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Keep It Classy, Fast Money

(Via: TBI)

Posted by edelfenbein at 7:51 PM

Amazon Hits New High

Shares of Amazon (AMZN) got as high as $135.25 today.

Here's something to think about: Amazon reached its 1999 closing high of $106.69 (adjusted for splits) on December 10, 1999 -- almost exactly ten years ago. The stock didn't break that closing high until October 23, 2009.

So was Amazon's stock a bubble 10 years ago? Yes and no. Even if you bought at the exact top, you've made a very small profit (although it's basically been erased by inflation). But still, you've done a lot better than the S&P 500. Excluding dividends, the S&P 500 is down about 23% since December 10, 1999.

Posted by edelfenbein at 1:12 PM

Clinton in Bed with Goldman Sachs

But this time, it's Chelsea:

Chelsea Clinton, daughter of ex-US President Bill Clinton and Secretary of State Hillary Clinton, is engaged to marry her long-term boyfriend.

She is marrying Marc Mezvinsky, a banker at Goldman Sachs, with whom she became friends as a teenager.

A spokesman for former President Clinton confirmed that the couple got engaged over last week's Thanksgiving holiday.

Congratulations to the happy couple.

Posted by edelfenbein at 12:47 PM

Girls Can't Trade

Not too sure about this one:

What does traders’ success on the market floor depend on? Earlier studies have shown that one’s level of testosterone did affect one’s daily results. Since “prenatal androgens have organizing effects on the developing brain, increasing its later sensitivity to […] testosterone”, it would make sense that prenatal androgens also have a structural effect on a trader’s results on the long term.A surrogate marker is commonly used to define one’s exposure to prenatal androgens: the second-to-fourth digit length ratio, noted 2D:4D. Such market has been found to predict professional athletes’ performance. In this paper, the autors test the hypothesis that a high exposure to prenatal androgens as indicated by 2D:4D would also predict traders’ long-term profit.

Posted by edelfenbein at 11:21 AM

Spotting the Bubble In Dubai

Here's what I wrote about Dubai four years ago:

I’ve been thinking about what's the biggest investment bubble in the world right now. After careful consideration, I decided that Baidu (BIDU) comes in a close second. In fact, it’s so close that it has the syllables right, just in the wrong order. Not even Baidu can match what’s going on now in Dubai.

Dubai is one of the emirates of the United Arab Emirates. This city is being built up so quickly it’s almost like science fiction. The Burj Al Arab (pictured above) is the largest hotel in the world. It’s over 1,000 feet tall and sits on an artificial island just off the beach. Each room comes with its own butler. The hotel is so big, the Statue of Liberty can fit in the atrium. Pedestal too. (If you're interested in staying there, here are some details.)

The world largest building is also being built here. Oh, did I mention the new airport? It will be the size of Heathrow and O'Hare combined. It doesn’t end there. There’s the Dubai Waterfront. I don't even know how to describe this one. It's basically a giant artificial city being built on the water. Imagine the Tower of Babel, but with WiFi. The development will be larger than the island of Manhattan. Nearly one of every four construction cranes in the world is currently in Dubai. This is just absurd.

As you might expect, Dubai has a stock market and it’s doing rather well. I believe this is the entire listing. Their market is making our Nasdaq bubble look like a wimp. In the last 12 months, the Dubai market is up 162%. In the 12 months before that, it was up 181%. Going back three years, the Dubai market is up over 1,000%. One observer said that Dubai is "like Singapore on steroids."

There's also an indoor ski slope, and an underwater hotel is being planned. The city is being flooded with workers from all parts of the world. According to a survey, Dubai will need 150,000 new housing units a year.

This is a good time to remember that there’s an interesting correlation between market crashes and the largest buildings in the world. The Empire State Building went up just as our market crashed. The Petronas Towers were built as the Asian Tigers fell apart. The World Trade Center and Sears Tower accompanied the crash of the early 1970s. Even the Nasdaq’s shiny new office was opened just before its bubble burst.

The price of oil is already well below its high price. What's good for consumers here isn't good news for Dubai. I think Dubai is ready for a fall.

Posted by edelfenbein at 10:28 AM

Online Sales Rise

I don’t put a great deal of faith in Black Friday numbers. It’s true that this is an important time of year for many retailers, but the direction of their businesses can hardly be measured accurately in just one day’s total.

If there is good news, then it seems to be that online buying is higher than it was one year ago. The Internet tracking firm comScore says that e-commerce sales on this past Friday were up 11% over a year ago. Online sales for Thanksgiving Day were up 10% from last year.

While these numbers are encouraging, I think their significant is dwarfed by the jobs market. Once new jobs are created, it will signal that consumer spending will trend in the right direction.

Posted by edelfenbein at 9:48 AM

I’m Back

I took a few days off to rest and relax in Puerto Rico. I realize that I had neglected to mention this on the blog, though I posted a few updated on Twitter (you can follow my Twitter feed here). I apologize for disappearing without an explanation.

Now I’m back safe and sound in the office. Let’s get to some of the important news from last week.

First, Medtronic (MDT) posted very good earnings results for their fiscal second quarter. Excluding charges, the company made $850 million or 77 cents per share. Sales rose 8% to $3.84 billion. Wall Street was expecting 74 cents per share on revenue of $3.75 billion.

Medtronic also said they expect their full-year profit to range between $3.17 and $3.22 per share. Their previous range was $3.10 to $3.20. On Tuesday, the stock gapped up 7.3%.

Over the weekend, Barron’s had some nice things to say about Sysco (SYY).

To cope with a weak economy and lackluster market, Sysco has been slashing costs, seeking to lift productivity and has been benefiting from fast-food business, which tends to be more recession-resistant than other restaurants. But Wall Street hasn't paid much notice. Sure, the stock has rallied about 40%, to 27, from its March low, but the Standard & Poor's 500 is up 62% in the same span, and Sysco continues to trade well below the 40 it fetched five years ago.

Sysco's shares probably are worth about 10% more today. They also yield a tasty 3.7% dividend. In several years, the shares could return to 40 apiece, as the company's price/earnings multiple, now 14.7 times next year's earnings, returns to its historic ratio of 20.

Finally, Becton Dickinson (BDX) raised its quarterly dividend to 37 cents per share from 33 cents per share.

Posted by edelfenbein at 8:43 AM

The Coffee Wars, Begun They Have

This is pretty cool. There’s an old-fashioned bidding war going on in, of all things...the coffee sector!

First, Peet’s Coffee & Tea (PEET) offered to buy little Diedrich Coffee (DDRX) for $26 a share. That was a 28% premium for Diedrich.

