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Patrick Byrne and Movie References

Overstock's CEO, Patrick Byrne has already refered to one short-seller as the "Sith Lord." Apparently, he's working his way through his NetFlix queue. Here is complaining about Utah overturning its law designed to curb stock manipulation:

Tuesday night, Overstock Chief Executive Patrick Byrne compared Bramble's about-face on the issue to a betrayal, using a reference to the movie Jerry Maguire to make his point. "It's like that scene where Jerry McGuire figures out that a prospect's father has sold him out by signing with a competitor. McGuire says, 'Now. Wait. Tell me you didn't sign. Because I'm still sort of moved by your "my word is stronger'n oak" thing,' " Bryne wrote in an e-mail.

The Salt Lake Tribune reports:

During the increasingly angry banter that followed, Ostermiller and Byrne began talking about which side of the debate had more "guts." At some point - accounts differ who first uttered the phrase - the words "take it outside" came up. According to Jonathan Johnson, Overstock's senior vice president for legal and corporate affairs, it was Byrne who responded: "Is that an offer?"

I really wish he had said, "You talkin' to me?"

Posted by edelfenbein at 4:00 PM

Gold Drops $14.70 an Ounce

April gold futures dropped $14.70 an ounce today. At one point, gold was down over $23 an ounce.

This is good news that money is leaving gold and going into stocks.

Posted by edelfenbein at 2:31 PM

Goldman's Hybrid Limousines

From a New York Times article on the TXU deal:

People involved in the negotiations said that Goldman Sachs, an adviser and lender to the buyers, helped broker peace with environmental groups and sought their support for the transaction. Goldman Sachs has been one of the most aggressive firms on Wall Street about taking action on climate change; the company sends its bankers home at night in hybrid limousines.

Unfortunately, I walk so I don't get a chance to save the environment.

Posted by edelfenbein at 1:49 PM

The Mortgage Lender Implode-O-Meter

What a great idea for a Web site:

Latest count of major US mortgage lenders that have croaked since late 2006: 27

Posted by edelfenbein at 12:33 PM

U.S. Dollar Drops Against Counterfeit U.S. Dollar

The Onion is on the scene:

NEW YORK—At the close of trading Monday, the U.S. dollar dipped to a record low of $.60 against the counterfeit U.S. dollar, which also outpaced the dollar against the euro and the yen.

"We don't even accept regular U.S. dollars anymore," said Union, NJ 7-Eleven manager Rick Grove, echoing the sentiments of merchants nationwide. "We've gotten stung a few times taking in the real ones. I always tell my cashiers, if it feels fake to the touch, and you can't see both sides when you hold it up to the light, it's fine."

Concerned about further devalutation of standard U.S. currency, Federal Reserve Chairman Ben Bernanke has suggested that Congress outlaw counterfeit bills entirely.

As funny as this sounds, there is a real life parallel. In 1869, Jay Gould and Jim Fisk tried to corner the gold market. The price of gold, expressed as a premium to dollars, went to 160. On September 24, Black Friday, the government dumped gold on the market, and the premium instantly fell to 130. Here’s a cartoon.

Posted by edelfenbein at 12:22 PM

Wall Street Through the Looking Glass

One more word about yesterday: The sell-off was not caused by a computer glitch.

The sell-off was already happening. The glitch was in the accurate reporting of what was happening. This is Wall Street going through the looking glass. If stocks are going down, and no one reports it, are they really going down?

When the computers finally caught up with the trades (see video), some traders thought it was an obvious misprint. No, everything until that point was incorrect. Only when they learned what they really had been doing did they start to panic. At which point, stocks started to rise.

Posted by edelfenbein at 11:49 AM

What's Happening to Goldman's China Goldmine?

Shares of Goldman Sachs (GS) were whacked especially hard yesterday. I noted that it was the eighth-worst performing stock in the entire S&P 500.

The reason may have to do with the Industrial & Commercial Bank of China, or ICBC (1398.HK). Last year, Goldman put up $2.6 billion for 5% of the bank. Hank Paulson made several trips to China to secure a role in the IPO. In the end, Goldman lost out to Merrill, Credit Suisse and Deutsche Bank.

Despite the snub, when the shares went public last year, Goldman made a huge profit. In fact, it was probably the largest profit for any trade anywhere. In less than nine months, Goldman made $4 billion. The investment was made with Goldman's GS Capital Partners V fund, which is heavily owned by Goldman's top execs.

But look at ICBC lately:

Posted by edelfenbein at 11:06 AM

Today's GDP Revision

The government updated its fourth-quarter GDP report today. Instead of growing by 3.5%, it turns out that the economy only grew by 2.2%. That's the biggest revision in ten years. Still, if you look at it in the larger context, it's not that big of a change.

Here, if you squint real hard, you might be able to make it out:

What's interesting is that this is the third straight quarter of below-trend GDP growth. But it's not that far below trend. From September 2003 to March 2006, the economy grew at annualized rate of 3.4%. For the last three quarters, it has averaged 2.2% growth. That's slower growth, but there's still no evidence of a recession.

Posted by edelfenbein at 10:19 AM

Boo Hoo!

Oh, boo hoo, people! You think this is crash? Please, this ain’t no crash.

We’ve become so used to no volatility, we forgot what a normal market acts like. I’m sorry, but this was nothing compared to the olden days, say 1999. Yesterday may have been the worst day in four years, but going back ten years, it was ranks just twelfth. Twelfth, people!

Back then, we would have laughed at this. Four hundred points? Please, that was a lunch break. There were three days worse than this in August ‘98 alone.

Let’s see how bad the big bad bear is. For the year, the S&P 500 is now down 1.36%. OMG! Throw in dividends, and it’s down 1.05%. Are you heading for the hills now?

So what went wrong? I dunno. When in doubt, I blame the Fed. It’s easy to do, and there’s always a chance someone accidentally told the truth. But this time, we have two Fed chairmen in play, old and new, Benilocks and the Maestro.

The former Fed chair is the more likely suspect. He was in the Far East, and according to the AP, Greenspeak was in top form:

Former U.S. Federal Reserve Chairman Alan Greenspan warned Monday that the American economy might slip into recession by year's end. . . .

"While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008 . . . with some slowdown," he said.

Greenspan said that while it would be "very precarious" to try to forecast that far into the future, he could not rule out the possibility of a recession late this year.

Perhaps there’s a chance that the media could possibly use what some might believe is possibly the most provocative headline: "Greenspan Warns of Likely U.S. Recession."

(H/T: BOTW)

All observers agreed that the trouble started in China. The market there fell by nearly 9%, which was the worst day there in a decade. OK, so what caused China to wobble?

According to Bloomberg:

Stocks fell yesterday after the State Council, China's highest ruling body, approved a special task force to clamp down on illegal activities in the market. Investors were concerned the Chinese government would impose further measures as the National People's Congress, China's legislature, meets next week.

Let me get this right. My portfolio took a hit because of the Chinese National People’s Congress? Talk about globalization. First, the bird flue, now a special task force of the State Council. Now there’s a winning combo, discarded 19th century economic theory and 21st century securities regulation!

I’m sorry, but I can’t accept that some Communist bureaucrat is the reason for the loss of half-a-trillion dollars. What kind of connection does a company like Graco (GGG) have to Shanghai margin requirements? Outside the occasional takeout, I’m guessing it's pretty slim.

Let’s look at the indexes for some clues. It wasn’t a size issue. The S&P 500 and Small-Cap 600 (^SML) were down nearly identical amounts (3.47% and 3.50%). But the Mid-Cap 400 (^MID) was only down 3.08%.

Nor was it a valuation issue. The Growth Index (^SGX) was down 3.49% and the Value Index (^SVX) was down 3.45%.

Here's the most telling fact about yesterday: There were 4.24 billion shares traded on the NYSE; 4.19 billion was down volume, just 45 million was up volume. That wasn't a typo, 45 million. Declining volume led advancing volume by more than 93-to-1. Declining issues led advancers by more than six-to-one.

This was no boat accident. And it wasn't China either. It was a broad-based sell-off.

Posted by edelfenbein at 7:36 AM

Today's S&P 500

Here's a spreadsheet detailing the performance of every stock in the S&P 500 today.

Goldman Sachs (GS) fell 6.65%, making it the eighth-worst performing stock in the index today.

Pfizer's (PFE) dividend yield is now 4.61%, which is roughly equal to the 30-year Treasury bond (^TYX). Seven years ago, Pfizer yielded 1.4% while the 30-year T-bond yielded 6.2%.

Posted by edelfenbein at 11:18 PM

CNBC from 2:59 to 3:04

Watch as the CNBC crew reacts to the Dow's plunge. Or rather, reacting to the NYSE's computers catching up to the Dow's plunge.

Posted by edelfenbein at 8:38 PM

-416.02

I'm currently writing to you from the ledge of the 87th Floor of the Crossing Wall Street Tower.

The good news is that this is a terrific view. The downside, of course, is the market today. The crackup yesterday in China has spread to the U.S. At one point, the Dow was off by 546 points. The Dow bounced off that level and finished 416 points lower.

The S&P 500 fell to 1399.04, a drop of 3.47%, which is the index's worst day since March 24, 2004.

In about 30 seconds, the Dow lost over 200 points.

Notice how the big drop in the Dow wasn't mirrored by the S&P 500.

Update: Dow Jones blames it on the computers. Humans apparently are not at fault. (Whew!)

The S&P 500 was down 3.47%, while our Buy List lost 3.19%. For the year, the S&P is down 1.36%, and the Buy List is down 0.28%.

One of the biggest changes today came from the CBOE Volatility Index (^VIX). Look at this jump:

Every Dow industry group fell today. Of the 500 stocks in the S&P 500, 498 closed lower. Only Radio Shack (RSH) and Questar (STR) rallied today. Cyclical stocks were especially hard hit. The Morgan Stanley Cyclical Index (^CYC) fell 3.86%.

