risingmorningsun

Dynegy as a Takeover Candidate: Will NRG or Exelon Be Suitor?

S&P's downgrade of DYNs ratings could only help a acquirer's cause

www.marketwatch.com/st...

China's Metal Imports Are Impressive

China seems to be bracing for a US debt downgrade and is trying to protect its citizens\wealth from any likely negative event - This is in line with what a smart investor would probably do.

China has been over the past few years funding the US consumer purchases of its products by buying U.S. debt. However, in the current scenario where yields on US debt could rise, any further investment will depreciate Chinese investment values.

Also, If additional investments in the US is not likely to result in increased US consumer spend (as consumers turn into investors by increasing savings), then China does not get enough return on its investment.

Diversification seems to be a smart and bold strategy for the Chinese government in the current scenario. Only time will tell whether this move will really yield positive returns.

Are These Better than Expected Earnings Illusory?

The current rally probably only corrects the sharp fall in prices and also factors in a change in value of debt to equity investments where prospective returns looked more atttractive in equity, resulting in partial correction of asset allocations. Also, factored in is a positive impact on earnings likely from the stimulus packages world over. Overall, it seems to be a correction of the over-reaction as equity markets sense that this is not the end of the world. However, if yield on debt rises and the P/E on equity investments rise, there is likely to be some reserve move.

This chart of S&P 500 earnings from 1935 to the present gives chilling perspective into the magnitude of the current economic decline.

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Do we have these numbers stripped off one-time items such as the huge write-off that corporates have been taking for various reasons.

My favourite amongst these write-offs is goodwill impairment, which is a nice way of saying that we overpaid for these when we did.

This speaks volumes of the inorganic growth strategies that i hindsight seem to have benefitted the Investment Banks more than the companies.

It also suggest that investors in a company being acquired are better-off than shareholders of acquiring companies.

Why Dividends Should Not Be Taxed

Making dividend tax free is a nice way to get the equity averse person into the market. This, also, tilts the favour in terms of a more balanced investment approach where portfolios are made of both growth and value stocks - a positive when markets give way without sudden warnings.

Further, dividends are similar to profits booked periodically for personal spend or need. More dividends will mean more spending in the economy - a economic stimulus that governments seem to want to provide in these troubled times. Would love to see some governments think like-wise.

Blue Gold: The Ultimate Commodity

nice article. The U.S. opportunity is certainly true. However, that cannot be said to be true all over the world as the spending power is far lower globally. Another factor to consider is the readiness to pay as water is available freely at a lot of places in the form of rivers or wells. Pilferage is another major issue. Profits to be made out of water globally (and specifically in the developing nations), therefore, pale in comparison to profits in the US where the regulators guarantee good returns for companies and water theft if low. Thanks for a long-list of stocks.

Alcoa's Quarterly Results: Mixed Bag

AA will have to wait for more capacity cuts. Current demand reduction also reflects inventory reduction in the chain. However, stocks remains high and more production cuts may be required to bring demand supply in balance.

Current capacity curtailment estimates stand at 6.5-7 Million tonnes of the total global capacity of 23.7 Million tonnes. Another 2 million tonnes or so will have to be shut down. Alcoa could shutdown some more capacities acquired in the Alcan merger that are in the higher half of the cost curve.

Demand bounce-back can be swift as it will be accompanied by filling up of inventory in the chain. It is unlikely that capacity start-ups will be swift as a idled smelter usually takes up-to 3 months to restart and start-up is in a phased manner. Price reactions in such times are swift. Do not expect anything spectacular on the earnings front in the next 2 quarters.

Adding exposures on sharp declines could yield good returns over a 1 yr+ horizon.

Alcoa's Quarterly Results: Mixed Bag

AA will have to wait for more capacity cuts. Current demand reduction also reflects inventory reduction in the chain. However, stocks remains high and more production cuts may be required to bring demand supply in balance.

Current capacity curtailment estimates tand at 6.5-7 Million tonnes of the total global capacity of 23.7 Million tonnes. Another 2 million tonnes or so will have to be shut down. Alcoa could shutdown some more capacities acquired in the Alcan merger that are in the higher half of the cost curve.

Demand bounce-back can be swift as it will be accompanied by filling up of inventory in the chain. It is unlikely that capacity start-ups will be swift as a idled smelter usually takes up-to 3 months to restart and start-up is in a phased manner. Price reactions in such times are swift. Do expect anything spectacular on the earnings front in the next 2 quarters.

Adding exposures on sharp declines could yield good returns over a 1 yr+ horizon.

