WASHINGTON (AP) -- The Federal Reserve, trying to stabilize a shaky U.S. financial system, may give squeezed Wall Street firms more time to tap the central bank's emergency loan program, chairman Ben Bernanke said Tuesday.
And, in an effort to prevent a repeat of the current mortgage mess, Bernanke said the Fed next week will issue new rules aimed at protecting future homebuyers from dubious lending practices.
The rules will crack down on a range of shady lending practices that has burned many of the nation's riskiest "subprime" borrowers -- those with spotty credit or low incomes -- who were hardest hit by the housing and credit debacles. The plan would apply to new loans made by thousands of lenders of all types, including banks and brokers.
It would restrict lenders from penalizing risky borrowers who pay loans off early, require lenders to make sure these borrowers set aside money to pay for taxes and insurance and bar lenders from making loans without proof of a borrower's income. It also would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower's ability to repay a home loan from sources other than the home's value.
I guess it figures that more regulation is seen as the answer to the credit problems. Never mind the fact that artificially low interest rates under Greenspan gave the impression of easy money to the banks and lenders who then determined to pick up the subprime market. Artificially low interest rates are seen as a economic stimulus because the impression of easy money and easy credit sure is appealing to a nation and people deeply in debt. It worked in the '90's and helped stall the necessary recession, and it looks like it may keep the economy out of another recession in the short-term. Unfortunately, this is an unsustainable and deadly practice. Artificial wealth is a short-term answer but absolutely is not a long-term stabilizer of the economy.
The Federal Reserve has a monopoly over money and...
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My total portfolio is currently down 25% or so and nearly every stock that I do own looks eerily cheap. I'm inclined to wait and see what this market brings us over the next 3-4 weeks or so, but I also sure don't want to pass up what opportunities are available now. Hansen is trading at its lowest P/E since 2003 even though nothing has changed with the business; you just don't seem to get these opportunities every day! With a lot of stocks in the red it is very difficult not to be tempted into pulling the buy trigger early. Before going too wild, I would review the situation on the stocks that you're interesting in reinvesting in and see what the story is with the valuation, management, etc. A relatively quick look over the numbers and company's situation can never hurt and will go a long way to possibly narrowing your list of potential buys down.
In the past couple years it has been natural for the market to dip in the summer, but past movements don't guarantee a thing and doesn't help us out with when to buy. 2008 has been the worst year the market's seen in quite some time, and probably the only thing that would turn it around in the short-term is better-than-expected economic performance. While individual stocks and the market don't necessarily follow each other, the general market sentiment certainly can have an impact. This is something to keep in mind, although I would say to a lesser extent if you have a long-term investing time frame.
Really what you want to do is whatever you feel comfortable with. I'm still not sure if I'm comfortable jumping in this early in summer so I may wait a week or two before making any decisions. Confidence and comfort are absolutely necessary and important for long-term investors, although I'll admit both have probably hit new lows this year for me. I wouldn't buy anything until the situation has been analyzed and you feel completely comfortable with the company over a 3-5 year basis. In all...
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Today Hansen has been smacked down to $25, so I thought I'd take a look into it and see if there is good reason for the drop. The stock is at a new 52 week low and it actually hasn't been at these levels since 2006. I already own a bundle of Hansen stock, but an opportunity is an opportunity and I'm willing to increase my position if one is presented.
First, let's do a quick summary of the company's 1Q 2008 results. Net sales increased 27.9% to $212.2 million, net income increased 42.6% to $28.8 million ($0.29 per share) from $20.2 million ($0.21 per share) in 1Q 2007. The Monster brand remains strong and the new drinks in the Monster and Java Monster lines are proceeding as planned. Plans to expand the Monster line into the U.K. are going along as expected.$159.11 million in cash with no debt. One thing that isn't pleasing to see is that cash flow decreased to $25.93 million from $48.03 million in 1Q 2007. In the 10-Q, the decrease is explained a bit more:
For the three-months ended March 31, 2008, cash provided by operating activities was reduced due to a $11.6 million increase in inventories, a $3.8 million increase in prepaid expenses and other current assets, a $3.1 million decrease in accrued compensation and a $1.0 million increase in tax benefit from exercise of stock options. The increase in inventory is attributable to the addition of new copackers, the introduction of new products and planned inventory levels to meet consumer demand.
