Archive for July, 2006

• At Least the Brits Are Impressed
  Eddy Elfenbein, July 21st, 2006 at 6:40 am

  The London Telegraph looks at U.S. corporate earnings reports for the second quarter, and is impressed:

  America is on track to record its longest unbroken run of profits growth with most of the country’s biggest companies continuing to beat expectations in the unfolding second-quarter results season.
  The better than expected numbers will quell fears that high energy prices and a housing slowdown are holding back the US’s economic expansion. Figures from Thomson Financial show that for every company disappointing Wall Street forecasts, more than five are coming in ahead of target.
  With results already announced by a fifth of the companies in the S&P 500 index, average earnings growth of 13pc so far puts the consensus forecast of 12.8pc growth for the second quarter within reach.
  Hitting that target will see Wall Street celebrating a 12th consecutive quarter of double-digit earnings growth, matching the 1992 to 1995 winning streak. With gains of about 15pc already pencilled in for the third and fourth quarters, the current surge is set to be the longest run of success since 1950.

• From the New York Times Conference Call
  Eddy Elfenbein, July 20th, 2006 at 7:42 pm

  Courtesy of Seeking Alpha:

  Peter Appert – Goldman Sachs
  Is the newsprint — can you just give us a rough idea of percentages from each of those?
  Leonard P. Forman
  No, Peter. We don’t disclose that information.
  Peter Appert – Goldman Sachs
  Well, you’re leaving, so now could be the time. By the way, we’re going to miss you a ton, Len.
  Leonard P. Forman
  I signed a non-disclosure agreement, Peter.
  Peter Appert – Goldman Sachs
  Okay, thanks.

• It’s Earnings Time
  Eddy Elfenbein, July 20th, 2006 at 4:21 pm

  Three of our Buy List stocks reported earnings today. Here’s the rundown.
  Danaher (DHR) earned, after a few icky charges, 80 cents per share, two pennies more than estimates. The company also raised its estimate range for the year from $3.07 to $3.17 a share, to $3.15 to $3.22 a share.
  I never say I love a stock, but I’m in seriously like with Danaher. The company pegged third-quarter earnings at 77 cents a share to 82 cents a share. The shares gapped up to $65 this morning.
  SEI Investments (SEIC) earned 57 cents a share, also two cents more than estimates. The stock pulled back today, but it had a big day yesterday. The stock is our second-best performer year-to-date.
  Finally, Golden West Financial (GDW) earned $1.25 a share which was four cents below estimates. The stock is down, but there’s not too much to worry about. Since Wachovia (WB) announced the merger, shares of GDW have traded as a proxy for shares of WB. Wachovia, incidentally, reported earnings of $1.18 a share, three cents ahead of estimates.

• The Bambi Cam
  Eddy Elfenbein, July 20th, 2006 at 12:41 pm

  Marketwatch’s tech writer, Bambi Francisco, is in France right now cycling behind the Tour de France.
  Check out these videos she made (here, here and here) from her helmet camera.

• Is the United States Going Bankrupt?
  Eddy Elfenbein, July 20th, 2006 at 11:55 am

  “Come on little girl let your inhibitions run wild!”
  Rod Stewart in Tonight’s The Night (Gonna Be Alright)

  I’ve always admired that lyric. It’s not merely a malapropism, but it goes a step further. It means the exact opposite of what the songwriter intended. You have to admire that.
  I think of this because of the latest academic paper making the rounds. Laurence J. Kotlikoff is wondering if the United States is going bankrupt in his paper called, “Is the United States Going Bankrupt?” I think you pretty much know his answer right now.
  If you pay careful attention you’ll notice that the U.S. is perpetually going bankrupt. Yet strangely, financial crises always seem to happen somewhere else.
  Dr. Kotlikoff makes the sound point that when looking at our financial health, we ought to focus on future liabilities instead of current debt or cash flow. That’s true. I can add an even better way to look at our financial health is to look at our credit-rating. While the credit rating agencies do examine our national debt, the ultimate rating agency does this every day—the free market. Think of the Treasury market as a national FICO score.
  The markets judge America’s fiscal health in the pricing of government debt. Despite all the dire predictions of looming disaster, interest rates on U.S. Treasuries are still quite reasonable. Not that long ago, we would have thought 5% T-Bonds were an impossibility. Now we’re used to them. If we were really in serious trouble, wouldn’t that show up in Treasury prices? Maybe the market is just plain wrong. Yet investors all over the world are eager to lend us money, and that only makes our financial health even sounder.
  Kotlikoff cites a study by Gokhale and Smetters that pegs our “fiscal gap” at $65.9 billion. He then writes: “This figure is more than five times U.S. GDP and almost twice the size of national wealth.” Wait a second. If that’s true, then our national wealth is 2.5 times our GDP. In other words, we’re generating a return-on-equity of 40%. (Of course, this is outlandish, but it’s not my numbers.)
  If we have an ROE of 40% and we can borrow at 5%, doesn’t that mean the U.S. is dramatically underleveraged. Don’t tell Congress. I’d rather not even discuss their inhibitions.
  These analyses usually focus on our looming debt, but they ignore the other part of the picture—our assets. This is what Gary Alexander wrote on this site earlier this year:

  Household wealth refers to household assets minus liabilities. In the Doomsday press, all you read about is the near-$10 trillion in household debts, but have you heard anyone quote the $61 trillion in gross assets, six times the debt totals, resulting in net assets of $51 trillion (61 minus 10). In the 2.5 years since the 2003 tax cut, per capita net worth has increased 16%, and the average household is now 27% better off than in 1998, in the middle of the stock market bubble. And U.S. household wealth has almost doubled since 1995. That’s not counting business, which controls an $11 trillion “savings glut” of hoarded cash.

  As for me, I’ll stick with the free market’s judgment.

• Department of Irony
  Eddy Elfenbein, July 20th, 2006 at 7:12 am

  Stephen Roach questions Ben Bernanke’s credibility.
  This raises two important questions.
  1. What the fuck?
  2. No, seriously…what the fuck?
  For more on Roach, see “Wall Street’s Worst Economist” and “Even Roach is bullish, so is it time to sell?”
  The answer to the latter question was yes. Roach mistimed the market perfectly. Again.

• Lost in Translation
  Eddy Elfenbein, July 20th, 2006 at 7:03 am

  
  The Washington Post provides this handy graphic detailing the market’s and Bernanke’s communication issues.

• I Totally Called Yesterday’s Surge In Tech Stocks!
  Eddy Elfenbein, July 20th, 2006 at 6:22 am

  
  By Geoffrey Fox:

  You all think you’re hot shit because you guessed that the dollar would continue to slide against the euro, but answer me this: Who totally called yesterday’s 0.4 percent surge in technology stock valuations, in spite of their inflated P/E ratio? Who defied conventional wisdom and foresaw the late-afternoon rally after a morning of relatively tepid technology trading? Who is the fucking man? If you said “Geoffrey Fox,” you are correct.

  (more…)

• The Ben Rally
  Eddy Elfenbein, July 19th, 2006 at 5:05 pm

  The stock market had a major surge today for the third time in the past five weeks. Today was our Buy List’s best day of the year. We gained 2.5%.
  Here’s the rundown:
  DELL……………5.29%
  UNH…………….5.23%
  DHR…………….3.73%
  HD………………3.68%
  EXPD……………3.13%
  RESP……………3.03%
  FIC………………2.91%
  BMET……………2.89%
  SEIC……………2.88%
  FDS…………….2.32%
  VAR…………….2.26%
  BRO…………….2.25%
  GDW……………2.24%
  DCI……………..2.14%
  AFL……………..1.98%
  BBBY……………1.27%
  FISV……………1.16%
  HDI…………….1.14%
  MDT…………….1.14%
  SYY……………..0.00%

• UnitedHealth’s Earnings
  Eddy Elfenbein, July 19th, 2006 at 2:33 pm

  UnitedHealth (UNH) posted earnings of 70 cents a share, two cents more than estimates. The company also guided higher for the year.

  UnitedHealth, the largest managed-care company in terms of revenue, is the first such provider to report each earnings season and is typically seen as a harbinger for the rest of the industry. UnitedHealth’s steady gains in health-plan enrollment, higher premiums and still-moderate medical cost growth seemed to allay investor concerns that a price war among health insurers is breaking out anytime soon.
  Investors have wondered about the direction of health insurers’ profits for some time. With the overall market for employer-financed health care stagnant, many insurers are struggling to gain new business without cutting into the robust profit margins that they have enjoyed in recent years.
  But while price competition has gotten much more heated in health-insurance markets such as New Jersey and Florida, UnitedHealth’s chief executive, William McGuire, said there are few signs of a price war in most other places. Enrollment in the company’s fully insured health plans (as opposed to the ones it administers for employers for a fee) did fall by 45,000 members. But much of that decline was due to the sale of some businesses to satisfy regulatory requirements for its PacifiCare acquisition. Otherwise, its overall health-plan membership climbed by 180,000 to 28.3 million enrollees from the first quarter.
  In the earnings report and on a conference call with analysts, UnitedHealth executives steered clear of discussing the inquiries into past stock-option grants to top company executives, including Dr. McGuire. Since questions over the timing of some of those grants first surfaced in March, federal prosecutors, the Securities and Exchange Commission and the company’s board have launched separate inquires, and UnitedHealth has said it may have to restate as much as $286 million in earnings over the past three years.

  The shares are up about 5% today.