• EV’s Earnings
    Posted by on February 24th, 2010 at 3:15 pm

    Eaton Vance’s (EV) quarterly earnings jumped 87%.

    For the three months ended Jan 31, the company posted profit of $46.2 million, or 37 cents per share, compared with profit of $24.7 million, or 21 cents per share, in the year-ago quarter.
    Results for the 2010 period were reduced by 2 cents per share by adjustments required to comply with new accounting standards.
    Revenue rose 30 percent to $272 million, from $209.5 million in the 2009 first quarter. That included a 31 percent jump in investment advisory fees to $210.4 million, a 19 percent gain in distribution and underwriter fees to $25 million and a 23 percent increase in service fees to $34 million.
    Analysts polled by Thomson Reuters, on average, expected profit of 36 cents per share, on revenue of $212.2 million.

    Thirty-five years ago, you could have picked up a share of EV for about 1.7 cents. Since then, the stock is up more than 1700 fold.

  • RIP: Peter Calvocoressi
    Posted by on February 24th, 2010 at 2:09 pm

    Here’s an obituary of Peter Calvocoressi, one of the major figures at Bletchley Park, the famous British code-breaking effort during World War II:

    His account of his wartime work at Bletchley Park, Top Secret Ultra, appeared in 1980. In it Calvocoressi emphasised the decisive role played by Ultra in intercepting communications: “Ultra took the blindfold off our eyes so that we could see the enemy in detail in a way in which he could not see us.”
    The breaking of the Enigma machine ciphers gave Britain’s outnumbered fighter pilots a critical head start in intercepting German bombing raids. It also helped to end the Nazi wolfpack menace during the Battle of the Atlantic when, in December 1942, Bletchley Park experts cracked the U-boat cipher known as Triton.
    In his book Calvocoressi also highlighted the contribution of the intercepts to countering the surface raiders which had inflicted such damage on Atlantic shipping. The best-known was the German battleship Bismarck, which had sailed from the Baltic in May 1941 on what would be her first and last voyage. Six days out from Gdynia she sank the veteran British cruiser Hood, but three days later she herself was sunk with the loss of some 2,000 hands, just short of the safety zone for which she was making off the western coast of France.

    I love how the Brits do their obituaries. The second-to-last paragraph is brilliant:

    The range of jobs that he undertook was wide, and his habit of leaving them was partly due to the breadth of his interests and partly perhaps to a conviction that he knew best: although in theory he respected independent and individual attitudes, he also felt an obligation to guide others along the paths he selected for them. This cannot always have made him an easy colleague.

  • Bernanke’s Testimony
    Posted by on February 24th, 2010 at 10:07 am

    Here’s today’s Semiannual Monetary Policy Report:
    Chairman Frank, Ranking Member Bachus, and other members of the Committee, I am pleased to present the Federal Reserve’s semiannual Monetary Policy Report to the Congress. I will begin today with some comments on the outlook for the economy and for monetary policy, then touch briefly on several other important issues.
    The Economic Outlook
    Although the recession officially began more than two years ago, U.S. economic activity contracted particularly sharply following the intensification of the global financial crisis in the fall of 2008. Concerted efforts by the Federal Reserve, the Treasury Department, and other U.S. authorities to stabilize the financial system, together with highly stimulative monetary and fiscal policies, helped arrest the decline and are supporting a nascent economic recovery. Indeed, the U.S. economy expanded at about a 4 percent annual rate during the second half of last year. A significant portion of that growth, however, can be attributed to the progress firms made in working down unwanted inventories of unsold goods, which left them more willing to increase production. As the impetus provided by the inventory cycle is temporary, and as the fiscal support for economic growth likely will diminish later this year, a sustained recovery will depend on continued growth in private-sector final demand for goods and services.
    Private final demand does seem to be growing at a moderate pace, buoyed in part by a general improvement in financial conditions. In particular, consumer spending has recently picked up, reflecting gains in real disposable income and household wealth and tentative signs of stabilization in the labor market. Business investment in equipment and software has risen significantly. And international trade–supported by a recovery in the economies of many of our trading partners–is rebounding from its deep contraction of a year ago. However, starts of single-family homes, which rose noticeably this past spring, have recently been roughly flat, and commercial construction is declining sharply, reflecting poor fundamentals and continued difficulty in obtaining financing.

    Read more…

  • “You need 3-4 Good Companies to Invest in Over Ten Years”
    Posted by on February 24th, 2010 at 9:54 am

    I came across this interview with Peter Lynch, the legendary former manager of Fidelity’s Magellan fund. Here’s an excerpt:

    Against that, there’s the argument that less than 15% of investment managers beat the index, and the rest lag behind it.
    “At Fidelity, we had countless funds that beat the indices over periods of tens of years. In the past ten years, the market has been difficult, but I believe that in the next ten years, active fund managers will produce a better return than index funds and ETFs.”
    As for other veteran investment managers in the US market, for Lynch too the latest crisis was the worst he had experienced in his years in the industry. Despite the severity of the crisis, Lynch believes that it was only an exceptional, random event, and that, in the long run, the markets will get back on track.
    Asked to share his lessons from the crisis with us, Lynch pauses for a moment’s thought, and responds, “I’ll tell you the same thing I would have said 10 or 20 years ago as well. To predict the market’s direction in any given year is a completely random act. You can’t know what the markets will do in a period of six or twelve months.
    “On the other hand, you do know that, over the past 40-50 years, company profits grew at good rates, and in my view they will continue that way in the coming years too. I estimate that corporate profits will double themselves every ten years. If you add to that the dividends that the companies distribute, you get an excellent return,” adds Lynch. “You have to believe that, in general, companies in the US will continue to grow. Naturally, along the way some of them will disappear and some new ones will join.
    “When you participate in company profits, the most important point is whether you believe that they will be higher in another ten or twenty years or not,” Lynch insists. “If not, then perhaps it would be better for you not to be exposed to them, not in an ETF, not in an index fund, and not in a managed fund. When you look at the alternatives for investment, the choice for investors today is between a money market fund, that produces a zero return, Treasury bonds, that yield 3.8%, or some exposure to the stock market that, over time, yields double that on average.”
    After leaving Magellan 20 years ago, Lynch reduced the scope of his activity in the markets. In the two decades since then, great changes have taken place in the financial industry and in the markets, one of the most prominent being the technological developments that now enable investors all over the world to be exposed to a far larger amount of information, and in real time. Lynch himself sees no difference between 20 years ago and today in the way investors need to approach the markets.
    “In the course of my work at Magellan, I bought small companies that grew over the years. This is a strategy that worked, and still works today,” he says. “I bought companies whose performance was weak and that turned their businesses around. This method still works today. If you invest in companies whose assets are worth more than their market cap, you have found a great investment opportunity.”

