Bove Meets Hegel, Nietzsche, Rousseau and Leibniz.
Posted by Eddy Elfenbein on April 12th, 2010 at 12:46 pm

Crain’s New York features the only article you’ll read today where banking analyst Dick Bove cites Hegel, Nietzsche, Rousseau and Leibniz.

Renowned banking analyst Dick Bove is calling on Bank of America to break itself up. In a Friday report, he dutifully backed up this idea with the sorts of numbers Wall Street types often use to show the bank’s different components are worth more separate than together.
Much more interestingly, he also cited BofA’s failure in living up to the teachings of 19th century German philosopher Georg Wilhelm Friedrich Hegel.
Mr. Hegel is best known for his work on dialectics, which says that an event, for instance the Protestant Reformation, triggers an forceful opposing event (the Counter-Reformation), and eventually the phenomena combine, or synthesize, to produce an improved state of being. (In fact, Catholic and Protestant Europe did learn to live together, more or less agreeably). By the way, this school of thought was an important foundation for Karl Marx.
Mr. Bove, a Rochdale Securities analyst who clearly has read up on Idealist philosophers, says that BofA fails to meet the Hegelian test.
“In a Hegelian cycle, events keep returning to the same place. However, that position is always higher and somewhat better than in the prior cycle due to the accumulated wisdom gained from prior cycles,” he wrote. “However, [BofA] shows no evidence of having learned anything from the past cycles….It gets back to the same position but at a lower point in the cycle.”
Although he didn’t cite Nietzsche’s concept of the eternal recurrence, Mr. Bove may well have had that in mind when pointed out that last year BofA’s stock was trading for the same price it fetched in 1982 and its dividend payout appears to be the same.
In a best of all possible worlds—a phrase coined by 18th century philosopher Gottfried Leibniz—Mr. Bove argues that BofA’s different businesses would be spun off as independent entities. These newly independent companies, surely stocked with the sort of Ubermenschen in management that Friedrich Nietzsche would appreciate, would lead shareholders to greater heights than BofA could. Mr. Bove pegged BofA’s break-up value at $53 a share.
An analyst for some 40 years, Mr. Bove is known for his forthright views that distinguish him from many other analysts, though sometimes his work resembles Jean-Jacques Rousseau’s Reveries of a Solitary Walker.
A BofA spokesman had no comment.

Clearly, the spokesman is a Stoic.

Calling the Recession Over
Posted by Eddy Elfenbein on April 12th, 2010 at 11:00 am

The NYT has a good article on the issue of NBER officially declaring the recession over. I hear lots of people talking about the possibility of a double-dip. Even if that happens, I would have to view that as a separate cycle.

There is no formula for defining a recession, even though it is often casually described as two consecutive quarters of economic contraction. The committee relies on interpretation to determine the beginning or end of one.
The last time it made such a cautious statement was in December 1990, when it said that a recession had most likely begun between June and September but that it could not make a determination until the contraction was sufficiently long and deep; the committee announced four months later that the recession had started in July 1990.
It seems nearly certain that the present recession will end up lasting longer than the 16-month recessions of 1973-75 and 1981-82. They had been the longest downturns since the 43-month period from 1929 to 1933 that was the first phase of the Great Depression.
The committee, created in 1978, has assigned the start and end dates of economic contractions for every business cycle since 1854. It has long emphasized that it looks only backward, and does not make forecasts or predictions.

I recently looked at the data and found that the ISM is the among the best predictors of what the committee will do. Once the ISM Composite Index crosses 44, the odds that we’re still in a recession drop dramatically. We’ve now been above that every month since June 2009.

Note that the last shaded area isn’t official. NBER has said the recession began in December 2007, but we haven’t heard on its ending just yet.

2011 S&P 500 Earnings Estimate
Posted by Eddy Elfenbein on April 12th, 2010 at 10:41 am

Howard Silverblatt, the top numbers guy at Standard & Poor’s, has pegged 2011 consensus earnings estimates for the S&P 500 at $93.55. Some have the consensus even higher. If that’s correct, then this market is still on the inexpensive side.
One major caveat is that we shouldn’t a great deal of faith in an earnings projection so far away. In March of 2009, Goldman said that the S&P 500 would earn just $40 for the entire year. Instead, it was $57.

Upcoming Earnings Dates
Posted by Eddy Elfenbein on April 12th, 2010 at 10:28 am

Here are some upcoming earnings dates and EPS estimates for stocks on the Buy List:

Merger Monday
Posted by Eddy Elfenbein on April 12th, 2010 at 10:05 am

One of the signs of a good market is the willingness of mergers and acquisitions. This often means that there’s plenty of money out there and stocks are still cheap. Today’s merger news is the probably the catalyst that has pushed the Dow over 11,000 this morning.
For example, the California Pizza Kitchen (CPKI) said that its board has authorized a “strategic review.” That’s a fancy way of saying “the bidding starts…NOW.” Personally, I don’t quite understand many of these theme restaurants but they seem pretty popular so what do I know?
The other news is that Cerberus Capital Management LP is buyingDynCorp International (DCP) for $1.5 billion. The deal represents a 49% premium for DynCorp’s stock. Not bad.
The biggest news is the marriage proposal between Mirant (MIR) and RRI (RRI). The new company will have the hideously ugly name GenOn Energy. I’m going to factor in a 10% price discount based on the name alone. Still, I expect to see more mergers in this space.

