Dunkin' Donuts -- May 23, 2015

This is not an investment site. Do not make any investment or financial decisions based on what you read here or think you may have read here. I don't know where the blog is going this morning, but I am pretty sure that if I mention ten companies, I invest in, maybe, one of them. I talk about them because I find the story lines interesting; I don't talk about them for investing purposes.

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Coffee Shops

I read a story yesterday that some analysts expect Starbucks shares to do better and better. They talk about the competition that Starbucks has: Dunkin' Donuts, Peet's, McDonald's, independent mom and pop coffee shops, marijuana shops in Colorado.

From an investor's point of view some may do better, some worse, who knows? But the article never discussed the "culture" as it were. Dunkin' Donuts does not compete with Starbucks. Put them next door to each other and they would both do well, but with their "own" customers.

Same with McDonald's.

In Belmont (Massachusetts), I often went to Dunkin' Donuts because it was just a block away; in the rain, I wasn't going to ride my bike one mile for Starbucks. I never truly enjoyed my experience at Dunkin' Donuts but their regulars did, and their regulars would never step foot in Starbucks, with some exceptions, I suppose. I don't know enough about Peet's yet to say how Starbucks and Peets will compete. A new (and first in the area) Peets is going in next door to where we live (replacing the Starbucks). It's in the grocery story (like Starbucks is in Target) but it is not inviting at all. My hunch is that in this particular case, Peets will mostly be carry-out. As it is in Target's Starbucks.

Against a stand-alone Starbucks, I have not yet seen a real competitor in that niche.

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Coal

I think coal is really, really dead in this country. There are three stories out there right now. First, there was the story making the rounds (again) yesterday about the largest coal mine operator warning us that there will be many coal mining bankruptcies in the next twelve months; he, himself, said he is snapping up the good ones at a bargain price; he did not say what his plans for the future are. The second story was about the governor of Wyoming (a Republican) approaching the governors of Washington State and Oregon (both Democrats) hoping to get their states to agree to larger terminals to ship Wyoming coal to China. If Washington and Oregon agree, I would be surprised. I think the state of Wyoming could be in a heap of trouble.

Finally, a third story, the link sent to me by a reader this morning, from The Wall Street Journal. My rule of thumb, take it for what it's worth, if a utility wants to go out and buy a coal company to produce electricity, it would expect to pay $750,000/MW (or less) in the old days (five years ago). It's probably up to a million dollars/MW now. For a natural gas power plant, a similar amount, maybe closer to $1 million/MW now, but it was cheaper some years ago. For a new wind farm / solar farm figure about $3 million/MW; for a used wind farm, significantly less. Maybe even get one for free with all the tax credits, subsidies whatever. No matter how far off my figures out, the cost for producing electricity is about $500,000 to $3 million per MW in this country. And $3 million/MW is outrageously expensive. If that's what your utility is spending on new sources, you're getting ripped off, but probably feeling good about "going green."

So, now we get this story out of Mississippi. Regular readers are very familiar with it though we haven't talked about it in ages. It's that "clean coal" plant in Mississippi. This is the link to the story. You may need a password. If so, and you don't have a WSJ subscription, try googling may have to raise electricity rates for Mississippi power customers by 41%, or $37 a month for the typical household. This story is now tracked here.

The cost for electricity for this plant has soared to .... drum roll.... $10 million / MW. Let's do the math. They say the plant will now cost over $6 billion to provide less than 600 MW of electricity. Nice numbers. 6 billion / 600 MW. So it's going to be a "one" followed by a zero. I doubt it's three zeroes ($1,000/MW); I doubt it's four zeroes ($10,000/MW) or even five zeroes ($100,000/MW), so now we're getting up to $1 million/MW (six zeroes) but $1 million/MW would not get a headline story. So, we're talking $10 million/MW for this power plant.

The cost of the Kemper power plant has ballooned several times to $6.2 billion, as the price tag swept past the $2.88 billion cap set by state utility regulators to protect customers from budget overruns.

So, $6.2 billion is the estimated cost.

The lede said this:

South Mississippi Electric Power Association, which furnishes power to smaller utilities in the state, dropped its plan to buy a $600 million, 15% stake in the project spearheaded by Atlanta-based Southern Co. , citing construction delays.

Fifteen percent of what is $600 million? $4 billion. Somewhere between the second paragraph of the story and the eleventh paragraph of the story, the cost of the plant ballooned from $4 billion to $6.2 billion.

And the tenth paragraph was very, very short. One sentence. And they all raised their hands and said, "Amen."

I hate to see the estimated cost of this plant on Monday.