This morning, Green Mountain Coffee Roasters (GMCR) confirmed that it's offered $30 a share for Diedrich. You may recall that I recently highlighted GMCR as the top-performing stock of the decade (up 7,895.4%).

Peet’s has now has raised its bid to $32 a share.

Will Green Mountain respond? Apparently someone thinks so. Shares of Diedrich are currently around $33.50.

Oh...one more thing. Eight months ago you could have picked up Diedrich for -- are you ready? -- 21 cents a share.

Posted by edelfenbein at 2:15 PM

The New York Times Falls for Dollar Cost Averaging

Jeff Somer recently wrote in the New York Times:

Experts say amateur investors tend to make two basic mistakes: they are swayed by emotion, and assume that recent performance will predict the future. Yet it’s not hard to sidestep these pitfalls with help from classic strategies known as asset allocation, portfolio rebalancing and dollar cost averaging.

Basically, these approaches work this way: After assessing your needs and risk tolerance, you set up and maintain a broadly diversified portfolio, adding regular contributions if you can. These practices mitigated investor losses over the last few years, and have an excellent long-term track record. But they are often ignored or discounted.

Oh boy. Dollar cost averaging (DCA) is the myth that will never die. It’s sad to see even the New York Times passing this on as sound advice.

The idea of DCA is that you put a set amount of money in the market each month. If you’re like many investors and have a set amount available to invest each month, that’s fine practical advice.

The problem is when DCA is compared with the option of lump sum investing. If don’t have the option, fine, go with DCA. But if you do have the option, go lump sum all the way. The advantage of dollar-cost averaging was blown to smithereens 30 years ago in this article by George Constantinides.

Somer goes on to write:

Left to their own instincts, most people are “momentum investors,” setting themselves up for failure, said Louis S. Harvey, the president of Dalbar. “When the going gets tough, investors tend to panic, and that happened last year. They sold when the market went down. When it goes up and things get expensive, they tend to buy.”

Sophisticated people often make these mistakes, perhaps because, on an intellectual level, investment decisions are different from those in many other parts of life, said Francis Kinniry, who heads the Investment Strategy Group at Vanguard.

Wrong again. Strange that a person at an index fund is critical of active investing! In fact, momentum investing is one of the very few strategies that have been shown to beat the market consistently. The difficulty with momentum that investors have is they’re afraid to sell when a high momentum stock loses its momentum.

Somer is correct that your emotions aren’t your friends when it comes to investing. Neither, however, is the Wall Street establishment.

Posted by edelfenbein at 1:37 PM

Peter Schiff Contra Roubini

Here's a video of Peter Schiff explaining why he disagrees with Nouriel Roubini's assessment that gold is in a bubble.

I post this video because it highlights the concern I have about (some but not all) gold bulls. It’s that Schiff’s argument can used to favor gold at any price. I understand what he’s saying and I think it has merit, but there’s no numerical anchor to the argument: “They’re printing money, so buy gold.” Up to $5,000? Up to $10,000? I’m curious at what point would the price of gold outweigh the thesis.

There are all sorts of formulae to calculate prices for stocks or bonds. They’re far from perfect, but at least they’re something. What is it for gold? Can anyone show me numbers that have historically tracked the price of gold?

Also, is Schiff’s thesis that gold should always track inflation? This is another part I don’t get. The real price of gold has outrun inflation over the past several years, even if you don’t trust the CPI numbers gold is still a big winner. Gold has even rallied as we’ve had deflation.

I would guess that, if anything, gold might have a weak relationship to the acceleration of inflation rather than its overall level. Still, this would be difficult to measure and this decade probably wouldn’t be a good example.

A few folks, including Schiff, are predicting that gold will reach $5,000 an ounce. I wonder if any gold bugs would be willing to buy a gold option from me. Say, a strike price of $4,000 for one year from today. I’ll do you a favor and take as little as $200.

No, I’m not serious but I am curious as to what gold bugs would be willing to pay for that trade.

Posted by edelfenbein at 9:42 AM

The Humps Have Spoken

The stock market is down for the third day in a row. I won't say I told you, but I did in fact tell you so.

If the current humpy thing doesn't pass the last humpy thing, then that probably won't be good*. Unless of course, there's a new and higher humpy thing. Bottom line: It remains to be seen.

I fully expect the present trend to continue up until the point it stops.

Posted by edelfenbein at 12:50 PM

T-Bills Rates Turn Negative

Here, I'll pay you to borrow my money:

Some Treasury bills maturing at the start of next year traded at negative rates Thursday, a sign of investors' strong demand for the safest securities at a time when T-bills are in scarce supply.

When market participants buy Treasury bills at negative rates, they are essentially paying the government to keep their money safe.

Rates on issues maturing in early January and February turned negative Thursday, to as low as -0.03%, traders said. Some issues maturing in the first two weeks of December also slipped, trading at flat to a bit negative Thursday.

Bill yields last fell below zero in late 2008 amid the financial market panic that was triggered by the bankruptcy of Lehman Brothers Holdings Inc. (LEHMQ). The decline this time, though, isn't driven by the same sorts of fears--it's more about a scarce supply of T-bills amid strong demand for safe assets, given the hazy economic outlook.

The amount of T-bills in the market has shrunk with the government letting the bills in its Supplementary Financing Program--which financed the ballooning deficit though the issuance of bills--mature rather than sell new bills to roll over the debt. At the same time, money-market investors face fewer options to park their cash.

Rates on bills three months and out, though, were still trading positive Thursday (Barely! - Eddy). Strategists, however, said they wouldn't be surprised to see those rates turn negative as well.

George Goncalves, managing director and head of fixed-income rates strategy at Cantor Fitzgerald in New York, said this year the rate on the three-month T-bill could fall as low as -0.05%.

Posted by edelfenbein at 10:18 AM

I'm Gonna Need Two Forms of ID With That

Ever see a check for $9 billion?

Too Big to Fail: The $9 Billion Japanese Check to Morgan Stanley

(Via: ARS)

Posted by edelfenbein at 8:49 AM

Quote of the Day

From Eric Falkenstein, whose book just arrived in the mail:

Most pundits, professional and amateur, consider a genius as someone who can effectively articulate one's platform more efficiently than themself. An idiot is someone who effectively articulates the other side.

Posted by edelfenbein at 11:33 PM

Byrd’s Record Is Nothing to Celebrate

Senator Robert Byrd is being celebrated this week for breaking the record for longest service in the United States Congress. Byrd served six years in the House and another 50 years in the Senate.

For me, I’m going to take a pass on the celebrations. While I wish Senator Byrd well, I don’t think having a job as a legislator for 56 years is anything to celebrate. In fact, I think it’s scandalous.

