Yahoo Finance to Have Blogs
Posted by Eddy Elfenbein on July 18th, 2006 at 6:54 am

Say goodbye to those unsightly wrinkles, Yahoo Finance is getting a makeover.
This seems to be a niche where Yahoo is clearly kicking Google’s ass. Here’s a shocking stat: During the last week of June, Yahoo Finance had 108 times more unique visitors than Google Finance. Of courese, that’s not an entirely fair comparison since Google Finance sucks.
So what are the changes?

Yahoo Inc. on Monday will unveil an upgraded version of its top-ranked financial information site that features new stock charting tools, improved investor chat rooms and financial video news.
In a bid to expand the audience for its investor tools, Yahoo Finance also plans to allow other Web sites to embed stock charts, quotes, and financial news headlines from Yahoo, free of charge, on other sites using a small amount of code.

That’s not all. The new Yahoo Finance will offer something that Google Finance already offers–blogs!

Financial blogs will be added shortly as well, perhaps filtered by a third party. By offering a new reputation system that allows readers to rate the value of postings on its stock message boards, Yahoo has recently begun seeking to breathe life into the decade-old stock chat room phenomenon.
Investor message boards long ago degenerated into a mosh pit of harsh invective and uncorroborated rumor traded between bullish and bearish advocates of specific stocks.

Yes, I’m glad blogs are here to end that unpleasantness.
It seems as if Yahoo Finance is moving towards the model pioneered by David Jackson’s excellent Seeking Alpha. A few months ago, Joe Weisenthal of The Stalwart (and DealBreaker and Techdirt) said that Yahoo Finance might as well go all the way and buy a brokerage. I think he’s right.
If/When I become King of Yahoo Finance, these are the changes I’d make.
1. Get rid of the Motley Fool as a news provider. Or at least, make them provide real content. Look at “news stories” under a hot stock like Hansen Natural (HANS). Almost none of that is news. It’s mostly advertising for the Motley Fool’s paid content disguised as news. The frustrating part is that the Motley has excellent commentary.
2. Better charts. There’s a reason why I use Big Charts on this site. At a minimum, you should be able to use charts with customized dates. The “Rolling EPS” and “P/E Ratio” functions are also very good, although I think the EPS data at Big Charts is often a bit bizarre. (See here for an example).
3. Clean up the historical data. This probably isn’t Yahoo Finance’s fault but their data provider’s. There are several mistakes in the historical data for major indexes like the Dow and S&P 500.

Harley-Davidson’s Earnings Were In line
Posted by Eddy Elfenbein on July 17th, 2006 at 9:43 am

This will be a busy week for earnings. Harley-Davidson (HDI) leads off by reporting 91 cents a share which matches the Street’s estimates.

Motorcycle maker Harley-Davidson Inc. on Monday said second-quarter profit grew 3 percent, helped by double-digit growth of international sales.
Earnings rose to $243.4 million, or 91 cents per share, for the three months ended June 25 compared to $237.4 million, or 84 cents per share, during the same period last year.
Revenue grew 3 percent to $1.38 billion from $1.33 billion last year.
Analysts predicted a profit of 91 cents on revenue of $1.36 billion, according to a poll by Thomson Financial of 19 analysts.
The company said U.S. retail motorcycle sales grew 8.1 percent, while international sales jumped 17.3 percent.
Worldwide, Harley-Davidson’s dealer network sold 125,000 motorcycles during the quarter, a 10 percent rise over the prior-year period.

The shares are up in early trading.

Karl Marx the Artist
Posted by Eddy Elfenbein on July 16th, 2006 at 12:37 pm

Karl Marx’s unfinished masterpiece, Capital, is a disjointed and incoherent mess. But as Francis Wheen argues, that’s the point. Marx believed capitalism was a disjointed, incoherent mess. Don’t read the book as a work of economics, but read it as Marx intended—a work of art:

