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« May 2008 | Main | July 2008 » June 30, 2008The Buy List’s Mid-Year Report Ugh, we choked at the last minute! Going into today, the Crossing Wall Street Buy List had a comfortable lead over the S&P 500. But today, we collapsed. The S&P 500 rose by 0.13%, but our Buy List lost (yuck!) -1.49%. Today was the worst relative performance for us all year. For the year, the S&P 500 is off by -12.83% while our Buy List is now down -13.47%. The Buy List’s daily volatility is 6.27% greater than the S&P 500. Including dividends, the Buy List is down -13.16% while the S&P 500 is down by -11.91%. Roughly, that translates to an annual dividend yield of 2.12% for the S&P 500 and 0.72% for us. If you recall, the rules of the Buy List let me select 20 stocks at the beginning of the year and I'm not allowed to make any changes throughout the year. Right now, just three of our 20 stocks are in the black. The biggest loser by far is Unitedhealth Group (UNH), which is down by nearly 55%. Here's a look at how all 20 stocks have done. Stock..........................................Profit Posted by edelfenbein at 9:53 PM Let's Hear It for Round Numbers The Dow closed today at 11,350.01 and the S&P 500 closed at 1280.00. Posted by edelfenbein at 4:29 PM The Oil Boom Comes to Beverly Hills This is news to me. There are oil wells in Beverly Hills! "In the Middle East you might have 300 barrels of oil per cubic acre, but in the Los Angeles Basin you might have 4,000 barrels per cubic acre," says Mike Edwards, vice president of Denver-based Venoco Inc., which has 24 active wells in the Beverly Hills area, including one alongside Beverly Hills High School. "In terms of the land that produces oil, the basin is very rich." Come to think of it, I really doubt there's much oil in Appalachia. Posted by edelfenbein at 1:10 PM Worst June Since the Depression Who's ready for this June to end? Count me in! This looks to be the worst June for stocks in 78 years. Here are the S&P 500's total return for the 20 worst Junes since 1928: Jun-30........-16.24% Posted by edelfenbein at 12:02 PM Behavioral Economics If you want to read a long (and I mean looong) article on behavioral economics, then I suggest this 10,000-word opus by Alan Wolfe for The New Republic. The article is a look at two books, Happiness: A Revolution in Economics and Predictably Irrational: The Hidden Forces that Shape Our Decisions, but it will tell you a lot of the emergence of behavioral economics. I disagree with some parts and I think he frames the issues in an oversimplified way. Still, it’s an interesting read. Here's a sample: Ariely and his colleagues set up a stand and offer Lindt truffles for 15 cents and Hershey's Kisses for a penny: 73 percent of their customers choose the former, 27 percent the latter. Then they lower the price of the truffle to 14 cents and offer the Hershey Kiss for free, and now 69 percent choose the Kiss and only 31 percent the truffle. Calculating utility cannot explain this result. In both cases, the cost difference is identical. So it seems that we attach an almost mystical meaning to the idea of getting something for nothing. Zero is not just another number. It plays tricks with our rational minds. Posted by edelfenbein at 11:53 AM Feed Update Notice: Crossing Wall Street is a-switching over to FeedBurner. Please update your Interweb machines accordingly. The new RSS feed address is http://feeds.feedburner.com/Crossingwallstreet Posted by edelfenbein at 11:21 AM June 27, 2008How Darwin won the evolution race Robin McKie writing in the Observer: In early 1858, on Ternate in Malaysia, a young specimen collector was tracking the island's elusive birds of paradise when he was struck by malaria. 'Every day, during the cold and succeeding hot fits, I had to lie down during which time I had nothing to do but to think over any subjects then particularly interesting me,' he later recalled. Posted by edelfenbein at 11:09 PM Toward a Transparent Financial System Vikram Pandit writes in today's WSJ: In recent dysfunctional markets, we have seen different accounting standards applied that were based on an institution's form and regulatory jurisdiction. Accounting based on a mark-to-model has been severely tested by unobservable inputs intended to estimate the market. This has fed into difficult, far-reaching decisions that impacted capital and other factors as one misinformed trade set off a chain of similar trades. This raises an important question: Are there alternative accounting approaches we should apply, particularly in dysfunctional markets? Posted by edelfenbein at 11:40 AM Deconstructing the Dow Here's you scary stat for the day. GM's book value is -$72.50 per share. Going by the Dow's current divisor, that means GM's is worth nearly -600 Dow points. Let's be honest, the Dow Jones Industrial Average (^DJI) is a lousy index. It's a price-weighted index of just 30 stocks. Combined, the 30 stocks are worth $3.7 trillion, which is less than one-third the value of the cap-weighted S&P 500 (^GSPC). I know the Dow is 112 years old, and it was great in its day, but the time has come for the old boy to retire. Caterpillar (CAT), for example, is a $74 stock, which makes it the fourth most heavily weighted stock in the Dow. Yet, it's $45 billion market value ranks 25th -- and CAT is hardly the worst offender. That title belongs to what was once called General Motors (GM). If you're not familiar with GM, it's a health care benefits management firm that sells cars for a loss as a side venture. GM's price weighting is just 0.81% of the index, but it's market value is a puny 0.18%. That means that GM has over 4.5 times weighting than it should have. Would anyone miss this is it were gone? I doubt it. Barry says replace it with Cisco (CSCO). That's not bad, but I'd prefer UPS (UPS). Here's a listing of all the Dow stocks and their Share Weight, which is how much each stock makes up in the DJIA, along with each stock's Market Cap Weight, which would be how much each stock would be worth if the Dow were weighted by market value. Symbol.................Share Weight......Market Cap Weight General Electric (GE) is the stock that's punished the most. The Dow weighs it about one-fourth of what it should be. And don't get me started on the Nasdaq! Posted by edelfenbein at 7:13 AM Bed Bath & Beyond Earns 30 Cents a Share Yesterday, Bed Bath & Beyond (BBBY) reported first-quarter earnings of 30 cents a share, three cents better than Street estimates. The first quarter (March, April and May) tends to be the company's slowest quarter. Since I've defended this stock for years, you probably won't be surprised to hear me say that I'm pleased with these results. Sales rose by 6.1%, and sales-per-share rose by 13.9%. The big thing that hurt the company was declining profit margins. For the 11th straight quarter, year-over-year net margins declined. That really takes a bite out of a company's bottomline. Compared with the first quarter three years ago, BBBY's sales are up 32.5%. Yet net income is down by over 22%. That's what happens when your margins nearly fall in half. On the conference call, BBBY expects Q2 EPS of 43 to 48 cents compared with 55 cents last year. Here are the earnings results going back a few years:
Posted by edelfenbein at 12:13 AM June 26, 2008The Constitution Stirs I live right by one of the largest police stations in DC, yet there was an armed robbery directly across the street a few days ago. For the record, until today, all handguns were banned in DC. Shotguns and rifles are allowed. You just have to keep them unloaded and disassembled. Posted by edelfenbein at 5:17 PM The Dow is Now Down for the Millennium The Dow closed at 11,453.42 which means the index is now in the red for the millennium. The Dow closed December 31, 1999 at 11,497.12. Of course, that doesn't include dividends. Over the last 8.5 years, dividends have added about 19.5% to the Dow's total return. All 30 stocks were down today. In percentage terms, today was the third worst day for the Dow in the last five years. The 3.13% sell-off from three weeks ago was slightly worse. Today was the 10th 300+ point sell-off in the last twelve months. The Dow is now at its lowest close since 9/11/2006. The S&P 500 wasn't down as much, and it's still holding above its closing low from March 10 and March 17. For the millennium, the S&P 500 is off 12.7%. Here's something you don't see every day. On the NYSE, decliners led advancers by 11-to-2. But advancing volume and declining volume were roughly equal.
Posted by edelfenbein at 3:47 PM GM Hits a 34-Year Low Goldman cuts General Motors (GM) to Sell. The stock is down over 11% today.
Update: Make that a 53-year low. Posted by edelfenbein at 10:15 AM First-Quarter GDP Revised Higher The government slightly raised its estimate of first-quarter GDP growth from 0.9% to 1.0%. The figure was initially reported in April at an anemic 0.6 percent, fueling concerns that the U.S. economy may be slipping into recession. However, those concerns have subsided as fresh data showed healthier growth, particularly in consumer spending and exports. This the sixth time in the last eight quarters that GDP has come in below the long-term trend of 3%. Posted by edelfenbein at 9:45 AM June 25, 2008Count De Monet
At Christie’s, they were looking to sell Monet's “Le Bassin aux Nymphéas" (above) for $36 million to $47 million. The winning bid was for $80.4 million. Posted by edelfenbein at 4:21 PM No Change Here's the Fed's latest statement: The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent. Ron Isana summed it up well by saying that this statement has nothing for everyone.
Posted by edelfenbein at 2:15 PM Quote of the Day The Oracle of Omaha speaks: Warren Buffett is in Toronto, fielding questions from a crowd of 300 executives. One asks what makes people want to sell their companies to him. Posted by edelfenbein at 10:16 AM June 24, 2008Why Soccer Will Never Be Really Big Here I just looked at the numbers of the Euro 2008 tournament. So far, there have been 28 games. The team that scores first has gone 20-3-3! Two other games have been 0-0 ties. Remarkably, the Turks have won two of the tournament's three come-from-behind victories. That's one of the problems I have with soccer, come-from-behind wins are so rare. The U.S. is a country built on the idea of coming from behind to upset the champs. I admire the athleticism of the players, and I think it's fascinating that most of them look like guys you could see walking down street (unlike a pro football or basketball player). But I'm sorry, there has to be more scoreboard action. If you score the first goal, you basically have the game wrapped up. Do they just run out the clock? In baseball, scoring the first is good, but it's just a start. I'm curious what the equivalent start you need in baseball or football to have something close to a 20-3-3 record. My guess is that you need a 6-0 lead in baseball, and a 17-0 lead in football. Posted by edelfenbein at 2:39 PM From Another Credit Crunch The New York Times from November 1991: Is the credit crunch real? Are banks denying creditworthy businesses the loans they need to invest the economy out of the recession? Posted by edelfenbein at 11:54 AM Have Lunch With Warren Buffett For charity, you can have lunch with Warren Buffett. The current bid on eBay is $77,100. That's less than two-thirds of one Berkshire share. Posted by edelfenbein at 11:42 AM Junk Default Recoveries Maybe Lower Than Usual I’ve been surprised by the wide yield spread between low-risk bonds and high-risk bonds. Just look at the downward drift of Vanguard’s High-Yield Corporate Bond Fund (VWEHX).
