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« July 2009 | Main | September 2009 » August 31, 2009The Energy Bubble George Trefgarne says we're about to enter an age of cheap energy. For example, the U.S.'s supply of natural gas has effectively doubled thanks to the industry's new ability to extract gas from difficult rock formations. Trefgarne writes: When it comes to gas, America is the new Russia. And for the rest of the world, tight gas equals one thing: freedom." Posted by edelfenbein at 9:09 AM Economists Predict They'll Be Disappointed From a poll of economists: Three-quarters said they would like to see the government cut spending over the next two years, while only 28 percent projected the reductions would actually take place. The survey also showed that 56% think the Fed will keep rates unchanged for the next six months. Nearly 80% think a second stimulus isn't necessary. Posted by edelfenbein at 8:32 AM Canada to issue up to $3B in U.S. dollar bonds Here’s an interesting story. The Canadian government is issuing bonds dominated in U.S. dollars. I didn’t know the Canadian government had done this before. The article said that it’s the first foreign currency offering in more than a decade. I support these kinds of products. For one, it keeps governments honest plus it helps diversify your debt obligations. I’d like to see the U.S. Treasury issue debt dominated in things like euros, gold, silver, oil and even shares in AIG and Fannie Mae. Posted by edelfenbein at 8:29 AM August 28, 2009Nation's Unemployment Outlook Improves Drastically After Fifth Beer From The Onion: WASHINGTON—Despite ongoing economic woes and a jobless rate that has been approaching 10 percent, U.S. unemployment projections drastically improved Monday after the consumption of five beers. Singleton said the economy would begin its rebound once employers realized that there were many currently unemployed skilled laborers across the country who would "bust their asses" in a number of growing fields. Posted by edelfenbein at 11:37 AM August 27, 2009Scary Sentence of the Day This doesn't look good: Bank of America, Citigroup, Fannie Mae and Freddie Mac have accounted for more than 40pc of all trading on the New York Stock Exchange so far this week. Posted by edelfenbein at 11:25 AM Bernanke Victim of Identity Theft If you're going to take someone's ID, targeting one of the most powerful men in the world might not be a good idea: Last summer, just as he was dealing with the first rumblings of the financial crisis on Wall Street, Bernanke learned that a thief had swiped his wife's purse—including the couple's joint check book. Days later, someone started cashing checks on the Bernanke family bank account, the documents show. "It's fair to say he was not pleased," said one close associate of Bernanke, who asked not to be identified discussing what the Fed chairman considers a private matter. (Via: Clusterstock) Posted by edelfenbein at 11:09 AM GDP Unchanged The government revised its estimate for second-quarter GDP growth, and the revised number was the same as the initial report -- -1.0%. Wall Street was expecting -1.5%. The drop, while representing a record fourth consecutive decline, was far smaller than the previous two quarters. It also was stronger than the 1.5 percent decline that private economists expected. Posted by edelfenbein at 9:29 AM August 26, 2009Stocks Vs. Bonds—Another Look Here’s an interesting chart. I divided the total return of two index funds, the Vanguard 500 Index Investor (VFINX) by Vanguard Long-Term Investment-Grade (VWESX). The chart begins in 1988. It’s a quick-and-dirty way to look at how well stocks have done against bonds.
Although stocks have historically outperformed bonds, that hasn't been the case in recent years. Bonds haven't been just less volatile, they've been more profitable over the last ten years. Posted by edelfenbein at 1:24 PM August 25, 2009JoS. A. Bank to accelerate expansion This is good news for JoS. A. Bank Clothiers (JOSB): JoS. A. Bank Clothiers Inc. said Tuesday that it will open more stores in fiscal 2010 than planned for the current year to take advantage of real estate opportunities. Posted by edelfenbein at 1:17 PM Medtronic's Earnings Medtronic (MDT) reported adjusted earnings of 79 cents a share which matched estimates. Revenues rose 6.1% to $3.93 billion. The market seems mildly displeased as the stock is down today. Here's a look at MDT's sales and earnings for the past several quarters: Quarter...........EPS.............Sales Posted by edelfenbein at 12:18 PM Hussein Reappoints Shalom
Congratulations to Ben Bernanke for being renominated by President Obama. This is a good move on Obama's part and I continue to believe that Bernanke has been an outstanding Fed chair. Posted by edelfenbein at 11:00 AM August 24, 2009Preview of Medtronic's Earnings Medtronic (MDT) is due to report its earnings tomorrow. The consensus on Wall Street is for earnings of 78 cents a share compared with 72 cents per share a year ago. In June, the company reaffirmed its earnings growth expectations of 10% a year. The Minneapolis Star-Tribune reports: So, given the uncertainty, the competition and a long-standing, lackluster stock performance, why do 29 analysts have buy or hold ratings on Medtronic's stock? Posted by edelfenbein at 1:25 PM An overdraft? That'll be £200 at Lloyds TSB (but only £15 if you're a Muslim) Many Lloyds TSB customers are being hit with charges of up to £200 a month if they go into the red - while Muslims who use the bank are only being charged £15. Posted