ATP Oil & Gas: Both Value and Momentum

Great analysis. I agree with some of your points.
The company has a standardized measure of $1.1B, which is a good 6X current market-cap. This is the future cash flow (Revenue less production and development costs) discounted to current levels at 10% cost of capital.
Further, the company has two fields coming online in 2010 and 2011 with reserves of 189 Bcfe and 238 Bcfe. These could drive volumes in the two years post 2009.
On the negative side, the company's undeveloped reserves of the 713 Bcf reserves stand at 600 Bcf from ~150,000 acres. Of this, 83,000 acres need to be returned to the government if there is no development over 2009-2012. Given the current cash flows a lot of this land could go to the government and some of the undeveloped reserves with it. The key question for investors is, how much? The company officials will be the only ones best placed to answer this.

What Does the Gold / CRB Ratio Indicate About Future Gold Price Moves?

Thanks for the new perspective. I was personally getting to be jittery about gold given the bullishness all around.Further, gold seems to be running up on investor buying rather than actual demand. If one were to draw an analogy from the real-estate market, Investors are in for the money and do not have any use-value for the asset. Further, investors tend to hunt in herds and usually the frenzy is towards the end of a rally. Any sharp decline or relative under-performance w.r.t another asset class and there could be a mass exodus.
This is not to say that the rally in gold is done. Commodity up-cycles a wise man once told me run for 17 years. Hence, we still have a long way to go. A breather is certainly advisable and seems likely in gold. I am cautious on gold.

Why Aren't Gold and Silver Even Higher?

gold has been a contrarian bet for investors against the USD. With the USD likely to give away some of its recent gains one would expect gold to appreciate.

However, I am not sure that the rally in gold is long-sustaining. The rally has been fuelled by financial investors seeking refuge in troubled times. My experience with commodities has been that some time after a sharp rally investors get tired as happened in oil. That time for gold may not be now and $1200 or even $1500 does not seem impossible. However, in the future, when the current turmoil in the financial markets subside, some of the money locked in gold may start to return to financial markets. As that happens one will see gold drop down.

Also, at current levels demand from actual buyers is neglgible with most jewellery buyers in large markets such as India preferring to trade in old ornaments for new or even sell old ornaments for cash. Hence, either other currencies will have to appreciate sharply against the USD OR gold prices in USD will have to drop so that gold in local currency terms becomes attractive enough for consumers to return. Until then there is a good chance that a investor over the long-run could burn his\her hands by investing in gold.

Fresh Oil Supply Data and Potential Market Impact

non-Opec producers seem to be under pressure in 2009 as can be seen from the sharp reduction in planned capital expenditure by most E&P companies (other than CVX). Most companies require investment to just keep production going at current levels - let alone increase production. With the fall in capex, it is likely that production in the future will fall further.

& yes, the small wells will not be viable at these levels of oil price. That is evident from the reduction in the number of rigs - predomnintly land rigs. These rigs were required to drill additional wells to keep production at current levels.

This could get compunded by the tax burden to be imposed by the 2010 budget on E&P. This milking of a industry under stress to finance the fiscal deficit of the government will lead to under-investment that will impact production in the long-run.

Zinc Producer Horsehead Appears Very Undervalued

nice article. if my understanding is correct this company does not produce as much lead as other producers of zinc as it uses this secondary method of producing zinc.

However, even in the near term would the company not take a beating on low zinc prices and further more on lower steel production. Steel capacity utilizations in January and February have been less than 50% and this could impact raw material supply. I do not know if the market currently factors this in the price.

Thanks for pointing out this interesting company.

Do Oil and Gas ETFs Have a Future?

The total number of rigs is deceptive as it includes a large number of small land rigs, where the contracts are mostly on the short-term and supply has been higher than demand over the last few years. The deep-sea drilling rigs, however, continue to be in demand as activity in the deep sea areas continue to be robust.
Having said that, demand-supply and economic cycle will come to haunt even this segment over a period of time. Some of this has been visible over the last few quarters as companies are not getting paid by exploration companies for the idle time\shipyard days - a rampant practice in 2007.

Don't Watch CNBC

watching CNBC or any other news channel is not good enough to make money in the markets. If it were so everyone would be rich starting with CNBC and the other channels and the anchors.

An investor should spend time studying companies that they are interested in and watch these news channels (including CNBC in this category) to get the news.

And with valuations beaten down now beyond likely earnings decline, the current pessimism could be used to pick-up gems. Caveat being investor has to be in equities IFF one has a long-term holding ability.