Archive for 2007

  • The Stock Market in Euros
    , May 4th, 2007 at 12:46 pm

    In July 2002, the dollar and the euro reached parity. But today, the euro is 35% higher.
    Here’s what the Wilshire 5000 Total Return Index (^DWCT) looks like in dollars (red line) and adjusted for euros (black line).
    image467.png

  • Microsoft to Buy Yahoo?
    , May 4th, 2007 at 8:10 am

    The New York Post:

    Stung by the loss of Internet advertising firm DoubleClick to Google last month, Microsoft has intensified its pursuit of a deal with Yahoo!, asking the company to re-enter formal negotiations, The Post has learned.
    While Microsoft and Yahoo! have held informal deal talks over the years, sources say the latest approach signals an urgency on Microsoft’s part that has up until now been lacking.
    The new approach follows an offer Microsoft made to acquire Yahoo! a few months ago, sources said. But Yahoo! spurned the advances of the Redmond, Wash.-based software giant. Wall Street sources put a roughly $50 billion price tag on Yahoo!.

    Fifty billion??
    No. No way. Never.
    By my math, that’s $36 a share, eight bucks above yesterday’s close. It’s eight times next year’s sales and 52 times earnings.
    If Google went for that much, it would be a $1,000 stock.

  • The Magazine Cover Indicator
    , May 3rd, 2007 at 10:33 am

    In August 1979, BusinessWeek ran its famous “Death of Equities” cover. The bull market began three years later (to the day).
    Now three finance professors have looked at the impact of magazine covers on stock prices. As you might guess, it’s a contrary indicator:

    A recent article in The Financial Analysts Journal by Thomas Arnold, John H. Earl Jr. and David S. North, all finance professors at the University of Richmond, called “Are Cover Stories Effective Contrarian Indicators?” offers an intriguing finding.
    The professors look at how a company’s stock responds to a cover story in BusinessWeek, Fortune and Forbes. They find that positive stories follow periods of positive performance and negative stories follow periods of negative performance, which admittedly is not too surprising. More interesting, they also find that the appearance of a cover story tends to signal the end of the abnormal performance. Hence, individuals who trade on such “news” are not likely to do well.
    This is not to say that articles in the financial press are not worth reading. Quite the contrary. They often provide insightful reporting and in-depth analysis. But by the time the articles have been researched, written and published, they are no longer news — the market price of the stock already reflects the company’s future prospects.
    Taken together, this research offers yet more support for the time-tested investment strategy of buy and hold. Anything that you think is news is old hat to the professionals. Trying to outguess the market is a sucker’s game.

  • Productivity Growth Slows
    , May 3rd, 2007 at 9:51 am

    The Labor Department reported that productivity growth slowed to 1.7% in the first quarter. That’s not a very good number, and productivity has been a bit sluggish in the past three years.
    Still, today’s report marks an important milestone. The “American Productivity Miracle” began exactly ten years ago. This reversed a 24-year slide in productivity.
    Despite weaker numbers in recent years, productivity has grown by an annual rate of 2.77% for the last ten years. To put that in perspective, in the ten years prior to that, productivity grew by just 1.56% a year. And in the ten years before that, it grew by just 1.23% a year.
    It’s hard to overstate the importance of improved productivity. It allows workers to do more with less. Inflation is also kept down due to higher productivity, and by extension, interest rates are lowered.

  • The Subprime Fallout hits GM
    , May 3rd, 2007 at 9:14 am

    How’s this for subprime fallout? Profits at GM (GM) dropped 90% from last year due to bad loans at its GMAC unit.
    This is sad because GM was improving so nicely. Last year, the company only lost $2 billion compared with the $10 billion it lost in 2005.
    But now the subprime mess has caught up with GM. Last year, GMAC’s Residential Capital earned $201 million. This year, it lost $905 million. GM had recently sold 49% of its stake in GMAC to Cerberus Capital Management.
    Bloomberg noted that the yield on GM bonds due in 2033 fell to 9.2%.