by edelfenbein at 10:55 AM The New Gold Rush The Washington Post reports that with the economy in rough shape and gold prices still near $1,000, folks are out there paning for gold. Literally. Maybe it was the nail in Ray's head. Maybe it was the economy. His wife said one as much as the other drove the decision to auction off everything that wouldn't fit in the trailer and leave Vermont for the mother lode. Posted by edelfenbein at 10:44 AM Nicholas Financial (NICK), a $12 Stock Alex Bossert is an 18-year-old financial blogger in Minnesota. Check out his take on Nicholas Financial (NICK). The economic indicator that best correlates to Nicholas’s charge off rate is the unemployment rate. The pre-tax margin for the quarter was 6.34% and the provision for credit losses was 6.16%. Credit losses would have to double from here to bring Nicholas into the red, a very unlikely scenario, given that the provision for credit losses fell from 6.26% of average credit receivables to 6.16% in the current quarter. Net charge offs fell from 8.94% in the fourth quarter to 7.72% in the 1st quarter. Management anticipates losses absorbed as a percentage of liquidation will be in the 11%-16% range during the remainder of the current fiscal year. Losses as a percent of liquidation were 11% in the 1st quarter. Alex thinks NICK is a $12 stock and I agree. Even after NICK's big run this year, it's still going for around 85% of book value. Posted by edelfenbein at 10:32 AM Jedi Mind Inc (JEDM) What's the hottest stock on the market? Tim Sykes points us toward shares of pink sheet listed Jedi Mind (JEDM).
Yep, that looks like a nice move. As best as I can tell, the company makes "software for thought controlled technologies, allowing the user to interact with the computer and other machines through the power of the mind." CBS' 60 Minutes ran a story on this technology and that appears to be driving the surge in the stock. A lot of these pink sheet stocks produce little in the way of products but they're great at putting out press releases. If a company is serious about its future, it won't be listed on the pink sheets. Investors like Tim Sykes love watching this marginal stocks skyrocket -- they wait until the party gets going, short the stock and often make big gains. I admit I know nothing about Jedi Mind but I think I know how this story will end. Posted by edelfenbein at 10:05 AM What Bloggers Were Saying at the Low The S&P 500 is up again this morning. From our low in March, the index is up nearly 55%. With such tremendous gains under our belt, the Reformed Broker decided to take a look at what bloggers were saying at the low, and was nice enough to include me in the retrospective. At the time, I ran a chart showing that the inflation adjusted Dow was unchanged over the last 43 years.
The next time that happens, I’ll know that’s a big buying opportunity. Posted by edelfenbein at 9:57 AM August 21, 2009Sex Drive and the Stock Market In the study, conducted by researchers from Harvard University, it was determined that stock market traders saw their profit margins rise on days their testosterone was above its median level and that testosterone could influence how financial wizards often make high risk decisions. (Via: Carney) Posted by edelfenbein at 9:49 PM Stocks Keep On Rising Today was another strong day for stocks. The S&P 500 made another high for the year. Our Buy List also made a new high. We’re up nearly 30% for the year which is well more than twice the S&P 500. Every stock on the Buy List was up today, and Cognizant Technology Solutions (CTSH) is closing in on a double for the year. Here’s today’s speech from Ben Bernanke from the annual Jackson Hole shindig. It’s long but I recommend reading the whole thing. I continue to think that Bernanke has been an outstanding Fed chairman. Posted by edelfenbein at 4:18 PM August 20, 2009Nouriel Roubini, the Prophet I think I've been too critical of Nouriel Roubini. He's a very bright guy and well worth listening to. However, as Damien Hoffman points out, Roubini wasn't exactly perfect on predicting the credit crisis. As we can see, in March 2005 Roubini started by predicting a crisis caused by Foreign Central Banks diversifying out of US Dollars. (See: ‘Does Overseas Appetite for Bonds Put the U.S. Economy at Risk?’) In February 2006, Roubini still solely focused on foreigners diversifying out of US Treasury debt and further incorrectly predicted that “our current patterns of spending above our incomes” would cause a crisis by 2013. (See: ‘Taste of the Future‘.) Given that the credit markets (which Roubini never mentions until others show him the light) imploded recently, I think we can conclude that “spending above our incomes” doesn’t have to do the crisis perp walk. During the same month as The Washington Post article, Roubini’s press releases peppered the New Yorker with his message: “Roubini is among those who fear that America’s profligacy will eventually create a crisis of confidence on the part of its creditors, leading to a run on the dollar, an upward spike in interest rates, and a deep recession.” (See: ‘Moneyman’ and ‘Ominous Warnings and Dire Predictions of the World’s Financial Experts’.) I didn't know it a few years, but apparently everyone was predicting a credit crisis. I wish someone had told me. Roubini clearly knew something bad was coming -- what and when was hard to pin down. Hoffman writes: This specific tactic — expanding the “prediction” data set of possibilities — may be the most popular for false prophets and psychics. Usually, there will