SEARCH THIS SITE ARCHIVE January 2009 December 2008 November 2008 October 2008 September 2008 August 2008 July 2008 June 2008 May 2008 April 2008 March 2008 February 2008 January 2008 December 2007 November 2007 October 2007 September 2007 August 2007 July 2007 June 2007 May 2007 April 2007 March 2007 February 2007 January 2007 December 2006 November 2006 October 2006 September 2006 August 2006 July 2006 June 2006 May 2006 April 2006 March 2006 February 2006 January 2006 December 2005 November 2005 October 2005 September 2005 August 2005 July 2005

RECENT ENTRIES Earnings Preview: Bed Bath & Beyond Where Do You Place Johnny Cash? More Financial History Iceland to Sue Britain The Price of Forecasts Prepayments and the Subprime Market Two Days in 2009 and We’re Kicking Butt Meg Whitman for Governor? The Gold-to-Silver Ratio Best Paragraph of the Day SYNDICATE THIS SITE

From AP:

Bed Bath & Beyond Inc. reports results for its fiscal third quarter on Wednesday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: In early December, Bed Bath & Beyond pre-released results for the third quarter, saying same-store sales slipped amid a tough economic climate and liquidation sales by a major competitor.

The Union, N.J.-based housewares retailer it expects earnings to range between 31 cents and 35 cents per share for the quarter ended Nov. 29. That's down from previous guidance of 41 cents to 47 cents a share the company gave in September. It also represents a drop from 2007, when the company earned 52 cents a share in the same period.

The company said its net sales for the quarter fell 0.7 percent from the same period the previous year, when it reported sales of $1.79 billion.

Same-store sales for the quarter declined about 5.6 percent. Same-store sales, or sales at stores open at least a year, are a key indicator of a retailer's health because they measure revenue at existing locations rather than newly opened ones.

During the quarter, the retail chain saw shares sink to an eight-year intraday low as government figures show home furnishing sales fell.

BY THE NUMBERS: Analysts polled by Thomson Reuters estimate a profit of 33 cents per share on revenue of $1.79 billion for the quarter.

ANALYST TAKE: After the retailer pre-released lower-than-expected third quarter figures in early December, analysts said the company was facing increasing pressure from a difficult sales environment and the ongoing bankruptcy liquidation sales of items by competitor Linens 'N Things.

"While we expect consumer spending will likely remain weak, Bed Bath & Beyond may well be one of the few retailers to show earnings growth next year," SunTrust Robinson Humphrey analyst David Magee told investors in early December. "Moreover, once the macro environment improves, Bed Bath & Beyond should emerge stronger than most and could benefit from some ongoing consolidation in the space along the way."

WHAT'S AHEAD: Investors will be looking for an update on how the company's holiday sales fared and more details about what executives expects business trends to be in the coming year.

STOCK PERFORMANCE: During the quarter, which ended Nov. 29, shares fell about 34 percent to end the period at $20.29.

Posted by Eddy at 1:20 PM | Permalink

Tyler Cowen asks: "Where is the geographic center of Johnny Cash's moral and musical universe?"

I'm particularly pleased with my answer. Johnny Cash walks the line.

Posted by Eddy at 12:11 PM | Permalink

The Economist opens its vault:

Having fully admitted the disappointments, we find some justification for regarding 1928 as a year of no small promise for the future. Quite possibly it will be remembered in history as a year in which the foundations of recovery were laboriously laid.

Posted by Eddy at 12:06 PM | Permalink

From the 1950s through much of the 1970s, Britain and Iceland were involved in the Cod Wars, which was an overgrown fishing dispute. Now the financial mess has brought these two rivals back to confrontation.

Iceland’s state-run Kaupthing bank will sue the British government for its decision to force the bank’s British subsidiary into a form of bankruptcy, the Icelandic Prime Minister’s office said Tuesday.

The committee appointed to run Kaupthing — which collapsed last autumn — is taking Britain to court because it forced the unit Kaupthing Singer & Friedlander into administration at the height of Iceland’s financial crisis, according to the prime minister’s press secretary, Kristjan Kristjansson.

”They are suing on the grounds of the actions taken by the Financial Services Authority,” Mr. Kristjansson told The Associated Press.

