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William F. Kabourek, the crusty credit analyst (http://thecrustycreditanalyst.blogspot.com/), is a retired 61 year old. His business experience includes being president of two commercial banks, owner of 25 furniture rental stores, and partner in a private equity firm. William is retired for 10... More
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The Crusty Credit Analyst
  • All We'll Hear In 2010 Is jobs, Jobs, Jobs
     <div><a href="1.bp.blogspot.com/_oBFmk1__3No/SvmgUAq5S...;><img style="MARGIN: 0px 10px 10px 0px; WIDTH: 200px; FLOAT: left; HEIGHT: 163px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5402525493645363634" border="0" alt="" src="1.bp.blogspot.com/_oBFmk1__3No/SvmgUAq5S...; /></a> Soon the Democrats will have their healthcare victory. It may be a hollow victory that barely resembles their initial goals, but it will be declared momentous and beneficial to all Americans. We will have more laws and taxes for the sake of illusive healthcare improvements. Any consequences of the legislation, such as debt, increased taxation and job losses, will be several years away, so the celebration can begin.</div> <div> </div> <div>With some sort of a healthcare victory behind Obama and the Democrats, they can turn their attention to what Americans are really concerned about. That is the economy and job creation. The party in power has been slow to realize that healthcare reform is not the voters number one priority. In 2010 the Democrats will innundate us with job creation legislation.</div> <div> </div><div>Just like healthcare costs and coverage, job creation can either be nurtured simply and effectively, or politicians can talk big, tinker, and accomplish little. Rest assured, Obama will get a jobs bill and victory will be declared. No, he won't accomplish an improvement in employment by simply lowering corporate income taxes or the highest personal, marginal rates paid by business owners of Sub Ss or LLCs. That would never happen as it would make sense. Jobs legislation will need to be targeted so social goals and constituencies can be served. Power must be preserved. The mid-term elections must maintain the Democratic majority and 10+ percent unemployment will not accomplish that. So, let the jobs tinkering begin.</div><div> </div><div>What private sector growth can Democrats tolerate? The list is short: green jobs in sustainable energy, unionized workforces in manufacturing, the entertainment industry, design and construction of government building projects, data processing that consolidates and improves medical recordkeeping, and agriculture. These constituencies are apt to receive extra assistance. </div><div> </div><div>We will see a general investment tax credit for the purchase of capital goods or additional employment. Capital goods purchases and employment growth in targeted industries will see an expanded tax incentive. Wind and solar projects, energy efficient appliances and transportation, almost any item manufactured and exported by a union member, will attain special status in the name of job creation. Rebuilding the construction industry with unionized labor by funding more school and transportation projects. None of this will be called stimulus as that has become synonymous with wasteful spending. In 2010 we will have job creation. Democrats will attempt to sound like Republicans.</div><div> </div><div>Capital goods manufacturers that export will see an ITC driven sales boom on top of the weak dollar benefit.The likes of Cat, Deere,Trinity and Valmont, among others, will see revenue growth. Even in a "U" recovery some stocks will appreciate and select American manufacturing companies may benefit from Obama's next victory. Forget about the additional debt and taxation that will accompany, like healthcare reform, the job creation "success"as it won't cause credit and inflationary problems for several years. It will be a "victory" or the Republicans will get a chance to get change correct.</div><div> </div><div>Back to stocks, Deere, while certainly not cheaply priced, is an unionized exporter that serves the agriculture and construction industries and might be a place to park a few dollars while Obama creates jobs,jobs,jobs.</div><div> </div><div> </div><div> </div><div> </div> <div> </div> <div> </div>





    William Kabourek currently owns no shares of companies mentioned in this article.
    Tags: CAT, DE, VMI, TRN, Obama, Investment Tax Credit
    Nov 10 09:30 pm | Link | Comment!
  • AN UNSCIENTIFIC EXAMINATION OF OUR FINANCIAL FUTURE
     
    Economic and financial education, the financial press, and prayer have failed me. No matter how crusty and savy I think I am, my results don't equal the image I have of my abilities. While far from prescient, thank God I tend to eke out better results than the professional investment sages. Still, I'm about ready to take up the Maharishi Yogi's Flying Yoga and look for enlightened answers to our investment future.
     
