There is a tremendous divide right now between the alarmist Bush administration rhetoric and economic reality. Not unlike their reactive approach to Iraq, Paulson has come out guns a blazin’ and a huntin’ for the evil doers that he can blame for this mess. “Heli-Ben” has his back and is right there willing to drop free moneys from the skies even though the last thing you should be giving to American junkies is more cheap money to borrow. It’s time to take a deep breath. Look at the charts and do the math. GDP in the USA for Q4 is going to be flat to negative, while inflation is going to be up. That’s called stagflation, and you need to raise rates (or stop cutting them) in order to stop it.
While Keith was giving me the gears this morning and last night when I mentioned airlines as a potential long, like any Portfolio Manager with a process should, and we are not there yet, the chart below does depict an interesting story. In the last few months, the historical inverse correlation between airline stocks and jet fuel has broken down. For many airlines jet fuel is currently ~40% of sales versus 20 – 25% a year ago, if oil, and thus jet fuel, stay at or below currently levels, the y-o-y cost comparisons all of sudden start to look very interesting.
Daryl G. Jones
Daily Trading Ranges
20 Proprietary Risk Ranges
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HSY is seeing improvements in volumes in the core brands it has increased advertising behind. Hershey’s Milk, Kit-Kat, Reese’s, Twizzlers were all up mid single digits. Refreshment, snacks and the Kisses brand are still all underperforming.
In FDM, ex convenience, market share was flat for the quarter. In the last 4 weeks (first month of 4Q), HSY gained share in the c-store category for the first time in 2 years. Management attributes these improved share trends to HSY’s increased retail coverage efforts.
HSY is seeing some slowdown in the overall premium chocolate category, but the company has little exposure so although it is bad for the category, it is somewhat of a positive for HSY’s overall core brands.
This week’s jobless # came in at 461,000. This was lower than last week’s print of 477,000. Remember, everything in our economic model that matters occurs on the margin. If next week’s jobless report comes in better yet again, I am bullish on the October employment report. Yes, bullish, as in it will be better than market expectations which are ostensibly deteriorating by the minute.
All the while, the intermediate “Trend” will remain bearish. See the chart below – what a difference a year makes.
Mr. Biglari’s intentions are still widely unknown. Based on the prospectus, following the offer, WEST “intends to evaluate its investment in the Jack in the Box common stock on a continual basis and may, from time to time, communicate with Jack in the Box management, members of Jack in the Box’s board of directors and other stockholders of Jack in the Box. Following the consummation of the offer, Western may, from time to time, acquire additional shares of Jack in the Box common stock, dispose of shares of Jack in the Box common stock or formulate other purposes, plans or proposals regarding Jack in the Box or the Jack in the Box common stock, to the extent deemed advisable in light of its general investment policies, market conditions or other factors… Except as indicated in this prospectus, neither Western nor any of Western’s subsidiaries or affiliates has any current plans or proposals which relate to or would result in (1) any extraordinary transaction, such as a merger, reorganization or liquidation of Jack in the Box or any of its subsidiaries, (2) any purchase, sale or transfer of a material amount of assets of Jack in the Box or any of its subsidiaries, (3) any material change in the present dividend rate or policy, or indebtedness or capitalization of Jack in the Box or any of its subsidiaries, (4) any change in the current board of directors or management of Jack in the Box, (5) any other material change in Jack in the Box’s corporate structure or business, (6) any class of equity security of Jack in the Box ceasing to be authorized to be quoted in an automated quotation system operated by a national securities association or (7) any class of equity securities of Jack in the Box becoming eligible for termination of registration under the Exchange Act.”
To be clear, WEST is an illiquid, holding company with no real brands. Its revenues have declined for the last 3.5 years, resulting in a net loss of $0.13 per share in FY07 and a net loss of $2.14 in the 6 months ended June 30. JBX, on the other hand, has experienced revenue growth over the same timeframe (and longer), leading to increased operating income growth (growth only slowed 0.3% in the forty weeks ended July 6).
On October 3, the last full trading day before WEST announced its intention to commence this offer, the closing price of WEST was $14.10 and the closing price of JBX $19.37. Based on these closing prices and the exchange ratio in the offer, the WEST offer had a value of $22.66 per share of JBX, which represented a 17% premium over JBX’s $19.37 closing price.
Since then, however, WEST’s stock price has declined rather significantly and closed on October 14 (the last full trading day before date of the prospectus) at $10.50 relative to JBX’s $18.49 closing price. Based on these more current prices, the WEST offer has a value of $16.87, which represents an 8.7% discount to JBX’s price. If JBX shareholders really wanted to own WEST at those prices, which I would be hard-pressed to understand, they would be better off selling their shares on the open market for $18.49 and buying 1.8 shares of WEST on the open market versus the offer of 1.607 shares. My guess is that no shares will be tendered.
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