Monday, June 30, 2008

Air Lines

Four international airlines have agreed to pay $504 million in fines to settle charges they conspired to fleece consumers by driving up cargo shipping prices.

The Justice Department called the case one of the largest antitrust settlements in U.S. history.

Associate Attorney General Kevin O'Connor called the scam an "international price-fixing cartel" that cost consumers hundreds of millions of dollars between 2001 and 2006. In some instances, for example, fuel surcharges rose by 1,000 percent.

One of the four airlines -- Air France-KLM -- has agreed to pay $350 million of the total settlement. The other carriers are Cathay Pacific Airways, Martinair Holland and SAS Cargo Group

"American consumers and taxpayers pour billions of dollars each year into the pockets of these lawbreakers," said FBI Assistant Director Joe Persichini. "Let there be no mistake that people in corporations that take consumers and taxpayers in this way are thieves."

Authorities said executives from each of the airlines met repeatedly in the United States, Europe and Asia to cook up a price-fixing scheme that raised cargo rates, fuel surcharges and security costs for businesses and, ultimately, consumers. The cartel focused on goods shipped to and from the United States, including electronics, clothing, produce and medicines, O'Connor said.

The settlement agreement, filed Thursday in U.S. District Court in Washington, still requires a judge's approval.

Thursday's announcement marked the latest in a series of cargo shipping settlements over the last two years. Earlier, British Airways, Korean Air, Qantas and Japan Airlines filed similar agreements as part of the investigation.

In all, airlines have agreed to pay $1.2 billion in fines -- what O'Connor called "the highest total amount of fines ever imposed in a criminal antitrust investigation."

The investigation is continuing.

-- AP

Sunday, June 22, 2008

The higher oil prices climb, the more America imports!

Sure, we've seen gasoline demand drop a tiny bit as energy prices rise - and some say that the drop in demand will drive prices lower.

But the facts say something very different:

Look: In 1990, oil was at $23 a barrel. Today, it's flirting with $140 - a 509% increase.

If the oil bears were right, you'd expect U.S. oil imports to have dropped dramatically - right? But U.S. oil imports are up a staggering 70% since 1990 - even as oil doubled to over $50 per barrel ... doubled again to over $100 per barrel ... and continues going ballistic right now!

Friday, June 20, 2008

The bogeyman

Facing the toughest political climate in a generation, the oil industry is using a barrage of advertisements to deflect anger over $4 a gallon gasoline prices.

Exxon Mobil has been particularly aggressive, running televised spots during the NBA Finals and network morning talk shows, and buying large print ads in the U.S. and Europe. Chief executive Rex Tillerson appears in one of the ads, which began running earlier this month, discussing the company's goal of caring for the environment as it provides energy to the world. Ads from other oil companies hit on similar themes: investment in alternative fuels and technology required to produce oil these days.

Exxon's ads are part of a growing effort by the industry to counter a political backlash against rising oil prices and global-warming worries. Oil companies have traditionally been the bogeyman for consumers during times of rising prices, with ad campaigns often employed to soften the industry's image.


Thursday, June 19, 2008

To finance the trade deficit

"Using excess dollars earned as a result of the massive US trade deficit, foreigners are buying up big chunks of the nation's businesses and properties.

"The latest shoppers: Abu Dhabi for New York's Chrysler Building and a Belgian-Brazilian brewery for Anheuser-Busch..

" 'It's the single biggest transfer of wealth in the shortest period of time in the history of mankind,' says Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition, a group of mostly small manufacturers worried by their loss of business to foreign companies.

" 'We can't continue to transfer US wealth at this rate. We are basically selling off the furniture to pay for Thanksgiving dinner,' says Peter Morici, a professor at the University of Maryland's business school in College Park. He roughly calculates that at the present rate of deficits, foreigners could own in a decade more than a fifth of the nation's total $35 trillion or so in assets of every kind - corporations, businesses, and real estate.

" 'We are very vulnerable now,' says Mr. [Charles] McMillion [of MGB Information Services in Washington]. To finance the trade deficit, the US must borrow money or sell assets worth $2 billion a day - a shift that will eventually erode American living standards, he argues."

-Christian Science Monitor

Wednesday, June 18, 2008


International Business Machines Corp. said it is collaborating with a Japanese semiconductor-equipment maker to commercialize a solar-energy technology developed by IBM scientists.

