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The Eight Lean Years

For the last 32 quarters, real GDP has grown at annualized rate of 2.18%.

That's the slowest eight-year growth rate since...well, my quarterly data only goes back to 1947.

Posted by edelfenbein at 2:31 PM

Nicholas Financial's Earnings

For the second quarter, Nicholas Financial (NICK) earned 15 cents a share. Since the stock is basically priced for Armageddon, I think this is good news.

Revenue increased by 8% and EPS dropped from 27 cents to 15 cents. The major culprit isn't hard to spot. The provision for credit losses nearly tripled from last year. Without that, pre-tax profit actually grew by about 4% over last year. The stock is now trading at less than 35 times this quarter's earnings.

Posted by edelfenbein at 11:35 AM

Second-Quarter GDP Growth

The government reported today that GDP grew by 1.89% for the second quarter. This is the sixth time in the last eight quarters that GDP growth has come in less than 2.7%. The government also revised its numbers for each quarter going back to the start of 2005.

The revisions aren’t terribly dramatic but they mostly say that growth has been weaker than we thought. From the fourth quarter of 2004 to the first quarter of 2008, the original forecast had been that real GDP grew by 8.4%. Turns out it was just 7.9%. That may not sound like much but it’s over $50 billion that’s vanished with a keystroke. I know I miss it already.

We also learned that the fourth quarter of 2007 was in fact, a negative quarter, and the first quarter of 2007 was just barely positive. The newspaper definition of a recession is back-to-back quarters of negative growth. In reality, the official timers of recession use a much more sophisticated method for pinpointing the beginning and end of a recession. What we’re experiencing may be an extended period of low growth, but where the economy doesn’t experience much actual contraction.

Here's real GDP growth, old and new (in trillions):

Posted by edelfenbein at 9:38 AM

Least Coherent Sentence of the Day

From an unnamed media company whose stock is 75% off its high:

Some experts have said that the law was wrong-headed in its effort to retain the hybrid nature of the mortgage finance giants, which are private companies with publicly traded stock, but which have an explicit guarantee of help from the government — an arrangement that critics say privatizes the profits but socializes the risk and any losses.

Let me take a deep breath to get my head around this, but the definition of the public company is one with publicly traded stock, therefore a private company can't have publicly traded stock. Now if they meant private in the sense that it's not nationalized, well that's a different can of incoherence. If it were nationalized, then it wouldn't be publicly traded. Is this really that hard?

Posted by edelfenbein at 2:20 PM

S&P 500 and Earnings

Here's a look at the S&P 500 (black line, left scale) and its earnings (gold line, right scale). The graph is scaled at 16-to-1.

I think it's clear that the market isn't undervalued, given its current condition. What will matter is if the downturn is earnings will really by over this quarter. Given the rate that earnings have been cut, that's far from certain.

Posted by edelfenbein at 10:47 AM

Fiserv's Earnings

Fiserv (FISV) just came out with a solid earnings report. For Q2, the company earned 83 cents a share from continuing ops. That beat the Street's consensus by four cents a share. Revenue rose 38% to $1.30 billion. The company projects full-year EPS at $3.28 to $3.40.

Here's a look at Fiserv's stock (blue line, left scale) and earnings-per-share (gold line, right scale).

The red indicates the company's EPS projection. I've scaled the graph at a ratio of 16-to-1, which is pretty conservative. That means that when the lines cross, the P/E ratio is 16.

You can see how far the company's valuation has fallen even though earnings growth seems to be holding up well. That's as good a definition as any for a good buying opportunity.

Posted by edelfenbein at 5:48 PM

Obama Gives Bernanke Vote of Confidence

Well, the election is over now. Bernanke wins 1-0.

"I think that Chairman Bernanke was handed a pretty tough hand and I think some of the decisions he's made have been the right ones," the presumptive Democratic nominee told Reuters in an interview on Saturday evening.

Posted by edelfenbein at 12:26 PM

What Did Experts Have to Say at the Beginning of the Year?

If you can look into the seeds of time, and say which grain will grow and which will not, speak then unto me.

Generally, I’m not a big fan of the story, “so-and-so said to buy stock X, and it’s down therefore so-and-so is a moron.” Being wrong about the market doesn’t make you a moron. Claiming you didn’t say something you clearly did, however, does. Still, it’s worth taking a look at what the experts said that 2008 would have in store.

I dug up BusinessWeek’s article from last December, “Where to Put Your Cash in 2008.” Ah, those were innocent days!

William Greiner said that his favorite stock is Starbucks (SBUX). Youch! The stock is off by about 30% YTD. It gets worse. Tobias Levkovich said to buy financials. No comment needed. Jason Trennert had a year-end target for the S&P 500 of 1680. Leo Grohowski’s favorite stock was FCStone Group (FCSX) which is now down by about 60%. David Bianco had an S&P 500 target of 1700, and his favorite stock pick, Oracle (ORCL), is about flat for the year.

So what’s the lesson here? Is it that all these people are morons and we should never listen to them? Not at all. The great thing about investing is that you don’t need to predict the future. You don’t have to predict elections. You don’t even have to predict Fed policy. Successful investing isn’t about predicting what the market will do, it’s really a game of risk management. In fact, knowing that you can’t predict the future is the best starting point. Each investor should ask themselves, “given that I can’t predict what will happen 12 months from now, what’s the best way to position my portfolio to profit?”

That’s why I favor a diverse portfolio of financially sound companies trading at reasonable prices. I shouldn’t be making fun of anyone’s predictions since I have UnitedHealth Group (UNH) on my Buy List. The stock has gotten clobbered all year. Still, I’m a bit ahead of the market because I’ve diversified my Buy List. I love Nicholas Financial (NICK) and I bought some more last week. I have no idea why the stock is so low. All I know is that it is. I don’t know when it will go closer to its true value. It could be one day or one year. Or it could fall off a cliff. I don’t know, but I’ve loaded up my Buy List with enough stocks like NICK to bend the odds in my favor.

Today, Sohu.com (SOHU) made news because it reported amazing earnings results. Yet the stock is down today. That may not make a lot of sense, but that’s how the market can act in the near-term. This is a good time to revisit my investing philosophy from the FAQ page:

What's your investing philosophy?

My investing philosophy is very simple: Investors ought to buy and hold great companies. It doesn't get more complicated than that. Avoid trading in and out of stocks, and be well-diversified. Investors should own at least 12 stocks, and have a goal of owning 20.

Be prepared for bear markets. A lousy market can strike at any time without warning. All stocks go down. It doesn't mean the stock is broken. Stocks are volatile by nature. That's the price you pay for superior returns. If you can ride out the bad times, you'll be rewarded. If you can't bear to see your portfolio drop by 50%, do not invest in the stock market.

