Linens ‘n Things Expected to File for Bankruptcy
Posted by Eddy Elfenbein on April 11th, 2008 at 10:03 am

One of Bed Bath & Beyond‘s (BBBY) major competitors, Linens ‘n Things, seems to have come to the end of the road. The WSJ said that the company is expected to file for bankruptcy protection by Tuesday.
Two years ago, the company was part of a private equity buyout from Apollo Management, which has filed to go public (or as DealBook calls it, an Un-IPO). Bed Bath & Beyond is down a bit this morning but I don’t see how a competitors’ bankruptcy can be all that bad.

Deep Inside an SEC Filing
Posted by Eddy Elfenbein on April 9th, 2008 at 9:05 pm

Ever heard of CHDT Corp. (CHDO)?
Me neither.
Anywho, I was reading their 10-K (page 29) and I came across this under the discussion of country risks.

While dramatic anti-trade shit in Chinese policy or laws would seem to be clearly against the best interests of China and its current economic trends, China has a central government with the authority to make such changes.

It’s true. That shit would be so totally fucked up.

Ugh….
Posted by Eddy Elfenbein on April 9th, 2008 at 4:26 pm

Bed Bath & Beyond (BBBY) just reported that it earned 66 cents a share for its fourth quarter.
Here are the earnings results going back a few years:

Irony Overload
Posted by Eddy Elfenbein on April 9th, 2008 at 1:55 pm

Here’s a report from Bear Stearns on falling business optimism.
(Via: RCM)

Stocks Against Bonds
Posted by Eddy Elfenbein on April 9th, 2008 at 1:31 pm

I recently received the latest Ibbotson Yearbook in the mail the other day. If you’re not familiar with it, the book is a great source for long-term returns of different asset classes (click here for more info).
What I find interesting is that the spread between the returns of stocks and bonds really isn’t that much. I think would surprise many investors that boring bonds have held their own. Over the last 40 years, stocks have beaten bonds by a final score 10.5% to 8.4%.
The difference is theoretically due to greater risk for stocks. (Note: This is different from the usual equity risk premium which looks at stocks versus T-bills. Here I’m looking at stocks and long-term corporate bonds.)
Here’s a chart I made of stocks and long-term corporate bonds. The only difference is that I stretched out the bond returns by 2% a year.

These two lines have tracked each other remarkably closely. In the 1970s, bonds took a big lead over stocks, and in the late 1990s, stocks shot ahead of bonds. Besides that, it’s been pretty close. You can also see that the market rally of the 1980s really wasn’t much of a bubble, nor is today’s market out of whack by historical standards.
Let me add that I do not think this is a good way to time the market.

The Joys of Living in Washington
Posted by Eddy Elfenbein on April 9th, 2008 at 1:02 pm

I went out for lunch just now and my entire house started to rumble. What was it?

Read more…

Passing Along Without Comment
Posted by Eddy Elfenbein on April 9th, 2008 at 11:35 am

I apologize for including the first few tedious paragraphs but they’re needed for the surprise coming at the end.

Climate change tops list of risks to insurers
Potential climate change is the greatest strategic risk currently facing the property and casualty insurance industry, according to an Ernst & Young report. Demographic changes and catastrophic events follow closely behind.
For the study, Strategic Business Risk 2008, Ernst & Young and Oxford Analytica interviewed more than 70 industry analysts from around the world to identify the emerging trends and uncertainties driving the performance of the global insurance sector over the next five years.
The Top 10 risks identified were: climate change; demographic shifts in core markets; catastrophic events; emerging markets; regulatory intervention; channel distribution; integration of technology with operations and strategy; securities markets; legal risk; and geopolitical or macroeconomic shocks, a release says.
Many of the risks are interlinked, a company release notes, and raise questions about how these risks will change what companies offer customers, the way that they offer their services and where.
The analysts identified five additional emerging risks (not part of the Top 10) that have the potential to become as significant during the next five years.
These include: over reliance on model-based risk management; threats to industry reputation; losing the war for talent; increasing exposure to global regulatory heterogeneity; and the possible emergence of entirely new risks.

