Penske Working Capital Clarity?

Penske Racing

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Penske Automotive Group (NYSE:PAG) reported Q3 earnings results. At first glance investors may be encouraged. Penske is very aware of the $150.6 million principal amount of convertible notes expected to be redeemed in April 2011.

Chairman Roger Penske said “We will continue to pursue opportunities to generate incremental revenue, while maintaining the financial discipline that has allowed us to pay down more than $210 million of long-term debt since the beginning of 2009.”

They keep mentioning they have enough unused lines of credit and working capital to reduce long-term debt and grow the business. What they fail to discuss is what the growth will need for working capital. As they become more reliant on short-term debt they become more interest rate sensitive. By buying out equity you have short-term engineering boosting EPS and long-term interest rate risk.

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post.

Office Depot Guilty?

Office Depot’s corporate headquarters in Boca ...

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Office Depot (ODP) settled SEC charges regarding Reg FD violations. Stephen Odland and Patricia McKay will each pay $50,000 personally. However because of their incompetence (nicest thing we can say) in violating clear Reg FD policies Office Depot will have to pay out a $1 million fine. Why do the shareholders have to pay the fine for the inappropriate actions of the two executives. I would like to see the Board hold them accountable. After all they were the CEO and CFO not just junior staffers.

Can you imagine working for a boss who has violated  securities law and then watch them sign off on compliance sensitive issues. Will investors trust these two again. Stephen Odland is still the CEO and Chairman of the Board.

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no position in stocks mentioned in this post. 

Campbell Soup Halal Problems

Campbell Soup Company

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Campbell Soup (CPB) seems to be spooked by right-wing bloggers. In Canada they launched a Halal soup line. The right-wing has pressured Campbell Soup into saying they have no plans to launch a similar line in the US of A. CNBC’s very own Erin Burnett on her afternoon show “Street Signs” identified the US Halal market to be well over $150 billion.

Investor’s want wealth maximized.  Participating in a $150 Billion market seems like the right thing to do to expand your sales. What if shareholder rights activists started to launch lawsuits against Campbell and the Board of Directors? How can a few politically motivated bloggers influence a company with over a $12 Billion market cap. The shareholder activists would be complaining about cowardly management which misses profit opportunities.

Is this a Denise Morrison faux pas? Denise is the head of the North American soup operations and has been anointed as the next CEO. Controversy on that one also. She will replace Doug Conant this coming July 31, 2011.

Disclosure: George Gutowski writes from a caveat emptor perspective. I have no positions in stocks mentioned in this post.

Northern Trust Confusion

Northern Trust Open

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Northern Trust (NTRS) report Q3 results and showed investors that they have slipped a notch or two. I am a simple guy. Northern Trust is 75% assets under administration and custodial services. Both those business grew by 8% and 10% respectively. They still laid an egg and managed to decrease EPS. Ergo the other business lines are not performing.

Frederick H. Waddell, Chairman and Chief Executive Officer refers to the assets under adminstration and custody services and just says the market is challenging. Not a fully transparent comment.

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post.

Morgan Stanley Volckerized

Morgan Stanley's office on Times Square

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Morgan Stanley (MS) is being Volckerized. That’s the new buzz word that refers to the Volcker clause of the Barney Frank Financial Reform Bill. Morgan Stanley is shedding in-house hedge funds by Q4 2010 which means in around 60 days. Employees will be coming up  with billions to purchase equity and get Morgan off the hook.

Financial engineering reigns supreme. These guys were good but do they have a few extra billion kicking around? Watch for compliance and governance nightmares to make this one work. After the mortgage mess we will have the hedge fund mess.

The immediate secret benefit will be to reduce mega compensation off the books of Morgan Stanley and hide it on the books of a private entity. Morgan Stanley and copy cat financial institutions will achieve the necessary political optics.   

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post.

Apple Hoards Cash

Image representing Steve Jobs as depicted in C...

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Apple (AAPL) announced Q4 results. The buzz over iPad, iPhone and product margins overwhelms a fundamental issue. Capital efficiency. Apple has some $50 billion on the balance sheet. That is roughly equal to 20% of its current north of $300 @ share market cap. When compared to either Citigroup (C),Wells Fargo (WFC) or Bank of America (BAC) their cash stash is approximately 40% of the relative market caps.

If banks get political heat for not lending why does Apple not get the same political heat for not investing. Perhaps politicians still have not figured it out yet.