My timing was impeccable. Five days ago, I wrote another defense of the bull. But as I look at today's market, I really haven't changed my mind. I was happy to see that gold fell and money went towards bonds. The 10-year Treasury (^TNX) is nearly at 4.5%. This tells us that money isn't leaving the market, but it's merely going to higher ground.

Posted by edelfenbein at 6:21 PM

The Importance of Rounding

This abstract wants to look at the impact that numerical rounding used in economic reports has on the markets. This may yield some interesting results.

I've noticed that the initial press articles on some data points are often slightly off-key because, say, inflation didn't rise by 0.2%--it really rose by 0.015%. Because they're fairly low numbers, I think the phenomenon is most common with the unemployment and inflation reports.

I should add that there's probably a grad paper to be written (pay attention finance ABDs!!) about the impact of rounding in EPS reporting. I'll bet there are many companies that always seems to land on the decimal of "point five" every quarter (i.e., they earn 52.5 cents a share, or 18.5 cents a share).

Maybe the media could look into it. After all, we live in an era when reporters can win the Polk Award for bravely uncovering some fairly minor accounting misstatements.

Posted by edelfenbein at 11:32 AM

Greenspan Warns Redux

Poor, Alan. He just can't keep still these days. Now he's causing trouble in China. The former Fed head spoke at a conference in Hong Kong. Naturally, no one could understand a word he said. Not that there's an English-Chinese language barrier, but there's a more difficult Greenspan-Coherence barrier.

In any event, his speech didn't go over well. The Chinese stock market got slammed today. The Shanghai Composite Index fell 8.8%. That would be like the Dow losing over 1,000 points.

It's the return of Greenspan Warns!

Stocks Fall As Greenspan Warns

Recession possible in 2007, Greenspan warns

Greenspan warns of likely U.S. recession

Greenspan Warns of Possible Recession

So is it possible or is it likely?

For more Greenspan Warns, see here, here and here.

Posted by edelfenbein at 9:46 AM

Harley-Davidson Lowers Its 2007 Outlook

Due to the strike, Harley-Davidson (HOG) is lowering its outlook for this year:

The company said it now expects earnings growth of 4 percent to 6 percent over 2006, when it posted a profit of $1.04 billion, or $3.93 per share. The company expects earnings growth to return to a rate of 11 percent to 17 percent in 2008 and 2009. Harley-Davidson said in January that it expected revenue growth of between 11 percent and 17 percent each year through 2009.

Analysts polled by Thomson Financial forecast a 2007 profit of $4.33 per share and earnings in 2008 of $4.81 per share.

This is unfortunate news, but ultimately, it shouldn't have a major impact on Harley's business. The shares will take a hit today, but I'd be far more concerned if Harley saw lower demand for its bikes.

Posted by edelfenbein at 9:23 AM

James Simons on C-Span

Here's a clip of James Simons, the legendary hedge fund manager, at yesterday's National Governors Association's Winter Meeting. Simons is a former math professor and founder Renaissance Technologies which runs the Medallion Fund.

I know he's a genius and a multi-billionaire, but he still looks like he belongs on Seinfeld. Couldn't you see him playing one of Jerry's uncles or something? Maybe it's me. Anyway, Simons begins speaking about nine minutes into the clip.

Posted by edelfenbein at 2:38 PM

Fed on Hold for all of 2007

A new survey of economists shows that the Fed will stay on hold for much of the year. The National Association for Business Economics finds that:

1. Growth in gross domestic product is now expected to average 3.1% over the four quarters of 2007.

2. Headline consumer-price inflation will decline to less than 2.0% in 2007, largely as a result of lower oil prices. This would be the lowest inflation rate in five years.

3. The "core" inflation rate, which excludes food and energy prices, is expected to hold steady at 2.3%.

4. The nation's unemployment rate should average 4.7% this year, only a tad higher than the 4.6% rate in January.

I'm not so sure growth will be that strong. The fourth-quarter GDP will be revised on Wednesday, and everyone expects a major downward revision. The only question now is how bad will it be. I'm expecting around 2% growth. The original report pegged GDP growth at 3.5%. This could mean that the economy experienced three straight quarters of below-trend growth. Unless things change, I expect the Fed to cut interest rates sometime this year.

Posted by edelfenbein at 10:57 AM

Giuliani Takes the Lead

At Tradesports, the "futures" prices for Rudy Giuliani to win the GOP Presidential nomination just surpassed those of John McCain. Still, the futures market indicates that both candidates have less than a one-in-three chance of winning the nomination. Meanwhile, Mitt Romney is closing the gap but he has a long way to go.

On the Dems' side, Hillary Clinton still had a big lead:

I think the markets may be underestimating Senator Obama's chances. I have no special insight here; it just seems that way. I should add that my judgment in these matters is pretty bad.

Posted by edelfenbein at 4:40 PM

Snow in DC

Posted by edelfenbein at 4:30 PM

A Euphemist Takes a Bow

From the vaults of The New York Times:

A EUPHEMIST TAKES A BOW
October 21, 1981

The Reagan Administration's fiscal euphemist has been run to ground. He is Lawrence A. Kudlow, who says he coined ''revenue enhancement,'' the euphemism for tax increase used by the White House last month.

Mr. Kudlow, the chief economist of the Office of Management and Budget, is defiantly unrepentant. ''I gave them another one, 'receipts strengthening,' '' he boasted today.

Mr. Kudlow, a smoothly fluent man of 34, said his career as a euphemist began in the drafting of the ''fact sheet'' that the White House issued to explain its request for $3 billion more in tax revenues and $13 billion in budget cuts.

Why didn't the White House call a tax increase just that? ''There's no better way to sell economic theory than by the euphemistic route,'' he says.

Posted by edelfenbein at 3:26 PM

15 Get a Mac Ads

John Hodgman is brilliant.

Posted by edelfenbein at 10:03 PM

Buy List So Far

Thanks to Donaldson, our Buy List eeked out a slight gain despite the overall market's sell-off. For the year, the Buy List is up 3.36% compared with 2.32% for the S&P 500 (not including dividends).

Here's how our stocks have done year-to-date:

Bed Bath & Beyond (BBBY) 11.73%
Respironics (RESP) 11.10%
FactSet Research Systems (FDS) 10.75%
Jos. A Bank Clothiers (JOSB) 10.43%
Amphenol (APH) 9.26%
Donaldson (DCI) 8.47%
SEI Investments (SEIC) 6.70%
Graco (GGG) 6.69%
AFLAC (AFL) 5.63%
Fiserv (FISV) 4.33%
Biomet (BMET) 2.71%
Danaher (DHR) 2.25%
Varian Medical Systems (VAR) 2.17%
Fair Isaac (FIC) -1.25%
UnitedHealth Group (UNH) -1.30%
WR Berkley (BER) -1.68%
Harley-Davidson (HOG) -2.07%
Medtronic (MDT) -4.04%
Nicholas Financial (NICK) -6.44%
Sysco (SYY) -8.19%

Posted by edelfenbein at 6:46 PM

Gold Vs. the Fed

B-Riz is in the Zone:

In this corner, weighing 195 pounds, standing 5 foot 10, hailing from Washington D.C. via Harvard, MIT and Princeton, New Jersey, wearing the M1 green trunks, the Charlemagne of Currency, the prince of paper, the bearded bard of the Fed, monarch of monetary policy, Benjamin GOLDILOCKS Bernanke!

And in the opposing corner, weighing 2046 metric tonnes -- one ounce at a time -- the shiny, precious, storehouse of value, the standard for monetary exchange, the most malleable and ductile of the known metals, that master of disaster, hailing from most of the world, that dense, soft, shiny, yellow metal, GOLD.

Posted by edelfenbein at 1:11 PM

Values Hidden in Plain Sight

Many investors think that to be successful at investing requires lots of time and very advanced research on companies. But I’m surprised how often great values are perfectly obvious to anyone who is simply paying attention. Malcolm Gladwell recently wrote in the New Yorker that Enron’s financial mess was visible to people who looked for it.

Consider the case of Pfizer (PFE). Obviously, the company has problems. It just announced that it’s cutting 10,000 jobs. But now the stock is below $26 a share. After its latest earnings report, Pfizer said it was projecting adjusted EPS of $2.18 to $2.25 for 2007, and $2.31 to $2.45 for 2008. If the company’s forecast is accurate, this means that the stock is going for about 10 or 11 times next year’s earnings. That’s pretty cheap. On top of that, the dividend yield is 4.4%, which isn’t far behind a Treasury bill.

I’m not necessarily saying that Pfizer is a great buy here, or that a forward P/E is the end of any analysis. But the key information here isn’t any state secret we’re talking about. We’re using information right from the company. They’re telling is what to expect, and the shares are still falling.

Another example is Amgen (AMGN). Historically, this has been a rapidly growing company. Today, the stock is going for about $66 a share. The company recently said that it expects 2007 EPS to be in the range of $4.30 to $4.50 (not including 10 to 12 cents for stock options). That’s means the stock’s "earnings yield" (the inverse of the P/E ratio) is over 6%. That's certainly worth looking into.

I don’t know what either stock will do over the next 12 months. But if they do well, I’m sure some investors will kick themselves and say, "if they had only known."

Posted by edelfenbein at 10:51 AM

Greenwich Family Values

From the AP:

A Greenwich mortgage broker who admitted she helped her college-age son recruit investors in a multimillion-dollar hedge fund scam pleaded for a reduced sentence Thursday, downplaying her role and blaming her son and others.

Ayferafet Yalincak, who pleaded guilty last year to conspiracy to commit wire fraud, is scheduled to be sentenced March 2. Her 22-year-old son, Hakan, faces up to 50 years in prison for managing the scheme when he is sentenced March 27.