Posted by edelfenbein at 11:29 AM

The Right Stuff

IBD profiles Amphenol (APH):

Ah, the joys of a well-executed roll-up strategy in a growing but fragmented market.

That has been the winning formula for Amphenol, (APH) a maker of connectors for electronic and fiber-optic systems that has combined internal growth with growth through acquisition to triple sales since 2002.

A skilled hand at boosting margins at acquired firms, Amphenol has grown earnings even more swiftly. The firm recently raised earnings estimates for this year to $2.34-$2.38 a share. That's over five times the 46 cents it earned in 2002.

Amphenol's connectors, which allow the mating of different elements within a broad range of electronic products, have been in demand. With strong sales to military, commercial aerospace and mobile device customers leading the way, Amphenol posted record sales and profits in the June quarter, exceeding analysts' guidance.

Along with raising earnings guidance, the company also hiked revenue guidance for all of 2008, predicting sales of about $3 billion, a better than 15% gain vs. '07. With robust cash flow and almost $200 million of cash and short-term investments on the balance sheet, Amphenol is well-positioned for further performance-boosting buyouts.

"They are the consolidators in an extremely fragmented marketplace," said Amit Daryanani, equity analyst with RBC Capital Markets. The 10 largest connector firms — including Amphenol and its two biggest rivals, Tyco Electronics (TEL) and Molex (MOLX) — hold 55% of the global market. More than 2,000 smaller companies share the remaining 45%, Longbow Research analyst Shawn Harrison says.

Amphenol typically acquires firms with niche products and then broadens sales through its vast global distribution network, Harrison says.

Amphenol has a history of identifying good acquisition targets running 10% operating margins and then bringing those margins up to the stellar corporatewide standard, now approaching 20%, according to Daryanani.

In 2005, Amphenol purchased Teradyne's connector business, then running at mid-single-digit margins. By mid-2007, the business was running at 19% operating margins. Among the efficiencies Amphenol brings to new buys: savings in volume procurement, efficient inventory management and "good management controls," according to Daryanani.

Amphenol acquisitions contributed 4% to the company's 2007 revenue growth. But other things also have been going well for the connector kingpin, whose products form the seams in items ranging from cell phones and computers to complex military electronics.

Organic growth in existing businesses contributed 8.5% to last year's overall growth, with favorable currency movement kicking in an additional 2.7%, Daryanani said.

In the second quarter, sales to military, commercial aviation and mobile-device customers all grew smartly. With wars in Afghanistan and Iraq and strength in commercial aviation sales, combined military and commercial aerospace sales grew by 24% year over year. That represents one-fifth of Amphenol's revenue, Chief Executive Officer Martin Loeffler said during a July 17 earnings call.

The company did not respond to requests for interviews with top executives.

Growing still faster, but from a smaller base, were products used in mobile devices, up 50% year over year and now representing 11% of total revenue. Interconnect offerings for wireless infrastructure including cellular base stations also did well, tacking on 36% growth and now representing 13% of total sales, Loeffler reported.

Amphenol benefited from the buildout of a cellular infrastructure in India, Citigroup analyst Jim Suva says. (Citi has provided investment banking services for Amphenol.)

"They're in the right end markets," Harrison said.

Amphenol also has won share in those markets. Harrison cites mobile handsets, cellular infrastructure, defense and automotive as connector customer sectors where Amphenol has amassed share.

But there is risk in some of these sectors. Mobile handset sales, for example, are expected to be down significantly in 2008, Harrison says. A Barack Obama presidential victory that brings expedited withdrawal from Iraq could pinch the military business. Sales to commercial aviation customers like Boeing and Airbus could suffer, too, if the airlines, hit with altitudinous fuel costs, delay delivery of ordered planes.

Amphenol President and Chief Operating Officer Adam Norwitt told analysts that even in the event of a change in war strategy, Amphenol's military business would continue to flourish. He said engagement in two wars has slowed several other defense programs, including the Joint Strike fighter, and these programs could pick up, providing new sources of revenue if war operations are cut back.

"We do see strength and the potential for demand into these larger programs that have been delayed," said Norwitt, who will become chief executive officer in early 2009.

Citi's Suva believes Amphenol actually could see some benefit from an early withdrawal, as much military equipment there, in use longer than expected, will need to be refurbished.

One potential kicker to earnings could be commercial deployment of the Boeing 787 Dreamliner, now expected to begin in the second half of next year.

Analysts have not yet included revenue from Amphenol's contribution to these planes, Citi's Suva says. He believes Amphenol could realize an additional $12.5 million in 2009 revenue, translating into 2 cents a share and $30 million in 2010, adding a nickel to EPS.

Suva says Amphenol, along with Research In Motion, (RIMM) is his top pick among the 20 electronics companies he follows.

At RBC Capital, analyst Daryanani thinks Amphenol could surprise to the upside on future earnings, but that its market multiple — already dear — is unlikely to expand. Amphenol stock, around 49, is selling at more than 18 times Daryanani's 2009 estimate of 2.70. "You are paying a premium for Amphenol," Daryanani said.

Posted by edelfenbein at 10:19 AM

A Small Baseball Interlude

I hate to break this to East Coast sportswriters, but neither the Yankees nor Red Sox are in first place. You’d never know it but the no-name Tampa Bay Rays are in first, and the Angels are probably better than the Rays.

Yesterday was Alex Rodriguez’s 33rd birthday. He now has 539 home runs, which is 12th on the all-time list (for the record, I count Hank Aaron’s 755 as the record). When Hank Aaron turned 33 after the 1966 season he had a total of 442 home runs, so A-Rod is 97 ahead of Hammerin Hank. Of course, Aaron still pounded out 313 home runs over the next 10 years so A-Rod has his work cut out for him—he’s still only about 71% of the way there.

Here’s the list:

1. Aaron 755
2. Ruth 714
3. Mays 660
4. Sosa 609
5. Griffey 607
6. Robinson 586
7. McGwire 583
8. Killebrew 573
9. Palmeiro 569
10. Reggie 563
11. Schmidt 548
12. A-Rod 539

Finally, my poor Nats were shut out for the third time in the last four games, and the fifteenth time this season. Ugh!

Posted by edelfenbein at 10:11 AM

Moog’s Earnings

Moog (MOG-A) is one of the quieter stocks on our Buy List. They make flight control systems for commercial and military aircraft. Interestingly, employees own about 60% of the stock. The company just released a solid earnings report for their fiscal third quarter. Moog earned 72 cents a share, which is a healthy increase over the 59 cents from last year. The Street was looking for 69 cents a share. Moog also increased its guidance for this year by four cents a share to $2.75 a share. For 2009, they’re expecting EPS to range from $3.08 to $3.20 a share. It’s a good stock going for a good price.

