My arm is itchy...

That is all. Go here for some hysterical and historical comic genius.

"Recession with High Inflation"

A conversation with someone very important today revealed that our company is planning on the title comment. The second comment was that Dow's 20% increase on prices is doing everyone a favor.

Look the point is that everyone is holding their breathe hoping that this thing is going to turn around, and it's not. Dow finally has said enough is enough, US dollar value is down, steel is up, oil is up, copper is up, raw materials are up, and farming related products are up. So in the next two months you are going to see the ripple effects of these costs finally incorporated into everything you do and everything you buy. You can't expect that these prices are going to go down now, we've gone too far.

There is only one way to calm this economical climb now, stop buying gas, ride a bike, commute, and car pool. It's a pain but until we reduce the demand for the current oil supply loads, nothing will change. It's like we all are a bunch of smokers. Stay with me here, smokers are probably taxed more than any other group of people out there, and each time the tax goes up, they just shell out more money.

"How much for a pack, f@<* that's crap! Well Carl, see you tomorrow."

The green technology isn't quite here in the mainstream yet and will take I think a couple more years to mature nicely, so in the meantime, it's those normal simple things that will help. Things like buying a smaller car, moving closer to work, and not eating out are what will really make a difference.

So recession is here, inflation will be high, and enjoy the next two years. You heard it here 121st.

ROK looks cheap...

Market had a big fall on Friday and one huge loser was Rockwell Automation (-$3.02 per share). I spoke about them before when I revealed how I found Baldor, and I liked them then and still like them now. ROK stock value has been faultering ever since they missed analysts predicted earnings last quarter. Here is what baffles me the market reacted to analyst's predictions not the company's. If you review their last call you will quickly find out that there was siginificant revenue growth not only in every business category, but in every geographical location as well. Not many companies can say that and yet it has loss over $12 per share since the beginning of the year.

Take a quick look at the charts and it has been nearly three years since this stock has been this low and it is a better company now than it was then. Again the things I like are the good ROA, strong growth, ~2% dividend, extremely robust and strong product (Allen-Bradley Controls), and their firm commitment to the growth of that product by intelligent acquisitions. I should talk about the A-B product a little more, although I did cover it thoroughly before. It is a great product in the current economic climate, the controls are modular and are considered the best in the business. The controls are prodominately used in PLC applications in all sorts of industries from factories to oil rigs to building temperature controls. The whole world is modernizing these industries right now and the modular setup of A-B controls allows both new and old equipment to talk and work more efficiently.

Final thought, I'm buying tomorrow!

Storms in the city...

Last night in Kansas City was some rather inclimate weather, and being that the new house has a garage filled with crap, I drove down to the Country Club Plaza to protect the car. After parking the car in the garage, I walked over the the Mickie D's and proceeded to watch all of the upper crust of Kansas City handle the storms. While enjoying the double cheeseburger (hey its $0.99), some unique observations were made.

• Running has the most obsessive group of people, all over town I saw huge lightening bolts and nickel-sized hail. Meanwhile some runner is cruising with no jacket along a roaring Brush Creek, or dragging their dog through the puddles of the Plaza. I feel extremely sorry for the dogs.
• Ladies, blouses are not the best thing to wear on a stormy day, but I thank you none the less.
• Your teenagers are out driving around in this crap, buying clothes, and generally spending your money. Hope you don't mind hail damage on your Lexus while your daughter is shopping in a lightening storm.
• When coming in from the rain it is appropriate to state the obvious. Comments like, "Man, I'm drenched!", "That's a lot of rain!", or "Boy it's coming down!" is fine but it must always be proceeded by a Ric Flair "WHOAO!" For Example, "WHOAO, it's raining cats and dogs out there!" If you are by yourself then at least "WHOAO!" has to be said, it's the law.
• I am officially an adult, Urban Outfitters has nothing for me.
• When heavy rains are coming down its best to run as fast as you can in it, because maybe you can out run it. Looking both ways to cross the street is optional.