Prosecutors say Hakan Yalincak charmed his way into the exclusive world of Greenwich high finance by posing as an heir to a wealthy Turkish family, shuttled counterfeit checks across the world and brokered deals with a Kuwaiti financier. Prosecutors said investors lost more than $7 million in the fake fund, an amount he contests.

Ayferafet Yalincak, who faces up to 5 years in prison under guidelines, asked for a short sentence in court papers filed Thursday. She rejected a presentence report that concluded Hakan's fraud stemmed from the negative role model she provided.

She's got a point. If he blamed it on his kids, then she would be a role model.

Posted by edelfenbein at 10:10 AM

Donaldson Beats the Street

After the close, Donaldson (DCI) reported earnings of 38 cents a share, one penny better than estimates.

Donaldson Company, Inc. announced record second quarter diluted earnings per share of $.38, up from $.32 last year. Net income was $31.3 million, versus $26.9 million last year. Sales were a record $463.7 million, up from $392.9 million in fiscal 2006.

For the six month period, EPS was another record at $.81, up from $.69 last year. Net income increased 14 percent to $67.3 million compared to $59.1 million last year. Sales were a record $910.2 million, up 14 percent from $796.3 million in fiscal 2006.

"Sales growth was very strong during the quarter, supporting our outlook for another record year," said Bill Cook, Chairman, President and CEO. "Our sales were especially good in Europe and Asia, where solid economic conditions and our well-developed market presence combined to deliver growth in excess of 25 percent in both regions. Our year-to-date operating margin of 10.6 percent compares favorably to 10.2 percent a year ago. Global economic conditions remain healthy for most of our businesses, giving us confidence in delivering our 18th consecutive year of record earnings."

Here's a look at the streak:

Year.............Sales.................EPS
1990............$422.9...............$0.19
1991............$457.7...............$0.21
1992............$482.1...............$0.23
1993............$533.3...............$0.26
1994............$593.5...............$0.30
1995............$704.0...............$0.37
1996............$758.6...............$0.42
1997............$833.3...............$0.50
1998............$940.4...............$0.57
1999............$944.1...............$0.66
2000............$1,092.3............$0.76
2001............$1,137.0............$0.83
2002............$1,126.0............$0.95
2003............$1,218.3............$1.05
2004............$1,415.0............$1.18
2005............$1,595.7............$1.27
2006............$1,694.3............$1.55
2007............$1,820.0............$1.76 (est)
2008............$1,940.0............$1.95 (est)

The company expects this year's earnings to be betweem $1.72 and $1.82 a share. For the first half of this fiscal year (ending in July), DCI's EPS is up 17.3%. If that trend continues in the back half, Donaldson will net $1.82 a share.

Posted by edelfenbein at 5:30 PM

Defending the Bull. Again.

I defended the bull market four months ago, and I’ll try to do it again today. This time, however, I want to take a look at some of the bearish arguments making the rounds. David Gaffen at Marketbeat outlines a few.

For example:

The VIX, commonly known as the "fear index," is hovering around 10, a low point, suggesting a lot of carefree folks out there these days. This level is often a turning point, a calm before the storm, so to speak.

No! No! A thousand times No! A low VIX does not mean that investors are complacent. It means the exact opposite—investors are being cautious. Notice how all the other risk spreads are also low.

The current rally is now the third longest since 1900 without a 10% correction.

That’s true, but what's so special about 10%? The S&P 500 had a 7.7% correction last spring, and it kept going. This bull hasn’t exactly been a roaring bull. In almost ten months, we’re up almost 10%. That’s less than both earnings growth and dividend growth. Look at some sentiment indicators. Value stocks are still leading growth. The Nasdaq is still less than one-fifth of the Dow. These aren’t the signs of an overheating market.

Margin debt has hit an all-time high, surpassing the heady days of the technology stock boom, as more people borrow money to buy stocks than ever before.

But what about equity growth? The proper way to look at margin debt is its relation to equity. Why isn't margin growth a good thing, reflecting investor optimism? (Update: Bill Rempel makes several good points on this misleading stat.)

The Dow industrials, transports and utilities all closed at new highs on the same day last week — something that became a routine occurrence in just two years, 1929 and 1986, both preludes to big market falloffs.

The last two triple highs came in March 1998, and the Nasdaq promptly tripled. The time before that came in April 1993, and the market rallied for another nine months. Nearly anything can prelude a big market falloff.

Another bearish talking point is that the market hasn’t had a 2% down day in nearly four years. Once again, I don’t see what’s so bad about that. The market is in a period of low volatility. There’s nothing unusual or dangerous about it. Today’s volatility is roughly equal to other periods of low volatility. Was their anything dangerous about the market of the mid-1990s? There were just three 2% down days from November 1991 to July 1996, and we survived. Some of us even made money. Remember this was the market that led to Irrational Exuberance.

Also, what’s so special about 2%? Since the last 2% day, we’ve had over 60 1% falls, including a few 1.8%-ers and one 1.9%-er. Change the parameters slightly, and the talking point goes away. We’ve gone almost nine months since a 1% correction, and that’s far from the longest streak ever.

Posted by edelfenbein at 1:39 PM

Chicks on the Street

From an actual academic study:

We study the relation between gender and job performance among brokerage firm equity analysts. Women's representation in analyst positions drops from 16% in 1995 to 13% in 2005. We find women cover roughly 9 stocks on average compared to 10 for men. Women's earnings estimates tend to be less accurate. After controlling for forecast characteristics, the difference in accuracy is roughly equivalent to four years of experience. Despite reduced coverage and lower forecast accuracy, we find women are significantly more likely to be designated as All-Stars, which suggests they outperform at other aspects of the job such as client service.

(Pictured is Hetty Green.)

Posted by edelfenbein at 11:47 AM

The Best Airline You've Never Heard Of

Dublin-based Ryanair (RYAAY) is revolutionizing air travel in Europe. They've borrowed their business model from Southwest Airlines (LUV), and they're having the same kind of success.

What's their base rate for a round-trip flight from London to Pisa? One euro cent. Of course, there are some setbacks.

Not everyone is happy with Europeans' unchecked mobility. People in countries newly served by budget airlines complain that British bachelor and bachelorette parties are taking over Eastern European cities such as Riga.

European Weekends, a Nottingham-based events coordinator, offers one package that features a "Soviet nurse banquet," with prices starting at 55 pounds ($108) per person.

The cost covers five shots of vodka, five female entertainers, a "lesbian nurse show" and a meal.

"I know about guys who go to Prague for a weekend of cheap beer, prostitutes and fighting," Vertovec says. "People there really complain about it -- and that's due to low-cost airlines."

In the last nine years, the stock is up more than 15-fold.

Posted by edelfenbein at 9:48 AM

Cyclicals Do It Again

That's eight straight days of beating the S&P 500.

This morning, it looked like the streak was done for, but the cyclicals did it again.

Posted by edelfenbein at 4:02 PM

Damn It Feels Good to Be a Banker

Goldman Sachs breaks down Blankfein's pay:

TALLY SHEET

Components of 2006 Compensation, Benefits and Perquisites

Lloyd C. Blankfein

Cash Compensation

Base Salary $600,000
Cash Bonus (Includes $24,000 Qualified Money Purchase Pension Plan Contribution) $27,267,500

Equity-Based Compensation

Restricted Stock Units (RSUs) $ 15,679,500
RSUs — 77,776
Vested — 31,110
Unvested — 46,666

Stock Options $ 10,453,000
Shares Underlying Options — 209,228
Vested — 83,691
Unvested — 125,537
Exercise Price — $199.84

Total Compensation $ 54,000,000

Retirement and Welfare Benefits
Life Insurance Premiums $12,211
Firm Qualified Profit Sharing Plan Contribution $5,000
Medical/Dental Benefit Premiums $40,571
Long-Term Disability Insurance Premium $1,094

Other Benefits and Perquisites
Financial Planning Services $63,518
Car and Driver $198,388

Total Benefits and Perquisites $320,782

Dividend Equivalents on All Prior Years’ Restricted Stock Units $402,582

Total $54,723,364

Do you think "Car and Driver" means the magazine? Me neither.

Posted by edelfenbein at 1:55 PM

Worthwhile Canadian Initiative

Telus to offer wireless adult content

We begin counting, now. One, two, thr…

Telus halts porn downloads

Posted by edelfenbein at 11:43 AM

The AFLAC Duck Is Not Dead

Despite what Regis and Kelly said, and the New York Post, the AFLAC (AFL) duck is not going away.

"The company's chief marketing officer tells adage.com he wants to focus less on the mascot and more on what Aflac does -- supplemental insurance," the CNN report stated. "He says many people recognize the duck's squawk, but have no idea what product he's selling."

From there, the story was picked up by radio stations as far away as Los Angeles.

As the story spread, Herbert said he went from "from being annoyed to being concerned."

About 2 p.m., the company issued the news release stating the duck was still alive.

Posted by edelfenbein at 11:02 AM

Investing Factoid of the Day

The Dow falls an average of 18.7% from one year’s high to the following year’s low.

This is from Mark Hulbert’s article which takes a skeptical look at the idea that years ending in “seven” are bad for the market.

Posted by edelfenbein at 10:25 AM

Cyclicals Are Soaring

Cyclical stocks have been red-hot lately. The Morgan Stanley Cyclical Index (^CYC) has beaten the S&P 500 for the last seven straight days, and 25 of the last 30. This may be a sign that the economy isn’t ready to throw in the towel just yet.

The cyclical rally is notable because the sell-off last May and June fell disproportionately on cyclicals. Still, cyclicals have been the uncrowned kings of this bull market. In less than four years, the CYC is up over 150%, which is nearly twice as much as the S&P 500.

