• Buy List Updates
    Posted by on February 7th, 2008 at 11:15 am

    There are a few news items to pass along for stocks on our Buy List. Danaher (DHR) was upgraded at Deutsche Bank from Hold to Buy.
    Joe Banks (JOSB) reported that same-store sales dropped 1.2% in January. The company forecasts earnings growth of 12% to 14% for 2008.
    Yesterday, Fiserv (FISV) reported Q4 earnings of 69 cents a share (after charges), two pennies below the Street. The company sees 2008 EPS of $3.33 to $3.47. That seems like low-balling to me. The Street was looking for $3.46.

  • Dow Jones Channels Emily Litella
    Posted by on February 7th, 2008 at 10:38 am

    Do you remember Gilda Radnor’s SNL character Emily Litella? She was the older lady who would do news commentary on an item that she invariably misheard. This led her to discuss topics such as free Soviet jewelry, Presidential erections or making Puerto Rico a steak.
    Yesterday, Dow Jones reported that Warren Buffett said that if the current account deficits continue, the dollar will be “worthless.”
    One small problem. He actually said it will be “worth less.”
    Nevermind.
    (Via DealBreaker)

  • That’s Our Ballmer
    Posted by on February 7th, 2008 at 10:20 am

    Here’s a small tidbit on Steve Ballmer I noticed in an article on Microsoft/Yahoo:

    Ballmer doesn’t delay when he decides on a purchase. Tellme Networks Inc. CEO Mike McCue held meetings with Ballmer for two days before the Super Bowl professional football championship last year and figured his group would hear back after the game.
    That Sunday morning, Ballmer, a math major at Harvard College in Cambridge, Massachusetts, called them back in for what he called “Math Camp,” helping him plug numbers into a spreadsheet to decide whether the combination would work. At one point Ballmer grew so excited he started gesturing wildly while holding an open can of soda, spraying McCue and his executives.

  • Astrologers offer Year of the Rat stock tips
    Posted by on February 7th, 2008 at 9:47 am

    From Reuters:

    Forget about graphs, charts and economic forecasts. Wary investors in Asia are turning to feng shui masters to tell them which way the markets will head in the Chinese Year of the Rat.
    Perhaps not surprisingly for investors already burnt by recent stock market slides, feng shui experts are predicting a gloomy year for shares, not good news for those hoping for a rebound in global markets hit by worries over the U.S. economy.
    “The rat will become aggressive at the tail end of the year and its underlying water element will cool the stock market,” said Vincent Koh, a feng shui master at Singapore Feng Shui Centre.
    Feng shui is popular across East Asia, where it is traditionally practiced by ethnic Chinese. It relies on movements of the cosmos as well as placement of furniture and arranging space to generate a “flow of wealth”.
    Believers say it can be used to improve wealth, health and personal relationships.
    In Hong Kong and Singapore, it’s taken so seriously that corporations consult feng shui experts about everything from business strategy to interior design. Disneyland changed the angle of the main entrance of its Hong Kong theme park after consulting a feng shui expert.
    So great is the interest in feng shui, that CLSA, a regional brokerage house, issued a feng shui client note which predicted the stock market would rise from May to August and the U.S. dollar would remain weak.
    “Be mindful of your speculations, especially in the third quarter,” said the note, which CLSA described as “topical” rather than a formal investment advisory.
    Raymond Lo, a feng shui master in Hong Kong who does readings for corporations, expects industries linked to earth and metal signs to flourish during the Year of the Rat.
    “The rat is a symbol of money to the earth industry … Strong water element in the year indicates productivity and strong activity in the metal industries,” said Lo, who suggested investors put their money into property, mining and gold.
    He predicts stock markets will be soft this year as the elements of earth and water, which he says are strong in the Year of the Rat, weaken the fire element that influences shares.
    “The water element affects the fire of the markets. I can foresee a lot of correction in the stock market,” said Koh.
    With stocks markets from Japan to New York cooling since the start of the year on concerns of a global economic slowdown, sceptics may argue that you don’t need to be a feng shui master to make such predictions.
    Yet Malaysian feng shui master Yap Boh Chu is optimistic with predictions that Southeast Asian markets will be stable after a tumultuous start.
    “The whole concept we have for the year is the image of a seed sprouting from the ground — the beginning is hard,” he said.

    The rat is the symbol of money? Not to me. They’re just rats.

  • We’re Holding Up Well
    Posted by on February 6th, 2008 at 4:39 pm

    Our Buy List is down 8.68% for the year, but we’re holding up much better than the rest of the market. Since January 14, the S&P 500 is down 6.34%. We’re only off 2.54%.

