (BSY)- Deutsche Securities Hold » Buy
Oplink Comms (OPLK)- Merriman Curhan Ford Neutral » Buy
National City (NCC)- Citigroup Hold » Buy
Texas Instruments (TXN)- Citigroup Hold » Buy
ScanSource (SCSC)- Robert W. Baird Neutral » Outperform
Compuware (CPWR)- Banc of America Sec Neutral » Buy

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"Fast Money" for Tuesday

Tuesday's Picks
Guy Adami suggests getting long Boeing (BA) $87.07

Pete Najarian thinks DuPont (DD) $49.5 is a buy.

Jeff Macke recommends shorting Electronic Arts (ERTS) $48.43

Karen Finerman likes shorting the British pound with the CurrencyShares British Pound Ster. Trust (FXB) $195.31

Monday's Results
Pete Najarian likes Pride Int’l (PDE) $45.95 Close $46.14 GAIN

Karen Finerman recommends Golan (GLNG) $20.26 Close $21 GAIN

Guy Adami suggest Citigroup (C) $23.12 Close $22.99 GAIN

Jeff Mack thinks Microsoft (MSFT) $29.99 is a buy.Close $29.46 LOSS

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 1-1
Jon Najarian= 4-3
Jeff Macke= 39-31-1
Tim Seymore= 17-14
Guy Adami= 40-34
Pete Najarian= 38-33
Karen Finerman= 35-29-1
Joe Terrenova= 1-1

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

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Recent Lampert Article Gives Insight Into Activity

A recent article by Sears Holdings (SHLD) Chairman Eddie Lampert gives some insight into recent buying activity.

The article, entitled "The Best Advice I Ever Got" said:

"Almost every weekend when I was 7, 8, 9, 10 years old, my father and I would toss a football in the yard or play basketball in the driveway. When we played football, he'd say, "Go out ten steps. Turn to your right." The ball would reach me just before I turned, and it would hit me right in the chest. Why would my dad do this? He told me, "If I waited for you to turn, you and the defensive player would have an equal chance to get the ball. Your opportunity is gone."

This idea of anticipation is key to investing and to business generally. You can't wait for an opportunity to become obvious. You have to think, "Here's what other people and companies have done under certain circumstances. Now, under these new circumstances, how is this management likely to behave?" The plays my father designed for me helped me learn to think ahead. Lots of days I asked him, "Why can't we just invite kids over and play a game?" In order to do something well, he explained, you have to keep practicing and preparing."

My guess is that when one looks at Lampert's recent buying spree in shares of AutoNation (AN), the above statements are the genesis. For instance, Lampert has held shares in the company since the turn of the century and is extremely familiar with it and its machinations.

That being said, while other investors are fleeing the retail auto sector Lampert has been buying about a million shares every other week for the past few months. Why?

Perhaps he sees that CEO Mike Jackson has expanded the retailer's dealership pipeline with Mercedes and BMW (BMW) dealerships, more resistant to economic downturns and much more profitable in good times than your run of the mill Ford (F) or GM (GM) one.

Perhaps he sees, that looking ahead leases on vehicles still expire requiring the leasee to either lease or buy another one and that the current stock price reflects the poor environment now, but now the upcoming surge in activity down the road?

Perhaps he knows that while credit is tight now, all that does is to suppress demand, not eliminate it. He knows the demand (desire) for a new vehicle does not "go away". The desire to get rid of an old car for a new one stays and when credit does loosen a bit, the spigot will open and the pent-up demand becomes a flood of buyers.

Also, he knows CEO Jackson manages the business for the long term. During the sluggish auto environment in 2001, many dealers responded to deteriorating demand by offering 0% loans which after even small credit losses meant the loan portfolios eventually lost money. Jackson said at the time he did not see the reasoning for "losing money on loans just to move metal". Shares tripled from then levels.

It is clear that Warren Buffett from Berkshire (BRK.a) sees it as he has purchased shares of CarMax (KMX) another auto retailer. The boys over at Leucadia (LUK) also see it with their 30% investment in auto finance company AmeriCredit (ACF) along with Bruce Berkowitz and Bill Miller who have also taken stakes in ACF.

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

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Lowe's Profit Drop: Not All That Bad

If I am being honest, I would have thought this number would have been much worse...

Lowe's (LOW), #2 behind Home Depot (HD) reported quarterly earnings came to $607 million, or 41 cents a diluted share, compared with $739 million, or 48 cents a share, a year earlier, a 14% decrease. Net sales dipped 1.3% to $12 billion, with same-store sales falling 8.4%.