Apple is reporting half the cash balance as long-term securities. No reporting on what the investment strategy is. For $50 billion in cash we need Steve Jobs to explain the cash strategy and not make guest appearances on his own conference call just to bash one specific competitor: Research in Motion (RIMM). By the way Apple cash balance is equal to twice the market cap for RIM. So what are you afraid of?

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post.

Thomson Reuters Ambiguous Code

Thomson Reuters

Thomson Reuters (TRI) allows one of their leading journalists to resign. According to an article by Lilly Vitorovich of the Wall Street Journal columnist Neil Collins, a well-known financial journalist, has resigned after he allegedly breached the media and data information group’s code of conduct on share dealing.

In reading Lilly Vitorovich’s article she had a quote from  David Schlesinger, editor-in-chief of Reuters.

“While we have no evidence the journalist was abusing his position for financial gain, we take such breaches extremely seriously and that journalist resigned with immediate effect during our investigation,” Mr. Schlesinger said.

It appears that Neil had positions in  BP PLC, Rio Tinto PLC and Marks & Spencer Group PLC in which he had a financial interest and made trades shortly after writing. But Mr Schlesinger says there is no evidence of an abuse leading to financial gain. Hmm gets confusing Mr Schlesinger.

According to WSJ, The Thomson Reuters code of conduct says journalists shouldn’t write about shares they own unless they notify their interest to their manager. Journalists also shouldn’t trade in shares they’ve recently written about or intend to write about in the near future.

The problem with the code of conduct is the time ambiguity. The more certainty and transparency the better. Thomson Reuters needs to set time specific limits. Cut and dry. High mindedness may not be defendable in this case.

Disclosure: George Gutowski writes from a caveat emptor perspective. I have no position in stocks mentioned in this post. I do not have a relationship with Neil Collins. I do have a subscription to WSJ online. I do not use any subscription services from Thomson Reuters.

European Retirement Riots

France just had a terrible weekend. The French worker wants to retire at 60. The German worker needs to work until 67. Here is the solution. Abandon the mandatory retirement age. It discriminates against the older worker. Allow people to retire when they want. Retirement plans are time driven. The longer the money stays in the larger the retirement. The sooner you leave the lower the payment.

Retirement should be a choice.

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post

Citigroup Credit Defaults Tax Rate Driven!


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Citigroup (C) reported better results because it is not losing as much money to credit defaults. Can you believe that? The mortgage market is a mess. Documentation errors abound. The consumer is still in big trouble. Unemployment is high. But Citigroup says they are not losing as much money because defaults are down.

Take a look at the geographical spread of defaults. The write-offs continue in non US jurisdictions. The earnings release points to lower taxes in more tax efficient jurisdiction. So if you slice dice and securitize product and move it to high tax jurisdictions to take the write-offs Hmm Maybe even hid them as losses in securities trading and not outright credit losses Hmm

The devil is in the details. In the very fine print that is hard to follow.

Disclosure: George Gutowski writes from a caveat emptor perspective: I hold no positions in stocks mentioned in this post.

Scottrade Secret Danger Messages

Scottrade Center

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Scottrade a leading on-line brokerage with many awards for customer service and a kick ass Chinese on-line trading platform needs to look at its TV Commercial strategy. The subliminal messages are manic-depressive. Scottrade was founded by Rodger O. Riney who is also President, Chief Executive Officer and many believe the owner.

They are currently running an ad of an attractive young couple moving into a new house. They take great comfort from the cable guy who lets them know their cable and internet connection is up and running including financial information channels. Connect the dots as to how the house was earned.

But then you see the moving crew checking out their stocks because it is Triple Witch Friday and they need to know what’s happening to their positions. By the time moving men are fully engaged in Triple Witch Trading you know the market has reached a frothy speculative pitch.

Scottrade’s new Chief Marketing Officer Kim Wells recently commented on the new ad campaign. “Through this campaign, investors and traders will see that although do-it-yourself investors are, by definition, investing independently, at Scottrade they are never truly alone.”  

The Welcome To Scottrade television spots were created by Boston-based advertising firm Gearon Hoffman, which has created and produced a number of television campaigns for Scottrade, and directed by Barry Levinson, who has also directed the films Bugsy, The Natural and Rain Man.

Thank you to Scottrade for the warnings.

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post.