July 2008 Archives (don barrett)

July 2008 Archives

Coal-Lighting Our Future

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As most of you know by now I think coal will be the key to our future energy needs and oil will play a much smaller part in the future. The U.S. is the Saudi Arabia of coal and this coal is what we should be focusing on for future uses. I have done some research this weekend and some major advances in clean coal technology have been made. I still think coal is the future and oil is a huge bubble ready to burst. And the latest fallacy out of the media is the connection between oil and coal. There is no connection between the two. Oil is used to mainly power our automobiles and oil usage is dropping worldwide as the higher speculators drive the price of oil up,the less is being used. Most of us can easily cut back on the use of oil some as you just drive less.The media and some oil people have said for years oil usage for autos hasn't dropped. But,if you take a poll,most people will say they have made some attempt to slow their oil usage. The Asian countries by dropping their oil subsidies to the public is going to slow oil usage there. Chinas gas and diesel prices went up 18% or so when they dropped the subsidies and a 18% rise will slow oil usage!
Coal as most of you know plays a large part in the generation of electricity worldwide. Arch Coal is a favorite of mine and their coal alone produces about 6% of all the electricity used in America. Of all the energy China uses about 70% comes from coal mainly in the generation of electricity. Arch Coal already has the contracts to deliver coal to several new coal fired plants in the next few years at several dollars a ton more than today's prices. I think nuclear plants could slow coal usage in the future but a lot of Washington has to get their heads out of the sand. No drilling,no nuclear plants,no oil refinerys,no coal plants. Well just exactly what do you propose? I am a firm believer in solar,wind,and other alternative energy sources,but you have to live until these other sources of energy can have a larger impact on our energy needs.
The United States has enough coal to last an estimated 200 years or so. President Bush set aside $10 billion in 2002 for the research of technology to have a cleaner burning coal. I read yesterday that South Africa uses coal to produce about 30% of all the fuel to power their vehicles. We have enough coal to last us for a couple of centuries and we need to get the politics out of our energy policies and dance with what we take to the dance floor-coal. We have the coal and soon we will have a technology for a clean burning coal and a processes to convert coal to a liquid fuel to run our vehicles. This seems to be the most feasible path to take to me. I read on The Street yesterday where a published author had suggested that we continue to buy foreign oil until we deplete their oil reserves and then oil prices will be so high that our oil would then be worth the investment to drill. This must be the new thing I keep hearing about"reverse psychology" I think this strategy will really fool the Saudis!

Where Do We Go From Here?

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My first post on Strategy Lab Open was to find your style of investing and stay with what you believe. I still think a lot of average people with a little time to study and actually follow the market can beat most of the professionals and the Open has shown that to be correct again. I have seen several fund managers lately on CNBC hyping some stocks and their fund is down double digits for the year They make me want to run right out and get some cash for them to manage. And that was my main reason for doing as poorly as I did. I let to many people who have no clue what their talking about influence my decisions. If you look at my stock picks they have done fairly well,but I jumped in and out too much and completely changed my portfolio twice. I started a short fund and as of today it stands at almost $1,600,000 which would put me in second place if I get to count it in the Open. A lot of people and many on the media keep asking when do we buy the financial stocks and go look at my CFI fund and see if you think it's time to jump in. I was up 44% I think it was in June by shorting banks and brokers and my advise is to not touch the financials anytime soon!
Oil was another of my pet peeves this year. The media kept telling us as Americans we weren't cutting back on oil usage and I didn't believe a word of it. I'm not wealthy by any means but when oil hit $3 or so I cut back on my driving. And now we're at $4 and until the last few days we were told oil usage still wasn't slowing. And in the last few days I first heard or at least the first time I remember hearing "demand destruction" I didn't coin a term for it but I did say at different times during the Open that the oil consumption was dropping and it was in a bubble. Oil has dropped $10 or so the last couple of days and I think this trend will continue. One last little bit of info. on oil is that I heard yesterday that 3% of all cars on the road are hybrid. It's a small percentage but we have to start somewhere.
Another of my favorite sectors is the fertilizer companies. I personally like C F Holdings which is trading at a current PE of about 18 and this company has tremendous growth and the bottom line is people have to eat. Some of the ag companies dropped yesterday as oil did and why I have no clue. Falling energy prices have to help all these companies and CF rebounded today over $7 dollars or over 5%. These ag companies do a lot of international business and they will do better as the worlds population increases.
My next favorite is the other black gold-coal. A lot of people are trying to associate coal with oil and they are almost two complete different areas. Most oil is used as gas and most of coal is used for generating electricity. I'm hoping coal will play a bigger part in fueling our vehicles as the technology for converting coal to a liquid fuel is really improving. South Africa is fueling about 30% of their gas needs with liquified coal now.
Now for a couple of sectors I wouldn't touch right now. The U.S. auto makers are in a terrible position and I don't think they can turn things around anytime soon. I guess it has been a couple of months since I addressed the American auto makers and at that time Mr. Kerkorian had made a substantial investment in GM and Ford and those have been terrible investments so far.
Also,the banks and brokerages are not out of the woods yet. As I stated earlier my short fund was up about 44% in June mostly on banks and brokerage houses. Some of these companies are going to need more cash infusions and I'm hoping by the early part of 2009 things in the financials will turn around. Some of the financials made a nice move up Tuesday and fell back and some actually lost more ground Wednesday.
Another sector with some serious problems ahead are Freddie and Fannie. When the subprime debacle was in freefall these government agencies were buying up a lot of the bad loans from the private mortgage companies and then they even raised the loan limit to about $800,000. From what I can find out they have bundles of loans that have no borrower verification on income or employment. If you think back 2 or 3 weeks ago Dodd and some others were wanting a $300 billion housing bailout and when the news came out that Dodd was getting some interest rate cuts and other perks and I haven't heard anything about the bailout since. Tuesday it was announced Freddie and Fannie would need more cash injections ,but that idea was denounced and their stocks still dropped.
Overall I think things will slowly rebound and the economy will survive. As I said earlier this is nothing compared to the recessions we have had in the past and we will get past this slow down. If oil and the other commodities continue to pull back things will turn around much quicker. So,stick with what you think and don't let the media influence your decisions as they know less about the economy than you do.

