Author Archive

• Productivity Surges
  Eddy Elfenbein, November 3rd, 2005 at 9:42 am

  Business productivity surged 4.1% during the third quarter, and productivity growth for the second quarter was revised higher to 2.1%. This was the best number in a long time and well above Wall Street’s forecast.
  Productivity is an important number to watch because it tells us worker output per hour. Growing productivity changes the entire economic landscape. It basically means that the economy is making less go further. Growing productivity also holds down inflation and takes pressure off the Federal Reserve.
  Today, Alan Greenspan will make his final appearance before Congress as Fed chairman. Tomorrow we’ll get the employment report for October.

• Soccer Affects the Stock Market
  Eddy Elfenbein, November 2nd, 2005 at 10:05 pm

  A Dartmouth study finds that a country’s stock market is affected by its national soccer team.

  Match results may “have an important effect” on share prices, Professor Diego Garcia said, commenting on a report released by Tuck School of Business at Dartmouth this week. “There are forces influencing our economies that have little to do with rational thought.”
  Stock markets decline 0.39 percent on average after the national team loses in a World Cup game and 0.29 percent in any international match, according to the study, co-written by Massachusetts Institute of Technology’s Alex Edmans and Norwegian School of Management’s Oyvind Norli.
  The correlation is the highest in countries with the biggest public support for soccer such as England, France, Germany, Italy and Spain, the report said. In South American nations, the phenomenon is similar, it said.
  Soccer “may have an effect on the market since it affects sentiment,” Richard Hunter, head of U.K. equities at Hargreaves Lansdown in Bristol, England, said in a telephone interview today. “Psychology is pervasive in markets.”
  Still, there’s no evidence to show that stock markets rise when teams win, the study said.

  You can download the paper here.

• The Market Today
  Eddy Elfenbein, November 2nd, 2005 at 4:33 pm

  This was a terrific day for our Buy List. Every stock was up except for Medtronic (MDT). The S&P 500 was up 1.00% while the Buy List was up 1.87%. Brown & Brown (BRO), Expeditors (EXPD), Progressive (PGR), St. Jude (STJ) and Varian (VAR) made new highs.
  Fair Isaac (FIC) just reported earnings of 53 cents a share, four cents more than Wall Street’s estimate. Sales were up 13.1%. The company also guided higher for this quarter.

• NYT: Wal-Mart Movie Opens With Fracas in Manhattan
  Eddy Elfenbein, November 2nd, 2005 at 4:02 pm

  Funny: A filmmaker makes an anti-Wal-Mart film.
  Funnier: Wal-Mart reps buy tickets to see the premier.
  Hysterical: The filmmaker throws them out.

  Wal-Mart Stores came to Manhattan last night for a peek at a movie about itself. But before it got the chance, a Wal-Mart consultant was told to leave the theater after the director accused him of trying to secretly record the film.
  Minutes into the premier of the film, “Wal-Mart: The High Cost of Low Price,” the director, Robert Greenwald, said he spotted the consultant pointing his open cellphone toward the screen. A confrontation ensued in the lobby. “Get out of here,” Mr. Greenwald yelled, according to the director and a Wal-Mart spokeswoman. “This is a disgrace.”
  The spokeswoman, Mia Masten, said she and two consultants had bought tickets to the screening “to find out what they were saying so we can correct it.” Ms. Masten said the consultant who was asked to leave, John Marino, was trying to call her because she was running late.
  “Why would we record it?” she said, “We bought tickets.”
  The incident is the latest chapter in escalating public relations battle between Wal-Mart and its critics. The retailer has set up a rapid response war room in Arkansas to monitor its critics, and sent media specialists to Manhattan as part of the effort.
  Rick Jacobs, the chairman of Brave New Films, which is distributing the film, said he was considering filing charges against Wal-Mart and the consultant for attempted piracy. “You can’t just go in and record a movie,” Mr. Jacobs said. “Wal-Mart should know. They are the largest seller of DVD’s in the country.”

  One thing that many of Wal-Mart’s critics forget is that the stock hasn’t done very well recently. Since the market low three years ago, Wal-Mart’s stock is down while the S&P 500 is up over 50%. If the stock had merely kept pace with the overall market, Wal-Mart would be worth over $100 billion more than it is today.
  