Tokyo Ohka Kogyo Co. will work with IBM to develop processes and equipment for the production of thin-film photovoltaic solar cells that convert sunlight into electricity. Terms of the collaboration weren't disclosed, but IBM said it expects to license the technology and, eventually, collect royalties, rather than building its own large-scale, manufacturing capability.

A number of companies are pursuing thin-film solar cells because they are expected to be much cheaper to manufacture than the current generation of solar cells made from silicon. Thin films are potentially more efficient at converting light into electricity than silicon is. They could even be applied to tinted windows or roofs on buildings and produce enough power for lights and air-conditioning.

Supratik Guha, the scientist leading photovoltaic activities at IBM, said the two companies aim to develop the technology "to a point where we can build a pilot" manufacturing line to make photovoltaic modules.

Tuesday, June 17, 2008

Pizza Hut and KFC

Two of the Most Popular
Restaurants in China Are American Icons:

Yum Brands, the parent company of Pizza Hut, KFC, Taco Bell, Long John Silver's, and others, is the largest restaurant chain in the world. It has over 34,000 stores, but more than 14,000 of them are outside the U.S. and concentrated in Asia.

In China alone, Yum operates more than 2,000 KFCs and 300 Pizza Huts. In fact, more than 50% of Yum Brands' revenues come from outside the U.S.

According to A.C. Nielsen, KFC is the top consumer brand in China, even ahead of Coca-Cola and Nike. You see, very few Chinese will ever have the chance to set foot in the U.S. so dining out at KFC or Pizza Hut is as close as they will get to visiting America.

Plain and simple, the Chinese love KFC and Pizza Hut!

Yum plans to expand its hugely successful home delivery services to target the huge nocturnal populations of crowded Chinese cities.
Get this: The swarm of customers waiting to get into the grand opening of a new KFC in the city of Qiandaohu was so thick that eight security guards had to be brought in to help manage the crowds. "This happens every time KFC opens a new store," says Wang Weiming, manager of the Qiandaohu KFC.

The reason is that Yum has been able to take advantage of the Chinese's love affair with American products. And they have succeeded in tailoring their menus to local tastes across China.

The menu is different from the United States, with smaller portions and new entrees featuring popular local ingredients. For example, at Chinese KFCs, you can get a Beijing Duck Wrap served with scallops and hoisin sauce, chicken skewers that come with the cartilage, shredded pork soup, and congee (rice porridge).

Pizza Hut takes that localization strategy even further:

In Taipei, they serve sashimi pizza ...

In Kualu Lumpur the locals love chicken satay pizza ...

In Shanghai, sea eel is #1 ...

And as unbelievable as it sounds, the Thai people love to dollop a can of tuna fish on top of their pizza!

The packaging is American, but the tastes are definitely Asian.

Monday, June 16, 2008

Tomorrow on Your Calendar

Before we jump into this week's calendar, I wanted to take a moment to recap some of what happened last week.

Retail sales posted a surprising increase of one percent, almost doubling the 0.60% increase the market expected. As I had speculated, the report revealed that most of this came from the economic stimulus checks that started hitting mailboxes last month.

One of the reports from last week that could provide clues as to how this week will play out is the Pending Home Sales report. Pending home sales posted a huge increase last week. The expectations were for a one percent decline; instead we saw an increase of just over six percent. This leads me to believe that the Building Permits and the Housing Starts reports will both beat expectations this week.

In addition to those two reports, Tuesday is stocked with five additional reports. The Core PPI and PPI reports are released at 8:30 am, and expectations are for a 0.20 percent increase in Core PPI, and a full one-percent increase in the PPI Index. Since the Core numbers exclude food and energy, it is pretty clear that the bulk of the increase in the PPI is due to those two factors.

The final report of note this week is the Philadelphia Fed report. This survey covers manufacturing purchasing managers in the Pennsylvania, Delaware, and New Jersey area. In a possible glimmer of hope, the report is expected to not be as bad as last month, posting a decline of twelve points versus May's fifteen-point decline While still a decline, at least it is shrinking.

Saturday, June 14, 2008

Even modest boosts in sales can have a big impact on the revenues of small companies.

