• The Real Price of Gas
    Posted by on November 18th, 2008 at 12:55 pm

    Over the summer, the price for a oil of oil peaked at $147.27 a barrel. I know we’re all supposed to be worry about this, but would you believe that oil just hit a 21-month low?

    Crude oil for December delivery fell $2.09, or 3.7 percent, to $54.95 a barrel at 2:42 p.m. on the New York Mercantile Exchange, the lowest settlement since Jan. 29, 2007. Prices have tumbled 63 percent since reaching a record $147.27 on July 11.
    Gasoline for December delivery tumbled 6.45 cents, or 5.2 percent, to $1.1746 a gallon in New York, the lowest settlement since the contract was introduced in October 2005.
    Pump prices have followed futures lower. Regular gasoline, averaged nationwide, declined 1.8 cents to $2.087 a gallon, AAA, the nation’s largest motorist organization, said on its Web site today. It’s the lowest retail price since March 2005. Gasoline pump prices have dropped 49 percent from the record $4.114 a gallon reached on July 17.

    Today’s PPI report showed the biggest plunge on record thanks to gas prices dropping by nearly 25%. If we adjust for inflation, gas prices are much lower than they’ve been for much of the last 90 years.

    Feeling nostalgic for the days of 17 cent gas in 1931, 20 cent gas during WWI, the gas below 30 cents during the first half of the 1950s, or the $1.40 gas of the early 1980s? If so, you’d be suffering from “money illusion,” the tendency to confuse nominal and real (inflation-adjusted) prices. Gas is cheaper today in real dollars than any of those past prices.

  • The Seasonality Timing System
    Posted by on November 18th, 2008 at 11:54 am

    Mark Hulbert writes:

    The Seasonality Timing System (STS), for those of you not familiar with it, traces to research conducted by Norman Fosback in the early 1970s. Fosback, who currently edits a newsletter called Fosback’s Fund Forecaster, found that the stock market has a bullish bias around the trading sessions immediately prior to each exchange holiday as well as those at the turns of each month. At all other times, his timing system calls for being out of stocks and safely invested in a money-market fund. It therefore incurs very little risk.
    Over the 25-plus years that the HFD has tracked the STS, a portfolio that used it to switch between the DJ Wilshire and T-bills produced an 11.7% annualized return, vs. 10.6% for buying and holding. That’s impressive enough, since very few market timing-strategies are able to even match the market’s return, much less beat it.
    But what makes the STS really shine is that its market-beating return was produced while being in the stock market for only about one third of the days it was open. On a risk-adjusted basis, the STS almost doubles the return of a buy-and-hold.

  • GE’s Confirms Dividend
    Posted by on November 18th, 2008 at 11:48 am

    I said before that it looks like GE will cut its dividend. What do I know? The company came out today and confirmed that it will pay its 31 cent dividend through 2009. That works out to a dividend yield of 7.7%. That’s more than twice the 10-year Treasury. GE currently has one of the largest dividend yields among major industrial companies.

  • Ron Paul at Today’s Hearing
    Posted by on November 18th, 2008 at 11:38 am


    I think Bernanke tends to treat Paul’s questions as if he were a first-year econ student, which is probably correct.
    Paul: But does the subject of a new (dollar) regime ever come up?
    Ben: No it doesn’t.
    Paul: And does the subject of gold ever come up in any of your conversations?
    Ben: Only in terms of the sales that the central banks are planning.
    Gavel: Bang, bang.

  • Yahoo Cuts off its Wang
    Posted by on November 18th, 2008 at 11:17 am

    sadhoo.jpg
    I’ve never understood the market’s love affair with Yahoo (YHOO). While the stock was around $30, I said that it should be half that much. At one point last week, the shares fell below $10—and that’s still too high. I’ll give them credit for making money, but they don’t make too much. Earnings-per-share will probably drop for the third straight year.
    After a little over a year running things, Jerry Yang is leaving the CEO slot. It’s about time. This guy really had no idea what he was doing. Not surprisingly, the stock is up strongly today. That’s got to be embarrassing.
    In February, Microsoft offered to buy Yahoo for $31 a share, which was a 62% premium over its price. In one the classic business blunders of all time, Yahoo said no, they wanted $37. Microsoft went up to $33. Again, Yahoo said no, they wanted $37. Then Microsoft said forget about it. Forget $33. Forget $31. Forget it all. Once Yahoo’s stock started plunge, Yang said, “hey, you can still buy us!”
    If you want to more why Yahoo is in such a bad place, you can Google the details.