Marx was a modernist avant la lettre. His famous account of dislocation in the Communist Manifesto – “all that is solid melts into air” – prefigures the hollow men and the unreal city depicted by TS Eliot, or Yeats’s “Things fall apart; the centre cannot hold”. By the time he wrote Das Kapital, he was pushing out beyond conventional prose into radical literary collage – juxtaposing voices and quotations from mythology and literature, from factory inspectors’ reports and fairy tales, in the manner of Ezra Pound’s Cantos or Eliot’s The Waste Land. Das Kapital is as discordant as Schoenberg, as nightmarish as Kafka.
Marx saw himself as a creative artist, a poet of dialectic. “Now, regarding my work, I will tell you the plain truth about it,” he wrote to Engels in July 1865. “Whatever shortcomings they may have, the advantage of my writings is that they are an artistic whole.” It was to poets and novelists, far more than to philosophers or political essayists, that he looked for insights into people’s material motives and interests: in a letter of December 1868 he copied out a passage from another work by Balzac, The Village Priest, and asked if Engels could confirm the picture from his own knowledge of practical economics. Had he wished to write a conventional economic treatise he would have done so, but his ambition was far more audacious.

The WSJ Breaks a Pseudo-Scandal
Posted by Eddy Elfenbein on July 15th, 2006 at 9:03 pm

The Wall Street Journal has a front-page story today on how corporate boards awarded stock options to senior executives in the wake of 9/11.
The story has the look and feel of uncovering some insidious corporate scandal. Look at the juxtaposition presented in the first two paragraphs:

On Sept. 21, 2001, rescuers dug through the smoldering remains of the World Trade Center. Across town, families buried two firefighters found a week earlier. At Fort Drum, on the edge of New York’s Adirondacks, soldiers readied for deployment halfway across the world.
Boards of directors of scores of American companies were also busy that day. They handed out millions of bargain-priced stock options to their top executives.

Not very subtle is it? The soldiers readying for deployment was nice touch. Those evil corporate plutocrats just couldn’t wait to profit off 9/11.
But hold up, how exactly did those boards know that the options grants were, as the Journal points out, “bargain-priced”? The answer is, they didn’t (assuming the options were at-the-money). More importantly, they couldn’t have known. The grants were based on nothing more than faith in the future, which was hardly in overabundance at the time.
It’s true that stocks nosedived when the markets reopened, but that doesn’t by itself mean the options were a bargain. After all, the market had already been falling and it continued to fall for more than a year. In fact, the S&P 500 was still below its pre-9/11 level nearly three years after the attacks (and, of course, those soldiers readying themselves).
The article continues:

A Wall Street Journal analysis shows how some companies rushed, amid the post-9/11 stock-market decline, to give executives especially valuable options. A review of Standard & Poor’s ExecuComp data for 1,800 leading companies indicates that from Sept. 17, 2001, through the end of the month, 511 top executives at 186 of these companies got stock-option grants. The number who received grants was 2.6 times as many as in the same stretch of September in 2000, and more than twice as many as in the like period in any other year between 1999 and 2003.
Ninety-one companies that didn’t regularly grant stock options in September did so in the first two weeks of trading after the terror attack. Their grants were concentrated around Sept. 21, when the market reached its post-attack low. (Wrong! The markets continued to fall.) They were worth about $325 million when granted, based on a standard method of valuing stock options.

Before I get myself into any more trouble, let me make the usual disclaimers. If the executives back-dated their options against company policy, that’s fraud. Fine. Toss them away for good. But that’s not the issue here.
As Larry E. Ribstein points out, this article arrives with the back-dating scandal to give the appearance of flowing from one river into a new branch. It’s not.
Or, if the issue is the use of stock options. Fine. Let’s talk about that. But then, you have to address Congress’ silly law that caps the tax deductibility of salaries at $1 million. That’s what’s led to the soaring use of stock options. I say, let’s have that debate. The two sides of the WSJ can square against each other.
Or, if the issue is corporate boards being the poodles of CEOs. Fine. I think that’s an important issue that needs to be looked at. But again, that’s not what this article is about. Instead, we get more juxtaposing:

