LSI: Barclays Backs Off Bearish Stance As Enterprise Spending Shows Signs Of Life

LSI (LSI) shares are trading modestly higher this morning after Barclays Capital analyst Romit Shah raised his rating on the shares to Equal Weight from Underweight. He also boosted his price target on the stock to $6, from $5.

The move reflects a new survey from Barclays hardware analyst Ben Reitzes that found an improving enterprise spending environment; Shah notes that Reitzes could be a key beneficiary with 75%-85% of sales from enterprise storage ICs, systems and networking. The survey found that storage systems sales were better than expected in Q3, and should grow in the mid-to-high single digits in Q4.

LSI today is up 10 cents, or 1.8%, to $5.54.

Fastenal [FAST]

Fastenal Co (FAST) is due to release Q3 earnings on Monday 12th October.

The market will be looking for any evidence of margin pressure and the management guidance will be closely scrutinized.

The Short Interest (as measured by Percent Shares Outstanding On Loan) for Fastenal Co has risen over the past month and now stands at 14%.

Fastenal Co Utilization is 62% which is significantly higher than the North American Capital Goods sector average of 10%.

To download the whole article click here.

Ongoing Credit Contraction

Check out the consumer credit contraction chart, via David Rosenberg — it is astonishing:

>

United States: Consumer Credit Outstanding (1940-2009)

(year-over-year difference, US$ blns)

Credit crunch

Source: Haver Analytics, Gluskin Sheff

>

Rosie notes that “It’s not just weakening loan demand — financial institutions are rightly becoming more judicious as consumer creditworthiness deteriorates under the weight of mounting joblessness.”

We also know that U.S. credit card defaults hit a record-high in August (Fitch data) — charge-off rates rose to 11.52% from 10.55% in July.

DR also adds:

“If the household debt/income ratio were to ever revert back to 1983 levels, which is exactly where the employment/population ratio has fallen to, we would be taking off at least another $5 trillion of deleveraging left in the pipeline as far as the consumer is concerned. This is going to prove to be a very lengthy process.”


James Simons: Legendary hedge fund pro calls it quits

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In the hedge fund business, there are many who can post a few years of strong gains. But how many can beat the averages for three decades?

Well, it's a rare feat. And, it means you'll be a billionaire.

This has been the case with James Simons, who is the leader of Renaissance Technologies. However, according to a recent letter to investors, he plans to retire by the end of the year. He is 71 years old.

Over the past couple years, Simons has been loosening the reins at the firm, so as to provide for a smooth transition. Actually, in his place will be co-CEOs: Bob Mercer and Peter Brown.

Continue reading James Simons: Legendary hedge fund pro calls it quits

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Russia Soaring

For whatever reason, we've been hearing calls lately for Russia to lose its BRIC status because it's not in the same league as Brazil, India, or China. While some might take offense to this, other investors in Russia probably don't care as long as its stock market continues to perform like it has in recent months. As shown below, Russia's...


American Superconductor Jumps; Rumor Of ABB Bid

And the rumor mill rolls on.

American Superconductor (AMSC) shares are getting a lift today from rumors that the company might be a takeover target for ABB (ABB) , the Swiss utility construction company formerly called Asea Brown Boveri. I suppose that makes sense on the surface; AMSC designs wind turbine systems, provides “smart grid” technology and sells electrical control systems. TheFlyOnTheWall.com says the rumor is that ABB will bid $47 a share.  TheFly notes that last month there were rumors of a bid from General Electric (GE).

AMSC today is up $1.20, or 3.8%, to $32.57.

Et tu Bernanke?

Societe Generale's Dylan Grice, the Robin to Albert Edward's Batman, has published a fresh bit of research on Friday. As can be expected of the bearish duo, the note does not disappoint on the bleakness front. In fact, it hints at no less than a repeat of the fall of Rome. Some choice snippets from Grice,...

IZEAFest at SeaWorld Recap

After attending IZEAFest @ SeaWorld last weekend, I was planning to share a summary of the event here. However, I see that Convention News TV has already created a very nice video detailing the event, including clips from speakers such as Chris Brogan (@chrisbrogan), Aaron Brazell (@technosailor), Rae Hoffman (@sugarrae), and others. IZEA and other […]

Riverbed Rallies On Rumors Of Juniper Bid

In advance of the weekly event known as Merger Monday, we’ve got a new event on the Street: freaky rumor Friday.

