Mike Maher's  Instablog

As the saga that is China MediaExpress (CCME)  continues to drag on, it seems investors will finally hear from the company by March 31, in response to a deadline set by NASDAQ.  For those of you who are not up to date, here's a run down of the year so far for the company.

January 30, 2011:  Citron Research issues a report claiming CCME is overstating its business.  Shares fall $3 to $17.84
February 1, 2011:  CCME responds to Citron, denying their findings.
February 3, 2011:  Shares in CCME plummet on fraud allegations by Muddy Waters.  Shares touch a low of $10.31 before closing at $11.09, down more than $5.  CCME says they will respond to the fraud allegations as soon as possible, since offices are closed for the Chinese New Year.
February 7, 2011:  CCME formally responds to fraud claims.  Shares close at $13.14.
February 17, 2011: Shares in CCME trade higher on a bullish report from Global Hunter Securities, which gives the shares a $26 price target.  Shares jump $1.51 to $14.26.
March 5, 2011:  Barron's prints an interview with Muddy Water's founder Carson Block.
March 11, 2011: NASDAQ halts CCME shares, citing "additional information requested."  Shares have not traded since this date, and were halted at $11.88.
March 14, 2011:  CCME's auditor, Deloitte Touche Tohmatsu, resigns, saying it can no longer rely on the representations of management, and recommended an investigation by an independent auditor.  The CFO also resigns.
March 18, 2011:  The Global Hunter Securities analyst who issued the bullish report on CCME leaves her position with Global Hunter.
March 21, 2011:  CCME receives compliance notice from the NASDAQ, says it will respond with a plan of compliance by March 31.

Clearly shares have been on a roller coaster for the last several weeks, fueled by rampant speculation of fraud and vigorous defense of the company.  The 30+ articles written on SA in the past 6 weeks proves the amount of interest in this stock, as do the 1,000s of comments.  Given the length of the trading halt, it is my opinion the news will not be good when(if) shares are resumed.  Strong companies do not need to prove they exist, and each day that goes by without a response from CCME is a cause for greater concern.  As shareholders sit and wait for the best, they should be expecting the worst. 


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

John Chambers, CEO of Cisco has been in the news a lot lately for his op-ed about lowering taxes on repatriation of earnings back to the US.  By his measure, there is over $1 trillion in US companies' bank accounts overseas, and the current 35% tax on those earnings keeps the money from coming back onshore.  He proposes cutting the tax to 5%, resulting in a $1 trillion stimulus to the US economy and a $50 billion jump in tax revenue, which he says can be used to fund another jobs bill.

While his numbers hinge on every company bringing the money home, the numbers cannot be ignored.  Even if most of that $1 trillion dollars goes to paying down debt, or increasing dividends, stock buybacks or takeovers, it is still another $1 trillion coming into the US economy.  When you consider that 2009 US GDP was $14.14 (CIA factbook), it is an extremely large number.

Now, instead of using the $50 billion to be spent on some jobs bill that I have little faith the government will not waste, what if it were directly applied to HR 1835, the so called NAT GAS act supported by Boone Pickens?

According to Boone Picken's PICKENPLANS.COM, the US imports 13 million bpd of oil, with 5 million of that being supplied by OPEC.  That contributes to the $1 billion per day spent on foreign oil, and this $1 billion is 2/3 of the trade deficit. (To double check the numbers, the US trade deficit in August was 46.3 billion, so the 2/3 figure is close).  His plan, as outlined in the HR1835 bill, would provide tax credits (up to $64,000) to truckers who purchase 18 wheelers to run on nat gas.  The goal is to get the 8 million trucks in the US to switch, saving 2.5 million bdp of oil.  Further, one mcf of nat gas has the same energy potential as 7 gallons of diesel, but costs roughly $5 vs $21 for the diesel, and natural gas is 30% cleaner to burn.  Pickens hope is that the tax credit for truckers, along with the fuel savings, will cause a majority of those 8 million 18 wheelers to switch to natural gas in the next 7 years.