In February, Lowe's projected earnings of 38 cents to 42 cents a share, 2% revenue growth and same-store sales down 5% to 7%.

"The challenging sales environment we have been experiencing for the past six quarters continued into the first quarter of 2008, and increasing financial pressures on consumers resulted in top-line sales that fell below our plan," commented Robert A. Niblock, Lowe's chairman and CEO. "The generally poor economic outlook, including well-known housing pressures, rising food and fuel prices and a more negative employment picture eroded consumer confidence and impacted discretionary purchases for the home."

Now, I do not think anyone expected good results. These are poor but, here is the key:
"With our offering of great products and exceptional service, Lowe's continued to gain market share in the quarter, and diligent expense control helped us achieve respectable earnings in spite of the headwinds facing the industry," Niblock said

"Continuing to gain market share". See, housing will eventually turn and Lowe's is positioning itself through superior service and sensible balance sheet management to be ready to capitalize when it happens. Results will begin to look "less bad" as easier comps begin to come around this summer and into the fall and we will begin to get more of an apples to apples comparison for earnings based on housing levels.

Lowe's is getting a larger piece of a smaller pie. When that pie expands (it will), their piece will grow in excess of Home Depot's who inexplicably is still struggling with service issues and the hangover of promises made and not kept.

I have posted on Lowe's a few times as to it's attractiveness. It continues to be the one I would choose in the category.

Here are Q2's expectations:
Second Quarter 2008 (comparisons to second quarter 2007)
-- The company expects to open approximately 23 new stores reflecting
square footage growth of approximately 11 percent
-- Total sales are expected to increase approximately 1 percent
-- The company expects comparable store sales to decline 6 to 8 percent
-- Earnings before interest and taxes (EBIT) margin is expected to decline
approximately 190 basis points driven by payroll, fixed costs,
depreciation and gross margin
-- Store opening costs are expected to be approximately $22 million
-- Diluted earnings per share of $0.54 to $0.59 are expected
-- Lowe's second quarter ends on August 1, 2008 with operating results to
be publicly released on Monday, August 18, 2008

I will let this quarter play out before making a decision. Should they hit the goals, I probably will be a buyer.

Disclosure ("none" means no position):None

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Monday's Links

Boston Herald, Nudity, Adam, Soros

- The first front page apology I have ever seen......call it fellatio?

- How can you lose money selling naked boobs?

- Adam nails it on this one

- I can't stand the guy but he is self made so it bears listening to him...

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Harley Davidson (HOG) Recruits New Riders

A simple yet very common sense way for Harley Davidson (HOG) to attract new younger riders to the fold.

There have been a bunch of comments on blogs post about the "age and demographics" of Harley riders. The common refrain is that they are "55 year old guys" and that this is a reason that sales will eventually decline. It is not by the way, it is more like 47.

Other Demographic Facts:
52%---Owned a Harley-Davidson motorcycle previously at any point during lifetime
33%---Owned a competitive motorcycle previously
15%---First motorcycle purchased

I never get this argument because someone is always turning 55 unless there is a new law I am unaware of and the HOG is more prevalent on the road now than it ever was. Anyway, let's go with it for arguments sake. What Harley would then have to do is try to appeal to a younger crowd, no? Turns out they are doing just that.

Harley Davidson is the only motorcycle manufacturer that offers a branded rider education program. It is currently active in 42 states through its authorized dealerships. Called the "Rider’s Edge New Rider Course", it is a Motorcycle Safety Foundation certified program. The program includes both classroom instruction and training on a controlled range. Students learn how to ride on a Buell Blast, the lightweight, easy-to-handle "Sport Bike" with a rider-friendly design. Harley-Davidson dealerships across the country offer the Rider’s Edge Skilled Rider Course for motorcycle enthusiasts interested in taking their riding to the next level.

"Rider’s Edge" has trained in excess of 138,000 students with 39% of them being women. A survey in late 2003 showed that 84 percent of students get their licenses after completing the course.

