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The Turnaround at Dell

Dell’s (DELL) rebound isn’t going as smoothly as had Wall Street hoped. The company just reported a decent earnings increase, 34 cents a share compared with 27 cents last year. Wall Street, however, was looking for 35 cents. As a result, the stock is getting clobbered today.

The company recently revised all of its financial numbers for the past few years. Here’s a summary of Dell’s new financial data.

Investors need to understand that businesses don’t turnaround very easily. Often the departure of a CEO is really a symptom of larger problems. Hewlett-Packard’s (HPQ) turnaround is closer to the exception. We sometimes think of stocks as athletes that have an off-night. There usually aren’t short-term earnings glitches. You’ll notice that small problems are like cockroaches, there are several more for each one you see.

Michael Dell took over as CEO with the departure of Kevin Rollins. The problems at Dell continue to be one of costs. Business Week notes:

But expenses as a percentage of revenue, a key measure of how well the company is managing costs, rose noticeably. Selling, general, and administrative expenses rose to 12.2% of revenue from 10.6% a year ago. Total operating expenses rose to 13.2% of revenue, up from 11.5% a year ago. "People are disappointed that the revenue increase did not flow through to the bottom line," says Brent Bracelin, analyst at Pacific Crest Securities. "It doesn't look like the company has trimmed enough fat." Dell's operating income of $829 million was 5.3% of revenue, well below the 8% level that Dell posted in years past.

Earlier this year, Dell said it wants to reduce its workforce by about 10%, but as of Nov. 2, Dell had cut only about 2.5% of the 84,000 employees it had on Aug. 3. Carty insisted, though, that the company "is still driving to that [10% reduction] number." Carty added: "We've identified a considerable amount of low-value work." The company also is working to automate certain tasks to help it eliminate more employees. "We have more manual work going on than we need," he said. At the same time, he said that other initiatives, such as acquisitions or "new strategies," may mean keeping or hiring certain kinds of employees.

Gross margin performance, too, didn't meet some analysts' expectations. Gross margin inched up to 18.5% of revenue, from 16.6% a year ago, but still fell below the 19% analysts were projecting. The company blamed component costs, saying they didn't decline as steeply as the company was projecting. Shaw Wu, analyst at American Technology Research, questions why that's the case, when some of Dell's main competitors, including HP and Apple (AAPL) have recently enjoyed the benefits of low component costs.

Posted by edelfenbein at 10:22 AM

Three-Month T-Bill Hits 2.8%

I'm amazed at the plunge in Treasury yields. The three-month T-Bill rate touched 2.8% this morning. We're approaching the low of 2.40 from August. I don't see how the Fed can keep rates so far above the market. Something has to give.

Posted by edelfenbein at 12:46 PM

Bloomberg Profile of Jim Simons

Jim Simons doesn't talk with the media much. You can tell why.

Renaissance is under increasing pressure to stay ahead of the pack -- and to keep its secrets under wraps. Save current employees and a few former ones, nobody knows precisely how the firm makes its millions. Medallion stopped taking new money from outside investors in 1993 and returned pretty much the last of their capital 12 years later. Today, the fund is run almost exclusively for the benefit of Renaissance staff.

The wise-cracking Simons himself is mum on virtually all of its details.

What can he say about Medallion's trading strategy?

"Not much," Simons says with a chortle, and then takes a drag on one of the Merit cigarettes he often smokes.

What kind of instruments does it trade?

"Everything."

How many different strategies does it use?

"A lot."

Simons says his Ph.D.s laugh when they read the far-fetched theories about what their fund might be doing. One chat room participant speculated that Renaissance uses audio hookups to futures exchanges and analyzes the noise from the pits with voice-recognition software.

(Hat Tip: Altucher)

Posted by edelfenbein at 9:36 AM

Buy List Update

The Buy List continues with a very impressive fourth-quarter rally in terms of relative performance. Through yesterday, the Buy List was down 0.32% for the year while the S&P 500 is up 0.70%. That's a gap of just 1.02%.

But on October 18, the Buy List was getting creamed by the S&P 500, 8.59% to 1.77%. That's a gap of 6.82%.

It looks like we have an outside chance of catching the index before the year is out. That was something I wouldn't have believed just five weeks ago.

Yesterday, the Buy List jumped 1.93% compared with 1.49% for the S&P 500. The big help came from Donaldson (DCI) which jumped 8.5%.

Donaldson announced earnings of 53 cents a share for its fiscal first quarter compared with 43 cents last year. Analysts were expecting 48 cents a share. The company also said it expects full-year earnings (their fiscal year ends in July) of $1.97 to $2.07 a share. That would make their 19th straight record year.

Posted by edelfenbein at 7:28 AM

The Plunge of the 10-Year Yield

Yesterday was the 11th largest fall in the 10-year T-bond rate since 1962. (Note: I'm referring to the percent change in the rate.)

Date..........................Change
10/20/1987.................-7.39%
4/16/1980...................-5.79%
10/7/1982...................-5.13%
3/5/2004.....................-4.96%
9/17/2001....................-4.75%
12/19/1980..................-4.39%
6/6/1986......................-4.33%
8/6/2004......................-4.09%
8/16/1971.....................-4.04%
2/28/1980.....................-4.01%
11/26/2007...................-3.99%

Posted by edelfenbein at 11:49 AM

Wall Strip Looks at Fair Isaac

Posted by edelfenbein at 10:31 AM

An Official Correction

The Dow is now down 10% from its all-time high close. On October 9, the Dow closed at 14,164.53. Today's close of 12743.44 makes for a drop of 10.03%. The S&P 500 is down 10.09%.

Posted by edelfenbein at 4:51 PM

Bed Bath & Beyond Is Now Below $30

Shares of Bed Bath & Beyond (BBBY) are now trading at $29.72. This is the lowest the stock has been in the last five years.

I'm not a believer that the housing market is having a severe impact on its business. There is some impact, but it's easy to overstate.

The company’s quarterly sales growth numbers have been pretty stable for the past three years, each quarter coming in around 10%-14%.

BBBY is a remarkably efficient company. Gross margin usually run in the low 40% range. Operating margins have slipped a bit from 15% to 13%, but that’s to be expected. Net margins are down from 10% to about 8.5%. Both are higher than they were during the run-up in housing prices.

There’s a big difference is a slowdown in earnings growth and losing a lot of money. Now let’s look at some of the homebuilder.

Lennar (LEN) will see its EPS drop from $8.32 two years ago to $-4.90 this year. DR Horton (DHI) will drop from $4.62 to $-2.27. KB Home (KBH) will drop from $9.53 to $7.61.

Basically, BBBY's return-on-equity has fallen from about 24% to around 20%, yet their shares have fallen by one-third. Compare 20% ROE to the 10-year T-bond that's now paying about 4%.

Posted by edelfenbein at 12:37 PM

Cyber Monday Myth and Reality

Don't get too worked up about Black Friday or Cyber Monday. They're not the busiest days of the year.

While not as famous as Black Friday, retailers just a few years ago invented Cyber Monday as a way to create buzz around online shopping.

The National Retail Federation's online division, Shop.org, coined the term in November 2005.

Some retailers had noticed an uptick in online sales, and the federation decided to brand it. Now, two years later, more and more stores are playing off the Cyber Monday theme and offering sales.

"It's a starting point. It's a kickoff point where many retailers have special deals and bargains," said Scott Krugman, spokesman for the National Retail Federation. "Retailers are having special Cyber Monday sales, and the way I see it, if retailers are attaching a sale and calling it Cyber Monday, it's true."

Shop.org said that 72 percent of online retailers are planning a special promotion for Cyber Monday this year, up from nearly 43 percent just two years ago.

But don't confuse the name with big purchases. Cyber Monday is by no means the busiest day for online sales, just as Black Friday is not the biggest day of sales for most stores.

