Ryan Barnes

A Look at Caterpillar's Blowout Quarter

icandoit...Yes, the effective tax rate was 10% during the quarter. It was due to the fact that CAT had operating losses in countries with higher tax rates (like US) and profits in countries with lower ones.

This kind of thing happens all the time at multinationals. Forgive me for leaving it out, but there's only so much space in these articles...I can't break apart every single line and footnote of the income statement & balance sheet.

Although I must admit I'm quite impressed with the fact that you made an entire valuation assessment with one single sentence (fragment). "Just another overpriced stock as far as I'm concerned....."

I bid you good luck in your investing efforts; I have a feeling by the end of this year folks like you will realize that many valuations were the best we've seen in over a decade.

A Look at Caterpillar's Blowout Quarter

mr clark - yes, the P/E has certainly risen in the past year, but this is an industry-wide if not sector-wide phenomenon. Terex may end up being fine, but I'd be more worried about their cash flows. TEX hasn't been operating cash flow positive for over a year now, and that will inevitably lead to further balance sheet erosion.

For all of its issues (and they are plentiful), Caterpillar has remained operating cash flow positive, which provides support for the balance sheet. Also keep in mind that the majority of CAT's debt is from their financing division, so the numbers look a bit outsized relative to the other metrics.

Best of luck in your investing efforts

Can We Get Back to Stock Picking Now?

hey PJ, you'll excuse me if I object to your comments. I've been covering BSX for over five years and been published on them quite often. For a company like BSX that has been in the doldrums ever since the GDT train wreck, yes, it was a good quarter.

The $28 million drop you mention was spread out over higher R&D ($10m), IP asset impairment charges ($10m), and also higher SG&A...now the latter could have been reigned in better, but you had better be careful when you say something like "writers don't even know what earnings are being adjusted for"...

Are you suggesting that the $85 one-time charge recorded in the year-ago was part of an elaborate sandbag? That they recorded it just so 365 days later they'd have easier comparisons?

And sure, let's just get rid of GAAP and start using EBITDA instead....oh, you don't mind if the S&P 500 firms add $13 trillion in debt to their balance sheets next quarter, do you? Jeesh...

I appreciate your vigor for the nitty-gritty numbers on this particular company, but there's simply not enough space here to spout off the entire financial statement for each company mentioned. That's what the transcripts and SEC filings are for.

All that said, I have no problem admitting when I'm wrong, and my hopes for STJ to turn in a good quarter have been largely dashed. It looks like the company wasn't able to execute the same level of market share gains as in past quarters. Companies that have held to full-year guidance all year seem to be treated a little too harshly in this market. Que Sera, Sera

Best of luck in your investing efforts.

Weekly Preview: Earnings Upside Continues

70% of S&P 500 companies to report this season have surpassed earnings estimates, including 100% of the DJIA stocks that have reported thus far. This is what I mean by upside.

Best of luck in your investing efforts.

Vale May Bid for Mosaic: Let the Great Potash War Begin

To Taojaxx: Yes, I read all the same reports that you have in the past 24 hours. Yes, Vale denied interest in MOS, just like every acquirer in the past 20 years has done when faced with a potential leak.

And yes, inventories are up at Potash Corp, and Agrium has announced price cuts in the range of 20%; this is why share prices have been cut in half as I mentioned. As to the broader thesis of global demand for protein being higher...if you think that's comparable to real estate, that's your right...I just don't see any comparison.

The increased demand for real estate was based on the increased access to cheap credit, making ever larger patches of the demograpic quilt feel that owning a home was their "right". That part of the fundamental equation has changed. The increased demand for proteins in a growing population has not changed to date, and I don't see anything stopping it.

Best of luck to all in your investing efforts.

Washington's Dilemma: This Isn't a Recession, It's a Collapse

California has real structural tax problems that have grown ever since property taxes were effectively "capped" in 1978. But of the 76 comments here, over 90% are filled not with legitimate ideas or even constructive criticism....just vitriol. When did SA become the stomping ground of the pitchfork crowd?

All the CA haters need to keep one indisputable fact in mind. California has ranked amongst the top 10 net contributors to the federal government (in terms of taxes paid, people) for over two decades. Meanwhile there are about 30 states in the middle of the country that have been net gainers ONLY. Small taxes paid, big subsidies, year after year after year. Just think about that for a moment. If CA needs a loan, why shouldn't they get it? They are one of very few states that can be counted on to contribute to the pot once the economy turns. We've got 32 states that haven't contributed a net dime in over 20 years. It's fact, like it or not.

