« May 2009 | Main | July 2009 »

The CWS Buy List First Half Review

The first half of 2009 is now behind us and the Buy List is having a pretty good year. To review the rules, the 20 stocks I select at the beginning of the year are locked in place and I’m not allowed to make any changes during the year.

I assume the portfolio is equally weighted at the beginning of the year. The average of the 20 stocks is currently up 14.53% for the year. Including dividends, we’re up 15.22%. By contrast, the S&P 500 is up 1.78%, and 3.16% with dividends.

The average daily volatility of the Buy List is 3.18% greater than the market.

Fourteen of our 20 stocks are up for the year, six are down. The best performer is Nicholas Financial (NICK) with a 123% gain. The second-best is Cognizant Technology Solutions (CTSH), one of our five new stocks this year, which is up 47.8%.

The worst performer has been Aflac (AFL), which is down 32.2%. That’s bad but it was a lot worse. In fact, Aflac has nearly tripled off its March low. If I didn’t have my frozen-in-place rule, I could have easily sold out at the worst time. The second-worst performer has been Moog (MOG-A) which is now down 29.4% for the year.

Since the March 9th low, the Buy List is up by over 51%. Let’s hope for a great second-half to 2009!

Posted by edelfenbein at 10:19 PM

Trivia Question: Who's France's Largest Private Employer?

I'll give you a hint: It's McDonald's (MCD).

Mike Steinberger looks at How McDonald's Conquered France:

In the battle for France, Jose Bové, the protester who vandalized a McDonald's in 1999 and was then running for president, proved to be no match for Le Big Mac. The first round of the presidential election was held on April 22, and Bové finished an embarrassing tenth, garnering barely 1 percent of the total vote. By then, McDonald's had eleven hundred restaurants in France, three hundred more than it had had when Bové gave new meaning to the term "drive-through." The company was pulling in over a million people per day in France, and annual turnover was growing at twice the rate it was in the United States. Arresting as those numbers were, there was an even more astonishing data point: By 2007, France had become the second-most profitable market in the world for McDonald's, surpassed only by the land that gave the world fast food. Against McDonald's, Bové had lost in a landslide.

Posted by edelfenbein at 8:05 PM

The Idea of Breaking Up Big Banks Is Nonsense According to the Chairman of a Big Bank

HSBC's Chairman Stephen Green has some interesting thoughts on the futility of trying contain financial crises:

The global financial industry should not be revamped to try to ensure no bank was too big to fail, HSBC (HSBA.L) Chairman Stephen Green said on Tuesday.

"It is unrealistic to believe that the industry can be reconstructed such that individual institutions are not too big to fail. Quite small and simple banks are too big to fail in a strict sense," said Green, chairman of Europe's biggest bank, in a speech at the British Bankers' Association annual conference.

"The notion that the failure of a bank can be contained by the conventional legal and administrative processes for handling business failures is nonsense."

Green said "narrow banking" was not the answer to ensure stability. "When you look at the different things that commercial banks do you can't segregate those out meaningfully in this day of integrated capital markets," he told Reuters in an interview after.

Peter Sands, chief executive of Standard Chartered (STAN.L), agreed that breaking up the big banks was not the answer.

"There is a case for restricting proprietary risk-taking, but (a new Glass-Steagall Act) is not the way to do it," Sands said. "It gives an illusion of comfort, it won't work, and it will be great for regulatory arbitrage."

Posted by edelfenbein at 1:12 PM

About Auditing the Fed

The Federal Reserve is one of those topics where otherwise normal people start getting a little weird. I think it knocks about 10 points off people’s IQ. Israel is another topic like that. In fact, to some people, it’s not a separate topic.

I mention this because there’s been a movement to support Congressman’s Ron Paul’s bill (HR 1207) which will require audits of the Federal Reserve. The bill already has enough cosponsors to pass the House easily. The Senate, however, could be a different matter.

So what could anyone have against auditing the Fed? The problem I have isn’t the audit, but it’s the bizarre paranoia of more than a few of the bill’s supporters. What exactly do they expect to find out?

There is a serious question as to what role the Federal Reserve ought to have. The issue before us is that the Fed has been taking on more and more job titles over the last year, not be design but by default. Congress’ prefer method seems to be outsourcing fiscal policy to the Fed and then blaming it for the consequences.

Letting Lehman Brothers may have been a mistake, though I’m not convinced it brought on the collapse. Nationalizing AIG was a bad move and the Fed wasn’t pleased with it. Unlike a lot of folks, I’m not so judgmental about Greenspan’s low-rate policies earlier this decade. Not that I think they were right but I’m not convinced how obvious the wrongness was at the time. Monetary policy in hindsight is an easy thing to do.

I consider these open questions but the fact is that these are decisions that the Federal Reserve has made and will have to make in the future. That’s a lot on their plate, plus they have their regulatory duties. Consider that over the past several months, the Fed’s balance sheet has more than doubled to over $2 trillion. One idea is to let the Fed issue its own bonds. The Fed wants to do that but Congress would never go for it. This brings me to my general rule about central banking, it should be as dull as possible.

Technically, the Fed is audited but HR 1207 will require a full audit which will include their open market operations. Edward Flaherty writes that there’s a good reason why the Fed’s open market operations haven’t been audited:

In 1978, the Federal Reserve's Office of Inspector General was given authority to conduct audits, operations reviews, and investigations of Board of Governors' programs and operations. In addition, GAO was given authority to audit the Board of Governors and the regional Federal Reserve Banks, branches, and facilities, subject to the limitation that it could not examine the Fed's foreign exchange and open market monetary policy actions.

One of the difficulties in understanding the audit issue is in the different types of audits. Most people think of audits as financial audits. These are principally concerned with whether an institution has spent the money and maintains the funds as it has claimed in its financial statements, and whether it is complying with procedures designed to safeguard it from misappropriation of funds. This is no doubt the kind of audit most people have in mind when expressing their concern over whether the Fed gets audited.

But audits are also designed to review management efficiency and to evaluate the policy of an institution. It is the latter kind of audits that are the reason for the restrictions on GAO's audit authority over the Fed. The concern is that more extensive audits will become policy evaluations second-guessing the Fed's monetary policy, and not examinations of Federal Reserve financial safeguards and procedures. Under current law, policy is reviewed twice annually by the Congress.

And here.

In 1993 Wayne D. Angell, then a member of the Board of Governors, submitted testimony before a House subcommittee on the reasons for the restrictions on GAO access. He commented, By excluding these areas, the Act attempts to balance the need for public accountability of the Federal Reserve through GAO audits against the need to insulate the central bank's monetary policy functions from short-term political pressures and to ensure that foreign central banks and governmental entities can transact business in the U.S. financial markets through the Federal Reserve on a confidential basis.

In reference to a bill that would lift the constraints placed on the GAO's audit authority over the Federal Reserve, Angell stated, The benefits, if any, of broadening the GAO's authority into the areas of monetary policy and transactions with foreign official entities would be small. With regard to purely financial audits, the Federal Reserve Act already requires that the Board conduct an annual financial examination of each Reserve Bank...The process of conducting financial audits is reviewed by a public accounting firm to confirm that the methods and techniques being employed are effective and that the program follows generally accepted auditing standards...Further, a private accounting firm audits the Board's balance sheet...Finally, and more broadly, the Congress has, in effect, mandated its own review of monetary policy by requiring semiannual reports to Congress on monetary policy under the Full Employment and Balanced Growth Act of 1978...In addition, there is a vast and continuously updated body of literature and expert evaluation of U.S. monetary policy. In this environment, the contribution that a GAO audit would make to the active public discussion of the conduct of monetary policy is not likely to outweigh the disadvantages of expanding GAO audit authority in this area.

Ultimately, I’m puzzled by the anger directed at the Fed. Go ahead and audit them, but you should really be angry at Congress.

Posted by edelfenbein at 11:43 AM

2009's Dumbest Business Moments

Fortune has a roundup of the Dumbest Business Moments of 2009.

My favorite is when the SEC banned Bernie Madoff from the securities industry. Exactly two weeks ago, nine years after they were first warned of him.

Posted by edelfenbein at 10:21 AM

Boring = Technical Analysis; Better = Technical Analysis Explained by Hot Aussie Chick

(HT: Timmay)

Posted by edelfenbein at 10:16 AM

Cramer's Greatest Hits

Joe Weisenthal notes that Jim Cramer said that today is the exact bottom of the housing market. He said that last September.