I like to track the CYC/S&P ratio, which often gives us a better reading on the economy’s health than any government report. The ratio increases when cyclicals outperform, and decreases when cyclicals underperform. On May 10, the ratio got to 0.672, its highest point in 12 years. The correction brought it back below to 0.610, but now it’s closing in on the May high again. Yesterday, the ratio got to 0.665.

The ratio’s high mark of 0.677 came on March 23, 1994 (my records date back to 1978), so we’re in striking distance of a new high. During previous economic recoveries, the ratio has usually petered out around 0.65. Currently, the ratio is in the top 1% of all readings. In other words, we’re near outlier territory.

While cyclicals are surging now, history suggests that the end of the party may soon be near.

Posted by edelfenbein at 8:52 AM

That Was Fast

When the Altria Group announced in the fall that it was planning to spin off its Kraft Foods division, Wall Street cheered.
New York Times, February 21

Kraft Chief Outlines Turnaround Strategy
New York Times, February 21

Posted by edelfenbein at 7:18 AM

Medtronic Earns 61 Cents a Share

Medtronic (MDT) just reported earnings of 61 cents a share, three cents more than exectations. Here are MDT's results for the past few quarters:

Quarter...........EPS.............Sales
Jul-01............$0.28...........$1,455.70
Oct-01...........$0.29...........$1,571.00
Jan-02...........$0.30...........$1,592.00
Apr-02...........$0.34...........$1,792.00
Jul-02............$0.32...........$1,713.90
Oct-02...........$0.34...........$1,891.00
Jan-03...........$0.35...........$1,912.50
Apr-03...........$0.40...........$2,148.00
Jul-03............$0.37...........$2,064.20
Oct-03...........$0.39...........$2,163.80
Jan-04...........$0.40...........$2,193.80
Apr-04...........$0.48...........$2,665.40
Jul-04............$0.43...........$2,346.10
Oct-04...........$0.44...........$2,399.80
Jan-05...........$0.46...........$2,530.70
Apr-05...........$0.53...........$2,778.00
Jul-05............$0.50...........$2,690.40
Oct-05...........$0.54...........$2,765.40
Jan-06...........$0.55...........$2,769.50
Apr-06...........$0.62...........$3,066.70
Jul-06............$0.55...........$2,897.00
Oct-06...........$0.59...........$3,075.00
Jan-07...........$0.61...........$3,048.00

Posted by edelfenbein at 4:09 PM

Wal-Mart: $1 Billion a Day

In 1955, General Motors (GM) became the first American company to make over $1 billion in a single year. Today Wal-Mart (WMT) reported its fourth-quarter earnings. The earnings aren't that interesting (95 cents a share), but check out the sales number--$98.09 billion! That's an average of $1.06 billion a day.

For the record, ExxonMobil (XOM) already hit the $100 billion quarterly revenue mark in 2005, but that was due to soaring oil prices.

Posted by edelfenbein at 11:21 AM

10 Things You Might Not Know About the Sirius-XM Merger

From the Wired Blog:

1. It's being touted as a "merger of equals," but in fact, Sirius is buying XM for nearly $4.6 billion in stock. (Source:Bloomberg)

2. Sirius and XM's receivers are incompatible: it won't be elementary to combine the two services, and to get both, you'll probably have to buy a new receiver. The companies have promised to merge channel lineups, however, letting customers pick and choose on an "a la carte" basis.

3. Sirius offered one-time payments for a lifetime subscription, but tied it to a receiver. These users could be offered deals to add XM or upgrade their receiver, or could be told that one-time payment forever applies only to Sirius-branded content on the original box. What deal will the merged giant offer?

4. The merger effectively creates a local monopoly in digital radio (excepting that provided through cable television services.) Under scrutiny from the Justice Department and FCC, Sirius and XM may claim to be competing not with each other, but with iTunes and other music download services. If they do, might it have consequences for XM's claim that they aren't a download service, in regard to an RIAA lawsuit? However it pans out, the phrase "regulatory hurdles" could haunt the deal for months.

5. Channels will die. There's a lot of duplicated content across the two networks. It'll be interesting to see how closely culling is tied to earcount and ego.

6. Though XM has more subscribers (XM has claimed 7.6 million to Sirius's claimed 6 million) and had more than double Sirius' revenue in 2005, Sirius recently boasted about its economic performance and climbing subscriber base. Both companies have been losing money hand-over-fist for years, however: Shares for both declined about 50 percent last year. Sirius is worth $5.2 billion, while XM was recently valued at $3.75 billion. (Compare the buyout price!)

7. Sirius was originally called Dog Radio, and was founded in 1990. XM was originally called American Mobile Satellite Corp, and was founded in 1988.

8. The elliptical orbit of Sirius's satellites causes trouble for customers who receive their Musak-like business music service through stationary antennas. Sirius is launching a geostationary satellite just for them.

9. Sirius' and XM's press release contained a boilerplate legal disclaimer about "Forward Looking Statements," listing the words "anticipate," "believe," "plan," "estimate," "expect," "intend," "will," "should," "may," as ones that predicate statements the reader should take with a pinch of salt.

10. Worldstar serves satellite radio to Europe, Africa and the rest of the world. With about a hundredth of the merged giant's revenues, it doesn't compete in its home market, instead licensing a few select channels to XM.

Posted by edelfenbein at 11:05 AM

News this Morning

Good morning. I hope everyone had a great three-day weekend. This is an important week for us. Two of our Buy List stocks will report earnings. First, Medtronic (MDT) reports after the close today. Wall Street is looking for 58 cents a share. Also, Donaldson (DCI) reports on Thursday. The Street is looking for 37 cents a share. I don’t expect any surprises here.

The best news is that Harley-Davidson (HOG) has reached a tentative deal with its union. Hallelujah! The stock is up early this morning.

Another big event will come tomorrow morning when the Consumer Price Index for January comes out. I’m expecting more good news on the inflation front.

Finally, a word on JetBlue (JBLU). The stock is getting slammed this morning, and deservedly so. What I don’t get about JBLU is that in the five years since its IPO, the stock has split 3-for-2, three times. Yet the stock hasn’t gone anywhere. Splits are for high prices! On its first day of trading, JBLU soared from $27 to $45. Three 3-for-2 splits works out to one 3.375-to-1, so $45 is equal to $13.33 today. The shares are around $12.67 this morning.

Posted by edelfenbein at 10:09 AM

XM and Sirius to Merge

The New York Post reports:

Satellite radio operators Sirius and XM are expected to announce their long-awaited merger today, according to a source familiar with the deal.

The two sides were locked in negotiations over the weekend trying to hammer out a final agreement with an eye toward going public with the merger today in Washington, D.C., where XM is based, this source said.

Talks were still going on at press time and the deal could fall apart at any time. With antitrust issues of paramount importance, this source said lawyers for both companies were working overtime to fine-tune the language of the agreement and frame the discussion around the deal itself and not regulatory concerns.

The transaction is expected to be structured as a merger of equals, but given Sirius' higher enterprise value, shareholders in the Mel Karmazin-led firm will likely come away with a larger percentage of a combined company.

According to the source, XM Chairman Gary Parsons will retain that title in the combined entity, with Karmazin likely taking the CEO role. It is unclear what role, if any, XM CEO Hugh Panero will play.

Combining Sirius and XM would result in a single satellite radio operator with more than 12 million total subscribers. A deal would also marry Sirius content, such as Howard Stern, Frank Sinatra and Nascar with XM's Oprah Winfrey, Bob Dylan and Major League Baseball.

More important, analysts widely predict that a deal would also save the two companies nearly $7 billion annually.

Karmazin and Parsons have been dropping hints since last summer about a possible tie-up, believing that competition from terrestrial radio, online radio and mobile music devices such as iPods have not only expanded the marketplace but also lowered the regulatory hurdles to a deal.

In a note on Friday, Bear Stearns analyst Robert Peck speculated that Sirius and XM needed to move quickly before their window of opportunity closed.

Gaining regulatory approval "could take up to 15 months; hence, we think any proposed deal needs to be announced by the end of March to close by mid-2008," Peck wrote.

On Friday, XM shares hit their lowest point since early November while Sirius shares were approaching 52-week lows. Shares in both companies did trade on heavy volume and ended the session higher, with Sirius gaining 10 cents to close at $3.70 and XM jumping a dollar to $13.98.

The appeal of these two stocks simply esacapes me. Neither one has made a dime in profit. And from the looks of things, it'll be a long time before they do.

Posted by edelfenbein at 2:13 PM

Happy 275th

Labor to keep alive in your breast that little spark of celestial fire, called conscience. - George Washington

Posted by edelfenbein at 8:32 AM

The English-Speaking Century

Winston Churchill spent twenty years on his four-volume A History of the English-Speaking Peoples, which ended with the death of Queen Victoria. Now Andrew Roberts carries on the great man's work in "A History of the English-Speaking Peoples Since 1900."

Keith Windschuttle writes:

The connection between Protestant individualism and personal responsibility, Roberts argues, also created a favorable environment for the free enterprise that provided the economic base for British and then American economic dominance. Their form of capitalism, free enterprise, free trade, and laissez-faire economics, consistently produced more prosperity than any other model.

The key to this was a Dutch invention, the limited-liability joint-stock company, which in the mid-nineteenth century was perfected by British legislation. As a result, civilizations that had once outstripped the West yet failed to develop private sector companies—notably China and the Islamic world—fell farther and farther behind. Anglo-American capitalism, when allied to the right to own secure property and the rule of law, unleashed the energy and ingenuity of mankind. It formed the basis of the English-speaking peoples’ present global hegemony.

Posted by edelfenbein at 10:05 PM

We'll Be Together Again

"Let's face it. We tenor saxophonists would all play like him, if we could." — John Coltrane on Stan Getz

Posted by edelfenbein at 2:39 PM

A Triple High

Due to my Capitol Hill Odyssey, I neglected to mention Wednesday's triple high.