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Workin' On The Railroad

Which of course leads us to the next story. If the Wyoming story and the Mississippi story tea leaves tell us coal is dead, who's next to feel the pain. Yup, you guessed it. And the stories are already out there. A lot of analysts "grade" their recommendations on an "A, B, C, D, F" scale. At the height of the CrBR and CoBr (crude-by-raid and coal-by-rail respectively), I assume UNP was given an "A" rating by Merrill Lynch. I don't know. I do know that Merrill Lynch now rates UNP a "D." I assume Merrill Lynch has an "F' in their ratings but that I do not know either. But I do know that yesterday, Merrill Lynch was giving UNP a "D" recommendation.

There's a story out there on UNP that it will be crushed with decline in coal shipments. Guaranteed: UNP won't make up the difference shipping Teslas.

And now today, Don sends me this story, that Warren Buffett is laying off railroad employees in North Dakota. It's a bad news story coming out of North Dakota, so you know it's being posted by The Dickinson Press:

BNSF Railway Co., the largest railroad in North Dakota, is furloughing some employees across its network, including in Grand Forks and elsewhere in the region.

Jim Chase, the North Dakota legislative director for the Sheet Metal, Air, Rail and Transportation union (SMART) said almost 200 operating employees have been furloughed in four locations: 11 in Grand Forks, 40 in Dilworth, Minn., 60 in Mandan, and 71 in Minot. Operating employees responsible for running the trains, like engineers and conductors.

“I’ve never seen cuts this deep,” Chase said. [Hasn't been to a coal mine lately.]

Chase added many of those employees have been hired within the last year. BNSF hired about 7,000 new employees to meet increased shipment demands.

There are several story lines in that article but I don't have time to go into them right now.

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Transition

Well, actually I do have time. I'm retired, but the line at Starbucks has now dwindled from 40 to one, and it's my opportunity after being here since 9:55 a.m. to now 10:39 to get a tall coffee with no room for cream. I used to order by "type" -- Pike, Tall Blonde, Ethiopian Dark, Somalian-Hair-On-Fire, or whatever was on tap, but they didn't always have what was showing, so I now just order whatever is brewed. I used to order a Tall Blonde but was always disappointed; not what I thought she would be. If one can tell the difference, one is doing better than I. And yes, that's the correct grammar. "I" (not "me") follows "than."

So, there you have it. I didn't need the coffee; we're going out to lunch in an hour. I don't want to go out to lunch because I'm perfectly happy here but I would be seen as anti-social, so I will go to lunch. It will turn out to be incredible: it's a new Asian restaurant for me. Our older granddaughter recommended it (she's eleven years old) and wants to take her best friend, or as they used to say, BFF. I don't know what they say call a BFF now.

So, for investors -- OMG -- did I say "investors"?  This is not an investment site, but I can't resist. It looks like coal is dead but could be a great opportunity to build a portfolio for a great-granddaughter with a significant holding of shares in coal companies. Rail could be in trouble but they have the ability to scale up and down fairly quickly, but it could be rocky. Big HealthCare is going to do very, very well. REITS and MLPs and so-called utility "yield cos" will do very, very well.

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Update On The JV Team

More interesting to go on to next subject. The mainstream media is not yet reporting it. Fox News is reporting it. Yup, ISIS has attacked INSIDE Saudi Arabia. It's the lead story over at Fox News right now. Most of the other networks talk about weather on the weekend. So does Fox News unless ISIS attacks INSIDE Saudi Arabia. Then weather slips to the second hour. Add this bullet to previous ISIS bullets:

• ISIS attacks INSIDE Saudi Arabia

I assume the president has gone golfing. Which reminds me: didn't the US president just hold a Mideast Conference in Camp David to reassure our Mideast allies they have nothing to fear but fear itself? ISIS was a JV team.

Saudi Arabia princes left the conference muttering, "If ISIS is the JV team, let's hope the varsity team doesn't show up."

Again, remember this is not an investment site. Do not make any investment or financial decisions regarding ISIS. The pharmaceutical company. In 2003, one could have picked up ISIS shares for $4.00/share; ISIS is now trading near $70/share. And so it goes. I have never invested in ISIS. Never have, never will.

But I digress, the ISIS on the other side of the world now stretches solidly from Tunisia in west North Africa through Libya and then over to Syria (where it controls half the country -- the fun part of the country), to Iraq, to Yemen (unlike Syria, not a fun country), and now to Saudi Arabia. I read this morning that the US Congress is looking into President Obama's ISIS strategy. But then the Senate passed the president's trade bill without reading it because they saw how well ObamaCare worked out and they didn't read that either. [Later, May 25, 2015: Congressional Dems and GOP agree that the president's war on ISIS is in "neutral," at best.]

Okay, that's it. That's all the subjects I thought about writing about while riding my bike to Starbucks this morning: coal, rail, Dunkin' Donuts, Syria, ISIS, the unread trade bill passed by the US Senate, the thoughtful, deliberative body of the Congress.

There will be factual and typographical errors in a long post like this. They will be corrected when I am alerted to them. This post is for my use only. Use it any way you want but don't quote me on it. I will deny it all.

Keep it close. And play it loud.

Keep It Close, dEUS