Buy List Earnings This Week
Posted by Eddy Elfenbein on July 17th, 2007 at 4:49 pm

The earnings parade will start for our stocks this week. Tomorrow, Amphenol (APH) reports. Then on Thursday, Danaher (DHR), Unitedhealth (UNH) and Harley-Davidson (HOG) report.
Except for Harley, none of the earnings should be a big surprise. The only surprise will be how the market reacts. For Harley, I think the current expectations are too low.

Crashing DealBreaker
Posted by Eddy Elfenbein on July 17th, 2007 at 1:28 pm

I was in New York last week and while riding in a cab, the driver spotted a printer left on the curb. He pulled over, hopped out, grabbed the printer, tossed it in the trunk, then hopped back in and kept driving. You had to see it—it was all one fluid motion. See, this is why I love NYC.
My destination was the offices of one of my favorite blogs, DealBreaker. I won’t bore you with the details, but after passing the reception area and security checkpoints (including retinal scan), I finally arrived at their palatial offices. I had no idea blogging was so profitable.
Naturally, I brought my camera to record to the events.
Here’s DealBreaker’s very talented Editor-In-Chief John Carney. Note the whiteboard in the background. They never use it. Instead, it serves as ironic symbolism of John’s alienation and disaffection from the mainstream media. (Plus, it’s cheap.) Here’s John quietly reflecting on the eloquence and understated humor of his previous post.

More John. Here he is on the phone. Probably putting the screws to some Wall Street bigshot. (You can see why CNBC loves him!)

John’s a wonderful guy and he even treated me to lunch. At one point, I tried to take a picture of Bess Levin, DealBreaker’s heartbreaker. But before I could, several large men wrestled me to the ground. Then Bess crushed my camera under the heel of her four inch leather stilettos. So in lieu of any Bess photos, I give you that mental image.
I did manage to get one shot of her messy desk. Naturally, dear reader, I’m as appalled as you are. And yes, that is a shuttlecock just under the screen.

Anyway, if you haven’t read DealBreaker, I highly recommend it. It’s one of the best and funniest sites on the Internets.

GE’s Balance Sheet
Posted by Eddy Elfenbein on July 17th, 2007 at 11:44 am

How big is General Electric (GE)? This should give you an idea.
I was scanning the earnings press release. Under “Assets” the company list $124.4 billion in the category of “Other.”

Wall Street Loves Obama
Posted by Eddy Elfenbein on July 17th, 2007 at 11:32 am

(Via Yglesias) Senator Obama’s top contributors are Lehman Brothers, $160,760; Citadel Investment Group, $152,150; Goldman Sachs, $103,550; JP Morgan Chase, $101,950 and Citigroup $61,125.
Here’s an old post looking at his investment portfolio.

The Exchange Rate’s Impact on the Stock Market
Posted by Eddy Elfenbein on July 17th, 2007 at 10:59 am

The U.S. dollar has been in freefall lately, but it seems to have little or no impact on the stock market’s rally. In fact, it seems to be helping.
I decided to do a little analysis and see how much the exchange rate, the dollar/euro in particular, impacts equity prices.
From the beginning of 1999 to the end of June, the euro and the stock market were traded on about 2100 days. On days when the euro rose against the dollar, the S&P 500 lost a combined 66%. Annualized, that works out to a loss of -22.88% a year. When the euro fell against the dollar, the S&P 500 gained an annualized 35.30%.
Here are the annualized rates for the S&P 500 sector groups:
……………………………Euro Up………………..Euro Down
Energy……………………9.28%…………………..17.58%
Discretionary…………-28.57%…………………..47.76%
Staples…………………..-5.07%……………………8.21%
Financials………………-27.26%…………………..51.23%
Healthcare……………..-12.84%………………….17.39%
Industrials……………..-21.50%…………………..40.90%
Tech……………………..-44.04%…………………..69.80%
Materials…………………..0.32%…………………..16.17%
Telecom………………….-24.73%…………………..19.24%
Utilities……………………-2.40%……………………7.43%

Dow Jones & News Corp. Reach Possible Deal
Posted by Eddy Elfenbein on July 17th, 2007 at 7:36 am

It could really be happening. The Dow Jones (DJ) board will be meeting tonight to decide on Rupert Murdoch’s $5 billion offer.
This deal should have happened three months, but it’s been needlessly held up by members of the Bancroft family. Murdoch offered them a 67% premium for a stock that has done nothing for years. No, that wasn’t good enough for them.
The problem is these super voting shares of stock give unfair say to family members. These shares, which have ten times the voting power of regular shares, are perfectly legal, but I don’t see how much good comes from them.
Christopher Bancroft is trying to sink the deal by running to every hedge fund manager so he can buy more super-voting shares. Time is running out and I hope the board approves Murdoch’s offer. Ultimately, a company should be run by its shareholders.

