SEI Investment’s Earnings
Posted by Eddy Elfenbein on October 18th, 2006 at 9:09 am

SEI Investments (SEIC), our top performer on the Buy List this year, just reported earnings of 60 cents a share for the third quarter. This is three cents more than the Street was looking for.

Net income climbed to $60.5 million, or 60 cents per share, from $49.2 million, or 48 cents per share, in the year-ago period.
Revenue rose 54 percent to $298.1 million, including $75.1 million from the consolidation of SEI’s 43 percent stake in LSV Asset Management, versus $193.7 million last year.
Analysts polled by Thomson Financial expected profit of 57 cents per share on revenue of $289.6 million.
Operating profit in SEI’s private banking and trust business rose 21 percent to $27.9 million, while operating margin improved to 38 percent from 36 percent. Total operating profit grew 59 percent to $97.6 million, with operating margin up a percentage point to 33 percent.

The stock is up 58.8% for the year.

Investment Don’ts
Posted by Eddy Elfenbein on October 17th, 2006 at 2:56 pm

Steve Wynn recently sold Picasso’s “Le Reve” (pictured above) for $139 million. Art can be a great investment. He bought it nine years ago for “just” $48.4 million. That’s an annualized return of 12.4%.
Unfortunately for Steve-o, he accidentally poked a hole in it:

“Oh shit,” he said. “Look what I’ve done.”
The rest of us were speechless.
“Thank God it was me,” he said.
For sure.
The word “money” was mentioned by someone, or perhaps it was the word “deal.”
Wynn said: “This has nothing to do with money. The money means nothing to me. It’s that I had this painting in my care and I’ve damaged it.”

Oopsie.

BBBY’s Back-Dating
Posted by Eddy Elfenbein on October 17th, 2006 at 1:42 pm

Here’s Jack Ciesielski’s take on Bed Bath & Beyond’s back-dating probe:

Lots of other interesting stuff, though. For instance, Wall Street wonders why it takes so long to complete these investigations. One reason: Bed Bath & Beyond’s investigation covered 19,000 individual grants. The special committee’s counsel interviewed 31 officers, directors, employees, advisors and others.
Also interesting is the way the company “positioned” the occurrence of the improper transactions. There were a variety of options grants made over BBBY’s publicly-traded life: annual grants, monthly grants, and special grants. They were handled by two different compensation committees: one composed of inside directors (”Committee A”), the other composed of outside directors (”Committee B”). The most interesting conclusion about the process: “Excluding grants only to Form 4 filers beginning in 2003, almost all annual grant dates in 1998-2004 likely were selected with some hindsight.” At the same time, “the special committee found no evidence that either the Company or any person involved in the grant process had engaged in willful misconduct.” Seems contradictory: how can you select grant dates with some hindsight without willfully doing so? Only if you’re completely mistaken, probably. And that leaves open the question of negligence. (We’ll leave that to the attorneys to fight over.)

As they say, read the whole thing.

Are Liberal Stocks Better?
Posted by Eddy Elfenbein on October 17th, 2006 at 11:14 am

Research from Blue Investment Management found that stocks with “Democratic Values” (note large D) significantly outperform the rest of the stock market. The company even offers investors a Blue Large Cap fund and a Blue Small Cap fund (blue…as in state, get it?).
Color me skeptical. First, as Jane Galt points out, back-testing can show lots of thing, or really, almost anything. I’ve carefully back-tested data and come up with the rule that you should always sell on the 29th year of each century. Hey, it’s a proven strategy.
But my greater concern is the idea that “progressive values” yield business success. Well, it could be. There are certainly lots of left-leaning businesses that I admire. The Sandlers of Golden West Financials or Peter Lewis and Progressive (check out this chart).
But my hunch is that this blue investing theory might be the wrong way around. Progressive values don’t breed success, but success may breed progressive values. To quote one well-known progressive, Willie Sutton: “That’s where the money is.”

The Cubs Have Bought the White Sox!
Posted by Eddy Elfenbein on October 17th, 2006 at 9:50 am

Well, not exactly…but the CME and CBOT are merging:

The combined company will be named CME Group Inc., and will be headquartered in Chicago (no duh). The news sent CBOT shares soaring $21.50, or 16 percent, to $156.01 in premarket trading on the INET, indicating the stock may open above its 52-week high of $140.67. CME shares rose $17.75, or 3.5 percent, to $521 in early electronic activity.
CBOT stockholders will have the right to receive 0.3006 shares of CME common stock for each CBOT share, or cash equal to the value of the exchange ratio based on a 10-day average of closing prices of CME common stock at the time of the merger.
The cash portion of the purchase price won’t exceed $3 billion. If no shareholders elect to receive cash, shareholders of CME will own 69 percent of the merged company and CBOT holders will own 31 percent, with CME issuing about 15.9 million shares valued at about $8 billion.

