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« October 2006 | Main | December 2006 » November 30, 2006The 10-Year Yield is Below 4.5% I don't know how much longer this bond rally can go on. The 10-year yield (^TNX) is now below 4.5%. It hasn't closed below 4.5% in ten months. Posted by edelfenbein at 1:52 PM The Dollar's Effect on the Stock Market The stock market has been freaked out lately due to the falling dollar, and the evidence shows that stocks prefer a strong greenback. Since 1973, the dollar has risen on 4,189 days, fallen on 4,130 and stayed the same on 130. On the days of the higher dollar, the S&P 500 has risen a collective 2,356%, which is about 21.3% on an annualized basis. On days of a falling dollar, the S&P 500 dropped over 55%, which works out to 4.8% on an annualized basis. For the 130 days when the dollar is unchanged, the market is up 6.7%, or about 14.1% annualized. Think of it this way, a weak dollar is basically the equivalent of a bear market for stocks. Posted by edelfenbein at 11:30 AM November 29, 2006GDP Growth Revised Higher The government revised GDP higher for the third quarter. The economy grew by 2.2% instead of the 1.6% the government said last month. Economists were expecting a revision to 1.8%. This begins my quarterly rant against government revisions. I don't understand why the Commerce Department continually releases data that everyone knows will be altered in a few weeks. I'd much rather wait to get data, then to have data that's always changing. Over the summer, the Commerce Department revised all the GDP numbers going back to 2003. So even after the monthly revisions, the government can step in and revise data going back a few years. Posted by edelfenbein at 10:52 AM November 28, 2006Donaldson -7.4%! Here's a quick lesson on investing: Today's move in Donaldson makes no sense whatsoever. The company did exactly what was expected. In fact, sales came in a little better than expected. I don't care how anyone runs the numbers, this move just doesn't make sense. Don't get me wrong. I never get mad at the market. Your stocks don't know you own them. Even if they did know, they still wouldn't care. But sometimes, the daily moves in the market are simply beyond any analysis. It's perfectly understandably that people need reasons. If the stock is down, there must be a why. But sometimes, there isn't. It just happens. I'll give you a good example. In July 2002, Wrigley's (WWY) plunged. There was no news at all. I remember watching the stock. Every day, it just fell and fell. Sometimes the market does things that don't add up. The odd thing about Donaldson is that the stock was trading higher after hours yesterday, and it even gapped higher at today's open. I'm not worried at all. This is still an excellent stock. Posted by edelfenbein at 2:14 PM My Favorite Links I don't this often enough, but if you have a chance, please check out some of the bloggers from my links page. There are lots of terrific stock bloggers out there. Some of my daily reads include: Enjoy. I'll be here when you get back. Posted by edelfenbein at 2:00 PM Thoughts of the 2007 Buy List Mark your calendars now! I’m going to unveil my 2007 Buy List on Friday, December 15. I won’t start tracking the new list until Tuesday, January 2, which will be the first day of trading of 2007. I use this lag period so no one can say I’m cheating or front-running, or whatever else I’m accused of. I’ll ruin the suspense right now. Next year’s Buy List will look a whole lot like this year’s I’ll probably keep about half the current stocks and add some new names. Once again, I’ll cap the list at 20 stocks. Here’s my current Buy List with some preliminary thoughts on each stock. Please note that I’ll probably change my mind between now and December 15, but I wanted to show you what I’m thinking as of now. AFLAC (Keep) Here are some stocks I’m thinking about adding: Johnson & Johnson (JNJ) Like I said, this is all preliminary. If you have any favorites, let me know now! Posted by edelfenbein at 12:05 PM The Bond Bubble?
Yields at the long-end of the yield curve are near their lowest levels in nine months. Have you ever noticed that the media never questions the judgement of the bond market? There's no such thing as a bond bubble. That only holds for stocks and real estate. Bond traders are somehow always right. Same thing for oil traders. Funny how they're immune from being irrational. Posted by edelfenbein at 10:05 AM November 27, 2006Donaldson Earned 43 Cents a Share Ick...Wall Street had a serrious case of the Mondays. But the good news is that Donaldson's (DCI) earnings were in line with expectations at 43 cents a share. Ah, good ol' Donaldson. He never lets me down.Sales came in at $446.4 million, which was above expectations. Bill Cook, the CEO, said: Sales in both our Engine and Industrial Products segments were up 11 percent, and our incoming orders remain strong. Our plants around the world are operating very well. The start-ups at our new plants in China and the Czech Republic have been completed, and they are now up and running per our plans. Overall, economic conditions remain good for most of our businesses around the world. As a result, we are on course for another year of record earnings, our 18th consecutive, in fiscal 2007. Posted by edelfenbein at 4:36 PM Russian Billionaire in Serious Condition Suleiman Kerimov, who's listed as the 72nd richest person in the world, is in serious condition after crashing his Ferrari in France: He lost control of his Ferrari Enzo, which struck a tree at an enormous speed and burst into flames, as he was traveling from the local airport toward the city center. Kerimov was taken by helicopter to the regional burn center at Hopital de la Conception in Marseille. He is now on artificial respiration. Here's his entry from Forbes: Posted by edelfenbein at 4:02 PM 17 Straight Record Years at Donaldson It’s kind of a slow morning, but I’ve got my eye on Donaldson (DCI), which is set to report earnings after the close. If you’re not familiar with Donaldson, it’s one of those great boring little company that doesn’t get much attention from Wall Street. Actually, it’s not so little anymore. Donaldson’s market cap is now over $3 billion. The stock bounced along for most of the year up until its most recent earnings report in September. Donaldson not only beat expectations but it also guided higher for next year. I love seeing that. It’s always important to see positive guidance from your stocks. Donaldson is the Cal Ripken of mid-cap filtration companies. The company has reported higher profits for 17 straight years. Donaldson now sees 2007 EPS coming in at $1.72 to $1.82 a share, which means the stock is going for about 21 times next year’s estimate. Posted by edelfenbein at 10:06 AM November 26, 2006Stock Picking Goes Bionic The New York Times reports that on Wall Street, the days are numbered for humans. Software in development could potentially respond automatically to almost anything; changes in weather forecasts on television news, shifting analyst sentiments or what a particular movie critic said about the new blockbuster. Posted by edelfenbein at 10:56 AM November 24, 2006Happy Black Friday! Ugh...waaay too much tryptophan! I'm going to to take a nap, but in the meantime, you can read James Surowiecki on the American sugar industry. Posted by edelfenbein at 11:40 AM November 23, 2006Update on the Buy List Over the last 15 weeks, the Buy List is up 15.7% to 11.1% for the S&P 500.