The 91 companies included such corporate icons as Home Depot Inc., Black & Decker Corp. and UnitedHealth Group Inc. It included two companies directly touched by the tragedy. Merrill Lynch & Co., across the street from the Twin Towers, lost three employees. On Sept. 24, Merrill granted its president options to buy more than 750,000 shares, at a price 15% below the pre-attack level. At Teradyne Inc. in Boston, an employee delayed a business trip until Sept. 11 to attend a son’s soccer game and died on American Flight 11. Teradyne that month gave its CEO more than 600,000 options at a price enabling him to buy stock at 24% below its pre-attack level.
At Stryker Corp., a Michigan maker of orthopedic products, onetime stock-option-committee member John Lillard said he didn’t regret the decision to award options nine days after the attack. “If you believe the company is going to do well, and here is an external event that is affecting the market and you’ve made a decision to reward executives, you go ahead with it,” Mr. Lillard said. “Life goes on.”

I think we’re all agreed not to use Mr. Lillard as a PR spokesman. It may be flippant, but he’s got a point. This is exactly what was being said at the time, “get on with you lives, get on with your work.” If you recall, there was an urgency to open the markets as soon as possible.
The Journal notes that the Merrill Lynch options were granted at a price 15% below the pre-attack level and for Teradyne, the options were 24% below the pre-attack level. Wouldn’t it also be true to say that the executive at those companies saw their share values drop by 15% and 24%? This also could have erased millions of dollars of previously granted options. The article doesn’t say, but in the eighth paragraph we learn:

There’s nothing illegal about granting options after the market plunges. (Oh!!). But acting so quickly after a national tragedy drove down stocks shows the eagerness of some companies to increase their executives’ potential wealth. These grants also offer important new fodder for an already fractious debate over what constitutes the proper use of options in executive compensation.
Dozens of companies are under investigation for possibly backdating option grants to a day when the stock was lower, a practice that could mean the companies have made false disclosures and perhaps reported financial results incorrectly. Other companies are being investigated on suspicion of timing options grants ahead of good corporate news.
The multiple options grants after 9/11 raise a different question: Did companies take unseemly advantage of a national tragedy?

Let me see if I have this right. It’s not illegal. It’s not backdating. Although if it were, it’s definitely possible that it could be illegal assuming the possibility that it is legal is incorrect. And backdating, the thing it’s not, is going on now which is raising fodder which this adds to. Or perhaps this is the one raising fodder which adds to earlier fodder that’s already been raised. I’m really not sure.
But they’re absolutely guilty of one thing—being unseemly. And rushing. And eagerness. I got it: They’re unseemly rushing towards their eagerness to increase their wealth. I mean, potential wealth. Those bastards!
Sorry folks, but this is what options grants are all about. They have to be granted at some point. Some points will be better than others. There’s no guarantee. Despite barrage of indefinite pronouns, this is not “profiting off 9/11.” These were events caused by 9/11 but the executives had no assurance that it would make money for themselves or anyone else. Remember that Saudi prince guy who gave money after 9/11 and used the moment to denounce Israel. That’s abusing 9/11. Not this.

Minutes after the bell rang Sept. 17 at the New York Stock Exchange, New York Mayor Rudy Giuliani, who’d attended the solemn reopening ceremony, told CNBC, “Everybody should step up to the plate right now and show the strength of the American economy.” He added: “We depend on this. A lot of jobs and the future of America and the world rests on what happens here.”
The market fell nonetheless. And on that Monday, Home Depot broke with a regular pattern of issuing stock options in February and made a huge grant to its chief executive, Robert Nardelli. The grant permitted Mr. Nardelli, for the next 10 years, to buy one million Home Depot shares at that tumultuous September day’s closing price of $36.20 a share. This was 10.7% below the Sept. 10 closing price of $40.55.
The following day, Home Depot gave more grants: 50,000 options to each of four other executives, all of whom had already received options earlier in 2001. With Home Depot shares now trading at about $34, the options are currently out of the money.

