Daniel Gross on the HCA Deal
Posted by Eddy Elfenbein on July 26th, 2006 at 11:24 am

From Slate:

Big business deals usually aren’t ironic, but this one surely is. HCA, a firm founded by the family of the Republican Senate majority leader, Bain, a firm whose founders include Massachusetts governor and GOP presidential aspirant Mitt Romney, and KKR, a firm run by Henry Kravis, a major Republican donor, are betting on the continued expansion of government. HCA’s sale is essentially a $33 billion investment in the idea that government will take an even bigger role in health care. As Les Funtleyder, health-care strategist at Wall Street firm Miller Tabak + Co., put it this morning, “[T]he buyout firms are making a leveraged bet on an improving economy and the prospect of universal health care.”

There’s also the role of Sarbanes-Oxley and nuisance shareholder lawsuits.

Greenspan Was Right
Posted by Eddy Elfenbein on July 26th, 2006 at 11:09 am

Here’s a headline you don’t see often: “Greenspan Was Right.” Bloomberg is coming to the defense of Greenspan’s support for derivatives.

The former chairman of the Federal Reserve has been saying since 2002 that derivatives — financial agreements used to bet on everything from bond prices to weather patterns — actually reduce risks by making financial markets resilient to shocks. He told a Bond Market Association gathering in New York in May that derivatives are the most significant change on Wall Street “in decades.”
At a time when oil prices are above $70 a barrel, the Mideast is exploding and more than two dozen central banks have raised interest rates since May, derivatives are allowing companies to borrow a record $607 billion and obtain relatively cheap financing.
By bundling more than 10 percent of that into so-called collateralized debt obligations, bankers are able to provide more cash to companies, especially those that need it the most. Defaults fell to the lowest since 1997 as sales of CDOs rose 63 percent to $177 billion in the first half, according to the Bond Market Association, a New York-based trade group of dealers and underwriters.

Bernanke’s Financial Disclosure
Posted by Eddy Elfenbein on July 25th, 2006 at 11:40 pm

Just as I suspected, he’s rich:

The chairman’s financial disclosure form, released Tuesday, showed that he’s a millionaire, with holdings last year in no-frills U.S. Treasury securities, Canadian Treasury bonds (???), stock and bond mutual funds and two annuities.
Bernanke, 52, took the Fed helm in February succeeding longtime chairman Alan Greenspan, who also played it safe when it came to his own investments while at the central bank.
An economist who spent most of his career in academia, including teaching at Princeton, Bernanke also is receiving royalties on two textbooks he wrote. Royalty income was listed at between $50,001 and $100,000 for each textbook, the document showed.
Bernanke’s biggest assets last year were two annuities – TIAA Traditional and CREF Stock Large Cap Blend, which were each valued at between $500,001 to $1,000,000. He sold some of his holdings in those two investments last year.

S&P 500 P/E Ratios By Sector
Posted by Eddy Elfenbein on July 25th, 2006 at 6:31 pm

Here’s a colorful chart. This is what the Price/Earnings Ratios have done for the last 18 months for the different sectors of the S&P 500:

While the overall market’s earnings multiple has fallen, it hasn’t been the same across different sectors.
Notice how far Healthcare (the purple line) has fallen. It used be to second only to tech. Now it’s right in the middle.
Financials, which are still very low, have remained pretty steady.

The Market Today
Posted by Eddy Elfenbein on July 25th, 2006 at 4:47 pm

Today was a good day for our Buy List. Fourteen of our twenty stocks rose, and the average stock climbed 0.81% compared with 0.63% for the S&P 500.
The big star today was Brown & Brown (BRO) which jumped nearly 12%. Sheesh, it’s about time! The little insurance stock had been pulling back since the middle of April. Yesterday, BRO reported earnings of 32 cents a share, three cents more than estimates. Alistar Barr at MarkeWatch noted that BRO has benefited from the recent turmoil in the Florida insurance market.
Medtronic (MDT) also had a good day. The stock rose $1.62 or 3.4%. I just don’t see how Medtronic can be 18% off its high.
We had two more earnings reports after the close. AFLAC (AFL) just announced very good earnings. The company’s operating earnings came in at 75 cents a share, four cents more than estimates. The dollar/yen exchange rate nipped off two cents a share. However, the company warned that growth from Japan will be
Also, Fiserv (FISV) reported earnings of 63 cents a share, three cents more than expectations. The company also bumped up its full-year forecast to $2.48 to $2.54 a share from the earlier range of $2.46 to $2.53 a share.