For the year, the Buy List is trailing the S&P 500, 12.64% to 11.37%. Posted by edelfenbein at 12:49 PM The VIX Falls Below 10 On Monday, the VIX closed below 10 for the first time in nearly 13 years..
Posted by edelfenbein at 10:14 AM November 22, 2006Evil Hedge Fund Manager of Day Award Goes To... ...Spiro Germenis! Congratulations, Sprio. Here's a wee sample of the SEC’s complaint against you: 31. Several clients gave Germenis their retirement accounts to manage. For example, a married couple gave Germenis and Oracle Services more than $177,000 from a retirement account to manage in 1998. The agreement the clients signed with Oracle provided that, with respect to fees, the clients would pay, on a quarterly basis, ".0025% of the net assets invested in the mutual funds" and ".00625 of the net assets invested in individual securities." Oracle Services and Germenis began looting the account by charging monthly management fees of up to $9,500, without the clients' consent and contrary to the terms of the agreement between Oracle Services and.the clients. Under the agreement, the clients should have been charged a quarterly fee that would have been a small fraction of the monthly fee Germenis extracted for himself. Germenis gave the clients phony account statements reflecting growth in the account but not mentioning the exorbitant, unauthorized fees. Yikes, I never thought a guy named Spiro could be a criminal. Unfortunately, Mr. Germenis won’t be able to accept the award in person as he has fled the country: According to civil charges filed last week against the president and founder of a raft of related investment funds under the Oracle Services and Oracle Evolution names, the Dix Hills resident fled to Athens last month after "misappropriating millions of dollars of investor funds." His car was found at Kennedy Airport, and more than $6 million in client investments, including money belonging to his father-in-law, is missing, according to the complaint filed in U.S. District Court in Brooklyn by the Securities and Exchange Commission. People familiar with the case said Germenis, 34, is believed to be on the Greek island of Kefalonia, where his parents have a house. Yep, this isn't going to end well. Posted by edelfenbein at 1:02 PM The Dow Oil & Gas Index I'll be the first to admit that I'm not a technician, but the Dow Oil & Gas Index (^DJUSEN) clearly has commitment issues with 500. Since April, the energy sector has made several attempts to break out above 500, but it's failed each time. Yesterday, the index closed at 501.09, its third-highest close ever. But sure enough, it's back down again today.
As I wrote before, the energy sector is the least-correlated sector with the rest of the market. While the rest of the market has fairly low volatility, the energy stocks continue to move around a lot. What’s interesting about this latest move up is that it’s happened as oil has moved lower. Posted by edelfenbein at 10:45 AM Hot Stock Tips from Budweiser Yes, it's the Wednesday before Thanksgiving, so I give you hot stocks tips from Budweiser (hat tip: Howard Lindzon and the Rad Report). Posted by edelfenbein at 10:10 AM For Whom the Dell Tolls Dell (DELL) is trading much higher this morning. The shares are up to $27.50. Dell hasn’t been this high in six months. I also have to throw down a big fat mea culpa this morning. Last week, I teased Charlie Gasparino for not updating CNBC’s SquawkBlog. Well, it turns out there’s a good reason for that. The folks at CNBC are overhauling their Web site, and are getting ready to roll out a new-and-improved site on December 4. Sorry, Charlie! I'm looking forward to seeing the new site. Posted by edelfenbein at 9:53 AM November 21, 2006Dell Earns 30 Cents a Share Wow! I mean...wow! Here are some of Dell's recent numbers: Quarter.....Sales....Oper. Income.....EPS I'm still working through the numbers (at least, what we have). The big surprise is the increase in Dell's operating margin. It jumped from an awful 4.29% last quarter to a blah 5.73% this quarter. At this point, I think the market will like blah.
Here's Dell's trailing four-quarter earnings-per-share:
Dell's stock went from $60 in 2000 to under $19 a few weeks ago.
Posted by edelfenbein at 4:15 PM Eaton Vance Does Eaton Vance (EV) ever go down?
