![]() |
||||||||
|
February 9, 2010 Goldman Goes A-Blogging Goldman Sachs' spokesman, Lucas van Praag, responds to the NYT's article at the Huffington Post. Here's a sample: NYT assertion: "Goldman's demands for billions of dollars from the insurer helped put it in a precarious financial position by bleeding much-needed cash." (HT: Felix) Posted by Eddy at 11:00 AM | Permalink February 8, 2010The Geography of a Recession Posted by Eddy at 2:02 PM | Permalink Academic Study on Media Bias in Financial Newspapers Media Bias in Financial Newspapers: Evidence from Early-Twentieth-Century France Abstract: Posted by Eddy at 1:21 PM | Permalink Mortgage Bankers Association Sells Headquarters at Big Loss Ouch. On Friday, CoStar Group Inc., a provider of commercial real estate data, announced that it had agreed to buy the MBA's 10-story headquarters building in Washington, D.C., for $41.3 million. The price is far below the $79 million the trade group says it paid for the glass-walled building in 2007, while it was still under construction. The price also is far below the $75 million financing that the MBA received from a group of banks led by PNC Financial Services Group Inc. to finance the purchase. Posted by Eddy at 11:58 AM | Permalink Telegraph: Roubini Gets It Wrong There’s finally some big media pushback against the Great Predictors, all of whom missed one of the greatest stock rallies in history: Never mind what Nouriel Roubini, the New York economist credited with having seen the economic meltdown coming, is predicting for next year – surprise, surprise, he’s pessimistic – let’s take a look at what he forecast at the time of the World Economic Forum in Davos this time last year. (HT: TBI) Posted by Eddy at 11:49 AM | Permalink The Goldman/AIG Battle The must-read story of the weekend was Gretchen Morgenson and Louise Story’s account of the battle between Goldman Sachs and AIG. I have no independent love for Goldman Sachs and I’m perfectly happy to portray them as the villain. Still, I keep finding myself being attractive to another narrative—Goldman was smarter than everyone else. Yves Smith and Tom Adams have more. Posted by Eddy at 11:44 AM | Permalink February 6, 2010Oopsie! There was a confusing story but apparently 1 million people lost their jobs yesterday. No wait, that’s not it. It turns out that the government reported that 1 million people lost their jobs yesterday. No wait, that’s not it either. The government updated their jobs stats yesterday for the last six years and it turns out the Labor Department was off by 1 million. And for this, no one in the Labor Department lost their job.
Posted by Eddy at 3:45 PM | Permalink Odd Lots The snow is still coming down in Washington. We’re well over eighteen inches now. The snow started coming down about 11 am yesterday and is expected to stop sometime tonight. Since I’m snowbound, here are a few links to pass on: Football games have 11 minutes of action. Not sure what this is, but it's cool. So it turns out Blankfein’s bonus wasn’t $100 million, just $9 million. Arnold Kling and Nick Schulz at Cato. Fresno tops list of 'drunkest' cities in America What are the odds of a cow making it to the Super Bowl? Barry Ritholtz on the economics of book writing. Gen Y too lazy and unfocused to hire Moe Tkacik on credit crisis literature. Posted by Eddy at 1:42 PM | Permalink February 4, 2010Update on Turn-of-the-Month Investing A few of you asked if the turn-of-the-month gains were mainly caused by the turn of the year. It turns out that January is the big winner, but other months also did very well. Here are the average gains for each seven-day turn-of-the-month period (the month listed is the month being turned to):
Here are the numbers:
Posted by Eddy at 10:00 PM | Permalink Earnings Update Here's a quick note on the latest earnings forecasts from S&P. For 2009, it looks like the S&P 500 will earn $57.03 a share. A year ago, Goldman Sachs cut its 2009 EPS forecast from $53 to $40. S&P's current forecast for 2010 EPS is $77.94. That means that the market is currently going for 13.6 times this year's earnings. If you compare that to AAA bond yields which are averaging about 5.3% now, I think stocks look very good here. Posted by Eddy at 8:21 PM | Permalink Los Angeles 1781 - 2010 After struggling for eight hours to counter a rapidly growing budget shortfall, the Los Angeles City Council put off a decision to cut 1,000 jobs Wednesday and, through other actions, managed to add $4 million to the problem. Posted by Eddy at 1:01 PM | Permalink Back to 1070 The S&P 500 is back to where it was late Friday, around the 1070 to 1075 area. This also puts us back to where we were about two months ago. Personally, I want to see the market pull back because I'm in a buying mood. I've also been very pleased with Nicholas Financial's (NICK) positive response to its earnings. The last two days have seen heavy volume. Also, Reynolds American (RAI) had an awful earnings report, but don't worry about it. I was expecting bad news. That's why the stock is so cheap. The important news is that they're