• AXA to Delist from NYSE
    Posted by on January 25th, 2010 at 10:55 am

    The French insurance company, AXA (AXA) has announced that it will delist from the NYSE due to lacking of trading volume. This strikes me as very bad news for New York and the American market. I would think that at least some American investors would be interested in trading a $45 billion insurance company. Based on revenue, this is one of the largest companies in the world.
    Is this solely about trading volume, or are the French concerned about our regulatory climate?

  • Should You Listen to Your Broker?
    Posted by on January 25th, 2010 at 10:34 am

    New research shows that you should pay careful attention to what your stock broker says.
    Then do the exact opposite.

    It turns out, there is information in analyst forecasts, specifically, shorting your broker. In Long-Term Earnings Growth Forecasts, Limited Attention, and Return Predictability by Da and Warachka, they find that if you take the long-run earnings growth and divide by the recent earnings growth, you get a straightforward metric of optimism: higher is more optimistic. It turns out, the highest decile has a 4% annualized lower risk-adjusted return than the lowest decile; more optimistic stocks have lower returns.
    A simple explanation (see here) is that mutual funds “herd” (trade together) into stocks with consensus analyst upgrades and (especially) herd out of stocks with consensus downgrades. Stronger fund herding occurs when analyst recommendation revisions are more unanimous.
    However, there is some information that analyst recommendations are more useful at the industry level. Portfolios long in industries about which analysts are optimistic and short in industries about which analysts are pessimistic generate significant abnormal returns (see here).
    So, listen to your broker’s advice on sectors and stocks, just remember to short the stock picks.

  • Four More Years
    Posted by on January 25th, 2010 at 10:28 am

    The stock market is rebounding this morning and the news that it appears that Ben Bernanke will be confirmed for another term as Fed chair, though of course, it’s hard to tie any one-day rally to a specific news item.
    I think the anger at Bernanke closely resembles the Two-Minute Hate Sessions in George Orwell’s 1984. Americans are rightfully angry, but they don’t know exactly who to be angry. They were angry at George Bush and he’s not around. Alan Greenspan? He’s also gone. That leaves Ben Bernanke.
    If having him reconfirmed by a whisker placates enough folks, I’m fine with that. But rejecting Bernanke would be an awful, awful move. Consider the take of one Nebraska-based investor:

    CNBC:….Should he be confirmed?
    Buffett: If I could vote twice I would. He should be. He did a magnificent job over this period… We can’t sit here and armchair quarterback him. But when we look back at September and October 2008, he took some extraordinary actions….we talked about it being an economic pearl harbor. He did what he should have done in response.
    Q: What happens if he’s not recommended?
    Buffett: Well, just tell me a day ahead of time so I can sell some stocks.

    There seems to be a view that deep with the offices of the Federal Reserve is a large machine called a Bubble Popper. At anytime, the Fed can wheel it out, aim and fire. Then magically, whatever bubble formed will be popped without damaging anything.
    My guess is that Bernanke will be passed with just a few votes over 60, but there was no real danger to his reconfirmation.

  • What’s Down the Most?
    Posted by on January 23rd, 2010 at 10:16 pm

    The S&P 100 is down -5.25% since Tuesday. Here’s a look at how the 100 stocks have performed.

    Read more…

  • S&P 500 to Close Below 50-Day Moving Average
    Posted by on January 22nd, 2010 at 3:38 pm

    For the first time since November, the S&P 500 will close below its 50-day moving average.
    image894.png
    This ends a 79-day run of closing over the 50DMA. From July to October there was a 106-day run.
    The VIX is up 5.04 points to 27.31.

  • The Withdrawl Countdown
    Posted by on January 22nd, 2010 at 1:16 pm

    My guess is that Ben Bernanke would withdraw and spare the president of losing a confirmation vote. That is, if it looks like he’d lose a confirmation vote.

