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Steve Wozniak on CNBC

If you're getting bored with New High Watch on the Dow, here's an interesting interview CNBC had with Steve Wozniak this morning.

Posted by edelfenbein at 10:56 AM

No Go for MVNO

I was curious if Mobile ESPN was going to have an impact. Apparently not.

ESPN is closing down its cell phone company for sports fans after less than a year, planning instead to forge deals in which it provides content to other wireless operators.

The planned shutdown of Mobile ESPN marks the first major bust in a rush of specialized wireless ventures targeting niche audiences they contend are underserved by the Cingulars and Verizons of the world.

ESPN was quick to stress that its change in strategy had no bearing on Disney Mobile, another ambitious foray into the cellular market by parent company Walt Disney Co. that was officially launched just recently.

Disney has so far invested a combined $150 million in developing Mobile ESPN and Disney Mobile, two of the highest-profile and most-heavily marketed efforts to create an "MVNO," or mobile virtual network operator.

An MVNO doesn't have its own wireless network. Instead, it puts its brand on another wireless operator's service -- whose name is hidden from the customer -- and offers its own lineup of handsets and calling plans.

Going forward, Mobile ESPN will cease being an MVNO and instead seek to provide its sports scores, news and video highlights to other wireless companies with large customer bases.

Posted by edelfenbein at 9:18 AM

The Market Reaches All-Time High

Not the Dow. Not the S&P 500. But the Wilshire 5000 Total Return Index (^DWCT).

This is the broadest measure of the stock market's total retun. It includes several thousand stocks, and it's adjusted for dividends.

On March 24, 2000, the index closed at 47.84098. Today, it closed at 47.86562.

For the record, the Dow closed at 11,718.45, which is just 4.53 points below its all-time high close from January 14, 2000. We did, however, peak into record territory during the day.

The S&P 500 closed at 1,339.15 which is 12.3% below its record close. Adjusting for dividends, it's down about 2.5%.

Posted by edelfenbein at 4:25 PM

The Election Cycle Begins

You only have one shopping day left to take advantage of the four-year Election Cycle. Major caveat: I don't put much faith in any of this, but here's what the data says.

Going back to 1930, the Dow reaches its average bottom on September 30 of the mid-term election year. From that point until September 13 of the pre-election year, the Dow gains an average of 31.6%.

That means that over 95% of the Dow's four-year gain comes within the first 12 months of the Election Cycle.

After that, the market then gets a bit dicey until May 25 of the election, losing 6.6%. But then things start heating up. The market puts on an impressive 19.4% rally to August 2 of the post-election year.

Then all the troubles start. After August 2 of the post-ection year, the market slides an average of 9.4% until we're home again--September 30 of the mid-term.

Posted by edelfenbein at 3:01 PM

Danaher Hits All-Time High

Forget the Dow, look at Danaher (DHR)! After a few days of heavy fighting, the stock finally took out its May high. Shares of DHR are up 23% for us year-to-date.

From August 9 through yesterday's close, our Buy List was up 10% compared with 5.6% for the S&P 500.

Posted by edelfenbein at 2:20 PM

Second-Quarter GDP Revised to 2.6%

The initial estimate was for 2.5%, then it was revised up to 2.9%. Now it's been cut back down to 2.6% growth.

Posted by edelfenbein at 9:10 AM

The Dow & Terrell Owens

December 7, 1973: Owens born in Alabama. Dow rises 3% to 838.05.

October 14, 2002: Sharpie Incident. Dow rises 27 points to 7,877.40.

November 15, 2004: Desperate Housewives Incident. Dow rises 11 to 10,550.24.

September 27, 2006: Owens denies suicide attempt. Dow rises 20 points to 34 points shy of an all-time high.

Posted by edelfenbein at 3:39 PM

Irrational Pessimism?

While the Dow is flirting with a new all-time high, the S&P 500 is still about 12% below its all-time. But what about earnings?

No wonder private equity is booming! Profits are up 57% since the market's peak in March 2000. The market's P/E ratio has nearly been cut in half.

Posted by edelfenbein at 3:04 PM

Kobi Alexander Nabbed in Namibia

Here's a cool story: The Feds finally caught up with former Comverse CEO Kobi Alexander in Namibia. He's been a fugitive from justice since he was charged with illegal options backdating. He even made it to the FBI's most wanted list.

Posted by edelfenbein at 11:38 AM

S&P Cuts Harley-Davidson to Sell

From BW:

We continue to like Harley's strong brand and market leadership. Also, we expect more dividend hikes and stock repurchases as the company utilizes free cash flow. However, in our view, based on our EPS estimates for 2006 and 2007, the stock is now at ample p-e premiums of 10% and 12% to the S&P 500, respectively. Also, we have some concern that an aging U.S. population will limit longer-term domestic motorcycle sales. Based on our discounted cash-flow model, we are keeping our 12-month target price at $62.

By my math, Harley (HOG) is going for 15.77 times next year's earnings ($65.64/$4.16), and the S&P 500 is going for 14.06 times 2007's earnings (1336.18/95.04). That works out to a premium of 12.2%.

Posted by edelfenbein at 10:18 AM

The Butler and Insider Trading

The New York Times reports on an insider trading case. It turns out, the butler did it.

On Aug. 11 and Aug. 12, 2004, Mr. Sillerman's Manhattan office faxed documents on the buyout to the poolside office of his home in Southampton, including a draft press release and, later, a written consent form. "As the house manager," the complaint says, Mr. Lefford "managed the day-to-day affairs" of the house and performed other services "traditionally done by a butler." As such, he handled confidential business documents for Mr. Sillerman.

On Aug. 12 at 10:20 a.m., Mr. Lefford faxed over the signature page of the consent agreement to Mr. Sillerman's Manhattan office. Twelve minutes later, according to the complaint, Mr. Lefford bought 5,000 shares of Sports Entertainment stock, which traded on the over-the-counter bulletin board, through a brokerage firm account he held with his wife. He paid 12 cents a share.

When the three-way deal was announced on Dec. 16, 2004, Sports Entertainment's stock price rose to $6.41 a share. Mr. Lefford sold his holdings a few days later at prices ranging from $9.25 to $10.50 a share.

Posted by edelfenbein at 9:13 AM

Cause & Effect

Modesty naturally prevents me from claiming sole credit for TER*. Other factors may deserve some attention.
------------------------------
* The Elfenbein Rally

Posted by edelfenbein at 10:24 PM

The Ultimate in Stock-Picking Technology

Ticker Sense informs us that Birinyi Associates has unveiled the latest in stock-picking technology:

It goes for $89.95 (or two for $150). Don't delay. My in-depth technical analysis indicates this price could be the beginning of long up-trend.

Posted by edelfenbein at 1:51 PM

67-Month High

The S&P 500 just broke 1,330 for the first time since February 2001. Interestingly, the Wilshire 5000 just broke 13,300. The two index values are almost perfectly aligned at 10-to-1. By market value, the S&P 500 makes up about 73% of the Wilshire 5000.

Here's a graph of the Wilshire to S&P ratio since 2001:

You can see how the small-cap rally has altered the ratio.

Posted by edelfenbein at 11:44 AM

Danaher in Preliminary Talks with Vision Systems

Danaher (DHR) has confirmed that it's in preliminary talks with Vision Systems of Australia.

Austalia's The Age has more on the bidding:

The battle for control of Vision Systems is expected to intensify after the entry of a third bidder willing to offer about $2.50 a share for the medical instruments company.

The new bidder is expected to be Danaher Corporation of the US state of Washington (No, mate. Danaher is based in Washington, DC). Danahar makes a variety of instruments, tools and dental diagnostic equipment. Danaher could table a bid "within a matter of days", according to The Wall Street Journal.

An offer of $2.50 would give Vision a value of about $530 million and eclipse earlier indicated offers from Ventana Medical Systems and Cytyc Corporation.

Investors yesterday pushed Vision's shares up 3¢ to $2.54.

Vision directors last night said they had not endorsed any offer from Cytyc and therefore the Ventana merger proposal was still live. They warned shareholders not to accept the Cytyc on-market offer.

Posted by edelfenbein at 10:46 AM

Viet Dinh on Patricia Dunn

If you have a chance, I recommend you read Viet Dinh’s article in the WSJ today on Patricia Dunn (it’s a paid link). Here’s a small bit:

So the whole thing boils down to Mr. Keyworth deciding to speak favorably to a reporter without asking for permission. The answer to this question of authority is not self-evident as a legal matter. The chairman of the board is first among equals -- entrusted with the responsibility to set agendas, conduct meetings and interact with management. But each board member individually owes a legal duty to act in the best interests of the corporation, a personal duty that cannot and should not be delegated or transferred to anyone else.

It is true that unauthorized disclosures of board information would violate a mutual commitment of confidentiality that H-P directors made to prevent such disclosures following the ouster of Carly Fiorina as chairman and CEO. This is a serious matter, but one that could and should be handled, as Mr. Perkins suggested to Ms. Dunn early on, by a direct personal conversation with the directors. It is therefore understandable for Mr. Keyworth to reportedly exclaim, when confronted with the CNET investigation results, "I would have told you all about this. Why didn't you just ask?"