Ergo, Riverbed (RVBD) shares are trading higher today, in a move Briefing.com attributes to rumors that the company, which makes wide-area network optimization products,  might be a takeover target for Juniper (JNPR). No real detail here yet; stay tuned for more, if there is any more.

RVBD today is up $1.15, or 5.1%, to $23.57.

A new twist on people familar with the matter

Journalists may not advertise the fact, but leaked information and documents from anonymous and not-so-anonymous sources come in useful in the news business. Regular readers of FT Alphaville will be familiar with the bandits, those well-informed individuals who are themselves familiar with all kinds of interesting matters....

Ranking Tim Geithner’s BFFs: Blankfein, Parsons, Fink

As The Wall Street Journal reports today, Treasury Secretary Timothy Geithner has kept in very close contact with Wall Street titans during his first year in office.

If this were a popularity contest than Lloyd Blankfein would be a winner. Geithner called or met with the Goldman Sachs Group CEO 22 times in the first seven months of the year. A close second was Citigroup Chairman Richard Parsons, whose name appears 17 times on Geithner’s calendar. The WSJ obtained Geithner’s calender, which includes his scheduled meetings and phone calls he made and received during his first seven months in office.

Roger Altman, chairman of Evercore Partners, had two phone calls and one meeting with Geithner. Not bad for the head of a boutique M&A advisory firm when you consider that Bank of America CEO Ken Lewis has the same number of mentions. (In some ways, that isn’t surprising since BofA’s relations with Washington have been strained by the Merrill Lynch deal. As for Altman, he was a deputy Treasury Secretary under Clinton and remains a Democratic insider.)

But look at poor Barclays Capital chief Bob Diamond and Morgan Stanley John Mack? They had only one phone call each with Geithner, or as many as Bill Cooper, chief of Twin City Federal Bank of Wayzata, Minnesota, was granted.

Here is a look by the numbers at Geithner’s deal-maker dance card:

Lloyd Blankfein, Goldman CEO—Mentions in Geithner’s Calender: 22

Richard Parsons, Citigroup chairman—Mentions in Calender: 17

Larry Fink, BlackRock CEO— Mentions: 13

James Dimon, CEO J.P. Morgan Chase—Mentions: 10

Robert Nardelli, Former Chrysler CEO—Mentions: 1

Ken Lewis, BofA CEO—3

Roger Altman, chairman Evercore Partners—3

Walter Massey, BofA chairman—2

John Mack, Morgan Stanley CEO—1

Bob Diamond, Barclays CEO—1

Paul Calello, head of Credit Suisse Investment Bank—1

Robert Wolf, CEO UBS (North America)—5

Jeff Immelt, General Electric CEO—4

Ed Liddy, former American International Group CEO—2

Hank Greenberg, former AIG CEO—1

Stephen Schwarzman, Blackstone Group chairman—1

Pete Peterson, Blackstone co-founder—2

Bill Gross, PIMCO co-founder—1

John Sweeney, head of the AFL-CIO—1

MGM Mirage CEO Bobby Baldwin—1


On Nell Minow and Chesapeake…

antique mapsYesterday, I finally got a copy of the current issue of the New Yorker with the profile of Nell Minow (only the abstract is available online for non-subscribers). As footnoted regulars know, I’ve long been a fan of Nell and last year after Barack Obama won the election, strongly suggested that she would be a great choice to head the SEC.

The New Yorker profile starts out with an example about the piggishness of Chesapeake (CHK) Chairman and CEO Aubrey McClendon, who’s something of a frequent flyer here on footnoted and prominently mentions a certain map collection that we uncovered in Chesapeake’s proxy.

The article reminded me about this 8-K filed by Chesapeake last week that’s been kicking around, but which we hadn’t yet written about. In it, the company is writing new employment contracts for several top executives because the old ones expired on Sept. 30. Snore city, right?

But when we started to drill down into CFO Marcus Rowland’s new contract we nearly popped our eyeballs on this:

2008 Incentive Award. In addition to any bonus compensation under paragraph 4.2 of this Agreement, the Company hereby grants to the Executive an incentive award in the amount of Nine Million Six Hundred Twelve Thousand Five Hundred Dollars ($9,612,500.00) (the “2008 Incentive Award”) to be paid in four (4) equal annual installments.

