Howard W. Penney's  Instablog

For the second time in as many years Mill Road has made a bid for Kona Grill (KONA). The first offer in March 2008 was at $10.75 a share. On Monday, Mill Road offered $4.60 a share, up from the May 15 closing price of $2.29.

Based on where KONA is now trading relative to other casual dining companies and my EBITDA estimate for 2010, I would take nothing less than $5.50

In documents filed with the SEC Mill Road said: "The recent departure of the company's chairman and CEO has placed Kona at a crossroads. The company and its employees are facing a very difficult operating environment for restaurants without the leadership and vision that a permanent CEO should provide. ... We strongly believe that Kona has a significantly better chance of successfully addressing the competitive, leadership and capital issues as a private company."

It was not too long ago that senior management at OSI Partners Inc. made the same statement about being a private company. Given the trouble they are in, I don't think they would make that statement today!

On Monday, the S&P 500 closed at 909.71, up 3.0%. Yesterday was a BIG Day for the bulls! Yesterday's performance was broad based with three of the four major indexes finishing up more than 3%; the Dow was up 2.8%, the S&P 500 3.0%, the Nasdaq up 3.11% and the Russell 2000 up 3.98%.  Driving the market higher was Financials on the back of TARP payback news and better-than-expected earnings out of the retail sector and renewed momentum with Squeesy swimming in the pool house.
 
As we ended last week three sectors had broken the TRADE line - Technology (XLK) Utilities (XLU) and Consumer discretionary (XLY).  Yesterday, Technology (XLK) and Consumer Discretionary (XLY) moved to bullish on TRADE.  For the S&P 500, the positive TRADE and TREND (820) remains. The Research Edge quantitative models suggest that 8 of 9 sectors in the S&P 500 are positive on TREND and 8 of 9 sectors are positive from TRADE duration.
 
Both the dollar index and the VIX were hit hard by the risk aversion trade; the dollar finished lower by 0.4% yesterday and the VIX tumbled by 8.7%.    Right now the Research Edge models suggest that there is 3.5% downside and 3% upside in the S&P 500.  At the time of writing, U.S. stock futures were pointing to a higher open.
 
The XLV (Healthcare) underperformed on a relative basis, closing up 1.0% to 25.58.  We are long the XLV and it remains positive TREND (24.66) and TRADE.  
 
The XLF (Financials) significantly outperformed, rising 6.5% to 12.29.   The XLF put on a strong side melt up for the bulls today; best sector in the market.  The TREND (9.37) and TRADE remain bullish.   

The XLE (Energy) outperformed on a relative basis, closing down 3.5% to 49.66.  The dollar was down yesterday, which helped place XLE as the 4th best sector on the day; bullish TRADE and TREND (45.03).    Yesterday, crude rose more than $1 to $60.21, the highest price since November and the rally looks to continue on the back of unrest in Nigeria.

The XLB (Materials) performed in line with the overall market, closing up 2.9% to 26.57; still a bull on both TREND (22.38) and TRADE.  Monsantol, which represents 18% of the XLB, underperformed rising only 0.3% yesterday.  ...  

The XLK (Technology) underperformed on a relative basis, closing up 2.7% to 17.26; TRADE rocks the bears back into their cave; back to TRADE and TREND (15.66) bullish!

The XLP (Consumer Staples) underperformed on a relative basis, closing up 2.1% to 22.84, underperforming today like it should, but TRADE and TREND (21.52) remain bullish. 

The XLY (Consumer Discretionary) significantly outperformed, closing up 4.9% to 23.22.  After a +4.9% melt up, the shorts once again feel shame; the TRADE and TREND (20.13) are back to bullish.
 
The XLI (Industrials) outperformed, closing up 2.7% to 22.60; the TREND (19.65) and TRADE remain bullish.  The Machinery stocks and Building products maker Masco (MAS) led the XLI higher.   

The XLU (Utilities) significantly underperformed the market again yesterday, closing flat on the day at 25.94. Monday was just an awful day of underperformance with the sector FLAT on a market melt up; The XLU is the only sector to trade below TREND and TRADE lines. 

In the proxy that CKE filed last Thursday they disclose that they spent just over $60,000 covering CEO Andrew Puzder's medical and dental expenses last year. That's an unusually high number -- the other NEOs run between $5K and $13K. 

In checking in with our resident expert on the subject Michelle Leder of Footnoted.org, she said the number isn't just high compared with others numbers there, but it’s out of whack when compared with any other companies she has seen this year. 

What sort of expenses would the company spend on the CEO that would not be covered by ordinary health insurance? Is he seriously ill? 

Or did the California Longevity Institute brain wash him into spending thousands on finding eternal life?

Over the years I have been very critical of CKE’s excessive compensation and the millions spent on perks like a Cessna Citation X for a company with a market value of only $500 million.  I would bet this is just another example of the shareholders getting the short end of the stick. 

The board needs to be trying to figure out why Carl’s Jr. continues to lose market share!