Being a member of Congress doesn’t make you a member of a special class. There’s no achievement involved. I wish they'd see it that way, and I think it would make for a healthier environment for the republic. You simply won an election. It’s a job that millions of Americans can do, and many can do it—and indeed have done it—better than Senator Byrd.

I don’t see why anyone should make a career of ruling over others. When it’s to be done, it should be done for a modest period of time. There are many more important things to do with one’s life than tell other people what to do. You can start a business or become a teacher, or serve your community in countless ways that more valuable than being a member of Congress.

I also think that any political career that’s worth having is one that will end in defeat. If you’re always on the popular side, then you’re probably not doing much good. Senator Byrd spoke about his regrets in his Congressional career—like voting against the 1964 Civil Right Act. These regrets underscore that Byrd merely followed the popular political winds in his home state. He wasn’t a leader at all, but a follower—and he’s been doing longer than many of his colleagues have been alive.

Notice this clip of Byrd speaking about his regret over the Civil Rights Act vote. He speaks some nonsense over the loss of his grandson, and the epiphany that black people must love their grandchildren as well. Oh dear lord. So this thought never occurred to him? He lived a long life (until being a grandfather) without considering this most basic moral and legal concept. If the people of West Virginia keep sending him to DC, that’s their right, but I see no reason to celebrate 56 years of this garbage.

Posted by edelfenbein at 2:21 PM

Donaldson Tops Estimates

I mentioned before that Donaldson (DCI) is a candidate to be cut from next year’s Buy List. This obviously terrified them as DCI reported first-quarter earnings of 45 cents a share, which was an amazing 11 cents better than expectations. That’s a huge beat and the stock is up nicely today. Donaldson now expects full-year earnings (excluding items) between $1.75 and $1.95 a share. I still think the shares are on the high side.

Posted by edelfenbein at 10:26 AM

Sysco Raises Dividend

Sysco (SYY) already pays a fairly high dividend. Oftentimes, stocks with high dividend yields are traps because the lower share price merely reflects the market’s belief that the dividend will soon be cut. That isn’t the case with Sysco as they just raised their quarterly dividend, from 24 cents a share to 25 cents a share. That’s $1 for the whole year. Going by the current price, that’s a yield of 3.7% which is more than a 10-year Treasury bond.

Posted by edelfenbein at 9:51 AM

More Problems with Yahoo Finance

I’ve written before about my concerns with the historical prices section under Yahoo Finance. The problems seem to continue.

For Nicholas Financial (NICK), Yahoo Finance shows the 10% stock dividend happening yesterday. Note how the “Adjusted Close” column differs from the “Close” column. That’s not correct. The stock dividend won’t happen until December 7, and shareholders should expect to see the new shares in their accounts the next day. I hope Yahoo Finance works to find a better data vender for their historical stats.

Posted by edelfenbein at 9:39 AM

Value Investing Still Wins

Here's an update to some research I've shown before. The data comes off Professor Ken French's data library. This shows stock market performance ranked by P/E Ratio decline. Stocks with the lowest P/E Ratios do the best, while those with the highest P/E Ratios do the worst. I've also included a line for the overall market.

There's a small quirk to the data. The decile markers are determined by NYSE stocks, and those are then placed on the entire universe of U.S.-traded stocks. As a result, the deciles with lower P/E Ratios tend to be smaller than the deciles with higher P/E Ratios. You can see that the market line isn't doesn't quite fall in the median. This doesn't undermine the lesson that value investing has done better, but it's less dramatic than the numbers here suggest.

Here's how the annualized performance numbers for the deciles (from June 1951 through September 2009)

One 8.51%
Two 8.58%
Three 10.66%
Four 10.39%
Five 11.11%
Six 13.38%
Seven 13.69%
Eight 14.28%
Nine 15.64%
Ten 16.65%

Posted by edelfenbein at 9:05 AM

Study: The More Successful a Company Becomes, the More Likely It Is That It Will Break the Law

Can't say that I'm surprised:

The more prominent and financially successful a corporation becomes, the more likely it is to break the law, according to a new study led by a Michigan State University scholar that challenges previous research.

MSU’s Yuri Mishina and colleagues argue that unrealistically high pressure on thriving companies increases the likelihood of illegal behavior, as the firms are faced with continuously maintaining or improving their performance. Previous research suggested high-performing firms are less likely to feel the strains that can trigger illegal activities such as fraud, false claims and environmental and anticompetitive violations.

The MSU-led study, which will appear in a forthcoming issue of the Academy of Management Journal, analyzed 194 large public manufacturing firms in the United States between 1990 and 1999.

“We found that high-performing companies tended not to be able to sustain that high level of performance over time,” said Mishina, assistant professor of management and lead researcher on the project. “At the same time, high performing and highly prominent companies tend to be the ones that are punished most severely for not meeting performance expectations. And so it becomes a choice: Do I cut corners to try to meet these high performance goals and maybe get caught, or do I accept the results of not meeting my performance goals and be punished for sure.”

In other news, Crossing Wall Street is wanted in 38 states.

Posted by edelfenbein at 9:34 PM

Stock of the Year: Ford Motor

I’m being a bit premature, but I’m going to called Ford Motor (F) my 2009 Stock of the Year. Think of what this stock has been through. Shares of F closed out 2008 at just $2.29 a share. Today, the stock broke above $9 to reach a high of $9.14. The shares haven’t been this high in over two years.

The big reason Ford gets props from me is that they haven’t had any help from the Uncle Sam. At the White House Correspondent’s Dinner, President Obama joked that he had been named Car & Driver’s “Auto Executive of the Year.” Funny, sad and true—but it doesn’t apply to Ford.

Last quarter, Ford snapped a five-quarter losing streak by actually posting a profit of 26 cents a share. The consensus on Wall Street was expecting a loss of 12 cents a share. Think of it this way: Ford has gone from burning through $7.7 billion in cash to positive cash flow of $2.8 billion. You know, like, making money!

One major reason for Ford’s success is the Ford Fusion. While U.S. auto sales are down 25% this year, sales for the Fusion are up 15%. Plus, the Fusion was just named Motor Trend's “Car of the Year.”

Now everyone on Wall Street expects profits and more profits. The fourth-quarter consensus is up to a 22-cent profit from a 12-cent loss. For 2010, the Street average is a gain of 42 cents a share.

There’s even word that George Soros has picked shares of Ford. Paul Ingrassia at the WSJ wrote, “In fact, there's almost too much good news coming out of Ford's Dearborn, Mich., headquarters these days.” He’s referring to the ability of union folks to find out where the money is being made.

