This proposed bill represents one of the final stages of Boone’s “Picken’s Plan” to free the United States from economically and politically crippling foreign crude oil imports.  Listed below are some of the aspects of the bill that I believe have an above average chance of being put into law, especially when considering all of the first stimulus funds have not been spent and that there is growing talk of a second stimulus package.

1. Makes all dedicated natural gas-fueled vehicles eligible for a credit equal to 80% of the vehicle’s incremental cost. Only some dedicated natural gas vehicles currently can qualify for an 80% federal tax credit
2. Makes all bi-fuel natural gas-fueled vehicles eligible for a credit equal to 50% of the vehicle’s incremental cost. This is the first time bi-fuel vehicles would be eligible for a federal tax credit
3. Increase the allowable incremental cost limits to more accurately reflect the cost of producing or converting natural gas vehicles:
4. For light-duty vehicles, the purchase tax credit cap would be increased to $12,500 (currently $5,000)
5. For all other vehicle weight classes, the purchase tax credit cap would be doubled
6. Increases the refueling property tax credit from $50,000 to $100,000 per station
7. Allows the natural gas vehicle and natural gas fueling infrastructure credits to be transferred by the taxpayer back to the seller or to the lessor
8. Allows state and local governmental entities to issue tax exempt bonds in order to finance natural gas vehicle projects
9. Allows 100% of the cost of a natural gas vehicle manufacturing facility that is placed in service before January 1, 2015 to be expensed and to be treated as a deduction in the taxable year in which the facility was placed in service. This decreases to 50% after December 31, 2014 and is phased out by January 1, 2020
10. Requires that when complying with mandatory federal fleet alternative fuel vehicle purchase requirements, federal agencies shall purchase dedicated alternative fuel vehicles unless the agency can show that alternative fuel is unavailable or that purchasing such vehicles would be impractical
11. Provides for grants for light- and heavy-duty natural gas engine development

As you can see, all of these measures are constructed to spur demand for natural gas transportation, consumer natural gas demand, and fueling station infrastructure.  Energtek classifies itself as a company that “provides proprietary solutions to meet the technical, economical and logistical challenges of Natural Gas (NG) delivery for vehicles worldwide, with a major focus on the 2- and 3-wheel vehicles market, and on Bulk Transportation markets.”  The reason this type of bill would be so valuable to a company like Energtek is because it will create incentives for consumers to purchase products that are made up of or benefit from products Energtek produces at little to no additional cost to either the consumer or Energtek.  With the green movement gaining steam rapidly over the last few years, what reason would a consumer have to not use natural gas based transportation when the government will gladly foot most of if not all of the bill for you?

One of the ways I like to fundamentally track the relative value of natural gas is through its historical trading spread compared to crude oil. This can be useful for short and intermediate term investing as the spreads between these commodities will more than likely revert back to the mean over long periods of time barring any huge fundamental shift.  The current spread is 17.27:1 in terms of the price of a barrel of crude oil to the price of a Mcfe (thousand cubic feet equivalent) of natural gas.

From 1980 to today, this spread has averaged closer to 8.5:1.  Based on the amount of energy found in each of these units, in this case BTUs (British Thermal Units), crude oil only holds 5.8 times the energy as a unit of natural gas.  This tells us that on a historical basis, natural gas is close to the most undervalued relative to crude oil that it has been over the course of the last three decades.  Obviously the current economic environment has created a depressed market for natural gas to allow investors to take advantage of this tremendous long term opportunity, but there is no guarantee that this opportunity will remain as attractive for any extended period of time.

Even with the overwhelming bullish sentiment from Washington, investors, analysts, and environmentalists, there are still many risks when investing in a company like Energtek.  Firstly, Energtek is a micro-capitalization company that will be more susceptible to market fluctuations based on size alone.  Secondly, the current domestic supply glut of natural gas does not look like it will clear up any time soon based on the storage data that has been reported over the course of the last three months.  Thirdly, the company is still very young and in a developmental stage leaving the risk of failure without successful product innovation and financial prudence.

Before investing I would highly recommend reading through the company’s latest 10-K and two latest 8-K disclosures through the S.E.C.  It is important to note the company’s employee stock based compensation package and the fact that Energtek has yet to turn a profit during any quarter of its operation.  These are two fairly common characteristics of start-up type companies and shouldn’t be very alarming to investors as long as they are duly noted.  Energtek definitely is the type of company that has the wind at its back but it will need to execute on a high level to achieve the success its investors are seeking.

- Charles W. Petredis

Disclosure: None.  This article also appears on Quality Stocks.

Cisco Systems [CSCO: 23.46, -0.22 (-0.93%)] Recent Price $17.04 Value Range 21.86 – $38.41
Cisco Systems, Inc. designs, manufactures and sells Internet protocol (IP)-based networking and other products related to the communications and information technology (IT) industry, and provides services associated with these products and their use. The Company provides a line of products for transporting data, voice, and video within buildings, across campuses, and around the world. Its products are designed to transform how people connect, communicate and collaborate. Cisco Systems, Inc.’s products, which include primarily routers, switches, and products that the Company refers to as its technologies, are installed at enterprises, public institutions, telecommunications companies, commercial businesses and personal residences. In November 2008, the Company acquired Jabber Inc. In January 2009, the Company acquired Richards-Zeta Building Intelligence, Inc

CSG Systems International [CSGS: 16.83, 0.00 (0.00%)] Recent Price $15.47 Value Range $21.39 – $28

CSG Systems International, Inc. (CSG) is a provider of outsourced solutions that facilitate customer interaction management on the behalf of its clients, generating approximately 95% of its revenues during the year ended December 31, 2007, from the North American cable and Direct Broadcast satellite (DBS) communications markets. The Company’s solutions also support a number of other industries, such as financial services, utilities, telecommunications, and home security. CSG’s solutions manage customer interactions, such as set-up and activation of customer accounts, sales support and marketing, order processing, invoice calculation (customer billing), production and mailing of monthly customer invoices, management reporting, electronic presentment and payment of invoices, automated and interactive messaging, and deployment and management of the client’s field technicians to the customer’s home. In May 2008, CSG completed the acquisition of DataProse, Inc.