Check out Joe's collection of Cramer's greatest hits.

Posted by edelfenbein at 10:12 AM

Headline of the Day

First Place goes to CNN:

Home prices drop, but at a slower rate

My comment: I stopped reading after the comma.

Second Place goes to the LA Times:

Rising oil prices lift stocks higher

My comment: ???????

Posted by edelfenbein at 10:01 AM

British Economy has Worst Quarter in 50 years

Bloomberg reports:

The U.K. economy shrank more than previously estimated in the first quarter in the biggest contraction since 1958 as the recession choked industries from construction to services.

Gross domestic product fell 2.4 percent from the final three months of 2008, compared with the prior measurement of a 1.9 percent drop, the Office for National Statistics said today in London. The median prediction in a Bloomberg survey of 28 economists was for a 2.1 percent decline. Construction activity plunged almost three times as much as originally estimated.

Bank of England Governor Mervyn King said last week that Britain’s recovery from recession may turn out to be “a long, hard slog.” While business surveys have indicated the economic slump is easing, unemployment may continue to increase and net mortgage lending is the weakest since records began in 1993.

“In big picture terms, it doesn’t really change the outlook,” said Nick Kounis, an economist at Fortis Bank Nederland Holding NV in Amsterdam and a former U.K. Treasury official. “The recovery is unlikely to be very strong any time soon. There’s more bad news for consumers ahead.”

The lousy economy is apparently affecting everyone: Queen to run out of funds by 2012.

Posted by edelfenbein at 9:43 AM

BarryTV

Here’s blogger and Carney-foil, Barry Ritholtz discussing Bailout Nation on C-Span’s BookTV.

Here’s my review of Bailout Nation.

Posted by edelfenbein at 8:54 PM

The Best of the Money Blogs

I'm honored to have been nominated by Howard Lindzon and David Berman as one of the best money blogs at the Globe and Mail.

You can vote here for Crossing Wall Street. Please vote early and often. You can see the gentleman at the Acorn office for additional assistance.

Posted by edelfenbein at 4:35 PM

Stocks Chillax

The stock market's volatility continues to subside. The VIX closed at its lowest level in nine months. At one point in October, the VIX came within inches of 90. Now it's close to dipping below 25.

Except at very low points (like below 13), a low VIX is neither good nor bad for stocks. It simply means that there will be less volatility.

Posted by edelfenbein at 4:14 PM

Taleb Watch

I think the world is beginning to catch on to the increasingly tedious Nassim Nicholas Taleb. A few weeks ago, Janet Tavakoli blew the whistle on the claim made in GQ that Taleb “made $20 billion for our clients, half a billion for the Black Swan fund.” Taleb says he was misquoted (Felix comes to his defense).

On his website, Taleb writes:

Note that NUMBERS are wrong. This is not a business/finance, but a philosophy article written by a literary person the novelist Will Self. So read the article for ideas. Someone used the errors as a platform for her (failed) smear campaign.

Lame.

Saying that it’s a philosophy article not a finance article is not an excuse. If the numbers are wrong, then GQ should put out a correction. If Self stands by the quote, then he should stand by it. I don’t buy the argument that Taleb exists in some higher plane where ideas trump facts.

Posted by edelfenbein at 12:17 PM

Hey Bernie

See you in 2159!

Posted by edelfenbein at 11:34 AM

I’m Back!

I’m back in the office after a very relaxing week in Maine. Here’s an interesting investing lesson: I didn’t pay attention at all to the stock market last week and the Buy List still outperformed the market. The S&P 500 dropped 0.3% last week while the 20 stocks on my Buy List gained an average of 2.2%. By doing nothing, I still beat most money managers.

The Buy List has been locked in place since the start of the year and we’re beating the S&P 500, 15.2% to 1.7% (not including dividends).

The best news last week came from Bed Bath & Beyond (BBBY). The earnings report was outstanding. Not only did the company cream Wall Street’s estimate by nine cents a share (34 cents to 25 cents), but earnings were also higher than the same quarter one year ago. So in BBBY’s case, things are actually improving instead of saying that the rate of worsening is slowing.

Here are the earnings results going back a few years:

Here's a look at the trailing four-quarter earnings-per-share:

Note the last bump up in the line. It may not look terribly impressive right now but consider how poorly the economy has done, especially in the housing sector. Bed Bath & Beyond is an excellent long-term stock.

Posted by edelfenbein at 8:31 AM

Greetings from Maine

I just wanted to pop my head in and say hi from the beautiful state of Maine. Unfortunately, it has rained every singe day. The forecast is for still more rain the rest of the week. (The rain in Maine is driving me insane.)

Still, I'm having a great time just relaxing and not worrying about stocks bouncing up and down. The lake house is really nice. Also, I won't say that I'm having a large-scale remote control naval/sea war complete with nerf dart guns. But I won't say that I'm not having one either.

Bed Bath & Beyond (BBBY) is due to report today but I haven't seen anything yet. The last earnings report was great and the stock has pulled back since then. Anything below $30 is a good buy, and below $28 is very good.

Tomorrow will be the GDP report. We're now at the stage where the first quarter is a long time ago so the report won't be too important. I'm curious if there will be an upward revision to a horrible quarter.

If you'll excuse me, I have to get back to my battle station (ie, deck chair).

Elfenbein out.

Posted by edelfenbein at 4:07 PM

Weekend Poll

Posted by edelfenbein at 1:49 PM

Vacation

It’s time to head out on vacation. I’m off to a wonderful lakeside cottage in Maine. Best of all, the laptop is staying behind.

It’s good to take some time off every once in a while so you can recharge your batteries.

While I’m gone please check out of the folks on my blogroll. I’ll be back in the office on June 28. Have a great week!

Posted by edelfenbein at 11:25 AM

A New York Times Editorial on 2009 -- Written in 1909

Enjoy.

Posted by edelfenbein at 11:47 AM

Wall Street Is Close to Fully Bionic

I, for one, welcome our new computer overlords:

Investors and pundits are left clutching at straws to explain big moves in the stock market, such as attributing a June 8 bounce to rehashed comments from Nobel Prize-winning economist Paul Krugman. The difficulty in divining a fundamental explanation stems from a structural change in the U.S. stock market: The majority of stock trades now originate with fully automated "high frequency" funds, a phenomenon that has accelerated during the market turbulence of recent years because of the relative success of the strategy.

These funds employ no traders in the conventional sense. They employ no economists or chart trackers. Rather, programmers at funds such as those operated by Citadel Investment Group and Renaissance Technologies outfit computers with strategies based on obscure mathematical correlations. Then the machines trade in and out of stocks at light speed without human intervention, a departure from the "fundamental" investing model that dominated trading for the last century.

The growth of these funds is such that institutions whose names have never appeared in the newspaper are now trading hundreds of millions of shares a day. Major hedge funds that have put other strategies on ice are opening new funds devoted to high-frequency strategies and hiring the mathematicians and computer programmers that run them. Some of the fastest-growing market makers, such as Global Electronic Trading Company, or Getco, also use the automated strategies.

With the rise of these automated funds, the stock market is more prone than ever to large intraday moves with little or no fundamental catalyst. Computers don't analyze the news (although some strategies use headlines as triggers) or seek to justify their buying and selling. Even in the relative quiet of the last three months, investors have often watched individual stocks or sectors move by 10% or more without explanation.

Posted by edelfenbein at 9:28 AM

I Really Like this Story

The BBC reports, Rats play odds in gambling task.

(HT: Alea.)

Posted by edelfenbein at 9:21 AM

Pew Center Poll

Americans are saying that they're hearing more good news about the economy. Not mostly good news, but not all bad news as it was a few months ago.

Posted by edelfenbein at 12:58 AM

Rainforest Discovered Through Google Earth

This is a cool story. Scientists found a rainforest in Mozambique with the help of Google Earth.

Here's a similar story where Google Earth helped uncovered an ancient fish trap:

Posted by edelfenbein at 7:59 PM

Looking at the Iranian Elections

Whoever made up numbers apparently forgot about Benford's Law:

The results of the 2009 Iranian presidential election presented by the Iranian Ministry of the Interior (MOI) are analysed based on Benford's Law and an empirical variant of Benford's Law. The null hypothesis that the vote count distributions satisfy these distributions is rejected at a significance of $p e 0.007$, based on the presence of 41 vote counts for candidate K that start with the digit 7, compared to an expected 21.2--22 occurrences expected for the null hypothesis. A less significant anomaly suggested by Benford's Law could be interpreted as an overestimate of candidate A's total vote count by several million votes. Possible signs of further anomalies are that the logarithmic vote count distributions of A, R, and K are positively skewed by 4.6, 5.8, and 2.5 standard errors in the skewness respectively, i.e. they are inconsistent with a log-normal distribution with $ p sim 4 imes 10^{-6}, 7 imes 10^{-9},$ and $1.2 imes 10^{-2}$ respectively. M's distribution is not significantly skewed.

