The Britney/K-Fed Rally
Posted by Eddy Elfenbein on November 8th, 2006 at 10:03 am

September 24, 2004: Britney Spears marries Kevin Federline. The S&P 500 is at 1110.11.
November 7, 2006: Spears and Federline file for divorce. The S&P 500 is at 1382.84.
Overall, the market gained nearly 25% during their two-year marriage. Thanks kids!

Gridilocks!
Posted by Eddy Elfenbein on November 8th, 2006 at 9:45 am

Last night, CNN took over my favorite cybercafe, Tryst in Adams Morgan, to host a gathering of political bloggers. I was just looking for something to drink, but I was barred entry. Here’s what it looked like from the outside.

I did get a chance to meet Scott Johnson of Powerline.
Update: If I told you a big election had taken place in the last five days, could you tell which day it was from this chart?

Sector Correlation
Posted by Eddy Elfenbein on November 7th, 2006 at 2:42 pm

I wrote about this yesterday, but I wanted to follow up today. I mentioned how the energy sector has become the most unglued to the rest of the market. I ran the numbers, and I was right.
Here’s the correlation of each industry group’s daily change to the S&P 500’s daily change:
Financials………………78.74%
Discretionary………….76.27%
Industrials……………..75.75%
Tech……………………..71.32%
Materials……………….63.60%
Staples…………………60.79%
Healthcare…………….58.84%
Utilities…………………38.10%
Telecom………………..38.09%
Energy………………….31.44%
This is important because for a lot of institutional money managers, the name of the game is doing what everyone else isn’t (or can’t). These guys are paid on outperformance, so they hone in on ways to avoid what the broader market is doing. In financial theory, this is related to the concept of the alpha coefficient, as in Seeking Alpha.
Let’s say you run a gazillion dollar hedge fund in Curacao. If everyone is zigging, you want to zag. Face it: Your ability to zag is what you’re all about. Bear in mind, you can own a small number of stocks and closely mimic the market. The number of stocks isn’t that important. You can also own a large number of energy stocks and be completely free of what the averages say.

Bernanke Warns
Posted by Eddy Elfenbein on November 7th, 2006 at 11:50 am

Bernanke warns against protectionist trade policy
Bernanke warns on threat to globalization
Bernanke warns on danger of US deficits
Bernanke Warns of Baby Boomer Retirement
Fed Chairman Bernanke Warns Consumers To Carefully Weigh Options For Home Financing
Greenspan home robbed

Politics and the Stock Market
Posted by Eddy Elfenbein on November 7th, 2006 at 11:45 am

Many years ago, Richard Nixon was asked what he’d be doing if he weren’t president. He said that he’d probably be on Wall Street buying stocks. One old-time Wall Streeter chimed in that if Nixon weren’t president, he too would be buying stocks.
I write this as Americans head off to the polls for Election Day. Despite a lot of the commentary you might hear, the effect of partisan politics on the financial markets is very much overrated. Very much. To be sure, it’s there, but it really isn’t much to worry about, and it certainly shouldn’t affect your financial decisions.
Barry Ritholtz posted a study by Ned Davis of how the markets have performed under different parties. This is interesting analysis, but in my opinion, I think they have it backwards. The assumption is that the political parties are like players on the field, and the stock market is the scoreboard. I think it’s just the opposite. The markets are the players; how the politicians behave is the scoreboard. That gets you a more interesting story.
The data shows that the market has done better under Democrats than Republicans. But this is largely due to the influence of the two major crashes happening under Hoover and Nixon. Here’s a though: Maybe it’s not partisan. Perhaps we should just avoid Quaker presidents!
It’s hard to say exactly how much partisanship influences the market. Of course, there’s the moment in U.S. history that’s indelibly marked on the national consciousness. I speak, of course, of 1948 when whatshisface beat that other guy, but the other guy won. The next day, the Dow fell 3.8%. So there you go.
Make no mistake, public policy does influence the markets (and vice versa), but it’s usually in unanticipated ways. It’s usually not the typical Republican/Democratic debate. Instead, it’s usually the kind of things that no one really pays attention to. Sarbanes-Oxley, for example, passed the House 423-3, and the Senate 99-0. It’s the unanticipated things that are so scary, because…well, they’re not anticipated.
Remember that when the new Senate meets in January, only about 10% of the members will be freshman. This isn’t a big change. In fact, our Constitution is designed against big changes. The ratio is the House will go from 8-7 Republican to something like 8-7 Democrat. If your city council did that, no one in town would care.
I’m not saying that voting isn’t important, or that getting involved is a waste of time. I’m simply saying that this has to be put in proportion. Just because people talk about politics at the office or on the subway, doesn’t mean the market cares. The stock market has its own agenda and it’s not up for election.