I called Vanguard and the fund pays a dividend yield of 8.61%. Wow, that creams just about anything else you can find today. Of course, they’re called junk for a reason. High-yield bonds have a greater risk of defaulting than investment grade debt. In today’s Wall Street Journal, Liz Rappaport says that if defaults do happen, the amount recovered could be less than it has been in the past. A report to be published Tuesday by Moody's Investors Service argues that the explosion of loans issued by junk-rated companies in the past few years means that if they default, the recoveries on these loans might be less than in the past. Here’s the money quote: Now, Moody's expects loan investors to fare almost as badly as investors in riskier junk bonds have done in previous busts. "It doesn't matter what you call something," says Kenneth Emery, author of the report. "What matters is where you sit in the liability structure." Historically, it’s fairly rare for a bond, even a junk bond, to default. The long-term rate for junk is about 2.6%, but for investment grade bonds, the default rate is just 0.1%. However, defaults can often spike dramatically higher. There have been times when the junk default rate has hit 15%, while it’s never gone above 1.6% for the highest-grade bonds. Reuters reports today: The U.S. default rate on junk bonds, high-yield debt that is below investment grade, rose to 1.89 percent in May, a 26-month high, from 1.64 percent in April. The rate is expected to rise to 4.7 percent within a year and there is a 20 percent chance it could go as high as 8.5 percent, S&P said. Posted by edelfenbein at 10:31 AM Goldman Admits It Goofed You don't find the word "goofed" in many financial headlines, especially ones dealing with Goldman Sachs, but Reuters has the goods: Goldman cuts financials, admits goofed on upgrade Good for them for reversing their call. One of the biggest mistakes investors make is refusing to admit defeat on an investment. People will hang on to the worst sorts of stocks just so because they don't "want to take a loss." Stocks don't have egos. Sometimes it's best just to let it go. Here's a look at how the S&P 500 Financials and Consumer Discretionary Indexes have done since the beginning of last year.
This chart reminds me of another big mistake investors make: "It's already down so much, it can't possibly go any lower?" Posted by edelfenbein at 9:34 AM June 23, 2008UNH Under $27 Unitedhealth Group (UNH) got down to $26.35 today. That's the lowest price in over four years. The company said that it expects earnings this year of $3.55 to $3.60 per share. I'm going go out on a limb here and say, I don't think the market believes that. Posted by edelfenbein at 3:07 PM Aussie Power Crisis Leads to Flat Beer Talk about globalization. Thanks to demand from China, a town in Australia is booming. That is, until an explosion cut off natural gas supplies. Hotels are turning off heaters, dirty laundry is piling up and restaurants and bars expect shortages of beef and draught beer. The crisis may shave a quarter point off Australia's gross domestic product as mines and processing plants cut production, slowing the state's commodities-driven boom, estimates Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney. It’s a nightmare deciding what stays on and what stays off. My favorite quote: ”When it gets to the stage where you can't pour a beer in a pub, you know this crisis has the potential to affect every aspect of business,” says Bradley Woods, CEO of the Australian Hotels Association's West Australian branch. Posted by edelfenbein at 2:40 PM Buy! Buy! Buy! Wait, I Never Said Buy. Oh Jim. (Via Felix via the tireless Don Harrold) Posted by edelfenbein at 2:11 PM Market Failure Versus Government Failure Here's an interesting article from the Washington Post looking at the government's ability to handle market failures. "How well does government do in helping the market to improve what it does?" asked Clifford Winston, an economist at the Brookings Institution and the author of the 2006 book "Market Failure Versus Government Failure." "The research consistently finds that, in fact, government efforts to correct market failures have little effect, or actually make things worse." I think people are inherently poor judges of risk. Previous research has shown that people drive faster in vehicles that feel safer, attempt to bike on more dangerous terrain when they wear helmets and pay less attention to infants being bathed when the children are in seats that are said to reduce the risk of drowning. Posted by edelfenbein at 1:57 PM RIP: George Carlin Posted by edelfenbein at 1:38 AM June 20, 2008Nasdaq Composite and Long-Term Support I'm not much of a market technician, but I'm passing along this chart because the time period is so long.
