The Mission Report

The MissionIR Report - June 2011

In-depth analysis, timely updates, latest market news


Market News

Company Updates


Japan, EU to Contemplate Free-Trade Agreement

Japan and the European Union agreed on Saturday to look into a free-trade pact, but their leaders stopped short of launching formal talks on a deal, which Japan sees as crucial for exports to its third-largest trading partner.

"We still have a long way to go, but the objective is now clear," EU Council President Herman Van Rompuy told reporters in Brussels after the summit. "Some might say we have not gone far enough, I say we should not underestimate the political meaning of our decision."

Van Rompuy said "the potential economic and political results of the decision are huge in terms of jobs, growth and shared destiny," if an agreement is reached after an initial "scoping exercise" designed to set the parameters of trade talks.

Japanese Prime Minister Naoto Kan agreed with Van Rompuy and European Commission President Jose Manuel Barroso to start "the process for negotiations" on a free-trade pact, which will include discussions to decide the areas that such a deal would cover, a joint statement issued after their meeting said.

Japan had been keen to make headway on a free-trade deal after South Korea sealed a deal with the Europeans. A trade agreement is scheduled to take effect in July, and Japanese businesses had been putting the pressure on Tokyo not to fall behind South Korea.

"We agreed to start the process towards negotiations on an economic partnership agreement," Kan told the joint news conference.

The EU imposes tariffs on Japanese cars and flat-panel TVs, Japan's key exports to the region that competes in global markets with South Korean products.

For Japan, any moves to help its export-led economy have gained a sense of urgency as it comes on the heels of the March 11 earthquake, which has disrupted production, pushed the trade balance into a deficit in April for the first time in 31 years and the economy into a recession.

Japanese diplomats had expressed confidence in reaching some form of an agreement, but other officials had said that convincing the EU was a difficult task given that the trading block runs a deficit with Japan.

Finding Value in Gold, Silver, other Commodities

Gold and silver have lost some luster with investors; the price of oil and other natural resources is lower, and speculation in many agriculture sectors has dried up. So why would anyone continue to hold on to commodities? Because many believe that emerging markets will live up to their promise.

The dark days of the global financial crisis, with its fears of economic collapse, are now in the rear-view mirror. It's going to take more than political turmoil and some natural disasters to rattle investors intent on getting their money back.

"The world is growing and using more commodities," said Marshall Berol, co-manager with Malcolm Gissen of Encompass Fund, which has been heavily invested in various resource stocks for several years.

"China, the Far East, the Middle East, India, Latin America, South America, Brazil, Argentina, Chile — these economies are growing," Berol noted. "There are setbacks from time to time, but they're growing, and as they grow, more people are employed, at better jobs; they have money and they want what we're accustomed to in this country — houses and cars and cell phones and refrigerators."

Berol addressed his comments to MarketWatch's Investing Insights live event held in San Francisco last month. The theme of the event was "Global Investing in a Post-Crisis World." In addition to Berol, attendees heard views about precious metals and commodities from Michael Cuggino, manager of Permanent Portfolio, a mutual fund focused on capital preservation, and Cody Willard, principal of CL Willard Capital, who writes the Revolution Investing newsletter and an online blog called The Cody Word for MarketWatch.

The event was held several weeks before both precious metals and commodities suffered a sharp blow. The wave of selling in early May could have been the result of speculators exiting with their profits after a mammoth rally. Or, more ominously, the downturn could reflect traders' fundamental concerns that global economic health is weakening, which would curb demand for materials brought out of the ground, scarce or not.

Investing with Rising Interest Rates

The Federal Reserve has kept a tight lid on interest rates since the financial crisis brought the markets crashing down three years ago, but as the economy gains steam, interest-rate hikes are coming — possibly later this year.

"Assuming rates do go up at some point this year, or some people are saying even next year, you might see some subtle [market] shifts," said Michael Cuggino, president and portfolio manager of Permanent Portfolio Family of Funds.

"It depends on how aggressively rates go up and how much that really impacts the economy," Cuggino said at the panel discussion.

The Federal Reserve has kept the federal funds target rate — essentially the rate at which banks lend to each other — close to zero since December 2008. The Fed cut the rate seven times in 2008, pushing it to its current range of zero to 0.25% in December 2008, from 4.25% in early January that year.

The pace and severity — or lack thereof — of interest-rate hikes matters, Cuggino said. "If interest rates rise gradually, that is a byproduct of a growing economy and so you wouldn't expect stocks to get hit that hard," he said.