Forest Laboratories [FRX: 29.57, +0.46 (+1.58%)] Recent Price$26.21 Value Range$51.57 – $64.09

Forest Laboratories, Inc. and its subsidiaries develop, manufacture and sell both branded and generic forms of ethical drug products, which require a physician’s prescription, as well as non-prescription pharmaceutical products sold over the counter. The Company’s products in the United States consist of branded ethical drug specialties marketed directly or detailed to physicians by its sales forces, Forest Pharmaceuticals, Forest Therapeutics, Forest Healthcare, Forest Ethicare and Forest Specialty Sales. Forest Laboratories, Inc.’s products include Lexapro, the Company’s selective serotonin reuptake inhibitor (SSRI) for the treatment of major depression and generalized anxiety disorder (GAD); Namenda, its N-methyl-D-aspartate (NMDA) antagonist for the treatment of moderate to severe Alzheimer’s disease; Bystolic, its novel beta-blocker for the treatment of hypertension, and Campral, for the maintenance of alcohol abstinence.

Robert Half International [RHI: 23.23, -0.11 (-0.47%)] Recent Price $18.22 Value Range $26.27 – $30.14

Robert Half International Inc. provides specialized staffing and risk consulting services through such divisions as Accountemps, Robert Half Finance & Accounting, OfficeTeam, Robert Half Technology, Robert Half Management Resources, Robert Half Legal, The Creative Group and Protiviti. The Company, through its Accountemps, Robert Half Finance & Accounting, and Robert Half Management Resources divisions, is a specialized provider of temporary, full-time project professionals in the fields of accounting and finance. OfficeTeam specializes in skilled temporary administrative support personnel. Robert Half Technology provides information technology professionals. Robert Half Legal provides temporary, project and full-time staffing of attorneys and specialized support personnel within law firms and corporate legal departments. The Creative Group provides project staffing in the advertising, marketing, and Web design fields

Advance Auto Parts [AAP: 39.74, -0.38 (-0.95%)] Recent Price 33.63 Value Range 10.02 – 12.07

Advance Auto Parts, Inc. (Advance) operates within the United States automotive aftermarket industry, which includes replacement parts (excluding tires), accessories, maintenance items, batteries and automotive chemicals for cars and light trucks (pickup trucks, vans, minivans and sport utility vehicles). The Company is a specialty retailer of automotive parts, accessories and maintenance items to do-it-yourself (DIY) and do-it-for-me (DIFM) customers in the United States, based on store count and sales. Advance operates in two business segments: Advance Auto Parts (AAP) and Autopart International (AI). The AAP segment consists of its store operations within the United States, Puerto Rico and the Virgin Islands, which operates under the trade names Advance Auto Parts, Advance Discount Auto Parts and Western Auto. The AI segment consists solely of the operations of Autopart International, which operates as an independent, wholly owned subsidiary.

American Eagle Outfitters [AEO: 14.62, -0.22 (-1.48%)] Recent Price 9.64 Value Range 0.63 – $0.75

American Eagle Outfitters, Inc. is a retailer that operates under the American Eagle Outfitters, aerie by American Eagle and MARTIN + OSA brands. The Company designs, markets and sells its own brand of clothing targeting 15 to 25 year-olds. American Eagle also operates ae.com, which offers additional sizes, colors and styles of AE merchandise and ships to 41 countries worldwide. AE’s original collection includes standards, such as jeans and graphic Ts, as well as essentials like accessories, outerwear, footwear, basics and swimwear under its American Eagle Outfitters, American Eagle and AE brand names. The aerie collection is available in aerie stores, predominantly all American Eagle stores and at aerie.com. The collection includes bras, undies, camis, hoodies, robes, boxers, sweats, leggings, fitness apparel and personal care for the AE girl. MARTIN + OSA is a concept targeting 28 to 40 year-old women and men, which offers refined casual clothing and accessories.

Bed Bath & Beyond [BBBY: 37.24, +0.13 (+0.35%)] Recent Price$24.00 Value Range $ 8.03 – $9.73

Bed Bath & Beyond Inc. and subsidiaries is a chain of retail stores, operating under the names Bed Bath & Beyond (BBB), Christmas Tree Shops (CTS), Harmon and Harmon Face Values (Harmon) and buybuy BABY. The Company sells a range of merchandise principally, including domestics merchandise and home furnishings as well as food, giftware, health and beauty care items and infant and toddler merchandise. In March 2007, the Company acquired buybuy BABY. In May 2008, the Company announced the formation of a joint venture with Home & More, S.A. de C.V., a privately held home products retailer operating in Mexico

Brown-Forman Corporations [[BF-B]] Recent Price $48.18 Value Range $8.17 – $10.28

Brown-Forman Corporation manufactures, bottles, imports, exports and markets a variety of alcoholic beverage brands. Its principal beverage brands are Jack Daniel’s Tennessee Whiskey, Southern Comfort, Finlandia Vodka, Herradura Tequila, Gentleman Jack, Jekel Vineyards Wines, Jack Daniel’s Single Barrel, Jack Daniel’s Ready-to-Drinks, Bel Arbor Wines, Bolla Wines, Bonterra Vineyards Wines, Old Forester Bourbon, Canadian Mist Blended Canadian Whisky, Pepe Lopez Tequilas, Chambord Liqueur, Sanctuary Wines, Don Eduardo Tequila, Sonoma-Cutrer Wines, Early Times Kentucky Whisky, Tuaca Liqueur, el Jimador Tequila, Stellar Gin, Five Rivers Wines and Woodford Reserve Bourbon. The Company’s core brand in its portfolio is Jack Daniel’s, which is a spirits brand and American whiskey brand. Its other brands are Southern Comfort and Canadian Mist. Its largest wine brands are Fetzer, Korbel and Bollab.

