|A compilation of this board's financial/economic posts From 42609 to 42691
Post 42609 by Arkural Reply
OT-A question of the American People's Support of War
~This information sheet was compiled by a group of everyday Americans who understand that true patriotism necessarily implies a willingness to be critical of the government when it fails to represent the needs of its people.~
It is not in America’s interest to invade Iraq.
· An unprovoked invasion of Iraq and the removal of its leader by force would only sow more seeds of anti-American sentiment among the populations of the Middle East and inspire more acts of terrorism against innocent Americans. This view was most recently voiced by experts who testified before the Senate Foreign Relations Committee in late July and early August.
· The American economy is steadily deteriorating: The trade deficit and the budget deficit are both increasing, the tax base is declining, personal and corporate bankruptcies are on the rise at a staggering rate, consumer confidence is plummeting, investor confidence has all but disappeared, the stock market just recently hit new lows not seen since 1998, millions of Americans are without health insurance, unemployment is rising, affordable housing is almost nonexistent, the U.S. dollar is losing value (which could eventually result in inflation and rising interest rates), state governments - with California in the lead – are under severe financial duress, and the very existence of Social Security and Medicare is at peril. An expensive war will only exacerbate these problems. Is this the time to spend billions of dollars to invade a third world country clear across the globe?
· The proposed war against Iraq has nothing to do with the government’s purported objective of ridding the world of terrorism and weapons of mass destruction. Rather the real motive behind removing Saddam Hussein from power and imposing a U.S.-friendly government is, as Henry Kissinger admitted in an op-ed piece published by The Washington Post, ‘essentially geopolitical.’ By this he meant that Saddam Hussein is not a threat to American citizens, but rather a threat to the profits of American oil corporations who are covetous of the huge amounts of oil that are inconveniently located in a country ruled by a leader who is not pro-American. It also means that establishing American hegemony in that oil-rich country is fundamental to the long term strategic -interests of multinational corporations (you know, the ones that have cheated investors out of billions of dollars) who want to increase their influence elsewhere in the world in order to hedge against the possibility of a total economic collapse in the U.S.
The U.S. currently has no credible evidence to substantiate its claims that Iraq is a threat to America.
· Outgoing Secretary of Defense, William Cohen, informed incoming President George Bush in January of 2000: “Iraq no longer poses a military threat to its neighbors.”
· The administration has admitted that it has no evidence. Rep. Anna Eshoo, D-Atherton, recently told reporters that in closed sessions in Sept. 2002, administration officials had been asked several times whether they had evidence of an imminent threat from Hussein against U.S. citizens. “They said ‘no,’ ” she said, “Not ‘no, but’ or ‘maybe,’ but ‘no.’ I was stunned. Not shocked. Not surprised. Stunned.”
There is no evidence that Saddam Hussein supports militant Islamist groups.
· The February 6 edition of the New York Times stated, “The Central Intelligence Agency has no evidence that Iraq has engaged in terrorist operations against the United States in nearly a decade, and the agency is convinced that Saddam Hussein has not provided chemical or biological weapons to al-Qaeda or related terrorist groups.” The NYT reiterated this view in a recent editorial that was published on August 3 2002.
· The 2002 annual state department report on state-sponsored terrorism admitted that Saddam Hussein’s regime has few links with Islamic fundamentalists.
· On August 15 2002, Brent Scowcroft, one of the Republican Party’s most respected foreign policy ‘experts’ wrote an op-ed piece in the Wall Street Journal in which he stated, “[T]here is scant evidence to tie Saddam to terrorist organizations, and even less to the Sept. 11 attacks. Indeed Saddam's goals have little in common with the terrorists who threaten us, and there is little incentive for him to make common cause with them. He is unlikely to risk his investment in weapons of mass destruction, much less his country, by handing such weapons to terrorists who would use them for their own purposes and leave Baghdad as the return address.”
There is no evidence that Saddam Hussein represents a nuclear threat.
· In January of 2002, the International Atomic Energy agency sent inspectors into Iraq and found no evidence of nuclear weapons.
· In 1999, a committee under the UN Security Council concluded that Iraq’s primary biological weapons facility “had been destroyed and rendered harmless.”
· Hans von Sponneck, the UN humanitarian coordinator for Iraq from 1998-2000, wrote in 2001, “Iraq today is no longer a military threat to anyone. Intelligence agencies know this. All the conjectures about weapons of mass destruction in Iraq lack evidence.”
· In late Aug. 2002, MSNBC reported, “Military officials have told NBC News that there is no evidence that Iraq has produced or obtained any nuclear fuel, clashing with the Bush administration’s official statements that Saddam Hussein is close to developing a nuclear weapon.” Numerous other U.S. military, intelligence and administration officials have made similar statements to CNN, Knight Ridder, and the Washington Post.
· David Albright, a physicist who investigated Iraq's nuclear weapons program following the 1991 Persian Gulf War as a member of the International Atomic Energy Agency's inspection team told The Washington Post that “government experts on nuclear technology who dissented from the Bush administration's view told him they were expected to remain silent. Several Energy Department officials familiar with the aluminum shipments declined to comment.” This strongly suggests the Bush administration is lying to the American people.
· A report published by The Institute for Science and International Security in September 2002, challenged the Bush administration’s recent assertion that Iraq’s alleged importing of aluminum tubes was proof that Iraq is an imminent ‘nuclear threat.’ The Washington Post, summarizing the document, reported that the administration did not “provide evidence that Iraq has an operating centrifuge plant or when such a plant could be operational” The report further noted, according to the WP, that “the seized tubes were made of a kind of aluminum that is ill-suited for welding. Other specifications of the imported metal are at odds with what is known about Iraq's previous attempts to build centrifuges. In fact, the report said, Iraq had largely abandoned aluminum for other materials, such as specialized steel and carbon fiber, in its centrifuges at the time its nuclear program was destroyed by allied bombers in the Gulf War.”
· Scott Ritter, a former UN weapons inspector who describes himself as a staunch Republican recently stated, “The manufacture of nuclear weapons emits gamma rays that would have been detected by now if they existed. We have been watching, via satellite and other means, and we have seen none of this.”
There is no evidence that Saddam Hussein is developing and planning to use biological and chemical weapons.
· Numerous experts have challenged the so-called ‘evidence’ that has recently been released by the Bush administration asserting that Iraq is developing biological and chemical weapons. Experts who have spoken out include: Scott Ritter, a former UNCOM chief weapons inspector; Hans Blix, current UNMOVIC chief weapons inspector; Count Hans von Sponeck, former UN under-secretary general; Meir Stieglitz, an Israeli military analyst, Anthony Cordesman of the Center for Strategic and International Studies, and numerous other experts quoted by reputable mainstream presses, including the conservative Washington Times.
· Western journalists have made recent visits to several of the purported weapons facilities and have found no evidence suggesting that they are being used to produce chemical or biological weapons.
War in Iraq would be disastrous.
· An attack on Iraq could provoke Saddam Hussein into invading Israel thus drawing the region’s most resented state into the conflict. A joint U.S./Israeli war against Muslim Iraq would likely inspire uncontrollable popular uprisings in neighboring Saudi Arabia, Jordan, and Egypt.
· A U.S. attack on Iraq would be viewed upon by many in the Arab world as an unprovoked act by Western imperialists. Many fear that the pro-Western governments of Saudi Arabia, Egypt, and Jordon, which are already breaking at the seams, would experience massive social unrest as a result of a U.S. invasion of Iraq.
· Saddam Hussein’s military is much stronger and loyal than the former Taliban’s rag tag army of hungry conscripts. The Iraqi dictator commands an army consisting of 350,000 men, 2,700 tanks, 90 jets, 100 helicopters, and 300 mobile anti-aircraft missile launchers. Experts agree that his extremely loyal and well-trained elite republican guard would present a considerable challenge to American troops fighting on the ground. Even Colin Powell admitted, “The Taliban neither consolidated its hold nor built regular armed forces. Iraq, on the other hand, has a strong state apparatus and a sizeable professional military.”
· A U.S. ground invasion of Iraq would require a large commitment of American soldiers because unlike in Afghanistan, where the U.S. relied heavily on the Northern Alliance as a proxy army, there are no Iraqi opposition groups powerful enough to confront Saddam’s military forces. U.S. military strategists believe a ground force of up to 250,000 American soldiers would be necessary to defeat Saddam Hussein’s army. They concede that a large number American casualties would be inevitable.
· Iraq, unlike Afghanistan, is densely populated. Civilian casualties would consequently be much worse
· An attack on Iraq would likely provoke Saddam Hussein into using whatever destructive weapons he actually has. The Observer (London) reported, “The planners [in the Pentagon] have decided they will have 48 hours to find and kill or capture Saddam before he tries to deploy any nuclear, biological or major conventional weapons he may have.” And former Iraqi intelligence officer Wafiq al-Samarrai similarly stated: “The US should know that Saddam will not hesitate to use weapons of mass destruction on American military groupings. Diplomacy is the only choice for the United States.”
· Even if the proposed military operation were to succeed in ousting Saddam Hussein from power, who would replace him? The U.S. currently has no clear plan for a post-Saddam government. The various departments within the U.S. government are at odds with one another over who would be a suitable leader. And even if the U.S. could decide on a successor to Saddam Hussein, it’s certain that the Iraqis themselves, representing several different ethnic groups, would not readily accept a leader imposed upon them by a foreign power. Experts almost unanimously agree that U.S. plans to invade Iraq lack considerable foresight and hold the potential to make an already bad situation in the Middle East even worse. As Philip Gordon of the Brookings Institution said, “Removing Saddam will be opening a Pandora's box, and there might not be any easy way to close it back up.”
Almost no one supports the United States’ plan to invade Iraq.
· The Joint Chiefs of Staff (comprised of high ranking military officers) have stated their opposition to invading Iraq. On July 22, Electronic Intelligence Weekly reported that according to a “senior retired U.S. military official” whom the intelligence newsletter interviewed on July 15, “there is total unity among the Joint Chiefs of Staff and the regional Commanders-in-Chief, in opposition to an Iraq invasion.” The source named the new Commander of the Pacific Command as one of the more vocal critics of Washington’s war plans, “noting that the Pacific Command is the key support for all U.S. military operations in the Middle East and Persian Gulf.” On July 29 The Washington Post published a similar article in which it was reported: “Despite President Bush's repeated bellicose statements about Iraq, many senior U.S. military officers contend that President Saddam Hussein poses no immediate threat.” The Post quoted one officer who actually questioned the president's motives, saying, “I'm not aware of any linkage to al Qaeda or terrorism, so I have to wonder if this has something to do with his father being targeted by Saddam.”