forecasting $4.80 to $5.00 per share. If that forecasts holds up, RAI should be much higher by the end of the year. Posted by Eddy at 10:40 AM | Permalink Seven Days Each Month Beats the Market -- By a Lot Since 1932, most of the S&P 500’s capital gain has come during a seven-day period at the turn of each month—specifically, the last four trading days and the first three trading days of each month. This represents about one-third of the total trading days. During the rest of the month, the stock market actually lost money. Here are the numbers: Since the beginning of 1932, the S&P 500 has gained nearly 14,000% which is about 6.5% annualized. Investing in just the last four days and first three days of each month would have returned over 63,000% (not including trading costs). Annualized, that’s 8.6%. However, if you consider that it’s really only 32% of the time, the true annualized rate is over 28%. The rest of the month -- the other 68% of the time -- has resulted in a combined loss of close to 78%. Let me add some important caveats. First, I’m not offering this as trading advice. I’m merely showing that the market has historically experienced outsized gains at the turn of each month. Remember that trading in and out of the market is costly and these results don’t include taxes or commissions. Secondly, this only refers to capital gains not dividends. A very large part of the market’s total return is due to dividends, and if you’re only invested one-third of the time, you’re going to lose out. Having said that, here’s a graph showing what turn-of-the-month investing looks like. The S&P 500 is the red line. The blue line is performance during the seven-day period and the rest of the month is the black line.
Here's a look at the average daily gains.
Why has the market shown this performance? It's hard to say. One idea is that we're seeing a pattern that's simply the result of random behavior. If you splice and dice any data long enough, you're bound to find some anomaly. My hunch, however, is that there's something to the turn-of-the-month effect. Perhaps it's new money coming in or maybe positive business news is more likely to be announced. Still, as powerful as the historical data is, I think the effect is too transient to base any investment strategy on. Posted by Eddy at 7:03 AM | Permalink February 3, 2010Good Earnings for AFLAC and Fiserv In October, AFLAC (AFL) said to expect Q4 EPS between $1.08 and $1.16. Well...they made $1.18 a share which was three cents higher than the Street. For the full year, the company earned $1.5 billion, or $3.19 per share, compared with profit of $1.25 billion, or $2.62 per share, during the same period a year prior. Revenue rose to $18.25 billion from $16.55 billion. Going by the company’s projection, the stock is going for about 9.0 to 9.5 times this year’s earnings. One other thing to note: AFLAC announced a Q1 dividend of 28 cents a share which is what it’s been for all of 2009. I believe AFLAC has the longest current streak of double-digit dividend increases. I can’t be positive, but I’ve looked hard and I haven’t found anyone who’s done it longer. Since the year isn’t over, the streak hasn’t been snapped just yet, but I hope the board keeps the streak going. If the board raises the dividend to 32 cents for the next three quarters, then the streak will live on. Also, Fiserv's (FISV) earnings were in line: Fiserv Inc.'s (FISV) fourth-quarter earnings soared 90% as it shed prior-year charges and revenue rose slightly. I like companies that make projections for the year ahead. Like AFLAC, Fiserv is going for a reasonable price based on next year's earnings. Posted by Eddy at 6:37 AM | Permalink February 2, 2010The Very Long View Over the last 84 years, the after-inflation return of the stock market (including dividends) has been about 6.6% a year. Historically, that number has been about 7%, but thanks to recent years it's come down a lot. What this means is that, on average, stock investors have doubled their money in real terms every 11 years. Of course, that's an average. Over the last 11 years, the stock market hasn't made any money in real terms. Here's a look at the inflation-adjusted total return along with a 7% trendline:
Here's a look at the same chart, but I divided the black line by the blue line.
In other, this shows how the market is doing relative to its long-term trend. Interestingly, there are long stretches where this line looks somewhat similar to a P/E Ratio graph which shouldn't be that surprising. Looking at this chart, you can really see how poorly the stock market has done over the past decade. I also think it's interesting that the peaks and troughs seem to line up at 2.0 and 0.5, but I may be seeing a connection where there isn't one. Posted by Eddy at 11:41 PM | Permalink An Historical Look at the Budget Here's a look at the Federal government's receipts (red) and outlays (blue) as a percent of GDP. I got these numbers from the president's budget. The numbers after 2009 are forecasts. I broke the outlays into defense (green) and non-defense (black).
