Stock Market News & Stocks to Watch from StraightStocks » Plastics

Eastman Boosts Guidance – Analyst Blog

Zacks Market Commentaries — Wed, 18 Nov 2009 18:11:54 +0000

Eastman Chemical Co. (EMN) has raised its full year 2009 earnings guidance to $3.50 per share from the initial guidance of $2 to $3 per share, driven by an expected strong growth in its core business. The company is hoping to deliver about 20% or over $6 per share growth in annual earnings by 2012, as the economy recovers completely.

The Zacks Consensus Estimate is pegged at $3.22 for 2009 and at 93 cents for the fourth quarter. Recently, Eastman’s close peers, Dow Chemical Company (DOW) and Dupont (DD) have also predicted strong growth in earnings.

Eastman stands to benefit from its business restructuring and cost-cutting measures, which are expected to result in cost savings of more than $200 million for the full year 2009. Eastman’s earnings of $1.38 per share in the third quarter of 2009 had bettered the Zacks Consensus Estimate of $1.13 per share helped by lower costs.

The company managed margins by reducing its operating costs. However, lower selling prices and volumes across all major segments resulted in a 21% year-over-year fall in Eastman’s top line of $1.3 billion for the quarter. Eastman’s core businesses, including Coatings, Adhesives, Specialty Polymers and Inks, Fibers, Performance Chemicals and Intermediates as well as Specialty Plastics suffered on weak demand from the automotive, building and construction, and packaging markets.

Tennessee-based Eastman, which makes chemicals, plastics and fibers used in everything from paints to furniture, expects to benefit from a better product mix and cost reduction measures in the fourth quarter of 2009. However, the company expects volatility in raw material and energy costs and a decline in sales volume due to normal seasonality having a negative affect on the upcoming quarter.

Eastman expects the growth in earnings investments in sustainable products and emerging markets. The company is eyeing the cigarettes market, which is witnessing high growth on the back of strong demand from Russia and China. Strong demand for cigarettes will help earnings in the company's fibers unit, which also produces base materials for clothing. Eastman produces acetate tow, used to make filters for cigarettes. In the Performance Polymer segment, Eastman is expecting operating earnings of $25 to $50 million by monetizing IntegRex technology investment through licensing.

This apart, Eastman has about $117 million remaining on a share repurchase allocation, and intends to use that up in the next few years. Eastman is more open now to acquisitions or joint ventures than it had previously been, due in part to a new growth strategy. The company recently launched a $250 million note offering for fund growth projects.
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Cereplast, Inc. (CERP.OB) Projects Bio-Plastics to Capture 30% of U.S. Market, Topping $10B by 2020

QualityStocks — Wed, 11 Nov 2009 16:31:22 +0000

Cereplast, Inc., a pioneer in the manufacture of plastics which derive largely from resins based on plant starches, released news announcing projections for its market sector. Expecting a ten-fold sales increase in the U.S. bio-plastics market by 2020, the Company cited the $1B sales figures from 2007 and estimates which show that, within ten years, [...]

DrStockPick.com Stock Report! 10/15/09, CAG, PWRM, ZLUS, GOVX, MBLX, AET

Dr. Stock Pick — Thu, 15 Oct 2009 19:41:40 +0000

Dr Stock Pick HOT News & Alerts! _______________________________________ FREE Daily Stock Alerts From DrStockPick.com _______________________________________ Thursday October 15, 2009 DrStockPick.com Stock Report! ************************************************************** Power3 Medical Products, Inc. (OTCBB: PWRM), a leader in neurodegenerative disease and cancer biomarkers and diagnostic tests, announces further international recognition of validity as the company’s President and CSO, Dr. Ira Goldknopf, will deliver an [...]

Lubrizol Corporation – Value – Zacks Rank Buy

Tracey Ryniec — Tue, 13 Oct 2009 05:00:00 +0000

The Lubrizol Corporation (LZ) has seen its stock hitting 52-week highs in recent sessions, but it's still an attractive value stock as earnings have been rising. LZ has a forward P/E of just 11.33.

Company Description

Lubrizol manufactures specialty chemcials including lubricant additives for engine oils and fuel additives for gaoline and diesel fuel. It also makes ingredients and additives for personal care products and pharmaceuticals, plastics technology and performance coatings.

Raised 2009 Guidance on Sep 14

Lubrizol raised full-year guidance well-ahead of its Oct 29 third-quarter earnings report to the range of $6.10 to $6.40 from a prior range of $5.70 to $6.00 per share it issued on July 30.

Analysts are bullish and have been raising estimates as the earnings date approaches.

All 7 covering analysts raised 2009 estimates to $6.35 from $5.96 in the last 30 days. For the third quarter, the Zacks Consensus Estimate has jumped 7 cents in the last week as 2 out of 7 analysts have raised in that time period.

The surprise history for Lubrizol is somewhat misleading as it shows them meeting estimates in the second quarter when, in fact, the company pre-announced far better than expected earnings for the quarter which gave the analysts time to raise their estimates to meet the number.

In the second quarter results, the company still saw year over year volume declines but quarter over quarter both revenues and volumes increased. Analysts are betting that that trend continues into the third quarter.

Value Fundamentals

Lubrizol is a Zacks #1 Rank (strong buy) stock. It has a price-to-book ratio of 2.74. The company has a stellar 5-year average return on equity (ROE) of 18.88%. As an added bonus, Lubrizol also pays a dividend with a yield of 2.00%.

The 1-Year Chart:

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Sunoco Idles Refinery, Cuts Dividend – Analyst Blog

Zacks Market Commentaries — Wed, 07 Oct 2009 14:51:47 +0000

Yesterday, oil refiner and marketer Sunoco Inc. (SUN) announced certain strategic actions to improve the company’s performance and competitiveness in a cost-effective manner, as it struggles to cope with the bearish refining margin environment.

Sunoco said that it would indefinitely idle a New Jersey refinery, furlough 400 workers and cut its dividend in half. The company hopes that these measures will save $320 million annually, though this would also lead to $475–$550 million in largely non-cash financial charges over the next few quarters.

Sunoco has decided to shut down its 145,000 barrels-per-day Eagle Point refinery in Westville, NJ, until market conditions improve. In the meantime, the company will shift production from Eagle Point to its refineries in Philadelphia and Marcus Hook, PA, and may use the idled refinery to produce alternative fuels. The Philadelphia and Marcus Hook facilities will up their utilization rates to make up for the Eagle Point closure.

Sunoco, the second-largest U.S. independent oil refiner by volume after Valero Energy Corp. (VLO), will furlough all 400 workers at the facility but they will have the option to resume work in case production resumes. The company will continue with refined product storage and handling operations at Eagle Point.

Sunoco also declared that its Board of Directors has authorized a plan for a 50% reduction in its quarterly dividend to 15 cents per share (60 cents per share annualized), effective from the first quarter of 2010. This would not only preserve the company’s capital but will also bring its yield in line with peers.

Additionally, Sunoco announced certain changes in its senior leadership team.

We believe these steps will help the company to improve its financial health, while providing more flexibility to pursue its business strategy.

Sunoco also has a strong presence in petrochemicals, with roughly 5 billion pounds in annual sales, largely chemical intermediates used in the manufacture of fibers, plastics, films and resins. Additionally, the company manufactures roughly 3 million tons of blast furnace coke annually for use in the steel industry.

We currently rate Sunoco shares as Neutral.
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DDR Appoints New Director – Analyst Blog

Zacks Market Commentaries — Fri, 11 Sep 2009 20:30:30 +0000

Developers Diversified Realty Corporation (DDR), a leading real estate investment trust (REIT), has recently appointed a new Director on its board following the resignation of Dean S. Adler.

Adler has resigned from the board of the company citing personal reasons. In his place, Developers Diversified has appointed James C. Boland. With his appointment, the company has brought on board key management experience from diverse sectors to bring a fresh perspective and dynamism to the company.

Boland has extensive knowledge in accounting and was associated with Ernst & Young – a leading global professional services firm – for 34 years. He also served as a member of the firm’s management committee from 1988 to 1997. Subsequently, he served as the President, CEO, and Vice Chairman of Cavaliers Operating Company, which owns and operates the Cleveland Cavaliers professional basketball team and its home court, Quicken Loans Arena.

Boland also serves as a Director on the board of The Sherwin-Williams Company (SHW) – a leading manufacturer of coatings for plastics, metal, and wood. In addition, he is the lead Director of Invacare Corporation (IVC) – the world’s leading wheelchair manufacturer, and The Goodyear Tire & Rubber Company (GT) – one of the world’s largest tire companies.

Developers Diversified specializes in the acquisition, ownership, development, redevelopment, leasing, and management of shopping centers and business centers. The company owns and manages 690 retail operating (including joint ventures) and development properties spanning approximately 151 million square feet of real estate in 45 states in the US, Puerto Rico, Brazil, Russia and Canada.
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Where Will Future Economic Growth Come From?

Contrarian Profits — Fri, 11 Sep 2009 20:18:05 +0000

pIt’s a difficult question to ponder as the state of the world economy is so fragile. Right now, GDP growth stems exclusively from the government’s stimulus package. But once Obama and his cronies are finished fixing the economy, what will the fuel the next leg of the recovery?/p pIn the near term, we think the prospects for job growth look incredibly bleak. Banks aren’t lending. Companies aren’t hiring or investing heavily in R#38;D, and corporate profits are up only because of cost cutting measures, like layoffs, rather than bottom line revenue growth./p pIn the long term, however, certain industries look primed to blossom like plastics did in the 70s and semiconductors, personal PCs, and telecom did in the 80s and 90s. Barry#8230;/p

Methanex Changes Credit Facility – Analyst Blog

Zacks Market Commentaries — Mon, 31 Aug 2009 15:57:58 +0000

Methanex Corp. (MEOH) recently finalized a new $200 million revolving credit facility with a syndicate of banks. The new facility, which expires in May 2012, replaces the company's existing revolving facility of $250 million, set to expire in mid-2010. While Methanex stated that the new credit facility is more flexible, it did not disclose the financial terms.

The Vancouver-based company had $278 million of cash in hand at the end of the second quarter. With the new credit agreement and no near-term refinancing requirements, Methanex has positioned itself well to meet its financial commitments and continue investing in projects that stimulate growth.

Methanex is the world's largest supplier of methanol to major international markets in North America, Asia-Pacific, Europe and Latin America, with about a 15% market share.

The chemical Methanol is a blend of 68% natural gas and 32% coal. Natural gas costs have been rising resulting in higher cost of producing methanol. In 2008, the company’s cash costs of producing methanol increased by $73 million due to higher natural gas costs.

Approximately 80% of all methanol output is used for production of formaldehyde, acetic acid and a variety of other chemicals, demand for which is influenced by the levels of global economic activity. These chemical derivatives are used in the manufacture of a wide range of products including plywood, particleboard, foams, resins and plastics.

The remainder of methanol demand largely stems from the energy sector for the production of methyl tertiary-butyl ether (MTBE) – a gasoline component – and as a direct fuel for motor vehicles. Use of methanol in manufacturing bio-diesel and dimethyl ether (DME) in power generation and other applications is also on the rise.

Methanex has embarked on a number of growth projects including the one on alternative natural gas sources in Chile. However, lower demand and pricing, as well as an increase in worldwide inventories of methanol due to the global economic crisis are negatively affecting the company. We maintain our neutral recommendation on the stock.

Read the full analyst report on "MEOH"
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Shanghai Petro Profits Return – Analyst Blog

Zacks Market Commentaries — Fri, 28 Aug 2009 14:30:25 +0000

China’s largest petroleum company, Shanghai Petrochemical Company Limited (SHI), posted net earnings of RMB 1 billion ($129 million) in the first six-months of 2009 helped by a lower cost of sales. Basic earnings were RMB 0.139 ($1.79) per share in contrast to a basic loss of RMB 0.050 ($0.65) in the first half of 2008.

Crude oil is the company's major raw material and accounted for 59.32% of cost of sales in the first half. With the significant drop in average price and volumes of crude oil, total cost of crude oil processed decreased 59.33% to RMB 10.4 billion ($1.34 billion).

Year-on-year, the average unit cost of processing crude oil almost halved to RMB 2,543.77 ($328) per ton. Energy and power costs decreased 15.7% to RMB 774.8 million ($99.95 million). Consequently, cost of sales decreased 48.55% to RMB 17.60 billion ($2.27 billion), accounting for 92.25% of the net sales.

Net sales were down 40.91% to RMB19.1 billion ($ 2.46 billion) over the same period last year, among which revenues derived from petroleum products, intermediate petrochemicals, resins and plastics and synthetic fibers decreased by 45.29%, 61.70%, 32.91% and 38.86% year-on-year respectively. Such decreases were mainly attributable to decreases in product prices on the back of declining raw material and energy prices, as well as decreases in sales volumes.

Refined oil prices are government controlled. Hence, any decrease in raw material prices leads to a decline in selling prices.

Shanghai has closed many of its plants due to the global recession. During the first six months, the company processed 4.2 billion tons of crude oil, a decrease of 17.20% year-on-year. Of the total processed amount, imported crude oil and offshore crude oil amounted to 3.6 billion tons and 546,100 tons, respectively.

Production of diesel and jet fuel was down 32.67% and 10.27% to 1,272,300 tons and 302,300 tons, respectively. The company produced 439,300 tons of ethylene and 236,700 tons of propylene, down 8.65% and 10.68% respectively.

Production of synthetic fiber monomers, synthetic fiber polymers and synthetic fibers decreased 12.32%, 5.06% and 18.42% to 427,800 tons, 289,200 tons and 120,500, tons respectively. However, production of synthetic resins and plastics increased by a modest 0.82% to 540,500 tons. Production of gasoline was also up 4.65% to 436,700 tons.

Management guidance

In the second half of 2009, management is not too optimistic about the operational situation. Chinese oil exports are expected to decline. International crude oil prices are likely to go up further quarter-by-quarter.

The Chinese government may continue to exercise control over the pricing of domestic refined oil products. Management expects inadequate plant utilization for certain downstream products.
Read the full analyst report on "SHI"
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Big Lots Surpasses Expectations – Analyst Blog

Zacks Market Commentaries — Tue, 25 Aug 2009 21:06:06 +0000

Big Lots Inc. (BIG) recently reported better-than-expected second quarter results surpassing the bottom-line expectation. Effective cost management drove the growth in bottom-line with increased efficiencies in distribution and transportation costs, reduced advertising expenses, and decline in payroll costs.

Earnings per share (excluding one-time items) of 35 cents was well above the company’s guidance range of 26 cents to 32 cents, and surpassed the Zacks Consensus Estimate of 31 cents. Earnings per share increased 9.4% year over year, compared to 32 cents in the prior-year quarter.

On a reported basis, Big Lots delivered EPS of 34 cents, up 6.3%.

Management now expects EPS for the third and fourth quarter to be in the range of 14 cents to 19 cents, and 99 cents to $1.04, respectively. Management also raised its full year earnings guidance on account of better-than-expected results. It now expects EPS to be in the range of $1.92 to $2.02 up from prior forecast of $1.85 to $1.95.

Big Lots now expects to generate cash flow of $155 million for the full year 2009 up from $145 million predicted earlier.

However, the company recorded low single-digit decline in the top-line due to slump in demand for home décor and furniture categories because of lower discretionary spending by the consumers. Revenue for the quarter under review slipped 1.7% to $1,086.6 million.

Big Lots operates as a broad line closeout retailer in the United States offering food, health, beauty, plastics, paper, chemical, and pet products as well as home decorative products, and other product lines.

Comparable sales for the quarter declined 2.4% compared to an increase of 2.8% posted in the year-ago quarter. Comps for the first quarter fell 0.5%. Management now expects comps in the range of flat to (2%) in the third quarter, and flat to slightly up in the fourth quarter.