Ford isn’t out of the woods just yet. The company is currently carrying about $27 billion in debt. However, if business continues to improve, Ford will have achieved one of the most remarkable business turnarounds in U.S. auto history.

Posted by edelfenbein at 5:31 PM

The Florida Land Boom of the 1920s

Joe Weisenthal lists a number of the most amazing bubbles in history. I'll add one more to the list -- the great Florida real estate boom of the 1920s. Here's a description of the madness from Wikipedia.

By the 1920s, its economic prosperity had set the conditions for a real estate bubble in Florida. Miami had an image as a tropical paradise and outside investors across the United States began taking an interest in Miami real estate. Due in part to the publicity talents of audacious developers like Carl G. Fisher of Miami Beach, famous for purchasing a huge lighted billboard in New York's Times Square proclaiming “It's June In Miami”,^[1] property prices rose rapidly on speculation and a land and development boom ensued.^[2] By January 1925, investors were beginning to read negative press about Florida investments. Forbes magazine warned that Florida land prices were based solely upon the expectation of finding a customer, not upon any reality of land value.^[3] New York bankers^[who?] and the IRS both began to scrutinize the Florida real estate boom as a giant sham operation. Speculators intent on flipping properties at huge profits began to have a difficult time finding new buyers. The inevitable bursting of the real estate bubble had begun.

On January 10, 1926, the Prinz Valdemar, a 241-foot, steel-hulled schooner, sank in the mouth of the turning basin of Miami harbor. The old Danish warship had been on its way to becoming a floating hotel.^[4]

The Prinz Valdemar, capsized and blocked the port of Miami for several weeks in January of 1926, helping to usher in the end of the real estate boom. Florida Photographic Collection

The railroads, already strained by the burden of transporting both food and building supplies, had already begun raising shipping rates. When the sea route to Miami was blocked the city's image as a tropical paradise began to crumble. In his book Miami Millions, Kenneth Ballinger wrote that the Prinz Valdemar capsize incident saved a lot of people a lot of money by revealing cracks in the Miami façade. “In the enforced lull which accompanied the efforts to unstopper the Miami Harbor,” he wrote, “many a shipper in the North and many a builder in the South got a better grasp of what was actually taking place here.”^[5]

In October 1925, in an effort to improve Florida's clogged rail system, the railroad companies placed an embargo on all railway goods other than food, which further contributed to Florida's skyrocketing cost of living.^{[citation needed]} New buyers failed to arrive, and the property price escalation that fueled the land boom stopped. The days of Miami properties being bought and sold at auction as many as ten times in one day were over. The first Florida real estate bubble had burst.

The land boom was also part of the story of the Marx Brothers first movie, The Cocoanuts.

Posted by edelfenbein at 2:53 PM

Top Stocks of the Decade

GMCR..............Green Mountain Coffee Roasters.............7,895.4%
HANS...............Hansen Natural........................................6,504.1%
BYI...................Bally Technologies...................................6,394.2%
SWN................Southwestern Energy...............................5,108.4%
CLH..................Clean Harbors..........................................4,456.0%
DECK...............Deckers Outdoor......................................3,669.5%
AMED...............Amedisys.................................................3,669.2%
TNH.................Terra Nitrogen...........................................3,611.5%
BOOM..............Dynamic Materials....................................3,519.4%
QSII.................Quality Systems........................................3,497.2%
JOSB................Jos. A. Bank Clothiers...............................3,419.5%
CETV................Central European Media Enterprises........3,263.4%
XTO..................XTO Energy...............................................3,191.2%
SIRO ................Sirona Dental Systems..............................3,142.0%
AFAM................Almost Family...........................................3,071.6%
MCF..................Contango Oil & Gas...................................3,034.0%
JST....................Jinpan International...................................2,974.2%
TRA....................Terra Industries........................................2,339.7%
MDVN.................Medivation...............................................2,321.6%
RRC....................Range Resources....................................2,231.9%
ISRL....................Isramco....................................................2,093.5%
CGA....................China Green Agriculture...........................2,064.3%
CEDC..................Central European Distribution...................2,049.2%
FCN.....................FTI Consulting...........................................2,044.3%
GROW.................U.S. Global Investors.................................1,887.3%

Performance Through November 15, 2009

Posted by edelfenbein at 8:57 AM

Goldman Sachs Apologizes

How exactly do you apologize for being smarter than everyone else?

A little more than a week after Goldman’s chairman and chief executive drew fire for saying the Wall Street giant was “doing God’s work,” the bank said Tuesday that it would spend $500 million — or about 3 percent of the $16.7 billion it has so far set aside to pay its employees this year — to help thousands of small businesses recover from the recession.

At the same time, the executive, Lloyd C. Blankfein, also showed a bit of humility, acknowledging at a conference in New York that Goldman had made mistakes, and that it was sorry. “We participated in things that were clearly wrong and have reason to regret,” he said. “We apologize.”

Posted by edelfenbein at 8:32 AM

Seaboard Corp. (SEB)

I like finding oddball stocks that few people know about or bother following. One of the great things about investing is that little-known stocks can be great investments. Just look at the great performance of a stock like Leucadia National (LUK) which is up about 22,000% over the last 30 years. LUK is rarely mentioned in the news, which is how the company likes it. I can’t think of another company with a market cap of $5.5 billion that had a website that looks like this.

Recently, I’ve been looking at Seaboard Corp. (SEB) which is another little-known stock. Seaboard is in the pork business. There’s almost no news. Tiny volume. Not much volatility and no analysts follow it. Plus, they never split their stock.

Thirty-five years ago, you could have picked up a share for $5-1/8. Today, it’s going for $1,549. That’s over 30,000%. Over the same time, the S&P 500 is up by 1,500%.

I think I don’t get is why Seaboard pays a quarterly dividend of 75 cents a share. At the current price, that’s less than 0.2% a year. Why bother?

Posted by edelfenbein at 1:55 PM

Oh Charlie!

(Via TBI)

Posted by edelfenbein at 1:19 PM

The Barofsky Report

Neil Barofsky’s report is out today and it says that the government gave away too much when AIG went under. I can’t say I’m surprised nor can I claim to be terribly upset. To me, the mystery is that some folks actually expected the government to get it right. What were they expecting? The policy was to throw as much money as possible at the problem and hope that it will work. Only UBS (this Swiss??) agreed to take a haircut. Barofsky said that TARP will almost certainly lose money. The lesson is that when the market panics, the government can panic just as well.

Posted by edelfenbein at 12:58 PM

Was Belichick Right to Go for it?

Brian Burke says yes:

A punt from the 28 typically nets 38 yards, starting the Colts at their own 34. Teams historically get the TD 30% of the time in that situation. So the punt gives the Pats about a 0.70 WP.