For the first time in nine years, the Dow Industrials, Utilities and Transports all closed at all-time record highs. This is only the fourth time this has happened in the last 20 years.

The Dow Jones Industrials (^DJI) closed Wednesday at 12741.86. The Dow Jones Utility Average (^DJU) closed at 477.07. And the Dow Jones Transportation Average (^DJT) closed at 5117.27.

Posted by edelfenbein at 2:21 PM

Banco Bilbao buying Compass Bancshares

It happened again! Another one of my favorite banks is getting bought out. Banco Bilbao (BBV) is buying Compass Bancshares (CBSS) for nearly $10 billion.

Just to set the record straight, a Spanish bank is buying out an Alabama bank. Let's pause and read the sentence again.

Not only is Compass a Dividend Aristocrat, but it's also in the 10 straight years of increased earnings club. The only other stocks in both groups are Wal-Mart (WMT), Walgreen (WAG) and Synovus (SNV). (Note: There could be a trend here. Synovus is based in Georgia and Wal-Mart hails from Arkansas.)

BBV is offering a 16% premium for Compass. Let's see if another bidder steps forward.

Posted by edelfenbein at 1:12 PM

Top Stocks for the Loooooong Haul

At the TheStreet.com, James Altucher profiles some stocks that have been around for over one hundred years.

If you haven't done so yet, I urge you to check out James' new Stockpickr site, the latest in social networks and stock-picking.

Posted by edelfenbein at 12:17 PM

CAPM: RIP

Here’s a good article from the Financial Times on the demise of CAPM, the Capital Asset Pricing Model. This model tried to explain the trade-off between risk and return in financial markets.

The verdict is that as a theory, it’s all swell. But in practice, CAPM doesn’t explain much. Studies have shown that low-risk stocks (meaning low beta) have done better than they should, and riskier stocks have continually come up short.

Of course, this is hardly the first time that an academic theory has got its ass handed to it by reality. What I find interesting, however, is the use (and abuse) of the concept of risk.
Although we’ve become used to language of risk, it’s actually a rather bizarre idea. Consider that we have just one word for it, but “risk” is used to describe many different things. For example, risk is reflexively assumed to be bad. But what about the risk of missing a great stock? That's something that I'm always concerned with.

If there’s a trade-off between risk and return, then there’s an assumption that all investors measure risk the same way. The return part is fairly obvious. We can all agree what a 10% move is. But risk is subjective. What I might consider risky, you might not.

Another example is gold. Is gold very risk, or not risky at all? Going by its daily volatility, gold has often been very risky. Gold’s beta, however, is usually negative. I’ve always thought the allure of gold is that it has the least risk of losing its intrinsic value. After all, if we find ourselves living in the post-apocalypse, stocks and bonds aren’t going to be worth much, but gold will still have value (don’t laugh, there are investment advisors who say these things).

Once again, we have one word that’s used to describe many things, and everyone sees it differently.

Posted by edelfenbein at 10:59 AM

Dividend Aristocrats

Coca-Cola (KO) raised its quarterly dividend from 31 cents a share to 34 cents a share. Coke has now raised its dividend for 45 straight years.

While capital gains are my first true love, dividends are like a friend with benefits. S&P has a list of its Dividend Aristocrats, stocks that have increased their dividend every year for the last 25 years.

Here's the current list:

Abbott Labs (ABT)
Archer-Daniels-Midland (ADM)
Automatic Data Processing (ADP)
Avery Dennison (AVY)
Bank of America (BAC)
BB&T Corporation (BBT)
Bard (C.R.) Inc. (BCR)
Becton, Dickinson (BDX)
Anheuser-Busch (BUD)
Chubb (CB)
Compass Bancshares (CBSS)
Cincinnati Financial (CINF)
Clorox (CLX)
Comerica (CMA)
Century Telephone (CTL)
Dover (DOV)
Consolidated Edison (ED)
Emerson Electric (EMR)
Family Dollar Stores (FDO)
First Horizon National (FHN)
Fifth Third Bancorp (FITB)
Gannett (GCI)
General Electric (GE)
Grainger (W.W.) Inc. (GWW)
Johnson Controls (JCI)
Johnson & Johnson (JNJ)
KeyCorp (KEY)
Kimberly-Clark (KMB)
Coca Cola (KO)
Leggett & Platt (LEG)
Lilly (Eli) & Co. (LLY)
Lowe's (LOW)
McDonald's (MCD)
McGraw-Hill (MHP)
3M Company (MMM)
Altria (MO)
M&T Bank (MTB)
Nucor (NUE)
PepsiCo (PEP)
Pfizer (PFE)
Procter & Gamble (PG)
Progressive (PGR)
PPG Industries (PPG)
Regions Financial (RF)
Rohm & Haas (ROH)
Sherwin-Williams (SHW)
Sigma-Aldrich (SIAL)
SLM Corporation (SLM)
Synovus Financial (SNV)
Questar (STR)
State Street (STT)
Supervalu (SVU)
Stanley Works (SWK)
Target (TGT)
U.S. Bancorp (USB)
V.F. Corp. (VFC)
Walgreen (WAG)
Wal-Mart (WMT)
Wrigley (WWY)

The Dividend Aristocrats Index has not only outperformed the S&P 500, but it's been less risky as well. Since 1990, the Dividend Aristocrats Index is up over 414%. Throw in dividends and it's up 725%. The S&P 500 is up 312%, and 485% with dividends. The daily volatility of the Dividend Aristocrats Index has been about 11% less than the S&P 500.

Here's how the two indexes have performed since 1990 (not including dividends).

Posted by edelfenbein at 8:32 AM

Erin Burnett, CNBC All-Star

And second team all-conference in field hockey.*

But first team of our hearts!

* Those sticks scare the fuck out of me. Seriously, I carry one in my car.

Posted by edelfenbein at 7:51 AM

Buffett Buys 1 Million Shares of UnitedHealth

From Reuters:

Warren Buffett's Berkshire Hathaway Inc bought 1 million shares of insurer UnitedHealth Group in the fourth quarter of 2006, according to a regulatory filing.

Berkshire detailed its holdings for the quarter ended Dec. 31, 2006 in a filing with the U.S. Securities and Exchange Commission late on Wednesday.

In the third quarter, Berkshire did not own any shares of UnitedHealth, the largest U.S. health insurer by market value. The company has overhauled corporate governance procedures and changed its management structure, but still faces a federal investigation into its dating of stock options.

Shares of UNH are up over 4% today.

Posted by edelfenbein at 3:03 PM

Laugh & Learn Bunny: Harmless Children’s Toy or Rampaging Drug-Addled Psychopath?

J'accuse.

Fisher-Price recalls Laugh & Learn Bunny toys

Some half million "Laugh and Learn" Learning Bunny Toys are being recalled because of a potential choking danger.

The Consumer Product Safety Commission says the pink pom-pom nose (Alcohol? Coke??) on the toys can come off, posing a danger to young children. The recall does not cover Learning Bunny Toys with noses that are flat or embroidered.

The yellow toy bunny is ten inches high. One ear's green, the other orange, and it has musical and counting sound effects.

Fisher-Price is owned by Mattel (MAT), which is a stock that’s been catching my eye lately.

First, some background. Shares of Mattel plunged over 80% in 1998 and 1999. The company was nearly ruined by its former CEO, Jill Barad, who led Mattel through the horrible idea of acquiring The Learning Company. Barad finally resigned (not without a very large severance package), and the new CEO, Robert Eckert, has engineered an impressive turnaround.

Despite this little rabbit-killing-kids issue, it’s actually Barbie that’s responsible for 30% of Mattel’s profits. That probably led the company to get a female CEO in the first place. When Barad was first hired, I’ve rarely seen a CEO get better press. Fortunately, female CEOs are more common now than when she got the top job.

In the past year, the stock has nearly doubled. In November, the company raised its dividend by 30% (50 cents a share to 65 cents a share). For the fourth-quarter, the company earned 75 cents a share, eight cents more than expectations. I am concerned about the high level of debt, though. Mattel’s long-term debt is more than twice last year’s profit. I’d like to see that come down some. But there is value here. Shares of MAT now go for about 16 times 2008’s earnings.

Posted by edelfenbein at 12:49 PM

Buy What You Hate

Peter Lynch used to advise investors to “buy what you know.” Several months ago, Daniel Gross wrote an article called “Buy What You Hate.” He noticed how many highly-profitable companies did poorly in a poll on corporate reputation.

The head of the poll said, "When we do detailed analysis of public perception, we find that a significant portion of the ranking is negatively affected when companies do too well." I guess the public is pro-profits, but anti-profiteering. But I’m not sure where the line is drawn.

A new study pushes this idea further. It finds that stocks of admired companies haven’t fared as well as the less-admired. "Stocks of Admired Companies and Despised Ones" by Deniz Anginer, Kenneth Fisher and Meir Statman looks at the stock performance of companies in Fortune Magazines poll of most admired companies (BTW, UnitedHealth was ranked #1 in the 2006 survey).

The researchers found that over a 23-year stretch, the stocks of companies in the lower half of reputation (the despised companies) outperformed the admired half, 17.50% to 15.68%.

Before you go out and load up on shares of Initech (BOBS) or Tyrell Corp. (REPL), making money with this type of strategy isn’t so easy. CXO Advisory writes:

Relative returns of the stocks of admired and despised companies vary considerably from year to year and even from decade to decade. During 1983–1995, the mean annualized return of the most admired (top 10%) is 9.9% higher than that of the most despised (bottom 10%). But during 1996–2006, the mean annualized return of the most despised is 9.2% higher than that of the most admired. Overall, during 1983-2006, the mean annualized return of the most despised is 4.0% higher than that of the most admired. Moreover, the effect is not reliably consistent across the spectrum from most admired to most despised.