"Black Friday is a great day for creating energy, buzz and excitement about the holiday season," Krugman said.

So, what is the busiest shopping day of the year?

The Saturday before Christmas.

Posted by edelfenbein at 9:50 AM

Barron's on Harley-Davidson

Interesting:

Yet when the Street throws in the towel on Harley-Davidson -- as it seems to do every few years -- that is usually the best time to buy the shares. Harley has fallen 30% to 40% ahead of previous U.S. recessions, only to rebound when the economy perks up. This time, the stock could top 60, although that is unlikely to happen tomorrow, or the day after.

Posted by edelfenbein at 7:50 PM

Web Freebies

This is cool. Business Week has listed 101 freebies on the Web.

Posted by edelfenbein at 4:33 PM

The World's Largest Outlet Mall

In the eyes of Europeans, the United States has become one enormous outlet mall:

Hours after her flight from Dublin landed in Boston on Thanksgiving, Alice Kinsella headed in a white van with a dozen relatives and friends to Wrentham Village Premium Outlets. The 36-year-old has never visited Boston, but she is bypassing the sights for an extended weekend of binge shopping that started at midnight yesterday.

For Kinsella and other Europeans, America is one big discount bin, thanks to a weak dollar that slid this week to another record low against the euro. As a result, tourists are spending thousands to travel to the United States to snag blockbuster bargains on everything from iPods to designer clothes and handbags.

By 4 a.m. yesterday, Kinsella had rung up nearly $2,000 in Christmas presents and winter clothes, including a $79 black leather jacket at Guess that she estimated would cost more than $250 in Ireland.

"The bargains for us are so great," said Kinsella, who paid $1,000 for a flight and hotel but expects to save even more on purchases here.

Posted by edelfenbein at 3:53 PM

The S&P 500 Is Down for the Year

Since the start of 2007, the S&P 500 is down 0.11%.

Including dividends, the index is up 1.56%. The Wilshire 5000, which is the broadest index, is up 0.22% for the year. With dividends, it's up 1.72%

Posted by edelfenbein at 12:10 PM

Michael Strahan's Mad Money Outtake

Posted by edelfenbein at 12:39 PM

Your Guide to the Subprime Market

If you have no idea what the subprime market is, this paper is a pretty good guide. Even though it’s written by economists, much of it is in readable English. It runs 26 pages, but a lot is charts and graphs.

Posted by edelfenbein at 10:43 AM

The 10-Year T-Bond Yield Plunges

Just five months ago, you could have locked in a 10-year T-Bond at 5.33%. Earlier today, it hit 4.003%.

From Bloomberg:

"What we're seeing is a panic demand," said David Ader, head of U.S. government bond strategy in Greenwich, Connecticut, at RBS Greenwich Capital. "Liquidity is a great problem."

Posted by edelfenbein at 10:21 AM

Computer Problems Delay Zimbabwe's Inflation Report

Experts believe inflation jumped from 8,000% in September to 15,000% in October.

Zimbabwe's Central Statistical Office (CSO) was due to issue the figures last week. CSO acting director Moffat Nyoni, however, told Reuters on Monday they were not ready because commodity shortages had affected the collection and calculation process.

"I am afraid the figures are not yet ready, and they may not be available for a while," Nyoni said.

"We have some problems - a computing problem - in that we have to find a formula of measuring prices of goods, some of which are not available on the (formal) market and which are in short supply in the economy," he said.

Posted by edelfenbein at 12:19 PM

Medtronic’s Earnings

Shares are Medtronic (MDT) are much higher today. Actually, the stock is really gaining back much of what it lost over the past month. MDT got pounded one month ago with the company said that it would halt distribution of certain heart defibrillator wires.

The good news is that the sales impact is less than what the company, and Wall Street, expected. Medtronic said that the Sprint Fidelis heart wire hurt second-quarter earnings by nine cents to 10 cents per share. For the quarter, Medtronic earned 58 cents a share which was a penny less than last year. Sales rose 1.5% to $3.12 billion.

The AP reports:

"This was a tough quarter," President and CEO Bill Hawkins said. "We feel we have made solid progress over the past five weeks" since the recall was announced, "but clearly, much work still remains."

Medtronic reported $1.15 billion in revenue in its largest unit, Cardiac Rhythm Disease Management, which makes pacemakers and defibrillators. The recall hurt revenue in that unit by $130 million, and it also absorbed $31 million in costs to write off the Sprint Fidelis leads recalled during the quarter. Last month, Medtronic had predicted a $150 million to $250 million loss of second-quarter revenue and inventory write-off costs of $15 million to $20 million.

When the Sprint Fidelis problems were discovered, Medtronic moved quickly to go back to its Sprint Quattro lead, including seeking regulatory approval to sell it in Japan. Hawkins said the company expects approval for Japanese sales by April.

One Medtronic product has actually benefited from the recall: CareLink, Medtronic's system for monitoring its implanted defibrillators. The potential to spot problems such as the broken Sprint Fidelis wires has prompted more interest in CareLink, said Pat Mackin, president of the Cardiac Rhythm Disease Management unit.

"I can tell you that I've personally been to centers that were not interested in CareLink, and they want to put every single patient on it," he said.

Sales grew in other Medtronic units. Spinal revenue rose 10 percent to $660 million, and CardioVascular revenue (which includes stents) grew 8 percent to $490 million.

Medtronic said revenue from outside the U.S. grew 12 percent to $1.17 billion, including $73 million from favorable currency exchange rates.

Medtronic doesn't give quarterly guidance, but Ellis said he would not be surprised if the consensus of analysts remained around $2.52 per share for the full year. Analysts polled by Thomson Financial were predicting full-year earnings of $2.54 per share. Ellis said revenue should accelerate in the second half of the year.

Here's a look at MDT's sales and earnings for the past several quarters:

Quarter...........EPS.............Sales
Jul-01............$0.28...........$1,455.70
Oct-01...........$0.29...........$1,571.00
Jan-02...........$0.30...........$1,592.00
Apr-02...........$0.34...........$1,792.00
Jul-02............$0.32...........$1,713.90
Oct-02...........$0.34...........$1,891.00
Jan-03...........$0.35...........$1,912.50
Apr-03...........$0.40...........$2,148.00
Jul-03............$0.37...........$2,064.20
Oct-03...........$0.39...........$2,163.80
Jan-04...........$0.40...........$2,193.80
Apr-04...........$0.48...........$2,665.40
Jul-04............$0.43...........$2,346.10
Oct-04...........$0.44...........$2,399.80
Jan-05...........$0.46...........$2,530.70
Apr-05...........$0.53...........$2,778.00
Jul-05............$0.50...........$2,690.40
Oct-05...........$0.54...........$2,765.40
Jan-06...........$0.55...........$2,769.50
Apr-06...........$0.62...........$3,066.70
Jul-06............$0.55...........$2,897.00
Oct-06...........$0.59...........$3,075.00
Jan-07...........$0.61...........$3,048.00
Apr-07...........$0.66...........$3,280.00
Jul-07............$0.62...........$3.127.00
Oct-07...........$0.58...........$3,124.00

Here's a chart of Medtronic's stock and earnings-per-share. The stock is in blue and follows the left scale. The earnings are gold and follow the right scale. I scaled the lines at a ratio of 25-to-1, so when the lines cross, that's a P/E ratio of 25. Even though earnings have climbed, the stock hasn't.

Posted by edelfenbein at 10:35 AM

Third-Quarter Earnings By Sector

So far, it looks like earnings for the S&P 500 will decline about 8.5% from last year. The pain, however, is not being felt equally.