CLARCOR [CLC: 32.69, +0.37 (+1.14%)] Recent Price $32.82 Value Range $12.18 -$17.86

CLARCOR Inc. conducts business in three segments: Engine/Mobile Filtration, Industrial/Environmental Filtration and Packaging. The Company’s Engine/Mobile Filtration Segment sells filtration products used on engines and in mobile equipment applications, including trucks, automobiles, buses and locomotives, and marine, construction, industrial, mining and agricultural equipment.. The Company’s Industrial/Environmental Filtration Segment centers on the manufacturing and marketing of filtration products used in industrial and commercial processes and in buildings, and infrastructures of various types. The Company’s consumer and industrial packaging products business is conducted, through a wholly-owned subsidiary, J.L. Clark, Inc. (J.L. Clark). In May 2008, the Company acquired a 30% share in BioProcess H2O LLC (BPT), a Rhode Island-based manufacturer of industrial waste water and water reuse filtration systems. The Company acquired 100% of the Keddeg Company on December 29, 2008

Cree [CREE: 46.77, +0.05 (+0.11%)] Recent Price $21.84 Value Range $4.51 – $6.20

Cree, Inc. develops and manufactures semiconductor materials and devices based on silicon carbide (SiC), gallium nitride (GaN) and related compounds. The Company focuses its expertise in SiC and GaN on light emitting diodes (LEDs), which consist of LED chips, LED components and LED lighting solutions. It also develops power and radio frequency (RF) products, including power switching and RF devices. The majority of Cree, Inc. products are manufactured at its main production facility in Durham, North Carolina, in a six-part process, which includes SiC crystal growth, wafering, polishing, epitaxial deposition, fabrication and testing Additionally, it packages certain LED components and power and RF products at its North Carolina facilities, its facility in Huizhou, China and in other foreign countries through the use of subcontractors. It also operates research and development facilities in Goleta, California and Hong Kong. In February 2008, it acquired LED Lighting Fixtures, Inc.

Edwards Lifesciences [EW: 81.25, +0.12 (+0.15%)] Recent Price $61.10 Value Range $16.74 – $21.24

Edwards Lifesciences Corporation (Edwards Lifesciences) is a global player in products and technologies designed to treat cardiovascular disease. The Company focuses on specific cardiovascular opportunities, including heart valve disease, critical care technologies and peripheral vascular disease. The products and technologies provided by Edwards Lifesciences to treat cardiovascular disease are categorized into five areas: Heart Valve Therapy; Critical Care; Cardiac Surgery Systems; Vascular, and through 2007, Other Distributed Products

Interactive Data Corp [IDC: 26.00, -0.29 (-1.10%)] Recent Price$24.42 Value Range $4.90 – $6.34

Interactive Data Corporation is a global provider of financial market data, analytics and related services to financial institutions, active traders and individual investors. The Company’s customers use its offerings to support their portfolio management and valuation, research and analysis, trading, sales and marketing, and client service activities. It markets and sells its services either by direct subscriptions or through third-party business alliances. Its offerings are developed and delivered to customers through four businesses that consist of its two operating segments: Institutional Services and Active Trader Services. In May 2007, the Company completed the acquisition of the assets comprising the market data division of Xcitek LLC, as well as the market data assets of its affiliate Xcitax LLC. In August 2008, announced the closing of its acquisition of Kler’s Financial Data Service S.r.l. In December 2008, the Company acquired a 79% interest in NTT DATA Financial Corporation

ITT Educational Services [ESI: 92.29, +2.04 (+2.26%)] Recent Price $128.87 Value Range$23.33 – $33.99

ITT Educational Services, Inc. (ITT/ESI) is a provider of postsecondary degree programs in the United States based on revenue and student enrollment. As of December 31, 2007, the Company offered diploma, associate, bachelor and master degree programs to approximately 53,000 students. All of its institutes are authorized by the applicable education authorities of the states, in which they operate and recruit, and are accredited by an accrediting commission recognized by the United States Department of Education (ED). All of its programs were degree programs, except for a few diploma programs offered at six institutes that are being converted to degree programs. As of December 31, 2007, it offered 29 degree programs in various fields schools of study: information technology (IT); electronics technology; drafting and design; business; criminal justice, and health sciences. In October 2008, the Company announced that it has opened its first ITT Technical Institute in Mississippi.

Makita Corporation [MKTAY: 33.38, +0.75 (+2.30%)] Recent Price $22.81 Value Range $1.71 – $2.00

Makita Corporation (Makita), incorporated on December 10, 1938, is principally engaged in manufacturing and sale of a range of power tools for professional users worldwide. Makita’s power tools consist of drills, grinders and sanders and portable woodworking tools, primarily saws and planers. The Company also produces gardening and household products and provides parts, repairs and accessories. During the fiscal year ended March 31, 2008 (fiscal 2008), approximately 85% of Makita’s sales were outside of Japan. The Company specializes in power tools manufacturing and sales, as a single line of business, and conducts its business globally. As of March 31, 2008, Makita had over 100 service depots outside of Japan. As of fiscal 2008, 28 of these service depots were located in the United States, and 19 of these service depots were located in China.

NIKE Incorporated [NKE: 63.92, +0.36 (+0.57%)] Recent Price $48.68 Value Range $15.83 – $21.46

NIKE, Inc. (NIKE) is engaged in the design, development and worldwide marketing of footwear, apparel, equipment, and accessory products. NIKE sells athletic footwear and athletic apparel. It sells its products to retail accounts, through NIKE-owned retail, including stores and Internet sales, and through a mix of independent distributors and licensees, in over 180 countries around the world. Its products include running, training, basketball, soccer, sport-inspired urban shoes, and childrens shoes. It also markets shoes designed for aquatic activities, baseball, bicycling, cheerleading, football, golf, lacrosse, outdoor activities, skateboarding, tennis, volleyball, walking, wrestling, and other athletic and recreational uses. On March 3, 2008, the Company acquired Umbro Ltd. (Umbro). On April 17, 2008, it completed the sale of its Bauer Hockey subsidiary.