Posted by edelfenbein at 11:41 AM

Financial Times Has Attitude Problem Says Blogger

Let’s say that you interviewing Joe Peralla, the investment banker, for a news story. During the interview, Mr. Peralla makes some fairly standard comments about France’s well-known hostility to free enterprise. So, what do you use for a title? If you write for the Financial Times, the answer is easy: “French have an attitude problem says New Yorker.”

New Yorker? Oh dear lord. Apparently, this attitude problem is spreading. Just for the record, the body of the article doesn’t once mention the fact that Peralla is from New York (he’s from Bensonhurst) or even that he’s American. The “New Yorker” tag adds nothing to the article. In fact, Peralla says that it’s the French people he’s encountered who feel that way.

This reminds me of the famous British headline: "Fog in Channel; Continent Cut Off."

Posted by edelfenbein at 7:16 AM

Live from the Senate Banking Committee

I’m here LIVE at the Senate Banking Committee ready to watch Benny B. testify. OK, I’m not LIVE live—I’m actually at a nearby Starbucks, but my scone and I are about to step inside. I probably won’t be able to get a good connection this morning, but don’t despair. I’ll have a complete report later today.

Here’s the deal: In 1978, Congress passed the Humphrey-Hawkins Full Employment Act which requires the Fed chairman to climb out of his cave twice a year, bang his club and appear before Congress. Much jargon follows. The first day is before the Senate Banking Committee, and the following day is in front of the House Financial Services Committee. That’s right, two committees, same job, different names.

I live blogged the hearings from this past summer. It got up to 89 degrees that day. Last night, we got a dusting of snow, and the city is totally paralyzed. If America’s enemies only knew how easily D.C. could fall. The Red Army, that we can handle. Three-quarters of an inch of snow, not so much.

Today is kind of a big deal because the Congressional Democrats are probably under Wall Street’s spotlight more than Big Ben. The current monetary policy seems pretty well understood on Planet Wall Street. But now Congress is being run by these hippy freak liberals, and they’re probably eager to show that they’re not so hippy or freaky.

The hearing begins with senators giving their opening remarks. The chairman is Chris Dodd of Connecticut, who’s also running for president. I’m guessing he’ll drone on. There aren’t a lot of Big Name senators on this committee. I guess Liddy Dole, maybe Chuck Schumer. But it’s mostly the Tim Johnsons, Robert Bennetts and Evan Bayhs-types. If you kinda recognize their name, but you couldn’t place the face, they’re probably on Senate Banking.

The one guy I’m excited to see is Senator Jim Bunning of Kentucky. He’s a retired baseball pitcher, and Hall of Famer. Bunning hates Bernanke. I mean, he HATES him. It’s not personal. He hates all monetary policy that’s not giving away free money. He’s also – how should I say -- not the brightest member of the committee. Bernanke, by contrast, has some sort of super-atomic computer brain. Anyway, it makes for great TV.

After the senators give their opening statements, then it’s Bernanke’s turn. His speech is usually posted beforehand on the Fed’s Web site so Wall Street already has an idea what he’s going to say. This speech gets a lot of attention. When Bernanke spoke in July, the market jumped 212 points. After Ben is through, the senators get to ask questions.

If you’re watching on TV, I’ll try to get a seat right behind Benny. The first few rows are reserved, but I’ll do what I can. I’m wearing a blue shirt with a gold tie. (And the gold tie isn’t a political statement, it’s just one of my few clean ones.) Here’s a clue to my vast readership. Whenever Ben says “net capital inflows,” I’ll cough really loud. So listen for me, ok. Ben is probably good for three or four of those. That cough is me (or maybe Bunning).

Here’s my take on how this will play out. I think the big story will be, “Barnanke Warns Inflation Threat Remains.” That’s an easy story, and it almost writes itself. (Update: Score one for CWS! FT: Battle against inflation not quite won, warns Bernanke.) In July, he stunned me, and everybody else, by saying that the Fed’s model sees core inflation cooling off later this year. That was a darn good call, and I think Bernanke tremendously increased his cred. The Fed had raised rates for the 17th straight time only three weeks before he spoke, plus oil prices peaked just five days before, but we didn’t know that at the time.

The 12-month rolling rate of core inflation peaked in September, and has gradually ticked down since. I think it will be natural for Bernanke to say that the war isn’t over just yet.

Also, if you see any other “Bernanke Warns” headlines, please send them my way. Here’s how I see it:

#1

Barnanke Warns Inflation Threat Remains

High Probability:

Bernanke Warns on Deficits
Bernanke Warns on Economy

Could Happen:

Bernanke Warns on Trade
Bernanke Warns on Income Gap

Long Shot:

Bernanke Warns on Raven-Haired Reporters
Bernanke Warns on Spiders

9:42: OK, I made it. Great seats, right behind Ben. It’s interesting how few people are actually here. All I see are a few aides mingling around, and a TV crew. That’s it. Here’s a picture.

So Bernanke drinks Deer Park. Another scoop for blogs! Greenspan used to do shots of Jagermeister. God, I miss him.

9:51: No senators are here yet. I dunno…last-minute make-up? By the way, I think the real fireworks will be tomorrow when Barney Frank takes the stage.

10:08: Bernanke just walked in. Geez, the photographers are going crazy. Here's another shot:

Sorry for the blurriness, but this is how close I am. I could touch his beard. (I won't.) But still!

10:12: Dodd is speaking. He’s being very generous to Ben. Right now, he’s going on about health care costs, real median family income, blah, blah, blah.

10:20: Senator Bayh said that he’s not going to have an opening statement. Well, that’s one way not to stick your foot in your mouth.

10:27: Bunning is being surprisingly nice to Bernanke. He said that he was afraid that Bernanke was going to be a “carbon copy” of his predecessor. Although he said that he wasn’t going to let him off that easy, “even though it’s Valentine’s Day.” Thankfully, most of the senators’ statements are fairly brief.

10:34: Now Bernanke is speaking. Here's his statement from the Fed's Web site. This is the money paragraph:

The projections of the members of the Board of Governors and the presidents of the Federal Reserve Banks are for inflation to continue to ebb over this year and next. In particular, the central tendency of those forecasts is for core inflation--as measured by the price index for personal consumption expenditures excluding food and energy--to be 2 to 2-1/4 percent this year and to edge lower, to 1-3/4 to 2 percent, next year. But as I noted earlier, the FOMC has continued to view the risk that inflation will not moderate as expected as the predominant policy concern.

That's good news. I see that the market has a nice bump up this morning. Bed Bath & Beyond (BBBY) is up to a new high. So is FactSet Research Systems (FDS).

I count twelve senators; Tester, Casey, Brown, Menendez, Bayh, Reed, Shelby, Bennett,
Hagel, Bunning, Sununu and Martinez. No Dole or Schumer, although the latter was around earlier.

Here a few quick comments on Bernanke's statement. Most of his comments are descriptive, not projections, but he did give some very general forecasts. I'm glad to see that the Fed sees inflation continuing to ebb this year and next. That's the big news of the day. I also thought it was interesting that the Fed is slightly lowering its GDP growth expectations for this year (2.5% to 3%, down from 2.75% to 3%).

Something that caught my ear was Bernanke's emphasis on inflationary expectations. Here's what he said:

Another significant factor influencing medium-term trends in inflation is the public's expectations of inflation. These expectations have an important bearing on whether transitory influences on prices, such as those created by changes in energy costs, become embedded in wage and price decisions and so leave a lasting imprint on the rate of inflation. It is encouraging that inflation expectations appear to have remained contained.

Posted by edelfenbein at 12:57 PM

Leo Signs on to Enron Film

Leonardo DiCaprio will produce and star in the film adaption of Kurt Eichenwald's Conspiracy of Fools.

It will follow DiCaprio as a newcomer to the Houston-based energy company who slowly peels back the layers to expose the campaign of greed and fraudulent accounting that drove Enron into bankruptcy in 2001.

To save money, couldn't they just redub Titanic?

Posted by edelfenbein at 4:36 PM

BW: A Dynamo Called Danaher

BusinessWeek shows some love for Danaher (DHR):

Danaher Corp. (DHR) is not nearly as big, famous, or influential as conglomerates such as General Electric (GE ), Berkshire Hathaway (BRK ), or 3M (MMM ). It owns such a mundane and sprawling portfolio of sleepy, underloved industrial businesses--companies that make dental surgery implements, multimeters, drill chucks, servomotors, and wrenches, just to name a few--that it seems deliberately assembled to be as unsexy as possible.

But despite its low profile, Danaher is probably the best-run conglomerate in America. It's clearly the best performing: Over 20 years, it has returned a remarkable 25% to shareholders annually, far better than GE (16%), Berkshire Hathaway (21%), or the Standard & Poor's 500-stock index (12%).

The Washington (D.C.) company is the brainchild of the obsessively private brothers Steven M. and Mitchell P. Rales. The onetime corporate raiders, who have not spoken to the media in more than two decades, have pulled off an unusual corporate metamorphosis. They have turned Danaher from a mere acquisition vehicle into a true-blue, cash-producing, publicly owned industrial manufacturer. In the process, the Rales brothers have become two of the richest people in the U.S., worth more than $2 billion apiece.

Unlike most other '80s-era raiders, Steven, 55, and Mitchell, 50, are so publicity-shy that it's almost impossible to find a photograph of them, alone or together. Many businesspeople have never even heard of them. But among both industrial and private-equity cognoscenti, their reputations are as big as their fortunes. "These guys are really good. There is no luck involved," says Mark D. Ein, a private equity investor at Washington's Venturehouse Group, who has known the Raleses for many years.

Steven and Mitchell Rales, who now serve as chairman of Danaher's board and chairman of its executive committee, respectively, declined comment. But in a rare interview, Danaher Chief Executive H. Lawrence Culp Jr. described the hard-charging business culture that has produced such remarkable results. In 2006, Danaher posted revenues of nearly $10 billion and net profit margins of 16%, truly astounding for a company still in such Old Economy businesses as heavy-truck braking systems and hand tools. Its return on invested capital is 15%, way ahead of its industrial peer group, which is near 9%.

