Archive for 2008

  • Guess What Stock Market Is at a New High?
    , May 13th, 2008 at 1:08 am

    I’ll give you a hint.
    Toronto.
    Give up?

    Much of the momentum on the TSX has been caused by strength in resource stocks. The energy sector has climbed 40 per cent since January while the price for crude oil rose above US$125.
    Investors have been turning to commodities stocks as a reliable investment alternative to international financial institutions, whose results have been bruised by the credit crisis.
    “People were extremely nervous so they pulled in their horns, and they took their money out of risky investments,” said Bob Tebbutt, vice-president risk management at Peregrine Financial Group Canada.
    “When people are nervous they automatically flock to things that are real — for example they flock to gold. It’s a risk place that they can put their money in and know that they’re theoretically going to get it back fairly easily.”

  • Gazprom Meets Deep Purple
    , May 12th, 2008 at 11:27 am

    The New York Times has an article about the influence that Gazprom has on the Russian government. It’s not too much of a leap to say that Gazprom is the Russian government. The company’s president Dmitri Medvedev became Russia’s president last week. Putin, the former president, is now prime minister. And Viktor Zubkov, the former prime minister, will become the new head of Gazprom.

    It’s hard to overemphasize Gazprom’s role in the Russian economy. It’s a sprawling company that raked in $91 billion last year; it employs 432,000 people, pays taxes equal to 20 percent of the Russian budget and has subsidiaries in industries as disparate as farming and aviation.

    But I was most impressed to find that at the company’s 15th birthday party, they invited Medvedev’s band to play, Deep Purple.

    “The gig at the Kremlin was fun, but it wasn’t wild,” Ian Gillan, Deep Purple’s frontman, wrote in an article for The Times of London after the show. “The young guys and more junior staff were all up on their feet, although they were looking nervously over at their bosses to see whether they could loosen their ties. It was as if they were asking, ‘How much fun are we allowed to have?’ ”

  • Get Over The Gap
    , May 12th, 2008 at 10:31 am

    From IBD:

    Trade Deficit: We have long been told that when the dollar “corrects,” making our goods cheaper abroad, the trade deficit will begin to fall sharply. Well, it’s finally happening. Now that it is, do you feel any better?
    You shouldn’t. Because even though the trade gap narrowed by $3.5 billion, or 5.7%, to $58.2 billion in March from February, it was a sign of weakness rather than strength.
    Compared with a year earlier, March exports rose 15.5% — a good thing, we suppose. But imports increased just 7.9%, a gain that would have been a lot lower if not for oil.
    True enough, the deficit appears to be declining — after hitting repeated records in recent years. Exports are booming while import growth has slowed noticeably, due mainly to the slumping dollar.
    On the surface, this looks like a good thing. After all, don’t we want to buy less from abroad and more from our own country? The answer is no if it means that the U.S. economy has slowed and is no longer pulling its weight in the world.
    Journalists and pundits call the smaller deficit an “improvement,” or “good news.” It isn’t. We run a trade deficit not because we’re uncompetitive or others protect their markets, two great economic myths; we run deficits because we’re such an attractive place for investors from around the world to park their money. The deficit, in other words, is a sign of strength.
    As any economist can tell you, the flip side of our trade deficit is our capital surplus, which measures foreign investment flows into and out of the U.S. When we run a trade deficit, by definition we must run a capital surplus — and vice versa.
    Last year, for instance, we rang up a record $708.5 billion deficit for both goods and services. But we imported the equivalent of $738.6 billion in investment capital to offset that. This was used to buy Treasury notes, bonds and stocks, and to fund real estate, plants, equipment and worker training.
    That foreign capital created jobs and added to our ability to consume. It may even have helped keep us out of recession.
    So what does it say that our deficit is now shrinking?
    On the whole, it means foreign investors find the U.S. economy a less inviting place to be, maybe because of the housing meltdown and concern over the upcoming election. But if the trend continues, it means we’re all going to have to consume less and save more to make up for the decline in foreign capital.
    That might not be a bad thing, but don’t let anyone tell you it will be painless. In the short run, a falling trade deficit will boost GDP. Indeed, based on Friday’s data, it’s likely first-quarter GDP growth will be revised up from the first estimate of 0.6% to roughly 1.2%.
    But in the long term, having less foreign investment means our economy will grow more slowly. That’s the downside.
    Don’t believe it? Just look at Germany and Japan. They’ve run huge trade surpluses for years, yet their economies have grown slowly at best since at least 1990. They export lots of their capital, as all trade surplus nations do, so they have less to grow on. We import it — and grow faster.
    As such, should we root for a smaller deficit? Well, a smaller trade deficit doesn’t have to be a negative. If it got smaller because Congress wised up and created private investment accounts for Social Security — which would raise the U.S. private savings rate — that might be a good thing.
    But making the deficit smaller isn’t necessarily a laudable goal, since doing so often covers for other bad policies such as raising taxes, devaluing the dollar and reverting to protectionism.
    All these things, by the way, have been proposed as “remedies” for the trade deficit, mostly by wrongheaded Democratic candidates and talk-show hosts. What they’d do, in fact, is shrink the deficit by shrinking the U.S. economy. We’d rather keep the deficits.