Paychex [PAYX: 31.05, +0.10 (+0.32%)] Recent Price $26.93 Value Range$4.55 – $6.26

Paychex, Inc. (Paychex) is a provider of payroll and integrated human resource and employee benefits outsourcing solutions for small to medium-sized businesses in the United States. The Company’s Payroll and Human Resource Services product lines offer a portfolio of products and services that help clients to meet their payroll and human resource needs. Its Payroll services are provided through either its Core Payroll or Major Market Services, and include payroll processing, payroll tax administration services, employee payment services, and other payroll-related services, including regulatory compliance. Paychex’s Human Resource Services primarily include human resource outsourcing services, which include Paychex Premier Human Resources and its Professional Employer Organization; retirement services administration; workers’ compensation insurance services; health and benefits services; time and attendance solutions, and other human resource services and products.

Raytheon [RTN: 50.59, +0.76 (+1.53%)] Recent Price $47.80 Value Range 12.68 – $19.58

Raytheon Company designs, develops, manufactures, integrates, supports and provides a range of technologically advanced products, services and solutions for governmental customers in the United States and worldwide. The Company operates through six business segments: Integrated Defense Systems (IDS), Intelligence and Information Systems (IIS), Missile Systems (MS), Network Centric Systems (NCS), Space and Airborne Systems (SAS) and Technical Services (TS). During the year ended December 31, 2007, the Company completed the sale of Raytheon Aircraft Company (Raytheon Aircraft) and Flight Options LLC (Flight Options), two former operating commercial aviation businesses. In October 2007, the Company acquired Oakley Networks, Inc., a privately held technology company based in Salt Lake City, Utah, which provides cyber security and data leakage prevention systems. In April 2008, the Company acquired SI Government Solutions. In July 2008, the Company acquired Telemus Solutions, Inc

Rockwell Collins [COL: 53.08, +0.74 (+1.41%)] Recent Price $38.90 Value Range $12.94 – $15.93

Rockwell Collins, Inc. (Rockwell Collins) is a player in providing design, production and support of communications and aviation electronics for military and commercial customers worldwide. The Company’s products and systems are primarily focused on aviation applications. Its Government Systems business also offers products and systems for ground and shipboard applications. Rockwell Collins also provides a range of services and support to its customers through its network of service centers worldwide, including equipment repair and overhaul, service parts, field service engineering, training, technical information services and aftermarket used equipment sales. Rockwell Collins operates in multiple countries. Rockwell Collins serves its worldwide customer base through its Commercial Systems and Government Systems business segments. On November 24, 2008, Rockwell Collins acquired SEOS Group Limited. In April 2008, the Company completed the acquisition of Athena Technologies, Inc.

Strayer Education [STRA: 190.00, -2.08 (-1.08%)] Recent Price $222.04 Value Range $15.89 – $23.60

Strayer Education, Inc. is a post-secondary education services corporation. The Company offers academic programs through its wholly owned subsidiary, Strayer University, Inc., both in traditional classroom courses and through Strayer University Online. The Strayer University is an institution of higher learning that offers undergraduate and graduate degree programs in business administration, accounting, information technology, education, and public administration at 47 campuses in Alabama, Delaware, Florida, Georgia, Kentucky, Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia, Washington, D.C., via the Internet through Strayer University Online, providing its working adult students a program offering over the Internet. It also owns Education Loan Processing, Inc. (ELP), which was organized to administer the Company’s student loan portfolio. As of December 31, 2007, the Company had more than 32,087 students enrolled in its programs.

- Ronald Sommer

Disclosure: This article was taken from the website Measured Approach with the permission of the original author.  Please refer to the original author for disclosure information. We hold a position in FRX.

Modelworxx has developed and is manufacturing a diverse line of innovative high-tech running boards for a variety of automobiles, including Audi, KIA, Mercedes, Mitsubishi, Opel, Toyota and Volkswagen. As a leading supplier of customized OE accessories for the global automotive industry, ABT Sportsline GmbH is one of the world’s largest distributors of Volkswagen accessories and performance tuning of Volkswagen vehicles. Under the terms of the agreement, ABT Sportsline will carry the entire Modelworxx product line and also select U.S. -designed and manufactured products for worldwide distribution.

Gerold Haas, chief executive officer of Modelworxx, stated, “We are happy to have formed this agreement for the worldwide distribution of our products through such an established and credible company as ABT. He continued, “In addition to the first products we are currently making available to ABT, we have already developed running boards for the Audi Q7, Hyundai Tucson, KIA Sorento, Opel Antara, Nissan Qashqai, Toyota Rav4 and Volkswagen Tuareg and Tiguan, with additional boards for the Audi Q5 and Mercedes GL to follow soon. All products will be made available through ABT for worldwide distribution. We are looking forward to a mutually beneficial and long-lasting business relationship.”

-Quality Stocks

Disclosure:This article was taken from http://www.qualitystocks.net/ with the permission of the original author.  All disclosure questions should be referred to the original author.

Federal Reserve Bank Credit has increased by $1.2 trillion over the past twelve months. What has increased in the banking system? Excess reserves in the commercial banking system have increased by about $800 billion. Tracing this “stuff” a little further, in round figures, the currency in circulation outside of the banking system has increased about $100 billion over the past year, about $100 billion has gone to foreign central banks in liquidity swaps, so there is another $200 or so in funds that the Fed has pumped into the system that is somewhere in Treasury accounts. But who is counting?

I am still concerned with what the United States banking system is doing with the money that has been pumped into it. The answer is, very little!

Looking at the H.8 release put out by the Federal Reserve System we see that the assets of all commercial banks in the United States has increased by 9.7% from May 2008 to May 2009, an increases of $1.1 trillion.