  • Independent Research and Blogs: A Quite Modest Proposal
    Posted by on February 6th, 2008 at 2:50 pm

    Five years ago, Wall Street and the SEC reached the famous Global Settlement. This came as a result of the conflict of interest between equity research and investment underwriting. The settlement required funding of “independent research.”
    The result has been a disaster and few people will admit it. Basically, nobody wants this research. At one point, Goldman’s website got a grand total of 408 unique visitors in one month. That’s just pathetic. The money allocated for state government “education programs” has done even worse. In Georgia, $4.3 million was spent on commercials that were little more than political ads for the incumbent.
    While this has been happening, an impressive stock blog culture has blossomed and become a real part of Wall Street. And most of these blogs, like mine, are completely free. If investors want independent research, they now know where to find it.
    Here’s my proposal: Instead of wasting money on political ads or over-paid consultants that nobody reads, let’s fund something that’s already working. Each year, the trustees of the of independent research funds should award prizes of, say, $10,000 each, to the best finance bloggers. A committee could decide the awards.
    The Global Settlement was for $1.4 billion so I think they could scrape together a little cash to fund some worthy blogs. It would be a small slice of what’s already being spent and it would certainly have a much greater impact on research that is truly independent.

  • Department of Irony
    Posted by on February 6th, 2008 at 2:10 pm

    At the same time, Google is complaining about the Microsoft/Yahoo merger, Time Warner announces plans to split up AOL.
    To add some context, check out this concern from eight years ago:

    Others say the deal could also raise flags over the combined AOL Time Warner’s ability to limit access to Internet content. “From the consumer point of view, there may be questions about whether you’ll have to be an AOL subscriber to get Time magazine,” says Charlene Li, an analyst with Forrester Research (FORR) . “That combination of media with the access is one through which you may be able to block access to your competitors’ subscribers.”

  • The Black Swan
    Posted by on February 6th, 2008 at 12:55 pm

    I finally got around to reading The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb. It’s fascinating, albeit, infuriating book.
    In it, Taleb critics the idea that financial markets follow the classic bell curve. As a result, much of understanding about markets—everything from risk control to options values—is completely wrong. While this is an intriguing idea, and I believe he’s correct, The Black Swan is largely unreadable.
    Taleb’s writing isn’t merely bad, it’s downright offensive. The entire book is written in a smug and obnoxious style filled with pointless asides. He’s argument is barely coherent and nearly every page includes parentheticals or scare quotes that simply aren’t needed. Taleb, like all writers, ought to adhere to Mark Twain’s dictum: eschew surplusage
    Taleb could have written the book in 50 pages, tops. He also could have spared us his opinion on everything I don’t care about. Taleb constantly reminds us that he’s an aesthete, which you would think would lead him to be a better writer.
    He’s one of the people, and I’m sure you’ve met someone like this, who needs to call everything by its less-well-known variant. Do you remember the guy in college who did one semester abroad and came back suddenly using “lift” and “petrol”? That’s Taleb. Now imagine 300 pages of it. Muslims are “Moslems”; he’s “Levantine” not Lebanese. First and second become “primo” and “secondo” (I had to Google it).Strangely, even Daniel Kahneman is routinely called “Danny.”
    Leaving the writing aside, the subject is very important. The question that I think it most interesting is, how do we quantify the risk of outliers—meaning, very rare events. Or, due to their nature, is that impossible? Interestingly, we’re been watching a Black Swan event unfold (fly out?) before us in real time. The subprime crisis has exposed many financial firms to far more risk than they believed.
    All the major investment banks report their “value at risk,” or if you’re a cool kid, their VAR. They all use different equations to reach their VAR but basically, it designed to measure how much money is at risk with a 95% confidence level. But this is where some problems are coming. For example, Merrill Lynch’s VAR indicated that it couldn’t be expected to lose more than $5.8 billion in a single quarter. Well, they lost $8.4 billion.
    I don’t have any answers to the issues Taleb raises, but it’s not an academic point. The worst part of the subprime debacle is that we don’t know what we don’t know. The odd thing about Black Swans is that even if we suspect their existence, then they no longer exist.

  • How the Market Behaves After Big Down Days
    Posted by on February 6th, 2008 at 10:56 am

    I once remember hearing that the market tends to retrace one-third of its previous days trend after a large move. I decided to put that theory to the test.
    Yesterday, the S&P 500 lost 3.2%. This was the 38th time the index has done that since 1950. Here’s an average of how those 37 previous sell-offs played out.
    image604.png
    The average loss for the sell-off is 5.01%. After that, nearly every day is an up day. By the ninth day, the S&P 500 is down 3.48%, which is indeed, a retracement of about one-third.
    The market still trends higher to the 17th day where it’s down just 3.01%, or about a 40% retracement. At that point, the linger effects of the sell-off seem to dissolve.

  • Strange Market Fact of the Day
    Posted by on February 5th, 2008 at 1:49 pm

    Never underestimate the power of momentum on Wall Street. Since 1950, every penny of gains in the S&P 500 has come on days following 0.64% up moves. That happens roughly once every five market days.
    In other words, if you invested only on days following 0.64% up days, and sat in cash the other 81% of the time, you would have easily beaten the market.
    Warning: I’m not advocating such a strategy. That’s your classic sinkhole of back-testing. I merely want to show you how trend sensitive Wall Street can be.