I know this post won't be popular, but nobody gains with so much anger flying around; it's just plain unproductive. Just imagine what kind of demands the federal government could make in exchange for a bailout! They could literally force the state to shake out the horrible legislative system that has led it to its knees. It's time to get original and stop being petty.

I don't know all the right answers - this is a very complex issue, but nobody wins when everyone's throwing stones at each other. If CA defaults on muni payments it doesn't just sink one state's ship; it will raise the cost of capital for every state in the land. We should all be afraid of that happening.

Best of luck to all in your investing efforts...not that there's any real investing discussion here, but best of luck nonetheless.

Eight Industries That Will Lag Behind Economic Recovery

It's funny - I agree with 6 out of 8 industries presented here (I patently disagree with metals and media lagging an overall economic recovery), but one is left to wonder if it's not just random or has anything to do with Moody's "negative watch" rankings or measures of default risk.

Until the credit rating agencies prove otherwise, they have absolutely zero credibility. They've somehow managed to stay in business despite slapping "A" ratings on what is now toxic debt across the board. They have been the latest to the game on every call since the crisis began. By the time they put a company on negative watch, the company is either within 24 hours of a bankruptcy filing or the stock is already down 90% and bonds trade for .25c on the dollar. I would take investment advice from my grandmother before I'd take investment advice from a major credit rating agency.

All that aside, nice article in all honesty. It gives a nice overview of the industries...But investors need to distinguish between recovery in the sense of things like job growth and recovery in the form of share price. Most retail stocks, for instance, have crushed the average returns of the market in the past 4 months, despite the negative trends mentioned. Stocks are always forward looking; by the time these industries are hiring workers again, I guarantee you the stocks will have run up by another 30%.

Best of luck to all in your investing efforts.

Portfolio Update: Raising Tech, St. Jude Stakes

Hi Larry, thanks for the comments. I totally understand where you're coming from re: "skin in the game". I would contend that ALL investing is an academic exercise, whether we've got our own dollars on the line, our clients, or somewhere in between. But that's just semantics I suppose.

My #1 goal is to have absolutely no conflicts of interest when I write about investing in specific companies. Meanwhile, every stock pick I make and the management of the Secular Trends Portfolio is all out there, naked as a newborn baby. My reputation, whatever value it holds, is on the line. I guess I feel that journalistic integrity is more important at this moment in history than promoting the stocks I do own. It just feels like the right thing to do.

If I do correctly what I've set out to do, the stocks I've selected will be just as solid an investment 3-5 years from now as today. If and when I buy them all up for myself or clients in exactly the same ratios as in the model, I will do so proudly & with all parties involved knowing exactly where I stand, my philosophy, and my strategies. Of course, the public window would have to close at that point, for the same reasons of preserving the integrity of my clients.

Hope that clears things up. I wish you the best of luck in your investing efforts.

As Earnings Are Upon Us, Some Goldman Thoughts

Wow, quite the spirited discussion here, even if some of it has gone off the proverbial rails. I have been looking into the campaign contributions from the last go-around, and yes, Goldman is at the top of the list in terms of nominal dollars. And yes, the % towards democrats was high at roughly 70%.

But let's remember that this is a company based in New York City. They've been consistently funneling their contributions towards the dems at higher than 60% since 1990. Oh, and they've also donated $11 million to the Republican party in that time.
www.opensecrets.org/or...

So a company located in a highly democratic-leaning state where lots of employees make truckloads of money did what they've consistently done for 20 years. It just so happens that this time, their horse won the race.

Oh, and to boot, the total contributions from GS amounted to less than 1/2 of 1% of what Obama received in contributions. And they guy had close to $30 million in cash LEFT OVER once the election was complete. Objectively, I don't think the current Administration feels overly beholden to Goldman for anything.

The End of Asset Allocation

Enjoyable read, both the article and (more importantly) the discussion that follows. I think the author went a bit too far in pinning down a dramatic title, and was really close to a much better idea of posing an open-ended question that deserves serious discussion. But the reports of asset allocation's death are greatly exaggerated .....