• Mercury Interactive Plunges
  Eddy Elfenbein, November 2nd, 2005 at 3:06 pm

  Of all the ways to commit financial fraud, this has to be one of the lamest.

  In a report filed with the Securities and Exchange Commission, Mercury said an internal investigation — launched after the SEC began an inquiry into the company in Nov. 2004 — found at least 49 cases in which the company misreported the dates on which it issued stock options. The practice, which applied to “the overwhelming majority” of grants issued between January 1996 and April 2002, the report said, likely allowed executives and employees to make more money on their options because it set a lower “strike price” at which the options could be exercised.
  That’s because in almost every case of misdating, the price of Mercury shares on the reported option-grant date was lower than the share price on the actual day the options were issued, the SEC report said.
  By manipulating the grant dates, Mercury “was able to provide employees with the lowest possible exercise price,” says Robert Willens, an accounting and tax analyst with Lehman Brothers in New York. “The lower the exercise price, the better off you are as an employee, so you’d want to cherry pick the dates on which the prices would be set,” he says.
  Mr. Willens said the accounting trick was extremely blatant and somewhat surprising, since such option-grant manipulation is usually easy to detect by auditors. “This isn’t one of your more complex financial crimes,” he said.

  The CEO and CFO have resigned. The stock could be delisted. Shares of Mercury Interactive (MERQE) are down 30% today.

• Midday Market Update
  Eddy Elfenbein, November 2nd, 2005 at 12:08 pm

  All 25 stocks on the Buy List are up, even Dell (DELL). We’re currently ahead of the S&P 500, 1.33% to 0.70%. Progressive (PGR), St. Jude (STJ) and Varian (VAR) are all at new highs.
  Both Lehman and Bear Stearns upgraded the entire airline sector which helped shares of Frontier Airlines (FRNT). Right now, oil is down 40 cents to $59.45 a barrel. The VIX is also lower at 13.87.
  Here’s some good news: Johnson & Johnson (JNJ) said that it may cancel its $25 billion acquisition of Guidant (GDT). Ever since the deal was announced, everything has gone wrong for Guidant. If the deal falls through, it will be good for J&J.
  Finally, Fair Isaac (FIC) is due to report after the close.

• Symantec’s Earnings
  Eddy Elfenbein, November 2nd, 2005 at 11:33 am

  Here’s yet another reason why I hate mergers. Symantec’s (SYMC) earnings got creamed last quarter due to “acquisition costs” related to its buyout of Veritas. The company reported a loss of $251 million compared with a gain of $235 million last year.
  These used to be two great stocks. Symantec was one of the best tech stocks to own after the bubble burst. The Veritas merger was supposed to be this great marriage of storage and security software. At $13 billion, the deal was even larger than Oracle’s (ORCL) bid for PeopleSoft. Also today, Symantec also guided lower for this quarter. The stock is down about 20% today.

• Time Is Out of Joint
  Eddy Elfenbein, November 2nd, 2005 at 6:08 am

  What’s going on with the VIX? The CBOE’s volatility index, which measures the implied volatility of the S&P 500, has suddenly become aligned with the underlying index. On Monday, both the VIX and the market rose. Yesterday, both lost ground.
  That ain’t right. The two indexes disagree with each other more than 80% of the time. Two-day agreements are rare, three straight days is peculiar, and we’ve only had one stretch of four days in a row of alignment in the last three years.
  The WSJ looks at some theories:

  There are differing views about what is going on here, but the consensus seems to be that it is best to assume that yesterday’s move was really just a correction of Monday’s move, and that by now, things are where they belong.
  Frederic Ruffy, analyst at Optionetics Inc., thinks the out-of-tandem moves aren’t coincidental. Instead they are evidence of an adjustment in volatility expectations. This is a “sign that participants in the options market are recognizing that the market is more volatile now,” he said. “There are some long-term trends that are causing volatility to rise,” like interest rates, political uncertainty and concern about energy prices.
  Because volatility expectations are an important part of options prices, the market could be saying that “the premiums for selling and buying S&P 500 options should be higher,” Mr. Ruffy said.