For those unfamiliar, here's wikipedia on Benford's law.

Three years ago, I looked at the decimals in the Dow's daily close. I didn't test them but it looks like they could follow Benford's law.

Posted by edelfenbein at 2:16 PM

Humans prefer cockiness to expertise

NewScientist reports that Humans prefer cockiness to expertise (if you click through to the article, you won't be surprised to see whose picture they've used):

EVER wondered why the pundits who failed to predict the current economic crisis are still being paid for their opinions? It's a consequence of the way human psychology works in a free market, according to a study of how people's self-confidence affects the way others respond to their advice.

The research, by Don Moore of Carnegie Mellon University in Pittsburgh, Pennsylvania, shows that we prefer advice from a confident source, even to the point that we are willing to forgive a poor track record. Moore argues that in competitive situations, this can drive those offering advice to increasingly exaggerate how sure they are. And it spells bad news for scientists who try to be honest about gaps in their knowledge.

In Moore's experiment, volunteers were given cash for correctly guessing the weight of people from their photographs. In each of the eight rounds of the study, the guessers bought advice from one of four other volunteers. The guessers could see in advance how confident each of these advisers was (see table), but not which weights they had opted for.

From the start, the more confident advisers found more buyers for their advice, and this caused the advisers to give answers that were more and more precise as the game progressed. This escalation in precision disappeared when guessers simply had to choose whether or not to buy the advice of a single adviser. In the later rounds, guessers tended to avoid advisers who had been wrong previously, but this effect was more than outweighed by the bias towards confidence.

The findings add weight to the idea that if offering expert opinion is your stock-in-trade, it pays to appear confident. Describing his work at an Association for Psychological Science meeting in San Francisco last month, Moore said that following the advice of the most confident person often makes sense, as there is evidence that precision and expertise do tend to go hand in hand. For example, people give a narrower range of answers when asked about subjects with which they are more familiar (Organizational Behavior and Human Decision Processes, vol 107, p 179).

There are times, however, when this link breaks down. With complex but politicised subjects such as global warming, for example, scientific experts who stress uncertainties lose out to activists or lobbyists with a more emphatic message.

So if honest advice risks being ignored, what is a responsible scientific adviser to do? "It's an excellent question, and I'm not sure that I have a great answer," says Moore.

(HT: TAR).

Posted by edelfenbein at 1:48 PM

Obama's Plan For Financial Regulation

Posted by edelfenbein at 1:27 PM

Market Reaction to Unexpected Monetary Policy Announcement

A bit wonky but interesting:

This paper examines the daily response of euro area stock markets to unexpected ECB monetary policy announcements. We define ECB's unexpected decisions in analyzing the consensus in the specialized press the days before the announcement. Our preliminary results show that very few ECB's announcement's are unexpected by ECB watchers, this is a sign that the ECB's monetary policy is very predictable. We also find little responses of stock markets to unexpected monetary policy decisions. If Eurozone equity markets react homogeneously to unexpected monetary policy decisions, we can see that reactions are higher in France than in Germany. We find significant and heterogeneous responses from sectorial indexes which indicate that the financial channel of monetary policy is different following the sector. Finally, we find that markets are more sensitive to good news in bad times, but there is no evidence of the opposite.

Posted by edelfenbein at 1:23 PM

AFL Under $30

If you're looking to put free cash to use, Aflac (AFL) is a good buy under $30. That's about six times the guidance they've given (and reaffirmed) for this year.

Posted by edelfenbein at 1:02 PM

What's Behind Soaring T-Bond Yields

Many market observers have been alarmed by the surge in long-term bond yields. This has also sparked a debate on Wall Street: Are the higher yields due to an emergent recovery or fears of higher inflation?

For now, I don't think it's either. More than higher bond yields, we're really seeing a closing of the gap between Treasury yields and corporate yields. In other word, investors are more willing to take on risk. To be even more precise, the level of risk-taking is backing off from its extremely scared level of about six months ago.

This chart shows the yield of the 30-year Treasury (red) along with an index of AAA bonds (blue).

Notice the closing of the gap between the two. Corporate yields are higher but the major change has come from Treasuries. This means that the price of risk is finally returning to normal.

Posted by edelfenbein at 10:48 AM

Ex-con tried to get $15 trillion tax return

You might as well go all the way:

Fresh out of prison on a money-laundering conviction, Marlon T. Moore tried to make a big score, federal prosecutors say.

The Miami man -- aka ''X-Large Moore'' -- filed an income tax return seeking a refund of almost $15 trillion.

No joke. Now Moore is charged with filing false claims with the IRS and obstructing the agency's laws.

After his release from a Florida prison in late 2007, Moore allegedly prepared bogus documents claiming that the feds owed him various amounts, including $5,950,000,000,000, $2,975,000,000,000 and $6,000,000,000,000.

"In fact, however, defendant Moore knew he was owed no such amounts," according to a statement by the U.S. Attorney's Office in Miami.

Moore, 38, has a bond hearing on Thursday. If convicted, he faces up to five years in prison for each false claim and up to three years for impeding IRS laws.

This is completely unacceptable. Still, I'd like to see X-Large appointed to the Fed.

Posted by edelfenbein at 9:35 AM

CPI Came in Below Forecast

Both headline and core were up 0.1%:

The cost of living in the U.S. rose less than forecast in May, culminating in the biggest 12-month drop in prices in almost 60 years.

The consumer price index increased 0.1 percent after no change a month earlier, the Labor Department said today in Washington. In the 12 months ended in May, costs dropped 1.3 percent, the biggest decline since 1950.

Higher commodity prices, including gasoline, will probably restrain Americans’ discretionary spending at a time when the economy is showing signs of stabilizing. The lack of sustained gains in sales is one reason companies are finding it difficult to pass increasing costs on to customers.

Posted by edelfenbein at 9:19 AM

People With Way Too Much Time on Their Hands

Here's the original.

Posted by edelfenbein at 8:55 AM

Swan Song

Mark Gimein looks at Nassim Taleb:

But the failures of the Niederhoffers and AIGs do not translate to a validation of Taleb-style catastrophism because these two approaches turn out to be linked. They are mirror images. In noncatastrophic times, the Niederhoffers and AIGs make money consistently and quietly and then end up losing it conspicuously and painfully. The Talebs make money rarely, amaze everyone because they do it when everybody else is getting killed—and so make it easy to forget about years of steady losses. Over the long run, the anti-catastrophists often do fairly well (if they don't get too greedy and make bets that cost them all their money in even a small market drop). But it is the catastrophists, a la Taleb, who look smarter. If you're always planning for crisis, you look like a genius when it does come.

Arguing against Taleb is a little embarrassing; who among us wants to side with the plodders when for the price of a paperback you can join the elect? But the experience of the markets here is important because it shows that neither consistently discounting the chance of unforeseen risks, as AIG did with such gusto, nor betting day after day on unforeseen catastrophes is a reliable way to make money.

In his books Taleb presents a wealth of examples of how prone we are to discount the unexpected and unlikely, but what is notably missing from The Black Swan are examples of just how likely we are to overestimate the chances of unlikely events when they are presented to us under a spotlight. Taleb is, of course, right that we fail to anticipate what we are not looking for. But we also overanticipate when we are looking too hard for the outliers. Lottery players overvalue their chances of winning $10 million, and horse bettors put too much money on 100-1 long shots. People who watch the local news too avidly believe there is a child kidnapper around every corner, and followers of Taleb assume that every time they pass a dark alley, catastrophe is about to pop out with a bloody knife.

Posted by edelfenbein at 3:17 PM

FactSet Beats the Street

One of my Buy List stocks, FactSet Research Systems (FDS), just reported another strong quarter. For the May quarter, which is their fiscal third quarter, FactSet earned 73 cents a share which was a penny better than estimates. Revenues rose 4.7% to $154.4 million which was slightly below the Street’s consensus.

For Q4, FDS sees earnings coming in between 73 cents and 75 cents a share, and revenues between $152 and 157 million. The Street was expecting 72 cents on $155.45 million.