Here are Moog's sales and earnings results for the past few years:

Year.........Sales..........EPS
1998.......$536.61.......$0.67
1999.......$630.03.......$0.80
2000.......$644.01.......$0.84
2001.......$704.38.......$0.94
2002.......$718.96.......$1.11
2003.......$755.49.......$1.22
2004.......$938.85.......$1.45
2005.......$1,051.34....$1.64
2006.......$1,306.49....$1.97
2007.......$1,558.10....$2.34

Posted by edelfenbein at 10:42 AM

Words of Wisdom

Amen.

Americans should be outraged at the latest sweetheart deal in Washington. Congress will put U.S. taxpayers on the hook for potentially hundreds of billions of dollars to bail out Fannie Mae and Freddie Mac. It's a tribute to what these two institutions — which most Americans have never heard of — have bought with more than $170-million worth of lobbyists in the past decade.

With combined obligations of roughly $5-trillion, the rapid failure of Fannie and Freddie would be a threat to mortgage markets and financial markets as a whole. Because of that threat, I support taking the unfortunate but necessary steps needed to keep the financial troubles at these two companies from further squeezing American families. But let us not forget that the threat that Fannie Mae and Freddie Mac pose to financial markets is a tribute to crony capitalism that reflects the power of the Washington establishment.

Fannie and Freddie buy home loans from lending institutions and reissue them as marketable securities — creating a liquid market for mortgage debt that lowers borrowing costs for prospective homeowners. The two institutions have easy access to borrow at low interest rates because they were originally government agencies and continue to be viewed as being backed by the government. The irony is that by bailing them out, Congress is about to make that perception a reality, even though government backing is no longer needed for their original mission. There are lots of banks, savings and loans, and other financial institutions that can do this job.

Posted by edelfenbein at 10:29 AM

Ave Maria

From two years ago, here's Maria Bartiromo bombing on Celebrity Jeopardy:

What's more embarrassing than losing on Jeopardy? Losing to Gloria Vanderbilt's son.

(Via a new CWS favorite: CNBC Sucks)

Posted by edelfenbein at 8:37 PM

The Stock Market and Whole Numbers

Yesterday, the S&P 500 closed at 1277.00, and at 1262.00 on the day before. The market hasn't had back-to-back whole number closing since August 7&10, 1987, just before the market crash.

Posted by edelfenbein at 3:43 PM

Harley Adds a Third Wheel

Meet the Tri-Glide Ultra from Harley-Davidson's 2009 collection.

Posted by edelfenbein at 1:01 PM

The Yahoo Mess

I have to confess that I can’t make any sense of Yahoo (YHOO) and its share price. I’ve said for some time that the stock should be around $15. Frankly, I consider that to be an optimistic price. Still, Microsoft thought it was wise to offer $33 for the company, and Yahoo thought it was wiser still, to reject that offer. And then later accept it after it had been withdrawn.

Yesterday, Yahoo reported that its quarterly earnings-per-share fell from 11 cents last year to nine cents this year, two cents below the Street. This was the ninth time in the past ten quarters that YHOO’s earnings have decline. Sales rose just 5.9% to $1.8 billion. I just don’t get it. How can a company with such mediocre performance command such a high share price?

This company has gone from earnings 58 cents a share in 2005, to 52 cents, to 47 cents, and probably another 47 cents this year. Yet, YHOO is over $21 a share. Nicholas Financial (NICK), on the other hand, went from $1.13 to 94 cents, and it’s under $5 a share.

Posted by edelfenbein at 12:58 PM

Bush: "Wall Street Got Drunk"

President Bush was recorded as saying, "There's no question about it. Wall Street got drunk, that's one of the reasons I asked you to turn off the TV cameras. It got drunk and now it's got a hangover. The question is how long will it sober up and not try to do all these fancy financial instruments."

Presumably, this is an area that Bush is familiar with. Let’s continue the metaphor and say that the Federal Reserve “was doing lines of blow off the hooker’s ass.”

Posted by edelfenbein at 8:51 AM

Flip a Coin, Get a Job

Guest blogging at Paul Kedrosky’s crib, Joseph Weisenthal spots this ad from a hedgie joint on San Francisco’s Craig’s List. The final requirements are:

1) Prepare a cover letter. 2) Flip a coin 50 times. Record the results on your resume as a sequence of heads (H) or tails (T) symbols. 3) Email your cover letter and resume to us.

So what’s the deal with the 50 coin tosses? Joe thinks it could be a way to spot phonies, since the data set is hard than it looks to fake. If you were to fake it, would you have the courage to list head or tails on a row? I wouldn’t, but the odds of that aren’t unreasonably small.

Then again, 50 tosses ain’t that much. Plus, it could be done easily with the random number generator on Excel.

Some commentors think it’s a sardonic comment on the nature of investing. Could be. Although that probably doesn’t explain why they’re hiring.

My guess is that it’s a trick question. Once in the interview, they’ll ask you what kind of coin you used. Any who still deals in U.S. currency will automatically be eliminated from consideration.

Posted by edelfenbein at 10:27 PM

The S&P Financial Index Divided by the S&P 500

Here's an interesting chart. This shows the S&P Financial Index (^SPSY) divided by the S&P 500:

There are three major low points. The first is from October 29, 1990 (0.1533). The next came nearly ten years later on March 9, 2000 (0.1927). This was not simply a reflection of financials going down, but of tech going way, way up. The most recent low came last Tuesday, July 15, 2008 (0.1910).

What's fascinating is that the last two lows hit almost exactly the same. Does this mean that financials are ready to turn around? It's too early to say, but the sector has just had one of its best weeks in years.

Posted by edelfenbein at 9:43 PM

Headline of the Day

UnitedHealth earnings fall 73%, but shares jump

It’s true. UnitedHealth (UNH) reported earnings of $337 million, down from $1.22 billion for last year’s Q2. On an earnings-per-share basis, UNH earned 27 cents compared with 89 cents last year.

Now if we exclude some big charges, UNH made 67 cents for the quarter, which is just ahead of the 64 cents Wall Street was expecting. The stock is up today, but that’s probably because investors were expecting more bad news. Earlier, the company said to expect 64 to 66 cents. If you can rally this well by beating the top end by a penny, I think it means that investors have lost confidence in management.

I can’t say I blame them. UNH said not one, but twice, that it was expecting FY08 earnings-per-share of $3.95 to $4. After its competitors lowered forecasts, UNH lowered its forecasts, not once but twice. First to a range of $3.55 to $3.60 a share, then down to $2.95 to $3.05 a share. That’s where we are today.

Posted by edelfenbein at 2:06 PM

Bernanke Warns

All from last week:

Bernanke warns of serious risk to growth

Bernanke warns of continued inflation threat

Bernanke warns of twin risks

Bernanke warns of inflation

Bernanke warns on growth; data fans stagflation fears

Bernanke warns of numerous economic difficulties

Bernanke warns of systemic risk

Bernanke warns of slow economic recovery

Bernanke Warns Of "Significant Downside Risks" To Economic Growth

And finally:

Bernanke strikes note of confidence

Posted by edelfenbein at 7:06 PM

Thursday’s Earnings

Four of our Buy List stocks reported earnings last Thursday, and overall, it was a pretty good showing.

