• The Fed Raises Rates
    Posted by on March 28th, 2006 at 2:15 pm

    For the 15th straight meeting, the Federal Reserve has raised interest rates by 0.25%. The Fed funds rate is now 4.75%.
    Here’s the statement:

    The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4-3/4 percent.
    The slowing of the growth of real GDP in the fourth quarter of 2005 seems largely to have reflected temporary or special factors. Economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace. As yet, the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation, ongoing productivity gains have helped to hold the growth of unit labor costs in check, and inflation expectations remain contained. Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures.
    The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives.
    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Jeffrey M. Lacker; Mark W. Olson; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen.
    In a related action, the Board of Governors approved a 25-basis-point increase in the discount rate to 5-3/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Dallas, and San Francisco.

    What does “some” mean? For now, the market thinks it means at least one more rate hike. The second paragraph is new, but the third is the exact same language as last time.

  • Hansen Natural
    Posted by on March 28th, 2006 at 11:41 am

    Hansen Natural (HANS), the Monster Energy drink stock, is now just getting silly. The stock was up 333% last year, and it’s already up 55% this year. Three years ago, you could have picked up shares of HANS for less than $2. Today, it’s at $123. Wow!
    Lennar (LEN) reported good earnings this morning even though the housing market is showing some signs of weakness. The company earned $1.58 a share, three cents more than estimates.
    I was happy to see someone upgrade Fair Isaac (FIC) this morning. The stock is around $39 a share.
    The big news today is the Fed meeting in Washington. This is the first meeting with Bernanke in charge. The bank will almost certainly raise rates another 25 basis points to 4.75%. This will mark the 15h straight rate hike, and it will finally push the Fed funds rate to the same level as long-term interest rates. I just noticed that the 10-year bond is at 4.751%, so that makes for a perfectly flat yield curve.
    The Conference Board reported that consumer confidence jumped to a four-year high. That probably explains Tiffany‘s (TIF) strong earnings report. The company reported earnings of 97 cents a share, 13 cents more than expectations.

  • Apple Turns 30
    Posted by on March 27th, 2006 at 1:14 pm

    This has been a busy week for Apple Computer (AAPL), which turns 30 years old on Saturday. Not only have they gotten in a fight with France, but now they’re fighting with the Beatles. The Fab Four’s business is also called Apple, and this is the third time Apple and Apple have clashed.
    The Beatles first took Apple to court in 1978 when the computer company agreed to stay away from the music business. In 1989, the Fab Four nailed Apple when the company released a music-making program. The computer company had to shell over $26 million. Now the Beatles are taking aim at Apple’s iTunes Music store.
    The French National Assembly has also jumped into the act:

    Last week, France’s National Assembly passed an authors’-rights bill that would, among other things, require music-download stores such as Apple’s iTunes to open their proprietary “digital rights management” copy-control software to users and competitors
    The idea behind that provision of this bill, which must still be approved by France’s Senate, is to ensure that a music download can be played on any device, not just one allowed by the seller of that file.

    Kevin Hassett sums up the issue:

    Imagine if someone built a resort so beautiful that vacationers swarmed to it, and the French passed a law requiring the resort owners to let French citizens stay at the resort for free. This ruling is essentially the same thing. The French are trying to rob an American company.

    Interestingly, it was 40 years ago today that John Lennon said that the Beatles were bigger than Jesus. But are they bigger than Steve Jobs?

  • Walgreens’ Earnings
    Posted by on March 27th, 2006 at 12:44 pm

    Walgreen’s (WAG) is one of those rare companies that makes money in good times and in bad. Year after year, the company has delivered an amazing record of consistently rising profits. Today, the company reported earnings of 51 cents a share, which was decent although it was a penny below Wall Street’s expectations.

