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The Yen’s Negative Beta

Greg Mankiw sees this chart and wonders, “Is the yen a negative beta asset?” Well, let’s take a look.

The graph below shows the daily changes for the past year of the S&P 500 (^GSPC) on the X-axis. On the Y-axis are the daily changes of the Yen ETF (FXY). The slope of the least-squares line is the estimated Beta coefficient, which in this case is -0.3905.

So, yes Professor. It is.

Posted by edelfenbein at 4:09 PM

But Of Course

From The Economist's corrections box:

Our Contents box last week in some editions referred to Albert Hofmann, the father of LSD, as German. He was, of course, Swiss. Our apologies.

The "of course" is just perfect. More British would have been "apparently."

(Shamelessly stolen from Elizabeth Spiers.)

Posted by edelfenbein at 8:46 AM

The Buy List Is Holding Up Well

Even though the market has been a bit shaky, our Buy List is doing fine. In the last six sessions, the S&P 500 is down -2.51%, but our Buy List is up 0.12%.

Posted by edelfenbein at 4:51 PM

Revenues at the Internet Stocks

Growing sales isn't everything, but it sure helps. Here's a look at the growth in revenues over the last ten years at Amazon (AMZN), Yahoo (YHOO), eBay (EBAY) and Google (GOOG):

The number is in millions.

Posted by edelfenbein at 3:42 PM

Donaldson Raises Its Estimate for the Third Time

More good news from another boring stock. After the bell yesterday, Donaldson (DCI) reported earnings for its fiscal third quarter of 57 cents a share. That’s six cents higher than Wall Street’s estimate, and it’s also a nice gain over last year’s third quarter when DCI netted 49 cents a share.

I was also very happy to see that for the third time, Donaldson raised its FY 2008 earnings-per-share forecast. Back in September, the company expected EPS of $1.92 to $2.01. Then in November, they raised it to $1.97 to $2.07. In February, they went to $2 to $2.10 a share, and now in May, they’ve raised it to $2.08 to $2.13. Their fiscal year ends at the end of July.

The company is well on its way to a 19th straight record year for earnings. For the first three quarters of this fiscal year, Donaldson has earned $1.52 a share, which is a 17% increase over the $1.30 they made last year. The only need to make another 32 cents a share in the fourth quarter to beat last year’s total, and the company expects EPS of 56 cents to 61 cents. Also, in January, the company increased its dividend for the 22nd straight year.

Year.............Sales.................EPS
1990............$422.9...............$0.19
1991............$457.7...............$0.21
1992............$482.1...............$0.23
1993............$533.3...............$0.26
1994............$593.5...............$0.30
1995............$704.0...............$0.37
1996............$758.6...............$0.42
1997............$833.3...............$0.50
1998............$940.4...............$0.57
1999............$944.1...............$0.66
2000............$1,092.3............$0.76
2001............$1,137.0............$0.83
2002............$1,126.0............$0.95
2003............$1,218.3............$1.05
2004............$1,415.0............$1.18
2005............$1,595.7............$1.27
2006............$1,694.3............$1.55
2007............$1,918.8............$1.83
2008............$2,170.0............$2.08 to $2.13 (est)

Posted by edelfenbein at 12:08 PM

Jos. A. Bank: Clearance Sale

Kiplinger looks at one of our most frustrating stocks, Jos. A. Bank (JOSB):

Investors are uneasy with Bank because the Hampstead, Md., retailer shuns Wall Street. In January, the company (symbol JOSB) stopped reporting monthly same-store sales, which track sales at stores that have been open for a year or more. Same-store sales give investors a clearer sense of how the retailer is performing because the measure excludes revenue from newly opened locations. Bank also skips the customary question-and-answer sessions with analysts on its quarterly conference calls and doesn't make earnings projections.

But look past Bank's unfortunate cone of silence and you'll see a high-end retailer in better financial shape than its battered stock would indicate. The company has grown rapidly under chief executive Robert Wildrick, who took control of the 103-year-old retailer in 1999.

Sales have tripled from $194 million in fiscal 1999 to $604 million in fiscal 2007, which ended last January 31. Net profit has gone up every year, from $3 million in 1999 to $50 million in 2007. In 1999, Bank had less than 100 stores in the U.S. Now it has more than 420 locations.

Posted by edelfenbein at 11:02 AM

Wall Strip on Hasbro

Julie looks at Hasbro (HAS). After nine long years, the stock finally made a new all-time high recently. In 1974, you could have picked up shares of Hasbro for about 2.4 cents each. That's adjusting for many, many splits. Not including dividends, the stock is up about 140,000% since. In other words, there's a lot of money to be made in toys...just ask any adult male.

(Note to Julie: There's no capital of Istanbul. It's the capital city of Constantinople.)

Posted by edelfenbein at 7:35 AM

In Memoriam

It is, in a way, an odd thing to honor those who died in defense of our country, in defense of us, in wars far away. The imagination plays a trick. We see these soldiers in our mind as old and wise. We see them as something like the Founding Fathers, grave and gray haired. But most of them were boys when they died, and they gave up two lives -- the one they were living and the one they would have lived. When they died, they gave up their chance to be husbands and fathers and grandfathers. They gave up their chance to be revered old men. They gave up everything for our country, for us. And all we can do is remember.

--Ronald Reagan

Posted by edelfenbein at 4:36 PM

Momentum Has Lost Some Momentum

Kirzner Fervor has a great post on building a trading strategy off the stocks market's momentum. The bottom line is that historically, it's worked very well, but the in recent years, the advantages have dissipated. Such is the story of much data-mining.

After my initial post on the market's ability to carry a one-day rally or sell-off into the next day, I had an emailer point out that the effect has worn off in recent years. I had meant to follow up on it, but I got distracted. Such is the story of much blogging.

I'm still amazed at the historical effect of the stock market's momentum. To quote myself:

This means that the market’s entire gain (capital gains since 1950) has come on days following a 0.64% up move. The rest of the time (over 80%), the market is net flat. Half the market's gain came on day's following 3.2% up moves. On average, that happens slightly less than once a year.

Posted by edelfenbein at 11:04 PM

Maxine Waters Threatens to Nationalize Oil Companies

No, really. From the NYT:

In one of the more pointed exchanges, Representative Maxine Waters, Democrat of California, seized on the record $40.6 billion profit of Exxon Mobil in 2007. She pounded on the company’s senior vice president, J. Stephen Simon, demanding to know if gas prices would be lower if the company earned a few billion dollars less.

At another point, Ms. Waters brazenly suggested that perhaps the American oil industry should be nationalized, acknowledging that it was an “extreme step” but one that might be necessary if outsize profits and exorbitant gasoline prices continued.

I have one small correction. Last year, ExxonMobil didn't earn $40 billion, it earned $70 billion. Guess where that missing $30 billion went? I'll give you a hint: Rep. Waters' salary.

Here's the video:

Posted by edelfenbein at 1:34 PM

The Buy List Since 2006

I don't think I've done this yet, but here's how the Buy List has performed since I started it in 2006. I had a small Buy List in 2005, but I didn't formalize the system until the beginning of the 2006.