Amphenol (APH) reported earnings of 61 cents a share, which was a big increase over the 46 cents a share it earned last year. Wall Street was looking for 58 cents a share. The company also boosted its full-year outlook to a range of $2.34 and $2.38 per share. The earlier range was between $2.26 and $2.31 per share. The stock gapped up 14.6% on Thursday. Amphenol is now going for about 21 times earnings, which is a bit high, but nothing outlandish.

Amphenol is now our top-performing stock this year, and it was our second best last year. The stock is up over 63% since we added to the Buy List 18 months ago.

Harley-Davidson (HOG) saw its Q2 earnings drop 23%, from $1.15 a share to 95 cents a share. As bad as that sounds, it easily beat Wall Street’s forecast of 76 cents a share. Obviously, the economy is having a big impact on Harley. For the full year, HOG sees earnings between $3.00 and $3.18. Still, the shares have fallen for 20 months, and don’t seem to have found a bottom yet.

Danaher (DHR), which is a very diversified stock, reported earnings of $1.09 a share compared with 96 cents last year. That beat forecasts by three cents a share. The company now sees Q3 earnings coming in at $1.09 to $1.14 per share. For the full year, Danaher raised guidance to a range of $4.34 and $4.42 per share from its earlier range of $4.30 to $4.40. The stock is going for about 18.5 times earnings which seems about right.

Stryker’s (SYK) earnings rose to 73 cents per share from 65 cents last year. This was in line with forecasts. The stock pulled back on the news, but I don’t see any reason for alarm. This was also the 30th straight quarter of double-digit sales growth. The company expects full-year profit of $2.88 per share. I like Stryker a lot but I wouldn’t mind seeing it cheaper.

Posted by edelfenbein at 3:12 PM

CNBC Admits to Being a Closet Porn Channel

Well, I exaggerate. Slightly.

Here's CNBC's Managing Editor Allen Wastler's post, "Do You Need Bikinis with Business News?" You can probably guess what his answer is:

How much skin is acceptable on a business news Web site?

Believe it or not, the question comes up fairly often, especially when you are associated with a big honkin' network. Had to address it just this morning in fact. We have a set of pictures of a fashion show in Miami. Lots of bikinis and swimwear. And in some of the shots, a lot of skin. We clipped a few from the presentation. I was accused by some staff members of being overly prudish.

Maybe so. The censored shots weren't pornographic and they weren't anything you wouldn't see on the beach. And, hey, what's the whole purpose of the presentation anyway? We're doing it in part because we know our male-skewed audience will find it ... interesting. It's the same reason Sports Illustrated prints its swimsuit issue and networks run Victoria's Secret stories.

Posted by edelfenbein at 2:29 PM

Return of the Hemline Theory

Suzy Menkes writes that of course the stock market is down. That should have been obvious to anyone watching hemlines.

Fashion is always a mirror of society. Thus, in a strange forecast of what the Federal Reserve discovered in the banking system, overexposure and total transparency in the wardrobe has been followed by complex cover-ups and a downward spiral. Fashion designers now seem clairvoyant.

Here's what I wrote two years ago when inseams were rising.

So let's not blame Fannie and Freddie. Instead, let's blame Angelina and Jessica.

Posted by edelfenbein at 10:07 AM

Williams Girl Makes Good

The New York Times profiles Erin Burnett:

Every rising star needs a narrative, and Ms. Burnett believes hers is about taking risks. After graduating from Williams College in 1998, she says, she spent a forgettable year as an investment banking analyst at Goldman Sachs.

Unhappy in banking, she wrote a letter to Willow Bay, a former morning show correspondent and weekend host who had just become a co-anchor of the business news program “Moneyline” on CNN. It was a “stalker letter,” Ms. Burnett joked, but it worked: before long, she was Ms. Bay’s assistant and then a writer at CNN. But at first she didn’t want to stay in television.

“For some people, it’s love at first sight, but it wasn’t for me,” she said. Her high school classmates in Mardela Springs, Md., a farming town on the Eastern Shore, seemed to know her better than she knew herself: they voted her most likely to host a TV talk show in 20 years, because they thought she talked a lot. “It’s true,” she said. “I’m kind of a motor mouth.”

Ms. Burnett quit CNN and wound up writing the business plan for an Internet media start-up at Citigroup, the banking giant. When it came time to find an on-camera host, she decided to try it herself. From there she moved to Bloomberg, the news and data company that has become something of a farm team for CNBC. She started as a producer there before quickly snaring an anchor job.

As with any anchor role, looks play their part and Ms. Burnett’s striking features have complemented her hard work, smoothing her ascent.

Sheesh, get a room!

Posted by edelfenbein at 9:52 AM

First They Came for the Foot Masseuses

Virginia Postrel found this article on the State of California's bizarre campaign to crack down on...foot masseuses:

The popularity of foot massage has risen as cutthroat competition has sent prices downward. But now, business owners are dealing with a new problem: a crackdown by county and state officials who have ruled that they need licenses from the state Board of Barbering and Cosmetology.

Shouldn't the "but now" be replaced with "as a result"?

Posted by edelfenbein at 9:20 AM

Starbucks Closings

Starbucks released its list of 600 stores that are planned to be closed by early next year. My condolences to all the caffeine addicts out there.

Posted by edelfenbein at 3:53 AM

A Little Perspective

Posted by edelfenbein at 3:21 AM

Best Day Ever

I'll have more on this later, but today was the best day ever for our Buy List relative to the market. The Buy List gained 2.95% which is 175 basis points better than the S&P 500. The big gainer today was Amphenol (APH) which added 14.6%.

For the year, we're down -11.23% compared with -14.17% for the rest of the market.

Posted by edelfenbein at 5:22 PM

Department of Not Getting Markets

From a Bloomberg article titled: Pakistani Investors Stone Exchange as Stocks Plunge.

"We demand that all stock prices be frozen at current levels."

Now why didn't I think of that?

(Via: Felix).

Posted by edelfenbein at 3:10 PM

Markets in Everything

At Intrade, Senator Obama’s contract to win the presidency is up to 66.1 and McCain’s is at 29.8.

But here’s the noteworthy part. Hillary’s contract is still around and it’s at 4.6; Gore’s is at 2.0. Yesterday, a trade for Hillary went off at 6.9.

Obviously, a tragic event isn’t the only scenario in mind. But still, is the unthinkable really that probable?