At the top of the filing, the company tries to justify the hefty award by noting that “the Executive’s contribution to the Company and the Company’s consummation of the joint venture transactions consummated by the Company during 2008 that increased the Company’s intrinsic value by at least $10 billion”. That may be true (even if Chesapeake shareholders didn’t do quite so well in 2008 — the stock declined around 60%). But it’s still an awful lot of money. Almost enough to buy the map collection, in fact!


NCR Spikes On Takeover Rumors

Easy go, easy come.

NCR (NCR), which yesterday got clobbered on news that CFO Anthony Massetti is leaving the company to take a job at Avaya, today has reversed course on a round of rumors that the company might be an acquisition target. Both Briefing.com and StreetInsider.com have taken note of the rumors. Just who might want to buy NCR, which makes ATMs and  point-of-sale terminals, so far is unclear.

NCR, which yesterday tumbled $1.72, or 12.6% to $11.82, today is up 91 cents, or 7.7%, to $12.73.

Is Today April Fools Day?

First the Obama Peace Prize, now this headline:

Saudis ask for aid if world cuts dependence on oil

There are plenty of needy countries at the U.N. climate talks in Bangkok that make the case they need financial assistance to adapt to the impacts of global warming. Then there are the Saudis.

Saudi Arabia has led a quiet campaign during these and other negotiations — demanding behind closed doors that oil-producing nations get special financial assistance if a new climate pact calls for substantial reductions in the use of fossil fuels . . .

“We are among the economically vulnerable countries,” Al Sabban told The Associated Press on the sidelines of the talks ahead of negotiations in Copenhagen in December for a treaty to replace the Kyoto Protocol, which expires in 2012.”This is very serious for us,” he continued. “We are in the process of diversifying our economy but this will take a long time. We don’t have too many resources.”

Saudi Arabia, which sits atop the world’s largest proven oil reserves, is seeing economic growth slide because of fallout from the global meltdown, but experts still expect the country, flush with cash from oil’s earlier price spike last year, to be better able than other nations to cope with the current crisis.”

Seriously — is someone pulling our collective legs?


Research in Motion (RIMM): Selloff created opportunity

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"Research In Motion (NASDAQ: RIMM) remains one of best long-term investment plays on the smart phone tidal wave," says growth expert Toby Smith in his ChangeWave Investing advisory.

"The stock recently fell sharply after issuing a solid, but not blowout, earnings report last night. In my view, the selloff created a buying opportunity.

"The Street's dismay was due to the pre-announcement build-up by many analysts who anticipated a blow-out quarter. When the numbers and outlook failed to live up to their billing, the stock got whacked.

"In our view, this looks like a good buying opportunity for one of the dominant players in the smartphone sector -- and one of the hottest we've identified over the long-term.

Continue reading Research in Motion (RIMM): Selloff created opportunity

Research in Motion (RIMM): Selloff created opportunity originally appeared on BloggingStocks on Fri, 09 Oct 2009 10:00:00 EST. Please see our terms for use of feeds.

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Materials and Energy Score Big

The Energy SPDR (XLE) and the Materials SPDR (XLB) started October with a bang. Over the last five days, XLE is up over 8% and XLB is up over 6%. The Financials SPDR (XLF) comes in a close second with a 5.74% gain. All three easily outperformed the S&P 500.

Click this chart for details.

091010perf



ONE WAY OUT

Maybe it was Australia's decision to hike rates last week, the first monetary tightening among the G20 nations since the financial crisis began. Or perhaps it's just the recognition of economic fate. Whatever the catalyst, Fed chief Ben Bernanke is now talking openly of the "exit strategy."

"My colleagues at the Federal Reserve and I believe that accommodative policies will likely be warranted for an extended period," Bernanke said yesterday, based on prepared remarks published by the Fed. "At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road."

Secondary Sources: Trust, Loans Modifications, Creating Jobs

A roundup of economic news from around the Web.