Posted by edelfenbein at 10:29 AM

Walgreen: Still Too Expensive

Shares of Walgreen (WAG) are getting nailed today as the company reported earnings of 41 cents a share, which was in line with Wall Street's estimate. But judging from today's price action, I think it's safe to say that someone out there was expecting a little more. Even though the stock is down on in line earnings, I'm still taking a pass on Walgreen.

With the latest earnings, Walgreen's price/earnings ratio falls to about 26. CVS (CVS), on the other hand, is trading at 19 times earnings. No matter how you slice it, I just don't see how Walgreen can justify a 36% valuation premium, (not that I like CVS either).

Both companies face a new challenge--Wal-Mart (WMT). The Beast from Arkansas announced that it will now start selling generic drugs. Wal-Mart is legendary for beating the competition in any new market it enters. Actually, "beating" is a rather kind word. Wal-Mart thoroughly annihilates the competition. Then dances on their grave.

The company is starting small and only focusing on the Tampa Bay market. But if it goes well, Wal-Mart could expand the program. This is a very profitable sector; Walgreen's stock is up around 600-fold in the last 32 years. Also, in addition to Wal-Mart, competitors like Target (TGT) could jump in. This won't have much of a short-term impact on either CVS or Walgreen, but it's another risk factor weighing on both stocks.

Posted by edelfenbein at 3:28 PM

Goldman and Morgan Are the Winners in Amaranth's Fall

Well...they lost the least.

Securities firms are poised to earn about $8 billion on prime brokerage to the $1.2 trillion of mostly unregistered pools of capital that let managers participate substantially in the gain or loss of the money invested. Goldman and Morgan Stanley will collect the most fees, as well as market insights, for providing services to hedge funds, according to Celent LLC, the Boston-based firm founded in 1999 to provide research and consulting advice to financial-services companies.

"It looks like there has been no fallout for the prime brokers," said Michael Holland, who manages $4 billion at New York-based Holland & Co. Amaranth "makes those businesses look much more attractive rather than less attractive."

That wasn't so apparent eight years ago, when Long-Term Capital Management LP collapsed on inauspicious trades after banks allowed the hedge fund to leverage its $2.3 billion of capital into a portfolio of about $125 billion of securities. The New York Federal Reserve organized a $4 billion bailout and regulators urged Wall Street to limit lending and monitor the risks that its clients are taking.

Posted by edelfenbein at 11:20 AM

The Invaluable Consultant

toothpastefordinner.com

Posted by edelfenbein at 4:38 PM

Blodget on Amaranth

In Slate, Henry Blodget looks at the Amaranth blow-up:

The only plausible conclusions that can be drawn from the crackups of Amaranth, et al, are that 1) they didn't know the risks they were taking, or 2) they knew and didn't care.

He thinks more are on the way, and I agree.

Posted by edelfenbein at 2:34 PM

Citigroup sees S&P hitting 1,500 by end of 2007

From Reuters:

Citigroup Inc. set 2007 year-end targets of 1,500 for the Standard & Poor's 500 index (that's 14.3% over 15 monnths) and 12,750 for the Dow Jones industrial average, with the cash on corporate balance sheets providing some downside protection.

In a research note, analyst Tobias Levkovich forecast another year of high-single-digit gains. The risk of a decline in the S&P 500 index was modest given that at S&P 500 companies, excluding financial firms, cash holdings are about 8 percent of market capitalization.

Citigroup said that after weighing several factors, it predicted the S&P would range between 1,400 on the low end and 1,630 on the high end as 2007 comes to a close.

Given the current yield curve, this strikes me as somewhat overly optimistic.

Posted by edelfenbein at 10:43 AM

The Forbes 400

Forbes just came out with its new list of the 400 wealthiest Americans. Here's the top 25 and their fortunes (in billions):

1 William Henry Gates III...................$53.0
2 Warren Edward Buffett...................$46.0
3 Sheldon Adelson.............................$20.5
4 Lawrence Joseph Ellison.................$19.5
5 Paul Gardner Allen..........................$16.0
6 Jim C Walton...................................$15.7
7 Christy Walton & family...................$15.6
7 S Robson Walton............................$15.6
9 Michael Dell.....................................$15.5
9 Alice L Walton.................................$15.5
11 Helen R Walton.............................$15.3
12 Sergey Brin...................................$14.1
13 Larry E Page.................................$14.0
14 Jack Crawford Taylor & family........$13.9
15 Steven Anthony Ballmer................$13.6
16 Abigail Johnson.............................$13.0
17 Barbara Cox Anthony....................$12.6
17 Anne Cox Chambers......................$12.6
19 Charles De Ganahl Koch................$12.0
19 David Hamilton Koch......................$12.0
21 Forrest Edward Mars Jr..................$10.5
21 Jacqueline Mars.............................$10.5
21 John Franklyn Mars........................$10.5
24 Carl Icahn......................................$9.7
25 John Werner Kluge........................$9.1

For the first time, everyone on the list is a billionaire.

Posted by edelfenbein at 10:11 AM

Market gossip goes high-tech

The Financial Times is on the story:

Market gossip is to take on a more high-tech form thanks to a new automated system that will trawl through more than 40m internet sources – from blogs to regulatory filings – on behalf of hedge funds.

Due for an official launch early next year, the platform is being run by a former Deutsche Bank executive and has received financing from, among others, Draper Fisher Jurvetson, the venture capital firm that backed Skype before it was sold to Ebay for $4.1bn last year. Ten hedge funds are trying out the system.

Called Monitor110, the platform acts as an aggregator and a filter for hedge funds trying to keep up with the explosion of information sources on the internet, such as blogs. The blog search engine Technorati currently tracks 50m blogs, with about 175,000 new ones created every day.

Let's see. The hedgies watch the blogs, and the blogs make fun of the hedgies. All rather post-modern if you ask me.

Posted by edelfenbein at 4:06 PM

Convergencification

Step aside: The bond market is rolling today. The yield on the 10-year bond (^TNX) just fell below 4.65%, and the yield on the 30-year (^TYX) fell below 4.78%.

Here's some perspective: The 10-year is now 60 basis points below Bernanke.

But there's something else that's been happening. The stock and bond markets have converged.

For most of this spring, the stock and bond markets moved in completely opposite directions. If bonds zigged, stocks zagged. Check out this chart of the S&P 500 Spyders (SPY) and the American Century 2025 Fund (BTTRX):

They're almost like mirror images.

But in early June, everything changed. The two markets suddenly converged, and started to move like waltzing partners:

What happened is the fight for capital changed. It was stocks against bonds. Then the paper assets decided to team up and kick the ass of real assets like gold and oil (think Rocky III):

The gold line is the Oil ETF (USO).

Posted by edelfenbein at 2:51 PM

Headline of the Week

HP Spy Scandal Hits New Weirdness Level

The old weirdness level just wasn't cutting it.

Not only did investigators impersonate board members, employees and journalists to obtain their phone records, but according to multiple reports, they also surveilled an HP director and a reporter for CNet Networks Inc. They sent monitoring spyware in an e-mail to that reporter by concocting a phony story tip.

They even snooped on the phone records of former CEO and Chairwoman Carly Fiorina, who had launched the quest to identify media sources in the first place.

If they had only put that much time, effort and creativity into something more useful...say, running HP's business.

And in a twist that might seem preposterous if it happened in a movie, The New York Times reported that HP consultants considered hiring spies to pose as clerical or custodial workers at CNet and The Wall Street Journal.

Um...that did happen in a movie: Wall Street.

And they're right, it was preposterous.

What if those consultants were really spies from Dell who were secretly trying to sabotage HP? How cool would that be?

Honestly, I should be writing for 24.

Posted by edelfenbein at 12:51 PM

Dell Gets Delisting Notice

OK, the Nasdaq isn't really going to delist Dell (DELL). But still, you gotta get that 10-Q in sometime.

Posted by edelfenbein at 11:41 AM

Bed Bath & Beyond Earned 51 Cents a Share

Now it's official: For the August quarter, Bed Bath & Beyond (BBBY) earned 51 cents a share (see earnings call transcript). That's not too much of a surprise since it's what the company said to expect.

Well...they were right!

Sales were up 12.3% to $1.607 billion. Interestingly, net income was nearly the exact same as last year. The difference is that there are now 17 million fewer shares.

Although Bed Bath & Beyond doesn't pay a dividend, last year the company bought back $600 million worth of stock. That's a frickin ginormous amount for a company this size (5.7% of current market value).

As I'm sure you know by now, I'm a big fan of Bed Bath & Beyond. Let's geek out at some of stats:

The first thing you'll notice is a big spike in business during the February quarter due to the holiday shopping season. Retailers live or die by the holidays.

Let's break down the numbers. The first thing I like to look at is a company's margins. First we'll start with gross margins:

Ah, tres bien! This shows Bed Bath & Beyond's gross margins for the trailing four quarters. As you can see, gross margins have climbed very nicely. In short, they can charge $7 for something that costs them $4 to make. We like that. We like that a lot.

