• Morgan Stanley fires 4 after strip club visit
    Posted by on January 5th, 2006 at 7:26 am

    From Reuters:

    Morgan Stanley has fired four employees, including a stock analyst, after they accompanied at least one client to an adult-entertainment club, the Wall Street Journal reported on Thursday, citing people familiar with the matter.
    The newspaper said the stock-research analyst and three sales staffers worked in Morgan Stanley’s institutional-stock division. All four were men, the Wall Street Journal reported.
    Citing people familiar with the matter, the newspaper said the workers were technology-industry specialists who visited a strip club with one or more clients during a conference held by the firm in Phoenix, Arizona, in November.
    A spokesman for Morgan Stanley could not immediately be reached for comment.
    Morgan Stanley paid $54 million to settle charges in July 2004 that it denied women pay rises and promotions, paid them less than men, excluded them from company events, and subjected them to lewd behavior.
    The U.S. Equal Employment Opportunity Commission EEOC brought the charges in 2001 on behalf of hundreds of women, accusing it of engaging in a pattern of sex discrimination since 1995.
    Morgan Stanley denied wrongdoing as part of that settlement.

  • Google Watch
    Posted by on January 5th, 2006 at 6:27 am

    This morning’s WSJ has an interview with Safa Rashtchy of Piper Jaffray. The analyst just gave a super atomic wedgie to every Google (GOOG) short on Wall Street by slapping a $600 price target on the stock. His old price target was a wussy $445, which Google just gobbled thanks to…well, Mr. Rashtchy’s new price target. He thinks the search giant can make $11.91 a share in 2007. That’s roughly twice what Google made in 2005.
    One of the wonders of Google is the way they’ve been able to have Wall Street eat out of there hand at the same time the company slams the financial establishment. I’ve always felt that Google’s unconventionality was a bit affected. They seem to relish the role of outsider too much.
    And if you watch carefully, Google has backed down several times when important principles were at stake–principles which they claim they stand for. Never underestimate these moments. There’s a reason why I admire companies like Expeditors (EXPD). A good company shouldn’t be so concerned with attitude.
    The Google Dolls love to quote Warren Buffett but the company is perversely secretive. That’s not at the service of shareholders. The Journal asks Rashtchy about Google’s secrecy:

    Google publicly discloses very little information about itself. How does that affect your ratings?
    I don’t find it particularly difficult because of a couple of reasons. I’ve known Google nearly since it started. And also I’ve covered the search industry longer than other analysts. Google is so big that I liken it to Wal-Mart. If you know the retail market, you have a pretty good chance of knowing how Wal-Mart is doing. I study the broader search market. In reality, Google has a very easy business model. It’s basically how many searches they have done times how much revenue they get per search.
    Having said that, Google discloses very little. It poses some difficulty for analysts, but it really poses more risk for investors. Right now, it is a boom time for Google, and people aren’t that worried about a lack of transparency. Should there be any slip or any miss from expectations, investors could be very concerned and there could be some selloff because investors wouldn’t know what caused it. So, yes, it is a factor.

    No. Not at all. And by that, I mean yes. Investors could become concerned if at some point investors were to become concerned.
    He tells us how well he knows Google, but if he’s such an expert, why has he raised his price target five times since April? His own actions signal that there’s something important he’s consistently missing.
    What annoys me about most about Sarbanes-Oxley or the antics of Governor-to-be Spitzer is that they’re only willing to attack targets once they’re down. Where were they before? I’ll be very blunt. Google is one of the most hostile companies to investors possible. What they’ve been allowed to get away with is ridiculous. And the slate is wiped clean all because the stock has gone up.
    People like Safa Rashtchy aren’t helping things. Google’s rally isn’t going to last forever. Once the shares fall, some white-haired widow will sob to her congressman, and then we’ll hear the indignation: “Wait a minute! This company has two classes of stock; one with ten times the voting power of the other! How come no one told us?”
    Whenver Google is involved it seems to breed weirdness. Just consider the equation of Bear Stearns plus dumb metaphors equaling incoherent drivel. I’ve read this a few times and I’m still lost.

