• One-In-Three Chance Greenspan Is Making Sense
    Posted by on May 11th, 2007 at 10:36 am

    Alan Greenspan is in the news again. The former Fed chair now thinks there’s a 1-in-3 chance of a recession. Or more specifically, he said:

    At the moment, I still say as I said before, by algebraic implications, the odds are 2 to 1 we won’t have a recession.

    Oh dear lord. He can’t even deliver a simple declarative sentence. I think half the battle of making everyone think you’re a genius is simply being convoluted. Also, start dropping phrases like “algebraic implications.”
    So, let’s take a closer look at what Greenspan is really saying.
    I looked at the data from the last 20 years. Of the last 80 quarters, real GDP declined for five quarters and growth came in below 2% for 22 quarters. This means that economy is close to recession levels for one-quarter of the time. (I’m being pretty liberal in my definition, but you get the point.)
    Despite his algebraic implications, Greenspan is hardly making a bold prediction. This is almost like saying that there’s a 1-in-5 chance that any given day is Saturday.
    Why is this news?

  • Whole Foods Bombs
    Posted by on May 10th, 2007 at 2:54 pm

    I’ve been a bear on Whole Foods Market (WFMI) for some time so today’s earnings dud doesn’t come as a surprise.
    I first warned about the stock in December 2005 when it was at $76 a share. Thanks to today’s sell-off, the shares are down to $41.
    But! It could be a good buy soon. I’d consider paying $35 for WFMI.

  • JoS. A. Bank Clothiers Sales Rise
    Posted by on May 10th, 2007 at 11:13 am

    Joe Bank (JOSB) is up 6% today. Here’s the story from AP:

    Men’s clothing retailer JoS. A. Bank Clothiers Inc. said Thursday its same-store sales climbed 7.3 percent in April, easily topping Wall Street’s expectations for a 0.7 percent increase.
    Same-store sales, or sales at stores open at least a year, are a key measure of retailer performance, because they measure growth at existing stores rather than from newly opened ones.
    Total sales for the fiscal month ended May 5 surged 18.5 percent to $45.5 million from $38.4 million in the prior-year period.
    Direct marketing sales grew 30 percent in April.

  • The Fed Stays on Hold
    Posted by on May 9th, 2007 at 2:15 pm

    For the seventh straight meeting, the Federal Resserve has left interest rates alone:
    Here’s the statement:

    The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.
    Economic growth slowed in the first part of this year and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to expand at a moderate pace over coming quarters.
    Core inflation remains somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.
    In these circumstances, the Committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.
    Voting for the FOMC monetary policy action were: Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Cathy E. Minehan; Frederic S. Mishkin; Michael H. Moskow; William Poole; and Kevin M. Warsh.

    This is almost an exact replica of the March statement.

  • Are Cyclicals Leaving Orbit?
    Posted by on May 9th, 2007 at 11:06 am

    image468.png
    I’ve written about the surge in cyclical stocks before, but now the trend is starting to leave orbit.
    The Morgan Stanley Cyclical Index (^CYC) is up for 15 of the last 19 trading sessions. Not only that, it’s beaten the S&P 500 for the last six sessions, and 13 of the last 14.
    As I write this, the index is up again today while the S&P 500 is down. The ratio of the CYC against the S&P 500 is at its highest in 30 years of data.
    As a general rule, cyclical stocks outperform the market when long-term interest rates rise. But lately, that hasn’t been the case. The yield on the 30-year T-bond (^TYX) is down a bit over the past few weeks, and it’s been locked between 4.5% and 5% for nearly nine months.

  • The Blair Market
    Posted by on May 8th, 2007 at 10:01 am

    Later this week, Tony Blair will pack his bags and leave 10 Downing Street after 10 years in office.
    It’s worth reflecting on how much Blair has changed Britain. He had the Labor Party drop its controversial Clause IV, which called for the “common ownership of the means of production.” I don’t think you could get elected dogcatcher in America if you believed that.
    So how has the British Dow, the FTSE 100 (^FTSE), done under Blair?
    May 2, 1997: 4,455.60
    May 4, 2007: 6,603.70 (the British market was closed yesterday)
    That’s 48% in 10 years, although the FTSE gained 37% in his first ten months in office. Since April 6, 1998, the British market is up just 8.2%.
    In that same time, the British pound has increased from $1.62 to $1.99.

  • Hewlett Packard Hikes 2Q Outlook
    Posted by on May 8th, 2007 at 9:43 am

    I didn’t see this coming.

    The company now expects second-quarter net income of 64 cents to 65 cents per share — or 69 cents to 70 cents excluding amortization costs.
    HP projects sales for the second quarter will range from $25.5 billion to $25.55 billion.
    Analysts expect earnings, on average, of 65 cents per share on $24.58 billion in revenue, according to a Thomson Financial survey.
    The company projected in February second-quarter earnings of 57 cents to 58 cents on roughly $24.5 billion in revenue. Excluding one-time costs, the company had forecast profit of between 63 cents and 64 cents per share for the quarter.

    That’s great news, but why are they announcing it now?

    HP said it decided to update its guidance after an internal e-mail with financial details of the quarter was accidentally sent to someone outside the company.

    Oh.

  • Investing in Intellectual Property
    Posted by on May 7th, 2007 at 2:57 pm

    The Washington Post has an interesting article on the Ocean Tomo 300 patent index, which tracks the leading stocks of the “knowledge economy.” There’s even an ETF.

  • eBay from its High
    Posted by on May 7th, 2007 at 2:51 pm

    I’m always curious what exactly constitutes an investment bubble. Even though shares of eBay (EBAY) got a super-atomic wedgie following its March 2000 high, the stock has still slightly outperformed the S&P 500.
    True, it wasn’t a smooth path getting there, but it did do it.
    ebay1.gif

  • Economist of the Empire
    Posted by on May 6th, 2007 at 5:12 pm

    Angus Burgin reviews Prophet of Innovation, Thomas McCraw’s biography of Joseph Schumpeter:

    As with many such stories, Schumpeter’s begins with a rapid ascent. Born into a bourgeois family that had resided in the Moravian hamlet of Triesch for four centuries, he gained entrance — via his mother’s remarriage to a much older three-star general — into Viennese society and the most prestigious schools in the empire. His precocious academic abilities led him through the two great centers of economic thought in continental Europe: the University of Vienna, home to the great second generation of the Austrian School; and Berlin, the academic center of the Austrians’ bitter rivals, Gustav von Schmoller and the German historical economists. Through a combination of work and fortune, he became the youngest tenured professor of political economy in the empire at age 28, secretary of state for finance in Austria’s First Republic at 36, and a prosperous bank chairman four years later.
    Schumpeter remained a mess of contradictions, however, and his personal triumphs were quickly matched by stunning reversals. Soon after receiving tenure, his harsh classroom discipline inspired a crushing, and largely unprecedented, student boycott of his lectures. He lost his fortune in the Viennese stock market crash of 1924, and spent the next decade laboring to repay the ensuing debt. And in a forever devastating setback, he lost his beloved second wife and son in childbirth just two years later. Following his financial and familial ruin, Schumpeter structured his remaining life around two competing sentiments: a retrospective pessimism that gradually permeated his worldview and a relentless desire to produce academic works worthy of his youthful ambitions. The Schumpeter who arrived at Harvard in 1927, where he would serve as a central influence for a generation of graduate students, was at once intensely passionate and socially removed. His subsequent works, from the seminal popular work “Capitalism, Socialism and Democracy” (1942) to his encyclopedic and still unparalleled “History of Economic Analysis” (1954), remain suspended between cool objectivity and moments of fiery, often cynical, judgment.