Archive for 2008

• Looking at the Bear
  Eddy Elfenbein, July 3rd, 2008 at 7:56 am

  The S&P 500 closed today at 1,261.52 which is the lowest close since July 24, 2006. The index is now off 19.4% from its all-time high of October 9, 2007.
  Since October 9, there have been 184 trading days. This is how the days of the week have panned out:
  Monday………….-3.69% (35 data points)
  Tuesday………….5.26% (36)
  Wednesday…….-6.17% (39)
  Thursday………..-1.93% (37)
  Friday…………….-13.59% (37)
  So the bear market is heavily, but not exclusively, a Friday phenomenon. The other four days of the week have lost a combined -6.72%.
  The most surprising fact is that of the 184 days, 92 have been up, 91 were down and one was unchanged (January 3).

• Best Little Whorehouse in Wellesley
  Eddy Elfenbein, July 2nd, 2008 at 3:47 pm

  Professor Greg Mankiw notes that in his hometown of Wellesley police recently shut down a (ahem) massage business. This is the second time in the last six months that the police of busted such an enterprise.
  But here’s the interesting fact. One of the people just arrested, William Eastwick, is the same guy who tipped off the police on the first arrest.

  Eastwick tipped Wellesley Police off to that operation, said [Wellesley Police Sgt. Marie] Cleary, although it is unclear why he did that.

  Clearly, Cleary is unclear, but to Dr. Mankiw, it’s perfectly clear.

  Like any businessman, Mr Eastwick prefers to have fewer competitors. Some businessmen lobby Congress for trade restrictions. Others alert the police to the brothel down the block. And when using the power of the state to thwart competition, they can both pretend to be acting in the public interest.

  Sometime you need a small example to see the big picture. I wouldn’t say the state and Mr. Eastwick are in bed together, they just provide similar services.

• CircuitBuster Now Officially Busted
  Eddy Elfenbein, July 2nd, 2008 at 12:14 pm

  A three-act play:
  April 14
  Blockbuster offers $1 billion for Circuit City
  May 10
  Circuit City Opens Its Books to Blockbuster
  July 2
  Blockbuster Withdraws Offer for Circuit City
  This was one the worst ideas to hit the Street in a long time. The good thing is that shareholders had far better judgment than management. Score one for the wisdom of crowds.

• Samuel Israel Surrenders
  Eddy Elfenbein, July 2nd, 2008 at 11:53 am

  
  Sam finally gives up:

  Samuel Israel, the fugitive hedge-fund firm founder convicted of directing a $400 million fraud at Bayou Group LLC, surrendered in Massachusetts, almost a month after fleeing instead of starting his 20-year prison sentence.
  Israel, 48, turned himself in at 9:15 a.m. today, according to Sue Anderson, assistant to Southwick, Massachusetts, Police Chief Mark Krynicki. Southwick, near the Connecticut border, is about 117 miles from where Israel disappeared in New York the day he was to report to a federal prison northwest of Boston.
  “He is in federal custody,” Rebekah Carmichael, a spokeswoman for U.S. Attorney Michael Garcia in Manhattan, said in an e-mailed statement.
  Israel pleaded guilty in 2005 to securities fraud. His car was found June 9 on a bridge north of New York City with the message “suicide is painless” written in the dust on its windshield. Within a week, state and federal authorities in New York, where he pleaded guilty, ruled out suicide and launched an international manhunt.

• UnitedHealth Lowers Guidance
  Eddy Elfenbein, July 2nd, 2008 at 9:49 am

  As I expected, UnitedHealth (UNH) lowered its profit guidance for this year. The company now sees EPS coming in between $2.95 to $3.05.

  Chief Executive Stephen J. Hemsley noted the quarter’s results were hurt by lower margins, adding that second-quarter weakness also stems from reduced margins at its risk-based businesses and Medicare operations. “We are continuing to take the aggressive specific steps necessary to improve our operating performance, as well as to better position our organization for sustained future growth,” he said. To stop weakness in the risk-based operations, the company has been letting go of some customers who didn’t generate enough profits.

  The company is also paying about $900 million to settle two class-action lawsuits regarding the back-dating of stock options. Assuming the current forecast is correct, then UNH is a very cheap stock. The shares are up nicely today.

• This Just In…
  Eddy Elfenbein, July 1st, 2008 at 3:18 pm

  Multivariate Markov Switching With Weighted Regime Determination: Giving France More Weight than Finland
  Um…no duh!

• Worst First Halves Since 1971
  Eddy Elfenbein, July 1st, 2008 at 3:05 pm

  Here are the ten worst first halves since 1971, going by the S&P 500’s total return:
  Year…………………Gain
  2002………………-13.16%
  2008………………-11.91%
  1973………………-10.38%
  1974………………-10.17%
  1982………………-7.83%
  2001………………-6.70%
  1984………………-4.90%
  1977………………-4.38%
  1994………………-3.39%
  1981………………-0.95%

• Grasso Wins
  Eddy Elfenbein, July 1st, 2008 at 2:51 pm

  It’s hard to see multi-millionaire as victims, but Eliot Spitzer’s (aka Client #9) crusade against Dick Grasso was contemptible and an abuse of the legal system. The case against him was thrown out today. Last week, the court threw out four of the six claims against Grasso. The other two were dismissed today.
  The New York Stock Exchange awarded Grasso a pay package worth $190 million. Is that too high? Probably. Is it illegal? Of course not.

  “My reaction is, I told you so,” Langone said today in a telephone interview. “There was never a case here. What more can we say? The enormous waste was a travesty.”

  One final note on Mr. Spitzer. When he checked in the Mayflower Hotel for his meetings with Ms. Dupree, he used the nom de bork, George Fox. That’s one his friend’s names.
  Classy guy.

• I Think this Chart Sums It Up Well
  Eddy Elfenbein, July 1st, 2008 at 10:31 am

  

• Who’s to Blame?
  Eddy Elfenbein, July 1st, 2008 at 9:40 am

  Who’s responsible for all the problems in the financial sector? Stephen Schwarzman has an novel idea — blame the new accounting rule, FASB 157:

  FAS 157 represents the so-called fair value rule put into effect by the Federal Accounting Standards Board, the bookkeeping rule makers. It requires that certain assets held by financial companies, including tricky investments linked to mortgages and other kinds of debt, be marked to market. In other words, you have to value the assets at the price you could get for them if you sold them right now on the open market.
  The idea seems noble enough. The rule forces banks to mark to market, rather to some theoretical price calculated by a computer — a system often derided as “mark to make-believe.” (Occasionally, for certain types of assets, the rule allows for using a model — and yes, the potential for manipulation too.)
  But here’s the problem: Sometimes, there is no market — not for toxic investments like collateralized debt obligations, or C.D.O.’s, filled with subprime mortgages. No one will touch this stuff. And if there is no market, FAS 157 says, a bank must mark the investment’s value down, possibly all the way to zero.
  That partly explains why big banks had to write down countless billions in C.D.O. exposure. The losses are, at least in part, theoretical. Nonetheless, the banks, in response, are bringing down their leverage levels and running to the desert to raise additional capital, often at shareholders’ expense.