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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

April 21, 2009 at 10:20 AM

Barking up the tree of Weyerhaeuser’s future

Top of the News: Goldman Sachs has added Weyerhaeuser to its coveted “conviction buy” list. These days, you might think that’s the list of CEOs expected at perp walks, but, no, it’s the stocks that in the investment bank’s view will outperform the market, a closely guarded bit of reseach for clients only. Last month, Deutsche Bank raised the forest products giant to a buy from a hold. Not bad in such nasty times.

The conventional wisdom holds that the Federal Way-based company will eventually be converted into a real estate investment trust, which would allow more earnings to be passed along to shareholders. It was well on its way to shedding much of its integrated forest products businesses — and clear cutting jobs at headquarters — when the roof fell in. But that was then. The summer of 2007 seems like another universe.

The REIT ultimately made sense in the old, housing-driven economy, where Weyerhaeuser land could be sold off for exurban subdivisions or pricey gated properties with magnificent mountain views. Indeed, the company had pushed its house-building units front-and-center, which seemed like a good thing during the bubble. It’s unlikely that mania will come back. Many REITs are dogs. Now Weyerhaeuser has its very dullness going for it: a dividend, a recovering stock price, manageable debt. Going against it is the ongoing housing bust, which not only murders its materials markets, but taints its onetime house-building units.

So what does Goldman Sachs’ research team see? An eventual REIT, a slow comeback as a slim version of where it stands now, or a likely merger that would take away another marquee Puget Sound company?

The Back Story: The International Monetary Fund put out its semi-annual Global Financial Stability report today — oxymoron alert. The system is anything but stable. Potential writedowns from the crisis are now estimated at $4.1 trillion in the U.S., Europe and Japan. “Further decisive and effective policy actions will be needed to stabilize the international financial system.”

Today’s Econ Haiku:

Geithner testifies

He’ll let the banks pay us back

(With our higher fees)

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