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August 31, 2006 Wachovia, Golden West shareholders OK merger The shareholders have spoken: Wachovia Corp. and Golden West Financial Corp. easily won shareholder approval on Thursday for their merger, which would combine the fourth-largest U.S. bank with the No. 2 U.S. savings and loan. Posted by Eddy at 04:25 PM | Permalink Random Thoughts I hope things are as quiet where you are as they are here on the 81st floor of the Crossing Wall Street Tower. Here are a few completely random thoughts for this morning. Do you realize that 2006 is already two-thirds over? That means this decade is also two-thirds over. Scary! We’re entering the late-aughts! The yield on the 10-year T-bond (^TNX) dipped below 4.75% this morning. Wow. That’s a drop of 50 basis points since June. (Of course, June was way back in the mid-aughts, so that may explain it.) Yahoo Finance has gone all blinky. Take a look. I think it’s a good thing, except it seems harder to scroll down longer portfolios. One month ago, Wall Street was expecting a GDP report of 3% growth. It came in at 2.5%, and the S&P; jumped 1.2%. Yesterday, the GDP report said “no, you were right the first time—it was 2.9%.” Yesterday, the S&P; did nothing. Weird. The Census Bureau came out with its big yearly report yesterday. You can geek out to the data. Here's something that probably surprises most people, but not me. The median family income for Prince George's County, MD is $74,767. For Orange County, CA, it's $74,396. In other words, the PG is richer than the OC. Posted by Eddy at 11:08 AM | Permalink First Industrial Realty Congratulations to Warren Buffett who not only turned 76 yesterday, but he also got married. Here’s a quick Buffett story. In late 1999, a man paid $210,000 for a wallet, in what could have been the worst wallet investment in history. There are, however, a few facts I need to add. First, it was for charity. Second, it was Buffett’s old wallet. Oh…and did I mention the stock tip? I guess that could help explain the price tag. Inside the wallet, Buffett left a stock tip. The stock he recommended was First Industrial Realty (FR). The wallet buyer graciously made the stock tip public. I don’t have a reference to the exact day, but I think I’m going to go with December 17, 1999. The records show that shares of FR had one their biggest jumps ever on eight times their normal volume. After all, this is a sleepy Real Estate Investment Trust (or REIT). Now I have to remind you that in late 1999, no one was buying REITs. No one. Tech was king. To add some perspective, Morgan Stanley has a REIT Index (^RMS). In October 1997, the index got over 365. By December 1999, it was down to 265. To reiterate, no one was buying REITs. REITs aren’t supposed to move a whole lot. They have a special tax advantage, and the trade-off is that they must pay out almost all of their profits as dividends. So while every dot.com was soaring, the high yield stocks weren’t standing still, they were falling. The higher tech went, they lower these stocks fell. On December 16, 1999, FR closed at $24.39. For the previous 12 months, it had paid four quarterly payments of 60 cents a share. So without even looking at the company, we know it was yielding 9.8%. Plus, the company had just raised its dividend to 62 cents a share, so investors could count on a yield of close to 10.2%. Not only did FR jump on December 17, but the news of Buffett’s recommendation lifted the entire REIT sector. Who knew that real estate was about to take off? Yesterday, First Industrial closed at $43.35 a share, so the stock has climbed over 67% from the price after the Buffett news was made public. If you include the very generous dividends, which are now at 70 cents a share, the investment in FR would have made you over 180%. Over the same period, the S&P; 500 is down about 8%, although dividends have given the index a slight gain. If the wallet buyer started with a portfolio of $350,000 (let’s consider the $210,000 an advisory fee—60% would embarrass even a hedge fund manager), and the remaining $140,000 was all put into First Industrial, he would be ahead today. So maybe it wasn’t the worst wallet investment in history. Posted by Eddy at 10:20 AM | Permalink August 30, 2006RadioShack Lays Off Employees Via E-Mail The New Economy kinda resembles the old: RadioShack Corp. followed through on its announced plans to cut about 400 jobs, but the electronics retailer has been forced on the defensive about its method of notifying laid-off employees by e-mail. Posted by Eddy at 03:38 PM | Permalink Gladwell Vs. Blogosphere Recently, I linked to a New Yorker article on Dependency Ratios by Malcolm Gladwell, so I feel an obligation to post some of the criticism. First in the fray was the blogger Winterspeak. Gladwell responded. Then Jane Galt jumped in, followed by a (comically) snippy response from Gladwell, and then a Galt rejoinder. Personally, I don’t think Gladwell comes off well. (Hat tip: DealBreaker.) Posted by Eddy at 12:45 PM | Permalink Second-Quarter GDP Second-quarter GDP growth was revised higher to 2.9% today from the initial estimate of 2.5%. I knew this was going to be a higher revision. I just didn't know how much. The bottomline is that I don't see this as being a soft landing scenario. At least, not just yet. Let's add some perspective. In the 10 quarters previous to Q2, the economy grew by an average of 3.4% a year. Now we're tossing in a 2.9%-er. That's not a big change. It's still well within the bounds of its previous trend. Three of those 10 quarters had growth less than 2.9%.