FactSet said its operating margins and free cash flow rose even though they lost 34 clients last quarter. Client count is now at 2,033. The company also recently raised its quarterly dividend to 20 cents a share from 18 cents. This is an excellent stock to own.

Here's a look at FDS' recent quarterly results with the red bar being my forecast for this quarter.

Posted by edelfenbein at 12:01 PM

Naked Shorting Is a Phoney Problem

John Hempton has an outstanding post on the government's absurd war on naked short-selling. He says that it's costing taxpayers one billion dollars.

It's a long post; here's a sample:

The story was that selling stock you did not own was producing “counterfeit shares”. I have yet to see mischievous naked short selling of any real business – though I have seen some fails-to-deliver (that is not actually being able to borrow the stock on the delivery date) remedied a few days later and with all obligations to the exchange cash collateralised over the interim period. There were plenty of “fails” but no real naked short selling “problem”. Hard to borrow stocks did fail regularly – but I assure you – and I have been doing this for years – when there were fails to deliver my broker called my short back and hey – presto – a few days later I had settled. If there was a “counterfeit share” it was cash collateralised and it was cancelled a few days later (in exchange for the cash collateral). The person who purchased the share from me got all the economic benefit of owning that share – and a full voting share was delivered to them within a modest time.

Fails to deliver now are – with electronic settlement – a far lesser and far quicker remedied problem than they were in the days of paper certificates. And with the speed at which they are settled – and the ability to demand cash collateral when a party fails to deliver they cause no economic problem at all.

The SEC has now forced shorts to find a borrow before you can actually short the stock. Hempton points out the harm in this in the case of Citigroup. You can buy Citigroup at an 18% discount by buying the preferred. So there's an arb play; long the preferred, short the common.

Well, now you can't do that with certainty. If you short Citi, you might be forced to buy it back at a higher price. As John points out, who is Citi's largest shareholder? Taxpayers.

So – in pursuing the bogus issue of naked short selling not only has the SEC diverted resources from its real job (which is chasing the real crims in the financial market such as Madoff) but it has imposed significant and real costs on the taxpayer and made it harder and more expensive for banks to raise capital in a financial crisis.

But – I should not complain. It has put a reasonable risk arbitrage our way – and I hope to report back that – thanks to the SEC crackdown on a bogus issue our clients are just that little bit richer.

Nonetheless I will know a commentator who really gets it when they defend modest levels of cash collateralised fails to deliver as a normal part of a normally functioning financial market. Naked short selling is good for markets, good for taxpayers and good for capitalism.

Posted by edelfenbein at 10:16 AM

PPI Rose Less than Forecast

Bloomberg reports:

Prices paid to U.S. producers rose less than forecast in May as food expenses dropped, leading to the biggest 12-month slump in wholesale costs in a half century.

The 0.2 percent increase in prices paid to factories, farmers and other producers followed a 0.3 percent gain in April, the Labor Department said today in Washington. Excluding food and fuel, so-called core prices unexpectedly fell.

The lack of sustained gains in sales is one reason companies will need to keep a lid on prices, preventing inflation from flaring. The rising cost of commodities such as gasoline may further limit consumers’ discretionary spending at a time when the economy is showing signs of stabilizing.

“Outside of oil, inflation is still tame,” James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, said before the report. “Given the huge amount of slack in the economy, the broad trend in inflation is more likely to be down than up.”

Economists forecast producer prices would rise 0.6 percent, according to the median of 73 projections in a Bloomberg News survey. Estimates ranged from no change to a 2.3 percent gain.

Compared with a year earlier, companies paid 5 percent less for goods, the biggest decrease since 1949 and reflecting the drop in fuel costs late last year that has since partially reversed.

Meanwhile, Job title inflation reaches alarming levels.

Posted by edelfenbein at 9:10 AM

Morning Call

Detroit now has zero bookstore chains, zero national grocery chains, zero Chrysler Jeep dealers and only four Starbucks.

G.M. Sells Saab to Swedish Automaker

Smithfield swings to loss but bests estimates

European car sales sink 4.9% in May

Volvo says demand has bottomed out

Best Buy posts lower quarterly profit, keeps view

China to Pass Germany as Porsche’s Second-Biggest Market. Apparently, there is a substitute.

One of the world's largest dairy farms is in...Saudi Arabia?

Posted by edelfenbein at 8:56 AM

Captain America Redux

The New York Times reports that Marvel Entertainment (MVL) is bringing back Captain America:

More than two years after his comic book death, the sentinel of liberty known as Captain America is returning to the land of the living. “Captain America Reborn,” a five-part series published by Marvel Entertainment, will begin next month and is written by Ed Brubaker and illustrated by Bryan Hitch, one of the comic book industry’s most acclaimed artists. Mr. Brubaker is the regular writer of the Captain America series, including issue No. 25, published in 2007, in which the title hero was felled by an assassin’s bullet. It was a shot heard around the world as many news organizations carried word of the captain’s death. The story of his return begins in Captain America No. 600 (the series is returning to the original numbering from Volume 1, with a cover date of March 1941), which is in comic book stores now. New comics typically go on sale Wednesdays, but in an unusual move Marvel has allowed the comic to go on sale immediately.

Conan O'Brien said they'll start making Captain America once they get a loan from Captain China.

Posted by edelfenbein at 11:42 PM

Stunning Pictures from Iran

The Iranian military raided Isfahan University of Technology (warnings graph images).

Posted by edelfenbein at 5:15 PM

S&P 500 and Gold Are the Same

Gold and the S&P 500 are basically neck and neck today.

Posted by edelfenbein at 1:06 PM

Today's Consumer Confidence Report

The Michigan Consumer Confidence reading rose again this month. Actually, I think it might be more accurate to say that the level of consumer self-hatred eased a bit in June.

It wasn’t a big increase, going from 68.7 to 69.0. The Street was looking for 69.5. We’re at the highest level since Lehman Brothers went kablooey.

What really jumps out at me is that consumer’s view of the future took a big plunge this month. For May, the reading for the 12-month outlook was 75. This month is was just 61. Youch! Inflation expectations rose to 3.1% from 2.8% in May.

Posted by edelfenbein at 11:13 AM

OMG DELL Ernd $3 Mil Off Twttr So How Mch Did Twtte Mke? = $0 LOL :o)

The New York Times reports:

These days, lots of companies are talking about their “Twitter strategy,” but few have figured out how to measure what amassing hundreds of thousands of followers on Twitter does for their businesses. Dell has shown that it can go directly to the top line.

Dell said Thursday night that the company had earned $3 million in revenue directly through Twitter since 2007, when it started posting coupons and word of new products on the microblogging site. In the last six months, Dell Outlet earned $1 million in sales from customers who came to the site from Twitter, after taking 18 months to earn its first $1 million. Dell has also earned another $1 million from people who click from Twitter to Dell Outlet to Dell.com and make a purchase there.

Dell joins companies like Starbucks, JetBlue and Whole Foods as one of the most active corporate Twitter users. “It’s a great way to fix customer problems and hear what customers have to say, it’s a great feedback forum and it leads to sales — how can you miss?” said Richard Binhammer, who works in Dell’s corporate affairs office and is active on its Twitter accounts.

Twitter made exactly $0 from those Dell sales, something that will very likely change. Twitter’s founders have said that it someday hopes to make money from its corporate users, with paid accounts that offer additional features like analysis of the traffic to businesses’ Twitter profiles and verified accounts so customers know they are not dealing with an impostor. When asked whether Dell would pay Twitter for an account, Mr. Binhammer said, “We’ll cross that bridge when we come to it.”

Posted by edelfenbein at 10:38 AM

Small Stocks, Big Dividends

Barron's scanned for small stocks that pay generous dividends. They looked for stocks that have raised their dividend over the last five years that have market caps between $800 million and $3 billion. They also knocked out financial stocks or stocks with too much debt.

Here's what they found:

Flowers Foods (FLO)
Owens & Minor (OMI)
South Jersey Industries (SJI)
ABM Industries (ABM)
Universal (UVV)

Posted by edelfenbein at 10:13 AM

Morning Links

BlackRock to become world's biggest money manager

Google’s CEO on Bing: "They do this about once a year.”

Parking Space In Boston Sells For $300,000

Volkswagon’s sales rose in May; suck on that recession

OPEC says worst appears to be over for oil market

Lehman to pay Barclays $6 million for its own desks and chairs

Citigroup Bailout Pays Taxpayers Three Times as Much as S&P 500

Roubini: Is Eastern Europe On The Brink Of An Asia-Style Crisis?