Read the full analyst report on "BIG"
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Chemical Giants Utilize Lobbying – Analyst Blog

Zacks Market Commentaries — Tue, 25 Aug 2009 20:40:56 +0000

The recent disclosure reports have revealed that lobbying is a frequent phenomenon with the chemical giants such as DuPont (DD) and Eastman Chemical (EMN).

The second quarter report suggested that DuPont spent more than $1.2 million to lobby on biotechnology, trade, taxes and more. During April-June, the company also lobbied Congress, the White House and a number of federal agencies including the departments of Agriculture, Commerce, Defense and Treasury on chemical plant security, patent reform, energy efficiency and climate change.

On the other hand, Eastman, the Tennessee-based manufacturer of coatings and specialty plastics spent $270,000 lobbying the federal government on clean energy, antitrust and other issues. During April-June, the company also lobbied Congress and the Energy Department on legislation dealing with industrial gasification incentives, shareholder rights as well as antitrust and labor issues.

The chemical industry is susceptible to environment-based litigation. This has prompted many chemical companies to seek safe haven through lobbying. Further, the global economic recession has generated weak demand across most of the U.S. markets. This has led the chemical companies to engage in lobbying to maintain their market share.
Read the full analyst report on "DD"
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Overvalued Timber REITs: Why Timber Investing Isn’t What It Used To Be

Investment U — Mon, 17 Aug 2009 17:33:23 +0000

Overvalued Timber REITs: Why Timber Investing Isn’t What It Used To Be by David Fessler, Advisory Panelist Ten years ago, it would be hard to imagine a more stable investment than timber, or those Real Estate Investment Trusts (REITs) that bought millions of acres of harvestable trees. The 1990s were an ideal period to have timber as an [...]

PennyOmega.com Announces Day Daily Stock Watch – AQNM, NVNC, ZENG

PennyOmega.com — Mon, 10 Aug 2009 12:08:55 +0000

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PennyOmega.com Announces Day Daily Stock Watch – AQNM, NVNC, ZENG

Dr. Stock Pick — Mon, 10 Aug 2009 11:38:46 +0000

DrStockPick.com Stock Report! Monday August 10, 2009 PennyOmega.com Announces Day Daily Stock Watch – AQNM, NVNC, ZENG- ************************************************************** Las Vegas, NV - (WORLD STOCK WIRE) - August 10, 2009 — Penny Omega tracks stocks daily and is pleased to offer its hot stock alerts. Investors can receive FREE Stock Alerts by visiting PennyOmega.com at the following link: http://www.PennyOmega.com. Today’s [...]

Small Cap Voice Featured Company: GeoBio Energy, Inc. (GBOE.PK)

QualityStocks — Fri, 31 Jul 2009 14:03:48 +0000

GeoBio Energy, Inc., dba Plastics Conversion Technologies, Inc., is a recovery, cleaning, and plastics recycling company focused on constructing large scale, plastic recycling operations near automotive shredder locations nationwide to produce recycled commercial grade plastics. The company will use its patent pending and proprietary cleaning process to rehabilitate contaminated scrap plastics. The company’s wholly owned subsidiary, [...]

Methanex Still in Red – Analyst Blog

Zacks Market Commentaries — Wed, 29 Jul 2009 16:56:36 +0000

Methanex Corp. (MEOH) reported a second-quarter net loss of $5.7 million, or 6 cents per share, hurt by reduced sales volumes and lower methanol prices. This was marginally above our expectation of 9 cents and slightly below the consensus estimate of 5 cents. On a year-over-year basis, net losses were down significantly by about 85% from $38.4 million, or $0.40 per share.

Revenues more than halved to $245.5 million from $600 million in the same quarter of the previous year. About 80% of all methanol output is used in the production of formaldehyde, acetic acid and a variety of other chemicals, demand for which is influenced by the levels of global economic activity. These chemical derivatives are used in the manufacture of a wide range of products including plywood, particleboard, foams, resins and plastics. The remainder of the demand for methanol largely stems from the energy sector for the production of methyl tertiary-butyl ether (MTBE), a gasoline component and a direct fuel for motor vehicles.

The global economic slowdown led to a significant reduction in methanol demand and an increase in inventories across the world. This resulted in a decrease in contract methanol pricing during the fourth quarter of 2008 and into 2009.

Sales volumes totaled 1.4 million tons, down 12.5% year over year from 1.6 million tons. The non-discounted posted methanol price for the second quarter of 2009 was $211 per ton compared with $489 per ton for the second quarter of 2008 and $216 per ton for the first quarter of 2009. The average realized price for the second quarter of 2009 was $192 per ton compared with $412 per ton for the second quarter of 2008 and $199 per ton for the first quarter of 2009.

Cost Control

Despite lower prices and volumes, Methanex managed to curtail losses by checking costs. Total cash costs for the second quarter of 2009 were $20 million lower compared with the first quarter. Methanex closed many high costs facilities especially in China, where the company aims to shut down about 6 million tons of high-cost methanol capacity by 2009. The company is also hoping for further cost reduction with the upcoming low cost 1.3 million ton methanol plant in Damietta, Egypt. The plant is expected to start operations in 2010.

We rate the stock a Hold with a six-month target price of $17.50.

Read the full analyst report on "MEOH"
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Struggle Continues for Methanex – Analyst Blog

Zacks Market Commentaries — Fri, 24 Jul 2009 13:30:09 +0000

Headquartered in Vancouver, Canada, Methanex Corporation (MEOH), the world’s largest supplier of methanol to major international markets in North America, Asia-Pacific, Europe and Latin America is scheduled to release second quarter results on July 28, after the market opens.

Methanex has not provided any guidance for the second quarter. However, it expects the global economic slowdown to continue to impact its business. The company expects methanol prices to remain relatively stable during the second quarter. In April 2009, Methanex’s average non-discounted price across all of the major regions was about $210 per ton. In its first quarter, Methanex reported a net loss of $18.4 million or $0.20 per share on a diluted basis.

Methanol, a chemical, is a blend of 68% natural gas and 32% coal. About 80% of all methanol output is used in the production of formaldehyde, acetic acid, and a variety of other chemicals, demand for which is influenced by the levels of global economic activity. These chemical derivatives are used in the manufacture of a wide range of products including plywood, particleboard, foams, resins, and plastics. The remainder of the methanol demand largely stems from the energy sector for the production of methyl tertiary-butyl ether (MTBE), a gasoline component and a direct fuel for motor vehicles. Markets are also developing for the use of methanol for manufacturing bio-diesel and dimethyl ether (DME), in power generation, and in other applications.

The methanol industry is a concentrated market. The top 6 producers account for nearly half of the global sales, with Methanex alone controlling nearly 15% of the market. In order to enhance this position, Methanex is constructing a 1.3 million ton per year methanol facility at Damietta on the Mediterranean Sea in Egypt. It expects the facility to be commercially viable in 2010. Methanex owns 60% of Methanex Methanol Company S.A.E. based in Egypt, which is developing the project. The company intends to sell 100% of the methanol produced by the facility through this Egyptian company. The company had completed 80% of the project by the first quarter of 2009. To boost production, Methanex restarted one of its two idled 900,000 ton per year facilities at Motunui, New Zealand, in early October 2008. The restart has added 450,000 tons of annualized methanol production to the company’s asset base.

Lower methanol demand and pricing as well as an increase in worldwide inventories due to the global economic crisis are negatively affecting the company. Going forward, the company expects annualized industry demand for Methanex to be approximately 40 million tons, about 10% below the 2008 level. We rate the stock a Hold.
Read the full analyst report on "MEOH"
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Eastman Beats Guidance – Analyst Blog

Zacks Market Commentaries — Fri, 24 Jul 2009 13:22:33 +0000

Eastman Chemical Company (EMN) reported second quarter 2009 results on July 23. Earnings per share of 89 cents were far better than the management’s guidance of 71 cents and our expectation of 80 cents. Excluding accelerated depreciation costs, asset impairments, restructuring charges, and net deferred tax benefits, earnings from continuing operations were 86 cents per share compared with $1.53 per share in the second quarter of 2008. The company expects third quarter earnings in the range of $1.10 per share. Assuming a modest improvement in demand that increases Eastman’s capacity utilization from the current rate of approximately 71% to between 75%–80% for the remainder of the year, the company expects full-year 2009 earnings at the higher end of $2.00–$3.00, excluding charges related to cost-cutting.

Sales were down 32% year on year to $1.25 billion driven by a 13% decline in volumes primarily attributed to global recession and lower selling prices. On a segment basis, revenues declined 51% in Performance Chemicals and Intermediates, 31% in Performance Polymers, 27% in the Coatings, Adhesives, Specialty Polymers and Inks (CASPI), 26% in Specialty Plastics and 1% in Fibers. Eastman expects demand in the second half of 2009 to be similar to current levels. But the company said that despite cutting costs, raw materials and energy costs could increase slightly.

Eastman is benefiting from the business restructuring and cost-cutting measures. The company aims to reduce costs in response to the ongoing global economic recession. The company has reduced base pay for its U.S. employees by 5% in March 2009, with equivalent cost reductions in bargaining unit sites and locations outside the U.S. During April 2009, the company also implemented a global retrenchment of 200–300 employees, nearly 3% of its global workforce, with most cuts at the company's Kingsport headquarters. The company also plans to reduce salaries in an effort to bring down costs and keep its dividend and lowered capital spending plans intact. Following these actions, Eastman expects total cost savings in excess of $200 million in 2009. In addition to taking actions to reduce costs, the company lowered its budgeted 2009 capital expenditures to $300-$350 million. The company also expects to generate approximately $100 million of cash from efficient working capital management in 2009, assuming continued difficult economic conditions, raw material and energy costs.

Based in Kingsport, Tennessee, Eastman Chemical Company is engaged in the manufacture and sale of chemicals, plastics and fibers.
Read the full analyst report on "EMN"
Zacks Investment Research

Commodity Trading and Commodity Market Developments

Investment Education Staff — Thu, 23 Jul 2009 09:19:36 +0000

Global commodity trading now takes place on a growing platform of modern, transparent commodity exchanges across all time zones. Using agreed frameworks of rules and regulations and standard contract designs we now see a wide range of commodities traded between end users and primary producers. The result is that it is now much easier to buy and sell across the range of basic commodities from orange juice to gold bullion, from crude oil to coffee beans.

DuPont Raises TiO2 Prices – Analyst Blog

Zacks Market Commentaries — Mon, 20 Jul 2009 20:13:17 +0000

Recently, Delaware-based chemical giant DuPont (DD) increased prices for all its Ti-Pure® titanium dioxide (TiO2) products sold in Eastern Europe, Middle East and Africa regions. Effective August 1, 2009, or as permitted by the contract, prices in these markets were increased by $150 per ton. This is on top of a $100 per ton price increase announced on May 15, 2009, in Europe and Middle East.

Titanium dioxide is noteworthy for its wide range of applications. When used as a pigment, it is called titanium white. The pigment is widely used to provide whiteness and opacity to products such as paints, plastics, paper, ink, food and toothpastes. It is also used in cosmetic and skin care products, and it is present in almost every sunblock, where it helps protect the skin from ultraviolet light. Titanium dioxide accounts for 70% of the total production volume of pigments worldwide.

DuPont has witnessed stable production rates and inventories for titanium dioxide. Further, the company foresees gradually improving global market conditions in the second half of 2009. These seem to be the driving factors behind the recent price increases.

DuPont Titanium Technologies is the world's largest manufacturer of titanium dioxide, serving worldwide customers in the coatings, paper and plastics industries. Currently, DuPont has 17 products registered under the Ti-Pure® brand.

Crude titanium dioxide is purified through conversion to titanium tetrachloride in the chloride process. DuPont’s chloride manufacturing processes are located in DeLisle, Mississippi; New Johnsonville, Tennessee; Edge Moor, Delaware; Altamira, Mexico; and Kuan Yin, Taiwan.

We continue to recommend DD as Hold with a six-month target price of $25.00.
Read the full analyst report on "DD"
Zacks Investment Research

The Coming Global Blackout

Andrew Gordon — Tue, 07 Jul 2009 15:55:15 +0000

h3 class="post_date"Leave it to the government. It’s proposing a “tax and cap” regime for energy producers which will require fossil-fuel generating plants to pay extra. The idea is to encourage clean fuels and discourage dirty ones. That’s fine in theory. But instead of helping our future energy situation, it’s going to make it a lot worse.The price of oil has already doubled in the past six months to over $60 per barrel. But it’s just the beginning of oil’s next gigantic price surge. If you thought that oil was ridiculously expensive last summer, you haven’t seen anything yet. pIt doesn’t matter whether you believe in “Peak Oil” because this isn’t about Peak Oil coming to fruition. Peak Oil believes that oil discoveries have#8230;/p/h3

Cereplast, Inc. (CERP.OB) Launches Breakthrough Resin

QualityStocks — Mon, 15 Jun 2009 18:45:42 +0000

Bio-based sustainable plastics developer Cereplast, Inc. announced the launch of a breakthrough foamable resin to compete with Styrofoam® and other foamable petroleum-based resins. Cereplast Compostable 5001® will complement and expand Cereplast’s existing line of Compostables®. Cereplast Compostables 5001® is designed to meet the needs of all converters, manufactures and brand owners interested in substituting polystyrene [...]

IEA Raises Oil Demand Forecast – Analyst Blog

Zacks Market Commentaries — Thu, 11 Jun 2009 15:38:35 +0000

Another shot in the arm for crude oil, helping sustain the impressive ongoing rally that has more than doubled its price from the Feb'09 lows. While yesterday we heard from a U.S. government agency that the massive inventory overhang is steadily coming down, today's report paints a relatively positive -- or less negative -- picture of the demand side.

What all these favorable reports do is to help crude oil shrug off some of the negative news flow on the economic front and maintain its up-trending bias.

Earlier today, the International Energy Agency (IEA), the Paris-based agency associated with the OECD, raised its 2009 demand forecast modestly to reflect some early signs of global economic health. Just to be clear, the IEA is still looking for negative demand growth this year, but its forecast is less negative now than it was in its last monthly report.

The agency is still forecasting a worldwide demand drop of 2.5 million barrels per day, or roughly 2.9% from the 2008 level, to 83.3 million barrels per day. This is a modest 120,000 barrels higher than the agency's last monthly demand forecast. Growth in production of plastics and other petrochemicals in Asia and increased Chinese imports drove the positive revision.

The IEA forecast is in line with the latest outlook from the Energy Information Administration (EIA), an agency of the U.S. government. As shown in the nearby chart from the EIA, the agency is looking for a roughly 1.9 million barrels drop in worldwide demand this year and positive demand growth next year.

While we have confidence in the economic underpinning of the current rally, a souring of the global economic outlook remains a key risk factor. Also, given the weak near-term supply-demand fundamentals, coupled with ample excess production capacity within OPEC, there is limited room for a price spike at this stage.

The major international integrated oil companies, such Chevron (CVX), and global oilfield service players, such as Schlumberger (SLB) and Weatherford (WFT) are well placed to capitalize on this outlook.
Read the full analyst report on "CVX"
Read the full analyst report on "SLB"
Read the full analyst report on "WFT"
Zacks Investment Research

Zacks Bull and Bear of the Day Highlights: Biogen Idec, Eastman Chemical Company, DeVry Inc., General Motors and McGraw-Hill. – Press Releases

Zacks Market Commentaries — Wed, 03 Jun 2009 14:37:37 +0000

For Immediate Release

Chicago, IL - June 3, 2009 - Zacks Equity Research highlights Biogen Idec (BIIB) as the Bull of the Day and Eastman Chemical Company (EMN) the Bear of the Day. In addition, Zacks Equity Research provides analysis on DeVry Inc. (DV), General Motors (GM) and McGraw-Hill (MHP).

Full analysis of all these stocks is available at http://at.zacks.com/?id=2676.