be a group willing to hang on to the one correct cause out of the many incorrectly asserted. Then, afterward, the charlatan works tirelessly to rewrite history or distract his victims from what was exactly said in the past. It’s like a fake shaman warning the villagers of rain (an inevitable fate) by means of angry gods when in fact the true cause was heavy cloud droplets. Yet, once the rain falls he quickly raises his voice about how he “predicted” the rain. Yes, rain followed the shaman’s warning, but this is not a “prediction” for obvious reasons. As I've often said, perma-bears and never held to the same level of accountability as perma-bulls. If you want to get a reputation as a prophet, it's easy -- just be very bearish and very vague. Posted by edelfenbein at 2:22 PM Since 1970, All of the Market’s Gain Has Come When Gold is Below $455 I was playing around with some data and I came with an interesting stat: All of the stock market’s gain since 1970 has come when the price of gold is below $455. OK, now let me explain a little. I took two monthly files; one with the closing price of gold from 1970 though this past May. The other with the dividend reinvested index for the S&P 500 over the same time period. I then looked at how well the S&P did based on the closing price of gold for the previous month. The results show that the index was net flat whenever gold closed the previous month higher than $455.50. There were basically three times when gold gave its sell signal. The first was in late 1979 to mid-1981. The second came in mid-1987 to mid-1988 (very good timing there!). The third has been continuous since September 2005. For gold to give another buy signal, it would have to plunge by more than 50%. Let me add that I don’t see this as a market-timing tool. I just think it’s interesting how the market has behaved. Posted by edelfenbein at 8:08 AM August 19, 2009Google's Stock Turns Five It was five years ago today that shares of Google (GOOG) went public. The stock ended its first day of trading at $100.34. It peaked at $747.24 in November 2007 and is currently at $442.16. Over the same time, the S&P 500 is down by about 9%.
Posted by edelfenbein at 3:37 PM Comrade, Have I Got a Deal for You! Line of the day: "There are more brokerage account holders than Communist Party members in China." Something tells me that they're not mutually exclusive. (Via: Kedrosky) Posted by edelfenbein at 1:38 PM Energy Leads Turnaround A fairly flat day has suddenly become a good day for stocks, and it's mostly thanks to energy stocks.
Posted by edelfenbein at 1:04 PM The Whole Foods Boycott Earlier this week, Whole Foods (WFMI) CEO John Mackey wrote an op-ed in the Wall Street Journal against President Obama's health care reform ideas. Some Whole Foods customers are responding with a boycott. The opinion expressed was Mr. Mackey's, not the policy of Whole Foods. I find it deeply unsettling that customers are willing to boycott a company due to the personal political opinions of its CEO. The irony lost on the boycotters is that Whole Foods' customers operate in a market where they're free to boycott Whole Foods and go to a different store. This is exactly the same principle that critics of health care reform are trying to make. Posted by edelfenbein at 12:48 PM Ewwwwww Madoff's lover goes overboard with TMI: He sometimes blinked his eyes uncontrollably, leading her to nickname him “Winky Dink” when she disclosed her affair to some close female friends. Insert prison joke here. Posted by edelfenbein at 12:18 PM The first thing we do, let's kill all the bankers Imagine a world without bankers. Enter Zopa, a website that describes itself as a place "where people meet to lend and borrow money … sidestepping the banks". The idea is pretty simple. Someone who has money to spare goes online, says how much he's ready to lend and at what rate of interest – and waits for would-be borrowers to take him up on his offer. If both sides are happy – and Zopa stands for the negotiating term "zone of possible agreement" – then the deal goes ahead. Quite a few of them, as it happens: Zopa has now facilitated £50m worth of loans, from one ordinary Briton to another. Posted by edelfenbein at 10:17 AM “It beats the heck out of any certificate of deposit" Where are some investors placing their money? Private investors step in and buy tax liens, paying governments upfront all or part of the value of the taxes. The investors then get the right to foreclose on the properties, taking priority over mortgage lenders, and to charge interest rates as high as 18 percent on the unpaid taxes. Posted by edelfenbein at 10:14 AM Eaton Vance's Earnings Fall But Top Expectations It's still been a good year for the asset management stocks. Eaton Vance (EV) is up over 40% for us. Reuters reports: Asset manager Eaton Vance Corp said fiscal third-quarter net income fell 37 percent compared with a year ago as fees decreased. Posted by edelfenbein at 9:57 AM August 18, 2009Investor Quiz Guess what company went from concept to $1 billion in sales in three years? Costco (COST) Posted by edelfenbein at 2:46 PM How Bad Is Inflation in Zimbabwe? At one point last year, prices were doubling. Posted by edelfenbein at 2:39 PM RIP: Rose Friedman Rose Friedman passed away yesterday at the age of 98. "The only person known to have ever won an argument with Milton." - President George W. Bush
Posted by edelfenbein at 1:19 PM PPI Is Lowest on Record Today's PPI report shows that wholesale prices have dropped by 6.8% over the last year. That's the lowest on record.
