From the Department of No Surprise
Posted by Eddy Elfenbein on May 12th, 2010 at 10:38 am

An academic report:

Recent financial collapses have focused policymakers’ attention on the financial industry. To date, empirical studies have concentrated on corporate issuer activity, such as securities offerings and class actions. This paper makes a first step in studying SEC enforcement against investment banks and brokerage houses. This study suggests that the SEC favors defendants associated with big firms compared to defendants associated with smaller firms in three ways. First, SEC actions against big firms are more likely to involve exclusively corporate liability, with no individuals subject to any regulatory action. Second, the SEC is more likely to choose administrative rather than court proceedings for big-firm defendants, controlling for types of violation and levels of harm to investors. Third, within administrative proceedings, big-firm employees are likely to receive lower sanctions, notably temporary or permanent bars from the industry. To explain this gap, the paper first investigates whether big-firm violations are qualitatively different from small firms’ violations, but finds no support for this. This paper next explores two hypotheses that could explain a systematic bias in enforcement patterns: that constraints in bureaucratic resources weaken the SEC’s negotiating position towards big firms, and that SEC officials favor prospective employers.

Danaher Declares Split and Buyback
Posted by Eddy Elfenbein on May 12th, 2010 at 10:28 am

One of my rules is to never worry about what a former Buy List stock does. Just because it rallies doesn’t mean I was wrong to sell it. After all, the stock isn’t thinking about me.
I like to keep tabs on these stocks because they’re very good companies. A stock can turn from a good buy to a bad buy fairly quickly, but an excellent company usually remains so (though not always).
I’m still a big fan of Danaher (DHR) even though I decided to cut it loose from the Buy List at the end of last year. Danaher was on the Buy List from 2006 to 2009 and it did well for us.
The stock has continued to do well and that shouldn’t come as a surprise. They raised their Q1 outlook twice and Q2 once. The company beat earnings in January and again in April. The shares are currently up about 14% for the year.
Danaher is in the news today because they just announced a 2-for-1 stock split and a 10 million share buyback (moan). Since the company pays a very small dividend, this would have been a great time to give shareholders a little more cash-love.
Danaher is an excellent stock. But it would be a whole lot more excellenter about $15 cheaper.

Gold Hits New All-Time High
Posted by Eddy Elfenbein on May 11th, 2010 at 7:19 pm

The WSJ:

Gold set an all-time record high Tuesday, a symptom of broad-based investor concerns about markets and the global economy.
The yellow metal’s traditional role is one of a “safe haven,” a place where participants turn during times of acute stress in markets. Gold’s popularity has grown on the realization that any sustained recovery from the recent worldwide recession will be a long, drawn-out process, with investors now also worried about the potential for defaults by euro-zone nations.
The nearby May gold contract settled $19.50, or 1.6%, higher, at $1,219.90 an ounce on the Comex division of the New York Mercantile Exchange, beating out the previous record high close from Dec. 3.

The Buy List YTD
Posted by Eddy Elfenbein on May 11th, 2010 at 5:05 pm

I’m pleased to report that our Buy List survived the crash of last Thursday. Through today’s trading, our Buy List is up 8.51% for the year while the S&P 500 is up 3.65% (neither figure includes dividends).

Our top performer is Jos. A Bank Clothiers (JOSB) which is up 49.16%. Our worst is Baxter International (BAX) which is down 22.46%. Fourteen of our 20 positions are up for the year.
If you’re new to the blog, for tracking purposes, I assume the Buy List is comprised of 20 equally weighted positions of $50,000 each based on the closing price of last year. I then can’t make any changes to the Buy List for the entire year. It’s locked and sealed. Then in mid-December, I’ll announce what the new stocks are for the following year.

Liz Claman Throws Out the First Pitch
Posted by Eddy Elfenbein on May 11th, 2010 at 4:22 pm

Fox Business News anchor plays it to the far right.

Saddest Investing Fact of the Day
Posted by Eddy Elfenbein on May 11th, 2010 at 4:17 pm

Oh boy:

A household with income under $13,000 spends, on average, $645 a year on lottery tickets, or about 9 percent of all income.

Intel’s Guidance
Posted by Eddy Elfenbein on May 11th, 2010 at 2:39 pm

Very good news:

Intel CEO Paul Otellini said Tuesday that the company’s revenue and net income per share should see a percentage increase in the low double digits over the next few years because of rising demand for its chips in personal computers and other gadgets.
On both measures, Intel Corp.’s numbers have declined over the past two years as business spending on PCs and computer servers collapsed amid the recession. However, strong buying by bargain-hunting consumers has helped lift Intel’s fortunes in recent quarters, and sales of server chips — some of Intel’s most profitable products — have improved.
Otellini told investors and financial analysts at a conference at Intel’s Silicon Valley headquarters that the forecast proves that PCs are “still a growth industry.”
It’s difficult to say, however, how the new guidance compares with analysts’ expectations.
Otellini’s forecast was based on a “compound annual growth rate,” a measure that includes multiple years of results. He did not specify the years.
Analysts polled by Thomson Reuters expected Intel’s recovery from the downturn to show a 23 percent increase in revenue and a more than doubling of earnings per share in 2010 over the year before. For 2011, the analysts expected less-dramatic growth of a 5 percent increase in both revenue and earnings per share, compared with their 2010 forecasts.