· Most of the international community opposes the U.S. plan to illegally invade Iraq and forcefully dispose of Saddam Hussein. Countries that have expressed serious concerns over the Bush administration’s ambitions include: Canada, Egypt, France, Germany, Jordan, Kuwait, Lebanon, Malaysia, Morocco, Russia, Saudi Arabia, Syria, Turkey, and the United Kingdom.
· Vince Cannistraro, a former CIA counterterrorism chief, told David Corn (11-30-2002), Washington editor for The Nation, “They [the hawks] have no reasonable plan, no magic button to push. They want to overthrow Saddam Hussein, but the only way to do that is put U.S. ground forces in Iraq. That would be a bloody mess and we would have no support whatsoever from other countries.”
· Dennis Halliday and Hans von Sponneck, former UN humanitarian coordinators for Iraq, have authored numerous op-ed pieces in major newspapers denouncing U.S. plans for war against Iraq. The two men had resigned from their positions in the U.N. in protest of the U.N. sanctions on Iraq which they argue are genocidal because of the more than one million innocent people that have died as a direct result of the policy.
· Several former government officials have spoken against the Bush administration’s current war plans, including Henry Kissinger, former secretary of state; Zbigniew Brzezinski, former national security advisor; James Baker, former secretary of state; Jack Kemp; Lawrence S. Eagleburger, former secretary of state; Jack Binns, former ambassador to Honduras; Madeline Albright, former secretary of State; former President Jimmy Carter; and James Webb, former assistant secretary of defense and secretary of the Navy.
· Even the Iraqi “opposition” groups are against U.S. plans to forcibly remove Saddam Hussein. Ayatollah Mohammad Bakr al-Hakkim of the Supreme Council of the Islamic Revolution in Iraq told one reporter, “There is no need to send troops from outside to Iraq. It could be seen as an invasion and could create new problems. . . . . The best thing the US can do is force the regime not to use its heavy weapons against the people, like they did in Kosovo. Then the Iraqi people can bring change--it must be done by the Iraqis themselves.” Massoud Barzani of the Kurdish Democratic Party stated back in February, “We will not be ordered by America or any others. We will not be a bargaining chip or tool of pressure to be used against Iraq.” And Jalal Talabani, leader of the Patriotic Union of Kurdistan declared on August 7, “We are not for blindly participating in any attack or in any plan. . . . We are not in favor of having a new dictatorship replacing the old one.”
Post 42610 by Briguy Reply
Parris Island seems so long ago (Delta Company- 3rd Platoon HELL) '86, and yet it seems like yesterday.
I'm curious, did you guys go through the Crucible way back then? (chuckle) I think I managed about 5 hours of sleep during that 60 hours of hell. Must of marched 35-40 miles during that time. Will never forget it. Blood was pouring through my boots from the blisters. But I made it. When the Chaplain said a few words at the end, and the DI gave us our insignia's, it was one of the best feelings I've ever experienced in the world. Only a Marine would understand. Glad I have a fellow brother here!
And fwiw, the REAL CRUCIBLE was Vietnam! Thanks for your service!
OT: Table ON TOPIC SUMMARY Sep 24, 2002
Post 42612 by ttalknet2 Reply
IMHO: Monetizing Social Security
Right now, the SS system is nothing more than a pile of IOU's. But Uncle Sam could make good on the promise while reducing debt and shoring up the declining dollar:
1. Delcare all SS obligations to be backed by gold reserves.
2. Issue Gold Reserve Bonds to all people covered by the SS system.
3. Allow these bonds to trade, even if only traded between IRAs.
4. Permit SS Gold Reserve Bond holders to take delivery of gold.
5. Recognize everyone's Estate and Ownership in SS.
By No. (5) I mean that monies paid into the SS system can rightfully be claimed and returned to your estate for your heirs and/or assigns. If you die before SS payout, your contributions must still be payable in amounts (dollars or gold) at least equal to the contributions made to your SS 'account.' (As it stands now, you'll lose all SS contributions if you die too soon and/or don't have survivors to claim benefits.)
These actions would be a first step towards backing the dollar with gold. Back one of the largest debts (SS) and we're closer to solvency and closer to sound money.
As always, your mileage may vary.
Post 42613 by clo Reply
What rises when the economy falls? Poverty! clo
Number of People Living in Poverty Increases in U.S.
By ROBERT PEAR NY Times
WASHINGTON, Sept. 24 — The proportion of Americans living in poverty rose significantly last year, increasing for the first time in eight years, the Census Bureau reported today. At the same time, the bureau said that the income of middle-class households fell for the first time since the last recession ended, in 1991.
The Census Bureau's annual report on income and poverty provided stark evidence that the weakening economy had begun to affect large segments of the population, regardless of race, region or class. Daniel H. Weinberg, chief of income and poverty statistics at the Census Bureau, said the recession that began in March 2001 had reduced the earnings of millions of Americans.
The report also suggested that the gap between rich and poor continued to grow.
All regions except the Northeast experienced a decline in household income, the bureau reported. For blacks, it was the first significant decline in two decades; non-Hispanic whites saw a slight decline. Even the incomes of Asians and Pacific Islanders, a group that achieved high levels of prosperity in the 1990's, went down significantly last year.
"The decline was widespread," Mr. Weinberg said.
The Census Bureau said the number of poor Americans rose last year to 32.9 million, an increase of 1.3 million, while the proportion living in poverty rose to 11.7 percent, from 11.3 percent in 2000.
Median household income fell to $42,228 in 2001, a decline of $934 or 2.2 percent from the prior year. The number of households with income above the median is the same as the number below it.
A family of four was classified as poor if it had cash income less than $18,104 last year. The official poverty levels, updated each year to reflect changes in the Consumer Price Index, were $14,128 for a family of three, $11,569 for a married couple and $9,039 for an individual.
The bureau's report is likely to provide fodder for the Congressional campaigns. The White House said the increase in poverty resulted, in part, from an economic slowdown that began under President Bill Clinton. But Democrats said the data showed the failure of President Bush's economic policies and his tendency to neglect the economy.
Mr. Bush said today that he remained optimistic. "When you combine the productivity of the American people with low interest rates and low inflation, those are the ingredients for growth," Mr. Bush said.
But Senator Paul S. Sarbanes, Democrat of Maryland, said the administration should "start paying attention to the economic situation." Richard A. Gephardt of Missouri, the House Democratic leader, expressed amazement that Mr. Bush, after being in office for 20 months, was still blaming his predecessor.
Rudolph G. Penner, a former director of the Congressional Budget Office, said: "The increase in poverty is most certainly a result of the recession. The slow recovery, the slow rate of growth, has been very disappointing. Whether that has a political impact this fall depends on whether the election hinges on national conditions or focuses on local issues."
Although the poverty rate, the proportion of the population living in poverty, rose four-tenths of a percentage point last year, it was still lower than in most of the last two decades. The poverty rate exceeded 12 percent every year from 1980 to 1998. As the economy grew from 1993 to 2000, the rate plunged, to 11.3 percent from 15.1 percent, and the poverty rolls were reduced by 7.7 million people, to 31.6 million.
The latest recession showed an unusual pattern, seeming to raise poverty rates among whites more than among minority groups, Mr. Weinberg said.
Increases in poverty last year were concentrated in the suburbs, in the South and among non-Hispanic whites, the Census Bureau said. Indeed, non-Hispanic whites were the only racial group for whom the poverty rate showed a significant increase, to 7.8 percent in 2001, from 7.4 percent in 2000.
Poverty rates for minority groups were once much higher. But last year, the bureau said, they remained "at historic lows" for blacks (22.7 percent), Hispanics (21.4 percent) and Asian Americans (10.2 percent).
With its usual caution, the Census Bureau said the data did not conclusively show a year-to-year increase in income inequality. But the numbers showed a clear trend in that direction over the last 15 years.
The most affluent fifth of the population received half of all household income last year, up from 45 percent in 1985. The poorest fifth received 3.5 percent of total household income, down from 4 percent in 1985. Average income for the top 5 percent of households rose by $1,000 last year, to $260,464, but the average declined or stayed about the same for most other income brackets.
Robert Greenstein, executive director of the Center on Budget and Policy Priorities, a liberal research institute, said, "The census data show that income inequality either set a record in 2001 or tied for the highest level on record."
Median earnings increased 3.5 percent for women last year, but did not change for men, so women gained relative to men.
"The real median earnings of women age 15 and older who worked full time year-round increased for the fifth consecutive year, rising to $29,215 — a 3.5 percent increase between 2000 and 2001," Mr. Weinberg said. The comparable figure for men was unchanged at $38,275. So the female-to-male earnings ratio reached a high of 0.76. The previous high was 0.74, first recorded in 1996.
Democrats said the data supported their contention that Congress should increase spending on social welfare programs, resisted by many Republicans. But Wade F. Horn, the administration's welfare director, said the number of poor children was much lower than in 1996, when Congress overhauled the welfare law to impose strict work requirements.
Of the 32.9 million poor people in the United States last year, 11.7 million were under 18, and 3.4 million were 65 or older. Poverty rates for children, 16.3 percent, and the elderly, 10.1 percent, were virtually unchanged from 2000. But the poverty rate for people 18 to 64 rose a half percentage point, to 10.1 percent.
Median household income for blacks fell last year by $1,025, or 3.4 percent, to $29,470. Median income of Hispanics, at $33,565, was virtually unchanged. But household income fell by 1.3 percent for non-Hispanic whites, to $46,305, and by 6.4 percent for Asian Americans, to $53,635.
The Census Bureau report also included these findings:
¶There were 6.8 million poor families last year, up from 6.4 million in 2000. The poverty rate for families rose to 9.2 percent, from a 26-year low of 8.7 percent in 2000.
¶The rate in the South rose to 13.5 percent, from 12.8 percent in 2000. The South is home to more than 40 percent of all the nation's poor, and it accounted for more than half of the national increase in the number of poor last year.
¶The poverty rate for the suburbs rose to 8.2 percent last year, from 7.8 percent in 2000. The number of poor people in suburban areas rose by 700,000, to 12 million. There was virtually no change in the rates in central cities (16.5 percent) and outside metropolitan areas (14.2 percent).
The bureau said the number of "severely poor" rose to 13.4 million last year, from 12.6 million in 2000. People are considered to be severely poor if their family incomes are less than half of the official poverty level.
Post 42614 by clo Reply
Europe is in rally mode! Oil is lower...
Our Futures are in great shape!
RFMD gave positive guidance after the bell.
Asian markets are lower, they are concerned about 4th 1/4 earnings.