Statistically, the better decision would be to go for it, and by a good amount. However, these numbers are baselines for the league as a whole. You'd have to expect the Colts had a better than a 30% chance of scoring from their 34, and an accordingly higher chance to score from the Pats' 28. But any adjustment in their likelihood of scoring from either field position increases the advantage of going for it. You can play with the numbers any way you like, but it's pretty hard to come up with a realistic combination of numbers that make punting the better option. At best, you could make it a wash.

Greg Mankiw adds: "Randomness is a fact of life, even if Patriots' fans do not fully appreciate it."

Posted by edelfenbein at 11:06 AM

What Do You Think?

Check out this chart. Do you think it's forming a bottom?

Could be. I honestly can't say. So what's the stock?

It's the price of gold, just upside down.

Now, even the Taliban is turning to gold.

Posted by edelfenbein at 6:14 PM

Buy List +42% YTD

Thanks to big gains from stocks like Joe Banks (JOSB) and Nicholas Financial (NICK), our Buy List made a new high for the year (up 42%) and a new relative strength high (19.19% more than the S&P 500). I think the big surprise was NICK breaking out today without any warning.

Not only is this blog completely free, but it makes you money. If you started with $1 billion at the start of the year, I made you $420 million!

You're welcome.

Posted by edelfenbein at 5:03 PM

Guess How Much Money GM Lost...

Between January 2005 and its Chapter 11 filing on June 1?

Answer = $88 billion.

Posted by edelfenbein at 11:20 AM

S&P 500 = 1,100

The Suckers Rally continues to be very kind to our Buy List. We’re now up over 40% for the year. FactSet (FDS), Donaldson (DCI), Danaher (DHR) and Cognizant (CTSH) are all at new 52-week highs today. Plus, Stryker (SYK), Medtronic (MDT) and Amphenol (APH) aren’t too far away.

The S&P 500 is up to 1,110 which is its highest level in 13 months.

Posted by edelfenbein at 10:59 AM

Your Handy Guide to Wall Street Conspiracies

Gary Weiss provides a nice overview of the various conspiracy theories floating around Wall Street. The Giant Vampire Squid won't be pleased.

Posted by edelfenbein at 10:19 AM

Atlas Yawned

Barry Ritholtz notes the reemergence of Ayn Rand. This is one of those phenomena, like orange soda, that I will never understand.

Barry rightly calls Rand’s prose “a giant pedantic bore,” and also zeros in on the cult-like behavior of Randians. I just don’t get it. My theory is that Rand’s appeal is mainly to make college sophomores feel superior to freshmen.

Michael Shermer (via Oliver Kamm) addressed the Randians a few years ago when writing “The Unlikeliest Cult in History.”

One of the closest to Rand was Nathaniel Branden, a young philosophy student who joined the Collective in the early days before Atlas Shrugged was published. In his autobiographical memoirs entitled Judgment Day (1989), Branden recalled: "There were implicit premises in our world to which everyone in our circle subscribed, and which we transmitted to our students at NBI." Incredibly, and here is where the philosophical movement became a cult, they came to believe that (pp. 255-256):

• Ayn Rand is the greatest human being who has ever lived.
• Atlas Shrugged is the greatest human achievement in the history of the world.
• Ayn Rand, by virtue of her philosophical genius, is the supreme arbiter in any issue pertaining to what is rational, moral, or appropriate to man's life on earth.
• Once one is acquainted with Ayn Rand and/or her work, the measure of one's virtue is intrinsically tied to the position one takes regarding her and/or it.
• No one can be a good Objectivist who does not admire what Ayn Rand admires and condemn what Ayn Rand condemns.
• No one can be a fully consistent individualist who disagrees with Ayn Rand on any fundamental issue.
• Since Ayn Rand has designated Nathaniel Branden as her "intellectual heir," and has repeatedly proclaimed him to be an ideal exponent of her philosophy, he is to be accorded only marginally less reverence than Ayn Rand herself.
• But it is best not to say most of these things explicitly (excepting, perhaps, the first two items). One must always maintain that one arrives at one's beliefs solely by reason.

By the way, here's a letter to the editor of the New York Times from November 3, 1957:

To the Editor:

Atlas Shrugged is a celebration of life and happiness. Justice is unrelenting. Creative individuals and undeviating purpose and rationality achieve joy and fulfillment. Parasites who persistently avoid either purpose or reason perish as they should. Mr. Hicks suspiciously wonders "about a person who sustains such a mood through the writing of 1,168 pages and some fourteen years of work." This reader wonders about a person who finds unrelenting justice personally disturbing.

Alan Greenspan, NY

Posted by edelfenbein at 9:50 AM

The Gladwell Bubble Bursts

Over the weekend, Harvard psychology professor, Steven Pinker, reviewed Malcolm Gladwell’s latest, What the Dog Saw, for the New York Times. Pinker writes:

An eclectic essayist is necessarily a dilettante, which is not in itself a bad thing. But Gladwell frequently holds forth about statistics and psychology, and his lack of technical grounding in these subjects can be jarring. He provides misleading definitions of “homology,” “saggital plane” and “power law” and quotes an expert speaking about an “igon value” (that’s eigenvalue, a basic concept in linear algebra). In the spirit of Gladwell, who likes to give portentous names to his aperçus, I will call this the Igon Value Problem: when a writer’s education on a topic consists in interviewing an expert, he is apt to offer generalizations that are banal, obtuse or flat wrong.

Ouch! Steve Sailer notes that Gladwell assertion that quarterback performance isn’t correlated to draft choice is incorrect. Finally, Vanity Fair chimes in with a Gladwellian parody on Christmas:

He is grotesquely overweight. He is childless. He lives in the chilly and undesirable North Pole. He insists on dressing in a bright-red jumpsuit with fur trimmings. He can only ever find employment on one day a year, and, even then, it is night work.

On every accepted level, Santa Claus is a total loser.

Yet this is a man who heads up a brand that commands 98 percent global recognition.

Furthermore, he is universally adored.

How does he do it?

In a controlled research investigation involving uninterrupted surveillance videotaping, a sustained loop of twinkly music, and state-of-the-art ¬merriness-determination equip¬ment, a Dutch santologist named Hans Bunquum discovered the secret to Claus’s phenomenal success.

“The conclusion is both remarkable and inescapable but also—most importantly—counter-intuitive,” Dr. Bunquum told me over a glass of organic lemonade in his stunn¬ing waterstulp, or waterside studio, near Rotterdam. “To become the object of universal love, one must first live with a red-nosed rein¬deer, and then gain a premier position as the sole registered employer of elves in the Northern Hemisphere. It’s as simple as that.”