A few observations. It's stunning how far defense spending has fallen. In 1958, over 10% of the economy went to the Pentagon and that was for a peacetime military. Before 9/11, it had dropped to just 3%. Even with two wars, we're only back to 4.6% which is less than what Reagan defense buildup wanted to build up from. I wouldn't be surprised to see us under 3% in another 10 years. From 1951 through 2008, budget receipts (the red line) averaged slightly over 18%, but what's fascinating is how consistent that was. For the entire time period, the standard deviation was under 1%. Perhaps we ought to take nearly six decades of data as a hint, and aim to raise that much every year. Obama plans to keep up within the historical norm. His forecast goes to 18.6% by 2014 and 19% by 2015. Of course, he may be long gone by then. From 1975 through 2008, nondefense spending made up an average of 16.25% of GDP with a standard deviation of less than 0.7%. But this is where Obama really becomes an outlier. This year's non-defense spending will jump to 20.1% of GDP which is twice its share of 45 years ago. Posted by Eddy at 5:18 PM | Permalink Nicholas Financial Earns 23 Cents a Share This is another very good earnings report from Nicholas Financial (NICK): Nicholas Financial, Inc. announced that for the three months ended December 31, 2009, net earnings, excluding change in fair value of interest rate swaps, increased 117% to $2,747,000 as compared to $1,267,000 for the three months ended December 31, 2008. Per share diluted net earnings, excluding change in fair value of interest rate swaps, increased 109% to $0.23 for the three months ended December 31, 2009 as compared to $0.11 for the three months ended December 31, 2008. See reconciliations of the non-GAAP measures (below). Revenue increased 8% to $14,365,000 for the three months ended December 31, 2009 as compared to $13,254,000 for the three months ended December 31, 2008. This is what I wrote last month: Let’s make some assumptions for the next earnings report. If the pre-tax yield for the last quarter hit 7% on receivables of $230 million that comes to about $4 million pre-tax for the quarter. With the new shares post stock dividend, that’s 35 cents a share. After taxes, that’s about 22 cents a share. I was close. The pre-tax yield was actually 8% but receivables only rose $226 million. That's an increase of 1.6% from last quarter. Even though the portfolio isn't growing, the quality is improving. The average cost of borrowed funds dropped down to 3.92%. Best of all, the provision for credit losses fell again. It's now at 5.34%. This is the fifth straight quarter it's fallen. Overall, this is a very good report. Assuming the trends continue, then NICK should be able to earn $1 a share for this calendar year. I still believe these shares are very underpriced. Posted by Eddy at 11:15 AM | Permalink February 1, 2010More Buy List Earnings The Buy List is recovering today along with the rest of the stock market. Sysco (SYY), which has been a frustrating stock recently, is up today thanks to a good earnings report. For the third straight quarter, the company beat expectations. Sysco earned 45 cents a share which was three cents more than the Street expected. Sales fell for the fifth straight quarter. Reuters writes: “Operating expenses fell 7 percent to $1.23 billion. Sysco has been cutting costs by reducing headcount, bonuses and commissions to offset weak demand.” Moog (MOG-A) also reported earnings today. This stock gained nearly 50% from its October low to its January high. The company earned 47 cents a share which matched Wall Street’s estimate. This is a big drop from last year. Moog's profits slid to $21.6 million, or 47 cents per share, during the quarter that ended on Jan. 2, down from $30.3 million, or 70 cents per share, a year earlier. The company's sales rose to $495.2 million from $446.1 million, aided by Moog's acquisitions last year of a British flight controls business and the Fernau navigation aids unit. Posted by Eddy at 12:15 PM | Permalink Absurb Story of the Day Score one for the British media. The Times somehow floats the idea that Goldman's CEO Lloyd Blankfein is going to get a $100 million bonus. Not only is this nuts, there's absolutely zero evidence for it. Still, the Times runs with their story which is the potential backlash against a fairy tale. Goldman Sachs, the world’s richest investment bank, is facing a potential political storm over how much it pays its chief executive, Lloyd Blankfein. In other news, the editors of the Times could potentially drown a bag of cats this afternoon. According to their unnamed business rivals, this would hurt the Times' image. Posted by Eddy at 11:45 AM | Permalink January 29, 2010GDP +5.7% Good news! Real Q4 GDP growth came in at 5.7%. That's the best growth in over six years. This probably means that the recession is over, even though it still doesn't feel like it. Interestingly, the GDP report also showed that nominal GDP increased by a slight 0.81% over the fourth quarter in 2008. This comes after three straight declines. If it weren't for the lag time, this metric would make a good interest rate peg for the Federal Reserve.
Here's a look at the Fed fund rates over the same period.
You can see that in the period of 2002 to 2004, the Fed Funds rate was well below nominal GDP growth. |
||||||||||||||||||||||||||||||||||||||||||||||||||||