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June 228/09
A ) Potash lowers Forecast
are people going to stop eating ? I don't think so.
POT $ 107.66 down .39
CALGARY -- Potash Corp of Saskatchewan Inc, the world's biggest fertilizer producer, cut its second-quarter earnings targets on Thursday because of weaker than expected sales and lower prices for phosphate fertilizers.
The company said it expects to post second-quarter earnings per share of just 70 US cents, down from the US$1.10 to US$1.50 per share it had earlier forecast.
"The change reflects substantially lower than forecasted potash sales volumes due to deferral of purchases by customers around the world and lower realized prices for phosphate fertilizers," the company said in a statement.
Global economic turmoil has dragged down grain prices and lowered demand for fertilizers. Potash Corp said last month it would cut production of potash as farmers defer their purchases of the crop nutrient.
Despite tight supply-side management, North American potash inventories have risen steadily in recent months.
Potash Corp shares rose 64 cents to $108.05 on Thursday on the Toronto Stock Exchange. The announcement came after markets closed.
B ) Investing Like Buffett
Berkshire's 18 percent advance since U.S. equity indexes reached their lows on March 9 lags behind 16 of the company’s top 20 stock holdings. A $1 million investment mimicking Berkshire’s portfolio would have produced a $724,000 profit through today, compared with a $184,600 gain for the same-sized investment in Berkshire shares. Buffett is chairman and head of investing at Omaha, Nebraska-based Berkshire .
Buffett, 78, has seen long-standing equity positions in Wells Fargo & Co. and American Express Co. more than double from their March lows after losing over half their value in the 12 months prior. Companies Berkshire owns outright, meanwhile, had declining sales amid the global recession, and the firm’s losses from derivative positions on corporate and municipal debt may not reverse as quickly as those tied to stock markets.
“His investments, because they’re based on such fundamental quality and traditional values, are going to continue to do better than the rest of the market,” said Frank Betz, a partner at Warren, New Jersey-based Carret Zane Capital Management, which oversees $700 million and owns Berkshire shares. Critics were wrongly declaring that Buffett had “lost his touch” earlier this year, Betz said.
Berkshire’s Holdings
Berkshire is the top shareholder in Wells Fargo, the fourth-largest U.S. bank by assets, and American Express, the biggest credit-card company by purchases. The company is the biggest owner of Goldman Sachs Group Inc., which has surged 95 percent since March 9, and the third-leading investor in U.S. Bancorp, which has climbed 75 percent.
A rally in railroad stocks has also lifted Berkshire’s investment portfolio. The company owns 23 percent of Burlington Northern Santa Fe Corp., which has gained 47 percent since March 9, and is among the top 10 holders of Union Pacific Corp. shares, up 58 percent.
The decline in world stock markets at the start of the year contributed to Berkshire’s worst loss in at least two decades in the first quarter. The company wrote down derivatives tied to corporate-debt indexes and took a charge on ConocoPhillips shares purchased when oil prices were near their peak.
Derivatives
Berkshire’s liability on derivatives at its finance and financial products operations widened to $15.4 billion as of March 31, from $14.6 billion three months earlier. Some of those liabilities, on derivatives tied to four of the world’s stock markets, may have reversed in the second quarter as the indexes recovered, said Whitney Tilson, managing director of T2 Partners LLC, a New York-based hedge fund that owns Berkshire shares.
Excerpts of the interview:
On whether he will cash out of Goldman Sachs:
“No, no, no. I will keep those Goldman warrants right through their full -- they've got four and a quarter years or so to run. But I think we'll make a lot of money out of those.”
On the possibility of the United States losing its AAA Rating:
“As long as you're issuing money and you're issuing debt in your own currency, you can print money. The U.S. -- no, I think we will have a AAA for not only as long as I live, but as long as you live, which is more important.”
C ) Bank of America Raises TARP / Test Funds
BAC $ 12.75 up .40 ( 3.24%)
NEW YORK (AP) -- Bank of America Corp. said Thursday that upon the completion of a debt exchange later this week, it will have raised more than the $33.9 billion required by the government
The Charlotte, N.C.-based bank said it has preliminarily agreed to exchange $3.9 billion in depository shares for common stock as part of a debt exchange offer. Settlement of the exchange, which was oversubscribed, is expected to be completed Friday.
The bank has also reached agreements to convert about $10.7 billion in preferred stock into 789 million shares of common stock.
Because of the debt exchanges, and previously completed stock and asses sales, Bank of America said it will raise more than the $33.9 billion the government said last month the bank needed to protect against potential losses should the economy worsen.
