Hello...I'd Like to Sell a Bridge
Research for Online Investors

by John Dalt

8/27/10

Hewlett Packard (HPQ) must have fired all the brains in the company when Mark Hurd left as CEO under suspicion of sexual harassment of a contractor and expense padding.  They topped Dell’s (DELL) bid for 3Par (PAR) of $27 per share this morning with a $30 bid.  That makes an unprofitable company (PAR) now worth $2 billion.  Does anyone have HPQ’s mergers and acquisitions department phone number?  I have a bridge in the desert….

Hurd passed on 3Par at $18 per share before he left, but he didn’t have anything to prove.  3Par has revenue of $200 million per year.  Admittedly, they have been growing, but haven’t made a profit in the last five years.  The winner of this auction is going to have to make more money off the acquisition than last year’s gross sales, and do it in a business that sees annual declining prices of 30% due to new technology.

PAR was worth less than $10 a share two weeks ago.  Who would have thunk?  DELL may win most if it loses.  In addition to matching rights of any superior bid, they receive a $72 million termination fee if DELL is not the successful bidder.

Cap and Trade is not dead, it is just residing in the Environmental Protection Agency (EPA) rather than the congress.  The EPA has threatened to regulate greenhouse gases under the Clean Air Act.  The administration doesn’t want to “go all the way” and turn the public against this stupidity.  The EPA has invented a “tailoring rule” that allows regulators to concentrate on the largest emitters of carbon dioxide.  This allows regulations on coal fired power plants and other large emitters of CO2.

The U.S. Senate could only garner 47 votes to stop the EPA from interpreting legislation to allow the “tailoring rule” and regulating carbon dioxide on June 10, 2010.

These regulations would be invisible to consumers, except in higher electric bills. Imagine the consumer anger if the EPA required tests on every restaurant, warehouse, school or church for carbon emissions. Not to mention my loud mouth neighbor! He spews a lot of hot air.

According to the Texas Attorney General, the problem with this approach is, it is illegal.  The EPA has assigned enforcement of the Clean Air Act to some states with State Implementation Plans.  These states would have to rewrite their plans to comply with the new regulations.  The Texas AG believes it would be illegal for the state to enforce regulations that are counter to the Clean Air Act’s language.

For the past 16 years Texas ran its own permitting program to meet federal air-quality standards.  They have been very successful.  The state’s population has grown by 3.5 million, but in the first eight years of this century nitrogen oxide levels decreased 46% and ozone levels dropped 22%.  National levels were down 27% and 8%!  All Texas cities meet federal eight-hour standards except Dallas-Ft. Worth, which is within 1 part per billion of the limit!

According to the Department of Energy and EPA data, since 2000 Texas’ carbon dioxide emissions from fossil fuel have fallen more than most states and every Country except Germany.

In a pre-emptive move, the EPA declared Texas out of compliance in May, and announced the EPA would take over permitting in the Lone Star State.  Evidently the world improvers in Washington are not used to Texans telling them NO.  There are twelve other jurisdictions (states or parts thereof) that are in the same boat as Texas.

This will be interesting to watch play out, as Texas is not a state to be pushed around.  Their motto is “Don’t Mess with Texas.”  Texas authorities believe the EPA’s actions are a plain and simple power grab, as they seek to nationalize compliance and enforcement of the Clean Air Act in a way that it was not legislatively intended.

My heart wants to see Texas prevail and force the Feds to turn tail, but I don’t see it working out that way. Politically, OH! Bama will go much further than Rick Perry will. Texas’s ability to resist is limited while the EPA ability to push is virtually unlimited. Fighting in the courts favors the administration. The Supreme Court ruled in 2007 that the EPA had the ability and responsibility to regulate green house gases.

Sources for today’s article are Association of Corporate Counsel, Washington Times and CNBC.

Fridays are scary.  Traders don’t want to be exposed to changes in the news that may occur over the weekend.  How else can you explain the market moving higher this morning?  Intel (INTC) announced concerns about the third quarter and the stock halted trading three different times this morning.

What is the present result of the company’s bearish sales announcement?  The stock is up $0.30 per share!  At one time INTC traded over 10 million shares in a few minutes!  This is the result of circuit breakers put in place after the “flash crash” in the spring.  We just stop trading while everyone worries about reopening trading in the stock.

The stock market has struggled since peaking in late April.  Today's chart presents the Dow's average performance for each calendar month since 1950. As today's chart illustrates, it is not unusual for the stock market to underperform during the May to October time frame with a brief counter-trend rally occurring in July. It is worth noting that the worst calendar month for stock market performance is September.

To the mailbag:
Nice newsletter.  Enjoying the read.  You have commented extensively on the Treasury & bond situation and you mentioned several investments that might be time to sell as interest rates and inflation will rise but not sure when.  Could you comment on Preferred stocks? Are they vulnerable if the Treasury market starts down? ---subscriber B.L.

John’s reply:  I wouldn't be afraid of preferred shares if the reason you bought the company is still valid.  Changing credit and interest rates should not affect preferred’s as an asset class.

Friday’s Joke(?)
Q: What's the difference between Obama's cabinet and a penitentiary?

A: One is filled with tax evaders, blackmailers and threats to society.  The other is for housing prisoners.- David Letterman

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

MarketToday Home Page

Back to Top