Best Question of the Day
Posted by Eddy Elfenbein on April 17th, 2009 at 11:44 am

The award goes to Alea.
The New York Times writes: A.I.G. Chief Owns Significant Stake in Goldman.
Alea asks, “Is Owning 0.00535714% of Goldman Sachs Significant?”

My Weak Defense of the Federal Reserve
Posted by Eddy Elfenbein on April 17th, 2009 at 10:39 am

I’m not a terribly big fan of the Fed, but here’s a weak defense of monetary policy over the past several years. Core CPI inflation has not only remained low, but it’s also been surprisingly consistent. That’s an important point and we should give credit where it’s due.
This chart shows Core CPI (in blue) along with an exponential trendline (in black). The takeaway is that an analyst could have ignored all the data on M2 or M3 and production and all that jazz. Instead, just assume that prices would rise 0.18% each month and that would be a pretty good way to go.

A reader adds:

Just to let you know, there’s a little flaw in this analysis: the 0.18 would have only been known *with insight*. In a nutshell, things look more predictable with insight.
The correct way to do this is to measure the size of the inflation surprise: i.e. for each month in I.1995:IV.2009 compute a best estimate of next month’s cpi using all information available up to that point.
You’ll find that w/o insight (even) Core CPI is a tough one to get right, but perhaps more worryingly so, has gotten tougher to get since 2001.

(No Seeking Alpha repost)

Buy List YTD
Posted by Eddy Elfenbein on April 16th, 2009 at 4:36 pm

Through today, the Buy List is up 3.54% compared with a loss of 4.20% for the S&P 500 (dividends not included). The red line is the Buy List, the black is the S&P 500.

It’s still early, but it’s a good start to the year.

Yahoo Finance – Historical Quote FAIL
Posted by Eddy Elfenbein on April 16th, 2009 at 2:52 pm

There’s not much I like about Yahoo, but I know Yahoo Finance is wildly popular among individual investors. It’s just about all they got. If I were them, I’d sell it to a brokerage.
I don’t have the exact details, but their historical quotes are massively screwed up. When you click on historical quotes, you can see an adjusted price column that accounts for dividends. That’s great, but I don’t think the dividends are ever adjusted for stock splits. As a result, you get massively wrong historical numbers.
As I said, I’m not sure about this but let’s look at Public Service Enterprise Group (PEG) which is one of those great performing utilities that no one ever talks about. The dividends have increased every year like clockwork. Since 1982, there have been two splits; a 3-for-2 in 1987 and a 2-for-1 last year.
Here’s a log chart since 1982. The black line is the regular price adjusted for the two splits, the blue line is the dividend adjusted price:

As you go back in time, the lines get wider apart to adjust for dividends but there’s no way it should move that dramatically.
Looking at their numbers, the stock price rose 147% during the 1990s while the adjust price rose 648%. That means that dividends accounted for gains of over 200%, or an average of 11.7% a year. There’s no way that can be right.
I know people use Yahoo Finance to get track of their gains and losses. Don’t do it.

Wall Street Imitates the Simpsons
Posted by Eddy Elfenbein on April 16th, 2009 at 11:46 am

Selma on the Simpsons in 1994

Hey, relax. I told you, I got money. I bought stock in a mace company just before society crumbled.

The WSJ today:

Fear and Greed Have Sales of Guns and Ammo Shooting Up

Baxter and Amphenol
Posted by Eddy Elfenbein on April 16th, 2009 at 11:21 am

Two of our Buy List stocks reported earnings this morning, and they were both pretty good.
Amphenol (APH) earned 43 cents a share down from 54 cents a share last year. They had a two-cent benefit, so the 41 cents was a penny better than expectations (though FactSet said consensus was 39 cents. Hmm. No consensus on consensus).
Revenue fell 14.4% to $660 million which was a bit better than the $654.8 million consensus. The company sees Q2 EPS coming in between 41 and 43 cents, and revenues between $660 million and $675 million. The stock seems a bit pricey right now, but terribly overpriced.
The other earnings report came from Baxter International (BAX). First-quarter EPS came in at 83 cents which is a nice improvement from 67 cents a year ago. Sales actually fell 1.8% but if you discount currency moves, they were really up about 6%.
For the year, BAX sees EPS coming in between $3.72 and $3.78. They raised the low end by two cents. For Q2, they see earnings in a range of 93 cents to 95 cents a share.
Both stocks are doing well this morning.

