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Sysco’s Earnings

The Dow was in the black for much of Monday, but after about 2:30, it slipped into negative territory and eventually finished 58 points lower. That ended the Dow’s chances of marking an historic first—20 of 22 up days.

Before the bell, Sysco (SYY) reported earnings of 35 cents a share. That was a nice improvement over last year’s total of 30 cents, but it was a penny short of Wall Street’s forecast. The market wasn’t pleased and the shares tumbled 4.6% lower. That seems like an overreaction. Nothing seems to be going Sysco’s way this year. The stock is down nearly 11% for 2007. That’s unusual for a stock that’s historically been so stable.

I also noticed that our favorite micro-cap, Nicholas Financial (NICK), seems to be waking up. The stock doesn’t normally move very much, but it rose 4% on Friday and another 2.6% today. That’s a lot for NICK. Both days had much higher-than-normal trading volume. The company should be reporting earnings soon, but it hasn’t said what day yet.

Posted by edelfenbein at 11:49 PM

20 of 22 Up Days for the Dow

The Dow is currently up 22 points. If this holds, it will be the first time in the Dow's 111-year history that it rallied 20 times in 22 sessions.

Posted by edelfenbein at 11:02 AM

Wanted: Berkshire CIO

Get your resumes in!

Warren Buffett is hiring his replacement:

With Mr. Munger's help, Mr. Buffett will whittle down the current contenders to about 20 "real possibilities," he says, adding that he'll start reading the letters in earnest after Berkshire's annual shareholders' meeting next weekend. From those 20, he will ask for personal investment records going back at least 10 years. Then, after determining whether "the general attitude toward purchase and sale of securities is compatible" with Berkshire, he will fill the job with either one or two people. He plans to hand them up to $10 billion to manage until it is time for them to take over the entire portfolio.

Mr. Buffett explains that the purpose of the trial run is "to see if their decision-making apparatus works out, hopefully while I'm still alive."

What it isn't, however, is a mentorship program, something many applicants have misinterpreted. He says he isn't looking for someone to teach, but "for someone who already knows how to do it."

The misunderstanding is reflected in dozens of letters from students, professional investors and a surprising number of engineers and lawyers hoping to be apprenticed to the master. "I assure you," wrote one 20-year-old college student, "although I may be short on experience, I am very long on potential." A lawyer in Oregon recommended his four-year-old son, characterizing the toddler as a "great negotiator" on issues such as "bedtime, chores, allowance, baths, etc."

Posted by edelfenbein at 8:13 AM

Erin Brockovich, Corporate Exec

Here's a strange one. Remember that Erin Brockovich chick? Julia Roberts got an Oscar for playing her. Anyway, it turns out she's now a veep at Save the World Air Inc. (ZEROE.OB).

No, I'm serious.

(Via Altucher & Stockerblog.)

Posted by edelfenbein at 7:47 AM

Taxes around the World.

Citizens for Tax Justice looks at taxes around the world.

(Via Greg Mankiw.)

Posted by edelfenbein at 10:15 PM

Euro So Beautiful

The euro hit a record high against the dollar. Jurgen Reinhoudt says this is good for the prestige of Europe, but not so good for its economy:

If the Euro eclipses the U.S. dollar as a reserve currency, the value of the Euro could appreciate still further, making European exports even more expensive than they are now (in addition to causing severe troubles for the United States). In French political terms, this would be a highly undesirable development given that “an exchange rate of $1.40 would endanger” the survival of Airbus. As Airbus struggles “to meet $220bn of dollar contracts from an operation with euro labour costs,” the heat is on. No French political leader would tolerate Airbus going bankrupt, certainly not if a bankruptcy were caused by a European exchange rate considered to be abnormally high.

But a Euro worth more than $1.40 (or even $1.50) would not just be problematic for Airbus or French exporters. True, Germany and countries that are economically closely linked to it (such as the Netherlands) have the ability to withstand the pressure of an expensive Euro, but France, Spain, and Italy do not.

A Euro worth more than $1.40 would cause significant difficulties for Mediterranean countries in general—potentially re-launching the political debate over the mandate of the European Central Bank, something that both Sarkozy and Royal have hinted at.

Unlike the American Fed, which has as a goal to keep growth high, unemployment low, and inflation low, the task of the European Central Bank is simply to keep inflation low, even if this adversely affects economic growth. If European growth were to falter and the Euro were to rise even further in value, many politicians from Southern Europe and France will put heavy pressure on the ECB to lower interest rates. This would lower the value of the Euro but also lead to higher inflation, the mortal enemy of the ECB. It would have all the makings of a fascinating financial feud.

The discomfort brought about by the Euro’s “low” value to the dollar was mostly a matter of prestige. Now that the Euro is worth far more than the dollar and still rising in prestige (and value), its value is becoming a matter of tangible economic and political concern. Stay tuned.

Posted by edelfenbein at 10:04 PM

65 Years Ago Today

This is a big year for stock market history buffs. In 2007, we’re celebrating the 100th anniversary of the Panic of 1907 (okay, maybe not celebrate), the 75th anniversary of the 1932 low, the 25th anniversary of the 1982 bull market and the 20th anniversary of the 1987 crash. It’s also been five years since the 2002 low and ten years since the East Asian financial crisis. All in all, happy times for the market history crowd.

Tomorrow will mark another milestone—65 years since the 1942 low. On April 28, 1942, The Dow bottomed at 92.92.

That’s not just low. It’s low, low, loooow. The market was still reeling from Pearl Harbor, and the country was starting to realize how much work lay ahead. The only good news was Jimmy Doolittle’s daring raid over Tokyo ten days before.

But think about how investors must have felt. This was 13 years after 1929, yet the market was still just one-quarter of its peak. The Dow was even 10% below its level from January 1906, more than 36 years before! That would be like the Dow today trying to break 770.

The night, FDR gave a fireside chat detailing his economic policy for the war. This is part of what he said:

You do not have to be a professor of mathematics or economics to see that if people with plenty of cash start bidding against each other for scarce goods, the price of those goods (them) goes up.

Yesterday I submitted to the Congress of the United states a seven-point program, a program of general principles which taken together could be called the national economic policy for attaining the great objective of keeping the cost of living down. I repeat them now to you in substance:

First. we must, through heavier taxes, keep personal and corporate profits at a low reasonable rate.

Second. We must fix ceilings on prices and rents.

Third. We must stabilize wages.

Fourth. We must stabilize farm prices.

Fifth. We must put more billions into War Bonds.

Sixth. We must ration all essential commodities which are scarce.

Seventh. We must discourage installment buying, and encourage paying off debts and mortgages.

I do not think it is necessary to repeat what I said yesterday to the Congress in discussing these general principles. The important thing to remember is that earn one of these points is dependent on the others if the whole program is to work.

Some people are already taking the position that every one of the seven points is correct except the one point which steps on their own individual toes. A few seem very willing to approve self-denial -- on the part of their neighbors. The only effective course of action is a simultaneous attack on all of the factors which increase the cost of living, in one comprehensive, all-embracing program covering prices, and profits, and wages, and taxes and debts.

The blunt fact is that every single person in the United States is going to be affected by this program. Some of you will be affected more directly by one or two of these restrictive measures, but all of you will be affected indirectly by all of them. Are you a business man, or do you own stock in a business corporation? Well, your profits are going to be cut down to a reasonably low level by taxation. Your income will be subject to higher taxes. Indeed in these days, when every available dollar should go to the war effort, I do not think that any American citizen should have a net income in excess of $25,000 per year after payment of taxes.

Good golly! Can you imagine any politician giving a speech like that? In today’s terms, $25,000 is about $315,000.

I would hardly say this speech was the catalyst, but the market did indeed take off. This was probably the greatest long-term bull market in history.

Within two years, the Dow was up 50%, and it doubled by 1945. By 1955, the Dow was up fivefold, and it doubled again ten years later. The market really didn’t see any pause until 1966 when inflation started to have a major impact. Twenty four years after FDR’s speech, the Dow had advanced close to 1,000% and that’s not counting dividends.

Posted by edelfenbein at 2:01 PM

First-Quarter GDP Report

The government reported today that the economy grew at an annualized rate of just 1.26% for the first three months of the year. That's pretty weak. It's the slowest quarter in four years.

I'm also troubled by the trend. This marks the fourth straight quarter of below-trend growth (the long-term trend is about 3%).

GDP data is very trend-sensitive. If the economy is growing by over 3%, it tends to stay that way. In the late 1990s, we had 18 straight quarters of over 2.6% growth. If it's under 3%, it also tends to stay that way. In the early part of this decade, we had 11 straight quarters of under 2.8%.

The breakout points are very important.

Posted by edelfenbein at 9:53 AM

The Cyclical Rally Lives

The rally in cyclical stocks is still going strong. Last month, I pointed out that on March 19, the ratio of the Morgan Stanley Cyclical Index (^CYC) versus the S&P 500 reached a 13-year high.

The ratio backed off some afterward as the cyclicals slightly underperformed the overall market. But that changed last week. This recent leg of the bull market has been greatly helped by the cyclicals. Yesterday, the overall CYC reached an all-time as it closed over 1,000 for the first time.

The CYC-to-S&P ratio has now fully recovered and it close to making another 13-year high. In fact, it’s not too far from taking out the 1994 high as well.