The company just reported another solid quarter. Posted by edelfenbein at 1:31 PM Stock: The Latest Endangered Species One reason for the market’s bull run is that there’s simply less stock out there to buy. Daniel Gross looks at the mystery of the disappearing stock market. This year is shaping up to be a record for both leveraged buyouts and stock buybacks. According to Thomson Financial, buyouts worth $334.5 billion have been announced or completed so far this year, up from $115 billion for all of last year. According to Standard & Poor's, members of the S&P 500 Index spent $325.15 billion on their own shares in the first three quarters of 2006 and have spent more than $674 billion since Jan. 1, 2005. Between buybacks and buyouts, that's more than $1.1 trillion of stock taken out of public hands in less than two years. Posted by edelfenbein at 12:33 PM Goldilocks Lives John Carney at DealBreaker notices nuance in our news media. AP: Paulson makes case for tougher enforcement of securities laws Paulson says need to apply business rules lightly So which is it? As always, The New York Times has the answer: Treasury Chief Urges ‘Balance’ in Regulation of U.S. Companies Posted by edelfenbein at 11:06 AM Medtronic Soars It’s about time Medtronic (MDT) got some love. The large-cap health care sector has been a dud this year. If you had told me that two of worst performing stocks on the Buy List would be Medtronic and UnitedHealth, I probably wouldn’t have believed you. Today, Medtronic is back over $50 a share, and it’s closing in on eight-month highs. I’m also standing by on Dell’s (DELL) earnings report which is due out after the close. And Google (GOOG) just broke $500 a share for the first time. Finally, the British soccer team (i.e., English football squad) West Ham United has been bought by...Icelanders. Posted by edelfenbein at 10:42 AM Merger to Create World’s Largest Bankrupt Airline From Scrappleface: If the U.S. Airways buyout of Delta receives regulatory approval, industry experts said it would make the resulting company the largest of the world’s bankrupt airlines and a strong candidate for a future government bailout. Posted by edelfenbein at 10:23 AM November 20, 2006Medtronic Earned 59 Cents a Share Medtronic (MDT) just reported earnings of 59 cents a share, three cents more than Wall Street was expecting. Revenues also came in higher than expectations. Posted by edelfenbein at 4:23 PM Today's News Here’s a few quick items of note today. Lowe’s (LOW) cut its full-year forecast. If you thought that would hurt the stock, you’d be wrong. Not only is Lowe’s rallying, but so is Home Depot (HD). Home Depot also rallied after its poor earnings report, so for the time being, bad news is good news for the home improvement sector. The big news today is that Freeport-McMoRan Copper & Gold (FCX) is going to buy Phelps Dodge (PD) for $25.9 billion in cash and stock. Phelps Dodge is in the Morgan Stanley Cyclical Index (^CYC) so that index has having a huge day. Will anyone stop Big Copper? Incidentally, The Wall Street Journal recently hosted a debate on ditching the penny. On our Buy List, Harley-Davidson (HOG) made another new high today. The stock is up over 43% for the year. Medtronic's (MDT) earnings are due out after the close. Lastly, the Economist recently had a good story on the growth of the hedge fund industry. Posted by edelfenbein at 2:53 PM November 18, 2006Toothpaste for Dinner Posted by edelfenbein at 6:00 AM November 17, 2006What's Been Pushing Stocks Higher Make no mistake, this rally is for real. The reason I feel comfortable saying that is that stocks have been marching higher right along side bonds. As long as those two stay together, the bull can keep charging. The time to get nervous is when you see stocks and bonds part company. Here's a chart of the S&P 500 and my bond market proxy, the BTTRX mutual fund:
The long-end of the yield curve has dropped about 60 basis points in the last five months. Posted by edelfenbein at 11:54 AM The Milton Friedman Choir Posted by edelfenbein at 11:39 AM Johnson & Johnson Tempting. Very tempting. Check out the plunging P/E ratio.
Posted by edelfenbein at 10:22 AM November 16, 2006CNBC Is a No-Fly Zone for WSJ Reporters In a brave defense of symbolism, reporters at the Wall Street Journal have stopped making unpaid appearances on CNBC. They're doing this to protest the Journal's position in its contract talks. Fight the power, fellas! According to the AP: Browning, who has worked at the paper for 27 years, said the company told union negotiators that they were unwilling to discuss any of the proposals made by the union. I'm not sure if this has already taken effect, or maybe it's up to each reporter to decide. Already today, Gregory Zuckerman, Bob O'Brien, David Wessel and Vauhini Vara have been on CNBC. Perhaps they're getting paid. Hmmm...will CNBC turn to bloggers? Charlie Gasparino has already stood up for the working class. He hasn't updated SquawkBlog in over three months. OK, that was mean. Posted by edelfenbein at 3:45 PM Home Depot Raises Dividend Home Depot (HD) increases its dividend by 50%. This is the second 50% increase this year. Posted by edelfenbein at 3:17 PM S&P 500: 1400! The market hit another new high today, and oil is having its biggest fall of the year.
Posted by edelfenbein at 2:30 PM Milton Friedman 1912-2006
Here's his autobiography from the Nobel Prize Web site. In 1980, Friedman made the series Free to Choose on PBS (note irony). Here are some clips from YouTube. Free to Choose Volume 1 Today Alan Greenspan said of Friedman: He had been a fixture in my life both professionally and personally for a half century. My world will not be the same. Here's Ben Bernanke on Friedman's 90th birthday: Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again. Posted by edelfenbein at 12:37 PM Today's CPI Report The good news is that consumer inflation fell for the second straight month. Headline inflation dropped by 0.5%. The core rate, which excludes food and energy, rose 0.1%. Still, the core rate is running a bit high for my tastes.
Posted by edelfenbein at 11:41 AM Doesn't Anyone Want to Be a Stock Anymore Clear Channel is the latest to go private equity. Think $18.7 billion. Here's a chart you don't see everyday.