So is deflation a threat? Matthew Lynn says that fears of deflation are vastly overblown. In other words, there were plenty of deflationary years. Yet over that period, the U.K. became the greatest economic power in the world: Its relative decline only started once inflation took hold. Deflation didn’t stop the Industrial Revolution, one of the most sustained times of economic creativity ever seen. Posted by edelfenbein at 10:35 AM The Biggest Thing Since E-mail Jim Cramer pounds the table for Smart Phones: As big and as game-changing as the personal computer and the Internet were, I believe the mobile Internet—the integration of voice, data, video, and storage in one handheld device—will be more lucrative than both. Maybe both put together. That may sound far-fetched now, but these devices, chock-full of applications and hardware that have begun to rival those of personal computers, have finally realized the elusive holy grail. As any twentysomething, or even middle-schooler, knows, once you procure a smartphone, you can throw away pretty much every publication, every guide, every television, every camera, every music device, heck, every gizmo you have, save your toaster oven. You just don’t need ’em anymore. Posted by edelfenbein at 10:17 AM The 10 stupidest tech company blunders InfoWorld runs down the 10 stupidest blunders from tech companies. Here's a sample and it's one I never knew about: 2. Real Networks Punts on the iPod Um...sorry. Posted by edelfenbein at 9:52 AM S&P 500 Stocks Above Pre-Lehman Levels Bespoke finds the very small list of stocks that are above their level prior to Lehman Brothers going kablooey. Only 55 stocks are up and just 27 are up by more than 10%.
Posted by edelfenbein at 9:41 AM Insiders Are Dumping Stock From Reuters: A massive rally in U.S. stocks since March has reawakened bullish spirits, but insiders are jumping out of the market in a sign the run up is getting stretched. After a 50% rally, I think a sharp pullback is necessary. When it will happen and by how much is still a question. However, I don't think the market really experienced a rally as much as we saw an unwinding of a vicious bear market. The rally has been led by junk stocks which is really due to investors fleeing all investments which held any type of risk. The low-quality rally is mirrored by what's been happening in the bond market with the closing of the gigantic spreads between corporates and Treasuries. Posted by edelfenbein at 8:51 AM August 17, 2009This Explains A Lot The Onion reports: ENGLEWOOD CLIFFS, NJ—Citing a need to provide quality programming 24 hours a day, CNBC has extended an invitation to anyone who owns a suit to drop by the financial news network and be a guest expert, cohost a show with Larry Kudlow, or do whatever. "Don't worry about what kind of shape your suit is in," said CNBC president Mark Hoffman, who explained that his network's studio has an iron and some old phone books that people can press their jackets on. "Just come on down, run a comb through your hair, and if you're here by 8 a.m., we'll have you on Squawk Box at 8:15 making stock picks. But don't forget your suit!" Hoffman added that men of ruddy complexion with neck sizes exceeding 19 inches are not required to wear a tie. Posted by edelfenbein at 3:26 PM Well, That Changes Things From CNBC's Correction page: An earlier version of this story misstated the amount of Goldman Sachs earnings, listing them as $344 billion when it should have read $3.44 billion. In other news, CNBC has a corrections page? Posted by edelfenbein at 2:38 PM Abby Joseph Cohen: Recession Ending Now Abby Joseph Cohen jumps on the Dennis Kneale bandwagon: The U.S. recession is ending “right now,” said Abby Joseph Cohen, a senior investment strategist at Goldman Sachs Group Inc. Posted by edelfenbein at 10:39 AM Warren Buffett’s New Buy We were very pleased to see that Warren Buffett’s Berkshire Hathaway (BRKA) has added Becton, Dickinson (BDX), one of our Buy List stocks, to his portfolio. Obviously, Warren must be a regular reader. There is one thing that troubles us. On the SEC filing, the company is listed as Beckton Dickson & Co. Posted by edelfenbein at 9:58 AM The Market’s Excessive P/E Ratio There’s recently been some commentary on the stock market’s elevated P/E Ratio (see here and here). I think this is a good instance where the P/E Ratio fails to tell us much. We have to remember that the P/E Ratio is an unusual statistic because it looks at the relationship between two different kinds of the numbers. A stock’s price is a fixed-point number, which means you know exactly what a price is at any given time, but earnings is a rate, meaning it must be defined at something that only exists between two certain points in time. There’s nothing inherently wrong about combining two different kinds of numbers though we should be bear in mind its limitations and this is one such time. The reason is that earnings took such a bath in the fourth quarter of 2008. Operating earnings for the S&P 500 were $-0.09 for Q4 of 2008 and reported earnings were $-23.25. As long as we’re carrying that dud quarter in our trailing four quarters, earnings will look very depressed. Those losses are massive outliers. The good news is that they’re also past us. At the end of the third quarter, the S&P’s trailing four-quarter operating earnings will probably be around $40, at by the end of the fourth quarter, they’ll vault up to $55. That’s simply because we’re subtracting an awful quarter and adding on a more typical quarter. We can expect that the market’s P/E Ratio will dramatically plunge, but that won’t mean that the market is suddenly becoming a good value. Posted by edelfenbein at 9:37 AM August 14, 2009Play the Federal Reserve Game The San Francisco Fed has created perhaps the wonkiest video game world