How are those Stimulus Checks Doing?
Posted by Eddy Elfenbein on August 4th, 2008 at 10:01 am

Good news, thanks to those government stimulus checks, consumer spending increased by 0.6% in June!
Oh, the downside is that inflation increased by 0.8%.
The Federal Reserve meets again tomorrow, and no change in rates is expected, although I wouldn’t mind seeing rates climb 50 points from here.

Casinos and Luck
Posted by Eddy Elfenbein on August 4th, 2008 at 9:47 am

Every time I’m in a casino, I need to remind myself that some gaming stocks have been extraordinary performers over the long haul. There’s a reason why they’re so profitable. Thanks to the laws of probability, a game that’s even slightly in the house’s favor can be very lucrative. Still, I was shocked to run across this:

Casino Blames Income Drop On Gamblers’ Luck
UNCASVILLE, Conn. — Mohegan Sun officials said the casino’s net income in the third quarter dropped 89 percent compared with the same period last year, and they’re placing some of the blame on gamblers’ extraordinary luck.
The Mohegan Tribal Gaming Authority reported net income of $5 million Thursday for the three months ending June 30.
Mitchell Etess, Mohegan Sun’s president and chief executive officer, said the casino had an extremely long streak of bad luck.
Gamblers played about $611 million at table games during the quarter, a 6.4 percent increase. The casino kept about 11.6 percent of that gambling money, nearly 5 percent less than it did during last year’s quarter.
Table game revenues dropped more than 25 percent to $75.3 million in the third quarter from the year-ago period.

Unless there’s more to this story, I don’t see how it’s possible that a casino can have a run of bad luck. The only explanation I can think of is that there have been several very large bets that have gone the wrong way. Outside that, with a sample size that large, the house should barely see any fluctuation in its take. If I were the casino, I’d be keeping a closer eye on its dealers.

P/E Ratios and Inflation
Posted by Eddy Elfenbein on August 1st, 2008 at 10:15 am

One of the most basic rules for valuing the stock market is that the overall P/E Ratio should be equal to 20 minus the inflation rate. I was curious to see how good a measure of the market this is. Given how simple it is, it’s not too bad.
Here’s a look at where the rule would have valued the S&P 500 compared with its actual value.

The trouble spots are when there’s serious deflation. Still, I wouldn’t recommend using this as a market timing device. The average error is about 10%.
According to the latest numbers, the S&P 500 should be at 1,092.

The Eight Lean Years
Posted by Eddy Elfenbein on July 31st, 2008 at 2:31 pm

For the last 32 quarters, real GDP has grown at annualized rate of 2.18%.

That’s the slowest eight-year growth rate since…well, my quarterly data only goes back to 1947.

Nicholas Financial’s Earnings
Posted by Eddy Elfenbein on July 31st, 2008 at 11:35 am

For the second quarter, Nicholas Financial (NICK) earned 15 cents a share. Since the stock is basically priced for Armageddon, I think this is good news.
Revenue increased by 8% and EPS dropped from 27 cents to 15 cents. The major culprit isn’t hard to spot. The provision for credit losses nearly tripled from last year. Without that, pre-tax profit actually grew by about 4% over last year. The stock is now trading at less than 35 times this quarter’s earnings.

Second-Quarter GDP Growth
Posted by Eddy Elfenbein on July 31st, 2008 at 9:38 am

The government reported today that GDP grew by 1.89% for the second quarter. This is the sixth time in the last eight quarters that GDP growth has come in less than 2.7%. The government also revised its numbers for each quarter going back to the start of 2005.
The revisions aren’t terribly dramatic but they mostly say that growth has been weaker than we thought. From the fourth quarter of 2004 to the first quarter of 2008, the original forecast had been that real GDP grew by 8.4%. Turns out it was just 7.9%. That may not sound like much but it’s over $50 billion that’s vanished with a keystroke. I know I miss it already.
We also learned that the fourth quarter of 2007 was in fact, a negative quarter, and the first quarter of 2007 was just barely positive. The newspaper definition of a recession is back-to-back quarters of negative growth. In reality, the official timers of recession use a much more sophisticated method for pinpointing the beginning and end of a recession. What we’re experiencing may be an extended period of low growth, but where the economy doesn’t experience much actual contraction.
Here’s real GDP growth, old and new (in trillions):

Least Coherent Sentence of the Day
Posted by Eddy Elfenbein on July 30th, 2008 at 2:20 pm

From an unnamed media company whose stock is 75% off its high:

Some experts have said that the law was wrong-headed in its effort to retain the hybrid nature of the mortgage finance giants, which are private companies with publicly traded stock, but which have an explicit guarantee of help from the government — an arrangement that critics say privatizes the profits but socializes the risk and any losses.

Let me take a deep breath to get my head around this, but the definition of the public company is one with publicly traded stock, therefore a private company can’t have publicly traded stock. Now if they meant private in the sense that it’s not nationalized, well that’s a different can of incoherence. If it were nationalized, then it wouldn’t be publicly traded. Is this really that hard?

S&P 500 and Earnings
Posted by Eddy Elfenbein on July 30th, 2008 at 10:47 am

Here’s a look at the S&P 500 (black line, left scale) and its earnings (gold line, right scale). The graph is scaled at 16-to-1.

I think it’s clear that the market isn’t undervalued, given its current condition. What will matter is if the downturn is earnings will really by over this quarter. Given the rate that earnings have been cut, that’s far from certain.

Fiserv’s Earnings
Posted by Eddy Elfenbein on July 29th, 2008 at 5:48 pm

Fiserv (FISV) just came out with a solid earnings report. For Q2, the company earned 83 cents a share from continuing ops. That beat the Street’s consensus by four cents a share. Revenue rose 38% to $1.30 billion. The company projects full-year EPS at $3.28 to $3.40.
Here’s a look at Fiserv’s stock (blue line, left scale) and earnings-per-share (gold line, right scale).

The red indicates the company’s EPS projection. I’ve scaled the graph at a ratio of 16-to-1, which is pretty conservative. That means that when the lines cross, the P/E ratio is 16.
You can see how far the company’s valuation has fallen even though earnings growth seems to be holding up well. That’s as good a definition as any for a good buying opportunity.

Obama Gives Bernanke Vote of Confidence
Posted by Eddy Elfenbein on July 28th, 2008 at 12:26 pm

Well, the election is over now. Bernanke wins 1-0.

“I think that Chairman Bernanke was handed a pretty tough hand and I think some of the decisions he’s made have been the right ones,” the presumptive Democratic nominee told Reuters in an interview on Saturday evening.