  • Bernanke Reconfirmation in Doubt
    Posted by on January 21st, 2010 at 11:20 pm

    This is not what the market needs to hear:

    Amidst the voter anger at Wall Street and Washington, D.C., ABC News has learned that the Senate Democratic leadership isn’t sure there are enough votes to re-confirm Ben Bernanke for another term as chairman of the Federal Reserve.
    Bernanke’s term expires on Jan. 31.
    The White House did not respond to many requests for comment.
    “The American people are disgusted with the greed and recklessness of Wall Street,” Sen. Bernie Sanders, I-Vt., said in an interview with The Associated Press last month. “People are asking, ‘Why didn’t the Fed intervene at the appropriate time to stop the casino-type activities of large financial companies?'”
    Sanders, Sen. Jim Bunning, R-Ky., Sen. Jim DeMint, R-S.C., and Sen. David Vitter, R-La., have all put holds on Bernanke’s nomination, requiring 60 votes to proceed to a vote.
    Voter anger is of heightened concern to members of Congress given the surprise victory of Sen.-elect Scott Brown, R-Mass., who rode a tide of voter discontent and economic anxiety to an upset victory in a special election earlier this week.
    Last month, the Senate Banking Committee voted in favor of Bernanke’s nomination by a vote of 16-7, not exactly a reflection of overwhelming positive feelings towards the Fed chair given the fact that he was first appointed in 2006 by President George W. Bush and nominated by President Obama for a second term last August.
    Senate Majority Leader Harry Reid, D-Nev., at one point was planning on scheduling a vote on Bernanke for Friday, but the Senate is currently in the midst of a debate over raising the debt limit and the vote has been pushed.

  • S&P 500 Erases Most of this Year’s Gain
    Posted by on January 21st, 2010 at 3:05 pm

    The S&P 500 closed 2009 at 1115.10. At one point today, we dipped below that to 1114.84. It seems like only Monday that we were over 1150.

  • The Volcker Rule
    Posted by on January 21st, 2010 at 2:35 pm

    The White House announced its major initiative today.

    Declaring that huge banks had nearly brought down the economy by taking “huge, reckless risks in pursuit of profits,” President Obama on Thursday proposed legislation to limit the scope and size of large financial institutions.
    The changes would prohibit bank holding companies from owning, investing, or sponsoring hedge fund or private equity funds and from engaging in proprietary trading — what Mr. Obama called the Volcker Rule, in recognition of the former Federal Reserve chairman, Paul A. Volcker, who has championed the restriction.
    In addition, Mr. Obama will seek to limit consolidation in the financial sector, by placing curbs on the growth of the market share of liabilities at the biggest firms. An existing cap, put in place in 1994, put a limit of 10 percent on the share of insured deposits that can be held by any one bank. That cap would be expanded, officials said, to include liabilities other than deposits.
    Both changes require legislation by Congress, and Republican leaders, as well as the banking industry, signaled on Thursday that they would resist the proposals.

    This is a big deal and I expect most of the proposal to pass. I think this will have a major impact on the hedge fund industry. I’m also surprised that Tim Geithner has been tossed overboard.
    I suspect that when a discussion is held on a future financial crisis, someone will say, “Well, it all started back in January 2010 when the government decided…”

  • Goldman’s Huge Quarter
    Posted by on January 21st, 2010 at 11:40 am

    Goldman Sachs (GS) reported its best quarter ever:

    Goldman posted quarterly profit of $4.95 billion, or $8.20 a share, for the quarter, on revenue of $9.62 billion. Analysts surveyed by Thomson Reuters predicted earnings of $5.20 a share and revenue of $9.65 billion.
    In the year-earlier period Goldman had a loss of $2.29 billion, or $4.97 a share, on negative revenue of $1.58 billion. The prior-year period ended on Nov. 28, before the company shifted to a different reporting calendar.
    Fixed-income trading slowed after extraordinary profits in the previous three quarters. Revenue from fixed income, currency and commodities was $3.97 billion, down from the $5.99 billion in the third quarter.
    But investment-banking revenue moved higher, after falling almost a third in the third quarter. It rose 82% from the previous quarter to $1.64 billion.
    Revenue from principal investments, those made with the firm’s own capital, fell from the previous period.
    The investment bank’s impressive results in 2009 propelled it further ahead of rivals, many of which have struggled to overcome the credit crisis. Goldman has been able to take on more risk and grab market share while competitors were licking their wounds.

    The company is setting aside $16 billion for bonuses which works out to about $500,000 per employee.