history—it’s the Federal Reserve Game! Haven’t you always wanted to test your monetary policy skillz online? Well, now you can! Set rates too high and you’ll cause a recession. Go too low and inflation will creep up. See if you have.... the cool judgment of an Arthur Burns. Note: I tried to audit the game but kept getting an error message. Posted by edelfenbein at 9:02 PM 16 Companies that Have Raised Their Dividend by 10% or More for the Last Nine Years Let me add a disclaimer at the start of this post. This is the result of a data dump so the numbers may not be correct. I searched for companies that have increased their dividend by at least 10% for the last nine straight years. I haven't doubled-checked the data off another source, but here are the initial results. Federated Investors (FII) The current year isn't included since we're not done, but a few stocks may fall off the list by year's end. The ones that really stand out are Pfizer, Johnson & Johnson and AFLAC. According to my data, these have raised their dividend by 10% or more for at least 18 years. Pfizer cut its dividend in half this year so it's due to fall off the list. The smallest dividend increase for AFLAC has been 12%. The company has already raised its dividend by 16% this year, plus the stock is going for about nine times this year's earnings forecast (not the Street's forecast, but AFL's). J&J increased its dividend by only 6.5% earlier this year so it's also in trouble. The company has, however, raised its dividend for 47 straight years. Let me add a special shout out to LSB Financial which is the holding company for Lafayette Savings Bank. This isn't a micro-cap, it's a nano-cap. It's a 140-year-old Indiana-based thrift with a market cap of just $17 million. That's about 25 minutes worth of sales at Wal-Mart (WMT). LSBI has no analysts who follow it. Sadly, it will fall off the list this year -- like many financial firms, the thrift chopped its dividend in half. Posted by edelfenbein at 5:15 PM Coolest Map of Bank Failures You'll See All Day From The Wall Street Journal. You can really tell when WaMu went under. (Via: Clusterstock) Posted by edelfenbein at 2:34 PM Headline CPI Unchanged; Core +0.1% Year-over-year consumer prices are down 2.1% which is the biggest drop since 1950.
Posted by edelfenbein at 8:44 AM August 13, 2009Wow Posted by edelfenbein at 7:54 PM Academic Report: Having Chicks on Your Board Is Bad for Your Stock The Telegraph: Companies with women directors perform badly on stock market, report claims Also...have you seen them drive? Posted by edelfenbein at 1:41 PM Buffett Admits Berkshire Goofed on Derivative Warren Buffett's Berkshire Hathaway Inc (BRKa.N)(BRKb.N) underestimated the risks of falling stock prices to its billions of dollars of derivatives bets, yet still believes it is valuing the contracts fairly. Posted by edelfenbein at 1:34 PM Ever Wanted to Ring the Opening Bell? Posted by edelfenbein at 11:03 AM Blast From the Past I've seen bad predictions before, but...wow! Downturn doesn't mirror past, UCLA panelists say At the time, the recession was already four months old. Posted by edelfenbein at 10:17 AM August 12, 2009Yours for Just $349,900
The description: Impeccable inside & out! Gorgeous English Tudor w/ amenities & updates too numerous to list! Classic style in neutral decor w/ lavish appointments thruout. New granite kitchen & fabulous marble masterbath. Gracious room sizes thruout. Amazing lower level boasts projection screen media area, wet bar & game level plus 2nd kitchen & 2 powder rooms exceptional landscape and electric gate. If you're wondering why this is so cheap, real estate is all about location. Posted by edelfenbein at 7:49 PM Thanks Ben! Here's the latest statement from the FOMC: Information received since the Federal Open Market Committee met in June suggests that economic activity is leveling out. Conditions in financial markets have improved further in recent weeks. Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing but are making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability. Posted by edelfenbein at 3:15 PM August 12, 1982 The great bull market began 27 years ago today, and ended a little over nine years ago. Here's a look at the S&P 500 since then:
Posted by edelfenbein at 1:54 PM If Anyone Can Occupy that Space to Larry Kudlow's Right It's John Carney. Posted by edelfenbein at 1:31 PM Goldman Discussion on KCRW I missed this when it first came out. Here's a discussion about Goldman Sachs on KCRW from about a month ago. It's long but if you have the time, it's worth listening to. Richard Bove is especially worth hearing while Matt Taibbi is completely and totally out of his depth. It's actually pretty embarrassing. Posted by edelfenbein at 10:37 AM Short Selling of S&P 500 Drops to Lowest Level Since February Wagers against the Standard & Poor’s 500 Index fell to the lowest level since February as investors shorted fewer shares of financial stocks. Posted by edelfenbein at 9:26 AM What to Expect from the Fed I remember when Fed meetings used to be interesting: The Federal Reserve is expected to give a nod to signs the U.S. recession is waning but will likely warn that the recovery will be slow and dampen any expectations it will soon start to raise interest rates. Posted by edelfenbein at 9:22 AM August 11, 2009The Case Against Talented Coin Flippers Proponents of Efficient Market Theory often dismiss the track records of superior money managers as something that ought to be expected given normal probability. They claim that it’s like calling a person who just nails ten heads in a row a superior coin flipper. Sorry Mr. Buffett, old sport, you just got really, really lucky. The problem I have with this is that the folks who are often listed as the top money managers seem to share some key traits—specifically