This is also referred to as a company's variable costs. Let's say you run a lemonade stand. Your variable cost is simply how much it costs to make your lemonade. For each unit you sell, your variables costs should rise by the same percent. Variable costs are always a function of sales. That's why gross profit margins don't change much, and it speaks well of the company that gross margins have climbed in recent years.

Now let's look at operating margin and net profit margin:

Again, these graphs are very good. The red line is operating margin, and the black is net margin. Don't worry about the recent downturn in operating margin. For the last four quarters, Bed Bath & Beyond has implement Statement of Financial Accounting Standards 123(R) which accounts for stock-based compensation. That's shaved...oh, a couple million dollars each quarter.

The charges work out to three cents a share in this quarter and in last quarter. Excluding those charges, the company's operating margins are still over 15%, so these numbers are still looking good.

Now let me explain what operating margin is. Operating margin is gross margin minus "selling, general and administrative" expense. These are your fixed cost. For you lemonade stand, it would be things like salaries, maintenance and marketing (what can I say...it's a fancy lemonade stand). These costs are hard to control because they'll rise simply because you're still in business. Hey, you gotta pay the phone bill.

Net margin is operating margin minus interest expense and your tax bill. This is my favorite line, the bottom line. In Bed Bath & Beyond's case, it makes a small amount of money from interest income.

Now let's look at the growth in sales-per-share:

Again, this is what I like to see--a nice smooth trend.

For the quarter we're currently in (the company's third), Bed Bath & Beyond forecasts earnings of 52 cents a share. And for the fourth quarter (ending in February), the company sees earnings of 79 cents a share.

Here's a chart of earnings-per-share for the past few years, along with the company's estimate for the next two quarters, plus my estimate for the four quarters after that:

Also in the press release was this:

The Company also announced an independent committee of its Board of Directors is carrying out a review of the Company's stock option grants and procedures. The independent committee's review was initiated voluntarily by the Company and is being conducted with the assistance of independent legal counsel and outside accounting experts selected by the committee. The independent committee's review is not complete. The Company expects to report further with respect to the review in its Form 10-Q for the quarter ended August 26, 2006, which the Company expects to file on a timely basis on or before October 5, 2006.

The shares dropped sharply in the after-hours market but this struck me as a perfectly ordinary review. I don't see how we can read any more into it.

Posted by edelfenbein at 10:25 PM

Frontier Airlines Jumps

I had Frontier Airlines (FRNT) on last year's Buy List. I hate airline stocks, but FRNT looked like a sound investment at a good price. The stock was doing well until it got slammed after Southwest Airlines (LUV) said it was going to enter the Denver market, Frontier's home turf. Ultimately, I decided againt keeping Frontier on this year's Buy List, which was a smart move since the stock has fallen for most of the year.

Shares of Frontier got as low as $6, but have to started to perk up recently. Fuel is a huge cost for the ailines, and crude oil briefly fell below $60 a barrel today. Frontier is up strongly this session and is back over $8 a share.

Posted by edelfenbein at 2:45 PM

The Fed Leaves Rates Unchanged

Here's the statement:

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market.

Readings on core inflation have been elevated, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.

Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Once again, Jeffrey M. Lacker wanted a 0.25% increase. Me too.

Posted by edelfenbein at 2:18 PM

Earnings Preview for Bed Bath & Beyond

Bed Bath & Beyond (BBBY) reports after the bell. The company has already said it expects 51 cents a share. The AP has a preview:

OVERVIEW: The company operates 819 stores nationwide under the names Bed Bath & Beyond, Christmas Tree Shops and Harmon selling home furnishings, food, gifts and health and beauty care products.

Consumers are being squeezed by rising interest rates, the slowing housing market and higher fuel prices. Rising energy costs have also lifted utilities costs, hurting some companies' bottom line. Furniture sales have been weak in recent weeks, as people cut back on big-ticket items amid the slowing housing market. However, analysts see Bed Bath & Beyond as a savvier merchandiser and better equipped financially to handle economic pressures, compared with Pier 1 Imports Inc. and other rival chains.

BY THE NUMBERS: Wall Street expects earnings of 51 cents per share, the mean estimate of 24 analysts surveyed by Thomson Financial, on $1.60 billion in sales. The company didn't provide any financial forecast in its last earnings release in June. (They said 51 cents a share in the conference call.)

ANALYST TAKE: "Given the company's historical top-line immunity to furniture sales fluctuations and housing turnover, we remain confident that planned 3 percent to 5 percent (same-store sales increases) are achievable," Goldman Sachs analyst Adrianne Shapira wrote in a client note. Selling, general and administrative costs could pose some risk, "but our gross margin assumptions should prove conservative." Shapira forecast quarterly earnings of 52 cents per share, which she said was a penny higher than management's guidance.

Posted by edelfenbein at 1:53 PM

Market At 5-1/2 Year High

Thanks to Oracle (ORCL) and $61 oil, the S&P 500 has climbed above 1327 for the first time since February 2001. The Dow broke 11600. But will it hold?

The 10-year yield is now down to 4.72%, it's lowest point since March. The yield on the 30-year bond got down to 4.835%. Our Buy List is now up over 5% for the year. Expeditors (EXPD) is doing well today. Fiserv (FISV) and Sysco (SYY) also hit new highs earlier today.

Posted by edelfenbein at 11:09 AM

Dept. of the Obvious

Two researchers looked to see if stock spamming works.

*Drumroll*

It does!

Based on a large sample of touted stocks listed on the Pink Sheets quotation system, we find that stocks experience a significantly positive return on days when they are heavily touted via spam, and on the day preceding such touting. Volume of trading also responds positively and significantly to heavy touting. Indeed, on a day when no tout has been detected in our database, the likelihood of a touted stock being the most actively traded stock that day is only 6%. On the other hand, on days when there is touting activity, the probability of a touted stock being the single most actively traded stock is 81%. Returns in the days following touting are significantly negative.

Posted by edelfenbein at 10:42 AM

Biomet's Earnings

Biomet (BMET) reported earnings of 42 cents a share this morning. That’s a penny below analysts’ consensus so the stock will probably be under pressure today. Sales were up just 5% to $508 million. The company said that sales at its trauma and spine unit (ick) were $12 million below management’s expectations. Over 330 jobs have been cut from that department. Biomet also said that its “comfortable” with second-quarter estimates of 44 cents to 46 cents a share, and sales of $519 million to $540 million.

Posted by edelfenbein at 8:52 AM

Oil Plunges Below $62 A Barrel

The fall in oil continues. In fact, it's accelerating. Here's a chart of October light sweet crude:

From AP:

"We'll see sub-$2.25 a gallon retail (prices) by October," said Tom Kloza, director of the Oil Price Information Service, adding that prices below $2 can already be found in Kansas, Missouri, South Carolina and other states.

At one point, oil got down to $61.58 a barrel from $63.80 yesterday. Ticker Sense notes the correlation between the price of oil and President Bush's approval numbers.

Posted by edelfenbein at 2:56 PM

The Flat Yield Curve

Actually, the yield isn’t even flat anymore, it’s a bowl. The yield on the five-year note is lower than both the 90-day bill and the 10-year bond.

The Federal Reserve came close to flattening out the yield curve earlier this year at about 4.5%. Then the long-end run away from the central bank. But over the summer, long-term yields started to head back down and they crossed the short-term yields on the way.

I still wouldn’t mind seeing another 25 or 50 basis points from the Fed. I think we’ve forgotten how high inflation-adjusted short-term rates can go. I think the basic rule should be to keep interest rates about 3% above the core rate of inflation during an expansion. And during a recession, real rates should be close to zero as possible without going negative.

Posted by edelfenbein at 11:31 AM

Our Remarkable Growth

Investors these days hear a lot about "the rise of China" or the "rise of India." In today's Wall Street Journal, Michael Milken points out:

China and India combined to produce nearly half the world's economic output in 1820 compared to just 1.8% for the U.S. Our remarkable growth since 1820 has benefited from democratic institutions, a belief in capitalism, private property rights, an entrepreneurial culture, abundant resources, openness to foreign investment, the best universities, immigration and relatively transparent markets. (Hat tip: Prof. Mankiw).

On a related note, Investor's Business Daily comments on Sweden's economy:

And it's wrong to praise Sweden's current economic performance. Sweden ranks 14th worldwide in per capita income now, but in 1970 it ranked fourth. That's a big drop.

The average Swede earns $29,800 a year. Not bad, you say? That's less than the average person in Mississippi. Some model.

Posted by edelfenbein at 10:45 AM

FactSet Beat the Street

FactSet did it again! This company just keeps delivering the earnings.

This morning, FactSet Research Systems (FDS) reported earnings of 46 cents a share for its fourth quarter (ending in August). Excluding charges for stock compensation, FDS earned 48 cents a share, six cents more than Street estimates.

The shares are up 7% this morning to a new all-time high. Last year, the company made 37 cents a share for the fourth quarter. Sales were up 27% to $105 million.