Posted by edelfenbein at 2:05 PM

Danaher and Math

Maybe I’m missing something, but I’m going through Danaher’s (DHR) earnings report and the numbers don’t add up. For the second quarter, the company earned $363.448 million and the number of diluted shares is 336.551. That comes to $1.08 a share while the company lists it as $1.09. I know it’s just a penny, but there shouldn’t be any mistakes here. That really undermines my faith in a company.

Am I missing something?

Posted by edelfenbein at 1:03 PM

Banking Index +22%

The S&P Banking Index (^BIX) jumped 22% today. That's not one stock; that's the entire index!

Posted by edelfenbein at 5:41 PM

Is it Time to Raise Rates?

Megan McArdle says yes. Today’s inflation report shows that consumer prices rose by 1.1% last month which is the largest jump in 26 years. For the last 12 months, the headline rate has been 5.02% while the core rate is 2.41%. With the Fed at 2%, this means that real interest rates are still negative.

The market isn’t expecting the Fed to raise rates anytime soon. According to the Cleveland Fed, the futures market is pretty much convinced (over 80%) that the Fed will hold steady at its August meeting.

Going by Professor Mankiw’s Fed Funds Rate equation, the Fed is way too loose. His equations is:

Federal funds rate = 8.5 + 1.4 (Core inflation - Unemployment)

Let’s plug in the numbers the numbers from June:

Federal funds rate = 8.5 + 1.4 (2.41 – 5.50)

That comes to a rate of 4.174% which is more than double where the Fed is.

Posted by edelfenbein at 1:19 PM

Buy List Earnings

The next few days will be busy for a few stocks on our Buy List. Here are some upcoming earnings dates and Wall Street’s current estimate.

Amphenol (APH)……...........….….July 17…………..$0.58
Danaher (DHR)……..............…….July 17…………..$1.06
Harley-Davidson (HOG).….…….July 17…………..$0.76
Stryker (SYK)………................….July 17…………..$0.73
Lincare (LNCR)……..............…….July 21…………..$0.71
Unitedhealth Group (UNH)….….July 22…………..$0.65
AFLAC (AFL)………..................….July 23…………..$1.01
SEI Investments (SEIC)………….July 23…………..$0.33
WR Berkley (WRB)……........…….July 23…………..$0.85
Fiserv (FISV)………..................….July 29…………..$0.80

Posted by edelfenbein at 10:13 AM

Poll: How Would You Rate the Economy?

Look at the enormous recent change in perceptions of the economy.

Nearly 40% of the public has shifted its opinion of the economy in the last 12 months.

Posted by edelfenbein at 11:04 PM

Citigroup Shares Fall to Lowest Since Company Formed in 1998

From Bloomberg:

Citigroup Inc., the biggest U.S. bank, fell to the lowest level in New York trading since former Chairman and Chief Executive Officer Sanford Weill created the company through a merger in October 1998.

Citigroup, which has lost almost half its value on the New York Stock Exchange this year, dropped 43 cents to $14.79 at 9:31 a.m., the lowest since Oct. 8, 1998, the day the New York-based bank was formed through the $36 billion combination of Travelers Group Inc. and Citicorp.

It’s rail on Citigroup Day at Crossing Wall Street. It turns out the bank also likes to keep a couple of assets “off the balance sheet.” By couple, I mean $1.1 trillion.

When talking about Citigroup, it’s hard to explain how large this company—and I think its size is part of the problem. Citi has 374,000 employees which isn’t much less than the size of Washington. Citi’s payroll, however, will be declining over the next few months.

According to Citi’s most recent balance sheet, the company has assets of $2.187 trillion, and liabilities of $2.087 trillion. That’s amazingly large, and that’s just the stuff on the books.

The company is due to report earnings on Friday and it won’t be pretty. The analysts are all over the map on this one, but the consensus is listed as -61 cents a share. I think taking the under is a pretty safe bet.

Six months ago, the company reported a loss of nearly $10 billion. Three months ago, Citi reported a loss of $5 billion.

Posted by edelfenbein at 11:15 AM

The S&P 500 Bounces Off 1,200

The S&P 500 hit a low of 1200.43 this morning. The index hasn't broken through 1,200 since Halloween 2005. We first broke 1,200 on December 23, 1998.

The VIX also above 30 for the first time since March.

Posted by edelfenbein at 10:52 AM

Ben's Testimony

Here's part of today's testimony from Ben Bernanke:

The U.S. economy and financial system have confronted some significant challenges thus far in 2008. The contraction in housing activity that began in 2006 and the associated deterioration in mortgage markets that became evident last year have led to sizable losses at financial institutions and a sharp tightening in overall credit conditions. The effects of the housing contraction and of the financial headwinds on spending and economic activity have been compounded by rapid increases in the prices of energy and other commodities, which have sapped household purchasing power even as they have boosted inflation. Against this backdrop, economic activity has advanced at a sluggish pace during the first half of this year, while inflation has remained elevated.

Following a significant reduction in its policy rate over the second half of 2007, the Federal Open Market Committee (FOMC) eased policy considerably further through the spring to counter actual and expected weakness in economic growth and to mitigate downside risks to economic activity. In addition, the Federal Reserve expanded some of the special liquidity programs that were established last year and implemented additional facilities to support the functioning of financial markets and foster financial stability. Although these policy actions have had positive effects, the economy continues to face numerous difficulties, including ongoing strains in financial markets, declining house prices, a softening labor market, and rising prices of oil, food, and some other commodities. Let me now turn to a more detailed discussion of some of these key issues.

Developments in financial markets and their implications for the macroeconomic outlook have been a focus of monetary policy makers over the past year. In the second half of 2007, the deteriorating performance of subprime mortgages in the United States triggered turbulence in domestic and international financial markets as investors became markedly less willing to bear credit risks of any type. In the first quarter of 2008, reports of further losses and write-downs at financial institutions intensified investor concerns and resulted in further sharp reductions in market liquidity. By March, many dealers and other institutions, even those that had relied heavily on short-term secured financing, were facing much more stringent borrowing conditions.

In mid-March, a major investment bank, The Bear Stearns Companies, Inc., was pushed to the brink of failure after suddenly losing access to short-term financing markets. The Federal Reserve judged that a disorderly failure of Bear Stearns would pose a serious threat to overall financial stability and would most likely have significant adverse implications for the U.S. economy. After discussions with the Securities and Exchange Commission and in consultation with the Treasury, we invoked emergency authorities to provide special financing to facilitate the acquisition of Bear Stearns by JPMorgan Chase & Co. In addition, the Federal Reserve used emergency authorities to establish two new facilities to provide backstop liquidity to primary dealers, with the goals of stabilizing financial conditions and increasing the availability of credit to the broader economy. We have also taken additional steps to address liquidity pressures in the banking system, including a further easing of the terms for bank borrowing at the discount window and increases in the amount of credit made available to banks through the Term Auction Facility. The FOMC also authorized expansions of its currency swap arrangements with the European Central Bank and the Swiss National Bank to facilitate increased dollar lending by those institutions to banks in their jurisdictions.