And what accounts for this increase in bank assets? Well, the cash assets of the banking system has increased a whopping $731 billion or at a year-over-year rate of 236%. This is comparable to the year-over-year increase in excess reserves observed on the H.3 release of the Federal Reserve.

Given my post of last June 15, 2009, “What Aren’t Banks Telling Us?”, (http://seekingalpha.com/article/143276-what-aren-t-banks-telling-us) I was interested in looking a little deeper into this information to see how these excess reserves were distributed within the banking system. Roughly the division is this. The increase in cash assets at large commercial banks was $371billion, at small banks the increase was $143 billion, and at Foreign-related Institutions in the United States, $217 billion. The increase at the larger institutions, the large banks and the foreign-related institutions, was $588 billion.

The reason I am interested in looking into this distribution is the claim made in the above mentioned post that commercial banks had not been fully open with the public on the problems they were still facing. In that post I mentioned three areas of concern: the bad assets now on the books of the banks; the anticipated increase in the bad assets in the upcoming months; and finally, the needs of the banks to be able to fund themselves in the future in the face of liabilities that were maturing and would not be rolled over. The build up in cash assets, it was argued, was a precaution the banks were taking to handle the uncertainty they faced as either asset values fell or a run off of liabilities forced the banks to dispose of assets.

My interpretation of this distribution of cash assets in the banking system is that the larger depository institutions in the United States has stashed up almost $600 billion in preparation for an extremely bad scene. Why do I put this whole amount in this category? Because in the past the WHOLE banking system only kept about $2 billion in excess reserves and the banks we are talking about in this category are the most efficient and sophisticated banks in the world in terms of managing their cash reserves. So, excess reserves have gone from $2 billion in the WHOLE banking system to about $600 billion in the most sophisticated banks in the world!

Just to put this in perspective: $588 billion represents 7% of the total assets of the two groups that are counted in this category, large domestically chartered commercial banks and foreign-related institutions, both in the United States. The question is, can these banks really stand a 7% reduction in their balance sheets through charge offs or a run off of liabilities?

The situation is not so severe for the smaller banks in the report: cash assets totaled only 3.8 % of the total assets at these banks. Still, we are hearing more and more of the problems that the smaller banks are facing. For example, this week information was released that several smaller banks that had received TARP funds were not going to pay the dividend payments owed the government. The health of the smaller banks has been something that has been off the radar screen given all the press that has gone to those banks that are “too big to fail.” We are going to hear more from this sector over the next several months.

The next question has to do with bank lending: are banks doing any lending these days? Year-over-year, loans and leases at all commercial banks increased by a tepid $182 billion or at a 2.6% annual rate.2.6% annual rate. And, where were these increases located? Generally in home equity loans and other residential loans (primarily mortgages). These were pretty evenly spread throughout the banking system.

Bottom line, however, is that the banks aren’t lending! Especially in the areas of commercial and industrial loans and commercial mortgages. Does that tell you something?

What can we take away from this?

The scary conclusion is this: Almost all of the Reserve Bank credit that the Federal Reserve has pumped into the banking system has gone to provide liquidity to the banking system for when the banking system implodes.

Commercial banks are not lending. Yet the banks are sitting on $800 billion of excess reserves. It is almost incomprehensible to me that the commercial banking system is doing nothing with these reserves! Unless…

No one is talking, not from the banking system, not from the Federal Reserve. What else are we to think at this time if we are not given any other information. We just have to think the worst!

-John Mason

Disclosure: This article was taken from Mase: Economics and Finance with the permission of the original author.  All disclosure questions should be referred to the original author.

arket as well as surrounding regions.   This company has proven to be best of breed with a solid fundamental business core, but has great growth potential as its 3G network is still in its initial stage.

Strong Core

China Mobile is truly a monster with a market cap of over $212 billion.  They have dominated their domestic markets controlling roughly 70% market share in mainland China.  China Mobile has the world’s largest mobile network in addition to boasting the largest mobile subscriber base with roughly 415 million subscribers in 2008.  In addition to all the typical phone features that a network offers, CHL also offers Mobile TV, Mobile search, Mobile mailbox, Mobile map, Mobile advertising, and Mobile payment.  China Life boasts a very strong sustainable income, and has dedicated itself to expanding in the future.  They have posted tremendous historical growth numbers, with most major CAGR categories in the mid 20’s.  Their annual revenue growth has been 25.4% per year; total asset growth has been 20.6% per year. Annual E.P.S. growth has been 27.2% per year with an equity growth of 22.0% per year.  While it may not be possible for China Mobile to continue posting these types of numbers, they still have projections in the upper teens in its outlook.  CHL is able to obtain these strong numbers due to their dedication to always improving existing markets and vast growth opportunities.

Potential Growth

It is extremely difficult to find a telecom company, or any company for that matter that have this large of market share already, and yet are capable of such growth. Usually when you see a company that has strength in size, you see a large company that holds a ton of cash and has little upside.  These types of companies will lag the markets, but not CHL.  They have dedicated themselves to 3G growth and reducing weaknesses through acquisitions.

There 3G market is relatively young due to the fact that they are just received their license from the government to use and expand the 3G network in early ‘09.  They have their own TD-SCMA 3G standard, and it is currently being tested so it can be broadly implemented soon.  Their plan is to have this capability in 238 cities by the end of  ‘09.Currently, only 720 million people are 3G subscribers, but by 2013, that number is expected to grow by 29% annually to 2.5 billion 3G subscribers, 1 billion of which in Asia.   CHL is also ready to launch its new smart phones as they have recently signed a $311 million contract with a local manufacturer ZTE.  There is even a rumor that China Mobile will launch its new Android-based smartphone, the Ophone, in the 4th quarter of 2009.  On top of this, in April CHL joined into an alliance with Softbank and Vodafone to create an innovations lab that will provide further technology boost in both mobile technologies and applications.  This gives them a huge competitive advantage in the area of mobile Internet, an area which they want to expand.