So the decrease in cash flow generally seems to be due to increased levels of inventory no doubt to meet summer demand and because of the new drinks just released six or so months ago. So the cash flow production decrease seems to be more of a short-term happening rather than a longer-term trend. It's also important to remember that this is typically a relatively slow quarter for the cold beverage industry yet the profit margin still managed to increase. The company's efficiency is excellent and I...
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Starbucks Corp. announced that it will close 600 "underperforming" stores in all major U.S. markets.
Approximately 70 percent of the stores opened since the beginning of fiscal 2006, Starbucks said in a statement.
The Seattle coffee giant said that it will also open fewer than 200 new stores in the U.S. in its fiscal 2009 year. Starbucks operates about 7,000 stores itself and licenses another 4,100 in the U.S.
"We recognize that it is necessary to make decisions that will strengthen the U.S. store portfolio and enable us to enter into fiscal 2009 focused on enhancing operating efficiency, improving customer satisfaction and ensuring long-term value for our partners, customers and shareholders," said CEO Howard Schultz.
Starbucks (NASDAQ:SBUX) said pre-tax charges related to the closings will be about $200 million in asset write-offs that will be recognized in the third quarter of 2008. In the fourth quarter of 2008 and for the first half of fiscal 2009, the company said it expects up to $140 million in lease-related costs. Severance costs are expected to be about $8 million.
Long-term this is probably what had to be done to ensure brand and service quality. This process of closing stores and laying off workers will take a decent amount of time and I'm not expecting the share price to do a whole lot probably for another year or so. It's a bummer that the company chose to do this in the start of the summer season which often is a great time for beverage sales (although Starbucks has a more rounded offering of drinks so it isn't quite as big a deal).
I will be looking to add to my position over the next 1-2 years depending on how this transition goes and as we find out what else Schultz and company have in mind. Starbucks has tremendous brand power, and right now the world economy is going through a somewhat difficult time. Schultz understands this business more than anyone else so I have a lot of confidence in the...
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Corn, Wheat Fall After U.S. Farmers Planted More Than Expected June 30 (Bloomberg) -- Corn fell the maximum permitted by the Chicago Board of Trade and wheat dropped the most in 13 weeks after the government said U.S. farmers planted more of both crops than previously expected.
Corn was sowed on 87.3 million acres, up 1.9 percent from a March forecast, and spring-wheat planting jumped 6.8 percent to 14.197 million acres, the U.S. Department of Agriculture said in a report today. Corn prices doubled in the past year to a record on June 27, and wheat jumped 13 percent this month after reaching a record in February. The U.S. is the world's largest corn grower and wheat exporter.
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Corn futures for December delivery fell the CBOT's 30-cent limit, or 3.8 percent, to $7.57 a bushel, the biggest percentage drop since Jan. 23. The most-active contract reached a record $7.9925 on June 27. Corn is still up 26 percent this month, the biggest monthly gain since June 1988.
This is an interesting, although in hindsight not surprising, thing to see. Record prices are bound to attract farmers to plant more of those respective crops, and in this case it was corn and wheat. Most of that corn will probably go to the inefficient, costly, terribly executed ethanol program, and a lot of the wheat will most likely be exported given the shortage of food in quite a few countries. I wouldn't expect corn prices to drop much more, given the nature of the crop (it's a crop that farmers have to rotate every year or two in order to keep the soil in quality shape) it just isn't sustainable and I don't think prices are falling too much more over the next year or so. It's unlikely that the federal ethanol program will be terminated anytime soon (unfortunately), so demand and production will most likely continue to rise. The question is if the corn growers can keep rotating their crops in order to keep the soil at a sustainable level. E10 is a far better way to go because it...
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Lately I've been going bargain hunting after these wild couple of days. As I've written before, I've more or less narrowed my choices down to Yamana Gold, Hurco, and Middleby.
I'm inclined to go with Middleby, the boring oven manufacturer (among other things). The market didn't like the company's most recent results, but it certainly doesn't justify the stock getting hit down to a new 52 week low below $45. The company is a leader in commercial ovens and owns the top brands in the market, international expansion is picking up, and the company has a dedicated management team. New, efficient ovens are picking up steam amid higher energy costs, and barring a severe slowdown in the near future (which I don't expect to happen), the company's business should not halt too much. Margins are holding relatively steady considering today's environment. One thing I don't like is the company's high debt level due to using debt to finance acquisitions, but the company has managed debt well over the past several years and cash flow production has been rising each year for the past four years (and this year is off to a good start when compared to last year). So, considering how much the stock has been hit even though nothing has changed with the core business, I see Middleby as my likely next purchase within the next couple weeks.
