• The Fed Goes 16-for-16
    Posted by on May 10th, 2006 at 3:04 pm

    The Fed raises rate to 5%. Here’s the statement (key changes in bold):

    The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5 percent.
    Economic growth has been quite strong so far this year. The Committee sees growth as likely to moderate to a more sustainable pace, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.
    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 yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information. In any event, the Committee will respond to changes in economic prospects as needed to support the attainment of its 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 unanimously approved a 25-basis-point increase in the discount rate to 6 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 is Gold’s Effect on Stocks?
    Posted by on May 10th, 2006 at 7:17 am

    Yesterday, gold cracked $700 an ounce for the first time in 25 years. The Dow Jones, however, didn’t seem to mind. The index is now less than 100 points away from an all-time high.
    I looked at the correlation between the price of gold, using the StreetTRACKS Gold Shares ETF (GLD), and the S&P 500.
    Over the last 369 trading days, gold has risen on 208 days and fallen on 157 days (four days were unchanged).
    If you total up all the days when gold rallied, the S&P 500 climbed 12.51%. On days when gold fell, the S&P 500 dropped a measly -0.46%.
    So is higher gold good for stocks? Well, not exactly. We don’t have enough evidence to say that. Sometimes you can have your facts right, and still draw the wrong conclusions. Of course, we could easily turn this around and ask if higher stocks are good for gold.
    I looked at the data a little more closely, and I was surprised to see that the positive relationship between higher gold and higher stocks is very recent.
    In fact, before October 27, 2005, the relationship was the opposite, although very slight. On the 128 days when gold rose, the S&P 500 lost 3.07%. On the 107 days of higher gold, the S&P 500 added a small gain of 2.66%.
    But on October 28, everything changed. Since then, on the 80 days of rising gold, the S&P 500 is up 16.06%. That’s over 60% annualized. On the 50 days of lower gold, the S&P 500 has lost 3.04% (over 14% annualized).
    The cause and effect picture is still fuzzy, but one thing seems clear. The two markets have become more aligned.

  • The Jet Set
    Posted by on May 10th, 2006 at 6:50 am

    Today’s New York Times wags its finger at top executives who use corporate jets for their personal use.

    Richard D. Parsons, chairman and chief executive of Time Warner, owns a small vineyard in Tuscany that produces a Brunello di Montalcino selling for $80 a bottle, adorned with a crest of the Parsons family.
    Twice a year, he boards one of his company’s four jets to visit his 20 acres in Italy. When he does, Time Warner shareholders pick up the bill.

    Personally, if I were a Time Warner (TWX) shareholder, I’d gladly pay to get Parsons out of the country.
    (Am I the only one dying to know what’s on his family crest? A laughing Steve Case? Someone’s gotta look into this.)
    Some companies claim that the jets are needed for security.

    Rollins Inc., a pest control company with a market value of $1.4 billion, has its chief executive, Gary W. Rollins, travel on company planes for security reasons. The company paid his taxes of $7,214, bringing his travel income to $116,988 last year.
    Michelle Leder, who tracks corporate compensation on her Web site, Footnoted.org, wrote that the only rationale for security needs at Rollins could be if “one day cockroaches decide to start fighting back.”

    Congrats to Michelle on making it into the Times! Woo!
    My favorite corporate jet story is about (who else) Larry Ellison. The Oracle CEO tried to buy his own MIG-29 Soviet fighter but the wimps at customs wouldn’t allow it. See, that’s why I love Larry. He spends his own money.

  • Hansen Teams With BUD
    Posted by on May 9th, 2006 at 4:09 pm

    Hansen Natural (HANS) did it again. The energy drink stock reported earnings of 84 cents a share, more than double the 37 cents it made last year. The average of the three analysts was for just 71 cents a share. Sales nearly doubled and gross margins expanded to more than 50%.
    The stock soared 15% today. It’s already up over 120% this year.
    Last year, the stock was up 330%, and in 2004, it did even better — rising 332%.
    The big news today was that Anheuser-Busch (BUD) will start distributing some of Hansen’s products.

  • Stocks and Ideologues
    Posted by on May 9th, 2006 at 11:43 am

    The WSJ is running a series of “where are the now” pieces to celebrate the tenth anniversary of wsj.com. Today’s victim is George Gilder, the editor of the Gilder Technology Report. If you recall, he was the guru who famously ignored things like a stock’s price or its fundamentals, and instead focused on investing “concepts.” Once the crack-up came, Gilder’s portfolio and following shrank dramatically. He even came close to going bankrupt.
    So what went wrong? Barry Ritholtz makes an astute observation: Gilder’s problem is that he’s an ideologue. He’s exactly right. The world of investing is the deathbed of ideologies (ideologies and language don’t mix so well, either) Value investing, growth investing, momentum investing, it doesn’t matter. Once you’re wedded to a concept, you’ve thrown in the towel.
    Stocks and bonds simply don’t care about concepts. It boils down to running a good business that makes things people need. If that’s a concept, there you go.
    I’ll give you a good example of someone’s ideology leading them astray. On June 20, 2003, Paul Krugman wrote in the New York Times that the stock market looked like another bubble. The S&P 500 had raced from a low of 800 three months before to nearly 1,000 by the time Krugman spotted trouble. Dr. Krugman wrote:

    Does the collective wisdom of the investor class perceive an imminent, vigorous recovery that is invisible in the data? The market isn’t always right. It wasn’t right when it sent the Nasdaq to 5000; it wasn’t right in the fall of 2001, the summer of 2002 or the late fall of 2002 — three would-be bull markets that fizzled. And selling by corporate insiders hit a two-year high in May.
    Meanwhile, the average stock is selling at 31 times earnings, twice the historical norm. And if you take into account pension liabilities and the cost of stock options, that number goes above 40.
    A few months ago, some analysts began to argue that because interest rates were so low, even today’s very expensive stocks were a good buy. I don’t agree, but that’s a long discussion. What’s clear, however, is that investors’ big move back into the market has been driven not by careful comparison of returns, but by the fact that stocks are rising — and the fear that if you don’t buy stocks, you’ll miss out on a good thing. The new bull market isn’t forecasting anything; it’s just feeding on itself.