The red line is the Buy List and the black line is the S&P 500. The graph is done as if it was a portfolio starting with $1 million on December 31, 2005 (dividends aren't included). All told, we're trailing the S&P 500, 11.70% to 9.27%. The Buy List is 1.25% more volatile than the S&P 500.

We completely missed the last leg of the rally in 2007. Fortunately, we did a lot better during the sell-off. At one point in February, we pulled even with the S&P 500.

The Buy List is a very conservative portfolio. The correlation of the daily changes with the S&P 500 is 0.83, which is pretty high.

Posted by edelfenbein at 12:18 AM

Pfizer Hits 10-Year Low

Shares of Pfizer (PFE) closed today at their lowest level since September 1997. The dividends would have given you about a 26% return. For years this was a stock that could do no wrong.

Posted by edelfenbein at 4:24 PM

Do 1.3 Million People Really Make Their Living Off Ebay?

Here's a good article from Daniel Gross. You know how eBay always says that 1.3 million people make their living off eBay. Well, it's not exactly true.

Posted by edelfenbein at 9:48 AM

How Economists Invest

Check out how the American Economic Association structures its investment portfolio. They're doing pretty well.

(Via: Mankiw.)

Posted by edelfenbein at 9:40 AM

More Than You Ever Cared to Know About P/E Ratios

I want to expound on what I said the other day about the use of Price/Earnings Ratios. It works like this, picking stocks (good), timing the market (bad).

I also criticized the idea of using P/E ratios based on ten years’ worth of earnings. Now I want to show you why.

First off, I got this historical data off Robert Shiller’s website which has monthly numbers going back 140 years.

Now I have to explain my analysis carefully, and I have to apologize because it’s not easy to do. Plus, whenever I attempt this, I get dozens of emails asking what the hell I’m talking about. (Note, dear reader, I’m criticizing my articulational abilities, not your comprehensional skillz.)

Deep breath. I take all of the monthly data of stock market returns and P/E ratios. I then resort the data, not by time, but this time by P/E ratio, highest to lowest. Then, I calculate all those individual monthly returns. Basically, it’s a stock market graph, not by time, but by declining P/E ratio.

If the P/E ratio has an impact on the market, I would expect the line to droop down early on, then rally frenetically with lower ratios. If the P/E ratio has no impact, then I expect that the line would rise in a smooth diagonal line. Here’s a look at how the 10-year and 1-year P/E Ratios stack up:

As you can see, the 1-year P/E ratio has some impact on market returns, but not much. The market shows a net loss up to the 390th data point which corresponds to a P/E ratio of about 17.8. That means that all over the market’s net gains have come when the P/E Ratio is less than 17.8. According to Shiller’s data, that’s almost the entire time since 1996.

Still, I'm not impressed by the one-year's performance. Compare that to this dramatic graph showing the market's performance ranked by the previous day's gain.

The 10-year P/E has, in my opinion, almost no impact on equity prices. The blue line barely wiggles on its way down the P/E Ratio scale. Knowing what the 10-year ratio was gave you zero input on what stock prices were about to do.

Posted by edelfenbein at 12:40 PM

Hauser’s Law

In yesterday’s WSJ, David Ranson has a bizarre article expounding on, what he calls, Hauser’s Law, which is named in honor of economist Kurt Hauser. The law states: “No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP.”

And the article includes this nifty chart:

Zubin Jelveh goes off on the chart because it implies that the variation in marginal rates have zero impact on the bottom line. It’s true that other taxes besides income taxes have played an increasingly significant role in U.S. tax policy. But what I understood Hauser’s Law to mean is that none of that matters. The tax code will always produce the same amount.

I’m fairly sympathetic to rules like Hauser’s Law. Especially with social sciences, I tend to believe that there situations where no matter what the rules are, they’ll produce the same results. (Some of you may recall Elfenbein’s 17th Law which states that U.S. GDP growth has been remarkably stable over the last 40 years and about 3.1%.)

The problem I have with Hauser’s Law is that it doesn’t seem to include state and local taxes, which should raise the bar by quite a lot. Also, why should we look to the nation as a whole? To find out if there’s an upper limit, I think we should look at what state has the highest rate. For that matter, perhaps we should look at foreign countries.

While tax revenues may been fairly stable over the past 50 years, that doesn’t mean we couldn’t generate more if we wanted to.

Posted by edelfenbein at 10:22 AM

Scary Government Fact of the Day

From Megan McArdle:

If you want to know just how ridiculous our agricultural programs are, consider this: for about half a century, we priced milk based on how far the cow was from Eau Claire, Wisconsin. No, I swear, I am not making this up. Apparently, the USDA scientifically determined that Eau Claire was the perfectest place in the entire world to keep cows, and that therefore the farther you were from that fabled city, the harder you must find it to produce milk.

Posted by edelfenbein at 4:34 PM

Inflation Watch: $175 Burger on Wall Street

Forget about $130 oil, there's a $175 burger.

The burger can be enjoyed at the Wall Street Burger Shoppe on Water Street between Broad Street and Coenties Slip.

Kevin O'Connell, the restaurant's co-owner and chef, told WCBSTV.com he came up with the idea when a friend suggested he create a luxurious version of the American classic.

"He kind of challenged me and it was a question of how do you make a burger that was worth that kind of money," he said. "It actually turned out to be a really awesome thing to eat."

The burger is made with Kobe beef and topped with seared fresh foie gras, an assortment of exotic mushrooms, shaved black truffle, and golden truffle mayonnaise – another of his creations made from chopped black truffles, truffle oil, and gold flakes.

Posted by edelfenbein at 2:11 PM

Investing on the First Day of the Month

Since the start of this decade, the S&P 500 is now down -2.9% (toss in dividends, it’s up +11.7%). However, investing in just the first day of the month has delivered a return of 35.4%.

I should add that the out-performance is not just due to the market’s implosion at the beginning of the decade. As market turned around, the first day of the month held its own. From March 11, 2003 to October 9, 2007, the S&P 500 gained 95.5%. The first day of the month gained 25.2%.

That’s a pretty heft contribution from just one day in the month. Consider that on the trading calendar, the first day of the month is less than 5% of the time.

Posted by edelfenbein at 11:12 AM

Tanta on Robert Shiller

Tanta at Calculated Risk has a great post on Robert Shiller's recent editorial in the New York Times. I've often taken exception to Shiller's arguments. I believe that too often he sees bubbles are serious defects in the economy, and they're the result of the moral failings of the public. Me? I just think bubbles happen. Anyway, give Tanta a read.

Posted by edelfenbein at 10:25 AM

New Book to Hate

Malcolm Gladwell is coming out with a new book. Here's the blurb at Amazon:

In this stunning new book, Malcolm Gladwell takes us on an intellectual journey through the world of "outliers"--the best and the brightest, the most famous and the most successful. He asks the question: what makes high-achievers different? His answer is that we pay too much attention to what successful people are like, and too little attention to where they are from: that is, their culture, their family, their generation, and the idiosyncratic experiences of their upbringing. Along the way he explains the secrets of software billionaires, what it takes to be a great soccer player, why Asians are good at math, and what made the Beatles the greatest rock band.

Brilliant and entertaining, OUTLIERS is a landmark work that will simultaneously delight and illuminate.

