• Nicholas Financial Reports Earnings of 20 Cents a Share
    Posted by on May 5th, 2009 at 12:23 pm

    Excellent news! Our favorite little micro-cap, Nicholas Financial (NICK) reported Q1 earnings of 20 cents per share, the same as last year’s Q1. Revenues increased 3.9% to $13,224,000.
    I’ll have to look more into the numbers when I have a chance, but this is great news. The stock has been up by as much as 37% today!

  • Cognizant Beats the Street and Guides Higher
    Posted by on May 5th, 2009 at 11:56 am

    This is turning into a very good day for the Buy List. Cognizant Technology Solutions (CTSH) reported earnings of 42 cents a share, five cents more than estimates. For Q2, CTSH said it expects to earn 42 cents a share and $1.71 for the full year. The shares are still reasonably priced. The stock is up for the sixth day in a row.

  • How David Beats Goliath
    Posted by on May 5th, 2009 at 11:41 am

    I have to confess having a love-hate relationship with Malcolm Gladwell. He writes very well and I’m always eager to read his next Big Think-Middle Brow article. I want to like his articles, but whenever I finish one, I feel like I just ate a bowl of whipped cream.
    Gladwell has a winning formula. Take an interesting law of social science (or a humdrum truism) and show how it’s applied in several incomprehensively different scenarios. Self-parody lurks behind the scenes.
    Seeing the scenarios is the payoff of any Gladwell piece. Personally, I fill out a little bingo grid before hand. In each box, I’ll write things like “wine-making in the Yukon” or “hedge funds during the Ming Dynasty.” Then I check off each one Gladwell references.
    His latest article is about how underdogs can win by resorting to unconventional strategies—or as he says, how David can beat Goliath (Biblical reference…bingo!). Seems pretty obvious to me, but now I have to know the connections!
    The connections Malcolm! What are the connections??
    Twelve-year-old girls basketball and Lawrence of Arabia! No, I’m not making this up. Hell, I couldn’t make it up.
    The coach of the 12-year-old girls team decided to press the entire basketball floor and challenge every in-bounds pass. This was an unconventional strategy. The opposing teams got flustered and often turned over the ball, and the weaker team could pull off the upset.
    I have a great deal of sympathy for this type of thinking. How can you look at a game, or any activity, in a different way and challenge orthodoxy? That’s what investing is all about. For example, I think there’s good evidence showing that punting on fourth-down isn’t worth it. But it will be odd for a pro team to start doing that. I’ve also heard that shooting foul shots underhanded is far superior than overhand. Yet what macho ball player will start doing that? The numbers geeks have shown that stealing bases is very risky and you shouldn’t do it unless you’re pretty darn sure you’ll make it.
    The crawl style of swimming was unknown to the West until a competition in 1844 when Native American crushed a bunch of British swimmers who used the preferred-method, the breaststroke. (I used to think the crawl style was called freestyle.) It’s rather disquieting to think that some strategy that has stood the test of time is simply wrong.The economist Joseph Schumpeter said that innovation isn’t merely part of the economy, it’s the heart of the economy.
    So I do enjoy Gladwell’s pieces yet I feel as if he stretches his themes further than the facts allow. For example, the last scenario presents a computer programmer who wins a naval war-game contest by ignoring strategies and crunching the numbers in the rulebook. That doesn’t sound too innovative to me. I wouldn’t call it poor sportsmanship but it’s hardly within the spirit of the law. In that case, I’d rather go with Goliath.

  • Wasn’t There a 10th Amendment?
    Posted by on May 5th, 2009 at 11:37 am

    USA Today reports:

    In a historic first, Uncle Sam has supplanted sales, property and income taxes as the biggest source of revenue for state and local governments.

    (Via: Arnold Kling and Nick Schulz)

  • Cayman Islands’ Tax Haven
    Posted by on May 5th, 2009 at 10:45 am

    Ugland House is a five-story office building on on South Church Street in the Caymans. Guess how many companies are based there?
    Answer: 18,857.

