Timmay Radio Is Born
Posted by Eddy Elfenbein on May 1st, 2008 at 1:30 pm

If you’ve never heard of Tim Sykes, at this point, that’s probably your fault. He’s a one-man media, blogging and trading empire.
Tim has redesigned his site which now includes a podcast with yours truly. Enjoy.

The Strange BBBY Rally
Posted by Eddy Elfenbein on May 1st, 2008 at 12:47 pm

Ever since Bed Bath & Beyond (BBBY) reported its poor quarter a few weeks ago, the stock has rallied. The stock is now up about 20% from its low.
We often look to clear reasons to explain stock price movements. It’s disquieting to think that sometimes there simply aren’t any. Of course, I never thought BBBY should have been that cheap to begin with.

Setting the Bar High
Posted by Eddy Elfenbein on May 1st, 2008 at 12:43 pm

It’s got to be rough for a company that earns $10.9 billion in a quarter, and the results are called disappointing.

De Beers Finds Shipwreck, Treasure From Columbus Era
Posted by Eddy Elfenbein on May 1st, 2008 at 10:34 am

This is cool:

De Beers, the world’s biggest undersea diamond miner, said its geologists in Namibia found the wreckage of an ancient sailing ship still laden with treasure, including six bronze cannons, thousands of Spanish and Portuguese gold coins and more than 50 elephant tusks.
The wreckage was discovered in the area behind a sea wall used to push back the Atlantic Ocean in order to search for diamonds in Namibia’s Sperrgebiet or “Forbidden Zone.”
“If the experts’ assessments are correct, the shipwreck could date back to the late 1400s or early 1500s, making it a discovery of global significance,” Namdeb Diamond Corp., a joint venture between De Beers and the Namibian government, said in an e-mailed statement from the capital, Windhoek, today.
The site yielded a wealth of objects, including several tons of copper, more than 50 elephant tusks, pewter tableware, navigational instruments, weapons and the gold coins, which were minted in the late 1400s and early 1500s, according to the statement.

The S&P 500 and Earnings
Posted by Eddy Elfenbein on May 1st, 2008 at 10:14 am

Here’s a chart of the S&P 500 (black line, left scale) and its earnings (yellow line, right scale). I scaled this graph at a ratio of 16-to-1, so whenever the lines cross, the P/E ratio is exactly 16. As you can see, even as the market has risen and sold off, the market is basically following earnings pretty closely.

Another 25 Points
Posted by Eddy Elfenbein on April 30th, 2008 at 2:24 pm

The Fed cuts. Here’s their statement:

The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 2 percent.
Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.
Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully.
The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh. Voting against were Richard W. Fisher and Charles I. Plosser, who preferred no change in the target for the federal funds rate at this meeting.
In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 2-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Atlanta, and San Francisco.

Apparantly Short Sellers Are the New Terrorists
Posted by Eddy Elfenbein on April 30th, 2008 at 12:33 pm

From the NYT:

In the days when square-rigged galleons plied the spice route to the East, the Dutch outlawed a band of rebels that they feared might plunder their new-found riches.
The troublemakers were neither Barbary pirates nor Spanish spies — they were certain traders on the stock exchange in Amsterdam. Their offense: shorting the shares of the Dutch East India Company, purportedly the first company in the world to issue stock.
Short sellers, who sell assets like stocks in the hope that the price will fall, have been reviled ever since. England banned them for much of the 18th and 19th centuries. Napoleon deemed them enemies of the state. And Germany’s last kaiser enlisted them to attack American markets (or so some Americans feared).

There’s also a new academic study that suggests shorts may know what they’re talking about.

We construct a long daily panel of short sales using proprietary NYSE order data. From 2000 to 2004, shorting accounts for more than 12.9% of NYSE volume, suggesting that shorting constraints are not widespread. As a group, these short sellers are well informed. Heavily shorted stocks underperform lightly shorted stocks by a risk-adjusted average of 1.16% over the following 20 trading days (15.6% annualized). Institutional nonprogram short sales are the most informative; stocks heavily shorted by institutions underperform by 1.43% the next month (19.6% annualized). The results indicate that, on average, short sellers are important contributors to efficient stock prices.

An Investing Lesson
Posted by Eddy Elfenbein on April 30th, 2008 at 11:56 am

Consider these recent headlines.

Munich Re confirms Warren Buffett holds stake in co

Buffett, Seeking Acquisitions, to Travel to Europe

Mars, Buffett buying Wrigley for $23 billion

Warren Buffett Predicts a Long US Recession

So Warren Buffett not only thinks we’re in a recession, but he thinks it will be worse than feared. So what does he do? He buys.
To quote George Bailey:

Can’t you understand what’s happening here? Don’t you see what’s happening? Potter isn’t selling. Potter’s buying! And why? Because we’re panicky and he’s not. That’s why. He’s picking up some bargains.

What If Bernanke Is Winning?
Posted by Eddy Elfenbein on April 30th, 2008 at 10:57 am

Here’s a scary thought. What if Ben Bernanke has been doing the right thing? Not only did GDP come in positive for the month, but core inflation has been running between 2% and 2.5%. Most shocking of all has been the decline in gold. The June contract dropped below $870 an ounce today. That’s a major fall from six weeks ago.

The Economy Grew But Just Barely
Posted by Eddy Elfenbein on April 30th, 2008 at 8:41 am

First-quarter GDP came in at +0.6%. That’s not a lot, but it is positive. Naturally, this number will be subject to several revisions and re-revisions of previous revisions.
Even though we haven’t reached an official recession yet, which is usually defined as back-to-back quarters of negative GDP, the economy has had below-trend growth for six of the last eight quarters. Below is a table showing economic growth for the trailing eight quarters (not annualized but adjusted for inflation). You can really see how much economic growth has down-shifted.

On a bizarre note, today’s GDP report showed that the economy grew by almost exactly the same rate in the first quarter of 2008 as in the first quarter in 2007. One year ago, the economy grew by 0.6009%. For this year’s first quarter, the number was 0.5966%.