SEC To Ease Margin Rules
Posted by Eddy Elfenbein on October 16th, 2006 at 10:27 pm

It’s not often that the SEC does something I like, but this one is long overdue. The SEC is likely to approve the New York Stock Exchange’s request to alter its margin rule. Under current rules, the margin requirement is the same no matter what kind of asset you hold; stocks, options or futures. This is truly unnecessary, and what’s worse is that it put us far behind bourses in other countries.
Margin has gotten a bad rap ever since John Kenneth Galbraith identified it as one of the major causes for the stock market crash in 1929. The market eventually dropped by nearly 90%, but even in those loose days, margin buying probably represented less than 10% of the market’s total value. If anything, the level of margin buying is actually negatively correlated with stock volatility.
The Federal Reserve sets the margin rules under its Reg T. The Fed used to move the margin requirement around a lot. In fact, it completely banned margin during World War II. In 1974, the Fed set the margin requirement at 50%, and it hasn’t touched it since.
I should also mention that investors who use margin should also consider how much leverage the stock itself is using. Most investors never think of this. Take a company like FactSet Research Systems (FDS). The company doesn’t have a nickel of long-term debt. I’m not advocating buying it on margin, but it’s balance sheet is something to consider.
On the other hand, we can look at General Motors (GM). According to GM’s balance sheet, the company has $11.6 billion in equity and $457.7 billion in liabilities. Yikes! That’s about $800 a share in liabilities for a $32 stock. Call me crazy but I think that’s margined well enough.
If we mathimaticate the Dow divisor, that means that $1 in share price is about eight Dow points, so GM’s liabilities are about 6400 points on the Dow.
Talk about debt relief! Forget Africa; send Bono to Detroit.

300 Million Americans
Posted by Eddy Elfenbein on October 16th, 2006 at 10:43 am

We’re closing in on the Big Three Oh (oh, oh, oh, oh, oh, oh, oh).
Here’s the Census count.
The 300 millionth American should arrive sometime tomorrow morning. For reference, we crossed 200 million on November 20, 1967. We broke the 100 million mark in 1915.
According to estimates, we should break 400 million in 2043.

If the Economy Is In Such Rough Shape…
Posted by Eddy Elfenbein on October 16th, 2006 at 9:58 am

…how come cyclical stocks are leading the bull?

Maybe the market sees something we don’t?

Wachovia’s Earnings
Posted by Eddy Elfenbein on October 16th, 2006 at 9:23 am

Wachovia (WB) announced today that its earnings rose 13% to $1.06 a share. Excluding merger costs, the bank earned $1.19 a share which was in line with expectations.
The other big news of this morning is that UnitedHealth (UNH) said that Bill McGuire will step down as CEO, apparently the latest victim of the options backdating scandal. Reuters has a timeline of key events in the scandal.

The Hitch and I
Posted by Eddy Elfenbein on October 15th, 2006 at 9:44 pm

So I was walking down Connecticut Avenue today, and I spotted a man in a bookstore who looked strangely familiar.
I went in and asked, “excuse me, sir, are you Christopher Hitchens?” The man said, coyly, “who wants to know?” I’m assuming that’s an answer generally given by correctly identified parties. Also, he had a British accent. Yep, it was Hitch. So I tried to mumble something clever about being with George Galloway’s office.
We chatted for a bit, as I did my best not to come off as Crazed Stalker Guy. Let’s face it: Even when I try to look threatening, it doesn’t come off too well. My coolness must have worked because as Hitchens was leaving the store, he asked if I was going uphill. I wasn’t but said yes anyway, and we chatted a little more.
I was I could say that we had some fancy highbrow conversation, but it wasn’t that impressive. I mentioned that I had just finished Mark Steyn’s book, America Alone. He thanked me for reminding him that he had been asked to review the book. Those Brits, they have such good manners.
It turns out that we’re both fans of Steyn. Hitchens said that he’s impressed with the amount of writing Steyn does, which I could imagine most people saying of him. Funny, I thought all these guys knew each other, but Hitchens said he doesn’t recall ever meeting Steyn, although he said that Steyn claims that they had once met.
I told him that I liked Steyn’s book, but found it a bit alarmist. He said that in the case of Islamism, alarmism is justified. Then we reached his building, said our “good days” and that was it.