• Are We There Yet?
    Posted by on May 26th, 2006 at 2:33 pm

    Yawn!
    Trading is very quiet today ahead of the three-day weekend. Here are a few random thoughts in no particular order.
    TickerSense points out that the time around Memorial Day has historically been quite good for the market. Since 1960, the market is up an average of 0.11% on the Friday before Memorial Day, and 0.60% for the week after. So far, we’re keeping we tradition.
    Many defensive stocks have been surprisingly strong lately. This includes stocks like Anheuser-Busch (BUD), Colgate (CL), Coke (KO) and Pepsi (PEP), Disney (DIS), General Mills (GIS) and Kellogg (K).
    FactSet (FDS) has also been doing well for the past few days. David Jackson, the Grand Poobah at Seeking Alpha, pointed me to this bearish research report on FDS done by some graduate students at Yale.
    Francois Trahan, the chief investment strategist at Bear Stearns, found that the number of analysts covering tech stocks has increased since the top of the tech bubble.

    The average number of analysts per tech stock in the S&P 500 nearly doubled to 23.53 by the end of April from 12.36 in January 1996 and was still 22% higher than the 2000-2001 average of 19.25 analysts per tech stock, according to Mr. Trahan’s report. By the first quarter of 2000 — near the height of the Internet bubble — the total stock market value of S&P 500 tech stocks peaked at well over $4 trillion. Today it is about $2 trillion.

    Jay Walker comments on a recent study showing similar irrational decision-making between humans and capuchin monkeys. Those silly monkeys.
    Barry Ritholtz defends his remark that Ben Bernanke is the Neville Chamberlain of central bankers. So I guess we know who inflation is. Keeping the metaphor alive, today we learned what Poland is.
    Chico’s FAS (CHS) is rallying today on a good earnings report. The stock has beaten the S&P 500 for the last eight straight years. But the streak is in serious danger. The shares are down 30% YTD.
    That’s it for me. Have a great weekend, everybody!

  • The S&P 500’s P/E Ratio is at a 10-Year Low
    Posted by on May 26th, 2006 at 10:29 am

    Despite all the 1987 Redux talk on Wall Street, the market’s P/E dipped to a 10-year low this week.
    The S&P 500 is now trading at just under 16 times trailing operating earnings. The P/E ratio hasn’t been this low since October 1995.
    Here’s a chart of the S&P 500 (black line, left scale) with its earnings (blue line, right scale). Whenever the two lines cross, the P/E ratio is at 20.
    image742.png
    The market often anticipates the flow of earnings (meaning, the black line moves before the blue). You can see that’s what happened in 2000. As a result, the P/E ratio often decreases in the initial stage of a bear market, and increases at the beginning of bull run.
    What was unusual about the rally that began in March 2003 is that it came well after the bottom in earnings. I think that indicates how much investor confidence had been rattled by Enron and 9/11, and the coming showdown with Saddam.
    Here’s the market’s P/E ratio:
    imagepe.png

  • Status of High-Profile Corporate Scandals
    Posted by on May 26th, 2006 at 8:22 am

    The AP has a rundown of prominent corporate scandals.

  • Happy 110th Birthday to the Dow
    Posted by on May 26th, 2006 at 6:20 am

    The Dow Jones Industrial Average (^DJI) debuted on May 26, 1896. The first close was at 40.94.
    Over the last 110 years, the Dow is up 39,017.41%, or 5.58% a year.
    Here’s an odd fact: In 1939, the keepers of the index decided to kick out IBM. The company didn’t return for 40 years, and it’s still there today. But those were 40 amazing years for the company. If the stock had been left in the index, the Dow would be thousands of points higher today. In fact, the index would have broken 1,000 in 1961 instead of 1972.
    Here’s every single weekly close.