Not only does the company have strong growth, it has consistent growth. Here are the sales and EPS numbers for the past few years:

Year......................Sales (mil)..............EPS
1996.....................$44.35...................$0.13
1997.....................$58.36...................$0.18
1998.....................$78.91...................$0.26
1999.....................$103.83.................$0.37
2000.....................$134.18.................$0.49
2001.....................$167.56.................$0.64
2002.....................$198.29.................$0.78
2003.....................$222.30.................$0.98
2004.....................$251.91.................$1.15
2005.....................$312.64.................$1.43
2006.....................$387.35.................$1.64

Posted by edelfenbein at 9:55 AM

The Future for Facebook

Last year, Facebook was worth $100 million. This year, it received a $1 billion buyout offer from Yahoo (YHOO). Well...that is until Yahoo's stock got head-butted in the chest this summer.

MarketWatch's Bambi Francisco has more on the social networking site:

Facebook CEO and founder Mark Zuckerberg told me last week that the decision is aligned with his long-held mission statement at Facebook. "We're a company trying to help people understand their world," he said, suggesting that the word "people" is broad, comprising more than just those who are in colleges, high school and at work (except for those under 13 years of age, for now).

Such a decision to open up, however, may have unintended negative consequences, much like last week's community uprising over a new service that cast personal information as essentially news bulletins.

If Facebook eases this new service across its 9-million member society without a glitch, it will mark a right of passage into the big leagues, to some extent.

You see, Facebook -- though only two years old -- is on the fast track to being perceived and valued as a grown up. As such, every major decision is a test of its will to fit into such mature billion-dollar shoes.

Here's an unintentionally funny interview Bambi did with the Zuckerberg, the company's 22-year-old CEO. Let's just say that he doesn't lack in self-confidence. Also, he seems completely baffled by the presence of his own hands.

Posted by edelfenbein at 3:14 PM

Northern Empire Soars on Buyout

Last November I wrote about stocks flying below Wall Street's radar, meaning teeny micro-cap stocks that aren't followed by any Wall Street analysts. Investors are often surprised to learn that some of the best publicly traded companies are completely ignored by Wall Street.

In my original post, I mentioned three small banks. Today, the second one got bought out. Northern Empire Bancshares (NREB) is going to be acquired by Sterling Financial (STSA) for $335 million in cash and stock.

Under the deal, approved by both companies' boards, Sterling will pay 0.805 common shares and $2.71 in cash for each share of Northern Empire. Based on Sterling's closing price of $33.04 on Friday, the offer values Northern Empire shares at $29.31 a piece, a 22 percent premium to its closing price of $23.98 the same day.

Northern Empire is puny, just 150 employees, 11 branches and zero analysts covering it. But look at NREB's earnings-per-share results for the last few years:

1999 $0.55
2000 $0.68
2001 $0.77
2002 $0.81
2003 $0.97
2004 $1.18
2005 $1.51

That stands up to any mega-cap bank. For the first half of 2006, NREB earned 82 cents share compared with 73 cents last year.

The first bank that was bought out was a thrift, NewMil Bancorp (NMIL), in April. The only one left standing is also an S&L, Coastal Financial (CFCP).

Posted by edelfenbein at 9:43 AM

Spreading Financial Literacy

Kudos to Russell Simmons. The hip-hop mogul is working to spread financial literacy through his non-profit Hip-Hop Summit Action Network.

Far too many Americans are financially illiterate, especially young people. The subject simply isn’t taught in many schools. Thirty percent of black households are “unbanked.” That’s disgraceful, and it needs to change.

Here’s video of Simmons ringing the opening bell on the Nasdaq.

Posted by edelfenbein at 7:39 AM

Gas at $1.15 a Gallon?.

Philip Verleger says that oil could plunge to $15 a barrel, which would mean $1.15 gas at the pump.

For most of the past two years, oil prices have risen because the world's oil producers have struggled to keep pace with growing demand, particularly from China and India. Spare oil-production capacity grew so tight that market players feared that any disruption to oil production could create shortages.

Fear of disruption focused on fighting in Nigeria, escalating tensions over Iran's nuclear program, violence between Israel and Lebanon that might spread to oil-producing neighbors, and the prospect that hurricanes might topple oil facilities in the Gulf of Mexico.

Oil traders bet that such worrisome developments would drive up the future price of oil. Oil is traded in contracts for future delivery, and companies that take physical delivery of oil are just a small part of total trading. Large pension and commodities funds are the big traders and they're seeking profits. They've sunk $105 billion or more into oil futures in recent years, according to Verleger. Their bets that oil prices would rise in the future bid up the price of oil.

That, in turn, led users of oil to create stockpiles as cushions against supply disruptions and even higher future prices. Now inventories of oil are approaching 1990 levels.

Why should we listen to Verleger? Well, he was one of the few people who saw an oil price spike coming.

Posted by edelfenbein at 7:09 AM

BW: All Net New Jobs Since '01 Are in Health Care

According to the latest Business Week, the health-care industry has added 1.7 million jobs since 2001. The rest of the private sector, none.

For years, everyone from politicians on both sides of the aisle to corporate execs to your Aunt Tilly have justifiably bemoaned American health care -- the out-of-control costs, the vast inefficiencies, the lack of access, and the often inexplicable blunders.

But the very real problems with the health-care system mask a simple fact: Without it the nation's labor market would be in a deep coma. Since 2001, 1.7 million new jobs have been added in the health-care sector, which includes related industries such as pharmaceuticals and health insurance. Meanwhile, the number of private-sector jobs outside of health care is no higher than it was five years ago.

This is a good example of an accurate but misleading statistic. Always be wary of the numbers that talk about "all of the increase" coming from this or that. For example, since the beginning of 1999, the entire gain of the S&P 500 has come on just two days. That's true, but it's not the whole story.

You can select crucial dates, then discount certain factors and presto, you've got a scary headline. The key to remember is that this stat talks about net new jobs. Sure, lots of folks were hired as Web developers and laid off six months later. I think I knew most of them. If you want to be even scarier, the U.S. economy destroys millions of jobs every year. But it usually creates even more.

The interesting thing isn't the sluggish job growth, but the fact that corporate profits have climbed so much despite the sluggish job growth. That's productivity. The average worker is doing far more than he or she was five years ago.

Posted by edelfenbein at 6:19 AM

Stocks Heart CPI

Larry Kudlow likes to quote the famous adage, "buy on the cannons, sell on the trumpets."

But Rothschild had it wrong. It should be "buy on the May CPI, and then on the August CPI...keep buying." OK, it doesn’t have the same poetic ring, but it’s sure been working for us.

On May 5, despite a sluggish jobs report, the S&P 500 rallied to close at a five-year high of 1.325.76. A few days later, the Fed raised rates to 5% (its second-to-last hike), and the market started its downturn.

On June 13, the S&P 500 made its closing low of 1223.69. That day, gold had its biggest drop in 15 years. At the time I noted that energy, tech and materials made up one-quarter of the index but half of the losses. The next day, the May CPI report showed 0.4% headline and 0.3% core inflation. The market rallied and except for a July retest, it hasn’t looked back.

Today the market stuck its head above 1,324 before closing at 1,319.87. In four months, we’ve almost erased all our losses. Because the recent rally has been skewed to large-cap stocks, broader indexes like the Wilshire 5000 (^DWC) have slightly more room to go.

The Wilshire 5000 Total Return Index (^DWCT) is now just a little over 1% from an all-time high. Think about that for a moment. This means that the overall return of stocks including dividends is close to being positive, even measuring from the March 2000 high. It takes some patience, but the markets work!

This was another good day for our Buy List. Sysco (SYY) and Fiserv (FISV) both hit new highs. Plus, Harley (HOG), SEIC (SEIC), Donaldson (DCI) and FactSet (FDS) aren’t far away from new highs. How about Bed Bath & Beyond (BBBY)? The shares rose for the seventh straight session. Boo-Yah!

Next week we’ll have earnings reports from Bed Bath & Beyond, FactSet and Biomet (BMET).

Posted by edelfenbein at 4:25 PM

The Big Ripoff

I just finished reading "The Big Ripoff: How Big Business and Big Government Steal Your Money" by Tim Carney. I highly recommend it, but be warned, the book will seriously ratchet up your cynicism.

Carney takes on Corporate America but his argument is very different from your typical corporate bashing. Instead, he blames companies for using the government to enact regulations which help them and hurt consumers.

Did you know that Enron supported the Kyoto Treaty? I sure didn't. Or that Warren Buffett benefits from the estate tax he supports. How about this factoid: In 2000, self-identified "Upper Class" voters went for Gore over Bush by a 56-39 margin.

The piece I found most disturbing was the War on Tobacco. In recent years, more and more government functions have been outsourced to employers. I'm not sure how wise this is. The problem is that corporations are actually far more fragile than most people realize.

The Master Tobacco Settlement Agreement is a good example. First, it effectively creates a cartel. But now, state governments are so dependent on the revenue from the tobacco companies that they're too big to fail. What if one of the companies goes under? The state would have too much to lose, and it might be forced to bail out the the company. Here's a good article on the mess the settlement has become.

By the way, Tim Carney is the brother of DealBreaker's John Carney. (Hey John, would it kill you to plug the book a little?)

