Herman Miller (MLHR) last month announced more details in its plans to reduce costs in its effort to ride out this economic downturn. The details include the closure of one of its manufacturing facilities in Michigan and redistribution of equipment and production capacity to other facilities in the area. The company reports that this move will cost the company a one-time charge between $9 to $12 million dollars. The expected savings are projected to be $5 to $7million annually. The closure is targeted for spring of 2010. This will eat into the company’s earnings for the next two quarters. The benefits of consolidation moves like this take time to realize, so don’t expect to see the savings immediately. The company will also be reducing their dividend payout in order to save $14mm annually.

These actions don’t seem surprising given the economic conditions and may seem like reactionary measures, but the company looks to be preparing for a long term ground and pound fight in the office furniture industry.

Last week the Institute of Supply Chain Management ((ISM)) released its Manufacturing report on business. It wasn't pretty, with a reading of 32.4% (see my previous article on how to interpret these index numbers), levels that haven't been seen since the mid 70's and early 80's.

So why dig into the report? Well, it only takes you 10 minutes to read it, and it reveals other bits of information that can help frame your perspective on the environment. Most folks will just read the number 32.4% and say, "OMG, that's bad" and move on to water cooler talk stirring up mounds of fear.

September 2008 will go down as one of the most gut wrenching rides in stock market history. I remember during the tech boom when many analysts said that the fundamentals were thrown out the window during those lofty times. These days, it seems as if fundamentals have also been thrown out the window, but in the sell side direction. The famous words of economist John Maynard Keynes ring so true these days, “The market can stay irrational longer than you can stay solvent.”

For those who have kept capital on the sidelines for these once in a lifetime opportunities, then kudos to you. When I refer to “capital” I am talking about plain old cash, and not the pretend stuff coming out of a HELOC. My next set of plays will involve easing into the SPDR S&P500 ETF (SPY) over the course of the next year, to year and half. I will be taking up equal dollar positions in the S&P 500 every quarter, if it gaps down more than 5%. This will come up to about 4 to 6 buys. I don’t know where the bottom is, but the downside risk is decreasing by the week. A study of the last 3 market crashes in history helped with my strategy. I wanted to see what happened 12 months after the S&P 500 hit bottom. Now I won’t pretend to predict a bottom, but easing into it is more of a possibility (I took up my first SPY position a few days ago… could have waited.) One year after the tech bubble crash, the S&P 500 rose 28%.

The olympics are over China, you can start polluting again. It's time to kick up the manufacturing dragon again and start importing some copper. Copper prices have been diving since their peak of $4.00/lb from July, to just above $3.10/lb today.

This hasn't been kind to shares of Southern Copper (PCU) which has seen their shares weaken over the same time period. What you'll often hear is that investors are dropping commodities, and any shares tied to them (FCX, PCU, RIO, etc.) in favor of the strengthening US Dollar. While this is partly true, in the case of copper there are also basic supply and demand fundamentals which have caused the price of copper to drop.

Let me introduce you to a business that currently has finely tuned operations, Strayer, Inc (STRA). During my analysis covering the educational services sector, Strayer had turned up as one of the companies I was interested in as a possible investment.

Unfortunately, it has taken me an extended amount of time to run through Strayer’s 10k’s, earnings calls, and 10Q’s. There is a lot of good meat packaged into the company’s reports, and for good reason. If you ran a successful business with high operating margins, good fiscal responsibility, and a product offering that shows continuous double digit growth in both top line revenues and student enrollments, you are going to want to show that off and package every single detail into the quarterly and annual statements.

DeVry (DV) announced yesterday that it was cooperating fully with the Department of Justice inquiry regarding “recruiter compensation”.

During the dot-com crash years I found myself moving from one company to the next as each company declared bankruptcy. All those lavish parties fueled by ridiculous expense accounts on virtual business plans are now but just a pleasant memory (it wasn't fun at the time). What I do remember were several people who made the decision to go back to school to learn something new and fine tune their skills until employment activity picked up. Many MBA students put their studies on hold to pursue dot-com pipe dreams ended up heading back to finish up B-School.

Fast forward to 2008 and we are entering what looks like will be an extended period of economic weakness. I sat back one day and wondered if school would be a destination of choice for anyone losing their jobs this year. This led me to question whether for-profit colleges are naturally a recession proof type of business, dare I even say a business that experiences growth during economic weakness. Going to school is never a bad thing, especially when the employment market doesn't look good.

