Core Inflation Is Still Tame
Posted by Eddy Elfenbein on October 17th, 2007 at 10:28 am

The government reported that headline inflation rose 0.3% last month. The good news is that the core rate, which excludes food and energy, is still well-behaved.
The core rate comes in for a lot of criticism but it’s probably the best short-term indicator of the Fed’s performance. The 12-month core rate has ranged between 1% and 3% for over 10 years.

A Closer Look at Goldman’s Earnings
Posted by Eddy Elfenbein on October 16th, 2007 at 2:19 pm

Last month, Goldman Sachs (GS) reported amazing earnings. Maybe too amazing:

Much of the focus is on Goldman’s trading revenue, which totaled a spectacular $8.23 billion, up 70% on the year-earlier quarter. Part of that increase was due to a bold bet that made money if mortgage-backed bonds and financial instruments tied to mortgage values fell in price. Of course, because of the credit crunch, they did plunge in value, netting gains for Goldman that the banks said “more than offset” the losses it saw on the mortgages it was holding.
It’s impossible to trace exactly how that bet against mortgages was made, but the financial filing does describe some very telling details about what made up the enormous $8.23 billion of trading revenue.
The interesting data comes from disclosures in the filing about ‘level 3’ assets and liabilities, which are securities and derivatives that can’t be valued according to observable prices in liquid public markets. Because of their illiquidity, Goldman has to attach values to them chiefly according to in-house models and estimates.

The Hanger-On
Posted by Eddy Elfenbein on October 16th, 2007 at 1:15 pm

In New York Magazine, Duff McDonald looks at how Chuck Prince still has a job.

It’s unlikely the two have ever met, but Citigroup chairman and CEO Chuck Prince and Yankees relief pitcher Luis Vizcaino have something in common. Consider Game 2 in the recent American League divisional playoff series, when Vizcaino was brought into the game in the bottom of the eleventh, after Joe Torre had burned through his best relievers. Nervous Yanks fans could only watch in stupefaction as Vizcaino loaded the bases just in time to face the Indians’ top slugger. How was it that with everything on the line, this was the guy holding the ball? The same is asked about Chuck Prince, who gave up the Wall Street equivalent of a grand slam when Citigroup reported a third-quarter loss of $5.9 billion. The company’s share price now rises when there’s bad news in the hopes that it will lead more quickly to his departure. But despite calls for his ouster from all over Wall Street and from Jim Cramer in this magazine, he’s still very much in the game.
What the critics fail to fully consider is, who would replace him? With no obvious choice from within—and no eager prospects from without—the bank is suffering from what one might call the Vizcaino Condition: Watch and pray he doesn’t do half as badly as everyone expects.

I actually talked with McDonald a few months ago about Chuck Prince and Citi. My take is that human nature will always blame a bad plan’s failure on execution, first, and the idea itself last. The reason Citigroup is struggling is that the company, as presently constructed, doesn’t make sense and it should be broken up.
The financial supermarket idea sounds great on paper but it just doesn’t work. It never works, and Citigroup will keep learning that lesson. People can blame Prince all they want, but it’s the idea that has to go.
This year is the 20th anniversary of the movie Wall Street, the big crash and the book Bonfire of the Vanities. How many of today’s first-year MBAs would know that Sherman McCoy’s firm was based on Salomon Brothers? There’s a name that’s completely disappeared, but imagine if Citigroup revived it. Spin it off! According to the most-recent 8-K, Citigroup has assets of over $2.3 trillion. Why so big?
Earlier I pointed out that Citigroup’s Management Committee has 125 members. Is that really needed? The last papal conclave had just 115 members. Sure, both entities have global operations and strong brand names. (Granted, the analogy break down once we come to Bob Rubin, but you see my point). I failed to see the advantage of having a company that’s so large.
Let me also add that I think Sallie Krawcheck will easily become Prince’s replacement. Unfortunately, I don’t think she’ll have any more success.

