Author Archive

  • The Battle at Ebix
    , May 7th, 2013 at 3:56 pm

    There’s an interesting battle going on at the company Ebix ($EBIX). Goldman Sachs recently offered to buy the company for $20 per share and the board said yes. Some shareholders are fighting back claiming the price is far too low. I have to agree. The price is too low.

    Even putting the valuation argument aside, there should be far greater pushback from investors on these types of mergers. I don’t believe the majority of acquisitions are to the benefit of shareholders (for either party). The Sprint-Dish merger seems to be an obvious mistake. With Ebix, they have to wait 45 days for a counter-offer. I doubt one will come. Who wants to piss off Goldman?

    The Ebix story gets more interesting because the company is being investigated the SEC due to “accounting issues.” Yeah, that’s not good.

    Interestingly, the first event that took down shares of Ebix was a posting at Seeking Alpha two years ago under the name Copperfield Research. Since then, it’s been one long headache for Ebix. There have been accusations and denials, and I can’t keep it straight.

    Sorry to sound conspiratorial, but this sounds like a good time for a board to sell out at any price. If Ebix is private, then who cares about their accounting, right? My assumption is that Goldman is a lot less dumb than they are evil.

  • Note to Some Intrepid Journalist
    , May 7th, 2013 at 2:58 pm

    It’s not exactly a secret that Janet Yellen will most likely become the next chairman (chairperson?) of the Federal Reserve. Yellen has a long and distinguished career which includes stints at the Fed, the Council of Economic Advisors and many years in academia, first at Harvard and later at Berkeley. She’s also married to George Akerlof, a Nobel Prize-winning economist.

    Here’s a listing of her articles and academic papers going back nearly forty years. It’s an impressive body of work. She was addressing the topic of long-term unemployment long before that became a topic of conservation among policy elites.

    There is, however, one paper that Yellen wrote that seems quite different from much of her other work. In 1996, she and Akerlof wrote, “An Analysis of Out-of-Wedlock Childbearing in the United States.” I believe that’s the only time she has addressed that subject in depth.

    Abstract:

    This paper relates the erosion of the custom of shotgun marriage to the legalization of abortion and the increased availability of contraception to unmarried women in the United States. The decline in shotgun marriage accounts for a significant fraction of the increase in out-of-wedlock first births. Several models illustrate the analogy between women who do not adopt either birth control or abortion and the hand-loom weavers, both victims of changing technology. Mechanisms causing female immiseration are modeled and historically described. This technology-shock hypothesis is an alternative to welfare and job-shortage theories of the feminization of poverty.

    At the time the paper was written, that was a hot topic. There was a lot of talk about the root causes of poverty and what to do about welfare. That year, Bill Clinton signed the Welfare Reform Act. Well, 1996 was a long time ago and now we know a lot more about effects of out-of-wedlock births.

    I haven’t read the paper, but I’m curious…were they right?

  • DirecTV Crushes Earnings
    , May 7th, 2013 at 9:58 am

    Excellent news today for DirecTV ($DTV). The company absolutely demolished its earnings report. For Q1, DTV earned $1.43 per share which was 33 cents better than Wall Street’s forecast. The earnings were higher than all 18 forecasts made by analysts on Wall Street. Revenues rose 7.6% to $7.58 billion which was $50 million better than estimates.

    Once again, Latin America was the key to DTV’s success. Subscriber count grew by 583,000 in that region and there are now 16 million subscribers in Latin America. They’re not doing so badly in North America either. DTV added 21,000 subscribers in the U.S.

    I’ve often highlighted DTV as a company that does share repurchases right. Last quarter, they bought back $1.38 billion worth of their shares. The stock closed yesterday at $57.96. It’s been as high as $61.50 this morning, which is a 6.1% gain. Right now, it’s hanging in at $60.36, which is a 4.1% gain.

  • Morning News: May 7, 2013
    , May 7th, 2013 at 6:44 am

    IMF’s Lagarde Urges All Euro Members To Push For Banking Union

    China Names Yuan Convertibility Plan as Goal This Year

    Senate Passes Online Sales Tax 69-27 But You Can Avoid It For Now

    King Coal Losing Crown as U.S. Gains Energy Independence

    HSBC Says Quarterly Profit Almost Doubles on Cost-Cutting

    Munich Re First-Quarter Profit Jumps Led by Reinsurance Revenue

    Facebook Still Worth Probably No More Than $25 A Share: Barron’s

    Commerzbank Posts Second Quarterly Loss on Staff Reductions

    Baidu Buys PPS Online Video Business to Contend With Youku Tudou

    YouTube Is Said to Plan a Subscription Option

    Facing Black Market, Pfizer Sells Viagra on Web

    DirecTV Spurns Dish’s View That Wireless Is Satellite-TV Savior

    Jeweler Agrees To Plead Guilty In KPMG Insider-Trading Case

    Edward Harrison: How Bond Market Vigilantes Force Rates Higher

    Cullen Roche: What’s Unique About Monetary Realism?

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  • The Strength of Consumer Stocks
    , May 6th, 2013 at 11:24 pm

    Here’s an interesting chart. This is the Morgan Stanley Consumer Index ($CMR) divided by the S&P 500.

    sc05072013

    The CMR is heavily defensive although it’s not an exact match for a defensive index. The consumer names have performed very well this year, although since April 19th, their relative performance has suffered a dramatic turn back. It’s unusual, but not unheard of, for defensive stocks to lead a rally. The post-election rally seems to have continued in stride with a quick change in leadership. The change occurred just after the big plunge in gold.

  • Rewarding CEOs for Share Buybacks
    , May 6th, 2013 at 2:45 pm

    Felix Salmon writes that CEOs should be rewarded for share buybacks. Leaving aside the issue of compensation, I’m not a fan of companies buying back their own shares, although I do admire a few that truly lower their outstanding shares.