  • First, the Good News
    Posted by on November 17th, 2008 at 10:07 pm

    The S&P 500 closed above its 5-1/2-year closing low from 21 days ago. The bad news is that in the last 21 days, it’s risen only 0.21%. Annualized, that works out to 3.8%.
    Since the Tuesday before last, the S&P 500 is down 15.4%. Now if I could only remember what happened on Tuesday, November 4.
    One last point: Adjusted for inflation, the Dow is up an annualized rate of 0.68% from its 1929 high.

  • Cognizant Technology Solutions
    Posted by on November 17th, 2008 at 1:51 pm

    Cognizant Technology Solutions (CTSH) has some of the most impressive financials of any stock you’re likely to see. Recently, the company’s earnings growth rate has dropped from about 50% to a year, to just 19% for the last earnings report. The stock, however, has plunged by over 60% since early 2007.
    Here’s a chart showing the stock price (blue line, left scale) and the earnings-per-share (gold line, right scale). The two axes are scaled at a ratio of 50-to-1 which means that when the lines cross, the P/E ratio is 50. Using 50 is obviously a very high multiple. But as you can see, that’s what the stock was following for a long time.
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    The stock is currently going for less than 10 times next years’ earnings. Here’s what I wrote about Cognizant two years ago:

    One of the more fascinating companies in the world today is Cognizant Technology Solutions (CTSH). The company, along with Wipro and Inforsys, is one of the foremost names associated with IT outsourcing, particularly to India.
    While Cognizant is officially based in lovely Teaneck, NJ, its heart truly lies in the subcontinent. The company currently has over two dozen development centers in India. The growth in this business is simply astounding. The IT/outsourcing sector of the Indian economy is expected to grow from $17.2 billion in 2004, to $50 billion by 2009.
    For any company looking to cut costs and have someone else handle their IT problems, Cognizant is great place to go. Half of their business is clients in the financial services sector. In fact, JP MorganChase, one of the scions of Wall Street, is a major client. Another 20% of Cognizant’s business comes from health care companies like UnitedHealth.
    Cognizant was spun off from Dun & Bradstreet a few years ago and it hasn’t looked back since. As someone who pores over lots of financial statements, I can tell you that Cognizant’s results are extremely impressive. The company has consistently been able to grow its earnings over 50% a year. That’s no easy trick. Also, the company has a solid balance sheet and its operating margins are often around 20%.

    For Q4, the company expects non-GAAP earnings of 43 cents a share. That would be a growth of rate of 18%, and the fifth straight quarter of slowing growth.
    For number geeks, here’s a spreadsheet with CTSH’s financials.

  • Citi to Cut 50,000 Jobs
    Posted by on November 17th, 2008 at 11:03 am

    The news coming out of Citigroup (C) seems to be from bad to worse. At one point, I thought it would be good to break up the bank into four different companies. Now, I’m not sure even that would help. The company has just recently announced that it will cut 50,000 jobs. Shares of Citi are now in the single digits.
    The company is having a townhall meeting with its employees today. Here’s a look at the slideshow.

  • Belt Tightening: Wall Street’s Version
    Posted by on November 17th, 2008 at 10:47 am

    As you may have noticed, things are a bit tight on Wall Street these days. Now we hear that the CEOs understand the virtue of self-sacrifice. Lloyd Blankfein, the head of Goldman Sachs, for example, will forgo his executive bonus this year. His base salary is $600,000. Last year’s bonus was $70 million. So he’s giving himself a 99% pay cut. Deutsche Bank and UBS have also given up bonuses this year for the top brass.
    I’m not sure why there’s such a focus on CEO pay. All I can say is that politicians loves to complain about it and it seems to have some resonance among voters. If regulators think CEO pay is somehow connected to the mortgage mess, then they’re proving to me that they shouldn’t be in the regulation business.

  • Buy a Bank for $10 Million, Get $3.4 Billion from the Feds
    Posted by on November 16th, 2008 at 9:39 pm

    Wish I thought of it:

    Hartford Financial Services Group Inc. said it’s buying a Florida bank for $10 million so the insurer can be eligible for the Treasury rescue program. Hartford, based in the Connecticut city of the same name, expects to qualify for $1.1 billion to $3.4 billion under Treasury guidelines, the company said in a statement distributed today by Business Wire.