Hurco is very tempting and the stock is in a similar situation to Middleby, but over the past two quarters the company has experienced negative cash flow production which I haven't gotten a good explanation for. The balance sheet is very clean, which certainly is a plus in a hostile economic environment. The company is a good hedge to a lower dollar and has great opportunity in Asia (although, come to think of it, Middleby also has a lot of opportunity there). So Hurco certainly has a lot of pluses and if I did have more cash I probably would open a position at these prices. But, cash is limited, and for now I need to pick one company.
Gold surged to $912.30 in New York yesterday and was up $32.70; silver closed at $17.12, up 64 cents.
Gold surged in what was the largest one day move since 1985 as the dollar weakened, oil prices surged to new record highs and stock markets fell sharply. While gold was up some 3%, most U.S. stock indices were down some 3% and this continued in Asia and early European trading with gold rising to over $920.
This is what is great about having exposure to gold. Not only is it an inflation and economic hedge here in the U.S., but it is also a pretty good hedge against worldwide economic troubles as well. I was really hoping to buy more Yamana Gold around $15, but in the past couple days the stock has jumped past $16. There are a lot of interesting opportunities in the market right now (especially after yesterday's slaughtering), but I'm cautious to get too gung-ho right away. Over the past few years the summer months haven't been especially good and often quite a few opportunities come along later on. If I were a betting man, I would say that we have not hit the bottom in the markets, but there are companies that are down for no good reason at all (Hansen, Middleby, possibly Hurco, etc.) and those are what you want to look for in a time like today.
In light of the Fed's decision yesterday to keep the Federal Funds rate at 2%, I think it's well worth getting opinions on this matter. I'm sure many of you who read this know who Ron Paul is, former presidential candidate and one of the few in public office (and possibly the only) who discusses monetary policy seriously and the major downsides to a huge central bank deciding monetary issues. Yesterday Paul made a video with his thoughts on the Fed's move, inflation, and other matters in the economy today.
I highly encourage people to research Ron Paul's writings, videos, and other such things on monetary policy, the economy, and policies in general. Few politicians understand economics, Mr. Paul is one of them.
I wouldn't be surprised if we saw a stagflation period similar to the 1970s. The reason I say this is because the Fed has been delaying a correction for 20 years or so, and it cannot last. Lowering interest rates may seem like a good fix in the short-term, but over the long run delaying bubbles from popping is a very dangerous thing to do. I'm not sure what the end result will be, but I do not believe a happy end is in store for this monetary policy. If stagflation does occur, the last thing we want to do is implement further disastrous policies like we did in the 1970s. What's interesting to note is that 1971 was the last year the U.S. was on at least some remnants of a gold standard, once the gold standard was abandoned the money supply greatly increased. Possible correlation to the stagflation period soon thereafter? I believe so.
What's important to note here is that it isn't only the U.S. using a fiat monetary system with large central bank in charge of monetary issues. All the major economies of the world are using a fiat monetary system (unbacked paper money) and have central banks running the show. It certainly makes you think about what the future holds given the terrible failure of fiat monetary systems through all times of history. The downfall of the Roman Empire was greatly helped through a debasement of the currency in an effort to stimulate the economy (sound familiar?).
To understand fiat money you must understand the role of government. Politics and economics come clashing on the issue of monetary policy and it is impossible to discuss monetary policy without discussing both politics and economics somewhat. The only thing that is behind the unbacked paper money that we use day in and day out is the credibility of the government. Thing is, when the government gets deeply in debt and gets involved in reckless spending, abusing the idea of paper money becomes an easy and natural thing to do. Fiat money relies way too much on a...
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There's a good chance I'll have some investing money available in a month or so and I've been looking at a few companies. Hurco and Yamana Gold are the two that strike me as good opportunities right now.
As I've mentioned before, I find Hurco attractive because they are a leading business in their field (computerized machine tools) which should be seeing increased business over the next few years, especially internationally. Hurco also represents a relatively short-term hedge to U.S. inflation because a good portion of their sales are outside of the U.S., and a weaker U.S. dollar has meant higher sales in Asia and Europe. Another plus is that the company's Asian sales have been rapidly increasing and still represent less than 10% of overall sales. So the company has great opportunities worldwide to benefit from growing economies which are becoming more and more modernized.
