Archive for April, 2006

  • Junior Wall Street Wannabes
    , April 30th, 2006 at 11:57 am

    The NYT weighs in on the Plotkin/Pajcin case:

    Wall Street has often been plagued by insider trading scandals in the past, most spectacularly in 1980’s, when it ensnared some of the most powerful titans of finance. But the scheme that Mr. Pajcin and Mr. Plotkin are accused of involves the most junior of Wall Street wannabes.
    Indeed, its cast of characters would be more likely to be found appearing on “Jerry Springer” than the Wall Street program “Squawk Box.” They include Ms. Vujovic, an exotic dancer who earned $6,000 to $7,000 a night, according to a transcript of Mr. Pajcin’s bail hearing; Mr. Pajcin’s aunt, who was a retired seamstress in an underwear factory in Croatia; Mr. Plotkin’s father; a driver in Croatia; a wealthy investor in Germany; and a softball buddy from Brooklyn named Elvis.

  • John Kenneth Galbraith, 1908-2006
    , April 30th, 2006 at 7:43 am

    From the New York Times:

    He wrote two more major books in the 50’s dealing with economics, but both were aimed at a large general audience. Both were best sellers.
    In “The Great Crash 1929,” he rattled the complacent, recalled the mistakes of an earlier day and suggested that some were being repeated as the book appeared, in 1955. Mr. Galbraith testified at a Senate hearing and said that another crash was inevitable. The stock market dropped sharply that day, and he was widely blamed.
    “The Affluent Society” appeared in 1958, making Mr. Galbraith known around the world. In it, he depicted a consumer culture gone wild, rich in goods but poor in the social services that make for community. He argued that America had become so obsessed with overproducing consumer goods that it had increased the perils of both inflation and recession by creating an artificial demand for frivolous or useless products, by encouraging overextension of consumer credit and by emphasizing the private sector at the expense of the public sector. He declared that this obsession with products like the biggest and fastest automobile damaged the quality of life in America by creating “private opulence and public squalor.”

  • On Top of the World
    , April 29th, 2006 at 3:42 pm

    The Economist looks at Goldman Sachs (GS):

    By any measure, Goldman Sachs is a formidable company. The bank knocks the spots off its competitors, whether in pure “investment banking”, the traditional craft of underwriting and mergers and acquisitions in which it made its name, or in its new focus, trading for customers and its own account. Even compared with leaders in other industries, Goldman makes spectacular returns. Among its latest record-busting yardsticks was a 40% quarterly return on equity. The average pay-packet of its 24,000 staff last year was $520,000—and that includes a lot of assistants and secretaries.
    This makes the bank an easy target for populist politicians and tabloid newspapers. The real reason why Goldman should matter to outsiders is not because it is a manufacturer of millionaires (good luck to it); but because it stands at the centre of a two-decade-long transformation of the financial markets and a new approach to risk.

  • Dell and Microsoft
    , April 28th, 2006 at 2:20 pm

    In less than a decade, Dell (DELL) and Microsoft (MSFT) have gone from growth stocks to value stocks.
    Shares of MSFT are getting ripped today in the wake of the company’s third-quarter earnings report. The company earned 28.6 cents a share, which rounds up to 29 cents, but that includes a 2.6-cent charge for stock options. The Street consensus was for 33 cents a share.
    The stock is currently down over 11%, its worst day since 2000. As bad as Microsoft is, Dell just don’t make no sense. The stock is down to $26 a share! One of the things I’ve learned about investing is that trends can go on longer than you think. Everytime you wonder, “how much more can this go on?” it will.
    Dell was at this price eight years ago, yet the company’s sales and income have tripled since then.

  • Supply and Demand
    , April 28th, 2006 at 9:07 am

    Charles Krauthammer is today’s Washington Post. His theory for higher oil prices: something about supply and demand.

    China has come from nowhere to pass Japan as the number No. 2 oil consumer in the world. China and India — between them home to eight times the U.S. population — are industrializing and gobbling huge amounts of energy.
    American demand is up because we’ve lived in a fool’s paradise since the mid-1980s. Until then, beginning with the oil shocks in 1973, Americans had changed appliances and cars and habits and achieved astonishing energy conservation. Energy use per dollar of gross domestic product was cut by 30 percent in little over a decade. Oil prices collapsed to about $10 a barrel.
    Then amnesia set in, mile-per-gallon ratings disappeared from TV ads and we became “a country of a million Walter Mittys driving 75 mph in their gas-guzzling Bushwhack-Safari sport-utility roadsters with a moose head on the hood, a country whose crude oil production has dropped 32 percent in the last 25 years but which will not drill for oil in the Arctic National Wildlife Refuge for fear of disturbing the mating habits of caribou.”
    I wrote that during the ’96 witch hunt for price gougers. Nothing has changed. Except that since then, U.S. crude oil production has dropped an additional 12.3 percent.