I shouldn't say I hate the book before it comes out, I'm just a little skeptical of Gladwell's approach to things. He's a big fan of CONCEPTS and he has a tendency to see the application of his CONCEPTS everywhere. When in fact, these CONCEPTS really don't have the ability to leap with ease into many different fields. What Gladwell really does is write intellectual fast food for the NPR set.

(Hat Tip: Weisenthal)

Posted by edelfenbein at 10:13 AM

Just a Quick Observation

When did the NBA playoffs become the sports of equivalent of Stalingrad? With yesterday’s Spurs victory, the playoffs are now officially half over. But the final regular season game happened five weeks ago from tomorrow. We still have more than one month to go. What the hell takes them so long?

The Spurs and Hornets played their sixth game on Thursday, then took off Friday, Saturday and Sunday, to play the seventh game on Monday. On top of that, the first round is almost completely unnecessary. All eight lower ranked teams won. In the second round, three of the four lower ranked teams won. The only exception was the Spurs beating the Hornets. Although the Hornets had the #2 seed, the teams had the same regular season record.

Can’t we do away with at least one round? As a point of principle, I don’t think a team with a losing record should ever be allowed to make the playoffs.

OK, rant over.

Posted by edelfenbein at 10:11 AM

Jay Leno on Cars

First, Portfolio got Tom Wolfe to write in their inaugural issue. Now a bigger coup -- Jay Leno writes about cars:

The type of vehicles America makes best are, unfortunately, not the type of vehicles that people really want anymore. Nobody builds better trucks than the Americans do. Not even the Japanese build as good a truck as the Ford F-150 or the Chevy Silverado. It’s the same with performance cars. The Corvette Z06 has 505 horsepower, comes with a big warranty, and can hit 200 miles per hour. It weighs almost exactly the same as a half-million-dollar Porsche Carrera GT and gets higher mileage—26 miles per gallon.

Where we seem to lose it is in the low-bucks econocar. I used to be able to identify any American car from 25 yards. Now they all have this jellybean look. It’s a mystery to me, because the one thing we used to do better than anybody else was build cheap, extremely high-quality cars. We did it for decades, all the way back to the beginning of the industry. There was no better car for the money than the Model T. It was a basic car, but it used the finest materials available. There are still almost a million of them out there.

When you get into a high-priced, well-made American car today and the key is in the ignition, you hear a melodic bong, bong. But when you get in a cheap American car, like a rental, and the key is left in, it goes plink, plink, plink. It’s just horrible. Every time you use the turn signal, it’s like breaking a chicken leg. In order to make the more expensive car more appealing, U.S. companies feel as though they have to dumb down the cheaper car.

Posted by edelfenbein at 8:52 PM

The Market By Days of the Week

Since 1950, the S&P 500 is down on the combined days of Monday, Tuesday and Thursday. All of the indexes gains have come on Wednesday and Friday (dividends not included).

Here are the combined gains:

Monday -86.43%
Tuesday 125.23%
Thursday 184.30%
Friday 656.15%
Wednesday 1,201.75%

Since May 16, 1998 the breakdown is as follows:

Friday -13.25%
Tuesday -11.51%
Monday 11.13%
Thursday 13.41%
Wednesday 32.87%

This means that all of the net capital gains for the past 10 years have come on Wednesdays which is just 20% of the time (that's 32.87% for Wednesday, -3.24% for the other four days combined).

Posted by edelfenbein at 5:21 PM

Banks Keep $35 Billion Markdown Off Income Statements

From Bloomberg:

Banks and securities firms, reeling from record losses resulting from the collapse of the mortgage securities market, are failing to acknowledge in their income statements at least $35 billion of additional writedowns included in their balance sheets, regulatory filings show.

Citigroup Inc. subtracted $2 billion from equity for the declining value of home-loan bonds in its quarterly report to the Securities and Exchange Commission on May 2 without mentioning the deduction in the earnings statement or conference call with investors that followed. ING Groep NV placed 3.6 billion euros ($5.6 billion) of negative valuations in its capital account, while disclosing only an 80 million-euro depletion to income.

The balance-sheet adjustments are in addition to $344 billion of writedowns and credit losses already reported on the income statements of more than 100 banks. These companies have raised $263 billion from sovereign wealth funds, their own governments and public investors to shore up capital. The balance-sheet writedowns also reduce equity, which needs to be replenished. Adding the $35 billion leaves the banks with a $116 billion mountain of losses to climb.

"The smart people are the ones who've identified the problems, put them out there in full transparency, and addressed them by raising more capital," said Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York. "There is still billions of dollars of crap out there that hasn't worked itself through the system. Banks need more capital to work that all out."

Posted by edelfenbein at 1:23 PM

10-Year P/E Ratios

The other day I wrote that the market's P/E ratio reached a four-year high. Instead of viewing it as overpriced, I said that this is an instance where the market's earnings multiple may not be a good valuation indicator. The reason is that stock prices are forward-looking and they're reacting to a brighter outlook a few months from now, even though earnings are still declining. Higher prices and lower earnings translate to a higher multiple.

In today's Wall Street Journal, Mark Gongloff writes on higher multiples:

Benjamin Graham and David Dodd, the Romulus and Remus of value investing, suggest weighing prices against earnings averaged over a period of as long as 10 years. On that basis, the S&P 500 today trades at roughly 28 times reported earnings. That's lower than the peak of about 48 at the height of the dot-com bubble, but hardly a bargain; for the past 60 years, that P/E ratio has averaged about 21.

I need to add a few points. Remember that the Price/Earnings Ratio contains one major flaw. It compares two different sets of data. The price is a fixed-point number. You always know what it is at a given point in time. Earnings is a rate. That is, it can only be known between two fixed points in time.

Now I need to stress this point because it's often misunderstood. Just because price and earnings are different types of data doesn't mean that it's worthless to compare them. You can absolutely compare different data points, but you need to realize the limitations. (One recent commenter on my comparison of the Dow and S&P 500 said that the whole thing is worthless because one is market-weighted and the other is price-weighted. That's incorrect. It's certainly worthwhile to compare them, but it's what kinds of comparisons you can draw that's important.)

The other thing about the P/E ratio is that it's almost useless in timing the market, but it's very useful in making judgments about what stocks to buy and sell. If I have a chance, I'll post more evidence on this point later.

The last point is that I never understood the importance of looking at 10 years' worth of earnings. Graham and Dodd used that metric but it doesn't seem very useful to me. Note this recent chart I posted looking at trailing earnings and the S&P 500. What can I say, the relationship seems pretty strong to me. Why would I want to bring in data from 1998? When analyzing market data, the question to ask is how useful is this data? Not, is the data perfect?

Posted by edelfenbein at 10:29 AM

Turning Point in the Presidential Election Cycle

I don’t place a great deal of faith in these indicators, but we’re nearing a traditional low point in the Presidential Election Cycle.

On average, the Dow is fairly weak from the September 6 of a pre-election year to May 28 of the election. Over that time, the Dow averages a loss of -5.2%. That may not sound like a lot but it’s an average of the entire Dow from 1896 to 2007.

After May 28, the Dow gains an average of 15.2% by the end of the year.

Posted by edelfenbein at 10:13 AM

S&P 500 at 19-Week High

Yesterday, the S&P 500 closed at 1423.57. That's the highest close since January 3. It's also 11.8% above the lowest close of the year, which came on March 10.