Also, the areas of weakness are both their rural untapped markets and their lack of broadband market.   They have had a fantastic history of growing through mergers, as this is how they obtained such a global presence. They have made dozens of mergers since 2000 grabbing many regional networks. While CHL claims the largest wireless subscriber base of 415 million subscribers as of 2008, more than the US population; the market penetration in China is still only 50%.  This massive national population gives great growth potential, especially now as the Chinese government is investing roughly $41 billion in a stimulus plan to expand into rural areas and increase the 3G network.  CHL also had gained international exposure in 2007 when it acquired an 88.86% stake in Paktel, a Pakistan mobile telecommunications provider.   Recently this broadband industry hit 20 billion and I could envision CHL gaining exposure to this large industry through a key acquisition.

Looking Forward

While it cannot be ignored that Verizon is a very solid company with a strong dividends and is exposing itself to unique market, they may hit a tough spot in finding new business.  They are also focused on beating direct competitor AT&T domestically, rather than worrying about foreign markets.  Meanwhile, China Mobile has focused on spreading its influence because of its seemingly endless market potential.  The Chinese mobile market has room to grow in one of the world’s most booming economies and this company has a promising future.  Investors still have time to enter into this international sector with strong macro trends; if you’re trying to expand your portfolio to both international and telecom exposure, then it’s a simple and smart choice.

-Joe Gallo

Disclosure: The mutual fund the author is associated with is long VZ.

I’m sure quite a few eyes rolled when reading the title of this article. “Green Shoot” has been thrown around the financial media incessantly over the past few months, to the dismay of many. The thought that a new menu item at McDonald’s [MCD: 63.97, +0.56 (+0.88%)] is a glimmer of hope for the economy is, admittedly, a little preposterous. While I don’t believe the the 1/3 pound premium sandwich signals a recovery, it does say something about the future of consumer spending. If there is one company that knows a little something about the everyday consumer, it is McDonald’s.

Now, the most obvious argument against the idea of using this big burger as an economic indicator will be brought up by anyone that saw the CNBC special on Mickey D’s back in July or 2007, entitled Big Mac: Inside the McDonald’s Empire. While focusing on McDonald’s menu R&D efforts, the program touched on a new premium offering they are closing in on: the Angus Third Pounder. This would leave some to assume the Golden Arches are only coming out with a new premium item because they made the decision to start developing it way before the meltdown of the markets, and concurrent meltdown of consumer spending. While it is true the ‘chefs’ at McDonald’s began working on the burger before the recession, they had complete control as to when to release it. While they were still hammering out some kinks, namely concerning their suppliers, the impression was that the sandwich was near completion. That fact that they chose not to release the new menu item throughout 2008, and even through Q1 2009 is very telling.

Does it mean the executives at McDonald’s think the recession is over? I don’t believe so. As the economic tumult, or at least the public’s perception of it, was at its worst, people were cutting back on everything. Within whatever store or restaraunt they would patronize, they would gravitate toward the least expensive option. This was not so much out of neccesity, but out of a feeling that they should be cutting back in every part of life. This makes sense when looking at McDonald’s release of the McDouble several months ago, which is essentially a cheaper version of the double cheese burger (double the meat, not the double the cheese.) Even within an extremely cheap establishment such as McDonald’s, consumers wanted the lowest possible prices. If McDonald’s simply increased the price of a double cheeseburger without finding a still-cheap (although many would consider $1.19 to still be cheap) alternative, McDonald’s appeal would most likely suffer, at least to some extent.

Going forward, it is my view, and I believe the view of McDonald’s management’s, that a long-term trend is developing in a world of deleveraging consumers: Luxury within frugality. This means choosing McDonald’s over Panera Bread, but ’splurging’ therein. In this case, shelling out $4 for a ‘high-quality’ burger. Of course some customers will still choose the cheaper options, but McDonald’s is making sure to capture a key sub-demographic – one that is seeking some middle-ground amidst the new Penny-Pincher Era.

-Harry Lacheen

Disclosure: The Fund the author is associated with is long MCD.

H&R Block [HRB: 20.38, -0.02 (-0.10%)] released earnings yesterday, reporting a profit of $706.9 million, or $2.09 per share, better then the earnings of $543.6 million, or $1.66 per share, released the same period the year before.  H&R Block missed on revenue, reporting that revenue fell 2.9% to $2.47 billion as opposed to the average analyst estimate of $2.52 billion, H&R Block however did beat earnings estimate of $2.05 per share.  The company’s tax unit was hurt as it saw a weak tax season, with revenues falling 3.2% in tax service revenue.  The company has noticed this fall in revenue, and as a result H&R Block’s CEO Russ Smyth said that it would be combining its tax and corporate structures into one unit in an effort to cut costs.  This is another move by H&R to cut down its management structure to make the company more efficient.  These actions follow its recent elimination of its brokerage and loan services.  H&R Block expects to see fiscal 2010 earnings between $1.60 and $1.80 per share, with the street estimating earnings of $1.66 per share.

In health care news, a federal jury in Texas ordered Abbot Laboratories [ABT: 53.64, +0.68 (+1.28%)] to pay rival Johnson & Johnson [JNJ: 62.31, +0.37 (+0.60%)] $1.67 billion for patent infringement on J&J’s arthritis drug, Remicade, which was infringed upon with Abbot’s Humira.  Humira is Abbot’s leading drug and accounts for $4.5 billion in revenue last year, or 15% of total revenue.  Johnson & Johnson was thrilled with the news and were happy that the court recognized its intellectual property with its arthritis drug.  Abbot said that they are disappointed with the verdict and are going to appeal the findings of the jury.  Abbot has seen great success recently, with a good part being attributed to Humira, it will be interesting to see how Abbot will handle and move on from this.