    I have a few issues here. One is that too many firms use share repurchases to mask their options grants. From what I see, the buybacks routinely go to executives anyway.

    Felix writes, “stock buybacks are a very efficient way of returning money to shareholders,” I disagree. In theory, yes, that money goes to shareholders. But the problem is that the volatility of your average stock easily swallows up any gain an investor would see. The daily standard deviation of the Dow, which are blue chip stocks, is 45 times its daily average gain. A generous share repurchase of, say, 4% over the course of a year is a teeny blip in that kind of market action.

    Felix writes:

    Safeway is faced with a choice right now: it can burn billions of dollars in what would probably be a fruitless attempt to compete with Walmart, or it can return those billions to shareholders, to be reinvested in more promising areas. Safeway’s CEO should choose between those options dispassionately, rather than simply assuming that more investment is always better — and his board should compensate him in such a way that he’s incentivized to make the best decision, rather than always going for growth.

    I would say that choice is for the board, with the CEO’s input, and once the strategic decision has been made, the CEO should be in charge of implementation with, of course, a fair degree of latitude.

    Felix presents Safeway as having two options. As an investor (though not in Safeway), I have a third: Write me a darn dividend check! After all, who the heck is a board anyway? They work for investors. That profit is mine. Gimme gimme gimme.

    Don’t worry about me, I’ll find a use for my own money. I’m pretty good at that, and if I want to buy more stock, that’s my decision, and the same for my fellow shareholders. I only wish our tax system was better aligned to help these investor-friendly decisions.

    How absurd is it that Apple, a company with $145 billion in the bank, is borrowing money? It’s a crazy move but math says, do it.

    A back-of-the-envelope calculation shows that Apple’s net cost of capital will be roughly just over 1.5 percent per year — pretty cheap long-term money if you can get it. But you can’t. This is a privilege reserved for the largest Silicon Valley powers only.

    Apple will have a total outlay of $19.5 billion vs. the $22.95 billion it would have cost the company to bring in the $17 billion from its overseas stash, saving the company more than $3.4 billion.

  • Berkshire Hathaway Breaks $166,000
    , May 6th, 2013 at 10:04 am

    It’s a quiet morning so far for our Buy List and the broader market. The S&P 500 is currently up just one point.

    Warren Buffett was in the news a lot this weekend as Berkshire Hathaway ($BRKA) held its annual conference. I see that BRKA is currently the top-performer today in the S&P 100. The shares got over $166,000. In 1990, the stock was worth a mere $5,500. When the tech bubble peaked in March 2000, BRKA was worth 30 times the S&P 500. Now it’s up to 103 times the index.

    BMC Software ($BMC) has agreed to be sold for $6.6 billion. I’m surprised that the premium is so small. The stock closed Friday at $45.42 and the deal price is $46.25. I think the buyout group, led by Bain Capital and Golden Gate Capital, is getting a decent value. I would have expected this move to have some impact on Oracle ($ORCL) and CA Technology ($CA) but the market doesn’t seem terribly impressed.

    Alex Sherman at Bloomberg has an interesting article on the different strategies of Dish Network ($DISH) and DirecTV ($DTV). Dish is moving in the direction of wireless content with their giant purchase of Sprint Nextel, while DTV is sticking with satellite-TV. I’m not a fan of Sprint and I think Dish made its purchase from a position of weakness, not strength.

  • Some Notes on Friday’s Market
    , May 6th, 2013 at 9:30 am

    I didn’t comment on Friday’s market since the weather was so nice here in D.C. and there are better things to do than watch stock tickers go up and down.

    But I want to add a few notes about Friday’s big move. Thanks to the good jobs report, the market closed at yet another all-time high. The Dow broke 15,000 and the S&P broke 1,600. The rally since November has been very impressive.

    Cognizant Technologies ($CTSH) was our big winner on Friday. The stock gained 3.5% and has made back much of what it lost. Earnings are due out this week.

    Shares of Ford Motor ($F) got up to $13.83 which is the highest since January. Both Microsoft ($MSFT) and AFLAC ($AFL) hit fresh 52-week highs. Nicholas Financial ($NICK) spiked up to $15.13 in the morning before pulling back. Earnings are also due out soon. The only weak spot was Bed Bath & Beyond ($BBBY). The stock was downgraded by Oppenheimer.

  • Morning News: May 6, 2013
    , May 6th, 2013 at 7:45 am

    France Declares Austerity Over as Germany Offers Wiggle Room

    E.U. Rules Against Patent Play by Google’s Motorola Unit

    Slovenia Falls From Economic Grace, Struggling to Avert a Bailout

    Indonesia GDP Growth at Slowest in Over Two Years on Exports

    Housing Crash Fades as Defaults Decline to 2007 Levels

    Will Verizon Borrow Billions to Become the Biggest?

    Bain, Golden Gate near $6.5B deal for BMC

    Intel to Buy Finland’s Stonesoft for $389 Million in Cash

    GM China April Sales Accelerate as Toyota Extends Decline

    Apple Misses IPhone Customers as Global Carriers Balk

    Credit Suisse Accuses Goldman Sachs Hire of Secrets Theft

    JPMorgan Shareholders Urged to Reject 3 Directors

    Occidental’s Chazen Free for Breakup Swan Song as Chairman Out

    Joshua Brown: Leon Black is Selling Everything Not Nailed Down

    Jeff Miller: Weighing The Week Ahead: New Leadership For Stocks?

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  • Dow 15,000
    , May 3rd, 2013 at 10:25 am

    It just happened.

    The Dow first closed above 150 on October 20, 1925, and above 1,500 on December 11, 1985.