Posted by edelfenbein at 11:02 AM The News This Morning Here are some interesting stories that caught my eye this morning. Google's has put aside $200 million in reserve for lawsuits from YouTube. That's probably a smart move. How the mighty have fallen: KLA-Tencor gets delisting notice. Don't tell Lou Dobbs, but since 1990, one in every four venture-backed companies that have completed initial public offerings had at least one immigrant founder. Some investors are suing major private equity firms claiming they rigged stock purchases. The housing bubble slowly deflates. Posted by edelfenbein at 10:24 AM Cisco's Stock Buybacks Seriously, it's time we had an intervention for Cisco (CSCO). This company needs to STOP buying back its stock. It's getting out of control. They just announced another $7 billion buyback. For the love of god, someone make them stop. This company is sitting on a mountain of cash (nearly $20 billion) and it's getting thrown away. What's wrong with a nice little dividend? Too much cash is not a good thing for a company. This is what I like to call the Bladder Theory of Corporate Finance. Cisco has wasted billions of dollars on buying back a stock that has gone nowhere. We need to plan it for the evening when Cisco gets back from the office. He'll open the door, and all of us will be standing there. Then someone needs to say, "Dude, we need to talk." At first, he'll be all nervous, "Hey, what's everyone doing here." But deep down, he knows exactly why we're there. I'm sorry but it needs to happen. Posted by edelfenbein at 10:09 AM Dell Delays Earnings Report Ugh. Dell Inc. on Wednesday delayed its earnings report as the U.S. Securities and Exchange Commission stepped up a probe into the computer maker's accounting, and its shares fell nearly 3 percent. Posted by edelfenbein at 9:52 AM November 15, 2006Cognizant Technology Solutions One of the more fascinating companies in the world today is Cognizant Technology Solutions (CTSH). The company, along with Wipro and Inforsys, is one of the foremost names associated with IT outsourcing, particularly to India. While Cognizant is officially based in lovely Teaneck, NJ, its heart truly lies in the subcontinent. The company currently has over two dozen development centers in India. The growth in this business is simply astounding. The IT/outsourcing sector of the Indian economy is expected to grow from $17.2 billion in 2004, to $50 billion by 2009. For any company looking to cut costs and have someone else handle their IT problems, Cognizant is great place to go. Half of their business is clients in the financial services sector. In fact, JP MorganChase, one of the scions of Wall Street, is a major client. Another 20% of Cognizant’s business comes from health care companies like UnitedHealth. Cognizant was spun off from Dun & Bradstreet a few years ago and it hasn’t looked back since. As someone who pores over lots of financial statements, I can tell you that Cognizant’s results are extremely impressive. The company has consistently been able to grow its earnings over 50% a year. That’s no easy trick. Also, the company has a solid balance sheet and its operating margins are often around 20%. The shares have soared from $12 four years ago to $80 today. In fact, the stock just made a new all-time high. The big news recently is that it was added to the S&P 500. Two weeks ago, Cognizant reported third-quarter earnings of 40 cents a share, two cents more than Wall Street was expecting. For the current quarter, Cognizant expects earnings of 42 cents a share, and that will bring 2006’s total to $1.51 a share (the results are a bit skewed due to the FASB 123R jazz). Here’s a spreadsheet with all of Cognizant’s stats from its income statement going back a few years. If you’re new to investing, this might be worth looking over. I know it might appear as a jumble of numbers, but as far as income statements go, it doesn’t get much better. Here's a stock chart of CTSH with its earnings in the gold line (right scale). When the lines cross, that means the trailing p/e ratio is 50. In early 2002, Cognizant's p/e ratio was roughly the same as the S&P 500. Today. it's over three times the S&P 500.
Posted by edelfenbein at 1:51 PM Field of Dreams First, we learned that the Mets are going to play at Citi Field. Then we heard that the A's are leaving Oakland for Fremont's Cisco Field. Doesn't anyone have respect for the purity of the game? Fine, we might as well join in. Ladies and gentleman, I give you Crossing Wall Street Stadium.* * Deal not finalized. Posted by edelfenbein at 10:37 AM The VIX Hits a Low for the Year The CBOE Volatility Index, or the VIX, closed at 10.5 yesterday, the lowest point of the year. The VIX measures the volatility implied in index options contracts. The VIX is also very close to its lowest point in 13 years. What does it mean? That's hard to say. Volatility is a hotly debated topic among technical analysts. Personally, I haven't found much predicitve power in the VIX. Here's a scatterplot of the VIX and how the S&P 500 has done for the following six months. The VIX is the horizontal axis, while the market's return is the verical.
