• A Tale of Two Banks
    Posted by on September 20th, 2007 at 10:39 am

    Profits at Goldman Sachs (GS) were up 79%. The company earned $6.13 a share, far more than the $4.35 Wall Street was expecting.

    “They dominate the business in so many different ways,” said Michael Vogelzang, who helps manage $2.3 billion, including Goldman shares, as president and chief investment officer at Boston Advisors LLC. “Goldman will tell us what the state of the industry is because they have their hands in most of this stuff.”

    Meanwhile at Bear Stearns (BSC), profits dropped 61%.

    “Bear Stearns is in the worst shape on Wall Street because it has the most exposure to fixed income and least to international markets,” said Matt Albrecht, a New York-based equity analyst at Standard & Poor’s who recommends selling Bear Stearns shares. “Their reliance on the mortgage market isn’t going to help as that market continues to roil.”

  • Connection?
    Posted by on September 20th, 2007 at 9:43 am

    $5 Bill to Have Splashes of Purple, Gray
    Dollar Falls to Record Low

  • A Turn for Large-Caps
    Posted by on September 19th, 2007 at 1:01 pm

    This hasn’t been a pleasant decade for large-cap stocks. Consider General Electric (GE). The company’s earnings-per-share this year will be about 75% higher than in 2000, yet the stock is 30% below its 2000 high.
    But the outlook for large-caps may be changing. During the July-August correction, the S&P 100 fell less then the S&P 500, and it’s risen more off the August 15 bottom.

  • Greenspan on the Daily Show
    Posted by on September 19th, 2007 at 9:26 am

    Here’s Alan Greenspan on the Daily Show last night. Jon Stewart basically gets him to admit that the Fed is not consistent with free market capitalism.

  • Looking at the Fed’s Decision
    Posted by on September 19th, 2007 at 8:53 am

    I don’t quite understand the strong reactions to yesterday’s move by the Federal Reserve. To me, it seems perfectly reasonable for the Fed to cut rates by 50 points.
    I’ll put the easiest way I can. The Fed last raised rates in June 2006. From June 2006 to August 2007, the year-over-year core CPI has fallen from 2.64% to 2.13% (the data just came out). That’s 51 basis points. In other words, the Fed is just keeping up with inflation. If you keep rates the same while inflation goes down, you’re really tightening.
    You can skip all the mumbo-jumbo about commodities and gold and M2 and simply look at real interest rates (meaning after inflation). During a recession, the Fed Funds rate should exactly match the core CPI. During an expansion, it should be about 3% higher.
    Here’s a look at recent history:
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  • Missy Francis
    Posted by on September 19th, 2007 at 7:53 am

    Widdle%20Missy%20Francis.jpg
    Jon Friedman sits down with CNBC’s Melissa Francis:

    Francis doesn’t include her childhood TV fame anywhere in her official biography. “The only people who recognize me from [“Little House”] these days are CNBC viewers who are watching and suddenly make the connection,” she mused. “Then they say it’s nice to see a child actor who didn’t end up in rehab or robbing their local dry cleaner.”

  • Chart of the Day
    Posted by on September 19th, 2007 at 7:37 am

    Leucadia National Corporation (LUK) compared with the S&P 500:
    LUK.gif

  • 50 Points!
    Posted by on September 18th, 2007 at 2:16 pm

    Wow!!

    The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4-3/4 percent.
    Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.
    Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.
    Developments in financial markets since the Committee’s last regular meeting have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.
    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; Eric Rosengren; and Kevin M. Warsh.
    In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 5-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, St. Louis, Minneapolis, Kansas City, and San Francisco.

  • The Importance of Interest Rates
    Posted by on September 18th, 2007 at 1:24 pm

    If you’re new to investing or if you’re simply curious as to why us bloggers jabber on incessantly about the Federal Reserve and interest rates, it’s because it’s hard to overemphasize the importance of interest rates on equity valuations.

    Understanding this fact is one of the most important keys to investing. Simply put, interest rates call the shots for the stock market. Not only do lower rates make it cheaper to rent someone else’ money, but it also provide stiffer competition for stock prices so shares tend to adjust higher. When rates rise, the opposite happens.

    I’ll give you an example. I looked at all the data going back to 1962. I separated out each day that short-term T-bill rates fell. I then squished all those days together and found that combined, the S&P 500 rose over 2,000%. On days when rates rose—a nearly identical time frame—the S&P lost nearly 60%.

    As impressive as that it, for long-term rates, the effect is even more dramatic. On days when the 10-year T-bond yield fell, the S&P soared 90,000%. Wow! On days when the yield climbed, the S&P 500 dropped nearly 99%. If we try to annualize that, assuming 253 trading days year, that means the S&P gains 42.3% a year when long-term rates fall and it loses 20.4% when long-term rates rise.

    We can put those two variables together and see how the stock market reacts to the spread between short-term and long-term rates. Not surprisingly, stocks like a positive yield curve (when short rates are less than long). When the yield curve is positive (about 87% of the time), the S&P 500 gained 2,500%. When the yield curve is negative, stocks are down about 25%.

    Here’s the kicker: All of the S&P 500’s price gains have come when the yield curve is positive by 67 or more basis points. Anything less than that, stocks have flat. Zippo.

    One more thing. The current spread is about 45 basis points.

  • The New York Times Hits a 10-Year Low
    Posted by on September 18th, 2007 at 10:03 am

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