Good luck all... clo
OT: Dead End
Post 42616 by uponroof Reply
BOJ "full blown crisis"
As western equity markets embark on what appears to be a brief suckers rally, perhaps inspired by our economic geniuses at FED, Japan's version of economic genius (BOJ) are busy talking up their "last ditch gamble" in the press.
The strategy is to "shock" the Japanese gummint into action...but the reaction at the gummint is lukewarm.
Can't say these guys didn't give 'shock treatment' the old college try as I'm sure they shocked everybody else on the planet with the enclosed quotes they're passing around.
But then genius cannot be measured in snapshot terms. There's a time factor allowance required to expose true economic policy genius. Just look at the FED and how far they've brought us out of the wilderness of 'backed money'.
So what will this latest BOJ pipeline insertion bring about at the discharge months from now?
Garbage in>Garbage out!
from the link:
"..."This is our independent decision based on our serious concern about the state of the financial system," said the official. "We are well aware of the risks to our balance sheet. We never meant to do this. But unusual circumstances call for unusual measures."
Although the Japanese banking system has been battling for years under the weight of huge bad debts, the BoJ believes it is now on the brink of a full-blown crisis that could have a serious impact on the global economy..."
POG Looking topsy and vulnerable today with all the optimism around. Might be a good chance to visit the window for more tickets just ahead.....if the rally actually has legs (more than a few hours)
Post 42617 by uponroof Reply
'U.S. Economy is All FED up Right Now'
"...Now, the evidence is piling up that the latter part of the year will show a sharp pullback from the early months of the year, when hope of a rebound was high. Far from powering its way out of a hole, the U.S. economy could be trapped in a fairly large one: a hole called a "liquidity trap."
A liquidity trap is what occurs when an economy can't seem to grow despite a massive infusion of capital, such as the Fed has pumped into the U.S. economy over the past two years or so. It describes a state in which consumers and corporations alike lack the confidence or the impulse to spend, despite the fact that rates are at all-time lows. Without a pickup in demand, there is no impetus for real economic growth.
At that point — as economist John Maynard Keynes put it — fiddling with the money supply and trying to increase liquidity amounts to "pushing on a string." If there is too much liquidity but not enough demand for goods, prices fall and that blows a hole in corporate profitability, which in turn crimps industrial demand. In the end, you wind up with deflation or 1970s-style stagflation. That is the Fed's nightmare, and it doesn't have to look any farther than Japan to see the damage it can cause..."
Post 42618 by ribit Reply
...apologies extended. My comment was "flip". Have gotten used to the bashing on the GOV board and forgot my manners.
As to why we can't catch "everybody". We cannot be everywhere and know everything. The world is a finite place with a seemingly infinite number of hiding places with new ones being devised every day. It would take more people than currently populate the earth to search the earth and then ya still wouldn't be successful because some of the people helping in the search are the ones trying to hide something. Even if Iraq opens their borders to unlimited searches by weapons inspectors they can still develop their WMD. If not in Iraq, then somewhere else.
It would be as difficult to catch all independent developers of WMD as it would to prevent all crime or catch all criminals.
Post 42619 by ribit Reply
...it's gonna be interesting to watch in any case. I think old GW has something up his sleeve besides an "invasion". I don't believe America has the stomach for a long slow moving ground war. It is reported that there are going to be a lot of war protests and demonstrations during the latter part of October. If we have a ground war, the protests will increase in frequency, intensity and duration. It will become "fashionable" in the media to do a lot of hand wringing and America blaming for all the worlds problems. The dregs of the earth, (berkley and harvard poli sci students) will be praised for their compassion and understanding on the nightly news and the folks who went to serve their country will be painted with the "baby killer" brush still dripping from vietnam. I think GW knows this and even if he don't, not much is going to get past rumsfield, powell and cheney.
Post 42620 by pacemakernj Reply
Tin, I am bullish on gold now more than ever. The main reason being that in a low or negative return world world physical assets will become more valuable vis a vie paper. It's just that simple. We are seeing a huge shift in investor sentiment wrt to those physical assets. As for the bond market AG has boxed himself in. I've stated many times that AG will have to make a choice between the economy and the dollar, yesterday we learned he chose the dollar (for now). The noose is growing tighter. We will break through the 330-335 level and be at 400 by the new year. Obviously just a guess but money needs a return and right now gold is as good as any. JMO, Pace.
Post 42621 by ribit Reply
...the air in Atlanta is reportedly the dirtiest air in the nation. The chief contaminant? Pollen! Regan was right, trees pollute :)
Post 42622 by pacemakernj Reply
PMCW, SCS has several divisions in the home furnishings segment which propped up their numbers. On the office furniture side my own channel checks show their local dealers down anywhere from 50-60% from year ago levels. What was so troubling was their forecast moving forward. Summer has always been slow in our industry. But the September to June period is when all the money is made. If they are saying things are worse than they forecasted as I believe it is that 3% GDP is imo wishful thinking. Pace.
Post 42623 by ribit Reply
...no, never heard of the crucible. Back then boot camp was 16 weeks followed up by 4 or 5 weeks of advanced infantry training at Camp Geiger. They discovered I could type so when I got thru with all that they sent me to communications school. I was a 2541 / 2543 communications teletype guy with a secret decoder ring. I was fortunate. A lot of my friends went to the grunts.
When the N Viets allegedly fired on the boats in the Gulf Of Tonkin incident I was already in Okinawa and made nam within a couple of weeks. I was there before the fighting got bad and sort of "in the rear with the gear" anyway. Always felt a little guilty about that but the guys who were in the actual fighting never seemed to resent it. An old boy from the Army rangers told me "All gave some. Some gave all!"
I do a bit of writing, (amateur) and have a couple of stories about the corps. When the time is right I will post a couple. You'll like em.
Post 42624 by pmcw Reply
pace, I would like to get a better understanding of your perspective. I remember at the beginning of this year or towards the end of last when you were very confident the economy had turned the corner for the good. Then, around spring, you reversed your position and have been wisely bearish since.
Is your view (your and your channel checks) regional and geared towards the Tri-state area? Did you see a bubble of business that was possibly the result of needing to replace the working environments for the many offices lost in the WTC attack? Again, I don't know that either of these are correct and my goal is not to dispute your data. My only motive in asking is to better understand your point of view.
Post 42625 by uponroof Reply
CSFB European Economics
The 'Money Honey' at CNBC (Maria Bartiromo) just said "a lot of people talking about the weakness in Europe". Here's what CSFB thinks:
European Economics: Update following FOMC meeting. German IFO survey and IMF forecasts to be released today.
•Last night's FOMC statement commented that aggregate demand had been growing at a moderate pace, and that low interest rates and underlying robust productivity growth should be sufficient to foster an improving business climate. However, it noted also the persistence of considerable uncertainty about the extent and timing of the anticipated recovery in production and employment, owing in part to heightened geopolitical risks, and concluded that policy should remain biased toward further easing. Moreover, surprisingly, two FOMC members voted for an immediate rate cut.
•The statement therefore seemed to give a clear signal that the Fed would be ready to lower interest rates further if those geopolitical risks were to depress confidence significantly further.
•Today there are 2 economic developments of note; German IFO for September (9am) and tonight the IMF's latest economic forecasts, which are likely to contain a significant downgrade to European growth and to look for ECB easing rather than tightening as the IMF last did.
•German IFO survey. Because the index weakened significantly last month due to floods, we have been expecting only a modest further decline, from 88.8 to 88.5. However, the risk is for a larger decline given the decimation of equity prices and signs of weakness in other indicators published recently (e.g. Belgian manufacturing sentiment yesterday).
•The weakness in indicators, which are closely watched at the ECB, is leading some to consider lowering interest rates, but this does not yet seem a consensus position. Yesterday the ECB's vice President Papademos said that there would not be a near-term easing, apparently ruling out action either this Thursday or on October 10th. Moreover, CPI inflation seems likely to have risen to 2.2% y/y in September after recent Italian and German data. The ECB is also digging in its heels over concern about fiscal expansion, in what increasingly looks like a game of chicken with finance ministers.
•But with the real economy deteriorating significantly, equity markets collapsing and the euro remaining firm, the ECB is going to have to lower interest rates, and we continue to look for a 50bp in the months ahead, with the risk now increasingly in Q4 rather than Q1. Needless to say, it will be a case of too little, too late, particularly for Germany.
•German consumption and investment in the year to Q2 this year contracted more than during the 1993 recession. We
continue to focus on the slump in German bank lending to the private sector - this aggregate has been contracting all year, and its decline is eerily reminiscent of what happened to Japanese bank lending during 1990-93.
•Little wonder then that some analysts are beginning to think that Germany resembles Japan. Germany is not in deflation yet, but could well end up there if there is not some easing by the ECB. We would warn that Germany is very ill suited to experience deflation, given the inflexibility of its economy and high level of private sector debt fixed at long term rates.
Post 42626 by pacemakernj Reply
Roof, Gold Conference update. Sorry I did not get this to you sooner but I had a very busy day yesterday and am only know catching up.
I met Richard Marshall VP Corp. Devel., Luca Riccio VP Exploration and Andrea Boltza Mgr. Investor Relations. MO was unavailable as he was in meetings with institutional guys all day. But that was ok. Also met Richard Saks a smart savvy gold hedge fund guy you've quoted many times in your posts. Mr. Marshall gave what I thought was a excellent presentation of KRY. He only had 15 minutes and made every minute count. The reason as best as I could surmise from my discussions from all the above on why the stock price has not gone higher is as follows:
Investors do not believe KRY has a signed agreement with the VZ government. I know that sounds crazy but I really think it's true.
They are worried about the government being overthrown so there is some country risk.
There is a large supply of stock being dumped on the market and being absorbed which will take a little more time to clear out. Where it's coming from I don't know but I can assure you some does.
The US $15 million payment made yesterday came from a variety of places. I.E., new stock, bank loan and cash on hand. I could not confirm this but the money was sent. It will cause some dilution to existing shareholders and imo is the reason the stock did not move.
LC, Mr. Riccio will be in VZ today to begin work on reviewing the survey's etc... He was very helpful and knowledgeable on LC. BTW, a side note he told me there is 800 million pounds of copper which at today's prices of .67 is worth another $536 million not a bad kicker.
Next week MO will be in Denver at the institutional conference where they will release the LC agreement in its entirety to the press.
In summation, I felt very good about meeting these people. They, imo are genuine and are not crooks. Which in this environment is important. LC IS REAL only fools at this point are in denial. They are methodically moving forward and putting the pieces in place to be successful and improve shareholder value. Whether through earnings or what you've alluded to earlier a potential takeover. Which imho is what will happen. LC is simply to big a prize NOT to be gobbled up by a major (ABX) as you mentioned. I am optimistic that once we get through this supply coming out we will move higher. I am looking to a $5-6 price by December if not sooner. This is one undervalued stock.
