Archive for February, 2007

  • CNBC from 2:59 to 3:04
    , February 27th, 2007 at 8:38 pm

    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.

  • -416.02
    , February 27th, 2007 at 6:21 pm

    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.

  • The Importance of Rounding
    , February 27th, 2007 at 11:32 am

    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.

  • Greenspan Warns Redux
    , February 27th, 2007 at 9:46 am

    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.

  • Harley-Davidson Lowers Its 2007 Outlook
    , February 27th, 2007 at 9:23 am

    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.

  • James Simons on C-Span
    , February 26th, 2007 at 2:38 pm

    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.

  • Fed on Hold for all of 2007
    , February 26th, 2007 at 10:57 am

    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.

  • Giuliani Takes the Lead
    , February 25th, 2007 at 4:40 pm

    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.

  • Snow in DC
    , February 25th, 2007 at 4:30 pm


  • A Euphemist Takes a Bow
    , February 25th, 2007 at 3:26 pm

    From the vaults of The New York Times:

    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.