And So It Goes….
Posted by Eddy Elfenbein on June 14th, 2010 at 9:30 am

From the June 14, 1910 edition of the New York Times:

Wall Street’s Childish View
Incidentally the proposal of this plan has called forth from some men well known in Wall Street their views of the estimates which Wall Street, as a whole, customarily forms regarding public opinion. “The majority of Wall Street men,” said the head of one large institution yesterday, “are infantile in their estimates of public opinion and of the means by which it can be swayed. I have been struck by this fact ever since I have myself been in Wall Street. In the eyes of many all that is necessary to change public opinion on any matter is to draw up a set of resolutions signed by a sufficiently large number of men whose names are well known in the world of finance. It not infrequently happens, it seems to me, that the very moves by which Wall Street expects to change public sentiment around to the Wall Street way of looking at things have directly the opposite effect.”

In closely related news, Barry Ritholtz notes:

Over the weekend, we noted that, according to a recent poll, Goldman Sach’s reputation is worse than even BP’s. Following that, I caught the tail end of a radio interview over the weekend, where some wire house senior executive (didn’t get the name) was complaining about the negative coverage his firm received in the press.
Really? You think the corporate-owned wimpy US press has been too hard on you? Just because you nearly brought down the entire global economy through your recklessness, then took trillions in taxpayer money as a reward for your irresponsibility, then — instantly — returned to business as usual. Somehow, you think everyone should be going easy on you?

100 Years Ago Today
Posted by Eddy Elfenbein on June 14th, 2010 at 8:59 am

On June 14, 1910 trading nearly came to standstill. Why? An airplane was flying over Manhattan.
Over the course of the last century, airplane technology has improved dramatically. The attention-span of traders, not so much.
(Scroll down to read “Wall Street’s Childish View.”)

Democracy at Work
Posted by Eddy Elfenbein on June 11th, 2010 at 4:36 pm

Everybody Predicted the Financial Crisis
Posted by Eddy Elfenbein on June 10th, 2010 at 11:33 pm

BusinessWeek has a story on the emerging optimism of folks who, we’re told, predicted the financial crisis. I’ve never understood the fetish the media has for finding gurus.
More importantly, if you look closely at the predictions these folks made, none of them was right, and more than a few were comically wrong. Specifically, the story mentions Michael Panzner, Nouriel Roubini, Gary Shilling, Robert Prechter, Peter Schiff, Nassim Nicholas Taleb, Marc Faber, Stephen Roach, Meredith Whitney, David Rosenberg, Jeremy Grantham and James Grant.
Some like Grant and Roubini are interesting to listen to though I don’t credit Roubini with predicting the crash. However, he was closer than anybody. Rosenberg has been massively wrong. Still others like Prechter, Taleb and Roach, I can’t even take seriously.
I’ll repeat what I’ve said before, it always pays being a perma-bear. All you need to do is be vague and never give a date. Disaster is just around the corner. Then, whenever anything bad happens, immediately take credit for predicting it. With investing, there’s always something to worry about.
I’d also add that be able to predicting complex events like the credit crisis doesn’t mean you’ll be better at seeing other events. The event will often be so unusual that the skill set needed to see it and the problems underneath is a very poor prerequisite for seeing other complex events. Time and chance happeneth to us all.
Being right most likely means that you have some advantage at the center of a bubble. Predicting the markets isn’t like shooting foul shots. If you get one in the bucket, it doesn’t say much about how you’ll do next. In fact, if you get the last event right, you’re probably at a disadvantage in seeing the next turn of the market because your biases have been confirmed.
Both George Soros and Nassim Nicholas Taleb said that what we’re in is worse than the Great Depression. Not only is that empirically incorrect, it’s incorrect by a lot. The fall in GDP this time around is much less than the 1930s. Here’s a prediction for you: Neither will be held accountable for this prediction.

Another Defeat for Humans
Posted by Eddy Elfenbein on June 10th, 2010 at 2:48 pm

Artificial Intelligence beats the pros in investing:

The ability to predict the stock market is, as any Wall Street quantitative trader (or quant) will tell you, a license to print money. So it should be of no small interest to anyone who likes money that a new system that works in a radically different way than previous automated trading schemes appears to be able to beat Wall Street’s best quantitative mutual funds at their own game.
It’s called the Arizona Financial Text system, or AZFinText, and it works by ingesting large quantities of financial news stories (in initial tests, from Yahoo Finance) along with minute-by-minute stock price data, and then using the former to figure out how to predict the latter. Then it buys, or shorts, every stock it believes will move more than 1% of its current price in the next 20 minutes – and it never holds a stock for longer.

Yes, I think it’s call front-running — acting on information before anyone else. The strategy was invented by Nathan Rothschild 200 years ago when he used carrier-pigeons to get the 411 on the Battle of Waterloo.
Personally, I’m more impressed than someone actually reads the articles at Yahoo Finance.

