• The Fed’s Statement
    Posted by on September 23rd, 2009 at 2:27 pm

    Yawn.

    Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn. Conditions in financial markets have improved further, and activity in the housing sector has increased. Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.
    With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.
    In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010. As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.
    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

  • The Swine Flu Index
    Posted by on September 23rd, 2009 at 10:13 am

    It had to happen sooner or later:

    Rather than reaching for rubber gloves and face masks for protection, some investors are trying to expose their portfolios to the swine flu.
    As governments brace to see if the H1N1 flu strain, better known as swine flu, worsens, investors are looking for companies that might profit from the pandemic.
    “Investors can make money and avoid losses when it comes to swine flu,” says Jason Kantor, analyst at RBC Capital. “The secret is to own companies that will benefit directly regardless of (the outbreak’s) severity.”
    That includes companies that:
    •Produce mainstream flu treatments. Perhaps the most straightforward way to invest in swine flu is through companies that make popular mainstream drugs that fight viral infections.
    GlaxoSmithKline’s (GSK) Relenza and Gilead Sciences (GILD)’ co-developed Tamiflu are two of the most commonly used to combat swine flu symptoms, says analyst Jason Kolbert of ThinkEquity. Gilead gets a roughly 20% royalty from Tamiflu sales from Roche, which makes and sells the product.
    Gilead stands to benefit if the regular flu this year is worse than expected, Kolbert says, and also benefits if the H1N1 flu is more virulent than forecast. It’s a highly profitable licensing arrangement, Kantor says. Gilead is expected to reap $200 million in sales from Tamiflu in 2010. GlaxoSmithKline and Novartis could benefit, too, since they make seasonal flu vaccines, he says.
    •Develop vaccines targeted to swine flu. BioCryst (BCRX) is working on the antiviral agent peramivir, which may be more appropriate for H1N1 due to its greater potency, says analyst Joe Schwartz of Leerink Swann. If H1N1 is more serious than thought, this treatment may be more popular. Plus, the drug is more important economically to BioCryst than Tamiflu is to Gilead. Monday, BioCryst got $77.2 million more in funding from the U.S. Department of Health and received a request for information about potentially stocking the treatment.
    Other smaller firms working on H1N1 vaccines include Novavax (NVAX) and Vical (VICL), Kolbert says. If those vaccines pan out, they could be more meaningful than Tamiflu is to Gilead at 5% of revenue, Schwartz says. Meanwhile, large French drugmaker Sanofi-Aventis (SNY) said Monday that it received an additional order from the U.S. for H1N1 vaccine, bringing the total order to 75.3 million doses. And Monday, the U.S. ordered more nasal-spray vaccine from AstraZeneca’s (AZN) MedImmune.
    But there’s reason to be skeptical. Previous scares, such as mad cow disease and avian flu, only gave stocks a short-term boost until the hysteria faded. “The concern is H1N1 gets worse. That’s the unknown,” Schwartz says. “It has that potential, but that’s far from a certainty.”

  • AP: Hedge fund sells part of its New York Times stock
    Posted by on September 22nd, 2009 at 10:59 am

    From AP:

    Harbinger Capital Partners LLC says it has sold part of its 20 percent stake in The New York Times Co., but still considers the company a core holding.
    The hedge fund said in a securities filing this week that it sold 5 million Times shares at $8.25 each. That leaves it with about 23.5 million shares, or a 16.4 percent stake in the company.
    Fund spokesman Charles V. Zehren says the media company “is still a core holding, and the sale was done to take advantage of the strength in the market.”
    The New York Times Co. publishes The Boston Globe, the International Herald Tribune and 15 other dailies along with its flagship newspaper.
    Its shares rose 36 cents, or 4.4 percent, to $8.52 in morning trading.

  • FactSet Guides Higher
    Posted by on September 22nd, 2009 at 10:37 am

    FactSet Research Systems (FDS) reported fiscal fourth-quarter earnings this morning. For the June through August period, the company earned 74 cents a share compared with 67 cents last year. That matched Wall Street’s estimate. Revenue rose 1% to $155 million which slightly better than estimates.
    Here are some highlights of the quarter listed by the company:

    * Client count was 2,045 at August 31, 2009, a net increase of 12 clients during the quarter.
    * Professionals using FactSet increased to 37,300, up 200 users.
    * Portfolio Analytics (“PA”) 2.0 was deployed by 647 clients representing 5,640 users. PA users increased by 40 during the quarter, while the number of PA clients remained the same as the previous quarter.
    * Annual client retention rate was greater than 95% of ASV and 87% of clients.
    * Employee count at August 31, 2009 was 2,962, up 412 employees during the quarter.
    * Common shares outstanding at August 31, 2009 were 46.7 million. The Company repurchased 594,600 shares during the quarter and $102 million remains authorized for future repurchases.

    For their first quarter, FactSet sees EPS ranging between 73 and 75 cents which is higher than the Street’s consensus of 71 cents. The shares have been up as much as 10% to a new 52-week high.

  • Oh Becky
    Posted by on September 22nd, 2009 at 10:21 am

  • The Worse the Economy, the Better the Recovery
    Posted by on September 21st, 2009 at 2:15 pm

    Jim Grant has a typically smart piece in the WSJ. Although he’s known to be a pessimist, Grant has turned bullish recently:

    Americans are blessedly out of practice at bearing up under economic adversity. Individuals take their knocks, always, as do companies and communities. But it has been a generation since a business cycle downturn exacted the collective pain that this one has done. Knocked for a loop, we forget a truism. With regard to the recession that precedes the recovery, worse is subsequently better. The deeper the slump, the zippier the recovery. To quote a dissenter from the forecasting consensus, Michael T. Darda, chief economist of MKM Partners, Greenwich, Conn.: “[T]he most important determinant of the strength of an economy recovery is the depth of the downturn that preceded it. There are no exceptions to this rule, including the 1929-1939 period.”

