Archive for 2005

• Quotes From Chariman Alan
  Eddy Elfenbein, November 3rd, 2005 at 2:41 pm

  
  Here are some quotes from Greenspan’s testimony today.
  On the yield curve:

  That used to be one of the, I guess, most accurate measures we used to have to indicate when a recession was about to occur and when a recovery was about to occur.
  It’s lost its capability of doing so in recent years. The markets have become far more complex and the simple relationships that that yield curve slope indicated no longer work.

  On low long-term bond yields:

  Disinflationary pressures, the excess savings pressures, have more than offset the expectational concerns that rising supplies of U.S. Treasury debt have out there. I think that’s going to change.

  On energy prices:

  We have been able to absorb that to a large extent because
  we have an extraordinarily more flexible economy than we had back in the mid-1970s.
  The fact that the use of energy is much less than it was has enabled us to absorb the energy shock with nowhere near the type of consequences that we confronted in the earlier period.

• Fair Isaac’s Earnings
  Eddy Elfenbein, November 3rd, 2005 at 1:05 pm

  I wanted to say more about Fair Isaac’s (FIC) earnings report. I was very impressed. The company holds a near-monopoly position in the industry. Last quarter, gross margins expanded from 64% to nearly 67%. Operating margins jumped to 26% from 21%.
  The company also raised guidance for next year to $2.15 a share. Here’s a report from Reuters, but catch what’s at the bottom.

  –The company said shares used in computing earnings per
  share for the latest third quarter were about 67.2 million,
  compared with about 80.4 million in the year-ago period.
  –The provider of analytics and decision technology said it
  expects first-quarter earnings to be about 50 cents per share,
  excluding the impact of stock-options expensing. It said
  revenue for the quarter would be $207.0 million.
  –Six analysts on average expect the company to earn 48
  cents per share, excluding special items, and four analysts
  expect revenue of $212.4 million for the first quarter,
  according to Reuters Estimates.
  –Fair Isaac said for fiscal 2006 it expects the earnings
  to be about $2.15 per share, excluding the impact of
  stock-options expensing. It said revenue for the year would be
  $860 million to $900 million.
  –Nine analysts on average expect the company to earn $2.06
  per share, before special items, and six analysts expect
  revenue of $875.5 million for 2006.
  (Reporting by Debiprasad Nayak in Bangalore)

• The Alito Portfolio
  Eddy Elfenbein, November 3rd, 2005 at 12:10 pm

  Forget his opinion on the Commerce Clause, why the hell does Judge Alito own Bristol-Myers (BMY)? Did he see their earnings report? WTF? Bush wants this man on the Supreme Court! I hope the senators grill him on this. Bristol-Effing-Myers?? Well, let’s just burn the Constitution while we’re at it.
  He also owns Disney (DIS), Intel (INTC), McDonald’s and ExxonMobil (XOM), plus a ton of Vanguard funds. Wow, how 1972.
  Here’s his financial disclosure form.
  If you ask me, Roberts has a much better portfolio. (1/8 interest in a cottage in Koncklong, Limerick, Ireland??)

• SEC Investigating Place Dome Trades
  Eddy Elfenbein, November 3rd, 2005 at 11:52 am

  Here’s some helpful advice. If you ever know about a major merger announcement coming up, do not buy up a ton of calls. People will notice.
  On October 25 and 26, a client of a Swiss brokerage loaded up on calls of Placer Dome. On October, Barrick Gold made a bid for Placer Dome. The stock shot up 20%, and the calls were sold for $1.9 million.
  The SEC is now investigating.