In March, the Nasdaq came within 10% of hitting the long-term support line. Even though it looks close, the black line is around 2050 today, which is far below where the Nasdaq (^IXIC). Posted by edelfenbein at 11:03 AM June 19, 2008Doomsdays Past and Present RBS issues global stock and credit crash alert The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks. I love British understatement ("very nasty period"), but I think their metaphors are a bit mixed up. Chickens can't come home to roost while the contagion spreads. Perhaps Chickenpox could spread, but certainly not roosting chickens. If the chickens were paralyzed, well...that just seems rather cruel. Of course, predicting crashes is a great way to get attention. It's also not so new. Nearly 151 years ago, on June 27, 1857, the New York Herald predicted a market panic (which indeed began in August). The founder and publisher of the Herald, James Gordon Bennett, editorialized: “What can be the end of all this but another general collapse like that of 1837, only upon a much grander scale?” What did he mean by “all this”? Government spoilation, public defaulters, paper bubbles of all descriptions, a general scramble for Western lands and town and city sites, millions of dollars, made or borrowed, expended in fine houses and gaudy furniture; hundreds of thousands in silly rivalries of fashionable parvenus, in silks, laces, diamonds and every variety of costly frippery are only a few among the many crying evils of the day. Yes, we’ve always had purple prose Doomsday writers. It sells better than balanced reporting. By the way, 1857 is a...Fibonacci Number...dun..dun...DUNNH. Posted by edelfenbein at 4:33 PM Krugman Misled America!! Five years ago, Paul Krugman wrote: The big rise in the stock market is definitely telling us something. Bulls think it says the economy is about to take off. But I think it's a sign that America is still blowing bubbles — that a three-year bear market and the biggest corporate scandals in history haven't cured investors of irrational exuberance yet. And. In short, the current surge in stocks looks like another bubble, one that will eventually burst. Well, there was one stock that was in a bubble.
Krugman lied. Profits died. Posted by edelfenbein at 2:48 PM June 18, 2008Oil Prices Through the Years Here's a cool chart from Forbes showing the price of oil since 1861. (Via: Kedrosky) Posted by edelfenbein at 2:55 PM Oopsie! From Bloomberg: Morgan Stanley suspended a credit trader and disclosed a $120 million "negative adjustment" related to erroneous valuations of his positions, Chief Financial Officer Colm Kelleher said. Ever notice how these mistakes, I mean, negative adjustments always negative. If they're always mistakes, shouldn't some be positive? Posted by edelfenbein at 1:06 PM Was the Idea for Facebook Stolen? In Rolling Stone, Claire Hoffman takes a 6,300-word look at "The Battle For Facebook:" In a lawsuit one judge describes as a "blood feud," three fellow Harvard students claim Zuckerberg fleeced their idea after they hired him to code a social-networking site they were creating. "We got royally screwed," Divya Narendra, one of the students, has testified. And in April, another classmate, Aaron Greenspan, filed a petition to cancel Facebook's trademark, claiming he invented an online facebook months before Zuckerberg. Greenspan, who has compiled reams of e-mails chronicling his months of communication with Zuckerberg, bristles at equating the Facebook prodigy with Microsoft's founder. "Gates was shrewd, calculating and insanely competitive, bordering on autistic," Greenspan writes in his self-published autobiography. "Mark was inarticulate and naive." Posted by edelfenbein at 12:45 PM RBS Predicts Gloom Followed By Doom From the Telegraph: The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks. Posted by edelfenbein at 10:10 AM June 17, 2008Questar (STR) I'll never understand why a company with a cool name like Mountain Fuel Supply Company would want to change its name to the horribly ugly sounding Questar (STR), but change it they did. Perhaps they knew what they were doing. The stock has been an amazing performer for years. Over the last 20 years, the shares' total return (including dividends) is up about 60-fold, which is over 22% a year. The stock hit another new high today.
Posted by edelfenbein at 1:02 PM FactSet's Earnings Very strong earnings report today from FactSet Research Systems (FDS). Sales and net income both rose 22%. Earnings-per-share came in at 65 cents, two cents a head of the Street. For the same quarter one year ago, FactSet made 56 cents which included a four cent tax benefit. Here are some highlights from the company: Other Financial Highlights Here's a look at the company's stock (blue, left scale) and earnings-per-share (gold, right scale). The two lines are scaled at 30-to-1. FactSet's P/E ratio plunged from 37 in October to 19 in mid-March.
