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2009-06-09 09:16

TRUE GRIT

NEW YORK, NY Yesterday started out as a lazy summer session where sellers had the upper hand, but no agenda was really pushed with any kind of vigor. By the end of the day it was all about grit. Stocks caught fire, and at one time all the major equity indices were higher. (I think that the rally started too early, but the ability to climb off the canvass is the kind of action that could become infectious.) Ironically, one of the sparks of the rebound came from comments from Nobel Prize winning economist Paul Krugman. One would never confuse Krugman with John Wayne; although their attitudes were similar, their politics were polar opposites. Still, yesterday it was the noted economist coming to the rescue of the market like Rooster Cogburn facing down a gang of bandits. Midway through the session, Krugman pronounced the end of the recession by September. Of course, this is the same economist that felt the stimulus bill was at least 50% too small to work. If we are looking for someone currently in the news that reflects most John Wayne characters it has to be Indiana State Treasurer Richard Mourdock. Yesterday, some newspaper sniffed that all three pensions fighting for their rights stand to lose only $5.0 million if the Chrysler bankruptcy goes through. I guess this is where we've come in this world where adults start to talk about millions like grade school kids. My son has heard all the billions tossed around so much that he doesn't think numbers in the millions amount to a hill of beans. Yesterday, Fox Business revealed the latest tally in the General Motors (GM) bailout now stands at $80.0 billion, and there was nary an outcry from any corner of the land. Maybe those that care have hoarse throats, have given up, or just need to gather themselves before asking what we all should be asking: where does the debt from taxpayers for General Motors stop? This is why the decision by Ruth Bader Ginsberg to stay the bankruptcy court decision pending further order is such a victory. In the meantime, Ford (F) is speaking up about the awful disadvantages it faces against wards of the state. Apparently, Ford is paying $107.5 million more than GMAC for each $1.0 billion it borrows because of the $13.5 billion in funding and loan guarantees from the government. Recently, TALF was opened to auto loans but even with that, GMAC holds a distinct and totally unfair, advantage. Well, I say so much for doing the right thing, so much for being rewarded for not completely wrecking the business, and so much for capitalism. By the way, we have to give props to Tom Lauria, the attorney for the pension funds, putting up the good fight. I interviewed him the day the rest of his (former) investment fund companies pulled out of their opposition to the White House amid insult, threats, and a smear campaign by the media all too happy to see businesses and investors lose their rights. In the meantime, $5.0 million is a lot of money to regular people like those teachers and police officers whose pensions are getting a raw and unfair deal. I've been saying for some time that when the dust settles, our three branches of government could be just two, with legislators on the outside looking in. We just witnessed a bankruptcy judge that seemed to take his marching orders directly from the White House. What Corporate Struggle Looks Like Over the weekend, Palm (PALM) released its much ballyhooed "Pre" which has alternatively been called a Blackberry and iPhone killer. I'm not sure that it will live up to the hype especially after Apple (AAPL) unveiled its latest version of its ever-popular smart phone. (The iPhone got faster and smarter.) By now, it's universally known that the Pre is a Hail Mary for Palm, a do-or-die gambit to be relevant in a space where the established leaders are run by geniuses with deep pockets. At one time, however, that would have described Palm. As the government races to plow endless amounts of taxpayer funds into all kinds of corporate bailouts, Palm is trying to salvage its business the way all businesses should have to survive. The company formed with the brilliant goal of creating handwriting recognition technology, known then as Graffiti, has had its share of ups and downs. Palm Timeline 1992 > Jeff Hawkins, Donna Duinsky, and Ed Colligan form Palm 1995 > US Robotics acquires Palm for $44.0 million 1997 > 3Coms acquires US Robotics 1998 > Founders of Palm bolt and later form Handspring 2000 > Palm is spun off through IPO that values it at $53.0 billion 2003 > Palm acquires Handspring Palm is the quintessential story of entrepreneurs and large corporations, of big breaks and near misses. Now, it's the story of determination. If the Pre fails and the company goes out of business, it will still be an American success story because it used the advantages of the system and forced smarter competition. In the end, consumers are the winners. Winners and Losers Another company that has weathered its share of ups and downs is Texas Instruments (TXN), which upped its guidance last night. Management now sees earnings for the current quarter in the range of $0.14 to $0.22 per share on revenue of $2.3 to $2.5 billion. Previous guidance called for earnings as low as a penny to $0.15 per share on revenue in the range of $1.95 to $2.4 billion. The Street was looking for earnings per share of $0.10 on revenue of $2.21 billion. This is a substantial increase, and great news for the semiconductor space. Today, the Federal Reserve will let us know which banks will be freed from the TARP program. The thing is that the entire episode is a farce. Heck, there are already talks of another stress test because the first one was so flawed. Where does it end? There will be 9 or 10 banks that will pay back $50.0 billion. I think that it underscores the fact these banks should have gone straight to the capital markets. Moreover, these banks still have access to cheap money from various government programs. Yes, these bank welfare programs continue at the expense of anyone reading this report. Then, there is the chance that if the Supreme Court rules against the Indiana pension funds it will give the White House the green light to take TARP money and give it to other non-financial industries. At some point taxpayer money will be used to actually help taxpayers. Mornings Notes from WSS Research Desk Brian Sozzi * Golly Gee, I must say that I am feeling bad for Quiksilver (ZQK). Yes, the company made a huge mistake in acquiring a ski operation in 2005, and then selling it for next to nothing late in 2008. But, yesterday evening's announcement that Rhone will be providing a term loan of $150.0 million at an interest rate of 15.0% to Quiksilver is striking (but not surprising given the state of the firm's balance sheet). To boot, Rhone is receiving warrants that are exercisable into 20% of the company. Quiksilver unfortunately had to give the farm away to remain solvent, so this type of deal structure is to be expected. The stock was under severe pressure in the after hours, which makes sense in light of this deal (one in which the company does not truly receive a strategic partner to open up new distribution channels or bolster the supply chain). David Silver * SCOTUS Halts Chrysler Sale: Supreme Court Justice Ruth Bader Ginsburg issued an order late Monday to stay the sale of Chrysler's "good" assets to Fiat to form the new Chrysler. Very few details were given, but it appears the stay is only a stalling tactic to give the High Court enough time to hear both sides of the case and make a decision. The sale has not been canceled and Fiat indicated it would not walk away following the June 15 deadline. The news from the high court could also throw a monkey wrench into GM's plans for a quick bankruptcy exit.

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