The Best Day Since 2003
Posted by Eddy Elfenbein on June 15th, 2006 at 4:42 pm

The market broke its streak of 987 straight days without a daily swing of 2% or more. Today, the S&P 500 (^GSPC) gained 26.12 points, or 2.12%.
The last 2%-er came on October 1, 2003 when the S&P 500 gained 2.23%.
By the way, 987 is a Fibonacci number. (Spooky!)

The Noonday Market
Posted by Eddy Elfenbein on June 15th, 2006 at 11:53 am

The market is building on yesterday’s late-day surge. So far, it’s the cyclicals leading the charge. The Morgan Stanley Cyclical Index (^CYC) is up 1.87%. Dow Jones tracks 100 industry groups, right now, 94 are higher. The energy and materials sectors are doing the best.
Gold is higher today. The metal fell late yesterday even after Tuesday’s big plunge.
This morning, the Labor Department said that unemployment claims dropped to 295,000 last week. That’s the lowest level in four months. Speaking of employment, McKinsey says that the jobless rate in Sweden is 15%, nearly three times the government’s estimate. Wow.
In the debt market, once again we have a split day. Yields at the long end of the yield curve are higher, while short-term rates are slightly lower. Once you get past maturities of five years, the yield curve is pretty darn flat.
I’ll have to give Bear Stearns (BSC) the award for best broker earnings of the week. The company earned $3.72 a share, 60 cents more than estimates. Both Goldman (GS) and Lehman (LEH) reported good earnings earlier this week, but it didn’t help their stocks.
There was some good news yesterday for Harley-Davidson (HDI), one of our Buy List stocks. Anthony Gikas, the analyst at Piper Jaffray, polled 30 Harley dealers and 28 said that business is meeting or exceeding expectations. The stock is trading at less than 13 times next year’s earnings. Also, the New York Times talked with Kevin Rollins at Dell (DELL).
Oh, and thanks to everyone who wrote in to complain about my World Cup bashing. Interestingly, approximately 98.4% of you mentioned baseball. So I have to admit, yesterday’s Saudi-Tunisia game was very good. The Germany-Poland game was also good except for the German’s late goal. I was really hoping to see the Poles walk away with a tie.
Two quick headlines to note. First, this one made me giggle. The other is from the New York Post on Dick Grasso taking the fifth 168 times, “Grasso Pass-o.” You gotta love the NYP for its headlines.

Google To Buy Googleplex
Posted by Eddy Elfenbein on June 15th, 2006 at 7:36 am

Google (GOOG) is forking over $319 million to buy the Googleplex. The previous owner was Silicon Graphics (remember them?).
Here’s what the Googleplex looks like from 1,600 feet (via Google Earth).
The New York Times reports that Google is building a massive double top-secret facility in The Dalles, Oregon.

The fact that Google is behind the data center, referred to locally as Project 02, has been reported in the local press. But many officials in The Dalles, including the city attorney and the city manager, said they could not comment on the project because they signed confidentiality agreements with Google last year.
“No one says the ‘G’ word,” said Diane Sherwood, executive director of the Port of Klickitat, Wash., directly across the river from The Dalles, who is not bound by such agreements. “It’s a little bit like He-Who-Must-Not-Be-Named in Harry Potter.”
Local residents are at once enthusiastic and puzzled about their affluent but secretive new neighbor, a successor to the aluminum manufacturers that once came seeking the cheap power that flows from the dams holding back the powerful Columbia. The project has created hundreds of construction jobs, caused local real estate prices to jump 40 percent and is expected to create 60 to 200 permanent jobs in a town of 12,000 people when the center opens later this year.

I won’t say that I’m worried, but it does remind me of this.