A.I.G. Balks at Claims From Jet Ditching in Hudson

World Bank Predicts Deeper Economic Contraction

Posted by edelfenbein at 8:49 AM

Volcker says US growth possible this year

Here are some interesting comments from the always interesting Paul Volcker:

Global financial markets are starting to heal and the U.S. economy could begin to grow again this year, but a strong recovery is unlikely, said President Barack Obama's top adviser Paul Volcker.

"An expectation of some growth late this year and next in the United States seems reasonable," Volcker, a former Federal Reserve chairman who leads a panel advising Obama on economic recovery, said in a speech Thursday at a conference of global bankers in the Great Hall of the People, the seat of China's legislature.

However, "a really strong recovery, typical of most recessions, seems unlikely," he said. "Rather, it is going to be a long slog, with continuing high levels of unemployment."

The slump also is easing "most clearly" in Britain, trailed by other European economies, with less evidence of recovery in Japan, Volcker said. He said a "healing process" seems to be under way in financial markets.

Volcker cautioned that U.S. growth depends on stimulus spending and "years of deficit spending far beyond past peacetime experience lie ahead." However, he said inflationary pressures were unlikely for some time to come. That could allow greater leeway to combat the downturn by expanding the money supply.

The legendary Volcker, 81, served as Fed chairman in 1979-87, when he tamed raging inflation, though at the cost of painful interest rate hikes that triggered a recession. Obama named him in November to lead the Economic Recovery Advisory Board.

Volcker expressed no enthusiasm for initiatives under discussion in Washington, including regulating bankers' compensation. He said there is "ample justification" for public anger at pay practices that were "wildly excessive" and encouraged risk-taking at the expense of stability. But he warned against too much political involvement.

"It is far better that individual and professional groups come to grips with these matters than heavy-handed and inflexible regulation or legislation," he told members of the Washington-based Institute of International Finance, a global association of bankers.

Volcker said there is a "strong case" for reviewing so-called "fair value" rules that determine the value of assets of banks, insurers and other institutions. He said efforts to enforce "mark-to-market" rules on assets fueled confusion and uncertainty.

But he said that while more international consistency is required in accounting standards, politicians should avoid excessive involvement.

"Political bodies in Europe and the United States or any other country are simply not the appropriate venue for reaching well-considered judgments that can be enforced internationally," he said. "We need a bit patience," he said, as the International Accounting Standards Board carefully reviews the rules.

Volcker expressed support for a global currency, which he called "the ultimate logic of a globalized financial system." China and Russia have called for such a currency to replace the dominant dollar, but Volcker gave no opinion on any individual proposal.

He said governments should take steps to limit the possibility of bailouts of financial institutions, possibly by making clear that traditional savings banks will receive deposit insurance while those in riskier businesses are excluded.

"A presumption of government protection and support for financial institutions outside the 'safety net' should be avoided," he said.

But Volcker also defended the role of hedge funds, which some blamed for increased market volatility in late 2008. Some U.S. lawmakers are discussing proposals to increase oversight on such funds, which have an estimated $2.5 trillion in assets but operate mostly outside government supervision.

"Hedge funds and private equity funds have an entirely legitimate role to play in providing liquidity and innovation in our capital markets," Volcker said. "I do not believe they need to be so closely supervised and regulated as depository institutions."

Posted by edelfenbein at 8:44 AM

Phoney Rally Continues

The fraudulent short-term bear market rally that's being propped up by the New World Order is now three months old.

There's still 30 minutes to go before the bell but the market made another post-March high today. The high point was 43% above the March 6 intra-day low of 666.79.

Posted by edelfenbein at 3:25 PM

Barney Frank Runs Away from Tough Questioning

Barney Frank was just on CNBC. I’ve started a game of watching at what point Frank goes into his overly dramatic routine that he’s being interrupted and not allowed to answer the question. He does this all the time.

Fortunately, this time he was up against Mark Haines who doesn’t put up with his nonsense. I don’t think Congressman Frank understands that he’s not the chairman everywhere in the world. It's pretty sad: You put a gavel in some people's hands and it goes to their heads.

The fun begins at 4:50. Haines asked a perfectly reasonable question. In Frank’s response, he asks Haines a question (two actually) to which the anchor responded. This set Frank off.

Frank has perfected this gimmick. He's given a question that he doesn't want to answer so he goes off on a tangent and simply filibusters. When the interviewer tries to get him back on topic, he acts outraged.

I think a reasonable person could call this interrupting. Personally, I wouldn't. It's simply part of the give-and-take of any conversation. Still, if Frank were truly interested in addressing the question he could respond with a firm "I'm getting to that," or about a hundred other ways. Instead, he erupts and brings the conversation even further from an answer -- and gets to play the victim to boot.

Congressman Frank is a bully pure and simple and today he was put in his place.

I'll see if I can find clips of his previous antics. Here's one from yesterday: 6:22 on June 10

Posted by edelfenbein at 10:02 AM

S&P 500 Inches Away from Passing Gold

The S&P 500 is currently just shy of the price of the gold. If they cross, I believe this will be the first time since April 17 that the S&P was higher than gold.

You can score one for the technical analysts because the two lines seem to be eying each other. April 17 was the only day since the inauguration that gold closed below stocks.

Posted by edelfenbein at 9:55 AM

Something to Think About

The suitor forced on Chrysler is named after a word meaning "authoritative and arbitrary command." The term comes from the Latin fiat meaning "let it be done."

(HT: Gary Alexander)

Posted by edelfenbein at 7:55 PM

Taleb Watch

I think folks are beginning to catch on to what I and others have been saying for a long time—Nassim Taleb is fantastically overrated. He was on CNBC this morning:

The Obama administration's attempts to fight the financial crisis with more cash is like treating a bad tooth with Novocain instead of a root canal, Nassim Taleb, author of "The Black Swan," told CNBC Wednesday.

The main problem is the level of debt, and Taleb compared the authorities' efforts with those of a not very skilled pilot who is trying to land a Concorde on a narrow strip, between an ocean of deflation and a mountain of hyperinflation.

"These people failed us, they're going to fail us again," Taleb told "Squawk Box."

"They tell the banks to lend more but have less leverage," and expect people to go out and consume while unemployment is rising, he added.

"The way to restart everything is restructuring, conversion of debt into equity, convince people that debt is not good," Taleb said.

"Do not delay a root canal," he added. "Don't do piecemeal solutions to a problem that is fundamental."

"The solution is there, convert debt to equity. Usually it happens with Chapter 11, let's do it faster, and across the board," Taleb said.

So China is to take an equity stake in the U.S. government?

Posted by edelfenbein at 11:48 AM

Peter Schiff on Jon Stewart

Peter Schiff appeared on Jon Stewart’s show last. Unfortunately, it was a softball interview and Stewart bought the now-disproven line that Schiff was right. Dan Gross recently referred to Stewart as the most relevant financial reporter on television. He wasn’t last night.

Posted by edelfenbein at 8:27 AM

Home Depot Raises Guidance

Interesting news out of Home Depot (HD) today. The company raised FY 2009 earnings guidance. Or more accurately, they said the earnings decline won’t be as bad as they originally thought.

Last year, HD earned $1.78 a share. In May, the company said that it expects to see EPS fall by 26% and sales to fall by 9%. That translates to full-year earnings of $1.32. Today they said to expect EPS to fall by 20% to 26%. A 20% drop works out to $1.42 which is slightly above Wall Street’s consensus of $1.40.

Make no mistake, this isn’t great news but it’s not awful and all the news until now has been awful. HD’s earnings peaked in 2007 at $2.83 a share so we’re going to see earnings fall in half—so has the stock price.

At its current price, I wouldn’t say Home Depot is a good buy, but it’s not unreasonable to see year-over-year earnings increases within a few quarters. If there’s more good news from HD, it could be a good buy before the end of the year.

Posted by edelfenbein at 8:13 AM

The Market's P/E Ratio Surges

Here's a look at the S&P 500 (black line, left scale) and its earnings (gold line, right scale).

The two axes are scaled at 16-to-1 so when the lines cross, the market's P/E Ratio is 16. I think we're at an interesting point where the stock market's P/E Ratio doesn't tell us much. The market has clearly sensed signs of recovery even though earnings are still plunging. As a result, the market's P/E Ratio has jumped about 50% since March.

