Archive for 2005

  • Mmmm…Earnings Restatement
    , August 10th, 2005 at 4:14 pm

    Last year, Krispy Kreme Doughnuts blamed a sales shortfall on the popularity of the Adkins Diet. That may be partially true, but it covers over another problem. That being, the stock is Krap.

    Krispy was simply getting kreamed and it started playing fast and loose with the books to try and catch up. Krispy was trying to “manage” its earnings. It wanted to tell Wall Street what Wall Street wanted to hear. The accounting soon grew out of hand, and the company could never match the image they wanted to project.

    So, they lied.

    Today, Krispy Kreme said that it’s going to restate earnings for the last four years. The company overstated profits by about $22 million. A committee reporting to the board of directors found that the “number, nature and timing of the accounting errors strongly suggest that they resulted from an intent to manage earnings.” The committee pinned the blame on former Chairman Scott Livengood, and former COO John Tate.

    The company has hired Stephen Cooper as the new CEO. He’s made some dramatic moves so far, like firing one-quarter of the work force. He even sold the company jet. (Krispy Kreme had a jet?)

  • Oil Over $65
    , August 10th, 2005 at 3:35 pm

    The market is down again today thanks to oil fears. Oil is now over $65 a barrel. I just don’t get how oil can be this high.

    Crude for September delivery touched $65 a barrel in New York, an all-time high. Oil futures have climbed more than 7 percent this month as the death of Saudi Arabia’s King Fahd and a threat to the U.S. embassy there raised concern about supplies from the world’s largest exporter.

    I would definitely not be long oil right now.

  • 10-for-10
    , August 9th, 2005 at 3:49 pm

    The Fed just raised interest rates for the 10th straight time. The fed funds rate is now up to 3.5%. It was 1% just last year. The central bank also restated its intention to increase rates at a “measured pace.”

    According to a survey of economists, more rate increases are on the way.

    The target for the benchmark overnight bank rate will climb to 4.25 percent by the end of next year’s first quarter, a quarter percentage point more than predictions last month, and reach 4.5 percent by June, according to a Bloomberg monthly survey of economists. The overnight rate is forecast to reach 4 percent by the end of this year, the survey showed.

    Economists at Goldman Sachs Group Inc. said yesterday the target rate may rise to 5 percent by the middle of next year.

    The world’s largest economy will grow at a 4.1 percent annual rate this quarter, the most since the first three months of 2004 and up from the 3.5 percent estimated last month, based on the median forecast in the monthly survey. Growth for October through December is predicted to reach a 3.5 percent pace, up from last month’s prediction of 3.4 percent.

    The other good news is that oil finally backed off some today. It reached an all-time of $64.27 a barrel. There are still worries about oil supply, but few traders seem interested in the fact that oil supplies are already above average.

    U.S. oil inventories at 318 million barrels for the week ended July 29 are 7.3 percent higher than the five-year average, according to the Energy Department.

    Domestic supplies of heating oil at 49.9 million barrels are up 4.9 percent from the five-year average, government figures show.

    Long-dated bonds actually rallied this afternoon, and the major stock indexes are poised to closer higher for the first time in four sessions.

  • Idiot Award
    , August 8th, 2005 at 8:50 pm

    The week’s winner brings our Idiot Award to a whole new level. Not only was his goal idiotic, but so was his method and outcome. He nailed it all! It’s like a Triple Crown of stupidity.

    C. Clive Munro, a Wyoming stock analyst, was arrested from trying to extort money from Hardee’s. If there’s anything I learned it high school, it’s that you don’t screw with Hardee’s.

    Munro demanded that CKE Restaurants, the owner of Hardee’s, hire him as a consultant for $25,000 a month. Hardee’s declined, so Munro showed them. He put a sell on the stock and down it went.

    Most idiots would simply end there, but not our Mr. Munro. When the stupid get angry, they become a lethal force of anger (and stupidity). So Munro sent Hardee’s an e-mail.

    ”Hi Andy,” prosecutors said it read. “If you were smart, you would hire me at $25K per month for 12 months (for half my time) and take me out of the game. Plus, you would have vastly improved your relations with investors, and you might have avoided some of the current problems with Hardee’s. So far this year, this would have saved you $160 million in lost market value. That certainly beats shutting me out of asking questions on conference calls. You are getting some bad advice. Clive.”

    Munro has been sentenced to a year and nine months in prison. I prefer to look on the bright side. He just might land that job in the fast food industry after all!

  • Scary Thought for the Day
    , August 7th, 2005 at 9:47 pm

    General Motors’ debt, most of which is rated as “junk,” is worth 4,000 Dow points.

    Before 1997, it was accepted wisdom that nuclear powers simply “don’t go bankrupt.” Well, Russia changed all that. If you recall, when the ruble went under, it also took down the infamous hedge fund, Long-Term Capital Management. The world financial markets got a bit freaked for a few days.

    History may be repeating itself, but this time the culprit is much more important that some has-been empire. General Motors could actually declare bankruptcy. One of the great American corporations could join the ranks of Willie Nelson, Hammer and Sherman Hemsley. Once again, the markets seem pretty nervous. Some hedge funds reportedly took big losses when GM’s debt was downgraded.

    Consider the facts: GM has $284 billion in debt and roughly 560 million outstanding shares. That comes to about $500 a share in debt. Since GM is a Dow component, and each dollar in share price is equal to about 8 Dow points, GM’s debt represents around 4,000 points on the Dow.

    So if you buy one share of GM for $35, you’re picking up more than 14 times that in debt. If you buy it on margin, you’re borrowing money to borrow money. All you need is a pinky ring and 1978 Cadillac to complete the outfit. Nearly 90% of GM’s debt is for GMAC, which is its financing arm.