The bill also has a tax credit ($50,000-$100,000) for natural gas refueling stations, which will help the infrastructure build out in the US.  Once the stations start popping up, more US consumers will begin to switch their everyday vehicle(estimated at 250 million) to natural gas.  This will further reduce oil consumption and therefore imports.

The expansion of development of the Marcellus Shale has on its own been estimated to potentially create 200,000 jobs in PA alone according to one Penn State study, and this does not include the manufacturing surge in the rest of the country that would be expected from 8 million new trucks being built in the US.  Also, lower fuel costs would be passed along to the consumer, increasing disposable income and increasing interstate commerce.  Cutting $1 billion per day from the trade deficit would increase GDP by decreasing the drag the negative trade balance has on GDP, and money being spent on fuel would have a greater chance of staying in the US, rather then making its way out of the country to Canada, Mexico, Venezuela, Nigeria, or Saudi Arabia.

My suggestion is to cut the tax on US companies bringing dollars back to the US to the 5% Mr. Chambers thinks is reasonable, and using the new tax money to help fund the costs of HR1835 supported by Mr. Pickens.  At the max $64000 credit, the $50 billion raised would cover 780,000 new trucks, about 9% of the total Mr. Pickens is aiming for.  Assuming $64,000 is the high end and $40,000 is more realistic, that’s 1.25 million trucks.  All that is done without new government debt, and given all the large deals involving shale gas companies in the last year,  I believe once the bill passes there will be such a flood of private sector money into this sector that the government will not need to kick in new money.

If this works as I outline it will provide another $1 trillion for the US economy from US companies foreign bank accounts, jump-start manufacturing, lower carbon emissions, lower oil prices and consumption, lower transportation costs, and create hundreds of thousands of jobs in PA, NY, VW, due to new drilling, and be a boon for the US truck manufacturing.  If I am wrong, the US basically got all this done at no cost to the taxpayer, so the loss will be born by the private sector.

I welcome any and all thoughts.  The US needs all the help we can get right now, and free flowing ideas can only help this country heal.


Disclosure: ENP NRGY EPD

You wouldn't need to read Enterprise Product Partners (EPD) conference call transcript to know that they are having a great year, all you would have to do is look at the chart.  The stock closed just off a new 52-week high today, after setting the new high intraday.  The glut of Natural gas from US shale has collapsed prices, hurting the short term forecasts of producers like CHK, RRC, and EOG among others, the low prices are spurring tons of activity in the pipelines EPD runs.  CEO Mike Creel mentioned that the quarter's profit was

"supported by record natural gas transportation volumes and near record NGL, crude oil, refined products and petrochemical pipeline volumes."

The transcript goes on to explain that, because the leases the E&P companies signed require them to continue to drill, there should be no decrease in activity on the pipelines.  About the acreage, he says

" it’s the discretionary gas that has to continue to be drilled to hold this acreage or these creatures have to walk away from the acreage. So, they are going to lie on the street or they are going to perform, and that’s the wild card. So, the next 12 to 18 months, we think they are going to continue to drill and in and around our assets, we are just having a rig count of north of 50. So, we are very comfortable with where they are at, and the key producers that we deal with, are all telling us the 12 to 18 month inventory to hold the acreage."

He goes on to say that all the joint ventures formed with foreign companies changes the cost structure and allows the E&P companies to support drilling, and that Enterprise is positioning its assets (pipelines) to benefit from this.



All that being said, I like EPD for the very long term, with its strong backlog, strong history of dividend growth, and solid distribution coverage of 1.4 times.  My only concern is that with the price up here near $43, the yield is down to 5.5%, which is no longer as attractive as it once was.  Also, MLPs tend to issue stock to pay for new construction projects, and with the stock up here it seems logical management will tap the equity markets to raise funds.  I believe a prudent investor will pounce on the 3-4% drop the stock takes on this offer, and begin to build a position.  A similar strategy could be to get long EPE , since EPD will be taking over EPE in an all stock deal before the end of the year.

Disclosure: Long EPD and EPE

Disclosure: EPD EPE NRGY