• Merck Wins
  Eddy Elfenbein, November 3rd, 2005 at 11:41 am

  Merck (MRK) just won its big Vioxx trial. Four years ago, Mike Humeston had a heart attack that came just two months after he started taking Vioxx. The jury said that Merck is not responsible. In August, a Texas jury held Merck liable for the death of Robert Ernst. His widow was awarded $254 million. Merck is appealing that case. Merck’s stock is up about 6% today.
  Expeditors (EXPD) is up 4.7% today. Lincare (LNCR) is up 3.2%. Quality Systems (QSII) is up 3.6%. The company is due to report earnings after the close. Fair Isaac (FIC) is up about 3% after its great earnings yesterday.
  Brown & Brown (BRO) got two downgrades today. The company has been on an acquisition binge lately. The stock is off about 3%.

• Airlines & the PBGC
  Eddy Elfenbein, November 3rd, 2005 at 10:24 am

  Guess who’s become a large owner of airline stocks? You, the taxpayer.

  The Pension Benefit Guarantee Corp., the federal agency that partially guarantees traditional pensions, recently was awarded 7% of US Airways Group Inc. by a federal bankruptcy court handling the company’s Chapter 11 reorganization, according to the PBGC’s recent filing with the Securities and Exchange Commission. The agency got the shares as compensation for the underfunded pension plans it assumed when the company filed for bankruptcy.
  The agency is likely to get an even larger stake — between 15% and 35% of new shares — of UAL Corp.’s United Airlines when it emerges from Chapter 11 in February, after 38 months in court protection, according to a PBGC official. And it’s likely to get sizable chunks of Northwest Airlines, Delta Air Lines and Delphi Corp. — if, as expected, the companies ask the bankruptcy courts to dump their pension plans on the insurer.
  Taxpayers stand to benefit if the PBGC’s stockholdings increase in value. Stock sales would bolster the agency’s assets that are used to pay retirement benefits, and possibly forestall the need for a taxpayer bailout of the deficit-ridden federal insurer.

  By going under, the companies can finally get ditch of their pension liabilities. But then there’s the question of what the government should do as a shareholder.

  When companies seek to shift pension plans to the PBGC in bankruptcy, the agency typically becomes a member of the unsecured-creditors committee that tries to recover assets to cover unfunded liabilities. As a member of the committee, the agency can object to parts of a proposed reorganization plan, including mergers or acquisitions. Its primary role as a committee member is to get as big a share of the assets recovered as possible.
  The PBGC’s recoveries are often small because of the relatively low standing of unsecured creditors. The agency has gotten some equity stakes in the past and an occasional board seat. It currently has three board seats, including one with Fansteel Inc., which turned over to the agency a pension plan underfunded by $21 million early last year; the PBGC has a 26% stake in the company. The agency couldn’t immediately provide the names of the other companies for which it holds board seats. The PBGC owned 8% of a new Polaroid Corp. holding company that was created in a 2002 bankruptcy proceeding, and sold the stake a year ago for $31 million.
  The PBGC takes the position that the government should not take an active role in corporate management or governance. That’s why it assigns one of its 11 money managers — which primarily invest its pension assets — to manage individual equity holdings. J.P. Morgan Chase & Co., one of its money managers, has taken on the role of managing equity stakes because of its experience. As a fiduciary, the money manager’s role is to monitor whether company management is getting the maximum for its investment.

  Remember, the Feds actually made a nice little profit with its loan to Chrysler 25 years ago. Normally, I’m a bit wary of government ownership of industries. The usual side effects are huge operating losses, poor quality and endless union troubles. With the airlines, we already have that.
  As usual, the Simpsons has something to say on this subject. When Krusty the Clown is indicted on tax fraud, the IRS seizes all of his assets. Krusty Burger becomes IRS Burger.

  Homer: Lesse, I’ll have four tax burgers, one IRS-wich, withhold the lettuce, four dependent-sized sodas, and a FICA-ccino.
  Kid: Fill out schedule B. You should receive your burgers in six to eight weeks.