    Well, Krugman was wrong and history has said so. At the time, the stock market was just beginning a nice rally. Sure, it’s easy to have a cheap laugh, and point out when someone big makes a lousy call. That’s not my point. The point is to ask, how could someone as knowledgeable as Krugman make such a poor forecast.
    From reading Krugman, it’s hard to escape the idea that he let his feelings towards President Bush enter his market analysis. That’s when the trouble begins. While I obviously can’t prove that point, the concern is there. The market simply doesn’t care who the president is, or how you vote. Stocks have their own agenda.
    Becoming a good investor involves cutting yourself off from overarching themes. The concepts may offer a convenient explanation of reality for awhile, but stocks become easily bored and before you know it, they’ve moved on. Or as the historian John Lukacs wrote, “the isms have all become wasms.”

  • Comp Hogs
    Posted by on May 9th, 2006 at 10:15 am

    Michelle Leder of Footnoted.org noticed this item in Harley-Davidson’s latest 8-K report:

    In addition, management periodically may provide a director with the use of a motorcycle where doing so may further a Company business objective. The director’s use may also include some personal use, and tax incurred related to such use will be reimbursed by the Company.

  • Behold the Power of Accounting
    Posted by on May 9th, 2006 at 9:50 am

    Here I thought GM was losing money. I mean, the company did say it lost $323 million for the first quarter. I usually don’t take those sorts of announcements lightly.
    But the great thing about GM is that if you don’t like a number on their income statement, you’re perfectly free to choose another. Go ahead. In fact you can just fill in your own! That’s exactly what GM did, and they settled on one of them “positive” numbers.
    Eighteen days after reporting a loss, GM now says that it really make $445 million for the first quarter. Why the change? Accounting, silly.

    The health-care agreement between GM and the United Auto Workers union requires the automaker to set aside $1 billion annually in 2006, 2007 and 2011 to offset increased health-costs to retired workers, according to a U.S. regulatory filing on March 31. Union retirees will pay premiums for the first time. It is part of an agreement to get a pretax health-care savings of about $3 billion a year from union workers.
    Preliminary Results
    GM had initially reported a first-quarter cost of $681 million, or $1.20 a share, for the first $1 billion payment to establish the health-care fund. GM Chief Financial Officer Fritz Henderson said at the time that the automaker was still talking to the SEC about how it should account for the payment.
    The company had said the health-care accord will help it reduce structural costs by an annualized rate of $7 billion by the end of this year, with $4 billion in savings in 2006. The automaker today increased the savings to $4.5 billion based on the accounting ruling.

    Bloomberg quotes one analyst as saying “The SEC backed off.” This, of course, has zero effect on the company’s operations, however the stock is rallying on the news.

  • The Baghdad Stock Market
    Posted by on May 9th, 2006 at 7:40 am

    It’s only open four hours a week, and there are just 100 stocks to buy, but the Baghdad Stock Exchange is open for business.

    The trading floor works the old-fashioned way — with bids taken on pieces of paper, the numbers written on a board with magic marker.
    In another unlikely twist, nearly half of the traders are young women. None of them wanted to talk to CBS News – because they were too busy.
    The stock market is being touted as one of post-war Iraq’s few success stories.
    Amazingly, one of the hottest areas of speculation is hotels and tourism. In a place like Iraq, this would surely fall into the futures category — long futures. And don’t even ask about the risk factor.
    “I buy them because they are real-estate and building on very good land, so they are cheap price, so I buy them and I wait,” says Abdul Latif, one of the traders who figures hotels are as good a place as any to try his luck.

  • 1955 Wheaties Commercial
    Posted by on May 9th, 2006 at 12:18 am

    Here’s a Wheaties commercial from 1955 featuring Duke Snider and Stan Musial. You have to pay 75 cents to see the whole thing, but you can see the first 10 seconds for free. The Wheaties boxes march past oil wells, amber waves of grain, and yes, the Arc de Triomphe.
    Enjoy.

  • Dell Warns (Again)
    Posted by on May 8th, 2006 at 5:11 pm

    Expect earnings of 33 cents a share, and sales of $14.2 billion. The Street was looking for 38 cents and $14.52 billion.

    The shortfall in earnings versus previous guidance was driven primarily by pricing decisions in the second half of the quarter that the company expects will accelerate revenue growth in the future.
    “During Q1 we continued to execute on our strategy to reinvigorate growth by making investments in our support infrastructure and product quality and by accelerating pricing adjustments,” said Kevin Rollins, Dell’s Chief Executive Officer. “We are committed to delivering industry leading value to our customers, which ultimately results in industry leading growth for the company.”

    The stock is down to $25 after hours.