Here’s a look at how the ratio has done over the past few weeks:

And here’s how the ratio has done over the last 30 years:

Update: It happened. The ratio made a new 13-year high today. The S&P 500 closed 0.08% lower while the CYC rose 0.02%.

Posted by edelfenbein at 2:43 PM

P/E Ratios Are at a 20-Month High

Thanks to yesterday's surge, the P/E ratio of the S&P 500 is up to 16.87 (I use smoothed operating earnings). That's the highest it's been since August 2005.

Still, it's hardly excessive but we're starting to see the impact of slower earnings growth. At the start of the year, first-quarter earnings were projected to be up 8.7%. They'll probably be up 4% to 5%. Fortunately, most of the damage is confined to the autos and homebuilders.

So far.

Posted by edelfenbein at 1:55 PM

Even CEO Can't Figure Out How RadioShack Still In Business

From The Onion:

The retail outlet boasts more than 6,000 locations in the United States, and is known best for its wall-sized displays of obscure-looking analog electronics components and its notoriously desperate, high-pressure sales staff. Nevertheless, it ranks as a Fortune 500 company, with gross revenues of over $4.5 billion and fiscal quarter earnings averaging tens of millions of dollars.

"Have you even been inside of a RadioShack recently?" Day asked. "Just walking into the place makes you feel vaguely depressed and alienated. Maybe our customers are at the mall anyway and don't feel like driving to Best Buy? I suppose that's possible, but still, it's just...weird."

Posted by edelfenbein at 12:47 PM

Earnings: The Good, the Bad and the Very Ugly

This has been a very busy week for earnings. Let's run down some of the recent reports from the stocks on our Buy List.

Graco (GGG) reported yucky earnings after the bell on Tuesday. The company made 50 cents a share, which was seven cents below Wall Street’s estimate and a penny less than last year. Not good! Revenue rose just 3% to $197.5 million. The stock dropped 5% yesterday to $40 a share.

Right after I mentioned that SEI Investments (SEIC) was at a new high, the company reported blah earnings. For the first quarter, SEIC earned 62 cents a share, one penny shy of expectations. Of course, that’s still good growth over last year’s 54 cents a share, but Wall Street wanted better. Me too. The stock fell 3.6% yesterday.

At least, AFLAC’s (AFL) earnings were a bright spot. The company reported operating earnings of 82 cents a share, three cents more than estimates. Revenue rose 5% to $3.75 billion. The stock rose 4.5% yesterday. That helped ease some of the pain.

Fair Isaac (FIC) already announced that it would have bad earnings. Well, they were right. Analysts had been looking for 59 cents a share, but the company said it would be 35 cents to 37 cents a share. The results came in at 37 cents a share. The stock dropped last week when the earnings shortfall was announced, so the shares didn’t do much yesterday. I'm not encouraged by this.

Fiserv (FISV) had a bit of a mixed picture:

Fiserv first-quarter earnings rise

Fiserv 1Q profit slips

Actually, they're both right. Net income fell, but earnings-per-share rose from 64 cents to 66 cents. Analysts, on average, were expecting 67 cents. I'm not worried about FISV. This is a solid company.

Varian Medical (VAR) is today's problem child. The company made 46 cents a share for the first quarter, which was in line with expectations. But VAR's EPS outlook for next quarter is for 35 to 36 cents, which is well below the Street’s forecast of 45 cents. VAR sees full-year EPS of $1.79 to $1.81 compared with the Street's forecast of $1.85. The stock is down about 7% this morning.

Finally, Respironics (RESP) had good news this morning. The company reported earnings of 46 cents a share, one penny better than expectations. RESP also said this quarter’s earnings will be 50 cents to 52 cents a share compared with the Street’s forecast of 48 cents a share. Full year EPS is expected to be $1.74 to $1.76 compared with the Street’s outlook for $1.63.

Unfortunately, the Buy List hasn’t benefited as much as I hoped from this recent up move in the market. For the year, the Buy List (red line) now trails the S&P 500 (black line), 5.44% to 3.55%. It all turned recently. Since April 5, the S&P 500 is up 3.58% while the Buy List is up just 1.15%.

Posted by edelfenbein at 11:03 AM

Lindsay San Looks at Stryker (SYK)

Next week, the stock celebrates 28 years since its IPO. Since then, the shares are up 800 fold, or 27% a year, which is even better than Berkshire Hathaway.

Posted by edelfenbein at 8:39 AM

Dow 13000

Wow, what a day!

The Dow (^DJI) shot up 135.95 points to break 13000. This comes just 127 trading days after breaking 12000. The index closed today's trading at 13089.89.

The bull keeps on charging. I'm too modest to mention that I defended the bull six months ago and again two months ago, so I'll just play it cool.

The Dow isn't the only one partying. The S&P 500 is at 1495.42, only inches away from 1,500 -- a number it hasn't seen in over six years. The Nasdaq is at 2547.89 and is closing in on 2,584 which is a Fibonacci number. I have know idea what it means, but you can use this as a conversation starter.

What pushed us over the top today is what's been driving us all along, energy. The S&P Energy Index (^DJUSEN) was up 2.07%. The Morgan Stanley Cyclical Index (^CYC) shot up 1.28% to close at 1,010.56, its first ever close over 1,000.

Here's my estimate of how many Dow points each stock has added since October 19 when the Dow broke 12000:

Honeywell...........................100.85
Boeing..................................99.80
Altria.....................................99.06
IBM.......................................94.27
Exxon...................................82.81
Alcoa....................................66.88
Merck...................................64.20
McDonalds............................63.88
Coke.....................................55.51
JP Morgan Chase..................48.35
AT&T.....................................43.80
DuPont.................................40.39
Amex....................................35.35
Caterpillar.............................34.21
Citi........................................31.94
Disney...................................30.31
Home Depot..........................29.17
AIG........................................27.39
United Tech...........................24.71
HP.........................................18.77
Intel........................................9.98
Procter & Gamble....................8.37
Microsoft.................................5.69
3M..........................................4.63
Verizon...................................3.58
Wal-Mart.................................2.60
GE...........................................1.06
Pfizer....................................-11.05
GM........................................-16.01
J&J........................................-27.31

Posted by edelfenbein at 4:01 PM

Royal Bank-Led Group Bids $98.5 Billion for ABN Amro

I told you this wasn't over. Now a group led by RBS is making a counter offer of $98.5 billion for ABN Amro. Barclay's bid is for about $90 billion.

Royal Bank of Scotland Group Plc, Santander Central Hispano SA and Fortis offered 72.2 billion euros ($98.5 billion) to buy ABN Amro Holding NV, sparking the biggest takeover battle in the financial-services industry.

The Royal Bank-led group offered 39 euros a share, with 70 percent in cash and 30 percent in stock, the companies said in a statement today. The group said its approach is 13 percent higher than the all-stock bid ABN Amro accepted from Barclays Plc two days ago. Barclays's bid was worth 67 billion euros at the time.

The fight for control of Amsterdam-based ABN Amro, which has branches in 53 countries, centers on its LaSalle unit in Chicago. ABN Amro and Barclays elbowed Royal Bank Chief Executive Officer Fred Goodwin aside by agreeing to sell LaSalle to Bank of America Corp. for $21 billion. Goodwin said today that LaSalle will be a "major piece" of any bid.

The numbers here are staggering. Let's see if Barclays makes a move.

Posted by edelfenbein at 3:32 PM

Respironics On Wall Strip

Posted by edelfenbein at 9:32 AM

The First Global Bubble?

I don't necessarily agree with Jeremy Grantham, but here's an interesting take on the markets.

For the last 5 years to this March, in dollar terms, the S&P 500 was up 35 per cent compared with 192 per cent for non-US small cap and 221 per cent for emerging markets. After these moves most diversifying and exotic assets are badly overpriced and the risk premium is the lowest it has ever been.

In fact, the new global money flows have probably created the first truly global bubble, almost everywhere in almost everything. Particularly noteworthy and the beneficiary of our twin forces are small caps everywhere which on our data are more overpriced, driven by private equity deals, than an overpriced market.

Posted by edelfenbein at 9:25 PM

Dow Flirts With 13000, Gets Number, Never Calls

Close. Oh so close.

Posted by edelfenbein at 4:32 PM

SEI Investments Hits New High

Can't keep a good stock down. Last year, SEI Investments (SEIC) was the top-performing stock on the Buy List (up 61%).

I decided to keep it on this year's Buy List. The stock got slammed last month, but has regained all the lost ground and is now at an all-time high. Earnings come out tomorrow.

Posted by edelfenbein at 3:24 PM

W.R. Berkley's Earnings

WR Berkley (BER) had a decent earnings. For insurance companies, the key stat you want to see is operating earnings. For BER, operating income came in at 91 cents per share, two cents more than expectations.

The stock hasn't done very well over the past year, but the earnings have been good. At one point, BER was over $40 a share (post-split). It's down again today. The P/E ratio is now under 10.

Posted by edelfenbein at 11:12 AM

The Stalwart Is Back

One of my favorite financial blogs, The Stalwart, is back from its hiatus. The site is consistently thought-provoking and never dull. Check it out.