The stock has been hit hard since last May because the market didn't like the company's 2Q results, but I don't see anything major that changes the company's long-term strength and potential. The balance sheet is very clean with nearly $30 million in cash with no debt. One thing that I don't like is that operating cash flow has been in the red the past two quarters; I will investigate this further because it certainly isn't a pleasant thing to see.
Anyway, just wanted to get an analysis going, I'll be doing more research as time allows and I will post when I find anything useful.
JOHANNESBURG (Reuters) - Former Federal Reserve Chairman Alan Greenspan warned on Tuesday the U.S. economy was on the brink of a recession, with the chances of that happening at more than 50 percent.
The U.S. economy has been hit by a credit crisis which began in the sub-prime mortgage market, prompting a series of interest rate cuts to help boost the economy. But price pressures are growing, making more rate cuts unlikely.
Asked if the U.S. economy was in recession, Greenspan said: "We are on the brink."
A quick recovery was unlikely, he said via video link to a conference in Johannesburg. "A rebound at this stage is not something I think is in the immediate outlook," he said.
"There are still very considerable structural problems remaining in the financial system. They will remain for a while. It's going to be very difficult. There are a lot of unexpected adverse events out in front of us," Greenspan said. Greenspan said he did not believe arguments that the housing problems in the U.S. were due to interest rates being too low during his tenure. "As far as I'm concerned, the data do not support it (that argument). The housing bubble is clearly an international phenomenon." (Bold added.)
The last part of the article is the main reason I posted this article. Greenspan says low interest rates did not create the housing bubble, although it is quite clear he is simply trying to cover his own tracks. Interest rates were lowered greatly around the turn of the century to try to soothe the economy from a bursting tech bubble (also created to artificially low interest rates). Low interest rates means more money that can be printed and sent to banks because of the low rates. Banks all of a sudden can get large amounts of capital for very cheap rates, and the subprime mortgage market picks up steam because banks have the money to lend out to riskier customers looking to buy a home. This created the housing bubble which has been bursting since it...
Thoughts on inflation, monetary policy, and opportunities they present
June 23, 2008
Inflation for awhile now has been considered necessary for an economy to prosper, which simply is not the case. Just using basic common sense you see that an ounce of silver today would buy the same amount of gasoline (roughly four gallons) today that it did 50-60 years ago; while a Federal Reserve $1 bill that in the 1940s bought four gallons, today only buys one quarter of a gallon. Inflation is merely the consequence of a fiat monetary system as well as a huge central bank.
It's impossible to talk about central banks without getting real political, but it is a vital conversation and without a basic understand of monetary policy you simply can't understand economics, in my opinion. The Federal Reserve is such a force behind the economy (good or bad) that you simply can't ignore it. A fiat monetary system is very handy for governments, but unfortunately throughout history all of them have collapsed. Ignoring monetary policy for granted as many people (including economists) do is a dangerous path.
I believe the Federal Reserve system silly, outdated, and completely out of place in a free market. How are a few people from the world's largest banks supposed to know what's best for the American economy? Truth is, there isn't one decision with interest rates that will soothe inflation and bring the economy back up to speed. The Fed has been trying this game for nearly a century and yet inflation still continues to eat away at the dollar. The Fed is in between two hard objects and will have to choose which of the evils equals the least amount of pain for the economy. Not a great situation to be in, to say the least.
Personally I don't pay a whole lot of attention to the short-term decisions that the Fed makes, because the result in the long run will be the same: inflation will continue to make its move, the dollar will lose purchasing power, and most likely new bubbles will be created and "solved" by artificially low interest rates.
Treasury Secretary Henry M. Paulson Jr. plans to call today for the Federal Reserve to be given new, explicit powers to intervene in the workings of Wall Street firms to protect the financial system, adapting his vision of how the financial world should be regulated to reflect the lessons of the collapse of Bear Stearns.
"Our nation has come to expect the Federal Reserve to step in to avert events that pose unacceptable systemic risk," Paulson plans to say in a speech today, according to prepared remarks obtained by The Washington Post. But the central bank "has neither the clear statutory authority nor the mandate to anticipate and deal with risks across our entire financial system."
"We should quickly consider how to appropriately give the Fed the authority to access necessary information from highly complex financial institutions and the responsibility to intervene in order to protect the system," Paulson plans to say, "so they can carry out the role our nation has come to expect."