This looks pretty random to me. The closest I can come up with is that high points in the VIX signal major turning points in the market, while lower points signal a continuation of the trend. For example, when the VIX is below 14.7, the market has never (since 1990) lost more than 6% six months later. Posted by edelfenbein at 6:52 AM November 14, 2006Six-Year High
The S&P 500 hit a six-year high today. Our Buy List is now up over 10% for the year. Today was kind of a strange day. The market was just boucing along until about 3 p.m. Then suddenly, the indexes surged higher. Barry Ritholtz says it was covering of e-mini contracts. Home Depot (HD) was particularly weird today. The company had blah earnings, but the stock rallied slowly as the day wore on. Eventually, shares of HD closed at a five-month high. Posted by edelfenbein at 4:54 PM Health Care Stocks I remember when health care stocks use to go up. Not anymore. Here's a chart of the Health Care ETF (XLV) versus the S&P 500:
This doesn't look overheated to me. Posted by edelfenbein at 2:20 PM USA! USA! U.S. Still World Economic Leader Hey Canada: STFU! Posted by edelfenbein at 2:08 PM Two Percent Down Days The S&P 500 hasn't had a down day of 2% or more since May 19, 2003. That's the longest streak ever according to my data which goes back to 1950. Here are the other streaks, when they ended and how many days. 11/14/06 1275 (current) Posted by edelfenbein at 1:14 PM What's Dennis Up to These Days? Remember Dennis Kozlowski? Me neither. Apparently, he used to be somewhat important. In any event, Bloomberg visits Denny in the Greybar Hotel: Kozlowski now plays baseball and softball behind the barbed wire and steel doors of the state prison. He's passes time reading biographies of U.S. presidents and Che Guevara, the revolutionary leader. His latest book, given to him by a former Tyco employee, details the life of Madame Chiang Kai-shek. LOL Posted by edelfenbein at 10:27 AM WallStrip on Digital River Today, Linday & Co. take a look at Digital River (DRIV). If you can't get enough Lindsay, here she is not getting the guy in a Volvo commercial. And here she is expecting triplets in an ad for Lowe's (LOW). Enjoy. Posted by edelfenbein at 10:13 AM Home Depot Misses Earnings The housing market has taken another casualty. Today, Home Depot (HD) reported earnings of 73 cents a share, two cents below estimates. Overall revenues rose 11.3%, but same-store sales dropped 5.1%. Going forward, Home Depot said it believes its fiscal 2006 earnings per share will grow 4 percent to 5 percent over fiscal 2005 and that sales will grow for the year by about 12 percent. It had earlier projected earnings per share growth for the year to be on the low end of a range of 10 percent to 14 percent and sales growth for the year to be on the low end of a range of 14 percent to 17 percent. Posted by edelfenbein at 9:55 AM November 13, 2006Earnings Preview: Home Depot From AP: OVERVIEW: As the housing market cools off, home-improvement companies are suffering as well. Falling lumber prices have cut into revenue, and several suppliers have reported lower results and outlooks recently, including Home Depot's largest supplier, Masco Corp. Posted by edelfenbein at 1:48 PM Blogging Silicon Valley Bambi Francisco writes that Gawker founder, Nick Denton, will temporarily take over reporting duties at ValleyWag, his Silicon Valley gossip site. He said that he wants to bring in more business gossip instead of just personal gossip. He tells me that he has a juicy scoop about John Battelle's Federated Media advertising network losing a major client. The loss is a "slap in the face" to Battelle, says Denton, who self-funded Gawker Media, which was launched in 2002. If Nick truly intends to step it up over at Valleywag by improving its financial and business reporting, I am sure he will exercise a long held journalistic skill: understanding the business model of the subjects he's writing about before presuming to judge them, and contacting us for comment before publishing rumor or speculation. Oooh burn. Posted by edelfenbein at 11:13 AM Dell Creeps Higher Dell's (DELL) earnings report is due on Thursday. The stock has gradually been creeping higher. Today the shares reached a five-month high. Does the market know something? It's hard to say, but at least we haven't had an earnings warning yet. The Street is expecting earnings of 24 cents a share, although no analyst is willing to go higher than 26 cents a share. This will be interesting to see. Posted by edelfenbein at 10:36 AM November 11, 2006My Favorite YouTube Spots Since you probably have too much free time on your hands, I'd thought I'd share with you some of my favorite You Tube videos. Grateful Dead on Playboy After Dark Posted by edelfenbein at 5:11 PM Cyrus McCormick Did you ever wonder how a third-world country became the world's largest economy? The answer is easy: people like Cyrus McCormick. Posted by edelfenbein at 6:51 AM November 10, 2006The Way, Way Back Crowd Jack Ciesielski, who runs the terrific AAO Blog, notes the growing use of non-reliance 8-Ks. These are federal filings that tell shareholders that all the previous filings were sort of...wrong. The latest member of what Jack calls the "way, way back crowd" is Peet’s Coffee & Tea (PEET). The funny things about Peet's is that they're restating everything back to 1996, five years before they went public. Posted by edelfenbein at 1:47 PM This Just In Posted by edelfenbein at 1:42 PM Google and Price Targets At the beginning of the year, Safa Rashtchy of Piper Jaffray put a $600 price target on shares of Google (GOOG). The stock responded by shooting up $21 to $435. Some of us were tempted to laugh. Actually, we gave into our temptation and laughed quite a lot. Two days later Mark Stahlman at Caris & Co. put a $2,000 price target on Google. This nearly killed us. As you would expect, the stock immediately plummeted below $340, and stayed below its high for much of the year. But recently, the search engine has caught fire again. In later-October, the stock got all the way up to $492, and now it’s settled in the $470ish range. Google is going for about 35 times earnings, and if you follow the PEG ratio stuff (which I don’t), then the shares are just about in line with the projected growth rate of 32.5%. Well, Google could be a good buy at some point, but I'd like to see the shares fall back down again before making a move. I'm guessing the path $2,000 will be harder than the path to $450. Posted by edelfenbein at 11:28 AM Is a Burrito a Sandwich?
