Author Archive

• Earnings Preview: Bed Bath & Beyond
  Eddy Elfenbein, September 24th, 2007 at 4:30 pm

  From the AP:

  Home accessories retailer Bed Bath & Beyond Inc. reports earnings for the fiscal second quarter on Wednesday. The following is a summary of key developments and analyst opinion related to the period.
  OVERVIEW: Home furnishings and accessories retailers are being pressured as the housing market sags, and consumers curb discretionary spending due to widening credit problems and high energy costs.
  Bed Bath & Beyond Inc. is no exception. In June, the Union, N.J., company said its full-year profit would miss analyst expectations due to uncertain economic trends.
  BY THE NUMBERS: Analysts polled by Thomson Financial expect a profit for the fiscal second quarter of 52 cents per share on revenue of $1.77 billion.
  ANALYST TAKE: Bear Stearns analyst Christopher Horvers said in a note to investors on Monday that he remains cautious on the sector.
  “Home furnishings remains one of the most challenging spaces in retail given the difficulties in housing, the fragmentation of the market, the discretionary nature of the products and the inventory build that has occurred across the retail landscape,” he wrote.
  He said he believes Bed Bath & Beyond will continue to “encounter near-term headwinds” and said he expects a few more quarters of difficult trends.
  For the quarter, he expects its gross margin to fall less than 1 percent to 41.4 percent of sales, driven by an increase in inventory acquisitions costs, a shift in merchandise mix and a heightened promotional environment.
  WHATS AHEAD: In a note to investors on Monday, Deutsche Bank North America analyst Mike Baker said he is “concerned” about analyst estimates for fiscal 2008 in the home furnishings sector overall, including Bed Bath & Beyond. Analysts polled by Thomson Financial expect, on average, a profit of $2.47 per share.
  “The company will not give its 2008 guidance until December, but at that time, we would not be surprised if BBBY guides to a number below the current consensus,” Baker wrote.
  A profit of $2.47 per share in fiscal 2008 implies a same-store sales improvement of 3 percent and a slight increase in operating margins, Baker said.
  “But, with our concerns regarding high inventories industry wide, demand environment would need to improve considerably over the next year to drive that kind of recovery,” Baker wrote. “The recent Fed easing could help us get there, but that’s not without risk, in our view.”
  The Federal Reserve approved a half-point reduction in interest rates on Thursday, in an effort to ease concern about the economy.
  STOCK PERFORMANCE: Shares fell nearly 15 percent during the quarter.

• The Presidential Election Cycle
  Eddy Elfenbein, September 24th, 2007 at 2:35 pm

  Out of boredom, this weekend I looked at all the Dow daily closings for the last 111 years (about 28,000 points of data) for a closer examination of the Presidential Election Cycle’s impact on stock prices. (What the hell was I thinking?) I did this before, but that only for the data from 1930 to mid-2006. This time, I looked at the every day from 1896 to last Friday.

  I don’t put much faith in these types of trading rules, but there are some interesting results. Historically, the Dow has gained an average of 24.1% from September 30 of the mid-term election year to September 6 of the pre-election year, which we recently passed.

  This means that nearly two-thirds of the Dow’s four-year gain (24.1% of 36.7%) comes in less than one-quarter of the time. That’s a pretty stunning stat.

  After September 6 of the pre-election year, the Dow has historically pulled back 5.2% to May 29 of the election year. After that, it puts on a nice 23.2% climb to August 3 of the post election year. Then trouble starts. After August 3, the Dow then pulls back 5.6% and we’re back at our starting point, September 30 of the mid-term election year.
  
  Also, Leap Day is a positive day for the Dow, up an average of 0.1256%.

• Looking at Long-Term Credit Spreads
  Eddy Elfenbein, September 24th, 2007 at 10:06 am

  
  If you’re confused by the credit crunch that happened last summer, here’s a good graph showing you some of the details. This chart shows the spread between Moody’s AAA Corporate yield index and the 10-year Treasury yield.
  Since lending to the government is pretty low risk, they own the printing press after all, the lower the spread signifies greater confidence the free market has in corporations paying back their loans. When the difference widens, that signifies that investors have become much more afraid of loaning to corporations. In other words, they’ve become more afraid of taking risks.
  In mid-July, the spread was around 70 basis points, which was close to some of the lowest levels in the past 15 years. Then, very suddenly, the spread exploded to over 120 basis points in less than one month.
  While the spread is still wide compared with last summer, it’s still moderate compared with the long-term. Consider that after 9/11, it ballooned to over 260 basis points. Looking at last ten years, the current spread is within the lowest 37th percentile.

• Playmate of the Year Talks Investing
  Eddy Elfenbein, September 24th, 2007 at 8:45 am

• A Lesson on Data Mining
  Eddy Elfenbein, September 24th, 2007 at 8:42 am

  Here’s a cute stat I saw over at Motley Fool. Cal Tech professor David Leinweber crunched the numbers and found that the singe-best predictor of stock prices is butter production in Bangladesh. “When butter production was up 1%, the S&P 500 was up 2% the next year. Conversely, if butter production was down 10%, you could predict the S&P 500 would be down 20%.”
  Coincidence? Well, yes. But this isn’t too far from the kind of research that’s been driving many hedge funds.