Posted by edelfenbein at 9:43 AM

Hedge Fund Compensation

Alpha Magazine found that the top 25 hedge fund managers were paid a total of $15 billion last year. The highest-paid was Jim Simons of Renaissance Technologies at $1.7 billion. Second place went to Ken Griffin of Citadel at $1.4 billion. Then Eddie Lampert with only $1.3 billion.

Posted by edelfenbein at 9:33 AM

Earnings Preview: AFLAC

AFLAC (AFL) reports tomorrow. Here's a preview from AP:

OVERVIEW: Once one of only two life insurers in Japan, Aflac now faces a very competitive market in that country, racked by intensifying regulatory scrutiny and lagging consumer confidence.

Because more than two-thirds of Aflac's $13.2 billion in insurance policies in force are in Japan, the Columbus, Ga.-based supplemental insurer is heavily exposed to what happens there.

Last quarter, Japanese regulators summoned data on how much Japanese insurers paid out in claims. While Aflac wasn't as bad as most other insurers, regulators found insurers underpaid clients when they submitted claims.

Even though the financial effect on Aflac from the study is minimal, Goldman Sachs analyst Joan H. Zief said the issue underscores how regulatory scrutiny is affecting the market for insurance in Japan.

Aflac sells supplemental insurance, or policies that cover perils not insured under typical coverage. This is an important product in Japan because the national health care system is under pressure so people are turning to private insurers for supplemental coverage.

This market is weakening as new competitors enter the industry. Sales in Japan fell 8.8 percent last year, and Aflac predicted sales will continue declining in the first half of the year.

EXPECTATIONS: Analysts polled by Thomson Financial expect profit of 79 cents per share in the first quarter. They forecast revenue to rise 5 percent to $3.73 billion.

ANALYST TAKE: Wachovia Securities analyst John Hall expects Aflac to report higher profit margin in Japan despite lower sales. He predicts Aflac will say lower spending on information technology and marketing initiatives will offset sales weakness.

Nevertheless, he's skeptical of Aflac's forecast that sales in Japan will turn around in the second half.

Banc of America Securities analyst Tamara K. Kravec said any commentary on the overcrowded health and life insurance market in Japan will be crucial.

"The market environment in Japan is not smooth sailing," she said. "Investors will continue to focus on assessing the competitive environment in Japan and what the first quarter will reveal about sales trends and the competitive environment."

The stock is going for 13 times next year's earnings.

Posted by edelfenbein at 2:23 PM

The Grey Lady and Sides of Beef

At this week’s New York Times’ (NYT) shareholder meeting, there will be an effort, led by Morgan Stanley, to eliminate the company’s two-tiered share voting system. One class for the family, another for everyone else. These systems are common with newspapers because it allows the founding families to retain control.

In today’s Wall Street Journal, Donald Graham, the CEO of the Washington Post, comes to the defense of the Times’ not-quite-so-democratic share structure.

(I)f the stock structure were eliminated, a line of buyers eager to purchase the company would form within minutes. No one could say no. The line would include private equity firms, high-ego billionaires, international media companies lacking a famous property and lots more.

Who would bid the highest? Perhaps a principled owner, dedicated to the welfare of the Times and the Boston Globe; willing to anger its friends on a regular basis, as good newspapers do; and prepared to spend money and run other risks to sustain the paper like the Sulzbergers. Or maybe the bidder would be someone quite different.

Oh dear! Not just a billionaire, but a high-ego one at that. Personally, I’ve never met a billionaire with a low ego. Or a newspaper publisher, for that matter.

Graham writes that if the new rule is adopted, it “would lead to the New York Times Co. being auctioned off like a side of beef.”

Well, what’s so bad about that? We sell lots of things in a manner very similar to how a side of beef is sold. That’s capitalism. Ever been to an art auction? Or rather, what’s so wrong with a side of beef being sold off just like a media company? It’s a two-way street. I’m stunned at how little faith Graham has in the free market.

These two-tiered systems are manifestly undemocratic, and will eventually lead to sclerotic companies. Graham believes there’s a difference between public spiritedness and the values of the free market. That’s a false symmetry. If the Times’ values are profit-enhancing, as Graham suggests, then the free market will find them. Plus, there’s no guarantee that a family-controlled business will adhere to those values.

I’m not against different share classes per se. I don’t think they’re a great idea, but I can understand why some families would want to maintain control of their businesses. What I object to is the Graham’s argument that it’s based on some high-minded principle. It’s not. When any organization isn’t held fully accountable, it will eventually suffer.

The divine right of kings died out a long time ago. It’s about time newspapers followed.

Posted by edelfenbein at 10:40 AM

ABN Amro and Barclays to Merge

This is a gigantic dea. ABN Amro, the Dutch mega-bank, and Barclays of Britain are going to merge in a deal worth over $90 billion. As part of the deal, ABN Amro is going to sell its LaSalle Bank unit to Bank America for $21 billion.

The story gets a little more complicated because the Royal Bank of Scotland seems interested in ABN Amro, but it needs partners to make a deal. But what the rivals probably want is Amro's American business. In other words, LaSalle. Selling it to BofA could be a brilliant move to crush any potential partner for RBS.

Here's the slap in the face. Amro was scheduled to meet with RBS today, but it already announced the deal with Barclays. They're still going to meet, but Amro asked to have the meeting bumped back.

I have a feeling this isn't over.

Posted by edelfenbein at 8:39 AM

"GOOG is Godzilla and YHOO is Japan. It's that simple."

The Fly on Wall Street sums it succinctly.

(H/T: Howard "Dr. Funk" Lindzon)

Posted by edelfenbein at 5:35 PM

High Voltage Cable Inspection

Yikes.

Posted by edelfenbein at 10:54 AM

Moonlight Sonata

The great Wilhelm Kempff.

Posted by edelfenbein at 4:55 PM

The Business Of Baseball

Here's an interesting article from Forbes on the financial numbers behind baseball. As a kid, I used to think that baseball was big business. It's big, but not nearly close to the titans of Wall Street.

According to Forbes, the New York Yankees are the most valuable team in the majors at $1.2 billion (Steinbrenner bought the team for $10 million in 1973, so that's about a 15.1% annual return). The Yankees would be considered a small-cap stock. Most teams, however, are in the $300 million to $500 million range. The Florida Marlins come in last at $158 million, which isn't far from our favorite micro-cap, Nicholas Financial (NICK), at $114 million.

Our local Washington Nationals are the tenth most valuable team at $447 million, which is a lot to pay for 60 wins. (This is going to be a long summer.)

Posted by edelfenbein at 12:21 PM

AMD: "It hasn't even hit them yet"

Here's a short case study:

Advanced Micro Devices close on April 19, 1985: $15.

Advanced Micro Devices close on April 19, 2007: $14.28.

From Bloomberg:

Advanced Micro Devices Inc., the second-largest maker of personal-computer processors, reported a first-quarter loss of $611 million after it lost market share to new products from Intel Corp.

The net loss was $1.11 a share, compared with a profit of $185 million, or 38 cents a share, in the same period a year earlier, the Sunnyvale, California-based company said in a statement. Sales fell 7.4 percent to $1.23 billion.

After taking market share from Intel over the past two years, Advanced Micro is now on the defensive. Intel, the biggest maker of PC processors, has introduced new products to win back customers and has more chips planned for later this year. That means the worst isn't over for Advanced Micro, said analyst Doug Freedman at American Technology Research in San Francisco.

"They're just seeing the headlight of the train. It hasn't even hit them yet," said Freedman who has a "sell" rating on the stock and says he doesn't own it. Advanced Micro is suffering because it "tried to get too big too quick."

Posted by edelfenbein at 7:32 AM

New All-Time High for the Dow: 12,808.63

The Dow rose for the sixth straight day. The Dow has now rallied for 14 of the last 15 days. That hasn't happened in over 15 years.

Posted by edelfenbein at 4:17 PM

The Wharton Economic Summit

I apologize for not getting around to this earlier, but I wanted to mention my trip last week to the Wharton Economic Summit. The school turns 125 this year so it's celebrating with a series of economic conferences around the world, and the largest one was in Philadelphia last week.

The first thing I have to mention is that if you're ever in the Philly train station and you need to use the restroom, wait. Just trust me on this. Hold it in. I really can't stress this enough. I promise I won't go into the details but I assure you it's sound advice. What happens in Philly I hope to god, stays in Philly.

Moving on....

The conference was in the convention center downtown and it was packed full of big wigs. You couldn’t throw a brick without hitting a C-level somebody. That must be the nice thing about Wharton alumni. Just pick up the directory, grab any name at random and presto, it's probably someone important. The school is like Skull & Bones, except with more business jargon.

Here's an example, I caught up with Art Collins, the CEO of Medtronic (oh, and Wharton '73). I tried to talk him into making a counter offer for Biomet (it didn't work, but I tried). I also asked him about Sarbanes-Oxley and he was surprisingly positive about it. He felt that something was needed, and the current law is better than what existed before (in other words, nothing).

He makes a good point that investor confidence was sorely needed in 2002. Personally, I wish Congress had been a bit more deliberative. Collins said that 404 needs some revising, but he likes the overall impact of SarBox. I think the smarter CEOs see that it's not going away, so they’re ready to take what they can get. Of course, Medtronic is a big company so SarBox doesn’t impact them nearly as much as it does for smaller companies.