In issuing his decision, which blocks Panera Bread's attempts to keep the burrito maker off its turf, Worcester Superior Court Judge Jeffrey A. Locke relied on testimony from Cambridge chef Chris Schlesinger and a former high-ranking USDA official, not to mention the Webster's Third New International Dictionary. At the beginning of the year, I said that Panera (PNRA) was overpriced (so are its not-burritos). I was right. The stocks needs to come down some more. Posted by edelfenbein at 9:46 AM The First Islamic Bourse The Financial Times reports that Dubai has created the world's first Islamic bourse: The more established Dubai Financial Market (DFM) said this week it was restructuring itself to comply with Islamic financial principals. The move comes days before it launches a $435m (€340m, £230m) initial public offering. Sounds like they're playing to their base. Posted by edelfenbein at 6:34 AM November 9, 2006Divergence Look at the huge split today between Cyclical stocks (^CYC) and Consumer stocks (^CMR):
That's unusually large. Maybe the economy is in better shape than we realize. I still think the cyclicals are getting a bit pricey here. Many of these stocks were good buys four years ago, but are now near the top of their range. Here's a graph of the Morgan Stanley Cyclical Index divided by the S&P 500:
Posted by edelfenbein at 2:27 PM Cisco’s Cash I’m looking at Cisco’s (CSCO) earnings report and I have to say it’s pretty impressive. The shares are up smartly this morning. But here’s something I don’t get. Why is the company sitting on $20 billion in cash? What’s the purpose? Maybe I'm just missing something but that’s about $3.15 a share. Given all the bad money that Cisco has tossed into share repurchases, why don’t they just give shareholders a big-ass one-time dividend? Giving profits to the owners; isn’t that what business is about? Posted by edelfenbein at 10:12 AM Keeping It Real
This from a recent Investor's Business Daily story on the coming IPO of KBW, Inc. The boutique investment bank, better known as Keefe, Bruyette & Woods, first filed to go public in the heady market of 1999. It withdrew its plans after its then-chief executive was arrested for passing inside information to his girlfriend. Girlfriend? Oh, please. Like this was Joanie and Chachi. This is why I get pissed off at the mainstream media. They’re such frickin wimps. The story would also be correct if it were written like this: It withdrew its plans after its then-chief executive was arrested for passing inside information to his girlfriend, the stripper and porn star Kathryn B. Gannon (aka Marylin Star), pictured above, and star of such titles as Marilyn Whips Wallstreet, Strap-on Sally 11,12, 13 & 14, Marylin Does Miami 1 & 2, Titman and Size Matters. Ms. Gannon also shared her inside information with yet another (let’s say) boyfriend. She then became a fugitive from justice as she fled to her native Canada. Gannon was later arrested, extradited and served three months in prison. One can only imagine it was a steamy, scantily-clad and sexually promiscuous all-female prison. Now that’s journalism. Posted by edelfenbein at 6:37 AM November 8, 2006Guess Where the Hottest Market in the World Is? (I'll give you a hint: Spain). Give up? Check the Spanish ETF (EWP):
Posted by edelfenbein at 10:12 PM Voter Turnout Reaches All-Time Low Of 17 From The Onion: NEW YORK—Poll data indicates the 2006 mid-term elections were marked by the lowest turnout ever, with only 17 total votes cast. "Some 24 percent of those who showed up were registered Independents between the ages of 39, 54, 71, and 73, while, surprisingly, less than six percent appeared to be soccer moms driving a green 2000 Plymouth Voyager," said Harrison Cullers of the Advance Logistics Research Group. "This really shows how much impact a get-out-the-vote campaign that averages $2.5 million per voter can have on the important Milwaukee-resident-Dave-Anderson demographic." Critics say the low voter turnout was only exacerbated by problems with Diebold electronic voting machines, citing one Ohio district in which a local Democrat received negative 12 votes. Posted by edelfenbein at 3:03 PM The Pelosi Portfolio Check out Madame Speaker's financial disclosure form. It goes on for 20 pages. Posted by edelfenbein at 11:06 AM The Britney/K-Fed Rally September 24, 2004: Britney Spears marries Kevin Federline. The S&P 500 is at 1110.11. November 7, 2006: Spears and Federline file for divorce. The S&P 500 is at 1382.84. Overall, the market gained nearly 25% during their two-year marriage. Thanks kids! Posted by edelfenbein at 10:03 AM Gridilocks! Last night, CNN took over my favorite cybercafe, Tryst in Adams Morgan, to host a gathering of political bloggers. I was just looking for something to drink, but I was barred entry. Here's what it looked like from the outside.
I did get a chance to meet Scott Johnson of Powerline. Update: If I told you a big election had taken place in the last five days, could you tell which day it was from this chart?
Posted by edelfenbein at 9:45 AM November 7, 2006Sector Correlation I wrote about this yesterday, but I wanted to follow up today. I mentioned how the energy sector has become the most unglued to the rest of the market. I ran the numbers, and I was right. Here's the correlation of each industry group's daily change to the S&P 500's daily change: Financials..................78.74% This is important because for a lot of institutional money managers, the name of the game is doing what everyone else isn't (or can't). These guys are paid on outperformance, so they hone in on ways to avoid what the broader market is doing. In financial theory, this is related to the concept of the alpha coefficient, as in Seeking Alpha. Let's say you run a gazillion dollar hedge fund in Curacao. If everyone is zigging, you want to zag. Face it: Your ability to zag is what you're all about. Bear in mind, you can own a small number of stocks and closely mimic the market. The number of stocks isn't that important. You can also own a large number of energy stocks and be completely free of what the averages say. Posted by edelfenbein at 2:42 PM Bernanke Warns