Special Request Stock Lookup: Ingersoll-Rand (IR)

Grant over at The Corner Office Blog asked me to look into a stock last week, namely Ingersoll-Rand (IR). This stock has had some recent interest by many investors due to the big purchase by the Big P.O.P.P.A. (Pimp Oracle of Potential Plays in omahA, aka Mr. Buffet). If you haven't read much about IR over the past two years, it has gotten rid of most of its industrial units including its most famous, Bobcat. What's left is a mishmash of industrial tool, refrigeration, and security units making up a roughly 9.5 billion dollar company. None of these businesses I find particularly exciting, although it should be said that their brands in each of their markets are either the leaders or top 2 companies in the industry. For example Schlage security and locks compete closely with Stanley security and locks. On paper, they look as if they have made each of their industries rather efficient and profitable.

The future for IR is the purchase of Trane, in my opinion, the foremost supplier of key HVAC components for business and commercial markets. IR claims that they would like to get into less cyclical market places and with their freed up capital, Trane looked like a good fit. Trane too has had its own set of splits over the last two years. Formerly American Standard, Trane was the result of a three way split of the former company. The new Trane is roughly a 9.5 billion dollar commercial and industrial HVAC company. Trane has an excellent company mix of products and services that is compromised of the markets highest efficiency residential HVAC units, commercial HVAC units, commercial chiller systems, and excellent technical services. This focus on high efficiency equipment will keep the company firmly planted for current and future commerce due to many companies needs for costs savings and government tax credits on energy saving projects. Trane is also known in the contract engineering world as the “go to” company for assistance in spec'ing components on new projects due to their own extensive technical support group. That status obviously pushes contracts towards utilizing Trane equipment. I should know I purchased a new chiller last year and found that the engineering companies in the Midwest area all work with Trane engineers first before drawing out the specifications for a project. Trane has seen some softness in it's residential market (roughly ~24% of the business) and plans on seeing more ahead, but in its most recent annual report believes that it's commercial unit has and will more than cover that loss for now. One other fact though, is much like the rest of IR's porfolio, is that Trane is a very competitive company in a very competitive market, competing with other good players Carrier, York, McQuay, and Danfoss.*

Much like my report on Baldor. Trane has products for the commercial market that will consistently need replacement. Industrial HVAC and chiller systems are always being replaced due to new more higher efficient machines or for old equipment failure. Their service department does most of the installations as well, so somewhere in the range of 65-75% of its revenue is tied up with the commercial contract dealings. From my contacts in the industry, this is a stable, profitable place to be.*

Upon further examinations I found the Trane annual report informative and helpful in formulating a position on the companies current financial status. However, IR's report was not very revealing of the companies current financial status. So I next searched the basics. IR has a absurdly low P/E of 3.2 and Trane's rather high P/E of 52.6, neither of which I don't really think is reliable. IR is particularly good at their profit margin at 44% compared to Trane's 2.37% and Return on Assets roughly the same at IR (5.33%) and Trane (7.19%). Although I am unsure how clear this data is affected by IR's sale of Bobcat and Trane's split from Amercian Standard. So I am uncomfortable with this analysis.**

Research of products from both companies fruited some good products including Trane's CenTraVac Chillers, Trane's CleanEffects air cleaning system, Trane's residential XV Furnaces, and IR's lightweight pneumatic tools. The Trane CenTraVac Chillers could be big money makers.

I do feel that when IR finalizes its purchase of Trane, it should provide some stabilization to each of the companies due to the amount of splitting, selling, and purchasing that each has experienced over the last two years. But again, my opinion though is that IR brings less to the table than Trane. Trane's infrastructure is mature and set in its ways, but like any large business purchase or merger, IR will want to put their imprint on the business. If they are not to careful, IR could really screw up a great company, but the great company looks as if it needs to cut costs (especially if the ROA is accurate for Trane). After seeing mergers from the inside out, it will take roughly six months to a year for the two companies to properly integrate into one another and see potential synergy savings. After that both companies might be able to flourish.

Official opinion: Wait on IR for now. I think the stock will dip back below $42.50 or lower and then start looking to buy. If it were my money though, I would wait four months from today and reevaluate. There is just too much unknown and too much competition to make me feel good about this right now.

Grant its your turn, my stock Petrobras (PZE).

Also, if anyone else wants me to look at a stock for them and give an opinion, I'm up to it. My expertise are industrials, green energy, and raven-haired ladies. The only expectation is that you do the same for me.