    Today, we are introducing the concept of the Google Ecosystem to investors, and with that, we are raising our rating to Outperform from Peer Perform. In conjunction, we are raising our 2006 price target to $550 from $360, reflecting our long-term belief in the fundamentals and the burgeoning Google Ecosystem.
    An ecosystem is a community interacting as a functional unit that grows and mutually supports the various components within it. While most people associate the ecosystem with nature, we think it also applies to business sectors and believe Google is in the midst of nurturing its own ecosystem — much like Microsoft and IBM did in the past.
    We believe the Ecosystem has five main attributes: Google’s size is developing new sectors as a derivative; Google’s direction and partners should have a resounding effect on existing companies; the Ecosystem should act as self-reinforcing to Google; Google’s hardware competency is underrated and a significant advantage; and the Ecosystem growth should create an economic lift for Google.
    As with any ecosystem, the growth of Google’s Ecosystem is susceptible to many risks, including: increased and unforeseen competition; inability to adapt; dependence on overall Internet access and content growth; global political and economic trends; legal risks; key partners within the Ecosystem; and the enforceability of Google’s many patents.
    The seminal PageRank patent that launched Google’s success in search was filed in 1998 and issued in 2001 to Stanford (not Google). However, we do NOT believe that PageRank is Google’s secret sauce. We think that the patents flowing from Google since 1998 may provide more important insights into Google’s future, and maybe most importantly, act as a barrier to entry to would-be competitors.

    Oh dear lord. This metaphor is like some tiny spider scampering its way across the linoleum of understanding. I, my friends, am the sneaker of logic. I’m still a little dazed but I think we have an ecosystem that faces legal risks? Someone help me out. Perhaps the secret sauce will protect them. I’m just not sure.
    In any event, I’m going to raise my price target on Google to $700. And a sack of magic beans.

  • Whoa Nellie!
    Posted by on January 5th, 2006 at 12:30 am

    What a game! Here’s the TradeSports futures contract for USC to win by 7.5 points, as it was traded during the last hour of the game.

  • The Market Today
    Posted by on January 4th, 2006 at 6:05 pm

    Another good day on Wall Street. At least this time, we beat the S&P 500. The Buy List gained 0.60%, and the S&P 500 rose 0.37%. The S&P finished at a four-year high at 1273.46. Sixteen of our 20 stocks closed higher today. I was happy to see SEI Investments (SEIC) have a good day. The stock added 2.9% in today’s session.
    J.P. Morgan cut its rating on Lowe’s (LOW), although Home Depot (HD) seems to be have been more adversely affect. Shares of Home Depot dropped 1.8%.
    Outside the Buy List, Google (GOOG) added $10 a share, and it hit a new all-time high. The stock was upgraded by the analyst at Bear Stearns. Yesterday, Safa Rashtchy at Piper Jaffray gave the stock a price target of $600. Google is now inches away from $450 a share. Pfizer (PFE) also had a good day.
    Copper, gold and oil all climbed higher. Gold is now at a 25-year high.

  • Looking at Cisco
    Posted by on January 4th, 2006 at 2:40 pm

    At MSN Money, Michael Brush makes the case for Cisco (CSCO):

    At $17.20 per share, the market doesn’t seem to be giving Cisco credit for its potential. If you subtract the $2.20 a share Cisco holds in cash, the stock trades for 13.6 times the $1.10 that Wall Street analysts project it will make in 2006.
    Cisco looks cheap compared to the S&P 500. Investors are paying 14.7 times next year’s earnings for S&P 500 stocks, whose earnings are expected to grow 13.1% next year. Cisco should be able to book annual earnings growth in the 12% to 15% range for several years to come.
    Cisco’s router and switch business — where it has more than a 70% share of the global market — accounts for about 60% of revenue. It’s growing in the 7% to 8% range a year, estimates Aaron Rakers, an A.G. Edwards analyst, who has a “buy” rating on Cisco and thinks the stock could climb 30% over the next 12 to 18 months.
    Cisco has been using its huge cash hoard to either purchase or develop new technologies with its Advanced Technology Group. Here, the company focuses on lines of technology it believes can, in the near future, bring in at least $1 billion in annual sales. To put that in context, Cisco is expected to have revenue of $30 billion in 2006.

