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RECENT ENTRIES Ryanair's CEO Promises In-Flight Blow Jobs Looking at the Bear Best Little Whorehouse in Wellesley CircuitBuster Now Officially Busted Samuel Israel Surrenders UnitedHealth Lowers Guidance This Just In... Worst First Halves Since 1971 Grasso Wins I Think this Chart Sums It Up Well SYNDICATE THIS SITE

Posted by Eddy at 1:50 PM | Permalink

The S&P 500 closed today at 1,261.52 which is the lowest close since July 24, 2006. The index is now off 19.4% from its all-time high of October 9, 2007.

Since October 9, there have been 184 trading days. This is how the days of the week have panned out:

Monday.............-3.69% (35 data points)
Tuesday.............5.26% (36)
Wednesday.......-6.17% (39)
Thursday...........-1.93% (37)
Friday................-13.59% (37)

So the bear market is heavily, but not exclusively, a Friday phenomenon. The other four days of the week have lost a combined -6.72%.

The most surprising fact is that of the 184 days, 92 have been up, 91 were down and one was unchanged (January 3).

Posted by Eddy at 7:56 AM | Permalink

Professor Greg Mankiw notes that in his hometown of Wellesley police recently shut down a (ahem) massage business. This is the second time in the last six months that the police of busted such an enterprise.

But here’s the interesting fact. One of the people just arrested, William Eastwick, is the same guy who tipped off the police on the first arrest.

Eastwick tipped Wellesley Police off to that operation, said [Wellesley Police Sgt. Marie] Cleary, although it is unclear why he did that.

Clearly, Cleary is unclear, but to Dr. Mankiw, it’s perfectly clear.

Like any businessman, Mr Eastwick prefers to have fewer competitors. Some businessmen lobby Congress for trade restrictions. Others alert the police to the brothel down the block. And when using the power of the state to thwart competition, they can both pretend to be acting in the public interest.

Sometime you need a small example to see the big picture. I wouldn’t say the state and Mr. Eastwick are in bed together, they just provide similar services.

Posted by Eddy at 3:47 PM | Permalink

A three-act play:

April 14
Blockbuster offers $1 billion for Circuit City

May 10
Circuit City Opens Its Books to Blockbuster

July 2
Blockbuster Withdraws Offer for Circuit City

This was one the worst ideas to hit the Street in a long time. The good thing is that shareholders had far better judgment than management. Score one for the wisdom of crowds.

Posted by Eddy at 12:14 PM | Permalink

Sam finally gives up:

Samuel Israel, the fugitive hedge-fund firm founder convicted of directing a $400 million fraud at Bayou Group LLC, surrendered in Massachusetts, almost a month after fleeing instead of starting his 20-year prison sentence.

Israel, 48, turned himself in at 9:15 a.m. today, according to Sue Anderson, assistant to Southwick, Massachusetts, Police Chief Mark Krynicki. Southwick, near the Connecticut border, is about 117 miles from where Israel disappeared in New York the day he was to report to a federal prison northwest of Boston.

"He is in federal custody," Rebekah Carmichael, a spokeswoman for U.S. Attorney Michael Garcia in Manhattan, said in an e-mailed statement.

Israel pleaded guilty in 2005 to securities fraud. His car was found June 9 on a bridge north of New York City with the message "suicide is painless" written in the dust on its windshield. Within a week, state and federal authorities in New York, where he pleaded guilty, ruled out suicide and launched an international manhunt.

Posted by Eddy at 11:53 AM | Permalink

As I expected, UnitedHealth (UNH) lowered its profit guidance for this year. The company now sees EPS coming in between $2.95 to $3.05.

Chief Executive Stephen J. Hemsley noted the quarter's results were hurt by lower margins, adding that second-quarter weakness also stems from reduced margins at its risk-based businesses and Medicare operations. "We are continuing to take the aggressive specific steps necessary to improve our operating performance, as well as to better position our organization for sustained future growth," he said. To stop weakness in the risk-based operations, the company has been letting go of some customers who didn't generate enough profits.