Guess What Index is 100 Points Above Its Thursday Low
Posted by Eddy Elfenbein on May 11th, 2010 at 2:13 pm

I’ll give you a hint: The S&P 500.

“Even if they fail miserably at a job, they still think they’re great at it.”
Posted by Eddy Elfenbein on May 11th, 2010 at 1:31 pm

New academic report proves that Gen Y is just awful.

Gen Y workers get a bad rap in the workplace, with many a geezer complaining that their work ethic is less developed than their sense of entitlement. But is that really fair?
Yes, according to new research that’s yielded actual data to back up that notion.
In a series of studies using surveys that measure psychological entitlement and narcissism, University of New Hampshire management professor Paul Harvey found that Gen Y respondents scored 25 percent higher than respondents ages 40 to 60 and a whopping 50 percent higher than those over 61.
In addition, Gen Y’s were twice as likely to rank in the top 20 percent in their level of entitlement — the “highly entitled range” — as someone between 40 and 60, and four times more likely than a golden-ager.
Harvey’s conclusion? As a group, he says, Gen Yers are characterized by a “very inflated sense of self” that leads to “unrealistic expectations” and, ultimately, “chronic disappointment.”
And if you think the Gen Yers in your workplace are oversensitive as well as entitled, Harvey’s findings back that up, too. Today’s 20-somethings have an “automatic, knee-jerk reaction to criticism,” he says, and tend to dismiss it.
“Even if they fail miserably at a job, they still think they’re great at it.”

One-Time Audit the Fed Passes the Senate 96-0
Posted by Eddy Elfenbein on May 11th, 2010 at 1:11 pm

Senator David Vitter’s amendment to audit the Federal Reserve failed by a vote of 37 to 62. However, Senator Bernie Sanders worked out a compromise to conduct a one-time audit of the Fed. That vote passed 96 to 0.

“At a time when the Federal Reserve has provided the largest taxpayer bailout in the history of the world, the largest financial institutions in this country, trillion-dollar institutions,” Mr. Sanders said in a floor speech, “the Sanders amendment makes it clear that the Fed can no longer operate in the kind of secrecy that it has operated in forever.”
He added, “For the first time the American people will know exactly who received over $2 trillion in zero or virtually zero-interest loans from the Fed, and they will know the exact terms of those financial arrangements.”
Mr. Sanders, a self-described socialist, has long demanded greater transparency at the central bank, and his original plan could have subjected the Fed to ongoing audits of some routine operations. But he agreed to scale back the proposal in the face of opposition by the White House, the Fed, the Treasury and some Senate colleagues.
The critics said that more aggressive audits would impede on the Fed’s independence and potentially interfere with its ability to set monetary policy. Mr. Sanders and other proponents of fuller audits of the Fed rejected those assertions and said they were providing sufficient safeguards to protect the central bank’s integrity.

This issue seems to confuse many people. In a traditional sense, the Federal Reserve is already audited. Current law bars an audit of the Fed’s open market operations. The belief is that such an audit would undermine the Fed’s independence.
The idea is that auditing the Fed’s open market operations would really serve as a policy veto. I’ll give you an example. Let’s say you conduct an audit of the Department of Bureaucracy. The auditors room through the books and find out that the DOB spent $1.2 million on a ham sandwich. You’ll notice that this is in no way a policy decision. The auditors have made a judgment that this was too much too spend for a ham sandwich. But the Federal Reserve is a different animal. Perhaps it was the Fed’s intent to buy a ham sandwich for $1.2 million. Sure, it may sound crazy but this is what central banks do. That was the policy decision. What the Fed does is buy and sell stuff so an audit (so the argument goes) opens up auditors to not merely audit, but question the Fed’s policy decisions. Those policy decisions (again, so the argument goes) are already held accountable when the Fed Chair appears before Congress.
Personally, I think the Fed’s independence is given a level of sacredness it doesn’t deserve. Quite simply: If the people want 20% inflation, they should get it. The Fed is a creation of Congress and Congress should be able to do whatever it wants with the Fed. The central bank is not independent. I fail to see why it’s so important that the Fed “remain independent.” I would agree that the Fed needs latitude to act, but not independence.