Archive for 2008

• The Feds Step In
  Eddy Elfenbein, July 14th, 2008 at 9:47 am

  The government moves to help Fannie and Freddie:

  Alarmed by the sharply eroding confidence in the nation’s two largest mortgage finance companies, the Bush administration on Sunday asked Congress to approve a sweeping rescue package that would give officials the power to inject billions of federal dollars into the beleaguered companies through investments and loans.
  In a separate announcement, the Federal Reserve said it would make one of its short-term lending programs available to the two companies, Fannie Mae and Freddie Mac. The Fed said that it had made its decision “to promote the availability of home mortgage credit during a period of stress in financial markets.”
  An official said that the Fed’s decision to permit the companies to borrow from its so-called discount window was approved at the request of the Treasury but that it was temporary and would probably end once Congress approved Treasury’s plan. Some officials briefed on the plan said Congress could be asked to extend the total line of credit to the institutions to $300 billion.

• After Hours: Mississippi John Hurt
  Eddy Elfenbein, July 11th, 2008 at 3:43 pm

  Don’t let the market gives you the blues. Have a listen to the great Mississippi John Hurt.
  

• Not Since 1982
  Eddy Elfenbein, July 11th, 2008 at 1:23 pm

  For the first time since August 18, 1982, the S&P 500 might be lower than it was 10 years before.
  The S&P 500 has been as low as 1,225.82 today. Today could be our lowest close since June 13, 2006. And if we go below 1,223.69, it will be our lowest close since November 9, 2005.
  We’re already lower than where we were on the last day of trading in 1998. Here’s a look at how we’re doing this July (red line) compared with July 1998 (blue line):
  
  Even if don’t break a 10-year trailing close this month, it will probably happen soon. The market is still over 19% below its March 2000 high. Are we going to be 24% higher 20 months from now?

• Jeremy Siegel on the Bear Market
  Eddy Elfenbein, July 10th, 2008 at 9:39 am

• World’s Smallest Violin
  Eddy Elfenbein, July 10th, 2008 at 8:48 am

  Louise Story sits down with a contrite John Devaney.

  One by one, John Devaney sold his treasures, hoping to forestall what was in the end inevitable. He sold his Renoir and his Gulfstream, his home and his helicopter. Even his cherished yacht — gone.
  But on Wednesday Mr. Devaney, who made and then lost a fortune trading mortgage investments, finally called it quits. He shut his hedge fund, and told his investors that all their money was gone too.
  “I’m devastated, I’m totally devastated,” Mr. Devaney said by telephone from Aspen, Colo feel horrible that I’ve lost my own money and that so many people who saw the skills I have and trusted in us have now been hurt.”

• The Warren Buffett Rap
  Eddy Elfenbein, July 9th, 2008 at 12:14 pm

• Correlation Doesn’t Mean Causation
  Eddy Elfenbein, July 9th, 2008 at 9:59 am

  I’m not blaming anyone. I’m simply relaying the facts. In other words, I report, you decide.
  

• Best Headline of the Day
  Eddy Elfenbein, July 8th, 2008 at 5:22 pm

  Thank you, Associated Press:

  U.S. exports cigarettes, bras, bull semen to Iran
  U.S. exports to Iran grew more than tenfold during President Bush’s years in office even as he accused it of nuclear ambitions and sponsoring terrorists.
  America sent more cigarettes to Iran — at least $158 million worth under Bush — than any other product.
  Other surprising shipments during the Bush administration: brassieres, bull semen, fur clothing, sculptures, perfume, musical instruments and military apparel.
  Top states shipping goods to Iran include California, Florida, Georgia, Louisiana, Michigan, Mississippi, New Jersey, North Carolina, Ohio and Wisconsin, according to an analysis by The Associated Press of seven years of U.S. government trade data.
  Despite increasingly tough rhetoric toward Iran, which Bush has called part of an “axis of evil,” U.S. trade in a range of goods survives on-again, off-again sanctions originally imposed nearly three decades ago.

• The S&P 500 Priced in Eggs
  Eddy Elfenbein, July 8th, 2008 at 1:31 pm

  Felix Salmon links to a chart by DeForest McDuff of the S&P 500 priced in eggs. McDuff writes:

  Investment returns matter only to the extent that you can buy more “stuff” in the future. The U.S. stock market has been slowly losing real purchasing power for almost a decade, with no signs yet of a trend reversal.
  It’s true that the prices of hard assets like oil, gold, and omelettes have been increasing rapidly, but this is a direct consequence of decades of underinvestment in these asset classes. If you’re not thinking about investing in terms of purchasing power, then you’re playing the wrong game.

  This is correct, however, I caution against looking at the stock market in the price of some commodity. This is a subtle but important point. A lot of financial analysis involves developing a “feel” for the numbers.
  The problem of pricing the market in terms of some commodity is that it often involves two data sets with very different characteristics. Equity prices are tied to corporate profits and therefore cyclical. At least in theory. Commodity prices, however, are often marked by price disruptions, meaning dramatic price spikes. If you look at the long-term chart of nearly every commodity, you’ll see a few large spikes followed by long periods of not much.
  That’s why when you compare stock prices to a commodity, it often tells you less about equity prices and more about the commodity. From my experience, the most often used example is gold. For the last 35 years, the prices of gold has been a wild ride from around $30 to over $800 back to $250 and then up to $1,000. The stock market can be wild but nothing like that. Also, gold doesn’t pay dividends where the market does. It may not be much each quarter, but if you’re looking at a chart going back a few decades, it does add up.
  Think of it this way. A commodity is a thing. In 1,000 years, gold will still be gold. But equity is what you do with the thing to make money. If you make enough money, you can buy more things. A stock can own a commodity, but a commodity can’t run a business.

• Sir John Templeton Dead at 95
  Eddy Elfenbein, July 8th, 2008 at 1:01 pm

  
  One of the true giants has passed:

  Sir John Templeton, who has died aged 95, was a legend in the world of fund management and invested much of his multi-million pound fortune in promoting spiritual and religious progress.
  Sir John Templeton
  Templeton boasted one of the longest and most successful track records on Wall Street. From its foundation in 1954, his Templeton Growth Fund grew at an astonishing rate of nearly 16 per cent a year until Templeton’s retirement in 1992, making it the top performing growth fund in the second half of the 20th century.
  A $100,000 stake invested in 1954 would, with distributions reinvested, would have grown to $55 million in 1999.
  The Templeton formula was simple in theory, though not easily achieved in practice.
  He looked for bargains — shares selling well below their asset values due to temporary circumstances — and would usually hold on to them for five years or more until they reached what he considered to be their true worth.
  It was an approach that required rigorous research and determination not to be swayed by the fashions of the moment.