catching up

This one will be quick updates on various stocks and maybe a market issue or two.

CME -- stock has just been dropping like a rock. Finally dawned on me that almost half their trading related revenues come from fixed income products -- interest rate futures. its a huge portion of volume but lower pricing means its only half of revenues. Just realizing that potentially that's a problem -- as the fixed income market deleverages -- banks, brokers, hedge funds, CDOs, etc. -- they might use less hedging -- as in less futures. In addition, while we all got excited earlier this year about the volume that comes from high levels of volatility, bear markets usually mean less volume. So you get a spike in volume and then everything flattens out for awhile. so now we have two reasons to see less volume and potentially lower eps estimates. Then you realize that they went from being an organic growth story to a roll up and you realize that the future won't be as good as the past -- sure stinks to figure that out now some 150 points below our cost. ugh.

Not intending to sell it at this price -- stock is pretty cheap even if you assume the estimates drop. don't forget its still an almost 60% operating margin business with lots of free cash flow.

MCO -- well it didn't take long for the market to decide that cover up of wrong ratings wouldn't be a big deal. I know the deal with the NY attorney general and the analyst day were mostly responsible but if everyone was still concerned about the cover up the stock would never have gone up $8 off the bottom. The deal with the NY AG is critical because while it removes a conflict of interest -- ratings shopping -- it also could have the affect of reducing competition. Not to mention they will now get paid for due diligence when in the past they wouldn't. I wrote some more calls when the stock was $40 -- next day could have gotten a dollar more but then came Friday's whack and I'm in the black again. Analyst day showed me that they have a lot of growth drivers to get the business growing in the 10% range. Add share buybacks to that and its not bad. I thought about selling the $45's but decided to do the $40's instead. Hoping to get lucky on these to sell at a profit and maybe over time shift my selling to the $45's. I think its going to work its way slowly higher -- presuming we don't have another financial panic or a big rout in the market.

BLUD -- FY 2009 guidance -- no big deal. hoping they were conservative and that there will be good upside after they report in a few weeks. still wondering about this one.


New ideas again ---

Ritchie Bros Auctions -- RBA -- all that cap ex that I mentioned last note is for their 30+ facilities around the world. They are auctioning used heavy construction and farming equipment so it takes up a lot of space. They have 25% of their winning lots online but the rest is bought in person at the facility -- the buyer has kicked the tires on the actual piece of equipment. So in some sense they are like a retailer -- always growing stores and also fixing up their stores. Their cap ex is running near 17% of sales -- this compares to someone like FLIR which is near 7% -- that's 10% less for shareholders. Moody's probably runs around 3% of sales for cap ex in most years. Analysts are arguing that they will not be affected by the economic cycle -- maybe true but they are affected by the industry cycle -- boom times for heavy equipment which supports equipment prices by having plenty of buyers. When the infrastructure boom ends, who are all the users going to sell their now excess supply of equipment to? Right now the slowdown in the US is not a big deal because they can sell the equipment to overseas users in the mid east and asia. What happens when the mid east and asia slowdown and the US can't absorb it all? bummer.

Hope is that when that time comes the analysts will still be pushing the no problem thesis and you can get out at a higher price than you should be able to. Trouble is to spot the slowdown before everyone else. Now truth is that every stock I could buy will face a slowdown so that's not a reason to exclude these guys. But its also true that heavy equipment demand is going through a really strong cycle, which means the downturn will be bad when it comes. For me its key to understand the secular drivers for the company and the cyclical ones -- once the cyclical (current heavy equipment demand) wears off what will be left of the secular -- enough to be a reason to own the stock? Especially when that stock comes at 30X earnings -- ouch. When the cyclical runs out this thing will be at 20X if we are lucky.

All that said, I like the way RBA is managed -- like a family owned business that knows how to take care of customers. that is what you want in a management team.

market -- obviously the whack on friday was ugly -- could be the beginning of something uglier. banks have been hitting new lows and lots of talk about Lehman's future -- they are at 30x leverage. they raised $8 bill last week but who cares -- tell me when they either shrink to $400 bill in assets from $700 bill or when they raise another 30-40 billion in capital. at that point the leverage will be too low rather than ridiculously too high. Oil prices -- we may be getting near a point where the economy finally can't handle the high price -- we would see demand fall off and that should put a lid on the price of oil but then again I have invested the last 5 years betting against those that made that argument so take it with a grain of salt.

got to run