I asked Collins about compliance costs, and he said it was about $8 million to $10 million. That may sound like a lot, but for Medtronic, it's less than a penny a share for a $50 stock. Of course, if you're running a small tech start-up, you’re probably not so thrilled about writing those checks to your accountants.

One other thing about Collins. He wears nicer suits than me.

I sat in on a good session about CEO pay. The panel, which was mostly Wharton profs, felt that the issue was very overblown. I think the executive pay issue suffers from what I’ll call the "Parade Magazine Effect." People are always comparing themselves with how much other people make. One of the professors said if all CEOs suddenly had a 25% pay reduction, it would have a microscopic impact on shareholder equity. Another prof said (I was too far away to make out the names) that the severance packages have gotten out of control. As a shareholder, I don’t mind paying for success. But paying for failure ain’t fun.

The profs said that one of the problems of CEO pay isn't the pay itself, but the social blowback of the issue. I think that’s a bigger deal than most people realize. Sometimes I think that companies like Danaher are right. Try to make as little news as possible.

One of the members of the panel runs a head-hunting firm for hedge funds and private equity. Of course, you don’t find too many people complaining about hedge fund compensation. What I found interesting is that he said that today, half of the positions he places are for "infrastructure" jobs, like lawyers and compliance. In effect, the hedge fund industry is becoming institutionalized. Wasn’t the industry started to get away from that?

I thought one of the best points made about CEO pay is the overemphasis on pay, while ignoring the potential wealth that executives have in the stock. To give an extreme example, Warren Buffett gets a salary of about $100,000 a year. But when the market fell after 9/11, he probably lost a few billion dollars, even though he couldn’t control what happened. Many executives are in a similar position, but on a smaller scale.

A typical CEO already owns a great deal of stock, plus a lot of stock options. So if the shares fall for some transient reason, they can be out far more money than what they make in compensation. Yet, the public is still fixated on the Parade Magazine number.

At lunch, I sat next to two Wharton students from Singapore. Can you imagine what it’s like to go from spotless Singapore to Philly? Dear lord, talk about a culture clash! It sounds like a Fox reality show.

During lunch, there were two talks. One was by Jeremy Siegel and the other was by Michael Milken. You would have thought that this Milken fellow (Wharton '70) went straight from Wharton to a career in funding all these wonderful initiatives in medical research and economic development. Any activities in between was politely skipped over.

Although Siegel seems very reserved on television, he’s surprisingly dynamic in real life. I was able to corner Professor Siegel for a 20-minute high-octane conversation. (By the way, major shout out to Tracy Simon of the Wharton staff for helping me out). He still likes the market and thinks equity prices are a good value versus fixed-income. Although, he said he doesn’t see major differences now between value and growth.

I asked him why value has outperformed even in this bull market. He said that it’s really a factor of growth still unwinding from the 1990s. I asked him about the earnings slowdown and I was happy to hear that he thinks it’s probably just a mid-cycle reversion to the mean instead of the beginnings of a recession.

I was also pleased that Siegel agrees with me that there’s no inherent problem in low equity volatility. I’m still confused why so many folks are worried about it.

Siegel also said that he wants to see higher payout ratios from companies. One thing that I was curious about was why WisdomTree (WSDT.PK), the family of ETFs he runs with Michael Steinhardt and Jonathan Steinberg (Maria’s hubby), is traded on the Pink Sheets. He said that it’s the legacy stock of Individual Investor, and the shares were going to hop over to one of the exchanges in the next few months.

We also talked about Jim Glassman and Kevin Hassett’s book, Dow 36,000, which relied heavily on Siegel’s book, Stocks for the Long Run. Siegel doesn’t buy their theory about equity premiums fading away (and neither does the market). He felt that their problem was ignoring the real return in treasuries that could be seen by focusing on the TIP spread.

It was a fun, fasted-paced conversation. (My only disappointment was that Professor Siegel said that he’s not a blog reader!) He always seems to have a fresh and interesting view on the market.

Here’s my review of his book, The Future for Investors.

Posted by edelfenbein at 3:23 PM

Eaton Vance Hits New High

Shares of Eaton Vance (EV) are at a new high today. Since its 1975 low, the stock is up over 300,000%. The gold line is the S&P 500 which looks flat by comparison. It's only up a measly 1,600%.

Posted by edelfenbein at 12:32 PM

First-Quarter Earnings Parade

Lots of earnings this morning. Danaher (DHR) reported earnings of 78 cents a share, one penny ahead of expectations. Sales were up 20% to $2.56 billion, which was also more than expectations. I really like Danaher. It’s a quiet company that consistently churns out the profits. The company also said that it expects second-quarter earnings of 88 to 93 cents a share, and full-year earnings of $3.70 to $3.80 a share. No surprises here.

Harley-Davidson’s (HOG) earnings were down from last year due to a strike at its York, PA factory, but the numbers were still pretty good. HOG earned 74 cents a share compared with 86 cents last year, and sales dropped 8.3% to $1.18 billion. That sounds rough but Wall Street was expecting even worse, EPS of 72 cents on sales of $1.10 billion. The good news is that the strike is behind them, and their business still looks good.

UnitedHealth Group (UNH) had earnings of 74 cents a share, after charges, which beat Wall Street’s forecast by three cents a share. The company sees second-quarter earnings of 80 to 82 cents a share, and full-year earnings of $3.42 to $3.46 per share.

Melissa Davis at the TheStreet.com wrote:

But investors will no doubt stew over another metric entirely. Notably, UnitedHealth’s all-important medical-cost ratio—reflecting the amount of each premium dollar spent on patient care—for the commercial book of business ticked up to 81.2% in the latest quarter and forced the company to raise its MCR projection for the entire year.

UnitedHealth offered two major reasons for this troubling development, both of which could worry the market. The company blamed much of the change on inadequate reserves, signaling a rare misstep in this department, and the rest on higher utilization of consumer-directed health plans.

Yesterday, Amphenol Corp. (APH) reported very good quarterly results. The company made 43 cents a share compared with 31 cents last year. These results beat the Street by two cents a share, although one penny was due to a tax benefit. APH also slightly raised guidance this year to $1.75 to $1.80 per share. The previous estimate was for $1.73 to $1.78 per share. I always like to see a company revise or reiterate future guidance. The better companies don’t leave Wall Street guessing.

Posted by edelfenbein at 9:47 AM

Yesterday's Power Lunch

Did he say "Sanjana"?

Posted by edelfenbein at 2:18 PM

Protecting GM's Image

It's funny, but true. GM's book value per share is $-9.62.

Posted by edelfenbein at 12:26 PM

Wall Street and the Priceless Pooch

Bloomberg interviews Matthew Klein, who has a new book out called “Con Ed.” I apologize for the long quote, but it’s needed to convey my point:

Klein: I was one of those prototypical Silicon Valley technology entrepreneurs. I was out in Silicon Valley for about 10 years. I started a couple of technology companies. And I raised, oh, $50 million in venture capital. My companies employed around 500 people. But where my story differed a little bit from the typical glamour puff-piece you read about in the business press (IRONY ALERT) is that my companies tanked. They utterly stunk up the place. So I went through a period where, in about one day, I had to lay off 400 people. My companies lost millions of dollars. It was an incredibly painful experience; it was incredibly humiliating. And only one good thing came out of that experience.

'Priceless Pooch'

Schatz: What was that?

Klein: Well, of course, it was the fact that it inspired me to write a book. I noticed, in my days in Silicon Valley, that the financial industry as a whole -- and by this, I mean the venture-capital industry, Wall Street, investment banks -- is structured in such a way as to be exactly like a gigantic con.

Schatz: How so?

Klein: Do you know the con of the priceless pooch? A guy walks into a bar. He's a poorly dressed guy. He looks very sad. He has a little dog on a leash. He says to the bartender, "Bartender, do me a favor, will you? I'm very troubled. I have to go across the street to have a job interview. Will you watch my dog for me for a few minutes? The bartender says, "OK."

A few minutes later, another man walks into the bar. He's dressed with a Hermes tie, a big Rolex watch; he reeks of money. And he says, "My God, barkeep, that dog, it's fabulous. That looks like Miffy, my childhood dog. I simply must buy it from you for $1,000. The bartender says, "I'm sorry, sir, I can't sell you this dog."

"$2,000, then."

"No, I'm sorry, I can't sell someone else's dog to you." The guy says, "All right, here's my business card." He hands him the business card. He says, "If you change your mind, I'll buy that dog from you for $3,000." And he walks out of the bar.

`Like Wall Street'

Schatz: What happens next?

Klein: Well, the poor guy walks back in after his job interview. Now he's very glum. He says, "I didn't get the job. What am I going to do? I can't pay my rent. Bartender, do me favor, will you? I certainly can't afford to keep this dog. Will you buy the dog from me? Give a guy a break; give me $300 for the dog. And the bartender, being a typical human being -- slightly greedy, slightly altruistic -- says, "Sure, Mac, I'll give you $300 for the dog." He hands him $300. The guy walks away. Quickly, the bartender takes the business card out, and he calls the rich guy. The phone's been disconnected.

Schatz: How is this con like Wall Street?

Klein: It's exactly like Wall Street. Everything you do in the investment world is structured to convince people to pay too much money for something that they think they can resell to the next sucker.