    Ah, our old friend Mr. Reversion to the Mean. He’s made smart people look dumb and dumb people look smart.

  • Stimulus Program
    Posted by on September 21st, 2009 at 1:24 pm

    Not sure what to made of this one: French workers strip to try to save their jobs.

  • Q&A With Doug Kass
    Posted by on September 21st, 2009 at 1:07 pm

    Dan Holland of Real Clear Markets sat down with the always-valuable Doug Kass. Here’s a sample:

    RealClearMarkets: You made a huge, once-in-a-lifetime call when you correctly predicted the stock market bottom back in early March-a generational low as you called it. Equities launched an extraordinary rally on cue with your call, and are up over 60 percent as of this interview. Was this good fortune, or was your call borne out of a repeatable investment process?
    Kass: Consider the market as a triangle. The bottom left angle is sentiment and the bottom right angle is valuation. On top is the most consequential angle (the one I weigh most heavily) – the fundamentals.
    In March, 2009, sentiment and valuation was clearly stretched to a negative extreme. Investors were fearful of “being in” — as a result, retail investors and institutional investors (especially of a hedge fund kind) were at record low net invested positions. At the same time, valuation was pushed down to nearly unprecedented low levels vis a vis “normalized” S&P earnings of about $70/share and were trading at a discount to replacement book value (compared to an historic average of about 140% of replacement book value).
    In terms of fundamentals, I had a specific Watch List which helped me gain comfort that stocks were creating a Generation Low. I believe, by following this list, that the process is repeatable.
    My Watch List indicators were getting “less worse” six months ago – and that a second derivative recovery was well underway, but, at the time, was being ignored as fear reigned.
    Here is a partial check list of (ignored) indicators that I was looking at six months ago which led to my adopting a more favorable stock market outlook:
    • Bank balance sheets were being recapitalized.
    • Bank lending was slowly being restored as the industry was experiencing record wide net interest spreads and margins.
    • Financial stocks’ performance was improving.
    • Commodity prices were beginning to rise- a sign that worldwide economic growth was mending.
    • Credit spreads and credit availability were slowly improving.
    • With affordability at record levels, the cost of home ownership versus renting becoming more favorable and with the Federal Reserve providing a low interest backdrop – a bottom in the housing markets was growing more likely.
    • Corporations’ draconian cost cutting was accelerating – sowing the seeds for upside margin and earnings surprise in 2009’s second half.
    • Corporations had cut inventories to the bone – a record low level of inventory to sales augured positively for corporate profits.
    • There was growing evidence of favorable reactions to disappointing earnings and weak guidance – a sign that the poor operating environment had been discounted.
    • Evidence of strength in China’s economy (two consecutive months of a rising PMI) and in its equity market (seen in strong absolute and relative strength in Chinese stock market.
    • Market volatility was starting to decline.
    • Hedge fund and mutual fund redemptions were easing.
    • Pension funds were far too skewed towards fixed income and provided the potential to buoy stocks in a reallocation in the months ahead.

  • TARP Application: “Two Pages, Most of it White Space”
    Posted by on September 21st, 2009 at 11:51 am

    Vanity Fair looks at how the TARP Program was run. After making all the big boys participate, Treasury strong-armed smaller banks as well. Ray Davis, the head of Umpqua Bank, a financially sound bank in Oregon, got the message that he’d better play ball and take TARP money:

    The “application” was the paperwork for a capital infusion, and Davis was told it would be faxed over right away. By now he was sold on participating. “Here was somebody from the secretary of the Treasury calling,” Davis says, “and complimenting us on the strength of our company and saying you need to do this, to help the government, to be a good American citizen—all that stuff—and I’m saying, ‘That’s good. You’ve got me. I’m in.’”
    The most urgent task was to complete the application and get it back to Treasury the next day, and this had Davis in a sweat: “I pictured this 200-page fax that would take me three weeks of work crammed into one evening.” Imagine Davis’s surprise when a staff member walked in soon afterward with the official “Application for tarp Capital Purchase Program.” It consisted of two pages, most of it white space.

  • The Long-Tail Effect Will Revolutionize Business. Yeah…About That.
    Posted by on September 21st, 2009 at 9:44 am

    Some folks at Wharton found that the Long-Tail Effect isn’t all it’s cracked up to be.

    The Wharton researchers find that the Long Tail effect holds true in some cases, but when factoring in expanding product variety and consumer demand, mass appeal products retain their importance. The researchers argue that new movies appear so fast that consumers do not have time to discover them, and that niche movies are not any more well-liked than hits.
    According to Netessine, the Long Tail effect may be present in some cases, but few companies operate in a pure digital distribution system. Instead, they must weigh supply chain costs of physical products against the potential gain of capturing single customers of obscure offerings in a rapidly expanding marketplace. Companies, they add, must also consider the time it takes for consumers to locate off-beat items they may want.
    “There are entire companies based on the premise of the Long Tail effect that argue they will make money focusing on niche markets,” says Netessine. “Our findings show it’s very rare in business that everything is so black and white. In most situations, the answer is, ‘It depends.’ The presence of the Long Tail effect might be less universal than one may be led to believe.”

    The researchers used data from Netflix who made their numbers available as past of a $1 million competition to improve predicting consumer ratings by 10%.