These steps to address liquidity pressures coupled with monetary easing seem to have been helpful in mitigating some market strains. During the second quarter, credit spreads generally narrowed, liquidity pressures ebbed, and a number of financial institutions raised new capital. However, as events in recent weeks have demonstrated, many financial markets and institutions remain under considerable stress, in part because the outlook for the economy, and thus for credit quality, remains uncertain. In recent days, investors became particularly concerned about the financial condition of the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. In view of this development, and given the importance of these firms to the mortgage market, the Treasury announced a legislative proposal to bolster their capital, access to liquidity, and regulatory oversight. As a supplement to the Treasury's existing authority to lend to the GSEs and as a bridge to the time when the Congress decides how to proceed on these matters, the Board of Governors authorized the Federal Reserve Bank of New York to lend to Fannie Mae and Freddie Mac, should that become necessary. Any lending would be collateralized by U.S. government and federal agency securities. In general, healthy economic growth depends on well-functioning financial markets. Consequently, helping the financial markets to return to more normal functioning will continue to be a top priority of the Federal Reserve.

Posted by edelfenbein at 10:40 AM

Jim Rogers Lets Loose

Jim Rogers overcomes his shyness to express some dissatisfaction with the government:

U.S. investor Jim Rogers said the U.S. government's plan to bolster Fannie Mae and Freddie Mac is an "unmitigated disaster."

The largest U.S. mortgage lenders are "basically insolvent" after the collapse of the subprime mortgage market, said Rogers, who in April 2006 correctly predicted oil would reach $100 a barrel and gold $1,000 an ounce.

Taxpayers will be saddled with debt if Congress approves Treasury Secretary Henry Paulson's request for the authority to buy unlimited stakes in and lend to the beleaguered companies that purchase or finance almost half of the $12 trillion in U.S. home loans, Rogers said.

"These companies were going to go bankrupt if they hadn't stepped in to do something, and they should go bankrupt," Rogers said.

Posted by edelfenbein at 12:16 PM

Dave & Buster's to IPO

Joe Weisenthal spots this surprising IPO:

Dave & Buster's Holdings Inc on Friday filed to raise up to $170 million in an initial public offering.

The owner of entertainment and dining venues said in a filing with the U.S. Securities and Exchange Commission that JPMorgan and Jefferies & Co will underwrite the IPO.

The company did not indicate how many shares they plan to sell or the expected price of the shares. It intends to list its stock on the Nasdaq under the symbol "DANB".

I would think this is a poor time to go public.

Posted by edelfenbein at 12:08 PM

Vote for Julie

Forget Obama or McCain, vote for Julie! By that, I mean vote for WallStrip's Julie Alexandria as Hottest Female Blogger.

Posted by edelfenbein at 10:59 AM

The SEC takes on the First Amendment

Philadelphia, 1787:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

The SEC Yesterday:

The Securities and Exchange Commission today announced that the SEC and other securities regulators will immediately conduct examinations aimed at the prevention of the intentional spread of false information intended to manipulate securities prices. The examinations will be conducted by the SEC's Office of Compliance Inspections and Examinations, as well as the Financial Industry Regulatory Authority and New York Stock Exchange Regulation, Inc.

Posted by edelfenbein at 9:51 AM

The Feds Step In

The government moves to help Fannie and Freddie:

Alarmed by the sharply eroding confidence in the nation’s two largest mortgage finance companies, the Bush administration on Sunday asked Congress to approve a sweeping rescue package that would give officials the power to inject billions of federal dollars into the beleaguered companies through investments and loans.

In a separate announcement, the Federal Reserve said it would make one of its short-term lending programs available to the two companies, Fannie Mae and Freddie Mac. The Fed said that it had made its decision “to promote the availability of home mortgage credit during a period of stress in financial markets.”

An official said that the Fed’s decision to permit the companies to borrow from its so-called discount window was approved at the request of the Treasury but that it was temporary and would probably end once Congress approved Treasury’s plan. Some officials briefed on the plan said Congress could be asked to extend the total line of credit to the institutions to $300 billion.

Posted by edelfenbein at 9:47 AM

After Hours: Mississippi John Hurt

Don't let the market gives you the blues. Have a listen to the great Mississippi John Hurt.

Posted by edelfenbein at 3:43 PM

Not Since 1982

For the first time since August 18, 1982, the S&P 500 might be lower than it was 10 years before.

The S&P 500 has been as low as 1,225.82 today. Today could be our lowest close since June 13, 2006. And if we go below 1,223.69, it will be our lowest close since November 9, 2005.

We’re already lower than where we were on the last day of trading in 1998. Here's a look at how we're doing this July (red line) compared with July 1998 (blue line):

Even if don't break a 10-year trailing close this month, it will probably happen soon. The market is still over 19% below its March 2000 high. Are we going to be 24% higher 20 months from now?

Posted by edelfenbein at 1:23 PM

Jeremy Siegel on the Bear Market

Posted by edelfenbein at 9:39 AM

World’s Smallest Violin

Louise Story sits down with a contrite John Devaney.

One by one, John Devaney sold his treasures, hoping to forestall what was in the end inevitable. He sold his Renoir and his Gulfstream, his home and his helicopter. Even his cherished yacht — gone.

But on Wednesday Mr. Devaney, who made and then lost a fortune trading mortgage investments, finally called it quits. He shut his hedge fund, and told his investors that all their money was gone too.

“I’m devastated, I’m totally devastated,” Mr. Devaney said by telephone from Aspen, Colo feel horrible that I’ve lost my own money and that so many people who saw the skills I have and trusted in us have now been hurt.”

Posted by edelfenbein at 8:48 AM

The Warren Buffett Rap

Posted by edelfenbein at 12:14 PM

Correlation Doesn’t Mean Causation

I’m not blaming anyone. I’m simply relaying the facts. In other words, I report, you decide.

Posted by edelfenbein at 9:59 AM

Best Headline of the Day

Thank you, Associated Press:

U.S. exports cigarettes, bras, bull semen to Iran

U.S. exports to Iran grew more than tenfold during President Bush's years in office even as he accused it of nuclear ambitions and sponsoring terrorists.

America sent more cigarettes to Iran -- at least $158 million worth under Bush -- than any other product.

Other surprising shipments during the Bush administration: brassieres, bull semen, fur clothing, sculptures, perfume, musical instruments and military apparel.

Top states shipping goods to Iran include California, Florida, Georgia, Louisiana, Michigan, Mississippi, New Jersey, North Carolina, Ohio and Wisconsin, according to an analysis by The Associated Press of seven years of U.S. government trade data.

Despite increasingly tough rhetoric toward Iran, which Bush has called part of an "axis of evil," U.S. trade in a range of goods survives on-again, off-again sanctions originally imposed nearly three decades ago.