Steve Wynn- Trying to Hit an Inside Straight.

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Let me start with Stanley Ho. How many of you have even heard of Mr. Ho? If you are of Chinese descent or maybe an international traveler or gambler,you may have heard of Mr.Ho. If you gambled in a Macau casino or visited Macau prior to 2002 you were in the neighborhood of Mr. Ho. From 1962 until 2002 Mr. Ho had a monopoly and owned all 19 casinos in Macau. Mr. Ho at 86 years old has built an empire estimated at $ 7 billion dollars at his casinos and from 1962 to 2002 in Macau he was the only game in town. So,if between 1962 and 2002 you visited Macau and rolled the dice or pulled the one-arm bandits,Mr. Ho sends his thanks.
Then in 2002 the door was opened to Macau and the competition rushed in to compete with Mr. Ho. And one of the main competitors that rushed in was Steven Wynn of Wynn Resorts.. Mr. Wynn has been a fixture in Vegas for many years and is trying to hit an inside straight in Macau. To the gamblers among you the odds of hitting an inside straight are not in your favor. But,I think Mr. Wynn may very well hit his inside straight and he already has a foot in the door and he's looking to improve his hand.
Mr. Wynn has already built a 600 room hotel and casino in he's not stopping there. Mr. Wynn already has in place financing to erect a 400 room hotel and casino adjacent to the Wynn Macau Casino The new structure will be a tower called The Encore. And Mr.Wynn isn't planning to stop there. Mr. Wynn is trying to issue a new IPO on the Hong Kong market to raise up to $3 billion to build another 1500 to 1800 room hotel and casino on 52 acres he' has already bought. It may sound like overkill but I think Macau is going to be a gambling and tourist sight that will be the Vegas of the east.
Now let's look at the Wynn stock and decide if we should roll the dice. The Vegas part of the Wynn empire is to say the least slowing. I also looked at some other gaming stocks such as LVS and IGT and some others and Wynn seems to be fairing as well as the others. But Wynn and the Las Vegas Sands have an ace up their sleeves-Macau. Wynns Vegas net income for for 2nd quarter 2008 was between $18-22 million compared to a net of $63.4 million for the 2nd quarter 2007. The Wynn Macau Casino net is expected to grow from about $53 million 2nd quarter 2007 to between $100-106 million 2nd quarter 2008. With the growing number of casinos in Macau there seems to be no over-kill so far.At least for now the Vegas resort is a drag on the Macau casino earnings,but the Vegas Wynns will rebound as the economy does. Wynn Resorts is currently in the process of a $ 1.5 billion dollar share buyback.
Mr. Wynn has the Vegas Wynn Resorts and the Wynn Macau Casino in operation. He has the financing in place to erect the new 400 room Encore adjacent to the Wynn Macau. He is now looking to raise $3 billion to build the new 1500-1800 room hotel and casino in Macau and I think he may become the gaming leader in Macau. Mr. Ho had never been transparent until going public and he may have some legal problems. The Ho family is also having some internal problems and now seems to be the optimum time for Mr. Wynn to make some inroad into the Ho empire. When all 3 Wynn Macau casinos are up and running by late 2009 or early 2010 and by then the Vegas Wynn Resort should be gaining some momentum,I think the house odds at Wynn Resorts are in our favor and I would recommend we take a seat at the table and start accumulating Wynn.

