Archive for August, 2006

• Sunday Reads
  Eddy Elfenbein, August 27th, 2006 at 11:31 am

  
  This is a good day to head to the hammock for a good read. Here are two things you might like.
  The New Yorker has a fascinating story by Sylvia Nasar (of Beautiful Mind fame) and David Gruber about Grigory Perelman, a mysterious Russian mathematician and the solution to one of math’s greatest problems.
  Also, Natural History has an interesting article on the excavation of a Neolithic settlement in Turkey.

• Cyclicals Are Fading Fast
  Eddy Elfenbein, August 25th, 2006 at 10:09 am

  I probably sound like a broken record (if you remember what records were), but once again, here’s the Morgan Stanley Cyclical Index (^CYC) divided by the S&P 500:
  
  The cyclicals have had an amazing run, but these are the stocks that have been hit the most since May. What’s interesting is that the peak level earlier this year almost perfectly matches the peak from 12 years ago. And you can see that the low point is a loooong way down.

• Northwest Gives Advice to Laid Off Employees
  Eddy Elfenbein, August 24th, 2006 at 10:50 am

  Northwest Airlines gave its laid off employees some advice on how to save money. One of the tips was to rummage through other people’s garbage. I’m not kidding. NPR has the goods.
  Here’s the full list. Check #46.
  Ironically, Northwest is the one that filed for bankruptcy last year.

• Creative Descruction and Pet Supplies
  Eddy Elfenbein, August 24th, 2006 at 10:31 am

  Capitalism, then, is by nature a form or method of economic change and not only never is but never can be stationary. And this evolutionary character of the capitalist process is not merely due to the fact that economic life goes on in a social and natural environment which changes and by its change alters the data of economic action; this fact is important and these changes (wars, revolutions and so on) often condition industrial change, but they are not its prime movers. Nor is this evolutionary character due to a quasi-automatic increase in population and capital or to the vagaries of monetary systems, of which exactly the same thing holds true. The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers, goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates. – Joseph Schumpeter in Capitalism, Socialism and Democracy

  That’s a nice way to lead into two stories I saw this morning. The first is the earnings warning from Chico’s FAS (CHS). The company has been one of the top stocks for the past 10 years. In fact, CHS has beaten the S&P 500 for the past nine straight years. Not this year, however. The stock is down 20% this morning, and over 55% year-to-date.
  The other story is from Patterson Companies (PDCO). The company reported a quarterly earnings decline this morning. For the July quarter, the company earned 30 cents a share, one penny less than last year. Bear in mind that Patterson used to churn out 20% EPS increases like clockwork. Seeing them struggle is quite a shock.

• The Dow’s Decimals
  Eddy Elfenbein, August 23rd, 2006 at 11:05 pm

  I was curious to see if there’s any strange pattern to the decimals in the daily closings of the Dow. It turns out, there aren’t any. At least, not that I could find.
  I looked at the daily closings for the past 10,000 trading sessions, which is roughly 40 years. I figured that each “hundredth” (i.e., .01, .02, .03) should have about 100 each.
  It looks like they do. Here are the results:
  
  The table goes from left to right, from .00 to .99. Double Zero comes on at 100 even, although .01 has the fewest with 78 days. The most is .13 with 126.
  Here’s how they break down:
  .13………126
  .77………119
  .14………118
  .25………116
  .78………116
  .15………114
  .45………114
  .68………114
  .04………113
  .43………113
  .41………112
  .59………112
  .56………111
  .70………111
  .10………110
  .12………110
  .20………109
  .36………109
  .98………109
  .11………108
  .18………108
  .64………108
  .79………108
  .92………108
  .32………107
  .63………107
  .65………107
  .48………106
  .97………106
  .23………105
  .27………105
  .44………105
  .74………105
  .83………105
  .84………105
  .09………104
  .55………104
  .57………104
  .99………104
  .21………103
  .61………103
  .72………103
  .90………103
  .37………102
  .54………102
  .71………102
  .95………102
  .46………101
  .53………101
  .00………100
  .06………100
  .42………100
  .82………100
  .89………100
  .07………99
  .29………99
  .34………99
  .85………99
  .08………98
  .31………98
  .69………98
  .26………97
  .75………97
  .87………97
  .03………96
  .30………96
  .35………96
  .50………96
  .51………96
  .67………96
  .91………94
  .19………93
  .52………93
  .86………92
  .28………91
  .47………91
  .49………91
  .81………91
  .88………91
  .94………91
  .05………90
  .40………90
  .80………90
  .16………89
  .24………89
  .66………89
  .73………89
  .22………88
  .39………88
  .62………88
  .38………87
  .60………87
  .76………87
  .02………86
  .96………86
  .93………84
  .58………82
  .17………81
  .33………80
  .01………78
  Seven of the top 21 begin with 1, which could be the result of Benford’s Law.
  And to answer your e-mails: Yes, the plot of Office Space was the inspiration for this post.