Posted by edelfenbein at 5:22 PM

The S&P 500 Priced in Eggs

Felix Salmon links to a chart by DeForest McDuff of the S&P 500 priced in eggs. McDuff writes:

Investment returns matter only to the extent that you can buy more "stuff" in the future. The U.S. stock market has been slowly losing real purchasing power for almost a decade, with no signs yet of a trend reversal.

It's true that the prices of hard assets like oil, gold, and omelettes have been increasing rapidly, but this is a direct consequence of decades of underinvestment in these asset classes. If you're not thinking about investing in terms of purchasing power, then you're playing the wrong game.

This is correct, however, I caution against looking at the stock market in the price of some commodity. This is a subtle but important point. A lot of financial analysis involves developing a “feel” for the numbers.

The problem of pricing the market in terms of some commodity is that it often involves two data sets with very different characteristics. Equity prices are tied to corporate profits and therefore cyclical. At least in theory. Commodity prices, however, are often marked by price disruptions, meaning dramatic price spikes. If you look at the long-term chart of nearly every commodity, you’ll see a few large spikes followed by long periods of not much.

That’s why when you compare stock prices to a commodity, it often tells you less about equity prices and more about the commodity. From my experience, the most often used example is gold. For the last 35 years, the prices of gold has been a wild ride from around $30 to over $800 back to $250 and then up to $1,000. The stock market can be wild but nothing like that. Also, gold doesn’t pay dividends where the market does. It may not be much each quarter, but if you’re looking at a chart going back a few decades, it does add up.

Think of it this way. A commodity is a thing. In 1,000 years, gold will still be gold. But equity is what you do with the thing to make money. If you make enough money, you can buy more things. A stock can own a commodity, but a commodity can’t run a business.

Posted by edelfenbein at 1:31 PM

Sir John Templeton Dead at 95

One of the true giants has passed:

Sir John Templeton, who has died aged 95, was a legend in the world of fund management and invested much of his multi-million pound fortune in promoting spiritual and religious progress. Sir John Templeton

Templeton boasted one of the longest and most successful track records on Wall Street. From its foundation in 1954, his Templeton Growth Fund grew at an astonishing rate of nearly 16 per cent a year until Templeton’s retirement in 1992, making it the top performing growth fund in the second half of the 20th century.

A $100,000 stake invested in 1954 would, with distributions reinvested, would have grown to $55 million in 1999.

The Templeton formula was simple in theory, though not easily achieved in practice.

He looked for bargains — shares selling well below their asset values due to temporary circumstances — and would usually hold on to them for five years or more until they reached what he considered to be their true worth.

It was an approach that required rigorous research and determination not to be swayed by the fashions of the moment.

Posted by edelfenbein at 1:01 PM

Tom Gallagher on the Global Economy

I've embedded the whole video, but the key part is Tom Gallagher's talk. I'd recommend watching 24:05 to 32:15.

Posted by edelfenbein at 12:49 PM

The Chinese Bubble Bursts

In early 2007, the Shanghai Composite made news all around the world when it plunged 8.8%. Let’s just say that the pullback was a buying opportunity. Eight months later, the index was 120% higher.

Nine months after that, which is today, we’re back where we started. Thanks for the wild ride!

Posted by edelfenbein at 10:57 AM

The Pickens Plan

T. Boone Pickens is launching an ad blitz on how to fix the energy crisis.

Today, Pickens will take the wraps off what he's calling the Pickens Plan for cutting the USA's demand for foreign oil by more than a third in less than a decade. To promote it, he is bankrolling what his aides say will be the biggest public policy ad campaign ever. The website, www.pickensplan.com, goes live today.

Jay Rosser, Pickens' ever-present public relations man, promises that Pickens' face will be seen on Americans' televisions this fall almost as frequently as John McCain's and Barack Obama's.

"Neither presidential candidate is talking about solving the oil problem. So we're going to make 'em talk about it," Pickens says.

"Nixon said in 1970 that we were importing 20% of our oil and that by 1980 it would be 0%. That didn't happen," Pickens says. "It went to 42% in 1991 with the Gulf War. It's just under 70% now. Where do you think we're going to be in 10 years when our economy is busted and we're importing 80% of our oil?"

Finding solutions to other major issues, including health care, are important, he concedes. But "If you don't solve the energy problem, it's going to break us before we even get to solving health care and some of these other important issues." And it has to be done with the same sense of urgency that President Eisenhower had when he pushed the rapid development of the interstate highway system during the Cold War.

Of course, Pickens also has a particular solution in mind.

Wind. And natural gas.

Posted by edelfenbein at 8:21 AM

Top 10 Stocks Since the Last Recession

The Motley Fool lists the 10 best-performing stocks since the last recession (3/1/2001-7/6/2008):

Company...................................Return
Ultra Petroleum..........................4,378%
Southwestern Energy................3,348%
Potash.......................................2,070%
Walter Industries......................1,860%
Apple.........................................1,715%
Canadian Natural Resources.....1,658%
Intuitive Surgical........................1,627%
Research In Motion....................1,548%
Range Resources.......................1,515%
Terra Industries.........................1,236%

Posted by edelfenbein at 2:10 AM

Inflation in Apparel

There's certainly lots of inflation in commodities, but there's hardly any in other parts of the economy. Here's a look at the CPI Apparel Index (not seasonally adjusted as the wiggles suggest). Prices are basically where they were 20 years ago.

Posted by edelfenbein at 4:15 PM

Southwest Airlines on WallStip

In 1974, you could have picked up shares of LUV for just a penny. That's just adjusted for 14 stocks splits totaling 300-for-1 (two 2-for-1s, nine 3-for-2s, and three 5-for-4s).

Posted by edelfenbein at 1:31 PM

Who Killed the Economy

Fill out your brackets today. Since "Morons Who Borrowed Way Too Much For a Ridiculously Overpriced House that They Couldn't Afford Anyway" isn't participating, I'm going with Greenspan.

Posted by edelfenbein at 1:10 PM

So Long SPX 1250

Posted by edelfenbein at 1:06 PM

Short Interest Is Up 55%

Could this be some sort of bubble?

Record bets against U.S. stocks may mean the market is on the verge of a rebound fueled by purchases of shares that were sold short, according to JPMorgan Chase & Co.

So-called short interest on the New York Stock Exchange has risen 55 percent this year to a record 3.6 percent of listed shares, JPMorgan Chief Equity Strategist Thomas J. Lee wrote in a report today. In a short sale, an investor sells borrowed shares in anticipation of being able to buy them back later, or “cover,” at a lower price.

Given the “extreme levels” of short interest, positive catalysts for the market “could trigger a substantial short- covering rally,” New York-based Lee wrote.

The article notes that 36% of companies in the S&P 500 have at least 5% of their shares sold short.