    I just don’t see it. First, a growth rate of 12% to 15% seems overly optimistic to me. In my opinion, the business is too fragile to make such a prediction. Bear in mind that Cisco’s revenues in FY 2001 were higher than the next three years. Also, Cisco’s fiscal year ends in July, so that throws the comparisons off a bit. On top of that, we have the issue of accounting for options expenses. Cisco fought this regulation every step of the way. Me thinks they protested WAY too much. And if that isn’t enough, there’s the Scientific Atlanta (SFA) deal to absorb. I agree that Cisco looks cheap. Unfortunately, I think there are many good reasons why.

  • Expeditors 8-K Report
    Posted by on January 4th, 2006 at 10:31 am

    As usual, the folks at Expeditors (EXPD) have fun with their 8-K report. Here’s a sample:

    9. Recently one of your competitors indicated they will incur incremental costs due to the successful recruitment of sales talent from other firms currently undergoing consolidation. Has Expeditors been successful in recruiting new sales members from these firms and if so what are the anticipated pre-tax recruitment costs in Expeditors’ upcoming quarter if any?
    Did somebody really say this with a straight face? And perhaps more importantly, did you believe it? Pardon us if we seem a little glib at such an announcement by one of our competitors, but we have never measured sales recruitment in terms of “incremental costs.” In fact, our outlook is captured in an old advertising slogan that went something like “there is always room for Jell-o.”
    Around here we assess a potential sales hire, whether from a merging company or somewhere else, in terms of profitable business that the person might add. If they can bring enough profitable new business, you are looking at the sales equivalent of a very green gelatin dessert.
    We constantly attempt to attract and develop good sales people. We want sales experts, not sales specialists. The difference between the two being that the specialist conducts a lot of sales activity, perhaps with mixed results, while the sales expert actually brings in new business.
    At Expeditors, the responsibility for the sales efforts does not rest solely on the head of our sales people. The U.S. Marine Corp has a maxim that goes something like “every man a rifleman”. The meaning is clear for regardless of the specialty assignment a member is given, from a cook to platoon leader, each marine is expected to be an expert with a rifle and to be ready to use it, to the exclusion of all else, if the situation calls for firepower. By that same token, at Expeditors, sales is everyone’s business. Operational personnel are expected to be heavily involved in sales and sales support and they are charged with taking the lead role in connection with customer retention.
    So, you can say that at Expeditors we’re always looking for additional sales “experts”. This is true no matter what the competition is doing to each other. We have added a few lately, but we are looking for incremental profits not worrying about extra expense.
    Any company that talks about “incremental costs” from hiring sales talent like these expenses were something material to a quarter, must not be very confident about the potential pay back. They may be about to eat something, but it probably isn’t going to be Jell-o.

  • Southwest Enters Denver
    Posted by on January 4th, 2006 at 5:52 am

    Southwest Airlines (LUV) starts business at Denver International Airport. I think Frontier Airlines (FRNT) will prove to be much stiffer competition than LUV expects.

  • Russia here to stay as energy superpower
    Posted by on January 4th, 2006 at 5:37 am

    Reuters notes that we’re going to have to get used to Russia being an energy superpower:

    Gas monopoly Gazprom warned on Tuesday there was still a risk of supply disruptions to Europe if Ukraine continues to expropriate Russian gas from the pipeline crossing its territory.
    Europe relies on Russia for a quarter of its gas imports. Russia plans to increase its gas exports to Europe by a third to 200 billion cubic meters a year by 2020 but its market share will remain constant as European demand grows.
    Russia’s oil output has also grown rapidly in recent years and hit a post-Soviet high in December 2005.
    The country produces every tenth barrel of oil in the world and is the world’s second largest crude exporter after Saudi Arabia, with supplies going mainly to Europe.
    Russia’s crude exports of up to 5 million barrels per day cover more than a quarter of Europe’s oil needs and Russia’s main crude oil export blend Urals is the main traded grade both on the Mediterranean and in northwest Europe.

    The last time energy prices spiked, Russia conducted a bold acquisition–Afghanistan.

