Shop Talk

People in Los Angeles,California and Eindhoven,Netherlands are reading this.So are many others.All the best to all of you.If I am in on a Friday,I will try to post Shop Talk.So far,it's working out.Really,it's something extra.I can give you a shout-a shout to my new partner,Tiger Direct Canada,as well.They are on my link list now.

Consumers May Hurt Tech

Cautious consumers may hinder technology firms in the second half of the year,Dan Niles of Neuberger Berman thinks.Mr.Niles pointed out that housing prices are down 14% year over year,and homeowners won't be able to refinance.As well,the biggest impact of high oil prices hasn't been felt yet.Drivers are taking an extra hit of 450 billion dollars U.S..We don't know how consumer demand for tech products will be,Mr.Niles added.By early July,their tax rebate checks will be spent,so back to school and Christmas sales could be tough.He's constantly talking to Chief Information Officers,and they're ratcheting back their tech purchase plans.It is not a good picture right now.Nonetheless,he sees promise in selected firms,such as MEMC Electronic(WFR),which makes solar wafers;eBay(EBAY),as people are looking for bargains;and Apple(AAPL),which is launching a new iPhone.It's the most defensive in the portfolio Neuberger Berman has been for several years,Mr.Niles noted.

What the Floods Mean

Gary Thayer of Wachovia Bank(WB) has been studying the impact of the recent flooding in America's Midwest.Over the next year,the resulting spike in commodities will mean an 80% increase in corn prices.It will probably push food inflation over 5%-maybe to 6% or so,Mr.Thayer said.The damage to Iowa is pretty close to that of the 1993 floods.Probably we will see a distortion in economic data for the next few weeks because of the floods.From this point going forward,we're going to be getting concrete data,as opposed to anecdotes.The floods will probably affect us for the rest of the year,Mr.Thayer predicted.Crop losses are projected at over three billion dollars U.S.,and it's too late to replant.

Alcatel-Lucent Wins Suit

Alcatel-Lucent(ALU),the world's largest telecom equipment maker,has won a patent infringement lawsuit against Microsoft(MSFT).A U.S. District Court awarded the Franco-American firm 511.6 million dollars for infringement on two patents by Microsoft.It was a rare bit of good news for ALU,which has been struggling with the late 2006 merger of Alcatel with Lucent Technologies,as well as flat demand for telecom equipment.Their situation is further complicated by the strength of the euro against the U.S. dollar.The impact of the euro-dollar rate on their revenue is very large,Chief Financial Officer Hubert de Pesquidoux said.Although ALU,led by CEO Patricia Russo,is cutting 12,500 jobs and other costs,they have had to offer discounts to maintain market share,negating the savings achieved.The company continues to provide its customers with all their hardware needs,including mobile and fixed networks,as well as Internet television.The stock has been trading below 10.00 U.S. for many months.Microsoft said it will appeal the award.

Shop Talk

I have readers in Murrieta,Sunnyvale,San Francisco,San Diego,Cupertino,and Mountainview,California,as well as Vancouver,BC.It's good to have you along on the knowledge journey.It's the first day of summer in the U.S. and Canada-the first full day is actually tomorrow-so I wish you a pleasant one.I also greet my partners AdSense,LinkShare and Financial Times Press.

Jersey Trains Packed

New Jersey's commuter trains are bursting at the seams.Ridership was up 5% in Q1.Richard Sarles,head of New Jersey Transit,said they are buying double-decker train cars,which will transport more riders at less energy cost than adding standard rail cars.The agency's ultimate goal is to double the number of trains to 46 per hour,and build a new tunnel to New York City-at a cost of more than seven billion dollars U.S..The tunnel will take 10 years to build,Mr.Sarles said.Many other states are seeing an increase in commuter passengers as the price of gas skyrockets.

Lehman Demotions

Lehman Brothers(LEH) has demoted Chief Operating Officer Joseph Gregory and Chief Financial Officer Erin Callan.Ms.Callan's demotion has drawn mixed reactions.William Smith of William Smith Asset Management was bitterly critical of her.Everything Ms.Callan said for the past six months has proven to be false,he alleged.They recently sold their shares of Lehman because they lost confidence.They are not buying them back,either.On the other hand,Jon Najarian of Option Monster.com said he didn't think Ms.Callan was treated fairly.She seemed to him very honest and forthright.She really believed what she was saying.Some think Lehman Brothers cannot survive as an independent entity,now that the subprime crisis has changed the investment banking landscape.As for Ms.Callan,she has reportedly left the firm and is taking the summer off,only having served as CFO for six months.