Duck and Cover
Posted by Eddy Elfenbein on October 16th, 2007 at 11:07 am

The first Boomer applies for Social Security:

The baby boomers’ stampede for Social Security benefits has begun.
The nation’s “first” baby boomer, a retired teacher from New Jersey, applied for Social Security benefits Monday, signaling the start of an expected avalanche of applications from the post World War II generation.
Social Security Commissioner Michael Astrue called it “America’s silver tsunami.”
Kathleen Casey-Kirschling applied for benefits over the Internet at an event hosted by Astrue. Casey-Kirschling was born one second after midnight on Jan. 1, 1946, gaining her recognition as the first baby boomer — a generation of nearly 80 million born from 1946 to 1964, Astrue said.
“She’s leading the way for her generation,” Astrue told reporters.
Casey-Kirschling will be eligible for benefits after she turns 62 next year. She said she taught seventh graders for 14 years at a school near Camden, N.J., before retiring and volunteering for the Red Cross in Gulf Coast areas hit by Hurricane Katrina.

Third-Quarter Earnings Reports
Posted by Eddy Elfenbein on October 16th, 2007 at 11:05 am

Earnings season gets underway for out stocks this week. On Thursday, Danaher (DHR) and UnitedHealth (UNH) report. Then on Friday, Harley-Davidson (HOG) reports. I think HOG is due for a lift soon.

Medtronic Pulls Defibrillation Leads
Posted by Eddy Elfenbein on October 15th, 2007 at 10:36 am

Ugh.

Medtronic Inc. has suspended distribution of its Sprint Fidelis defibrillation leads after identifying five patient deaths in which a lead fracture may have been a contributing factor.
Medtronic shares fell nearly 5 percent in premarket trading.
A defibrillator monitors a patient’s heartbeat; if it senses an abnormal heart rhythm, it delivers an electronic shock to reset the heart to a normal beat. A defibrillation system consists of a device implanted near the shoulder with one or more leads connecting the device to the heart.
Medtronic said Monday it had discovered a “small chance of fractures in particular locations” on Sprint Fidelis models 6930, 6931, 6948 and 6949. The company is asking doctors to stop implanting the leads and return all unused leads to Medtronic.
A fractured lead “can cause the defibrillator to deliver unnecessary shocks or not operate at all,” said Daniel Schultz, director of the Food and Drug Administration’s Center for Devices and Radiological Health.
The company is not recommending that patients with such a lead have it removed, since they “are more likely to experience complications from removal.” Instead, Medtronic said, doctors can reprogram the device to alert the patient that a fracture may have occurred. Possible indicators could include audible alerts or inappropriate shocks.

The stock is getting crushed today. The shares went as low as $50.20.

UNH Below $50
Posted by Eddy Elfenbein on October 12th, 2007 at 12:24 pm

If you’re looking to add new money to the market, consider shares of UnitedHealth (UNH). I really am surprised to see the stock going for less than $50. I’m not sure what the market is expecting. The stock is going for about 12.6 times next year’s earnings estimate. Yet, the company will probably grow its earnings about 17% this year, and 14% next year.

Is the Worst Over?
Posted by Eddy Elfenbein on October 11th, 2007 at 10:24 am

Quick question: How much did foreclosures increase last month? 10%? 20%?
Try an 8% drop.

But the figures were still double the number reported a year ago. “It’s important to note that September’s total was still the second highest monthly total we’ve seen since we began issuing our report in January of 2005,” James Saccacio, chief executive of RealtyTrac, said in a statement.
“It’s too early to tell if September’s numbers represent a one-month lull,” he said, “or if they could signify that more buyers and investors are getting back in the market and snatching up discounted foreclosure properties, thereby providing a release valve for distressed homeowners and overwhelmed lenders.”

The Market Five Years On
Posted by Eddy Elfenbein on October 9th, 2007 at 11:02 am

Today is the fifth anniversary of the market’s low close. On October 9, 2002, the Dow closed at 7,286.27. The S&P 500 closed at 776.76, which is eerily similar to the Dow’s low from 20 years before.
Over the last five years, the Wilshire 5000 is up 132.1% (including dividends) which slightly beats gold’s gain of 129.8%. Also, the dollar has lost about 30% of its value against the euro.

Monday Night Football at Tradesports
Posted by Eddy Elfenbein on October 9th, 2007 at 10:09 am

Here’s the futures contract for the Cowboys to win last night’s game:

If you missed the game, I’m not sure how to describe it. Dallas was counted out not once, but a few times and still managed to win. Look at how often the contract was basically worthless.