Does this mean that stocks are valued 50% more favorably? Not at all. I think the market is getting a better sense of where earnings will bottom. Analysts currently see earnings reaching a trough of about $38 for the third quarter. I can't say if that's right but it does seem reasonable.

The fourth quarter of 2008 was awful so once we get that behind us, the trailing earnings picture will look much better. According to S&P, AIG took out over $5 all by itself. The current outlook is that the S&P 500 will earn $54 for 2009. That strikes me as high but not out of reach.

For 2010, Wall Street sees earnings of $73.56. At 16 times earnings, that means an S&P 500 at 1177 which is about 25% higher than we are now.

One other point to note: Analysts have not been very good at getting earnings right. In a few weeks we'll close the books on Q2. One year ago, Wall Street was expecting Q2 earnings of $26.73. Now they're expecting just $13.49.

Posted by edelfenbein at 12:21 PM

Treasury OKs TARP Repayment

The Treasury Department has announced that it will let 10 banks repay their TARP money. This is, of course, the money generously provided to banks that didn’t want it in the first place.

The entire stress test and TARP money was simply to prop up two banks, Citigroup and Bank of America. Perhaps others, but those were the two main suspects. The government couldn’t say that outright so they needed to play as if they were going to help out all of the largest banks. So all the big boys got dragged into this mess.

The Treasury hasn’t said what the ten banks are but we can assume it will include the healthy guys like GS, AXP, STT and JPM. Personally, I’m more concerned with who won’t be on the list. For the banks left taking government money, they’ll now have to be under the Treasury’s compensation guidelines.

I’ll also be curious as to what the non-TARPers will do with their dividends.

Posted by edelfenbein at 10:36 AM

Fruit of the Doom

This just in:

Alan Greenspan is a fan of men's underwear sales as an important economic indicator.

(HT: Mankiw)

Posted by edelfenbein at 10:17 AM

Those Wacky Economists

The New York Times:

President Obama was getting his daily economic briefing one recent morning when a fly distracted him. The president swatted and missed, just as the pest buzzed near the shoes of Lawrence H. Summers, the chief White House economic adviser. “Couldn’t you aim a little higher?” deadpanned Christina D. Romer, the chairwoman of the Council of Economic Advisers.

Posted by edelfenbein at 3:18 PM

How to Fix Financial Television

Barry Ritholtz has a great post listing 15 ways to fix financial television. Here’s his list:

1. Stop Yelling. Stop interrupting. Stop Talking Over Each Other: This is not Jerry Springer, its serious business. Please treat it that way.

2. Bring us People We Don’t Have Access to. Where various FinTV channels do really well is when they bring us long, thoughtful interviews with the likes of Warren Buffett, WIlliam Ackman, David Einhorn, and others. This morning, CNBC had on James Rickard. More of this please.

3. S - L - O - W D - O - W - N

4. Risk: All traders have to appreciate the downside of trades. So too, does FinTV. Explain stop losses. Understand Risk/Reward. Recognize there are periods when Buy & Hold is a jumbo loser.

5. Lose the Octobox. ‘Nuff said.

6. Separate the Signal from the Noise. Understand that most of the day to day action is simply noise. Not every data release, slice of news, or rumor is significant. Stop treating them as if they are.

7. FactCheck: An awful lot of things on air get stated with authority and confidence. Most of them are junk. Why is it that the more dubious a proposition is, the greater the confidence the speaker musters? Consider fact checking as much of the statements that are made on air.

8. Accountability is important: Track record your guests, let us know how their past few calls have been. Are they Perma-bulls or bears? Are their stock picks awful? Are they money makers? If not let us know. (If not, why even have them on?)

9. Bring Back Louis Rukeyser: Not the man, but rather, his style. Wall $treet Week — Rukeyser hosted it from 1970 to 2005 — was plain-spoken, thoughtful and accessible. The investing public would appreciate something of that sort — again.

10. Sound FX: What is with all the bizarre sound effects every time a screen changes? Its financial news, not a video game. Kill ‘em.

11. Embed your video (on your own website or YouTube) instead of using WMP. At long last, thank you.

12. Most stock picks are losers. That is part of the challenge — like a baseball, a 350 hitter is an all star. Explain this to your audience.

13. Stop the Bull/Bear Debate: This is a vast over-simplification of the market, and does not serve your audience.

14. Partisanship: Leave your personal politics at home. Viewers don’t care what most of you think.

15. Respect the Audience: We are adults. Treat us that way.

Since I was one of the very few people who didn’t like Jon Stewart’s famous attack on CNBC, I need to stress that there’s much to criticize of the network.

I think Barry is particularly about with slowing down, respecting the audience and ditching the Octobox. CNBC simply moves too quickly to give viewers much information.
I’m not so bothered by the bull/bear debate or the political stuff as long as it’s moved to the after-hours shows. Larry Kudlow should not be on during market hours.

CNBC has increasingly taken on the look and feel of ESPN. That’s no accident. Sports and stocks hit similar parts of the brain. They’re both male-centered, data-heavy and they even have scoreboards. Trading is fun, that’s fine to admit, but it shouldn’t be treated as a circus.

What CNBC needs to add is more thoughtful commentary on the markets. The network has already done this type of work with David Faber’s specials. Those are very good and they should bring more of the type of programming to they’re day-to-day schedule.

Posted by edelfenbein at 10:34 AM

Newsweek on Paul Wilmott

The new-and-improved Newsweek has an excellent article on quant guru Paul Wilmott.

Posted by edelfenbein at 8:08 PM

Marcy Kaptur Pwns Bernanke

Several months ago, a YouTube video made the rounds of Ron Paul questioning Ben Bernanke. The video was hailed as Paul putting Bernanke in his place. That's not what I saw. Megan McArdle summed it up best: "I see a really, really smart economist responding to Ron Paul the same way you react to Cousin Mildred when she corners you after Christmas dinner to complain about the flouridation of the water supply."

That's pretty much what I see in this video that's currently making the rounds:

Incidentally, Kaptur is the same person who didn't even know who Bernanke was last year.

Posted by edelfenbein at 2:30 PM

Morning Links

Here are a few items floating around the interblogs.

Abnormal Returns has an excellent post called Being right is overrated. AB should do more writing. David Merkel has a reply.

Justin Fox asks Are Stocks Still Good for the Long Run? My answer—they’re good enough.

Government benefit checks accounted for one-sixth of personal income in the first quarter.

Jim Cramer says Bernanke has saved us from the second Great Depression.

The LA Times notes the return of the male prostitute. Sadly, no mention is made of Fred Garvin.

Posted by edelfenbein at 10:01 AM

Job Market Sucks Somewhat Less than Expected

The jobs numbers are out today. Unemployment hit 9.4% last month and the nonfarm payrolls fell by 345,000 which was much less than the 525,000 loss Wall Street was expecting.

The unemployment hasn't been this high since August 1983. The rate is being reported as 9.4% but looking at the details, it's 9.357% which rounds up.

See how the last two bars on the NFP graph look like the beginning of a trend. That's what the market has been so excited about.

Posted by edelfenbein at 9:40 AM

Financials and Techs Divided by the S&P 500

Here's a look at the S&P Financial Sector Index (^SPSY) and Technology Sector Index (^SPLY) divided by the S&P 500 (^SPX). A rising line means that the industry group is outperforming; a falling line means it's underperforming.

Posted by edelfenbein at 1:26 PM

Happy 75th Birthday SEC

On June 6, 1934, FDR signed into law the Securities Exchange Act of 1934 which bright the Securities and Exchange Commission to Life. Roosevelt then appointed Joseph P. Kennedy to be its first head which caused some to think this was "setting a wolf to guard a flock of sheep." (Incidentally, Georgetown hosts the poorly named Joseph P. and Rose F. Kennedy Institute of Ethics).

This hasn't been a good year for the SEC. Regulators continue their war against efficient markets. Last year's shorting ban in financial stocks was a bust (financials underperformed the broader market). The SEC completely missed the Madoff scandal after being told what was happening. The agency's own inspector general said they bungled the Pequot Capital thing (“raised serious questions about the impartiality and fairness”).

It gets even worse. Check out this Dow wire story from earlier this week:

The internal watchdog at the Securities and Exchange Commission revealed Monday his office is investigating several employees, including one top SEC official, after receiving complaints alleging they improperly disclosed non-public information.

One pending investigation by SEC Inspector General H. David Kotz comes in response to an allegation that a top SEC official improperly disclosed non-public information to a large investment bank.

