Tuesday, April 29, 2008
Noted investment officer Mohamed El-Erian of Pimco has been giving advice for the current situation.The crisis is far from over,he feels.The reality is that it is morphing again.Now it's the real economy that's in play.The good news is,that's something that we know about.The Federal Reserve's dual objectives of fighting inflation and fostering growth will become increasingly inconsistent.He expects the Fed to stop lowering rates and see what's going on.Investors should be more cautious about areas connected to the consumer.As a long term proposition,you want to have inflation protection.Treasury inflation-protected securities are a way to do that.The Fed has made a huge effort,but it's too little too late.Look beyond the U.S..There are other areas of the world not as threatened.Focus on high quality assets.We tend to be comfortable with home investments,with what we're familiar with.Use diversified instruments to get foreign exposure,Mr.El-Erian counseled.The iShares Lehman Brothers TIPS fund(TIP) provides income from inflation-protected securities.
Ford Motor Company(F) reported better than expected earnings for Q1.The Michigan automaker showed an increase of .05/share versus an estimate of -.16/share.Revenue was 39.4 million U.S. versus an estimate of 38.5.Strong profits came from its European and South American operations.CEO Alan Mulally attributes the success to Ford's aggressive restructuring program and increased market share from its new products.In recognition of the good report,billionaire investor Kirk Kerkorian's Tracinda Corporation is seeking a greater stake in Ford.Tracinda is offering 8.50/share for 20 million more shares of Ford common stock.Ford welcomed this confidence in it.This purchase would raise Tracinda's ownership of Ford to about 5.6%.
Nortel Networks(NT) is focused on saving energy for its customers.Nortel products and services make it possible for customers to reduce their carbon footprint.Nortel data infrastructure enables customers to use 40-60% less energy.At the same time,the Canadian firm is reducing its own energy consumption.CEO Mike Zafirovski says Nortel's perspective is always to enhance shareholder value.Nortel's enterprise segment grew 14% last year,and the company is very bullish on its 2008 prospects.
Fortune magazine has released its list of the top firms by revenue.They are:Wal-Mart(WMT),Exxon Mobil(XOM),Chevron(CVX),General Motors(GM),Conoco Phillips(COP),General Electric(GE),Ford Motor Company(F),Bank of America(BAC),Citigroup(C) and AT and T(T).
Tuesday, April 22, 2008
Rising commodity and energy costs are affecting Procter and Gamble's business,CEO A.G. Lafley admitted.There is no doubt that the consumer is under pressure,but PG consumer categories are still growing-albeit modestly.Everyday household and personal care products are still being bought on a weekly basis.PG employment and hiring in the U.S. should be up this year.Emerging markets are their engine of growth-and will be into the future,Mr.Lafley observed.
Salesforce.com(CRM) is partnering with Google(GOOG) to expand cloud computing.In cloud computing,customers pay for applications such as word processing or customer service,rather than buying software.Cloud computing is just like using a web site,with applications being delivered through a browser.There is nothing to upgrade or install.The way that people and businesses operate today is different than when Microsoft(MSFT) began,Salesforce.com CEO Marc Benioff said.Software needs to be replaced by cloud computing.As for Microsoft,it needs to buy companies in order to catch up,Mr.Benioff feels.
Bond expert Bill Gross of Pimco thinks the Federal Reserve will cut short term interest rates to two percent,but there's a certain point beyond which it doesn't help the economy.Lower and lower interest rates produce a weaker and weaker U.S. dollar,causing global inflation.The bond markets on a global basis are afraid of inflation.U.S. Treasury bonds are perhaps the most overvalued asset in the world.Mr.Gross likes corporate bonds with AA or AAA ratings,such as General Electric(GE) or JP Morgan Chase(JPM).
Tuesday, April 15, 2008
In a semiannual forecast,the International Monetary Fund,a group of 185 member nations,says that the U.S. has entered a mild recession that will affect most of the world.Only the Middle East will escape the downturn,on account of its oil revenue.Global goods and services will rise 3.7% in value in 2008,as opposed to 4.9% in 2007.Extensive damage has been caused by the crisis,which the IMF considers the worst upheaval since the Great Depression.
Finance ministers of the G-7 industrialized nations met in Washington over the weekend,addressing the credit crunch.The officials agreed to bear down on financial institutuions,requiring them to hold more capital and be more transparent.The U.S.,Germany,France,the U.K.,Italy,Japan and Canada plan to set up an international team to scrutinize the big banks.Alistair Darling,the U.K.'s Chancellor of the Exchequer,said restoring confidence is a primary concern.He called on the G-7 to act on the credit squeeze,which he likened to the Great Depression.The G-7 said that downside risks to the global economy are increasing.These include the U.S. housing market,as well as the price of oil and other commodities.Nonetheless,food shortages and prices pose a greater threat than capital markets turmoil,the G-7 noted.