Posted by edelfenbein at 12:27 PM

Fiserv Hits All-Time High

Finally! Fiserv (FISV) took out its March 2002 high this morning. The stock had been locked in a tight trading range for over a year despite very good earnings. Shares of Fiserv woke up last week on an upgrade from Prudential.

Check out the plunging P/E ratio:

Posted by edelfenbein at 10:45 AM

Today's CPI Report

The CPI report for August was just released. Both core and headline inflation increased by 0.2%. On a trailing 12-month basis, the headline number fell to 3.82%, and the core rate increased to 2.84%. This is the first time in over a year that the figures are within 1% of each other.

Posted by edelfenbein at 8:42 AM

BBBY Breaks $37

Bed Bath & Beyond (BBBY) plunged in June after Wall Street hated its first-quarter earnings report. Shares of BBBY got all the way down to $31. The earnings report, however, wasn’t that bad. Sure, it could have been better, but the company earned 35 cents a share, which was in line with estimates.

BBBY will report earnings again next Wednesday. In June, the company said it will earn 51 cents a share for the quarter which was six cents more than Wall Street was expecting. I wouldn't be surprised if they were lowballing us. For the full year, BBBY expects earnings of $2.17 a share. This means the stock is trading at 17 times this year's earnings.

Posted by edelfenbein at 1:16 PM

Pinch Gets Squeezed

Arthur Sulzberger Jr. is giving up stock compensation for this year.

Sulzberger and Michael Golden told employees in a letter that their plan to forego stock-based compensation for two years -- which they described as a personal decision -- would result in about $2 million becoming available for payments to reward exceptional performance by staff who don't participate in the Times' annual bonus plan.

Just so we have this straight: They're giving up shares that are down by half in the past two years, and the family still owns 91% of the Class B shares.

Posted by edelfenbein at 12:02 PM

Foreign iShares Since 2003

Here's an update of a chart I ran a few months ago. This is how several foreign iShares have performed since the beginning of 2003:

Brazil (EWZ)................................414.99%
Austria (EWO).............................267.78%
Mexico (EWW).............................261.76%
Sweden (EWD)............................198.24%
Belgium (EWK).............................168.89%
Spain (EWP).................................166.29%
Australia (EWA)...........................162.52%
Canada (EWC)..............................160.92%
South Korea (EWY)......................155.33%
Germany (EWG)...........................148.22%
Italy (EWI)...................................128.20%
France (EWQ)..............................118.44%
Hong Kong (EWH)........................107.14%
Switzerland (EWL).......................103.75%
Netherlands (EWN)........................99.92%
U.K. (EWU).....................................97.64%
Japan (EWJ)...................................94.92%
Malaysia (EWM)..............................68.93%
Taiwan (EWT).................................59.07%

By comparison, the U.S. market as measured by the S&P 500 Spyders ETF (SPY), is up 59.04%.

Posted by edelfenbein at 11:37 AM

Bear Stearns Beats Expectations

A friend of mine recently asked me what’s the best way to invest in a hedge fund. I said to buy shares of Goldman Sachs (GS). Not only does it get a piece of most hedge funds, but it’ll probably make more money than most of them. The company has already broken its yearly profit record, and there’s still another quarter left to go.

Since April, investors have been selling off shares of brokerage stocks due to concerns about a slowdown in the investment banking business. Some of the stocks now have single-digit P/E ratios. It’s true, there has been a slowdown, but it’s far less than initially feared.

This morning, Bear Stearns (BSC) became the latest Wall Street firm to beat expectations. And unlike Goldman Sachs and Lehman Brothers (LEH), Bear Stearns reported a profit increase instead of a better-than-expected decline.

For the third quarter, Bear earned $3.02 a share which was 15 cents more than Wall Street’s consensus. The company’s largest business segment, fixed income, jumped 18.8% from last year’s third quarter which more than made up for the 22.6% slide in investment banking revenue. The most impressive growth came from the firm’s equities trading business which rose by 30.6%. Clearly, trading is where the action is.

Since many investment banks begin their fiscal year on December 1, we’re getting third-quarter earnings reports now. Yesterday, Lehman Brothers reported earnings of $1.57 a share, which topped Wall Street’s forecast by eight cents a share. On Tuesday, Goldman jump-started the rally for the sector by announcing earnings $3.26 a share compared with analysts’ forecast of $2.97 a share. Interestingly, Lloyd Blankfein, the new CEO, has a background in trading, not investment banking.

Next week, Morgan Stanley (MS) will be the next bank to report its earnings. The current consensus estimate is for $1.37 a share.

Here's how the five major brokerage stocks have done over the past four years:

Posted by edelfenbein at 10:18 AM

Russian Central Banker Assassinated

From Bloomberg:

Russian central banker Andrei Kozlov, who led a fight against corruption in the nation's banking industry, was assassinated outside a sports stadium in Moscow.

Kozlov, a 41-year-old deputy chairman of the central bank, was shot in the head and neck by two gunmen last night, said Svetlana Petrenko, a spokeswoman at the Moscow prosecutor's office. He died in hospital No. 33 in Moscow this morning.

The murder may be linked to Kozlov's job leading the central bank's fight against money laundering, Russian Prosecutor General Yuri Chaika, the highest-ranking law enforcement official, said in a statement on his Web site today. Kozlov was instrumental in pushing measures to regulate a banking system that almost collapsed after the government defaulted on $40 billion of debt in 1998.

"There are people in Russia who do not want the transparent, law-abiding and rational system he was creating," said Richard Hainsworth, chief executive officer of RusRating, an independent bank rating company in Moscow. "His reforms have pushed up the price of black money, of giving bribes."

Posted by edelfenbein at 9:01 AM

DC Mayor's Primary by Precinct

I thought I'd be a good citizen and post the precinct results of Tuesday's primary for Mayor of Washington. These are the unofficial results from city's Board of Election's page.

I used a spreadsheet to try and make the results look a little more coherent. Unfortunately, the city doesn't have a good map of each precinct, so I included each polling place and its address.

Adrian Fenty won an impressive victory. He beat Linda Cropp by 26 points and managed to win all 142 of the city's precincts.

Posted by edelfenbein at 7:49 AM

Green Bay Packers Inc.

CNBC's Darren Rovell has a good story on the business of the Green Bay Packers. Rovell only briefly touches on this, but the Packers are one of the more interesting businesses in America today. The team is organized as a non-profit, community-owned corporation.

There are about 4.7 million shares, but they don't pay a dividend and they can't be traded. Think about that. You just buy them and watch. If you want, you can sell the shares back to the team for a teeny amount of money.

The Packer fans are so loyal that they've bought shares, and financially rescued the team more than once over the past 80 years.

The team was organized as a community-owned company in 1923. To add some context, this was at the high tide as progressive movement, which found its epicenter in Wisconsin (i.e., the Wisconsin Idea).

In 1924, Senator Robert "Fighting Bob" La Follette, Sr. of Wisconsin ran for president as a third party candidate. He won 17% of the vote and carried his home state.

The senior La Follette died in 1925, but was succeeded by his son, Robert La Follette, Jr., who held the seat until 1946 when he was upset by Joseph McCarthy (with the help of the Communist Party).

Milwaukee was the country's only large city to have a socialist mayor, or at least, an admitted socialist mayor. In fact, the city had three socialist mayors over 38 years between 1910 and 1960 (would they have nationalized Arnold's?). The last one died a few weeks ago at the age of 93.

Posted by edelfenbein at 1:06 PM

Wall Street's Ride May Go Away

First they came for the fuzzy dice, but I was not a fuzzy dice so I don't speak out....(via Bloomberg):

The Lincoln Town Cars that chauffeur New York investment bankers home at the end of the day soon may be part of Wall Street history.

Ford Motor Co. plans to close the Wixom, Michigan, plant that makes the sedan and hasn't committed to production beyond the 2007 model year. Ford's Mercury Grand Marquis or DaimlerChrysler AG's Chrysler 300 may be called upon to take the Lincoln's place.

The Town Car, which makes up more than 80 percent of New York's 35,000 for-hire fleet, is the "black car" of choice in every major U.S. market, said Neil Weiss, editor of industry magazine Black Car News. Without it, life wouldn't be the same for thousands of bankers and executives who have been stretching out in the back seat since 1980, usually at company expense.

Investor Warren Buffett is already giving up the ride. Yesterday, he offered his 2001 Town Car in a charity auction.

Posted by edelfenbein at 12:36 PM

Oil's rout deepest in 16 years

Energy stocks are doing well today, but the price of oil is flat. Reuters notes that this is oil's deepest rout in 16 years:

U.S. crude has dropped nearly $15 to hit a near six-month low of $63.50 a barrel on Wednesday, a fall only a hair shy of those in August-November 2005 and October-December 2004. In those cases, oil made new highs five to eight months later.

In percentage terms there have been bigger stumbles on oil's recent ascent, propelled steadily higher since 2002 by the war in Iraq, soaring Chinese demand, constrained oilfield and refinery production, devastating U.S. Gulf Coast hurricanes, and most recently fears of a disruption to Iran's exports.

