• The Penny Bull Market
    Posted by on April 24th, 2006 at 11:55 am

    Thanks to the bull market in copper, the penny is about to worth more than one cent. Wow! Our money will be worth something. This is actually a serious problem for the government.
    Seigniorage—printing money for profit—is a nice little business our government has all for itself. In fact, it’s a felony if you or I try it. This is one the few purely socialized industries in the United States. You know those new “state series” of quarters? They’ve been a huge moneymaker for the Feds.
    But it was not always so. From the 1830s to the 1860s, the U.S. practiced “free banking.” Most of the currency in circulation came from privately issued bank notes. The amount of Federal currency wasn’t very significant.
    The old idea was that free banking was a disaster because the economy was dominated by lousy currency. But new research has shown that free banking was more effective than previously believed.

  • Get Ready for the Largest IPO in History
    Posted by on April 22nd, 2006 at 10:48 pm

    Coming this summer, the largest IPO in history, and it’s not a tech stock. It’s not even American.
    Rosneft, the Russian oil company, is set to go public in July. The company bought Yukos after the Kremlin forced Yukos into bankruptcy. Rosneft now has more crude oil in the ground than ExxonMobil.

  • Dell Is Below $27
    Posted by on April 21st, 2006 at 1:36 pm

    The bears have it out for Dell (DELL). The stock is down to $26.91 a share. I think this is a good time to remind everyone that Dell beat earnings last quarter. You don’t often find stocks this good going for 16 times earnings.

  • Yankees 1st Team to Top $1 Billion in Value
    Posted by on April 21st, 2006 at 9:17 am

    According to Forbes, the New York Yankees are the first baseball team to be worth over $1 billion. Forbes estimated the Yankees had $50 million operating loss.

    The Boston Red Sox were pegged with the second-highest value at $617 million, followed by the New York Mets ($604 million), Los Angeles Dodgers ($482 million), Chicago Cubs ($448 million) and Washington Nationals ($440 million).
    Tampa Bay was last among the 30 teams at $209 million.

    The Yankees are 7-7, tied for last with Tampa Bay.

  • Citigroup Cuts Dell to Sell
    Posted by on April 21st, 2006 at 9:14 am

    From TheStreet:

    The pricing advantage enjoyed by Dell is eroding as competitors adapt its inventory and supply-chain innovations, and the company needs to contemplate lower margins to preserve its franchise, Citigroup said in downgrading the stock to sell Friday.
    The brokerage slashed its price target on the computer company’s shares to $28 from $37, saying Dell must adjust its profitability expectations in order to kick start growth and market share. In premarket trading Friday, the shares slipped 74 cents, or 2.6%, to $27.50.
    “Dell management has been vocal that the business model functions optimally when PC and server units are growing above-market — this has not been the case for several quarters. Given that Dell’s price advantage has eroded to 5% or less since ’01, a margin reset is necessary to re-widen the price gap and gain share,” Citigroup wrote.
    “There is historical precedent for such a reset,” Citi wrote. “When end-market growth decelerated through calendar 2000, Dell ultimately slashed gross margin by 300 basis points in a single quarter in order to take share during the downturn and position for the next upturn.”
    Citi noted that Dell’s stock fell from $42 in July to $30 at the end of 2005, and blamed the decline on the company’s inability to outgrow the global PC market in unit terms for the first time in a decade.
    “With Dell’s highly profitable U.S. PC business going ex-growth in the first calendar quarter of 2006, further end-market end market deceleration likely, especially in Dell’s largest segments and geographies, we think the probability of a ‘margin reset’ is rising,” Citigroup said.

  • Danaher Earns 67 Cents a Share
    Posted by on April 20th, 2006 at 12:36 pm

    A few weeks ago, Danaher (DHR) raised the lower end of its guidance. It turns out, the company was right!
    Today, Danaher reported earnings of 67 cents a share, two cent more than Wall Street estimates.

    Danaher earned $216 million, or 67 cents per share, compared with $188 million, or 58 cents per share, a year earlier.
    Analysts on average expected 65 cents per share, according to Reuters Estimates, after the company said last week that results would exceed its earlier range of 61 cents to 64 cents. Danaher had previously raised its forecast in March.
    The results included 2.5 cents per share in stock options expense, as well as a 1-cent tax-related benefit and a 1-cent gain for the sale of real estate.
    Danaher, whose products range from Craftsman tools to gas station equipment and water treatment systems, said it saw broad strength across its businesses, and it was confident it would deliver positive results for the rest of the year.
    Sales rose 17.5 percent to $2.14 billion, matching the estimate the company provided last week, when it announced its biggest-ever acquisition.

    The company is trading lower today due to its conservative forecast for the rest of 2006. Danaher said that it expects to earn between 73 and 78 cents a share for the second quarter, and $3.07 per share to $3.17 a share for the year.
    Wall Street was expecting 77 cents for the second quarter, and $3.13 for the year. I think the company is simply being cautious.

  • Imagine
    Posted by on April 20th, 2006 at 10:05 am


    Imagine no possesions,

    I wonder if you can,

    No need for greed or hunger,

    A brotherhood of man,

    Imagine all the people

    Sharing all the world…

    John Lennon’s Schoolbook Fetches $226,150 in London

    April 20 (Bloomberg) — John Lennon’s schoolbook, entitled “My Anthology,” fetched 126,500 pounds ($226,150) at a London sale of rock memorabilia last night. Auction house Cooper Owen Plc had set a minimum price of 100,000 pounds for the 12-year-old’s scribbles and drawings.

  • Golden West’s Earnings
    Posted by on April 20th, 2006 at 9:49 am

    Golden West Financial (GDW) reported first-quarter earnings of $1.25 a share, one penny below expectations.