The F.S.A., Britain’s financial regulator, swooped in to protect British depositors shortly after Iceland’s banking sector fell under the weight of its bad debts, removing savings accounts from Kaupthing Singer & Friedlander and seizing assets from another Landsbanki, another Icelandic bank.

Britain said the moves were necessary to safeguard British savers’ deposits, but the actions strained relations between the north Atlantic neighbors. Iceland has repeatedly threatened to sue over the matter.

It was not clear whether damages would be sought in the Icelandic suit. The F.S.A. and Britain’s treasury did not immediately return requests for comment.

Prime Minister Geir Haarde said Monday that his government supported the lawsuit and could help fund it.

”We think that it is very important that we ascertain if U.K. laws were misused against Icelandic interests,” he said.

Honestly, it's hard for me to read that last sentence without laughing.

Posted by Eddy at 11:05 AM | Permalink

Here's Paul Farrel highlighting absurdly bullish forecasts from 10 years ago. Let me again make my claim that overly bullish forecasts are routinely held to account, but absurdly bearish ones are rarely held accountable.

Here's some advice: If you ever go in the econ-predictions biz, be pessimistic and vague. Then claim anything that goes wrong as something you predicted.

By the way, are we allowed to start making fun of this?

Posted by Eddy at 12:28 AM | Permalink

Here's the abstract of a recent paper:

This paper demonstrates that the reason for widespread default of mortgages in the subprime market was a sudden reversal in the house price appreciation of the early 2000’s. Using loan-level data on subprime mortgages, we observe that the majority of subprime loans were hybrid adjustable rate mortgages, designed to impose substantial fi…nancial burden on reset to the fully indexed rate. In a regime of rising house prices, a fi…nancially distressed borrower could avoid default by prepaying the loan and our results indicate that subprime mortgages originated between 1998 and 2005 had extremely high prepayment rates. Most important, prepayment rates on subprime mortgages were extremely high (i) not just for ARMs but FRMs as well, (ii) even before the reset dates on hybrid-ARMs and (iii) despite prepayment penalties on the contract. However, a sudden reversal in house price appreciation increased default in this market because it made this prepayment exit option cost-prohibitive. In short, prepayments sustained the subprime boom and the extremely high default rates on 2006-2007 vintages were largely due to the inability of these mortgages to prepay (an option that was available for mortgages of earlier vintages).

Posted by Eddy at 12:01 AM | Permalink

With two days under our belt, the Buy List already has a lead over the S&P 500, 4.12% to 2.68%. Obviously, a two-day lead doesn’t mean much, but I mention it because the Buy List was helped out enormously today by the 27.7% jump in Nicholas Financial (NICK).

Since NICK is such a low-priced stock, the bid/ask spread can make a big difference on how well the Buy List does each day. Some days we’re punished, but some days, like today, it’s a big, big help.

Posted by Eddy at 11:16 PM | Permalink

Apparently so.

Meg Whitman stepped down from the boards of Procter & Gamble Co., eBay Inc. and Dreamworks Animation SKG Inc. effective Dec. 31, her spokesman said.

The move is another signal that Ms. Whitman is seriously considering a run for governor of California, a person familiar with the matter said, adding that an announcement could come in the next four to six weeks.

Ms. Whitman's spokesman, Henry Gomez, declined to comment on her political ambitions, saying she stepped down "for personal reasons."

A spokesman for P&G said, "We deeply valued the contribution Meg made to our board over the last five years." EBay and Dreamworks couldn't be reached for comment.

Posted by Eddy at 3:28 PM | Permalink

In 1792, the U.S. Congress, at the advice of Alexander Hamilton, passed the Coinage Act of 1792. This was the government’s first attempt at price-fixing. The act defined a U.S. dollar as 371.25 grams of silver or 24.75 grams of gold. In other words, gold was worth 15 times as much as silver.

So how did they do?

Well, not too well. The guys at Bespoke posted a chart looking at the ratio of gold to silver over the past few years. The ratio has exploded in the past year, rising from under 50 to nearly 80 today. They conclude: “Based on the ratio of gold to silver over the last ten years, a reversion of the mean trade would be to go long silver and short gold.”