• Cisco’s Peak
  Eddy Elfenbein, August 23rd, 2006 at 3:05 pm

  Here’s something you might enjoy.
  This link will take you to the Yahoo Message board posts for Cisco’s stock on March 27, 2000. That was the highest day for the hottest stock of the era. These posters are so madly in love with their stock it’s almost funny. Absolutely no criticism is allowed. Just look at the posts. They have a religious intensity to them.
  Some background: Cisco’s market cap had just surpassed Microsoft’s and it was the most valuable company in the world. Dear lord, what were they thinking? The NASDAQ Composite actually peaked at 5,000 two weeks earlier, but the most popular index, the NASDAQ 100, kept climbing and peaked on this day.
  The stock opened at $81-7/16 (yuck, remember those awful fractions) and climbed to $82 that morning. At 10:58 am is the first reference to a downgrade from David F. Powers at Edward Jones (boy, he was not popular with the board). Powers merely downgraded it to a Hold from a Buy, but that triggered a minor sell-off.
  Within 13 months, Cisco’s stock dropped by 84%. In October 2002, it reached its low of $8.12 a share, a staggering 90% drop. Even today, the shares are still 75% below the day of these posts.
  To browse through the posts, just click on the “>” thing by the date and time. I apologize for the language and general moronic nature of the posts, but this is exactly what the investing mind is like.
  Enjoy.

• Pool Corp.
  Eddy Elfenbein, August 23rd, 2006 at 1:26 pm

  Here’s an interesting stock, Pool Corp. (POOL). As the name suggests, the company provides pool supplies. They recently changed their name from SCP Pool.
  The shares seem a little expensive right now, but the company has been a steady grower. Pool recently said it expects to make $1.80 a share this year, which gives them an earnings multiple of 21.
  Here are the sales and earnings going back a few years:
  Year…………..Sales…………..EPS
  1996…………$235.84…………$0.09
  1997…………$335.02…………$0.14
  1998…………$457.60…………$0.23
  1999…………$572.54…………$0.36
  2000…………$672.27…………$0.47
  2001…………$854.23…………$0.59
  2002…………$983.25…………$0.72
  2003…………$1,155.83……….$0.91
  2004…………$1,310.85……….$1.19
  2005…………$1,552.66……….$1.50
  The stock is off about 20% from this spring’s high. Here’s the long-term chart:
  

• Dow Oil & Gas Index
  Eddy Elfenbein, August 23rd, 2006 at 11:33 am

  
  I’m not one for technical analysis, but I thought this chart was interesting. Since April, the Dow Jones Oil & Gas (^DJUSEN) Index has tried four times to break 500, and it’s failed each time. It looks like we may soon see a fifth.

• Medtronic’s Earnings
  Eddy Elfenbein, August 23rd, 2006 at 11:23 am

  Three weeks ago, Medtronic (MDT) spooked Wall Street by saying that earnings will come in lower than expected. The company gave a range of 53 cents to 55 cents a share. The Street had been expecting 57 cents. After the bell, MDT reported earnings of 55 cents a share so it wasn’t as bad as it could have been.
  Last October, the company raised guidance for 2006, 2007 and 2008. I was pretty impressed by that. Medtronic is no slouch. The company has raised its dividend for 28 straight years. Now the company is backing off its 2007 and 2008 calls. Medtronic sees 2007’s earnings coming in at $2.30 to $2.38, and $2.65 to $2.75 for 2008.
  Based on those numbers, that makes the stock look pretty expensive.

• What Do Ireland and GM Have in Common?
  Eddy Elfenbein, August 23rd, 2006 at 9:31 am

  In the New Yorker, Malcolm Gladwell looks at the dependency ratio, how many people are supported by your current work force. It works for companies and countries:

  A second common assumption is that fading industrial giants like G.M. and Bethlehem are victims of their own managerial incompetence. In various ways, they undoubtedly are. But, with respect to the staggering burden of benefit obligations, what got them in trouble isn’t what they did wrong; it is what they did right. They got in trouble in the nineteen-nineties because they were around in the nineteen-fifties—and survived to pay for the retirement of the workers they hired forty years ago. They got in trouble because they innovated, and became more efficient in their use of labor.