Bernanke warns against protectionist trade policy Bernanke warns on threat to globalization Bernanke warns on danger of US deficits Bernanke Warns of Baby Boomer Retirement Fed Chairman Bernanke Warns Consumers To Carefully Weigh Options For Home Financing Posted by edelfenbein at 11:50 AM Politics and the Stock Market Many years ago, Richard Nixon was asked what he’d be doing if he weren’t president. He said that he’d probably be on Wall Street buying stocks. One old-time Wall Streeter chimed in that if Nixon weren’t president, he too would be buying stocks. I write this as Americans head off to the polls for Election Day. Despite a lot of the commentary you might hear, the effect of partisan politics on the financial markets is very much overrated. Very much. To be sure, it’s there, but it really isn’t much to worry about, and it certainly shouldn’t affect your financial decisions. Barry Ritholtz posted a study by Ned Davis of how the markets have performed under different parties. This is interesting analysis, but in my opinion, I think they have it backwards. The assumption is that the political parties are like players on the field, and the stock market is the scoreboard. I think it’s just the opposite. The markets are the players; how the politicians behave is the scoreboard. That gets you a more interesting story. The data shows that the market has done better under Democrats than Republicans. But this is largely due to the influence of the two major crashes happening under Hoover and Nixon. Here’s a though: Maybe it’s not partisan. Perhaps we should just avoid Quaker presidents! It’s hard to say exactly how much partisanship influences the market. Of course, there’s the moment in U.S. history that's indelibly marked on the national consciousness. I speak, of course, of 1948 when whatshisface beat that other guy, but the other guy won. The next day, the Dow fell 3.8%. So there you go. Make no mistake, public policy does influence the markets (and vice versa), but it’s usually in unanticipated ways. It’s usually not the typical Republican/Democratic debate. Instead, it’s usually the kind of things that no one really pays attention to. Sarbanes-Oxley, for example, passed the House 423-3, and the Senate 99-0. It’s the unanticipated things that are so scary, because...well, they’re not anticipated. Remember that when the new Senate meets in January, only about 10% of the members will be freshman. This isn’t a big change. In fact, our Constitution is designed against big changes. The ratio is the House will go from 8-7 Republican to something like 8-7 Democrat. If your city council did that, no one in town would care. I’m not saying that voting isn’t important, or that getting involved is a waste of time. I’m simply saying that this has to be put in proportion. Just because people talk about politics at the office or on the subway, doesn’t mean the market cares. The stock market has its own agenda and it’s not up for election. Posted by edelfenbein at 11:45 AM Expeditors International of Washington Earned 29 Cents a Share Expeditors' (EXPD) earnings came out before the bell. The company earned 29 cents a share for the third quarter which matched estimates. Last year, EXPD netted 22 cents a share. The shares are a bit pricey here. Since the beginning of the year, the stock is up over 40% for us. The shares are going for about 36 times next year's earnings. Posted by edelfenbein at 9:33 AM November 6, 2006The Buy List YTD Today was one of the best days for our Buy List this year. The strange thing about today is that energy stocks started off horribly, as everything else rallied. But then after lunch, the energy sector rallied to close the gap. The thing about this market is that energy stocks are the most differentiated from the rest of the market. In other words, all the other sectors kinda sorta move together. But energy is off doing its own thing. Back in the day, tech stocks used to be like this. Since the Buy List doesn't have any energy stocks, it's pretty easy to tell if we're going to have a good day or a bad day. All 20 of our stocks were up today. For the year, the Buy List is up 9.04%. The S&P 500 is up 10.53%. Our daily volatility is about 19% greater than the S&P 500.
Sometime next month, I'll unveil the 2007 Buy List. Posted by edelfenbein at 4:23 PM One Percent Days Here's an example of how much Wall Street has changed over the past few years. The S&P 500 is currently up about 1% for the day. If it holds, this would be our third session in the past 12 weeks with a swing of more than 1%. Yet none of those days has been over 1.3%. For the six year period from 1998 through 2003, the market averaged a daily swing of over 1.3%. Posted by edelfenbein at 2:43 PM Fiserv Reaches All-Time High The stock did nothing for months, and now it's rolling. Shares broke $50 earlier today, and $51 isn't too far away. We're up over 17% for the year in Fiserv. Posted by edelfenbein at 12:19 PM Maybe the World Isn't Such a Dangerous Place The WSJ notices that insurance prices are dropping: Homeowners' insurance costs are falling in many parts of the nation. Car-insurance prices are rising at a slower rate than inflation. This year, companies are spending less than they did in 2005 to protect themselves against injuries to their employees, lawsuits aimed at directors and officers and liability claims in general. The cost of some life insurance, too, has fallen in recent years, as has insurance against terrorism. Posted by edelfenbein at 10:00 AM November 5, 2006Emotions Versus Finance The Washington Post looks at how ego and vanity are affecting the housing crash...er, slowdown. Evidence is mounting that people set prices, particularly for housing, as much on ego and self-image as on an objective review of the market. That's one reason for the phenomenon known as "sticky prices" -- home sellers who won't cut their demands enough to make a deal. It helps explain why the unsold inventory of homes has risen so high, and why, despite this rise, home prices in the Washington area have fallen only slightly. There were 24,741 homes for sale in September in Washington and the close-in suburbs, up from 13,950 a year earlier. Posted by edelfenbein at 3:15 PM November 4, 2006Evaluating Greenspan Reason discusses Alan Greenspan's legacy as Fed Chairman with Milton Friedman, Ron Paul, James Grant, Bryan Caplan and Jeff Saut. Here's a sample: Reason: Analysts often complain that Greenspan did nothing to help solve our low savings rates and our trade deficits. Is the Fed relevant to these problems? Are they problems at all? Posted by edelfenbein at 3:58 PM November 3, 2006Implied Tradesports Markets
This is a favorite topic of mine. In investing, we can look at two markets and imply a third. That's basically how options work. Well...we can do the same for predictions markets. At Tradesports, they offer futures contracts for how many seats they Democrats will pickup in the house. They offer contract for several different scenarios (i.e., greater than 14.5 seats, or greater than 19.5 seats). Assuming a logonormal distribution, we can find an implied mean and standard devation. The chart above shows the mean number seats the Democrats looks to gain (black line) with plus and minus one standard deviation bands (red lines). As of the last trade, the market believes the Democrats have a 60.2% chance of gaining at least 19.5 seats, and a 46.9% of gaining 24.5 seats. A 60.2% chance is +0.258 standard deviations, and a 46.9% chance is -0.078 standard deviations. So those 5 seats are worth 0.336 standard deviation. Therefore, one standard deviation is nearly 15 seats. The Democrats are now projected to gain over 23 seats, but the market still believes its wide open. Posted by edelfenbein at 3:13 PM Whole Foods Crashes Whole Foods Market (WFMI) is down over 23% in today's session. I wonder if anyone saw this coming. Posted by edelfenbein at 11:33 AM A Story of Two Bulls