Bernanke Warns
Posted by Eddy Elfenbein on June 9th, 2010 at 3:37 pm

Some recent headlines:
Bernanke Warns Congress Not To Cut Spending, Cautions About ‘Fragile’ Recovery
Bernanke Says the Federal Debt Is ‘Unsustainable’
Bernanke warns about creating new bubbles
Bernanke Warns Deficits Threaten Financial Stability
Bernanke warns US economy still faces ailing housing and employment
Fed’s Bernanke warns of risk to bank independence
Bernanke Warns of Small-Bank Risks
Bernanke warns of political meddling
Bernanke warns of lower lending

Here’s more and more and more and more and more.

The World Cup: How to Get Out of the First Round
Posted by Eddy Elfenbein on June 9th, 2010 at 12:10 pm

The World Cup starts on Friday and I was curious as to America’s chances of making it to the knockout tournament.
Let’s go over the rules: The World Cup is divided into two parts. In the first stage, the 32 teams are divided into eight groups of four teams each. The four teams play each other in a round-robin tournament and the two teams that do the best advance to the knockout stage. In the round-robin, you get three points for a win and one point for a tie. If teams have the same number of points, the tie-breakers are (in order) goal differential, total goals, head-to-head and then they draw lots.
(I’ve only looked at the results since 1998 and they came very close to drawing lots in 2002 but ultimately didn’t need to. Paraguay edged out Slovenia 3-1 at the same time South Africa lost to Spain 3-2. Paraguay advanced on account of having scored one more goal.)
The current format started in 1998. For this year, the U.S. is in Group B which has England, Algeria and Slovenia. The quality ranking is generally considered to be England, us, Slovenia then Algeria.
So what do we need to do to advance? In the round-robin, you can score anywhere from zero to nine points (eight is mathematically impossible). Here are how the teams have done by point totals in the round-robin since the current format started in 1998:
Points……………Advancing
0…………………..0-8
1…………………..0-14
2…………………..0-6
3…………………..1-13
4…………………..7-7
5…………………..11-0
6…………………..7-0
7…………………..14-0
9…………………..8-0
The bubble seems to be four points. That’s what we got in 2002 and we made it to the knockout round. We even made it to the Final 8 after we beat Mexico. After that, we lost to Germany.
Theoretically, it’s possible to get five points and not advance, but that would be highly unusual. Conversely, it’s possible to get two points and advance. It’s possible to advance without winning a game as Chile did in 1998 (three ties). In all practical senses, if you get five points (a win and two ties), you’re in.
So if we lose to England on Saturday, we’re not out of it. Coming away with a tie would be great and a win, of course, would be spectacular. The tough games will come against Algeria and Slovenia in particular. There’s little room for error in the games you’re supposed to win. If we go 1-1-1, then our destiny may not be in our own hands.
Even if we do advance, that’s only the beginning. Here’s how the teams have done in the championship round by points scored in the round-robin:
3…………………..0-1
4…………………..4-7
5…………………..7-11
6…………………..6-7
7…………………..13-13
9…………………..15-6

Goldman’s P/E Ratio = 5.7
Posted by Eddy Elfenbein on June 9th, 2010 at 12:04 am

Wow, the trailing Price/Earnings Ratio for Goldman Sachs (GS) is 5.74.
For the year, Wall Street expects Goldman to earn $19.57 a year, then $20.57 in 2011.
At Goldman’s current price, this year’s earnings estimate represent 14.2%, and 14.9% for next year. The stock is just 7% above its book value.
I’m not saying that Goldman is a bargain but the market certainly doesn’t have much faith in the bank’s future earnings potential.

Becky Quick: Obama Sullied Office with Ass-Kick Remark
Posted by Eddy Elfenbein on June 8th, 2010 at 1:36 pm

The relevant part starts around 5:40.

In other news, CNBC did special reports on porn and weed.

Arden Group
Posted by Eddy Elfenbein on June 8th, 2010 at 11:48 am

Here’s another little-known stock with an amazing track record. Arden Group (ARDNA) runs 18 Gelson’s supermarkets in Southern California.
The company has a market value of about $280 million and it’s almost entirely ignored by Wall Street. In fact, it’s not uncommon for Arden to trade a few hundred shares a day.
Twenty-eight years ago, the stock was going for about 84 cents a share. In September 2008, ARDNA reached a high of $199.99 a share. That’s a gain of about 24,000% which easily beat the S&P 500’s gain of about 1,000% over the same period.
The stock has plunged all the way to $88 a share. It reached a new 52-week low last week. For some reason, the company pays a microscopic dividend of 25 cents a quarter.
Here’s Arden’s EPS for the last few years.
Year……….EPS
2000………….$3.41
2001………….$3.79
2002………….$4.14
2003………….$4.90
2004………….$6.70
2005………….$5.87
2006………….$7.16
2007………….$9.24
2008………….$7.80
2009………….$6.84