Posted by edelfenbein at 9:27 AM

Don't Tell Dennis Kneale

The Onion:

CNBC Cameraman Can’t Believe He’s Filming Another Blog Off A Computer Monitor

Posted by edelfenbein at 12:58 AM

A Great Earnings Season

At Zacks, Dirk Van Dijk notes what a good earnings season it's been:

It’s almost time to close the books on a fantastic earnings season. With almost 90% of reports in, there have been 339 that have exceeded expectations while only 62 have fallen short -- a ratio of 5.47. While it is true that most companies will normally try to under-promise and over-deliver, this quarter the beats are beating the misses by about twice the normal margin of 3:1.

Nor have all the surprises only been by a penny or two, but there have been lots of companies that simply crushed their earnings estimates. The median surprise is a very high 7.11%. Over the last five years, a median surprise of about 3.0% has been normal. Part of the reason is that expectations were set very low going into the earnings season.

For most companies, their earnings are still below year ago levels, just not as far down as people thought they would be. Only 193 firms have posted positive year-over-year growth, versus 251 that have fallen short of year-ago levels -- a ratio of 0.77.

The disparity between firms beating estimates but having negative year-over-year earnings growth is particularly noticeable in Tech, where the earnings surprise ratio is an awesome 9.25. However, the growth ratio (# of firms with positive growth/# of firms with negative growth) is just 0.49. A similar situation, but not quite as extreme, is true for Materials. Staples and Medical have been both growing earnings and beating expectations.

On the top line, it has also been a successful season so far (relative to expectations), but in terms of actual year-over-year growth it has been downright ugly The total revenues of the 444 firms that have already reported are 13.4% below year-ago levels. A total of 241 firms have reported higher-than-expected revenues, versus 176 that have disappointed, for a ratio of 1.37. On the other hand, only 127 actually had higher sales than a year ago, versus 314 with lower revenues, a ratio of 0.40. Put another way, only 28.6% of all firms reporting so far have had higher sales than a year ago.

In other words, cost-cutting has been the major force driving earnings and earnings surprises. However, the costs to one company are either the revenues of another company or someone’s paycheck, which is then spent to create revenues for firms. The bottom-up data coming out of all these individual firms seems to confirm what we have been getting from the government's macro statistics. The economy is growing due to increases in productivity. Higher GDP with fewer workers.

Posted by edelfenbein at 3:54 PM

10 States Facing Budget Disasters

I'll spare you the suspense -- California is one.

Posted by edelfenbein at 10:01 AM

Why Lord Why

The Wall Street Journal reports:

Hewlett-Packard Co. agreed

me running slow motion

to acquire

waving my arms

networking-equipment maker 3Com Corp.

screaming

in a deal the companies valued

NOOOOOOOOOOOO....

at $2.7 billion.

OOOOOOOOOO.....

Posted by edelfenbein at 6:00 PM

The Humpy Pattern Lives

The S&P 500 closed at its highest level in 13 months. During the day, we got as high as 1105.37, but we haven’t been able to hold 1,100 going into a close yet. The S&P 500 was down slightly yesterday but the Dow was up. In fact, the Dow has been up every day this month.

I still cling to my Humpy Pattern Thesis. This chart below of the S&P 500 CLEARLY shows a rising pattern of surges—humps if you will. I have no idea what it means for the future but I’m passing it on to you.

Posted by edelfenbein at 5:29 PM

Thanks Vets

Posted by edelfenbein at 9:42 AM

NICK Announces Stock Split

I'm not sure why this is needed, but Nicholas Financial (NICK) has just announced a 10% stock dividend which will be paid on December 7 for shareholders of record of November 20. Think of it as an 11-for-10 stock split.

In other Buy List dividend news, Baxter International (BAX) has raised its quarterly dividend to 29 cents a share from 26 cents. Don't brush off these regular dividend increases, it's often a sign of a strong company.

Posted by edelfenbein at 1:42 PM

The Buy List Hits New High

The Buy List jumped 2.25% today. We're now up 38.66% for the year, which is a new high for the year (not including dividends). The S&P 500 is 21.02% for the year.

Posted by edelfenbein at 5:45 PM

A Fed Rate Increase By June?

The futures market thinks so:

U.S. Federal Reserve Chairman Ben S. Bernanke may start to increase borrowing costs in June, according to Fed funds futures prices compiled by Bloomberg. Traders assign a 54 percent chance of an increase to at least 0.5 percent at the end of the Federal Open Market Committee’s meeting on June 23, when the American economy is forecast to be in its fourth straight quarter of expansion, according to estimates compiled by Bloomberg.

Posted by edelfenbein at 11:17 AM

Barron’s Highlights Altria

Tobacco companies are hated by the public but the stocks are very tempting financially. Over the weekend, Barron’s looked at Altria (MO):

At around 18.50, Altria has one of the lowest price/earnings ratios in the global cigarette industry. It also has one of the highest dividend yields: 7.3%. The stock trades for 10.6 times projected 2009 profits of $1.77 a share and 10 times estimated 2010 earnings of $1.87. Even Reynolds American (ticker: RAI), with weaker brands, sports a slightly higher P/E on a 2010 basis.

At its current price, Altria's stock appears to have little downside and significant appreciation potential. One of the company's prime assets is a 27% stake in international brewer SABMiller (SAB.U.K.), which is worth $11.5 billion, or 30% of Altria's current market value.

Altria has lost some cachet in the investment community since the 2008 separation of its international tobacco operations. The faster-growing spinoff, Philip Morris International (PM), trades around 49, or for 15 times projected 2009 profits, a sizable premium to Altria.

Those are very solid numbers. I’d add that the company has consistently met or beaten earnings for the past few quarters, so it may be going for even less than 10 times next year’s earnings.

Posted by edelfenbein at 10:26 AM

Herb Brooks' Pre-Game Speech from Miracle

Kurt Russell also did a version.

Posted by edelfenbein at 3:32 PM

Single Letter Ticker Symbols

Congratulations to Hyatt Hotels (H) on their recent IPO. They had the rare honor of getting a single-letter ticker symbol. There are only six left -- I, J P, U, W and Z.

For possible future reference, the symbol CWS is also open.

Posted by edelfenbein at 6:17 PM

Bernstein's Target for AMZN = $160

Really? Is that 160 U.S. dollars, or is it pesos?

I've been totally and completely wrong on Amazon (AMZN) but I won't give in so easily. I do not get it's current price of $125 which is 50 times next year's earnings. The analyst at Bernstein sees it going to $160.