Here is a synopsis of all five stocks:

Bull of the Day:

Biogen Idec (BIIB) posted solid results in the first quarter of 2009, despite the slowdown in Tysabri sales due to fears of PML. We think the Biogen core business will remain strong over the next several quarters. Tysabri prescriptions are showing an improvement and we believe will resume their previous pace shortly.

In the meantime, the name is significantly under-valued and would be a very attractive takeout candidate for a large-cap pharmaceutical company looking for a great phase III pipeline. We expect 2009 to be an eventful year on the pipeline front.

As investors become more comfortable with both Tysabri trends and emerging pipeline, we believe shares will recover back into the low $60's. At today's price, the name is too attractive to ignore.

Bear of the Day:

Eastman Chemical Company (EMN) is engaged in the manufacture and sale of chemicals, plastics and fibers. Based in Kingsport, Tennessee, the company has 12 manufacturing sites in the U.S., Europe, and Asia-Pacific, supplying products throughout the world.

Eastman is witnessing rising raw material prices and a declining demand for its products. The company reported a 98% drop in earnings in the first quarter of 2009 driven by lower prices and volumes. Sales were considerably down in all the major segments.

Lack of free cash flow, PET capacity increases, coupled with slowing growth and PET industry overcapacity, force us to rate the stock a Sell with a target of $34.00.

Latest Posts on the Zacks Analyst Blog:

DeVry Replaces GM on S&P

Standard & Poor's announced yesterday that DeVry Inc. (DV) will replace General Motors (GM) in the S&P 500 stock index after the close today. Obviously, the bankruptcy filing motivated the Committee to remove GM from the index, but the decision to add DeVry has many implications.

First, the S&P 500 index is owned and maintained by Standard & Poor's, which is a division of McGraw-Hill (MHP). A Committee selects new companies for inclusion in the S&P 500 when there is a vacancy. The Committee seeks stocks that will provide fair representation of the many diverse industries in the U.S economy. The stocks should also meet the criteria of being large capitalization and having sufficient liquidity.

The addition of DeVry should not come as a surprise. The stock was in the S&P MidCap 400, a fertile ground from which the Committee chooses new additions to the large-cap S&P 500 stock index. DeVry's stock has a market capitalization over $3 billion and has performed well since entering the S&P MidCap 400 index, rising from a mid-capitalization to large-capitalization stock.

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=2649.

About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

About the Analyst Blog

Updated throughout every trading day, the Analyst Blog provides analysis from Zacks Equity Research about the latest news and events impacting stocks and the financial markets.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=2677.

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks InvestmentResearch is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=4582.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact:
Mark Vickery
Web Content Editor
312-265-9380
Visit: www.zacks.com

Zacks Investment Research

Eastern Chemical (EMN) – Bear of the Day

Zacks Market Commentaries — Wed, 03 Jun 2009 05:00:00 +0000

Lack of free cash flow, PET capacity increases, coupled with slowing growth and PET industry overcapacity, force us to rate the stock a Sell with a target of $34.00.Zacks Investment Research

Class of ‘09: You’re Screwed

Bill Bonner — Fri, 29 May 2009 20:03:27 +0000

pLast weekend, we journeyed to Boston to attend a college graduation. Thousands of callow scholars were on display. Each was handed his papers…and then marched out of the hockey stadium. To the tune of ‘Pomp #38; Circumstance,’ wearing a long, red robe, he entered the outside world solemnly…like a patsy joining a poker game./p pSo far, not a single major university has asked us to make the commencement address. Nor a minor college. Not even a school of cosmetology or taxidermy. But here at the ema href="http://www.dailyreckoning.com" class="alinks_links"Daily Reckoning/a/em headquarters in London, protected by a broad ocean and a narrow reading of the First Amendment, we will give them – and UK graduates too – advice no one asked for./p p“Plastics,” was the advice given#8230;/p

Class of ’09: You’re Screwed

Bill Bonner — Wed, 27 May 2009 17:54:00 +0000

pThe luck of one generation is the curse of the next./p pemLast weekend, we journeyed to Boston to attend a college graduation. Thousands of callow scholars were on display. Each was handed his papers#8230;and then marched out of the hockey stadium. To the tune of ‘Pomp #38; Circumstance,’ wearing a long, red robe, he entered the outside world solemnly#8230;like a patsy joining a poker game. /em/p pemSo far, not a single major university has asked us to make the commencement address. Nor a minor college. Not even a school of cosmetology or taxidermy. But here on the back page, protected by a broad ocean and a narrow reading of the First Amendment, we will give them – and UK graduates too #8212;#8230;/em/p

Excel Maritime (NYSE:EXM): A Rising Tide Lifts All Ships

Andrew Snyder — Fri, 22 May 2009 20:44:41 +0000

pThe world’s shipping industry has been beaten hard over the past six months. But news reports out this week are proving the sector may be on the rise. Excel Maritime (NYSE:a href="http://www.google.com/finance?q=EXM"EXM/a) surprised analysts today. Who’s next?/p pWe are just a few hours away from the start of a holiday weekend. Along with about 50 million other Americans, I am headed to the beach. Not only will it be a great opportunity to spend a few days with my family, it will be a shot at an accurate gauge of the nation’s economy./p pIn case you did not know, I have spent many, many days plying the nation’s offshore waters in search of anything with fins. It just so happens some of the#8230;/p

Lubrizol Corporation – Value – Zacks Rank Buy

Tracey Ryniec — Tue, 05 May 2009 05:00:00 +0000

Lubrizol Corporation (LZ) is using cost cutting to weather the storm as additive demand dropped in the first quarter. Even with tough economic conditions, the company raised its 2009 guidance. LZ has surprised on estimates 2 out of the last 4 quarters by an average of 2.96%. LZ has a PEG ratio of 0.83.

Company Description

Lubrizol manufactures specialty chemical additives for the transportation, industrial and consumer markets. The company operates facilities in 19 countries and has customers worldwide.

Its products include lubricant additives for engines, fuel additives for gasoline and diesel fuel, and specialty resins and additives for the plastics and performance coatings industries.

Lubrizol Met Estimates in the First Quarter

On Apr 30, Lubrizol announced first quarter results which met Wall Street estimates of $1.06 per share.

Revenues fell 18% to $1.01 billion from $1.23 billion in the year ago quarter as volumes fell and there was an unfavorable currency exchange. However, the company saw improvement in pricing and product mix. All geographic regions saw volume declines in additives due to economic weakness. Customers continued to destock inventory.

Cost cutting helped the bottom line in the quarter.

"We knew 2009 was going to be a challenging year, so I am very pleased with the results that both segments delivered this quarter," said CEO James Hambrick.

"Additives performed very well, particularly given the comparison to their strong results in the first quarter of 2008. Advanced Materials demonstrated significant improvement sequentially and posted solid operating income considering the state of some of their end-use markets," he added.

2009 Guidance Raised

Despite the rocky first quarter, the company is optimistic about the full year. It raised its previous guidance which had been issued on Feb 5 to an adjusted earnings per share of $3.95 to $4.35, which is higher than 2008 adjusted EPS of $4.09.

Consensus Estimates Jump

Covering analysts are scrambling to adjust estimates given the company's first quarter results. In the last 7 days, second-quarter estimates jumped 2 cents to $1.12.

2009 full-year consensus estimates climbed 9.6% to $4.22 from $3.85 per share to come inline with the company's forecast.

Value Fundamentals

Lubrizol is a Zacks #1 Rank (strong buy) stock. It has a forward P/E of 9.87 and a price-to-book of 1.82. The company also has a solid 5-year return on equity (ROE) of 13.49%. Additionally, it pays a dividend, with a current yield of 2.80%.

Zacks Investment Research

Central Manufacturing Inc., and Plastics Conversion Technologies in Large Scale Resource Recovery Equipment Deal

Stuart T. Smith — Wed, 29 Apr 2009 00:17:20 +0000

SPOKANE, Wash., April 28, 2009 (GLOBE NEWSWIRE) — GeoBio Energy, Inc., d/b/a Plastics Conversion Technologies, Inc., (PCT) (Pink Sheets:GBOE) a Washington based plastics cleaning, separation, and recycling company, today announced a strategic agreement with Central Manufacturing, Inc. of Groveland Ill. Under terms of this alliance, Central will provide the design, manufacture, and testing of several [...]

HCP, Eastman Chemical, General Motors, Toyota and Honda – Press Releases

Zacks Market Commentaries — Tue, 28 Apr 2009 12:26:07 +0000

For Immediate Release

Chicago, IL - April 28, 2009 - Zacks Equity Research picks HCP, Inc. (HCP) as Bull of the Day and Eastman Chemical Company (EMN) as Bear of the Day. In addition, the analysts at Zacks Equity Research discuss the latest on GM (GM), Toyota (TM) and Honda (HMC).

Full analysis of all these stocks is available at: http://at.zacks.com/?id=2678

Bull of the Day

HCP, Inc. (HCP) continues to raise cash through asset sales and equity issuance. The company has done a successful job of de-levering and strengthening the balance sheet. With nearly $1.4 billion available on its credit facility, the company has adequate capital to address 2009 and 2010 debt maturities.

We continue our Buy rating. HCP has a diversified asset base and is moving toward more private pay sources, which we view as a positive. HCP has increased its quarterly dividend from $0.455 per share to $0.46, and the current yield is over 8%.

We think healthcare will continue to outperform other REIT sectors in 2009. Healthcare REITs should hold up better in a recession. Consumers will continue to spend on healthcare while cutting out other non-essential services. HCP will report 1Q results on April 28th.

Bear of the Day

Lack of free cash flow, PET capacity increases coupled with slowing growth, and PET industry overcapacity force us to rate the stock a Sell with a target of $24.50.

Recent Analysis from the Analyst Blog

GM & Chrysler with Flu-like Symptoms

The two top stories in the news today are the Swine Flu and the Auto restructurings. At first blush they sound totally unrelated, but I think the Flu is a good metaphor for the situation that GM (GM) and Chrysler find themselves in.

Every year there is an outbreak of flu, with some years having a much more dangerous strain than others. Most of the time (the recent outbreak in Mexico seems somewhat different in this regard) if you are an otherwise healthy adult, the flu simply means a few days with frequent trips to the bathroom and a bit of a fever. However, for the very young and the elderly, and those with compromised immune systems (such as people with AIDS or on chemotherapy), the flu can be deadly. (If a 75-year-old person gets the flu and dies, what is the cause of death -- the flu or did they simply die of old age?)

The credit crisis was like a very nasty outbreak of the flu. Since autos are big-ticket items that almost always require financing for sales to occur, the entire industry was affected. However, Toyota (TM) and Honda (HMC) are spending a lot of time in bed -- they, too, have been posting losses. Aside for the current outbreak of flu, however, they are generally healthy.

General Motors and Chrysler were more analogous to a person with a compromised immune system. The most important measure of a company's "immune system" is its balance sheet. Equity is the equivalent of the white blood cells that allow the company to fight off an infection. They have been gradually losing market share for decades. As such, they have been shrinking their active workforce relative to the number of retirees they have. This has led to built-up debt on the balance sheet.

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=2649.

About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

About the Analyst Blog

Updated throughout every trading day, the Analyst Blog provides analysis from Zacks Equity Research about the latest news and events impacting stocks and the financial markets.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=2677.

About Zacks

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Contact:Mark VickeryWeb Content Editor312-265-9380Visit: www.zacks.com

Zacks Investment Research

Eastman Chemical (EMN) – Bear of the Day

Zacks Market Commentaries — Tue, 28 Apr 2009 05:00:00 +0000

Lack of free cash flow, PET capacity increases coupled with slowing growth, and PET industry overcapacity force us to rate the stock a Sell with a target of $24.50. Zacks Investment Research

Tuesday’s Market Recap (04/21/09)

Bullish Bankers — Wed, 22 Apr 2009 00:36:15 +0000

The markets were up today as Geithner remarked that banks had a sufficient amount of reserves to protect them from losses, resulting with the Dow Jones up 1.63%. The NASDAQ and S&P were both up closing at 1643.85 and 850.08 respectively. Gold was down today settling at $882.70, while oil was up settling at $46.51. The [...]

Coal versus Renewables

Richard Shaw — Fri, 10 Apr 2009 22:08:55 +0000

Kiplinger’s reports that there is legislation in the works that would mandate 25% of US electricity to be generated through renewable fuels by 2025. Should that become law, the implications for coal are not good. The heavy clean coal TV advertising shows that the industry recognizes it is a political target. Weekly Spot Coal Prices: click images to [...]

Eastern Chemical Still Corroding – Analyst Blog

Zacks Market Commentaries — Tue, 24 Mar 2009 18:42:37 +0000

Eastman Chemical Company (EMN) is engaged in the manufacture and sale of chemicals, plastics and fibers. Based in Kingsport, Tennessee, the company has 12 manufacturing sites in the U.S., Europe and Asia-Pacific, supplying products throughout the world.

Eastman is witnessing rising raw material prices and a declining demand for its products. In addition, lack of free cash flow, PET capacity increases coupled with slowing growth, and PET industry overcapacity force us to rate the stock a Sell with a target of $18.00.

Currently, Eastman is valued at 9.3x our 2009 earnings estimate of $2.60 per share. Our current target price is 6.9x our 2009 earnings estimate.
Read the full analyst report on "EMN"
Zacks Investment Research

EMN Faces Uphill Task – Analyst Blog

Zacks Market Commentaries — Tue, 10 Mar 2009 16:39:56 +0000

Eastman Chemical Co (EMN) is engaged in the manufacture and sale of chemicals, plastics and fibers. Based in Kingsport, Tennessee, the company has 12 manufacturing sites in the U.S., Europe, and Asia-Pacific, supplying products throughout the world.

Eastman has a strong fibers business and solid financials. The company is likely to benefit from its recent focus on the industrial gasification business. It has undertaken productivity and cost-reduction initiatives as well as organizational restructurings to improve performance and generate cost savings.

Eastman plans to save about $100 million in 2009. However, the company is witnessing rising raw material prices and a declining demand for its products. In addition, lack of free cash flow, PET capacity increases coupled with slowing growth, and PET industry overcapacity force us to rate the stock a Hold with a target of $17.00.

Read the full analyst report on "EMN"
Zacks Investment Research

EMN: More Cost-Cutting – Zacks Tale of the Tape

James Giaquinto — Mon, 09 Mar 2009 19:20:15 +0000

In an attempt to "weather the storm" during this economic recession, Eastman Chemical Company (EMN) announced today that it would make further cost-cutting actions to save an additional $100 million in 2009.

This manufacturer and marketer of chemicals, fibers and plastics had previously announced a series of cost-cutting moves in December.

This time around, EMN plans to reduce its workforce by 200-300 employees within the next 4-6 weeks, and will also reduce base pay for U.S. employees by 5% effective Mar 30. It will make similiar reductions outside the U.S. as well.

In addition, EMN will pull back on non-critical maintenance costs, logistics costs and discretionary spending.

EMN will take a charge of approximately $30 million in the first quarter of 2009 due to these moves.

Along with the cost-cutting measures from December, EMN now expects total savings of more than $200 million this year.

Shares of the company are up approximately 4% today.

Furthermore, EMN lowered its budgeted capital expenditures for 2009 to between $300 million and $350 million, and expects earnings per share between $2 and $3, excluding cost-cutting charges, for the year.

EMN is a Zacks #5 Rank ("Strong Sell") company. (The Zacks Rank is a quantitative, short-term indicator.) On a longer-term basis, though, EMN currently has a Zacks Equity Research recommendation of "Hold".

"EMN" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

How to Invest in Oil Options

Investment Education Staff — Mon, 23 Feb 2009 15:37:58 +0000

How to invest in oil is a subject of interest to many traders in a world economy that is largely driven by the price and availability of products derived from products obtained from crude oil, like gasoline, diesel fuel, jet fuel, plastics, and fertilizer.

Buy Rohm And Haas Shares On Pending Dow Acquisition

Daniel Shepard — Fri, 23 Jan 2009 11:28:52 +0000

Friday January 23, 2009 Navivest On July 10, 2008, Dow (DOW), announced that it had reached a definitive agreement with Rohm and Haas (ROH), under which Dow will acquire all outstanding shares of Rohm and Haas common stock for $78 per share in cash, in an $18.8 billion deal. That was six months ago, and in that time, [...]

What do JFK, Ballagio and Otis Elevator have in common?

Small Cap Pulse — Fri, 16 Jan 2009 04:10:00 +0000

nbsp;nbsp;January 15, 2009 - More than half of all electrical energy consumed in the United States is used by electric motors. So improving efficiency for electric motors is one of the most basic and fundamental ways that businesses, consumers and the government can save energy, reduce operating costs and improve productivity.There are multiple approaches to doing this: making more efficient motors is an obvious one. But in many cases, motor inefficiency is a consequence of the load which the motors are powering. Cases where motors have to have enough power to drive a load at full capacity but where the load is, in fact, often light. These are some of the most frequent cases of motor inefficiency.One company that that is addressing this market is Power Efficiency (OTCBB: PEFF ), which has developed technologies which result in up to 40% savings to client firms in the industrial markets and has established proof-of-concept installations in several high-profile environments including the Bellagio hotel, Columbus International Airport, JFK International Airport, Smithsonian Institute, Las Vegas Convention Center and the Denver International Airport through leading partners/clients including KONE, ThyssenKrupp Elevator, Otis Elevator, Barrick Gold and Berry Plastics.The initial market Power Efficiency focused on to prove out the energy savings it can produce was the escalator market. This is an ideal proof-of-concept, because escalator motors are designed for an optimal load - 2 people on each stair - but they rarely operate in this optimal capacity. Consequently, they waste a lot of energy. Power Efficiency's technology senses the loads and adjusts electricity required accordingly. The result is 20% to 40% in energy savings.The worldwide market for elevator and escalator services is expected to growth at 5.4% annually through 2011, surpassing $57 billion and the market for escalators and moving walkways is expected to grow at 8.3% annually to $2.5 billion in 2011. (Source: Freedonia)Power Efficiency's goal is to become the industry standard for energy efficiency in this market. And it is making progress, having established client relationships with market leaders including Otis Elevator, ThyssenKrupp and KONE.Other markets that Power Efficiency is expanding into include granulators, cement mixers, and other large scale industrial applications. The potential for extending its technology into new industrial applications is pretty broad, so Power Efficiency's strategy is to establish OEM relationships and build a channel strategy so that it can leverage pre-existing sales forces. The appeal for companies to adopt its technology is fundamental: lower energy consumption, cost savings and longer product lifetimes.In the past year, Power Efficiency also developed a product based on its E-Savetrade; technology that can apply to the residential appliances market, targeting energy savings in washing and drying machines, refrigerators, air conditioners, etc. This market is massive, and is a major priority for the Department of Energy to support through its Energy Star program.In December, Power Efficiency announced a partnership with IXYS (Nasdaq:IXYS), a $300 million semiconductor component business with more than 2,000 clients, many of which, are appliances manufacturers. This sets the stage for Power Efficiency to leverage IXYS sales force and customer base to sell through into OEM engagements. The market opportunity here is impressive:There are about 9 million clothes washers shipped each year and 8 million clothes dryers shipped each year alone, in the U.S. At an ASP of $10 for its single phase product, the washer/dryer market alone is about a $170 million market, not to mention other applications for refrigeration and air conditioning.Power Efficiency 's stock trades lightly at about $0.16 to $0.20 per share, representing a current market cap of about $6.4 million. In 2008, the company was focused on transitioning its technology from an analog platform which was prohibitive in terms of cost and performance to scaling into full commercialization to a digital platform which works better, has more functionality and is cheaper to produce which is critical as the business looks to build OEM contracts.This year, we expect to see the business gain accelerate its industrial three-phase business and hit some key milestones for its single-phase residential appliance product. From an investment standpoint, the stock is compelling on multiple levels:middot; nbsp; nbsp; nbsp; nbsp; Strong insider ownership with the company's operators having invested millions into the business;middot; nbsp; nbsp; nbsp; nbsp; Validated technology with opportunity to scale business into escalator market with existing clients (KONE, ThyssenKrupp, Otis)middot; nbsp; nbsp; nbsp; nbsp; Moving into other industrial markets (plastics, cement/rock/mining)middot; nbsp; nbsp; nbsp; nbsp; Massive Blue-Sky with residential appliance product, which is initially validated through IXYS partnershipmiddot; nbsp; nbsp; nbsp; nbsp; Secular trends have never been better: regulatory pressure to adopt energy efficiency standards; incentive for businesses in a challenging economy to reduce energy costs and equipment maintenance costs; interest for consumers to reduce energy expensesmiddot; nbsp; nbsp; nbsp; nbsp; E-Save Technology has been validated by several leading utilities for rebates including: Southern California Edison, Excel Energy, SDGamp;E, Sempra Energy, Los Angeles Department of Water amp; Power, Nevada Power, Sierra Pacific and Anaheim Public Utilities.If Power Efficiency 's E-Save Technology were implemented across the relevant sectors in applicable motors throughout the U.S. manufacturing industry, it has the potential to produce savings of $1.7 billion in the U.S. alone. Again, the stock is trading at a current market cap of $6 to $7 million. We think the company is poised to deliver on inflection points across its business which should serve as catalysts for significantly higher valuations.At Aspire, we were happy to begin working with Power Efficiency to make its story and value proposition more well known on Wall Street. We don't see many companies that have the developed technology, customer relationships and perceived market opportunity that are trading at levels which make the situation as timely as this one is, in our opinion. We will continue to report on the company's progress and welcome anyone interested in learning about the story to contact us direct for further discussion at 760-798-4938.Important Disclosure: The SCPEditor is the managing partner of Aspire Clean Tech Communications which is LONG PEFF.OB, and is on a monthly retainer of $6,500 to provide PEFF with corporate communications and strategic advisory services. Aspire has also received 40,000 shares of PEFF's restricted common stock to provide these services . The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance.nbsp;nbsp; pa href="http://feeds.feedburner.com/~a/smallcappulse/feed?a=hEKigN"img src="http://feeds.feedburner.com/~a/smallcappulse/feed?i=hEKigN" border="0"/img/a/p

Power Efficiency (OTCBB:PEFF) Poised to Make Significant Contributon to Energy Efficiency Markets

Small Cap Pulse — Fri, 16 Jan 2009 01:32:01 +0000

January 15, 2009 ndash; More than half of all electrical energy consumed in the United States is used by electric motors. So improving efficiency for electric motors is one of the most basic and fundamental ways that businesses, consumers and the government can save energy, reduce operating costs and improve productivity. There are multiple approaches to doing this: making more efficient motors is an obvious one. But in many cases, motor inefficiency is a consequence of the load which the motors are powering. Cases where motors have to have enough power to drive a load at full capacity but where the load is, in fact, often light. These are some of the most frequent cases of motor inefficiency. One company that that is addressing this market is Power Efficiency (OTCBB:PEFF), which has developed technologies which result in up to 40% savings to client firms in the industrial markets and has established proof-of-concept installations in several high-profile environments including the Bellagio hotel, Columbus International Airport, JFK International Airport, Smithsonian Institute, Las Vegas Convention Center and the Denver International Airport through leading partners/clients including KONE, ThyssenKrupp Elevator, Otis Elevator, Barrick Gold and Berry Plastics. The initial market Power Efficiency focused on to prove out the energy savings it can produce was the escalator market. This is an ideal proof-of-concept, because escalator motors are designed for an optimal load ndash; 2 people on each stair ndash; but they rarely operate in this optimal capacity. Consequently, they waste a lot of energy. Power Efficiencyrsquo;s technology senses the loads and adjusts electricity required accordingly. The result is 20% to 40% in energy savings. The worldwide market for elevator and escalator services is expected to growth at 5.4% annually through 2011, surpassing $57 billion and the market for escalators and moving walkways is expected to grow at 8.3% annually to $2.5 billion in 2011. (Source: Freedonia)nbsp;Power Efficiencyrsquo;s goal is to become the industry standard for energy efficiency in this market. And it is making progress, having established client relationships with market leaders including Otis Elevator, ThyssenKrupp and KONE. Other markets that Power Efficiency is expanding into include granulators, cement mixers, and other large scale industrial applications. The potential for extending its technology into new industrial applications is pretty broad, so Power Efficiencyrsquo;s strategy is to establish OEM relationships and build a channel strategy so that it can leverage pre-existing sales forces. The appeal for companies to adopt its technology is fundamental: lower energy consumption, cost savings and longer product lifetimes. In the past year, Power Efficiency also developed a product based on its E-Savetrade; technology that can apply to the residential appliances market, targeting energy savings in washing and drying machines, refrigerators, air conditioners, etc. This market is massive, and is a major priority for the Department of Energy to support through its Energy Star program. In December, Power Efficiency announced a partnership with IXYS (Nasdaq:IXYS), a $300 million semiconductor component business with more than 2,000 clients, many of which, are appliances manufacturers. This sets the stage for Power Efficiency to leverage IXYS sales force and customer base to sell through into OEM engagements. The market opportunity here is impressive:nbsp;nbsp; There are about 9 million clothes washers shipped each year and 8 million clothes dryers shipped each year alone, in the U.S. At an ASP of $10 for its single phase product, the washer/dryer market alone is about a $170 million market, not to mention other applications for refrigeration and air conditioning. Power Efficiencyrsquo;s stock trades lightly at about $0.16 to $0.20 per share, representing a current market cap of about $6.4 million. In 2008, the company was focused on transitioning its technology from an analog platform which was prohibitive in terms of cost and performance to scaling into full commercialization to a digital platform which works better, has more functionality and is cheaper to produce which is critical as the business looks to build OEM contracts. This year, we expect to see the business gain accelerate its industrial three-phase business and hit some key milestones for its single-phase residential appliance product. From an investment standpoint, the stock is compelling on multiple levels:nbsp;nbsp; middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Strong insider ownership with the companyrsquo;s operators having invested millions into the business; middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Validated technology with opportunity to scale business into escalator market with existing clients (KONE, ThyssenKrupp, Otis) middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Moving into other industrial markets (plastics, cement/rock/mining) middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Massive Blue-Sky with residential appliance product, which is initially validated through IXYS partnership middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Secular trends have never been better: regulatory pressure to adopt energy efficiency standards; incentive for businesses in a challenging economy to reduce energy costs and equipment maintenance costs; interest for consumers to reduce energy expenses middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; E-Save Technology has been validated by several leading utilities for rebates including: Southern California Edison, Excel Energy, SDGamp;E, Sempra Energy, Los Angeles Department of Water amp; Power, Nevada Power, Sierra Pacific and Anaheim Public Utilities.nbsp;nbsp; If Power Efficiencyrsquo;s E-Save Technology were implemented across the relevant sectors in applicable motors throughout the U.S. manufacturing industry, it has the potential to produce savings of $1.7 billion in the U.S. alone. Again, the stock is trading at a current market cap of $6 to $7 million. We think the company is poised to deliver on inflection points across its business which should serve as catalysts for significantly higher valuations.nbsp;nbsp; At Aspire, we were happy to begin working with Power Efficiency to make its story and value proposition more well known on Wall Street. We donrsquo;t see many companies that have the developed technology, customer relationships and perceived market opportunity that are trading at levels which make the situation as timely as this one is, in our opinion. We will continue to report on the companyrsquo;s progress and welcome anyone interested in learning about the story to contact us direct for further discussion at 760-798-4938.nbsp;nbsp; Important Disclosure: The SCPEditor is the managing partner of Aspire Clean Tech Communications which is LONG PEFF.OB, and is on a monthly retainer of $6,500 to provide PEFF with corporate communications and strategic advisory services. Aspire has also received 40,000 shares of PEFFrsquo;s restricted common stock to provide these services . The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. nbsp; pa href="http://feeds.feedburner.com/~a/smallcappulse/feed?a=34vP1O"img src="http://feeds.feedburner.com/~a/smallcappulse/feed?i=34vP1O" border="0"/img/a/p

OriginOil Inc. (OOIL.OB) Takes Large Step Forward in Algae-oil Biofuel Commercialization Process

QualityStocks — Mon, 05 Jan 2009 16:04:42 +0000

The focus on green energy found a rather large boost in 2008 as petroleum prices surged and a “green” president was elected. The overall reality of the green investment, however, is that it is still an infant trying to solve issues and meet production and cost requirements. Solar is quickly catching up to electrical plant [...]

Dow Chemical Shares Plunge On Cancelled Deal

Daniel Shepard — Mon, 29 Dec 2008 16:43:58 +0000

Monday December 29, 2009 Navivest Shares of chemical maker Dow Chemical (DOW) are off $3.82 or 20.19% after the company announced that the government of Kuwait had cancelled a planned 50-50 joint venture deal. When the deal was first announced, Dow Chemical announced that it would receive $9.5 billion in cash from Petrochemical Industries Company, while Dow Chemical [...]

Eastman Chemical Dogged by PET – Analyst Blog

Zacks Market Commentaries — Wed, 17 Dec 2008 15:04:04 +0000

Tennessee-based Eastman Chemical Company (EMN) is engaged in the manufacture and sale of chemicals, plastics and fibers. The company has a strong fibers business and solid financials. It is likely to benefit from its recent focus on the industrial gasification business.

However, Eastman Chemical is witnessing rising raw material prices and a declining demand for its products. The company will generate less distributable cash because capital expenditures will likely exceed depreciation. Capital spending increased to $431 million in the first 9 months of 2008 from $346 in the same period prior year.

The lack of free cash flow, polyethylene terephthalate (PET) capacity increases coupled with slowing growth, and PET industry overcapacity force us to rate the stock a Hold with a target of $28. This is 5.8x our 2008 earnings estimate.

Read the full analyst report on EMN

"EMN" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

Dow Chemical Under Pressure – Analyst Blog

Zacks Market Commentaries — Tue, 16 Dec 2008 11:08:14 +0000

The Dow Chemical Company (DOW) is the largest producer of plastics and the second-leading chemical company in the world.

Vertical integration keeps costs low. The company's recently completed joint venture agreement with Petrochemical Industries Company (PIC) of Kuwait is expected to reduce cyclicality in the chemical business. Further, its merger with Rohm and Haas will consolidate higher margin and higher growth specialty businesses and reduce volatility in earnings and cash flow.

However, high raw material costs have forced the company to temporarily idle or reduce production at several of its plants. Further, Dow has a high exposure to the commodity chemical cycle. We expect earnings to remain under pressure and rate the stock a Hold.

Read the full analyst report on DOW

"DOW" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

DOW Chemical Cuts Back on Almost Everything

Investment U — Mon, 08 Dec 2008 17:24:06 +0000

DOW Chemical Cuts Back on Almost Everything This morning, stocks jumped almost 3% after President-elect Obama pledged the largest spending increases on domestic infrastructure since President Dwight Eisenhower created the national highway system. It’s been rumored for weeks that Obama would make “New Deal” type investments in our nation’s energy and power arteries. Adding state infrastructure projects [...]

DOW Remains a Hold for Near Term – Analyst Blog

Zacks Market Commentaries — Wed, 03 Dec 2008 13:44:05 +0000

The Dow Chemical Company (DOW) is the largest producer of plastics and second-leading chemical company in the world. Vertical integration keeps cost low. Stronger demand in Europe, Asia Pacific, Latin America, India, Middle East and Africa has more than offset the continued economic slowdown in North America. Moreover, price gains have largely offset significant increases in costs of feedstock and energy.

The company's recently completed joint venture agreement with Petrochemical Industries Company of Kuwait is expected to reduce cyclicality in the chemical business. Further, its merger with Rohm and Haas will consolidate higher margin and higher growth specialty businesses and reduce the volatility in earnings and cash flow.

