GDW’s ride from $0.25 to $80
Posted by Eddy Elfenbein on May 8th, 2006 at 7:33 am

In 30 years, Golden West’s stock has climbed from 25 cents a share to over $80. The WSJ has more:

The long-running boom in the nation’s real-estate market has led to an impressive run of profitability at mortgage lenders like Golden West, whose shares were trading Friday near their all-time high. But with recent signs of some softening in real estate, Wachovia investors are sure to be asking whether the sale is a sign that the Sandlers view the market as having topped out. While Golden West has a conservative track record for underwriting loans, increased competition could raise the risk that loans the company has provided will sour, leaving Wachovia to deal with the losses.
If approved by shareholders and regulators, the combination of the two financial companies would establish banking pillars on both coasts of the U.S., as well as offices the two companies have in between in states such as Texas. Golden West will add about 10,000 employees to Wachovia’s current employment level of about 97,000. Wachovia said it plans to cut less than 1% of the expense base of the combined companies, but added that no employees who deal directly with customers are likely to lose their jobs. The deal is expected to close in this year’s fourth quarter.
Buying Golden West will let Wachovia extend its brand name across 285 branches in 10 states, where Golden West currently flies the World Savings Bank banner. The deal will make Wachovia the sixth-largest deposit-taker in California, the most-populous U.S. state, though its market share of about 5% would trail far behind those of Bank of America Corp., Washington Mutual Inc. and Wells Fargo & Co., based on the latest Federal Deposit Insurance Corp. data. Wachovia said the deal would add to its per-share profit, excluding expenses and amortization triggered by the acquisition, by the end of the second year after the purchase.
Golden West’s primary appeal is its clout in adjustable-rate mortgages, or ARMs, on residential properties, generated through offices in 39 U.S. states where Golden West drums up business from local real-estate agents, mortgage brokers and directly from consumers. Wachovia Chairman and CEO G. Kennedy Thompson has been pushing hard over the past year to beef up the bank’s consumer-lending operation, complaining that its offerings have been weak.
The lending business has been good to Golden West, last year resulting in net profit margins of 44% on revenue of $3.4 billion. Investors have flocked to the company, pushing Golden West shares up 10% over the past year, and by more than three-and-a-half-fold since 2000. On Friday, the company’s shares traded at about 14.4 times current earnings, according to data compiled by CapitalIQ. That placed it slightly above the average for U.S. thrifts, which trade at 14.1 times, and above rivals Washington Mutual (12.3 times) and Countrywide Financial Corp. (10.1 times).

Holy Crap! Wachovia To Buy Golden West Financial
Posted by Eddy Elfenbein on May 8th, 2006 at 12:18 am

Whoa! One of my favorite stocks on the Buy List is being bought out. This is a HUGE deal.
Wachovia (WB) just announced that it’s going to buy Golden West Financial (GDW) for $25 billion. Wachovia will pay GDW shareholders $18.65 a share in cash, plus 1.051 shares of Wachovia stock. That works out to $81.07 a share, which is about a 15% premium on Golden West’s closing price from Friday.
Wachovia is making a major move to extend its reach into the Western part of the United States. Here’s more from the New York Times:

The deal clears up concern some investors had over the question of succession at Golden West. It has been run for decades by husband-and-wife co-chief executives, Herbert M. and Marion O. Sandler, both in their 70’s and noted for their public criticisms in recent years of Federal Reserve policy, regulators and even President George W. Bush.
Under their leadership, the thrift had a long track record of ignoring hot Wall Street trends, like trading exotic derivative products, staying focused for the most part on the business of making loans. Keeping it simple has been a prosperous business model for Golden West, particularly as it built up its mortgage-lending business in recent years in the red-hot California market by offering adjustable-rate mortgages.
Formed in 1963, Golden West’s assets today total more than $100 billion and it has posted strong double-digit per-share earnings for decades. While the deal will give Wachovia a strong foothold in the mortgage-lending space, there are growing concerns among investors and Wall Street analysts that growth in that business may have peaked as interest rates creep higher. For instance, mortgage applications have been on the decline in recent months.

My first thoughts are to congratulate Herb and Marion on building a terrific business. For decades, Golden West has been one of the best run thrifts in the country.
Gertrude Stein said about Oakland that “there is no there there.” Well, there is a great savings and loan there, and its owners are about to become a lot richer.