Health Care.............................14.80%
Information Technology...........13.68%
Consumer Staples...................12.61%
Industrials...............................11.82%
Materials..................................5.50%
Telecommunication Services.....4.09%
Utilities.....................................0.73%
S&P 500...................................-8.48%
Energy.....................................-9.92%
Financials................................-33.15%
Consumer Discretionary...........-38.94%

The lousy number for the Consumer Discretionary sector is due to the homebuilders.

Posted by edelfenbein at 1:31 PM

America Finally Wins Vietnam War

It took awhile:

HANOI — Hang around Vietnamese cafés long enough and you are likely to see an arresting sight: one person handing another a grocery bag stuffed with bank notes. Drug deal? Bribe?

In fact, this is the way many Vietnamese buy stocks these days - not through a broker or the stock exchange but through the Internet, with payment made in cold cash. Finding each other through stock-trading chat rooms and websites, buyers and sellers strike a deal online and then close it by exchanging cash for stock certificates.

It's a vivid sign of the times in booming Vietnam. With the economy growing at its fastest clip in a decade, everyone wants to get in on the action. From taxi drivers to tycoons, Vietnamese are speculating wildly on anything that might go up - apartments, gold, land and, above all, stocks.

Online trading is an easy way to play the game. Traders don't need to open an account with a broker. They don't even need a bank account. Unregulated, informal and private, the online market works something like Craigslist or eBay. But they're not trading baseball caps or Dad's stamp collection.

Participants are trading stocks in privatized state companies that make everything from fertilizer to tractors.

Posted by edelfenbein at 10:08 AM

A Look at Apple's 10-K

Michelle Leder reads Apple's 10-K so we don't have to:

When Apple (AAPL) came out with its Iphone at the end of June, there was a flurry of activity to take it apart. That’s kind of the way I feel about the 10-K they filed late yesterday. There were so many interesting disclosures in the 170-page filing, that it’s hard to know where to begin. The filing also included the compensation and perks information that’s more commonly found in the proxy.

Yes, Steve Jobs still made a single buck last year, but that’s still more than Google (GOOG) CEO Eric Schmidt made for serving as a director at Apple. As the filing notes, “Upon his initial appointment to the Board on August 29, 2006, Dr. Schmidt declined the annual retainer fee and the automatic stock option grant to purchase 30,000 shares to which new directors are entitled under the Director Plan. Instead, Dr. Schmidt purchased 10,000 shares of the Company’s common stock on the open market.”

Former Vice President Al Gore, who earlier this week became a partner at VC firm Kleiner Perkins, was the lowest paid director (next to Schmidt) but was the biggest beneficiary of the free computer equipment that Apple gives to its directors. Gore received $15,245 worth of Apple swag. Directors are eligible to receive two free computer systems a year, but clearly this includes some extra bells and whistles.

One of Apple’s risk factors is its ties to a single carrier for the Iphone. In the US, that’s AT&T (T), which has faced criticism for its slow network, but the company also lists 02, T-Mobile and Orange as well. In that same risk factor, Apple notes that because these agreements “require each carrier to make revenue-generating payments” to Apple, the frenzy to unlock the Iphone “could have a material adverse effect on the Company’s future financial condition and operating results” which is why Apple keeps on coming up with new ways to prevent that from happening.

Finally, there were some interesting details about the free Iphones, which Apple employees had been rumored to receive. According to the K, each of Apple’s 21,600 employees, including the named executives received a free Iphone, which the company then grossed-up for taxes. Judging by one of the footnotes to the summary comp chart, some employees received a $250 gross-up and others received a $379 gross-up, which presumably was the difference between the 4 and 8-gig models. The only employee who didn’t get the free Iphone appears to be Steve Jobs, who the filing notes did not get a gross up for the Iphone, or, for anything else.

Posted by edelfenbein at 9:47 AM

A-Rod and W-Buf

It looks like A-Rod will re-sign with the Yankees. He’ll also win his third MVP award today. The Wall Street Journal reports that A-Rod got some help in his negotiations with the Yankees from none other than Warren Buffett:

Mr. Rodriguez's initial defection happened in late October, a tense period for the team during which its beloved manager Joe Torre was effectively ousted after the Yankees were eliminated in the playoffs. Hoping to net a richer contract elsewhere, Mr. Boras advised his client to exercise his opt-out clause, a move reported Oct. 29. The player reluctantly took his agent's advice, say people familiar with his thinking, even though he and his wife Cynthia were eager to stay in New York and have him continue to play for the Yankees.

Amid deafening criticism by sports writers and on talk radio, a worried Mr. Rodriguez called Mr. Buffett, say people familiar with the matter. The two had become friends a few years ago, after the slugger flew to Omaha to meet with the investing guru and rabid baseball fan. After that, the two met socially several more times, say the people familiar with the matter. Signifying their mutual admiration, an autographed Rodriguez jersey hangs at Berkshire Hathaway's Omaha headquarters.

Mr. Buffett's advice was simple, says a person familiar with the matter: approach the Yankees solo, without Mr. Boras. “A-Rod really loves being a Yankee,” says Mr. Buffett. He declined to comment on the substance of any conversation with Mr. Rodriguez, saying he doesn't discuss private talks.

Of course, they're not such an odd couple. A-Rod could be a billionaire before his career is up.

Posted by edelfenbein at 7:13 AM

RIP: John Noble

Have a look at this amazing obituary of John Noble, an American who lived in Germany during the World War II. Although he was never charged with any crime, Noble was sent to Buchenwald.

By the Soviets.

Posted by edelfenbein at 12:25 AM

The Bank of Starbucks

I always liked this Starbucks (SBUX) in suburban Maryland. It's so obvious that it used to be a bank. The even kept the drive-thru:

Posted by edelfenbein at 7:40 PM

The Decline of Fannie

I have to say that I’m amazed by the decline and fall of Fannie Mae (FNM). Not that the company doesn’t deserve it, but to anyone who know who remembers the esteem with which this stock was held, the recent fall has to be disheartening. In the last six weeks, the shares are down -41%.

Shares of Fannie Mae were a no brainer for years. From late 1981 to late 2001, the stock went from 50 cents a share (adjusted for a 12-for-1 split) to $80 a share. Throw in dividends and that’s about another 100% to your return. That’s a return to investors of over 30% a year for two decades!

Today the stock broke below $38 a share, a level it first hit 11 years ago. Fannie Mae was loved by everyone. Peter Lynch touted it in his books. It was politically popular. Who could be against homeownership? Unlike the tobacco stocks, which everyone hated.

Here’s perhaps the most amazing stat: Both Fannie Mae and Altria (MO) are projected to earn $4.68 a share next year. Yet, Altria is going for $73 a share, which is close to twice FNM’s price.

Posted by edelfenbein at 11:18 AM

Inflation and Sex

When people are asked what the inflation rate is, apparently your gender is an important factor. Caroline Baum has the 411:

“That men and women occasionally see things differently is not a remarkable observation,” says Michael Bryan, economist at the Federal Reserve Bank of Cleveland. “But that the sexes could report vastly different perspectives on the rate at which prices are rising over a long period of time is astonishing.”

Bryan has studied decades of data on this battle of the sexes, using the University of Michigan Survey of Consumers, a joint survey conducted by the Cleveland Fed and Ohio State University among others. He found that demographics played a role in determining the public's estimates and predictions of inflation.

Those who are rich, married, white and middle-aged have lower inflation perceptions and expectations than those who are poor, single, non-white and young. That seems almost intuitive: Society's “haves” are better positioned to endure cost-of- living increases than the “have-nots.”

New View

Yet even after holding income, age, education, race and marital status constant, "men and women hold very different views on the rate at which prices are changing." Bryan writes in a November 2001 commentary, “The Curiously Different Inflation Perspectives of Men and Women.” Women consistently think inflation is 1.9 percentage points higher than men, and they expect prices to rise 2.1 percentage points more than men.