    Despite missing Wall Street’s estimates, the company’s shares rose 13 cents to $44.50 in late morning trading on the New York Stock Exchange, where they have traded in a 52-week range of $40.98 to $49.01.
    Mitchell Corwin, an analyst with Morningstar, said the flu strain was weaker this year, causing fewer doctor visits and pharmacy prescriptions. But while Walgreen sales were light, the company’s margins held up, he said.
    “Overall sales were slower, but I’m not as concerned because the company is gaining market share relative to its peers and generating strong earnings and strong cash flow,” Corwin said.
    Walgreen, which has more than 5,100 drugstores across the country, said it is on track to open about 475 new stores this year.

    This is a fantastic company, but I’m not a big fan of the stock right now. I think it’s gotten a bit too rich. The stock’s P/E ratio (before today’s earnings) is about 28 while CVS’ (CVS) is just 20. As good as Walgreen’s is, I don’t think it deserves a 40% premium to CVS. But if the P/E ratio got back down to 20, it would be a terrific buy.

  • The Boom in India
    Posted by on March 27th, 2006 at 10:23 am

    The Bombay market is heading to the stratosphere:

    “The way the market has gone up, it shows that there are absolutely no short sellers,” said Ajit Surana, managing director at Dimensional Securities. “As the stock indices breach higher levels, stock valuations are getting out of whack and any reversal could be painful.”

    From Latin America to the Middle East, I think I know how this story will end.

    Buoyed by increased foreign investment in stocks — the Sensex has recorded a remarkable bull run. It topped the 10,000 mark in February this year after surging past the 9,000 level in November and the 8,000 mark in September.

  • Dane Miller Is Retiring from Biomet
    Posted by on March 27th, 2006 at 9:37 am

    After 29 years, Dane Miller is stepping down as CEO of Biomet (BMET). Last week, I wrote about this remarkable company.
    Here’s a brief profile of Miller from Forbes.

  • George Mason Wins
    Posted by on March 26th, 2006 at 5:12 pm

    Here’s the Tradesports contract for the game. When UConn pushed the game into overtime, the contracts immediately vaulted from 5 cents to 70 cents, only to become worthless a few minutes later.
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  • Euro So Beautiful
    Posted by on March 26th, 2006 at 9:01 am

    Some in Europe have a dream of expanding the euro to 12 more countries. But Desmond Lachman says that it’s not working where it’s already in use.

    The daunting challenges to the euro experiment are perhaps best exemplified by the response I got from a former Salomon Brothers’ emerging-market trader when I asked him where the next emerging market debt crisis would occur. Without missing a beat, he replied that it would take place in Greece, Italy or Portugal. All three of these countries suffer from government deficit levels and public debt ratios that would make any emerging market debt trader feel distinctly at home. These traders would also get the distinct feeling that they had already been to this movie before about a country unsuccessfully struggling with the rigors of a fixed exchange rate system.

  • Why Poor Countries Are Poor
    Posted by on March 25th, 2006 at 3:34 pm

    Tim Harford on the corruption-based economy of Cameroon.
    He finds a new school library that will never house any books because the roof wasn’t built to withstand the country’s rainy season.

    Consider the situation: money that was provided because of social networks rather than need; a project designed for prestige rather than use; a lack of monitoring and accountability; and an architect appointed for show by somebody with little interest in the quality of the work. The outcome is hardly surprising: A project that should never have been built was built, and built badly. The lesson of the story might appear to be that self-interested and ambitious people in power are often the cause of wastefulness in developing countries. But self-interested and ambitious people are in positions of power, great and small, all over the world. In many places, they are restrained by the law, the press, and democratic opposition. Cameroon’s tragedy is that there is nothing to hold self-interest in check.

  • The Market Today
    Posted by on March 24th, 2006 at 4:59 pm

    Thanks to a nice gain from Harley-Davidson (HDI), our Buy List beat the market for the fifth straight day.
    FactSet Research Systems (FDS) came within three pennies of a new high. Bed Bath & Beyond (BBBY) broke $39 a share, before slipping back some.
    For the year, we’re up 3.29% versus 4.38% for the S&P 500 (not including dividends).
    Here’s how our Buy List has done (based on a starting value of $1 million). The red line is Crossing Wall Street. The black line is the S&P 500.
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