• Baxter and Amphenol’s Earnings
    Posted by on July 16th, 2009 at 11:25 am

    We had two earnings reports this morning from our Buy List stocks, and so far, the results seem to be canceling each other out. Amphenol’s loss is wiping out Baxter’s gain.
    Amphenol (APH) reported earnings of 43 cents a share which beat the Street by a penny a share. In April, APH said to expect earnings between 41 cents and 43 cents a share, so this isn’t much of a surprise. But it’s a big drop from the 61 cents a share they made last year.
    The company sees Q3 earnings coming in—same as Q2—between 41 cents and 43 cents a share, which is below the Street’s view of 44 cents. Amphenol is a good stock but not a great buy right now.
    Baxter International (BAX) earned 96 cents a share which was two cents more than expectations, and one penny more than the high end of the range they provided in April. For Q3, they said to expect earnings between 95 cents and 97 cents a share (btw, I like companies with that kind of precise guidance). Last year’s Q2 came in at 85 cents a share.
    They slightly raised their full-year EPS guidance to a range of $3.76 to $3.80 from the previous range of $3.72 to $3.78. They had also raised guidance in April as well, so this is good to see.
    I like this stock but I’d like it more at $45.

  • Let’s Try a Small Thought Experiment
    Posted by on July 16th, 2009 at 10:14 am

    The stock market is up again and I’m outraged!! The market closed yesterday just 1.5% below our June 12th high, and we’re up about 38% from the March low.
    How could so many market gurus lead us astray!
    Shiller, Taleb, Schiff, Roubini. They all FAILED to see this horrible bull rally that has crippled MILLIONS AND MILLIONS of shorts.
    Congress needs to investigate! I want to see people go to JAIL!
    In the spirit of Jon Stewart, don’t they know that investing isn’t a game???
    Think of all the children of shorts who now go hungry every night. Think of the shorts who have seen their retirement savings get ransacked by this cruel bull market. Think of all those investors who now can only afford a BMW 328 i? It makes me sick!
    Let’s start compiling a list of VILLAINS who are responsible for this rally!
    I can’t wait to Matt Taibbi take these frauds down!
    I DEMAND that Shiller, Taleb, Schiff and Roubini go on Jon Stewart’s show and GROVEL, and say that they’ll try to do a better job in the future. These people need to be publicly HUMILIATED!
    They have NO SHAME.
    I DEMAND that left-wing groups start a petition asking CNBC to BAN everyone who missed this cruel and vicious rally.

  • Prominent Economists: Leave the Fed Alone
    Posted by on July 15th, 2009 at 2:48 pm

    Here’s a petition that’s been signed by a slew of well-known economists (you can see the names at the link):

    Amidst the debate over systemic regulation, the independence of U.S. monetary policy is at risk. We urge Congress and the Executive Branch to reaffirm their support for and defend the independence of the Federal Reserve System as a foundation of U.S. economic stability. There are three specific risks that must be contained.
    First, central bank independence has been shown to be essential for controlling inflation. Sooner or later, the Fed will have to scale back its current unprecedented monetary accommodation. When the Federal Reserve judges it time to begin tightening monetary conditions, it must be allowed to do so without interference. Second, lender of last resort decisions should not be politicized.
    Finally, calls to alter the structure or personnel selection of the Federal Reserve System easily could backfire by raising inflation expectations and borrowing costs and dimming prospects for recovery. The democratic legitimacy of the Federal Reserve System is well established by its legal mandate and by the existing appointments process. Frequent communication with the public and testimony before Congress ensure Fed accountability.
    If the Federal Reserve is given new responsibilities every effort must be made to avoid compromising its ability to manage monetary policy as it sees fit.

    Earlier this week, my in-box was crammed full of morons who insisted in perpetuating the lie that the Federal Reserve is a private bank. However, I’ve never fully understood the sacredness of central bank independence. Why is this some great ideal? The Fed is a dependency of Congress and I don’t see what’s wrong with treating it that way.
    Can anyone point to an instance of where Fed independence turned out to be helpful? Perhaps the early 1980s but I highly doubt Paul Volcker would have intimated by anyone. The Fed doesn’t need to be independent. It does need to have latitude and flexibility within a framework of Congressional oversight. If the Fed fails to do its job well, that’s a political issue and politicians should be held accountable.
    The function of the Fed has changed a lot in the past year and I think it’s reasonable to revisit some core assumptions. Questioning the Fed’s independence is a good start.

  • Used Car Prices Up in June
    Posted by on July 15th, 2009 at 1:51 pm

    Today’s CPI report showed that “used cars and trucks” rose nearly 1.4% last month. That’s not seasonally adjusted. This might be evidence that used cars are doing well which may say something about Nicholas Financial (NICK). It’s a small bit of news, but worth passing on.
    By the way, NICK just posted their latest annual report. The stock is still going for less than two-thirds of its book value.