  • Schwarzman’s Subprime Analogy
    , May 10th, 2008 at 1:23 pm

    Oh Steve:

    [It’s like] being a noodle salesman in Nagasaki when they dropped the A-bomb – not a lot of noodles left, and not a lot of people either.

    My prediction: This will not end well.

  • Nicholas Financial’s Earnings
    , May 9th, 2008 at 3:09 pm

    Yesterday, Nicholas Financial (NICK) reported quarterly earnings of 20 cents a share. That’s for the company’s fourth quarter which ended on March 31. For the same quarter one year before, NICK earned 29 cents a share. Revenue dropped 6% to $12.7 million.
    Yes, I still think this is an absurdly undervalued stock. For the entire fiscal year, NICK earned 94 cents a share. That still means the company is going for about seven times earnings. Nicholas Financial has now reported revenue increases for 18 straight years.

  • The Cyclicals are Still Overpriced
    , May 7th, 2008 at 12:38 pm

    Here’s a look at something I wrote a lot about last year, it’s the ratio of the Morgan Stanley Cyclical Index (^CYC) to the S&P 500 (^GSPC):
    image653.png
    The ratio peaked on July 19 and started falling for the next few months. It eventually reached a bottom on January 9 and has been steadily climbing ever since.

  • Signs of Health in the Credit Markets
    , May 7th, 2008 at 10:42 am

    From Bloomberg:

    In the course of a three-and-a-half- hour dinner at Manhattan’s Smith & Wollensky steakhouse, Emil Assentato went from also-ran to the top of the world’s fastest-growing credit market.
    By the end of the meal, Assentato, 58, the head of Cie. Financiere Tradition’s North American securities business who races cars on weekends, had persuaded more than a dozen credit- derivatives brokers led by Donald Fewer and Michael Babcock to defect from rival GFI Group Inc., court documents allege. In the end, 21 would leave for Tradition with the promise of $130 million over three to five years, about $6 million apiece.
    Tradition’s attack did more than decimate GFI’s credit- default swap desk. It also raised the bar for the “extraordinary” pay commanded by derivatives brokers who match buyers and sellers between banks, according to affidavits filed by New York-based GFI in a suit against Tradition. As Wall Street buckles under the biggest credit-market losses in history, brokerage firms are seeking to tap the $10 billion of fees generated by middlemen, who spend as much as $500 million a year entertaining traders with strippers, football games and evenings at trendy Manhattan bars, based on court records and interviews with industry officials.

  • Harry & David’s Withdraws IPO
    , May 7th, 2008 at 10:37 am

    Another victim of the stock market, Harry & David’s has withdrawn its IPO due to “market conditions.” Although the market has improved considerably over the past two months.

  • Looking at Inflation
    , May 7th, 2008 at 9:37 am

    In today’s NYT, David Leonhardt makes some interesting points about inflation. The things that are rising in price and the ones we pay most attention to. The ones that are flat or falling, we tend to ignore.

    There is also something particular to inflation that aggravates loss aversion. Price increases are obvious. But price declines are often hidden. The cost of an item stays about the same for years, while everything else gets more expensive and nominal incomes rise.
    When you dig into the Consumer Price Index, you start to realize just how many things fall into this category. The price of major appliances has been flat over the last year. Furniture is 1 percent less expensive. A decade ago, a basic four-door Toyota Corolla LE cost $16,018, according to the company. The 2009 basic model costs $16,650, and it’s a safer, more powerful, more fuel-efficient car than its predecessor.
    To top it all off, most people don’t buy any of these items very often. “People tend to remember things they do frequently,” says Stephen Cecchetti, an economist at Brandeis University who studies inflation. “And what do you buy more frequently than gas and food?”
    But combine the less noticeable trends with some true price declines, like a 5 percent drop in women’s clothing over the last year, and an inflation rate of 4 percent starts to seem more reasonable. Inflation really has gotten worse recently — it was only 2 percent a year and a half ago — but it’s not as bad as it feels.

    The whole idea of trying to measure inflation is a very difficult task. The reason is that if, say, chicken rises more than beef, consumers will start eating more beef and less chicken. In other words, as prices change, the weighting for each grouping changes.

  • The World’s First Billion Dollar Home
    , May 6th, 2008 at 3:11 pm

    Pretty sweet.
    ambanihome_426w.jpg