Posted by edelfenbein at 12:16 PM

Ryanair's CEO Promises In-Flight Blow Jobs

Posted by edelfenbein at 1:50 PM

Looking at the Bear

The S&P 500 closed today at 1,261.52 which is the lowest close since July 24, 2006. The index is now off 19.4% from its all-time high of October 9, 2007.

Since October 9, there have been 184 trading days. This is how the days of the week have panned out:

Monday.............-3.69% (35 data points)
Tuesday.............5.26% (36)
Wednesday.......-6.17% (39)
Thursday...........-1.93% (37)
Friday................-13.59% (37)

So the bear market is heavily, but not exclusively, a Friday phenomenon. The other four days of the week have lost a combined -6.72%.

The most surprising fact is that of the 184 days, 92 have been up, 91 were down and one was unchanged (January 3).

Posted by edelfenbein at 7:56 AM

Best Little Whorehouse in Wellesley

Professor Greg Mankiw notes that in his hometown of Wellesley police recently shut down a (ahem) massage business. This is the second time in the last six months that the police of busted such an enterprise.

But here’s the interesting fact. One of the people just arrested, William Eastwick, is the same guy who tipped off the police on the first arrest.

Eastwick tipped Wellesley Police off to that operation, said [Wellesley Police Sgt. Marie] Cleary, although it is unclear why he did that.

Clearly, Cleary is unclear, but to Dr. Mankiw, it’s perfectly clear.

Like any businessman, Mr Eastwick prefers to have fewer competitors. Some businessmen lobby Congress for trade restrictions. Others alert the police to the brothel down the block. And when using the power of the state to thwart competition, they can both pretend to be acting in the public interest.

Sometime you need a small example to see the big picture. I wouldn’t say the state and Mr. Eastwick are in bed together, they just provide similar services.

Posted by edelfenbein at 3:47 PM

CircuitBuster Now Officially Busted

A three-act play:

April 14
Blockbuster offers $1 billion for Circuit City

May 10
Circuit City Opens Its Books to Blockbuster

July 2
Blockbuster Withdraws Offer for Circuit City

This was one the worst ideas to hit the Street in a long time. The good thing is that shareholders had far better judgment than management. Score one for the wisdom of crowds.

Posted by edelfenbein at 12:14 PM

Samuel Israel Surrenders

Sam finally gives up:

Samuel Israel, the fugitive hedge-fund firm founder convicted of directing a $400 million fraud at Bayou Group LLC, surrendered in Massachusetts, almost a month after fleeing instead of starting his 20-year prison sentence.

Israel, 48, turned himself in at 9:15 a.m. today, according to Sue Anderson, assistant to Southwick, Massachusetts, Police Chief Mark Krynicki. Southwick, near the Connecticut border, is about 117 miles from where Israel disappeared in New York the day he was to report to a federal prison northwest of Boston.

"He is in federal custody," Rebekah Carmichael, a spokeswoman for U.S. Attorney Michael Garcia in Manhattan, said in an e-mailed statement.

Israel pleaded guilty in 2005 to securities fraud. His car was found June 9 on a bridge north of New York City with the message "suicide is painless" written in the dust on its windshield. Within a week, state and federal authorities in New York, where he pleaded guilty, ruled out suicide and launched an international manhunt.

Posted by edelfenbein at 11:53 AM

UnitedHealth Lowers Guidance

As I expected, UnitedHealth (UNH) lowered its profit guidance for this year. The company now sees EPS coming in between $2.95 to $3.05.

Chief Executive Stephen J. Hemsley noted the quarter's results were hurt by lower margins, adding that second-quarter weakness also stems from reduced margins at its risk-based businesses and Medicare operations. "We are continuing to take the aggressive specific steps necessary to improve our operating performance, as well as to better position our organization for sustained future growth," he said. To stop weakness in the risk-based operations, the company has been letting go of some customers who didn't generate enough profits.

The company is also paying about $900 million to settle two class-action lawsuits regarding the back-dating of stock options. Assuming the current forecast is correct, then UNH is a very cheap stock. The shares are up nicely today.

Posted by edelfenbein at 9:49 AM

This Just In...

Multivariate Markov Switching With Weighted Regime Determination: Giving France More Weight than Finland

Um...no duh!

Posted by edelfenbein at 3:18 PM

Worst First Halves Since 1971

Here are the ten worst first halves since 1971, going by the S&P 500's total return:

Year.....................Gain
2002..................-13.16%
2008..................-11.91%
1973..................-10.38%
1974..................-10.17%
1982..................-7.83%
2001..................-6.70%
1984..................-4.90%
1977..................-4.38%
1994..................-3.39%
1981..................-0.95%

Posted by edelfenbein at 3:05 PM

Grasso Wins

It’s hard to see multi-millionaire as victims, but Eliot Spitzer’s (aka Client #9) crusade against Dick Grasso was contemptible and an abuse of the legal system. The case against him was thrown out today. Last week, the court threw out four of the six claims against Grasso. The other two were dismissed today.

The New York Stock Exchange awarded Grasso a pay package worth $190 million. Is that too high? Probably. Is it illegal? Of course not.

“My reaction is, I told you so,” Langone said today in a telephone interview. “There was never a case here. What more can we say? The enormous waste was a travesty.”

One final note on Mr. Spitzer. When he checked in the Mayflower Hotel for his meetings with Ms. Dupree, he used the nom de bork, George Fox. That’s one his friend’s names.

Classy guy.

Posted by edelfenbein at 2:51 PM

I Think this Chart Sums It Up Well

Posted by edelfenbein at 10:31 AM

Who's to Blame?

Who's responsible for all the problems in the financial sector? Stephen Schwarzman has an novel idea -- blame the new accounting rule, FASB 157:

FAS 157 represents the so-called fair value rule put into effect by the Federal Accounting Standards Board, the bookkeeping rule makers. It requires that certain assets held by financial companies, including tricky investments linked to mortgages and other kinds of debt, be marked to market. In other words, you have to value the assets at the price you could get for them if you sold them right now on the open market.

The idea seems noble enough. The rule forces banks to mark to market, rather to some theoretical price calculated by a computer — a system often derided as “mark to make-believe.” (Occasionally, for certain types of assets, the rule allows for using a model — and yes, the potential for manipulation too.)

But here’s the problem: Sometimes, there is no market — not for toxic investments like collateralized debt obligations, or C.D.O.’s, filled with subprime mortgages. No one will touch this stuff. And if there is no market, FAS 157 says, a bank must mark the investment’s value down, possibly all the way to zero.

That partly explains why big banks had to write down countless billions in C.D.O. exposure. The losses are, at least in part, theoretical. Nonetheless, the banks, in response, are bringing down their leverage levels and running to the desert to raise additional capital, often at shareholders’ expense.

Posted by edelfenbein at 9:40 AM