This is truly a first. The WSJ is reporting on a scandal that’s not scandal involving profiteering that didn’t make money. (At least, not in Nardelli’s case). Wow, that is unseemly.
This pseudo-scandal is that what went on didn’t “look right.” Essentially, Wall Street is accused of being gauche. Is this news to anyone? Of course they’re greedy bastards, it’s Wall Street. That’s the idea.
Or as Professor Ribstein put it:

One reason our markets were so resilient is because we had managers who were focused on money. Should they have been thinking only about how to fill the shareholders’ wallets with the nasty stuff? So what we really want from our corporate executives is people who are greedy enough to be thinking about money after 9/11, but altruistic enough only to be thinking about how to make it for the shareholders? Aren’t we getting a little picky?

Exactly.
The problem with the “how it looks” accusation is that it can be thrown around very easily. How long are we supposed to wait? What about last week? Or is that profiting off Hezbollah’s terrorist attacks on Israel? I fail to see how murdering civilians with Katyusha rockets affects the price of oil, but apparently, it does.
Now there’s an unseemly juxtaposition for you.
Update: Barry Ritholtz has a very different take here and here: “Brain cancer is too good for these people.” Except he didn’t call them “people.”
Stephen Bainbridge has more thoughts here.

What’s Dragging Down the Market
Posted by Eddy Elfenbein on July 14th, 2006 at 1:12 pm

The market is down for the third day in a row. Since July 3, the S&P 500 has lost close to 4%.
This is a continuation of the selloff that began in early May. The recent downturn, however, has a very different flavor than inital correction.
In the first part of the selloff (May 5 to June 13), the energy stocks were hit the hardest. Here’s a chart showing the Oil Services HOLDRs ETF (OIH) in gold, compared with the S&P 500 (in black) and the Morgan Stanely Consumer Index (^CMR) in blue.

This what I wrote on June 13, (Dissecting the Bear):

Since May 5, the S&P 500’s market value has fallen by $807 billion. That’s a nice chunk of change. Percentage-wise, it comes to -6.74%.
What’s interesting to note is that since the stock market peaked, long-term interest rates have actually declined. Gold is down by $100 an ounce. This is not a market worried about inflation. If we use some reasonable assumptions, in just five weeks, the market has become convinced that around $50 billion of next year’s corporate profits will not materialize.
The Big Bad Bear, however, hasn’t treated everyone equally. Here’s the performance of the 10 industry sectors since May 5:
Utilities………………..+0.78%
Staples………………..-1.61%
Telecom………………-2.00%
Health Care………….-2.28%
Financials…………….-5.60%
Discretionary……….-5.68%
Industrials……………-8.71%
Energy………………..-11.41%
Tech…………………..-12.12%
Materials…………….-13.30%
Two observations. First, it’s almost the mirror image of the market before May 5. The other is that it’s a pretty wide gap. The bottom three groups, combined, make up just 27% of the S&P 500’s value, but have contributed more than half the losses. The rest of the market has suffered nary a scratch.

The defensive sectors were pretty safe. But since July 3, the energy stocks have been doing well (i.e., not down a lot), while the rest of the market has been feeling the squeeze.
Here’s how the sector ETFs have performed from July 3 to this afternoon:
Utilities (XLU)………………..0.09%
Energy (XLE)………………..-0.03%
Health Care (XLV)…………-1.06%
Staples (XLP)……………….-1.52%
Financial (XLF)……………..-3.42%
Industrial (XLI)…………….-5.72%
Materials (XLB)…………….-5.88%
Discretionary (XLY)……….-6.16%
Tech (XLK)……………………-6.59%
Tech and Materials are still lousy. Utes, Health Care and Staples are holding up OK, but energy has changed sides, going from laggards to leaders.

Bill Miller’s Streak in Danger
Posted by Eddy Elfenbein on July 14th, 2006 at 11:48 am

Bill Miller, the manager of Legg Mason’s Value Trust mutual fund (LMVTX), has beaten the market for the last 15 straight years. This year, however, isn’t working out so well.
Here’s how the fund (black line) has performed year-to-date against the S&P 500 (gold line).

Unless Miller has a big turnaround in the second half of the year, he’ll lag the overall market.
At the end of March, his top holdings were Sprint Nextel (S), UnitedHealth (UNH), TYCO (TYC), AES (AES), Amazon (AMZN), Google (GOOG), JP Morgan (JPM), Qwest (Q), Aetna (AET) and Eastman Kodak (EK).