Baum recommends that Bernanke should go to Tupperware parties. But how does she know he doesn't?

Posted by edelfenbein at 10:46 AM

Nassim Nicholas Taleb on Charlie Rose

Posted by edelfenbein at 8:31 AM

Homebuilding Stocks

Here’s a colorful look at how some homebuilders have done for the past five years. As you can see, a company’s industry group is a major indicator of returns:

Posted by edelfenbein at 7:53 AM

Sign of the Times

The dollar's prestige continues to suffer:

In a video for the movie "American Gangster," hip-hop maestro Jay-Z thumbs through a wad of 500-euro notes on a night of cruising through the concrete canyons of New York, a city where the euro isn't legal tender.

Posted by edelfenbein at 6:32 PM

The Cyclical Bear Market

Over the summer, I had several posts about how the outperformance of cyclical stocks was soon going to end. I particularly looked at how the Morgan Stanley Cyclical Index (^CYC) was doing relative to the S&P 500 (^SPX)

Here’s part of a column I wrote for Real Money five months ago.

The boilermaker index has been on fire recently. The CYC is up over 22% this year and up over 40% in the past 11 months. Going back to the March 2003 low, the CYC has jumped 180%, which doubles the S&P 500. Not too shabby.

But the best has come recently.

This year, the CYC has already set an amazing 40 new highs. In April it burst through 1000, and it's quickly closing in on 1100. Like all good rallies, however, this must come to an end, and I'm afraid it won't be pretty.

The important thing to remember is that cyclical stocks are…well, cyclical. They move up, and they move down. Personally, I like the "up" part the best. Historically, each cycle has lasted around five to seven years, so the clock is running out on this latest cycle, which began in September 2000 just as the tech sector was returning from its romp through Bubblestan.

Another important fact to remember is that cyclicals have a nice habit of outperforming the stock market when the market itself is doing well but underperforming when stocks take a beating.

The end finally came on July 19. Since then, the CYC is down -13.4% while the S&P 500 is down just -6.6%.

I think the underperformance will continue for a few years.

Posted by edelfenbein at 4:31 PM

My Favorite Links

I don't do this often enough, but please visit my links page to read some of my favorite stock bloggers. Here are some blogs I've been reading lately:

Posted by edelfenbein at 2:39 PM

Modest Inflation Last Month

The Wall Street Journal reports:

The consumer price index rose 0.3% in October, the Labor Department said Thursday, matching September's increase. The core CPI, which excludes volatile food and energy prices, advanced 0.2% for a fifth-straight month. The headline and core gains matched Wall Street expectations, according to a Dow Jones Newswires survey.

Unrounded, the CPI rose 0.293% last month. The core CPI advanced 0.159% unrounded.

Consumer prices were up 3.5% from a year ago. The core CPI was up 2.2% compared to the same month a year ago, up from 2.1% in September.

Still, that remains near the 2% top end of the Federal Reserve's assumed comfort zone for annual core inflation. The Fed's preferred gauge, the core price index for personal consumption expenditures, is within that range at 1.8% annual growth through September.

The government's inflation data comes in for a lot of well-deserved ribbing. Still, the overall trend of inflation is tame. The United States is in no danger of slipping into hyper-inflation.

Even after high inflation was defeated in the early 1980s, the core CPI rate was often over 5% and that didn't impede growth. The year-over-year core rate hasn't gone over 3% or under 1% in over a decade.

Posted by edelfenbein at 11:55 AM

The Yield Curve Widens

Eighteen months ago, the long end of the yield curve was almost perfectly flat. Today, some daylight can finally be seen between the long-end yields. Even though the 30-year yield isn't to new lows, the five-year yield certainly is.

Posted by edelfenbein at 12:28 PM

Attention Math Nerds

Here’s a spreadsheet of some multiple regressions I ran.

I looked at the daily changes of the 10 S&P industry groups against each other. The regressions are the columns not the rows. (I’m afraid I’m out of my depth mathematically, so if anything looks off, please let me know.)

Healthcare and Staples seem to be strongly related. I like to think of them as subsets of one large group called Defensives. Also, Energy and Materials are strongly related. I was surprised to see such a strong connection between Financials and Consumer Discretionary stocks.

Posted by edelfenbein at 1:58 PM

Fear the Yen

Here are some stunning stats from Ken Fisher in yesterday's Financial Times:

Forget the falling dollar. What we should fear is a rising yen. The most amazing statistic you never heard is: the year-to-date daily correlation between ups and downs in the global stock market versus spreads between the yen and the euro is 93 per cent. That is beyond eye-popping.

I had no idea it was that strong:

The 2007 year-to-date daily correlation coefficient between changes in the yen/euro spread and the MSCI World Index – best reflecting the total developed world stock market – is 0.93. For the S&P 500, it is 0.89, for the FTSE 100, 0.86, and for Germany’s DAX, 0.87. All higher than most people can fathom.

The correlation of the MSCI World to the yen/sterling spread is lower, at 0.75, but is still sky-high. To the Australian dollar it is 0.86 and to the Canadian dollar 0.81. All breathtakingly high. Only to the U.S. dollar, which everyone fears, is it materially lower at 0.37.

Posted by edelfenbein at 12:27 PM

Yay Me!

This is a bit scary of me to say, but the Buy List has been doing incredibly well lately. We’ve beaten the S&P 500 for 14 of the last 17 days. Now I promise not to get too cocky because I’m still trailing the market for the year. In fact, just mentioning this makes me think that I’ll jinx it.

Last week, I noted that the Buy List had its best day relative to the S&P 500 for the year. It was only the third time we’ve beaten the market by over 1% in a day. Well yesterday was the best day ever against the S&P 500. We were up 0.16% while the S&P 500 was down -1.00%.

I’m stunned that these days are coming so close together. I build the Buy List to roughly conform to the overall market, but just do a little bit better (hopefully). Our daily correlation usually runs about 85%. Since October 18, the S&P 500 has dropped -6.55% while we’ve dropped just -1.54%. For the year, we still trail the S&P 500, 1.47% to 0.20%. But we’ve closed the gap enormously.

The big story yesterday was the fall in energy and materials stocks. That’s the major missing piece on the Buy List, so whenever those sectors trail, we tend to lead the market. Yesterday was a strange day because the dollar has its best day in over a year. Also, the Dow fell below 13,000 but its fall, in percentage terms, was half of the S&P 500. Outside of a few stocks, the market had a blah day.

Two small things to pass on. SEI Investments (SEIC) made news when it said it would provide financial guarantees for some of its money market funds. Also, Sysco (SYY) said it will raise its quarterly dividend by 15.8% to 22 cents a share.

Posted by edelfenbein at 12:09 PM

Still a Bull

He's a chart of why I still like the stock market. The black line is the S&P 500 and it follows the left scale. The yellow line is its earnings and it follows the right scale. I scaled it at 16.66 to 1 which has been roughly the average P/E ratio for the past few months.

The part of the yellow line in the future is obviously projections. You can see that the market is anticipated to recover from a modest dent in earnings growth.

Posted by edelfenbein at 11:13 AM

Breakfast at Wall Strip

Lindsay does a great Audrey Hepburn. Next, I hope they do My Fair Isaac. (“I could have bouuuught all night…”)

Posted by edelfenbein at 9:12 AM

Leucadia National (LUK)

One of my favorite stocks, Leucadia National (LUK), reported earnings on Friday. If you’re not familiar with Leucadia, it’s basically the Greta Garbo of the stock market. The company has no analysts who follow it, no earnings estimates, no whisper numbers, barely any press releases and it does minimal volume

Talk about bare bones, check out their website.