The company is also paying about $900 million to settle two class-action lawsuits regarding the back-dating of stock options. Assuming the current forecast is correct, then UNH is a very cheap stock. The shares are up nicely today.

Posted by Eddy at 9:49 AM | Permalink

Multivariate Markov Switching With Weighted Regime Determination: Giving France More Weight than Finland

Um...no duh!

Posted by Eddy at 3:18 PM | Permalink

Here are the ten worst first halves since 1971, going by the S&P 500's total return:

Year.....................Gain
2002..................-13.16%
2008..................-11.91%
1973..................-10.38%
1974..................-10.17%
1982..................-7.83%
2001..................-6.70%
1984..................-4.90%
1977..................-4.38%
1994..................-3.39%
1981..................-0.95%

Posted by Eddy at 3:05 PM | Permalink

It’s hard to see multi-millionaire as victims, but Eliot Spitzer’s (aka Client #9) crusade against Dick Grasso was contemptible and an abuse of the legal system. The case against him was thrown out today. Last week, the court threw out four of the six claims against Grasso. The other two were dismissed today.

The New York Stock Exchange awarded Grasso a pay package worth $190 million. Is that too high? Probably. Is it illegal? Of course not.

“My reaction is, I told you so,” Langone said today in a telephone interview. “There was never a case here. What more can we say? The enormous waste was a travesty.”

One final note on Mr. Spitzer. When he checked in the Mayflower Hotel for his meetings with Ms. Dupree, he used the nom de bork, George Fox. That’s one his friend’s names.

Classy guy.

Posted by Eddy at 2:51 PM | Permalink

Posted by Eddy at 10:31 AM | Permalink

Who's responsible for all the problems in the financial sector? Stephen Schwarzman has an novel idea -- blame the new accounting rule, FASB 157:

FAS 157 represents the so-called fair value rule put into effect by the Federal Accounting Standards Board, the bookkeeping rule makers. It requires that certain assets held by financial companies, including tricky investments linked to mortgages and other kinds of debt, be marked to market. In other words, you have to value the assets at the price you could get for them if you sold them right now on the open market.

The idea seems noble enough. The rule forces banks to mark to market, rather to some theoretical price calculated by a computer — a system often derided as “mark to make-believe.” (Occasionally, for certain types of assets, the rule allows for using a model — and yes, the potential for manipulation too.)

But here’s the problem: Sometimes, there is no market — not for toxic investments like collateralized debt obligations, or C.D.O.’s, filled with subprime mortgages. No one will touch this stuff. And if there is no market, FAS 157 says, a bank must mark the investment’s value down, possibly all the way to zero.

That partly explains why big banks had to write down countless billions in C.D.O. exposure. The losses are, at least in part, theoretical. Nonetheless, the banks, in response, are bringing down their leverage levels and running to the desert to raise additional capital, often at shareholders’ expense.

Posted by Eddy at 9:40 AM | Permalink

Ugh, we choked at the last minute! Going into today, the Crossing Wall Street Buy List had a comfortable lead over the S&P 500. But today, we collapsed. The S&P 500 rose by 0.13%, but our Buy List lost (yuck!) -1.49%.

Today was the worst relative performance for us all year.

For the year, the S&P 500 is off by -12.83% while our Buy List is now down -13.47%. The Buy List’s daily volatility is 6.27% greater than the S&P 500.

Including dividends, the Buy List is down -13.16% while the S&P 500 is down by -11.91%. Roughly, that translates to an annual dividend yield of 2.12% for the S&P 500 and 0.72% for us.

If you recall, the rules of the Buy List let me select 20 stocks at the beginning of the year and I'm not allowed to make any changes throughout the year. Right now, just three of our 20 stocks are in the black. The biggest loser by far is Unitedhealth Group (UNH), which is down by nearly 55%.

Here's a look at how all 20 stocks have done.

