• The 2008 Buy List
    Posted by on December 20th, 2007 at 6:51 am

    I apologize for being a little late with this, but without further ado…here’s the Crossing Wall Street Buy List for 2008. (Woo!)
    AFLAC (AFL)
    Amphenol (APH)
    Bed Bath & Beyond (BBBY)
    Clarcor (CLC)
    Donaldson (DCI)
    Danaher (DHR)
    FactSet Research Systems (FDS)
    Fiserv (FISV)
    Harley-Davidson (HOG)
    Jos. A Bank Clothiers (JOSB)
    Leucadia National (LUK)
    Lincare (LNCR)
    Medtronic (MDT)
    Nicholas Financial (NICK)
    Respironics (RESP)
    SEI Investments (SEIC)
    Stryker (SYK)
    Sysco (SYY)
    UnitedHealth Group (UNH)
    WR Berkley (BER)
    Looks familiar? It should, I’m only making a few changes. Once again, I have 20 stocks. Out are Biomet (BMET), Fair Isaac (FIC), Graco (GGG) and Varian Medical Systems (VAR). Biomet was bought out earlier this year.
    The four new stocks are:
    Clarcor (CLC)
    Leucadia National (LUK)
    Lincare (LNCR)
    Stryker (SYK)
    I’ll begin tracking the new list on January 2, 2008, the first day of trading of the new year. The rules state that I’m not allowed to make any changes to the Buy List throughout the year.
    My purpose is to show investors that by buying and holding a well-diversified portfolio of high-quality stocks, you can do well in the market. For the Buy List, my self-imposed rule is to make changes just once a year. You’ll also notice that I don’t make many changes. Last year, I added five new stocks. This year, I added just four.
    Last year, the Buy List made 10.68%. Including dividends, it was 11.43%. Through yesterday’s close, this year’s Buy List is up just 1.68%. So even though I lost to the market slightly last year, and I’m barely behind this year, I still like most of stocks on my list.
    As usual, you can assume that I own any of the stocks on the Buy List. I won’t buy any of the new names until the new year.

  • The Fed and Britney’s Sister’s Boyfriend
    Posted by on December 19th, 2007 at 11:38 am

    The Federal Reserve has announced new rules to curb risky lending. Bess Levin sees a perfect analogy.

    Is the Fed’s announcement that it’s going to start to try and prevent questionable lending practice NOW kind of like Jamie Lynn Spears’s boyfriend saying, “Hey, I’m going to run out to the Duane Reade for condoms, you need anything? Gatorade? Q-tips? (Oh, and by the way, do you have any money I can borrow?…I’m good for it…)” THIS MORNING?

    Exactly. (But would that make Greenspan kinda like K-Fed?)

  • Best Subprime Story You’ll Read Today
    Posted by on December 19th, 2007 at 7:49 am

    From Bloomberg:

    One week in 2002, Daniel Sadek was $6,000 short of covering the payroll for his new subprime mortgage company, Quick Loan Funding Corp. So he flew to Las Vegas and put a $5,000 chip on the blackjack table.
    “I could have borrowed the money, I suppose,” Sadek says.
    That wouldn’t have been his style. With his shoulder-length hair and beard, torn jeans and T-shirts with slogans such as “Where is God?” Sadek looked more like a guitarist for Guns N’ Roses than a mortgage banker.
    Sadek says he was dealt a jack, then an ace. Blackjack. He would make payroll. Quick Loan Funding, based in Costa Mesa, California, would survive and, for a while, prosper as one of 1,300 mortgage lenders in the state vying to satisfy Wall Street’s thirst for subprime debt.
    As home prices rose and hunger for high-yield investments grew, Sadek found his niche pushing mortgages to borrowers with poor credit. Such subprime home loans grew to $600 billion, or 21 percent, of all U.S. mortgages last year from $160 billion, or 7 percent, in 2001, according to Inside Mortgage Finance, an industry newsletter. Banks drove that growth because they could bundle subprime loans into securities, parts of which paid interest as much as 3 percentage points higher than 10-year Treasury notes.
    “I never made a loan that Wall Street wouldn’t buy,” Sadek says. He worked hard to build the business, he says, and the company did nothing illegal.

  • My Solution to the Subprime Mess
    Posted by on December 19th, 2007 at 6:44 am

  • Goldman’s Earnings
    Posted by on December 18th, 2007 at 10:44 am

    Goldman Sachs (GS) just wrapped up another phenomenal year. I honestly don’t know how they do it. The numbers really boggle the mind.
    For their fourth quarter, Goldman earned $7.01 a share, 40 cents ahead of the Street. For FY 2007, the company earned $24.73 a share. Last year, they made $19.69 a share and the year before that, they made $11.21 a share. By comparison, Morgan, Merrill and Bear are all expected to post losses this quarter.
    The stock is going for just seven times earnings. Next year, however, could be more difficult for Goldman.
    By the way, what’s the point in having elections if someone from Goldman Sachs is always appointed to run the economy? (And it’s not just us).

