The government and the FDIC is trying to support the housing market by offering loan modifications for delinquent borrowers. If you can pay your mortgage, no help for you... Good behavior punished for the greater good of fewer foreclosures and a supported housing market...

Having been a Wall Street analyst, I understand where they're coming from. The company has missed projections and generally underperformed for years, making any analyst look silly for recommending it. No client would listen to a bullish recommendation from them anyways.

I, and my clients, have been short Arkansas Best (ABFS) since last spring and I am reviewing it as I think about covering it. There's been lots of interest in deep-cyclicals (see transportation, retail, housing-related) since the Fed's newfound urgency to slash short-term rates. While we're certainly closer to the light at the end of the tunnel for ABFS, recent market action smacks more of bottom-fishing than of fundamental improvement. See Pros & Cons below:

With many truckers continuing to see year-over-year volume reductions, price reductions kick out another leg of the profitability stool for these companies. On many first quarter earnings calls, the saving grace for LTL truckload providers was a stable price environment despite reduced volumes. Managements trumpeted how consolidation in the LTL industry has made pricing more rational among competitors and profitability should therefore remain stable. To make matters worse for investors in these truckers, they are still trading at premium P/E multiples (while the denominator - earnings - are at risk).

Good News:

Local papers have a steady audience and may be the best way for advertisers to access local markets. This positioning appears to be quite defensible and enduring.

Recent partnership with Yahoo! will enable MNI to further monetize online and print adspace.

Online advertising is growing and will continue to grow.

Recent downturns in Auto & Real Estate ad spending is cyclical (more than structural) and will at some point rebound.

Low valuation.

Poor investor sentiment toward space.

Management is intending to use all free cash flow from operations ($150-200MM/year) to reduce debt incurred in Knight-Ridder deal (over $2B)

Cost cutting is central to ongoing business to preserve margins.

No one appears too interested in starting competing newspapers.

Bad News:

Client: Hey Chuck. What's going on with the market?
CG: It seems to be going down.
Client: Well, what do you think?
CG: I dunno. I've picked out a bunch of value-oriented investments which I think ought to do well in most market environments, are reasonably priced, and together form a conservative portfolio. I've got some nifty ideas for new investments, that I'd love to buy if the market keeps coming down like this.
Client: So you're not worried.
CG: I'm always worried. That's my job. To be worried for you, so you don't have to worry.
Client: OK

As a current CHK investor (both my clients and I own CHK), if management can find and bring to market an mcf of gas for $4-5 and sell it forward (hedge it) for $8-10/mcf, it would seem only prudent to do so for some percentage of their production to ensure they will have the cash flow to support further similarly-profitable development. Why should running a E&P (exploration & production) company be any different from running an oil refinery or an ethanol plant, where plant owners know exactly how much it costs to convert oil-to-gasoline (crack spread) or corn-to-ethanol (crush spread) and so long as the input commodity and the output commodity prices can be fixed beforehand, minimum budget targets can be met?

Furthermore, there's great optionality for CHK and other hedging producers. When natural gas prices fell last summer, CHK reduced gas production slightly, helping to support gas prices, and also closed some previous hedges, locking in gains. In the 1990's, when aluminum prices were below production costs, I believe Alcoa (AA) bought a boatload of aluminum futures prior to announcing a production cutback, making a fair bit of money on the trade, which helped to offset some of the operating losses.

In Sept-05, just after Hurricane Katrina, they hedged a bunch of forward production and announced a $1 billion stock buyback and plans to redeem high coupon debt. This morning they announced a $450MM increase to their current buyback, and the creation of two Master Limited Partnerships (MLPs) to exploit different long-life, low decline oils/gas fields and to take advantage of the current market interest in high-yielding investments and MLPs in particular. PXD up 7% yesterday as I wrote this post.

While some may be quick to call these moves as capital juggling instead of focusing on the underlying business, clearly yesterday's moves have financial benefit to shareholders. Famed value investor, Marty Whitman of the Third Avenue Value Funds, cites availability to low-cost capital as a competitive differentiator among stocks. The creation of MLPs, where PXD can isolate long-lived reserves and take advantage of a yield-seeking public market is a value-creating event for shareholders. That said, shareholders should note that some percentage of these holdings will also be removed from the valuation of PXD proper thereby making the co. more leveraged to other (presumably) shorter-lived and more prospective (positive or negative) production.