"That might even be a bullish indicator as long as corporate profits hold up and as long as the interest-rate rises are gradual and consistent with keeping up with growth and money and activity in the economy. If they go up too high or too quickly, then in time that will erode the stock market," he said.

Still, what constitutes an aggressive rate-hike strategy may be in the eye of the beholder.

David Callaway, MarketWatch's editor-in-chief and the moderator of the panel discussion, noted that Federal Reserve officials recently "have been raising the level of chatter about an interest-rate increase that's coming."

"One of them said we could see a 1% rate by the end of this year, 2.5% by the end of next year. That's a pretty strong increase from where we are now," Callaway said.

Cuggino agreed that would be a fast pace "on a percentage basis," but, given how low rates are currently, that level of increase likely wouldn't shock the markets.

BioScrip, Inc. (BIOS)

For the first quarter ending March 31, 2011, BioScrip announced revenues totaling $439.3 million, up 31.1% compared to the prior year. Earnings were also much improved, rising from a net loss of $7.2 million, or $0.18 a share, to net income of $2.9 million, or $0.05 a share. The balance sheet was strengthened as well through the reduction of $28.8 million in debt.

About BioScrip, Inc.

BioScrip, Inc. is a national provider of pharmacy and home health services. By partnering with patients, physicians, hospitals, healthcare payors and pharmaceutical manufacturers, the company provides clinical management solutions and delivery of cost-effective access to prescription medications and home health services. BioScrip's focus is on improving clinical outcomes while controlling overall healthcare costs.

The company focuses on four core areas; specialty medications delivered via mail, pharmacy benefit management, community pharmacies and infusion services. BioScrip's specialty medication distribution capability includes condition specific clinical management programs tailored to improve the care of individuals with complex health conditions such as HIV/AIDS, Cancer, Hepatitis C, Rheumatoid Arthritis, Multiple Sclerosis, Transplantation and others.

BioScrip also offers complete Pharmacy Benefit Management programs that include customized benefit plan design, pharmacy network management and sophisticated reporting capabilities that deliver improved clinical and economic outcomes. Leveraging 33 retail locations in 25 major metropolitan markets across the US, the company provides nationwide capabilities within a high-touch community based environment.

Dycom Industries, Inc. (DY)

Dycom Industries, Inc. is a leading provider of specialty contracting services. These services include engineering, construction, maintenance and installation, as well as underground facility locating services. Although the company's main focus is on the U.S., it also does business in Canada on a limited basis.

About Dycom Industries, Inc.

Dycom Industries, Inc. is a leading provider of specialty contracting services. These services include engineering, construction, maintenance and installation, as well as underground facility locating services. Although the company's main focus is on the U.S., it also does business in Canada on a limited basis.

Led by a senior management team that possesses several decades of combined industry experience, Dycom operates in a decentralized, customer focused manner. The company's subsidiary management teams possess an intimate understanding of their particular markets, allowing unparalleled responsiveness in addressing customer needs.

Leading telephone, cable television multiple system operators, electric and gas utilities comprise Dycom's clientele with a significant majority of revenues generated from well-established, leading providers in the telecommunications industry. By leveraging strong customer relationships, the company remains well positioned at the forefront of evolving industry opportunities.

Fuel Tech, Inc. (FTEK)

Fuel Tech, Inc. announced that it received a FUEL CHEM® demonstration order from an existing electric utility customer. The unnamed client previously conducted the company's first lignite demonstration on a large unit which later went commercial. Not only does this order underscore confidence of continued success, but it also validates Fuel Tech's flexibility in treating a wide variety of fuel types and combustion units.

About Fuel Tech, Inc.

Fuel Tech is a leading technology company focused on developing, commercializing and applying state-of-the-art proprietary technologies for air pollution control, process optimization, and advanced engineering services. These technologies are used by customers around the globe to produce both energy and processed materials in a cost-effective and environmentally sustainable manner.

The company's nitrogen oxide (NOx) reduction technologies include advanced combustion modification techniques - such as Low NOx Burners and Over-Fire Air systems - and post-combustion NOx control approaches, including NOxOUT® and HERT™ SNCR systems. Leveraging proprietary technologies, Fuel Tech has become a leader in NOx reduction, with installations on over 640 units worldwide.

Fuel Tech also provides a range of combustion optimization services, including airflow testing, coal flow testing and boiler tuning, as well as services to help optimize selective catalytic reduction system performance. Combining innovative technologies and a multi-disciplined team approach, Fuel Tech provides practical solutions to some of our world's most challenging problems.


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