• Beware the Emerging Hegemonic Canadian Superpower
  Eddy Elfenbein, September 21st, 2007 at 3:14 pm

  For the first time in three decades, the loonie reaches parity.

• Civics Quiz
  Eddy Elfenbein, September 21st, 2007 at 2:29 pm

  I pride myself on being a civics geek. I got 58 out of 60 on this quiz. (I missed #36 and #58.)
  How did you do?

• The Fed’s Irresponsible Move
  Eddy Elfenbein, September 21st, 2007 at 2:20 pm

  Here’s a dissenting view from Vitaliy N. Katsenelson:

  I’ve seen this movie before, and it doesn’t end pretty. That’s what I thought on Sept. 18 when Federal Reserve Chairman Ben Bernanke took the road so often traveled by his predecessor, Alan Greenspan, and threw the financial markets a sop in the form of a big cut in interest rates. It was clearly what the markets wanted, as the immediate 336-point jump in the stock market confirmed. But popular decisions are not always the right decisions. (Just consider Greenspan’s popular 2001 interest rate cuts, which actually caused the current housing bubble.)
  Indeed, at the core of today’s credit mess—whether in housing or the now battered markets for commercial paper—lies a glut of global liquidity. That has dramatically altered our perception of risk and fueled an unwillingness to accept traditional credit limits. If a homeowner couldn’t qualify for a conventional mortgage, brokers were more than happy to offer an exotic loan the borrower could never realistically pay off. If a loan was too risky to be sold as investment-grade, investment banks could always concoct elaborate bundles of good and toxic credits that (supposedly) eliminated the risk.
  Nowhere was this disregard of financial reality more apparent—or damaging—than in housing. The housing bubble was fueled by many years of low interest rates, which eventually priced many people out of their dream homes. But instead of settling for less or renting, people pursued their American dream (the house with a white picket fence, 2.7 kids, and 1.2 dogs) with a vengeance, taking out adjustable-rate, interest-only—or even worse, negative-amortization loans.

• Wall Street Turns 20
  Eddy Elfenbein, September 21st, 2007 at 12:54 pm

  
  The iconic movie turns 20.

  Since its release in December, 1987, “Wall Street” has been required viewing for anyone working in finance and a standard way of framing the go-go ’80s of junk bonds and power ties – an era that some say has returned during the recent private equity-led mergers and acquisitions boom.
  With a twentieth-anniversary DVD released on September 18 and a sequel currently in development, “Wall Street” is again a topic of conversation.
  The film is best-known for its lasting character, Gordon Gekko, played by Michael Douglas, who netted an Academy Award for Best Actor for the role. And its most famous line -“Greed, for lack of a better word, is good,” typically shortened to just “Greed is good” – is a favorite of headline writers and Wall Streeters alike.

  Here’s an interesting tidbit about the famous “greed is good” line. The original source comes from a speech by Ivan Boesky, but it was hardly in the form of macho Nietzschean posturing. What Boesky said was “Greed is all right; by the way, I think greed is healthy. You can be greedy and still feel good about yourself.”
  Feel good about yourself? It’s interesting that he framed it terms of self-image, as if that’s the most important standard. He’s being more Oprah than Michael Milken. The iconic statement from the 1980s is more closely related to the self-absorption of the 1990s.

• Questions for Greenspan
  Eddy Elfenbein, September 21st, 2007 at 10:28 am

  Caroline Baum has some questions for Alan Greenspan. Here are a few:

  4. In that same vein, you write you were “struck by how relatively easy it was to bring inflation down.” When you assumed the Fed chairmanship in August 1987, the consumer price index was rising at an annual rate of 4.3 percent. In January 2006, the month you left, the CPI was rising 4 percent.
  You inherited a core CPI, which excludes food and energy, of 4.2 percent and cut it in half. That computes to a decline of 0.1 percentage point a year. If lowering inflation was such a chip shot, why don’t you have more to show for your effort?
  5. When you were Fed chairman, you wondered out loud about “irrational exuberance” in the stock market, even though Bob Rubin, whom you call one of your “foxhole buddies” (the other was Larry Summers), said such comments were inappropriate for a government official.
  When Leslie Stahl asked you about your personal investments, you refused to comment on the stock market. Aren’t you confusing your role as a public servant and private citizen?
  6. You say it’s improper for a president to comment on monetary policy, yet you actively tried to influence fiscal policy. You told Leslie Stahl you were an “economic consultant” to Bill Clinton, that you are “very knowledgeable about lots of different subjects.” And no one else is?
  You told Al Hunt you “give advice because they ask me.” Your successor, Ben Bernanke, has made a point of not offering pronouncements on fiscal policy. What part of “no comment” don’t you understand?