Morgan Stanley Luring Brokers With Bonuses
Posted by Eddy Elfenbein on May 6th, 2006 at 8:49 pm

Right now, the big game on Wall Street is “get the assets.” Well…I guess that’s always the game, but it’s getting even more intense.
Morgan Stanley (MS) is aggressively pursing other firms’ top-producing brokers. They’re offering bonuses of up to 200% of gross revenues. And I expect someone will shortly one-up them.
My favorite quote comes from Howard Diamond, a Morgan recruiter: “Money is the best inducement for these kind of people to come aboard to Morgan Stanley.” It’ll probably help them stay too.

Why Isn’t Socialism Dead?
Posted by Eddy Elfenbein on May 6th, 2006 at 4:00 pm

Lee Harris looks at South America and asks, “why isn’t socialism dead?”

The Peruvian economist, Hernando de Soto, has argued in his book, The Mystery of Capital, that the failure of the various socialist experiments of the twentieth century has left mankind with only one rational choice about which economic system to go with, namely, capitalism. Socialism, he maintained, has been so discredited that any further attempt to revive it would be sheer irrationality. But if this is the case, which I personally think it is, then why are we witnessing what certainly appears to be a revival of socialist rhetoric and even socialist pseudo-solutions, such as the nationalization of foreign companies?
It should be stressed that de Soto is not arguing that, after the many socialist failures of the twentieth century, capitalism has became historically inevitable and that its expansion would occur according to some imaginary iron clad laws without any need for active intervention. On the contrary, de Soto is fully aware of the enormous obstacles to the expansion of capitalism, especially in regions like South America, and his book is full of dismal statistics that demonstrate the uphill battle against bureaucratic red-tape that is involved in getting a business license or even buying a house in many third world countries. But, here again, the question arises, If capitalism is mankind’s only rational alternative, why do so many of the governments of third world nations make it so extraordinarily difficult for ordinary people to take the first small steps on the path of free enterprise?
For de Soto, the solution lies in democratizing capital. Minimize state interference. Cut the red-tape. Make it simple to start up a business. Devise ways for the poor to capitalize on their modest assets. If a person in the USA can get a loan based on the value of his $200,000 home, why shouldn’t a much poorer fellow get a loan based on the value of his $2,000 shack?
These are all sensible ideas; they are all based on de Soto’s belief that the only way to help the poor in the third world is to get the bloated bureaucratic state off their backs, and permit them to use their own creative initiative to do what so many poor immigrants to the USA were able to do in our past — to start out as micro-entrepreneurs, and to work their way up to wealth and often fabulous riches. But again, we come back to the same question, only in a different form, Why are the people in Bolivia and Venezuela responding so enthusiastically to the socialist siren-song of Evo Morales and Hugo Chavez, instead of heeding the eminently rational counsel of Hernando de Soto? Why are they clamoring to give even more power and control to the state, instead of seeking to free themselves from the very obstacle that stands in the way of any genuine economic progress?
When Hernando de Soto asserts that capitalism is the only rational alternative left to mankind, he is maintaining that capitalism is the alternative that human beings ought to take because it is the rational thing to do. But what human beings ought to do and what they actually do are often two quite different things. For human beings frequently act quite irrationally, and without the least consideration of what economist called their “enlightened self-interest.” And it is in this light that we must approach the problem, Why isn’t socialism dead?

Suge Knight’s Bankruptcy Filing
Posted by Eddy Elfenbein on May 5th, 2006 at 3:00 pm

The rap mogul has debts of $137.4 million and just $4.4 million in assets. That includes $11 in his checking account. The Smoking Gun has the details.

What Happened to the Natural Gas Crisis?
Posted by Eddy Elfenbein on May 5th, 2006 at 2:37 pm

Late last year, the financial media was in a tizzy about the soaring price of natural gas. We were told that it was hurting poor people and seniors were freezing. And as always, there was No. End. In. Sight.
By December, the price of natural Gas soared to over $15 per million British thermal units, an all-time high. Also, these nasty Russians and their Gazprom were going to take over the world. We suddenly had a natural gas crisis on our hands.
As it turns out, the end was clearly in sight. Since then, the price of natural gas plunged by about 60%. Funny how we don’t hear much about this now.
The market did exactly what they’re supposed to do. It’s good to keep this mind when we hear all the horror stories about oil and gold. How high will oil go? Beats me. But I do know that where there’s a demand, there’s somebody trying to meet it with supply.
Here’s a chart of natural gas for the last two years.

