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Buzz Bits: Dow, Nasdaq Go Green

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Your daily Buzz & Banter highlights.

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Oil Can - Adam Michael - 3:44 PM

TXCO Resources
(TXCO) news just hit tape. The company has retained Scotia Waterous as financial advisor to study "strategic alternatives" for its oil sands project.

This is great news as most folks do not give the company any credit for the oil sands. TXCO is still one of my top two holding in the energy sector... huge assets.

Position in TXCO.


ConAgra Trades Its Way to Profitability - Kevin Depew - 2:28 PM

ConAgra (CAG) this morning reported earnings, but there were a couple of problems. The headlines you read will probably all focus on high food inflation; the company said it was seeing inflation running north of 8%, far higher than it had anticipated.

To combat this food inflation, the company intends to be far more aggressive on pricing in 2009. The question is one of elasticity, however. How can the company be sure it can successfully pass through price increases? After all, its consumer foods unit was its weakest segment.

CEO Gary Rodkin said, "given the continued high level of inflation and so much news and noise about the escalating input costs across almost all the food commodities and materials and energy, it's a very very different environment when we present our pricing actions. Everybody, all competitors are under pressure, including private label. So this makes us less nervous -- much less nervous about passing on some significant pricing. It's just hard to argue with that logic."

But there's more to this story than inflation. The company in the quarter booked strong gains in its commodities trading unit. Makes sense, commodities have been on fire. But the company gave its traders more capital to work with. The company was adamant in the call that it "planned very conservatively" and "we are not rolling the dice shooting for the moon." But more capital equals more risk taking. Period.

CFO Andre Hawaux deflected this notion, saying, "I would just end by saying we expect attractive returns, but the capital will vary up and down based on the opportunities. So, it really isn't about a desire to take on more risk, it's a desire to earn more money for the company."

Oh, Ok. Just like that; magic. I was discussing this with Scott Reamer who noted, "By that logic ConAgra should totally shut down it's consumer foods unit and become a commodities trading firm." Yes, then they can really focus on earning more money for the company. The reality is that no matter how one verbally spins it, this is increased risk taking.



What is the Oracle Telling Us? - Adam Katz - 1:44 PM

The Oracle (ORCL) report is telling me two things:

1) That things are not as bad with respect to IT spending as people have been thinking. One has to remember that 80% of IT budgets are spent on people and electricity... so as more processes become automated and require less people, and hardware becomes more efficient, there is more room to spend on capex.

2) ORCL is illustrating that there is a clear focus on infrastructure spending. The reason this is important is because virtualization changes this game dramatically. While software licenses have historically been priced per server or per socket, they will now have to be priced by the load or by the instance (Virtual Machine) and the instances of software licenses is going to go up dramatically. A lot of IT departments have focused on how virtualization will save them money in hardware, but ignored what it's going to do to their licensing costs. So while the seasonal decline in software happened earlier than normal this year due to concerns about the macro economy

There is good reason to believe it will start early next year driven by these changes to software pricing models.


Summers' Loving, Happened So Fast - Todd Harrison - 11:35 AM

Larry Summers spoke at The Brookings Institution yesterday and offered some strong opinions on the economy and the handling of the housing downturn and credit crisis. In his view, there is a "distinct possibility" that the nation will experience its worst economic conditions since the stagflation of the 1970's and the severe recessions of the '80's.

We've been talking about this for a long time. We noodled it in Ojai in 2005. We reiterated the concerns in Vail in 2006. Yes, there was money to be made as perception caught up to reality and I, for one, left money on the table at times. That was then and this is now, however, so rear-view mirrors don't do us much good.

So, what to do now? While historic stimuli and agendas are already in motion, there seems to be a growing chorus of "DO MORE" out there. Honestly, I'm torn as we, the people, need to take our medicine if we ever hope to stand on our own feet again. If we did that after the tech bubble burst, we would already be further along the road to recovery.

What we need to do is accept. Accept the fact that recessions are part of the business cycle and necessary for the greater good. Doug Cliggott said something to me last night that made a lot of sense. "Recessions are like forest fires, they're frightening and destructive but clear the way for rebirth." My fear is that the longer we go without that fire, the more painful the ultimate blaze will be.

I don't know where the line is drawn between emergency plans, intervention and government subsidies. I do know, however, that we better figure it out and soon. The other side of zero-percent financing awaits and we must fortify before those economic headwinds arrive.

Capital preservation, debt reduction and financial literacy are viable starting points, in my view, and deep breaths perspective and mindfulness will offer equal, if not fully quantifiable, utility. I know this doesn't help for "today," per se, but they are thought I wanted to share as we stare through the open window and watch the economic tornado form.

May peace be with ye.

R.P.

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