Archive for 2007

  • The Fed Should Cut Rates By 0.25%
    , June 26th, 2007 at 10:00 am

    The Federal Reserve is meeting this week, as it’s almost universally expected that nothing will happen. I agree, the Fed won’t raise or lower rates, but I think it’s time that the Fed should lower interest rates. I’m not pushing for a big cut, just a small 25-basis-point cut for now, and we can see where that leads us.
    Historically, there have been “fine tuning” measures from the Fed. Ten years ago, the Fed bumped up rates from 5.25% to 5.5%. That was the only move in nearly two-and-half years.
    The main reason for my outlook is the sudden drop in short-term interest rates. The 90-day T-bill and the Fed Funds rates almost always track each, but not lately. Last week, the yield on short-term Treasuries dropped below 4.4%. That’s a difference of over 85 basis points from the Fed, and it’s the widest such spread in six years.
    Clearly, the market wants a cut. I think the Fed has been most effective when it has given the market what it wants instead of trying to push it where it doesn’t want to go.
    The other reason is that inflation seems to be cooling off. Last October, the core rate of inflation got to 2.9% and now it’s backed off to just 2.2%. Most surprisingly, that’s exactly what the Fed said will happen (here’s my exclusive coverage of Bernanke’s testimony from last July).
    I know there are many concerns about the government’s measure of inflation, and the use of the core rate. I think these arguments are correct, however, my concern here isn’t the level of inflation but the direction. Inflation maybe higher than they’re telling us, but it’s lower than where it was. This means that the “real” Fed Funds rate, meaning the difference between the Fed’s target rate and inflation, has been increasing. So in effect, as inflation has cooled off, it’s been as if the Fed has continued to raise rates.
    The real Fed Funds rate is now slightly over 3%. Historically, anything more than that is trouble for the economy. I also don’t get how gold can be around $650. With 3% real rates, that seems massively overpriced.
    Here’s a chart of 90-day T-bills (yellow), the Fed Funds rate (blue), core inflation (black) and the real Fed Funds rate (red) going back to 1991.
    image485.png

  • That Was Quick
    , June 25th, 2007 at 3:14 pm

    Blackstone (BX) is about 10% below today’s open.
    BXtoday.png

  • News Items
    , June 25th, 2007 at 1:17 pm

    Here are a few news items over the past few days:
    I’ll start with a positive article on Jos. A. Bank (JOSB). JOSB has been, by far, our best stock this year.
    Medtronic (MDT) raised its dividend from 11 cents a share to 12.5 cents a share. The company has increased its dividend every year since 1978. Medtronic also increased its stock buyback plan by 50 million shares, which is about 4.4 % of the outstanding shares.
    Shares of Harley-Davidson (HOG) got a boost on Friday due to rumors of a buyout from Honda. Please. There’s no way that would have happened. Honda officially squashed the rumor, and HOG is lower today.
    Finally, Bed Bath & Beyond (BBBY) reports earnings on Wednesday. Earlier this month, the company issued its first-ever profit warning. The Street was expecting 39 cents a share, but BBBY said it will be between 36 and 38 cents a share. The stock is down over 8% since then. Historically, earnings for the first quarter make up about 15% of the full-year earnings. I wouldn’t be surprised to see EPS of 39 cents.

  • Greenspan Comes Out Of Retirement For One More Interest Rate Hike
    , June 25th, 2007 at 9:00 am

    ahhhh.jpg
    The Onion scoops Wall Street:

    Confirming a rumor that first appeared in March on the FDIC Fan Forum message board, former Federal Reserve chairman Alan Greenspan came out of retirement Tuesday to raise interest rates on federal funds by a quarter of a point.
    “You may remember this one from 1989,” said Greenspan, barely audible above the roar of an estimated crowd of 20,000 gathered in front of the Marriner S. Eccles Building. “But before I start, I think I’m gonna need [current Federal Reserve chairman] Ben [Bernanke]’s help with this. C’mon up here, Ben.”
    Greenspan refused to comment on buzz that he was planning a five-nation comeback tour to stabilize international housing markets.

    There really is a Fed meeting this week and I wouldn’t mind seeing a 0.25% cut.

  • Just Another Friday
    , June 22nd, 2007 at 1:58 pm

    Tom Wolfe:

    We may be witnessing the end of capitalism as we know it.

    Paris Hilton:

    I’m much more grateful for everything that I have, even just to have a pillow at night or food.

    Here are the 10 largest IPOs:
    Stock……………………………………………….Value…………..Date
    AT&T Wireless Group……………………….$10,620.0…….26-Apr-00
    Kraft Foods Inc……………………………….$8,680.0………12-Jun-01
    UPS………………………………………………$5,470.0………9-Nov-99
    KKR Private Equity Investors…………….$5,048.8………3-May-06
    CIT Group Inc…………………………………$4,866.2………1-Jul-02
    Conoco………………………………………….$4,403.5………21-Oct-98
    Travelers Ppty Casualty Corp…………….$4,273.5……..21-Mar-02
    Agere Systems Inc…………………………..$4,140.0………27-Mar-01
    Blackstone Group LP………………………$4,133.3……..21-Jun-07
    Charter Communications Inc………………$3,714.5………8-Nov-99

  • SEI Investments Splits 2-for-1
    , June 22nd, 2007 at 10:03 am

    One of our Buy List stocks, SEI Investments (SEIC), split 2-for-1 this morning.
    For tracking purposes, the number of shares will double from 839.4896 to 1678.9792 and the initial price falls from $59.56 to $29.78.
    For more details on how I track the Buy List, see here.

  • Blackstone is LIVE
    , June 22nd, 2007 at 9:53 am

    Blackstone (BX) opened at $36.45 at $17 million shares. That’s 17% higher than the offer price.
    Interestingly, Stephen Schwarzman is not on the floor, but guess who is? Tom Wolfe!

  • Firefox
    , June 21st, 2007 at 8:54 pm

    I just downloaded Firefox—oh my god! OMG! It’s waaay better than IE. I mean WAY better.
    C’mon people…how come no one told me? Why am I always the last person to know about these things?
    If you’ve read this blog for any amount of time, you ought to know that I can’t be trusted with anything technomological.
    Now if you’ll excuse, I have to get back to an exciting game of Parsec on my T1-99.

  • Blackstone Priced at $31 a Share
    , June 21st, 2007 at 5:52 pm

    Hold on, folks. Trading in BX will begin tomorrow. At $31 a share, Stephen Schwarzman’s stake is worth about $7.7 billion. The entire company is worth about $30 billion. Impressive, but it’s still about one-fifth the size of Berkshire Hathaway (BRKA).

  • The Cyclical-Stock Party Is Ending
    , June 21st, 2007 at 12:59 pm

    My latest at RealMoney on the last gasp of the cyclical rally. It’s a paid link, but here’s a sample:

    The CYC is up over 22% this year and up over 40% in the past 11 months. Going back to the March 2003 low, the CYC has jumped 180%, which doubles the S&P 500. Not too shabby.
    But the best has come recently.
    This year, the CYC has already set an amazing 40 new highs. In April it burst through 1000, and it’s quickly closing in on 1100. Like all good rallies, however, this must come to an end, and I’m afraid it won’t be pretty.