Post 42627 by lkorrow Reply
Pace, we figured they kidnapped you to work in the mines! Appreciate the insights on KRY, I was beginning to wonder. Was there any mention of bidders other than ABX? I'm curious whether AU's circling too, since they lost a big one to NEM. . . .
Post 42628 by jeffbas Reply
pmcw, having followed and invested in the ECM industry for many years, I look at it a bit differently. I think the industry is well-positioned (sales-wise) by virtue of the trend toward outsourcing. However, the cyclical, fixed-cost manufacturing risk is the worst risk an integrated company has, and for ECMs that is their core business. I also do not believe that their customers will ever let them charge enough extra for accepting this risk. Translation - the only reason any of them are still in business now is not from a cushion from retained earnings in the recent very long stretch of good times, but from securities sold by Wall Street.
Thus, my conclusion is that over several business cycles holding these as a long term investment is a bad idea, because the business model can't get the right pricing for the risks taken. They are only attractive as short or longer term trades when bought right - i.e., unsuitable for most folks.
I contrast this with the equally (if not more) cyclical semiconductor manufacturing industry, where I see nothing particularly wrong with the business model of an LLTC, such that it could reasonably be held long term (despite judicious trading giving better results).
Post 42629 by pmcw Reply
jeff, I don't see where our opinions are really different. I like the way you painted the picture of lacking the pricing power to charge for the risks associated with the business model and I agree with your assessment. They are very much like semi fab houses, but due to the lower tech nature of the business (they really have minimal unique IP) they have less ability to charge beyond commodity rates. Couple this with my analogy of being caught in the "P-Trap" of the JIT pipe and I agree that they are very much susceptible to huge booms and busts strictly dictated by supply and demand. When business is down they have to give away not only labor, but suck in inventory and slow pay just to keep the shop busy. Regards, pmcw
Post 42630 by jeffbas Reply
pace, a general observation, related to KRY. Large "supply coming out" always makes me nervous if it occurs and I do not know the source AND can determine that the reason is extraneous to the fundamentals (which it sometimes is). Otherwise, I am left unavoidably concluding that a large holder knows more than I do.
Post 42631 by lkorrow Reply
Jeff, pace, roof, perhaps KRY's lead time to production?
Post 42632 by jeffbas Reply
lkorrow, you make an interesting observation. I note that one characteristic of this market is to heavily discount promise versus performance. I do not know the facts, but if we are talking about years, the government instability issue that was mentioned may have an outsized effect.
Post 42633 by Briguy Reply
Low Broadband Demand - Deceiving Yourself As An Investor
[BRIEFING.COM - Robert V. Green] The market is a great teacher of lessons. Monday's release of a Commerce Department report on broadband adoption - and why it is so slow - illustrates yet another good lesson - don't assume that your own desires represent a broader market.
Commerce Department Report
On Monday, the Commerce Department Office of Technology Policy issued a report on broadband demand.
The basic message was clear: broadband demand is low.
Here are the major findings of the Commerce Department report, with respect to the consumer:
Supply exceeds demand in all but the most rural locations
Cost is too high for most consumers
Value is lacking - not enough movie, music, and local information
Technical problems are extreme - it is not plug-and-play and customer support is poor
Some concern over privacy and security over the internet
The Commerce Department report goes on to state that the real problem is the lack of a killer application.
In typical government fashion, the way they state this is "The factor most likely to accelerate broadband demand is the creation and deployment of easily understood, value-adding business and consumer applications at prices that meet the needs of the market."
Nevertheless, the Commerce Department Report is right on the money in terms of sizing up the market.
The report does vaguely call for some kind of unspecified government action to support faster rollout of broadband. However, the report also points out an experiment in LaGrange, Georgia, where cable modem broadband was offered for free - but only 29% of the population signed up.
The real problem is a lack of meaningful content of value, for which the mass market is willing to pay both $50 a month, plus pay the content provider. Broadband is expensive technology.
The full report is available at: http://www.ta.doc.gov/reports/TechPolicy/Broadband_020921.pdf
Slow Adoption - Not A New Message
If you are a frequent reader of Briefing.com, you will know that this is a message we have been promoting on this page for nearly two years.
Our first warning about the lack of a broadband market was on October 23, 2000:
23-Oct-00 The Broadband Future Gets Fuzzy
Since then we have repeated the theme numerous times. A partial list of Stock Briefs on the broadband "lack-of-demand" issue includes:
08-Feb-01 Still Waiting for the Broadband Revolution
26-Jun-01 Where Have All The Growth Markets Gone?
02-Jul-02 Broadband's Failure - The Real Reason
In short, we have seen signs of slow demand for broadband for a long time.
Also interesting (to us), is the Commerce Department's observation that movies-on-demand would be a driver for broadband, an argument we always embraced. However, we now believe that the real problem is broadband movies should be delivered on a TV, not a PC. The problem is "the last twenty feet" not the last mile. Broadband is hooked up to the wrong device!
The Great Deception
Every time we have written about the broadband market - with a message that it just is not growing, we got emails from investors with arguments along the following line:
You are grossly underestimating the demand - the problem is broadband isn't widely available
As soon as it becomes available, people will drop their phone line connections in droves
These emails frequently end with a comment like this:
I will definitely sign up as soon as I can get DSL!
Based on these market assessments, which are subjective extrapolations of personal feelings, these investors have made investments in broadband suppliers - whether DSL equipment suppliers or fiber optic manufacturers or network boxes, etc.
Of course, anyone who has done this with any part of the broadband value chain - from fiber optic component maker to content provider - has lost a lot of money since October 2000, when we gave up on the broadband dream.
The broadband example is a good illustration of a major investment mistake:
Basing market judgements on your personal experience can be very misleading.
What you need for an investment decision is data, not conjecture. The place to look for data is in the growth rate of revenues of the companies that operate in the space. It is not rocket-science.
More Data -
Data supporting the argument for weak broadband demand is not hard to find.
If broadband demand was high, the products of companies that supply it would be selling strongly. They aren't.
JDS Uniphase set guidance lower, again, on Monday. At its peak, Q4 of 2001, JDSU did $920 million in revenue, and now will sell less than $200 million. JDS Uniphase makes fiber components that are used in building networks to deliver broadband content. Their revenue has been on a downward decline for 2 years. Why? Their customers don't need to build much more.
A more direct read on broadband demand is the DSL market.
Verizon alone already has capacity for 34 million DSL phone lines - but there are only 10 million broadband enabled homes total in the US - including cable modem and DSL broadband homes. It would be foolish for an executive at Verizon to stand up and argue "We must build more broadband capacity!" They aren't selling what they have already! Furthermore they already have three times the capacity of the entire existing market.
Data like this can be hard to see when you are sitting at your home computer on a modem waiting for a web page to load. The real problem is that there are not enough people like you in the marketplace.
We realize this message is extremely frustrating for those readers unable to order broadband - and who own investments in the broadband sector - but there it is.
Broadband Not Dead - Just Too Slow
We do believe that there is a future for broadband services - but it is an "over-the-horizon" type of future, not a foreseeable future. Forget the projections that call for major booms going forward. Current data shows demand is stalled.
Making an investment in broadband's future, even now at depressed levels, is making a bet based not on proven data, but on hope - generally the worst investment premise of all.
Comments may be emailed to the author, Robert V. Green, at firstname.lastname@example.org
OT: Looking Back To See The Challenge Ahead
OT: Top 10 Reasons Not to "Do" Iraq
OT: Kofi Annandersen
Post 42637 by uponroof Reply
pace KRY...Thanks so much for your report! It is very much appreciated!
Your insight to who these people are is a very important part of the puzzle. Speaking of puzzles...check the pps. INCREDIBLE! 1.95US! Something going on before financing is announced IMHO.
Taglich Bros just put out their KRY Research Report (9/25/02):
Calling for a 18-24 target of $10.85. But what really sticks out is their comparison amongst North American small cap peers. KRY with conservative numbers of reserves at LC alone has 4X the reserves of Glamis Gold (GLG) pps of $9.85
VZ is a concern but realize KRY has been operating in the country for several years.
I will be waiting like you for the truth to surface.
Thanks again for the insight my friend.
btw- I have posted your info at the KRY WC forum as I am not sure if you have access there as of yet.
Post 42638 by tinljhtkh Reply
I own some gold stocks and have made some money on gold this year!
My only concern about gold is the same concern that I have about all of the other issues that you discuss in your posts!
If this situation stays civil, gold owners will be in good shape! The film that I saw at the Cubs game last weekend was not civil and I wonder just how much more of this type of activity is getting ready to break out! People are very frustrated as it is! Creating the environment that makes gold an attractive buy also creates the same situation where civil disobedience rises! I am not prepared to join the survivalists’ camp at this time but I have bought a few extra cans of tuna just in case!
I would love to think that this thing will stay stable but there is already quite a bit of instability out there! We have created the ingredients for the perfect storm of discontent: a supreme court appointed presidency arising out of a popular vote defeat of almost half a million votes; rising anti-war sentiment; a coming election that could end up in deadlocks like we saw in Florida last week; a war that could result in mass casualties; insecurity at home due to fear of the economy and terrorism; distrust of basic institutions such as the markets and even accountants; rising home foreclosures; losses of income and savings resulting from stock market declines and job loss; a perceived increase in the feeling that no one actually knows what is going on; a feeling that some people aren't getting a fair shake by a government now overshadowed by corporations without borders as they all engage in a cat fight with protestors and terrorists, also without borders, who hate them both; and even bad weather trends among so many other things! The suicide terrorism is the real wild card!
In past times, any one of the items mentioned above has caused some discontent, and now we have them all gathering in the shadow of one of the worst days--September 11--ever seen in American history! And we have 3000 hero-ghosts whose perceived betrayal could ignite the powder barrel if the president who protects them develops any tears in that protective flag of patriotism that he so tightly clutches to!
Remember the riots after the Rodney King incident when the first verdict didn't go the way some thought that it should?
Remember the Vietnam riots? Remember the race riots? Remember the many random acts of violence that no one can really figure out? All of those ingredients are still very much here! If we add a failing economy to this mix we could really have quite a stew!
That is my problem with gold--you can't shoot it and you can't eat it! In my opinion there is a narrow and uncertain window of opportunity for gold before what got it to the dance blows up the dancehall!
Post 42639 by Briguy Reply
pmcw, re: SANM...
Your right. As of RIGHT NOW, SANM has a NET TANGEABLE WORTH of about $2.40/share. My mistake- I used the wrong term when I said meltdown value. What I was looking at is the discounted and lowered 5 year growth ratio, along with the current financials. SANM is projected to grow 26.2% (based on all analysts who cover the stock averaged out with the high being 30% and the low being 20%) over the next 5 years vs. the S&P's projected growth rate of around 8%.