So what does Leucadia do? It’s often called a “mini Berkshire Hathaway” because it’s a holding company that buys assets on the cheap. For nearly thirty years, the firm has been run by Ian Cumming and Joe Steinberg. They own a hodgepodge of businesses; some real estate here, some timber there, even a winery. Nothing terribly exciting.

But what is impressive is the stock’s long-term performance. Remarkably, Leucadia National has done even better than Berkshire Hathaway.

Since the stock market bottomed in August 1982, shares of Leucadia National are up over 32,600%. Berkshire is up only 29,600%. (Poor Warren.) Actually, LUK has done even better because it paid out a ginormous dividend in 1999. The stock is up another 60% this year, and unlike Berkshire, they split the shares so normal humans can buy it.

The lesson here is, don’t be afraid of companies that aren’t widely followed. Some of the best stocks are off Wall Street’s radar screen. Inhabitants of Wall Streetistan tends to see all time and space as neatly divided into three month chunks. The quarterly earnings game is tough to play and there’s a benefit to ignoring it altogether.

Posted by edelfenbein at 2:26 PM

How to Profit from a Crash in China

Some market observers think the Chinese market is a bubble. Me, I’m convinced. The Shanghai Composite has basically doubled this year, and it doubled last year as well. That’s not normal and it shouldn’t be expected to continue. In fact, the index is already down about 15% from its peak.

The good news for investors is that ProShares has launched a new ETF designed to profit off China’s misery. The UltraShort FTSE/Xinhua China 25 ProShare (FXP) moves twice in the opposite direction of the Chinese stock market. The underlying index is the FTSE/Xinhua China 25 Index (FXI). Check out how that index has done:

Yep, that might be a bubble.

Posted by edelfenbein at 11:10 AM

Jim Cramer's 10 Reasons to Be a Bull

At TheStreet.com, Jim Cramer lists 10 reasons to be a bull. Here are his Top 5:

1. The stock market is cheap. Most of the stocks I follow are in low or mid-teen multiples or at a price-to-earnings ratio vs. high growth rate that I regard as being just flat-out cheap, particularly when you consider a 4% 10-year Treasury. Retail at 10 times earnings? Lots of high-growth tech stocks at mid-teen multiples? It makes no sense to me.

2. Takeovers and going-privates could come back. On a large scale we saw BHP Billiton (BHP) make a move today for Rio Tinto (RTP). On a smaller scale there's money to go private, witness Restoration Hardware (RSTO).

3. There are some very strong bull markets out there. Health care cost containment, agriculture, oil and oil services, infrastructure, tech and aerospace defense. There are a lot of sectors that work.

4. Interest rates. The financials are so dire that the Fed will have to cut twice by year-end or give us another half-point cut, which will flush a huge amount of money from the sidelines and embolden banks to start lending again.

5. The market still loves high growth. Witness Google (GOOG), Research In Motion (RIMM), First Solar (FSLR), Apple (AAPL) and Intuitive Surgical (ISRG). Believe me, if this market were really bad, you wouldn't get those to go up, either.

If I made a top 10 list, I would simply restate Jim's first point 10 times.

Posted by edelfenbein at 10:26 AM

Google Millionaires

Bonnie Brown is a former Google employee who made several million dollars off her stock options. So what did Ms. Brown do at Google? Programmer? Designer?

Nope, she was the company’s in-house masseuse:

"I'm happy I saved enough stock for a rainy day, and lately it's been pouring,” said Ms. Brown, 52, who now lives in a 3,000-square-foot house in Nevada, gets her own massages at least once a week and has a private Pilates instructor. She has traveled the world to oversee a charitable foundation she started with her Google wealth and has written a book, still unpublished, "Giigle: How I Got Lucky Massaging Google."

Posted by edelfenbein at 10:15 AM

Remembrance Day

Posted by edelfenbein at 11:00 AM

Did She Say Shittygroup?

Nah, it must be me.

Posted by edelfenbein at 3:48 PM

Investing With Nickels and Dimes

Ok, I’d admit I’m a sap for these kinds of stories, but c’mon...this is great. Earl Crawley, a 69-year-old Baltimore parking lot attendant who makes $20,000 a year has amassed a portfolio worth $500,000.

How did you get started investing? Soon after I started working for Mercantile Bank in Baltimore 44 years ago, one of the bankers took me aside and told me I didn't have enough education to go very far at the bank. He suggested I invest in stocks.

Where did you get the money?
I did it with good old-fashioned nickels and dimes. My mother taught me how to budget, which made me appreciate how a little money can grow. I saved what I could from odd jobs, such as lawn-cutting and window-washing, that I did in addition to my day job. I used that money to buy one share of IBM stock back in 1981.

How did you learn how to invest?
I really didn't know enough to be scared. In school I was considered a slow learner -- dyslexic, it's called now. My true gift from God is my ability to listen, and that's how I'm able to ask questions and use tips from the brokers, financial planners and bank customers I see every day.

Do you have a formula for picking stocks?
When I first started out, I had to be conservative and take my time because I couldn't afford to lose money. Now I look for companies with stability that pay dividends. I read the stock pages but don't claim to know everything about them. I have a broker, but many times I'll go where my spirit leads me.

Any stocks you're excited about now?
I've been buying shares of ExxonMobil.

We've heard that you're helping others invest.
I started an investment club at my church. And I've been coaching a couple of young men, such as bar-and-grill cook Antawn Davenport and Dana Mouse Smith, who toured with the late rapper Tupac Shakur. They can help spread the message that people can do whatever they set their minds to do.

Mr. Crawley, you are my hero.

(Hat Tip: Capt. Kirk.)

Posted by edelfenbein at 10:38 AM

A Bond Bubble?

Ever notice how, in the eyes of the media, the bond market is never in a bubble? No, that’s only for tech stocks and real estate. Look at the five-year Treasury yield (^FVX): It’s down to 3.75%, that’s its lowest yield in over two years.

When Baidu hits $400, well...that’s irrational. Yet, if the bond market does that same, it’s assumed to be correct. Where are the editorialists and central bankers wagging their fingers at the moral laxity of the investing public? Can anyone get Bob Shiller on the line?

The same thing goes for currencies and the bond market. Does the fact that every single commodity rally since, oh...the Enlightenment, has ended the same way, the media considers these judgments to be sound? If oil is at $100, the problem is easy, we drive too much! Gold’s at $900? Yikes, they must know something.

I don’t see how a yield of 3.8% is suitable competition against equities. The S&P’s dividend yield is about half that. What kind of equity premium are we talking about?

Rant over.

Posted by edelfenbein at 10:06 AM

Looking at the Dow Jones Industrials

Eight years ago, Dow Jones decided to do a big shake up to the Dow Jones Industrial Average (^DJI). The gatekeepers of the index knocked out four stocks -- Sears, Chevron, Goodyear and Union Carbide. The four new stocks they added were Microsoft, Intel, SBC and Home Depot. SBC is now AT&T.

The new additions made a lot of news at the time because it was the first time that the Dow included stocks from that new-fangled Nasdaq. Also, this was the first time the "industrial index" made such a big nod to the New Economy.

The new stocks started trading on November 1, 1999. The brave new world lasted exactly six days. On November 6, 1999, Microsoft was ruled a monopoly. Over time, Microsoft did better in court than in the trading pits.

Here's a look at how Microsoft and Intel have done since they were added to the index:

As you can see, both stocks have lagged the index as have Home Depot and AT&T.

As far as the old stocks go, Sears Roebuck is now Sears Holdings (SHLD). Union Carbide is no longer part of the Dow but it is part of Dow Chemical (DOW). Goodyear (GT) and Chevron (CVX) are still going strong but only Chevron has beaten the Dow over the past eight years.

Interestingly, IBM was tossed from the index in 1939 and put back in in 1979 and it's still there today. During those 40 years, IBM went up 22,000%. If it had been there the whole time, the Dow would be far higher today (by my rough estimate, about 35%). The Dow would have cracked 1,000 in 1961 instead of twelve years later. Behold the power of one really good stock.

