Today’s CPI Report
Posted by Eddy Elfenbein on June 14th, 2006 at 12:21 pm

The government reported that consumer inflation rose by 0.4% last monht, and the “core rate” rose 0.3%. This pretty much gurantees that the Fed will raise rates in two weeks.
Over the last twelve months, the CPI has risen by 4.2% and the core rate is up 2.4%. Here’s what inflation has looked like since 1983:

Gold’s Worst Day in 15 Years
Posted by Eddy Elfenbein on June 14th, 2006 at 7:04 am

To quote Bud Fox quoting Sun-tzu:

If your enemy is superior, evade him. If angry, irritate him. If equally matched, fight, and if not split and reevaluate.

This here’s the splittin’ and now we’re reevaluatin’:

Sorry to run this hideous chart again, but it’s the best way to show yesterday’s breakdown in gold. The metal hasn’t dropped like this since the air war began in the First Gulf War. That time, however, the stock market soared. This time, it sank.
Here’s a thought: Maybe Sptizer went after the wrong guys. If only he had looked in the commodity pits. Which is crazier, the Nasdaq at 5000 or gold at $730?
Of course, you can’t frogmarch a rock, Buddy boy.

World Wrestling Profit Falls 35%
Posted by Eddy Elfenbein on June 13th, 2006 at 4:13 pm

From AP:

For the quarter ended April 30, the company reported net income of $10.6 million, or 15 cents per share, compared with profits of $16.1 million, or 23 cents per share, a year ago. Revenue declined to $114.3 million from $118.3 million in the year earlier period.
Wall Street had forecast a profit of 13 cents per share, the average estimate of six analysts surveyed by Thomson Financial, on projected sales of $114.3 million.
“The earnings for the quarter were just as expected, but these guys really had to fight to get there,” said Dennis McAlpine, managing director of McAlpine Associates in Scarsdale, N.Y. “They’re fighting hard for every nickel they get.”

I blame Mark Henry

More Goals Please
Posted by Eddy Elfenbein on June 13th, 2006 at 1:36 pm

I’m watching the World Cup game between France and Switzerland. It looks like it’s headed to a 0-0 tie. This will be the second 0-0 tie in this year’s tournament.
I’m sorry, but there needs to be more scoring. I’m an America. We need action. Someone needs to be scoring, or at least inflicting pain, to keep our attention. That’s just how we are.
In the 13 games so far, there have been just 30 goals. That’s a little over two a game, or one every 45 minutes. Teams that have scored one goal are 3-4. There’s only been one come-from-behind victory (the South Koreans 2-1 over Togo). The only game that came close to an offensive explosion was Germany’s 4-2 win over Costa Rica.
I suggest a few rule changes (downs, set plays, use of hands, cheerleaders). Every sport in the world could benefit from more end zone celebrations.
OK, now the Brazilians are set to play. I’m expecting them to pound Croatia. They need this win. EWZ is down 34% in a month.

The Last Seven Months
Posted by Eddy Elfenbein on June 13th, 2006 at 11:27 am

The index bounced off 1230 this morning.

Goldman’s Earnings
Posted by Eddy Elfenbein on June 13th, 2006 at 11:13 am

Goldman Sachs (GS) had even more impressive earnings than Lehman Brothers (LEH), but like Lehman, the stock is down.
Don’t miss John Carney at DealBreaker blogging the GS conference call. Also, we know that Blankfein will replace Paulson, Charlie Gasparino looks at who will take Blankfein’s place.

Dissecting the Bear
Posted by Eddy Elfenbein on June 13th, 2006 at 7:28 am

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.
So is this a major turning point? A new period of leadership for defensive stocks? It’s hard to say. These turning points don’t make their appearances widely known. Afterall, the energy stocks have been outperforming the S&P 500 for over seven years, and materials stocks have been ahead of the index for nearly six years. The trends last a long time.
The two major defensive sectors, staples and health care, have been almost completely ignored by the bull market. Since mid-October 2002, the health care sector is up 7.2% and staples are up 10.9%, while the S&P 500 has grown by 38%.
A month ago, the market was beginning to think that the Fed would hold off raising rates at the end of June. But now, it’s convinced that another rate hike is coming. Interestingly, the yield on the 30-year T-bond now closely follows the price of oil. The correlation is up to 80%, which is a 15-year high.
Today, the PPI report showed that wholesale prices rose 0.2% in May. The core rate was up 0.3%, slightly above expectations of a 0.2% increase. Gold is below $600 an ounce, and copper has lost 13% in the last four days.
While the market is somewhat concerned about inflation, the main reason for the correction is a growing concern about the health of the economy.

Crossing Broadway
Posted by Eddy Elfenbein on June 13th, 2006 at 7:18 am

Burleigh Grimes, a musical comedy about Wall Street, opens today off Broadway.
The show features music from (the very brillant) David Yazbek and stars Wendie Malick (Nina from Just Shoot Me), Mark Moses (Paul Young from Desperate Housewives) and James Badge Dale (Chase Edmunds from 24)

Set in a world where no bad deed goes unrewarded, BURLEIGH GRIME$ follows George Radbourn (James Badge Dale), a Wall Street newbie who doesn’t recognize that his mentor, Burleigh Grimes (Mark Moses), may not be entirely sincere in appearance or agenda. A hard-driving stock market force, Grimes is a relentless man of infinite calculation, further assisted in his financial schemes by media powerhouse Elizabeth Bigley (Wendie Malick).
In an arena where the naive and sentimental face ruin, George struggles for survival under the hand of Grimes’ flexible business tactics, while also dealing with the arrival of his college sweetheart, Grace Redding (Ashley Williams), who will soon have to face some difficult choices of her own.

That’s not all. Guess who else shows up?

The production also features a series of specially scripted guest video cameos by Jim Cramer, host of CNBC’s “Mad Money.”

And here I was worried that Cramer was going to go Hollywood!
Burleigh Grimes is playing at New World Stages/Stage 3, 340 West 50th Street, between 8th and 9th Avenues.

Penny Stock Buyer Winds up CEO
Posted by Eddy Elfenbein on June 13th, 2006 at 6:26 am

A penny-stock investor’s unusual path to the CEO’s office.

The NYT vs. Math
Posted by Eddy Elfenbein on June 12th, 2006 at 9:48 pm

A recent New York Times article makes a big deal about the one-week falloff of the Dow. Robert Ferguson, a newbie blogger, shows that it’s really no big deal (warning: math ahead):

Roughly, the DJI has a mean weekly return of about zero. Its annual standard deviation of return is about 15%, more or less. Assuming weekly returns are independent as an approximation, a 15% annual volatility corresponds to a 2.08% weekly volatility. A weekly return of -3.2% is only 1.54 standard deviations from the mean.
Assuming normality, the probability of a result 1.54 standard deviations below the mean or worse is 6.2%. This sounds pretty low, but Mr. Sommer did not pick this week at random. He scoured recent history for the worst week and found that it was the worst since about a year ago.
The real question is how likely is at least one weekly decline of at 3.2% or worse in a year.
Roughly this size negative return or worse should occur about three times a year (0.062*52=3.2). In fact, the probability that it would occur at least one week a year is about (1-(1-0.062)^52)=0.964, or about 96.4%.
Something that is expected to happen at least once a year with probability 96.4% is not unusual.