Wall Street isn’t anything like that. Or, maybe it is to people who would consider puppy trading. If Wall Street were like that, it sure wouldn’t last long. Last time I checked, the Street’s been around for 200 years.

The key point to understand is that every trade doesn’t boil down to a winner and a loser. Very often, both sides of a trade win. That’s how the system works.

In fact, you can even make money without selling “to the next sucker.” I was looking at Medtronic’s (MDT) stock recently. If you had bought it in 1985, you’d currently be taking in dividends of 100%, based on your entry price. Sure, you’d have to wait a bit, but your gain isn’t dependent on any sucker, or even anyone, on the receiving end.

Posted by edelfenbein at 10:24 AM

Yahoo Watch

After the close yesterday, Yahoo (YHOO) reported earnings of 10 cents a share, a penny below forecasts. The stock is down about 11% this morning.

I think this is just the beginning. It looks like Panama has been completely overrated. I wish I could say I was surprised. I wouldn’t go near Yahoo until it’s at most $12 a share, which is about 60% below where it is now.

The AP noted:

”When you sift through everything, there is not a whole lot to get excited about right now,” said Cantor Fitzgerald analyst Derek Brown.

After subtracting advertising commissions, Yahoo’s revenue totaled $1.18 billion. That figure fell about $25 million shy of the average analyst projection.

Interestingly, the AP story began:

Investors were f - ) again until the Internet icon‘s disheartening first-quarter results ruined the mood.

Texting has hit the big time. Although, many news outlets changed it to:

Investors were falling in love with Yahoo Inc. again until the Internet icon's disheartening first-quarter results ruined the mood.

Soon, they may be working Ctrl+Alt+Del into their ledes.

Seeking Alpha has a roundup of analysts’ reactions to Yahoo’s earnings.

Business Week writes that Yahoo's next search will be for a new CEO. The company quotes CFO Sue Decker:

Chief Financial Officer Sue Decker attributed the decline to the phaseout of Microsoft's search ad business and rising costs of driving traffic to Yahoo sites.

That's like saying "we attributed the decline to our lousy business model."

I say that Decker will replace Terry Semel before the summer is over.

Posted by edelfenbein at 9:48 AM

Warren Buffett, Hell Inch Closer to Rendezvous

Fortune asks if Warren Buffett is "helping to support genocide in Darfur."

Berkshire has become a target of the divestment campaign because it owns 2.3 billion shares of PetroChina Co., a subsidiary of the state-controlled China National Petroleum Corp. (CNPC). CNPC has extensive operations in Sudan; it owns a major stake in Sudan's national oil consortia.

China and Sudan are engaged in a marriage of convenience. For its part, China gets oil - Beijing purchased more than half of Sudan's oil exports in 2005. China's growing demand for energy has led the Chinese to cultivate close relationships with many oil-rich African nations.
In return, Sudan gets money, weapons and political backing from China. Because about 70 to 80 percent of Sudan's oil revenue is funneled into its military, China's oil assets in Sudan are "an undeniable and well-documented enabler of Khartoum's genocidal policy in Darfur," according to the Sudan Divestment Task Force.

Hmm...seems like a bit of a stretch to me. I’m not so sure Warren can take the blame on this one. Now, about that annoying Cockney gecko....

Posted by edelfenbein at 7:48 AM

Breaking: The S&P 500 Is in the Black for Millennium

It took awhile, but the S&P 500 is now positive for the millennium. In your face, bears! It's also up for the century. And decade! (All in one day, woo!)

The S&P 500 closed today at 1471.48 which is just 0.15% higher than the December 31, 1999 close of 1469.25.

That's 7-1/4 years for 0.15%.

Of course, the bad news is that inflation has increased by 22% since then. Meaning, today's 1471.48 is more like 1206. But dividends have added about 12.5% (not much, but we'll take it).

But not all stocks are flat. The story of the decade, I mean millennium, is small-cap and value.

Here's a rundown of some major indexes since December 31, 1999:

S&P 600 Small-Cap Value............129.84%
S&P 600 Small-Cap......................115.01%
S&P 400 Mid-Cap Value...............109.02%
S&P 600 Small-Cap Growth..........98.15%
S&P 400 Mid-Cap...........................97.07%
S&P 400 Mid-Cap Growth..............84.92%
Dow Utilities...................................82.35%
Dow Transports..............................70.70%
Morgan Stanley Cyclical.................68.33%
Russell 2000...................................64.23%
Morgan Stanley Consumer.............36.02%
S&P 500 Value...............................29.95%
Dow.................................................11.10% (29.03% w/divs)
Russell 3000....................................8.19%
Wilshire 5000..................................7.95% (20.49% w/divs)
Russell 1000....................................4.60%
S&P 500...........................................0.15%
S&P 100........................................-15.04%
S&P 500 Growth...........................-23.75%
Nasdaq...........................................-38.15%
Nasdaq 100...................................-50.51%

Here's how the 10 S&P 500 Industry Sectors have fared:

Energy............................................128.23%
Financials.........................................52.87%
Materials..........................................50.94%
Utilities............................................46.96%
Staples............................................34.99%
Healthcare.......................................27.57%
Industrials.......................................20.99%
Discretionary.....................................3.97%
Telecom..........................................-48.75%
Tech...............................................-54.70%

Posted by edelfenbein at 7:00 PM

Johnson & Johnson's Earnings

Last March, I wrote that shares of Johnson & Johnson (JNJ) looked cheap. Not a bad call. The stock was around $57 and today it's up to $65. The company just reported very good earnings. J&J earned $1.16 a share (after charges) compared with analysts' forecasts of $1.04. The company now sees 2007 earnings of $4.02 to $4.07 a share, compared with the Street's forecast of $3.90.

By the way, J&J was one of the final stocks cut from my 2007 Buy List.

Posted by edelfenbein at 11:48 AM

Wall Strip Looks at Crocs (CROX)

Ugly shoes, but a nice looking chart. Call me a skeptic. I tend to shy away from fad-like products. There's no accounting for taste. But I have to admit that the company, and the shares, have performed very well.

Posted by edelfenbein at 11:41 AM

The Pound Hits $2

You know your currency is in rough shape when even the British pound is doing well against it. Today, the pound reached $2 for the first time in 15 years.

By the way, that big plunge on the chart in 1992 is when Britain dropped out of the ERM. It’s believed that George Soros made over $1 billion that day.

Posted by edelfenbein at 10:40 AM

JOSB’s Earnings

Here’s an interesting lesson on how irrational the stock market can be in the short-term. Last week, Bed Bath & Beyond’s (BBBY) stock fell after its earnings report. I follow that stock pretty closely and there wasn’t one single item in the earnings report that came as a surprise. It was basically what any reasonable person should have expected. Yet the shares opened Thursday morning much lower, and they’ve rallied almost continuously since then. Right now, BBBY is slightly above where it was before the earnings report. Looking back at what happened, it just doesn’t make much sense. This is why I try to caution investors against timing the market.

Well, now a similar story has happened with Jos. A Bank Clothiers (JOSB). The company just reported terrific earnings of $2.36 a share, 11 cents more than Wall Street’s forecast. Yet the stock was hit last week on a poor sales report. Now the stock is higher than where it was before.

One of the great things about investing is that doing absolutely nothing can work to your advantage.

Unfortunately, the big jump in JOSB is being cancelled out by the fall in Fair Isaac (FIC).

Posted by edelfenbein at 10:08 AM

Today's CPI Report

The bad news is that consumer prices shot up last month. The good news is that it was largely due to rising energy costs. The core rate of inflation, which excludes food and energy costs, was up just 0.1%, less than the 0.2% expected by Wall Street.

Last summer, Ben Bernanke set off a big rally when he said that the Federal Reserve sees core inflation (he uses the PCE) cooling off in 2007. It looks like the Fed was right.

Posted by edelfenbein at 9:36 AM

From the Citigroup Conference Call

Courtesy of Seeking Alpha:

Mike Mayo - Deutsche Bank: And so do you think this quarter is an inflection point with all these savings ahead for this year?

Chuck Prince: Well, I don't like to predict anymore, Mike. People kind of throw my predictions in my face. I know you wouldn't do that, but others do, and so I think I would just like to stay away from predictions for right now.

Posted by edelfenbein at 7:04 PM

Fair Isaac Guides Lower. A Lot Lower.

Ugh.

Preliminary Second Quarter Fiscal 2007 Results

The company expects to report second quarter revenues in the range of $200 to $202 million in second quarter of fiscal 2007 versus $208.2 million reported in the prior year period. This is lower than the second quarter revenue guidance of $215 million provided by the company last quarter. Net income for the second quarter of fiscal 2007 is expected to total in the range of $20 to $22 million, or $0.35 to $0.37 per diluted share, versus $27.0 million, or $0.40 per diluted share, reported in the prior year period. This is lower than the second quarter GAAP earnings per diluted share guidance of $0.48 provided last quarter.

Revised Third Quarter and Full Year Fiscal 2007 Guidance

Total revenues are expected to be $195 to $200 million for the third quarter of fiscal 2007 with GAAP earnings of approximately $0.33 to $0.38 per share. Full year fiscal 2007 revenue is now expected to be $795 to $805 million with GAAP earnings per diluted share of $1.55 to $1.65. The previously announced sale of our mortgage product line accounts for approximately $7 million to $8 million of the reduced revenue guidance. This full year fiscal 2007 guidance is lower than the guidance of $870 million in revenue and GAAP earnings per diluted share of $2.15 provided earlier by the company.