Robert Zoellick,president of the World Bank,called on donor nations to make good on their commitments to the U.N. World Food Program by May 1.The nations had promised 500 million U.S. in emergency aid.If the funds are not provided,tens of millions of the world's poor would have their food rations cut in half,raising the possibility of further rioting in countries such as Haiti.Since the commitments were made,food prices have continued to rise,making it essential that donors meet them as soon as possible.
Tuesday, April 8, 2008
The governor of New Jersey,Jon Corzine,believes we are in a recession.The former Goldman Sachs(GS) executive isn't sure the the federal Govrnment's stimulus plan gives us the most bang for the buck.There's a real risk of getting into a deeper recession.He's afraid people will walk away from their homes.They're being squeezed by the cost of living.Governor Corzine feels that Paulson and Bernanke are taking steps in the right direction,but haven't gone far enough.Recession talk isn't helpful to the folks getting pinched.We're in the heart of a consumer economy.New Jersey's revenues are not coming in.There will have to be more budget cuts.We need a system that will help people lower their debt level,that will target homeowners with mortgages,Governor Corzine said.
Ben Bernanke,the chairman of the Federal Reserve,the U.S. central bank,and a former professor,has been focusing on the economic dislocation.He notes that the U.S. economy is still going through a very difficult period.It should strengthen in the second half of 2008,returning to growth in 2009.Much adjustment has already taken place,but the financial markets are still under stress.So far,hedge fund behavior has not created losses for our major financial institutions.The sudden failure of Bear Stearns(BSC) would likely have led to a chaotic unwinding,which would have been felt broadly in the real economy,Mr.Bernanke said,justifying the Federal Reserve's intervention in the matter.
Hank Paulson,the U.S. Treasury Secretary and a former Goldman Sachs(GS) executive,has been focusing on proposed new financial regulations.He would not implement them until the markets stabilize.The highest priority is limiting the impact of current disruptions.The current system creates interagency conflict.Even with new rules,market stress will inevitably occur.The new structure would be phased in over a 2-8 year period.Consumer protection would be improved under the new system.A new insurance regulator would be housed in the Treasury.Mr.Paulson is confident in the resiliency and strength of the capital markets.He is not looking to outlaw innovation.We have excess complexity in many areas.There would be a prudent financial regulator for banks.They would look for issues and problems such as excess complexity.The Federal Reserve would have the authority to examine financial companies,and could require limiting exposure to certain asset classes.
Tuesday, April 1, 2008
Exxon Mobil's(XOM) investment levels have grown from year to year,CEO Rex Tillerson noted,but when resources are ready to be developed,new technologies are often required.In consequence,a very large and complex project may be delayed for 10 years before Exxon invests in it.Exxon's shareholders have been paid ever-growing dividends,and have benefited from over 118 billion dollars U.S. in share repurchases over the past several years.Exxon's income taxes have increased at a faster rate than its profits.It paid an effective tax rate of 44% in 2007.Shareholders will be hurt by new taxes,and ultimately the consumers will have less energy resources because of them.Taxes are part of the economic analysis of whether you can take a risk and invest.Much of the technology lets Exxon manage the risk of the resource and the care of the environment.Exxon is a huge consumer of commodities itself,but it is built to be the most efficient,regardless of the economic conditions that swirl around Exxon,Mr.Tillerson observed.
According to Exxon Mobil(XOM) CEO Rex Tillerson,Exxon has a robust,very deep portfolio of opportunities,yet the very high cost environment is beginning to show up in its projects.Exxon's management systems help it mitigate about a third of the cost pressures through technology,project planning and execution.You have to grow a business organically,but where it makes sense,Exxon is always evaluating acquisitions.It has a unique capability to integrate them and benefit its shareholders.The high price of oil is partly due to the weakness of the U.S. dollar.That amounts to a third of the disconnect with supply and demand.Geopolitical uncertainties and speculation also contribute to the disconnect,Mr.Tillerson said.
Exxon Mobil(XOM) has ramped up its quest for new hydrocarbon fields.In 2007,Exxon replaced 76% of its production-the least in 14 years.A map of the Irving,Texas firm's drilling plans to meet this challenge is literally a map of the world.From Alaska to Indonesia,Exxon will be returning to its wildcat roots,drilling wells in areas not known for their oil and gas reserves,such as inland Germany,Ireland,Greenland,New Zealand and Madagascar.Using advanced technology that allows drilling from huge floating rigs up to two miles into the ocean floor,Exxon will explore off the coasts of Qatar,Angola,Nigeria and Libiya.By 2012,it expects 50% of its production to come from West Africa,Central Asia,Russia and the Middle East-up from today's 36%.Other exploration sites include Colombia and Brazil.The Brazil project is near Brazil's recent large discovery in the Tupi field.The largest Western oil company,Exxon will increase its capital spending by 25% to 125 billion U.S. over the next five years.