Posted by edelfenbein at 10:37 AM Hedge Fund Manager Still Alive, Fund Not So Much The U.S. Marshals say that Samuel Israel III did NOT leap to his death after writing "suicide is painless" on the hood of his car. Well done, Marshals, even though I could have told them that. The hood thing had all the earmarks of the first clue on any Law & Order. Please, no one is ever guilty at the 18th minute mark. "Suicide has been ruled out," William Dundon, a spokesman for the U.S. Marshals Service, said in an e-mail to Reuters. This is a good day for people who shorted the suicide contract. I wonder what the odds are that they'll find Israel in Israel. Posted by edelfenbein at 10:12 AM June 16, 2008Little Bank, Big Profits I love finding tiny companies that no one knows about, but are great investments. This is especially true with small banks. There are roughly a bazilion little banks that are publicly traded, and yet many aren't followed by a single Wall Street analyst. Here's a good name to consider, Smithtown Bancorp (SMTB). The funny thing is that this bank is based in Wall Street's backyard yet only two analysts follow it. The company has a market cap of roughly $200 million, which is barely a peep compared with the big boys (Citigroup's market cap is more than 500 times larger). Like a lot of banks, Smithtown is going through a rough patch, but the company still earned $1.47 a share last year. That was its 13th straight record year. Not a lot of companies can boast of that. The shares are down about 15% in the past year. Posted by edelfenbein at 1:34 PM Say It Ain't So, Lenny Forbes recently suggested that Lenny Dykstra isn't making his own stock picks, but relying on Richard Suttmeier (note both Lenny, Suttmeier and I are columnists at RealMoney.com). Peter Kafka prints Suttmeier's response (you can read it here) and I think they have a good case. First, they're not doing anything secretive or improper. Secondly, Dykstra is merely using Suttmeier's research as a primary screening tool.Sheesh! What's the big deal about that?
Posted by edelfenbein at 1:19 PM Oil at $140 The price for oil is at another new record near $140 a barrel. A gas station in Egnland, however, is selling gas for just £1.99 pounds a litre. Wait a sec, that's $17.69 a gallon. According to GasBuddy.com, Hume Lake Gas in Hume, CA is selling gas for $4.99 a gallon. Posted by edelfenbein at 11:03 AM "The US economy is Out of the Woods" Anatole Kaletsky at the Times argues that the U.S. economy is not in a recession: American consumers, far from cutting back to bare essentials as was expected by bearish commentators after the credit crunch, are actually increasing their spending. The evidence of this, contained in the strong retail sales figures for May published last Thursday, was by far the most important economic news of the past few weeks. Yet these figures received almost no media coverage and little market attention. Posted by edelfenbein at 10:33 AM Lehman's Earning, Or Lack Thereof Lehman Brothers (LEH) told us to expect the worst and they were right. The company lost an astonishing $2.8 billion last quarter. Revenues came in at negative $688 million. It's hard to make a profit when your revenue is in the red. The company got rid of $147 billion in assets last quarter. Lehman's leverage ratio -- how many times assets exceed a firm's equity -- fell to 24.3 from 31.7 at the end of the first quarter and 28.7 last year. A week ago, Lehman predicted the ratio would slide to 25. The higher the number, the more debt the firm has taken on to fund those assets. From the end of 1996 to the end of 2006, shares of LEH climbed from $7.69 (adjusted for two 2-for-1 splits) to $78.12. That's a 10-fold gain in 10 year, and it doesn't include the modest amount from Lehman's dividend. The company just made a high-profile change in the executive suites but I really don't think that's what needed right now. Moody's, for their part, recently downgraded the company. Naturally, this comes after the stock has plunged 75%. I doubt Lehman will able to continue as a separate entity. Posted by edelfenbein at 9:26 AM June 13, 2008S&P 500 Value Index Divided By the S&P 500 Growth Index
Growth has recently been outperforming Value which is unusual for a bear market. The difference is that many financial stocks fall into the Value category, and that's where the most pain has been. Posted by edelfenbein at 11:48 AM June 12, 2008Portfolio Called It From the April issue of Portfolio on Erin Callan: Wall Street's Most Powerful Woman Posted by edelfenbein at 2:11 PM 10-Year T-Bond Hits 2008 High I know we're supposed to be in the worst economy since the Great Depression, but no one told retail shoppers. Retail sales climbed 1 percent last month, from a 0.2 percent drop in April, the Commerce Department said. Excluding autos, retail sales increased 1.2 percent in May, after a 0.5 percent rise in April. The median forecast in a Bloomberg News survey was for an increase of 0.5 percent in retail sales and 0.7 percent in sales excluding autos. The yield on the 10-year Treasury (^TNX) bumped up to 4.18% this morning which is the highest yield all year. Still, by the standard of the past few years, the yield is quite modest:
In the retail sector, Ross Stores (ROST) has been doing very well. The stock is up over 45% this year and the shares hit another new high today. Last week, the company reported that its same-store sales rose 7% in May. Posted by edelfenbein at 10:25 AM June 11, 2008Bear's Lacrosse Team Beats Lehman's From Bloomberg: Bear Stearns Cos.' lacrosse team beat Lehman Brothers Holdings Inc. 11-4 last night, a rare piece of good news for workers at the now-defunct Wall Street firm. Posted by edelfenbein at 3:36 PM The T-Bill Rate Catches Up to the Fed's Rate Although the stock market may be headed back to where it was in March, there's a major difference between now and three months ago--the short-term credit market isn't nearly as chaotic as it was. This doesn't suggest that the stock market shouldn't be falling, but it could mean that the worst of the credit crunch has passed. The yield on the three-month T-bill is usually pretty close to the Fed Funds target rate, but that relationship went kabluey last year. Yesterday, for the first time in over two years, the T-bill rate nearly exceeded the Fed Funds target rate. Last August, the T-bill rate plunged all the way to 2.95% (and an intra-day low of 2.4%) while the Fed was still at 5.25%. That's a huge gap. Here's a look at the difference between the Fed Funds target rate and the yield on the three-month Treasury:
