• Outrageous Executive Perks
    Posted by on May 13th, 2009 at 9:58 am

    MarketWatch lists 10 of the most egregious executive perks. I liked #3 in particular, a “stay” bonus even if you die:

    Some companies are so keen to hold on to executives that they promise big pay and benefits even if the talent dies — in contracts known as golden coffins.
    Life insurance policies worth millions of dollars are the least controversial part of these packages — even though buying such coverage without company help shouldn’t be too difficult for executives pulling in six or seven figures a year.
    A peek under the lid of several golden coffins also reveals big severance payments, pensions and continued salaries if executives pass away.
    Abercrombie & Fitch agreed to pay Chief Executive Michael Jefferies a $6 million “stay bonus” to keep him running the successful fashion clothing retailer, according to its 2007 proxy statement.
    If Jefferies dies, the bonus stays and is paid out, along with $10 million from a company-purchased life insurance policy, to his estate. The retailer would also pay some of his incentive compensation, bringing the golden coffin’s value to more than $17 million, assuming he died on Feb. 2, 2008, according to the proxy.

  • The Wonderful Dullness of Small Banks
    Posted by on May 12th, 2009 at 1:31 pm

    David Segal writes about a topic that’s near and dear to our hearts—the boring stability of small banks. There are tons of little banks across the country that have barely noticed that credit crisis. Their businesses are boring and predictable, plus many of them are publicly traded.
    Segal quotes a small-town banker:

    “I was on vacation in California and this guy I had just met said, ‘So, traveling on that bailout money, huh?’ ” said Blake Heid, of First Option Bank in Paola, Kan., which didn’t take any bailout money. “I didn’t find that very amusing.”
    Though they greatly outnumber the national and regional banks, community banks have barely registered in any of the fallout from the credit crisis, in part because they hold less than 10 percent of the $13.8 trillion in bank assets nationwide.

    A few years ago, I wrote about three high-quality small-town banks. Not a single analyst followed them. Not long after I highlighted them, all three were bought out.

  • Obama Beats Buffett In Market Timing
    Posted by on May 12th, 2009 at 1:00 pm

    Bloomberg reports:

    President Barack Obama is proving to be a better judge of the stock market than Warren Buffett, the world’s second-richest person.
    The CHART OF THE DAY shows the Standard & Poor’s 500 Index began its biggest rally since the 1930s after Obama said on March 3 that equities offered bargains for investors with a “long-term perspective.” While the measure fell 3.5 percent over the next week, reaching a 12-year low on March 9, it went on to surge as much as 37 percent.
    Buffett, the chairman of Berkshire Hathaway Inc., wrote a column titled “Buy American. I Am.” for the New York Times in October, saying he may put all of his personal investments into U.S. stocks. The S&P 500 then plunged 29 percent through March 9 and is still down 3.9 percent. Berkshire, based in Omaha, Nebraska, posted its largest loss in at least two decades on May 8, in part because of Buffett’s “major mistake” of buying ConocoPhillips shares before oil retreated from a record.

    obama051209.png
    Congratulations Mr. President! We’ve gained back everything we lost during you administration.

  • The Diamond Market Is a Scam
    Posted by on May 12th, 2009 at 11:11 am

    The New York Times has an article today on the diamond market and how Russia is loading up on supply and waiting for the economy to recover.
    I find the world diamond market fascinating because it’s almost completely rigged. If the free market had its way, diamonds would be insanely cheap.
    The diamond market used to be controlled by De Beers. They’re the ones who run those “diamonds are forever” ads. (Sure they’re forever, all carbon is.) I believe that diamond rings are a wedding staple only in the United States. Lately, De Beers has fallen on hard times and Russia is taking over the market.

    The recession also coincided with a settlement with European Union antitrust authorities that ended a longtime De Beers policy of stockpiling diamonds, in cooperation with Alrosa, to keep prices up.
    Though it is a major commodity producer, Russia has traditionally not embraced policies that artificially keep prices up. In oil, for example, Russia benefits from the oil cartel’s cuts in production, but does not participate in them.
    Diamonds are an exception. “If you don’t support the price,” Andrei V. Polyakov, a spokesman for Alrosa, said, “a diamond becomes a mere piece of carbon.”

    You know the song, “carbon is a girl’s best friend.”