Bernanke Warns
Posted by Eddy Elfenbein on April 8th, 2010 at 8:10 am

Bernanke warns of U.S. debt
Ben Bernanke Warns of Deficit
Bernanke warns US economy still faces ailing housing and employment
Bernanke warns on homes, jobs
Bernanke warns Congress – Hands off the Fed!
Bernanke warns of need for monetary tightening
Bernanke Warns Against Narrowing Fed Focus
Bernanke Warns Deficits Threaten Financial Stability
Bernanke warns about creating new bubbles
Bernanke warns growth is fragile
Bernanke Warns of “Formidable Headwinds”
Freak Power Outage Puts Alan Greenspan in the Dark
Here’s more and more and more and more.

Tax Day Is Coming
Posted by Eddy Elfenbein on April 7th, 2010 at 11:16 pm

But nearly half the country pays no Federal income tax:

The result is a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education. It is a system in which the top 10 percent of earners — households making an average of $366,400 in 2006 — paid about 73 percent of the income taxes collected by the federal government.
The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment.
“We have 50 percent of people who are getting something for nothing,” said Curtis Dubay, senior tax policy analyst at the Heritage Foundation.

Bed Bath & Beyond Earns 86 Cents a Share
Posted by Eddy Elfenbein on April 7th, 2010 at 7:41 pm

Holey Moley! Bed Bath & Beyond (BBBY) creamed even my high expectations. For their Q4, they earned 86 cents per share. In January, BBBY gave a range of 67 cents to 71 cents a share. Kinda low, no?
For the entire year (this was FY 2010 that just ended in February), BBBY earned $2.30 a share. For FY 2011, the company said it expects earnings growth of 10% to 15%. In other words, forward earnings of $2.53 to $2.64 a share. That’s much better than I was expecting. For Q1, BBBY sees earnings ranging between 44 and 48 cents per share. I have no idea what to expect now.
I had said that I was concerned that BBBY was becoming fully priced. Not anymore. This is still an excellent buy. (The earnings table is updated below.)
As with the broader economy, BBBY’s resurgence is a margin story. They’ve held the line on costs and no longer have to undercut anyone (RIP: Linens N Things). Here’s a look at BBBY’s trailing four-quarter operating and net margin.

That upspike is key. Retailing is a margins game. When you increase your margins, you’re King of the World, or at least the King of the Mall. Think of it this way: A margin increase of 6% to 8% turns a 10% sales increase into a 47% increase in profits. When the opposite happens, well, that’s not good.
Where BBBY is different than the broader economy is that their sales are growing. Nominal GDP growth has been pretty flat but BBBY increased its sales by 16.7% over last year.
Here’s the earnings call transcript from Seeking Alpha. Unfortunately, they never take any questions.

Looking Ahead to Bed Bath & Beyond’s Earnings
Posted by Eddy Elfenbein on April 7th, 2010 at 12:28 pm

Bed Bath & Beyond (BBBY) is due to report its earnings today, probably after the close. This will be an interesting report because the last earnings report was WAY above expectations. The Street was expecting 43 cents a share and BBBY earned 58 cents a share. The stock has been in a happy mood ever since (new 52-week high on Monday, thank you very much).
With the last earnings report, BBBY said that this earnings report should range between 67 cents and 71 cents per share. That was above the Street’s estimate of 63 cents. Wall Street seems to think the company is low-balling and I agree. The Street’s consensus is for 73 cents a share. This is for the company’s fourth-quarter (December, January and February) making BBBY one of the last companies to report their results for the holiday season.
I’m expecting another beat, say 75 cents a share, but I’m not sure if the stock will respond so well this time. What I’d like to see is strong guidance going forward. I’d also like to see a full-year earnings forecast. The stock is getting pricey but a forecast of $2.50 a share for FY 2011 would help out a lot.
Here are the earnings results going back a few years:

Is This the News?
Posted by Eddy Elfenbein on April 7th, 2010 at 11:26 am

Here’s NICK’s press release released a few minutes ago:

CLEARWATER, Fla., April 7, 2010 (GLOBE NEWSWIRE) — Nicholas Financial, Inc. (Nasdaq:NICK – News) today announced the opening of two (2) new branch offices located in Nashville, Tennessee and Grand Rapids, Michigan. The new offices expand Nicholas Financial’s branch network to fifty-two (52) locations. The company expects to open its 5th branch in the greater Atlanta, Georgia metro area during the current quarter, bringing the total number of Nicholas Financial branch offices to 53 in 12 states. The Company will continue to evaluate potential branch locations in both new and existing markets and intends to add 3 to 5 new branches during its 2011 fiscal year which began April 1, 2010.

Yeah…big deal. We already knew NICK is opening offices. It’s odd how a stock can be a screaming buy and yet no one will pay attention. Then suddenly, everyone has to own it.