Archive for 2005

  • Financial Service Ads
    , December 3rd, 2005 at 1:43 pm

    I usually watch CNBC during the day with the sound turned off. One of the drawbacks of the network is that it seems like there’s a total of five different commercials that are run over and over again.
    Obviously, most of the ads are for financial service firms. The problem is that these ads are almost always awful. They’re designed to appeal to the narcissism of baby boomers. Even Sir McCartney has gotten into the act. He’s pitching for Fidelity.
    The general message of these ads is that “Sure you’re wealthy, but you’re still ‘real.’ You haven’t ‘sold out.’” Look, if you’re even worried about retirement planning, you’ve sold out. Sorry, but it’s true. Plus, you don’t need your authenticity confirmed by, of all things, your choice of mutual fund company. Investing is business. You’re not buying a lifestyle.
    The ads show things like retirees helping villagers in Africa. There’s even one that has a senior skateboarding. Please. In a Wall Street Journal op-ed, Melanie Wells takes aim at the financial service ads.

  • The Market Today
    , December 2nd, 2005 at 7:13 pm

    Holy crap, we kicked ass today! The Buy List was up 0.75% while the S&P 500 was up a puny 0.03%. For December, we’re already one full percent ahead of the market. I don’t want to get too optimistic. My goal is to outperform the market by a few percentage points a year. Days like today are nice, but our focus is still on the long-term.
    We were helped today by three surging medical device stocks, Biomet (BMET), Zimmer (ZMH) and Stryker (SYK). I just don’t get how Biomet can be 20% off its high.
    An AP story picked up on the rise in this sector:

    Comments made at a Merrill Lynch conference on Thursday were likely pushing the stocks upward, said John Farrall, a health-care analyst with National City’s Private Client Group.
    One panel at the conference included a discussion about how negotiations with the Japanese government regarding biannual price reductions suggest that the price cuts won’t be as drastic as expected, Farrall said in a note to investors.

    Incidentally, the Japanese Nikkei finally broke 15000. To put that in perspective, during the closing days of 1989, the Nikkei was near 39000.

  • Cisco: A Victim of its Own Success
    , December 2nd, 2005 at 11:12 am

    Forbes has an interesting take on the Cisco/Scientific Atlanta deal:

    As is the case of so much in the technology world, the deal’s real promise lies in the future. Cisco reached out of its networking niche to buy Scientific-Atlanta, looking to better position itself as a broader provider of products and services to cable operators.
    Cisco wants to provide all things networking to business and home, and it sees its ability to integrate a wide array of products as pivotal to its future success. This is a strategy that builds on the company’s already substantial size but doesn’t necessarily spur the rapid growth that investors want to see.
    To this end, Cisco touts its so-called “advanced technologies,” which are business areas that the company predicts can eventually account for $1 billion in annual sales.
    Since these businesses are but small pieces of the overall company, their growth rates are faster. Sales of Cisco’s six advanced technologies rose 25% in the previous quarter. Still, this segment makes up under 20% of Cisco’s overall sales.
    Another area of concern for investors is the company’s international penetration. Cisco is able to draw only 17% of its sales from Asia-Pacific, including Japan–a level that’s held steady for the past two years. North America accounts for more than half of Cisco’s sales.
    Order growth in Asia-Pacific came up strong in the most recent quarter, hitting 30%, a level that hadn’t been reached in the previous four periods.
    Altogether, Cisco is a company that has become a victim of its own success. It dominates the networking market, so there is little left there for the company to capture. It is branching out into new but related areas via its advanced technologies, but those segments remain moderate contributors to the overall business.

    Today is shaping up to be another good day for us. Stryker (SYK) and Zimmer (ZMH) have nice gains this morning. The rest of the market has barely moved.
    This government reported that job growth is picking up after the hurricanes. The economy added 215,000 jobs in November, which is almost exactly what Wall Street was expecting. The unemployment rate held steady at 5.0%.

  • John Buckingham on Financial Stocks
    , December 2nd, 2005 at 6:23 am

    I’m a big fan of John Buckingham. He’s a value investor and the president of Al Frank Asset Management. In this morning’s WSJ, he has some thoughts on why financial stocks look good despite the flattening yield curve:

    The yield curve is flattening. While that may surprise the occasional World War II aviator dug out of a California glacier, by now most investors are well aware there is little difference between short- and long-term interest rates.
    Conventional wisdom argues that a flat yield curve is detrimental to the earnings of banks and other financial companies, since their ability to profit from lending at relatively high long-term rates and borrowing at relatively lower short-term rates is diminished. But investors with an investment horizon longer than a few weeks shouldn’t let these concerns dissuade them from holding financial stocks.
    The lion’s share of selling because of the yield-curve has already happened. And it isn’t even certain that a flattening yield curve will wreak havoc on financial-sector profits. History shows most banks, savings and loans (those that survived the turmoil of the late-1980s) and brokerage firms have been able to smoothly navigate through all sorts of interest-rate environments. Be it their ability to hedge interest-rate risk with derivatives, reap significant recurring income from fees, or diversify into complimentary businesses, earnings for financials haven’t been that interest-rate sensitive for a decade or so.
    That doesn’t mean financial stocks are immune to shifting rates, but it does mean that because so many investors are convinced otherwise — and, more importantly, have adjusted portfolios accordingly — opportunity knocks for investors looking for bargains in the sector. Two examples: Bank of America, the No. 2 bank in terms of stock-market capitalization behind Citigroup, trades at 11 times its earnings from the past 12 months, and has an annual dividend yield of more than 4%. Countrywide Financial, a diversified bank and leading home lender, has a trailing P/E of nine and a 1.7% dividend yield. (Al Frank funds invest in Bank of America and Countrywide.)
    More industry consolidation is likely to be a positive catalyst going forward, and investors could soon warm to the relatively consistent growth exhibited by most players in the sector, the below-market P/E ratios and the generous dividend yields. Most folks have shown little interest in midsized and large-cap names that dominate the financial space — small caps, with great growth potential, have been all the rage — but in the long run, value almost always gets recognized. This thinking goes against the grain. But after all, as J. Paul Getty once said, “If you want to make money, really big money, do what nobody else is doing!”

  • Financial Guru Charged With Tax Fraud
    , December 2nd, 2005 at 5:17 am

    Remember Wade Cook? Me neither.

    Federal prosecutors accuse Wade B. Cook, 56, and his wife Laura of concealing nearly $8.9 million in seminar fees and book royalties from 1998 to 2000.
    Wade Cook conducted hundreds of the seminars on asset protection, stock investing, real estate acquisition and avoidance of income tax, the U.S. attorney’s office said in a statement. His books include “Wall Street Money Machine,” “Wealth 101” and “Business by the Bible.”
    In tax returns filed for 1998, 1999 and 2000, the couple reported adjusted gross incomes of about $350,000 annually while concealing the additional millions, prosecutors contend.
    According to court papers, the Cooks created a phony tax-exempt entity that purportedly was to benefit the Mormon Church but did not. In fact, documents said, the Cooks were concealing royalty income they spent on such things as show horses, his-and-hers Cadillacs and a $20,000 baby grand piano for an associate.

  • The Market Today
    , December 1st, 2005 at 6:14 pm

    Now I can get used to this! The market rallied strongly today with the S&P 500 jumping 1.22% and our Buy List rising 1.45%. Hey, we’re already beating the market for December. Today was the market’s best day since November 3.
    Only two of our stocks went down, one was Donaldson (DCI) which had a great day yesterday. Varian Medical (VAR) made a new 52-week high and several other stocks are close to new highs. Also, Prudential initiated coverage of Frontier Airlines (FRNT) with a “neutral” rating. I’m not sure what a neutral rating means, but there you go.
    Yesterday I talked about how Wall Street has become a dual market—energy stocks and everything else. Today was another good example of that. Here’s how the sector spyders performed today.
    Energy………..3.17%
    Materials……..1.95%
    Tech……………1.52%
    Discretionary..1.15%
    Industrials……1.11%
    Health Care….1.01%
    Staples………..0.68%
    Financials…….0.53%
    Utilities………..0.38%
    Notice how the other sectors are somewhat bunched together, but energy is off doing its own thing. It’s like this almost every day. Each day’s overall direction has almost no influence on what energy stocks will do.
    If you want to beat the market in 2006, I think all you have to do is avoid energy. Plus, you’ll have less volatility.
    The outlook for interest rates may be changing. Gold hit a 22-year high today. Futures traders expect that the Federal Reserve will raise interest rates again in two weeks. The futures also say that there’s a 90% chance of another increase on January 31, but only a 60% chance of another increase in March. If Wall Street thinks the Fed is done, the market could rally well into 2006.

  • A Fool’s Game
    , December 1st, 2005 at 3:02 pm

    The head of the U.S. Chamber of Commerce said that earnings projections are a “fool’s game” and ought to be stopped.

    “Earnings projections are a fool’s game for management,” Donohue said at a conference organized by the Wall Street Analyst forum. “Companies want to project numbers that will please Wall Street, their shareholders, and all of the bloggers and talking heads on cable TV.
    “All company executives, especially those of large public companies, should follow the lead of others who have stopped issuing earnings guidance. Short of that, companies should never offer a single figure instead of a wide range.”

    I agree it’s a fool’s game, but that’s not a good reason to stop. Hell, they still televise Wheel of Fortune.
    The problem is this punishes business for the sins of investors: “Please stop them, before they make me do it again!” Why don’t we open the markets one day a quarter? Honestly, that would probably be to the benefit of a lot of investors.
    I agree that dividing the entire world into three-month blocks of time isn’t the best thing for business. The problem is that by taking it away, investors will start to focus on some other performance metric. Probably a dumb one, like price. The answer isn’t less information, but more. In fact, I’d like to see monthly sales reports from companies. This is counterintuitive, but I think more frequent financial info would cause investors to focus on the long term. Once you see the warts, you’ll start to look at the big picture.
    Donohue also criticized Regulation FD.

