Vince Farrell of Scotsman Capital-Verbatim

From: vince farrell
Sent: Wednesday, January 30, 2008 5:58 AM

I'm not so smart, but you know that, and I prove it to you on a daily basis. Even if Doritos are on sale at WalMart, you can only eat so many before your stomach sings at a full octave higher than normal. Thus, I'm up thinking of you, dear reader, and all the news that comes at us today.

Before the Fed rate decision at 2.15 this afternoon, we will have the ADP employment guess (wildly inaccurate, so wait for Friday's official number) and the Q4 GDP report. It's expected to be around a +1.2% growth rate. Oil inventories will also be reported and I look for another build in crude stockpiles reversing the tax related liquidation of crude at the end of last year. The price of oil continues to remain high, but I continue to think it will settle at a lower price and then resume its upward climb, but at a much slower rate of ascent absent geopolitical disruptions.

There is a lot of talk that the somewhat lower price of oil will benefit the American consumer by being translated to lower gas prices. Lower oil does equal a lower price of gasoline, but we need to look at the price deck over a longer period. Crude is down to $91 odd from $100 or so,but the average price of crude for 2007 was about $72. A $.10 change in the price of gasoline would be $14 billion to the American consumer on an annual basis. That's a lot, but for consumers to benefit in 2008 from lower oil, the average will have to be less than $72. We can't look at $91 and conclude we're better off vs. the $100 of a few weeks ago and that consumer spending will be fine.

There is some guy named Cramer that takes a lot of air time on CNBC. The rest of us notice this, but he occasionally has some good ideas. One of them is Conoco Phillips- COP. The company looks very attractively priced to me as well. Trades at $78 with a 52 week range of $91-64. It's one of the larger oil companies and trades at about 7x earnings vs. Exxon around 11x. There should be a quality difference between the companies, but not that much, and, I think XOM is cheap at that valuation as well. COP is engaged in $15 billion share repurchase and has very attractive exploration projects. A little more than 1/3 of earnings comes from refining and marketing, and that business has been under pressure lately. When the price of oil soars as it did in Q4 it is very hard for refiners to raise the prices of their end products fast enough to offset the rising price of the crude oil feedstock. That problem will fade as it always does and I think Jim Mulva and his management team are reliable and will guide the company well. That Cramer sure is some smart guy. Now if he would only bring some energy to his show. (I own COP).

More later.