To All the Goldman H8trs
Posted by Eddy Elfenbein on April 16th, 2009 at 11:05 am

Seesh, why all hate on Goldman (GS) lately? Face it, Goldman is going to thrive and survive. I’ve never seen an institution that so many people admire yet want to fail at the same time. OK, maybe second to the Yankees.
Their orphan quarter wasn’t some secret conspiracy. It was perfectly public. The Feds forced them to be a bank holding company so they changed their fiscal year, presto four-month reporting.
Just because it’s a large, powerful, filthy rich and highly opaque bank that seems to run the government is no reason to fear them.

JPMorgan Chase Is Still Ticking
Posted by Eddy Elfenbein on April 16th, 2009 at 10:50 am

The other day I said I had no idea what JPMorgan Chase’s (JPM) earnings would be. It turns out, my prediction was correct. The bank earned over $2.1 billion for the first three months of the year, or 40 cents a share.
The news is reporting that the Street’s consensus was for 32 cents a share. That was the average, but analysts were all over the map. I think the Street is just happy to see a profit — any profit. I should remind you that JPM hasn’t posted a single earnings loss during this mess. For last year’s Q1, they made 67 cents a share.
The best news is that banking isn’t dead. The bank said that loan losses will continue growing from credit cards and mortgages. The Bear and WaMu acquisitions are clearly helping out. It’s kinda cool when your trading can make up for all the bad stuff.
Jamie Dimon said JPM wants to pay back its TARP money as soon as they can. He also said that the bank will sit out Timmy’s little public/private plan. If JPM won’t bite, who else will?

Regulators and Redskins
Posted by Eddy Elfenbein on April 15th, 2009 at 8:39 pm

Rational expectations:

We examine the correlation between federal government activity and the performance of the D.C. area’s National Football League team, the Washington Redskins. We find a significantly positive, non-spurious, and robust correlation between the Redskins’ winning percentage and the amount of federal government bureaucratic activity as measured by the number of pages in the Federal Register. Because the Redskins’ performance is prototypically exogenous, we give this surprising result a causal interpretation. Drawing upon public choice theory and behavioral economics, we provide a plausible explanation for the causal mechanism: bureaucrats must make “logrolling” deals in order to expand their regulatory power, and a winning football team acts as a commonly shared source of joyous optimism to lubricate such negotiations. We do not find the same correlation when examining Congressional activity, which we attribute to legislator loyalty to their home state’s team(s).

(HT: Ribstein.)

I’m Sorry But I Just Don’t Get Seasteading
Posted by Eddy Elfenbein on April 15th, 2009 at 4:52 pm

Here’s another Tax Day post.
As person who enjoys highly theoretical or just plan off-the-wall propositions, it pains me to say that I just don’t get seasteading.
If you’re not familiar with it, this is a radical libertarian venture that aims to build libertarian city-states…are you ready…floating on the high seas. Think of John Galt, but on a raft.
I don’t want to be too dismissive of seasteading. Here’s Patri Friedman making the case.
For myself, count me out. First, I do in fact love my country and feel loyalty to it no matter how batty its laws are. Secondly, I share Arnold Kling’s thought that a lot problems we have on land will follow them at sea.
Still, I think dry land is the way to go. I would try to hunt for some speck in the Pacific Ocean. There are about a billion islands out there just waiting to be made into a libertarian paradise. Come to think of it, I never saw much government on Gilligan’s Island or Lost.
The U.S. has a bunch of possessions out there. So do France and Britain. Why not try to buy one? The Northern Mariana Islands have a couple of uninhabited islands (see Pagan Island).
Even if you don’t want to buy one, just go there and set up your own community. When someone official starts to bother you, do what everyone else does—secede. Sure, that will involve some government, but probably less than running a big boat.