  The VIX has indeed been climbing lately, although at around 15, it’s still pretty tame stuff. The Era of High Volatility (i.e., the first four seasons of Sex and the City), routinely gave us VIXens in 30’s and 40’s.
  Since the market finally turned, volatility has melted away. For a brief shining, and disvolatiled moment on July 20, the VIX dipped into the single digits. Even a month ago, the VIX was still around 12.
  In The Economist, Buttonwood notes that the more volatile environment has been accompanied by changing events.

  But low inflation, low interest rates and untroubled confidence in safe hands at the helm are fast becoming things of the past. Oil-price hikes have helped to push up inflation around the world. The Fed was expected to raise short-term rates again on Tuesday, to 4%, and looks likely to do so at least once more in the next three months. The European Central Bank may soon follow its tough talk on inflation with some tough action. Japan is more likely to raise rates than to cut them. Alex Ypsilanti, a strategist at Merrill Lynch, points out that over the past ten years the troughs in volatility have come one-and-a-half to two years after the low points in three-month dollar LIBOR (interbank) rates. The Fed started raising rates 16 months ago.

  What does it all mean? Perhaps the era of high oil, trading ranges, low volatility and low long-term interest rates is coming to an end. As is often with financial markets, important turning points don’t announce themselves. At least not until they’ve made themselves quite comfortable.
  I get the feeling that the times they are a-changing. Even the Japanese market made a new high yesterday. Although they had a little trouble when a computer glitch shut the market down. Apparently volume has exploded and no one saw it coming.

• The Market Today
  Eddy Elfenbein, November 1st, 2005 at 5:23 pm

  OK class, today’s lesson is on diversification. Even though Dell (DELL) is on our Buy List, we not only beat the market today, but we were up while the market was down.
  That’s di-ver-si-fi-ca-tion. Even if one of your stocks gets a super-atomic wedgie, you can still make money. It really works.
  The Fed’s rate hike put a slight damper on Wall Street today. Our two-day rally came to an end as the S&P 500 dropped 0.35%, but the Buy List gained 0.32%. Our big winner was Expeditors International (EXPD) which surged to a new high on great earnings. Fair Isaac (FIC), the credit scorer, reports tomorrow. The current estimate for FIC is 49 cents a share.
  Dell (DELL) closed down 8.3% on 105 million shares. It was the most active stock today. Did you see that Frontier Airlines (FRNT) got to $9.60 today? The stock is up over $2 from its lows of two weeks ago.
  Dell didn’t drag down the entire tech sector like I thought it would. The Nasdaq was down 0.29%. The Nasdaq 100, which is the 100 largest nonfinancial stocks on the Nasdaq, fell 0.17%. That index is traded under the QQQQ symbol.
  Outside our Buy List, Procter & Gamble (PG) reported earnings of 77 cents a share, one penny ahead of estimates. P&G is a great company, but I’m very nervous of the merger with Gillette. I like Gillette too, but I hate mergers. I judge all mergers guilty until proven innocent. I’m rooting for them, but I’ll pass on the shares.
  Electronic Arts (ERTS) earned 16 cents a share, which is about half of what it made last year. The stock got absolutely trashed earlier this year. Wall Street was expecting earnings of 5 cents a share so this is good news.
  TXU Corp. (TXU), which had been a juggernaut for a few years, missed expectations today and fell 10.2%. The company raised guidance for next year. Interestingly, even though their profits plunged, their earnings-per-share increased due to heavy share buybacks. Also, Ford (F) and General Motors (GM) reported dramatically lower sales for October. This is a reflection of the end of employee pricing.
  Here’s a chart of Dell today.
  
  If you haven’t done so, check out The Kirk Report. Also, Footnoted.org is digging through the third-quarter earnings reports.

• Found Deep Within a 10-Q Report
  Eddy Elfenbein, November 1st, 2005 at 3:34 pm

  From Fieldpoint Petroleum‘s (FPP) 10-Q report:

  Administration
  Office Facilities- The office space for the Company’s executive offices at 1703 Edelweiss Drive, Cedar Park, Texas 78613, is currently provided by the majority shareholder at a cost of $2,500 per month as of December 31, 2004.
  Employees – As of March 31, 2005, the Company had 4 employees. The Company considers its relationship with its employees satisfactory.

  Take that, Wal-Mart.