*Stats from Trane's 2007 Annual Report and IR' s 2007 Annual Reports

**Stats from Yahoo's Finance coverage for IR and TT

Playing with BigCharts & Justifying Herman Miller

So after a trip to see my brother during the holiday weekend, I spent some time playing with a new-to-me website called BigCharts which is a service of MarketWatch. After throwing in some stocks of mine like FTO, HMC, and a stock Grant wanted me to research IR, I got back to MLHR. See the interactive 1 year chart of Herman Miller right here. Adjust the settings to show the three to four years of trending.

My point is that here is a company that has shown increasing earnings consistently for over four years, increased it's dividend each year, consistently great earnings reports each quarter, low p/e of 10.1, and yet it is near its 52 week low on share price. Why aren't people screaming for this stock to go up? Maybe because they make furniture, I don't know. You all should take a look and tell me what I am not seeing.

(Edit later on 5/27/08): Found a good article by someone named Paul Price on Seeking Alpha about MLHR here. Also, he has me interested in Coca-Cola now.

Will the government do anything about the housing slump?

Answer: If they care anything about their city, state, and federal budget, you bet their ass they will.

Being the rabid NPR listener that I am (insert joke here), I have been listening to the senators and representatives dance around the delicate issue of the housing slump and the potential for the government to get involved. Bailing people out is not a something the government should be doing but what I find extremely interesting is that no one, and I mean no one is talking about how housing foreclosures is affecting the local and national governments budgets.

With each home added to the sales market and even more homes being foreclosed on, the government is leaking potential budget revenue by the bucket load. Homes values are decreasing drastically which in turn allows the government to collect less money for property taxes. After 5 straight years of increasing property taxes, a lot of the current government offices, especially on the local level, are filled with people who haven't ever dealt with a short fall, so heck yes are they going to try to put something together.

I think that right now they are simply slowing down some on the legislation to appease the renters of America, which they do not collect much money from, and then will go right back into pushing a bill forward to assist on some of these loan defaults. The problem is that it doesn't really fix the problem and could put the government at a big risk of inflation. They keep saying some sort of crap about making sure that the help gets to the right people who actually need the help, but what does that mean? Does a family who makes $100k a year who bought a $350k house with 0% down on a 3 year ARM get the help or were they the wrong people. Or is there even a different kind of people than that causing this insanity in the first place?

It is really scary when you think about it, because the people pushing things forward aren't thinking clearly, they see budget cuts and think, "crap, I can't afford for our budget to get smaller, I promised this, this, and this." Reality though, and I hope it wins out, is that the market needs to adjust for itself. The banks screwed up, the public screwed up, and now the government needs to stay out. The governments are going to hurt for a couple of years, but ultimately a market should be able to adjust for itself.

Here is the other problem, if government steps in and gets banks to accept homes at 75% of their current value for defaulting home owners (one proposal out there from the government), how is that fair to the home owners not missing payments?

I apologize ahead of time for this post being messy, but it is late and well that's my excuse.

Moving, Learning Lessons, Proving Yourself, and Being Unleashed

Here's a little story about MJ. MJ used to work at plant supporting several assembly cells making lots of cool little products. He did well there, even getting the company out of several jams with their major customers, but found when management changed, he was on the outside looking in. He worked hard and really helped things there, but he was young and he made mistakes at times. It was weird though, the better he got at his job, the more the management thought it was time for him to go. He fought hard to to keep the job, but realized it was futile. MJ took it personally, he thought he had failed to prove himself. So MJ quit, contrary to some of the advise of friends and family, and started preparing himself for a new job.

In that downtime, MJ reflected on what he did wrong, what he could do better, and what he was damn good at. With that he pounded the job boards and recruiters, and after getting several good offers and interviews, found the perfect fit.

MJ used to work with 20 other engineers and answer to dozens of people, the new job consisted of him, alone, supporting the whole factory. Seems scary, but in reality it was freedom. Remembering those traits that had flawed him in the past, MJ went about reinventing himself. He started fixing things, proving himself, and winning over the management. With that lack of engineers and management to answer to, he found the freedom to do what was right with the plant. MJ took on a huge project and made it a success. Then took on another, and another. Those went pretty well too. MJ was succeeding, shaking off a stigma of failure that he felt after losing the battle for his last job.

Today, this day, MJ was given his biggest project yet, and told to make it happen, make it what you want. He realized that day, he had proven himself, and he was now unleashed to actually push the factory into a new direction as he saw it. There was no more thought of failure, it was a good feeling.