Expeditors International of Washington Earned 29 Cents a Share
Posted by Eddy Elfenbein on November 7th, 2006 at 9:33 am

Expeditors‘ (EXPD) earnings came out before the bell. The company earned 29 cents a share for the third quarter which matched estimates. Last year, EXPD netted 22 cents a share. The shares are a bit pricey here. Since the beginning of the year, the stock is up over 40% for us. The shares are going for about 36 times next year’s earnings.

The Buy List YTD
Posted by Eddy Elfenbein on November 6th, 2006 at 4:23 pm

Today was one of the best days for our Buy List this year. The strange thing about today is that energy stocks started off horribly, as everything else rallied. But then after lunch, the energy sector rallied to close the gap.
The thing about this market is that energy stocks are the most differentiated from the rest of the market. In other words, all the other sectors kinda sorta move together. But energy is off doing its own thing. Back in the day, tech stocks used to be like this.
Since the Buy List doesn’t have any energy stocks, it’s pretty easy to tell if we’re going to have a good day or a bad day. All 20 of our stocks were up today. For the year, the Buy List is up 9.04%. The S&P 500 is up 10.53%. Our daily volatility is about 19% greater than the S&P 500.

Sometime next month, I’ll unveil the 2007 Buy List.

One Percent Days
Posted by Eddy Elfenbein on November 6th, 2006 at 2:43 pm

Here’s an example of how much Wall Street has changed over the past few years.
The S&P 500 is currently up about 1% for the day. If it holds, this would be our third session in the past 12 weeks with a swing of more than 1%. Yet none of those days has been over 1.3%. For the six year period from 1998 through 2003, the market averaged a daily swing of over 1.3%.

Fiserv Reaches All-Time High
Posted by Eddy Elfenbein on November 6th, 2006 at 12:19 pm

The stock did nothing for months, and now it’s rolling. Shares broke $50 earlier today, and $51 isn’t too far away. We’re up over 17% for the year in Fiserv.

Maybe the World Isn’t Such a Dangerous Place
Posted by Eddy Elfenbein on November 6th, 2006 at 10:00 am

The WSJ notices that insurance prices are dropping:

Homeowners’ insurance costs are falling in many parts of the nation. Car-insurance prices are rising at a slower rate than inflation. This year, companies are spending less than they did in 2005 to protect themselves against injuries to their employees, lawsuits aimed at directors and officers and liability claims in general. The cost of some life insurance, too, has fallen in recent years, as has insurance against terrorism.
The trend isn’t universal. In hurricane-prone areas, homeowners still face higher insurance rates. And health-insurance costs continue to soar because of spiraling health-care costs.
But the widespread declines in insurance rates indicate that many risks that directly touch Americans’ lives are on the decline. Car-collision claims have decreased in frequency, thanks in part to safer cars and safer driving. Workplace-injury claims are down, in part because of improved technology. Americans are living longer, meaning life insurers often face lower odds of making big payments on the term policies they write.
Americans “are getting better at controlling risk,” says Richard Zeckhauser, a professor of political economy at Harvard University. “In general, technological advance has made the world a safer place.”