A Funny Story Out of Japan
Posted by Eddy Elfenbein on June 15th, 2006 at 7:12 am

Wanna hear a funny story?
There’s this guy in Japan named Yoshiaki Murakami. (Wait, it gets better.)
He’s a legend in the Japanese mutual fund industry. To some people, he’s like a folk hero. The reason for his popularity is that he stands up for shareholders, and let’s just say that that’s not too “groovy” among the Japanese financial elite (it’s too…American).
But now Murakami is in serious hot water. Apparently, he heard from some guys at an Internet company called Livedoor that they wanted to buy a company called Nippon Broadcasting. Actually, Murakami didn’t think they were serious, but he already owned lots of Nippon, and he bought even more. Well, the Livedoor guys were serious, and they went after Nippon. The fight turned ugly and Livedoor lost. But the stock soared and Murakami sold his stake to Livedoor making a huge profit.
That’s pretty smart business, except for a minor problem—it’s against the law. Now Murakami has been arrested for insider trading. This is a HUGE deal in Japan. It would be like the Feds busting Jim Cramer on live TV.
But now, it’s gotten even weirder. It turns out that a guy named Toshihiko Fukui invested 10 million yen with Murakami. Oh, did I mention that he’s the head of the Bank of Japan? So not only has Cramer been arrested on live TV, but he’s managing Bernanke’s money! That’s what we’re talking about. Some people are now demanding Fukui’s resignation. The Japanese market just had its biggest one-day plunge since 9/11.
Come to think of it, the story really isn’t that funny.
The side story is that the Japanese economy is actually doing well for the first time in years. Fukui has hinted that he might lift interest rates from their current level of 0%. He just balked at an increase, but it’s coming soon. This scandal might actually have an impact on what the BOJ does.

The Argument Sketch
Posted by Eddy Elfenbein on June 15th, 2006 at 6:53 am

M: Oh look, this isn’t an argument.
A: Yes it is.
M: No it isn’t. It’s just contradiction.
A: No it isn’t.
M: It is!
A: It is not.
M: Look, you just contradicted me.
A: I did not.
M: Oh you did!!
A: No, no, no.
M: You did just then.
A: Nonsense!
M: Oh, this is futile!
A: No it isn’t.
M: I came here for a good argument.
A: No you didn’t; no, you came here for an argument.
M: An argument isn’t just contradiction.
A: It can be.
M: No it can’t. An argument is a connected series of statements intended to establish a proposition.
A: No it isn’t.

The “Argument Sketch” from Monty Python
This is from CNBC yesterday. The video is about nine minutes long (after a brief Ford commercial). I don’t even know how to describe it. Joe Kernan is moderating an inflation “debate” between Diane Swonk of Mesirow Financial and Peter Schiff of Euro Pacific Capital.

The Mark of the Bust
Posted by Eddy Elfenbein on June 15th, 2006 at 6:48 am

Martin Mayer on the fate of the dollar:

What we have to watch out for is a sudden and drastic increase in foreign official holdings. Rapid growth in this number in the late 1960’s and 1970’s forecast the recessions of the early 1970’s and 1980’s, and it could happen again.
Recent large increases in foreign official holdings indicate that foreign private investors see fewer attractive places to put their money in the American economy. They could presage a significant fall in the price of American assets, stocks (witness the recent drops in American stock markets) and bonds and real estate and all, and a hard landing for a world economy still floating on the crest of cheap credit.

The Flat Yield Curve
Posted by Eddy Elfenbein on June 14th, 2006 at 2:47 pm

For all the talk about commodities, bear in mind that the most important commodity that’s traded in the markets is risk. The thing about risk is that it mysteriously floats around in different market, but it’s always there.
Risk isn’t so easy to see in the equity market, but it’s very obvious in the yield curve. The chart above is a a good example of the effect that the stock market has on the bond market, and vice versa.
In March and April, the long-end of the yield curve was flat. But as the risky stock sectors rallied, the yield started to curve again. Now that money is leaving risky areas of the equity markets, the yield curve is flattening again. The same thing is going on, just expressed in different languages.

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