Last month, the government completed "stress tests" on 19 of the nation's largest financial firms to determine how they would fare amid a deepening recession. The government determined Bank of America had the largest capital shortfall.
By increasing the number of outstanding common shares, Bank of America effectively creates a broader capital base to absorb any potential losses. It also reduces interest or dividend payments that must be made on the depository and preferred shares.
Bank of America has been one of the banks hardest hit by the credit crisis and ongoing recession. The bank has received $45 billion in government loans since last fall to help it amid mounting loan and investment losses.
Nearly all banks have faced rising loan losses as more customers fall behind on payments. Investment losses have also piled up at some banks as the value of bonds and other debt have declined.
C ) Gold Gains on low interest rates ????
Yamana a Take Over Target ?
YRI $ 10.52 down .29 (2.67%)
Following the sale of three non-core assets earlier this month to Aura Minerals, Yamana Gold Inc. (AUY) is looking more and more like a takeover target, says Dundee Securities analyst Ron Stewart.
Mr. Stewart said:
With only 6 operating assets along with a minority stake in the [copper-gold] Alumbrera mine in Argentina, YRI would make a good fit for either Kinross Gold (KGC) or Newmont Mining (NEM).
Mr. Stewart said a hook-up with Kinross is an obvious one, given both companies have operating mines in Brazil and Chile.
It would lower Kinross' political risk profile considerably, improve liquidity and vault the company forward, lifting the pro-forma market cap to around $20 billion.
Newmont would also benefit from a takeover of Yamana. It would lower its political risk, provide needed growth and once again rival Barrick Gold Corp. (ABX) once again for top spot in the gold-producing sector, the analyst said.
Mr. Stewart maintained his "buy" rating and 12-month target price of C$13.50,
"On its own, the entry point into Yamana today looks attractive to us; as a possible takeover candidate, it is compelling," he wrote.
New Gold ( NGD) $3.39 up .04 (1%)
San Gold ( SGR) $2.36 up .11` ( 5%)
Centamin ( CEE) $1.67 down .08 ( 4.6%)
Gold prices rose on speculation that record-low U.S. interest rates will boost demand for the metal as an alternative investment. Silver also advanced.
The Federal Reserve yesterday left its key bank-lending rate target at zero to 0.25 percent and said it is likely to remain at “exceptionally low levels” for an “extended period.” The central bank also reiterated its plan to buy as much as $1.75 trillion in U.S. Treasury securities and bonds as a way to ease credit. Some investors buy gold to preserve value.
“If interest rates remain low, it’s encouraging for gold,” Bernard Sin, the head of currency and metals trading at Swiss refiner MKS Finance SA, said by telephone from Geneva.
Gold Forecast
- less than Richardson / Bass Quant $ 1000 Plus Call
Thirteen of 23 traders, investors and analysts surveyed by Bloomberg News, or 57 percent, said bullion would gain next week. Four people forecast lower prices and six were neutral. Gold futures for August were little changed for the week, at $936.40 an ounce, as of 12:30 p.m. in New York yesterday.
The Federal Reserve on June 24 held its key-rate target at zero to 0.25 percent and said it would keep rates at “exceptionally low levels” for an “extended period” and maintain the size and pace of its $1.75 trillion bond-purchase program. U.S. jobless claims unexpectedly rose last week, the Labor Department said yesterday.
“The threat of inflation grows with each day the Federal Reserve pursues a zero-interest policy,” James Turk, the founder of GoldMoney.com, said in an e-mail. “Given that employment continues to fall, it is unlikely that rates will be increased any time soon, and real rates adjusted for inflation will remain negative, which is very bullish for gold.”
The weekly gold survey has forecast prices accurately in 157 of 267 weeks, or 59 percent of the time.
Venetta Gold
Cannacord Market Letter Pumps
Canaccord Adams Metals & Mining Analyst Nicholas Campbell initiated coverage of Ventana yesterday.
The company is primarily focused on its La Bodega project in northeastern Colombia, which is immediately adjacent to Greystar Resources’ (GSL) Angostura project. The company has secured six drills for its exploration program at the project. Ventana has indicated that three of the drills are to focus on infill drilling the previous results from the La Mascota zone in order to bring the drill spacing down to 50 by 50 metres to support an initial resource estimate. Two of the drills are expected to focus on testing step-out extensions of the mineralization identified to date at La Mascota zone. The final drill rig is scheduled to further test the other anomalies and targets that lie within the La Bodega land package; the Las Mercedes zone is a likely target. The company is also advancing metallurgical test work to evaluate the potential to develop La Mascota along the lines stipulated in the mineralogical report with the expectation that a report could be delivered by the Q4/09. Given that the La Mascota zone remains open and with several promising targets that have yet to be tested, Campbell does not expect to see an initial resource estimate completed on La Bodega project until 1H/10. Notably, given the potential scale and grade of the resource at La Mascota, he believes that Ventana could be a candidate for consolidation by an intermediate to large cap gold producer, which could act as a catalyst to begin development of a new large-scale gold camp in Colombia.