    Where are we headed? Television's talking heads swear it is upward, even though they hedge their verbal bets with a few negatives that could pose problems. Sideline money that needs to be invested, a weak dollar and strong commodities, and momentum are forces that are too strong to stop. The market marches on. Or does it? That's where I wish prayer or Yogi flying would work. Where are we going, because Mama needs new shoes.
     
    Did we overshoot by 50 percent at the nadir? Is cost cutting and an inventory correction worth a 50 percent retracement? Can decent growth in China, Brazil, and India compensate for anemic economic activity in the US and Eurozone? Is deleveraging over or the impact exaggerated? Who knows?
     
    After bouncing up and down on my ass and attempting to fly into meditation, I've come to the following conclusions. We over indulged for too long and we're going to deleverage and suffer for a long time. Our 50% party is overblown and will not last. After a quarter or two of easy comparables fueled by inventory replenishment and cost cutting, we are going to flat line for quite some time. Select companies, in select industries, will do well but the "market" will struggle. Deleveraging is brutal and we haven't experienced brutal yet. Government may slow the process, but they can't stop it, especially since they are attempting to with DEBT!
     
    So, I'm keeping lots of cash and only investing in select stocks that "may" do well despite the upcoming economy. I've kept some emerging markets ETFs and international mutual funds. I've added some short positions and will probably add more, but I scare easily. I'd like clarity, but I can't find any. OM, OM, OM. Off to Fairfield.
     
    Tags: EMERGING MARKETS
    Oct 12 08:37 pm | Link | Comment!
  • TIME TO TAKE A BITE OF SMART BALANCE
     
    I've owned SMBL on and off over the past several years. The story hasn't changed, but the share price is inching lower. An opportunity is at hand if you can wait five years. Regardless of the "markets" results, Smart Balance will reach $1 Billion, control a significant share of the dairy case, and sell out for a very nice price.
     
    The "story" is one of smart management that has built brands successfully before. Steve Hughes, SMBL CEO, has been the architect of tremendous brand growth at ConAgra, Dean Foods, and Celestial Seasonings. His team has years of experience and the goal of building SMBL into a billion dollar foods concern. They are currently at the $250MM level after several years of business.
     
    Smart Balance is a BRAND. It doesn't own manufacturing or research facilities. It is product, marketing, and people. It makes a little money and generates cash. Enough to paydown it's acquisition debt to $65MM. They should be debt free in a year or so. The lack of manufacturing is an advantage in our current tough times.
     
    At its current share price of $5.90 the stock can be gathered in at a price that is significantly lower than the IPO price, employee options, and the entry points of some of their largest private equity investors. While it isn't at its 2 years low point, it is well off its highs and hasn't participated in the market's run up.
     
    A reasonable plan is to buy some and tuck it away for 5 years. Forget about what the market price is and let Steve Hughes do his magic. Within that timeframe he'll sell the company and you'll end up with a boatload of ConAgra, Kraft, or Heinz shares. That's my bet anyhow.

    WILLIAM KABOUREK  owns shares of Smart Balance.
    Tags: SMBL, CAG, KFT, HNZ, FOOD COMPANIES
    Oct 12 08:31 pm | Link | Comment!
  • Banks Require Zero Interest Cost Of Funds
     
    More »
    Oct 01 04:28 pm | Link | Comment!
  • THE 80/20 RULE MUST NO LONGER APPLY
     
    Awhile back I wrote, in Crusty's How It Ought To Be blog, about two disruptive products that I was using to my advantage. One was a 4.01% checking account from a local credit union. Yes the rate is correct, 4.01% up to $25,000 and still 1% for excess balances. Virtually no difficult requirements attached. only one ACH and 12 debits monthly. My wife is easily up to that task.
     
    My gameplan was to look for other credit unions to replicate the account and put more money to work at 4+%, government insured. I knew of a credit union in eastern Iowa using the same gambit, but paying 5%. But, I haven't gotten around to it yet. Now I won't have to as banking has changed in Omaha.
     
