Q4 GDP Revised to 2.5%
Posted by Eddy Elfenbein on March 29th, 2007 at 8:52 am

The economy grew by 2.5% for the fourth quarter (technically, it was 2.452%).
Three percent is the Magic Line in GDP growth. Once the economy starts growing less than 3%, it will tend (though not always) to keep doing that for several quarters. The fourth quarter was the third straight quarter of below-trend growth.

Corporate profits had been growing faster than the economy, but that has probably come to an end. For the third quarter of 2006, corporate profits comprised 12.41% of the overall economy, which was the largest share in over 50 years. In the fourth quarter, it dropped to 12.25%.

Wall Street and the Subprime Market
Posted by Eddy Elfenbein on March 29th, 2007 at 8:34 am

In today’s Wall Street Journal, Gregory Zuckerman has a great article on the decline and fall of New Century Financial:

In February, New Century mortgages that had been worth $8 billion fell by more than $300 million within days, someone familiar with the matter says. The result: More lenders demanded additional collateral, also called margin, from New Century, including Goldman and Credit Suisse, people familiar with the matter say. Banks also invoked terms allowing them to demand that the company buy back loans if borrowers failed to make payments.
The company’s cash was dwindling quickly. Adding to the company’s woes were revelations about accounting problems, plans to restate 2006 earnings and post a fourth-quarter loss, and a Securities and Exchange Commission inquiry.
New Century was running out of options. It was unable to get new financing and in violation of its existing lending agreements, in part because it was low on cash. So the company convened the March 6 conference call with its 11 lenders. Mr. Morrice, the CEO, was joined on the call by New Century board member David Einhorn, who runs Greenlight Capital, a New York hedge fund that owned 6% of the company’s stock, which by then had fallen 70% in two weeks.
Mr. Morrice informed the bankers that New Century’s available cash had dropped to $40 million, down from the $100 million he had reported to some of the bankers a day earlier and from $350 million at year end, a participant on the call said.

Bernanke’s Testimony
Posted by Eddy Elfenbein on March 28th, 2007 at 4:13 pm

This is from Bernanke’s statement today:

Thus far, the weakness in housing and in some parts of manufacturing does not appear to have spilled over to any significant extent to other sectors of the economy. Employment has continued to expand as job losses in manufacturing and residential construction have been more than offset by gains in other sectors, notably health care, leisure and hospitality, and professional and technical services, and unemployment remains low by historical standards. The continuing increases in employment, together with some pickup in real wages, have helped sustain consumer spending, which increased at a brisk pace during the second half of last year and has continued to be well maintained so far this year. Growth in consumer spending should continue to support the economic expansion in coming quarters. In addition, fiscal policy at both the federal and the state and local levels should impart a small stimulus to economic activity this year.
Outside the United States, economic activity in our major trading partners has continued to grow briskly. The strength of demand abroad has helped to spur strong growth in U.S. real exports, which rose about 9 percent last year, and a robust world economy should continue to provide opportunities for U.S. exporters this year. Growth in U.S. real imports slowed to about 3 percent in 2006, in part reflecting a drop in real terms in imports of crude oil and petroleum products. Despite the improvements in trade performance, the U.S. current account deficit remains large, averaging 6-1/2 percent of nominal GDP during 2006.
Overall, the economy appears likely to continue to expand at a moderate pace over coming quarters. As the inventory of unsold new homes is worked off, the drag from residential investment should wane. Consumer spending appears solid, and business investment seems likely to post moderate gains.

City to Wal-Mart: Drop Dead
Posted by Eddy Elfenbein on March 28th, 2007 at 11:24 am

The New York Times reports that Wal-Mart‘s (WMT) CEO Lee Scott told the paper that expanding into the Big Apple isn’t “worth the effort.” He referred to all of New York, but a company spokesperson said that he only meant Manhattan.
In other Wal-Mart/New York relations, Jeffrey Goldberg reveals in the New Yorker how Wal-Mart uses facts and evidence to “spin” public relations in ways that could be considered financially advantageous.

80,000%
Posted by Eddy Elfenbein on March 28th, 2007 at 7:01 am

Charts don’t get much better than Stryker‘s (SYK):

The stock hit a new all-time high last week. The company’s goal has been to grow by 20% a year. What’s amazing is how often they’ve done it!

Blankfein: “We happen to have as a firm a terrific relationship with Blackstone”
Posted by Eddy Elfenbein on March 27th, 2007 at 2:48 pm

We’re just going to start another gigantic buyout fund of our own, that’s all.

