Second-Quarter GDP
Posted by Eddy Elfenbein on August 30th, 2006 at 8:50 am

Second-quarter GDP growth was revised higher to 2.9% today from the initial estimate of 2.5%. I knew this was going to be a higher revision. I just didn’t know how much.
The bottomline is that I don’t see this as being a soft landing scenario. At least, not just yet. Let’s add some perspective. In the 10 quarters previous to Q2, the economy grew by an average of 3.4% a year. Now we’re tossing in a 2.9%-er. That’s not a big change. It’s still well within the bounds of its previous trend. Three of those 10 quarters had growth less than 2.9%.

The Buy List So Far
Posted by Eddy Elfenbein on August 29th, 2006 at 9:44 am

Here’s how the Buy List has done this year.

Through yesterday, we’re down -0.47% and the S&P 500 is up 4.29%. Only two months ago, we were ahead of the market.

Tomorrow’s GDP Report
Posted by Eddy Elfenbein on August 29th, 2006 at 9:16 am

One of my pet peeves is the initial report on GDP. Every three months, the government reports on how well the economy did in the just-ended quarter. The first report comes out at the end of the first month of each quarter (January, April, July and October). It’s then updated twice more, at the end of each succeeding month. Tomorrow, the second-quarter report will be revised.
My complaint is that the later revisions came often be quite large. My feeling is that if that’s the case, just wait until you have a better number. There’s no use feeding us information which can deviate so much. Take your time and get it right.
At the end of July, the government said that the economy grew, in real terms, by 2.5% for the second three months of the year. I thought this was way too low. Before the report came out, I wrote that I would be surprised if GDP came in at less than 3.4%. I still feel that way.
When looking at the markets, it’s important not to be too attached to your current outlook. Keynes said, “When the facts change, I change my mind—what do you do, sir?”
That’s always good to remember. But I have a suspicion that the facts haven’t changed. Perhaps all this “soft landing” talk is a bit early.
Bear in mind that it’s not unusual for the GDP to be adjusted by large amounts. For the first quarter, the government initially said that the economy grew by 4.8%. This was later revised to 5.6%. That’s a big change. What we tolerate in economic stats, we would never sit still for in baseball scores. And even after everything is said and done, the GDP numbers can still be altered. With the last report, the government also adjusted every GDP stat going back to 2003.
I’ll have more tomorrow morning when the latest revision comes out.

S&P 500 Near Three-Month High
Posted by Eddy Elfenbein on August 28th, 2006 at 2:31 pm

There’s nothing so screwed up in the stock market that a bond rally can’t fix. The 10-year yield got down to 4.78% on Friday. The S&P 500 is poised for its highest close of the summer. If the market holds up, this will be the highest close since May 11.

Investors Financial Services
Posted by Eddy Elfenbein on August 28th, 2006 at 9:57 am

If you had told me at the beginning of the year that SEI Investments (SEIC) would be the top-performing Buy List stock, I would have thought you were some sort of marijuana addict. The company has posted terrific earnings for the past few quarters.
Another stock that’s somewhat similar to SEIC is Investors Financial Services (IFIN). Here’s the chart:

Sunday Reads
Posted by Eddy Elfenbein on August 27th, 2006 at 11:31 am

This is a good day to head to the hammock for a good read. Here are two things you might like.
The New Yorker has a fascinating story by Sylvia Nasar (of Beautiful Mind fame) and David Gruber about Grigory Perelman, a mysterious Russian mathematician and the solution to one of math’s greatest problems.
Also, Natural History has an interesting article on the excavation of a Neolithic settlement in Turkey.

Cyclicals Are Fading Fast
Posted by Eddy Elfenbein on August 25th, 2006 at 10:09 am

I probably sound like a broken record (if you remember what records were), but once again, here’s the Morgan Stanley Cyclical Index (^CYC) divided by the S&P 500:

The cyclicals have had an amazing run, but these are the stocks that have been hit the most since May. What’s interesting is that the peak level earlier this year almost perfectly matches the peak from 12 years ago. And you can see that the low point is a loooong way down.

Northwest Gives Advice to Laid Off Employees
Posted by Eddy Elfenbein on August 24th, 2006 at 10:50 am

Northwest Airlines gave its laid off employees some advice on how to save money. One of the tips was to rummage through other people’s garbage. I’m not kidding. NPR has the goods.
Here’s the full list. Check #46.
Ironically, Northwest is the one that filed for bankruptcy last year.

Creative Descruction and Pet Supplies
Posted by Eddy Elfenbein on August 24th, 2006 at 10:31 am

Capitalism, then, is by nature a form or method of economic change and not only never is but never can be stationary. And this evolutionary character of the capitalist process is not merely due to the fact that economic life goes on in a social and natural environment which changes and by its change alters the data of economic action; this fact is important and these changes (wars, revolutions and so on) often condition industrial change, but they are not its prime movers. Nor is this evolutionary character due to a quasi-automatic increase in population and capital or to the vagaries of monetary systems, of which exactly the same thing holds true. The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers, goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates. – Joseph Schumpeter in Capitalism, Socialism and Democracy

That’s a nice way to lead into two stories I saw this morning. The first is the earnings warning from Chico’s FAS (CHS). The company has been one of the top stocks for the past 10 years. In fact, CHS has beaten the S&P 500 for the past nine straight years. Not this year, however. The stock is down 20% this morning, and over 55% year-to-date.
The other story is from Patterson Companies (PDCO). The company reported a quarterly earnings decline this morning. For the July quarter, the company earned 30 cents a share, one penny less than last year. Bear in mind that Patterson used to churn out 20% EPS increases like clockwork. Seeing them struggle is quite a shock.

The Dow’s Decimals
Posted by Eddy Elfenbein on August 23rd, 2006 at 11:05 pm

I was curious to see if there’s any strange pattern to the decimals in the daily closings of the Dow. It turns out, there aren’t any. At least, not that I could find.
I looked at the daily closings for the past 10,000 trading sessions, which is roughly 40 years. I figured that each “hundredth” (i.e., .01, .02, .03) should have about 100 each.
It looks like they do. Here are the results:

The table goes from left to right, from .00 to .99. Double Zero comes on at 100 even, although .01 has the fewest with 78 days. The most is .13 with 126.
Here’s how they break down:
.13………126
.77………119
.14………118
.25………116
.78………116
.15………114
.45………114
.68………114
.04………113
.43………113
.41………112
.59………112
.56………111
.70………111
.10………110
.12………110
.20………109
.36………109
.98………109
.11………108
.18………108
.64………108
.79………108
.92………108
.32………107
.63………107
.65………107
.48………106
.97………106
.23………105
.27………105
.44………105
.74………105
.83………105
.84………105
.09………104
.55………104
.57………104
.99………104
.21………103
.61………103
.72………103
.90………103
.37………102
.54………102
.71………102
.95………102
.46………101
.53………101
.00………100
.06………100
.42………100
.82………100
.89………100
.07………99
.29………99
.34………99
.85………99
.08………98
.31………98
.69………98
.26………97
.75………97
.87………97
.03………96
.30………96
.35………96
.50………96
.51………96
.67………96
.91………94
.19………93
.52………93
.86………92
.28………91
.47………91
.49………91
.81………91
.88………91
.94………91
.05………90
.40………90
.80………90
.16………89
.24………89
.66………89
.73………89
.22………88
.39………88
.62………88
.38………87
.60………87
.76………87
.02………86
.96………86
.93………84
.58………82
.17………81
.33………80
.01………78
Seven of the top 21 begin with 1, which could be the result of Benford’s Law.
And to answer your e-mails: Yes, the plot of Office Space was the inspiration for this post.