    Golden West Financial Corp., the nation’s second-largest savings and loan, reported Thursday that strong performance from its adjustable-rate mortgage lending products helped push up first-quarter profit by 12 percent.
    The parent company of World Savings Bank reported profit for the period of January through March rose to $390.9 million, or $1.25 per share, from $348.3 million, or $1.12 per share, a year earlier. Results missed Wall Street projections for earnings of $1.26 per share, according to Thomson Financial.
    “As always, the key driver behind the growth of the company’s profits was the ability to expand our mortgage portfolio, which is our primary earning asset,” Chairman and Chief Executive Herbert Sandler said in a statement.
    Golden West’s loans receivable increased by $14.8 billion, or 14 percent, from the year-ago period. Adjustable-rate mortgages, or ARMs, are popular when interest rates become unpredictable and fixed-rate loans become difficult to obtain.
    Sandler said low long-term interest rates have made fixed-rate loans more attractive to borrowers, while the cost of adjustable-rate mortgages continues to climb. He said the company’s loan volume during the quarter edged up to $11.6 billion from $11.2 billion.
    Banks with large lending operations have seen margins squeezed after 15 straight Federal Reserve interest rate hikes, which have also curbed demand for refinancing and home loans. Banks make money from the spread between deposits and what they charge for loans.
    Golden West also reported deposit growth of $1.4 billion, down from a first-quarter record of $2.6 billion set in 2005. Renewed interest in the stock market along with aggressive pricing by our competitors slowed deposit inflows from last year’s all-time high level, the company said.

  • The Late Cyclicals Surge Higher
    Posted by on April 19th, 2006 at 3:06 pm

    Here’s another sign of an overheated market. The late-stage cyclical stocks are starting to outperform early-stage cyclicals.
    Here’s a graph of the Merrill Lynch Late Cyclical Index (^XT), the gold line, with the Merrill Lynch Early Cyclical Index (^XE), the black. Notice how closely this indexes tend to track each other. But recently, the late-stage cyclical stocks have jumped higher while the early-stage stocks are bouncing along.
    XE.bmp
    The XE is comprised of stocks that do well once the economy starts to show some life. These tend to be more consumer-oriented stocks. In fact, Wal-Mart is about 30% of the index. The index also inlcudes names like Lowe’s, Home Depot, Costco and Target.
    The XT is made up of stocks that do well when the economic cycle starts to show its age. These are mostly heavy-industry and commodity stocks like Dupont, Dow Chemical, Alcoa, Phelps Dodge and Nucor.
    Bloomberg News polled 41 economists and all of them agreed that the Federal Reserve will raise rates to 5% on May 10.

  • Cash Is King
    Posted by on April 19th, 2006 at 9:58 am

    Today is a huge day for earnings. Six Dow components report today. Thanks to yesterday’s big move, the market is again close to five-year highs.
    The government reported that consumer inflation rose by 0.4% last month. The core rate, which excludes food and energy prices, rose 0.3%. Although bonds rallied on Monday and Tuesday, yields are headed higher this morning.
    I’ve been looking at a lot of balance sheets lately, and I’m surprised at the level of cash that many corporations are holding. Microsoft (MSFT), for example, has $35 billion in the bank. Think about that. Their bank account is larger than most banks. In fact, by itself, Microsoft’s bank account would be the 70th largest stock in the S&P 500. ExxonMobil (XOM) isn’t far behind with $29 billion in cash, and Pfizer (PFE) has $22 billion.
    What is everyone waiting for? Perhaps Microsoft will pay another special dividend. I think it’s interesting that a software company is one of the largest lenders in the country, and it isn’t even part of the Federal Reserve System.
    On my first job as a broker, I remember how we were trained in our “pitches” to say things like “best of all, this company has a mountain of cash” or “don’t forget, cash is king.” I didn’t know what the hell I was talking about. Holding a lot of cash isn’t in and of itself a great thing. Cash doesn’t do much besides earn interest, and I don’t need to buy a stock to do that. The whole idea of investing is exchanging cash for assets that are (hopefully) more productive.
    While I’d prefer to own a company that has little debt and a nice wad of cash, it’s not imperative. It can even be a slight negative. This is what’s known as the Bladder Theory of corporate finance. The odds that you’ll do something intelligent with your cash stash is inversely proportional to the amount of cash you have. Given the past few years, I don’t think the Bladder Theory is just a theory anymore. Google (GOOG) is sitting on $8 billion. That’s $27.13 a share. We all know they’re great at technology, but now we have to see how good they are at investing. I hope they’re better at investing than they are at PR. I know they’re going to buy somebody soon, but dear lord, I’m afraid to guess.
    The reason why I like to see how much cash a company has is that it can distort how much a stock is worth. Let’s look at Microsoft again. The company is going for $27.13 a share, which is about 17.7 times next year’s earnings of $1.53 a share (their fiscal year ends in June).
    But! The company has no debt and $3.35 a share in cash. So let’s remove the cash and look at the valuation. Minus the bank account, Microsoft is trading at $23.78 a share. Let’s estimate that the cash will generate earnings of 15 cents a share (that’s about 4.5%). This means that Microsoft’s business will generate earnings of $1.38 a share. So Microsoft’s business operations are really going for 17.2 times earnings. That’s a slightly different picture.
    While Microsoft is trading at 8.1 times cash, Dell is going for just 7.3 times its cash. Other cash-rich stocks on our Buy List include Fair Isaac at 8.3, Golden West at 11.8, Harley-Davidson at 13.4, Medtronic at 12.1, Respironics at 10.4 and UnitedHealth at 11.2.