But some say this latest setback -- triggered by easing concerns on Iran, a weak storm season and a refocusing on healthy consumer nation inventories -- may prove more lasting.

"Even though we've retraced certain percentages similar to this, it definitely seems that the market is different now," says New York-based ABN AMRO broker John Brady. "Other times I saw (the corrections) leading to great buy opportunities, but I don't necessarily think that this time."

Technical analysts who study past price action for future direction, say the drop through the 200-day moving average last week and this week's fall below a three-year trend line -- intact since mid-2003 -- both send worrying signals.

Wow, it seems as if it was only two months ago that I was reading this:

Oil's march toward $80 a barrel seems inevitable, with multiple paths to get there.

It could follow another flare-up of Middle East violence. Or a hurricane in the Gulf of Mexico. Or maybe a refinery snag is all it would take.

"Mother Nature, physical disruptions and the politics of the world. All of those tell you that the risks are toward the upside," said Larry Goldstein, president of the Petroleum Industry Research Foundation, a New York think tank financed by the industry.

Oil prices surged Thursday to a record near $77 a barrel in world markets agitated by the escalating Israel-Lebanon conflict and the threat of supply disruptions in the Middle East and beyond.

Posted by edelfenbein at 11:03 AM

Prediction Markets

The Washington Stock Exchange is the newest futures exchange market for real world events. By "real world," I'm referring to events not on Wall Streetistan. Personally, I think these markets are for fun, and not to be taken too seriously.

I've been finding some of the developments at Tradesports a bit troubling. They refuse to confirm that North Korea fired missiles, which would come as a shock to many observers. Donald Luskin has the details.

Chris Masse, by the way, is the one-man global content provider on all things in predictions markets. I'm still very proud of my discovery of the Alito Volatility Index and Miers withdrawl contract. The latter won an award from Masse.

Give the problems at Tradesports, I'd like to start my own futures exchange. So let's do this: If you think the Eagles will beat the Giants this Sunday by more than three points, please send me money. If you don't think it will happen, you too send me money.

I'll allocate the funds in a just and equitable manner, while keeping a modest sum for myself.

This is in the interest of science, people.

Posted by edelfenbein at 10:34 AM

Update on the Buy List

Yesterday was a very good day for our Buy List. We beat the S&P 500 by 0.86% which was our fifth largest margin of the year. This come on the heels of Monday, which was our third best day of the year, and last Wednesday which was our best day of the year against the market. In absolute terms, yesterday was our fifth best day of 2006 (up 1.91%).

Through yesterday’s close, we’re still trailing the market for the year, 5.19% to 3.85%. But the gap has closed considerably in the past month. Since August 9, the Buy List is up 7.84% compared with 3.73% for the S&P 500. Our daily volatility is 17% greater than the market.

Both SEI Investments (SEIC) and Harley-Davidson (HOG) reached new 52-week highs yesterday. It’s always interesting to see what the big winners are in your portfolio. I never would have though that Dell (DELL) would lose 27% this year or that SEIC would be up 45% by September.

Of course, I also have this blog to talk about my mistakes. This year, the dumb moves were Dell (DELL), Medtronic (MDT) and UnitedHealth (UNH). The smart move was diversification, so the dumb moves haven’t overwhelmed me. December is just three months away, and that’s when I overhaul the Buy List, so I’m already thinking of what to keep and what to ditch.

Even though Home Depot (HD) is down for the year, I still like the stock, if not its management. I’ll also have to decide what to do with Wachovia (WB) once it joins the Buy List. I’ll probably get another financial. I also should have focused on some smaller stocks. All 20 stocks have a market cap of at least $20 billion.

Posted by edelfenbein at 9:31 AM

Business Week On Krispy Kreme

September 4, 2001
The Rise -- and Rise -- of Krispy Kreme
The doughnut maker's stock continues to confound the skeptics. But this sugar high can't go on forever, can it?

August 16, 2004
What's Really Inside Krispy Kreme?
Its accounting is the target of an SEC probe -- and other troubles may be in store

August 17, 2004
Inside the Hole at Krispy Kreme
COO John Tate may be seen as a sacrifice to Wall Street, but his departure isn't likely to be the end of the doughnut maker's woes

September 27, 2004
Why Krispy Kreme Is Worth A Bite

December 5, 2005
Krispy Kreme's Problems: Not "Fatal"
The doughnut maker's chief, Stephen Cooper, talks about the challenges he's tackling in leading the chain out of a hole

December 5, 2005
Krispy Kreme Has That Glazed Look
Even turnaround king Steve Cooper is having trouble reviving the chain

March 7, 2006
Can Krispy Kreme Rise Again?
The announcement of a new CEO gave investors a sugar rush, but Daryl Brewster has his work cut out for him to put the dough back in doughnuts

September 11, 2006
Krispy Kreme sees decline in sales

Posted by edelfenbein at 1:31 PM

Dell Stands Behind Rollins

The media so wanted to go for three oustings today, but no such luck.

Patricia Dunn is out at HP. Peter Dolan is gone from Bristol-Myers. But Michael Dell has Kevin Rollins' back: "Kevin and I run the business together, so if you want to blame him, blame me too."

OK, I will.

Posted by edelfenbein at 11:31 AM

Bernanke's Hippie Dictionary

Not only is Ben Bernanke the head of the Federal Reserve, but in high school he was the author of a hippie dictionary. Caroline Baum at Bloomberg lists some of its content:

Bird -- a lady as in "cute chick" or "henpecked"

Dig -- to like, to enjoy, as "The hippie undertaker digs his work."

Down trip -- a drag

Drag -- a down trip

Hang-up -- a neurosis or fetish

In gear -- the cat's pajamas

Lie-In -- a form of peaceful protest that often fails when demonstrators go to sleep

Square -- someone who stays home New Year's Eve to hear Guy Lombardo play "Auld Lang Syne"

Straight -- as in "stiff" (see "dig")

Swing -- what someone does who thinks Guy Lombardo is a football coach (see square)

Trip -- a rocket flight without the rocket

Posted by edelfenbein at 9:50 AM

Neuroeconomics

John Cassidy has a fascinating article in this week's New Yorker on the emerging field of neuroeconomics.

Trust plays a key role in many economic transactions, from buying a secondhand car to choosing a college. In the simplest version of the trust game, one player gives some money to another player, who invests it on his behalf and then decides how much to return to him and how much to keep. The more the first player invests, the more he stands to gain, but the more he has to trust the second player. If the players trust each other, both will do well. If they don’t, neither will end up with much money.

Fehr and his collaborators divided a group of student volunteers into two groups. The members of one group were each given six puffs of the nasal spray Syntocinon, which contains oxytocin, a hormone that the brain produces during breast-feeding, sexual intercourse, and other intimate types of social bonding. The members of the other group were given a placebo spray.

Scientists believe that oxytocin is connected to stress reduction, enhanced sociability, and, possibly, falling in love. The researchers hypothesized that oxytocin would make people more trusting, and their results appear to support this claim. Of the twenty-nine students who were given oxytocin, thirteen invested the maximum money allowed, compared with just six out of twenty-nine in the control group. “That’s a pretty remarkable finding,” Camerer told me. “If you asked most economists how they would produce more trust in a game, they would say change the payoffs or get the participants to play the game repeatedly: those are the standard tools. If you said, ‘Try spraying oxytocin in the nostrils,’ they would say, ‘I don’t know what you’re talking about.’ You’re tricking the brain, and it seems to work.”

Posted by edelfenbein at 9:15 AM

Then and Now

Top 10 Industry Groups Since 9/11
General Mining..............................860.40%
Consumer Electronics....................389.37%
Nonferrous Metals........................289.10%
Exploration & Production..............208.42%
Steel..............................................205.84%
Coal...............................................203.65%
Gambling.......................................173.41%
Home Construction.......................149.68%
Commercial Vehicles & Trucks.......139.50%
Oil Equipment & Services..............138.14%

Bottom 10 Industry Groups Since 9/11
Automobiles.................................-40.14%
Airlines.........................................-38.83%
Tires............................................-35.18%
Gas Distribution...........................-32.30%
Automobiles & Parts....................-25.73%
Fixed Line Telecommunications....-21.18%
Pharmaceuticals...........................-19.90%
Telecommunications......................-18.22%
Aluminum......................................-17.48%
Broadcasting & Entertainment......-16.84%

Market and Economic Stats
..............September 10, 2001..............September 11, 2006
Dow......................9,605.51.........................11,396.84
S&P 500................1,092.54.........................1,299.54
Nasdaq.................1,695.38.........................2,173.25
30-Year T-Bond.........5.44%.........................4.94%
90-Day T-Bill..............3.18%.........................4.81%
Unemployment Rate....4.9%..........................4.7%
Nonfarm Payrolls....131,776.......................135,500
CPI............................2.7%.............................4.2%
Core CPI....................2.7%.............................2.7%

In five years, 3.7 million jobs have been created. The unemployment rate is down. Long-term rates are lower. All the major indexes are up, and core inflation is the same.

(Note: Unemployment rates and NFP are for August. The NFP is in thousands. The inflation rates are for the trailing 12-month period through August.)