  • How to Make 25.2% Annualized
    Posted by on February 23rd, 2010 at 4:49 pm

    Go back in time to June 1938. Buy a brand new Action Comics #1 for 10 cents. Then sell it yesterday for $1 million.
    Over 71-3/4 years, that’s a return of 999,999,900% which works out to about 25.2% a year.

  • Consumer Confidence Plunges
    Posted by on February 23rd, 2010 at 12:03 pm

    The market is getting smacked around this morning thanks to an awful report on consumer confidence.

    The Conference Board, a New York-based research group, said its Consumer Confidence Index fell to 46.0 in February from 56.5 in January.
    According to a Briefing.com consensus survey, economists expected the index to fall slightly to 55.0 from 55.9. The index, which is based on a survey of 5,000 U.S. households, is closely monitored because consumer spending drives two-thirds of the nation’s economic activity.
    The overall index remains at historically low levels and is the lowest since April 2009. A reading of above 90 indicates a stable economy, while 100 or greater is an indication of strong growth.

    The present situation index hit a 27 year low of 19.4. I can’t say exactly why but I’m very skeptical of this report. I realize I sound like a person who refuses to believe the data that counters his bias, but this report just doesn’t ring right. It’s too much of an outlier.
    The market seems to agree with me. Stock prices are down but nothing dangerous. These consumer confidence reports are subject to revisions, and revisions of the revisions. I’ll need to see more data before I’m fully convinced that were headed back down the drain.

  • 23-F: 29 Years Ago Today
    Posted by on February 23rd, 2010 at 9:01 am

    It’s hard to believe that there was a fascist coup attempt in Western Europe just 29 years ago but today is the anniversary of the Francoist attempt in Spain. The botched coup is known as 23-F. Like 9/11 it’s named after its date. Here’s some video:

    Incidentally, these guys aren’t fascists is the modern sense meaning American politicians you don’t like. These boys are the real deal. Franco had been dead only six years. The Monty Pythonesque looking figure at the center of things is Lieutenant Colonel Antonio Tejero.
    The national assembly was in the midst of electing a new prime minister when Tejero comes barging in. The very brave defense minister is the one standing up to him. Tejero had about 200 national guardsmen with him. The plan was that high ranking generals would join in. Only one did, the top general in Valencia.
    King Juan Carlos went on television, in his military uniform, and said in no certain terms that the coup was unconstitutional. The deputies were freed the next morning. Tejero was arrested and thrown in jail for 15 years.

  • Gary Gorton on the Financial Crisis
    Posted by on February 23rd, 2010 at 8:52 am

    Yale professor Gary Gorton has an excellent Q&A on the financial crisis. I highly recommend it. It’s long but readable and very thorough.
    Here’s the WSJ:

    It’s wrong to blame this crisis on subprime mortgage lending, he says. Rather, this crisis is best seen as the latest of a series of banking crises throughout history. Banks borrow (or take deposits) short-term, promising to give money to their customers if they want it. They invest that money long-term, lending to businesses and consumers. This “intermediation” process is vital to the smooth functioning of the economy. But if depositors or others from whom banks have borrowed short-term demand their money back — a demand often sparked by panic — banks can’t instantly respond, and bad things ensue. In the old days, these runs were prompted by anxious depositors. Deposit insurance helped solve that problem. In our time, banks were reliant on short-term borrowing known as repurchase agreements — and the folks who held those panicked.

    Tyler Cowen has more.

  • Medtronic Beats By a Penny and Narrows Range
    Posted by on February 23rd, 2010 at 8:27 am

    Medtronic (MDT) just released a decent earnings report. After charges, earnings for their fiscal third quarter came in at 77 cents a share which was a penny higher than the Street. Sales rose 10% to $3.85 billion. More importantly, Medtronic narrowed the range of their 2010 estimate to $3.20 to $3.22 per share from $3.17 to $3.22 per share. The Street had been looking for $3.18. This means the stock is now going for 13.6 times 2010 earnings. Not bad.

  • Geithner Refuses To Come Down Off Capitol Dome
    Posted by on February 22nd, 2010 at 6:32 pm

    Sad.

    WASHINGTON—Three days after a sulking Timothy Geithner climbed to the top of the U.S. Capitol dome, the treasury secretary remained steadfast Monday in his refusal to come down. “You all hate me,” said Geithner, his arms crossed as he shouted at the crowd of onlookers gathered on the Capitol lawn below. “What do you care if I stay up here? You’ll just make fun of me if I come down anyway. Well, I’m not coming down—not ever!” Federal security teams monitoring the situation said they believed Geithner might be planning an extended stay atop the dome, as evidenced by what appeared to be a burlap sack containing various snacks, a six-pack of root beer, and several copies of The Economist.