The other day, Barry Ritholtz said it's time to purge GM from the Dow. I agree, and they can fire Alcoa too. He suggests Cisco as a replacement. That's a good idea, but I'd lean more towards a stock like UPS.

Posted by edelfenbein at 8:10 AM

Growth/Value Divergence

Here's an interesting aspect of today's market. The S&P Value Index (^SVX) was up 0.38% while the S&P Growth Index (^SGX) was down -0.49%. That's an unsually large divergence for one day.

Posted by edelfenbein at 8:33 PM

Michael Lewis on Stan O'Neal

Michael Lewis looks at Stan O'Neal's "scorecards:"

Aug. 12: Purchase Country Club.

ALL ALONE ON THE COURSE. NO ONE TO TALK TO SO TALKED TO MYSELF. HAD A THOUGHT: NO ONE KNOWS WHERE I AM! REALLY! TURNED OFF CELL PHONE. FIVE HOURS LATER I WONDERED: WHERE DID THE TIME GO? A PERFECT DAY.

Aug. 18: Purchase Country Club.

BIRDIE ON 11 WAS A THING OF BEAUTY. IT WOULDN'T HAVE BEEN POSSIBLE IF I'D ALLOWED MYSELF TO BE DISTRACTED. DETAILS ARE THE ENEMY OF GOLFING EXCELLENCE. GAVE ME ANOTHER THOUGHT: GOLF IS LIKE RUNNING MERRILL LYNCH! THE TRICK IS TO KEEP IT SIMPLE. BE A BIG PICTURE PERSON. NOTE TO SELF: SMARTEST THING YOU EVER DID WAS TO TAKE FIRM AWAY FROM THE DAY-TO-DAY DRUDGERY AND MAKE JUST A FEW BIG BETS. FREES UP TIME.

Aug. 26: Vineyard Country Club.

FIVE BIRDIES AGAINST THREE BOGEYS. ALL THESE UPS AND DOWNS! MOODS SWINGS ARE TREMENDOUS AND EXHILARATING BUT CAN'T LET ANYONE AROUND ME KNOW WHAT I'M FEELING. NOT THAT THERE'S ANYONE AROUND ME -- BUT YOU NEVER KNOW WHO'S ON THE NEXT TEE. GOLF IS SO MUCH LIKE RUNNING MERRILL LYNCH! WHEN I PLAY I FEEL I MIGHT AS WELL BE AT MERRILL LYNCH. IN A WAY, I AM.

Posted by edelfenbein at 1:54 PM

On the Other Hand...

Baltimore Sun:

Bernanke: Rates cuts, recession unlikely

MarketWatch:

Fed chief fears a downturn

But my favorite headline of the day goes to the Sydney Morning Herald:

GM sees bright side despite $42b loss

Posted by edelfenbein at 11:10 AM

The Buy List Today

With the S&P 500 plunging 2.94% today, this may not sound like much, but the Buy List had its best day of the year relative to the S&P 500.

The S&P was down 2.94% while the Buy List was down "only" 1.89%. This is just the third time that the Buy List has beaten the market by over 1%.

Of the 19 stocks on the Buy List (remember Biomet was bought out), 17 beat the market today. Only SEI Investments (SEIC) and WR Berkley (BER) did worse than the broader market.

Posted by edelfenbein at 4:54 PM

A Little Perspective

I know gold is going through the roof and oil is about to hit $100, but would you mind if I added a little perspective to the latest bout of higher commodity prices?

I didn't think so. Here's a look at the CRB-Spot Index adjusted for inflation over the last 60 years.

Kind of a different story, ain't it?

Posted by edelfenbein at 3:30 PM

Boiler room rings up the wrong target

This is rich.

Bad:

Being a boiler room scammer and promising to make people 300% in three months.

Worse:

Calling the home of the head of enforcement for the New Brunswick Securities Commission.

(Via Kirk.)

Posted by edelfenbein at 12:01 PM

Pathetic!

This is pathetic. The WSJ has printed a series of emails among members of the moronic Bancroft family. They had thirty days to choose a family member to serve on the DJ board. Not very hard, right? Well, for these folks, it is. This family is so incompetent, they couldn't even manage this basic task. Check out some of these emails:

Tom Hill Thursday, Sept. 20, 2007

Thanks Chris for the follow up.

You will recall I inquired about the selection process in an email to Mike Elefante and copied to the family on August 7. It has taken the family more than six weeks to get this most basic information.

At this rate I'm confident we'll have a nominee by the end of the year. I'm just not sure which year.

Tom Hill

Back to top

* * *

Crawford Hill
Thursday, Sept. 20, 2007

Hi all,

I can only say what a joke this episode has become. To learn only just now what Chris kindly just passed along to us is both disgraceful and egregious and reflects poorly on those who should have guided this to a satisfactory conclusion.

None of this however is to reflect on the integrity, smarts or work ethic of Mike Hill ( and Liz [Elisabeth Chelberg], for that matter) who has (have) all of those and more. I just wonder, given the very bizarre nature of this process ( or, really, Non-Process) and the Board position itself as we now know it, why anyone in the family would want to do this.

This entire, sad and pathetic, final episode is a fiasco. No wonder we lost Dow Jones!!

I will call John Carroll and pass along the news. To those responsible- Thanks so much for placing me in this awkward position... on the other hand as I have pointed out elsewhere, getting these things right requires more than our designated representatives were capable of executing. The pattern holds to the end. What a shame. I had high hopes that we could get this right and worked hard to that end. Finding all this out now, after the fact is stranger than fiction.

My Best to you all- may your future endeavours be more successful than what transpired here today (not saying much) and may you carry on with your interesting and diverse lives.

I am done with this matter.

Thanks for listening and thanks to those of you who spoke up and supported me when you were so moved. I appreciate your efforts and value our relationships.

As ever,

Crawford

Once the thirty days expired, it then became Murdoch's choice. He chose Natalie Bancroft, a 27-year-old opera singer who lives in England.

Well played, Rupert. Well played.

In a completely unrelated note, shares of The New York Times (NYT) hit $18 yesterday, a ten-year low.

Posted by edelfenbein at 11:15 AM

Productivity Soars

Productivity grew 4.9% last quarter, the most in four years. Basically, people are producing more and working less. The good news is the higher productivity can help keep inflation down.

Posted by edelfenbein at 11:03 AM

The Good Side of the Subprime Mess

I don't agree with everything here, but George Schultz and John Taylor make some interesting points about the silver lining in the subprime cloud:

Including both the direct investment effect and the personal saving effect, about three-quarters of the reduction in the current account deficit can be attributed to the housing market turmoil. So while the agreed economic policies have begun to improve the current account, and will continue to do so, they have had important assistance. The housing market correction has been an important factor in the current account correction; as a result we are seeing a dramatic beginning of a welcome rebalancing of the world’s investment and saving flows.

Posted by edelfenbein at 7:25 AM

GM Takes $39 Billion Charge

I think GM's restructuring needs restructuring. The company announced that it's taking a $39 billion noncash charge in the third quarter to remove net deferred tax assets from its books.

The NYT:

G.M. said the charge, which affects the automaker’s businesses in the United States, Germany and Canada, would have no impact on operations and would not interfere with efforts to restructure.

But analysts said the step reflected the likelihood that G.M. would not earn significant profits on its automotive or finance operations in the near future. The deferred assets could have been used to offset taxes on future profits.

“What this says right now is that, at least according to an accounting interpretation, the outlook for earnings in their U.S. business has diminished from where it was,” said John Casesa, an industry analyst with the Casesa Shapiro Group.