Dow 11,500
Posted by Eddy Elfenbein on May 5th, 2006 at 10:32 am

We’re finally even for the century!
The Dow closed at 11,497.12 on December 31, 1999. Today, we’re back above 11,500 for the first time in six years,
This morning, the jobs report came in weaker-than-expected, so bonds are way up, and stocks are following.
The economy added 138,000 jobs last month, which isn’t too good for a recovery. Most on Wall Street were expecting something closer to 200,000. The jobless rate held steady at 4.7%.
The stock market doesn’t seem to mind. The Dow is one good push away from making an all-time high (11,723). The S&P 500, however, still needs to add about 15%.

Louis Rukeyser, RIP
Posted by Eddy Elfenbein on May 4th, 2006 at 8:45 pm

A truly class act.

From 1970 until 2002, at 8:30 p.m. on Friday evenings on public television, the dapper journalist began his half hour-long show Wall $treet Week with Louis Rukeyser to the clacking sound of an old stock ticker machine.
Rukeyser reviewed the week’s news with witticisms, wordplay and factoids and then moderated a panel discussion. The better the market outlook, the more he liked it, his brother said. The format never changed.
TV Guide called Wall $treet Week one of the best programs of on American television and wrote, “Louis Rukeyser’s opening remarks on the week’s business events are crafted gems of wry commentary; his airy and adroit handling of his big-shot guests is a pleasure to watch.”
Produced by Maryland Public Television, the show drew the largest audience in financial journalism at the time and turned Rukeyser into a celebrity.
Investment strategists like Goldman Sachs’ Abby Joseph Cohen and former Merrill Lynch Chairman David Komansky regularly traveled from New York to Maryland by plane, train and limousine to appear on his show.
Over the years, the silver-haired commentator won many awards, including the G.M. Loeb Award, the most prestigious in financial journalism. People magazine crowned him “the dismal science’s only sex symbol” and Modern Maturity magazine named him as one of the world’s “50 Sexiest People Over 50.”

He will be missed.

“Let’s kind of review the situation here”
Posted by Eddy Elfenbein on May 4th, 2006 at 8:31 pm

Everyone has an opinion about Dell. What does Michael Dell say?

“Let’s kind of review the situation here. In the last 10 years our company has grown about 10 times and our stock is up a couple thousand percent,” Dell said.
“During the last 22 years, we have had a pretty remarkable track record of growth in our business, but there’s no kind of perfect, linear path to success,” he said.
“I do believe that what you’ll see is that we have a great business model. We are the leader in our industry in the United States, quite a bit larger than others, and the leader around the world, and so we’re confident our business will continue to grow.”
He also said that the company’s sales had climbed in the last three years “from about $35 billion to, last year, a little over $56 billion” and that much future growth will come from outside the United States.

Happy Fun Day
Posted by Eddy Elfenbein on May 4th, 2006 at 8:23 pm

Well that was a fun time. Expeditors (EXPD) opened $10 higher, and went up from there. At one point, the shares got up to $105.40, before closing at $103.80. That’s a one-day move of 18.3%. Good time, man. Good times.
It’s about time the Buy List showed some life. Our 20 stocks have been pretty listless lately. So far, our strategy of side-stepping energy hasn’t worked out very well. However, oil has been dropping lately, which helped the Dow hit a six-year high today. The price of crude fell below $70 a barrel for the first time since April 17.
AFLAC (AFL), Dell (DELL), Donaldson (DCI), and SEI Investments (SEIC) also had good days today. All told, the Buy List was up 1.42%, and the S&P 500 was up 0.43%. Without Expeditors, we were up just 0.25%.
Tomorrow morning, Wall Street will be focused on the jobs report. The unemployment rate is currently at 4.7%, and I think it could fall to 4.6%. The members of the Fed will certainly be eyeing the report as the FOMC meets next week. Another rate is expected by everyone.
Our “March Cycle” earnings are now over. Coming up, we have three stocks that ended their quarter at the end of April. Home Depot (HD) will report on May 16. Dell will report two days later, and Donaldson reports on May 24.