  • Carney Defends Capitalism
    Posted by on July 15th, 2009 at 1:32 pm

    John is spot on. CIT really made a mistake in not failing earlier and more massively. Oh well.

  • Lap Dances Apparently Not Hurt By Recession
    Posted by on July 15th, 2009 at 12:06 pm

    Guess what strip club stock is 200% in the last four months?
    Rick’s Cabaret International (RICK)
    Special bonus! Hear Erin Burnett make a reference to Mark Haines’ ass. It’s not business, it’s CNBC.

  • Today’s Rally Is Led by the Cyclicals
    Posted by on July 15th, 2009 at 11:57 am

    It’s all about the cyclicals:
    yhoo071509.png

  • The Puzzling Equity Premium Puzzle
    Posted by on July 15th, 2009 at 10:28 am

    David Merkel has some interesting thoughts on the Equity Premium Puzzle.
    My so-far-ignored-by-the-Noble committee idea is that there is and should be an premium for equities, but it shouldn’t be very much. The idea is simple: If you lend a company money, both you and the company implicitly agree that they can do better with it than you. Therefore, their ROE ought to top the interest rate on the loan.
    A bond can’t buy a stock, but a stock can buy a bond. Moreover, a stock can use leverage to buy even more bonds. Therefore the size of the equity premium ought to be related to the size of the yield curve. What exactly the relationship is…well, I haven’t worked that part out yet.

  • Stat of the Day
    Posted by on July 14th, 2009 at 3:41 pm

    General Motors, days in bankruptcy = 39
    Jesus, days in wilderness = 40
    (Source: Bloomberg, KJV)

  • Daniel Gross: The Recession is Over (Sorta)
    Posted by on July 14th, 2009 at 3:13 pm

    At the new-and-improved Newsweek, Daniel Gross hops on the Dennis Kneale bandwagon and declares the recession over — though he has a far more intelligent and sardonic analysis:

    (T)wo of the best and most objective forecasters, who are not connected to investment banks or to the CNBC noise machine, have recently called the upturn. Macroeconomic Advisers, the St. Louis-based consulting firm that compiles a monthly GDP index, reported to its clients Monday that while second-quarter GDP was tracking at negative 0.1 percent (recession), the third quarter was tracking at 2.4 percent growth.
    The folks at the Economic Cycles Research Institute agree enthusiastically. It’s not because they’ve detected green pea shoots in Central Park. Rather, it’s because we’ve seen the three P’s, says Laskhman Achuthan, managing director at ECRI, which has been studying business cycles for decades and was one of the few outfits to call the last two recessions with any degree of accuracy.
    The economic data that get the most play in the news—unemployment, retail sales—are coincident or lagging indicators and historically have not revealed much about directional changes in the economy. ECRI’s proprietary methodology breaks down indicators into a long-leading index, a weekly leading index, and a short-leading index. “We watch for turning points in the leading indexes to anticipate turning points in the business cycle and the overall economy,” says Achuthan. It’s tough to recognize transitions objectively “because so often our hopes and fears can get in the way.” To prevent exuberance and despair from clouding vision, ECRI looks for the three P’s: a pronounced rise in the leading indicators; one that persists for at least three months; and one that’s pervasive, meaning a majority of indicators are moving in the same direction.
    The long-leading index—which goes back to the 1920s and doesn’t include stock prices but does include measures related to credit, housing, productivity, and profits—hits bottom and starts to climb about six months before a recession ends. The weekly leading index calls directional shifts about three to four months in advance. And the short-leading index, which includes stock prices and jobless claims, is typically the last to turn up.
    All three are now flashing green. According to Achuthan, the long-leading index growth rate has been recovering since November 2008, the weekly leading index has been recovering since last December, and the short-leading index growth rate bottomed in February 2009. In sequence, each turned up, “and by April the three Ps had all been satisfied.” Sure, corporate profits continue to disappoint, and the unemployment rate is climbing. But for ECRI, which navigates by relying exclusively on its instruments, that’s only a part of their picture. They’re the Spocks of the economic forecasting crowd—unemotional, uninvested in anything but the logic of what history and their dashboard tell them. “From our vantage point, every week and every month our call is getting stronger, not weaker, including over the last few weeks,” says Achuthan. “The recession is ending somewhere this summer.” In fact, it may already be over.

    Hmmm…I hope he’s right but hope isn’t a good research tool. The fact is that the economy still faces a number of headwinds, the most crucial is the deleveraging that’s going on. My fear is that we’re in for a prolonged period of sluggish growth.