• Microsoft Bids for Yahoo
    Posted by on February 1st, 2008 at 8:38 am

    I’ve made of this story for months and now it’s coming true. Microsoft (MSFT) is offering $44 billion for Yahoo (YHOO). This comes out to $31 a share. I honestly don’t see how this makes sense at all.
    Before taking a detailed look at the businesses, just look at the numbers. For the last three years, Yahoo’s earnings-per-share have dropped from 58 cents to 52 cents to 47 cents. This year, the consensus is for 45 cents. I just don’t get how that equals $31.
    Years from now, business students will study how Yahoo was in perfect position to dominate the Internet, but they lost. Google didn’t have to win. The future was in Yahoo’s lap, but they went for Hollywood instead.
    Two earnings reports to pass along. AFLAC (AFL) earned 78 cents a share, two cents below estimates. Still, that’s a nice jump over the 66 cents they made last year. The company said that it’s looking to grow EPS by 13% to 15% this year, which works out to EPS of $3.70 to $3.76.
    Yesterday, SEI Investments (SEIC) reported earnings of 35 cents a share. That was inline with forecasts. The stock responded by dropping 80 cents a share.
    Also, Leucadia (LUK) is buying a large stake in AmeriCredit (ACF) which is an auto finance firm. Leucadia is a shrewd investor and I note this because ACF is in the same industry as our own Nicholas Financial (NICK). NICK will release its earnings on Tuesday.

  • Worst January Ever
    Posted by on January 31st, 2008 at 9:37 am

    With one day left, this could be the worst January ever. Through yesterday’s close, the Dow is down -6.2%. The record is -8.6% from 1916. The S%P 500 is down 7.7% which edges out the -7.6% from 1970. The Nasdaq is down -11.4% which easily beats the -8.6% from 1990.

  • The Fed Cuts Again
    Posted by on January 30th, 2008 at 2:17 pm

    Fifty points this time. Here’s the statement:

    The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3 percent.
    Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.
    The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.
    Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.
    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; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, 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 50-basis-point decrease in the discount rate to 3-1/2 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, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco.

    I’m glad they did. The central bank has been way behind on this.

  • Thoughts on the Economic Stimulus Package
    Posted by on January 28th, 2008 at 4:03 pm

    From the Onion:

    Congress agreed on an economic stimulus package that would give individual taxpayers a rebate of up to $600. What do you think?
    Tom Nagle,
    Systems Analyst
    “Perfect. That should cover my moving costs to Toronto.”

  • Sysco’s Earnings
    Posted by on January 28th, 2008 at 12:15 pm

    I’m on the road this week, so posting will be on the light side. There are a few things to mention. First, Sysco (SYY) reported earnings before the bell this morning. For their second-quarter, SYY earned 43 cents a share which was inline with forecasts. The stock is currently up a bit. For the most part, Sysco’s earnings are about as stable as they come. The longer I invest, the more I come to appreciate that.
    I’m not a big fan of this stimulus package. I doubt it will do much good, and I really don’t see the need for it. This also helps explain why I’ve never been elected to anything.
    I just finished The Misbehavior of Markets by Benoit Mandelbrot. It’s an interesting book. Mandelbrot asserts that much of the conventional understanding of the stock (EMH, CAPM) is completely and totally wrong. I think he’s right, although I’m a bit skeptical of any type of “fractal market analysis.” If I have time, I’ll go into it more detail.
    And finally, meet Dirk Mueller, the new face of the stock market.

  • Donaldson Increases Dividend 10%
    Posted by on January 25th, 2008 at 1:09 pm

    Good news from Donaldson (DCI). The company raised its per-share dividend to 11 cents from 10 cents. This is the 22nd straight year that DCI has increased its dividend. The company has also increased its earnings for 18 straight years.

  • Harley’s Earnings
    Posted by on January 25th, 2008 at 12:27 pm

    Harley-Davidson (HOG) reported Q4 earnings of 78 cents a share, four cents below estimates. Last year, HOG made 97 cents for the fourth quarter. The numbers are ugly:

    Worldwide retail sales of Harley-Davidson motorcycles were down 6.1 percent in the quarter, and 14.2 percent in the U.S. The company said the domestic heavyweight motorcycle market was down 9 percent in the quarter. Overseas, Harley’s sales were up 17.4 percent.
    Harley’s shipments were down 12.5 percent to 81,206 units, a drop of 11,642 units.
    For the year, profit fell to $933.8 million, or $3.74 a share, from $1.04 billion, or $3.93 a share, in 2006. Revenue slipped 1.3 percent to $5.73 billion from $5.8 billion in 2006.
    Worldwide sales fell 1.8 percent in 2007, while U.S. sales were down 6.2 percent. The overall heavyweight market was down 5 percent for the year, Harley said. Internationally, Harley’s sales finished the year up 13.7 percent.
    Shipments for the year were down 5.3 percent to 330,619 motorcycle units, from 349,196 bikes in 2006. Harley-Davidson cut its bike shipments in the wake of expected falling sales and even idled its plants for a week in November.

    HOG expects EPS growth of 4% to 7% this year which is more optimistic than analysts.

  • The Yield Curve
    Posted by on January 25th, 2008 at 10:46 am

    Here’s a colorful chart:
    image599.png
    This is the point I’m trying to get across. I believe the Fed’s rate cut was NOT a cut to prop up equity prices, but a response to the turmoil in the bond market. If anything, it was to pop the bond bubble–and as you can see from the post below, the Fed’s job includes promoting “moderate long-term interest rates.”
    I’m not saying I agree with it, but try to look at this from the Fed’s point of view. In just a few months, a flat yield curve completely unraveled.

  • French Trader Surrenders $7.14 Billion
    Posted by on January 24th, 2008 at 11:44 am

    Ever heard of Jerome Kerviel? Me neither, but he’s apparently the rogue trader behind Société Générale’s $7.4 billion trading loss. That’s more than Amaranth ($6.6 billion) and Nick Leeson ($1.4 billion).

    The trades first came to management’s attention on the evening of Jan. 18, when a compliance officer found a trade that exceeded the bank’s limits, Mustier said. When Societe Generale called the counterparty, they were told the trade didn’t exist.
    The employee, who moved to the trading floor from the back office in 2006, helped with the investigations throughout the weekend, said Mustier. He said he doesn’t know where the trader is now.
    “He is in his thirties, very quiet and a loner,” said Yves Messarovitch, an external spokesman for Societe Generale. “He had made his dream of becoming a trader come true.”

    Great, he sounds like a serial murderer. According to Bess Levin, he’s hot (w/pic). I report, you decide.

  • The Fed’s Charter
    Posted by on January 24th, 2008 at 10:41 am

    Just in case anyone’s curious, here’s what it says:

    FEDERAL RESERVE ACT
    SECTION 2A—Monetary Policy Objectives
    The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.
    [12 USC 225a. As added by act of November 16, 1977 (91 Stat. 1387) and amended by acts of October 27, 1978 (92 Stat. 1897); Aug. 23, 1988 (102 Stat. 1375); and Dec. 27, 2000 (114 Stat. 3028).]