Also, has anyone noticed that Nicholas Financial (NICK) is above $7 a share?

With yesterday's close, the S&P 500's P/E ratio is at 18.3. That's the highest level in four years. One small caveat. The P/E ratio often bumps up when the market is a good buy because the earnings are backwards-looking and prices are forward-looking. Trailing earnings are still heading down, but stock prices are up sharply, hence a higher earnings multiple.

Posted by edelfenbein at 10:29 AM

The Buy List Year to Date

Through yesterday, the Crossing Wall Street Buy List is down -5.96% YTD. The S&P 500 is down -4.07%. That doesn't include dividends. The volatility of the Buy List is about 4% greater than the S&P 500.

Posted by edelfenbein at 1:46 PM

Tim Brown -- Stock Analyst

Former Heisman Trophy winner, Tim Brown, is now (like me), a columnist at TheStreet.com. (Editors note, for clarification, I've never won the Heisman.) Here's a sample from Tim's debut column:

I am starting with the best of the best: Microsoft. Not only is this a world-class company, it is a steal at this price. It closed at $29.39 on Friday and is much closer to its 52-week low ($26.87) than it is to its high ($37.50).

The idea behind my picks is just like my approach on the field: find a weakness and exploit it. On the football field, I would look for any advantage I could get on the opposing cornerback. In this case, the weakness is not with the company, but rather with Wall Street's valuation of the company. The Street has unfairly picked on Microsoft, and we will pounce on this opportunity. Not long ago, Microsoft was trading at approximately $35.00.

Posted by edelfenbein at 12:35 PM

Oil and the Price at the Pump

This chart is courtesy of GasBuddy.com:

It's hard to believe that gas was around $2.15 only 16 months ago.

Posted by edelfenbein at 12:05 PM

Bernanke was Right

Before selling off in the afternoon yesterday, the stock market came close to finishing at its highest point since the very beginning of the year. Since March 17, the S&P 500 has gained over 10%. Not bad for two months’ work.

I think this is a good opportunity to ask if Ben Bernanke’s policies were right, and his actions helped alleviate the worst of the recent credit crunch.

Let me add that I don’t necessarily believe this, and it’s way too early to judge, but now is a good time to take a step back and look at the evidence. Let’s make the argument in his favor and see how well it stacks up. If Bernanke was correct, then his handling of this mess would be far superior to anything handle by the overrated maestro, Alan Greenspan.

Most of the superficial evidence suggests that the financial outlook is much better than it was two months ago. Stock prices are up. Gold is down. Volatility is way down. The microscopic yields on short-term Treasuries have somewhat faded. Inflation is still moderate. Or I should say, the government’s inflation reports are still quite moderate. Best of all, the initial estimate for first-quarter GDP wasn’t nearly as bad as the worst that bears were expecting.

None of these points, by itself, confirms Bernanke’s actions, but taken together, they do give the Fed a nice case to rest on. Let me again say that this isn’t an argument for an economic resurgence, but it’s looking at the worst that we had during the credit crunch. As for me, I don’t care too much for the arcana of monetary policy. If it works, I’m for it.

The weekend of March 15-16 was when we learned that Bear Stearns had gone under and was sold to JPMorgan Chase for $2 a share. This was later bumped up to $10 a share. On Monday, March 17, the S&P 500 dropped to 1276.60, which was just above its closing low from the week before. Then on Tuesday, the Federal Reserve cut interest rates by 75 basis points, which brought the Fed Funds target down to 2.25%. That Dow soared over 420 on Tuesday.

To understand Ben Bernanke is to realize that he’s a student of the Great Depression. For economists, the Depression has long been a puzzle. Why did everything go so badly all at once? According to theory, it wasn’t supposed to happen. That’s the difficulty is that to understand the Depression, you need to discard your textbooks.

On the occasion of Milton Friedman’s 90th birthday, Bernanke said:

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.

The reason why Bernanke was saluting Friedman and Anna Schwartz, was that they were the ones who pinpointed the role that the Fed played during the Great Depression. According to Friedman, the Depression started off as a garden variety recession, but the Fed allowed the money supply to contract by one-third. This turned the recession into a Great Depression. When their theory first appeared in the 1960s, it was quite controversial. The inflation of the 1970s gave monetarism much more credibility, and by 1976, Friedman had won the Nobel Prize.

According to Milton Friedman, one of the key moments of the Depression came in late 1930. There was run on the Bank of United States. By the way, I didn’t leave out an article, that’s the correct name of the bank, the Bank of United States. It was named that way to fool immigrants into believing that the bank was backed by the government.

The bank was allowed to fail, and bank runs then multiplied. As the banks failed, the money supply shrank. It’s as if the Fed raised rates, which is the opposite of what they should have done. According to Friedman, the Bank of United States was in bad shape, but it wasn’t that bad. Depositors eventually received 94 cents on the dollar. Bad, but not awful.

Let’s jump ahead 78 years. You can see why Bernanke was so concerned about Bears’ failure. The idea of a bank run is perfectly analogous to the issue facing a collapse of bear, but there is the issue of counter-party risk. We should also discuss the issue of whether Bear was bailed out. We often hear about the socializing or risk and the privatization of profit. Let’s recall that in the United States, a great deal of profits, up to 35%, is already socialized. Also, selling a bank of $2 a share can hardly be called a bailout. Though I do have an issue with the Fed backing JPMorgan’s purchase of Bears’ more questionable assets. The environment between now and then speaks for itself.

In March, gold reached an all-time high of $1,033 an ounce. Since then, the yellow metal has backed off to less than $890. At one point on March 20, the yield on the three-month Treasury bill got down to 0.2%. That’s not a misprint. That means that the government could borrow $200,000 for roughly $1 a day. So even though there were complaints of cutting rates too much, market forces were happy to go even lower.

The Fed has for the time being, stopped at 2%. T-bill rates have now risen to roughly 1.8%.
The VIX, which measures implied volatility, has recently dropped below 20. On March 17, it got to 35.6.

I’m not ready to give Bernanke a passing grade just yet, but I happily concede that the worst of the storm has passed.

Posted by edelfenbein at 11:30 AM

Whole Foods Bombs Again

Whole Foods (WFMI) dropped 14% yesterday on lousy same-store sales results. The stock hit a four-year low.

For the quarter ended April 13, Whole Foods reported comparable-store sales -- or sales at stores open at least one year -- increased 6.7% from a year-earlier.

In a research note, Citigroup analyst Gregory Badishkanian said investors probably expected Whole Foods to report comparable-store sales growth of between 8% and 9%.

In recent years, Whole Foods had grown its comparable-store sales at rates in the high single digits to low double digits. But analysts said it looks like that growth is easing as the company rebrands Wild Oats stores acquired last August and opens new stores.

This latest bombshell comes less than a year after it was revealed that John Mackey was posting on the Yahoo message boards.

In late 2005, I first called out Whole Foods' outlandish valuation:

I’m a big fan of Whole Food Market (WFMI), but this stock is way, WAY over-priced. Last quarter, the company missed earnings by a penny a share. In the past few weeks, Wall Street has lowered this fiscal year’s consensus earnings estimate to $2.86 a share, and the stock is still trading at 53 times that. That’s almost as much as Google (GOOG)!