The Conference Board announced that its index of consumer confidence in June fell to 49.3 from May’s 54.8.  This is bad news, especially as economists believe that confidence below 50 following a month when it was above 50, indicating economic growth, changes the general feeling that the economy was starting to bottom out.  This is bad news as consumer spending is tied to consumer confidence and with these poor numbers this could severely affect GDP, as spending accounts for about 66% of GDP.  Economist and investors alike are looking for consistent economic data to indicate if the market is bottoming or not, and they have been presented with data that is mixed and therefore makes it hard to tell.

Check back tomorrow to Bullish Bankers for another market recap.

- Matt Shannon

Disclosure: The fund the author is associated with is long ABT and JNJ.

Unfortunately we are not yet in the clear.  The yield on the 10-Year Treasury Note increased 60 basis points during the one-month period from May 12 to June 12.  Oil prices rose 23% over the same period.  Keynesian economists argue that interest rates and oil prices are higher due to the expectations of economic recovery.  While the recovery may partially explain the increase in these prices, it doesn’t explain all of it.  The Treasury continues to auction billions of dollars, and auction demand has been less than great.  The rate on the 10-year recently skyrocketed to 4.00%.  Many economists are also predicting significant long-term inflation.  They point to the Federal Reserve’s policy of buying over $1.5 trillion of mortgage backed securities and US Treasuries, thus increasing the money supply.  They also fear monetization of the ever increasing national debt due to the exploding federal budget and the $787 billion stimulus package.

These fears are causing significant problems, especially in the housing market.  Without a recovery in the housing market, things aren’t likely to improve anytime soon.  Housing prices are the key to economic recovery.  Higher home prices will relieve the number of homeowners currently underwater on their mortgages, thus reducing the risk of them simply walking away.  Higher home prices also improve consumer sentiment, since more equity in their homes provides consumers with a sense of security.  This would result in both an increase in home equity loans and in personal spending.

But since mortgage rates are closely correlated with the 10-Year T-Note, the sudden jump in rates is threatening the economic recovery.  The 30-year fixed-rate mortgage rate increased 81 bps from 4.78% on April 30 to 5.59% on June 12.  Mortgage applications have been falling significantly, and it isn’t difficult to see why.  81bps adds $100 a month to a $200,000 mortgage.  $100 per month could be the difference between keeping your home and losing it to foreclosure.  If rates continue to climb, foreclosure activity will only get worse.

Higher rates will also force out first time homebuyers, causing downward pressure on home prices.  Though enticed with an $8,000 tax credit, higher monthly payments may cause them to rethink their decisions, and higher debt-to-income ratios may make it harder for them to get financing.  Combine this with continued housing starts, and you have a housing glut, thus driving down home prices further.

At this point, the Federal Reserve and federal government can’t do much to lower mortgage rates.  If the Fed purchases more securities, the inflation screams will only get louder.  If the federal government spends more money, more investors will fear the government’s ability to repay its debt.  The President talks about the importance of balancing the budget, so let’s see him put his money where his mouth is.

- Nick Klein

Disclosure: None.

Breaking Ties

On March 16th, CSCO unveiled its two-year secret project: the Unified Computing System (UCS).  This new blade server capitalizes on two key trends in IT that deliver more for less:  virtualization and cloud computing.  The UCS harnesses the power of virtualization through combining computing, networking and data storing into a single energy efficient system that can power web-based apps of cloud computing.  With this courageous move, CSCO has chosen to sever the ties with longtime partners like IBM [IBM: 126.96, -0.58 (-0.45%)], Hewlett-Packard [HPQ: 50.04, +0.22 (+0.44%)] and Dell [DELL: 14.29, -1.58 (-9.96%)] in order to compete in the server market.  This trio sells (or DID sell) billions in Cisco gear each year as they helped tech companies build out its IT infrastructure; IBM alone accounts for $3 billion (per analysts’ estimates). 

HP’s relationship with CSCO began to crumble when CEO Mark Hurd began aggressively pushing the ProCurve segment that makes LAN, WAN and wireless gear for powering networks.  However, the Big Blue relationship first went sour when CSCO stole Internet conferencing company Webex Communications right from IBM’s hands in 2007.  This acquisition has been resilient in this recession as companies cut traveling expenses and adopt CSCO’s Telepresence resulting in y-o-y growth of 70% in orders and 130% in revenues.  The UCS debut has recently led IBM to jump ship to Juniper Networks [JNPR: 25.20, -0.09 (-0.36%)] for possible future partnerships to resell JNPR’s equipment as part of its family of products.

New Markets

Cisco CEO John Chambers told BusinessWeek’s Aaron Ricadela that the company will likely be in 50 fresh markets within a year, mainly in adjacent markets to its core business so it can integrate its diverse product offerings. 

“We’re moving into new [areas] with a speed nobody has ever attempted,” Cisco CEO John Chambers stated.

This includes in-house developments like the UCS, but also acquisitions such as Flip video recorder maker Pure Digital.  In addition to its Linksys offerings and TV set-top boxes, Flip will help Cisco further penetrate the $50 billion global market for consumer electronics.  They also bought out Tidal Software as an easy tuck-in company to enhance its data center business.  Furthermore, CSCO has made a push into the energy business by offering smart grid solutions that take advantage of secure IP-infrastructure to reduce energy storage, transmission and distribution costs for a more sustainable environment.  Cisco has struck an “alliance” to provide Clearwire’s wireless IP infrastructure along with plans to build new mobile WiMax supporting devices.  The Silicon Valley company has also made moves in virtual healthcare, sports and entertainment (with its StadiumVision) and much more.

Cisco CEO John Chambers

With $33 billion in its wallet, second in the S&P 500 to Exxon Mobil [XOM: 74.38, -0.27 (-0.36%)], Cisco is gearing up for acqusitions.  This comes as no surprise as CSCO has acquired 175 business since 1993.  However, of the $33 billion in cash, the majority of it (approximately $26 billion) remains offshore and deferred from income taxes indefinitely until the profits are repatriated.  The Obama Administration aims to change this rule (or loophole).  Even with that controversy, Cisco still stands strong in the M&A world:

“First, the exciting part about today’s market is just about everybody’s for sale. And the second most exciting part is the prices are pretty reasonable.  In fact, if I were betting, it would not surprise me to see us move on the consumer side before you see us even move on some of the other areas,” exclaimed Chambers in the January 2009 conference call.