D) Is CITI more thana lottery ticket ?
C 3.03 unchanged
Dick Bove is senior vice president of equity research at Rochdale Securities
Why does the situation with the banks look so positive?
The banking industry generating $80 billion for one quarter--and that's never happened in the history of the industry. Cash flow is simply huge at the present time, and it has been strong for a number of quarters. At some point--you pick the year--the economy changes. What you have is, when that happens, the loan loss provision of $61 billion, it goes down to $20 billion, [and] the $7 billion amortization goes down to $1 billion. You've then freed up $46 billion, which goes to pre-tax earnings; then pre-tax earnings goes up five-fold. When the economy recovers, earnings will simply explode for all of these banks. That's one thing you're looking at.
In 1980 to 1992, banks earned pre-tax $21, $22 billion. Generally speaking, on average, they earned that. They couldn't get to a higher level of earnings. But in 1987 to 1991 period, we had a crisis that was greater than the current crisis by a wide margin. The regulators forced the banking industry to build a high level of capital, to put cash and securities on the balance sheet and increase reserves dramatically. The banks have done everything the regulators demanded, and they have a tremendous amount of excess capital and reserves. The industry breaks through this barrier. It was at $160 billion at its high. In five years from 1992 to 1998, you have a five-and-a-half-fold increase in earnings because the industry put in a new base level.
Fast-forward to 2009: We're in the same position. The banking industry has record levels of capital; it's well above the norm. The cash positions of banks, they have exploded and the simplistic way of looking at that is reserves at the Fed Reserve were roughly $10 billion; they're at $800 billion today with all the bank deposits. The banks have seen an explosion from $10 billion to $800 billion. Reserves are just a couple of basis points below the all-time high. In 1992 compared to 2009, our banking industry has additional capital, liquidity and reserves. There will be a new plateau there again from 2010 to 2015. The banking industry's likely balance sheet is in a position to show extraordinary interest in earnings.
D ) General Electric - Welch Gives His Advice to Immelt
GE $11.75 down .11 (1%)
General Electric may need to shrink its financial unit if it wants to recapture the flagging confidence of investors, who have cut the conglomerate's share price in half over the past year.
GE appears to be interested in addressing concerns about its GE Capital financial unit, but details thus far have been scarce. Nick Heymann, an analyst with Sterne Agee, believes the stock market has been punishing GE over GE Capital worries, assigning the stock a price-to-earnings ratio that is more typical for a financial company than an industrial one.
Indeed, an analysis of Bloomberg data by TheStreet.com, suggests Heymann has a point.
I compared GE to 25 other large financial and industrial companies, using Wednesday's closing price.
Three years ago, nearly all of the 25 large financial and industrial companies I looked at traded at a much higher multiple than they are trading now, based on Wednesday's closing prices to analyst-estimated 2010 earnings. (I tried trailing 12 month earnings, or 2009 estimates, but the last year has been so crazy the multiples are all over the place). GE is no exception: It fell to 12.55 from 19.91.
GE cut its dividend to 10 cents from 31 cents in February, less than two months after Immelt -- who called the decision the most difficult of his career -- said it would not be cut. Shareholders have sued the company over the issue.
"I said I wouldn't cut it and then had to cut it," Immelt said on Charlie Rose Thursday night. "...[O]ne of the guys that I talked to for advice was Jack, my predecessor Jack Welch, and he -- you know, we just chewed on it. And he said, 'Jeff, look, you can go back on your word and be a smart guy or be a consistent dumb guy, okay?'"
Welch, widely regarded as one of the most successful CEOs in recent history, has cast a long shadow over Immelt since handing over the reins to GE in 2001. GE's shares are down roughly 70% since that time.
Last year, after GE missed its earnings target, Welch said on GE-owned cable channel CNBC he would "get a gun out and shoot" Immelt if he missed earnings again.
"Here's the screw-up: You made a promise that you'd deliver this, and you missed three weeks later," Welch said during the same interview. "Jeff has a credibility issue. He's getting his ass kicked. He apologized."
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