    For the last twenty years most community commercial banks have followed the 80/20 Rule which shows that 2o% of the customers provide 80% of the profit, so raise prices on the 80% to increase their profitability. If they leave, so what as they were not as valuable as the important 20 percent. Bankers catered to the better off and sent the smaller balance accounts off to the savings & loans and credit unions.
     
    The result was increased profitability and chest pounding. But now, twenty yeaars later, lobbies and drive thru lanes are empty and bankers have found customer numbers hard to increase. Not so at the financial institutions that enjoyed the customer traffic. Account balances were small and activity high, but they pay fees and take out loans. Bankers have started to take notice.
     
    Proof of a changed approach is a new account from my local bank. IT'S THE SAME PACKAGE AS THE CREDIT UNION! Except that they are paying 4.05%. Other banks won't be far behind and I won't have to open an account in eastern Iowa. Since my wife is up to making sure we use our debit card enough times to keep the banks happy, we'll be opening accounts whenever the banks change their attitude. When we head to Florida for the winter I'm hopeful of finding a similiar banking climate.
     
    4 percent, FDIC insured, is an attractive yield as it certainly beats by a large margin normal bank rates on money market savings and certificates of deposit. It also yields more than a 10 year Treasury and other bonds, plus you don't risk loss of face value due to rising rates. You can earn a 3% dividend on some solid common stocks, but not without the risk that the stock price will go lower with the next correction.
     
    Moderation and balance is always the right plan and these accounts are attractive. Add them to dividend paying stocks along with some bonds and you have a good cushion for a stock portfolio.
     
    Sep 05 11:33 am | Link | Comment!
  • Everyone Has a Coupon
     Friday evening the wife and I ventured out for dinner, coupon in hand. Besides the usual question I pose, what do you feel like eating tonight, I now add another, what coupons do we have? We chose Olive Garden because the local Italian eateries didn't stick a coupon in front of us this week. As we finished ordering, my wife announced to the waiter "we have a coupon." "Everyone has a coupon tonight" was the response.
     
    Americans are becoming their grandparents and it is about time! We are finally saving more and spending less. What is being spent is being spent wiser. This is a nationwide phenomenom. My Oliver Garden meal was in Omaha, Nebraska, an area minimally affected by the national real estate meltdown. But everyone needed a coupon to part with their cash. The prior weekend I was at our winter home in Florida and not only did all diners and shoppers carry coupons, there were not very many people in the restaurants and stores. Wal-Mart's parking lot was packed, but strip centers were empty. America is changing for the better, but it is going to be a miserable transition.
     
    The transition from easy credit and spending future income to saving before you spend will be a difficult process as we won't need as much retail space or manufacturing facilities. Slower growth for our companies will mean lower valuations for stocks. Less spending means less sales tax revenue for the always voracious government entities. Goverments will attempt to tax away our frugality so they can continue their spending habits.
     
    Just as our forefathers survived the Depression years, Americans will come through our current malaise. It has begun to sink in that good times are not just around the corner. Change in behavior is necessary and our society as starting to adapt and take personal responsibility. Our governments need to be forced to accept that same reality. Deficits need to be reduced through cost and program cutting, not tax increases. It is no longer business as usual in the American family and "tax and spend" cannot continue at any government level.
     
    Our coupon society will lead to lower valuations as growth will be hard to come by. Cost cutting can't result in increased net income beyond an initial burst and flat earnings aren't worth much of a P/E. All companies will not fall victim to lackluster sales, but those with heavy debt loads will. Except for companies with exceptional niches, the only ones with growth potential will be the debt free that are still generating lots of free cashflow and can become larger through acquisitions. Now is the time to shed companies with debt. Not only will they not be able to participate in M&A, they will likely have difficulty rolling over maturities as bankers become more cautious.
     
    The stock market has rebounded nicely over the past several months and may go higher as vacations end and investors return. But, the "new normal" would suggest that equity positions be trimmed in companies with diminished growth opportunity and significant debt levels. If an investor has an appetite to stay long, own the acquirers as they are the only ones with a chance of P/E stability.

    The Crusty Credit Analyst does not own DRI or WMT.

     
    Tags: DRI, WMT
    Aug 30 07:52 pm | Link | Comment!
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