Stock..........................................Profit
Medtronic....................................2.94%
FactSet Research Systems..........1.18%
Aflac............................................0.27%
Leucadia.....................................-0.34%
Amphenol...................................-3.21%
Donaldson..................................-3.75%
Bed Bath & Beyond.....................-4.39%
Joseph A. Banks..........................-5.98%
Clarcor........................................-7.56%
Sysco..........................................-11.86%
Danaher......................................-11.90%
Stryker........................................-15.85%
Fiserv..........................................-18.24%
Moog...........................................-18.71%
WR Berkley.................................-18.95%
Lincare........................................-19.23%
Harley-Davidson...........................-22.37%
SEI Investments...........................-26.89%
Nicholas Financial.........................-29.60%
UnitedHealth.................................-54.90%

Posted by Eddy at 9:53 PM | Permalink

The Dow closed today at 11,350.01 and the S&P 500 closed at 1280.00.

Posted by Eddy at 4:29 PM | Permalink

This is news to me. There are oil wells in Beverly Hills!

"In the Middle East you might have 300 barrels of oil per cubic acre, but in the Los Angeles Basin you might have 4,000 barrels per cubic acre," says Mike Edwards, vice president of Denver-based Venoco Inc., which has 24 active wells in the Beverly Hills area, including one alongside Beverly Hills High School. "In terms of the land that produces oil, the basin is very rich."

Come to think of it, I really doubt there's much oil in Appalachia.

Posted by Eddy at 1:10 PM | Permalink

Who's ready for this June to end? Count me in!

This looks to be the worst June for stocks in 78 years. Here are the S&P 500's total return for the 20 worst Junes since 1928:

Jun-30........-16.24%
Jun-08........-8.55% (through Friday)
Jun-62........-8.03%
Jun-02........-7.12%
Jun-39........-6.07%
Jun-50........-5.49%
Jun-69........-5.42%
Jun-37........-5.04%
Jun-70........-4.82%
Jun-65........-4.73%
Jun-91........-4.57%
Jun-28........-3.85%
Jun-46........-3.70%
Jun-61........-2.75%
Jun-94........-2.47%
Jun-01........-2.43%
Jun-51........-2.28%
Jun-72........-2.06%
Jun-63........-1.88%
Jun-82........-1.74%

Posted by Eddy at 12:02 PM | Permalink

If you want to read a long (and I mean looong) article on behavioral economics, then I suggest this 10,000-word opus by Alan Wolfe for The New Republic. The article is a look at two books, Happiness: A Revolution in Economics and Predictably Irrational: The Hidden Forces that Shape Our Decisions, but it will tell you a lot of the emergence of behavioral economics. I disagree with some parts and I think he frames the issues in an oversimplified way. Still, it’s an interesting read.

Here's a sample:

Ariely and his colleagues set up a stand and offer Lindt truffles for 15 cents and Hershey's Kisses for a penny: 73 percent of their customers choose the former, 27 percent the latter. Then they lower the price of the truffle to 14 cents and offer the Hershey Kiss for free, and now 69 percent choose the Kiss and only 31 percent the truffle. Calculating utility cannot explain this result. In both cases, the cost difference is identical. So it seems that we attach an almost mystical meaning to the idea of getting something for nothing. Zero is not just another number. It plays tricks with our rational minds.

Posted by Eddy at 11:53 AM | Permalink

Notice: Crossing Wall Street is a-switching over to FeedBurner. Please update your Interweb machines accordingly.

The new RSS feed address is http://feeds.feedburner.com/Crossingwallstreet

Posted by Eddy at 11:21 AM | Permalink

Robin McKie writing in the Observer:

In early 1858, on Ternate in Malaysia, a young specimen collector was tracking the island's elusive birds of paradise when he was struck by malaria. 'Every day, during the cold and succeeding hot fits, I had to lie down during which time I had nothing to do but to think over any subjects then particularly interesting me,' he later recalled.

Thoughts of money or women might have filled lesser heads. Alfred Russel Wallace was made of different stuff, however. He began thinking about disease and famine; about how they kept human populations in check; and about recent discoveries indicating that the earth's age was vast. How might these waves of death, repeated over aeons, influence the make-up of different species, he wondered?

Then the fever subsided - and inspiration struck. Fittest variations will survive longest and will eventually evolve into new species, he realised. Thus the theory of natural selection appeared, fever-like, in the mind of one of our greatest naturalists. Wallace wrote up his ideas and sent them to Charles Darwin, already a naturalist of some reputation. His paper arrived on 18 June, 1858 - 150 years ago last week - at Darwin's estate in Downe, in Kent.