Calls On Tso and Vlo

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As most of you know i have thought all year that oil prices are being manipulated by speculators. Various reasons have led me to this view the main one being if the U. S. is using less oil,the other countries with much less disposable income have to be using less. Most of the Asian countries with their gas subsidies cut have to be using less oil.
These 2 oil refiners should increase profits as oil prices drop. Oil and oil companies haven't risen as aggressively lately and for the oil companies some have been declining. So,I bought some October calls at as close to the stock price today as I could and some are in the money already. That would be a $30 call on VLO and $15 call on TSO for Oct. and if you want to go out to Nov. or Dec calls.

Sprint is Takeover Candidate

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It was reported on CNBC that S may be a takeover target by a south Korea telephone company. I like this because the board at S thinks they are already turning the company around and I dont think they will lay down at a takeover attempt.

The Three Musketeers

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Turning the reigns over to Mr. Bernanke on Freddie and Fannie will go a long way toward correcting this mess if the Senate will stay out of his way. The first thing I heard Mr. Bernanke say last week after he took over was we have to make better loan decisions.
I think now is the time to be buying Freddie and Freddie and some of the banks. As Mr.Bernake corrects this problem confidence in our banking system will return shortly.
Coal was drug down with oil yesterday and as I've said before they are mostly independent of each other as they have almost totally different uses.
Oil is down again and Im hoping this is the start of the major correction of oil prices. As Ive said for months its being caused by speculators. Michell Caruso-Cabrera( check my spelling) on CNBC was the only person that noticed or said anything about it,but as soon as Mr. Bernanke mentioned speculators yesterday oil started dropping. And that's not the first time Ive noticed that same reaction.
Potash and my favorite ag play CF dropped yesterday and the fertilizer companies seem to drop with oil and I dont see the connection. People have to eat and these companies will prosper.
Trains,planes and trucking companies should surge as oil drops.
The tech companies should be ready to surge. The last few tech companies have decent earnings and good projections looking forward so I would give them a look.

Elan-Hype or Hope?

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I used the same title as I did last time and since then it looks more like hype. If you go back to my article you'll see I advised investing in Elan as it was just too early in the process. I think Elan will get this right it is too risky to buy into Elan now. Elan was just entering Phase II with b-Mab and as I said then it was met with mixed reviews at best. EZArnie or someone even told me I was using outdated data. EZ said b-mabs efficacy was already established and proven. A drug just entering Phase II always has a lot of unanswered questions and that's why they go to all the trouble of PhaseII,III,and IV. When I wrote the article I stated Elan may be a buy later but not at this time and price.
B-Mab and Elan were on the ropes yesterday and today Tysabri and Elan were in the news again. Patients using Tysarbi for MS were having some serious side effects and brain disease. Tysarbi was pulled off the market in 2005 and was returned to the market in 2006 with the understanding to the MS patients they would be using Tysarbi at their own risk. That decision will be decided by the FDA as Tysarbi will be pulled from the market again.
I would like to close with a little advice and a company's stock with more potential and less risk than Elan will will ever be. Buying a pharmaceutical always has some risks and a company such as Elan with one drug already pulled off the market and then to buy into the company due to a drug in Phase II is very risky.
My advice is to you is stick with company marketing something with proven results. I have recommended the fertilizer companies since last year and I'm still buying them myself. I bought some $50 calls on Monday for $6 and sold them for $9 today. A 50% profit in 4 days is pretty good in my book. Terra Resources just reported some fabulous results this week and gave similar guidance for the rest of 2008(The calls were onTRA).

don barrett

don barrett

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