  • Trust: On voxeu, Jeffrey V. Butler, Paola Giuliano and Luigi Guiso write that too much trust is as much of a problem for markets as not enough. “Virtually every commercial transaction involves trust, and more trusting societies tend to be richer. But does it pay individuals to trust? This column suggests that relationship between trust and income is not always increasing but is instead hump-shaped. Individuals that mistrust too much tend to miss profitable opportunities, while those who are too trusting are cheated abnormally often.”
  • Loan Modifications: Jeffrey Miron writes on his blog that the Treasury loan-modification program is misguided. “No one should object if a lender, without subsidy and without pressure, renegotiates a moretgage loan. That can make sense for both lender and borrower because the foreclosure process is costly. But Treasury’s attempt to subsidize and coerce loan modifications is fundamentally misguided. It means many homeowners will stay in homes, for now, that they cannot really afford, merely postponing the day of reckoning. Treasury’s policy is also misguided because it presumes that everyone who owned a house before the meltdown should remain a homeowner. Likewise, Treasury’s view assumes that all the housing construction over the past decade made good economic sense. Both presumptions are wrong. U.S. policy exerted enormous pressure for increased mortgage lending in the years leading up to the crisis, thereby generating too much housing construction, too much homeownership and inflated housing prices. The right policy for the U.S. economy is to stop preventing foreclosures, to stop subsidizing mortgages, and to let the housing market adjust on its own. Otherwise, we will soon see a repeat of the fall of 2008. “
  • Creating Jobs: Robert J. Shapiro offers suggestions for Washington to create jobs. “The most important jobs measure in the February stimulus was assistance to the states (and through them, to localities), so their own budget squeezes don’t force them to lay off so many teachers, police, and other public employees. Their budget constraints are still growing worse — an important part, because unemployment is still rising. The most efficient way for Congress and the President to limit additional jobs losses in 2010, then, is to provide perhaps another $100 billion in assistance to the states. The other measure now getting attention is a tax break for businesses that create new jobs, an idea the President promoted in his campaign but which never made it into the stimulus. Here’s how it works: Businesses would receive a tax credit for the first year of payroll taxes on new employees or those moving from part-time to full-time, and a credit for half as much in the second year. It’s not very well targeted, since you end up subsidizing jobs that would have been created without any tax break. (Keep in mind, falling employment is a net result, with some businesses adding jobs and others cutting them.) But it is well focused on jobs, so long as we also include some conditions on those who claim it. For example, a new business should have to be in place for at least six months before qualifying, to head off scams where people close down existing firms, reopen them, and then use all their existing employees to claim a big tax benefit. And a firm’s total wage costs should have to rise, so employers don’t just fire and rehire workers in order to qualify. We tried a version of this tax break in the 1970s, and most economists who’ve looked at it believe it did some good.”

Compiled by Phil Izzo


What Peaked at the Same Time as Oil Prices? Lots of things.

We know oil prices peaked in the third quarter of 2008--in fact in July 2008. But what else peaked about the same time? It turns out when you look at the data, lots of things:


US Consumer Credit (credit card debt, auto loans, etc) peaked in July 2008.

It seems to me that the current crisis is credit driven, which is why it is so widespread. I had expected a credit crisis to result from the rising price of oil, because the rising price of price would choke back growth, and this would likely lead to debt defaults. But as I look at the data, I discover other relationships I didn't really expect.


Total Employee Compensation, from the US Bureau of Economic Analysis

It turns out that total US employee compensation peaked in the third quarter of 2008 (I don't have the data by month), so it peaked at the same time a peak oil. As I look at the breakdown of this, I find the government employee compensation has continued to rise since the peak.


Private industry wages, from the US Bureau of Economic Analysis

What has really fallen since the peak is private industry wages. The above data also peaks in the third quarter of 2008. The amounts shown are annualized quarterly amounts (seasonally adjusted). In some sense, private industry wages drive everything, since without these, people would have difficulty buying anything, or paying taxes, or paying back debt. The fact that these are as small as these are-- only $6.6 billion a year at their peak; now down to $6.2 billion in the second quarter of 2009 is concerning.


US Refiners average acquisition cost of oil, EIA

We know that oil prices peaked. This is how the prices refiners paid for oil (including US produced and imports were affected). Prices dropped a lot, but it turns out they only dropped to about the price that was being paid at the beginning of 2005.


US Average gasoline price, EIA

Gasoline prices rose, but they didn't rise nearly as much as did the price of oil. This is to be expected, because part of the price of gasoline is people's wages, and fixed expenses, and these did not rise nearly as much as the price of oil.


US natural gas prices, EIA

Natural gas prices hit their peak at about the same time. What is striking to me is the huge difference between what producers are paid at the well head and what residential customers pay. The peak gas price, from a residential point of view was about $20 per 1000 cubic feet. It is now down to $15 per 1000 cubic feet. But the price at the wellhead reached a peak of $11 per 1000 cubic feet, and dropped to something in the $3 to $4 range.