  • Dual-Class Share Structure
    , May 2nd, 2007 at 1:09 pm

    Just a quick note on Murdoch’s bid for Dow Jones (DJ). I can’t think of a better argument against dual-class shares than the Bancroft family’s public rift over the offer.
    The family’s super shares have ten times the voting power of the Class A shares (by the way, the same thing exists at many other companies like Google). There are at least 35 family members with super shares.
    A Bancroft family representative said that “slightly more than 50%” of DJ’s voting power is against the deal. Breaking out the math, that means that about 80% of the family’s 64% is voting “No.” But still, we now know that some in family are for it, and “some” is all we need to make a point. The idea of super shares is so families can maintain control, but families don’t act as a single unit.
    The idea of family control is turning back on itself. Couldn’t it be said that the family members in favor of the deal are speaking in the family’s interest? I certainly think so. Dear lord, it’s a 67% premium for a stock that hasn’t moved in eons. Before the offer, the stock was lower than where it was 24 years before while the Dow is up more than 10-fold. How much more evidence do we need that something needs to be done.
    The family can’t hold back change forever. The company will have to be revamped, and hopefully it will happen before the Dow Jones Murdoch Industrial Average goes up another 10-fold.

  • “They were able to manage through that fantastically.”
    , May 1st, 2007 at 8:44 pm

    IBD looks at Amphenol (APH):

    It’s hard to avoid: If a firm’s costs go up, its profits go down.
    Amphenol (APH) has impressed investors by bucking this logic.
    The firm makes connectors, the thousands of different products that link electronic gizmos. Its connectors end up in cars, planes and almost any device that uses electric or fiber optic signals. It also makes cables.
    To manufacture all this, it needs raw materials. They include gold, aluminum, copper and oil-based resin. Prices of those commodities have skyrocketed.
    Yet with material costs rising, the firm managed to boost profits.
    Raw materials were a “big head wind,” Shawn Harrison of Longbow Research said. “They were able to manage through that fantastically.”

  • No Comment
    , May 1st, 2007 at 4:37 pm

  • The Portfolio Pile On
    , May 1st, 2007 at 10:54 am

    Conde Nast’s Portfolio has not gotten off to a great start. Now Dan Gross calls Tom Wolfe’s piece about hedge funders “astonishingly lame.”

    When Wolfe does give us a name, the piece reads like a clip job. He introduces us to Thomas Hudson’s Pirate Capital and Daniel Loeb’s acid pen—both nicely described in Steve Fishman’s New York piece three years ago. As BusinessWeek did four years ago, Wolfe describes Stevie Cohen’s mammoth house: “32,000-square-foot clubhouse and 14 acres of grounds! Next to Stevie’s art collection—which is nothing less than a world class museum!—Stevie’s indoor basketball court, year-round swimming pool under glass, his gym, his spa facility, his theatre for movies and every other electronic medium, his hair salon, two putting greens complete with sand traps and a fairway in between, and, as the piece de resistance, an ice rink the size of Rockefeller Center’s with a 36-by-24-foot rink house for the Zamboni!” This is like a Wolfe parody, a laundry list punctuated by exclamation points!!
    Indeed, there’s little evidence that Wolfe has any firsthand experience with these people. Yes, he attended the Robin Hood Foundation gala, and describes a scene at the wedding of Carl Icahn’s stepdaughter. But I don’t think he knows many of the young guys he so self-assuredly describes. (Maybe it’s because he doesn’t know where to look. At one point, he refers to “Merrill Lynch’s 41-story building in Times Square.” Perhaps he means Morgan Stanley‘s.)

  • Great Business, Bad Stock
    , May 1st, 2007 at 10:25 am

    Despite great business results, Google‘s (GOOG) stock hasn’t been such a winner. Since the beginning of last year, the stock is trailing the S&P 500, although there have been better entry points along the way.
    GOOG1r.gif