This, in combination with the stats I posted earlier, suggest to me that this stock is worth at least $8/share, which is around a 220% gain/premium from current levels. At $2.50/share, I think it's a steal. Short term, I feel this could go lower. But long term, I wouldn't be suprised if I triple my money.
FWIW, I also agree book value is meaningless. Yahoo shows the book at $11 and change. With $4.7 billion of intangeables on the books, this is surely inflated. I never buy based on book.
As far as the cash flow being strong, yet net tangeable value dropping, I am assuming it is because of the merger. Before the merger, if Thompsons is correct, Sanmina's net liabilities stood at about $1.7 billion. After the merger, the combined company now has about $4.6 billion of net liabilities. Clearly, Sanmina took on alot of debt when they bought SCI.
Problem is, I'm no accountant. I know when to eat humble pie, and right now I don't mind eating some because I frankly admit I don't have the kind of grasp on financial statements, balance sheets, and the like as you do- hence the reason I employed a controller and CPA during the 10 years I ran my advertising business.
Regardless, I feel that a company that is generating over $300 million in positive cash flow, with a manageable debt/capital ratio of around 36%, with revenues expected to grow over 26% in the next five years- with $10 billion this year and $11.5 billion next year, I feel a market cap of only $1.3 billion is assinine! This company has been unfairly punished in my opinion, and I'm a buyer. Not saying I will be right, but the odds to favor going long.
Post 42641 by uponroof Reply
CSFB JPMC report
(bolded words in original CSFB copy)
JP MORGAN (CSFB Rating: High A/Negative); (Rec; Hold)—S&P and Fitch Downgraded JPM’s Credit & We Expect
Moody’s To Follow;
See Little Near-Term Upside to the Bonds
The uncertainty following JPM’s earnings shortfall announcement but maintaining of its dividend, was enough for the rating agencies to take action. S&P concluded its review of JPM’s credit with a one notch downgrade to AA- at the bank and A+ at the holding company. Importantly, the rating outlook was left Negative. Fitch downgraded as well (bank and holding company to A+), and also kept its outlook on the name Negative.
Moody’s has yet to weigh in, but we would expect its review for downgrade will end up in the same place as S&P (including leaving its outlook Negative). Potentially losing double-A ratings at the bank would have meaningful implications, in our opinion, for JPM’s powerful derivatives operation.
Ten-year JPM bonds widened 17 bps on the news, finishing the day at +185 bps. The bonds now trade significantly back of other large banks and brokers. And yet, as details crystallize as to the third quarter and beyond. While there remains a fair amount of uncertainty in the story the company’s strong capital and liquidity should keep any further spread widening relatively well contained. And while we believe that the company’s newly lowered ratings will absorb further bad news, the Negative outlooks will likely hang over the story for the foreseeable future. We see little near-term upside in the bonds. We reiterate our Hold recommendation, our High A credit rating, and our Negative
outlook. (V. Hesser), 9.18
uponroof-CSFB pointing out a derivative concern in the event of further downgrading. Now I know I posted that JPM must maintain above 20 buck share value to protect their massive derivative position. It now appears that the number was wrong (my apologies)....but the principal concern, in light of the above, still seems very real.
So while JPMC is at the moment no major economic problem to the world at large, the potential remains. Given the inevitability of further general weakness (downgrading), driven by a multitude of JPMC connected entities, we shall, IMHO, soon find out just where the flashpoint is.
btw- check this XAU/JPM chart out:
at times, over the past few days, possibly some inverse trading going on?
Post 42642 by Briguy Reply
ribit, I look forward to it. eom.
Post 42644 by clo Reply
roof, JPM, they pay 7.3% the largest in the Dow, as announced by CNBC.
(Voluntary Disclosure: Position- No Position)
Post 42645 by Briguy Reply
Merrill Lynch optimistic about electronics manufacturing services industry in report 9/25/02
09/25/02 07:48 AM
Source: Merrill Lynch
Analysts Jerry Labowitz and Brian White suggest stocks in the EMS sector are attractive even though the economic downturn has muffled the industry's explosive growth. They say operating cash flow has surged at the firms despite grim conditions, and EMS players have shifted operations to lower-cost countries. Outsourcing from technology manufacturers is still in its early stages, they argue. Their top picks are Celestica, Flextronics, Plexus and Sanmina-SCI.
Visit the CNET Brokerage Center for daily reports from the top Wall Street analysts.
Electronics Manufacturing Services (EMS): Coming of Age
Reason for Report: New EMS Industry Report
Jerry H. Labowitz and Brian J. White, CFA
* We have released “Coming of Age”, a comprehensive report on the EMS industry. The title of our report captures how this downturn has changed the EMS industry from one focused on delivering explosive growth to shareholders to an industry that now must manage with greater maturity in order to profitably capitalize on the vast global infrastructures put in place over the past few years.
* In writing “Coming of Age”, we have tried to identify some of the more important trends in the EMS industry and put into perspective what has really transpired over the past few years. We have also analyzed the sector’s future and how investors can capitalize on these trends.
* Through it all, we view the EMS industry with a global lens that has been created through visits to EMS providers around the world. Our trips to EMS providers in China and constant dialogue with our colleagues in Hong Kong, Japan, Singapore, South Korea, Taiwan, Thailand and Europe have had a meaningful impact on our work, helping us better analyze the industry.
* For sure, one major concern amongst the investment community in the past has been how the EMS model would hold up during a downturn, an issue that we believe has now been convincingly put to rest. While the models have been tested and validated, the EMS landscape has also undergone great change during this downturn.
* We all have plenty to be concerned about today, but we believe the night will turn to day and investors will begin to see the light at the end of the tunnel over the next twelve months or so. This environment has resulted in the MLNA EMS Universe trading at its lowest price-to-sales ratio (i.e., 0.35x) ever and about one-third historical averages.
* We recommend the following EMS providers: Celestica (CLS-$14.20-C-1- 9), Flextronics (FLEX-$6.71-C-1-9), Plexus (PLXS-$10.54-C-1-9) and Sanmina-SCI (SANM-$2.73-C-1-9).
Merrill Lynch Global Securities Research & Economics Group
Global Fundamental Equity Research Department
Investors should assume that Merrill Lynch is seeking or will seek investment banking or other business relationships with the companies in this report.
Refer to important disclosures at the end of this report.
Coming of Age
The daily drama played out by Wall Street, Washington, Corporate America and Silicon Valley could not have been dreamt up by even the most talented and creative writers of our day. Shakespeare himself could not have put to paper such as confluence of sensational events that began with mass euphoria and changed rapidly for the worse. The rise and fall of dotcoms, followed by a calamity in the tech stocks, a terrorist attack on the United States and corporate impropriety that led to the bankruptcies of major U.S. corporations, has been a challenging ride for all. Now, the potential for further military conflict continues to linger.
For many, reading the front page of the newspaper each morning has been a daunting task that only reminds us of the tough times we face as a nation and the uncertainty that lies ahead in the coming year.
Carly Fiorina (CEO of H-P) indicated in December 2000 that it felt like “someone turned out the lights” and Cisco’s John Chambers stated months later that “we are experiencing a 100-year flood”. Looking back, this was only the very beginning of the tech wreck that has proceeded with relentless pursuit for nearly two years now. As the old Wall Street adage goes, markets climb a “wall of worry” and the wall seems fairly tall right now. This environment has resulted in the MLNA EMS Universe trading at its lowest price-to-sales ratio (i.e., 0.35x) ever and about one-third historical averages.
We all have plenty to be concerned about today, but we believe the night will turn to day and investors will begin to see the light at the end of the tunnel over the next twelve months or so.
In writing “Coming of Age”, we have attempted to identify some of the more important trends in the EMS industry and put into perspective what has really transpired over the past few years. We have also analyzed the sector’s future and how investors can capitalize on these trends. This report is meant to delve into some near term industry trends and issues, while also providing a glance of longer-term developments and industry history that makes this piece a great reference guide for any EMS investor. Similar to our last major industry piece in early 2000, “Dawn of a New Era”, this is not a report that is meant to be read in one sitting.
Through it all, we view the EMS world with a global lens that has been created through visits to EMS providers around the world. Our trips to EMS providers in China and constant dialogue with our colleagues in Hong Kong, Japan, Singapore, South Korea, Taiwan, Thailand and Europe have had a meaningful impact on our work, helping us better analyze the industry.
The title of our piece captures how this downturn has changed the EMS industry from one focused on delivering explosive growth to shareholders to an industry that now must manage with greater maturity in order to profitably capitalize on the vast global infrastructures put in place over the past few years. We have yet to find an industry (not the Internet, CLECs, networking, software, etc.) that could compare to the growth of the EMS sector in the later half of the 1990’s and remain profitable.
For sure, one major concern amongst the investment community in the past has been how the EMS model would hold up during a downturn, an issue that we believe has now been convincingly put to rest. Issues raised ranged from OEMs pulling business from their EMS provider as end-market demand softened, to concerns about inventory liability at the EMS companies, neither of which came to fruition. Over the years, we believe valuation levels for the EMS providers have been capped due to these misperceptions, but now they have been lifted, potentially offering up multiple expansion in the future.
Further validation of the EMS model was highlighted by the surging cash flow experienced by these companies. The generation of operating cash flow during this downturn has been nothing short of extraordinary with $8.6 billion generated by the MLNA EMS Universe over the past five quarters as inventory levels declined markedly.
The downturn also resulted in an aggressive shift in manufacturing capacity by the EMS providers from higher-cost locations in the U.S. and Europe to lower-cost areas of the world in regions such as Latin America, Asia and Central/Eastern Europe. China has taken center stage as the most desirable low-cost manufacturing location in the world. Consequentially, OEMs, EMS providers and other suppliers are rushing to build out supply chains in the world’s most populous country.
This shift, combined with the rapid decline in end-market demand gave rise to massive restructuring initiatives that will likely result in the consummation of about $4-5 billion in charges before it is all said and done. In the end, these downsizing efforts should provide for greater profitability and a more competitive manufacturing infrastructure that is conducive to the needs of OEMs.
While the models have been tested and validated, the EMS landscape has also undergone great change during this downturn. The merger between Sanmina and SCI Systems in December 2001 resulted in us raising the bar on our definition of a MEGA-EMS provider from $5 billion in sales to $10 billion. Additionally, Flextronics rose to prominence, surpassing Solectron as the largest EMS provider in the world during the final quarter of C2001. This downturn was also marked by numerous bankruptcies of EMS-related companies and we suspect more will occur over the next few quarters.