  • Day One
    Posted by on January 3rd, 2006 at 11:20 pm

    2 p.m. made all the difference….
    At 2 p.m., the market got the minutes from the latest Fed meeting and a rather blah day turned into a darn good rally. The good news is on the first day for our new Buy List, our stocks were up 0.78%. The bad news is that our stocks were creamed by the broader market. The S&P 500 was 1.64%.
    Basically, today was a microcosm of 2005. Energy stocks were up huge. Google (GOOG) was up by $20 a share, or $6 billion in market value. Oil soared over $63 a barrel. The S&P 500 Energy Index (^GSPE) was up 4.5%. Just like much of last year, most of the other sectors were bunched together. Make no mistake though, this was a good day for stocks. Today was the best rally since October.
    The whole Russia versus Ukraine thing really spooked traders in the commodity pits. I mean, aren’t those two always fighting?
    My strategy for ’06 was just not working today. The sectors I like least (energy, gold, materials and tech) were the market leaders. My favorite areas pulled up the rear. Our best stock was surprisingly, Golden West Financial (GDW). I love GDW, but it’s normally so quiet. Fair Isaac (FIC), Dell and Donaldson (DCI) also did well. Our health care stocks were particularly weak today.
    The irony is that one year ago we had the complete opposite news. The Fed minutes indicated that there could be rates increases through 2005, and the Dow lost about 100 points.
    I think the rally in the dollar may soon come to an end. Of course, much of the media has been calling for that for some time. The European Central Bank just raised interet rates for the first time since 2000.
    Two other things to note: In Slate, Daniel Gross weighs in on declining volatility.
    Lastly, it’s good to see Charles back at the Kirk Report.
    Let’s hope Day Two goes a lot better than Day One!

  • This Day in Market History
    Posted by on January 3rd, 2006 at 3:36 pm

    From Gary Alexander at Investorplace.com:

    The best January day in market history was January 3, 2001, when the Dow gained 299.6 points. That was chicken feed compared to the +14.2% ONE-DAY move up in NASDAQ! It came a year after the market’s peak, when everyone thought the worst was over: NASDAQ soared from 2291.86 to 2616.69 on one day. It’s safe to say that kind of a NASDAQ gain won’t happen in one day, any time soon.
    January has long been one of the best months of the year. January has seen the most cumulative Dow gains of any month since 1950. Since 1970, January is the best month of the year for NASDAQ and the S&P 500 (it is second-best on the Dow). January is also the most volatile month, with the highest average daily point changes.
    Don’t let today’s morning action throw you into a funk. The first trading day is often down early, but the Dow has been up on the first trading day of the year in 10 of the last 15 years. The same is true of the second day of the year — up 10 of the last 15 years. Combined, the two days have been bullish.
    Except for last year and 2000, the first two trading days of the year have been net UP in 8 of the last 10 years, and up a rather consistent 1.5% in up years from 1996 to 2002. (That’s about 160 Dow points these days):
    1996: +76.95 (+1.5%)
    1997: +95.82 (+1.5%)
    1998: +70.74 (+0.9%)
    1999: +129.76 (+1.4%)
    2000: -496.19 (-4.3%)
    2001: +158.90 (+1.5%)
    2002: +150.64 (+1.5%)
    2003: +260.06 (+3.1%)
    2004: +90.15% (+0.9%)
    2005: -152.23 (-1.4%)
    The Three BEST Januarys since 1950 Were All Double-Digit Gains:
    As measured by the S&P & The Dow
    1987: +13.2% & +13.8%
    1975: +12.3% & +14.2%
    1976: +11.8% & +14.4%
    The WORST Januarys since 1950 Were Single-Digit Losses, all ending in “Zero”
    Year… S&P + Dow
    1960: -7.1% & -8.4%
    1970: -7.6% & -7.0%
    1990: -6.9% & -5.9%
    GOLD’S GREATEST YEARS OPENED STRONGLY
    On January 3, 1974, Gold hit a record $121 an ounce in London, but Americans couldn’t buy it yet. Gold rose to $200 on the last day of of 1974, when Americans were finally allowed to own it.
    On January 3, 1980, Gold hit a record high of $634 an ounce, rising rapidly to $850 by Monday, January 21, 1980. After hitting $660 again in the fall, gold hasn’t been over $600 in the last 20 years.