Look, I like organic kumquats as much as the next guy, but let’s be reasonable. Whole Foods’ earnings will probably grow by about 17%-20%. Not bad at all. The stock, however, is already up over 60% this year.

A stock can’t go up faster than its earnings indefinitely. At some point, something’s gotta give. That’s not finance, it’s physics. Right now, the stock is going up because it’s going up. The price and fundamentals have politely parted company. On Friday, shares of Whole Foods closed at another all-time high.

Posted by edelfenbein at 10:15 AM

How Many Times Do I Have to Say it?

The WSJ does it again. Every time someone comments on political markets, they have to say that these markets "fail" because the a contract going for over $0.50 didn't pan out.

John McCain's presidential campaign is doomed -- at least, if you still believe what political futures markets indicate.

At the Irish electronic exchange Intrade, on which people bet on election outcomes and other events, the futures market suggests Mr. McCain has a 38% chance of becoming the 44th president. In the Iowa Electronic Markets, set up at the University of Iowa, Mr. McCain's Republican Party gets a 41% chance of winning the popular vote for the White House.

No. No. No.

They're NOT predictions markets, they're odds-setting markets. That's something quite different. A 38% chance of winning is not a doomed campaign. I think a baseball player who's batting .380 would be doing pretty well.

Google IPO'd at $85, today it's at $585. That's a $500 miss. Did the market fail? No, they adapted to new information.

As I've said several times before, these market are really just for fun and should be seen as nothing more than that.

Still, I don't understand how people can so often miss this basic fact about the political markets. The markets move with new information. It doesn't mean that a favored outcome is correct or incorrect. That's not what the markets are trying to do. They're trying to analyze new information as quickly as possible. They usually, but not always, do a pretty good job.

Posted by edelfenbein at 2:02 PM

The Dow/S&P 500 Ratio

Imagine if the Dow was 3,000 points higher than it is today. That’s where it would be if it had merely kept pace with the S&P 500 over the last few decades.

The Dow used to be about 10 or 11 times the S&P 500 (I’m referring to the index number, not market cap), but the ratio slowly sank for a long time.

The Dow/S&P 500 hit its low point in 1985 when the Dow was less than seven times the S&P. Since then, the Dow has had a bit of a comeback. In 2002, the ratio broke 9.5 for the first time in over 25 years.

After falling back some from 2002 to 2004, the Dow has outpaced the S&P 500 over the last two years.

Posted by edelfenbein at 1:03 PM

Is Open Source Good for a Companies Stock?

Oliver Alexy looks at the impact of open source on a company's shares:

But does giving ideas away help -- or hurt -- the company's stock price? Will investors reward openness by driving up the company's shares -- or punish it by knocking the stock down?

Looking for News

To find out, I analyzed companies' stock performance before and after they announced that they were making proprietary software open-source.

First, I searched through news releases from January 1999, shortly after the start of the open-source movement, to April 2007, looking for announcements that fit the bill. I then weeded out a number of companies, mostly because their announcements contained other news that might affect the stock price. That left 38 announcements from 30 companies.

Next, I analyzed the companies' stock performance for 125 days prior to the announcement -- to get a baseline for performance -- and then watched the stock activity the day before the announcement and the day of the announcement. (I looked at the day before in case the markets had anticipated the news.)

Make It Clear

The results? Companies saw their stock price rise if they met one crucial condition: explaining how they expected their open strategy to bring in short-term revenue. Companies that clearly communicated a short-term revenue model saw an average stock-price increase of 1.6%. Companies that didn't saw an average decline of 1.6%.

That's interesting though I'm a little uneasy about the robustness of that survey. It would be interesting to see if there could be more research done on a broader scale.

Posted by edelfenbein at 11:02 AM

Guess What Stock Market Is at a New High?

I'll give you a hint.

Toronto.

Give up?

Much of the momentum on the TSX has been caused by strength in resource stocks. The energy sector has climbed 40 per cent since January while the price for crude oil rose above US$125.

Investors have been turning to commodities stocks as a reliable investment alternative to international financial institutions, whose results have been bruised by the credit crisis.

“People were extremely nervous so they pulled in their horns, and they took their money out of risky investments,” said Bob Tebbutt, vice-president risk management at Peregrine Financial Group Canada.

“When people are nervous they automatically flock to things that are real — for example they flock to gold. It’s a risk place that they can put their money in and know that they’re theoretically going to get it back fairly easily.”

Posted by edelfenbein at 1:08 AM

Gazprom Meets Deep Purple

The New York Times has an article about the influence that Gazprom has on the Russian government. It’s not too much of a leap to say that Gazprom is the Russian government. The company’s president Dmitri Medvedev became Russia’s president last week. Putin, the former president, is now prime minister. And Viktor Zubkov, the former prime minister, will become the new head of Gazprom.

It’s hard to overemphasize Gazprom’s role in the Russian economy. It’s a sprawling company that raked in $91 billion last year; it employs 432,000 people, pays taxes equal to 20 percent of the Russian budget and has subsidiaries in industries as disparate as farming and aviation.

But I was most impressed to find that at the company’s 15th birthday party, they invited Medvedev’s band to play, Deep Purple.

“The gig at the Kremlin was fun, but it wasn’t wild,” Ian Gillan, Deep Purple’s frontman, wrote in an article for The Times of London after the show. “The young guys and more junior staff were all up on their feet, although they were looking nervously over at their bosses to see whether they could loosen their ties. It was as if they were asking, ‘How much fun are we allowed to have?’ ”

Posted by edelfenbein at 11:27 AM

Get Over The Gap

From IBD:

Trade Deficit: We have long been told that when the dollar "corrects," making our goods cheaper abroad, the trade deficit will begin to fall sharply. Well, it's finally happening. Now that it is, do you feel any better?

You shouldn't. Because even though the trade gap narrowed by $3.5 billion, or 5.7%, to $58.2 billion in March from February, it was a sign of weakness rather than strength.

Compared with a year earlier, March exports rose 15.5% — a good thing, we suppose. But imports increased just 7.9%, a gain that would have been a lot lower if not for oil.

True enough, the deficit appears to be declining — after hitting repeated records in recent years. Exports are booming while import growth has slowed noticeably, due mainly to the slumping dollar.

On the surface, this looks like a good thing. After all, don't we want to buy less from abroad and more from our own country? The answer is no if it means that the U.S. economy has slowed and is no longer pulling its weight in the world.

Journalists and pundits call the smaller deficit an "improvement," or "good news." It isn't. We run a trade deficit not because we're uncompetitive or others protect their markets, two great economic myths; we run deficits because we're such an attractive place for investors from around the world to park their money. The deficit, in other words, is a sign of strength.

As any economist can tell you, the flip side of our trade deficit is our capital surplus, which measures foreign investment flows into and out of the U.S. When we run a trade deficit, by definition we must run a capital surplus — and vice versa.

Last year, for instance, we rang up a record $708.5 billion deficit for both goods and services. But we imported the equivalent of $738.6 billion in investment capital to offset that. This was used to buy Treasury notes, bonds and stocks, and to fund real estate, plants, equipment and worker training.

That foreign capital created jobs and added to our ability to consume. It may even have helped keep us out of recession.

So what does it say that our deficit is now shrinking?