Posted by Eddy at 08:50 AM | Permalink August 29, 2006The Buy List So Far Here's how the Buy List has done this year.
Through yesterday, we're down -0.47% and the S&P; 500 is up 4.29%. Only two months ago, we were ahead of the market. Posted by Eddy at 09:44 AM | Permalink Tomorrow’s GDP Report One of my pet peeves is the initial report on GDP. Every three months, the government reports on how well the economy did in the just-ended quarter. The first report comes out at the end of the first month of each quarter (January, April, July and October). It’s then updated twice more, at the end of each succeeding month. Tomorrow, the second-quarter report will be revised. My complaint is that the later revisions came often be quite large. My feeling is that if that’s the case, just wait until you have a better number. There’s no use feeding us information which can deviate so much. Take your time and get it right. At the end of July, the government said that the economy grew, in real terms, by 2.5% for the second three months of the year. I thought this was way too low. Before the report came out, I wrote that I would be surprised if GDP came in at less than 3.4%. I still feel that way. When looking at the markets, it’s important not to be too attached to your current outlook. Keynes said, “When the facts change, I change my mind—what do you do, sir?” Bear in mind that it’s not unusual for the GDP to be adjusted by large amounts. For the first quarter, the government initially said that the economy grew by 4.8%. This was later revised to 5.6%. That’s a big change. What we tolerate in economic stats, we would never sit still for in baseball scores. And even after everything is said and done, the GDP numbers can still be altered. With the last report, the government also adjusted every GDP stat going back to 2003. I’ll have more tomorrow morning when the latest revision comes out. Posted by Eddy at 09:16 AM | Permalink August 28, 2006S&P; 500 Near Three-Month High There's nothing so screwed up in the stock market that a bond rally can't fix. The 10-year yield got down to 4.78% on Friday. The S&P; 500 is poised for its highest close of the summer. If the market holds up, this will be the highest close since May 11. Posted by Eddy at 02:31 PM | Permalink Investors Financial Services If you had told me at the beginning of the year that SEI Investments (SEIC) would be the top-performing Buy List stock, I would have thought you were some sort of marijuana addict. The company has posted terrific earnings for the past few quarters. Another stock that's somewhat similar to SEIC is Investors Financial Services (IFIN). Here's the chart:
Posted by Eddy at 09:57 AM | Permalink August 27, 2006Sunday Reads
This is a good day to head to the hammock for a good read. Here are two things you might like. The New Yorker has a fascinating story by Sylvia Nasar (of Beautiful Mind fame) and David Gruber about Grigory Perelman, a mysterious Russian mathematician and the solution to one of math’s greatest problems. Also, Natural History has an interesting article on the excavation of a Neolithic settlement in Turkey. Posted by Eddy at 11:31 AM | Permalink August 25, 2006Cyclicals Are Fading Fast I probably sound like a broken record (if you remember what records were), but once again, here's the Morgan Stanley Cyclical Index (^CYC) divided by the S&P; 500:
The cyclicals have had an amazing run, but these are the stocks that have been hit the most since May. What's interesting is that the peak level earlier this year almost perfectly matches the peak from 12 years ago. And you can see that the low point is a loooong way down. Posted by Eddy at 10:09 AM | Permalink August 24, 2006Northwest Gives Advice to Laid Off Employees Northwest Airlines gave its laid off employees some advice on how to save money. One of the tips was to rummage through other people's garbage. I'm not kidding. NPR has the goods. Here's the full list. Check #46. Ironically, Northwest is the one that filed for bankruptcy last year. Posted by Eddy at 10:50 AM | Permalink Creative Descruction and Pet Supplies Capitalism, then, is by nature a form or method of economic change and not only never is but never can be stationary. And this evolutionary character of the capitalist process is not merely due to the fact that economic life goes on in a social and natural environment which changes and by its change alters the data of economic action; this fact is important and these changes (wars, revolutions and so on) often condition industrial change, but they are not its prime movers. Nor is this evolutionary character due to a quasi-automatic increase in population and capital or to the vagaries of monetary systems, of which exactly the same thing holds true. The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers, goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates. – Joseph Schumpeter in Capitalism, Socialism and Democracy That’s a nice way to lead into two stories I saw this morning. The first is the earnings warning from Chico’s FAS (CHS). The company has been one of the top stocks for the past 10 years. In fact, CHS has beaten the S&P; 500 for the past nine