Posted by Eddy at 11:29 AM | Permalink

James Surowiecki on Wall Street con games:

In David Mamet’s movie “House of Games,” the grifter played by Joe Mantegna explains to a former mark, “It’s called a confidence game. Why? Because you give me your confidence? No. Because I give you mine.” So the bankers gave us their confidence, in the form of mortgages and other forms of credit, and we gave them ours. This culture of credulity did plenty of damage to the economy, but now it has given way to something even more corrosive; namely, endemic mistrust. Because if there’s one thing worse than too much confidence it’s not enough. Fraud impoverishes a few; fear impoverishes the many. As long as mistrust prevails, people will keeping pulling money out of the system—sometimes even at gunpoint.

Posted by Eddy at 11:16 AM | Permalink

James Simons, the Grand Poobah of Renaissance Technologies, said he's going to waive the fees on his futures fund which was down 12% last year, or as Simons called his performance, "less than stellar."

The break in fees for this year adds up to $30 million for his $3 billion futures fund. In light of Simons move, I'd also like to announce that I'm waiving all user fees for this blog due to the Buy List's less-than-stellar performance.

Simons' Medallion Fund, I should add, was up 80% last year.

Posted by Eddy at 10:45 AM | Permalink

Harry Markopolos won't testify in front of Congress today due to illness. This is strangely similar to The Godfather Part 2.

(H/T: Naked Shorts).

Posted by Eddy at 2:03 AM | Permalink

Paul Kedrosky has a very good post on the uselessness of financial history. I think he’s exactly right. Finance people tend to be very loose with historical comparisons. I’ll often hear that some situation is “eerily similar” to some year. I don’t buy it—all these historical scenarios are incredibly different. That’s also why I don’t buy the “madness of crowds” explanations about speculative bubbles (there’s another overrated book).

Paul writes:

I’m torn on the subject, but I’m also increasing skeptical of any and all comparisons to prior historical periods. I don’t buy trough P/E, or recession length, or relative valuation, or interest rate, or sectoral rotation arguments, or… you get the picture. I love data, but I’m increasingly close to being an outright nihilist when it comes to over-reliance on historical financial data without any truly coherent supporting rationale. We are in a grand experiment with no real history to draw on, and anyone who pretends otherwise is deluded or selling something, or both.

My view is all these models and comparisons are useful fictions. To put it succinctly: Some are more useful than others. The danger is thinking they’re overly determinant. All comparisons need to be put in context, and context changes constantly. The more I study investing, the more I admire a truly independent mind.

David Merkel has more.

Posted by Eddy at 1:36 AM | Permalink

Paradise is going bust.

Posted by Eddy at 1:14 AM | Permalink

The must-read article from yesterday is Michael Lewis and David Einhorn’s two-parter (here and here) in the New York Times. For the most part, I think they describe the problems fairly well. My issue is that I’m not entirely satisfied when a highly complex issue is reduced to the long-term good being sacrificed for short-term gain. Whenever I hear problems put in a neat package like that, I’m suspicious. It’s like hearing that a problem is due to “a lack of communication.” Call me skeptical. The more I look at the credit mess, the more bewildering I find it.

For proposed solutions, Lewis and Einhorn have some good ideas and some not-so-good ideas. For example, when firms get into trouble, let them fail. However, they don’t go all they way and instead suggest nationalizing a failed firm. Well, that’s not letting it fail. When I think of letting a company fail, I mean the real thing. I think the supposed “chaos of bankruptcy” is overrated. Going into bankruptcy protection is a very well-defined area of our legal system. Airlines can exist for a long time in Chapter fill-in-the-blank.

The question I have is can the FDIC come up with a way to protect counter-party risk in a failed firm ala deposit insurance. Plus, an off-with-their-head strategy, as Lewis and Einhorn propose, could cause even more mischief from execs who have nothing left to lose.

Lewis and Einhorn also suggest regulating credit-default swaps but they’re a little thin on the details. More specifically, there are no details.

They also propose breaking up “any institution that becomes too big to fail.” Hmmm. Again, that’s a lot easier said than done. Particularly when you consider that firms often (though not always) become large through success. Therefore the government has to effectively punish success. I have some issues with that.

