Brahm

Three Stocks That Look Cheap Here

A few comments for an otherwise not a badly written piece. Valero is an excellent refiner, biut perhaps in the prevalent/expected scenario, we have to be worried a bit about the capacity issue. Recent data at least points to the fact that an appreciable amount of driving is discretionary and is subject to individual/family budget constraints. There is also a trend now to use more efficient vehicles for driving (and junking/parking guzzlers like SUV's). Over-capacity may become a serious problem in the intermediate and long term, and hence the loss of pricing power may be a looming realty, except for short periods during peak driving season. I believe there is also a move to contain heating costs, and hence gas available in much more abundance (watch the race for shale resource acquisition and acreage) may substitute heating oil in some measure, because it is a cheaper fuel. Hence, my feeling that it is premature to consider VAL at this time.

On CAT, we should not ignore that emerging markets also have to control inflation, especially if they are strong export based economies. To remain competitive, to ameliorate the condition of the poorer faction of their societies, and to avoid political fall-out/turbulence whether they are democracies (India and Brazil) or not (China, Vietnam). Indeed India has raised interest rates significantly recently while aknowledging that this may have appreciable effect to its growth rates. China also may do so after the olympics to avoid unrest, though the Chinese system has room for manipulating currencies and erecting export/import barriers in certain goods or commodities. I don't wholly buy the argument that in the context of globalization and with all that it entails emerging market economies for the most part will not be subject to some constraints on their growth rates. I agree with the author that the deep modulations that we saw in the past in CAT (and other export based cyclicals) is a thing of the past. But this does not imply that CAT and others will not be affected, but can only have upsides per se.