• Productivity Surges
  Eddy Elfenbein, November 3rd, 2005 at 9:42 am

  Business productivity surged 4.1% during the third quarter, and productivity growth for the second quarter was revised higher to 2.1%. This was the best number in a long time and well above Wall Street’s forecast.
  Productivity is an important number to watch because it tells us worker output per hour. Growing productivity changes the entire economic landscape. It basically means that the economy is making less go further. Growing productivity also holds down inflation and takes pressure off the Federal Reserve.
  Today, Alan Greenspan will make his final appearance before Congress as Fed chairman. Tomorrow we’ll get the employment report for October.

• Soccer Affects the Stock Market
  Eddy Elfenbein, November 2nd, 2005 at 10:05 pm

  A Dartmouth study finds that a country’s stock market is affected by its national soccer team.

  Match results may “have an important effect” on share prices, Professor Diego Garcia said, commenting on a report released by Tuck School of Business at Dartmouth this week. “There are forces influencing our economies that have little to do with rational thought.”
  Stock markets decline 0.39 percent on average after the national team loses in a World Cup game and 0.29 percent in any international match, according to the study, co-written by Massachusetts Institute of Technology’s Alex Edmans and Norwegian School of Management’s Oyvind Norli.
  The correlation is the highest in countries with the biggest public support for soccer such as England, France, Germany, Italy and Spain, the report said. In South American nations, the phenomenon is similar, it said.
  Soccer “may have an effect on the market since it affects sentiment,” Richard Hunter, head of U.K. equities at Hargreaves Lansdown in Bristol, England, said in a telephone interview today. “Psychology is pervasive in markets.”
  Still, there’s no evidence to show that stock markets rise when teams win, the study said.

  You can download the paper here.

• The Market Today
  Eddy Elfenbein, November 2nd, 2005 at 4:33 pm

  This was a terrific day for our Buy List. Every stock was up except for Medtronic (MDT). The S&P 500 was up 1.00% while the Buy List was up 1.87%. Brown & Brown (BRO), Expeditors (EXPD), Progressive (PGR), St. Jude (STJ) and Varian (VAR) made new highs.
  Fair Isaac (FIC) just reported earnings of 53 cents a share, four cents more than Wall Street’s estimate. Sales were up 13.1%. The company also guided higher for this quarter.

• NYT: Wal-Mart Movie Opens With Fracas in Manhattan
  Eddy Elfenbein, November 2nd, 2005 at 4:02 pm

  Funny: A filmmaker makes an anti-Wal-Mart film.
  Funnier: Wal-Mart reps buy tickets to see the premier.
  Hysterical: The filmmaker throws them out.

  Wal-Mart Stores came to Manhattan last night for a peek at a movie about itself. But before it got the chance, a Wal-Mart consultant was told to leave the theater after the director accused him of trying to secretly record the film.
  Minutes into the premier of the film, “Wal-Mart: The High Cost of Low Price,” the director, Robert Greenwald, said he spotted the consultant pointing his open cellphone toward the screen. A confrontation ensued in the lobby. “Get out of here,” Mr. Greenwald yelled, according to the director and a Wal-Mart spokeswoman. “This is a disgrace.”
  The spokeswoman, Mia Masten, said she and two consultants had bought tickets to the screening “to find out what they were saying so we can correct it.” Ms. Masten said the consultant who was asked to leave, John Marino, was trying to call her because she was running late.
  “Why would we record it?” she said, “We bought tickets.”
  The incident is the latest chapter in escalating public relations battle between Wal-Mart and its critics. The retailer has set up a rapid response war room in Arkansas to monitor its critics, and sent media specialists to Manhattan as part of the effort.
  Rick Jacobs, the chairman of Brave New Films, which is distributing the film, said he was considering filing charges against Wal-Mart and the consultant for attempted piracy. “You can’t just go in and record a movie,” Mr. Jacobs said. “Wal-Mart should know. They are the largest seller of DVD’s in the country.”

  One thing that many of Wal-Mart’s critics forget is that the stock hasn’t done very well recently. Since the market low three years ago, Wal-Mart’s stock is down while the S&P 500 is up over 50%. If the stock had merely kept pace with the overall market, Wal-Mart would be worth over $100 billion more than it is today.