That's not the case with bigger companies.

I like small companies with growing international sales. They shouldn't fall as much as other small companies during a bear market. Plus, when the market rebounds, they'll get the benefit of growing domestic and international sales. For a small company, that can be more than enough to grow profits and see share prices rise.

Most stock search engines will let you cull companies by market cap. But to see what they have in international sales (if any), you have to dig a little deeper. Still, it's not hard. Most companies will mention global sales in their profiles. One place to find a company's profile is on its main page in Yahoo's finance section.

Friday, June 13, 2008


As part of a green marketing bid, automotive giant General Motors plans to unveil a lighthearted television ad that begins "Dear Oil," and proceeds to suggest a cooling off of its "relationship" with petroleum products.

GM marketing executive Kathryn Benoit spoke about the ad in a panel discussion at the American Advertising Federation conference Monday, said Kelly Cusinato, GM spokeswoman.

While discussing green marketing, Benoit cited the company's plans for the new spot, which is aimed at promoting alternative fuel, said Cusinato.

In the ad, the "Dear Oil" letter continues: "We've had this great relationship for many years. We think we will both be a lot happier and healthier if we see less of each other."

The ad spot is still in the planning phase, but the target date for release is June 22nd during NBC's Meet the Press, according to Cusinato.

Thursday, June 12, 2008

Crude Oil

West Texas Intermediate crude is consolidating between $131 and $139.

Reversal below $131 would warn of a test of $122, while breakout above $139 would offer a target of $135+(135-122)=148.

A retracement that respects support at $135 would also be a bullish sign.

Wednesday, June 11, 2008

Setting Up For Another Leg Down

Over the past few months, the markets have fought all that is logical in order to move higher. After bottoming in February, the Dow Jones rocketed 1,200 points. But did last Friday's sell-off signal a bigger sell-off looming?

To find out, let's take a look at the CBOE Volatility Index ($VIX). This index measures the implied volatility of S&P 500 index options. When the VIX moves higher, it signals more volatility. And more volatility generally means lower stock prices. With that said, when you see the VIX moving higher there is a strong likelihood that stock prices will move lower.

Setting Up For Another Leg Down

Over the past few months, the markets have fought all that is logical in order to move higher. After bottoming in February, the Dow Jones rocketed 1,200 points. But did last Friday's sell-off signal a bigger sell-off looming?

To find out, let's take a look at the CBOE Volatility Index ($VIX). This index measures the implied volatility of S&P 500 index options. When the VIX moves higher, it signals more volatility. And more volatility generally means lower stock prices. With that said, when you see the VIX moving higher there is a strong likelihood that stock prices will move lower.

Tuesday, June 10, 2008

The unemployment rate

It is the highest since October 2004, reflected an expansion of the workforce, led by teenagers. The increase in the rate was the biggest since February 1986.

A loss of jobs is one of the criteria used by the National Bureau of Economic Research to determine when recessions begin and end. The group, the official arbiter in the U.S., defines contractions as a "significant'' decrease in activity over a sustained period of time. In addition to payrolls, changes in sales, incomes, production and gross domestic product are also considered.

Payrolls shrank by 324,000 workers in the first five months of the year. In 2007, the economy generated 91,000 new jobs a month on average.

"We've never seen a run of negative payroll numbers like this without the economy being in a recession,'' Avery Shenfeld, senior economist at CIBC World Markets in Toronto, said before the report.

"We are in a mild recession. We expect to see a few months of declines that are worse than this.''
Factory payrolls fell 26,000 after declining 49,000 in April. Economists had forecast a drop of 40,000. The decrease included a drop of 7,500 computer and electronics manufacturing jobs. Auto factories added 4,400 workers.

The protracted housing slump and resulting collapse in subprime lending were also reflected in today's report. Payrolls at builders fell 34,000 after decreasing 52,000. Financial firms decreased payrolls by 1,000, after a gain of 1,000 the prior month.

-- Bloomberg

Monday, June 9, 2008


Americans saw their net worth decline by $1.7 trillion in the first quarter, as declines in home values and the stock market ravaged their holdings.

The net worth of U.S. households fell 3% to $56 trillion at the end of March, according to the Federal Reserve's flow of funds report, which was released Thursday.