  • General Motors Drops to Lowest Price Since 1933
    Posted by on May 12th, 2009 at 10:29 am

    Shares of Government Motors (GM) got down to $1.09 today which is the lowest price since 1933. It’s so bad at GM that even the execs have dumped their shares:

    General Motors Corp. reported that six executives sold shares in the company, as the largest U.S. automaker said it’s more probable than previously thought that it will need to file for bankruptcy.
    Vice Chairman Bob Lutz and North America President Troy Clarke sold all their holdings in the Detroit-based company, according to regulatory filings today.

    The upshot is that this was the first smart move by GM execs in decades. (Ooohh, burn!)

  • Nicholas Financial Hits $5.25
    Posted by on May 11th, 2009 at 3:15 pm

    More great news from Nicholas Financial (NICK) today. The stock got up to $5.25 a share today.
    We’ve certainly waited a long time for this one to move. The story of NICK underscores an important point about investing. The market can simply be wrong, and you have to wait for a bit for it to be right again. The facts haven’t changed much with NICK. The value was visible in plain sight. We just had to sit and wait it out.
    Also, when it came, the adjustment back to reality was very quick. Not too long ago, NICK was going for half this price. That’s the story of investing—lots of boredom and frustration, and then very quick and exciting moves.
    Let me hear from you if you’re a NICK owner. I’m curious how many stop by here.

  • Who’s Watching the Fed?
    Posted by on May 11th, 2009 at 2:59 pm

    Joe Weisenthal points out this hysterical SNL skit about the person who’s in charging of monitoring the Federal Reserve, but the official is totally clueless. OMG, those guys at 30 Rock kill me!

    Update: Several readers have said that this isn’t an SNL skit but it’s real reality.

  • For the First Time Ever, Microsoft Turns to the Bond Market
    Posted by on May 11th, 2009 at 2:53 pm

    Microsoft (MSFT) said that it’s going to raise money from the bond market for the first time in its history. The company is going to sell $3.75 billion worth of debt in order to buyback shares and fund technology investments.
    Frankly, I’ve become very skeptical of share buybacks. On paper, what Microsoft is doing makes a lot of sense. Implicitly, the company is saying the stock is too low and bonds are too high. That’s probably right.
    However, I’d rather not have a company try to fatten its profits by making guesses in the financial markets—even if they’re good guesses. According to their latest statements, Microsoft has a cool $25 billion in cash and short-term investments. Why not draw from that? By just sitting there, it’s probably drawing a microscopic yield. Better, why not return a lot of that to shareholders. That might even get the stock up.
    Ideally, a company should focus on its business and their financial strategy should merely serve what the business needs. Also, the government’s tax policy should be neutral in this regard so there’s no advantage in ignoring dividends.
    Over the last eight years, Cisco Systems (CSCO) has spent over $46 billion on buying back shares of Cisco. The company has simply traded valuable cash for overpriced stock.