The past 2-3 years have also been a time of changing models. The vertical model attracted more followers as Flextronics and Sanmina-SCI pieced together a tapestry of services that include PCB fabrication, enclosure production and other fabrication-related offerings. Additionally, Taiwan-based Hon Hai (HNHAF-NT$117- C-1-7) has aggressively added PCB assembly and system assembly services to its connector business, becoming a competitor to the EMS providers. Solectron even broke with tradition and added certain vertical services last year through two acquisitions that included the purchase of C-MAC Industries. The theory behind the model can be compelling, however, the economic advantage has yet to be proven thus far.
Finally, the rhetoric surrounding Asia-based original design manufacturers (ODMs) rose to epic proportions, increasing their stature to “icon” status in certain corners of the investment world. We think the ODMs have strong design capabilities and are talented in servicing certain market sectors, however, their narrow focus and lack of a global manufacturing infrastructure will likely hinder their rise to prominence. If nothing else, the heightened awareness of ODMs within the investment community and the technology world will likely make the leading EMS providers stronger and better equipped for the long haul.
While the EMS landscape continues to change and much uncertainty is still upon us, outsourcing by OEMs remains a powerful trend that we believe will continue for years to come. The penetration rate of outsourcing is estimated at anywhere from 15% to 20%, but whatever the exact number, we believe the industry is still in the early stages of a secular trend that will continue to feed on itself. Those companies that are unable to make the shift toward a more virtual manufacturing model will likely be hindered competitively.
For example, Cisco Systems began outsourcing PCB assemblies from the beginning and nearly a decade later, companies such as Nortel and Lucent are divesting facilities in mass, while Alcatel has yet to implement its aggressive outsourcing initiative. The benefit of an outsourcing model is compelling and those that walk alone with a vertical model, while their competitors outsource their production, will continue to operate at a disadvantage in our opinion.
European OEMs are beginning to wake up to the work that needs to be done in terms of outsourcing and Japanese OEMs have started testing the waters, while producing about one-quarter of the world’s electronics. There will be no lack of outsourcing opportunities this decade, however, the path to success will not be without obstacles and we suspect some casualties will likely occur.
Despite the downbeat news we hear each and every day, we believe the EMS management teams have been busily changing their companies to prepare for better times ahead. As the adage goes “no one rings a bell at the top” and we believe no advanced warning will be provided at the bottom. After being amongst the most bearish team on Wall Street in regards to the EMS industry for more than a year, we upgraded the sector on August 1, 2002. We indicated that picking the exact bottom in the stocks was nearly impossible, however, we believe justifying purchase of the EMS stocks at these levels was reasonable.
As investors sift through the technology graveyard for potential ideas, we suggest some of the leading EMS companies could make for an interesting investment due to their proven ability to outgrow their OEM customers as a result of trend to outsourcing, combined with the benefits of a diversified portfolio of many different companies in various industries. Remember, it wasn’t too long ago that Nortel and Lucent seemed invincible as the communications infrastructure sector was experiencing explosive growth and now the tide for their industry has turned. Of course the EMS providers work with Nortel and Lucent, but also with hundreds of OEMs in several industries involved with many different types of technologies.
Sure, it is easy to be sidetracked by the negative headlines these days, however, we believe this is part of a bottoming process that has left the EMS industry at record low valuation levels. We recommend the following EMS providers: Celestica (CLS-$14.20-C-1-9), Flextronics (FLEX-$6.71-C-1-9), Plexus (PLXS-$10.54-C-1-9) and Sanmina-SCI (SANM-$2.73-C-1-9).
We maintain a Neutral rating on Jabil Circuit (JBL-$15.15- C-2-9), Solectron (SLR-$1.70-C-2-9) and DDi Corp. (DDIC-$0.19-C-2-9), along with a SELL rating on PEMSTAR (PMTR-$1.48-C-3-9). Additionally, we are initiating coverage of Benchmark Electronics (BHE-$ 21.85-C-2-9) with a Neutral rating.
Investment Rating Distribution: Electronics Group (as of 06 September 2002)
Coverage Universe/ Count/ Percent/ Inv. Banking Relationships*/ Count/ Percent
Buy 20 26.32% Buy 4 20.00%
Neutral 43 56.58% Neutral 11 25.58%
Sell 13 17.11% Sell 2 15.38%
Investment Rating Distribution: Global Group (as of 06 September 2002)
Coverage Universe/ Count/ Percent/ Inv. Banking Relationships*/ Count/ Percent
Buy 1378 48.71% Buy 494 35.85%
Neutral 1274 45.03% Neutral 310 24.33%
Sell 178 6.29% Sell 37 20.79%
* Companies in respect of which MLPF&S or an affiliate has received compensation for investment banking services within the past 12 months.
Price charts for the equity securities referenced in this research report are available at http://www.ml.com/research/pricecharts.asp, or call 1-888-ML-CHART to have them mailed.
[CLS] MLPF&S was a manager of the most recent public offering of securities of this company within the last three years.
[FLEX, PLXS, SANM, HNHAF, PMTR, DDIC] The securities of the company are not listed but trade over-the-counter in the United States. In the US, retail sales and/or distribution of this report may be made only in states where these securities are exempt from registration or have been qualified for sale. MLPF&S or its affiliates usually make a market in the securities of this company.
[SANM, SLR] MLPF&S or an affiliate has received compensation for investment banking services from this company within the past 12 months.
[CLS, FLEX, SANM, DDIC, JBL, SLR] MLPF&S or an affiliate expects to receive or intends to seek compensation for investment banking services from this company within the next three months.
[HNHAF] The country in which this company is organized has certain laws or regulations that limit or restrict ownership of the company’s shares by nationals of other countries.
In Germany, this report should be read as though Merrill Lynch has acted as a member of a consortium which has underwritten the most recent offering of securities during the last five years for companies covered in this report and holds 1% or more of the share capital of such companies.
The analyst(s) responsible for covering the securities in this report receive compensation based upon, among other factors, the overall profitability of Merrill Lynch, including profits derived from investment banking revenues.
OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium, and C - High. INVESTMENT RATINGS, indicators of expected total return (price appreciation plus yield) within the 12-month period from the date of the initial rating, are: 1 - Buy (10% or more for Low and Medium Volatility Risk Securities - 20% or more for High Volatility Risk securities); 2 - Neutral (0-10% for Low and Medium Volatility Risk securities - 0-20% for High Volatility Risk securities); 3 - Sell (negative return); and 6 - No Rating. INCOME RATINGS, indicators of potential cash dividends, are: 7 - same/higher (dividend considered to be secure); 8 - same/lower (dividend not considered to be secure); and 9 - pays no cash dividend.
Copyright 2002 Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). All rights reserved. Any unauthorized use or disclosure is prohibited.
OT: Judge rules death penalty unconstitutional
Post 42647 by spirare Reply
Caledonia Mining Corporation's Presentation To
The Richmond Club -
President and CEO
Listen To Thr Power Point Presentation at
20 minutes 3 seconds
Try to buy Red & Green Diamonds*^^^^^^^^^^^^^^^
Did I hear it right?
New Platinum deposit!?!!!
Caledonia Mining Corporation President And CEO Addresses
The Richmond Club Broker Luncheon Event
Caledonia Mining Corporation
("Caledonia") of Toronto (OTC BB: CALVF)(TSX:CAL.TO) announced that
Stefan Hayden, Chairman, President and CEO
would make a presentation to
The Richmond Club's membership of brokers, fund managers, analysts and members of the media at
The National Club,
on Bay Street, in Toronto.
The presentation will be videotaped and synchronized with a PowerPoint
presentation, which will then be digitized for transmission to Caledonia's
shareholders and 4,250 members of The Richmond Club.
A link to the presentation
is available on Caledonia's website
the Caledonia Mining Corporation
profile page on The Richmond Club website.
Caledonia has recently been selected
by The Richmond Club to be showcased to an audience of
625,000 investors through
its broker/ analyst luncheon and exposure to institutional investors and national media.
About Caledonia Mining Corporation:
Caledonia's corporate philosophy is to
identify mineral properties and projects early in their development cycle, and
then add value by developing, and/or operating and/or disposing of the asset, in
whole or in part, at the most opportune time thereby adding shareholder value.
Caledonia's predominant focus is on its Canadian,
Zambian and South African properties,
a number of which are operated in terms of joint ventures with major mining companies.
Caledonia is virtually debt free and has a portfolio of
carefully selected and exciting precious metals,
diamond and base metal properties.
About The Richmond Club: The Richmond Club (www.richmondclub.com)
is a media portal to 2.2 million investors through TV,
Radio, Magazine, Newsletter and broker luncheon events.
It has a membership of over 4,250 brokers, fund
managers, analysts and members of the media in Canada,
USA and UK.
The Richmond Club selects and showcases companies with good management and an excellent prospect of outperforming the market in the next 12-18 months.
Further information regarding Caledonia's exploration activities and operations along with its latest financials may be found on
the Corporation's website
Caledonia Mining Corporation, South Africa
S. E. Hayden, 011-27-11/ 447-2499
011-27-11/ 447-2554 (FAX)
Caledonia Mining Corporation, Canada
James Johnstone, 905/607-7543
Caledonia Mining Corporation, Canada
Chris Harvey, 905/607-7543
The Richmond Club/ The Richmond Club Report
Sufia Lodhi, 416/644-0644
SOUTH AFRICA INTERNATIONAL CANADA AFRICA/MIDDLE EAST
INDUSTRY KEYWORD: MINING/METALS
+ + + + +
CALVF Risning from oversold conditions - bullish
Current Price of Gold
Interview With: S.E. Hayden
President and CEO
Click here if you don't hear audio...
Imo. TIA. Pass It Along>>>>>>>>>>>
(Voluntary Disclosure: Position- Long; ST Rating- Strong Buy; LT Rating- Strong Buy)
Post 42648 by jeffbas Reply
Briguy, that broadband report really perplexes me. I sold myself on it 5 years ago on the grounds that the cost was immaterially higher than the cost of the extra phone line we needed plus the cost of AOL - plus AOL service was horrible. Perhaps the average AOL user doesn't tie up the phone enough to matter? Or is it bad marketing by providers?
Post 42649 by pacemakernj Reply
Linda, KRY: They spoke about that. Look for production to begin by 4th qtr of '03 and full production in '04. I recall R. Marshall saying that 500,000 ounces was the target by late '04. Pace.
Post 42650 by pacemakernj Reply
Linda, RE: KRY: No one specific. But in speaking with Rich Saks he said that there would be no way this company (KRY) would still around at these prices with that much gold in the ground. Reading between the lines these guys would be taken over by one of the majors. It made good sense to me. Pace.