We hear that natural gas is selling at a low price per Btu relative to oil, and it is, at the wellhead. But for a residential customer, the price still isn't very low. There are a lot of costs in the production of natural gas, beyond wellhead costs. It seems to me that at least some of these costs are thanks to "deregulation".


US average electricity price, all sectors combined, EIA

One thing I had not expected was the extent to which electricity prices have been rising over time, and the fact that their prices, too, peaked in the summer of 2008. Electricity prices tend to be higher in the summer each year, because more natural gas is used in summer, and it tends to be more expensive than coal.

One of the things that is concerning to me is the rise of electricity prices over time that the above graph shows. In the paper Accounting for Growth, the Role of Physical Work by Robert U. Ayres and Benjamin Warr, Structural Change and Economic Dynamics, February, 2004), Ayres and Warr show a model that indicates that growing energy efficiency, together with greater energy inputs, explain most of the rise in GDP between 1900 and 1998.


Electricity prices and electrical demand, USA 1900 - 1998, from Ayres and Warr paper cited above

In the same paper, they indicate that the declining real cost of energy, particularly electricity, and the rising use of the much cheaper electricity, fed economic growth in the 1900 to 1998 period. The problem we have now is that we are getting to precisely the opposite of this situation--electricity prices are now rising, and use falling. This is not normally a formula for economic growth.

There are no doubt several reasons for the rise in electrical prices:

Deregulation. With many more players, each trying to make a profit, prices didn't go down, as many had thought they would.

Rise in oil prices. Oil is used to transport coal, so as oil prices rise, electricity from coal can be expected to increase in price.

Law changes to reduce coal pollution In order to reduce sulphur emissions, electricity producers bought lower quality coal that needed to be shipped longer distances. This reduced the efficiency of the electrical plants and increased transportation costs.

Shift in mix. The shift in mix of electrical production has shifted to more natural gas and to more wind. These tend to be higher cost, and thus raise costs.

Going forward, there may be additional reasons for cost rises as well:

Cap and trade laws. These will add costs and shift toward higher cost sources of generation.

Cost of grid improvements These are badly needed, especially if wind is added.

Declining demand. There are still huge overhead costs to cover, even as demand declines, as it has recently.

While the rise in electrical price may be inevitable, it can be expected to have a negative impact on economic growth, just as a rise in oil prices above a certain level stifles economic growth.


Coal price graph from EIA

I might also note that coal prices (used in electricity production) peaked during the same period.


S & P 500 prices (graphs by author using S & P beginning month data)

As everyone know, stock market prices also declined in the same period, but their peak came earlier--back in 2007.

I haven't figured out a way to look at how people's incomes were affected by the many changes affecting them--falling stock markets, falling housing prices, declining debt availability, and declining wages. I did figure out a way to look at a couple of these things simultaneously- debt and income.

The Federal Reserve shows information on US domestic non-financial debt. This would seem to include mortgage debt, credit card debt, auto debt, and most other individual debt, but not debt used, for say, purchasing stocks and bonds, or debt of businesses or governments. It seems to me the increase in domestic non-financial debt in some sense gives a sense of how well off people feel they are. As the amount of debt increases, people can buy more and more "stuff". If we add the change in this debt, to the amount of personal income, it give sort of a measure of how much the person had to spend in a year.


Personal Income (from BEA) and Personal income adjusted by Increase or Decreases in US Domestic Debt (from Federal Reserve)

Looking over the long term, additional debt tended to increase funds available to the US population. The amount of debt added got larger and larger during the early 2000s.


Personal Income (from BEA) and Personal income adjusted by Increase or Decreases in US Domestic Debt (from Federal Reserve), quarterly

If we look at recent quarterly data, one can see how the decline in personal income has combined with the reduction in debt to provide a "double whammy" to individual. While personal income hit a peak in the summer of 2008, personal income adjusted for debt reached a peak earlier--back in the fourth quarter of 2007. As mortgage debt started to contract (lead partly by falling housing prices), this started to affect homeowners even before the drop in consumer credit (auto loans and credit card debt. So this graph helps show why people started feeling poor, even earlier. Of course, the drop in the S &P 500 didn't help either.


Data underlying previous graph.

Nobel Peace Prize Links

Once again favoring material that focuses on the VIX and volatility, options, market sentiment, and ETFs, here are some of the posts from around the blogosphere (loosely defined) during the past few days that have given me something to ponder: