Recession almost over, according to the Refrigerated Trailer indicator

Never heard of this before but it kinda makes sense, in the same way as Fedex/UPS or even Transportation index can be a leading indicator of the economic activity. Ingersoll-Rand reported that the sales of its refrigeration trailers are picking up and in the past this has served as a very reliable indicator of an economic recovery. IR also reported a fall in earnings in the most recent quarter but that the business appears to be stabilizing.

Disclosure: Author owns shares in LUK and IR

Nevertheless, there are two very significant deals or almost deals that have come out. Merck buying Schering Plough for almost $41B has been all over the wires. This is a very attractive deal for Schering and it does not appear that Schering shareholders will object. The deal still has to pass the federal scrutiny.

The other news is a likely acquisition in full of Genentech by Roche Holdings. Roche made a $93/share offer last friday and they might go up to $95/share to seal the deal. Roche already owns 44% of Genentech.

Both these deals will create a behemoth health care company. While I do not particularly care for the size of the company as I believe that the company will and should live and die based on the value it can create. If the scale is no longer economic, the markets will force a breakup or a spin off, as should be the case. No, the concern I have is our propensity to term a large company as too big to fail and the inability of the government to let the markets do their work because they get caught up in the populism aspect of the government policy.

In additional news, World Bank now predicts the global economy will shrink in 2009, with international trade declining the fastest in 80 years. As the cost of stimulus in the developed economies keeps rising, poorer nations will get crowded out of the global lending markets and this has a potential to create dislocations and conflicts around the world

• Citigroup stock dipped below $1
• American Express stock dipped below $10
• Unemployment rate surges to 8.1%, the highest in 25 years
• GM’s market capitalization has now dipped below $1 Billion mark (I mean, seriously!) and a bankruptcy appears to be the likeliest outcome regardless of the spin the government will want to put on it. The stock now trades at a 75 year low
• GE, fresh off reporting record profits last year is now trading as if it will default on its debt obligations

On the other hand, it looks like the mythical consumer is now starting to show signs of life as the retail data starts showing an uptick. Hard to reconcile this with the fact that the job losses are accelerating and the credit is drying up. Where is the money coming from for increase in spending?

Still, the irrationality of the pessimism is astounding. I think it is about time that this value investor (and likely other value investing disciples) start to invest again in the market with new money. Over the next few weeks I will be spending time on due diligence scouring the markets for the most undervalued and promising assets that can be picked up for peanuts. Stay tuned.

Or rather, if you have ideas for cheap stocks, let’s hear them.

Yes, the cockroaches are coming out now. SEC has charged Texas Billionaire Allen Stanford and 3 of his companies with massive fraud. Apparently Stanford was selling very high yielding CDs to the tune of $8 Billion. Almost 30,000 had invested with Stanford. Stanford lived the high life on the island of Antigua where he was knighted. Last year he took on the mission of improving the sport of Cricket in West Indies and arranged for a $20 million winner takes all cricket match between England and his own team of selected West Indian players. He ultimately slithered out of a long term commitment to the sport with vague reasons few months ago. One wonders if he had seen the writing on the wall.

California faces a $42 Billion budget deficit and is all set to layoff 20,000 state employees. Kansas may be unable to issue paychecks to its employees on time and may suspend tax refund payments. Federal Reserve banker warns of deflation risk.

Amidst all these bad news, Oil slipped below $35 a barrell today.

Stocks are getting routed today as President Obama is all set to sign the largest pork-stimulus bill in the history. It is hard to feign excitement over this package.

On a slightly different note, we have our commercial accounts with Bank of America and recently (as of the last week or so) it appears that the bank’s customer service and processes and systems have rapidly fallen into an abyss. While we can grudgingly accept increased holds on deposited checks, what I fail to understand is when a teller tells us that she can no longer call up the account transactions on her computer screen or has no way of telling us whether a wire we have been expecting has hit the account. Maybe these are integration issues with Lasalle bank which had our accounts originally before it was bought by Bank of America, or maybe there is something systemically wrong with the bank. Hopefully this is temporary. Has anyone experienced this with BOA or any other bank recently???

Sirius-XM Radio may be close to filing for bankruptcy protection. I wonder what they were thinking when the rebuffed Echostar from taking a controlling position in the company.

Ingersoll Rand reported a quarterly loss of $3.3 Bilillion. Included in the loss is $3.7 B in writedowns due to its Trane purchase. Without the charges, the company made a profit of 53 cents/share, widely out performing its guidance of 29 c/share.

Finally, the financials are rallying today, one day after the Geithner plan bloodbath. Sooner or later the investors will realize that there is now close to zero chance of the big banks being nationalized and the prices on offer for these shares today are very attractive.

For confidence sake, what is also sorely needing is an appearance of a well thought out plan. The Paulson era was a seat-of-the-pants damage control extravaganza and the current stimulus package is pork-laden nightmare. Let’s hope Geithner delivers.

Still, the stocks are rallying today on stimulus hopes. I think the markets are now completely irrational and are looking for any ray of hope to cling to. These are typically great times to bargain hunt but frankly I will stick to great well run companies which are internationally diversified. We may be in for years of runaway inflation and eroding dollar and it just seems wise to lighten up on US assets and add an international color to your portfolio. Fortunately, there are bargains to be found in the foreign lands too.

Ken Lewis bought another $1 million worth of BAC stock this week. Bank of America is a great stock and a business that will likely emerge from this recession much stronger. The real fear however is that no one knows how far and deep will the Obama administration interfere in the public markets.

Everyone have a great weekend! Monday will likely see what Geithner has planned for the banks. Next week should be terribly exciting!

Bank of England cuts its benchmark interest rates by half a point to 1% while ECB kept the rates constant at 2%.

White House is close to finalizing the bank relief plan which would include the bad bank concept. Another possible inclusion is a change in the mark to market accounting rule that should help the banks stem the write downs on their balance sheets. However, none of these solves the real problem, and that is, the incredible number of foreclosures and the housing value erosion. This problem can only be fixed when the economy starts growing again and the companies start creating new jobs.

Jeff Immelt of GE has warned against pay caps and buy American provisions. He echoed the comments I made yesterday about pay caps discouraging best people to come and run these companies.

A fundamental rethink of the compensation policies is needed for all public companies in United States. Public companies are ultimately responsible for creating wealth for the shareholders and should balance size of the bonus pool with what is best for the shareholders.

In other economic news, job cuts soar to a 7 year high. The situation is grim and most sectors of the economy are shedding workers. Small and medium sized businesses are severely affected and there are likely to be many companies shutting doors in the coming months.

I have said this before, the best use of stimulus dollars will be to help the small and medium sized businesses through this recession by taking steps to make credit easier for them. There are many well run and profitable companies being forced into bankruptcy as the credit rug has been pulled from under them.

President Obama warns of catastrophe if the stimulus bill isn’t passed. Maybe the fear mongering will prove stronger than the pork and get some republicans to vote for the package

Speaking of TARP, Citigroup says that it has commited $36.5B in new lending backed by TARP capital (of $45B).

In other news, recession is forcing the sports teams to feel the crunch. Yes, there is a bubble in the size of the contracts being offered to the athletes and hopefully some rationality will return

Merck seems to have worked off its Vioxx liabilities and surprises wall street with a profit of $1.64B or 78c/share in Q4

Motorola posts a massive loss of $3.6B as the cell phone business declines, suspends its dividend and announced exit of its CFO. Maybe cell phones are like pharmas, you need a pipeline of blockbusters and since Razr, Motorola really didn’t have anything interesting come out

And finally, in the latest stimulus news, CBO estimates that the senate version will end up costing $885B over next 10 years in form of increased deficits