  • SNL Looks at the Stress Test
    Posted by on May 11th, 2009 at 1:11 pm

  • Goldfinger’s Plan Backfires Again
    Posted by on May 11th, 2009 at 12:59 pm

    Central Bank Gold Sales Began 10 Years Ago This Week:
    Has it Worked?
    In the spring of 1959, 50 years ago, the seventh of Ian Fleming’s James Bond novels, Goldfinger, was published. The plot (made into a classic 1964 movie) featured a crazy idea – to blow up all of the U.S. gold at Fort Knox, making it radioactive and worthless. That would make Auric Goldfinger’s gold worth more. However, he didn’t need to stage all that drama to make money. If he had just held on to his gold 20 years, it would be worth 25 times as much. A decade ago, some nations in Europe decided to blow out their gold instead of profiting from buy-and-hold. Their initial plan, from May 1959, has now backfired.
    10 years ago, on Friday, May 7, 1999, the Bank of England announced that it would start selling a large share of its gold reserves in favor of assets offering interest rates – namely bonds. That announcement came after a decade of gold going nowhere, causing the impatient anti-gold forces among central bankers to demand a positive return on their investments. On the day of the Bank of England announcement, gold was trading $282.40, but the announcement of the forthcoming sale drove gold prices down to 20-year lows over the next 90 days. In fact, gold traded narrowly between $252 and $262 per ounce all through July & August of 1999, due to the anticipation of the damage done by massive central bank liquidations.
    Many central banks followed Britain’s example, including France, Switzerland, Spain, the Netherlands and Portugal. As a result, the proportion of gold in central bank coffers has now slipped from 60% (in 1980) to 10%. European banks eventually sold around 3,800 tons (122 million ounces) of gold, freeing $56 billion to buy their beloved bonds. However, that sold gold would now be worth twice is much: $112 billion! Central banks are finally learning to hold on to their gold. Last year, central banks sold 246 tons, the lowest annual sales in 10 years – equivalent to about 10% of newly-mined annual supplies of gold.
    Even accounting for the interest income on the bonds, a study last week showed that central banks lost $40 billion by selling their gold prematurely. The biggest loser was the Swiss National Bank, which sold 1,550 tons over the last 10 years, or more than 40% of all central bank sales. As a result, the Swiss are $19 billion poorer than they would have been by holding on to all their gold. Meanwhile, the U.S., Italy and Germany held all their central gold, so they now represent three of the four top national holdings:
    Largest Gold Holdings among Central Banks
    United States…………………..8,138.9 (no sales since 1999)
    Euro Central Bank…………….6,434.7
    Germany…………………………3,412.6 (no sales)
    Int’l Monetary Fund…………..3,217.3
    France……………………………2,487.1
    Italy……………………………….2,451.8 (no sales)
    China……………………………..1,054.0 (and rising)
    Switzerland……………………..1,040.1 (down 60% since 1999)
    Bottom line: A decade ago, the Dow was 11100 and gold was $277, for a 40-to-1 ratio. Today, the Dow is 8450 and gold is $910, for a 9.3-to-1 ratio. Translated into comparative performance over a 10-year period, gold provided 330% greater returns than the Dow since the day central banks began selling gold.
    Gold Baffles the Gurus
    Experts Yell “May Day” Way Too Soon
    Last Monday, May 4, was a bank holiday in most of Europe. Originally called International Worker’s Day, the first Monday in May has now morphed into a genteel bank holiday. Last Monday, London’s Financial Times surveyed several gold gurus and concluded that most long-term bulls were turning short-term bearish. Dennis Gartman, for instance, was quoted as saying, “I don’t think gold recovers for a long time. You will be surprised by how far down it goes. I can see gold going back to $750 with ease.” The FT’s bottom line advice was to “wait until it gets close to, or past, $800” to buy. The next day, however, gold rose $25 per ounce and stayed cover $900 all week, making all those gurus look a little foolish.
    Silver rose even more dramatically, from $12 to $14 in three trading days. The initial impetus for the recovery in the precious metals was a weaker dollar (down 3% to the euro last week, measuring from Monday’s peak to Friday’s trough), plus fear of future inflation, based on record-high levels of money supply creation by the world’s central banks. In addition, oil and natural gas were rising dramatically in price, even though inventories were large and growing. Then, the Euro Central Bank (ECB) cut rates to 1% last week. Lower rates make gold seem more competitive on a total return basis, since gold offers no interest income. After all, the lure of high interest rates initially drove central banks to sell their gold 10 years ago today. Here is the capsule tale of the tape from precious metals last week.
    London Daily pm Fix…………….Gold………………Silver………………….Platinum
    Year-end 12/31/08………………..865.00……………10.79……………………….899
    Friday, May 1……………………….884.50…………….12.15………………………1076
    Tuesday, May 5……………………910.00…………….13.11………………………1135
    Wednesday, May 6……………….910.00…………….13.44………………………1136
    Thursday, May 7…………………..912.25…………….14.01………………………1161
    Friday, May 8……………………….907.00…………….13.90……………………….1149
    Changes Last Week………….+$22.50 (+2.5%)….+$1.75 (+14.4%)……….-$99 (+6.8%)
    Changes so far in 2009………+$42 (+4.9%)……..+$1.36 (+28.8%)………+$177 (+27.8%)
    Gold 52 weeks ago (May 9, 2008): $876.00…………….Gold’s low for 2009: $810 on January 15
    Gold’s average price during 2009 so far: $904.06…….Gold’s high for 2009: $990 on February 24
    Bottom line: Gold gurus, like most other gurus, are adept at extrapolating short-term trends into long-term and non-sustainable straight lines. This refers to downward trends as well as upward surges. (The same Wall Street firm that predicted $200 oil a year ago predicted $40 oil when the tide turned last summer.)
    (Posted by CWS contributor Gary Alexander.)