Posted by edelfenbein at 4:13 PM

40,000 Children

Here's something to keep in mind the next time you hear someone complain about the evils of Global Capitalism. From the New York Times, October 2, 2001:

Though the Sept. 11 terrorist attacks will very likely take a heavy toll on the economies of the United States and other wealthy nations, they may have an even greater impact on poor nations that do not have safety nets in place to absorb a sharp economic downturn, the World Bank predicted in a report issued today.

Slower growth in world trade, a slump in tourism, lower commodity prices and falling foreign investment could reduce economic output across the developing world, straining already weak social service and health care systems, the bank said. It estimated that 40,000 children worldwide will likely die from disease and malnutrition and 10 million people will fall below the bank's extreme poverty line of $1 dollar a day or less as a direct result of slower economic growth.

Posted by edelfenbein at 2:15 PM

Brit Obit of the Day

His Majesty King Taufa'Ahau Tupou IV of Tonga from the Telegraph:

The son of Queen Salote, who endeared herself to Londoners when she came over for the Coronation in 1953 and drove smiling through the rain in an open carriage, the King was the world's only Methodist sovereign and for many years, according to the Guinness Book of Records, the world's heaviest.

A jovial man-mountain of energy, he was 6ft 4in tall and at his peak weighed some 35 stone. Although he belonged to a people famous for feasting, he was sometimes troubled by his size: "In his heart," as one of his aides once put it, "His Majesty is a thin man." But cutting down did not come easily. "My doctor's put me on a diet," the King said in 1999. "I'm only allowed to eat three yams a day. But a yam can be 6ft long."

advertisementWhen the King, who succeeded his mother in 1965, came on visits to London he would sometimes decline the use of his Embassy's Mercedes (number plate TON 1), preferring a more commodious Rolls-Royce — with, as he explained, "more leg room".

And later:

The Crown Prince belonged to the 43rd generation of direct descendants of Aho'eitu, the first Tui Tonga (supreme ruler) who lived in the 10th century. More distantly, he descended from the sky god Tangeroa.

Posted by edelfenbein at 12:01 PM

Logistics Company Offers Long-Range Appeal

The WSJ's Heard on the Street column looks at Expeditors International (EXPD):

Shares of Expeditors International of Washington Inc. might be a "momentum" investor's trash in the coming weeks, but the logistics company's stock is likely a long-term investor's treasure.

Expeditors primarily buys air- and ocean-freight space at wholesale prices and resells it to commercial customers who need shipping services to and from Asia, the U.S. and Europe. The Seattle company, founded in 1979, has been a standout performer in this increasingly lucrative niche. By consolidating customers' shipments and offering customs brokerage to speed delivery, the company has built an enviable book of steady clients.

But the company's stock price -- which has nearly tripled over the past five years -- is off almost 30% since the end of June, according to Thomson Financial. The fall has happened despite second-quarter net income that was up more than 50% from a year earlier. As of 4 p.m. Friday in Nasdaq Stock Market composite trading, Expeditors' shares fell 55 cents, or 1.4%, to $39.26, giving the company a market capitalization of $8.4 billion.

This recent tumble might be because the shares had attracted quick-trigger momentum investors who worry that a slowing economy could temporarily depress freight volumes. Stock analysts, who project 18% annual earnings growth over the next five years, have gotten skittish, too, as the stock's price/earnings ratio has risen to more costly levels. The stock is rated a "hold" by 11 of the 13 analysts who cover it. The other two have "buy" and "outperform" ratings, according to Reuters Estimates.

Despite what might be a bit of a blue period, many investors say shareholders reading short-term economic tea leaves or worrying about today's valuation might deserve the designation of cynic as defined by Oscar Wilde -- someone "who knows the price of everything and the value of nothing."

"The stock has been volatile lately, and that's probably an indication of its owners and not the company's results," says Joe Fath, a senior stock analyst who covers the company at T. Rowe Price Group Inc., which owned 682,000 shares on June 30, according to regulatory filings.

"The market has become very short-term focused, and it can create an opportunity here for long-term investors," says Ed Han, manager of the $143.9 million Transamerica Premier Growth Opportunities Fund, in which Expeditors was the top holding on June 30.

Bulls admit that recent pressure on the stock is understandable. The increasing number of professional investors concerned with quarterly or even monthly returns will likely dump shares of any company in the logistics or transportation sector because of economic worries.

The company's enviable profit-growth track record has translated into a perennially high price/earnings ratio, and stocks with rich per-share multiples often are sold first when investors get antsy. Today, the company's shares trade at a little more than 30 times their expected earnings for 2007, which is almost double the P/E ratio of the average stock in the Standard & Poor's 500-stock index. That also is higher than the valuations of competitors such as CH Robinson Worldwide Inc., UTI Worldwide Inc. and EGL Inc. Yet, over the past decade, the stock has averaged an annual gain of 35%.

Beneath a high valuation, bulls say, is a company that has consistently, if quietly, churned out above-average profit without needing heavy investment or acquisitions. Further, they say the company should continue to do so through market-share gains and industry growth in a sector where demand should track with powerful outsourcing and globalization trends.

"They are simply the best at executing in a business benefiting from global trends whose growth is pretty much inexorable," says Ken Broad, who has followed the company at different firms for a decade and owns shares in the $428.8 million Delaware Select Growth Fund he manages. He adds that Expeditors is one of only two stocks in his personal portfolio.

Why so smitten?

One reason is the basic appeal of this type of logistics business. Even big retailers, manufacturers and technology companies that ship products world-wide every day aren't experts at international supply-chain management. With more companies' outsourcing work to lower-cost markets and using "just-in-time" inventory management to avoid having big stockpiles of goods, getting materials to distant spots and through customs on time is increasingly important.

A big chunk of Expeditors employees' pay is pegged directly to the amount of profitable business they bring in. And without expensive factories or equipment to replace and repair, more of every dollar in revenue gets to the bottom line, and the company doesn't have a penny of long-term debt.

This combination has led to ample free-cash flow that the company has used to repurchase shares, buy real estate in important gateway cities and build its book of business. The company's return on equity and return on capital have averaged well above 20% over the past decade, according to researcher Capital IQ. The company has raised the amount it pays out in dividends each year for more than a decade.

To be sure, those expecting the company and its stock to grow at or above its historically high clip likely will be disappointed. The company's growth likely would be pinched in an extended economic downturn. The business could be hurt if its stock enters a prolonged downturn because stock options are a significant carrot in its performance-based pay structure.

At the same time, a business that sells expertise at healthy rates, has no debt and has a growing market is the kind of business that makes patient investors lick their chops -- even if the road seems a bit bumpy in the near term.

Posted by edelfenbein at 10:01 AM

Return to Reality

Gold is down $20 an ounce this morning. The metal is finally below $600. Oil is down another 89 cents a barrel. Crude has fallen for six straight sessions, the longest losing streak in three years.

The odd thing is that bonds are lower this morning. The yield on the 30-year bond is up to 4.92%. Stocks are also down, but once again it's a divided market. Cyclical stocks are feeling most of the pain. The Morgan Stanley Cyclical Index (^CYC) is down -0.76% while the Consumer Index (^CMR) is up 0.07%.

Recently I wrote about Nicholas Financial (NICK). This little micro-cap has had some outstanding results. The stock has pulled back to under $13 a share, or less than 12 times earnings.

Posted by edelfenbein at 9:45 AM

Dell Delays Quarterly Earnings Report

DOJ and the SEC are looking into the company's accounting practices:

The company postponed an analyst meeting that was to be held on Sept. 13 and suspended its stock buyback program. Dell said in a statement today that it will reschedule the New York analyst event to a later date.

The investigations by the SEC and the U.S. Attorney for the Southern District of New York indicate the possibility of misstatements in prior financial results, Dell said. The Round Rock, Texas-based company said it plans to file the report as soon as possible and is cooperating with the investigations.

"We will take any appropriate remedial or corrective actions to address any problems," Chairman Michael Dell said in the statement.

Posted by edelfenbein at 9:35 AM

Crossing Wall Street Five Years Ago

Posted by edelfenbein at 6:36 AM

Adams Morgan: Now With 11% Fewer Crack Whores!

I thought I'd give you a few pictures of my 'hood, the Adams Morgan section of Washington, DC.

There's no place in DC quite like Adams Morgan. Gay, straight, rich, poor, black, white, Hispanic, tranny vegans, goof-off stock bloggers, you name it, Adams Morgan has it.

On Friday and Saturday night, the place turns into a frickin zoo. Eighteenth Street is home to some of the hippest bars and restaurants in the entire city. The place is packed and parking is a nightmare.

I took these shots around midnight on Saturday. This is looking north on 18th Street. The traffic barely crawls on the weekends.

This is Tryst, which is a popular coffeehouse/cyber lounge. I often blog from here in the morning. I think Condit met whats-her-face here.

This is Madam's Organ (get it?), one of AM's old stand-bys.

Here are some motorcycles parked outside Asylum. I spotted a few Harley's (HOG). That's always nice to see.

Aristide Bruant.

Could be a Bush daughter. You never know.