The Fed responded by cutting and cutting, but the T-bill rate continued to head lower. By mid-March, the spread was still close to 200 basis points. On March 20, the intra-day low for the three-month T-bill was just 0.2%. That's a panic price. Since the Fed last cut in late April, the T-bill rate has slowly crept higher. Now of course, there's talk of the Fed raising rates soon. Posted by edelfenbein at 12:14 PM Market Orders Vs. Limit Orders Tim Sykes has a good article at TradingMarkets on the advantages of limit orders over market orders. I always enjoy hearing what Tim has to say because his approach to investing is almost the polar opposite of mine. Plus, any article that says, “90% of traders are known losers,” has got to win a place in your heart. (BTW, how many are unknown losers?) Tim is a frenetic trader whereas I change one-quarter of my Buy List just once a year. There’s no one right way to invest—it often comes down to personality and temperament. Tim says that he hasn’t once used a market order; I can’t remember the last time I didn’t. Tim’s point is that so much of strategy comes down to simple execution: By using limit orders, I ensure a satisfactory execution. And, if none or only some of my order executes - as often times stocks run too hard and too fast, blowing past my limit price - then it's probably for the best because experience has taught me not to chase stocks. Obviously buying to cover into a short squeeze is an altogether different animal - on those you need to get out as soon as possible - so I just place my limit far above the current price, still cautious not to wildly overpay or open myself up to getting taken advantage of by many of Wall Street's nefarious players. That’s an interesting angle because one of the frustrations I’ve found in limit orders is only getting partially filled. That would drive me nuts because I felt half dressed. With stop-losses, I found myself canceling far more than any there were ever triggered. Tim concludes: So, demand more from yourself whenever you place a trade. Be disciplined, be cautious, and be wary. Thinking this way will surely cost you a few missed opportunities, but the money saved over time from minimizing poor executions and emotionally charged trades will make it well worth your while. Posted by edelfenbein at 11:29 AM Financials Fall to 3rd Place in S&P 500 Remember when the financials fell to second place in the S&P 500? It seems as if it was only a few days ago, which it, in fact, was. Well, now the financials are in third place. The market value of IT stocks surpassed financials last month for the first time since the tech bubble imploded at the start of the decade. And now, energy names top financials in the widely followed index for the first time since 1992. Kinda like Big Brown down the stretch in the Belmont. Posted by edelfenbein at 8:49 AM Is the Dollar Coming Back to Life? Could be. Here it is against the yen.
The greenback still has a long, long way to go. The dollar picked up momentum throughout the global session, rising to a three-month high of 107.43 yen while pushing the euro down to a three-session low of $1.5453. The U.S. currency had rallied for the second straight day after Federal Reserve Chairman Ben Bernanke downplayed recession risks in a speech Monday night. He repeated concerns about inflation that had led to a dollar rally last week when Mr. Bernanke tied those price pressures to the weaker U.S. currency. Posted by edelfenbein at 8:11 AM Hedge Fund Manager Goes Missing The weird story of Bayou hedge fund just got even weirder. Samuel Israel III, the head of the fund that lost $400 million, was supposed to begin his 20-year prison sentence on Monday. Except there was one minor problem—he never showed up. The police found his car on a bridge spanning the Hudson with a suicide note written on the car’s hood. Except there was one minor problem—no body has been found. According to the police, the bodies of people who jump off the bridge are found pretty quickly. Mr. Israel's lawyers had sought a more lenient sentence, saying that he had numerous back operations and was addicted to painkillers. But that didn't sway federal Judge Colleen McMahon. At his sentencing, she said: "He suffered from these ailments while he did the crime. He can deal with them while he does the time." Something this tells me this story isn’t over. Posted by edelfenbein at 7:47 AM Financial News You Can Use From MP Dunleavey How to leave your husband Naturally, you don't want to do anything rash. Take the time -- two to six months -- to plan an exit strategy that will protect your financial security. Surviving divorce is misery enough; you don't want to suffer unnecessary financial hardship on top of it. Posted by edelfenbein at 7:39 AM June 10, 2008The Single Largest Consumer of Energy in the World It's the U.S. military: Here's a sample: Since the military's war machines burns fuel at such intense rates, it becomes impractical to talk about consumption in miles per gallon. That is why fuel use in military applications is shown in "gallons-per-mile," "gallons-per-hour," and "barrels-per-hour." I think it's a bit hard on the military to complain of fuel inefficiency, but the numbers are interesting to consider. Posted by edelfenbein at 12:58 PM Not Done Yet.... According to the futures market, the Fed may raise interest rates one more time. Not at the June meeting, but it could happen at the August meeting. According to the latest numbers, the futures market believes there's a 40% chance that the Fed will raise rates by 25 points in August. The Fed Funds Target currently stands at 2%.