The shares are down over 11% after hours.

Posted by edelfenbein at 5:08 PM

The Talented Mr. Pastorini

Here’s a fun story. Last week, Bloomberg reported that Edward Pastorini was planning to bid for Gold Fields (GFI). The Financial Times’ excellent Alphaville blog, raised some interesting questions. For example, who the fuck is Edward Pastorini? (They used “hell”—British, you know). Google had never heard of him. Alphaville also noticed that Edward Pastorini is an anagram for “Top Insider Award.” Clever, no?

Mr. Pastorini is apparently now quite upset. And what’s the best way to prove you exist? An email of course!

I challenge FTAlphaville to produce even one iota of irrefutable proof that I am not Edward Pastorini and that our offer for Gold Fields is not genuine. Send us your IRREFUTABLE PROOF. Now I hope you will have the decency to give us as much truthful coverage as you gave us negative coverall in your publications. You owe us a public apologiy [sic]. Just because we loathe the media and prefer to remain behind the scenes - with good reason when there are idiots like you out there - that does not mean that we are not genuine. We are waiting for your public apology and for your 100% irreefutable [sic] proof that I am not Edward Pastorini and that our offer for Gold Fields is not real. We’re waiting. Send us your NEW article now - or do you not ever admit your mistakes?

Posted by edelfenbein at 3:01 PM

Varian Medical: A Smart Buy

Varian Medical Systems (VAR) took a big hit on Friday, dropping 7.3% on news of lower revenue guidance. But the stock's defenders are coming out in full force. Joshua Lipton of Forbes noted the positive views of many analysts:

In a client note, Citigroup analyst Amit Bhalla wrote that while North America has not displayed signs of weakness in past quarters, the results do appear explainable.

The North America miss, Bhalla wrote, was due to timing of customer buying patterns and had the quarter been one week longer, orders would have been $20 million higher and total North America oncology net orders would have been flat, instead of down 10%.

Bhalla said, "As was the case in Europe last quarter, the company does not believe that it has lost orders to competitors in North America and we believe this to be the case as well."

Bhalla maintained a "buy" rating on the shares. He lowered his price target by $2 to $60.

Standard & Poor's Equity Research analyst Robert Gold also continued to believe that Varian is a wise buy.

In a client note, Gold wrote that he was disappointed by the 10% decline in U.S. oncology orders.

"However, we believe an increased size of average orders, and a slightly more competitive market are extending the selling cycle a bit and have pushed some booking into the third-quarter," Gold wrote.

He said that he still sees full fiscal 2007 revenues of about $1.8 billion and earnings per share of $1.83. He maintained a "strong buy" opinion on the shares.

Posted by edelfenbein at 1:05 PM

The S&P 500 Hits 6-1/2 Year High

So much for the Shanghai Surprise from seven weeks ago. The market has now made up everything it lost, and is at a fresh 6-1/2 year high. The index is still over 4% from the all-time reached in 2000. The good news is that the S&P is inches away from being in the black for the decade (and century and millennium).

Posted by edelfenbein at 10:33 AM

Tom Wolfe Leads Off for Portfolio

Tom Wolfe looks at the New Masters of the Universe:

While fathers all over America tend to become overzealous, even violent, these days in trying to turn their children into little sports superstars, in Greenwich a father who is one of these people will try to take control of every element in a game: his child’s teammates, their coach, the opposing team’s coach, its players, and most definitely the referees. In a famous instance, one of these people came to watch his teenage daughter play in an ice hockey game against a team from neighboring Port Chester, New York, a town known in Greenwich as the place where one’s plumbers, electricians, computer swamis, roofers, glaziers, air-conditioning mechanics, wall-to-wall-carpet humpers, and household servants live. The man began bellowing so loudly, nobody at the rink could shut out the sound. He upbraided the referees for their poor eyesight and worse judgment. He told his daughter’s coach how to play her and all her teammates and kept him abreast of his mistakes in strategy. He scolded the Port Chester coach and the players for their incessant cheating and malicious roughness. Finally a Port Chester player, a big girl, an Amazon on ice, skated to the stands, charged up the stairs on her skates, and accosted the Mouth, putting her gloved fist six inches from his face and saying, “If you don’t shut the fuck up, I’m gonna come back and beat the shit outta you!” He shut up. The tales are endless: the hedge fund founder desperate to get his son into one of Greenwich’s socially swell private schools who clips a six-figure check to the first page of the application, witlessly forcing the school to reject both his son and his check or lose all credibility—

Posted by edelfenbein at 9:45 AM

Geoffrey Raymond's Latest

I'm not sure what to say about this, but here's Geoffrey Raymond describing his latest painting of Maria Bartiromo.

Posted by edelfenbein at 9:34 AM

Happy 300th Leonhard Euler

The Washington Post has more on the "Mozart of Mathematics."

Posted by edelfenbein at 3:28 PM

Fama Factors Out French: "I Did All The Work"

At long last, we now know the truth:

After 15 years of sharing the credit for groundbreaking research with Ken French, Eugene Fama is on a mission to expose his former colleague, and himself. The result is an alarming behind-the-scenes look at how academic careers are made and broken.

"I hired Ken French in 1990 when he was a driving instructor in Winnetka. Chicago was pressuring me to partner with another researcher; I couldn't stand the idea so I hired a stooge. The man has never contributed a single idea to my research, and yet his name is constantly mentioned in the same breath as mine. On top of it all, the American Finance Association has nominated him as president-elect! That's a travesty and I won't have it."

Posted by edelfenbein at 3:25 PM

2007 Wharton Economic Summit

Not much blogging today. I'll be in Philadelphia at the 2007 Wharton Economic Summit.

It's sort of like Davos, except the odds of being car-jacked are a lot higher. Wish me luck.

Posted by edelfenbein at 7:58 AM

Brady Quinn on Power Lunch

Sue Herera adores him.

Posted by edelfenbein at 12:12 PM

JOSB Down 8%

JoS. A. Bank Clothiers (JOSB) is down sharply today on a poor same-store sales report:

Men's clothing retailer JoS. A. Bank Clothiers Inc. said Thursday that its same-store sales grew 1.4 percent in March, but missed analysts' expectations. Analysts polled by Thomson Financial were looking for a same-store sales increase of 2.7 percent for the month.

Same-store sales, or sales at stores open at least a year, are a key measure of retailer (or restaurant) performance, because they measure growth at existing stores rather than from newly opened ones.

Total sales for the period ended April 7 climbed 10.1 percent to $45.7 million from $41.5 million in the year-ago period.

Quarter-to-date, same-store sales were up 2 percent while total sales were ahead 11.8 percent to $84.1 million versus $75.2 million in the prior-year period.

Posted by edelfenbein at 11:10 AM

Bed Bath & Beyond Earned 79 Cents a Share

The company just wrapped up its 15th straight record year. For the fourth quarter, Bed Bath & Beyond (BBBY) earned 79 cents a share, although that doesn't include a charge of seven cents a share.

For the year, BBBY earned $2.15 a share, which is a nice improvement over the $1.92 a share it made last year. Annual sales rose from $5.8 billion to $6.6 billion.

Here are the quarterly results going back a few years:

Two things to note. This last quarter was based on 14 weeks while the other quarters were just 13 weeks. Also, the 2006 fiscal year had 53 weeks compared with 52 for last year.

Some analysts have noted the company's lower gross margins. This is what BBBY had to say on their conference call:

The gross profit margin for the full fiscal year improved slightly from fiscal 2005. The approximate 110 basis point decline in the fiscal fourth quarter was primarily due to higher inventory acquisition costs. Inventory acquisition costs were higher, primarily due to a shift in purchase volume incentives earned during our fiscal third quarter, which as we discussed in December, benefited that quarter.

This is the first decline in gross margins in five years.

Posted by edelfenbein at 8:28 AM

My Thoughts on Citi

I have to add my thoughts about Citigroup (C). The company just announced plans to cut 17,000 jobs which is about 5% of the workforce. The Street, however, is unimpressed and the stock is down today.

Much of the blame is being aimed at CEO Chuck Prince, but I’m going to make a slight defense of Prince. Or rather, the problems at Citi aren’t his entirely his fault. The most important problem is that the company, as it’s currently comprised, doesn’t make any sense.

Shareholders are in denial and they’re blaming Prince for the effects of Citi’s problems, not the root. Here’s the deal: Sandy Weill built today’s Citigroup through very aggressive acquisitions. The idea was to throw a bunch of mediocre businesses together and that would (hopefully) make one really good company. Well, it doesn’t.

Today, the company has nearly $2 trillion in assets and what do they have to show for it? A P/E ratio of 12. It’s the Austria-Hungry of stocks.

I’ll give you a good example. Look at the major brokerage stocks. Merrill, Goldman, Morgan, Lehman, have all seen their stocks soar. But Citi’s stock has done nothing. Does anyone think that an independent Salomon Smith Barney wouldn’t have rallied? Maybe it wouldn’t have, but it would have taken some effort. Now, we’ll never know.

Prince may be out the door soon. Next up will probably be Sallie Krawcheck (oh, how the media will love that!). But I think the CEO turnstile will continue to spin until someone finally decides to un group Citi.