    Fortunately, GMAC is one of the few parts of GM that’s actually making money. The problem is that the overall company’s lousy credit rating is holding back GMAC’s profitability. Lower-rated debt means higher borrowing costs. On top of that, interest rates are rising.

    One solution is to spin off GMAC. In fact, GMAC recently announced a deal to sell $55 billion in car loans to Bank of America over the next five years. But that doesn’t solve anything. It simply let’s some of the crew jump ship. There is the option of Chapter 11. It’s not unthinkable, but time is running out.

    The new bankruptcy law goes into effect on October 17. If GM wants to move, it had better do so before then so it can take advantage of the older, more lenient law. I’m sure some airline will be taking the plunge, but airlines are always declaring bankruptcy.

    The bad news gets even worse. A few years ago, GM spun off Delphi Automotive. Delphi’s bankruptcy seems to be an almost certainty. But here’s the problem: GM makes up half of Delphi’s business. So if Delphi goes, GM is also screwed. Unless, GM tries to save Delphi. But who will save GM?

    I’m not sure, but if you pay taxes, I think you already may know the answer.

  • The Croatian Connection
    , August 6th, 2005 at 7:39 pm

    Wow, Cox is really moving. The SEC has come down on a 63-year-old Croatian woman for (cough) alleged illegal trading.

    Here’s some of advice for you. Let’s say you just so happen to have advanced knowledge of a major corporate merger. Try not to draw attention to yourself. That would include such things as buying a zillion out-of-the-money call options. Yeah, that’s a wee bit suspicious.

    But I’m dying to know how this woman got the 411. I mean, allegedly got the 411.

  • Cox in at SEC
    , August 6th, 2005 at 6:56 pm

    Congratulations to Christopher Cox, the new head of the SEC. He was sworn in this week by Alan Greenspan. Later, he gave a speech to all the employees of the SEC.

    Well, for those of you who were English majors, and the rest of you who appreciate good English, we have an immediate bond. Even though I’m an attorney, legalese is not my first, second, third, fourth, or even fifth language. Chronologically, it came after my native tongue, and then Spanish, Latin, Greek, and Russian. And I never could actually speak legalese — I could only read it.
    So I never got invited to the really FUN parties. I’m sure I missed out — all those people conversing in the parlance of party-of-the-first-part and whereases. Oh, the times I could have had.

    Well, he may not be conversant in legalese, but he’s perfectly fluent in High Oprah.

    When I was a young boy, Charlie Wilson was the chairman of GM. He famously told a congressional hearing that “What’s good for General Motors is good for the rest of America.” I’m not sure how accurate that ever was, but I’m certain that such days are long gone. When Charlie Wilson made his statement, investing wasn’t common for working Americans. Today, the majority of America’s workers are participants in our capital markets. It is increasingly true — and increasingly apparent — that what’s good for American investors is good for the American people. It is also absolutely true that the managers of a well-run business should at all times concern themselves with what is good for their investors.

    Pet Peeve #1: Everyone quotes Wilson as saying that, but he never said it. Wilson was asked if he could make a decision as secretary of defense that was in the interest of the nation, but not in the interest of General Motors. Wilson said, “Yes sir, I could. But I cannot conceive of one, because for years I thought what was good for our country was good for General Motors and vice versa. The difference does not exist.” That’s quite a different quote.
    Cox closed with:

    So, to each of you, thank you for what you do.
    Thank you for the honor of joining you in the mission of protecting America’s financial markets.
    Let’s roll.

    Ewww. I just winced so hard I think I burst my retina. One of the hidden dangers of stock blogging.

  • Buy Du
    , August 5th, 2005 at 2:20 pm

    I think this is what’s called “irony.” The U.S. political establishment goes nuts over CNOOC trying to buy Unocal. But one tiny Chinese search engine goes public, and Americans throw gobs of money at it.

    Baidu, the Chinese search engine company, hit the Street today. At least for a few moments today, the 90’s were back. This was the easily the hottest IPO since Google went public last summer. Baidu’s offering price range was raised twice. The shares finally hit the open market at $27.

    The first trade: $66. And it went up from there. The high trade today (so far) is $99.50.

    Baidu is unstoppable. I can’t even think of a good metaphor. It’s like some mighty ocean-going vessel, steaming its way through the chilly North Atlantic. What can possibly stop it?

  • Bonds Fall Again
    , August 5th, 2005 at 10:24 am

    The 10-year Treasury bond is getting slammed today. The yield is now up to 4.382%. That’s nearly 50 basis points higher than it was in June. The yield curve has been squished. The 10-year is up more today than the 30-year, and the 5-year is up more than both.

    The futures market has little doubt that the Federal Reserve will raise rates by 0.25% at next week’s meeting, and again at the September 20 meeting. That will bring the fed funds rate up to 3.75%. There’s also an 88% chance that the Fed will raise interest rates up to 4% by November 1.

  • Today’s Jobs Report
    , August 5th, 2005 at 10:01 am

    The government reported that the unemployment rate for July was 5.0%, which was the same as June’s. Relatively speaking, that’s a pretty low number. The unemployment rate peaked at 6.3% in June of 2003. While the jobless rate has fallen since then, it was stuck around 5.4% for much of last year.

    The economy created 207,000 new jobs last month, which was higher than expectations. The number of new jobs for June was revised higher to 166,000. For the last 17 months, the economy has created an average of about 195,000 jobs a month. That’s good, but it’s still well below what the economy did in the recoveries of the 80s and 90s. The economy averaged over 250,000 jobs for a 90-month period from November 1992 to May 2000.

    Wall Street seems to be impressed by the current economy. We’re hearing talk that the Federal Reserve may raise interest rates into next year. Also, some analysts are raising their GDP forecasts for next quarter.