However, high raw material costs have forced the company to temporarily idle or reduce production at several of its plants. Further, Dow has a high exposure to the commodity chemical cycle. We expect earnings to remain under pressure and rate the stock a Hold with a target of $17.00.

Read the full analyst report on DOW

"DOW" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

China Drop In Dairy Exports Could Signal Commodity Rise

Irwin Greenstein — Wed, 03 Dec 2008 12:52:21 +0000

pWhile China may blame the rest of the world for its dramatic decline in exports, Beijing has no one else to blame but itself for the steep drop in dairy exports./p pAn article in today’s China Daily reported that the country’s dairy exports “have ground to a halt” in the wake of the tainted-milk scandal./p pThe latest numbers from China’s General Administration of Customs (GAC) showed that only 1,036 tons of dairy products were exported in October 2008, down 92% year-on-year. From January to September, the monthly average export of dairy products was 12,000 tons./p pOnce again, China is looking to the U.S. to rescue another of its exports. With the US-China Strategic Economic Dialogue (SED) on economic, trade and food safety issues#8230;/p

Tennessee Stocks

Fred Fuld — Wed, 26 Nov 2008 05:29:00 +0000

a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://2.bp.blogspot.com/_T9VXVyuEITg/SSzhuXNGTuI/AAAAAAAAAl8/tRtxMxNVyqA/s1600-h/Memphis.jpg"img style="float:right; margin:0 0 10px 10px;cursor:pointer; cursor:hand;width: 320px; height: 212px;" src="http://2.bp.blogspot.com/_T9VXVyuEITg/SSzhuXNGTuI/AAAAAAAAAl8/tRtxMxNVyqA/s320/Memphis.jpg" border="0" alt=""id="BLOGGER_PHOTO_ID_5272837450363195106" //abr /If there is half as much future as there is history for Tennessee, then it is a bright future. And according to several independent organizations, Tennessee is one of the best states in the country to do business. The future is looking bright! Here are some interesting facts about the state:br /br /1. The state offers several incentives for new businesses and businesses relocating to Tennessee. They include, tax credits and tax exemptions.br /2. 80% of the state land is used for agricultural and forestry purposes.br /3. Tennessee most important crops are tobacco, soybeans, and cotton.br /4. The agricultural industry produces more than $2.5 billion in cash receipts.br /5. In a report issued by the American Legislative Exchange Council Tennessee is the 5th best economy in the country.br /6. Tennessee mining industry employs 4,200 workers and it generates income in excess of $800 million.br /7. Currently oil, coal and natural gas mined in the state account for 10% of total mineral mining income in Tennessee.br /8. The tourism industry economic impact is $14.2 billion.br /9. Tennessee’s retail industry employs 315,000 workers and is a $70 billion industry.br /10. The state’s manufacturing industry is dominated by the processed foods sector (grain products, cereals and breads).br /br /The following companies are headquartered in Tennessee:br /br /FedEx Corporation (FDX) provides business services worldwide; its services include freight, ground and express shipping. The stock has a market cap of $19.47 billion, a PE of 21, a PEG of 1.00, and it pays a yield of 0.7%.br /br /International Paper Company (IP) makes papers for writing and printing, market pulp, and other paper products. The stock has a market cap of $7.70 billion, a PE of 6, a PEG of 0.99 and it pays a yield of 9%.br /br /Unum Group (UNM) operates in the United States, and the United Kingdom as a provider of disability products, and other insurance products. The stock has a market cap of $5.49 billion, a PE of 8, a PEG 0.65, and it pays a yield of 1.7%.br /br /AutoZone Inc. (AZO) is a distributor and retailer of parts and accessories for automobiles. The stock has a market cap of $6.35 billion, a PE of 11, and a PEG of 0.79.br /br /Eastman Chemical Company (EMN) makes and markets chemicals, plastics and other products. The stock has a market cap of $3.16 billion, a PE of 9, a PEG of 1.22, and it pays a dividend of 4.3%.br /br /First Horizon National Corporation (FHN) is a holding company for First Tennessee Bank. The stock has a market cap of $2.26 billion, and it pays a dividend of 6.9%.br /br /Regal Entertainment Group (RGC) manages movie theaters in the United States. The stock has a market cap of $2.07 billion, a PE of 23, a PEG of 2.01, and it pays a yield of 8.6%.br /br /Corrections Corporation of America (CXW) owns and manages prisons. It provides transportation services for inmates, healthcare, and other services. The stock has a market cap of $2.22 billion, a PE of 16, and a PEG of 0.81.br /br /King Pharmaceuticals, Inc. (KG) supplies pharmaceutical products in the United States and internationally. The stock has a market cap of $2.03 billion, a PE of 15, and a PEG of 0.71.br /br /Community Health Systems, Inc. (CYH) renders healthcare services in the United States. The company owns and operates hospitals. The stock has a market cap of $1.71 billion, a PE of 56, and a PEG of 0.55.br /br /Don't forget to check out the stocks from the states of a href="http://stockerblog.blogspot.com/2008/10/wisconsin-stocks.html"Wisconsin/a, a href="http://stockerblog.blogspot.com/2008/10/louisiana-stocks.html"Louisiana/a, a href="http://stockerblog.blogspot.com/2008/10/michigan-stocks.html"Michigan/a, and a href="http://stockerblog.blogspot.com/2008/10/kentucky-stocks.html"Kentucky/a. br /br /iAuthor does not own any of the above./ibr /br /By a href="http://Stockerblog.com"Stockerblog.com/adiv class="blogger-post-footer"div class='adsense' style='text-align:center; padding: 0px 3px 0.5em 3px;' script type="text/javascript"!-- google_ad_client="ca-pub-2427831169011625"; google_ad_width=300; google_ad_height=250; google_ad_format="300x250_as"; google_ad_type="text"; google_ad_channel ="8681602088"; google_color_border="FFF3DB"; google_color_bg="FFF3DB"; google_color_link="1B0431"; google_color_url="1B0431"; google_color_text="29303B"; //--/script script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js" /script /div

Ohio Stocks

Fred Fuld — Mon, 24 Nov 2008 06:56:00 +0000

a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://3.bp.blogspot.com/_T9VXVyuEITg/SSpYq8j_wfI/AAAAAAAAAl0/9kY9DN2tjic/s1600-h/ohio.jpg"img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 125px;" src="http://3.bp.blogspot.com/_T9VXVyuEITg/SSpYq8j_wfI/AAAAAAAAAl0/9kY9DN2tjic/s320/ohio.jpg" border="0" alt=""id="BLOGGER_PHOTO_ID_5272123808625443314" //abr /Long gone are the days when the French system of trading furs in Ohio was synonymous of wealth. Today Ohio’s economy is one of the most dynamic in America. These are some interesting facts about Ohio:br /br /1. Ohio is one of the top consumers of energy in the country.br /2. The state has a biomass energy program aimed to increase development and production of alternative biomass fuels in the state.br /3. In 2007 Ohio’s gross domestic product was $466 billion.br /4. The state’s manufacturing industries are the top producers in the U.S. of plastics and rubber, and electrical equipment and appliances.br /5. Walmart is Ohio’s largest employer, employing over 50,000 workers.br /6. The state’s top exports are automobiles and machinery.br /7. Ohio’s exports account for 4% of the total U.S. export with total export receipts in 2007 of $42.4 billion.br /8. The main mined mineral in Ohio is coal. The state has reserves of 23.7 billion short tons and it ranks number 7 nationally.br /9. The manufacturing industry produces 20% of the state’s total output in 2007.br /10. The bioscience industry accounts for 17% of the state’s total output.br /br /The following companies are headquartered in Ohio:br /br /Procter Gamble Company (PG) provides beauty, health products and household care products worldwide. The stock has a market cap of $188 billion, a PE of 17, a PEG of 1.47, and it pays a yield of 2.5%.br /br /The Kroger Co. (KR) is a supermarket retailer in the United States. The stock has a market cap of $17 billion, a PE of 14, a PEG of 1.48, and it pays a yield of 1.4%.br /br /FirstEnergy Corp. (FE) is an electric utilities service company in the United States. The stock has a market cap of $15 billion, a PE of 13, a PEG of 1.29, and it pays a yield of 4.6%.br /br /Cardinal Health (CAH) is a provider of products and services to hospitals and clinics in the United States. The stock has a market cap of $14 billion, a PE of 11, a PEG of 0.80, and it pays a yield of 1.5%.br /br /American Electric Power Company, Inc. (AEP) is a producer and marketer of electric power in the United States. The stock has a market cap of $ 12 billion, a PE of 8, a PEG of 1.64, and it pays a yield of 5.6%.br /br /The Progressive Corporation (PGR) is an automobile insurance company. It also provides other property and casualty insurance products. The stock has a market cap of $9 billion, a PE of 1354, a PEG of 1.22, and it pays a yield of 1.1%.br /br /Fifth Third Bancorp (FITB) is a financial services institution. It offers banking services and cash management among others. The stock has a market cap of $7 billion, a PE of 15, a PEG of 2.85, and it pays a dividend of 4.7%.br /br /Eaton Corporation (ETN) is a producer and distributor of electrical components. The stock has a market cap of $7 billion, a PE of 6, a PEG of 0.48, and it pays a yield of 4.6%.br /br /Nationwide Financial Services, Inc. (NFS) offers savings and retirement accounts in the United States. The company has a market cap of $6.7 billion, a forward PE of 20, a PEG of 1.13, and it pays a yield of 2.4%.br /br /National City Corporation (NCC) is a financial institution providing banking services in the United States. The stock has a market cap of $2.2 billion, and it pays a yield of 1.3%.br / br /Don't forget to check out the stocks from the states of a href="http://stockerblog.blogspot.com/2008/10/wisconsin-stocks.html"Wisconsin/a, a href="http://stockerblog.blogspot.com/2008/10/louisiana-stocks.html"Louisiana/a, a href="http://stockerblog.blogspot.com/2008/10/michigan-stocks.html"Michigan/a, and a href="http://stockerblog.blogspot.com/2008/10/kentucky-stocks.html"Kentucky/a. br /br /iAuthor does not own any of the above./ibr /br /By Stockerblog.comdiv class="blogger-post-footer"div class='adsense' style='text-align:center; padding: 0px 3px 0.5em 3px;' script type="text/javascript"!-- google_ad_client="ca-pub-2427831169011625"; google_ad_width=300; google_ad_height=250; google_ad_format="300x250_as"; google_ad_type="text"; google_ad_channel ="8681602088"; google_color_border="FFF3DB"; google_color_bg="FFF3DB"; google_color_link="1B0431"; google_color_url="1B0431"; google_color_text="29303B"; //--/script script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js" /script /div

Xerium Technologies Inc. (XRM.NYSE): Traditional Business, Untraditional Path to Profits?

QualityStocks — Wed, 05 Nov 2008 13:02:38 +0000

Xerium Technologies (XRM) makes consumable products that are used in the production of paper and the company’s business lines are divided among clothing and roll cover. The clothing segment manufactures clothing products, such as forming fabrics, press felts, and dryer fabrics that are used on paper-making machines. This segment also manufactures clothing that are used [...]

Obama Needs to Worry About China, Not Chicago…

Sean Maher — Wed, 05 Nov 2008 10:28:00 +0000

As President-elect Obama's soaring rhetoric meets soaring deficits, I know which will win out. After the stunning incompetence of the Bush era, we can hope that the incoming administration will be as disciplined and skillful in governing as it has been in campaigning. However, the current euphoria reminds me of that surrounding the equally clever and fresh faced Clinton in 1993, who quickly discovered that while a President may propose, the bond market disposes. The Treasury has over $500bn of bonds to place before December to meet the funding needs of the various bail-out packages, and over $1trn more in 2009 and probably for several years thereafter. The question is: who are the buyers, particularly with yields at a 30 year low? Foreign central banks have been key purchasers of Treasuries in recent years, as they recycled their trade surpluses driven by record merchandise exports and commodity prices; that global liquidity engine is now sputtering. I expect Chinese GDP growth in 2009 to be no more than 5%, and the collapse in key indicators of forward activity from shipping (Baltic Freight Index down 90% from high) to petrochemical feed stocks (ethylene, benzene, naphtha etc all at 5 year lows on slumping plastics demand in Asia) and slumping demand for copper and iron ore, all indicate that industrial activity in the country is simply in free fall.

This should come as no surprise, and I have been warning of an imminent implosion in the Chinese export and investment led growth model since March; (see China 'miracle' faces meltdown for example) the stock market is down over 70% in a year, and residential real estate is down 30% in major metropolitan areas like Shanghai. All this while consumer demand in the US is now in rapid and structural decline, as the illusory above trend growth of recent years was funded by equity withdrawal from the housing boom and reckless credit expansion.

A decline of 5-6% in consumption share of GDP in the US back to the mid 60s level that prevailed a decade ago seems inevitable. The Chinese (and indeed the Russians and Gulf States who face fiscal deficits of their own at sub $70 oil) simply won't have surplus liquidity to invest into the soaring supply of US Treasuries (or UK Gilts). The flip side of this reversal is that it's likely the US trade deficit will simply disappear in 2009. Money is being repatriated globally to its rightful owners, and those countries running a large structural funding gap that cannot be met by domestic savings will have to offer higher yields to attract the shrinking pool of available capital.

We are moving from a period of excess global savings to a period of shortage (not just the economic cycle, the demographic surge in retirees in Japan and Europe, and soon in the US, means investments are being drawn down rather than accumulated), and this will demand a huge re-balancing of the now dysfunctional post Bretton Woods economic system, notably greater savings and investment in the US and greater domestic consumption in China. Apart from TIPS, now yielding well over 3% and pegged to CPI-U (with negative inflation breakevens out to the 2016 issue, do you expect deflation for the next 8 years?), and Munis, which are trading at historical premiums to Treasuries, US Government yields look unsustainably low given the increasingly poor demand fundamentals, and recent yield curve steepening may be a sign of things to come. Winning elections is the easy part.

Michigan Stocks

Fred Fuld — Wed, 15 Oct 2008 05:45:00 +0000

Michigan is best known for its auto industry and its beautiful shoreline, which is also the largest freshwater coastline in the world.
Although Michigan’s main industry today continues to be the manufacturing industry, the state government encourages different industries to locate in the state through its attractive incentive programs. Some interesting facts about Michigan follow:

1. Michigan’s manufacturing industry produces 30% of the total state revenue.
2. Recently enacted legislation mandates that by 2015, Michigan’s energy be produced from renewable sources.
3. Michigan has a tax-free zone designed for the food processing industry, the forestry industry and the renewable energy industry.
4. Michigan’s top agricultural products are dairy products, cattle and calves, hogs and chicken eggs.
5. Michigan is the top producer of automobiles in the United States. Its production accounts for 21% of all automobiles manufactured within the country.
6. In 2007 visitors to Michigan spent $18.1 billion.
7. Michigan is the top producer of tart cherries.
8. The state’s top agricultural export was soybeans, totaling $960 million.
9. There are more than 4,000 oil wells in production currently in Michigan.
10. The oil and gas industry generates over 10,000 jobs In the state.

The following companies are headquartered in Michigan:

The Dow Chemical Company (DOW) makes and markets chemicals, plastics, and agricultural products. The stock has a market cap of $23.85 billion, a PE of 10, a PEG of 1.53 and it pays a dividend of 5.9%.

Stryker Corporation (SYK) is a medical development company with operations worldwide. The stock has a market cap of $21.37 billion, a PE of 20, a PEG of 1.10, and it pays a yield of 0.6%.

Kellogg Company (K) makes and sales cereals and related products. The stock has a market cap of $18.45 billion, a PE of 17, a PEG of 1.93, and it pays a yield of 2.4%.

Ford Motor Company (F) develops and manufactures cars and trucks worldwide. Ford’s stock has a market value of $4.70 billion.

DTE Energy Company (DTE) is a utility company that produces, delivers and sells electric power and natural gas in the United States. The stock has a market cap of $5.22 billion, a PE of 8, a PEG of 2.02, and it pays a yield of 5.9%.

Masco Corporation (MAS) is a home improvement company with business in the U.S. and international markets. It makes, sells and installs different building products. The stock has a market cap of $4.86 billion, a PE of 35, a PEG of 1.80, and it pays a dividend of 5.9%.

Whirlpool Corporation (WHR) designs, makes and distributes home appliances worldwide. The stock has a market cap of $4.08 billion, a PE of 9, a PEG of 0.89, and it pays a yield of 2.6%.

General Motors Corporation (GM) develops and manufactures cars, trucks and automobile parts worldwide. The stock has a market cap of $2.69 billion, and it has a yield of 13.2% based on previous payments.

Perrigo Company (PRGO) is a pharmaceutical company. It produces both, over the counter medicines and prescription drugs. The stock has a market cap of $3.03 billion, a PE of 23, a PEG of 0.87, and it pays a yield of 0.6%.

Pulte Homes, Inc. (PHM) is a homebuilding company in the United States. It also provides financial services. The stock has a market cap of $2.7 billion, and it pays a dividend of 1.4% based on previous payments.

Don't forget to check out stocks from some of the states, such as Missouri stocks, Minnesota stocks, Kansas stocks, and Iowa stocks.

Author owns F.

By Stockerblog.com

Kentucky Stocks

Fred Fuld — Wed, 15 Oct 2008 05:07:00 +0000

Once, a part of Virginia, Kentucky is today one of only four states that calls itself a Commonwealth. It is also known as the Bluegrass State. Kentucky is one of the top producers of automobiles in the United States. Some interesting facts about the Commonwealth of Kentucky are:
1. Kentucky offers a $1 tax credit per gallon of biodiesel produced to companies in the state.
2. New and expanding service companies in the state may be entitled to a tax credit of up to 100% of its income tax liability.
3. Kentucky is the 15th state with the lowest cost of doing business.
4. Kentucky’s nonfuel mineral production revenue is $600 million, which ranks it number 24 nationally.
5. The service industry employs 34% of the labor force, followed by the utilities, trade and transportation utility employing 20% of the labor force.
6. Canada is Kentucky’s top international export market. In 2004 exports to that country totaled $4.63 billion. Following Canada are France, the United Kingdom and Japan.
7. Kentucky is a top producer of coal, with an approximate 400 mines throughout the state.
8. Mining (except oil and gas) produced $2.28 billion in 2002.
9. Kentucky’s Gross State Product is about $130 billion.
10. 96% of Kentucky’s export s are manufactured goods, followed by agricultural products (2.2%).

The following companies are headquartered in Kentucky:

Yum! Brands, Inc. (YUM) is a fast food restaurant chain. Its brands include: KFC, Pizza Hut, and Taco Bell among others. The stock has a market cap of $12.23 billion, a PE of 14, a PEG of 1.20, and it pays a yield of 2.7%.

Brown-Forman Corporation (BF-B) makes and sells alcoholic beverages. The stock has a market cap of $7.34 billion, a PE of 17, a PEG of 2.01, and it pays a yield of 2.0%.

Humana Inc. (HUM) is a provider of health benefits. Its clients are companies and individuals in the United States. The stock has a market cap of $5.08 billion, a PE of 6, and a PEG of 0.50.

Ventas, Inc. (VTR) operates and manages healthcare properties in the United State, mainly senior care facilities. The stock has a market cap of $4.59 billion, a PE of 28, a PEG of 1.68, and it pays a yield of 5.3%.

Omnicare, Inc. (OCR) is a pharmaceutical company. It provides pharmaceutical services to seniors. The stock has a market cap of $2.65 billion, a PE of 30, a PEG of 0.94, and it pays a yield of 0.3%.

Boardwalk Pipeline Partners, LP (BWP) delivers and stores natural gas in the United States. The stock has a market cap of $2.30 billion, a PE of 7, a PEG of 1.23, and it pays a yield of 11%.

Lexmark International, Inc. (LXK) makes and sells imaging and printing products worldwide. The stock has a market cap of $2.43 billion, a PE of 8, and a PEG of 1.16.

Ashland, Inc. (ASH) delivers chemicals, plastics in North America and Europe. The stock has a market cap of $1.44 billion, a PE of 7, a PEG of 0.83, and it pays a yield of 4.2%.

General Cable Corporation (BGC) sells fiber optic wires, aluminum, and copper wires worldwide. The stock has a market cap of $777.77 million, a PE of 3, and a PEG of 0.42.

Kindred Healthcare (KND) engages in the business of providing healthcare services in the United States. The stock has a market cap of $807.34 million, a PE of 19, and a PEG of 1.19.

Don't forget to check out stocks from some of the states, such as Missouri stocks, Minnesota stocks, Kansas stocks, and Iowa stocks.

Author does not own any of the above.

By Stockerblog.com

USA Truck Inc. (USAK): King of the Road, Royalty for Your Portfolio?

QualityStocks — Thu, 09 Oct 2008 04:14:03 +0000

USA Truck (USAK) offers truckload freight services to various industries, such as industrial machinery and equipment, rubber and plastics, retail stores, paper products, durable consumer goods, metals, electronics, and chemicals. The company primarily hauls products in Canada, Mexico and the United States. USA Truck, which also provides third party logistics and freight brokerage services, has [...]

Silverado Gold Mines Ltd. (SLGLF) – Seeing Golden Opportunities

QualityStocks — Wed, 08 Oct 2008 13:45:52 +0000

Silverado Gold Mines Ltd. is an exploration-stage company focusing on the discovery and exploration of gold properties that have had some past production. Trading on the OTCBB, they are also focusing on the development of new, environmentally friendly, low-rank coal-water fuel technologies. The company has their corporate headquarters in Vancouver, British Columbia, and gold properties [...]

Lightwave Logic Inc. (LWLG.OB) Develops a New Way to Think About Light and Plastic; Silicon Chips May be a Thing of the Past

QualityStocks — Fri, 19 Sep 2008 15:53:19 +0000

Seeing a technological change coming has always been the most profitable aspect of investing. Invest before the change happens and a ground floor to immense profits awaits. Some say that longer- charge batteries are the next wave of technological change. Others see opportunity for paradigm shift elsewhere. It may be suggested, however, that these possible [...]

Shanghai Petrochem Nears Ceiling – Analyst Blog

Zacks Market Commentaries — Thu, 04 Sep 2008 10:34:55 +0000

Shanghai PetrochemicalÂ’s (SHI) exposure to the fast-expanding Chinese economy and strong petrochemical product demand make us confident of strong volume growth. However, revocation of government price controls in the future, higher crude oil prices and increased competition are some of the major concerns for the company.

As expected, the companyÂ’s first half 2008 net profit declined by more than 50% from the year-ago period. The company expects profits to fall further in the second half of the year. Thus, we rate the stock a Hold with a six-month target price of $33.

On August 27, Shanghai Petrochemical reported first-half 2008 results. In the first six months of 2008, the company recorded a net loss of $47.72 million, compared to a profit of $230 million in the prior-year period. The company reported diluted loss per ADS of $0.01 in the first half of 2008.

Substantial increase in international crude oil prices has affected earnings. For the same period, the company reported an operating loss of $264 million. For the six-month period ended June 30, SHIÂ’s turnover was $4.2 billion, up 22.55% year over year.
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By 2010, SHI is expected to have 16 million tons of crude oil processing capacity and 1.60 million tons of production capacity of ethylene, 0.95 million tons of synthetic resin and plastics and 1.40 million tons of chemical fiber raw material and synthetic fiber, enabling a strong foothold in international markets.

As a part of its growth strategy, the company entered into a joint venture with Kuwait's national oil company, Kuwait Petroleum Company, to build an oil refinery with oil processing capacity of 300,000 barrels per day. The project is estimated at $5.5 billion.

Read the full analyst report on SHI

"SHI" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

Ferro Corporation’s (FOE) Materials Facilitate Performance

QualityStocks — Fri, 29 Aug 2008 15:34:21 +0000

You know when your sales for 2007 are $2.2 billion that you’re doing something right. That’s the case for Cleveland, Ohio based Ferro Corporation who garnered those kinds of numbers last year. Trading on the New York Stock Exchange (NYSE), Ferro is a worldwide supplier of technology-based performance materials for manufacturers. They are part of [...]

Dow Chemical Under Pressure – Analyst Blog

Zacks Market Commentaries — Fri, 29 Aug 2008 10:58:35 +0000

The Dow Chemical Company (DOW) is the largest producer of plastics and second leading chemical company in the world. The vertically integrated operations of the company lower costs. There are significant operational synergies between the basics and the performance segments.

More than 2,500 of the companys downstream products are created from raw materials produced in Dow plants across the world. Financials are solid. Stronger demand in Europe, Asia Pacific, Latin America, India, Middle East and Africa has more than offset the continued economic slowdown in North America.

Moreover, price gains have largely offset significant increases in feedstock and energy costs. Dows merger with Rohm and Haas (ROH) will further consolidate its higher-margin and higher-growth specialty businesses and reduce the volatility in earnings and cash flow.

However, high raw material costs have forced the company to temporarily idle or reduce production at several of its plants. Further, DOW has a high exposure to the commodity chemical cycle. We expect earnings to remain under pressure and rate the stock a Hold with a target of $35.

Dow will construct a state-of-the-art membrane chloralkali production facility in Freeport, Texas, as several of Dow's existing chlor-alkali assets in Freeport are facing obsolescence. The facility will provide long-term reliable supply of chlorine for derivative products when it begins operations in 2011. Dow's current business profile has an anticipated growth rate of about 4% from 2008 to 2012.

Read the full analyst report on DOW

"DOW" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

Dutton Associates Featured Company: International Barrier Technology, Inc (IBTGF.OB)

QualityStocks — Mon, 25 Aug 2008 14:21:11 +0000

International Barrier Technology, Inc. (Barrier) develops, manufactures and markets proprietary fire retardant building materials designed to protect people and property from fire. Barrier owns the patent-protected Pyrotite Technology and has received “patent pending” status on the new $3.2 million manufacturing line process. Its Pyrotite Technology, including building materials branded as Blazeguard®, uses a patented, [...]

RedChip Featured Company: QPC Lasers, Inc. (QPCI.OB)

QualityStocks — Sat, 16 Aug 2008 13:45:08 +0000

QPC Lasers, Inc. (OTCBB: QPCI) has established themselves as a worldwide leader in the design and manufacture of high power semiconductor lasers serving the consumer, industrial, defense, and medical fields. The company is responsible for the development of a patented high brightness chip-based laser technology, possessing the potential to reduce the size, cost, and weight [...]

RedChip Featured Company: Carbon Sciences, Inc. (CABN.OB)

QualityStocks — Sat, 16 Aug 2008 13:40:49 +0000

Carbon Sciences, Inc. (CABN.OB) is an earth conscious company working toward the fight against global warming. The Company has developed an innovative technology that transforms harmful carbon dioxide (CO2) into earth-friendly carbon products. Some products that can be produced are various building materials, fertilizers and plastics. Carbon Sciences’ technology is based on a patent filed [...]

Cereplast Inc. (CERP.OB) Readies for 50 Million Pound Capacity Expansion in 4th Quarter

QualityStocks — Wed, 09 Jul 2008 15:08:17 +0000

The world laments the way its population is treating the environment. Energy may be a hot topic at the moment, but it is a relatively new issue in the publicâ€™s mind. Consumer-based waste products have been around for more than a few decades; just think of the â€œreduce-reuse-recycleâ€ mantra. In todayâ€™s marketplace, there is finally [...]

Russia’s Consumption-Driven Inflation: Will It All End In Tears?

Claus Vistesen — Wed, 09 Jul 2008 09:22:00 +0000

by Edward Hugh: Barcelona

Russia's inflation rate remained tantalisingly frozen at its highest in more than five years in June as energy and food prices continued to move on upwards. Russian consumer prices were up 15.1 percent from a year ago - matching the rate in May- according to data released earlier this week by the Federal Statistics Service.

As a result he Russian government is struggling to bring inflation down towards it's 10.5 percent target after increased income from rising global energy prices boosted domestic demand and made possible 300 billion rubles ($13 billion) of extra government spending on items like pensions and state wages in the run up to last December's elections. The result has been a massive surge in consumer spending and construction activity which has pushed the rate of expansion in the Russian economy above its long term "comfort" capacity level.

In this post we will look at the general macro economic situation of the Russian economy, and we will see that, with output in the resource sector effectively at or near its peak, the main drivers of Russian growth are now construction and domestic consumption. Since long term labour supply issues mean that Russia is unable to comfortably grow at its current rate of expansion the end product is rising inflation and structural distortions in the development of the manufacturing sector. Policy limitations at the level of fiscal demand management and exchange rate adjustment mean that this whole process is only being accelerated rather than contained and as a result the living standards improving boom could easily, under unfavourable circumstances, be converted into precisely its opposite: an impoverishing bust.

Inflation Hits the Poor Hardest

Welcome as the current rises in living standards are in a comparatively poor country like Russia (see dollar wage chart below), inflation running at the rate Russia now has is certainly not to be sniffed at.

The price of bread has risen 41 percent since June last year, pasta is up 51.3 percent, and milk 35.3 percent. Month on month, petrol costs rose 4.3 percent compared to a gain of 3.5in May. World Bank research suggests that the impact of the world food price shock on Russia has been significant, and has greatly complicated disinflation efforts. In particular the poor (and the poorest regions) have been disproportionately affected. Over the past 5 years, food prices in the Russian Federation have grown much faster than non-food prices. Food price rises accounted for some 82 percent of the overall rise in CPI between July 2007-March 2008, with food prices rising, on average, almost 15 percent (see chart below).

(Please click on image for better viewing)

Contrary to a widespread perception that food inflation mainly affects the more prosperous regions, data from the World Bank shows that food priceshave increased the most in the Volga region, and least in the Far East Federal Okrug. In general, food inflation in western Russia has been higher than in the eastern regions. But the World Bank’s preliminary simulations of the poverty impact of this food inflation shock (based on the international poverty line of $2.15 per day) suggests that, other things being equal, the food price spike could raise Russia’s overall national poverty and vulnerability rates by 1.2 and 4.3 percentage points respectively—resulting potentially in 1.7 million more people in poverty and an additional 6 million vulnerable to poverty, respectively.

Overheating A Problem

At the same time there is now extensive evidence that the Russian economy is overheating. The IMF in their June 2008 Article IV Consultation Report mention three factors: i) the fact that inflation has almost doubled over the past year and now extends well beyond food and energy price increases; ii) domestic demand is increasing at an annual rate of 15 percent in real terms, while GDP is growing at 8 percent, a rate which is somewhat above the level that can be maintained without causing accelerating inflation, according to estimates by both Russian and IMF experts; iii) resource constraints have now become strikingly evident in labor markets, where shortages are causing real wage increases of about 16 percent annually, well above growth in labor productivity (see chart below), and unit labor costs are now rising steadily. Domestic resource constraints are also evident in the rise in import volume growth to almost 30 percent annually.

The World Bank basically take a similar view, and point out that the Russian Economic Barometer index of industrial capacity utilization has risen from 69 in 2001 to 81 in March 2008 (with 42 percent of the firms surveyed for the index reporting utilization of over 90 percent). Also, an index of labor utilization has increased from 87 to 94 with three quarters of firms showing utilization rates of over 90 percent. Meanwhile unemployment was running at 6.1 percent at end of 2007 - its lowest level since 1994.

Systematic Labour Market Tightening

Unemployment has been falling steadily since 2003, while real wage growth has been accelerating beyond labour productivity growth since 2004. Aggregate unemployment statistics for the first quarter of 2008 present a picture of continued tightening in the labor market. The average unemployment rate (using the ILO definition) was estimated at 6.6 percent for the quarter. This compares with 7.0 percent during the first quater of 2007 (see chart below for a month by month breakdown).