In another case, Kotz reported that his office is investigating two enforcement attorneys for possibly disclosing non-public information from an internal SEC database to a corrupt FBI agent and short seller who was later convicted of fraud, racketeering and conspiracy.

Then, in yet a third case, the inspector general said he's looking into whether a former SEC attorney may have revealed confidential investigative information in a book he wrote. Kotz said the attorney may have provided the privileged information to a company where he worked as a lobbyist after leaving the SEC.

Separately, his office is also trying to determine if non-public information may have been disclosed to a national news outlet.

Kotz, who is leading the internal investigation into the agency's failure to detect Bernard Madoff's Ponzi scheme, disclosed some details about his pending investigations in his newly published semi-annual report to Congress on Monday.

In it, he said he has 19 pending investigations, one of which is tied to the Madoff failings.

Here's to 75 more years!

Posted by edelfenbein at 11:50 AM

Fantasy Football Lawsuit

The AP reports:

Yahoo Inc. has sued the NFL Players Association, claiming it shouldn't have to pay royalties to use players' statistics, photos and other data in its popular online fantasy football game because the information is already publicly available.

Let’s see if I have this right: A company is bringing a real lawsuit against a group of adult men who play a children’s game for their statistics which are used by other adult men who merely pretend they’re in charge of the first group of adult men while they play the children’s game.

There are the parts of the New Economy I like best.

Posted by edelfenbein at 11:34 AM

Odd Lots

Here are some assorted links I wanted to pass on:

Why having the Penguins win the Stanley Cup is good for the stock market.

Here's an investment beating stocks and gold this year.

Actual academic report: The economics of Dr. Seuss.

Jeremy Siegel "virtually sure" it's not going to be a long wait for a good return on stocks.

The rally is being led by junk stocks.

Ukraine's economy drops 21% in Q1.

Iceland central bank slashes rates to 12%. In other news, Iceland has a central bank?

Posted by edelfenbein at 7:50 AM

Way Ahead of You

The Economist:

Search your underpants for signs of a recovery

Posted by edelfenbein at 5:28 PM

Good Story on DirectEdge

Posted by edelfenbein at 4:43 PM

Rep. Alan Grayson at Ritholtz-Palooza

Congressman Alan Grayson had some interesting comments at Barry Ritholtz's conference today:

Grayson appeared on a panel with Nassim Taleb, best known as the author of The Black Swan. Their exchange about the proper role of government regulation of the financial system was entertaining, if a bit meandering. Grayson, who grew up in the Bronx and holds three Harvard degrees, has a rare ability to say relatively radical things without coming off as a rabid populist. Moderator Barry Ritholtz, author of the just-published Bailout Nation, asked a straightforward question: The U.S. government does a reasonably good job of regulating things like the safety of airplanes and foods. Why, then, does it do such a lousy job of regulating the financial system?

Grayson's answer was immediate and succinct: "Capture." For those not up on regulatory theory, this refers to the notion that regulators become captive of the industries they regulate. Noting that Fannie Mae and Freddie Mac spent $100 million on campaign contributions over the last 10 years, Grayson said: "The system is in some sense corrupt. A senator said the other day that Wall Street owns Washington, and while I might not go that far, you don't have the airlines ‘owning' the [airline regulators]. There is a lot of influence that Wall Street has on the government, even the judicial branch." Indeed, Grayson could have cited the front-page story in today's Wall Street Journal, documenting the remarkable efficiency with which banking campaign contributions appear to have helped ease accounting rules that in turn helped the banks.

Posted by edelfenbein at 4:17 PM

Ode to Becky

(HT: WSF)

Posted by edelfenbein at 11:08 AM

Oh Dear Lord

A fund for investing in lawsuits:

Richard W. Fields says he has come up with a win-win financial strategy for the downturn. He is investing in lawsuits.

Not in trip-and-fall cases, mind you, but in disputes that are far larger, more costly and potentially more lucrative, often pitting major corporations against each other.

Mr. Fields is chief executive of Juridica Capital Management, which runs a fund that invests in one side of a lawsuit in exchange for a share of any winnings, The New York Times’s Jonathan D. Glater writes.

“It’s always a good time to invest in litigation,” Mr. Fields told The Times, though he added that the weak economy helped. “When the recession started to bite, the phones started ringing off the hook. Last year, we looked at 122 cases and we made 17 investments.”

A small but growing number of investors are exploring this idea, helping companies avoid some of the risks and costs of litigation in exchange for part of any money paid out when the case is settled or resolved by a court. After all, it can be costly to hire lawyers, who may charge close to $1,000 an hour at elite firms.

Posted by edelfenbein at 11:01 AM

A Closer Look at the 200-Day Moving Average

One of the quick-and-dirty tools used to technical analysts is to see where a stock or index is compared with its average price over the past 200 days. This is an easy way to get a read of a stock’s momentum.

Yesterday was a big day for the 200DMA world. The S&P 500 closed above its 200DMA for the first time since December 26, 2007. That closed out the index’s longest run below its 200DMA according to my records which go back to 1932.

That streak, however, is still well short of the longest run above the 200DMA which ran from November 1953 all the way to May 1956. Since the index has gone up over the time, the “above” streaks tend to be longer than the “below” streaks.

On November 20, 2008, the S&P was a stunning 39.6% below its 200DMA. That’s the biggest discount on my records. The only thing that comes close is the reading from this past March.

So does the 200DMA work? The evidence suggests that it’s a pretty good indicator of future price performance. When the S&P 500 has been below the 200DMA, it’s dropped a total of about 20% over the equivalent of 27 years. In other words, the S&P 500 has been below its 200DMA about one-third of the time.

Historically, the best time to invest has been when the S&P is less than 1.7% below the 200DMA.

When the index is above the 200DMA, well, then everything looks much brighter. All of the market’s gain and then some have happen when we’re above the 200DMA which occurs about two-thirds of the time.

The market seems to like nearly every point of being above the 200DMA. Danger only clicks in when the S&P 500 is over 17.5% above the 200DMA which is a very high reading.

Posted by edelfenbein at 2:17 PM

Peter Lynch on Bottom Fishing

You can also see Phil Carret, the legendary money manager. In 1924, he wrote "The Art of Speculation." Carret died in 1998 at 101.

Posted by edelfenbein at 10:55 AM

Academic Study: "Analysts’ revisions are typically information-free"

The Irish Times notes that Wall Street analysts...you better sit down for this...often don't know what they're talking about:

The Citi research looked at analyst recommendations over the last 15 years. It found that analysts were at their most bullish at the end of 1999, despite the fact that price-earnings ratios suggested markets had never been so over-valued. The dotcom crash in early 2000 triggered a vicious three-year bear market during which analysts grew progressively bearish. This bearishness increased even as the market bottomed in the autumn of 2002. Bullishness took root as the market rose over the following five years, peaking just prior to the outbreak of the financial crisis. Since then, analyst bearishness has risen inexorably.

The report also looked at the difference in performance between the stocks most favoured by analysts and the stocks least favoured by analysts. It found that the furious global rally off the March bottom has caught analysts completely by surprise, with forecasters more off the mark than at any other time during the period under study.

Later on.

The Financial Times reported this month on an academic study that looked at the effect of analyst recommendations on stock prices. It found that “buy” and “sell” tips have little appreciable effect on prices. “Analysts’ revisions are typically information-free,” the study concluded, adding that investors were aware of this.

One analyst who has been consistently critical of his fellow professionals is James Montier of Société Générale. The award-winning analyst said last year that it was “transparently obvious that analysts lag reality”. They “only change their minds when there is irrefutable proof they were wrong, and then only change their minds very slowly”, he said.

The latter study appears to confirm this – almost 80 per cent of analysts’ changes in recommendations came after major corporate events. Analysts are “like rabbits caught in the headlights”, Mr Montier said, and are “seemingly incapable of any form of independent thought”.

Do rabbits stare at headlights?

Maybe analysts should start listening to this guy who has almost zero private sector experience:

The market is up 35% since then.

Posted by edelfenbein at 9:16 AM

Long Bond Hasn't Suffered a Loss Like Since Since Another Century -- And Not the 20th

Mebane Faber writes that the long bond is suffering its worst draw down since at least 1900.

By the way, his new book is out.

Posted by edelfenbein at 9:07 AM

Dow Jones Admits It Paid Attention to Bloggers on Decision to Add Cisco to DJIA. Suck it S&P!