Darwin, in his own words, was 'smashed'. For two decades he had been working on the same idea and now someone else might get the credit for what was later to be described, by palaeontologist Stephen Jay Gould, as 'the greatest ideological revolution in the history of science' or in the words of Richard Dawkins, 'the most important idea to occur to a human mind.' In anguish Darwin wrote to his friends, the botanist Joseph Hooker and the geologist Charles Lyell. What followed has become the stuff of scientific legend.

Posted by Eddy at 11:09 PM | Permalink

Vikram Pandit writes in today's WSJ:

In recent dysfunctional markets, we have seen different accounting standards applied that were based on an institution's form and regulatory jurisdiction. Accounting based on a mark-to-model has been severely tested by unobservable inputs intended to estimate the market. This has fed into difficult, far-reaching decisions that impacted capital and other factors as one misinformed trade set off a chain of similar trades. This raises an important question: Are there alternative accounting approaches we should apply, particularly in dysfunctional markets?

Posted by Eddy at 11:40 AM | Permalink

Here's you scary stat for the day. GM's book value is -$72.50 per share. Going by the Dow's current divisor, that means GM's is worth nearly -600 Dow points.

Let's be honest, the Dow Jones Industrial Average (^DJI) is a lousy index. It's a price-weighted index of just 30 stocks. Combined, the 30 stocks are worth $3.7 trillion, which is less than one-third the value of the cap-weighted S&P 500 (^GSPC). I know the Dow is 112 years old, and it was great in its day, but the time has come for the old boy to retire.

Caterpillar (CAT), for example, is a $74 stock, which makes it the fourth most heavily weighted stock in the Dow. Yet, it's $45 billion market value ranks 25th -- and CAT is hardly the worst offender. That title belongs to what was once called General Motors (GM). If you're not familiar with GM, it's a health care benefits management firm that sells cars for a loss as a side venture.

GM's price weighting is just 0.81% of the index, but it's market value is a puny 0.18%. That means that GM has over 4.5 times weighting than it should have. Would anyone miss this is it were gone? I doubt it. Barry says replace it with Cisco (CSCO). That's not bad, but I'd prefer UPS (UPS).

Here's a listing of all the Dow stocks and their Share Weight, which is how much each stock makes up in the DJIA, along with each stock's Market Cap Weight, which would be how much each stock would be worth if the Dow were weighted by market value.

Symbol.................Share Weight......Market Cap Weight
AA.........................2.51%.....................0.78%
AIG........................2.00%.....................1.91%
AXP........................2.76%.....................1.23%
BA.........................4.85%.....................1.40%
BAC.......................1.76%.....................3.01%
C............................1.26%.....................2.53%
CAT.........................5.28%...................1.24%
CVX.........................6.92%....................5.49%
DD..........................3.04%....................1.05%
DIS.........................2.24%.....................1.64%
GE.........................1.89%.....................7.20%
GM.........................0.81%.....................0.18%
HD..........................1.75%.....................1.14%
HPQ........................3.18%.....................3.00%
IBM.........................8.61%.....................4.53%
INTC........................1.53%.....................3.10%
JNJ..........................4.57%.....................4.93%
JPM.........................2.58%.....................3.39%
KO...........................3.78%.....................3.37%
MCD.........................4.01%.....................1.74%
MMM........................4.99%.....................1.35%
MRK.........................2.57%.....................2.12%
MSFT.......................1.97%.....................7.04%
PFE.........................1.22%.....................3.16%
PG...........................4.43%.....................5.18%
T..............................2.38%.....................5.42%
UTX..........................4.46%.....................1.66%
VZ............................2.44%.....................2.66%
WMT.........................4.04%....................6.11%
XOM..........................6.14%...................12.44%

General Electric (GE) is the stock that's punished the most. The Dow weighs it about one-fourth of what it should be.

And don't get me started on the Nasdaq!

Posted by Eddy at 7:13 AM | Permalink