Archive for 2007

• Dear March
  Eddy Elfenbein, March 3rd, 2007 at 11:43 pm

  Dear March, come in!
  How glad I am!
  I looked for you before.
  Put down your hat—
  You must have walked—
  How out of breath you are!
  Dear March, how are you?
  And the rest?
  Did you leave Nature well?
  Oh, March, come right upstairs with me,
  I have so much to tell!

  – Emily Dickinson

• It’s Been a Long Week, I Figured You’d Enjoy This
  Eddy Elfenbein, March 3rd, 2007 at 7:38 am

• How Are Sell-Offs Healthy?
  Eddy Elfenbein, March 2nd, 2007 at 3:50 pm

  Yesterday, the AP ran a story, “Market plunge seen as healthy.”

  As difficult as it might be to explain to investors who lost a total of $632-billion in Tuesday’s market carnage, a correction isn’t necessarily a bad thing. It may have reacquainted investors with the concept of risk.
  “Corrections like this are the financial equivalent of castor oil,” said Hans Olsen, chief investment officer at Bingham Legg Advisers in Boston. “It’s good for you, you don’t like it, but you have to take it.”

  This is one of my pet peeves. People often want to make capital markets into something they’re not. They get carried away with sloppy metaphors.
  For the record, markets are not at all like human beings. Going to the dentist may be very unpleasant, but ultimately good for you. Markets do not work that way. A sell-off is a sell-off. A rally is a rally. There’s no such thing as a good, or “healthy” sell-off, or a bad rally.
  I have to stop and think, what exactly does a healthy sell-off mean? I honestly don’t understand the phrase. I think it’s one of those phrases people repeat often enough without considering what it means. When you say it, you sound intelligent–even a bit clinical. But is a “healthy” sell-off one that will immediately turnaround? If it is, why isn’t the market doing right now, instead of…well, selling off?
  I absolutely agree that sell-offs are natural. That’s capitalism. This is what markets look like. But the healthy part I don’t get—the idea that implicit in the sell-off is reason for it not to sell-off. Does that make sense to you?
  Here are quotes from the past week:
  International Herald Tribune

  Tuesday was a “a healthy reminder, especially to individual investors, that markets don’t go straight up,” Sonders said.

  Bloomberg

  “The correction was a healthy shake-out for those who had become complacent,” said Piers Hillier, head of European equities at WestLB Mellon Asset Management in London. “I don’t think we’re out of the woods.”

  Even Larry Kudlow!

  The plunge follows a 20% run-up that began last summer, and some analysts believe it was overdue. Indeed, 3% corrections are normal and healthy.

  MarketWatch:

  Large stock market declines can be a healthy cleansing for the industry. Declines purge the products, people and practices that plague the industry — those things that in a rising market suffer little or no consequence for the bad things they do.

  York Dispatch:

  “Frankly, it’s expected and it’s overdue,” said Crooks, a 34-year veteran of the industry. “I think it may indeed turn into a 5 to 10 percent correction (drop in price). And I think that would be very healthy.”

  Reuters:

  “I think risk has been underpriced in the market and frankly I’m glad to see this happening because it’s a healthy phenomenon.” said Ed Walczak, portfolio manager at Vontobel Asset Management in New York.

• Merrill Lynch Called It
  Eddy Elfenbein, March 2nd, 2007 at 12:50 pm

  They didn’t get it right in the clown’s mouth, but one month ago, Merrill had an inkling of what was to come.

  The bank said 2007 would be the “year of the dividend”, with fear returning as the VIX and VDAX volatility indexes – widely used in option trading – rise from record lows.
  “We think global interest rates are going to rise a lot more than investors are discounting, and this is a worrisome outlook for profits,” said Khuram Chaudhry, chief European strategist.
  “We’ve seen liquidity everywhere, in equities, property, bonds. It’s been a one-way bet for investors, and they’ve taken on a lot of risk. But they’re not looking beyond the news to the slow drip-drip effect of interest rates. It matters when central banks tighten monetary policy,” he said.

  (H/T: B-Riz.)

• Keeping the Y-Axis Real
  Eddy Elfenbein, March 2nd, 2007 at 12:42 pm

  DealBreaker looks at Tuesday’s “plunge” with some perspective. Here’s how the market has done YTD:
  

• Buffett’s Letter to Shareholders
  Eddy Elfenbein, March 2nd, 2007 at 7:53 am

  Here’s this year’s letter to Berkshire shareholders from Warren Buffett.
  You can see all of the letters for the last 30 years here.
  Four years ago, Buffett warned that “derivatives are financial weapons of mass destruction.” But he may be changing his tune. In this year’s letter, he writes: “Why, you may wonder, are we fooling around with such potentially toxic material? The answer is that derivatives, just like stocks and bonds, are sometimes wildly mispriced.”

• The Newest Scapegoat: the Stars
  Eddy Elfenbein, March 2nd, 2007 at 7:02 am

  From Reuters:

  Think Wall Street has seen the worst of the sell-off? Not if the stars are right.
  That is the latest prognostication from financial astrologer Arch Crawford, who predicts the direction of financial markets using a mix of technical and fundamental analysis paired with close examination of planetary cycles.
  His current assessment: A lunar eclipse and an opposition of Saturn and Neptune are in the cosmic cards this week. Combined with some bearish market fundamentals, that should keep the world’s biggest stock market under a cloud, the stargazer wrote to clients.

