Tuesday, May 20, 2008

Barron's Takeaways

This is what I found interesting in Barron's this week. I offer no opinion on the data. Just what stood out to me.

There were four rallies during the 2000-2002 bear market of 10-20%. However the trailing and forward market multiples are well below those after any of those rallies.

Lettuce prices are down 8.5% from last year and USDA Choice, boneless sirloin steak is down 4.7% over the last year.

Storm Exchange, a New York weather-related risk manager; is predicting corn yields this year will fall 7% below trend and total corn production in the U.S., by far the world's biggest producer will plunge 14% from last years record harvest. Farmers are planting less and bad weather is delaying palnting. The last time the planting was so cool and wet was in 1995 when corn yields fell 10% below trend line doubling prices from $2.50 a bushel to $5.00 a bushel. Every day planting after May 15th is delayed the yield drops 1.7 bushels a day.

This from the USDA report today
The report showed that 73% of the overall corn crop was planted as of Sunday compared to 88% last year. This was only 22% progress for the week versus expectations of 25% or more. The 10 year average for this time of year is 85%. The highest percent complete was 94% in 2000, while the lowest was 47% in 1995.

Great quote by Warren Buffett: "If your business model depends on borrowed money, your existence depends on what the world things of you each day."

Bill Ackman of Pershing Square is the keynote speaker on Wedneday at the 13th annual Ira W. Sohn investment confab in NYC.

VIX las week fell below 16.50 which is the lowest level since the peak last October.

Money managers who expect a global recession fell from 40% in April to 29% in May.

Tiffany's boosted their dividend.

S&P 500 saw earnings decline 25.9& from a year ago. Third quarter of decline.

42% of S&P 500 companies were trading over their 200 moving average the highest percentage since November.

If the S&P can make a substantial move above its 200 day moving average the next technical target could be around 1525 according to John Roque.

Eddie Lampert raised his stake raised his stake of AutoNation to 38.7%. He bought 1.82 million shares for an average price of $16.02.

In the seasonal adjustment universe which assumes gas spike 7% in April the actual 5% increase turned into a 1.5% drop. In actuality gasoline prices were up 24% versus the seasonally adjusted decline of 1.5%.

Consumer confidence dropped to its lowest level since June 1980 which was at the tail end of the Carter Administration and the botched Iran hostage situation. The misery index was 21.8% (inflation of 14.3% plus unemployment 7.5%). The current misery is is 8.9 (5% +3.9%). Housing price declines have to be the answer.

First Quarter profit margins were "decimated" as oil prices rose faster than gasoline prices. The refiners are not making money right now. Valero margins decreased by 59%. First quarter income decline 77%

CRP program (government program that pays farmers not to farm their land) is losing appeal. Total farm acreage planted is estimated to increase to 252 million acres from 245 million acres or 3% from the year previous. There are still 34.6 million acres in the program though many doubt the true suitability the farmland is for farming. It is estimated that 10 million of these acres is high quality farmland while 15 million acres is low quality. Even if farmers wanted to plant this land idle land is under 10 to 15 year contracts with government. To plant and break the contract is expensive costing $50 an acre.

Feeder Cattle were at $113 near a season high of 115 Lean Hogs were 76.35 compared to a season high of 81.10 and low of 66.02. Regular cattle were at 93.87 compared to a season high of 97.25 and season low of 86.65. (you read that as cents per pound so 76.35 is $.7635 per pound).

Last week the worst performing sectors were in financials as financials did not participate in the rally. Banks were the 95th out off 99 worst performing sector down .58% on the week. Consumer finance was 97th and full line insurance was the worst performing sector at 99th.

Earning yields on transports dropped from 6.07% a year ago to 4.27%. LTM PE of 23.42 compared to 16.48.

AAII index measure of bullishness was actual down to 45.2% from the two week ago measure of 52.8%.

Consumer confidence was 62.3 compared to 106.3 a year ago.

Average week of unemployment was 16.9 weeks compared to 17.0 a year ago. Unemployed increased however to 7,629,000 from 6,829,000.

Put call ratio dropped to .64. 3 times in the last 6 months it has been slightly lower. November 2nd and December 28th of last year. February 1st of this year. All previous market peaks.

Doug Kass like the idea of shorting the dental industry. His favorite is Danaher but also like Henry Schein and Patterson.

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