    He also said the Securities and Exchange Commission should reconsider the rule, known as Reg FD, that requires that companies provide all significant financial information to the entire investing public at the same time.
    “Reg FD, while a well-intentioned attempt to level the playing field of information, has ended up chilling corporate speech,” he said. “Faced with the SEC’s hyper-enforcement regimes, corporate lawyers advise their management to say as little as possible about what is happening at the company.”

    Once again, he’s confusing who’s causing the problems. Reg FD hasn’t “chilled” corporate speech—it has chilled intra-corporate speech. Companies with nothing to hide, still have nothing to hide. Does anyone really think Expeditors cares what some 26-year-old analyst thinks? Not letting companies whisper to their buddies won’t suddenly lead them to tell the public more.
    As always, the answer is more information.

  • The Weirdest CEO Moments of 2005
    , December 1st, 2005 at 11:58 am

    Fortune has been keeping track:

    When Overstock.com chief executive Patrick Byrne went Star Wars on a quarterly conference call this summer—deriding a shadowy figure he called the “Sith Lord”— he set the investment community buzzing. Other company leaders have raised eyebrows in surprising ways this year too. A trip down memory lane.
    • Change of Flight Plan
    Boeing’s board brought Harry Stonecipher out of retirement in late 2003 to rescue its then scandal-tainted image. But Stonecipher failed to follow the company’s ethical guidelines, resigning on March 6 after an extramarital affair with a Boeing executive. The company all but slapped him with a scarlet A in an unusually candid press release.
    • Too Sexy for His Staff
    American Apparel CEO Dov Charney was named in two sexual harassment suits in May. Among the allegations: that Charney conducted job interviews in his underwear and gave employees vibrators. Charney denied the charges. He told a reporter, “I don’t think I go over the line. Sexuality and sexual words become part of the daily banter of work life in any free society.”
    • Private Property
    His ouster from AIG was so abrupt that former CEO Maurice “Hank” Greenberg left without his personal effects. After weeks of negotiations, the company finally let him retrieve, among other things, the health records of his pet Maltese, Snowball, his monogrammed towels—and some unspecified “underwear.”
    • A Picture Is Worth …
    Surveillance cameras at Hollinger Inc.’s Toronto headquarters caught former CEO Conrad Black red-handed in May making off with cartons of files through a back door, flouting a court order while under criminal and securities investigations. The cameras had been installed earlier that day.
    • Gender Bender
    Speaking to reporters about driver Danica Patrick’s strong Indy 500 finish in June, Formula One chief Bernie Ecclestone said she was “super” before suggesting that “women should all be dressed in white like all other domestic appliances.” He repeated the remark to a puzzled Patrick in a phone call later that week.
    • Seek and Ye Shall Find
    Mass Mutual’s sacking of CEO Robert O’Connell was traced to his wife, who tried to crash a board meeting to air suspicions of an extramarital affair. A board probe turned up no proof of a dalliance but found millions in allegedly suspect returns in his shadow retirement account.
    • A Night to Forget
    American Express filed suit against Savvis Inc. and its CEO, Robert McCormick, in October for failing to pay McCormick’s $241,000 one-night tab at Manhattan topless club Scores. AmEx claims McCormick said he rang up only $20,000 in charges (and blamed the rest on fraud), but Scores provided AmEx with signed receipts for the full sum. Savvis placed the CEO on unpaid leave in October.

  • Europe Raises Rates
    , December 1st, 2005 at 11:10 am

    For the first time since 2000, the European Central Bank raised interest rates. Just like our Fed, it wasn’t a big move—from 2.0% to 2.25%. Nevertheless, it represents a major change in policy. Although, the Euro Fed did say that it’s undecided if there will be a series of rate hikes, ala Greenspan.
    For the first time, we may see some grumblings about a unified currency. Dominique de Villepin, the sometimes poet and full-time Prime Minister of France said that he wanted “nothing to be done that would undermine growth in Europe.” By Europe, he really means France. As the rioting may indicate, the French economy isn’t doing too well, and I’m sure many businesses and consumers there would be happy to see rates, and their cars, left alone. The unemployment rate in France is 9.3%—nearly twice what it is here.
    The EU reported that unemployment in countries using the euro is at 8.3%. The highest is in Poland at 17.6%. The lowest is in, believe it or not, Ireland at 4.3%. Higher rates may help the euro against the dollar. As you can see from this chart, the dollar has beaten up on the euro for much of the year.
    euro1.gif

  • Happy December
    , December 1st, 2005 at 9:29 am

    It’s the first day of a new month. Over the last three years, the first trading day of the month has accounted for half of the entire market’s gains:

    Since the bull market began back in October of 2003, the S&P 500 has gone up an average of 48 bps on the first day of each month (buying at the close on the last day of the prior month and selling at the close on the first day). On these days, the Index has been up 27 out of 37 times (73%). More striking is the compounded return of these days versus the return had one bought for the rest of the month (buying at the close on the first day of the month and selling at the close on the last day of the month). Starting on the first day of the month in November of 2002, buying on the first day of the month has amounted to half of the S&P 500’s overall gains.