Posted by edelfenbein at 3:55 PM

Montana Farmers Fear a Buffett ‘Dictatorship’

The WSJ reports on the fear of an Omahalebensraum:

Few states have more at stake in Warren Buffett’s acquisition of Burlington Northern Santa Fe than Montana. The company owns 90% of the state’s tracks, which are the primarily means for Montana farmers and coal miners to ship their goods across the country.

To get a sense of how the deal is being received in the Big Sky state, Deal Journal reached out to Alan Merrill, president Montana Farmers Union, who can watch Burlington Northern’s grain cars rumble along outside his Great Falls, Mont., office six or seven times a day.

For years, Merrill says, the state’s 11,000 farmers have complained about the monopoly that Burlington Northern holds over rail shipping in Montana. He hopes Buffett, who lives in the middle of corn-growing country in Omaha, Neb., will be sympathetic to farmers’ concerns about what they consider to be high rates on their barley and wheat shipments.

Posted by edelfenbein at 3:26 PM

Those Evil Drug Companies

Business Week reports:

On Oct. 8, Senator Al Franken (D-Minn.) introduced a bill proposing that drugmakers no longer be allowed to deduct marketing expenses from their taxes, as companies generally can. "This legislation will remove these benefits so pharmaceutical companies can focus on developing new drugs, not excessive marketing schemes," Franken's office said in a statement.

Developing new drugs is a great idea! Of course, that will requite money. Now where would that come from?

Posted by edelfenbein at 12:05 PM

Today’s Jobs Report

Ugh! Today’s jobs report was ugly. Hideous.

The nation’s unemployment rate is now up to 10.2% which is the highest in 26 years. Even though the economy may be growing, we’re not creating jobs. Here are some stats to consider. Over the past two years, the number of unemployed has jumped by 8.4 million to 15.7 million. The number of employed has dropped by 7.6 million and only 0.8 million have joined the workforce. Add the two together and you get the 8.4 million increase in unemployment.

However, that 0.8 million increase in the workforce is puny. During the same time, the civilian population grew by 3.8 million, meaning only about one-fifth of the increase joined the jobs market compared with the historical average of three-fifths.

The ratio of employed to the population is now 58.45%. Nine years ago, it was 64.24%. If we had the same rate today, over 13.6 million more people would be employed.

Posted by edelfenbein at 9:25 AM

NYC Election By Precinct

The New York Times has a great interactive map of the New York City Mayoral election at the precinct level. I love this kind of stuff. I could spend hours browsing through the boroughs.

I’m curious what the average victory margin is. After looking at the map, it seems like most them go 80% or more for either Bloomberg or Thompson. I noticed that one precinct in Brighton Beach voted for Bloomberg by 216 to 4. That’s so extreme that it makes me less likely to think it’s fraudulent. Cheaters aren’t that bold. Not too far away, there’s a precinct that voted for Thompson 212 to 22.

Ah, New York! You’re one big finely sliced Apple.

Posted by edelfenbein at 11:27 PM

Your Government at Work

Consumers have been saved from the evils of a corporate monopoly -- in the pretzel industry.

Over in Europe, regulators are playing it tough with the likes of Sun Microsystems and Intel.

Here in the U.S., anti-trust regulators are cracking down on pretzels?

This afternoon, the small, family-owned pretzel company, Synders of Hanover, Penn., said it was scuttling its plans to acquire crosstown snack food maker Utz Quality Foods Inc. because it didn’t want to bare the cost of an escalating inquiry in into the deal by the Federal Trade Commission. According to Utz, the FTC had made a second request for information about its business.

“We knew that participating in another FTC request would put a strain on our company and ultimately distract us from what we are here to do every day, which is to provide high-quality snacks to our customers and serve our community,” said Utz chief executive Michael Rice in a statement.

(HT: Vince Veneziani)

Posted by edelfenbein at 6:40 PM

See a Pattern?

Here's the S&P 500. I think I can make out a pattern of four rising humpy things. I have no idea what it means, but there you go.

If the current humpy thing doesn't pass the last humpy thing, then that probably won't be good*. Unless of course, there's a new and higher humpy thing. Bottom line: It remains to be seen.

* This how all technical analysis sounds to me.

Posted by edelfenbein at 2:01 PM

Sell In May and Go Away Didn't Work

From Gary Alexander:

One of the most widely-touted market calendar myths is that you should “sell in May and go away.” This system apparently worked well from 1950 until 2004. The theory runs like this: Brokers love to enjoy the summer market doldrums at the beach and then come back after Labor Day to sell stocks, causing a scary decline. Then, in November, they buy back for year-end “window dressing” in a “Santa Claus Rally.”

According to the Stock Trader’s Almanac (2006 edition), the 55-year Dow gain (1950 to 2004) from November 1 to April 30 was nearly 50-fold (or +7.9% per year, on average), while you actually lost money (-5%) in the May 1 to October 31 period. Final tally: +4,900% in cold months vs. -5% in warm months. Practically, this means investing in stocks November 1 and switching to fixed income on May 1.

Sounds convincing! Alas, this hoary old theory didn’t work in 2009: The S&P 500 gained 18.7% from May to October, even including the disappointing 250-point Dow drop last Friday. In the previous six months – in the supposedly superior November 1 to April 30 period – the S&P fell 9.9%. Over the past seven years, the November-April gains have averaged 1%, while the May-October gains averaged +3.3%.

So, ask yourself: Do you really want to throw away the 3.3% average recent gains from May 1 to October 31, based on a theory that worked last century? And do bank CDs or Treasury bonds on the “sidelines” offer you anything better than a 6.6% annual rate? And don’t forget the tax consequences of short-term trading. If you’re trading in a taxable account, six-month switches can decimate your after-tax gains.

My answer: Don’t sell in May, and don’t go away. Switching sectors might be prudent, but not leaving stocks altogether. However, if you’re looking for a good time to buy, November is still #1, historically.

Posted by edelfenbein at 12:50 PM

Earnings from Moog and Becton, Dickinson

We had two more Buy List earnings reports. Becton, Dickinson (BDX), which I like a lot, saw its earnings rise to $1.25 a share for its fiscal fourth quarter which matched estimates. They made $1.11 for last year’s fourth quarter. Wall Street expects earnings next year of $5.09 which works out to a growth rate of 3%. This means the stock is currently going for about 13 times earnings.

As I’ve mentioned before, I haven’t been very pleased with Moog (MOG-A) this year. The stock is down about 30% and it’s the worst performer on the Buy List. For this past quarter, the company earned 35 cents a share which was less than half what they made for last year’s third quarter. They missed Wall Street’s call by a penny a share. For the second quarter, they missed the Street by 10 cents a share.