they’re often value investors who have no time for EMT. If it truly were an odds game, I doubt we would see these traits appear so often. Megan McArdle links to a post of managers who have excellent long-term track records. At the top is the late Bill Ruane who was a good friend of Warren Buffett. They met at Ben Graham’s value investing course at Columbia. In other worlds, they took the same class, learned the same lessons and both generated superior returns. There are plenty of other Graham-and-Dodd guys like Peter Lynch, or the guys at Leucadia National (LUK), and the guys at Danaher (DHR), who went on to trash the market year after year. So it’s not just good coin tossing—it’s good coin tossing following the same coin-tossing lessons, the same coin-tossing methods taught by the same coin-tossing teachers. At what point do we agree that it ain’t just luck? The Forbes list of billionaires contains lots of shrewd investors. I’m not aware of any that are pure technical guys. There are people who follow every conceivable strategy from astrology to Elliot Wave. Yet, time after time, it’s the value guys who rank near the top. Posted by edelfenbein at 4:10 PM Stocks Hate the President -- Any President I had never heard this one: According to research from the folks at Ned Davis dating all the way back to 1959, stocks do better when the public thinks the man in the White House is doing worse. Posted by edelfenbein at 10:49 AM Outlook for Q3 Improves Here's an interesting chart. This shows the Intrade contract betting that third-quarter GDP will be positive.
When the market was at its low in March, it was widely assumed that Q3 would be another bad quarter. Since then, the outlook has steadily improved and now it's assumed that GDP will be positive. (Don't read too much into that last downward data point, it seems to be a trade going off at the bid.) One positive quarter doesn't mean the recession is over. Also, it's possible to see the numbers jump thanks to inventory rebuilding which may not mean that the underlying economy is improving. Still, the Intrade contract seems to match the resurgence of stock prices. We won't get our first report on Q3 until late October. Posted by edelfenbein at 10:29 AM Productivity Surges People were complaining that Q2 earnings reports were good simply due to cost-cutting. That's true, but they said it as if it doesn't count. Improving productivity is crucial for an expanding economy: The productivity of U.S. workers grew in the second quarter at the fastest pace in almost six years as employers squeezed more out of remaining staff to bolster profits. Posted by edelfenbein at 8:51 AM Local currencies cash in on recession Be the Greenspan of your community: The stimulus for this mill town turned artist's colony arrived in the form of green bills bearing sketches of herons, turtles and trees. I think Mr. Lawson is a bit confused on the self-reliance concept. Posted by edelfenbein at 8:47 AM Someone Saw this Coming GM is now selling its cars...on eBay. Posted by edelfenbein at 12:43 AM Singapore's GDP +20.7% Singapore's economy expanded by a seasonally adjusted 20.7 per cent in second quarter, underpinned by strong gains in the manufacturing sector. Posted by edelfenbein at 12:38 AM August 10, 2009Dow Theory Says Buy Dow Theory, one of the oldest stock market forecasting methods, has shown a new buy signal: the Dow Jones Transportation Average joined the Dow Jones Industrial Average to close above January highs, according to Bank of America Merrill Lynch. Posted by edelfenbein at 1:27 PM Wall Street Bum Posted by edelfenbein at 12:00 PM Sysco Drops on Earnings Shares of Buy List member Sysco (SYY) are down this morning after the company reported fiscal fourth-quarter earnings of 53 cents a share. That was four cents better than Wall Street’s consensus although it was down from 55 cents a year ago. The company is the nation's largest foodservice distributor. Revenues are down about 7% but Sysco has been aggressively cutting costs—operating expenses declined to $1.22 billion from $1.34 billion, which helps during a recession. For the full year, Sysco earned $1.77 per share which was down from $1.81 per share last year. The company should earn about the same this year which makes the stock reasonably priced. The dividend yields close to 4% which is also nice. Posted by edelfenbein at 10:46 AM Banks on Track to Make $38 Billion in Overdraft Fees Banks are making loads of money, just not in banking. Overdraft fees accounted for more than three-quarters of service fees charged on customer deposits, he said. So what do banks pay when they overdraft? Posted by edelfenbein at 9:14 AM If You Test Every Correlation Possible, You'll Eventually Find Something Exact Prediction of S&P 500 Returns Posted by edelfenbein at 9:05 AM Traders Bet Rally Won't Last Historically, Septembers in the first year of a presidential administration have been tough for the stock market. For example, there was some unpleasantness in 1929, 1973 and 2001. Some traders are already bracing for trouble in September 2009: Options traders are increasing bets that the steepest rally in the Standard & Poor’s 500 Index since the 1930s won’t survive September, historically the worst month for U.S. equities. (Via: Joe Weisenthal) Posted by edelfenbein at 8:43 AM August 9, 2009Poseur Alert Check out this lede: In the coda of the Passacaglia and Fugue in C minor, composer Johann Sebastian Bach repeats the same chord sequence over and over again, leading the listener to anticipate one resolution, only to provide a tone completely different. Can you guess what the story is about? If you said, the Nationals 9-2 victory over the Diamondbacks, congratulations. Posted by edelfenbein at 10:59 PM August 7, 2009The Semi-Good Jobs Report After nearly two years of horrible jobs report, we