Archive for 2005

  • Lindsey in Running Fed Chairman
    , August 4th, 2005 at 4:47 pm

    The Wall Street Journal reports that the White House is also considering Lawrence Lindsey to replace Alan Greenspan as chairman of the Federal Reserve. For several months, it was assumed that the three major candidates were Martin Feldstein, Glenn Hubbard and Ben Bernanke.

    Who’s the frontrunner? I like to watch the numbers at TradeSports, which let’s users buy “futures” on real world events. According to their market, Bernanke is in the lead at 38%. Feldstein is second at 28%, and Lindsey is third at 20% (up 2% today).

  • Just Do It!
    , August 3rd, 2005 at 4:24 pm

    The latest craze of foreigners buying second-rate American companies continues. Now, the Germans have gotten into the act. Adidas Salomon will annex Reebok for $3.8 billion.

    The claim is that this is a move to compete with Nike. I’m sorry, but they’re worried about this now! You’re at least a decade too late. Over the last 18 years, Reebox’s stock is up 184%. Nike’s stock is up 3,300%. Is Nike supposed to be scared now?

    All the top athletes are with Nike (Tiger Woods, Lance Armstrong). In fact, Nike is even moving into Adidas’ traditional territory of soccer. The Wall Street Journal notes:

    Nike has signed up prominent European soccer teams such as Manchester United and Arsenal. More broadly, Nike has been in acquisition mode, diversifying beyond its core of running and basketball shoes to buy brands such as Converse, Cole Haan and Official Starter Properties.

  • Requiem for CNOOC/Unocal
    , August 3rd, 2005 at 3:53 pm

    The New York Times looks at the demise of the CNOOC/Unocal deal. I think they get it right. This was a case of transferring legitimate political grudges onto a deal that was completely legitimate.

    Many economists, while not necessarily disputing that claim, would still say that the political reaction was far out of proportion to the case.
    They are particularly dubious about arguments that Cnooc’s bid would have jeopardized national security, noting that oil is a globally traded commodity and that Unocal’s reserves contributed only about 1 percent of American oil consumption.

    Let’s hope that the floating of the Yuan has helped relieve some of the tension. Although it looks like we have more ground to cover.

    China is likely to let the yuan gain 5 percent against the dollar by 2007, not enough to slow its economy or end U.S. criticism that the nation has an unfair trade advantage, according to a Bloomberg survey.
    The People’s Bank of China will allow the yuan to reach 7.7 per dollar, based on the median forecast of 37 traders, strategists and investors. The central bank let its currency rise 2.1 percent on July 21 after a decade of being pegged at about 8.3 to the U.S. currency.
    Additional appreciation of 5 percent is unlikely to appease lawmakers such as U.S. Senators Charles Schumer and Lindsey Graham, who said last month’s shift was a first step and the currency remains undervalued.

  • CIBC to pay $2.4 bln to Enron investors
    , August 3rd, 2005 at 1:12 pm

    Nowadays, people like to pretend that Enron existed all by itself. But in reality, the energy-trading firm had several accomplices. CIBC, for example, helped Enron in several bogus accounting scams. The bank has now agreed to pay $2.4 billion to Enron’s shareholders. This is only the beginning. Ken Lay and Jeff Skilling will go on trial in January.

  • Return of the 30-Year Bond
    , August 3rd, 2005 at 1:05 pm

    The Treasury Department announced today that it’s bringing back the 30-year Treasury bond. That’s what happens when you borrow lots of money. What will be interesting to see is if the 30-year becomes the bellwether bond again

  • CNOOC Says See Ya
    , August 2nd, 2005 at 11:57 am

    Now, it’s official. CNOOC is walking away from Unocal, and their taking their money with them. The Chinese company had outbid ChevronTexaco for Unocal by offering $18.5 billion (all cash). But CNOOC finally got fed up with the posturing from American politicians who feared an Asian company buying our Asian oil. The Chinese Communists have been through the Long March, the human waves of the Korean War, but our bureaucracy was simply too much to bear.