straight years. Not this year, however. The stock is down 20% this morning, and over 55% year-to-date. The other story is from Patterson Companies (PDCO). The company reported a quarterly earnings decline this morning. For the July quarter, the company earned 30 cents a share, one penny less than last year. Bear in mind that Patterson used to churn out 20% EPS increases like clockwork. Seeing them struggle is quite a shock. Posted by Eddy at 10:31 AM | Permalink August 23, 2006The Dow's Decimals I was curious to see if there's any strange pattern to the decimals in the daily closings of the Dow. It turns out, there aren't any. At least, not that I could find. I looked at the daily closings for the past 10,000 trading sessions, which is roughly 40 years. I figured that each "hundredth" (i.e., .01, .02, .03) should have about 100 each. It looks like they do. Here are the results:
The table goes from left to right, from .00 to .99. Double Zero comes on at 100 even, although .01 has the fewest with 78 days. The most is .13 with 126. Here's how they break down: .13.........126 Seven of the top 21 begin with 1, which could be the result of Benford's Law. And to answer your e-mails: Yes, the plot of Office Space was the inspiration for this post. Posted by Eddy at 11:05 PM | Permalink Cisco's Peak Here’s something you might enjoy. This link will take you to the Yahoo Message board posts for Cisco’s stock on March 27, 2000. That was the highest day for the hottest stock of the era. These posters are so madly in love with their stock it’s almost funny. Absolutely no criticism is allowed. Just look at the posts. They have a religious intensity to them. Some background: Cisco’s market cap had just surpassed Microsoft’s and it was the most valuable company in the world. Dear lord, what were they thinking? The NASDAQ Composite actually peaked at 5,000 two weeks earlier, but the most popular index, the NASDAQ 100, kept climbing and peaked on this day. The stock opened at $81-7/16 (yuck, remember those awful fractions) and climbed to $82 that morning. At 10:58 am is the first reference to a downgrade from David F. Powers at Edward Jones (boy, he was not popular with the board). Powers merely downgraded it to a Hold from a Buy, but that triggered a minor sell-off. Within 13 months, Cisco’s stock dropped by 84%. In October 2002, it reached its low of $8.12 a share, a staggering 90% drop. Even today, the shares are still 75% below the day of these posts. To browse through the posts, just click on the “>” thing by the date and time. I apologize for the language and general moronic nature of the posts, but this is exactly what the investing mind is like. Enjoy. Posted by Eddy at 03:05 PM | Permalink Pool Corp. Here's an interesting stock, Pool Corp. (POOL). As the name suggests, the company provides pool supplies. They recently changed their name from SCP Pool. The shares seem a little expensive right now, but the company has been a steady grower. Pool recently said it expects to make $1.80 a share this year, which gives them an earnings multiple of 21. Here are the sales and earnings going back a few years: Year..............Sales..............EPS The stock is off about 20% from this spring's high. Here's the long-term chart:
Posted by Eddy at 01:26 PM | Permalink Dow Oil & Gas Index
I'm not one for technical analysis, but I thought this chart was interesting. Since April, the Dow Jones Oil & Gas (^DJUSEN) Index has tried four times to break 500, and it's failed each time. It looks like we may soon see a fifth. Posted by Eddy at 11:33 AM | Permalink Medtronic's Earnings Three weeks ago, Medtronic (MDT) spooked Wall Street by saying that earnings will come in lower than expected. The company gave a range of 53 cents to 55 cents a share. The Street had been expecting 57 cents. After the bell, MDT reported earnings of 55 cents a share so it wasn’t as bad as it could have been. Last October, the company raised guidance for 2006, 2007 and 2008. I was pretty impressed by that. Medtronic is no slouch. The company has raised its dividend for 28 straight years. Now the company is backing off its 2007 and 2008 calls. Medtronic sees 2007’s earnings coming in at $2.30 to $2.38, and $2.65 to $2.75 for 2008. Based on those numbers, that makes the stock look pretty expensive. Posted by Eddy at 11:23 AM | Permalink What Do Ireland and GM Have in Common? In the New Yorker, Malcolm Gladwell looks at the dependency ratio, how many people are supported by your current work force. It works for companies and countries: A second common assumption is that fading industrial giants like G.M. and Bethlehem are victims of their own managerial incompetence. In various ways, they undoubtedly are. But, with respect to the staggering burden of benefit obligations, what got them in trouble isn’t what they did wrong; it is what they did right. They got in trouble in the nineteen-nineties because they were around in the nineteen-fifties—and survived to pay for the retirement of the workers they hired forty years ago. They got in trouble because they innovated, and became more efficient in their use of labor. |
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