052008 NEWS

1. Ethanol Campaign skewed? What is the truth here?

The news focuses on the fact that GMA (Grocery Manufacturers Association) have been funding reports on ethanol use.

This is definitely the other side of this ethano fight. As we know, ethanol has been blamed for the recent commodity run, which is having so many side effects we can barely keep counts of them.

Few of the "blamed effects" are:

• High Gas prices (really.. wasn't ethanol supposed to be COUTNERING high gas prices?)
• High food prices
• Global Food shortage
• Global Warming
• Global Deforestation

This anti-ethanol campain turns out to be a funded $300,000, 6 month smear cambain done by couple of PR firms (Glover Park Group and Dutko Worldwide) hired by GMA. The "plans" were discovered to use "environmental, hunger and food aid groups to demontrate their contrived 'crisis' ".

Final argument comes from Kansas Corn Growers Association Executive Director, Jere White:

"Commodity prices account for less than 20% of the cost you pay for food at the checkout - other 80% of the grocery cost are transportation, packaging and processing"

So, in summary, the "other side" of this ethanol battle has begun to speak. Rise in food price isn't about commodity but also about energy price as well, as it levers the other parts of food costs.

Source: http://www.agriculture.com/ag/story.jhtml;jsessionid=VZSYYGZNHZC2XQFIBQPSCAQ?storyid=/templatedata/ag/story/data/1210955693703.xml

2. Why take so long to call a recession again?

Not too much here - it's just about how NBER calls recession and how it takes so long.

Main Points

• It takes usually 12-18 months to classify recession as recession
• NBER's job is not to PREDICT recession, but to CLASSIFY in history
• It takes VERY LONG to get reliable data for what they need
• It's not just 6 months of GDP negative
• GDP gets adjusted
• Last few recessions started with barely positive GDP growth, then it got readjusted afterwards
• other reasons why its so hard to call recession is because of seasonal adjustments - a huge topic on its own.
• it's not useful to call for a recession. We are supposed to not time these and buy with significant margin of safety so we can ride these out.

Source

http://www.businessweek.com/bwdaily/dnflash/content/may2008/db20080518_499756.htm

3. Crappy SnP earnings

SnP earnings stellar? Better than expected? Think again.

As Michael Tsang and Darren Boey reporrts, If you ex out oil and energy, SnP earnings are fucked - LITERALLY.

Even if you take out the top three, Exxon Mobil, Chevron and ConocoPhillips

Energy companies make up 50% of the income growth reported by SnP in the first quarter of

2008.

Energy shares now represent 15% of the index as well.

There is something that caught my attention in this. Apparently the industry is getting less profit from a barrel of oil than at any time since 2005. I have no idea why, but the better energy does, the weaker the rest of SnP does, and then it masks that weakness. ANY IDEAS?

This quote MIGHT explain something though -

"Energy companies globally are spending a record $369 billion on exploration and production in 2008, Lehman Brothers Holdings Inc. estimates. The cost to find and develop a barrel of oil quadrupled to $18 last year from $4 in 2000. "

Look, a while ago (and I mean a week ago) everyone was still aiming at $80 per barrel oil price. Then, one day, all the sudden this all changed in an instant. Why? I have no idea. ONE guy projected massively psychotic $200 per barrel oil prices and then everyone else followed suit - 120, 110, 150, 180, you name it and they got it.

I am thinking this is going to boost the topline of all the oil companies assumptions because the prices you use will be "updated" to this higher prices. Maybe the guy wanted to have a HUGE discount on one of the oil companies and just went nuts.

Clearly though, we need to look at the alternatives. AS OIL GETS MORE EXPENSIVE, THE CHEAPER IT BECOMES TO PRODUCE ALTERNATIVE FUELS.

Found a Contradicting evidence. http://blogs.wsj.com/marketbeat/2008/05/21/oils-froth-helping-equities/

Source

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aB50jeKPl7gE#

4. Monthly Housing data is not statistically significant, but YOY is.

The following is from the first page of PDF - pretty much same thing as what's written as summary.

Basically, the Margin of Error on a MoM housing data is around +- 14%.

Yes, no missing digits or dots in there, FOURTEEN FUCKING PERCENT up and down.

Since the adjusted housing start rate increase monthly is around 8%, this means that there is absolutely no significance to this number.

However, YoY, the numbers are 30% increase with 7% +- Margin of Error. Much more believable number but...man, wtf?

Source

http://www.census.gov/const/newresconst.pdf

5. Subprime Loss per Employee

Self Explanatory. Just click on the link for some porn-chart fun of how much banks lost PER EMPLOYEE in this subprime mess.

LINK: http://news.hereisthecity.com/news/news/business_news/7869.cntns

6. Only 5% of Wall Street Recommendation are Sells, but ML is trying to change that – way too late?

Yes, the S word - the word that is most hard to find on analyst repots. Only 5% of the Reco are Sells - can you believe that?

I mean we DO have to understand, these guys make a living just based on selling these shares, but aren't analysts supposed to give honest opinion?

However, Merrill Lynch is doing something about that - now analysts have to write 1 out of every 5 stocks as sell.

Wait wait wait wait. DID I JUST HEAR THAT?

Damn straight, if they do four recos and they are all a buy, the 5th one wil have to be a sell. (It's not exactly like that, but you know what I mean)

Imagine Joe Blow, the Junior Security Analyst at ML. It's December 31st, he's already done 99 reports and he's going onto the 100th report.

It's a strong buy , but guess what, he used up all of his buy cards. Oh no, he HAS to put a sell reco.

Sarcasm aside, this is the stupidest form of regulation I've ever heard of - opinions?

Some quote on the regulations

"Under its new system, analysts cannot assign “buy” ratings to more than 70 percent of stocks they cover, “neutral” to more than 30 percent and “underperform” to less than 20 percent. (An underperform rating suggests the analyst believes the stock will either fall within 12 months or will rise less than competing companies with higher ratings.)"

Source:

http://www.nytimes.com/2008/05/15/business/15place.html?_r=1&oref=slogin