Despite its already large cash position, Cisco easily raised $4 billion in debt on Feb 9th, 2009, further substantiating the fact that Cisco is on the acquisition prowl.  Companies rumored to be in the crosshairs are EMC Corporation [EMC: 17.04, -0.13 (-0.76%)], virtualization software company VMWare [VMW: 40.96, -0.79 (-1.89%)], Red Hat [RHT: 27.09, -0.78 (-2.80%)], NetApp [NTAP: 30.44, -0.39 (-1.26%)] and BMC Software [BMC: 38.65, -0.03 (-0.08%)].

Conclusion

Despite recent economic indicators beating estimates, the economy is still contracting, albeit at a slower rate than before.  This has indicated signs of stabilization in the near future but the jury is still out on just when that will be.  Even after the recent market rally, P/E ratios are still relatively low historically speaking; cheap valuations are still present as market consolidation continues to occur.  Cisco has the fundamentals, management and courage to innovate to survive this cyclical downturn.  With $33 billion in its pocket, Cisco will be making acquisitions, buying back stock or pouring it into R&D.  All this boils down to one thing: maximizing shareholder value.  I believe CSCO is a great buy at current levels and so does the Dow Jones Industrial Average. 

- Jake Kimble

Disclosure:  The fund the author is associated with is long CSCO and IBM.

Now, we are seeing the other side of the bailout business. In the AIG [AIG: 35.10, -0.56 (-1.57%)] case executives and others were angry because the government interfered with bonuses and other executive decisions. And, we have the government putting lids on executive pay. And, we have government wanting to rewrite mortgages, and cap interest rates on credit card debt, and so on and so on.

This is the other side of the coin.

And, now we learn from testimony given by Ken Lewis, the CEO of Bank of America [BAC: 16.09, +0.01 (+0.06%)], that Hank Paulson and Ben Bernanke put a “sock” in his mouth and strongly advised him that he say nothing to the shareholders or anybody else about the implications of the merger between Bank of America and Merrill Lynch.

Furthermore, we hear from New York’s Attorney General Cuomo that Paulson threatened to fire Lewis and remove the entire Board of Directors it Bank of America did not go through with the merger with Merrill Lynch! The reward—money from the Government to help BOA through the process.

The shareholders? Well, they lost on the value of their stock. And, they also will have higher taxes or an inflation tax that they will have to pay in the future.

In addition, why should any company, financial or non-financial even think of an acquisition in the future because the government may force the management to swallow hard, take on something that is not necessarily desirable for the company, and, of course, not inform investors as to the implications of the merger transaction?

And, why should the stockholders of any company approve any acquisition that is at all questionable? The precedent has been set that they might be approving something that will cost them considerable wealth as the stock of their company tanks, and they are given no information to give them any confidence that the transaction might be a worthy one.

What if the shareholders balk? What if they fail to approve such a merger? Will the government step in and force through the merger anyway?

Talk about a mess!

Two thoughts come to mind that I must express.

First, the combination of Paulson and Bernanke was a disaster as far as I can see. I have written about how Bernanke seemed to panic last fall and the result was the TARP. (See my post “The Bailout Plan: Did Bernanke Panic”, http://seekingalpha.com/article/106186-the-bailout-plan-did-bernanke-panic.)

Paulson didn’t do much better in his handling of the crisis and the creation and oversight of the TARP. I always thought that Paulson found the whole bailout idea not to his taste and had hoped that he would be able to get out of Washington before the collapse. Unfortunately for him—and for us—he didn’t make it. As a consequence here was a man doing something that he despised, and his heart, and mind, was really not in the effort. He has left us a very unhappy legacy!

When I reflect on the events of the last fall I keep coming up with the feeling that we would be hard pressed to have found two people less capable of handling the situation than the two that were then in charge. And, then there was the “Decider”, but he was AWOL!

The second thing has to do with the fact that the bankers, and other business leaders, are getting pelted with all the blame for the financial collapse and crisis that we have experienced. Thus we have the “bad guys” in our sights. Thus, they should pay.

But, what if the conditions that existed were created by the government and these bankers and other business leaders were just responding to the incentives initiated by the government? We had a credit bubble connected with the stock market in the 1990s. The credit bubble resulted in negative real rates of interest and consumers stopped saving. The saving rate fell from 7.7% of disposable income in 1992 to about 2.0% by the end of the decade. Then there was the huge deficits that resulted from the 2001 tax cuts and the “war on terror”. This was accompanied by negative real interest rates gain which resulted in the credit bubble in the 2000s and the housing boom. The consumer savings rate remained around two or below, even becoming negative for a short period of time.

The foreign exchange market in the 2000s indicated a fear of a renewal of inflation as the value of the dollar fell by more than 40% against major currencies. What were financial managers to do in such an environment? Generally, because spreads narrow in such times and arbitrage opportunities are based on smaller differences, you tend to leverage up and mismatch maturities. This response is a normal one to gain the needed returns on equity to keep money from leaving your fund or institution.

Is this greed? Yes, but it is also just the natural response of competitive people to the incentives that are created, in this case, by the government. The Bush 43 administration may have been composed of “Free Market Capitalists” but this “gang that couldn’t shoot straight” did more to harm capitalism than most other administrations in the history of the United States.

So, government gets it both ways. It can create the crisis. And, then it can impose itself on the economy to right the system after the crisis occurs. And, best of all, the blame can all be put on “greedy” bankers and the lack of regulation.

I am sure that before this is over we will hear many more horror stories.

- John Mason

Disclosure: This article was taken from Mase: Economics and Finance with the permission of the original author.  All disclosure questions should be refferred to the original author.