The level of unemployment, however, varies significantly from region to region, and reflects the large differences which exist in the underlying levels of economic activity. In 2006, for example, the lowest unemployment was registered in the Central Federal Okrug (4.1 percent), and the highest in the Southern Federal Okrug (13.7 percent).

At the same time Russia's robust economic growth has been accompanied by double-digit increases in real incomes and wages. According to Rosstat, average real wages and real disposable incomes increased by 13.1 and 11.8 percent, respectively, during the first four months of 2008.

This growth in real wages and incomes, however, significantly exceeda real GDP and productivity growth, giving yet one more sign of the presence of overheating, and indicating the possibility of producing long term structural damage. Almost all sectors of the economy have been reporting increases in real wages well above 10 percent level, with the largest gains taking place in the public sector, and in retail trade and construction (16-17 percent). The average monthly dollar wage was standing at 649.4$ in the first four months of 2008, an increase of 41 percent over the same period of 2007. This massive rise partly reflects real wage increases, partly inflation and partly nominal appreciation of the ruble against the dollar.

Russians have by now become accustomed to very rapid real income growth - of the order of 15% a year. This is more than twice the recent growth rate in labour productivity (see chart above). In one respect, this disparity has been sustainable: since oil prices have risen strongly, rapidly improving terms of trade have allowed real aggregate demand to outpace the growth of domestic production. However, this does not negate or ameliorate the problem of rapidly rising unit labour costs, or the knock on consequences for the real effective exchange rate, or the difficulty presented by distorting Russia's economic development towards resource extraction and away from the development of a healthy manufacturing industrial base. Also Russians, as I say, are becoming accustomed (and ill accustomed) to such ongoing increases, irrespective of whether they are sustainable, or justified by rising productivity, and this "detach" from the underlying reality in the mind of the average worker is in and of itself a worrying development. Thus reports of strikes and other worker protests indicate increasing worker activism in pursuit of higher pay or other benefits are now becoming commonplace. This is not surprising, as shortages of skilled labour are now becoming quite general, and the overall pool of manpower is on the verge of shrinking as Russia's population enters long term decline.

Meanwhile Russia’s short-term economic growth has been steadily accelerating above its long term trend. In 2007, the economy grew by 8.1 percent on the back of higher global oil prices, robust domestic demand and strong macroeconomic fundamentals. Preliminary data indicate an even faster real growth in GDP (8.7%) and industrial production rising by an annual 6.2 percent in the first quarter of 2008. Again the monthly Key Economic Activities index prepared by the Bank of Russia gives us a pretty clear snapshot.

Fiscal Concerns

One of the problems which both the World Bank and the IMF draw attention to is the way in which domestic demand pressures are being exacerbated by the presence of a procyclical fiscal policy. Ideally, with inflation roaring away, the economy showing strong signs of overheating and monetary policy having inherent limitations, fiscal surpluses are the only effective bulkhead available for restricting the long term damage that an extended period of over-capacity growth might cause.

Recent experience, however, raises serious doubts about the ability of those administering the Russian economy to appreciate the importance of this point. Primary expenditures by the Russian federal government were up by 15 percent in real terms in 2007, while the non-oil deficit - excluding a one-off collection of tax arrears from Yukos - rose by 0.8 percent of GDP. And a further relaxation in the fiscal stance is underway this year.

While it might be argued that the relaxation is limited in comparison with the size of the share of taxes from the oil and gas sector that are being saved as reserves against the future, there is little justification for any kind of fiscal loosening at a time when strong private demand and rapidly raising food and energy prices are already sending inflation through the roof.

The general government surplus declined to 6.1 percent of GDP in 2007, from over 8 percent in 2005-2006. There is also a growing vulnerability of the budget with respect to oil revenues. The fiscal surpluses continue in 2008, but they are coming down fast, making any disinflation process much harder. According to preliminary estimates for the first quarter of 2008, the Federal Budget generated a surplus of 549 billion rubles, or 6.6 percent of GDP on a cash basis, compared to 7.3 percept surplus during the same period of 2007. Record high oil prices helped the Russsian government generate 1.932 billion rubles (or 23.4 percent of GDP) in Q1, and these exceeded by a considerable margin the revenue target stipulated in 2008 Budget Law (20.7 percent). Federal Government spending has so far totaled 1.383 billion rubles, or 16.7 percent of GDP on a cash basis, compared to 17.7 percent stipulated in the Budget Law for 2008, but pressures are building up to spend additional windfalls on the oil account without paying too much attention to the likely impact on inflation of doing so.

The recent revision to the 2008-2010 three-year federal budget envisages further relaxation in the fiscal stance. In February 2008, the government approved the amendment to the 2008 Budget Law that foresees an increase in noninterest expenditures by 310 billion rubles and a further decline in projected fiscal surpluses to 3.0 percent of GDP in 2008, and to only 1.0 percent in 2009-2010. Non-oil deficit is projected to be about 6 percent of GDP in 2008-2009, and 5.1 percent in 2010, and this will mostly need to be covered by transfers from the oil and gas account.

Structural Distortions In the Economy?

The structure of Russian real GDP growth has shifted significantly towards non-tradeable sectors in recent quarters, partly reflecting booming domestic demand and the appreciating real effective exchange rate of the ruble. There has decline in the relative importance of resource extraction - oil output has stopped rising, and was 1% down year on year in June - and an increasing dependence on imports and construction. In the earlier years of this century, and in particular during 2003-2004, oil and some industrial sectors were the key engines of economic growth. From 2005 onwards, however, the expansion has largely been driven by non-tradable services and goods production for the domestic market, including manufacturing goods. In 2007 the wholesale and retail trade alone accounted for almost a third of the overall economic growth. Booming construction and manufacturing contributed another 30 percent. Within the industrial sector, manufacturing - which is largely directed towards the domestic market - was a key driver, expanding by 7.4 percent in 2007, compared to only 2.9 percent in the previous year. In contrast growth in the resource extraction industry has virtually ground to a halt, reflecting binding capacity constraints and the comparative remoteness (and cost) of new deposits.

The World Bank in a 2007 study entitled “Unleashing Prosperity: Productivity Growth in Eastern Europe and the former Soviet Union” documented how Russia had experienced a strong productivity surge over the period 1999-2005, a surge which significantly increased headline economic growth at the same time as raising living standards. Total factor productivity growth of 5.8 percent was the motive force behind annual average GDP growth in the region of 6.5 percent. In part this productivity surge is explained by the utilization of excess capacity, but it is also attributable to major structural shifts in the economy and the reallocation of labor and capital to more productive sectors. In addition, efficiency gains within firms were found to have accounted for 30 percent of the total growth in manufacturing productivity over the period 2001-2004. Firm turnover (entry of new firms and exit of obsolete ones) accounted for 46 percent of manufacturing productivity growth. The main contribution to manufacturing productivity growth came from the exit of obsolete firms, releasing resources that could be used more effectively by new or existing firms. However, as we have seen, this minor productivity revolution has been steadily losing steam since 2005, and the new growth drivers in the non-tradeable sector are by no means as forthcoming in terms of productivity benefits.

Changes in the output indices by sector paint a similar picture, with the non-tradable sectors - construction and retail trade - growing particularly rapidly. During 2003-2007 construction and the retail trade reported very high average annual growth rates of 14.5 and 13.0 percent, respectively. This tendency accelerated further in the first four months of 2008. The rate of annual increase slowed slightly in April to a provisional 13.2%, but the January to April average is 15.7% (see chart below).

Growth in these two sectors - construction and retailing - have been increasingly outpacing the rest of the economy, and as the tightening capacity constraint factor has locked-in industrial expansion has become less and less driven by extraction industries, with new growth now being almost entirely a product of the manufacturing sector.

The detailed manufacturing data for the first four months of 2008 show robust growth across a whole range of manufacturing subsectors. The leading manufacturing sectors were rubber and plastics, both of which are products that feed directly into the domestic construction and durable goods boom. Rubber and plastics were growing by more than 30 percent per annum in the first four months of 2008, compared to 13 percent a year earlier. The production of machines and equipment also continued to expand rapidy, in this case by more than 20 percent. Some manufacturing industries, however, have been reporting lower growth rates. The production of electro-technical equipment, the food industry and chemical products, for example. While the overall picture shows dynamic manufacturing growth, the World Bank concludes that rising unit labor costs and an appreciating real effective exchange rate may well be behind the lower growth in some manufacturing subsectors, and indeed it would be surprising if they weren't in cases where import substitution is a viable alternative.

Foreign Direct Investment Remains Strong But Excessively Concentrated

Fixed capital investment in Russia has been growing in recent years (see chart below) although investment as a proportion of GDP (21% in 2007) remains relatively low in comparison with those sustained in other emerging market economies. For example, Korea (38 percent), China (42 percent) and India (34 percent) have all maintained significantly higher rates of investment over quite long periods of time (1980-2007). In addition the bulk of investment activity continues to take place in resource industries, and transportation and communication services. The share of the resource sector rose to 17.3 percent of the total in 2007 (up from 15.2 percent in 2005), while manufacturing industries have reduced their share to 15.7 percent in 2007 (from 17.6 percent in 2005).

Simply put Russia does not appear to be investing in industries that could eventually lead to a more diversified economic structure. On the back of the rapid increase in energy prices Russia has received large quantities of direct foreign investment, but the composition of Russia’s FDI has, over the past three years, shifted towards extraction industries. In 2007, for example, extraction industries received around 50 percent of total FDI inflows, while manufacturing received only 15 percent. Recent estimates from Rosstat show FDIs in the first quarter of 2008 running at only USD 5.6 billion, more than 50 percent down on the corresponding period of 2007. The structure of FDI also changed in the first quarter of 2008 with investments in the electricity, gas and water supply sectors shooting forward to receive a third of the FDI inflow (USD 1.9 billion) - reflecting new investments into TGK (teretorialnaya generiruushaya kompania) and OGKs (optovaya generiruushaya kompania) electricity generating companies - while the manufacturing share of FDI continued to decline (falling to 13.1 percent of the total in Q1 2008).

Monetary Policy and Ruble Appreciation

Russia registered record net capital inflows into both banking and non-banking sectors throughout 2007, significantly raising liquidity in the domestic economy. These flows reflected a mixture of comparatively strong fundamentals, an appreciating ruble, and a low perceived external vulnerability. The also helped maintain dynamic growth in the banking sector, while facilitating an ongoing rise in consumer credit. Despite continuing accumulation by the oil Reserve and National Welfare funds the Russian central bank was unable to fully sterilize the domestic monetary impact of the oil revenues and the capital inflows and there was a rapid growth in the money supply (up 44 percent in 2007) - this is way above the levels of nominal income growth and this has obviously contributed significantly to inflationary pressures.

Russian monetary policy effectively remains hamstrung by an excessive focus on stabilizing the ruble in terms of a euro-dollar basket. At the present time the ruble is allowed to trade within a given band versus the basket - which is made up by 55 percent dollars and 45 percent euros - with the objective of avoiding gains which are thought liable to hurt the interests of Russian exporters. But this policy is now under tremendous strain the rapid rise in the money suppy which this is producing fuels an inflation process which is now increasingly out of control. Indeed it is partly the feeling that the non-sustainability of this position will eventually lead to ruble revaluation which is encouraging some of the inflows - which amounted to a total of $82 billion in 2007 alone.

In order to maintain the trading band the Russian central banks buys and sells the ruble on a daily basis, as a result ruble appreciation has been fairly limited, and the currncy only gained 0.2 percent against the dollar and 0.4 percent against the euro in the second quarter.

The pressure is obviously now on, and central bank Deputy Chairman Konstantin Korishchenko indicated at the end of June that Russia may expand the ruble trading band by as much as 5 in the near future. The aim is explicitly to deter speculation, since Korishchenko's main argument was that the wider range would make it costlier for traders to limit losses should bets go the wrong way.

It is evident that the Russian authorities need to find some way to tighten monetary policy. One route to achieving this object can be to allow for greater exchange rate flexibility, although it is important that this is done sooner rather than later, since the longer the present rate of inflation is allowed to continue the greater the risk of a sharp downward correction in a free floating ruble should we see an easing in the currently very high level of energy prices (which if maintained will almost certainly slow global growth considerably in 2009) and the Russian external balance deteriorate on the back of a non-competitive manufacturing export sector. At that point the win-win dynamic of capital inflows driven by appreciation expèctations could turn into its opposite.

The recent increases in policy rates and reserve requirements does not constitute significant tightening. The commitment on the part of the Russian central bank to move to formal inflation targeting, once it believes the conditions for such a framework are in place, is a positive step (if one fraught with risk in terms of central bank crredibility) under current inflation conditions, but this does not imply there is not an urgent need to refocus monetary policy on immediate inflation reduction. For the sort of structural reasons outlined in this article a major reduction in credit growth and higher real interest rates are essential - and unavoidable - at the present time.

Oil Dependence and An Ageing Population - The Long Term Risk

In the short term the Russian economy only seems to go from strength to strength. Russia's trade surplus is estimated to have expanded again in May (results due out this week) from April as the world's largest energy exporter benefited yet one more time from record oil prices. The surplus is likely to be in the region of $18.6 billion, compared with $15.5 billion in April and $12.2 billion in May, 2007.

At the same time the price of Russia's Urals crude continues to touch all time highs (it averaged $106 a barrel in the year through July 2, compared with $60 a barrel in the same period a year earlier). Russia produced 9.77 million barrels of oil a day in June, more than Saudi Arabia did, thus becoming the biggest exporter of the fuel. Russia also produces the energy equivalent of about 11 million barrels a day of gas. As a result of such factors Russia's trade surplus hit a record $130.92 billion in 2007. So what could possibly go wrong?

Well the central point would be that the strong rise in oil prices we have seen since the start of the century has only served to increase Russia’s dependence on oil and gas revenue and has not been used to facilitate the kind of diversification which could allow for a more stable development path. As such the Russian economy - despite the outward semblance of "you've never had it so good" boom times - has never been more vulnerable to sudden falls in oil and gas prices.

The share of oil income in total fiscal revenue has increased substantially – from 10 to about 30 percent of GDP. Instead of diversifying, Russia has, de facto, been specializing in oil. Oil now also accounts for about 60 percent of total exports. Higher oil revenues allow for additional spending room, but they also complicate macroeconomic management and lead to an increased dependence on a highly volatile and uncertain source of income. While this has not been a problem during the period of high oil prices, it would be a major source of vulnerability if oil prices suffer any kind of rapid descent from the recent levels, and it does put in place a "ceiling" on Russia inflation-free level of growth capacity given the fact that the resources sector seem to have now reached its "peak output" level.

Soaring oil prices, large capital inflows, and high credit growth are all providing the impetus for a virtuous circle of robust growth in investment, real incomes and consumption but such growth has been producing manifest signs of overheating. The situation is only being made worse by a procyclical fiscal policywhich is stimulating rather than easing demand pressures, while the fixed exchange rate policy in the face of rising oil prices and large capital inflows is leading to very high levels of money and credit growth.

And as we move forward the problems identified here are only likely to get worse. Russia’s well documented demographic trends—declining population, aging, and increasing demand for pension and health services and the changing structure of demand for education are likely to become key drivers of major social expenditures such as pensions, health and education expenditures in the years to come. The net effect of these trends is that under any long-term economic scenario, public expenditures on pensions, health and education are likely to increase significantly. The World Bank estimate that the main social expenditure items are likely to increase by 3 percentage points of GDP - from 14.1% in 2008-10 to about 17.3% by 2016-20. Given this situation stable sources of long-term fiscal revenue and moderation in total public expenditure commitments are essential, as is the development of a growth model to make all the numbers add up.