THE ANTI-BUFFETTS
Sitting in Danaher's unassuming headquarters on the top floor of a glass office building (there's no sign announcing the company's presence), six blocks northwest of the White House on Pennsylvania Avenue, Culp sounded like a man who is hard to please. "There are a lot of companies where if you win 10-9, nobody wants to talk about the nine runs [they] just gave up," Culp says. "We'll celebrate the win, but we'll talk about 'How did we give up nine runs? Why didn't we score 12?'"

Think of Danaher as the anti-Berkshire Hathaway. Warren Buffett runs his empire like a benevolent curator. The Rales and their management team are "the polar opposites" of that model, says Ann Duignan, an analyst at Bear, Stearns & Co. (BSC ). These conglomerateurs have built their portfolio not by buying undervalued companies and holding them but by imposing on them the "Danaher Business System."

DBS, as it's called, is a set of management tools borrowed liberally from the famed Toyota (TM ) Production System. In essence, it requires every employee, from the janitor to the president, to find ways every day to improve the way work gets done. Such quality-improvement programs and lean manufacturing methods have been de rigueur for manufacturers for years. The difference at Danaher: The company started lean in 1987, one of the earliest U.S. companies to do so, and it has maintained a cultish devotion to making it pay off.

Even before a deal is done, the DBS team, made up of managers throughout the company steeped in training, works with the acquisition target to inject a heavy dose of Danaher DNA. For employees at the newly acquired companies, it can be a jarring experience. It wouldn't be at all unusual for a Danaher manager clutching a clipboard, a tape measure, and a stopwatch, in a search for wasted motion, to tick off how many steps a data analyst has to take to get to the copier. Danaher also isn't afraid to swing the ax; it has, at times, bought certain product lines and shuttered the rest of a company. "Those guys have a very well-defined model of how to do M&A," says Jim McTaggart, founder of strategy consulting firm Marakon Associates, now part of Trinsum Group. "They do the strategy well, they price [deals] in a disciplined manner, and they integrate these things superbly."

Danaher's portfolio--with more than 600 subsidiary companies--reflects a move away from its hand-tool legacy to more technologically advanced products. The newest of its four units, accounting for 23% of sales, specializes in medical technologies. It includes Sybron, a dental-equipment maker, and Leica Microsystems (DHR ), which makes high-end microscopes for pathology labs. Its most profitable division, professional instrumentation, includes Fluke (DHR ), known to engineers for products such as multimeters. The company's industrial-tools division, though it only accounts for about 14% of sales, houses Danaher's most well-known brand, Craftsman hand tools. The rest of Danaher's business comes from industrial technologies, including machinery components and product-id devices, such as Accu-Sort package scanners.

The Raleses didn't set out to build an empire. In the early 1980s they took a former real estate investment trust, turned it into a leveraged-buyout vehicle, and swashbuckled through the next few years, tacking assets on to their shell company through hostile bids, greenmail, and junk-bond financing, with Michael R. Milken's Drexel Burnham Lambert and First Boston as their bankers. They even crossed swords with Buffett, who swooped in as the white knight buyer of ailing consumer-products company Scott Fetzer Co. after Danaher tried to snatch it.

GOOD COP/BAD COP
Although they were never flamboyant, their brash dealmaking rubbed some people the wrong way. A 1985 Forbes article headlined "Raiders in Short Pants" suggested the Raleses were "callow youths," "more like real estate speculators than industrialists," and "cocky to the point of foolishness." Neither Mitchell nor Steven has spoken to the media since.

Around 1988, with the leveraged buyout market tanking and their fledgling company struggling under a heavy debt load, the brothers changed course. After a group of managers in one of their divisions, Jacobs Vehicle Systems, found early success by mimicking Toyota Motor Corp.'s (TM ) lean manufacturing, the brothers decided to implement the Toyota system companywide.

Within a year, Danaher was reborn as a bona fide operating company. Soon after, in 1990, the Raleses ceded daily control to a chief executive, George M. Sherman, whom they hired away from Black & Decker Corp. (BDK ). Danaher, then and now, makes plenty of acquisitions, but it barely uses any debt to do so, even as the LBO market has swung back into favor. It's not that the company is debt-averse all of a sudden. It's the luxury of $1.4 billion in free cash flow.

Although they have long worked in tandem, Steven and Mitchell have distinct managerial personalities. "Steve is more strategy-oriented," says Friedman, Billings, Ramsey Group Inc. (FBR ) analyst Ned Armstrong. "Mitch is more operations-oriented." In practical terms, says ex-Danaher executive John A. Cosentino Jr., that meant "Steve was sort of the good cop and Mitch was the bad cop. If someone needed a course correction, Mitch might do that talking."

Despite their lack of industrial background, the Raleses had a near-instinctive affinity for lean manufacturing, say ex-managers. The process breaks from the traditional "batch-and-queue" manufacturing system, in which big lots of product are assembled in discrete steps. In a lean environment, a company moves a smaller flow of items through production. Wasteful steps are easier to spot. And if a mistake creeps into the process, it won't affect a huge amount of inventory and can be fixed quickly.

In a typical Danaher factory, floors are covered with strips of tape indicating where everything should be, from the biggest machine to the humblest trash can. Managers determine the most efficient place for everything, so a worker won't have to walk an extra few yards to pick up a tool, for instance. The lean attitude permeates the culture at Danaher--only 40 people work in the Washington corporate headquarters, at a company of 40,000.

Danaher takes great pains to instill its values in new employees. New managers are often sent to Japan, where they soak up the attitude of kaizen, or continuous improvement. In fact, Culp himself, fresh from Harvard Business School, started his tenure in 1990 at Danaher's Veeder-Root Co. (DHR ) unit by spending a week in Japan building air conditioners in a lean manufacturing plant.

Despite the company's early success at mimicking Toyota's operational acuity, the Raleses didn't seek distinctions like the Shingo Prize for Excellence in Manufacturing or the Baldrige Quality Award. "There was an active strategy of keeping it under the radar," says former Jacobs Vehicle president George Koenigsaecker, who now runs a private-equity firm, Lean Investment, in Muscatine, Iowa. They had two good reasons. First, according to former managers, the Raleses worried others would notice their results and copy the strategy. Second, they didn't want to be raided for talent.

Former Danaher executives credit the Rales brothers for having the smarts and self-confidence to cede daily company responsibility. Still, the two have influence over Danaher's direction and hold about 20% of the shares. Culp and his directors talk about strategy regularly, although the Raleses don't come into the office often. Nor do they sweat the day-to-day minutiae.

Steven and Mitchell have turned to other pursuits. In addition to Danaher, the brothers also control Colfax Corp., a smaller, privately held conglomerate that hasn't shied away from using debt to pursue growth. Equity Group Holdings, the Raleses' private equity arm, shares space with Danaher on Pennsylvania Avenue. Both brothers are art enthusiasts and philanthropists. Mitchell, who was named a top 10 collector by ArtNews in 2003, recently turned his Potomac (Md.) estate, which housed a number of animals, including alpacas, into Glenstone Museum, a private art sanctuary. Steven has recently begun financing movies.

OPENING UMBRELLAS
Danaher has reached a crucial point in its short history. As revenue creeps toward $10 billion, its market cap has moved past $20 billion. The outfit's goal, set by Culp in the 2002 annual report, is to hit $25 billion in sales by 2012. At current growth rates, it's on track. But of Danaher's average annual 20% sales growth in the past five years, about 14% has come through acquisitions. As M&A gets more expensive, Danaher must either increase the pace of its deals or swallow bigger fish. And it may be more difficult to convert bigger companies with established traditions, entrenched cultures, and larger workforces to its fervent brand of lean manufacturing.

Danaher is a prolific acquirer, averaging about a deal per month. Most are small to midsize and supplement existing businesses. Danaher considers bigger deals, but only if they create new umbrellas under which more deals will fall. Fluke, for one, was a $625 million foray into more tech-intensive instruments.

Some analysts have raised eyebrows at the sizable goodwill on Danaher's balance sheet--$6 billion worth. But there haven't been any writedowns that would call into question the price paid for an acquisition. Part of the reason, perhaps, is the company's exacting, unsentimental M&A process. Before a deal, Danaher executives tour plants and search for ways to improve performance. They estimate how wide an acquisition target's profit margins could get, given the Danaher treatment. "That allowed us sometimes to bid more on an acquisition because we knew we'd get that value back," says Mark C. DeLuzio, president of Lean Horizons Consulting, who used to spearhead Danaher's DBS team.

When it bought Fluke in 1998, margins were 8%, much too thin for Danaher. As part of the team that managed the acquisition, Culp sought to boost that number to 20%. Many employees at Fluke, which had an engineer-centric culture where most good ideas got funding, said that couldn't be done without hurting quality and innovation. But under Culp, Fluke narrowed its product focus, sped up inventory turns, and reduced floor space. Now, margins in that segment are 21.5%.

In recent years, Culp has tried, with limited success, to stress organic growth to investors. Internal, as opposed to acquired, growth has been chugging along at a respectable 6% a year or so for the past few years. But that's not why the company has such a high price-earnings ratio: 23 times trailing earnings, vs. 18 for ge and 17 for 3M. One of the few Danaher bears, Prudential Equity Group (PRU ) analyst Nicholas Heymann, cites concerns over organic growth as a reason for his "underweight" rating. As Duignan of Bear Stearns puts it: "I think the biggest risk is that the acquisition pace slows because of competition."

So far, that hasn't happened. The company's pipeline is well-stocked; Danaher walks away from more deals than it consummates. Its managers are determined not to lose their reputation for price discipline and rigorous execution. Of course, a continued ascent into the rarefied air of large conglomerates carries one big risk: It makes publicity-shy Danaher and the Raleses all the more conspicuous for their success.