The charge is among the largest by the auto company and is the latest in a series of accounting steps at G.M. The company has revised its financial results often over the last few years as it has worked through a restructuring that began in 2005.

Let's run the numbers: $39 billion and GM has 565.9 million shares outstanding. The current Dow divisor is 0.123017848. So 39,000,000,000 divided by 565,900,000 divided by 0.123017848 equals roughly 560.

GM's charge is worth 560 Dow points.

Think about that.

Posted by edelfenbein at 7:01 AM

Cramer Eats Skin Cream

If TV didn't exist, I think he'd go door to door.

Posted by edelfenbein at 6:41 AM

ValleyWag: Why Apple Will Be Bigger Than Google

Behold:

The nonrelease of the Googlephone just highlights what Apple gets about consumers, and what Google doesn't. Apple knows how to design not just gadgets, but the businesses that go around them. And as a result, I wouldn't be surprised if Apple is worth more than Google within two years.

Google has a market cap of $230 billion and Apple checks in at $167 billion, so it’s really not that outrageous a claim.

ValleyWag lists the reasons:

First, Apple makes a profit when the phone is sold -- about $200. Second, it takes a hefty chunk of subscription revenue from the carrier -- $18 a month, or $432 over two years. Third, Apple takes a cut from music and television shows sold through the iTunes Store -- and, possibly, it will take a cut of sales of third-party software applications as well.

The hardware profits are likely here to stay. Apple has been hugely successful in driving down costs and keeping margins up. For the most part, Apple doesn't really lower prices. Its top of the line laptop has been in the $2,000-$2,500 range for years. Those $500 pieces of crap at Wal-Mart? Those are last year's computers being sold as new. Apple doesn't do that, so they keep their margins fat and juicy.

The same thing happened with the iPod. When it debuted in October 2001, the iPod was $399. For years the top of the line iPod remained around that price. Only more recently, with the advent of cheap flash drives -- Apple spent $1.2 billion to snatch a huge percentage of the worldwide supply of it -- has it been able to drive down the average cost of iPods. As a result, Apple has sold millions upon millions of the music players, taking a huge market share and laughing all the way to the bank.

Posted by edelfenbein at 4:14 PM

Not All Financial Stocks Are Getting Clobbered

Here's 25 years of Aflac (AFL):

The duck stock has returned over 21% for a quarter of a century. What's most impressive is how consistent the stock has been. That's a total return of more than 130-fold!

Posted by edelfenbein at 2:56 PM

Nicholas Financial’s Earnings

Nicholas Financial (NICK) is getting slammed in today’s trading. The company just reported a profit of 25 cents a share compared with 27 cents last year. Digging down into the decimals, that’s a decline of 6.5%.

Not surprisingly, the difficult credit environment has been hard on NICK. The company’s provision for credit losses grew by 90% over last year. Still, we’re talking about a portfolio that has a pre-tax yield of nearly 9%.

The shares are currently down 4.3% today, and they’re off more than 33% for the year. I won’t even hazard a guess as to what NICK will make for next year but I don’t see much more risk here. The shares are currently going for about seven times trailing earnings.

Here are some stats on NICK from Seeking Alpha.

Posted by edelfenbein at 2:29 PM

The Price of Gold in Dollars and Euros

The rise in gold isn't all about the dollar going down, although that's certainly helped.

Posted by edelfenbein at 12:52 PM

Soros Sees Gloom and Doom

George Soros is out there predicting again. Of course, he’s famous for breaking the Bank of England in 1992 and making a cool billion in the process. So perhaps he’s worth listening to.

This time, Soros sees bad news for the United States. Very bad news.

Billionaire investor George Soros forecast on Monday that the U.S. economy is “on the verge of a very serious economic correction” after decades of overspending.

“We have borrowed an awful lot of money and now the bill is oming to us,” he said during a lecture at the New York University, also adding that the war on terror "has thrown America out of the rails."

Asked whether a recession was inevitable, Soros said: “I think we are definitely in for a slowdown that I think will be a bigger slowdown than (Fed Chairman Ben) Bernanke is seeing.”

Famous for his speculative attack on the Bank of England that made him more than $1 billion, Soros declined to nominate which currencies are more vulnerable currently. He also declined to comment specifically on the dollar.

“I know exactly where the currencies are going to but I'm not going to tell that to you,” he told the audience.

According to Soros, we’re on the verge of a recession. Maybe, but I’m a bit skeptical. Soros said the same thing last year, and a recession didn’t come about. In fact, economic growth has accelerated for the past two quarters. Nine years ago, Soros said that the global capitalist system “is coming apart at the seams,” yet this could be the strongest world economy ever seen.

Still, if you constantly predict awful news, sooner or later, you're going to be right. In my book, the doomdayers need to work on their timing.

Posted by edelfenbein at 9:39 AM

Mark Sellers at Harvard

Fascinating talk. It's a big long but well worth it. Here's a sample:

I know that everyone in this room is exceedingly intelligent and you’ve all worked hard to get where you are. You are the brightest of the bright. And yet, there’s one thing you should remember if you remember nothing else from my talk: You have almost no chance of being a great investor. You have a really, really low probability, like 2% or less. And I’m adjusting for the fact that you all have high IQs and are hard workers and will have an MBA from one of the top business schools in the country soon. If this audience was just a random sample of the population at large, the likelihood of anyone here becoming a great investor later on would be even less, like 1/50th of 1% or something. You all have a lot of advantages over Joe Investor, and yet you have almost no chance of standing out from the crowd over a long period of time.

And the reason is that it doesn’t much matter what your IQ is, or how many books or magazines or newspapers you have read, or how much experience you have, or will have later in your career. These are things that many people have and yet almost none of them end up compounding at 20% or 25% over their careers.

Posted by edelfenbein at 5:11 PM

Buy List YTD

It looks like our Buy List will trail the S&P 500 for the year. The good news is that we've closed the gap over the past few weeks.

For the year, the Buy List is up 2.31% while the S&P 500 is up 5.91%. These results don't include dividends. The Buy List has been about 7.1% less volatile than the S&P 500.

Since August 28, the Buy List is up 5.42% compared with 2.62% for the S&P 500.

Most of our damage came during a six-week period in April and May when the S&P 500 rallied 5.10% and the Buy List dropped -0.87%. Ignore that and we're doing fine!

Posted by edelfenbein at 4:36 PM

S&P 500 Adjusted for Dividends and Inflation

We're up a lot but still below the high. Historically, the S&P 500 with dividends has averaged about 7% a year more than inflation.

(Note: Since we don't yet have the CPI number for October, I estimate a 0.2% rise in consumer prices.)

Posted by edelfenbein at 3:38 PM

Citigroup Vs. Google

Google (GOOG) now has a market value of $225 billion which is well ahead of Citigroup (C) at $175 billion. Citigroup, however, still has the lead in number of employees; 327,000 to 16,000.

Posted by edelfenbein at 3:23 PM

Death Threats Against Analyst who Downgraded Citigroup

Scary:

The analyst whose downgrade of Citigroup Inc sparked a broad stock market sell-off on Thursday said she has received several death threats stemming from her research, the Times of London said.

Meredith Whitney of CIBC World Markets Inc late Wednesday downgraded Citigroup to “sector underperformer,” saying the largest U.S. bank by assets might need to raise more than $30 billion of capital and cut its dividend.

Her downgrade triggered a 6.9 percent drop in Citigroup’s shares on Thursday, leading to declines of 362 points in the Dow Jones industrial average and 2.6 percent in the Standard & Poor’s 500, the biggest drop since August.

It also led to renewed calls for Citigroup Chief Executive Charles Prince to step down.

“People are scared to be negative, especially when a company has such a wide holding,” Whitney told the Times of London in an article published Saturday.