This is absolutely ridiculous. The idea that lack of regulation is what caused the Bear Stearns situation is simply wrong. On top of this, how in the world is a central bank that is already wildly out of control supposed to "intervene" further into Wall Street in what is supposed to be a free economy? Just the idea that the Fed knows what's best for the economy is enough to show that this is complete nonsense. Why people don't notice what the Fed has done over the past century is beyond me. The Fed has created numerous bubbles through artificially low interest rates and has tried to keep those bubbles from popping by once again lowering interest rates (the situation that we have today with the subprime mess).
I'm not saying that I know the solution to the monetary problem that we face today, but I am certain that more regulation and interventionism would only feed the problem and make it much worse over the long run. I lean to a...
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SPRINGFIELD, N.J., June 13, 2008 (PRIME NEWSWIRE) -- The Board of Directors of Village Super Market, Inc. declared a 7% increase in the quarterly cash dividend. The increased quarterly cash dividend is $.30 per Class A common share and $.195 per Class B common share. The dividends will be payable on July 24, 2008 to shareholders of record at the close of business on July 2, 2008.
Village Super Market operates a chain of 25 supermarkets under the ShopRite name in New Jersey and eastern Pennsylvania.
Village Super Market reported its results just a couple weeks ago (see here), and although the company has slowed down a little bit this year so far, they are still managing to work along at a nice rate considering economic conditions. While a dividend increase is always nice to see (it's become a predictable happening with VSM!), I hope management is taking it slowly and not putting too much weight on the dividend. The company is in good financial shape so I'm not too concerned, and I do believe management knows what it is doing. The dividend increase this quarter is nice but still not as large as ones in the past year or so, so management seems to be getting a bit more cautious in terms of paying out cash to shareholders.
The company is still cash flow positive and the balance sheet remains very healthy, so the company is in a good position to work through whatever economic troubles may be ahead. This is a very interesting business to say the least and I'm very comfortable with the stock as a long-term investment.
Monday June 16, 11:13 am ET By John Wilen, AP Business Writer
Oil futures shoot to a record near $140 a barrel on falling dollar, North Sea fire
NEW YORK (AP) -- Crude oil futures hit a record near $140 a barrel Monday as investors shrugged off Saudi Arabia's promise to boost production and instead focused on a weaker dollar. Retail gas prices rose to a record $4.08 a gallon.
Light, sweet crude for July delivery soared to a trading record of $139.89 before retreating to trade up $2.10 at $136.96 a barrel on the New York Mercantile Exchange.
I've been thinking about how high gas/oil will go this summer. People who say gas will consistently rise all the way up to $10 a gallon have no understanding about supply and demand or basic economics. There will be a point when people simply will not pay higher prices and that will be the cutoff point. In my area people are starting to conserve gas much more than before, but there is still a ways to go before any major conservation picks up. Once prices get high enough, there will be a point when people simply will not understand why there are federal blocks on nuclear energy, oil drilling, and now extreme regulations on coal while energy and food prices (both of which are very much connected) hit record levels. Of course, there are some politicians who see the only cure for high gas prices is a nationalized gas industry (heaven forbid), but I highly doubt people will ignore the fact that there are huge potentials for energy diversity within the U.S.
June 6 (Bloomberg) -- Gold jumped the most in six months after the U.S. jobless rate had the biggest gain in more than two decades, spurring a drop in the dollar. Silver also rose.
The unemployment rate increased to 5.5 percent in May from 5 percent in April, marking the biggest increase since February 1986, the U.S. Labor Department said today. The dollar dropped as much as 1 percent against the euro. Gold has gained 33 percent in the past 12 months as a slump by the dollar boosted demand for the metal as an inflation hedge.
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Gold futures for August delivery rose $23.50, or 2.7 percent, to $899 an ounce on the Comex division of the New York Mercantile Exchange. That marks the biggest gain for a most- active contract since Nov. 23.
I'm becoming less and less confident in the long-term strength of the dollar. A fiat monetary system in and of itself is almost doomed to fail as it has many times throughout human history. Of course, it is a matter of opinion but I am starting to see gold as a great option for the long run. It's pretty clear that as long as the Federal Reserve is printing money like nothing else, gold (and silver for that matter) will steadily rise over the long run. At least, gold and silver are good hedges for future inflation. It's also important to remember that stocks (i.e. companies) are often safe places in times of very hard economic hardship. In times of extreme inflation or economic hardship individual stocks actually aren't a bad place to be. During the Great Depression years there were many stocks who did extremely well (including Coca-Cola), it's just a matter of finding the necessity companies whose products people love and will continue to buy through rough times. This is something Peter Lynch talks about and I'm starting to get more interested in this perspective.
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