Second-Quarter Earnings Preview
Posted by Eddy Elfenbein on July 14th, 2006 at 10:32 am

Christine Arnold at Morgan Stanley is bullish on UnitedHealth (UNH). She’s expecting earnings of 68 cents a share and thinks the stock could trade at the high end of its five-year historical range once the options issue is resolved.
That’s not all. Yesterday, Banc of America Securities upgraded Respironics (RESP) from neutral to buy.
Here’s a look at our earnings reports due over the next few weeks:
Harley-Davidson……….17-Jul………$0.91
UnitedHealth…………….19-Jul………$0.68
Danaher……………………20-Jul………$0.78
Golden West……………..20-Jul………$1.29
SEI Investments………..20-Jul………$0.55
Brown & Brown…………24-Jul………$0.29
AFLAC………………………25-Jul………$0.71
Fiserv………………………25-Jul………$0.60
Fair Isaac…………………26-Jul………$0.53
Varian……………………..26-Jul………$0.43
Respironics……………..27-Jul………..$0.39
Expeditors……………….1-Aug………$0.26
Sysco…………………….14-Aug………$0.42

Investing in Yoga Instructors
Posted by Eddy Elfenbein on July 14th, 2006 at 9:28 am

Here’s an interesting article from Bloomberg on the phenomenal growth of the school loan market.

Sales of student-loan backed securities grew almost five times as fast as the $1.97 trillion asset-backed bond market last year, according to the Bond Market Association, a New York-based trade group of dealers and underwriters. Bankers are packaging anything that resembles student debt, including loans for college, primary school, tutorials for casino dealers in California and yoga instructors in Iowa.

I didn’t know that in bankruptcy, you can wipe out your credit card debt, but not your school loans.

The Bank of Japan Raises Rates
Posted by Eddy Elfenbein on July 14th, 2006 at 7:18 am

For the first time in six years, the BOJ has increased interest rates. The overnight rate has been lifted from near-zero to 0.25%.

The bank’s decision means the end of deflation is near, said Prime Minister Junichiro Koizumi, speaking in Jordan. It’s too early to discuss the timing of another rate increase, Tanigaki said today, adding that the government will closely watch the effect of the move. Today’s decision was “appropriate,” Chief Cabinet Secretary Shinzo Abe said.
The government opposed the bank’s last rate increase in August 2000. Seven months later, the bank had to cut rates back to almost zero as an Internet-led global economic boom faltered.
Fukui said in an interview on May 31 that the bank must “carefully gauge the impact the first rate increase will have on the burden for companies” and the overall economy before increasing rates again.
The Bank of Japan on March 9 ended a five-year deflation- fighting policy of pumping up to 35 trillion yen ($303 billion) into the banking system. Consumer prices have now racked up seven months of gains, unemployment is at an eight-year low and lending by banks grew at the fastest pace in a decade in June.

Rosneft IPO Priced at $7.55 a Share
Posted by Eddy Elfenbein on July 14th, 2006 at 7:13 am

Rosneft’s offering will raise $10.4 billion.

The company said in a statement that the pricing gives Rosneft a total value of $79.8 billion, a higher market capitalization than Russia’s biggest oil producer, Lukoil. The shares are due to start trading next Wednesday in London and on Russian exchanges.
Preparations for the highly anticipated offering come as Russia shows off its oil-fueled economic clout, hosting leaders from the world’s richest democracies in St. Petersburg for the Group of Eight summit this weekend.
Despite the anticipation, the listing has been dogged by OAO Yukos, which has sought to stop the IPO. The company sought a last-minute injunction at a British court late Thursday. It was unclear whether the injunction would be granted.
After a jittery start, bankers say investors’ appetite rose throughout the marketing process for the IPO. Rosneft said Friday that the listing was 1 1/2 times oversubscribed, with total demand at $15 billion. Strategic investors accounted for 21 percent of the demand, with international investors from the U.S., Europe and Asia having made 36 percent of bids. Russian investors had bid for 39 percent of the shares while Russian retail investors had applied for 4 percent of the stock.