As others have pointed out, it's nothing new to say that in the midst of a financial panic, correlations tend to revert to 1 across the board. Asset allocation is about risk, and flexibility is being able to realize that there were higher levels of risk in real estate and stocks in 2007 than investors were being compensated for.

There's also a serious timing component here. It's quite unfair to quell 100+ years of thoughtful study and empirical evidence because of one market event. The whole point of historical analysis is to "smooth over the cracks". While today's cracks are certainly large in historical terms, the correlations of the past 18 months are the outlier, not the norm.

I think we need to take stock of the myriad of new financial products & vehicles to hit the street in the past 15 years and ask ourselves, "what are the new asset classes?".

CIT's Debt Issues Show Why the Economy Won't Be Picking Up Any Time Soon

Is anyone else curious as to the incessant use of the term "credit inflation"? It's really not a legitimate phrasing, as it confuses what I imagine to be the author's intent with inflation's proper etymology, which to describe a rise in price level.

So unless the author is making a broad statement about interest rates, how about we just use what the other 99.9% of folks use. Credit expansion, credit growth, there's plenty of other options folks.

Potash's Negative Price Implications

Barry's comments are right on point. There is a tremendous amount of pressure coming from Russia to secure tax revenues and keep up employment this year, and Silvinit is indeed in a dire financial state. The company paid $2.4 billion at the peak of the market last year to secure new deposits in a Russian auction, and current accounts are likely negative as a result. Canpotex and BPC aren't as "tight" as they used to be, and there may be a break or break-up of the two exporting co-ops.

Canpotex has already stated they might resort to spot-only pricing if contract talks with China aren't fruitful in the next go-around.

It's a fluid story worth keeping tabs on, but the North American potash is indeed of better quality, and stories of global oversupply are PR ploys at best. Every demographic trend points to higher levels of demand, the need for higher crop yield, etc. The only thing that can really get in the way of the industry's long term growth is for stupid strategic moves that involve collusion. I'd personally like to see Canpotex break apart, but that isn't likely to happen until the next market upswing.

EpiphanyOne

Dangerous Fallacy in GDP Measures

There is no doubt that GDP is an imperfect measure of an economy's "health" as you put it. Any number of the calculation metrics and methods can be debated our outright disregarded, and these topics have indeed been debated for decades.

But the example you cite as proof of GDP's flaws is inaccurate. Hurricane Katrina is merely one of a million devices of "economic destruction" that occur every day...albeit a larger and more unfortunate one. When I drink a can of soda, I "destroy" that unit of production. That unit of production must be rebuilt so that I can destroy it again. This is the nature of economics at its most basic.

EVERYTHING created in an economy is a failing asset; it's only a matter of how long its useful life is. Roads, bridges, airplanes, clothes, houses, food, and even jobs. So while rebuilding a city destroyed by natural disaster is indeed a terrible thing, it is not "fake" production. If you were to one-off this, you'd be one-offing every unit of production ever created.

I'm all for a healthy debate of the usefulness of GDP for this purpose or that, but we've got to get our ECON 101 out of the way first, folks. The strength of an economy is in its ability to be ready to produce what is needed and what is wanted, without creating unsustainable side effects. Our rising national debt is viewed by many as one of the latter, but again, how much debt a country (or person) can service is merely a function of dependability and foresight into future cash flows.

The crash of our financial spinal cord in the past 24 months occurred because the dependability of what were once considered safe cash flows disappeared due to falling home prices.

Best of luck to all in your investing (and debating) efforts.

Pompous Prognosticators 2004-2009

We're not supposed to listen to the "financial experts"? That's quite the blanket statement.

Ok, now that you've eliminated everyone who's been tasked to do the job of allocating capital, who then should we listen to? Oh, wait, the author is a gold bug. But is he not also a "financial expert"? hmmm...

I enjoyed reading the quotes, they're always fun to read, but it's also blatant quote mining going on here. Author could have just as easily thrown up a slew of quotes from "financial experts" who were dead-on in their warnings of things to come, going back to 2001. Now, more than ever, we need objective analysis, not fear-mongering.

What (or When) Is Up with Natural Gas

It's worth noting to potential investors in this space that UNG and USO use near-term futures as their proxies...the current steepness of the more distant contracts (to the front months) could have UNG underperforming natural gas if the underlying doesn't move much this summer.

EpiphanyOne