Posted by edelfenbein at 10:20 AM June 9, 2008Scary Chart of the Day Percent change in borrowing from the Fed's discount window.
Posted by edelfenbein at 2:02 PM Peering Inside Renaissance Technologies James Altucher looks inside Renaissance Technologies, the hedge fund firm that’s delivered 40% a year for many years. Surprisingly, the fund’s equity positions aren’t that obscure. James says that the bulk of the stocks the company holds subscribe to a very simple formula: stocks trading for les than $10 a share, enormous amount of cash, no debt and low market cap. Posted by edelfenbein at 1:23 PM Buffett’s Bet Warren Buffett is betting a hedge fund that an investment in its family of hedge funds will underperform Buffett’s unmanaged investment in the S&P 500 over the next ten years. Both sides are putting up $320,000. The combined sum will go into zero-coupon Treasuries that will mature at $1 million ten years from now. I’m not so sure that’s a wise bet on Buffett’s part. If it were a large basket of hedge fund, then yes, I’d be all for it. But just one family, eh, I don’t know. Buffett’s major point is that hedge fund fees are insanely high. He’s right, of course, but there are plenty of folks willing to pay that sort of fee. Now, if there were only some place people could find market-beating advice (for two straight years) that’s completely free and has minimal turnover. Hmmm. Posted by edelfenbein at 12:47 PM EMT Takes Another Blow At this blog, I've long argued against the idea of efficient markets. Here's more proof. On eBay, there was an auction for a $50 Target gift card. The winning bid: $55.71. Of course, this makes no sense. Neither does writing about efficient markets on a free blog. Posted by edelfenbein at 11:03 AM Just Letting You Know Nicholas Financial (NICK) is down to $6.35 a share. The book value is $7.70 a share. Posted by edelfenbein at 10:32 AM What's Behind the Big Jump in Unemployment On Friday, the government reported that the unemployment rate jumped from 5% to 5.5%, marking one of the largest jumps in decades. The increase was especially large for teenagers (up 3.3% to 18.7%). So what's going on? Mark Perry has one explanation, the increase in the minimum wage. Last year, Congress hiked the minimum wage from $5.15 to $5.85. That's not all. Next month, it will rise again to $6.55, and next year it will rise still more to $7.25. That's a 41% increase and it will be the largest two-year increase in 50 years. Posted by edelfenbein at 10:26 AM Lehman Drops Bomb Wall Street had been expecting Lehman Brothers to post a loss of a couple million here and there. Turns out, a couple million was really 2800 million. This is their first-ever loss since going public. The company is also going to raise $6 billion in new capital. Adding insult to injury, Jenny Anderson writes: Lehman Brothers, among the smallest players on Wall Street, announced on Monday that it will raise up to $6 billion in fresh capital from investors. Jeez, it's one thing to lose money, but there's no need to get phallic. The shares are getting smacked today, but they're still above the panic low from March. Bess Levin is live-blogging the call. Posted by edelfenbein at 10:18 AM June 6, 2008RIP: Bo Diddley He also appeared in Trading Places. Posted by edelfenbein at 5:28 PM Billionaire Drug Bust The Smoking Gun is on the scene: The billionaire apparently did little to conceal his drug transactions. On one occasion, in the lobby of Broadcom's southern California headquarters, he directed an employee to provide cash to a courier "in exchange for an envelope containing controlled substances," the indictment charges. On a drug-fueled 2001 private plane flight--during which Nicholas allegedly used and distributed narcotics--the pilot was forced to don an oxygen mask due to the "marijuana smoke and fumes." According to a March 2008 Forbes story, Nicholas, with an estimated net worth of $1.8 billion, is ranked 677 on the list of the world's wealthiest individuals. Posted by edelfenbein at 12:03 PM Huge Jump in Unemployment The government reported today that the unemployment rate jumped from 5.0% to 5.5%. Many news outlets are saying that this was the largest increase in 22 years. I broke down the data into a few more decimal places, and it's actually the largest increase in 28 years. Nonfarm payrolls declined by 49,000.