“Clients are not pleased with my call and I have had several death threats,” she continued. “But it was the most straightforward call I’ve made in my career and I am surprised my peer analysts have been resistant. It’s so straightforward, it’s indisputable.”

Whitney did not immediately return requests for comment on Sunday. In 2005 she married John “Bradshaw” Layfield, a former World Wrestling Entertainment champion. CIBC World Markets is part of Canadian Imperial Bank of Commerce.

Posted by edelfenbein at 2:49 PM

Mystery Stock

The New York Times reports:

The Boys and Girls Club of Pittsfield, Mass., relies, in part, on financial gifts to keep running. But officials were not sure they wanted to take a donation of poorly performing stock in a small company when it was offered two years ago, worrying about potential liability and risk to the organization. And club officials figured it would not net that much money, anyway.

Nevertheless, the club decided to accept the gift — which turned out to be the best decision the 107-year-old organization has ever made. The stock skyrocketed in value last year, and it was sold for $13.9 million in December 2006.

“It was basically worthless when we got it,” said John Donna, the club’s president. “I don’t think this happens once in a lifetime. It happens once in several lifetimes.”

The club, which serves thousands of youths in Pittsfield, a city of 45,000 in western Massachusetts, announced the windfall this week, saying it wanted to take time to consult with accountants and lawyers and invest the money in local savings accounts and certificates of deposit. It has created an advisory board to explore how to use the money. So far it has spent $500,000 on much-needed structural improvements to its building.

Mr. Donna said the club agreed not to disclose who donated the stock or the company, but he said the donor was “very happy this happened.”

Well, Felix Salmon wonders what the stock is. He surmises:

If we can take Zezima's story at face value, we can probably assume that

* The company was publicly listed at the end of 2005, but basically worthless – which probably means it went public at a much higher price some time before then.

* By the end of 2006, the company had skyrocketed in value, quite possibly by a factor of more than 1,000.

* Someone closely connected with the company has some kind of connection with Pittsfield, Mass.

With that as my guide, my guess, and it's a completely wild guess, is that the mystery stock is none other than...

Cambridge Heart Inc. (CAMH.OB).

dun dun DUNNN

Posted by edelfenbein at 2:00 PM

Gisele Bündchen Refuses Dollars

If you're looking to hire the supermodel, no dollars please.

The world's richest model has reportedly reacted in her own way to the sliding value of the US dollar - by refusing to be paid in the currency.

Gisele Bündchen is said to be keen to avoid the US currency because of uncertainty over its strength.

The Brazilian, thought to have earned about $30m in the year to June, prefers to be paid in euros, her sister and manager told the Bloomberg news agency.

However, Ms Bündchen, 27, declined to comment on her pay arrangements.

Last week the dollar hit long-term lows against the euro, the British pound and the Canadian dollar.

Update: The story is bogus. I'll leave the photo up anyway to help drive traffic.

Posted by edelfenbein at 1:34 PM

Sysco's Earnings Up 16%

Sysco (SYY) reported decent earnings today. Even though the market had a sloppy open, SYY seems to be doing well.

For the company's September quarter, which is its first quarter, Sysco earned 43 cents a share which is a nice improvement over the 37 cents it made last year. Wall Street was looking for 42 cents a share.

Sysco is a very sound company although earnings growth has been sluggish over the past few years. Only lately has the company seem to come to life. The stock was on my short list to get booted from the Buy List next year, but now I'm not so sure.

Posted by edelfenbein at 10:05 AM

PetroChina Becomes the World's First Trillion Dollar Company

Wow!

PetroChina Co. almost tripled on its first day of trading in Shanghai, becoming the world's first company to be valued at $1 trillion, more than Exxon Mobil Corp. and General Electric Co. combined.

PetroChina shares rose to 43.96 yuan from the sale price of 16.7 yuan, giving the state-owned oil producer a greater market value than the entire Russian stock market.

The rally makes PetroChina shares four times more expensive than those of Exxon, even though China's biggest oil producer has a quarter of the revenue. China's stock market was valued at less than $1.1 trillion before tripling this year and giving the communist nation five of the world's 10 biggest companies.

PetroChina's valuation is "an indication of China coming of age and also of its stock market bubble," said Hugh Young, who oversees $50 billion at Aberdeen Asset Management Asia Ltd. in Singapore.

Everyone made a big deal in February when the Chinese market dropped 9% in one day. Well, the Shanghai Composite has doubled since then.

Check out the stratospheric rise in Chinese search engine, Baidu.com (BIDU). The shares are going for 100 times next year's earnings.

Posted by edelfenbein at 9:43 AM

Irish Boy Band

This is U2's first television appearance from March 1978. Bono is 17. Larry and The Edge are 16. Adam is the oldest, either 17 or 18.

Posted by edelfenbein at 11:50 AM

Euler's Constancy

Here's John Derbyshire on Leonhard Euler.

Posted by edelfenbein at 11:42 AM

50 Years Ago in the New York Times

November 3, 1957:

To the Editor:

Atlas Shrugged is a celebration of life and happiness. Justice is unrelenting. Creative individuals and undeviating purpose and rationality achieve joy and fulfillment. Parasites who persistently avoid either purpose or reason perish as they should. Mr. Hicks suspiciously wonders "about a person who sustains such a mood through the writing of 1,168 pages and some fourteen years of work." This reader wonders about a person who finds unrelenting justice personally disturbing.

Alan Greenspan, NY

Posted by edelfenbein at 4:40 PM

Jim Rogers Unplugged

Gotta love Jimmy. He calls Bernanke "a nut."

Posted by edelfenbein at 1:16 PM

Frontier Airlines Snubs Boston

I've been long Frontier Airlines (FRNT) for longer than I can to remember. The investment hasn't worked out well, but I was glad to see their team spirit.

Frontier Airlines sent a kooky message to its passengers and the Colorado Rockies this week with a print advertisement reading, "Now you know why we don't fly to Boston. Thanks for the best season ever."

The ad played on the fact that Boston is the largest U.S. market Frontier doesn't fly to. It was also "a message to the Rockies - 'We got your back,"' Frontier spokesman Joe Hodas said. "It was a tough (World) Series, but we appreciate all you've done."

Frontier is the official airline of the Colorado Rockies and negotiated to air the World Series games in flight.

Posted by edelfenbein at 11:30 AM

Headline of the Day

From Forbes:

Somehow Exxon Loses Money

Forbes is using "loses" in the widest possible sense. In this case, it refers to a gain of $9.4 billion.

Posted by edelfenbein at 8:06 AM

Best Stocks of the Past Decade

MarketWatch lists the best-performing stocks of the last decade.

Company........................Cumulative gain (%)
Chico's FAS (CHS)..............3,790.889
Apple (AAPL)......................3,504.444
Frontier Oil (FTO)................2,367.556
Oshkosh Truck (OSK)..........2,153.455
Clean Harbors (CLHB).........1,995.059
Echostar (DISH)..................1,870.947
Gilead Sciences (GILD)........1,816.260
American Eagle (AEO).........1,737.162
Holly Corp. (HOC)................1,706.189
XTO Energy (XTO)................1,629.161

What would you have thought if someone told you to load up on Oshkosh Truck (OSK) ten years ago?

Posted by edelfenbein at 10:41 AM

Sign of a Top?

Peking roast duck chain kicks off IPO

Hmmm. I better buy it just in case it goes up.

Posted by edelfenbein at 10:37 AM

Jimmy Cayne’s Priorities

Found buried within a WSJ article on Bear Stearns' CEO Jimmy Cayne:

Attendees say Mr. Cayne has sometimes smoked marijuana at the end of the day during bridge tournaments. He also has used pot in more private settings, according to people who say they witnessed him doing so or participated with him.

C’mon Rupert. This stuff should lead.

(Hat Tip: Joe Weisenthal)

Posted by edelfenbein at 10:25 AM