    The irony is that CNOOC was simply paying too much, but that’s their right. If we don’t let the communists pay too much for our companies, they’ll stop paying too much for our debt. And that’s what’s happening. The market seems genuinely surprised that we’ve been getting good news about inflation and debt financing, yet interest rates are going up. I’m not surprised, and this is just the beginning of higher rates.

  • You Are So Done With Us
    , August 2nd, 2005 at 10:50 am

    Gretchen Morgenson takes on corporations that bully analysts. The best nugget is this e-mail from Douglas P. Smith, the CFO of Mercury Interactive, to a wayward analyst:

    Why don’t I just call you up and get my weekly forecast update. This is just so over the top in terms of National Enquirer journalism. Not to mention being filled with numerous factual errors and misrepresentations. Since you seem to believe that you have a reliable and trustworthy ‘mole’ inside of Mercury, then I see no reason for you to have any other relations with the rest of our company. You are so done with us. See ya, Doug Smith

    Charming fellow, no?

  • Bond Market Blues
    , August 1st, 2005 at 8:34 pm

    I hate to spoil the party, but has anyone noticed that the bond market is going down? By that, I mean it’s losing value. In other words, it’s not going up. Bonds are falling. Interest rates are going up, and not just the ones controlled by Team Greenspan. If you have an adjustable-rate mortgage, you ain’t too happy about the bond market’s sudden turn for the worse.

    If could have been different. The government had wonderful news for the bond market: They said that they won’t have to borrow as ridiculously much as they had thought. Regrettably, the bond market somehow didn’t take this as gracefully as one would hope.

    Perhaps, Asia is getting a bit fed up with our spending habits. That’s certainly understandable. Half of our Treasury debt is held in the Far East. Locking in a 4% yield until 2020 isn’t my idea of a great deal either.

    Today’s Treasury auction did not go so well. The government hocked off a cool $18 billion in three-month bills. The yield came in at 3.4%, which is the highest in nearly four years. Another $16 billion in six-month bills went for 3.6%, the highest rate in slightly over four years.

    The famous yield curve isn’t curving much lately. At the beginning of the year, the difference between the two-year note and the five-year note was over 1%. Today, it’s down to just 0.25%.

    The yield on the 30-year T-bond finally broke 4.5%. Do I hear 5%? (Technically, this is a 26-year bond, but at the rate the government is going, I think we’ll be auctioning off fresh 30-years soon.) The long bond is now at its highest yield in 11 weeks. The 10-year closed over 4.3% today, its highest yield in 15 weeks.

    The market’s rally earlier this year was crushed by higher yields. As rates rise, cyclical stocks tend to outperform consumer stocks. I say “tend to,” but not always. Since October 9, 2002, the Morgan Stanley index of consumer stocks is up 26.8%, while the index of cyclical stocks is up over 105%. In fact, it’s surprising how cheap some food stocks are. Sysco (SYY), I’m looking at you.

    The stock rally may continue, but it won’t be able to go for long without some help from the bond market.

  • Department of Irony
    , August 1st, 2005 at 9:33 am

    The Sixties are officially over. “All You Need Is Love” Lyric Fetches $1 Million in Beatles Sale.

    An anonymous bidder in the room competed with a telephone buyer for the manuscript. The sale broke the previous record for a Beatles lyric of 250,000 pounds for “Nowhere Man,” according to John Collins, owner of Surrey, England-based auction house Cooper Owen Plc.

  • The Microsoft Bandwagon
    , August 1st, 2005 at 7:45 am

    Earlier I mentioned that Microsoft’s stock is beginning to look like a good buy. Now there are two articles backing me up. Barron’s says that even after Microsoft’s humongo dividend, the company still has $49 billion in the bank. That means that their bank account is more valuable than all but a few companies in the world. (Barron’s is a subscription link, but here’s a link to wire story about the article.)

    Business Week says that Microsoft’s period of slow growth may be coming to an end. The company has its new version of Windows (Vista) coming soon. The software giant expects sales to grow by 10% to 12% this fiscal year, compared with just 8% for the fiscal year that just ended.

    My take is that Microsoft has entered a new era. It will be more of a stable growth stock, similar to what Coke and Gillette were 20 years ago. Microsoft won’t give you big gains, but it will be a dependable part of your portfolio.