Posted by edelfenbein at 9:56 AM June 5, 2008Bernanke Bombs at Harvard “These, obviously, are not the kind of topics chosen by many recent Class Day speakers,” Bernanke said. “But, then, the class marshals presumably knew what they were getting when they invited an economist.” (Via: Mankiw.) Posted by edelfenbein at 9:07 AM June 4, 2008The Buy List Is Still Rolling Thanks to Jos. A Bank Clothiers' (JOSB) big earnings report, that stock soared over 11% today. Net income jumped 18% in their fiscal first quarter. The company earned 53 cents a share, which topped the 46-cent estimate. This helped the 20 stocks on my Buy List gain an average of 1.17% today compared with a decline of -0.03% for the S&P 500. This is the 10th time in the past eleven days that we've beaten the market. Since May 20, we're up 1.35% compared with a -3.46% decline for the S&P 500. Posted by edelfenbein at 6:21 PM More on Momentum Losing Momentum The world’s easiest timing strategy, only invest after up days, was a huge winner for many decades, but not anymore. Check out the chart below:
The blue line is what you would have earned if you had only invested on days following stock market advances (dividends aren't included). The red line is for days following 0.5% advances. The green line is days following 1% advances, and the black is the S&P 500. By early 2000, the blue line had returned over 5,000-fold which lapped the S&P 500 by 60 times. Unfortunately, it’s not a very practical trading strategy, considering how often you have to go in and out of the market. Still, that’s one of the more astonishing figures I’ve ever calculated, especially considering how simple the rule is. Since 2000, however, the strategy has been a bust. The blue line is still below half its peak from eight years ago. It’s not just the burst of the tech bubble, the blue has done especially poorly in the past year. Here's the blue line again, but only over the past few years (and no log scale):
So what’s going on here? One answer is that an efficient market has simply caught up with a good idea and it no longer works. But I think another explanation could be, it’s the result of a subtle shift in the nature of the market. Instead of being trend-enforcing, the market has become trend-negating. Each up move is no longer confirmed, but is now fought. If so, I think that’s a healthy development for the market. But that’s just speculation on my part. What do you think? Posted by edelfenbein at 1:28 PM June 3, 2008What If the Stock Market Were a Bond? Here’s an update of a post I did last year. I thought it would be interesting to see what the stock market’s historical performance would look like if the stock market were a bond. I took all of the monthly return data for the stock market going back to the 1920s. I then wanted to see what a bond would look like if we applied those exact same monthly changes to it. There’s one hitch though. I have to choose a starting yield-to-maturity for December 1925. So this isn’t a completely kosher experiment because the starting point is based on my guess. If I choose a number that’s too high, then the historical performance won’t be able to keep up, and the yield-to-maturity would grow higher and higher and soon leave orbit. Conversely, if my starting YTM is too low, the yield would gradually get pushed down to microscopic levels. Fortunately, the data makes my job easy. After eight decades, the window I have to work with is pretty narrow. If I start with 6.6%, that’s too high, and 6.5% is too low. After playing with the numbers, I settled on 6.538%. Even though this “bond” is complete make-believe, it reflects what the actual stock market really did for the past 83 years. Over the last eight decades, the yield has averaged about 10.2%, which is right in line with the market’s long-term total return. Through the end of May, it stood at 8.75%. Eight years ago, it got down to 4.9% (by comparison, long-term Treasuries were going for 6.5%).
Last year, I wrote: I have to think that many investors would be better served if there were such an investment vehicle. If they knew that the market’s current yield was something like 7% or 8%, they might treat their investments very differently. Posted by edelfenbein at 1:35 PM Soros Now Celebreating Ten Years of Gloom George Soros is currently testifying on Capitol Hill about the high cost of oil. The BBC reported: He warned that a "global credit crunch" was in the making and would probably lead the world into recession. Actually, that last part is from nearly ten years ago, but with Soros, he always sees disaster, the particulars may change. In 2000, he was warning us about the disintegration of the euro. Posted by edelfenbein at 11:30 AM Wachovia’s CEO Ousted I’m glad we had Golden West Financial on our 2006 Buy List, and I was glad that Wachovia (WB) bought the company. For the tracking purposes of the Buy List, shares of Wachovia replaced the shares of Golden West. However, there was no way I was going to keep Wachovia on the 2007 Buy List. Fortunately, that decision proved correct. What was our good fortune was bad news for Wachovia’s CEO Ken Thompson. He was let go yesterday by the board of Wachovia. BusinessWeek reports: According to one Wachovia insider, Crutchfield's downfall came when "he stopped listening" to his other executives. Likewise, it's hard to believe Thompson didn't get resistance from his own management team about buying Golden West—and ignored it. Posted by edelfenbein at 10:56 AM Danaher Raises Guidance Danaher (DHR) bumped up the low-end of its previous guidance today. For Q2, the company now sees earnings of $1.04 to $1.07 per share. The old range was $1.02 to $1.07 per share. That’s not a big change, but it’s always good to see a reiterating during the quarter. For last year’s second quarter, Danaher made 94 cents a share which was a penny better than Wall Street’s forecast. From its December high to its March low, the stock dropped by 24%. Posted by edelfenbein at 10:42 AM The Black Swan Has Been Found The Elite Trader spots a very troubling chart pattern. (Via: Ritholtz.) Posted by edelfenbein at 10:25 AM June 2, 2008Leucadia says boosts Jefferies stake to 30 pct Always keep an eye on what Leucadia (LUK) is up to: Leucadia National Corp, a holding company engaged in several businesses, disclosed on Monday it boosted its equity stake in U.S. investment bank Jefferies Group Inc to 30 percent. Posted by edelfenbein at 12:34 PM If You Have an Important Meeting Today From the Lancashire Evening Post: Biscuits 'could be key' to business deals Posted by edelfenbein at 9:28 AM |
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