Post 42651 by Briguy Reply
Outsourcing on Steroids – Viral Outsourcing™ - Outsourced Outsourcing
For large IT vendors, signing a value-added IT services agreement means much more than supporting your customer. It means taking over your customer’s contracts with its customers to provide the services that you are providing.
For example, on December 3, 2001, Cendant announced a key element of its 10-year $1.4 billion IT outsourcing deal with IBM: “IBM will also assume responsibility for IT data operations of third-party companies that are currently outsourcing these functions to Cendant.”
On December 21, 2001, Alcatel S.A. announced the transfer of its IT services subsidiary to EDS: “Answare provides systems integration and technical assistance to leading French companies and various Alcatel subsidiaries. As part of the agreements, Answare will join EDS France, and EDS will become a preferred IT services provider to Alcatel.” Translation: EDS gets to service Ansaware’s IT clients as well as Alcatel and its subsidiaries.
Now that’s adding value…and revenue stream...and risk!
On the downside, customers and service providers both need to focus on the potential risks and consequences to the customer in case of a defaults by a service provider. We conjecture a number of critical issues affecting such “outsourcing-on-steroids” deals. These deals give new meaning to the term “partners” in outsourcing and potential legal headaches. If you are interested, please contact one of our lawyers about how to identify and manage such risks.
4. “Humor in outsourcing”:
Q: What is a “legacy” infrastructure?
A: A computer that can’t be taught to do what you want.
Q: What’s a “legacy business process”?
A: One that you want to change but can’t…unless you “outsource” it. (Then comes the corporate transformation, with “legacy personnel” dealing with new business models.)
Q: What are GAAP?
A: Gods of Absolute Accounting Purity (not Generally Accepted Accounting Principles).
5. Press Room:
Companies in the News:
Arthur Andersen LLP
Computer Sciences Corporation
Ford Motor Company
Harvard Pilgrim Health Care
In addition to the usual new deals and extensions of existing deals, NEC agreed to outsource advanced optical transmission system manufacturing to Celestica Inc. in a $2.5 billion deal, IBM will cease manufacturing Netvista desktops and will pay Sanmina-SCI $5 billion to do so. Incidentally, AT&T Corp. agreed to pay Accenture Ltd. $2.6 billion to save a few nickels by restructuring customer care services. Meanwhile, Alcatel S.A. exited the IT outsourcing business in a deal with EDS.
In litigation, EDS is suing Ariba to end a joint marketing agreement. USinternetworking filed bankruptcy to re-emerge as a re-financed ASP.
Trends – Deferred Payments. After using financing incentives to encourage sales of hardware and software, IBM is now offering 90-day payment-deferral incentives to customers wanting to purchase IT services. The contacts must be for IBM’s Business Integration Services or Integrated Technology Services, signed by March 31, valued between $50,000 and $1 million, and financed through IBM.
Trends – 2002 Forecast. Merrill Lynch says IT budgets will rise 3% in 2002, with an even greater increase of 8% to 9% in 2003. Top priorities in 2002 spending will be security, enterprise resource planning software, disaster recovery, Web development, Windows 2000 and storage. Declining 2002 spending will be seen in IT services, with a drop of 3%.
It's fun looking back seeing how wrong the experts were!
OT: Ikorrow - Some very ot talk..
Post 42653 by jeffbas Reply
Briguy, on ECMs, beware of drawing too many favorable conclusions from, "cash flow has surged". As with electronics distributors, which I also know pretty well, in hard times inventory and receivables end up at zero (well, not quite). This gives surging cash flow TEMPORARILY. The key issue is whether they can get out of inventory and receivables without too much of a haircut (because the debt they are paying with the proceeds is due at full value). This is a pretty amateurish/misleading comment by MRL.
You should also be careful with Price/Sales ratios on this group. Relative P/S ratios for industry groups are really driven by the margins generated by sales. This is a low margin business and will always be that way, in fact too low for the business model as I noted earlier today. P/S should be low and the only reason it does not stay low in recoveries is that folks focus on the growth and forget the downside. But don't get me wrong. I would rank ECMs as #1 to own when the economy really turns up. Just tell me when that will be. The folks who bought the heck out of SANM at just under $10 for much of this year got it very wrong.
Post 42655 by wilful10 Reply
Very Ot Ribit...
I can tell - you are an OK guy. So - I'll take you into my confidence (b4 ?000 readers).
Even as I winced when Briguy typed "core" (a pure typo), and I let slide when you typoed "marine",, I frowned and grimaced waay more - - than when my 30 years as a Realtor were referred to as realtor.
The point is, that no one here is interested in your "war stories". yeah, yeah - I know they are great and many would be interested in them,,, but that's not true.
The internet allows many (all) to make infinite claims,,, but censors none.
Post 42656 by ribit Reply
...thats why ya have an ignore feature. Use it wisely and well. No offense intended or taken.
OT: When is a hurricane not a hurricane ? When a
Post 42658 by Briguy Reply
I was waiting to see if anyone would pick up on that. I did the spell check, didn't see it, and posted. As soon as I read it, I realized I blasphemed the Corp with Core- oops!
I never was and will never be a very good typer.
I will email you my basic training photo if you wish.
OT: Best of luck to you in your efforts.
Post 42660 by wilful10 Reply
Dude - You are too cool!
Should you be of the persona to accept/relish the beauty of Nature in some of her beauty - Go for it!
Take it all on and really get into it! You will never be more alive.
OT: Somebody forgot there donation to the R. Mugab
Post 42662 by wilful10 Reply
Briguy - You did not
"blaspheme" the Corps. It was only a typo.
My "proof-readers eye" normally excuses everything except claims from warriors of USMC lineage.
The tone and quality of your postings precludes any need of your submitting a "basic training photo".
In observation of all postings on this board to date,, and allowing deference to seniority and rank - and in the interests of a democracy - there is only one to whom I would defer.... Who is it?
Post 42663 by pacemakernj Reply
PMCW, my channel checks are both regional and nationwide. In addition to the tri-state area I've done business in Chicago, Texas, and Los Angeles. All of those areas were showing weakness around the time I made my recession call. There was no bubble related to WTC. While sadly it helped some, many companies made special deals available for companies at big discounts so it really wasn't any boom. It is my opinion with just in time manufacturing processes it is much easier to control supply/demand issues than just a decade ago. New software makes companies spot demand earlier than ever before so that inventories are better controlled. This enables managers to forecast better, thus movements are more visible sooner.
My call on the collapse of the consumer and the resulting fall in the real estate market was based on some of the aforementioned. We got confirmation in the housing market today that it came in much worse than expected. I suspect this will become a trend. There is no way corporate America will now hold back on layoffs to middle management. This,imo is the next shoe to drop. Companies have waited long enough for the turnaround. It's time to cut bait. I look for the unemployment rate to rise to at least the 7% by first qtr. '03. This will crimp the consumer and lead to a double dip. Although it is my opinion we are already in one. Hope this clears some of those issues up.
OT: Duh! "Their"
Post 42665 by wilful10 Reply
Dan - It's not necessary to apologize for
a typo; you must realize that those of us who vote,,, and, should it come to it - would take up the gun,,, are on your side.
Our names may not end in stein or berg, and many (like me) of old Euro-influence/descendency may appear to be "on the rail" - are, in fact, solidly in your corner.
You hang in there - ya hear? Don't you ever give up.
Post 42666 by ljpit Reply
Google (respect to them!)
The 'reinvented' http://news.google.com is lovely. Enter the company name you want to do research on, and you get more relevant up-to-date articles than anywhere else that I know of. Sorted by date in descending order.
Post 42667 by pmcw Reply
pace, I'm not surprised at all to see office furniture slow. What surprised me were you comments back in early January when you said "the recession is over" and that clients were spending again "in a big way". I took it that you were probably caught up in rebuilding offices that were destroyed. The only other thing I saw happening was the step function due to inventory replenishment, but I think most of us saw that coming and therefore we're fooled. Personally, I can't fathom a boom in your business that is not accompanied by significant improvements in the employment picture.
The reason I was asking about the regional nature of your current posture is that I suspect that the financial and services business that in big in the Tri-State area is down a bit more than broad based industrial business. The inputs I'm getting from friends I have that are pure industrial plays is generally to very positive - this even includes northern CA.
Can you explain what you were seeing in January and what happened to those who were ordering then?
Post 42669 by lkorrow Reply
Thanks Pace, re; KRY production, that's a ways off. . . .
Post 42670 by lkorrow Reply
Pace, yes, a KRY takeover does seem like a good move. AU came to mind too because they had arranged a $800 credit facility awhile back. I don't know if they are using any of it.
Post 42671 by lkorrow Reply
wilful10, While I might agree on principle that maybe we wouldn't be in such a position today if women were running things, I disagree on what I think you mean by the rest of the post. Let me reiterate in case I am drawing the wrong conclusion.
Because Table is mostly male, it's ok for the men to act like jerks or children? If that's your point, I disagree. This is a public forum and mixed company. I don't like bad language, it's disrespectful and although in the case of briguy's post, I thought his expression to be appropriate in light of the context and his enthusiastic passion for our great Nation. An occassional slip is to be expected too, no one is perfect and an occassional sh_t or he11 is almost cultural. Frankly, I really look down on people who routinely use bad language. If you're looking for approval from me, you're barking up the wrong tree.
OT: pdowd, are thoughts are with you, I hope it tu
OT: Possible explanations for the office furniture
Post 42674 by lkorrow Reply
ljpit, super Google page! And it included some good news:
W. Nile vaccine soon?
U.S. plans to test blood supply for virus
WASHINGTON -- A vaccine to protect the elderly from West Nile virus could be available in as little as three years, and a way to test the blood supply against the infection might be in place next summer, federal scientists told Congress yesterday.
The mosquito-borne virus has infected 2,000 people in 32 states so far this year and killed 98. Particularly worrisome are recent discoveries that West Nile apparently can be spread through blood transfusions if someone donates blood shortly after becoming infected and that it occasionally causes a polio-like paralysis.
In Canada, two people are known to have died from the disease, and a third death is being investigated.
Still, public health specialists are expressing cautious optimism. While West Nile virus is here to stay, they expect infections to be dramatically lower in coming years -- possibly as early as next year -- as more people become immune and communities act quickly each spring to destroy mosquito eggs and breeding grounds.
A biotechnology company, Acambis, plans to begin tests in a few dozen people soon to see if the experimental vaccine is safe. If later testing proves its effectiveness, it could be available in three years, Fauci told a Senate hearing.