finally got one that’s not so horrible. Though it’s not so good either. Let’s start with the good news. Nonfarm payrolls fell by 247,000 last month. That’s the shallowest decline in nearly a year. The unemployment rate ticked down from 9.5% to 9.4%. If you want to go out a few more decimal places, it fell from 9.507% to 9.360%. If we look at the numbers more closely, we see that the civilian labor force dropped by 422,000 last month (that’s seasonally adjusted) while the number of employed dropped by 155,000 (note that that is a different calculation from the NFP report). In other words, the increase in the employment rate is due to the fact that people are leaving the job market faster than people are losing jobs. Posted by edelfenbein at 11:05 AM Junk Stocks Rally Reuters reports: The junk-stock rally lives on. Posted by edelfenbein at 10:18 AM The New York Times Fires Ben Stein Apparently, you really need to go out of your way to get fired as a columnist at the NYT. This is vindication for Felix Salmon who’s been a constant critic of Stein. My only concern is that Stein wasn’t fired for his content but for appearing in a commercial. Posted by edelfenbein at 10:09 AM August 6, 2009Recession Plunges Upper Middle Class Family into the Moderately Upper Middle Class Break out the world's smallest violin: Stacey: It used to be, she'd be bored on a Saturday and she'd say, "Let's go get our nails done," and I'd say okay. Now, I'll sometimes say no -- or we'll go, but we'll only do our fingers, not our toes. The horror. Michael: We want the kids to see D.C. And I thought, the zoo -- that's a cheap thing to do. Well we went, and by the time we paid for pizza, two cups of coffee, hot chocolate and parking, it came to $100. We're not going to D.C. again. Did he say really parking? They live in Ashburn and they drove to the zoo ignoring the fact that there's a metro stop by the zoo. They spent $100 on going to the zoo and it's somehow D.C.'s fault. Posted by edelfenbein at 1:27 PM August 5, 2009Spreads Continue to Tighten Want an explanation for the rally? Check out the dramatic widening and closing of the spread between long-term Treasuries and corporates. The gap is still over 300 points and it was often below 200 during 2004 to 2007.
Posted by edelfenbein at 12:08 PM Scientists Crack Two-Envelope Problem Here’s a fascinating story. Two Australian scientists have cracked the legendary two-envelope problem. Let’s say that there are two envelopes with money in them, one has twice as much as the other. You can open one see how much is there. You now have the option of switching or holding, what do you do? The CW says it doesn’t matter, you’re just playing the odds so why bother. Well, these two researchers have a way to beat the odds: The formula relates a particular amount of money (y) found in the first envelope to the probability (P) that you should switch envelopes to gain in the long term. So is there a stock market connection? You betcha. In real life, the actual gain will obviously depend on how much money is actually put in the envelopes, says McDonnell. Posted by edelfenbein at 10:33 AM Siegel Responds to Criticisms on Stock Market Data Professor Jeremy Siegel has responded to Jason Zweig’s criticisms of the data he’s used for long-term stock performance. The problem Zweig highlights is how few stocks comprise the study Siegel relies on. Zweig notes that Siegel ignores 97% of stocks that were trading in that time frame—and most of those stocks he uses were blue chips. All those ignored dud stocks would certainly have lowered the 10% per year number. Siegel responds by pointing to research by Bill Goetzmann and Roger Ibbotson. I happen to be familiar with that data and I still think Zweig’s larger point holds. The research data collected by Goetzmann and Ibbotson is impressive but I see it as only a start. For example, for months between 1815 and 1834, the data set comprises only a handful of stocks. It’s often less than 20 stocks and sometimes less than 10. The dividend series begins in 1825 and some years it includes less than 20 stocks. I don’t think we should rely on research with so little data. The problem is that the stock market wasn’t close to a market in the sense we regard it. In fact, common stocks were viewed as similar to bonds. The shares would trade around par value and each year you’d find out what the dividend was. The idea of constant capital gains is a 20th century notion. Siegel writes: Researchers agree that the biggest source of uncertainty in early stock data is the dividend yield, which was not always reported. As a result, G-I formed two series of dividend yields, one assuming that those stocks for which they could not find dividends had zero dividends (3.77%), and another which uses the dividend yield of those stocks for which they could find dividends (9.27%). They conclude “The true dividend return to a capital-weighted investment in all NYSE stocks is undoubtedly somewhere in between these two extremes.” My dividend yield, which the article claims is unrealistically high, is 6.4%, actually less than the midpoint of their two estimates. Pointing out those two data sets that are so far apart is precisely the problem. Selecting a number between them doesn’t help. Sure, 5% and 6.4% are within the bookends, but the difference between the two is extreme, especially when compounded over decades. The fact is that Siegel is basing his arguments on very thin data sources. Posted by edelfenbein at 9:57 AM August 4, 2009The Total Track Record Here’s a look at the complete record of the Buy List for the last three years, seven months and four days. Not including dividends, we’re down 1.43% compared with a loss of 19.44% for the S&P 500. From the market’s peak on October 9, 2007, our Buy List is off by 15.09% while the S&P 500 is down 35.75%.