Not all Bull Markets look the same. The chart above shows the Morgan Stanley Cyclical Index (^CYC) and the Morgan Stanley Consumer Index (^CMR) since March 2003. While cyclical stocks have been highly volatile, especially in recent months, the conumser stocks have quietly rallied. Posted by edelfenbein at 11:20 AM These Strange Employment Numbers Each month’s employment report grows increasingly bizarre. First, the government suddenly discovered 800,000 Americans who were employed yet the Feds somehow missed them. The details on that still haven’t been released. Today we’re told that the nonfarm payroll number for August was revised higher by 42,000. The number for September was adjusted higher by 139,000. Plus, the economy added 132,000 new jobs last month. Add it all up, and the unemployment rate for October is now down to 4.415% which is lower than it was eight years ago. I’m not sure why anyone pays attention to these numbers. I don’t see any value in them. Posted by edelfenbein at 10:56 AM November 2, 2006Reader Quiz: Gay Sex or Investing? Today’s reader quiz: Are the following phrases associated with gay sex or investing? Good luck! 1. Working for a bulge bracket 2. Doing a mon back 3. Buying a naked straddle 4. Hanging with the odd lots 5. Looking for a double bottom 6. Going deep in-the-money 7. Sliding under the pink sheets 8. Front running the hedges 9. Hunting for bears 10. David Faber 11. Getting fined by Cox Results next week. Posted by edelfenbein at 2:16 PM Random Run Down Wall Street At DealBreaker, Bess Levin looks at Wall Street's obsession with marathoning. Frankly, I'd think any sport where defecating oneself is acceptable would be popular on the Street. (Look, I've partied with bondtraders.) In today's NYT, Daniel Gross examines another angle: they give away lots of free stuff (the marathons, not Wall Street). Posted by edelfenbein at 11:14 AM Dell Hits $25 Breifly. That's the highest price in four-and-a-half months. Goldman upgraded the stock to neutral. That said, in the absence of Dell restructuring -- which we are not modeling into our assessment since there has been no inclination that Dell wants to do that -- we think Dell's choice is ultimately between growth and margins which in our model tops out at 7 percent normalized growth, 17 percent gross margin, and 6 percent operating margin, meaning that this is not the 'Dell of old.' Posted by edelfenbein at 10:19 AM Fair Isaac and Biomet After the bell yesterday, Fair Isaac (FIC) reported earnings of 60 cents a share. That was three cents higher than the Street was expecting. Charges related to stock-based compensation and one-time expenses pushed FIC's net income down to 35 cents a share. For the full fiscal year, net income fell to $103.5 million, or $1.59 per share, from $134.5 million, or $1.86 per share. Revenue rose to $825.4 million from $798.7 million. The company also announced that its CEO, Thomas G. Grudnowski, has resigned. The other big story is that Smith & Nephew has said that it's in preliminary talks with Biomet (BMET) about a possible merger. Both companies have very similar market values. Interestingly, what may have lead Biomet down this path was then Dane Miller, the CEO, suddenly resigned earlier this year. Posted by edelfenbein at 9:18 AM November 1, 2006Atlas Shrugged Did you know it's pronounced EYE-n? I did...just wanted to make sure you knew that. Posted by edelfenbein at 8:16 PM Gimmicks and the Housing Bubble The Washington Post looks at sellers are dealing with the fizzling NYC housing market: "I count 40-plus construction projects in my neighborhood alone," says Nouriel Roubini, a professor of economics at New York University's Stern School of Business who lives in Tribeca. "There's going to be a huge glut in six months here in New York, well above the national average. And unless you see a huge increase in hiring in the financial industry -- and that is not going to happen -- you have to wonder, who is going to buy all these units?" Posted by edelfenbein at 2:23 PM Economic Puzzle Here’s a puzzle I’ll throw open to the house. I’d welcome any feedback you might have. The U.S. economy has grown at a remarkably stable rate for the past several decades. You wouldn’t know it from our political rhetoric, but the economy grows by an average of about 3.1% a year after inflation (or 3.08% to be more exact). Sometime we do better, sometimes worse. But we always come back to that 3.08% trend line. Remember, the nasty recession of 1981-82, and the Reagan Recovery of 1983-84. From beginning to end...yep, 3.08%. Summer, spring, fall and winter, we always go back to 3.08%. Except for once. Call it a brief shining moment. In the early-to-mid 1960s, the economy vaulted dramatically upward, and started to revert to a new and higher mean. Why? What happened? And most importantly, can we do it again? I like this kind of puzzle because it makes you focus on data series and how to analyze them properly. My first guess would be that it was something like the Fed or perhaps spending on the war in Vietnam. But then, how come we didn’t revert back to the old mean when those went away? Could they have had a one-time up boost, with no downside? Doesn’t seem likely. The question we have to ask is, what changed for good that could have given us a one-time permanent economic boost. The best answer I can think of is that it’s due to the end of segregation. While I certainly believe that socialist race relations are immoral, I’d be partial to believing that it’s economic retardant. But here, I can’t fully trust myself. I know the world doesn’t work the way I would prefer. But still, it’s intuitively makes sense. Using state power to hold people back isn’t just evil, it’s got to be costly. Unfortunately, I don’t have the GDP data broken down by each state. My other concern is Zodiacing. Perhaps, I’m looking to see a pattern that just isn’t there. Here’s the data so you can judge for yourself. This is GDP from 1951 to 2001. The yellow is GDP. The black is the trend line. The trend line increases at the same rate before and after the 1963-1966 “gap up.”
Here are the two lines divided by each other:
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