Posted by edelfenbein at 1:15 PM

Minyanville Gets Animated

Posted by edelfenbein at 11:03 AM

Citigroup Settles With Thomson

The Financial Times reports:

Citigroup has agreed severance terms with Todd Thomson, who was sacked as head of its wealth management arm in January, as the group prepares to announce a shake-up plan involving the loss of more than 15,000 jobs.

The agreement follows weeks of tough negotiations over the size of Mr Thomson's settlement and restrictions on poaching staff.

Mr Thomson said he was sacked without cause and the company has never publicly suggested otherwise. However, people familar with the situation said he was sacked partly for conspicuous spending including corporate sponsorship of events involving Maria Bartiromo, the CNBC correspondent.

One person familiar with Citigroup's negotiation said Mr Thomson "was paid for the time he worked for the company."

Mr Thomson, who previously served as Citigroup's chief financial officer and was once seen as a potential successor to Mr Prince, said on Tuesday night: "I am very pleased with the settlement, happy to close this chapter, and excited to move on to some new opportunities." Mr Thomson has set up an investment vehicle and has also received a number of approaches from other companies. Most of these have been from private equity firms, either to run portfolio companies or to join as a partner.

I was really hoping for the headline, "Thomson Looking for New Partner," but no such luck.

Posted by edelfenbein at 10:54 AM

The Latest Housing Boom

Would you believe it's in Northern Ireland?

The average cost of a home rose 37 percent last year to 195,751 pounds ($383,183), according to the University of Ulster. That's at least 5 percent more than the U.K. national average and nine times the gross local average salary. Only London and southern England are more expensive.

House prices in Northern Ireland have quadrupled since 1994 after tracking consumer prices during the previous decade, said Alistair Adair, a professor at the University of Ulster.

Posted by edelfenbein at 10:22 AM

Sin Stocks Do Better

Personally, I don’t see anything morally wrong with drinking, gambling or smoking, but much of society seems to frown on this. Since the beginning of the year, it’s been illegal to smoke in bars and restaurants in Washington. Now there’s some academic evidence that shows that “sin stocks” are pretty savvy investments.

”While sinful stocks aren’t necessarily good for the soul, they do deliver higher returns,” said Marcin Kacperczyk, a professor at the Sauder School of Business at UBC. “There is a societal norm against funding operations that promote human vice and that some investors, particularly institutions subject to public scrutiny and social norms, pay a financial price for not holding these stocks,” the study said on Tuesday.

Sin stocks out perform their comparables by about 30 basis points a month, the study found. And they come cheap — the market-to-book ratios of sin stocks were on average about 15% lower than those of other companies between 1965 and 2004.

Here's the paper.

Posted by edelfenbein at 10:12 AM

Danaher’s CEO Rakes In $46 Million

The Washington Post reports that H. Lawrence Culp Jr., Danaher’s CEO, made $46.2 million last year. Interestingly, this is in the ballpark of what Lloyd Blankfein and Stanley O'Neal made, but because Danaher tends to stay out of the spotlight, Culp’s pay isn’t attracting much attention. (Plus, the firm is based on Congress’ home turf.)

Like many executive pay packages, most of Culp’s pay is in the form of stock options. The Post notes that at the stock’s present value, Culp’s options are worth more than $100 million. Of course, let’s look at the results:

Last year, Danaher’s profit rose 25 percent, to $1.1 billion from $898 million in 2005. Revenue grew 20 percent to $9.6 billion. Culp said recently that his goal is to reach $25 billion in sales by 2012.

Since taking over in May 2001, Culp has bought more than 30 companies and doubled Danaher's market value. His purchases, which include dental products company Sybron Dental Specialties for about $2 billion, have expanded Danaher's presence in the medical and dental industries.

No one is complaining about his pay, and no one should.

Posted by edelfenbein at 9:42 AM

Shareholders Fight Back

The private equity buyout of Clear Channel (CCU) isn’t going as smoothly as planned, and I’m happy about it. I don’t have a personal stake either way, but I’m glad to see shareholder activism, even in the form of large mutual funds, have an effect on buyouts.

The Wall Street Journal reports that two of CCU’s largest shareholders, Fidelity Investments and Highfields Capital, aren’t pleased with the private equity offer of $37.60 a share. The deal on the table will be funded with $23 billion of debt.

The private equity group, which is being led by Thomas H. Lee Partners and Bain Capital, may have to raise the bid to $40 a share in order to win two-thirds of the shareholders’ votes.

This is good news because if this deal gets blocked, it will reverberate across Wall Street and many potential deals will be scrapped. Put yourself in the shoes of a member of a private equity syndicate; you want as little trouble as possible. The theoretical benefit of going private is that you don’t have to deal with shareholders, but now you’re in the midst of a big proxy battle. Who needs that? Even if you win, you may have to raise your bid.

The reason the private equity deals have come is because they think it’s worth the effort. If shareholders are smart, they can change that.

Posted by edelfenbein at 9:38 AM

The Hedge Fund Wives

Haven't you always wondered about the wives and girlfriends of hedge fund managers? Gee, I know I have. Forunately, we have New York, the magazine, to fill us in:

2. Anne Dias Griffin
36, wife of Kenneth Griffin
French-born Dias Griffin graduated summa cum laude from Harvard Business, and cut her teeth at Goldman Sachs in London before founding the $55 million Chicago-based Aragon Global Management, one of the largest hedge funds managed by a woman. She and her husband gave $19 million to the Art Institute of Chicago—the site of one of their first dates—for a modern-art wing designed by Renzo Piano.

The FT's Alphaville says that this comes "close to the boundaries of good taste." Well, it's not like they listed the boyfriends of top hedgettes.

Posted by edelfenbein at 1:23 PM

NASDAQ lists most IPOs since 2000

Interesting:

The Nasdaq Stock Market, Inc. listed 42 initial public offerings in the first quarter, including National CineMedia Inc., the largest year-to-date U.S. IPO.

NASDAQ recorded its strongest first-quarter performance for IPO listings since the beginning of 2000, the New York-based exchanged announced yesterday.

In total, NASDAQ captured 73 new listings in the first quarter.

Posted by edelfenbein at 1:17 PM

Seven Straight Up Days for the Dow

The Dow has risen for the last seven sessions. Today could be day #8, but we're currently down 3.9 points.

The Dow last had an eight-session win streak four years ago, at the beginning of the bull market. The Dow hasn't had a nine-session win streak in over ten years.

In1987 when the Dow rose for the first 13 trading days of the year. Of course, we know what happened later that year.

The Dow rallied for 12 straight days twice, once in 1929 and again in 1970. The streak in 1929 came right after a six-day win streak for a combined 18-of-19 streak. Again, we know what happened later that year.

The record is from 1897 when the Dow rose for 14 straight days.

Posted by edelfenbein at 11:34 AM

Earnings Preview: Bed Bath & Beyond

Tomorrow, Bed Bath & Beyond (BBBY) reports its fourth-quarter earnings. Like many retailers, the company’s fourth-quarter ends in February so it can take in the entire holiday shopping season. That’s a big time for BBBY. Historically, more than one-third of their profits come during the fourth quarter.

Sales have been growing in the low double-digit rate for the past few quarters, so I’m looking for a top-line number of about $1.9 billion. That works out to about 12.7% growth which should give the company a net earnings figure of about $222 million, or roughly 78 cents a share, which is exactly what the company told us to expect. It could be slightly higher or lower, but either way the company’s results are fairly easy to forecast. Despite what many people think, the slowdown in housing doesn’t affect BBBY that much.

The company has also warned us of a $40 million charge, or about 14 cents a share, to help employees out with the tax consequences of options grants. This came about as the part of the company’s options review.

I also expect BBBY to give us a peak at what they expect for this year. I think the company should be able to make about $2.40 a share this year. Barron’s mentioned earlier this year that if BBBY exceeds its conservative expectations, the stock can go to the upper-$40s, which certainly seems reasonable.

On last quarter’s conference call, the company said that it’s targeting sales and EPS growth of 10% a year. I think they’re obviously low-balling, but that’s how they do things. The other thing to watch is BBBY’s number of outstanding shares. The company has been buying back its stock at a nice pace for the past few years.

For some reason, $43 a share has been like Krypton for this stock. Let’s hope that changes in the next few weeks.

The AP has more.

Posted by edelfenbein at 10:47 AM

Wall Strip Looks at the Refiners

Here’s a trend I wish I had spotted early on. The oil refinery stocks have been spectacular for the past five years. In today’s Wall Strip, Lindsay looks at two in particularly, Valero Energy (VLO) and Tesoro (TSO).

From its 2002 low, Valero’s stock is up more than tenfold. Tesoro’s rise has been ever more dramatic. In October of 2002, the stock closed as low as $1.33, and it’s currently over $107.

The good times may be coming to an end. Earnings for both stocks are expected to slip this year and next. Also, the price of oil took a big hit yesterday.

Posted by edelfenbein at 9:41 AM

Buffett Goes Off the Rails

Warren Buffett is investing in railroads:

Warren Buffett's company recently invested in three railroads, and in the process, Berkshire Hathaway Inc. became the largest shareholder in the Burlington Northern Santa Fe Corp., according to a company filing and a media report that the company confirmed.