  • FactSet’s Earnings
    Posted by on December 18th, 2007 at 10:23 am

    Another Buy List stock reported earnings today. For its fiscal first quarter, which ended in November, FactSet Research Systems (FDS) earned 58 cents a share. That’s a 24.7% increase over last year. Strangely, the stock plunged over 3% at the open, but it seems to have recovered some.
    Revenues came in at $134.1 million which was just slightly ahead of the Street. The numbers for this company are very solid—operating margins at 31%. For the second quarter, FDS expects:
    Revenues are expected to range between $137 million and $141 million.
    Operating margins are expected to range between 30.5% and 32.5%. This operating margin guidance holds currencies constant and assumes no change in the expected outcome of performance based stock options.
    The effective tax rate is expected to range between 34.0% and 35.0%.
    This is a very impressive company.

  • Burton Malkiel on CNBC
    Posted by on December 17th, 2007 at 7:31 pm

    Here’s Burton Malkiel discussing the global economy.

  • Malthus Strikes Back
    Posted by on December 17th, 2007 at 2:10 pm

    Today is an historic day. For the first time ever, a bushel of wheat is going for more than $10.
    But in real terms, wheat is very cheap. This is from a great article in The Economist on the amazing story of wheat (no, really):

    In 1815 a gigantic volcanic eruption at Tambora in Indonesia led to the famous “year without a summer”. New England had frosts in July. France had bitter cold in August. Wheat prices reached a level that would never be seen again in real terms, nearly $3 a bushel. Thomas Robert Malthus was then at the height of his fame and the harvest failure seemed to bear out his pessimism. In 1798 he had forecast a population crash, based on the calculation that it was impossible to improve wheat yields as fast as people made babies (each new baby can make more babies; each new field of grain leaves less new land to cultivate).

  • Jeremy Siegel’s Outlook for 2008
    Posted by on December 17th, 2007 at 1:48 pm

    Jeremy Siegel is always worth listening to. Here’s part of his outlook for next year:

    Economic Growth
    But the impact of the crisis on the psychology of consumers and business will leave their mark. I predict that GDP will slow in the first half of next year to between 1% and 2%, and rise in the second half, as risk premiums come down and the cost of capital falls. Overall I expect 1.5% to 2.5% GDP growth in 2008 and I believe the economy will avoid a recession.
    Stocks and Bonds
    I think the stock market will have another winning year in 2008. For every percentage point that stock returns fall below 8% (my prediction) this year, they should exceed 8% next year (meaning, for example, if stocks gain 6% this year, they should finish 2008 up 10%).
    And I believe that financial stocks, which have plummeted 18% so far this year, will outperform the S&P 500 Index next year as the credit crisis fades.
    Interest Rates
    What does all this mean for interest rates? The Fed cut the Fed funds rate to 4.25% on December 11, but it will have to do more in the coming months. I believe that the Fed will get rates down to 3.5%, before ratcheting them upward in the second half of next year.
    Treasuries did well in 2007, as interest rates on top-rated securities plunged in light of the credit crisis. But as the risk spreads narrow, money will flow away from government bonds and their interest rates will rise. I recommend investors cash in governments and top rated corporate bonds now – you got a nice ride that you won’t get next year.

  • Why the Dollar Might Rally
    Posted by on December 17th, 2007 at 11:44 am

    From today’s WSJ:

    The belief that the Fed would be forced to sharply reduce interest rates to stimulate economic growth has weighed heavily on the dollar. That is because lower interest rates reduce returns on fixed-income holdings in the currency, making the dollar less attractive to investors.
    Instead, investors are focusing on the possibility that further interest-rate cuts might not unfold as expected. Currency strategists say there is a strong belief the Fed will ultimately work to keep prices in line.
    One recent challenge to the gloomy view on the economy came Thursday, when data showed retail sales in November were more resilient than predicted. The figures suggested “we don’t really have a freefall in the U.S. economy,” says Adnan Akant, a currency specialist at money manager Fischer Francis Trees & Watts. “It’s slowing down but not falling out of bed.”
    Then on Friday, government data showed inflation last month was stronger than expected. That generated a fresh wave of dollar buying, pushing the greenback up about 1.4% against the euro in a day. Since late November, when the dollar weakened to a record low versus the euro, it has strengthened about 3%. Still, the dollar remains 8.5% weaker against the euro since the start of the year. Late Friday in New York, one euro fetched $1.4423.
    The speed of Friday’s move startled some investors. “Today has been kind of shocking for much of the market,” said John Taylor, head of FX Concepts, a hedge fund that specializes in currency trading. Mr. Taylor says his firm has started shifting its positions from bets that the dollar will weaken to wagers that it will strengthen in coming weeks.
    “One, the Fed is now scared of inflation, and two, the numbers keep looking pretty good,” he says. The dollar “has shown more vigor than we thought.”