This is Heaven & Hell. The upstairs is called Heaven. The downstairs is Hell. I'll let you fill in the rest. By the way, there are three hookah bars on 18th Street.

Posted by edelfenbein at 1:14 AM

Twelve Angry Men

Don't ever say this blog doesn't present high culture.

Posted by edelfenbein at 5:27 PM

Oil Is Down 15% Since July

Today is another decent day for our Buy List. Since we don’t have any energy stocks, whenever oil falls, the Buy List tends to beat the market. The price of light sweet crude has now dropped over 15% since Bastille Day. I wonder if there will be a Congressional investigation into manipulation from the big oil companies. Eh…prolly not. I think the energy sector has even more room to fall.

Our big winner today is Fiserv (FISV) which is up over 6% thanks to an upgrade from Prudential. Harley-Davidson (HOG) is inches always from a new 52-week high. The stock, however, is having trouble making it through $60 a share.

In April 2005, Harley warned of slower sales and stock plunged. Since then, the shares have made an impressive comeback. The company is still doing well, although profits may not grow at quite the same rate as before. The stock is going for about 15.6 times this year’s earnings. Not a bad deal.

Donaldson (DCI) is still looking good. After Wednesday’s big surge, the stock pulled back some yesterday, but it’s up again today.

Another overlooked stock is Danaher (DHR). The company will report third quarter earnings on October 19. The current estimate is for 82 cents a share, which is probably too low.

The big news next week will be the OPEC meeting on Monday, and the CPI report on Friday. The year-over-year headline rate of inflation should have a big drop due to the large number from a year ago. This should happen again next month because last September’s CPI was gigantic. This is a good example of why it’s sometimes important to focus on the core rate of inflation, instead of the headline rate.

Posted by edelfenbein at 3:53 PM

More Problems for Homebuilders

If you raise interest rates 17 straight times, it begins to have an impact. Today Lennar (LEN) became the latest homebuilder to slash its profit forecast. Last week, Beazer Homes USA (BZH) and KB Home (KBH) both slashed their forecasts.

Lennar now says it’s going to earn $1.25 to $1.35 a share for the quarter. This is a big cut from the earlier forecast of $1.90 and $1.95 a share. For the full year, Lennar sees earnings of $8 to $8.25 a share, which is down from its previous forecast of $9.25 a share. I have a feeling we’re going to see more earnings warnings in the months ahead.

Over the past year, the homebuilding sector has been absolutely mauled. The index is down nearly half from last year’s peak.

Posted by edelfenbein at 12:57 PM

How Good Are Economic Forecasters?

Not very good according to Martin Fridson. He looked at the median GDP forecast of some 60 professional forecasters.

The median prediction was in the range of 3.1% to 4.0% in every single quarter. Perhaps not coincidentally, the actual quarterly GDP increase over the past 25 years (1981-2005) averaged 3.14%. The forecasters, in aggregate, perennially thought that one year hence, business conditions would be just about average. In reality however, actual GDP gains gyrated between 0.2% and 7.5%. The forecasters' nearly inert consensus was all but worthless.

It seems that no matter what happened, the economists always believed in reversion to the mean. Fridson concludes:

The imprecision of economic forecasts isn't a comment on the forecasters' intelligence or work ethic. Rather, it demonstrates that the economy is too complex a system to be adequately captured by existing modeling techniques. The rational response to this realization is a combination of caution and humility.

Posted by edelfenbein at 9:52 AM

Wachovia Upgraded on Golden West Buy

From The Contra Costa Times:

Shares of Wachovia Corp., the parent of Oakland-based Golden West Financial Corp. (GDW) fell along with the rest of the banking sector on Thursday, failing to react to an upgrade from Standard & Poor's. S&P analyst Mark Hebeka pointed at the purchase of Golden West as a chief revenue generator, as well as a source of favorable synergy.

Hebeka upgraded Wachovia to a strong buy from a buy, citing what he sees as a "compelling" valuation and the bank's "strong growth prospects and sound business strategy."

The stock, however, has had trouble recovering from a slump since the acquisition was announced in May and remains 6 percent below its May highs.

The market has remained skeptical of the transaction because of potential risks associated with Golden West's portfolio of mortgages, according to Bear Stearns analyst David Hilder, who reiterated an underperform rating on Wachovia's stock in late July.

Posted by edelfenbein at 12:47 AM

Subliminal Stock Spams

Ugh:

Pump-and-dump stock campaigns work by spammers purchasing stock at a cheap price and then artificially inflating its price by encouraging others to purchase more (often by spamming "good news" about the company to others). The spammers then sell off their stock at a profit. Sophos experts report that pump-and-dump stock campaigns account for approximately 15 percent of all spam, up from 0.8 percent in January 2005.

A new "pump-and-dump" stock spam campaign uses an animated graphic to display a "subliminal" message to potential investors. Animated GIF graphics are composed of a number of frames, which are shown in succession. This is often used for animation on websites, but has recently been adopted by spammers in their attempt to try and avoid detection by anti-spam products.

In a spam campaign seen by Sophos researchers an embedded image attempts to artificially inflate the price of shares in a company called Trimax. However, unlike the many other similar scam emails the graphic briefly flashes up a message saying "BUY!!!" approximately every fifteen seconds.

I'm not impressed. Bob Pisani is down to 11 seconds.

In other news: "Suri Cruise Photos Expected to Fuel Stock Market Rally."

Posted by edelfenbein at 3:41 PM

It Just Can't Get Any Bigger

Peter Lynch said he remembers people telling him 25 years ago that Wal-Mart (WMT) just couldn't get any bigger. That's an argument against a stock you should always ignore. With capitalism, profits are like jello...there's always room for more.

Check out this chart of Eaton Vance, the asset manager (EV):

Pretty spiffy, no? Thirty years ago, you could have picked up some shares for about $4 a piece. Adjusted for splits, that comes to 2.7 cents a share. In thirty years, the stock is up 1,000-freaking-fold.

So what's Eaton Vance's current market share of the mutual fund industry?

One percent.

Posted by edelfenbein at 1:16 PM

How Important Are Resistance Levels

Mark Hulbert writes that the Wilshire 5000 Total Return Index (^DWCT) is closing in on its all-time high of 47.84098 and wonders about the psychological impact:

Yet I don't know of any advisers who are focusing on the 47.84098 level. So it's hard to see how it is a psychological barrier for the market.

Ahem...just for the record, I've written about the pending new high here, here and here.

But there is the question of how seriously the market takes resistance levels. I don't have much faith in technical analysis, but that's not because the market doesn't think it's unimportant. Resistance levels clearly play a role. The Wilshire 5000 Total Return Index came oh so close to a new high before backing away.

The Dow flirted with 1,000 six years before it finally broke through. The NASDAQ didn't fall apart until it jumped above 5,000, which was also half of the Dow.

But Hulbert is right, the market can’t be watching the Wilshire Total Return, can it? The thing about financial markets is that they’re smarter than we realize. There’s a reason to what happens, even if we may not recognize it.

For example, there’s a fascinating correlation between the progress of the Smoot-Hawley tariff bill through Congress in 1929 and the reaction of the stock market. But at the time, the financial media wasn’t at all focused on this disastrous tariff bill.

The stock is a collection of millions of participants, and collectively it has almost a magic eye that’s focused on certain events. Even though no one (well, almost no one) has been talking about the Wilshire 5000 Total Return Index doesn’t mean the market is ignoring it.

Posted by edelfenbein at 12:07 PM

Tyler Cowen on China and Trade

You know how our trade deficit with China is ruining us? Tyler Cowen says to think again:

The Chinese keep the yuan low, relative to the dollar, by buying up United States Treasury securities; as of early 2006, the Chinese central bank held up to $470 billion in Treasury securities. This huge accumulation of relatively low-yielding assets is the investment strategy of risk-averse bureaucrats, but it may bring longer-term benefits. Those assets can someday be sold or otherwise transferred to underdiversified Chinese financial institutions. The accumulation gives the Chinese a stake in American prosperity and signals that the Chinese are committed to long-term participation in the global economy. On the American side, the Treasury market is more liquid and the budget deficit can be financed at lower cost.

Posted by edelfenbein at 11:47 AM

Best Day of 2005

Thanks to Donaldson (DCI) gaining 16%, today was our best day of the year against the rest of the market. The S&P 500 was down -0.99%, while the Buy List gained 0.06%.

For the year, however, we're still trailing the market 4.16% to 0.65%. Aside from Donaldson, we have three more earnings reports this month. FactSet Research Systems (FDS) reports on September 19. The next day, Biomet (BMET) and Bed Bath & Beyond (BBBY) will report.

Posted by edelfenbein at 5:09 PM

Energy Is Starting to Fade

The Energy Sector is getting smacked around today, and frankly, it’s long overdue. Two weeks ago, I mentioned how the Dow Jones Oil & Gas Index (^DJUSEN) kept making charges at 500, but the index couldn’t seem to break through. Right after my post, it happened again. The index hit 500, and wham-o—it's back down again.

Today oil is down to $68.25 a barrel. Less than two months ago, oil came within a hair of $80. According to