Goldman Sachs Group Inc.’s sixth buyout fund may top $20 billion, Chief Executive Officer Lloyd Blankfein told shareholders at today’s annual meeting.
The fund, which is still raising money, will manage “about $19 to $20 billion of assets, maybe a little bit less, maybe a little more,” Blankfein, 52, said at Goldman’s Old Slip offices in New York today. That would be more than twice the $8.5 billion fund closed by Goldman Sachs Capital Partners in 2005, which was a record at the time.
Goldman, the most profitable firm in Wall Street history, is raising the fund as Blackstone Group LP also aims to collect $20 billion for the biggest-ever buyout fund. Blackstone, which last week disclosed plans to sell shares worth as much as $4 billion in an initial public offering, didn’t include Goldman among the six underwriters selected to manage the sale.
“We happen to have as a firm a terrific relationship with Blackstone,” Blankfein said, in answer to a question about why Goldman wasn’t included as an underwriter. “It’s impossible for us to be in every piece of business.”

Blackstone Will Trade Under BX
Posted by Eddy Elfenbein on March 27th, 2007 at 2:23 pm

It’s official, the Blackstone ticker symbol will be BX. Deal Journal considered some others:

No-gos:
BLK. Logical as it sounds, it isn’t available. BlackRock, the former Blackstone unit run by Schwarzman pal Larry Fink, already took it.
B. Big, important companies like Citigroup or AT&T often take a one-letter ticker, but alas, precision metal component maker Barnes Group beat Blackstone to the punch. Then again, if they really wanted it, they could just buy the company.
STON. This one doesn’t work either, because of StoneMor Partners, the Pennsylvania cemetery operator. Plus, there’s the drug connotation, which a Republican like Schwarzman probably wouldn’t be too keen on.
TOP. Probably not a good idea to tip off all those potential investors that this could be a sign of where we are in the private-equity cycle.
Of course, BS is right out.
Here are a few that might work:
MINT. Isn’t this basically what they are now? But then they’d have to move to the Nasdaq, and Schwarzman seems more like an NYSE kind of guy. (Of course we’re assuming here that they’ll list on a U.S. exchange. Who knows — given his aversion to Sarbanes-Oxley, maybe they’ll go to London.)
KKR. What better way to get the best of Henry Kravis of Kohlberg Kravis Roberts, Schwarzman’s rival for the King-of-Private-Equity title?
PE. As in private equity. Someone’s going to take it, so why not the first one to market?
LBO. See previous.

Home Prices Show Year-Over-Year Decline
Posted by Eddy Elfenbein on March 27th, 2007 at 2:10 pm

From Bloomberg:

U.S. home prices fell in January for the first time in at least six years, a private report showed today.
A measure of home values in 20 metropolitan areas dropped 0.2 percent from the same month last year, according to the S&P/Case-Shiller home-price index. The decrease was the first since the group started keeping year-over-year records in January 2001.
The numbers follow a report yesterday that showed new-home sales at the lowest level in almost seven years as builders struggled with a glut of unsold dwellings. Falling prices make it harder for owners to borrow against home equity and may make lenders even more wary as delinquencies climb.
Today’s data “are a good indicator of the dire state of the U.S. residential real estate market,” said Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University.

I got the data off S&P’s Web site. Here’s what the index looks like:

The Nasdaq 100 Seven Years On
Posted by Eddy Elfenbein on March 27th, 2007 at 8:36 am

The Nasdaq Composite (^IXIC) peaked on March 10, 2000 at 5,048.62, but the Nasdaq 100 (^NDX) reached its peak seven years ago today, March 27, 2000, at 4,704.73. That index, and its ETF (QQQQ), probably best represented the new age of limitless technology profits.
In those seven years, the Nasdaq 100 has lost 61.7%. But that’s not the worst of it. At one point, in October 2002, the index was 82.9% below its 2000 high. As odd as it may sound, going from an 82.9% loss to a 61.7% loss is a great move–a 124% profit. (Woo!)
The index has been largely dominated by five stocks, Microsoft (MSFT), Intel (INTC), Cisco (CSCO), Dell (DELL) and Oracle (ORCL). There are bigger stocks in the index, like Amgen, but these five were the meat that tech investing was all about. Even today, these five stocks still comprise over 30% of the Nasdaq 100’s total market value. However, they make up just 5.4% of the S&P 500.
So how have they done? Since the Nasdaq 100 peaked seven years ago, Microsoft is down 45.8%, Intel is down 73%, Cisco is down 67.1%, Dell is off 59.2% and Oracle is down 58.4%.

Coke Punk’d Its Own Lawyers
Posted by Eddy Elfenbein on March 26th, 2007 at 3:27 pm

Coca-Cola (KO) hired two actors to portray brand managers who ask Coke’s real lawyers if they could sue the company because Coke Zero is too similar to regular Coke. Everyone is in on it but the lawyers.

Here are two more ads. They’re cute. Ironically, I wonder if The Office could sue Coke for humor style infringement.