  • Economy Grew By 4.8% in First Quarter
    , April 28th, 2006 at 8:51 am

    The government just reported that the economy grew by 4.8% in the first quarter. That’s a pretty good number. Inflation actually slowed down some. I expect the economy to cool off as the year goes on, but for now, the business outlook is very strong.

  • Divergence
    , April 27th, 2006 at 2:37 pm

    Look at this divergence between the cyclicals (blue line) and the consumer stocks (red line).
    cmr.png
    These indexes normall track each other fairly closely. Combined with the turnaround in the bond market, this may indicate a weaker-than-expected GDP report.

  • UNH Changes Governance Policy
    , April 27th, 2006 at 2:24 pm

    UnitedHealth (UNH) is in much more trouble than I realized. The stock dipped below $47 a share this morning. The company is in crisis-management mode. The WSJ reports:

    UnitedHealth Group Inc.’s board, under fire for past stock-option granting practices, said it would adopt several changes to its corporate-governance policies.
    The board also said it would meet Monday to act on recommendations that Chief Executive William McGuire, in a bid to respond to questions surrounding his stock options, made last week. They include terminating further equity-based awards for a small number of the company’s most senior executives with large numbers of stock options already, and doing away with noncash forms of compensation.
    The health-insurance titan, based in Minnetonka, Minn., has been reviewing some of its corporate-governance policies since last year. But the changes announced yesterday come amid scrutiny of the circumstances under which Dr. McGuire obtained some of the $1.6 billion in unrealized gains he holds in UnitedHealth stock options. He and at least 10 other top executives at times received options just before big run-ups in the company’s share price or at the lowest price points in the year, raising questions about the timing of those grants.

    Too many corporate boards are little more than rubber stamps for whatever senior management wants. How does someone get $1.6 billion stock options. That’s more than $1 a share. These policy changes are nice too see, but I think they’re a first step in a major overhaul.

  • The Hard-Hitting Questions
    , April 27th, 2006 at 11:12 am

    From TheStreet.com’s earnings call courtesy of Seeking Alpha.

    Michael Moncroft – MRM Capital
    Okay. Let me ask you this question. From the standpoint of valuation, your metrics were just wonderful, the best they have ever been. Except for maybe one analyst covering the stock, there seems to be a lack of coverage. With the dividend that you guys have since distributed, the cash going up, the earnings going up, the outlook is great, valuation seems to be phenomenal, especially apples-to-apples, other names out there. Is there any reason why there is a lack of analyst coverage? Obviously there are institutional guys that have been buying this stock, including myself. Can you just elaborate on that? I am just curious, because it is just a wonderful story and it continues to get better.

    I have a follow-up: How are your eyes so blue?

  • Earnings from Respironics and Fair Isaac
    , April 27th, 2006 at 10:44 am

    The market has flipped-flopped today. The cyclicals, particularly the oil stocks, are feeling the pain. But the consumer and defensive stocks are holding onto some gains.
    The bond market continues to get beaten up. The five year Treasury is now well over 5%. I’ll be honest. I don’t like the look of this market. I’m not pulling out, but higher long-term rates are like Kryptonite to any bull market.
    From our Buy List, Respironics (RESP) reported earnings of 38 cents a share, which was a penny below estimates. However, that included three cents a share in stock-option expenses. This is the first quarter that firms have to report earnings after stock options. Wall Street seems to be a bit confused about which number to follow for which company. Since Respironics is up this morning, I’m going to assume they beat estimates. The company also reiterated earnings for this year of $1.46 to $1.48 a share.
    Fair Isaacs’s (FIC) earnings weren’t so good. The company earned 40 cents a share, which was 12 cents below Wall Street’s forecast. Fair Isaac said it expects earnings of 44 cents a share for this quarter, and $1.75 for this year. This was below the company’s earlier projections. The stock is down about 7% today.
    The market is waiting for tomorrow’s GDP report. This will be our first look at how well the economy did for the first quarter. The report for the fourth quarter was a dud. I’m inclined to think it was a temporary blip as a result of Katrina and Rita. I think the first quarter number could be very strong. The bond market seems to be thinking the same thing.