  I’d also like to add that when the moon is in the Seventh House, and Jupiter aligns with Mars, peace will guide the planets, and love will steer the stars.*
  Naturally, I don’t see this happening anytime soon. But if it does happen, you’ll know what to expect.
  *Past performance is not a guarantee of future results.

• Dell. Still Sucking.
  Eddy Elfenbein, March 1st, 2007 at 9:52 pm

  Dell (DELL) just reported after the close. The company earned 30 cents a share, one-third less than last year’s fourth quarter. That was a penny ahead of Wall Street’s forecast, but six cents a share came from not paying employee bonuses.
  Just look at Dell’s trailing earnings-per-share. This is all you need to know.
  
  If you’re new to investing, do you see how the blue line goes down at the end? That’s not good. Try and avoid those.
  The New York Times notes:

  Historically, Dell has had operating margins that were higher than any computer maker except Apple because Dell sells computers directly to its customers and does not have to share profit with retailers. But over the last year, those margins have slipped to 5.5 percent from more than 8.2 percent.

  Here’s a look at Dell’s operating marging:
  
  Think of it this way: Dell used to be able to sell $100 worth of effort for around $113. Today, it goes for $106.
  The NYT:

  Revenue fell 5.1 percent, to $14.4 billion, from $15.18 billion a year earlier. The last time revenue declined at Dell was in 2001, in the recession that followed the technology boom.

  Here’s a look at trailing four-quarter sales:
  
  I wish I could give you more details but I can’t. The company hasn’t filed a quarterly statement in nine months. (That’s also not good.) No blance sheet. No comparisons with last quarter. Nothing. Oh, did I mention the SEC investigation? (That’s really not good.)
  I’m sure some of this will be revised soon, but here are the results for the last ten years:

  Quarter…..Sales….Oper. Income…..EPS
  1-97………$2,588………$198………..$0.0675
  2-97………$2,814………$296………..$0.0725
  3-97………$3,188………$346………..$0.085
  4-97………$3,737………$397………..$0.10
  1-98………$3,920………$429………..$0.11
  2-98………$4,331………$483………..$0.12
  3-98………$4,818………$539………..$0.14
  4-98………$5,173………$595………..$0.15
  1-99………$5,537………$600………..$0.16
  2-99………$6,142………$694………..$0.19
  3-99………$6,784………$650………..$0.18
  4-99………$6,801………$513………..$0.16
  1-00………$7,280………$625………..$0.19
  2-00………$7,670………$736………..$0.22
  3-00………$8,264………$818………..$0.25
  4-00………$8,674………$589………..$0.18
  1-01………$8,028………$588………..$0.17
  2-01………$7,611………$545………..$0.16
  3-01………$7,468………$544………..$0.16
  4-01………$8,061………$594………..$0.17
  1-02………$8,066………$590………..$0.17
  2-02………$8,459………$677………..$0.19
  3-02………$9,144………$758………..$0.21
  4-02………$9,735………$809………..$0.23
  1-03………$9,532………$811………..$0.23
  2-03………$9,778………$840………..$0.24
  3-03………$10,622…….$912………..$0.26
  4-03………$11,512…….$981………..$0.29
  1-04………$11,540…….$966………..$0.28
  2-04………$11,706…….$1,006……..$0.31
  3-04………$12,502…….$1,089……..$0.33
  4-04………$13,457…….$1,187……..$0.37
  1-05………$13,386…….$1,174……..$0.37
  2-05………$13,428…….$1,173……..$0.38
  3-05………$13,911…….$944………..$0.39
  4-05………$15,183…….$1,246……..$0.43
  1-06………$14,216…….$949………..$0.33
  2-06………$14,094…….$605………..$0.22
  3-06………$14,383…….$824………..$0.30
  4-06………$14,402…….$801………..$0.30

• Media Star
  Eddy Elfenbein, March 1st, 2007 at 5:00 pm

  I’ll be on CNBC’s On the Money tonight. I’ll be joining fellow bloggers John Carney of Deal Breaker and Jon C. Ogg of 24/7 Wall Street. The show starts at 7 pm. We’ll be on near the end.
  If anyone needs me, I’ll be in my trailer.
  Ta!
  Update: Here’s the vid.

• Doubling Down at Dearborn
  Eddy Elfenbein, March 1st, 2007 at 1:17 pm

  Mulally is betting the house:

  Ford said its restructuring plan would likely cost $11.18 billion, with more than half of the expenses devoted to programs for laid-off workers.
  In a filing with the Securities and Exchange Commission on Wednesday, the No.2 U.S. automaker estimated that it would spend $5.96 billion on a jobs bank and other “personnel-reduction programs,” $2.74 billion to scale back its pensions, $2.2 billion for fixed asset impairment charges and $281 million to idle plants.
  The company also disclosed that it had pledged all its buildings, trademarks, intellectual property, shares in the main company, and shares in Volvo, Jaguar, Aston Martin, Ford Motor Credit and other operations as collateral for a $23.4 billion line of credit to fund its restructuring plan and cover losses expected until 2009.