Archive for 2006

  • First They Came for the Reindeer….
    , December 2nd, 2006 at 12:48 pm

    Peepen.jpg
    Yikes! The War Against Christmas is much worse than I thought.
    (Hat Tip: Agatha.)

  • A Look at the Very Long Term
    , December 1st, 2006 at 12:27 pm

    Through yesterday, the S&P 500 is up 12.2% for the year, and 14.2% including dividends.
    Going back to 1925, the stock market is up over 300,000% (I’m using numbers from Ibbotson Associates, plus I’ve added my own to fill in the gaps). Over the last 80 years and 11 months, the stock market has gained an average of 10.24% a year, that’s including dividends. Inflation has averaged just over 3% a year, and the after-inflation return of equities works out to 7.16% a year. That means that, on average, stocks double their value, in real terms, every ten years.
    Here’s a graph of the after-inflation total return of stocks going back to 1925. It’s a logarithmic chart, and I’ve included a 7% trend line for perspective:
    image301.png
    I think it’s interesting that the market soared above its trend line in the mid-50s, and stayed there for about twenty years. It then sank below it for the next several years. In fact, hugging the trend line, as we have recently, seems to the unusual pattern. It’s also interesting that 1987 now only appears as a little blip.
    Here’s the chart again, but this time I divided the stock market line by the trend line:
    image303.png
    We’re still smack in the middle of the long-term trend.

  • A Buyout of Home Depot
    , December 1st, 2006 at 10:14 am

    It’s official. Private equity has officially gone bonkers.
    The big news today is that some investors are interested in buying Home Depot (HD).
    That’s right, Home Freakin Depot. Private investors are thinking of buying a Dow component. Dear lord! And it’s one of the real ones, not Alcoa.
    In my mind, Home Depot is still cheap. The earnings have been disappointing, but nothing horrible. HD is going to make about $6 billion this year. It pays a good dividend (raised by 50% twice this year), and the company is working to alter its business model.
    The question we have to ask is if HD can change from a company that grew 18% a year to a company that will grow by 10%-12% a year. I think Nardelli realizes the problems HD faces.
    The Home Depot expects 12% sales growth next year, and EPS growth of 4%-5%. But then what?

  • The 10-Year Yield is Below 4.5%
    , November 30th, 2006 at 1:52 pm

    I don’t know how much longer this bond rally can go on. The 10-year yield (^TNX) is now below 4.5%. It hasn’t closed below 4.5% in ten months.

  • The Dollar’s Effect on the Stock Market
    , November 30th, 2006 at 11:30 am

    The stock market has been freaked out lately due to the falling dollar, and the evidence shows that stocks prefer a strong greenback.
    Since 1973, the dollar has risen on 4,189 days, fallen on 4,130 and stayed the same on 130. On the days of the higher dollar, the S&P 500 has risen a collective 2,356%, which is about 21.3% on an annualized basis.
    On days of a falling dollar, the S&P 500 dropped over 55%, which works out to 4.8% on an annualized basis.
    For the 130 days when the dollar is unchanged, the market is up 6.7%, or about 14.1% annualized.
    Think of it this way, a weak dollar is basically the equivalent of a bear market for stocks.

  • GDP Growth Revised Higher
    , November 29th, 2006 at 10:52 am

    The government revised GDP higher for the third quarter. The economy grew by 2.2% instead of the 1.6% the government said last month. Economists were expecting a revision to 1.8%.
    This begins my quarterly rant against government revisions. I don’t understand why the Commerce Department continually releases data that everyone knows will be altered in a few weeks. I’d much rather wait to get data, then to have data that’s always changing.
    Over the summer, the Commerce Department revised all the GDP numbers going back to 2003. So even after the monthly revisions, the government can step in and revise data going back a few years.