The disclosure sent Burlington Northern shares up more than 7 percent in midday trading Monday.

Omaha-based Berkshire Hathaway revealed in a filing with the Securities and Exchange Commission that it owned 39 million shares of Burlington Northern as of last Thursday. The cable network CNBC reported Buffett said Berkshire had also invested in two other railroads that he declined to name.

Posted by edelfenbein at 12:45 PM

The Solengo Kerfluffle

Before the suits find out, you can download the Solengo Capital marketing piece here.

(Hat Tip: Gary Weiss).

Posted by edelfenbein at 7:40 PM

Volatility Returns! Then Leaves

Remember how volatility finally returned on February 27? Well, it turns out that it didn't stick around for too long.

Following 2/27, the S&P 500 had three +1% days and one -2% day, but in the last two weeks, the market has gone back to being as dull as usual.

For the last ten days, the S&P 500 has had an average daily swing of 0.49%, which is just about what it did for the six months prior to 2/27.

The Volatility Index (^VIX) is back below 13 today.

Posted by edelfenbein at 2:26 PM

Danaher (DHR)

I'm surprised more people don't know about Danaher (DHR), especially considering how many people pay 2/20 to hedge fund managers who don't have a prayer of beating DHR.

Earnings will come out two weeks from today. The company has already given us a range of 75 to 77 cents a share, which probably means 77 or 78 cents a share.

For last year's first quarter, Danaher made 66 cents a share, so were talking about pretty good earnings growth. S&P just reported that earnings growth for the S&P 500 officially came in below 10% for fourth quarter, the first time that's happened in 18 quarters.

Here's a chart of Danaher (blue line is price, black is EPS and red is the forecast):

The right and left axes are scaled at 20-to-1, so when the lines cross, the stock has a P/E ratio of 20.

Posted by edelfenbein at 12:45 PM

The Real Estate Roller Coaster

Posted by edelfenbein at 10:17 PM

Is It Too High or Too Low?

Here's something to consider. This is a chart of Apple's (AAPL) stock for the first five years after its IPO.

In June 1983, the stock ran up to $7.84 a share (adjusted for three 2-for-1 splits), then plunged about 75% to less than $1.82 a share. So it was overpriced at $7.84, right?

But if you were unlucky enough to have bought it at the exact top, the stock is still up about 1,100% since then compared with 775% for the S&P 500. Including dividends, the S&P 500 would still come out ahead, but it's interesting to think about "too expensive" means.

Posted by edelfenbein at 10:16 AM

Subprime Homsick Blues

James Surowiecki looks at the subprime mess:

The backlash against the subprime lenders is understandable, since their business practices were often reckless and deceptive. Instead of responding to the slowdown in the housing market by cutting back their lending, they pressed their bets—last year, six hundred billion dollars’ worth of subprime loans were issued. Many of the lenders hid their troubles from investors, even as their executives were dumping stock; between August and February, for instance, New Century insiders sold more than twenty-five million dollars’ worth of shares. And there’s plenty of evidence that some lenders relied on what the Federal Reserve has called “fraud” and “abuse” to push loans on unwitting borrowers.

For all that, “predatory lending” is a woefully inadequate explanation of the subprime turmoil. If subprime lending consisted only of lenders exploiting borrowers, after all, it would be hard to understand why so many lenders are going bankrupt. (Subprime lenders appear to have been predators in the sense that Wile E. Coyote was.) Focussing on lenders’ greed misses a fundamental part of the subprime dynamic: the overambition and overconfidence of borrowers.

It's seems that subprime lenders are in a never-ending cycle. If their standards are too loose, they're accused of being predatory. If their standards are too tight, then they're accused of "redlining."

Posted by edelfenbein at 9:37 AM

How Harley Could Roar Back

Michael Brush looks at the problems facing Harley (HOG):

Harley-Davidson finances about half the motorcycles it sells. Now, many of those customers are having a hard time keeping up with payments -- and the company is getting less for the Hogs it repossesses because used bike prices have been weakening.

The problems may only get worse. As lending standards tighten because of concerns about low-end borrowers, sales growth could suffer. Somewhere between 10% and 15% of bikes sold last year were rolled out of the showrooms by subprime borrowers. Already, the company has taken 2007 earnings growth guidance down to 4%-6% -- a hefty cut from the prior range of 11% to 17%.

He thinks it could go back to $75 a share. We'll find out more when earnings are announced on April 19. Due to the strike, I'm not expecting much, but the test will be whatever guidance the company gives.

Posted by edelfenbein at 7:58 AM

Solengo Sues Dealbreaker

Did you know POS Legal Action is an anagram of Solengo Capital?

Solengo Capital Advisors ULC, a hedge fund company formed by a trader involved in one of the largest hedge-fund collapses ever, has sued a Web site for posting a copy of Solengo's investor prospectus.

The copyright lawsuit, filed in federal court in Manhattan, alleges the prospectus was posted in its entirety on Dealbreaker.com on Wednesday. The Web site's publisher and editors refused to remove the document.

The Greenwich, Conn.-based company's complaint alleges the document was stamped "confidential" and contains the venture's planned structure, trading and risk management platforms, offering information and biographies of its founders.

"This proprietary information is integral to Solengo's ability to gain an edge over competitors, standing in the marketplace and appeal to potential investors," the lawsuit says. (Hey, they know how to use stock photos! Let's invest.)

Elizabeth Spiers, Dealbreaker's publisher and founder; John Carney, the Web site's editor in chief; and Bess Levin, a contributing editor, were all named as defendants. (Muffy??)

Calls seeking comment from Spiers and the New York-based Web site's general manager weren't immediately returned Monday. A comment on the Web site attributed to Levin said that "writing 'confidential' on a document does not obligate DealBreaker or anyone else to keep your secrets secret."

Solengo was founded by Brian Hunter, a one-time star energy trader at shuttered hedge fund Amaranth Advisors LLC. Amaranth lost more than $6 billion in September, making it one of the largest hedge fund collapses in history.

Naked Shorts has a PDF of the Legal Fun. One of Greg's readers points out that Solengo's lawyers, Kobre & Kim, are having some trouble with that principal/principle thing.

Posted by edelfenbein at 11:54 AM

Europe tops US in stock market value

Sacrebleu:

Europe has eclipsed the US in stock market value for the first time since the first world war in another sign of the slipping of the global dominance of American capital markets.

Europe’s 24 stockmarkets, including Russia and emerging Europe, saw their capitalisation rise to $15,720bn (€11,819bn) at the end of last week, according to Thomson Financial data. That exceeded the $15,640bn market value of the US.

The rise of the euro against the dollar, growth of east European markets such as Russia and stock market outperformance spurred by improving profitability have seen Europe close a long-held gap with the US. Ian Harnett at Absolute Strategy Research, who identified the move, said this marked a “seismic shift” in markets.

Posted by edelfenbein at 8:40 AM

Trend Trading to Win

Hey buddy, wanna learn how to make a FORTUNE in the market? Of course you do. Listen to this guy, he turned a measly $33,000 into a MASSIVE $7 million in less than two years.

That's not all:

On May 13, 2006, I traded LIVE at the MGM Hotel in Las Vegas in front of 100+ clients. I made over $139,000 that day. That's real money, not some simulated trading portfolio.

Um...May 13, 2006 was a Saturday. The markets were closed.

(H/T: Howard Wallstrip Lindzon.)

Posted by edelfenbein at 2:22 PM

Amphenol Splits 2-for-1

No, Amphenol (APH) is not way down this morning. The shares just split 2-for-1. This means you now have twice as many shares at half the price.

For record-keeping purposes, I'm adjusting the our buy price for APH from $62.08 to $31.04, and the number of shares will double from 805.4124 to 1610.8248.

One other thing to note. The stock exchange will be closed this Friday for Good Friday. This is the one day of the year where most of the world is open and Wall Street is closed.

Posted by edelfenbein at 9:56 AM

First Data Gets Private Equity Offer

Is there still a reason for a stock exchange? Another great stock, First Data (FDC), has recieved a $29 billion private equity offer. The shares are up about ten-fold since it was spun off from American Express in 1992.

A note to investors: Pay attention when a good company (or country) spins off a business. You can often find great deals. Here's Moody’s stock since it was spun off from Dun & Bradstreet. Here's Corporate Executive Board since it was spun off from the Advisory Board Company. Last year, First Data spun off Western Union.

Posted by edelfenbein at 9:51 AM

Questioning Malcolm Gladwell

This is a long time coming. Fred Gardner takes aim at Malcolm Gladwell:

Malcolm Gladwell is an influential New Yorker writer, the author of two best-sellers, "The Tipping Point" and "Blink." In January the NYer published a Gladwell piece called "Open Secrets," a convoluted defense of Enron's management. Joe Nocera of the New York Times expressed surprise that the renowned Gladwell could write something so inaccurate and slanted.

"Already 'Open Secrets' has been embraced by those who argue that the Enron prosecutions were an effort to 'criminalize' what amounted to flawed business decisions," wrote Nocera. "The efforts to weaken Sarbanes-Oxley are also rooted in the idea that the country overreacted to Enron and the other corporate scandals. In effect, the central defense argument -that Enron didn't really do anything illegal- has been given new life by Mr. Gladwell. And it isn't remotely true."

Posted by edelfenbein at 2:23 PM