KKR Cancels Loan Deal for Maxeda
Posted by Eddy Elfenbein on July 16th, 2007 at 10:49 am

Here’s a small story that could be the start of a much larger story (cue scary music).
Kohlberg Kravis Roberts just canceled plans to sell $1.4 billion in loans for Maxeda, a Dutch department store. The reason is that investors are turning away from risky debt. This could snowball as risk-averse investors gradually turn away marginal borrowers. People who were burned on subprime don’t want it to happen again.
Bloomberg reports:

The deal is the third to be postponed or restructured by KKR in as many weeks as losses from the U.S. subprime mortgage rout make investors wary of financing leveraged buyouts. New York-based KKR is trying to raise 9 billion pounds ($18 billion) this week to finance its takeover of Nottingham, England-based drugstore chain Alliance Boots Plc.
KKR abandoned the debt sale for Amsterdam-based Maxeda after failing to entice investors by reducing prices for the debt and introducing covenants to restrict future borrowing. Citigroup Inc. and ABN Amro Holding NV have guaranteed to provide the financing.
“Due to current volatility of the credit markets, Citigroup and ABN Amro have decided to postpone syndication to a later stage when they expect markets to have stabilized,” Maxeda spokesman Arnold Drijver said today. The company’s financing “is in place,” he said.

I wish them well. The sad part is that they’re being punished for the lousy decisions of others.

Waitress Wins CNBC Stock-Picking Contest
Posted by Eddy Elfenbein on July 16th, 2007 at 7:08 am

Congratulations to Mary Sue Williams of St. Clairsville, OH.
The waitress and former welder (no really) won CNBC’s Million Dollar Portfolio Contest. Williams said she’s never watched the network or bought a stock in her life. Somehow, she overcame this to win the contest (that’s sarcasm).
By the way, several contestants were disqualified for cheating. I’m guessing they have bought stocks and watch CNBC all the time.

Robert M. Solow on Joseph Schumpeter
Posted by Eddy Elfenbein on July 14th, 2007 at 11:51 pm

From the New Republic:

In my view — and that of most contemporary economists, I believe — Schumpeter’s most original and most lastingly significant book was Theory of Economic Development, which appeared in 1911 (and was translated into English in 1934). It was at the University of Czernowitz, not far from the beginning of his career as an economist, that he worked out his conception of the entrepreneur, the maker of “new combinations,” as the driving force and characteristic figure of the fits-and-starts evolution of the capitalist economy. He was explicit that, while technological innovation was in the long run the most important function of the entrepreneur, organizational innovation in governance, finance, and management was comparable in significance.

The Stock Market Moves Closer to Fairly Valued
Posted by Eddy Elfenbein on July 13th, 2007 at 6:19 am

According to the “Fed Model,” the stock market is still undervalued but a lot less than it was a few weeks ago.
Thanks to yesterday’s big market move and the recent uptick in long-term rates, the stock market is currently 12.5% undervalued according to the Fed Model compared with over 30% just four months ago.
There are many variations on the Fed Model. For our purposes, I use the trailing twelve months of smoothed operating earnings and the 10-year Treasury bond. The current yield on the T-bond is 5.116% so the inverse works out to a P/E ratio of 19.55, and the market’s P/E ratio is 17.09.
Here’s a look at the S&P 500 and the Fed Model.

The market has been undervalued for five straight years.
Preemptive Strike on Critics: No, I’m not saying this is the perfect measure of the market. It’s simply one measure (a good one) and should always be seen in context of other measures of valuation.
Obviously, it can also be saying that the bond market is overpriced. Also, “overpriced” doesn’t have a big impact on what the market actually does. In fact, only when the market is 41% or more overpriced does history suggest that it’s worth selling.