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"Hedgie" Fugitives: Trend or Trade?

Former hedge fund fraudster, Sam Isreal III, got caught by the transparency flashlight while he was in the garbage can, and now he's on the run. This is so embarrassing that I can't spend any more time writing about him.

Andrew Sorkin at the New York Times did a solid job outlining the Bayou blow up man's travails.

I will stop here, and show you his picture in case you come across his mug.
KM

(AP Photo/Adam Rountree)

US Dollar Update: We Got Lucky Again!

Page 1 stories in the Wall Street Journal definitely help, and we got that today, with some dampening of expectations that the Fed will hike rates at next week's FOMC meeting. Managing a $14 Trillion Economy is not a video game. Larry Kudlow and Vince Farrell are older men... they should know better than to get all the bulls in a heat like they did last week.

The US$ Index is seeing selling again today. I won't recap the time stamps of my notes late last week to keep a trade a trade, but they are on the board under the Currencies tab on the right nav of the portal.

The US Federal Reserve is so confused at this point that the only solution is a flat to down US stock market. This is Wall Street, where confusion breeds contempt.
KM

(picture: http://www.atlanticfreepress.com/images/stories/jasonmiller/kudlow.png)

The Man "Down Under" Has This Right!

Reserve Bank of Australia head, Glenn Stevens, was making comments today that implied rhetorically that he might be done raising interest rates. Aussi stocks acted great, in reaction to his subtle shift.

The Aussi's, unlike our fire engine chasing Fed here in the US, have nailed the economic call this year. They've already raised rates to 12 year highs at 7.25% in order to proactively fight what they objectively observed as an inflation tempest coming, and they did not pander to political populism.

Interestingly, Stevens agrees with me on the his growth outlook, and is hinting that he is done raising rates as a result of the oncoming growth slowdown.

Meanwhile the latest Fed lackey, Richmond's President Lacker, is talking about "downside risks to the US economy diminishing."??

The only thing diminishing is the US Federal Reserve's credibility in being able to proactively forecast anything other than what Washington and Wall Street are going to beg for next.

*Full Disclosure: I am long Australia via the EWA etf.
KM

(picture: http://www.abc.net.au/news/photos/2008/04/04/2208219.htm)

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Penney's Posting on Food Prices ...

My Partner, Howard Penney, just put up one of the more impactful pieces of incremental research we have learned this week (click on his name on the right panel).

Yes, corn prices have gone parabolic. But, the point here is a significant one in that they could actually go a lot higher if the largest player in the market is even half right.

Definitely worth your time to read the posting.
KM

EYE ON CORN - $10 Corn could be a reality!

A large privately held company, who's business activities include purchasing, processing, and distributing grain and other agricultural commodities declared "force majeure" for all corn products across the country due to an act of nature i.e.: flooding.

It is likely that other companies may do the same, but remains to be seen
What does this mean?
Numerous companies that rely on corn products [Coca-Cola (corn starch for soda), Proctor and Gamble (Pringles), Sara Lee etc.] will not be receiving their corn quota.

Because corn-products are abundant in so many product lines, there will be an overlying affect on much of the agro market

Corn prices which are now at the seven dollar mark will shoot up to $9 within the next 2 weeks and we could possibly see $13

All dairy products will climb in price due to the rising costs of food for livestock
Ethanol continues to dwindle corn supply
Iowa alone has lost millions of acres of corn
It is unlikely farmers will meet the short 1-2 week corn planting deadline- June 20th
Farmers are beginning to use more orange peels and other pectin sources for feed
Pectin prices have thus shot up which has had an effect on jelly and jams etc.

HSY - No Longer Milking the Business

Although HSY's stock fell 6.4% yesterday in response to Chairman of the Hershey Trust Leroy Zimmerman's comments in the Patriot-News, which quieted rumors about HSY being up for sale, the Hershey Company's announcement today outlining its new long-term growth initiatives signals that the company is on the path to rightsizing its business model on its own.
  • HSY has been milking its business for some time now by underinvesting in the business and lowering its advertising spend in an effort to keep margins stable and to meet Wall Street's earnings expectations. In doing so, the company has inevitably experienced an extended period of market share declines. In 2007, this lower level of advertising was proven not enough to protect margins from the slowing top-line growth, resulting in operating income margins that have fallen off of a cliff, down over 500 bps in each of the last 4 quarters.
  • Today, the company announced that it will increase its total advertising spending by at least 20% in both 2008 and 2009 with a focus on its core brands, which make up 60% of total U.S. sales. This increased spending will further pressure margins so they could get worse before they get better, but it should help drive sales momentum and is necessary to the long-term sustainability of the business model and more importantly, the Hershey brand.
  • The Hershey brand is by no means broken. Even in light of recent share declines, Hershey is the market leader of confections, which is the largest segment of the U.S. snack market and holds the number one position in chocolate as well with a 43% share of the market. That being said, in the past, the company failed to maintain its focus on its core brands. During its investor presentation today, CEO David West acknowledged that the company overestimated [its] ability to leverage [its] confectionery scale into adjacent categories and as such, the initial success of snacks was not sustainable. This diverted key resources both financial and human, away from [its] core at a time when others were ramping up. Going forward, the company plans to focus on its core brands by not only increasing its advertising spending, but by also taking a more targeted approach. Management said it will no longer push variety into the market. We'll optimize our portfolio brands against the biggest opportunities that maximize incrementally. The company also stated its continued focus on improving its cost structure by executing on its previously announced global supply chain transformation program. Despite these cost savings, management is expecting 2009 to be another tough year from a commodity cost standpoint but still reaffirmed its commitment to investing in the brand, saying We'll do this in spite of increasing commodity costs as it is the right thing to do for the long-term health of our business. The company is now managing for the long term, rather than managing expectations...a definite step in the right direction!

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