Posted by edelfenbein at 8:27 PM Cognizant Technology Solutions Delivers Huge Earnings Beat, Guides Higher The Buy List continues to roll. Cognizant Technology Solutions (CTSH) just reported a huge earnings beat, plus it guided higher. For the second quarter, CTSH earned 50 cents a share which is an amazing 13 cents over estimates. The company now sees Q3 coming in at 44 cents per share, five cents above consensus. For all of 2009, Cognizant expects EPS of $1.80 versus Wall Street’s consensus of $1.54. These numbers are great. Shares of CTSH have been up by as much as 10% today, and it’s up over 83% for the year. The stock is an excellent buy. Posted by edelfenbein at 11:38 AM Goldman Sachs Imitates Goodfellas From the NY Post: Goldman Sachs CEO Lloyd Blankfein has warned his employess to avoid making big-ticket, high-profile purchases as the gold-plated Wall Street firm hunkers down amid a firestorm of public and political anger over outsize bonus payments. (Via: The Stimulist) Posted by edelfenbein at 9:41 AM Timmy Blows Top This actually makes me think higher of Geithner, though that’s not saying much. Treasury Secretary Timothy Geithner blasted top U.S. financial regulators in an expletive-laced critique last Friday as frustration grows over the Obama administration's faltering plan to overhaul U.S. financial regulation, according to people familiar with the meeting. Man, I’m curious who the source was. The article quotes one guy at Treasury and only for him specifically adds that he declined to comment “on Mr. Geithner's tone and language.” Posted by edelfenbein at 9:35 AM August 3, 2009Blinky Is on a Privatization Binge I guess vote-counting will still be public: As President Mahmoud Ahmadinejad starts his second term in office, his government announces the privatization of 14 state-owned, giant companies. Posted by edelfenbein at 2:04 PM The Cyclical Surge Continues On an historical basis, the relative strength surge in cyclical stocks is stunning:
Posted by edelfenbein at 11:01 AM The S&P 500 Breaks 1,000! For the first time since November 5 -- the day after the election -- the S&P 500 is over 1,000.
Also, Nicholas Financial (NICK) has been as high as $7.49 a share, which gives us a triple for the year. Posted by edelfenbein at 10:34 AM Oil and Stocks Are Matching Up From Reuters: Crude oil has this year shown the most marked correlation to equities in decades and at the same time displayed a negative correlation to the dollar. Here's a look at the S&P 500 and the Oil ETF since the beginning of the year:
Posted by edelfenbein at 10:03 AM Vermont taxi service allows patrons to decide fares From AP: When Eric Hagen started Recession Ride Taxi in Essex, Vt., he took more questions than fares. Posted by edelfenbein at 9:53 AM Gasparino Vs. Taibbi I’m glad to see that Matt Taibbi’s famous article on Goldman Sachs (GS) is losing credibility. Charlie Gasparino is the latest to criticize it. That storyline isn't just wrong, it's pretty naïve. But it's gaining credibility following Taibbi's Rolling Stone piece, first in the blogosphere and now with a growing number of what is commonly referred to as the mainstream media. It's one thing to watch half-literate bloggers in desperate need of attention jump on the Goldman is the root of all evil story; it's quite another to see respected news organizations with experienced reporters and presumably more experienced editors do it and in the process obscure the fact that Goldman, for all of its sins during the bubble years, was probably the least culpable for the system's eventual collapse. And maybe more importantly, that Goldman and all the other banks are now overtly protected by the federal government and can still roll the dice and take risk only this time under the explicit protection of the American taxpayer. As they say, read the whole thing. Posted by edelfenbein at 9:21 AM Guess What Investment Class Is Up 10-Fold in the Past Five Years? When actor Nicholas Cage auctioned a rare Dracula poster in April, Ralph DeLuca knew he would outbid whomever dared raise their auction paddles against him in an effort to capture a piece of movie history. Posted by edelfenbein at 9:04 AM |
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