And sustainability of pensions and health spending isn't the only issue that Russia's demography presents us with. Declining levels of productivity growth mean that it is very likely that increases in headline GDP will only be possible via sustained increases in labour inputs, yet Russia now has, as we have seen, a declining working age population. Long term very low fertility (TFR 1.3-1.4 range, see chart above) means that this problem is set to continue at least over the next twenty years (and probably a good deal longer) which means a Russian economy which is increasingly immigrant dependent (the World Bank estimates Russia currently need a million migrants a year) and which suffers from the almost permament inflationary pressure of running a very tight labour market. Under these circumstances it is impossible to contemplate the present very high levels of GDP growth being sustained in the longer term, indeed, if we have any kind of "adverse event" which precipitates an unwind, precisely the opposite might well occur.

Russia’s Consumption-Driven Inflation: Will It All End In Tears?

Edward Hugh — Mon, 07 Jul 2008 17:45:00 +0000

Russia's inflation rate remained tantalisingly frozen at its highest in more than five years in June as energy and food prices continued to move on upwards. Russian consumer prices were up 15.1 percent from a year ago - matching the rate in May- according to data released earlier this week by the Federal Statistics Service.

As a result he Russian government is struggling to bring inflation down towards it's 10.5 percent target after increased income from rising global energy prices boosted domestic demand and made possible 300 billion rubles ($13 billion) of extra government spending on items like pensions and state wages in the run up to last December's elections. The result has been a massive surge in consumer spending and construction activity which has pushed the rate of expansion in the Russian economy above its long term "comfort" capacity level.

(Please click on image for better viewing)

Contrary to a widespread perception that food inflation mainly affects the more prosperous regions, data from the World Bank shows that food priceshave increased the most in the Volga region, and least in the Far East Federal Okrug. In general, food inflation in western Russia has been higher than in the eastern regions. But the World Bankâ€™s preliminary simulations of the poverty impact of this food inflation shock (based on the international poverty line of $2.15 per day) suggests that, other things being equal, the food price spike could raise Russiaâ€™s overall national poverty and vulnerability rates by 1.2 and 4.3 percentage points respectivelyâ€”resulting potentially in 1.7 million more people in poverty and an additional 6 million vulnerable to poverty, respectively.

The level of unemployment, however, varies significantly from region to region, and reflects the large differences which exist in the underlying levels of economic activity. In 2006, for example, the lowest unemployment was registered in the Central Federal Okrug (4.1 percent), and the highest in the Southern Federal Okrug (13.7 percent).

At the same time Russia's robust economic growth has been accompanied by double-digit increases in real incomes and wages. According to Rosstat, average real wages and real disposable incomes increased by 13.1 and 11.8 percent, respectively, during the first four months of 2008.

This growth in real wages and incomes, however, significantly exceeda real GDP and productivity growth, giving yet one more sign of the presence of overheating, and indicating the possibility of producing long term structural damage. Almost all sectors of the economy have been reporting increases in real wages well above 10 percent level, with the largest gains taking place in the public sector, and in retail trade and construction (16-17 percent). The average monthly dollar wage was standing at 649.4$ in the first four months of 2008, an increase of 41 percent over the same period of 2007. This massive rise partly reflects real wage increases, partly inflation and partly nominal appreciation of the ruble against the dollar.

Russians have by now become accustomed to very rapid real income growth - of the order of 15% a year. This is more than twice the recent growth rate in labour productivity (see chart above). In one respect, this disparity has been sustainable: since oil prices have risen strongly, rapidly improving terms of trade have allowed real aggregate demand to outpace the growth of domestic production. However, this does not negate or ameliorate the problem of rapidly rising unit labour costs, or the knock on consequences for the real effective exchange rate, or the difficulty presented by distorting Russia's economic development towards resource extraction and away from the development of a healthy manufacturing industrial base. Also Russians, as I say, are becoming accustomed (and ill accustomed) to such ongoing increases, irrespective of whether they are sustainable, or justified by rising productivity, and this "detach" from the underlying reality in the mind of the average worker is in and of itself a worrying development. Thus reports of strikes and other worker protests indicate increasing worker activism in pursuit of higher pay or other benefits are now becoming commonplace. This is not surprising, as shortages of skilled labour are now becoming quite general, and the overall pool of manpower is on the verge of shrinking as Russia's population enters long term decline.

Meanwhile Russiaâ€™s short-term economic growth has been steadily accelerating above its long term trend. In 2007, the economy grew by 8.1 percent on the back of higher global oil prices, robust domestic demand and strong macroeconomic fundamentals. Preliminary data indicate an even faster real growth in GDP (8.7%) and industrial production rising by an annual 6.2 percent in the first quarter of 2008. Again the monthly Key Economic Activities index prepared by the Bank of Russia gives us a pretty clear snapshot.

Fiscal Concerns

One of the problems which both the World Bank and the IMF draw attention to is the way in which domestic demand pressures are being exacerbated by the presence of a procyclical fiscal policy. Ideally, with inflation roaring away, the economy showing strong signs of overheating and monetary policy having inherent limitations, fiscal surpluses are the only effective bulkhead available for restricting the long term damage that an extended period of over-capacity growth might cause.

The recent revision to the 2008-2010 three-year federal budget envisages further relaxation in the fiscal stance. In February 2008, the government approved the amendment to the 2008 Budget Law that foresees an increase in noninterest expenditures by 310 billion rubles and a further decline in projected fiscal surpluses to 3.0 percent of GDP in 2008, and to only 1.0 percent in 2009-2010. Non-oil deficit is projected to be about 6 percent of GDP in 2008-2009, and 5.1 percent in 2010, and this will mostly need to be covered by transfers from the oil and gas account.

Structural Distortions In the Economy?

The structure of Russian real GDP growth has shifted significantly towards non-tradeable sectors in recent quarters, partly reflecting booming domestic demand and the appreciating real effective exchange rate of the ruble. There has decline in the relative importance of resource extraction - oil output has stopped rising, and was 1% down year on year in June - and an increasing dependence on imports and construction. In the earlier years of this century, and in particular during 2003-2004, oil and some industrial sectors were the key engines of economic growth. From 2005 onwards, however, the expansion has largely been driven by non-tradable services and goods production for the domestic market, including manufacturing goods. In 2007 the wholesale and retail trade alone accounted for almost a third of the overall economic growth. Booming construction and manufacturing contributed another 30 percent. Within the industrial sector, manufacturing - which is largely directed towards the domestic market - was a key driver, expanding by 7.4 percent in 2007, compared to only 2.9 percent in the previous year. In contrast growth in the resource extraction industry has virtually ground to a halt, reflecting binding capacity constraints and the comparative remoteness (and cost) of new deposits.

The World Bank in a 2007 study entitled â€œUnleashing Prosperity: Productivity Growth in Eastern Europe and the former Soviet Unionâ€ documented how Russia had experienced a strong productivity surge over the period 1999-2005, a surge which significantly increased headline economic growth at the same time as raising living standards. Total factor productivity growth of 5.8 percent was the motive force behind annual average GDP growth in the region of 6.5 percent. In part this productivity surge is explained by the utilization of excess capacity, but it is also attributable to major structural shifts in the economy and the reallocation of labor and capital to more productive sectors. In addition, efficiency gains within firms were found to have accounted for 30 percent of the total growth in manufacturing productivity over the period 2001-2004. Firm turnover (entry of new firms and exit of obsolete ones) accounted for 46 percent of manufacturing productivity growth. The main contribution to manufacturing productivity growth came from the exit of obsolete firms, releasing resources that could be used more effectively by new or existing firms. However, as we have seen, this minor productivity revolution has been steadily losing steam since 2005, and the new growth drivers in the non-tradeable sector are by no means as forthcoming in terms of productivity benefits.

Changes in the output indices by sector paint a similar picture, with the non-tradable sectors - construction and retail trade - growing particularly rapidly. During 2003-2007 construction and the retail trade reported very high average annual growth rates of 14.5 and 13.0 percent, respectively. This tendency accelerated further in the first four months of 2008. The rate of annual increase slowed slightly in April to a provisional 13.2%, but the January to April average is 15.7% (see chart below).

Growth in these two sectors - construction and retailing - have been increasingly outpacing the rest of the economy, and as the tightening capacity constraint factor has locked-in industrial expansion has become less and less driven by extraction industries, with new growth now being almost entirely a product of the manufacturing sector.

The detailed manufacturing data for the first four months of 2008 show robust growth across a whole range of manufacturing subsectors. The leading manufacturing sectors were rubber and plastics, both of which are products that feed directly into the domestic construction and durable goods boom. Rubber and plastics were growing by more than 30 percent per annum in the first four months of 2008, compared to 13 percent a year earlier. The production of machines and equipment also continued to expand rapidy, in this case by more than 20 percent. Some manufacturing industries, however, have been reporting lower growth rates. The production of electro-technical equipment, the food industry and chemical products, for example. While the overall picture shows dynamic manufacturing growth, the World Bank concludes that rising unit labor costs and an appreciating real effective exchange rate may well be behind the lower growth in some manufacturing subsectors, and indeed it would be surprising if they weren't in cases where import substitution is a viable alternative.

Foreign Direct Investment Remains Strong But Excessively Concentrated

Fixed capital investment in Russia has been growing in recent years (see chart below) although investment as a proportion of GDP (21% in 2007) remains relatively low in comparison with those sustained in other emerging market economies. For example, Korea (38 percent), China (42 percent) and India (34 percent) have all maintained significantly higher rates of investment over quite long periods of time (1980-2007). In addition the bulk of investment activity continues to take place in resource industries, and transportation and communication services. The share of the resource sector rose to 17.3 percent of the total in 2007 (up from 15.2 percent in 2005), while manufacturing industries have reduced their share to 15.7 percent in 2007 (from 17.6 percent in 2005).

Simply put Russia does not appear to be investing in industries that could eventually lead to a more diversified economic structure. On the back of the rapid increase in energy prices Russia has received large quantities of direct foreign investment, but the composition of Russiaâ€™s FDI has, over the past three years, shifted towards extraction industries. In 2007, for example, extraction industries received around 50 percent of total FDI inflows, while manufacturing received only 15 percent. Recent estimates from Rosstat show FDIs in the first quarter of 2008 running at only USD 5.6 billion, more than 50 percent down on the corresponding period of 2007. The structure of FDI also changed in the first quarter of 2008 with investments in the electricity, gas and water supply sectors shooting forward to receive a third of the FDI inflow (USD 1.9 billion) - reflecting new investments into TGK (teretorialnaya generiruushaya kompania) and OGKs (optovaya generiruushaya kompania) electricity generating companies - while the manufacturing share of FDI continued to decline (falling to 13.1 percent of the total in Q1 2008).

Monetary Policy and Ruble Appreciation

Russia registered record net capital inflows into both banking and non-banking sectors throughout 2007, significantly raising liquidity in the domestic economy. These flows reflected a mixture of comparatively strong fundamentals, an appreciating ruble, and a low perceived external vulnerability. The also helped maintain dynamic growth in the banking sector, while facilitating an ongoing rise in consumer credit. Despite continuing accumulation by the oil Reserve and National Welfare funds the Russian central bank was unable to fully sterilize the domestic monetary impact of the oil revenues and the capital inflows and there was a rapid growth in the money supply (up 44 percent in 2007) - this is way above the levels of nominal income growth and this has obviously contributed significantly to inflationary pressures.

Russian monetary policy effectively remains hamstrung by an excessive focus on stabilizing the ruble in terms of a euro-dollar basket. At the present time the ruble is allowed to trade within a given band versus the basket - which is made up by 55 percent dollars and 45 percent euros - with the objective of avoiding gains which are thought liable to hurt the interests of Russian exporters. But this policy is now under tremendous strain the rapid rise in the money suppy which this is producing fuels an inflation process which is now increasingly out of control. Indeed it is partly the feeling that the non-sustainability of this position will eventually lead to ruble revaluation which is encouraging some of the inflows - which amounted to a total of $82 billion in 2007 alone.

The recent increases in policy rates and reserve requirements does not constitute significant tightening. The commitment on the part of the Russian central bank to move to formal inflation targeting, once it believes the conditions for such a framework are in place, is a positive step (if one fraught with risk in terms of central bank crredibility) under current inflation conditions, but this does not imply there is not an urgent need to refocus monetary policy on immediate inflation reduction. For the sort of structural reasons outlined in this article a major reduction in credit growth and higher real interest rates are essential - and unavoidable - at the present time.

Oil Dependence and An Ageing Population - The Long Term Risk

In the short term the Russian economy only seems to go from strength to strength. Russia's trade surplus is estimated to have expanded again in May (results due out this week) from April as the world's largest energy exporter benefited yet one more time from record oil prices. The surplus is likely to be in the region of $18.6 billion, compared with $15.5 billion in April and $12.2 billion in May, 2007.

At the same time the price of Russia's Urals crude continues to touch all time highs (it averaged $106 a barrel in the year through July 2, compared with $60 a barrel in the same period a year earlier). Russia produced 9.77 million barrels of oil a day in June, more than Saudi Arabia did, thus becoming the biggest exporter of the fuel. Russia also produces the energy equivalent of about 11 million barrels a day of gas. As a result of such factors Russia's trade surplus hit a record $130.92 billion in 2007. So what could possibly go wrong?

Well the central point would be that the strong rise in oil prices we have seen since the start of the century has only served to increase Russiaâ€™s dependence on oil and gas revenue and has not been used to facilitate the kind of diversification which could allow for a more stable development path. As such the Russian economy - despite the outward semblance of "you've never had it so good" boom times - has never been more vulnerable to sudden falls in oil and gas prices.

The share of oil income in total fiscal revenue has increased substantially â€“ from 10 to about 30 percent of GDP. Instead of diversifying, Russia has, de facto, been specializing in oil. Oil now also accounts for about 60 percent of total exports. Higher oil revenues allow for additional spending room, but they also complicate macroeconomic management and lead to an increased dependence on a highly volatile and uncertain source of income. While this has not been a problem during the period of high oil prices, it would be a major source of vulnerability if oil prices suffer any kind of rapid descent from the recent levels, and it does put in place a "ceiling" on Russia inflation-free level of growth capacity given the fact that the resources sector seem to have now reached its "peak output" level.

Soaring oil prices, large capital inflows, and high credit growth are all providing the impetus for a virtuous circle of robust growth in investment, real incomes and consumption but such growth has been producing manifest signs of overheating. The situation is only being made worse by a procyclical fiscal policywhich is stimulating rather than easing demand pressures, while the fixed exchange rate policy in the face of rising oil prices and large capital inflows is leading to very high levels of money and credit growth.

And as we move forward the problems identified here are only likely to get worse. Russiaâ€™s well documented demographic trendsâ€”declining population, aging, and increasing demand for pension and health services and the changing structure of demand for education are likely to become key drivers of major social expenditures such as pensions, health and education expenditures in the years to come. The net effect of these trends is that under any long-term economic scenario, public expenditures on pensions, health and education are likely to increase significantly. The World Bank estimate that the main social expenditure items are likely to increase by 3 percentage points of GDP - from 14.1% in 2008-10 to about 17.3% by 2016-20. Given this situation stable sources of long-term fiscal revenue and moderation in total public expenditure commitments are essential, as is the development of a growth model to make all the numbers add up.

And sustainability of pensions and health spending isn't the only issue that Russia's demography presents us with. Declining levels of productivity growth mean that it is very likely that increases in headline GDP will only be possible via sustained increases in labour inputs, yet Russia now has, as we have seen, a declining working age population. Long term very low fertility (TFR 1.3-1.4 range, see chart above) means that this problem is set to continue at least over the next twenty years (and probably a good deal longer) which means a Russian economy which is increasingly immigrant dependent (the World Bank estimates Russia currently need a million migrants a year) and which suffers from the almost permament inflationary pressure of running a very tight labour market. Under these circumstances it is impossible to contemplate the present very high levels of GDP growth being sustained in the longer term, indeed, if we have any kind of "adverse event" which precipitates an unwind, precisely the opposite might well occur.