Thursday, April 05, 2007

Bunge What May We Trust?

Bunge (NYSE:BG) issued a warning early before market open on Tuesday April 3 that they will not be meeting the street's consensus for earnings. The excuse of choice is a convoluted explaination about the difficulties of managing real world committments to farmers and how to offset them with commodities contracts in the real world futures markets. (Most of the future strategy was going short). Management is holding onto hope for the rest of the year.

Bunge is located in one of the most improbable places for an Ag-business: White Plains New York. The warning was issued when the quarter was completely over and only the accounting remained. In a business where commodities trading rules and much of your staff are glued to computers monitoring your position, it is very difficult to believe that management only figured this out when the game was over. Being traders they probably were hoping for the market to skate them onside and the clock ran out. They then had no other choice but to be realistically honest and surprise the pants off everyone.

Lets look at a few other events that occured while managment was being surprised. On Feb 27, 2007 with the Q1 being 2/3 over they declare a regular dividend thereby signalling to the market that all is well.

On Mar 22 Bunge raised through a finance subsidiary approximately $250 million in debt using JPMorgan as an adviser. The lenders and hopefully JPMorgan were doing due diligence at this time while the quarter was falling apart. I really wonder how frank and candid the discussions were. Did Bunge management know and not tell the lenders? Did the JPMorgan syndicate look at the current earnings and still ram the deal through?

More difficulties include the sudden resignation of the CFO William Wells to accept a position as CFO with Loblaws. Bunge was surprised and is now looking for a new CFO. Candidates should be wary about this hornets nest. The resignation was announced on March 2 and William Wells left on April 1.

The icing on the cake is the rather huge amount if insider selling that occured . On Mar 15 the departing CFO blew out his option position which at that time probably looked understandable. On the same day G Archibald the Co-CEO Bunge Global Agribusiness blows out a similiarly large position. On Mar 30 just two business days before the the earnings warning the Chief Personnel Officer SA Carvalho Flavio blows out his position and cashes in some considerable chips.

If for some reason this is all ruled legal how can you believe and trust these guys. Investigation and lawsuits must be pending as it just smells very bad.

Wednesday, April 04, 2007

Boeing's Conflicted Future Insider Executives Sell

Boeing (NYSE:BA) announced that they have 514 orders for the 787 Dreamliner the next generation passenger aircraft. Airbus is in a shambles and will not present a credible threat for quite some time. Nothing but blue sky and smooth flying one would think.

The stock has rewarded investors very well. In early 03 you could have acquired shares in the mid $20's. Now the stock trades around the $90 level. Thats quite the run and some investors could not be blamed for wondering about the future and what is truely left.

Institutions have been lightening their loads with a mild net distribution effect. At the $90 level institutional interest would trump retail activity. But check out senior insider trading. There has been a very distinct sales process as options are exercised and the famous non open market sale kicks in. The senior guys do not need the cash. But it seems that almost every transaction is a disposition.

James McNerney Jr., Laurette Koellner and James Albaugh have all consistently and exclusively exercised and disposed of very large blocks of stock since the new year. This trio are the three top executives of course and their insights have to be the best there is. If they and other executives are personally arriving at the financial departure lounge with this magnitude of disposition then you should assume guidance has been given.

Tuesday, April 03, 2007

Battle of Bands

First EMI (LSE:EMI.L) announces that they will distribute through itunes (NasdaqGS:AAPL) music sans Digital Rights Management (DRM). Apparently the music sounds way better without the DRM . EMI shares are down approximately 2% in this mornings trading so no one is viewing this as a commercial victory for the music business. Music sales are off some will say approximately 20% due to the level of piracy that is rampant on the internet. Music listening is still as strong as ever.

Napster (NasdaqGM:NAPS) issues guidance announcing that in their next quarterly release large increases in revenues and subscibers are to be expected. No word on profits. The implication being that we are the choice to be watched.

Recording companies are sitting on their hands or rather their libraries and watching. For all their cool they are as mercenary as any business. They realize that they have a problem and they want to select the financially correct solution. The new media technolgies confuses them. Old media radio stations are not what they used to be. Record companies are honestly lost in their confusion.

The tipping point will come when artists start making selections. Currently Musicians try to get a deal with a record label and then complain that labels sap their souls. When musicians become more business focused and learn to exploit new media the record companies will be left behind. The record companies understand control first music second. The listener knows music first and cares not for control.

What you need is a few breakout releases that by pass the record companies and leverage the power of new media. Steve Jobs stop preaching to the record companies and sign some exciting talent directly. The record companies will come around like dogs late for their next meal.

Monday, April 02, 2007

What The Mullah's Know

Iran grabs a handful of British Sailors and Marines and proceeds to humiliate Britain and the West. Tensions rise quickly and the price of oil goes up. The business and general press are full of references about how many millions of barrels of crude pass around the strategic horn and reminding all and sundry that Iran has the second largest source of conventional crude. Admirals and Generals squint at strategic maps contemplating options.

Most of Iran's production stays in Asia specifically China and Japan. If the west damages Irans oil production these economies should experience severe strain. Applicable stock indicies and other indicators do not trade accordingly. If Iran cannot produce sufficent supplies other sources would be hard pressed to replace these stocks without short changing other regular paying customers and disrupting their supplies. No one seems to be truly contemplating this scenario.

The Mullah's need cash. Irans economy is increasingly less efficient with every passing day. They even have to import refined gasoline to fuel their own passenger cars and local truck fleets. Their brand of Islam and the ideological exports consume huge amounts of capital without any immediate cash returns.

The political crisis is self funding prehaps even profitable. When the pentagon selects targets you can just guess they will not knock out anything that cannot be fixed very quickly. The Mullahs need the cash. Oil addicted economies need regular deliveries.

The latest oil crisis is a co-dependent hysterical tantrum following a well understood script. Because the Japanese and Chinese markets are relatively unconcerned we may conclude this recent price fluctuation is not important.