The only good news is that Moog sees EPS ranging between $2.15 and $2.35 for next year, which means the stock is somewhat reasonably priced.

Posted by edelfenbein at 12:08 PM

The Periodic Table of Finance Bloggers

I'm honored and humbled to be included on The Reformed Broker's Periodic Table of Finance Bloggers.

Posted by edelfenbein at 10:18 AM

Today's Productivity Report

I'm simply stunned by today's report on productivity.

The productivity of U.S. workers surged in the third quarter at the fastest pace in six years as companies squeezed more from remaining staff to boost profits.

The measure of employee output per hour jumped at a 9.5 percent annual rate, topping the highest estimate of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. Labor costs fell at a 5.2 percent rate, capping the biggest 12-month drop since records began in 1948.

Posted by edelfenbein at 10:15 AM

Quote of the Day

From Eric Falkenstein: "A prig is someone wedded to a theory that explains everything, and can be highly mathematical and conventional, like Phillipe Jorion, or highly obtuse, like Nassim Taleb's insight that 'risk is what you don't expect' [which I find not profound, but irrelevant]."

Posted by edelfenbein at 10:10 AM

Something about Decades

With only a few trading left for the “aughts,” I’m reminded that many cycles have begun and ended when the tens digit changes on the calendar. There was, of course, some unpleasantness in 1929. Also, the price of gold peaked a few days into 1980. The Japanese market peaked on the very last day of the 1980s. The Nasdaq’s run reached its zenith not long into 2000. Gold also reached its most recent low point in mid-1999.

If read this kind of thing in the newspaper, I’d dismiss it as someone being fooled by randomness. Still, it is interesting to note.

Posted by edelfenbein at 9:49 AM

Gold Hits New All-Time High

The yellow metal is closing in on $1,100 an ounce. But gold has a long way to go to match its inflation-adjusted high from 30 years ago. Gold would still have to double from here to reach that.

Posted by edelfenbein at 9:35 AM

Historical Footnote to Today’s Election

Today is Election Day in New York and after 34 years in office, 90-year-old Robert Morgenthau did not seek reelection as Manhattan’s District Attorney. It’s an understatement to say that Morgenthau is a legend in New York politics. Consider that he ran for governor 47 years ago when he lost to Nelson Rockefeller. Obama was a little over one-year old at the time! Morgenthau tried running again in 1970 but his campaign didn’t get far.

Morgenthau also comes from a very prominent New York family. His father was FDR’s Treasury Secretary, and his grandfather was Wilson’s ambassador to—not Turkey—but the Ottoman Empire (or if you prefer, the Sublime Porte). Henry Morgenthau Sr. is probably best known for publicizing the Armenian Genocide.

Also, on the TV show Law & Order, the elderly DA Adam Schiff is based on Robert Morgenthau.

Posted by edelfenbein at 10:57 PM

Berkshire Hathaway to Split 50-for-1

It finally happened. Warren Buffett's Berkshire Hathaway (BRKB) announced that it will split 50-for-1. These are the B shares, not the A shares which are still around $100,000.

The Class A and B shares usually trade at a ratio of 30-to-1. If you own the Class A shares, you can convert it into 30 B shares, but not the other way around. The B shares, however, only carry 1/200th the voting power of the A shares.

In other words, post-split, the B shares will be about 1/1500th of the A shares. Going by today's price, the B shares will be around $65.

Posted by edelfenbein at 10:47 AM

Cognizant Technology Rises on Earnings

One today after saying that I’m probably going to ditch Cognizant Technology (CTSH) at the end of the year, the company comes out with great earnings.

For the third quarter, CTSH earned 48 cents a share which creamed Wall Street’s estimates of 41 cents a share. For the fourth quarter, the company sees EPS of 49 cents a share.

The company now expects earnings for this year of $1.88 a share. That means that it’s going for 22 times earnings which is a bit rich for me.

Posted by edelfenbein at 10:45 AM

Thoughts on Next Year’s Buy List

Around mid-December, I’ll unveil the Buy List for 2010. As usual, I’m only planning on making minor changes. My goal of this site is to prove that investors can beat the stock market by not doing much. With investing, your laziness is often your best friend.

I try to make sure that my changes aren’t a big surprise so I’ll share with you some of my thoughts about the Buy List. Some of the stocks that I’m considering cutting are Amphenol (APH), Cognizant (CTSH), Donaldson (DCI), Danaher (DHR) and Moog (MOG-A). Both DCI and DHR have been on the Buy List since the beginning.

Stocks I’m considering adding include Johnson & Johnson (JNJ), Pfizer (PFE), Abbott Labs (ABT) and WR Berkley (WRB). WRB was on the Buy List in 2006 and 2007. These are just ideas so I may change my mind before I make the 2010 Buy List official in a few weeks.

Posted by edelfenbein at 12:38 PM

Sysco Beats by a Penny

This morning, Sysco (SYY) reported fiscal Q1 EPS of 46 cents, one penny ahead of expectations. The results don’t include an 11-cent tax benefit.

I like Sysco’s business because it’s remarkably stable. However, this is the fourth straight year-over-year decline for Sysco. In the comparable quarter from last year, they made 45 cents a share, so the decline isn’t that much.

Since the earnings declines have been getting smaller, I think it’s very likely that this will be the last one. The stock is reasonably well-priced though it’s not an outrageous bargain.

Posted by edelfenbein at 10:55 AM

Arnold Kling on the Bond Bubble

Arnold debates the marekt:

Markets: With so much unemployment and excess capacity, we cannot possibly have inflation.

Kling: Do you not remember the 1970's? Furthermore, you may be over-estimating the excess capacity. An excess capacity to sell houses and trade securitized debt may not help absorb demand in other sectors.

Markets: The Fed has no plan to raise interest rates. Therefore, interest rates cannot rise.

Kling: The Fed merely determines the composition of government debt. The amount of government debt is determined by fiscal policy, which the Fed does not control. At some point, the huge supply of government debt has to matter. If the public loses its appetite for government bonds, then the only way the Fed can absorb the supply is to print gobs and gobs of money. Prices will rise, and bond-holders will suffer a partial default in terms of purchasing power. Even if the Fed is relatively passive, I think that the high-inflation scenario is plausible.

Markets: I can hold bonds for now. If inflation threatens to come back, I will see it in plenty of time to get out.

Kling: That is how bubbles work. Everyone thinks that they have more protection from the bubble than they really have. Personally, in spite of the inflation bets in my portfolio, my big worry is that I do not have protection from the political risk and financial chaos that could come from a sovereign debt crisis.

Posted by edelfenbein at 10:28 AM