Betting to Improve the Odds
Posted by Eddy Elfenbein on April 9th, 2008 at 10:58 am

The New York Times looks at how companies are using predictions markets in corporate decision making. I’m a fan of predictions markets and I like to follow some contracts at Intrade.com and Tradesports.com.
I look at these markets as like a parlor game. They’re fun and interesting. Still, there are some drawbacks. First, to be truly effective, the markets must have many participants and it should be very liquid. Secondly, these markets are subject to the kind of biases that all markets are.
For example, at Intrade.com, the contract for Ron Paul to win the GOP nomination is currently 1.3/1.5. I can tell you right now, that Ron Paul does NOT have a 1.3% chance to win the GOP nomination.
His chances are, in fact, ZERO. As in ZERO POINT ZERO. In sophisticated circles, this is known as a Blutarsky. In absolute zero, where all atomic movement ceases, that’s Ron Paul’s chances. No way. Never. In a million years, still wouldn’t happen. Bottomline: The dude ain’t gonna win.
So if markets are efficient *cough cough* why isn’t his contract going for zero? The answer is that it’s a market that’s influenced by partisanship. There are some folks who will buy the contract to boost their candidate’s profile. In November and December, the Paulster’s contract came very close to hitting 10 cents.
I’m not sure if you can short contracts at Intrade, but if you can, there’s a profit opportunity. This is similar to how sophisticated sports bettors know to go against teams from big cities. The partisanship distorts the market.
Another aspect about predictions markets is that I don’t think they’re properly named. They’re really not predictions markets, but odds setting markets.
It’s become fashionable to look at how the markets got something wrong, are thereby, declare them a failure. The markets simply set the odds low for something that eventually came about. Would we ever say the same about financial markets? Going by today’s share price, Google’s IPO price could be called mis-priced. Did that mean that the stock market failed? Not at all, the price adjusted with more information.

The Death of the Stand-Alone Business Section
Posted by Eddy Elfenbein on April 9th, 2008 at 10:21 am

The Columbia Journalism Review looks at the disappearance of stand-alone business sections in newspapers. Here’s a look at some recent departures:

I’ve spend most of my life reading the Washington Post, and from what I recall, the daily business section was simply attached on to the end of the sports section. I think that’s how I first got interest in following stocks. It’s not that big a jump from box scores to stock tables.
I don’t see any reason to get nostalgic about stand-alone sections. The amount of business is overflowing. Without pornography and stock quotes, I doubt the Internet would ever have gotten off the ground. CNBC, the Wall Street Journal and a zillion other sites cover business pretty thoroughly. My major quibble isn’t the amount of news, it’s that the news is often not in proper context, and that’s where blogs can play a key role.
I do reserve the right to get nostalgic about reading the stock tables in the daily paper. You had to scroll through hundreds off quotes to find out how well you did. One of my first roles as a broker was simply giving people live quotes during the day. And then there were those awful factions!
On second thought, maybe I won’t get too nostalgic.

Some Hesitation on the Say on Pay Bandwagon
Posted by Eddy Elfenbein on April 9th, 2008 at 8:56 am

Holman Jenkins has an article today in the WSJ on Aflac (AFL) and their “say on pay” provision which allows shareholders to have some input on executive salaries. As many of you know, I’m a huge of Aflac and I think it’s an outstanding company. Most people know it for the duck, but few realize just how profitable it is.
Say on pay has generated a great deal of positive press for Aflac, and for that, I’m grateful. However, I think “say on pay” might be a bit overrated and I’d be leery of seeing it become the next shareholder fad.
What’s often overlooked is that Aflac is a closely held company with much of the shares resting in the hands of the Amos family. Dan Amos, the current CEO, is the son and nephew of the Aflac’s founders. The effect of this is that a very small portion of Mr. Amos’ wealth is tied to his yearly salary. Instead, he owns nearly 10 million shares, which makes him about two-thirds the way to being a billionaire. In other words, he can easily afford to have his pay the subject of shareholder debate. It’s almost a trivial amount compared with what he makes as an owner.
Jenkins writes:

Media outlets have fallen all over themselves since Aflac’s adoption of “say on pay,” but they seldom find room to include Mr. Amos’s actual views on executive compensation. For one thing, he doesn’t think every company should be required by law to adopt “say on pay.” He took up the idea himself only because it was brought to him by activist investor shop Boston Common Asset Management, and then only because he figured more “transparency” might improve the atmospherics around executive compensation and help “calm down” public neuralgia.

Amos is right—not every company should be required. I’d add that many companies shouldn’t do it voluntarily. A good example might be a small-cap tech company going through a corporate restructuring. The best way to lure an experienced outside CEO with could be to pay well above the going rate. Given the legal and technical challenges a company like that faces, a “say on pay” proviso might not be in the companies’ best interest.
I’d prefer to see the subject of executive compensation shift to how much value the executives have “at risk.” That would be far more accurate and I think it would deflate much of the current hysteria directed at executive pay.