Doctors likely would use the vaccine during outbreak years to protect the most vulnerable, such as the elderly or people with immune systems weakened from HIV or cancer chemotherapy, Fauci predicted.
More immediately, the U.S. Food and Drug Administration hopes to have blood banks testing for West Nile virus in donations -- even if it means using an experimental test -- next summer, said the FDA's Dr. Jesse Goodman.
Post 42675 by pmcw Reply
Bri, Just to insure you didn't get me wrong, I want to cover, possibly redundantly, the reasons for my first post on the topic.
1) Your post indicated that you felt SANM would benefit from EDS' problems via IBM's possible wins. As I mentioned, EDS is in a totally different business from EDS and this, more than anything else, was the reason for my response.
2) Your post lead me to believe you were saying that SANM was worth $8 per share based on their balance sheet. You've since cleared this up and made it clear your valuation is based more on current cash flow and anticipated cash flow growth.
In my first post I agreed with you on the cash flow issue to an extent. I qualified it a bit further in my follow up post. I don't disagree that the contract manufacturing business will be a growth market. When the economy comes around, I agree with the general assessments for spectacular growth. However, I feel that the CM business is, as I said, the P-Trap for JIT. I agree that computer programs and other situations have improved JIT planning, but there is always going to be a place in the pipe where the variability to schedule is buffered. My point is that when the supply of CM exceeds demand, they get pinched and have no pricing power. They need to keep their lines full because they have very high fixed costs (as opposed to variable costs). In other words, they are hyper-cyclical and therefore have a huge beta to market. In other words, they crash hard and recover big - at least those that survive and SANM should easily be a survivor.
However, I don't think the picture is quite as bright as some are painting. Anytime you see a company list cash flow within the first third of a page of a press release, watch out. Something might be funny and, in the case of SANM, I feel there is something very funny.
They claim $364.7M in operating cash flow. However, their net tangible assets dropped by $146.6M. This is a delta of over a half a billion dollars. Doesn't this make you question something? It does me.
Well, they did spend $51.7M to buy back their own stock, but they also borrowed $18.4M for some reason. Why would a company with cash flow of $364.7M borrow $18.4M? It's beyond me.
Actually, they also spent $34M on cap/ex so let's make a few adjustments to the "cash flow" they advertised and then try to find "Waldo". If we net out the stock, loan and cap/ex we end up with $297.4M we need to find. If you add the reduction in accounts receivable (it shrank sequentially so this means their customers paid up more than they were billed) of $61.9M with the growth in accounts payable (SANM owed more at the end of this quarter than last to their vendors) of $170.2 and the inventory reduction of $29.6M we can come up with 88% of the cash flow we were trying to find. Hmmm, this means we only really need to find another $35.7M in cash flow (please don't think for a moment I'm not crediting them for buying a pile of their own stock, but that makes no difference to the value of the company it is simply anti-dilutive for stockholders.
Basically, this $35.7M plus the still to be resolved shrinkage of the net tangible assets of $146.6M is buried in areas termed as "investments" and "other" on the balance sheet. These areas are famous for creative accounting. I'm not saying that they are hiding something or doing anything wrong, just that they have a reasonable amount of latitude in assigning values to "other" and "investments".
Oh, there's other questions I would ask too like how did they depreciate $59M and buy only $34M in capital equipment yet show an increase of $54M in the value of property, plant and equipment. I mean, they did write off $25M more than they spent didn't they? I'm sure there's a valid reason, but it's less than I call transparent. Total debt is also shown up by about $25M rather than the $18M on the cash flow statement so I'm guessing interest has accrued. However, little things like that don't bother me quite as much as when I see what is obvious on the income statement.
From my perspective, the income statement is the least important. You see, I've always liked cash accounting and despise what has happened to GAAP. All I ask for is three reports that match. However, one category on the income statement is very important and that's gross margin. In the case of SANM they are showing $109.3M. That means their gross profit margin is a whole 4.2%! In other words, they clearly have no pricing power and they must be passing through hardware purchases at near cost (kind of like an airline ticket agent buying a ticket, selling it to a passenger and then showing the whole ticket as revenue). I wonder what their actual billings were for assembly net of the pass-through purchases of parts.
OK, I can't wait any longer. Are you asking the really tough question yet? Are you ready to call MER and SANM and say what are you trying to serve? You should! Ask them how a company can have a gross profit (the profit before SG&A, R&D and other operating expenses of $109.3M and claim, right at the top of their PR, a operating cash flow of $364.7M with a straight face. I know I couldn't.
Now, take all this aside and remember what I said right up front. These companies go down hard and come back up with a vengeance. They are hyper-cyclical and their pricing power swings wildly. They will have their day in the sun, but I don't know if the clouds have yet parted. However, as sunny as it might be some day soon, please don't start your valuation model based on an assumption they "made" over $350M last quarter. They didn't.
PS: Remember too, they have some convertible debt outstanding (that's why the low interest rate) so figure an increase in the outstanding shares about when the economy is turning. I didn't look it up - that's why I estimated roughly 570M rather than what they listed on their income statement.
Post 42676 by lkorrow Reply
Pace, sorry, speaking of typeos -- $800 million
OT: Tin, speaking of Toga parties, we were diving
Post 42679 by nvrgivup Reply
Briguy: Re: SANM
I bought some this morning for 2.56. Thanks for the recommendation ! I'm not sure how long I'll keep it--I've had some recent bad luck not taking quick profits then holding while they became losses, so I'm a bit gunshy.
Best wishes, nvrgivup
Post 42680 by jeffbas Reply
pmcw, Briguy, as an example of the volatility in that ECM industry, in this last cycle ACTM (ACT Manufacturing), one of the larger ones, went from $5 to about $75 and then to zero. Furthermore, the CEO owned 50% of the stock so had one big incentive to do something to avoid bankruptcy.
Although, I still think the group is one to own during economic recovery, I am less bullish than before the last cycle. I suspect there is a lot more idle capacity to fill before they get any semblance of pricing power than there was last time. Sort of like the manufactured housing business (e.g., FLE, CMH, CHB), which is another low value added manufacturing business with a huge amount of capacity sidelined after 10 good years. Both the companies and stocks have been struggling to deal with these issues for a long time.
Post 42681 by Arkural Reply
(for the mention)
Navellier Special Alert
Dear Friend of Navellier:
The current stock market environment is extremely narrow and it doesn't
appear that a sustainable, broad-based rally is nearby. We suspect that
approximately only 15% of the market has a chance of making money near term.
Investors are very reluctant to buy equities as long as unknown factors such
as Iraq, terrorism, and corporate fraud dominate the headlines. These
factors are contributing a great deal of pain to the economic recovery cycle
by punishing demand, which punishes corporate profits. Sure, there are a
number of stocks that are showing earnings growth, but how many of them are
growing earnings and revenues simultaneously? In other words, it doesn't
count if a company is growing earnings by slashing payrolls or folding
operations. Everyone knows that's not a long-term growth model.
In this market you have to own stocks that are not only growing earnings,
but also revenues. Unfortunately, there aren't a lot of companies out there
doing that right now, but you already knew that.
Here's one that is: Autozone (AZO)*. Autozone is a top-five holding in
Navellier's Mid Cap Growth portfolio. This company has year-over-year sales
growth of over 12%. What's more, AZO's fourth-quarter earnings grew more
than 60%! That's why the stock is trading significantly higher today. For
more fundamental details on Autozone, please open the Word document
Autozone is a retail store that offers auto parts and accessories. This
company is benefiting not only from the record volume of new autos being
sold, but also the bulging used auto market. Zero percent financing and
other purchasing incentives are driving auto sales through the roof, but
auto companies aren't making many profits by essentially giving cars away;
you have to go further down the ladder to find the profits.
Navellier is currently trying to lock-in on the stocks that we think are in
the 15% of the market that will work near term. If you're interested in
finding out more about our Mid Cap Growth portfolio, please click on the
links below to view information on our Mid Cap Growth Fund or call
800-887-8671 and ask to hear about the solid reviews this portfolio is
receiving from various respected sources.
OT: Tin, while much of what you say is true and or
Post 42684 by pacemakernj Reply
Jeffbas point well taken thanks.
Post 42685 by pacemakernj Reply
Linda, I haven't looked that closely at AU's financial's. But it was Roof who mentioned the link between KRY and ABX. Pace.
OT: Ain't that America!
Post 42687 by ECM1 Reply
Post 42688 by ECM1 Reply
ignore previous post - wrong board (apologies - eom)
Post 42689 by pacemakernj Reply
PMCW, what happened in January was people had budgets in place for the new year and were ready to spend and they did. Everyone thought that by the second half of this year things would be humming. People felt good about business conditions. But my guess is that by May/June companies were not seeing demand pick up and began to shut things down in a hurry, I might add. People simply put those purchases on hold. Then as the economy worsened and CEO's got tied up with all the financial stuff who was thinking about building projects. So it all kind of unraveled pretty quickly. Now those CEO's are saying the heck with spending we're going to continue to cut costs. Just today, one of my suppliers laid of 4 of their sales people in the NY office. Another friend works for a finance company in NYC, his boss came to him on Monday and said we are going to have layoffs and you may be one of them. Well he got lucky. They laid off 10 workers and basically put him on notice he may have to go as well. Nice people, huh. BTW, this is a profitable company. We'll see. I am tired and signing off. Good Night! Pace.
Post 42690 by lkorrow Reply
Tin, It was really funny. All these folks dancing to the music in togas. We didn't want to intrude so had our meal and headed down to the island. It certainly isn't what you would expect in the islands! I'm still surprised the power didn't give out. Well Roatan is quite a place and The Still of the Night's a great song!
Peter Hughes Anthony's Key Resort is a two-part affair. Half the rooms are in the jungle going down to the water, the other half are on a sandy island across the way, with palm trees and a small channel with a little boat to take people back and forth. The cabins were two separate units with a porch and rope hammock between them. You could lay back and watch the resident chameleon running across the roof between. The steps went down to raised wooden walkways above the jungle floor. You could also write about the cat on the hot tin roof! No pun intended, they were tin and quite hot during the day. Thank goodness for the ceiling fan. But we were in the water most of the time so that didn't matter except to our group's one non-diver. One of the greatest things was waking up at sunrise to the sound of parrots and birds. The walls opened, they had 4 or 5" wooden slats with a screen behind them. It was a great trip, a real experience. This was the early '80's, I don't know how it's changed.
A screenplay, huh! Have you done that sort of writing before? I have a lot of books on writing and actually picked up a thin book on how to do screenplays when I was working and could afford such larks. I think different types of writing can lend perspective to regular writing, but I still haven't looked at it. I'll mail it to you if you want it, good luck! :-)
OT: Pace, it's the only way we can play it now.