In the WSJ, John Prestbo explains why they decided to replace GM and Citigroup with Cisco and Travelers today.Here are some highlights:

Did the fact that Travelers used to be part of Citigroup play a role in choosing that particular insurance company?

No. Citigroup spun off Travelers in 2002, so it has been operating independently for going on seven years. And it was independent prior to becoming part of Citigroup in 1998. We were committed to restoring the insurance sector to the Dow after ejecting American International Group, Inc. (AIG) last September after the government takeover. Travelers is a property and casualty insurer, as AIG is, and it is certainly a leader in that industry.

Why choose a tech company, Cisco, to replace an automaker?

We did not need another consumer goods company after adding Kraft Foods when we removed AIG. In looking around, we were struck by the fact that Cisco makes products that pave the Information Highway - computer networking equipment, things that enable high-speed data and video transmission, and so on. We saw Cisco helping the economy and culture adjust to the digital age, much as automobiles influenced economic and social changes in the 20th Century.

Well, why not Apple (AAPL) or Google (GOOG)?

Those companies certainly qualify as blue chips, but we chose Cisco this time.

This part really caught my attention

Cisco has been on bloggers' suggestion list for a long time. Do you pay any attention to these kibitzers?

Yes. They and many others take the Dow seriously enough to complain when they think we are doing something wrong and to offer their ideas. So, we take them seriously in return. However, most of these folks are looking at things from an investor's point of view, as though the Dow was a portfolio they owned (and maybe some of them really do). But our goal is to maintain an index to accurately reflect the market as whole, and by extension the U.S. economy. That is a different purpose, which sometimes leads us in a different direction.

Good for them! I'm glad they did two things. One, they listened to bloggers. Two, they said they listened to bloggers.

This is pretty big news for financial blogs. We're talking about a 113-year-old index and one of the best brand names around.

Now...about Bing.

Posted by edelfenbein at 10:32 PM

S&P Makes New High

We did it. The S&P closed at 942.87, the highest close since November 5.

The phony, fraudulent, manipulated, short-term bear market sucker's rally is now up 39%.

Posted by edelfenbein at 7:43 PM

No Comment

The Telegraph reports:

In his first official visit to China since becoming Treasury Secretary, Mr Geithner told politicians and academics in Beijing that he still supports a strong US dollar, and insisted that the trillions of dollars of Chinese investments would not be unduly damaged by the economic crisis. Speaking at Peking University, Mr Geithner said: "Chinese assets are very safe."

The comment provoked loud laughter from the audience of students.

LOL has officially become a part of our economic policy, and not in a good way.

(HT: CS)

Posted by edelfenbein at 4:25 PM

Nominal GDP Growth

Whenever we look at GDP growth, we almost always look at "real growth," meaning adjusted for inflation. But it's interesting to look at nominal growth as well. Ideally, the Fed should target interest rates to nominal GDP growth. Of course, that's a lot harder than it looks.

Here's the four-quarter change in nominal GDP going back several years.

This is the first time it's been negative in over 50 years.

Posted by edelfenbein at 3:19 PM

CWS Named One of Five Favorite Financial Blogs

David Berman at the Globe and Mail named Crossing Wall Street one of his favorite financial blogs.*

For four years, a long time in this business, Eddy Elfenbein has been treating readers with a mix of charts and sharp observation.

The others are Bespoke Investment Group, Stocks To Watch Today, Humble Student of the Markets and Footnoted.org.

* He actually wrote "favourite." When are Canadians and Brits going to learn English?

Posted by edelfenbein at 2:49 PM

AMZN@$83

Did Amazon (AMZN) start trading in pesos today?

$83! Really?

This won't end well.

Posted by edelfenbein at 2:09 PM

S&P Nears Seven-Month High

The S&P 500 is currently over 945. If it holds up, this will be the highest close since November 5, the day after election day.

Also, if today's gains hold up, the S&P 500 will be above its 200-day moving average for the first time in 18 months.

Posted by edelfenbein at 12:55 PM

"What's Good for General Motors Is Good for America"

One of great urban myths of American business history is that the head of GM once said "what's good for General Motors is good for America."

That line is once again getting a lot of press today. There's one problem -- it's not true.

Here's what happened. In 1953, President Eisenhower nominated GM's CEO Charles "Engine Charlie" Wilson to be Secretary of Defense. I'll turn it over to Wikipedia:

During the hearings, when asked if as secretary of defense he could make a decision adverse to the interests of General Motors, Wilson answered affirmatively but added that he could not conceive of such a situation "because for years I thought what was good for the country was good for General Motors and vice versa."

Gee, that's kinda different. So what's often portrayed as the ultimate in corporate arrogance that defined the atavistic nature of American capitalism was instead a humble statement of public spiritedness.

Posted by edelfenbein at 11:02 AM

After 84 Years, GM is Booted from the Dow

GM (GM) and Citigroup (C) are out, Travelers (TRV) and Cisco (CSCO) are in.

Posted by edelfenbein at 9:37 AM

GM Goes Bust

What used to be the largest corporation in the world is now bankrupt.

This isn't exactly a surprise. Here's what I wrote in 2006:

Whither GM?

In 1979, the British economy was in free fall. Inflation was spiraling out of control. The unions were demanding commensurate pay increases, and when they didn't get them, they struck. The country that had stood up to the Luftwaffe was failing apart. The garbage men went on strike and soon piles of "rubbish" dotted the countryside. Even the gravediggers went on strike and corpses were gruesomely left unburied.

The winter of 1978-79 was called the Winter of Discontent, echoing the opening lines of Richard III. The situation was so bad that Her Majesty’s government had to apply for a loan from the IMF. This was back in the days when that had some sense of shame to it. You were even expected to pay it back.

A reporter asked the Prime Minister, James, Callaghan, his opinion of the "the mounting chaos in the country." Callaghan said: "Well, that’s a judgment that you are making. I promise you that if you look at it from outside, and perhaps you're taking rather a parochial view at the moment, I don't think that other people in the world would share the view that there is mounting chaos."

That was it. British socialism died right there. The commanding heights were nothing more than a literal heap of trash. The next day, The Sun's headline read: "Crisis? What Crisis?"

I can't help but think of the similarities between British socialism and General Motors (GM). Once upon a time, GM ruled the world. Today, it's an embarrassment. What’s good for GM, is largely irrelevant to America.

For reasons unclear, billionaire Kirk Kerkorian sunk a good part of his fortune in GM's stock. His investment has been a disaster. Now’s he’s sent his aide, another son of York, Jerome York to be exact, to Detroit to tell the automaker everything they're doing wrong. The New York Times quotes York as saying: "The time has come to go into crisis mode and act accordingly."

No, the time to go into crisis mode has long since past. GM is a fiscal black hole. The company burns through $24 million a day. That's more than the Yankees. Yet the company still pays out $566 million a year in its dividend. Crisis? What Crisis?

Talk about unburied corpses. I honestly don’t think GM will survive this decade. Even if it does, it will hardly be recognizable. Any future GM will merely be a Commonwealth living in the shadow of a by-gone Empire. York’s plan is to get rid of the dividend and reduce the pay of senior management. Well...that’s a nice start, but I think GM will have to go a lot further; perhaps ditching some of its key brands like Hummer.

The New York Times quoted Frederick A. Henderson, GM’s new CFO:

"To be honest, I am in crisis mode. So I agree with him," Mr. Henderson said. In December, he succeeded John M. Devine, now a G.M. vice chairman, who accompanied him to Mr. York's speech. Like Mr. Devine, Mr. Henderson watched impassively while Mr. York spoke.

Impassively? Ha! I bet they were ready to toss him out the window. I’d actually feel much better if GM were really in crisis mode. They’re not. They’re sleepwalking. Perhaps now, they’re sleeprunning. This is a company that plainly refuses to see reality. They’d be plenty happy to go on ignoring the mess they’ve made, but high oil prices forced the issue. The long-run was much shorter than any of us expected.

The idea that GM can discount its way home is a foolish illusion. The facts are clear. Every GM car carries about $1,500 in health care costs. The employees’ health care trust has over $20 billion, and GM had to tap it twice recently. For $1 billion each time. Retirees outnumber current U.S. employees 2.5 to 1. The company has stopped providing earnings guidance.

GM’s problem isn’t cars or legacy costs. Companies can deal with those. What GM has is a leadership crisis. They need to make major changes soon. If not, the Winter of Discontent will last a very long time..

Posted by edelfenbein at 9:03 AM