• Small-Caps Shine
    Posted by on July 13th, 2005 at 3:10 pm

    What’s been the hottest sector on Wall Street? Small-cap stocks.

    The Russell 2000 Index of small stocks has been outperforming the S&P 500 since April 8, 1999. Since then, the Russell 2000 is up over 67%, while the S&P 500 is down over 9%. Small stocks underperformed the S&P from March 25, 1994 to April 8, 1999.

    The Russell 2000 closed at a new all-time high on Monday. It reached new a high on Tuesday, but has fallen some since then. There may be some more room to grow. On a relative-performance-basis, the Russell 2000 still has a ways to go to match the level from 1994.

  • CNOOC’s Bid for Unocal
    Posted by on July 13th, 2005 at 2:05 pm

    There’s growing concern over CNOOC’s bid for Unocal. The problem is that CNOOC is 70%-owned by the Chinese government. ChevronTexaco is interested in Unocal as well, but they’ve only bid $16 billion compared with CNOOC’s $18.5 billion. Unocal’s board has recommended Chevron’s offer, but now CNOOC is fine-tuning their bid.

    The House Armed Services Committee held hearings today on CNOOC’s offer. Some members of Congress think this is a national security. The House overwhelmingly passed a resolution saying that this deal “may threaten national security.”

    I think this is greatly overstated. China is an oil importer, just like us. They want low prices too. Jerry Taylor, of the Cato Institute, testified that this isn’t a national security issue.

  • Ebbers Gets 25 Years
    Posted by on July 13th, 2005 at 1:28 pm

    See ya in 2030!

    2027 for good behavior.

  • Apple’s Earnings
    Posted by on July 13th, 2005 at 9:48 am

    Apple Computer is set to report its earnings today. This will be an interesting report to watch. Last quarter, Apple reported very strong earnings, beating Wall Street’s expectations by ten cents a share. But the stock took a hit because the company said that its revenue forecast was merely in line with Wall Street’s expectations. Wall Street had become so used to Apple beating expectations that anything less was seen as a big disappointment. The stock fell sharply on the day of the earnings announcement, and it’s been struggling ever since. Today’s report will tell us if iPod sales are beginning to taper off.

  • Gillette Votes to Merge
    Posted by on July 12th, 2005 at 5:56 pm

    Gillette shareholders have approved the merger with Procter & Gamble. A total of 96% of votes were in favor of the deal. The EU anti-trust regulators are deciding if they need more time to examine the merger.

    I was glad to see the famous shareholder activist, Evelyn Y. Davis, question James Kilts’ outrageous $165 million compensation package. Ultimately, even Davis voted in favor of the deal.

    For his part, Kilts defended his pay:

    “If we would have performed like the rest of the industry, my compensation would have been like the rest of the industry, and I never feel good about apologizing for outperforming the industry and making a lot of money for shareholders and I have to make money as part of that,” Kilts said. “When I joined the company, I knew I was taking a risk of joining a company that hadn’t performed for five years.”

    For each share of Gillette, shareholders will get 0.975 shares of P&G.

  • The Oil Uproar That Isn’t
    Posted by on July 12th, 2005 at 1:50 pm

    The New York Times seems puzzled that there isn’t a greater uproar over the high price of oil. The article does mention that, corrected for inflation, oil is still well below where it was 25 years ago. However, the article fails to mention that there hasn’t been a domestic refinery built in 29 years. The reason for the high price for oil isn’t greater demand; it’s due to vast supplies being underneath corrupt governments.

  • The EU Strikes Again
    Posted by on July 12th, 2005 at 11:18 am

    This time the Eurocrats have raided the offices of Intel. The raids drew praise from……Advanced Micro Devices!

    “We welcome today’s dawn raid concerning Intel’s continuing infringement of European competition rules. AMD has worked with the EU Commission for years and submitted growing evidence of Intel’s illegal activities, including materials from third parties.”

    This shows the difference between American and European anti-trust laws. Our laws are geared to protect consumers. In Europe, they’re less worried about protecting competition, but protecting competitors.

  • P&G’s Shareholder Approve Gillette Merger
    Posted by on July 12th, 2005 at 10:55 am

    This wasn’t a big surprise—over 96% of Procter & Gamble’s shareholders approved the merger offer with Gillette. Later today, Gillette’s shareholders will vote to give their approval.

    William Galvin, the Massachusetts Secretary of State, was on CNBC’s Squawkbox this morning. While there are a lot of things I don’t like about the merger, especially the outrageous $165 million payout that Gillette’s CEO is getting, I like even less how Galvin is going after them. He’s only recourse is to question the “fair opinion” that the companies got from their investment banks. So the government has to make its case that P&G’s offer, which was an 18% premium to the free market price, wasn’t a fair price. So what is a fair price? Galvin claims that P&G undervalued the deal by over $20 billion.

    The market price of Gillette’s stock is determined the collective judgment of millions of investors. Yet this one person claims that they were all dramatically wrong. In fact, 18% more than that isn’t merely wrong—but unfair. Of course, it Gillette is such a bargain, why doesn’t the state buy it? By Mr. Galvin’s reasoning, this would be the best deal since the Louisiana Purchase.

  • Pepsi’s Earnings
    Posted by on July 12th, 2005 at 10:48 am

    Pepsi reported strong second-quarter earnings today. What I find interesting is that the company is pretty weak domestically, but it’s doing very well overseas. By volume, soft drink sales in North America actually declined 0.5%. But Pepsi was bailed out by the rest of the world. International profits rose by 23%.

  • Earnings Expectations
    Posted by on July 11th, 2005 at 12:18 pm

    Wall Street is finally realizing that earnings for the second quarter will be better-than-expected. That’s hardly not to be expected. Earnings have now been better-than-expected for the last twelve quarters. Which leads one to wonder less about the earnings, and more about the expectations. Or perhaps, the expectations of expectations.

    Nonetheless, things are looking good. Alcoa was the first major company to report earnings last week. The market liked what it saw, and Alcoa rallied sharply. This week, 24 S&P companies are due to report their earnings results. The biggest increase in earnings estimates is in the energy sector. At the beginning of the second quarter, Wall Street was expecting second-quarter’s energy profits to rise by 13%. Today, it looks like it will be about 33%. But if you take energy out of the equation, the earnings growth for the rest of the S&P 500 is likely to be less than 5%.