the Buffalo Roam...
In a time where it is almost stylish to be anti-American, one of the oldest and most indigenous symbols of our American heritage, the American Buffalo, is thriving yet again. There is close to 270,000 American buffalo inhabiting our country (The National Bison Association), mostly in the West, with 45,000 alone owned by and grazing on the land of, American’s largest land owner billionaire Ted Turner. Because the market for bison or buffalo meat commands such a high price and has a larger profit margin then beef, farmers on the East Coast including those in Riverhead, Long Island, are raising these wild, untamed animals. Many farmers feel that raising buffalo in the East, which has a wetter climate, more lush vegetation, thus necessitating less land makes this a natural progression in the industry. Buffalos, because they graze on grass alone, their meat is low in fat and calories, lower then even skinless white meat chicken. They require little assistance and are not prone to genetic changes, such as cows, requiring antibiotics or growth hormones. Their bodies are designed to withstand extreme weather and many view their meat as quite tasty besides the obvious health benefits. We will know that the industry is indeed booming when Ted Turner starts to open franchised or Company owned Ted’s Montana Grill on the East Coast or a rival to his chain emerges.
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“There is nothing so powerful as truth-and often nothing so strange.”
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- Daniel Webster
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As in many of this author’s prior newsletters over the past eight years, the price of crude oil is the most powerful influence in today’s worldwide economy. Recently, the price of crude oil hit a series of record highs topping nearly $97.00 a barrel. Many prognosticators that have predicted $100.00 a barrel less then a year ago are now looking clairvoyant. There are many reasons for the recent surge in the price of crude, amongst them are the instability in the Middle East, wars in Afghanistan and Iraq, the unrest in Iran and Venezuela, the continuous worldwide inventory drops, the failure for OPEC to dramatically increase supply and recently the weather related issues in Mexico. Barring a global collapse in demand which is highly unlikely and a significant increase in supply from OPEC, chances are unlikely that there would be a dramatic decrease in the price of crude. Luckily, in the United States, refining margins have dropped so precipitously that while the price of crude has increased dramatically, a gallon of gasoline has remained at the approximate $3.00 range. In a matter of months, the full ramification of the increase in crude prices will be seen with year-end corporate earnings. Oil and Gas dependent companies such as manufacturers and airlines will be as usual, most highly affected. The price of home heating oil may also reach record highs this winter which will have an effect on the average homeowner where it hurts the worst-their pockets!
In addition to the surge in the price of crude which effects almost every aspect of our US based economy, the severe recession in the housing construction market as well as the devastation from the sub-prime market collapse, has had an equal if not greater injurious effect. Tier One Financial service companies like Bear Stearns, Merrill Lynch and Citigroup, Inc. have had devastatingly huge write downs of bad loans and shareholder lawsuits surely await as they are trading at 5 year lows. Merrill Lynch and Citigroup, Inc.’s recent deleterious events were so severe as to cause the resignation of their CEO’s, Stan O’Neal and Charles Prince respectively. Lenders, whom have been deleteriously effected by the housing and sub-prime mortgage collapse, have contributed to the global credit crunch by making it more difficult and expensive for asset-back borrowing. Federal Reserve Chairman, Ben Bernanke, is trying to allay fears by cutting short term rates and the market appears to factor in anticipated continued rate cuts. The Market remains choppy, so, always, caution is the better part of valor.
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“Ignorance is a voluntary misfortune.” |
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- Nicholas Ling
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The venture capital market remains ebullient with an emphasis on investments in Chinese based Companies. As many of these Companies mature and subsequently go public, tremendous premiums have been earned. US based investors can’t seem to get enough of Chinese based Companies that choose to list on American Exchanges. Of the seven Chinese Company’s that did significant IPO’s since July, each have sold at the high end or above its expectant price range and six out of the seven are trading at significant premiums. While some market observers worry that a bubble might be forming, and the issue of the reliability of earnings is always an additional matter of concern. It does not compare favorably to the internet stock bubble in the late 1990’s in which many stocks tripled on its first day of trading, receiving rich evaluations while its business models did not focus on profitability. The material difference is that of the 19 Chinese based stocks that have listed in the US this year, ALL have been profitable and many are “solid brick-and-mortar types of businesses”. Many of these companies are benefiting from the country’s economic boom and are in various growth sectors as well. While some may have appeared to be expensive at their initial IPO price, over the long term the revenues and projected earnings justify the investment and valuation.
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“It’s a funny thing about life; if you refuse to accept anything but the best, you often get it.” |
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- W. Somerset Maugham
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Wellfleet Partners, Inc. recently advised a new Chinese based Portfolio Company, Amnutria Dairy, Inc. (NASDAQ Symbol: “AUDY” or “The Company”), which successfully resulted in financing $1.8m of their $8m recent Private Placement. AUDY recently entered into a merger agreement with a publicly traded company called Micro-Tech Identification Systems, Inc. The Company is one of the largest producers and distributors of infant and children’s formula, milk powder and soy bean products in Northern China’s Heilongjiang Region. We are also pleased that the second and third WRASPS that we participated in, China Shenghuo Pharmaceuticals, Inc. (AMEX: KUN) and China Architectural Engineering, Inc. (AMEX: RCH) continue to trade at tremendous premiums to our original private placement prices and, as importantly, with great liquidity. Finally, we anticipate additional WRASPS in the future; one is expected to go public as early as year-end.
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“Life is not long, and too much of it should not be spent in idle deliberation how it shall be spent” |
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- Samuel Johnson
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On behalf of the staff at Wellfleet Partners, Inc., we would like to wish all of you a very happy, healthy and enjoyable fall season. Also, we are very proud of Dr. Robin Smith who once again successfully chaired the Annual Gala for the NYU Hospital of Joint Disease and sincere congratulation to Joshua Lev & Barrie Reiss on their recent engagement.