Just three weeks ago, DHR reaffirmed its 2007 forecast of $3.68 per share to $3.78 per share.

Posted by edelfenbein at 4:23 PM

Expeditors Gets Taken Down

At the end of last year, I decided to remove Expeditors International of Washington (EXPD) from my Buy List. The stock gained 20% for us last year. It's a great company, but I felt that the shares were getting a bit too pricey. Through yesterday, the stock was up another 8% for the year. But that came to a halt today.

The company reported earnings of 28 cents a share, three cents below expectations. The stock opened down 10% this morning, although it has rallied some throughout the day.

Update: That was some rally. EXPD closed just nine cents lower.

Posted by edelfenbein at 3:28 PM

Take Alcoa Out of the Dow

Shares of Alcoa (AA) are up big today on news that the company may be the target of a takeover. The Times of London is reporting that Australia's BHP Billiton and Rio Tinto are both considering bidding $40 billion for Alcoa.

Personally, I'd like to see this happen. Not so much for the shareholders. Although, they deserve some reward for suffering through Paul O'Neill for twelve years. No, I simply want to see Alcoa thrown out of the Dow. If the custodians of the index won't do it, let's have the market do it. I can't remember the last time a Dow stock was bought out. But that's my point right there. Shouldn't the Dow stock be the one doing the buying?

Alcoa is currently the smallest stock in the Dow by market cap. (Except for GM, which -- as far as I'm concerned -- is no longer a stock, but an benefits management company that sells crappy cars on the side for below cost.)

Alcoa joined the Dow in 1959. Today, the company's market cap is roughly 0.7% of the entire Dow. But since the index is weighted by price, not market value, shares of Alcoa really make up 2.2% of the index. Alcoa has a greater weighting in the Dow than Microsoft, even though the software giant has nearly ten times the market value. In fact, Microsoft's bank account is worth $27 billion. They could nearly buy Alcoa without breaking a sweat.

This list shows all the changes to the Dow over the past 75 years.

If Alcoa goes away, expect to hear a lobby for Google (GOOG) to replace it, but my vote would be for Bank of America (BAC). That's the largest S&P 500 stock not currently in the Dow. BAC is followed by Cisco (CSCO), then Chevron (CVX), then Google.

Here's an interesting tidbit on the Dow. The editors of the Wall Street Journal changed the index in 1939 by tossing out IBM (IBM). They added it back in 1979. In those 40 years, IBM gained 22,000% If the editors had left the index alone, the Dow would now be about 35% higher than where it is.

All the historical benchmarks would be different. The Dow would have cracked 1,000 in 1961 instead of twelve years later. Behold the power of one really good stock.

Posted by edelfenbein at 1:38 PM

"I'm Huge!"

Michael Lewis deconstructs Todd Thomson:

The obvious question -- "What was the man thinking?" -- Thomson hasn't addressed, at least not publicly. But that shouldn't stop the rest of us from guessing, and my guess is that the soundtrack in the back of Todd Thomson's mind played the golden oldie from the glory days of the Wall Street alpha male:

"Look at me: I'm huge! Because I'm huge I have special needs. Because I make this place hundreds of millions a year, I can do whatever the hell I want. Technically, Prince may be my boss but I don't really have a boss, because without me he's not just short and tubby but toast. I make the money. The petty rules are for the people who don't make the money."

Posted by edelfenbein at 10:16 AM

10-Q Detective in BusinessWeek

Congratulations to one of my favorite stock bloggers, David Phillips of 10-Q Detective. BusinessWeek just featured his blog as a "must read" blog.

Number Crunch

To read SEC filings with a guide, go to this blog run by David Phillips, an investment newsletter publisher. He focuses on financial-statement "soft spots," such as restructurings, and also takes on issues like executive pay, recently analyzing the actual compensation of $1-a-year ceos like Yahoo!'s (YHOO ) Terry Semel and Apple's (AAPL ) Steve Jobs. Phillips delves into the data and lets others handle the witty asides, sprinkling in lines from movies and songs. On the payoff to shareholders from Semel's low official salary, he paraphrases Tom Waits: "The big print giveth and the small print taketh away."

Posted by edelfenbein at 4:31 PM

US slowdown looms as groups miss targets

As a bull, I'm not concerned right now about high valuations. The biggest fear I have is slowing earnings. Today, the Financial Times looks at -- not falling earnings -- but slowing earnings growth.

More than 22 per cent of the 400-plus S&P 500 companies to have reported results for the fourth quarter of 2006 failed to meet Wall Street expectations. This is the highest level of "misses" since the third quarter of 2004, according to Reuters Estimates.

The spike in earnings disappointments increases the chances that corporate America will end a three-and-a-half year run of quarterly double-digit profit growth in the last quarter of 2006 rather than at the beginning of 2007, as widely expected.

Missing earnings forecasts is particularly embarrassing for US companies because, unlike most of their European counterparts, many set their own yardsticks by providing analysts with quarterly earnings guidance.

"The period of rapid earning growth is at an end," said Ashwani Kaul, senior research analyst at Reuters Estimates. "Companies have reached levels of high absolute earnings and cannot be expected to continue at this pace. We are entering a low earnings growth environment."

This article has an unnecessary negative slant. It's true that forecasts for earnings growth are being ratcheted back, but still only 22% of companies have missed expectations. That's not a large amount. It's the most in over two years, but the last time wasn't a signal of a market top.

Posted by edelfenbein at 3:57 PM

ValueWiki's "Contributor of the Day" Contest

Here's an interesting idea: The new ValueWiki site is offering $100 to the best daily contributor, and $500 for the best monthly one. There's also a ValueWiki Blog.

Posted by edelfenbein at 11:00 AM

The Presidential $1 Coin Program

Check out the four new $1 coins coming out this year.

Yuck.

Posted by edelfenbein at 9:49 AM

Oy Vey Maria

Maria-gate is now fit to print:

When Ms. Bartiromo got wind of Mr. Gasparino’s reporting, she told Mr. Wald, complaining that her name was being dragged into the matter, these people say. Mr. Wald said that reporting the story was Mr. Gasparino’s job.

Nevertheless, Mr. Gasparino never reported on Mr. Thomson’s threatened job status. He was urged to proceed cautiously with the story, but some within the network say Ms. Bartiromo’s role in the story prevented it from being fully reported.

CNBC can't ignore this anymore.

Also, the old grey lady isn't afraid to throw down 30-year-old cultural references.

For the daughter of a restaurant owner in Bay Ridge in Brooklyn, her rise to celebrity status — there are Web sites devoted to her, Joey Ramone wrote a song in her honor and she has recently trademarked her “Money Honey” nickname — has been meteoric.

And while much has been made of her Sophia Loren-like looks, her early career ascent was propelled by pluck, ambition and like another famous, albeit fictional, product of Bay Ridge, Tony Manero in “Saturday Night Fever,” a hunger to make it big across the river in Manhattan.

I'm confused. If Maria is Tony, does that mean Todd Thomson is Stephanie?

Posted by edelfenbein at 12:44 AM

Barron's Hops on the UnitedHealth Bandwagon

Glad to have them aboard:

Few companies have been hit harder by accusations of stock-option backdating than UnitedHealth Group, the giant health-care insurer. Allegations that the company lined management's pocket by altering the date of options grants resulted last year in the departure of former CEO William McGuire and a member of the board of directors. UnitedHealth (ticker: UNH) hasn't filed a quarterly financial report with the Securities and Exchange Commission since last year's first quarter, because it still hasn't determined the accounting treatment for formerly issued options. The company faces shareholder lawsuits and investigations by the SEC, the Internal Revenue Service and the U.S. attorney for the Southern District of New York. And its shares, which once topped 63, now trade for 51.

Yet, for all its maladies, the patient is alive and kicking -- vigorously, in fact. UnitedHealth's underlying business is strong and growing, and it is hard to imagine its fortress-like balance sheet, with $2.6 billion of net cash, can't absorb any fines or accrued taxes the company is likely to owe.

Posted by edelfenbein at 11:55 PM

The First Twin Peaks

On the weekend, I like to post fun things. Anything that keeps our minds off money and investing. Here's something I think you'll really enjoy. This is the very first episode of Twin Peaks.

This episode aired on April 8, 1990 (Dow 2700). It's hard to believe it's been 17 years. Back then, I remember how everyone seemed to be riveted by Twin Peaks. There was nothing like it on television before.

Even today you can see the influence of Twin Peaks in shows like 24, Lost or the Sopranos. But before Twin Peaks, all TV shows were so darn formulaic. The plots were dull, and nothing engaged viewers.

But Twin Peaks was different.

Not only was it odd and quirky, but it was so well done. Watching it again, I'm reminded of that. After each episode, you were dying to know what happens next. At the time, I remember walking around and the only thing people could talk about was Twins Peaks. Did you see last night's episode? Who do you think did it?

I don't remember a show ever having that sort of impact. There were even Twin Peaks parties where people would bring logs and coffee and watch the show together. That's the impact it had. What can I say but David Lynch is a genius. True, he's out of his mind, but still a genius.

So curl up with your favorite TV buddy. Grab a doughnut and a nice cup of Joe (damn fine coffee!), and enjoy Twin Peaks.

Part 1

Part 2

Part 3

Part 4

Part 5

Part 6 Note the scene where they’re looking at the body (about 1:40). The flickering light wasn’t in the script. The light was really malfunctioning, but David Lynch kept it in for dramatic effect. Also, when Agent Cooper asks the attendant to leave, the actor breaks character and answers “Jim.” He thought he was being asked his name. Kyle McLaughlin kept going, and once again, Lynch kept it in.

Part 7

Part 8

Part 9

Part 10

Part 11