Upon successful completion of the course, students receive an Motorcycle Safety Foundation Completion Card which, depending on their state of residence and insurance provider may et them a discount on insurance

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

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Monday's Upgrades and Downgrades

Upgrades
China Sunergy (CSUN)- Lazard Capital Sell » Hold
Pharmacopeia (PCOP)- Broadpoint Capital Buy » Strong Buy
Mariner Energy (ME)- CapitalOne southcoast Add » Strong Buy
Callon Petroleum (CPE)- CapitalOne southcoast Add » Strong Buy
Tyco Electronics (TEL)- Longbow Neutral » Buy
Lithia Motors (LAD)- JP Morgan Underweight » Neutral
Asbury Automotive (ABG)- JP Morgan Neutral » Overweight
Stellent (STEL)- Sun Trust Rbsn Humphrey Neutral » Buy
Fiserv (FISV)- JMP Securities Mkt Perform » Mkt Outperform
Arbitron (ARB)- Bear Stearns Peer Perform » Outperform
Alliance Imaging (AIQ)- Deutsche Securities Hold » Buy
Anadarko Petro (APC)- Lehman Brothers Equal-Weight » Overweight

Downgrades
Ocean Fin (OCFC)- Sterne Agee Buy » Hold
Preferred Bank (PFBC)- DA Davidson Buy » Neutral
Audiovox (VOXX)- CL King Strong Buy » Accumulate
Woodward Governor (WGOV)- Kevin Dann Buy » Hold
Exar (EXAR)- B. Riley & Co Buy » Neutral
UCBH Holdings (UCBH)- FTN Midwest Buy » Neutral
Sterling Financial (STSA)- FTN Midwest Buy » Neutral
Center Finl (CLFC)- FTN Midwest Buy » Neutral
LG Display (LPL)- Credit Suisse Outperform » Neutral
Nucor (NUE)- CIBC Wrld Mkts Sector Perform » Sector Underperform
Gerdau AmeriSteel (GNA)- CIBC Wrld Mkts Sector Outperform » Sector Perform
Sonic Automotive (SAH)- JP Morgan Neutral » Underweight
Encore Wire (WIRE)- Sterne Agee Hold » Sell
Response Genetics (RGDX)- Caris & Company Buy » Above Average
Urban Outfitters (URBN)- Stifel Nicolaus Buy » Hold
Reynolds American (RAI)- JP Morgan Neutral » Underweight
Votorantim Cel (VCP)- Deutsche Securities Buy » Hold
SanDisk (SNDK)- JMP Securities Mkt Perform » Mkt Underperform
IPC The Hospitalist (IPCM)- Wachovia Outperform » Mkt Perform
Concur Tech (CNQR)- Credit Suisse Outperform » Neutral
CNET (CNET)- Banc of America Sec Buy » Neutral
Medcath (MDTH)- Wachovia Outperform » Mkt Perform
Albemarle (ALB)- JP Morgan Overweight » Neutral
Healthcare Realty (HR)- Morgan Keegan Mkt Perform » Underperform
Health Care REIT (HCN)- Morgan Keegan Outperform » Mkt Perform
Health Care Ppty (HCP)- Morgan Keegan Outperform » Mkt Perform
Ventas (VTR)- Morgan Keegan Outperform » Mkt Perform
Nationwide Health (NHP)- Morgan Keegan Outperform » Mkt Perform
Bankunited Fin (BKUNA)- Oppenheimer Outperform » Perform
Anadarko Petro (APC)- Friedman Billings Outperform » Mkt Perform
Urban Outfitters (URBN)- Lehman Brothers Overweight » Equal-Weight

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"Fast Money" for Monday

Monday's Picks
Pete Najarian likes Pride Int’l (PDE) $45.95

Karen Finerman recommends Golan (GLNG) $20.26

Guy Adami suggest Citigroup (C) $23.12

Jeff Mack thinks Microsoft (MSFT) $29.99 is a buy.


Friday's Results
Guy Adami likes Citigroup (C) $23.73 Close $23.12 LOSS

Tim Seymour recommends NII Holdings (NIHD) $50.66 for consolidation in wireless. Close $50.53 LOSS

Pete Najarian prefers Sasol (SSL) $65.11 for mining.Close $65.94 GAIN

Jeff Macke recommends shorting the Dow with Short Dow30 ProShares (DOG) $59.80. Close $59.86 Gain

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 1-1
Jon Najarian= 4-3
Jeff Macke= 39-30-1
Tim Seymore= 17-14
Guy Adami= 39-34
Pete Najarian= 37-33
Karen Finerman= 34-29-1
Joe Terrenova= 1-1

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

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Icahn on Texaco / Getty Lawsuit

Another funny story about Texaco

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Icahn Does Stand-Up

This is a funny story about his attempted US Steel (X) takeover



Disclosure ("none" means no position):None