Industrialized Leaders See Threats

The finance ministers of the Group of Eight industrialized nations,which include the U.S.,U.K.,Japan,France,Germany,Italy,Canada and Russia,are alarmed by surging oil and food prices.These prices pose a threat to the world economy as a serious challenge to stable growth,with serious implications to the most vulnerable and global inflationary pressure.Meeting over the weekend in Osaska,Japan,the ministers stated that tight supply and increasing demand was the main factor in high oil prices,though geopolitics and speculation were also to blame.U.S. Treasury Secretary Hank Paulson noted that oil production capacity hadn't risen in 10 years.The oil-producing countries should open themselves up to more exploration and production.British Chancellor of the Exchequer Alistair Darling said what we need to do,as a matter of urgency,is to increase supplies.Italy's finance minister,Giulio Tremonti,described the effect of speculation as enormous,and wants to increase the margins required of oil traders.The G-8 ministers also praised two new funds to help developing countries fight global warming.They said they remained vigilant in the face of uncertainty and downside risks in the world economy.They will take appropriate actions,individually and collectively,to secure stability and growth at home and abroad.

Shop Talk

Welcome to all my readers,from Montreal to Beijing and all points in between.I work under deadline pressure,so small errors are to be expected from time to time.When these occur,I correct them as soon as possible.The day of publication should be considered a first edition.As many of you know,I publish two other blogs,Extra Content and International Daybook,and you can visit them via link.Welcome also to Financial Times Press and LinkShare,which you may reach via link as well.

Honeywell Aerospace Deals

The Aerospace Division of Honeywell International(HON) has been prospering lately.It has just signed a 50 million dollar U.S. contract with Air Asia,and its 2.2 billion profit makes up nearly half of Honeywell's total.Half of the division's after-market business is in North America.It provides specific applications for airplanes,as well as upgrades for fuel efficiency and safety.Division chief Robert Gillette says they'd like to look at expanding globally,though it's a challenge with the weak U.S. dollar.Honeywell Aerospace is selling its parts business to BE Aerospace(BEAV) for just over one billion dollars.

Bernanke Provides Context

Speaking at Harvard University,Ben Bernanke,Chairman of the U.S. Federal Reserve,has put the current situation in historical context.So far,the U.S. economy has dealt with the oil shock pretty well,Mr.Bernanke said.The Fed has learned the lessons of the 1970s.Maintaining a commitment to price stability remains a top priority.Fixing inequality by limiting economic dynamism is a step in the wrong direction.Inflation today is significantly higher than he would like,but is lower than in the 1970s.There is little indication of the beginnings of a wage-price spiral today.Inflation is up 1% this year,compared to 6% in the 1973 oil shock,which was a result of war in the Middle East.Still,the rise of some inflation expectation indicators is of significant concern to the Federal Reserve,the central banker noted.Crude prices today are up more than four-fold,much like the 1970s,but the economic slowdown today is more due to housing and financial problems than to the price of oil,Mr.Bernanke reflected.

Jersey Helps Lehman

Lehman Brothers(LEH) is raising six billion dollars U.S. in new capital.Investors include the New Jersey Division of Investment,the state's pension fund.Common and preferred stock offerings will also be made.The capital is for general corporate purposes,Lehman said.The investment bank said it will report a Q2 loss of 2.8 billion dollars in a few weeks.It is Lehman's first loss since being spun off from American Express(AXP) in 1994.Lehman is in the process of deleveraging.Risk positions hvae been redeuced by 30%,commercial mortgages by 20%,and resaidential mortgages by 20% as well.In consequence,Lehman's profit and price to earnings ratio will be lower than they historically have been.

The True Impact

Dow Chemical CEO Andrew Liveris summed up the true impact of soaring energy costs as a resetting of the value chain.The fact that 85% of proven U.S. energy reserves are off-limits for environmental reasons is ludicrous,Mr.Liveris feels.It would be O.K. to drill in the outer continental shelf.Countries such as Norway are already doing this without causing environmental destruction.The cap and trade system,which is now before the U.S. Congress and amounts to a tax on the biggest polluters,is a necessary evil.It's the only thing that will reward good behavior at the emissions end.The energy crisis is one of the most complex issues that mankind has presented to itself,Mr.Liveris observed.

Dow Chief Explains

The candid CEO of Dow Chemical(DOW),Andrew Liveris,has expressed bitter criticism of the U.S. government's failure to adopt an energy policy.We are in a true energy crisis,and U.S. competitiveness is losing ground as a result,Mr.Liveris said.Higher energy costs are causing Dow to have difficult discussions with its customers.Feedstock and energy costs have continued to rise from their Q1 high.Dow utilizes one million barrels of oil a day to convert into useful products.The company is essential to the value chain.They have to pass price increases on.It's one of the few things they can do.Overwhelmingly,everyone in the value chain downstream from Dow has said thank you:now they can raise their prices in turn,Mr.Liveris revealed.

Dollar Tree Profits

Dollar Tree(DLTR),the discount variety chain,posted a 14% boost in net profit for fiscal Q1.With more bargain hunters brought in by the tough economic times,its gross margin rose from 33.4 to 33.9%,and same store sales rose 2.1%.It also raised its fiscal year earnings outlook to a range of 2.23 to 2.39 a share,up from 2.17 to 2.35 a share.In a recent circular,Dollar Tree featured 4-ounce steaks,as well as 8-pack hot dogs,24-ounce Del Monte ketchup,Sunbeam batteries and 6-ounce Aim toothpaste-all for 1.00 U.S. each.Indeed,everything in the store is a pocketbook-friendly one greenback.