The drop marks the second straight decline in net worth, which fell by more than $500 billion in the fourth quarter of 2007. Until then, net worth had risen steadily since 2003, climbing nearly 31% over those five years. During the bear market of 2000 through 2002, household's net worth dropped 6.2%.

Saturday, June 7, 2008


When it comes to a measuring a company's health, little can compare with overall profits. The more profitable a company is, the better. And no company in the world is more profitable than ExxonMobil (XOM). For anyone who drives a car and pays $4/gallon for gas, this should come as no surprise.

In 2008, the petroleum industry is where you want to be. And while few of us can avoid buying gas, we can at least make back a little of what we're spending by investing in ExxonMobil. The stock was around $70/share at the beginning of 2007, and recently closed at around $94/ share, a 34 percent increase.

Keep in mind that you need to go into any investment - even a seemingly great one like oil - with your eyes open. As Rick Pendergraft mentioned recently, the economy can't sustain the gas price crunch on consumers for long. And as Andrew Gordon pointed out in an article about the future of gas prices, new technologies are on the horizon that will "upend the demand side of oil" and "make inroads on increasing the supply side." Those technologies are still a few years away. In the meantime, if you're cautious, there is no reason you can't profit from Exxon's stock movements.

For the short term, oil is a good investment. Americans still drive everywhere, often with no one else in the car. And while a trend toward smaller cars has begun, gas-guzzling SUVs still dominate our highways. So, like it or not, ExxonMobil and its counterparts will continue to cash in on high gas prices for the near future.

Add ExxonMobil to your portfolio to help offset rising prices at the pump. But keep your eyes peeled for the inevitable reversal - and be prepared to jump ship as soon as gas prices start to slip. Protect yourself by setting a 25 percent stop-loss point. That way, you'll get out with 75 percent of your profits intact.

Thursday, June 5, 2008


1. Modesty. You don't need to be the best and most successful investor in the world. If you set modest objectives - 10 percent to 15 percent - you will have a good chance of reaching them.

2. Humility. You don't know enough to predict the future. Admit it by setting stop-loss points and sticking to them.

3. Consistency. Umpteen studies have shown that the most important factor in stock market success is the consistent application of a rational system. Which system you follow is not as important as your consistency in adhering to it.

A 10 percent to 15 percent return on your investment may not make you wealthy overnight. But if you stick to these three virtues - and don't abandon them when you hear an irresistible story about a "can't lose" stock - chances are you will do much better than your friends and colleagues.

Wednesday, June 4, 2008

The S&P Homebuilders Spyder (XHB) has...

...bounced back from its January low. The stock has recently moved above its 100- and 200-day moving averages. I find this to be encouraging for a long-term investment.

I am normally a short-term trader, but I know a long-term opportunity when I see it. The XHB is a great one. I would look to buy shares up to the $23.50 level and hold them for a year or more.

Tuesday, June 3, 2008

Although OPEC's excess capacity ...

...has rebounded from its 2005 low, the gains are largely in heavy crude oils that can only be processed in specialized refineries. Those facilities are running full bore, so the added supplies aren't relieving a tight market. The latest evidence also suggests OPEC is now restraining its output.

While some warn that oil production has peaked-or will soon-most industry experts contend that oil resources are plentiful; it just takes time and money to get them out of the ground and into the market.

Higher prices have done what economics would predict-stimulated efforts to increase supply. Companies have expanded their exploration budgets. Oil-producing nations have announced new projects. Drilling activity is at a high level, both offshore and on land. Wages and oilfield services costs are being bid up, while shortages persist for some key skills and equipment.

So far, new supplies haven't materialized quickly enough to keep up with growth in world demand, largely because various hurdles have slowed their development. Oil resources, for example, are concentrated in countries with state-run oil companies or little economic freedom. Where market signals aren't allowed to work, incentives to boost production may be muted.

Oil demand is inelastic in the short run-that is, it doesn't react quickly to changing prices. Consumers adjust their spending to maintain consumption as prices rise, even if they have to pay more for it. Most likely, this reflects businesses' commitment to keep up production and individuals' need to drive to work, run errands and heat homes.

When demand is inelastic, even modest tightening in markets translates into strong price movements. In recent years, this inelasticity has magnified tight markets' impact on prices.

-- Federal Reserve Bank of Dallas