• Bond Market Blues
    Posted by on August 1st, 2005 at 8:34 pm

    I hate to spoil the party, but has anyone noticed that the bond market is going down? By that, I mean it’s losing value. In other words, it’s not going up. Bonds are falling. Interest rates are going up, and not just the ones controlled by Team Greenspan. If you have an adjustable-rate mortgage, you ain’t too happy about the bond market’s sudden turn for the worse.

    If could have been different. The government had wonderful news for the bond market: They said that they won’t have to borrow as ridiculously much as they had thought. Regrettably, the bond market somehow didn’t take this as gracefully as one would hope.

    Perhaps, Asia is getting a bit fed up with our spending habits. That’s certainly understandable. Half of our Treasury debt is held in the Far East. Locking in a 4% yield until 2020 isn’t my idea of a great deal either.

    Today’s Treasury auction did not go so well. The government hocked off a cool $18 billion in three-month bills. The yield came in at 3.4%, which is the highest in nearly four years. Another $16 billion in six-month bills went for 3.6%, the highest rate in slightly over four years.

    The famous yield curve isn’t curving much lately. At the beginning of the year, the difference between the two-year note and the five-year note was over 1%. Today, it’s down to just 0.25%.

    The yield on the 30-year T-bond finally broke 4.5%. Do I hear 5%? (Technically, this is a 26-year bond, but at the rate the government is going, I think we’ll be auctioning off fresh 30-years soon.) The long bond is now at its highest yield in 11 weeks. The 10-year closed over 4.3% today, its highest yield in 15 weeks.

    The market’s rally earlier this year was crushed by higher yields. As rates rise, cyclical stocks tend to outperform consumer stocks. I say “tend to,” but not always. Since October 9, 2002, the Morgan Stanley index of consumer stocks is up 26.8%, while the index of cyclical stocks is up over 105%. In fact, it’s surprising how cheap some food stocks are. Sysco (SYY), I’m looking at you.

    The stock rally may continue, but it won’t be able to go for long without some help from the bond market.

  • Department of Irony
    Posted by on August 1st, 2005 at 9:33 am

    The Sixties are officially over. “All You Need Is Love” Lyric Fetches $1 Million in Beatles Sale.

    An anonymous bidder in the room competed with a telephone buyer for the manuscript. The sale broke the previous record for a Beatles lyric of 250,000 pounds for “Nowhere Man,” according to John Collins, owner of Surrey, England-based auction house Cooper Owen Plc.

  • The Microsoft Bandwagon
    Posted by on August 1st, 2005 at 7:45 am

    Earlier I mentioned that Microsoft’s stock is beginning to look like a good buy. Now there are two articles backing me up. Barron’s says that even after Microsoft’s humongo dividend, the company still has $49 billion in the bank. That means that their bank account is more valuable than all but a few companies in the world. (Barron’s is a subscription link, but here’s a link to wire story about the article.)

    Business Week says that Microsoft’s period of slow growth may be coming to an end. The company has its new version of Windows (Vista) coming soon. The software giant expects sales to grow by 10% to 12% this fiscal year, compared with just 8% for the fiscal year that just ended.

    My take is that Microsoft has entered a new era. It will be more of a stable growth stock, similar to what Coke and Gillette were 20 years ago. Microsoft won’t give you big gains, but it will be a dependable part of your portfolio.

  • Baidu Set to Go Public
    Posted by on July 31st, 2005 at 3:58 pm

    Shares of Baidu, the Chinese search engine, are set to go public this Thursday. The company will trade on the NASDAQ under the symbol BIDU.

    As you might expect, Baidu’s IPO is getting a great deal of buzz. The company is being touted as the Chinese version Google. In fact, Google has invested in the company, and some observers think Google will eventually buy the whole thing. Google’s influence is clear as Baidu’s site mimics Google’s minimalist design.

    According to Francis Gaskins, an IPO expert, Baidu will carry a price/earnings ratio of 528. I think I know how this story will end.

  • NYT: Utilities Are Great Investments, Or Possibly Not
    Posted by on July 31st, 2005 at 1:40 pm

    Conrad de Aenlle writes on the utilities sector in today’s New York Times. His thesis is that some people like utilities, while others don’t.

  • Listen to Alan
    Posted by on July 30th, 2005 at 12:58 pm

    Channel News Asia

    Greenspan warns over oil, housing markets

    Reuters

    Greenspan warns of “speculative fervor” in housing

    BBC

    Greenspan warns on rising rates

    CNN

    Greenspan warns on fuel, housing

    Forbes

    Greenspan warns China currency peg causes ‘very serious’ problems

    Globe and Mail

    Greenspan warns good times won’t last forever

    MSN Money

    Greenspan warns of ‘significant uncertainties’

    The Orange County Register

    Greenspan warns of pension pressure

    Conspiracy Planet

    London Bombings: Alan Greenspan Knew 2 Days Before

    Sheesh. He could have told us.

  • The Government Cracks Down on Poor Accounting Standards
    Posted by on July 30th, 2005 at 12:30 pm

    This time, it’s the SEC that’s up to no good.

  • Requiem for the Researchers?
    Posted by on July 29th, 2005 at 9:57 pm

    The New York Times has an interesting story about layoffs on Wall Street. I was stunned to learn that since 2001, Wall Street has shed 55,000 jobs. Read the whole thing.

  • Report: CNOOC Set to Dump Bid for Unocal
    Posted by on July 29th, 2005 at 6:17 am

    It looks like CNOOC is giving up its plans for buying Unocal. The Chinese have said that there’s too much political pressure. That’ll teach the communists to mess with big government.

  • Tomorrow’s GDP Report
    Posted by on July 28th, 2005 at 9:35 pm

    Wall Street is waiting tomorrow’s GDP report. This will be the first report on how well the economy did for the second quarter. The government reports each quarter’s GDP growth three times, at the end of the each month following the quarter.

    The initial estimate is usually pretty far off the mark. Three months ago, Wall Street got nervous when the initial estimate for the first quarter was just 3.1%. It was later revised to 3.5%, then again to 3.8%.

    I find this very annoying. Look at this AP story from three months, and bear in mind that the entire “back story” is wrong. The economy wasn’t hitting a “soft patch,” and the economy’s performance actually exceeded expectations. Investors didn’t know the whole story until the GDP report was revised.

    These revisions can be pretty big. I’d prefer to see the government hold off on any economic report until it has a good number. Even if it takes several weeks, the market needs to trust this information.

    My guess is that the economy grew by 3.7% for the second quarter. That’s just a guess of a hunch of a prediction. Even if I’m wrong, it won’t change my investment strategy at all. The only important aspect of a GDP report is its trend. The economy has expanded above its long-term trend of 3% for eight straight quarters. This will probably be the ninth.

    If not, we still need more data to confirm a trend. My advice is to watch tomorrow’s GDP report, but don’t act on it.