On the whole, it means foreign investors find the U.S. economy a less inviting place to be, maybe because of the housing meltdown and concern over the upcoming election. But if the trend continues, it means we're all going to have to consume less and save more to make up for the decline in foreign capital.

That might not be a bad thing, but don't let anyone tell you it will be painless. In the short run, a falling trade deficit will boost GDP. Indeed, based on Friday's data, it's likely first-quarter GDP growth will be revised up from the first estimate of 0.6% to roughly 1.2%.

But in the long term, having less foreign investment means our economy will grow more slowly. That's the downside.

Don't believe it? Just look at Germany and Japan. They've run huge trade surpluses for years, yet their economies have grown slowly at best since at least 1990. They export lots of their capital, as all trade surplus nations do, so they have less to grow on. We import it — and grow faster.

As such, should we root for a smaller deficit? Well, a smaller trade deficit doesn't have to be a negative. If it got smaller because Congress wised up and created private investment accounts for Social Security — which would raise the U.S. private savings rate — that might be a good thing.

But making the deficit smaller isn't necessarily a laudable goal, since doing so often covers for other bad policies such as raising taxes, devaluing the dollar and reverting to protectionism.

All these things, by the way, have been proposed as "remedies" for the trade deficit, mostly by wrongheaded Democratic candidates and talk-show hosts. What they'd do, in fact, is shrink the deficit by shrinking the U.S. economy. We'd rather keep the deficits.

Posted by edelfenbein at 10:31 AM

Schwarzman's Subprime Analogy

Oh Steve:

[It’s like] being a noodle salesman in Nagasaki when they dropped the A-bomb - not a lot of noodles left, and not a lot of people either.

My prediction: This will not end well.

Posted by edelfenbein at 1:23 PM

Nicholas Financial's Earnings

Yesterday, Nicholas Financial (NICK) reported quarterly earnings of 20 cents a share. That's for the company's fourth quarter which ended on March 31. For the same quarter one year before, NICK earned 29 cents a share. Revenue dropped 6% to $12.7 million.

Yes, I still think this is an absurdly undervalued stock. For the entire fiscal year, NICK earned 94 cents a share. That still means the company is going for about seven times earnings. Nicholas Financial has now reported revenue increases for 18 straight years.

Posted by edelfenbein at 3:09 PM

The Cyclicals are Still Overpriced

Here's a look at something I wrote a lot about last year, it's the ratio of the Morgan Stanley Cyclical Index (^CYC) to the S&P 500 (^GSPC):

The ratio peaked on July 19 and started falling for the next few months. It eventually reached a bottom on January 9 and has been steadily climbing ever since.

Posted by edelfenbein at 12:38 PM

Signs of Health in the Credit Markets

From Bloomberg:

In the course of a three-and-a-half- hour dinner at Manhattan's Smith & Wollensky steakhouse, Emil Assentato went from also-ran to the top of the world's fastest-growing credit market.

By the end of the meal, Assentato, 58, the head of Cie. Financiere Tradition's North American securities business who races cars on weekends, had persuaded more than a dozen credit- derivatives brokers led by Donald Fewer and Michael Babcock to defect from rival GFI Group Inc., court documents allege. In the end, 21 would leave for Tradition with the promise of $130 million over three to five years, about $6 million apiece.

Tradition's attack did more than decimate GFI's credit- default swap desk. It also raised the bar for the "extraordinary" pay commanded by derivatives brokers who match buyers and sellers between banks, according to affidavits filed by New York-based GFI in a suit against Tradition. As Wall Street buckles under the biggest credit-market losses in history, brokerage firms are seeking to tap the $10 billion of fees generated by middlemen, who spend as much as $500 million a year entertaining traders with strippers, football games and evenings at trendy Manhattan bars, based on court records and interviews with industry officials.

Posted by edelfenbein at 10:42 AM

Harry & David's Withdraws IPO

Another victim of the stock market, Harry & David's has withdrawn its IPO due to "market conditions." Although the market has improved considerably over the past two months.

Posted by edelfenbein at 10:37 AM

Looking at Inflation

In today’s NYT, David Leonhardt makes some interesting points about inflation. The things that are rising in price and the ones we pay most attention to. The ones that are flat or falling, we tend to ignore.

There is also something particular to inflation that aggravates loss aversion. Price increases are obvious. But price declines are often hidden. The cost of an item stays about the same for years, while everything else gets more expensive and nominal incomes rise.

When you dig into the Consumer Price Index, you start to realize just how many things fall into this category. The price of major appliances has been flat over the last year. Furniture is 1 percent less expensive. A decade ago, a basic four-door Toyota Corolla LE cost $16,018, according to the company. The 2009 basic model costs $16,650, and it’s a safer, more powerful, more fuel-efficient car than its predecessor.

To top it all off, most people don’t buy any of these items very often. “People tend to remember things they do frequently,” says Stephen Cecchetti, an economist at Brandeis University who studies inflation. “And what do you buy more frequently than gas and food?”

But combine the less noticeable trends with some true price declines, like a 5 percent drop in women’s clothing over the last year, and an inflation rate of 4 percent starts to seem more reasonable. Inflation really has gotten worse recently — it was only 2 percent a year and a half ago — but it’s not as bad as it feels.

The whole idea of trying to measure inflation is a very difficult task. The reason is that if, say, chicken rises more than beef, consumers will start eating more beef and less chicken. In other words, as prices change, the weighting for each grouping changes.

Posted by edelfenbein at 9:37 AM

The World's First Billion Dollar Home

Pretty sweet.

Posted by edelfenbein at 3:11 PM

Shorting Puts

I've always thought that shorting puts is a fascinating options strategy. A few years ago, I edited a book on the topic. Here's part of the intro:

It then occurred to me that there is a great way to acquire stocks without trading what you've got or using borrowed funds. Simply stated, the method involves the sale of long-term options on highly rated companies, using the premiums received to further your investment program. There is no interest paid on the funds received; the funds never have to be repaid (because they have not been borrowed); and the equity requirements needed to do this are much lower than those for regular margin buying. Although I adapted and perfected this technique to suit my own needs and situation, it can be used by any investor who has built up some measure of equity and would like to acquire additional stocks without contributing additional capital. As we shall see later, the potential benefits far outweigh any incremental risks, especially when appropriate hedges and proper safeguards are incorporated.

What makes this technique so effective is that it exploits the fact that option prices do not reflect the expected long-term growth rates of the underlying equities. The reason for this is that standard option pricing formulas, used by option traders everywhere, do not incorporate this variable. With short-term options, this doesn't matter. With long-term options, however, this oversight often leads the market to overvalue premiums. Taking advantage of this mispricing is the foundation of my strategy.

I have been using this technique for the past four years-very cautiously at first, because of the newness of these long-term options (they were only invented in 1990) and the almost complete lack of information regarding their safety and potential. It was this lack of analysis that led me to start my own research into the realm of long-term equity options. Having determined their relative risk/reward ratio, I am now very comfortable generating several thousand dollars a month in premiums which I use to add to my stock positions. I am often told that what I am doing is much akin to what a fire or hazard insurance company does, generating premiums and paying claims as they arise. A better analogy might be to a title insurance company, for with proper research, claims should rarely occur.