Posted by Eddy at 1:09 AM | Permalink

In today’s playoff game, Raven’s safety Ed Reed had two interceptions, including one he returned for 64 yards and a touchdown.

What’s remarkable about Reed is his ability to return inceptions for big yardage. He has 43 career regular season inceptions, which ties him for 58th place all-time. For yardage, however, Reed has 1,144 yards which ranks him sixth all-time.

In week 12 of this season, Reed returned a pick 107 yards for a touchdown to set an all-time record for the longest interception return in the history of the NFL. The previous record was 106 yards. Set by Ed Reed in four years ago.

Posted by Eddy at 11:50 PM | Permalink

Posted by Eddy at 1:14 PM | Permalink

The thieves brought it back. And attached a note: "Bernie the Swindler, Lesson: Return Stolen Property to rightful owners. Signed by - The Educators."

The copper statue was reported stolen from Madoff's $9.2 million mansion on Dec. 22 - about a week after the Wall Street money man was accused of scamming investors in a $50 billion Ponzi scheme.

The statue does not appear to have any damage, and police are continuing to investigate the incident.

Frick said he was not aware of the 2004 German movie The Edukators, in which anti-capitalist activists break into the homes of rich people, move furniture around and leave notes that say "the days of plenty are over."

The activists kidnap a rich businessman, have ideological discussions about money and politics, and then let him go, possibly teaching him a lesson on ethics and morality.

"Interesting," Frick said when told of the film.

Posted by Eddy at 12:04 PM | Permalink

Hebert Hoover used the word "depression" instead of "panic" to describe the events of his administration. Since then, there's been a battle to define what's a recession and what's a depression. Most seem to define a depression as a 10% drop in GDP. The Economist says that it's "a decline in real GDP that exceeds 10%, or one that lasts more than three years."

America’s Great Depression qualifies on both counts, with GDP falling by around 30% between 1929 and 1933. Output also fell by 13% during 1937 and 1938. The Great Depression was America’s deepest economic slump (excluding those related to wars), but at 43 months it was not the longest: that dubious honour goes to the one in 1873-79, which lasted 65 months.

Japan’s “lost decade” in the 1990s was not a depression, according to these criteria, because the largest peak-to-trough decline in real GDP was only 3.4%, over the two years to March 1999. Since the second world war, only one developed economy has suffered a drop in GDP of more than 10%: Finland’s contracted by 11% during the three years to 1993, mainly thanks to the collapse of the Soviet Union, then its biggest trading partner.

Emerging economies, however, have been much more depression-prone. Among the 25 emerging economies covered each week in the back pages of The Economist, there have been no fewer than 13 instances in the past 30 years of a decline in real GDP of more than 10%. Argentina and Poland were afflicted twice. Indonesia, Malaysia and Thailand all suffered double-digit drops in output during the Asian crisis of 1997-98, and Russia’s GDP shrank by a shocking 45% between 1990 and 1998.

The left-hand chart shows The Economist’s ranking of slumps in developed and emerging economies over the past century. It excludes those during wartime (both Germany and Japan, for example, saw output plunge by 50% or more after 1944). The depressions in Germany and France in the 1930s make it into the top 12, but not that in Britain, where GDP fell by a relatively modest 6%.

Posted by Eddy at 11:16 AM | Permalink

Think you're having a tough day? Check out Belarus.

Belarus' central bank sharply devalued the Belarusian ruble Friday, allowing the currency to plunge 20 percent in a move that will stop the hemorrhaging of its reserves.

The National Bank said the devaluation was aimed at raising the competitiveness of the Belarusian economy, which has been battered by the global financial crisis. It also was a condition of a $2.5 billion loan from the IMF announced Wednesday.

In the past six months the National Bank has spent about a quarter of its gold and hard-currency reserves keeping the Belarusian ruble stable against the dollar, euro and Russian ruble. The bank has refused to release the amount of its reserves.

The Belarusian ruble is now trading at 2,650 to the dollar, 3,703 to the euro and 90.6 to the Russian ruble.

Posted by Eddy at 10:56 AM | Permalink