  • Today’s Rally
    Posted by on May 25th, 2006 at 3:02 pm

    Don’t be fooled by today’s rally. It’s good, but it’s not that good.
    Here are today’s top 15 performers in the S&P 100:
    EL PASO CORPORATION……………..6.41%
    GEN MOTORS……………………………5.55%
    HALLIBURTON CO……………………..5.05%
    ALLEGHENY TECH NEW………………4.69%
    FORD MOTOR CO………………………3.90%
    WILLIAMS COS…………………………3.87%
    BAKER HUGHES INTL………………….3.57%
    WAL MART STORES……………………3.50%
    CHEVRON CORP………………………..3.42%
    SCHLUMBERGER LTD………………….3.31%
    COMPUTER SCIENCES CP……………3.18%
    EXXON MOBIL CP………………………2.90%
    BRISTOL MYERS SQIBB……………….2.88%
    BURLINGTN N SANTE FE……………..2.50%
    ALCOA INC……………………………….2.22%
    It’s heavily tilted to energy and materials, the two areas that have been feeling the most pain.

  • The Real Meaning of the Enron Verdict
    Posted by on May 25th, 2006 at 2:35 pm

    I wanted to get a head start on the discussion of the “real meaning” of the Enron verdict.
    Some may say that it’s a classic tale of human arrogance and greed.
    To me, I see it as easy way to publicly moralize. Plus, I have an excuse to post a photo of Bethany McLean, former Goldman analyst and co-author of Enron: The Smartest Guys in the Room.
    bmclean_200.jpg
    It’s a win-win for everybody. (Except Skilling and Lay of course.)

  • It’s Al Goldman TV!
    Posted by on May 25th, 2006 at 2:03 pm

    The Chief Market Strategist at A.G. Edwards gets all metaphorical:

    We believe the animal that best describes the current stock market is a turtle. Think about it. A turtle plods along making slow progress and often stops to rest as it carries a heavy load on its back. A turtle’s shell is like a wall of worry, and it grows heavier as the turtle ages. Investors may try to speed up the turtle but to no avail. What we all must do is adjust to the turtle’s physical limitations and abilities. Yes, a turtle is slow-moving, but it can chug along for an extended period–remember the old parable about the turtle and the hare.

    He later says that the turtle might be driven off a cliff. I’m not kidding.
    Here’s the video.

  • Guilty
    Posted by on May 25th, 2006 at 1:30 pm

    From CNN:

    Skilling was found guilty on 19 counts of conspiracy, fraud, false statements and insider trading. He was found not guilty on eight counts of insider trading.
    Lay was found guilty on all six counts of conspiracy and fraud. In a separate bench trial, Judge Sim Lake ruled Lay was guilty of four counts of fraud and false statements.
    Both Lay and Skilling could face 20 to 30 years in prison, legal experts say.
    Judge Lake set sentencing for the week of Sept. 11 and ordered Lay to surrender his passport and post a cash bond. No home confinement was ordered.

  • Fire Ballmer
    Posted by on May 25th, 2006 at 11:08 am

    Paul Kedrosky says it’s time to fire Steve Ballmer:

    With today’s news that Microsoft’s Vista could indeed slip further into next year, as I had promised would happen, there is only one rational response from Microsoft’s board: Fire Steve Ballmer. He has long been an erratic force inside the company — someone with real strengths, but also horrible deficiencies (among which is being utterly tonedeaf) — and it is finally clear that the latter permanently outweigh the former.
    Of course, Ballmer had any decency he would simply resign. The odds of that happening, however, are very low.

    Hmmm…decency from Ballmer? Let’s look at the evidence:

    F**king Eric Schmidt [Google’s chief executive] is a f***ing p****. I’m going to f***ing bury that guy. I have done it before, I will do it again. I’m going to f****ing kill Google.

    Yep, it’s a long shot.

  • GDP Growth Revised to 5.3%
    Posted by on May 25th, 2006 at 10:27 am

    First-quarter GDP growth was revised higher to 5.3%. Even though that’s an impressive number–the best in 2-1/2 years–it still came in below Wall Street’s forecast of 5.7%.
    Here’s how the economy has done for the last 10 years:
    GDP1.png
    GDP growth is highly “trend-like.” The magic point is 3%. When GDP growth is over 3%, there’s a 70% chance that the following quarter will also be over 3%. If GDP growth is below 3%, then there’s only a 39% chance that the next quarter will be over 3%.
    The key is spotting those points when the economy breaks out of its trend. In the fourth quarter of 2005, the economic fell to 1.7% leading to fears of a recession. But we defied the odds and are growing strongly again. For now.