  • The Credit Crisis Explained
    Posted by on May 5th, 2009 at 9:54 am

    The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

  • The Cyclicals Have Led the Charge
    Posted by on May 5th, 2009 at 8:10 am

    One thing to point out about this rally is that it’s been hugely led by cyclicals. Since March 9, the S&P 500 is up 34% but the Morgan Stanley Cyclical Index (^CYC) is up a stunning 98%. That’s a huge move for an index. Cyclicals have outperformed the market for 19 of the last 23 sessions.
    Too many analysts like to downplay a rally because it’s slanted one way or the other. But almost all rallies are initially geared toward one sector or another — and just because it starts that way doesn’t mean it will end up that way. Broad-based rallied are far more the exception than the rule.
    I like to follow the ratio of the CYC to the S&P 500 because it tends to move in long-term cycles (hence the name cyclicals). See the chart below, and note how dramatic the move has been over the last six months.
    image802.png
    I’ll warn you not to mistake this for a market-timing device. Instead, it’s a way to get a look at the internals of the market. I think the broader rally still has legs but I’m beginning to doubt that the cyclicals will continue their lead. They’ve earned a nice rest for now.
    P.S. The ratio reached its peak on July 19, 2007 at 0.7273. One month before, I warned investors that the cyclical party was coming to an end.

  • The California Problem
    Posted by on May 5th, 2009 at 1:22 am

    George Will has a good albeit scary column on the political economics of California. He calls Arnold Schwarzenegger, “the best governor the states contiguous to California have ever had.”
    Here’s a sample:

    Liberal orthodoxy has made the state dependent on a volatile source of revenue — high income tax rates on the wealthy. In 2006, the top 1 percent of earners paid 48 percent of the income taxes. California’s income and sales taxes are among the nation’s highest and its business conditions among the worst, as measured by 16 variables directly influenced by the Legislature. Unemployment, the nation’s fourth-highest, is 11.2 percent.

    I’m worried that the issue isn’t simply one of balancing a budget. I’m afraid that it’s deeper than that. It’s that the model of California’s society is fundamentally broken. Big government and high taxes combined with massive immigration and multiculturalism.
    I can’t help but think of New York during the 1970s when the city experienced a dramatic downfall. Crime exploded and the population imploded. In 1965, there was a blackout and the city was calm. Twelve years later, there was a blackout and massive looting.
    Think of all those great 70s movies that showed the grit and grim of New York, or Howard Cossell saying during the World Series, “There it is, ladies and gentlemen, The Bronx is burning.”
    This could be California’s future.

  • Re: S&P Nears 2009 High
    Posted by on May 4th, 2009 at 11:53 pm

    Thanks to a late-day surge, the S&P 500 broke 900 and closed at 907.24. The index is now positive for the year! (Slightly). Our Buy List is currently up 10.34%. Since March 9, the S&P 500 is up 34% which works out to a cool $2 trillion.

  • Inflation Nation
    Posted by on May 4th, 2009 at 10:37 pm

    Allan Meltzer has a good article in today’s New York Times on the threat of inflation created by the Fed’s policies. The Fed has tossed tons of money into the economy and there will be a reckoning. Policy is, of course, a matter of choices and the Fed has decided to put inflation concerns on the back-burner while trying to help the economy right now.
    Once the economy finally gets back on its feet, tough decisions will need to be made. What needs to be done isn’t hard to figure out—massively drain liquidity. Instead, it will be a question of political will. Meltzer is concerned that the Fed has “sacrificed its independence and become the monetary arm of the Treasury.” That’s a good point.
    I currently lean toward downplaying the impact of inflation. Why? Well, because everyone else sees it as inevitable. No one seemed terribly worried that Mine That Bird would come flying up the inside rail…so it happened.
    With Tall Paul in his corner, I think Obama realizes the importance of the Fed’s role in combating inflation. I guess there really is no such thing as an independent Fed.