Now I learn that Warren Buffett is using the same strategy:

Buffett arranged his multibillion-dollar positions by selling puts on these indexes. Berkshire will only have to make payments if the respective indexes fall below the levels they were issued at. "In the meantime, the premiums we have received are ours to invest freely," Buffett says in the quarterly report. At the end of 2007, the conglomerate had $4.5 billion in premiums and $4.6 billion in liabilities.

Berkshire has continued to enlarge its position. In the first quarter, it increased premiums by 8.5%, or $383 million, by selling more puts, and increased its liability by 34.8% to $6.2 billion. Berkshire recorded a first-quarter loss on the contracts of $1.2 billion.

The indexes Buffett is bullish on haven't fared well in the past year, given the turmoil in the credit markets. Over the last 12 months, the S&P 500 has fallen 7.9%, the FTSE dropped 4.1%, the Euro Stoxx is down 12.1% and the Nikkei has plunged 19.2%. His positions reveal that he is confident that the European, Asian and U.S. markets will move far higher in next 10 years and beyond.

Buffett warned that Berkshire's earnings may "swing widely because of the accounting regulations that govern the reporting of derivatives contracts," but that "that these contracts will prove profitable over the 15- to 20-year periods they cover, even if we exclude the investment income we can expect to earn on the $4.9 billion that we hold." Buffett did not disclose the exact size of this global bet, only remarking that "we’re talking billions and billions and billions and billions of dollars of these things."

Posted by edelfenbein at 10:25 AM

Morgan Stanley Is Being Sued Over James Brown's Estate

How can you not like this story?

Brown’s estate has been at the centre of legal controversy. The 16-month scrap over his money has included allegations of embezzlement by some of his managers, wives, partners and offspring, as well as a fight over the veracity of the will.

It was drawn up by a lawyer who is serving 30 years in jail for murdering a strip-club dancer.

Two court-appointed trustees of Brown’s estate filed a lawsuit this week against Morgan Stanley at a court in South Carolina, the singer’s home state.

In court papers, the trustees allege that Joseph Lizzio, a Morgan Stanley banker who continues to work for the Wall Street group, breached his fiduciary duty to his client by failing to check with Brown whether an employee was allowed to withdraw funds from his account.

Posted by edelfenbein at 10:19 AM

Commodity Prices in Historical Perspective

Here's an interesting report on commodity prices from Wachovia. They point out that surges in commodity prices are fairly common. In fact, that latest rally pales in comparison to some recent rallies. The report also includes the CRB Index adjusted for inflation (Exhibit 2), a chart I've run a few times here. Over the long haul, commodity prices have consistently underperformed inflation.

Posted by edelfenbein at 10:06 AM

Best Lede I've Read Today

From Reuters:

At least two analysts said Bank of America will likely lower its purchase price for Countrywide Financial , with Friedman, Billings Ramsey analyst saying the bank may bring down its deal price to the $0 to $2 level or completely walk away from the deal.

I like that: They're lowering their offer to the $0 level. Didn't that also happen in Godfather 2?

Posted by edelfenbein at 3:12 PM

How Much Not to Have Tea With Him

From Reuters:

How would you like a film role with Johnny Depp, tea with Alan Greenspan or tennis lessons from Andre Agassi?

It's all up for sale in an online auction to benefit the Robert F. Kennedy Memorial, a human rights advocacy group.

Tea with Greenspan and his wife, NBC correspondent Andrea Mitchell, was going for $11,000, according to the Web site here. Bidding ends on May 7.

Last year tea with Greenspan went for $45,000, promoters of the event said. No word on whether the winner received investment tips.

If their home is in foreclosure, then yes, they probably did get investment advice.

Here's the page to place a bid.

Posted by edelfenbein at 12:20 PM

RIP: Robert Vesco

Robert Vesco, one of the great financial swindlers, is dead. Given that it's Vesco, I guess I should say that he's allegedly dead. It's takes a real genius to flee to Cuba. Then get arrested in Cuba for double-crossing Castro.

If Mr. Vesco indeed eluded the American authorities until his final day, it was the fitting end to his nearly four decades on the run. He was wanted for, among other things, bilking some $200 million from credulous investors in the 1970s, making an illegal contribution to Richard M. Nixon’s 1972 presidential campaign and trying to arrange a deal during the Carter administration to let Libya buy American planes in exchange for bribes to United States officials.

Mr. Vesco last made the news a decade ago when he was sentenced to prison in Cuba, where he had taken sanctuary, for a financial scheme. He emerged in recent years and lived a quiet life in Havana until he contracted lung cancer. After about a week in a hospital, friends say, he died and was buried in an unmarked grave.

Given the controversial nature of the man, none of his friends dared be identified for fear of running afoul of the Cuban authorities. While word of Mr. Vesco’s death could be the final ruse of a 72-year-old modern-day buccaneer who had every reason to drop off the radar, it would have to be an elaborate one.

Posted by edelfenbein at 11:57 AM

JobVent On NICK

I noticed this posting on Nicholas Financial (NICK) at JobVent, a site where you can complain about your company.

Certainly one of the poorest managed companies I've ever experienced. The executive management is way too young and inexperienced and has never worked in any significant roles for other companies, so they only know one way to manage - through fear & intimidation. They install branch managers and expect them to turn a branch around in 60 days or they're pretty much out the door. Talk about cheap? This company expects its employees to scrub the toilets, change the light bulbs, sweep the floors, etc..You name it they are too cheap to out-source to a 3rd party. Probably could be a highly successful company if the CEO would get out of the way, hire some outside executive management and spend more time developing employees.

Obviously, since I don't know the source, I can't say how reliable it is. However, sometimes these rants can tell you a lot about the firm.

Posted by edelfenbein at 11:15 AM

Yahoo Plunges

I don't have much to add to the Yahoo/Microsoft story beyond the obvious. I can't believe Yahoo (YHOO) can be so out-of-touch. Microsoft (MSFT) was willing to pay $33 a share, and Yahoo wanted $37. I wouldn't have paid $15. The company simply isn't worth it. Yahoo is going to get smacked, and they really deserve it.

Posted by edelfenbein at 11:10 AM

Media Self-Absorption Watch

Check out this unintentionally hilarious paragraph from a completely fatuous editorial in today’s Washington Post.

Chelsea has been winning kudos in this campaign as an effective surrogate for Hillary Rodham Clinton, but I keep wondering whether she's an effective representative for us. Like me, Chelsea's a twentysomething (28 to my 29), a member of the generation that, as it happens, I spend a lot of time learning and writing about. We're ironic, sarcastic and self-deprecating, a reflection of the pop culture and politics that played out while we grew up in the 1980s, 1990s and onward. We were weaned on Chevy Chase movies ("Spies Like Us," of course, being the best), grunge and MTV's "The Real World" (seasons 1 and 2 only, please) and trained by the Onion, Jon Stewart and Stephen Colbert to detect spin in the most banal comments. People my age shed privacy at the nearest high-speed Internet connection and, more often than not, display the very grown-up qualities of self-awareness and self-reflection.

Allow me to translate: "Me! Me! Me! Me! Me! Me!"

I have a feeling that self-awareness somehow escaped this writer. His description of his generation probably accurately describes about, say, 0.3% of the population.