  • Donaldson -7.4%!
    , November 28th, 2006 at 2:14 pm

    Here’s a quick lesson on investing: Today’s move in Donaldson makes no sense whatsoever. The company did exactly what was expected. In fact, sales came in a little better than expected. I don’t care how anyone runs the numbers, this move just doesn’t make sense.
    Don’t get me wrong. I never get mad at the market. Your stocks don’t know you own them. Even if they did know, they still wouldn’t care. But sometimes, the daily moves in the market are simply beyond any analysis.
    It’s perfectly understandably that people need reasons. If the stock is down, there must be a why. But sometimes, there isn’t. It just happens.
    I’ll give you a good example. In July 2002, Wrigley‘s (WWY) plunged. There was no news at all. I remember watching the stock. Every day, it just fell and fell. Sometimes the market does things that don’t add up.
    The odd thing about Donaldson is that the stock was trading higher after hours yesterday, and it even gapped higher at today’s open. I’m not worried at all. This is still an excellent stock.

  • My Favorite Links
    , November 28th, 2006 at 2:00 pm

    I don’t this often enough, but if you have a chance, please check out some of the bloggers from my links page.
    There are lots of terrific stock bloggers out there. Some of my daily reads include:
    10Q Detective
    Abnormal Returns
    B-Riz
    Confused Capitalist
    Deal Breaker
    Footnoted.org
    Herb Greenberg
    Jeff Matthews
    Marginal Revolution
    Random Roger’s Big Picture
    Seeking Alpha
    The Stalwart
    Wall Street Folly
    Ticker Sense
    Brett Steenbarger
    Enjoy. I’ll be here when you get back.

  • Thoughts of the 2007 Buy List
    , November 28th, 2006 at 12:05 pm

    Mark your calendars now! I’m going to unveil my 2007 Buy List on Friday, December 15. I won’t start tracking the new list until Tuesday, January 2, which will be the first day of trading of 2007. I use this lag period so no one can say I’m cheating or front-running, or whatever else I’m accused of.
    I’ll ruin the suspense right now. Next year’s Buy List will look a whole lot like this year’s I’ll probably keep about half the current stocks and add some new names. Once again, I’ll cap the list at 20 stocks.
    Here’s my current Buy List with some preliminary thoughts on each stock. Please note that I’ll probably change my mind between now and December 15, but I wanted to show you what I’m thinking as of now.
    AFLAC (Keep)
    Bed Bath & Beyond (Keep)
    Biomet (Keep)
    Brown & Brown (Not sure)
    Donaldson (Keep)
    Dell (Dump)
    Danaher (Keep)
    Expeditors International (Dump)
    FactSet Research Systems (Not sure)
    Fair Isaac (Keep)
    Fiserv (Not sure)
    Home Depot (Keep)
    Harley-Davidson (Not sure)
    Medtronic (Keep)
    Respironics (Keep)
    SEI Investments (Not sure)
    Sysco (Keep)
    UnitedHealth Group (Keep)
    Varian Medical Systems (Keep)
    Wachovia (Dump)
    Here are some stocks I’m thinking about adding:
    Johnson & Johnson (JNJ)
    Nicholas Financial (NICK)
    Progressive (PGR)
    Pool Corp. (POOL)
    American Vanguard (AVD)
    Sonic (SONC)
    O’Reilly Automotive (ORLY)
    Johnson Controls (JCI)
    Lincare (LNCR)
    Patterson (PDCO)
    Getty Images (GYI)
    Coastal Financial (CFCP)
    Graco (GGG)
    Courier (CRRC)
    Like I said, this is all preliminary. If you have any favorites, let me know now!

  • The Bond Bubble?
    , November 28th, 2006 at 10:05 am

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    Yields at the long-end of the yield curve are near their lowest levels in nine months. Have you ever noticed that the media never questions the judgement of the bond market? There’s no such thing as a bond bubble. That only holds for stocks and real estate. Bond traders are somehow always right. Same thing for oil traders. Funny how they’re immune from being irrational.