Trimeris (TRMS) just came out with its 4th quarter and 2007 year end numbers. Plugging this into my cash flow analysis results in a new valuation range:

click to enlarge

I’ve been working in the technology field for several years designing and laying down systems to push bits and bytes around over the web. Anyone that works in this industry knows that in order to stay competitive, one must dedicate themselves to continuous research and development. So when a company such as Trimeris whose sole foundation is based upon research and development of new drugs suddenly decides to eliminate its research and development staff, it does not paint a pretty picture for the future.

So how did I end up with Trimeris in the Ten Grand portfolio? It was not the smartest of decisions on my part, but in documenting my decision criteria and analysis, I hope some of you will learn from my mistakes.

When you turn on the TV these days or open up the papers, there is much talk about investors parking their money into gold. It’s “safe” and “recession proof” as some people say. If you had picked up gold a few years ago, it definitely would have been a wise investment choice.

Copper, on the other hand isn’t a commodity that is covered as much. It is less lustrous after all and not good enough for anyone’s engagement ring. It is however used to build stuff, and a lot of it. The recent market weakness has punished some mining companies to some good value ranges. Southern Copper Corporation (PCU) slipped into my screen thanks to the falling stock price. This is my next company of focus.

The market had a field day with the DOW dropping 370 points yesterday. All of this because the Institute of Supply Management released the non-manufacturing (services) report indicating a contraction in the service sector’s business activity to 41.9% in January from 54.4% in December.[1]

My first gut reaction was quite a shock. When you look at the magnitude of such a drop, you wonder if we really are heading into a recession. Maybe we are in one already. But what does 41.9% really mean? Are the investment powerhouses reacting off the gun, selling off their positions, protecting their assets, and asking questions later? What does 54.4% really mean? What specific areas of the service sector contributes to this number and how is it calculated? Having knowledge of such economic factors can help guide investment decisions, so I thought I’d try to break out the meaning of this index over lunch today. I wanted to see if there was any way to utilize the report to optimize my portfolio for the rest of the year. First, we need to break down the ISM service index.

I used to love watching cop shows back in the 80’s, cop movies, or more recently Law and Order SVU. You know the scenes where the cop crosses the line by punching the suspect at the station, which is then followed up by the Captain ordering the cop to desk duty with the following quip, “You do that again Sonny and you’ll be pushing paper for the rest of your life!”.

Pushing paper is hard work, it’s tedious, and record keeping is a pain. With Sarbanes-Oxley compliance riddling corporate America these days it can be a painstaking process. Businesses want to focus on what they do best to increase their competitive advantages and innovate. However, some people push paper very well and make a lot of money doing it.

It’s time to follow up on those New Year's resolutions. Every year my local gym is packed during the first 3 to 5 weeks of operation. I call it the “resolution wave”. By the time February and March roll around, the gym is back to normal operating levels, half the crowd disappearing. How can you blame them though? There’s this great Chicago restaurant chain, called Portillos, just five minutes from my gym that serves up some nice Italian Beef, Chicago style hot dogs, BBQ Ribs, etc. This isn’t something I can easily give up. However there is something I can gorge on without adding the pounds, and that’s NutriSystem’s stock (NTRI). A week ago they turned up on the screen I discussed in my last post. I decided to dig further and see if they had some promise for my ten grand portfolio.

What is NutriSystem?

Time to stop thinking and start doing. A number of my friends and family have been subjected to my stock analysis rants over the past year, and have urged me to do something about it. Well after doing OK this past year with my investment picks, and drawing bits and pieces of investment strategies from the books I've been reading, it's about time I start tracking this.

I spent the last few months on and off thinking of my approach, drafting up ideas upon ideas, of how I could best write about my analysis without dangling into heavy financial jargon. What is the purpose of this other than finding the capital to satisfy my salivating desire to race a 911 GT2 on the Sea to Sky highway? Kidding aside, it's simply to document my results testing investment strategies that I have picked up from the vast amount of investing advice there is out there. Most glossy investment paraphernalia you get from your investment adviser usually pit their performance against the S&P 500 index, based on $10,000 invested so many years ago. What they fail to mention to you is all the other costs you incur along the way, but I'll talk about that another time.