I'm having a hard time deciding what's the worst sentence. Maybe this?

Maybe Chelsea reached this workplace ideal of neatly combining altruism with affluence at her first job at McKinsey, an elite consulting firm, where she specialized in health care, or possibly now, at her hedge fund.

I won't even go into the part where he talks about his near-stalking of Ms. Clinton. After that, it gets kinda creepy.

Posted by edelfenbein at 9:22 PM

Virtual Recession Sparks NY Times Ad Sales Halt

ScrappleFace has the scoop:

With the nation on the verge of "a near-virtual likely recession", The New York Times stopped selling advertising today in an effort to help readers conserve “what little money they have left.”

"We realized we were sending mixed messages,” said Times publisher Arthur Ochs Sulzberger, Jr., “Our reporters and columnists say ‘Economic disaster is upon us’, but our advertisers say ‘Spend, buy, borrow’.”

“Our integrity,” he said, “demands that either we stop reporting on predictions of a very-probable, possibly-imminent, almost-certain recession-like economy, or we stop encouraging people to buy stuff, take on debt and live it up as if the world were not practically about to end.”

The moratorium on advertising sales will continue at least through January 2009, Mr. Sulzberger said, when he anticipates a positive change in what he called “the chief economic indicator,” a housing benchmark determined by which political party controls the White House.

Posted by edelfenbein at 11:03 AM

What Recession?

An editorial from the New York Sun:

The common definition of a recession is two consecutive quarters of negative economic growth, as we reminded readers in a January 24, 2008, editorial, "Recession Looms?" Well, despite the determination of politicians in Washington to deliver a "stimulus" to counter a recession, despite the persistence of the huffing and puffing from Paul Krugman about how the economy is about to go into a recession, despite the harrumphing of even the likes of Alan Greenspan, somehow the recession is proving elusive.

That is certainly the indication from the Department of Commerce, which yesterday announced that the gross domestic product in the first quarter of 2008 grew at a seasonally adjusted annualized rate of 0.6%. That's a real rate of growth, which means that the economy grew faster than inflation, which was itself not negligible. It was the same real growth rate that the government measured in the fourth quarter of 2007.

We'd like to see stronger growth, like, say, in the third quarter of 2003, when the economy started to get the feel of the Bush tax cuts and grew at an astonishing seasonally adjusted annualized rate of 7.5%. Or the year that began in April of 1983 and ended in March of 1984, when President Reagan's supply-side measures began to work their incentives and when the American economy grew consistently at a supercharged rate of more than 8%.

But two consecutive quarters of 0.6% growth is not bad, when measured against, say, the fourth quarter of 1990 and the first quarter of 1991, when real GDP shrank at an annualized rate of 3% and 2%. That was negative growth, not merely slow growth. Another genuinely bad patch was in spring and summer of 1980. In the second quarter of 1980, growth was negative 7.8%.

What we're seeing now — a national unemployment rate of 5.1% in March, a stock market whose indexes are up nearly 5% for the month of April — does not a recession make. In the early 1980s, we saw double-digit unemployment rates. In the early 1990s, the unemployment rate reached 7.8%. A 5.1% national unemployment rate is not a recession. There may yet be a recession, but Mr. Krugman & Co. will have to wait a bit more.

This is not to minimize the pain or hardship felt by those who have been affected by the job losses on Wall Street, who face losing their homes in a foreclosure proceeding, or who have been affected by the flight of manufacturing jobs overseas. But the American economy and the capitalist system and open markets are remarkably robust.

President Bush has now presided over 26 consecutive quarters of positive GDP growth, beginning immediately after the quarter that included the terrorist attack of September 11, 2001. President Reagan was credited with the "Seven Fat Years" in a book of that name by Robert Bartley that derived its title from Genesis. President Bush has two more quarters to go to make it to 28 quarters of growth, which would be seven fat years of his own and leave responsibility for protecting the Bush boom to whomever America elects as the next president.

Posted by edelfenbein at 11:15 AM

Ricepec

Thailand, Vietnam, Cambodia, Myanmar and Laos are thinking about creating a rice cartel:

The plan appears to be in a nascent stage. “I think it’s time to do it, probably within the term of this administration,” Noppadon Pattama, Thailand’s foreign minister, said Wednesday.

But if successful, a cartel could have far-reaching consequences on the rice market, sustaining prices at their current historic highs and worsening a food crisis that is hurting Asia’s poorest consumers. The price of Thai B-grade rice, a benchmark variety, has nearly tripled in recent months and is now hovering at about $1,000 a ton.

Maintaining rice prices would please large-scale rice farmers and traders in countries like Thailand and Vietnam, but it would anger places like the Philippines, Singapore and Hong Kong, which rely heavily on imported rice. Plans for the cartel were front-page news in the Philippines on Thursday.

Posted by edelfenbein at 2:58 PM

The S&P 500 Total Return Index

Including dividends, the S&P 500 is down -5.0% for the year, and up 8.3% for the decade.

Here's the same chart adjusted for inflation. The CPI for April hasn't come out yet so I assumed 0.5%.

Posted by edelfenbein at 2:26 PM

Timmay Radio Is Born

If you’ve never heard of Tim Sykes, at this point, that’s probably your fault. He’s a one-man media, blogging and trading empire.

Tim has redesigned his site which now includes a podcast with yours truly. Enjoy.

Posted by edelfenbein at 1:30 PM

The Strange BBBY Rally

Ever since Bed Bath & Beyond (BBBY) reported its poor quarter a few weeks ago, the stock has rallied. The stock is now up about 20% from its low.

We often look to clear reasons to explain stock price movements. It's disquieting to think that sometimes there simply aren't any. Of course, I never thought BBBY should have been that cheap to begin with.

Posted by edelfenbein at 12:47 PM

Setting the Bar High

It's got to be rough for a company that earns $10.9 billion in a quarter, and the results are called disappointing.

Posted by edelfenbein at 12:43 PM

De Beers Finds Shipwreck, Treasure From Columbus Era

This is cool:

De Beers, the world's biggest undersea diamond miner, said its geologists in Namibia found the wreckage of an ancient sailing ship still laden with treasure, including six bronze cannons, thousands of Spanish and Portuguese gold coins and more than 50 elephant tusks.

The wreckage was discovered in the area behind a sea wall used to push back the Atlantic Ocean in order to search for diamonds in Namibia's Sperrgebiet or ``Forbidden Zone.''

``If the experts' assessments are correct, the shipwreck could date back to the late 1400s or early 1500s, making it a discovery of global significance,'' Namdeb Diamond Corp., a joint venture between De Beers and the Namibian government, said in an e-mailed statement from the capital, Windhoek, today.

The site yielded a wealth of objects, including several tons of copper, more than 50 elephant tusks, pewter tableware, navigational instruments, weapons and the gold coins, which were minted in the late 1400s and early 1500s, according to the statement.

Posted by edelfenbein at 10:34 AM

The S&P 500 and Earnings

Here's a chart of the S&P 500 (black line, left scale) and its earnings (yellow line, right scale). I scaled this graph at a ratio of 16-to-1, so whenever the lines cross, the P/E ratio is exactly 16. As you can see, even as the market has risen and sold off, the market is basically following earnings pretty closely.

Posted by edelfenbein at 10:14 AM