Lagging Small-Caps
Posted by Eddy Elfenbein on July 25th, 2006 at 12:40 pm

Small-caps are having a big day today. In fact, that’s one of few areas of the market that is convincingly higher.
But that’s not how it’s been for the past few months. After a spectacular run, small-caps have been feeling the most pain in this market.
This chart shows the Russell 2000 (black line) against the S&P 500 (gold line):

This is a big change from the previous six years. It’s been one long small-cap party. From April 8, 1999 to April 19, 2006, the Russell 2000 gained 94.7% while the S&P 500 lost -2.5%.

Second-Quarter GDP Report
Posted by Eddy Elfenbein on July 25th, 2006 at 10:24 am

This Friday, the government will report how much GDP grew in the second quarter. I’m curious what this report will say because I think it will be far stronger than most people realize.
The consensus on Wall Street is that the economy grew by 3% for the second three months of the year (this is after inflation). Speaking for myself, I would be surprised if GDP growth comes in any less than 3.4%.
The economy has grown pretty impressively for the last three years. The annualized growth rate is almost exactly 4% (3.997%). That’s faster than the 3.81% growth rate from 1998 through 2000. The fourth quarter of last year was a dud, probably due to Katrina, but we’ve apparently shaken off that slowdown.
For the first quarter, the economy grew by over 5.6%. Once the economy gets moving, it doesn’t often go off the rails so quickly. I should also mention that the GDP report will be updated twice more, and these revisions can be quite big. In fact, I wouldn’t mind seeing the Bureau of Economic Analysis ditch the early reports. I’d rather get good numbers later than bad ones early.
The GDP report will be released this Friday at 8:30 am.

Brown & Brown Reported Earnings of 32 Cents a Share
Posted by Eddy Elfenbein on July 24th, 2006 at 5:22 pm

Brown & Brown (BRO) earned 32 cents a share for the second quarer compared with 27 cents last year. Sales jumped 12.7% to $220.8 million.

J. Hyatt Brown, Chairman and CEO, noted, “We had a very good quarter. We are very pleased with the 6.8% internal growth rate of our core commissions and fees revenue. In fact, all but one of our seven business operating units showed improvement in their internal growth rates over the previous quarter. We are optimistic about the continued growth, development and strength of our company.”
President and Chief Operating Officer Jim W. Henderson added, “We are also pleased with the performance of our Producers who have completed our in-house sales school, ‘Brown & Brown University.’ These sales professionals are contributing significantly to our organic growth and give us an encouraging glimpse of our future leadership. On the acquisition front, we have completed 12 transactions so far in 2006 with combined annualized revenue of approximately $32 million and we continue to be very positive about acquisition opportunities.”

Blogger Sentiment Poll
Posted by Eddy Elfenbein on July 24th, 2006 at 1:04 pm

The excellent Ticker Sense has started a Blogger Sentiment Poll. I’ve been invited to participate along with several others stock bloggers.
Here’s the latest:

Blogger currently have a slightly bearish outlook for the next 30 days, which seems about right.

Brain Teaser
Posted by Eddy Elfenbein on July 24th, 2006 at 12:56 pm

Here’s a fun puzzle I found at Cafe Hayek, via The Stalwart:

An American tourist goes to a remote island for a vacation. The natives live by a barter system-they have no money. When the tourist tries to pay for his lodging with a check, the owner laughs at first, but then decides that the design on the check is quite attractive and agrees to accept the check in return for lodging. This happens again when the tourist pays for food and some native artwork. The checks are never cashed. They begin to circulate on the island as money, replacing the barter system that had existed before.
If the checks are never cashed, who pays for the vacation of the tourist? Or is it free?

What do you think? My thoughts after the jump….

Read more…