Archive for April, 2006

  • The Hemline Theory
    , April 7th, 2006 at 4:28 pm

    Daisy Dukes.bmp
    One of the classic bits of market wisdom is the Hemline Theory.

    Financial analysts have loosely used it to determine where the economy is headed. So far it’s been pretty accurate. In the ’20s and ’60s, hemlines were at a high and so was the stock market. And in the ’30s and ’40s, the stock market was so low that women were almost tripping on their skirts. The hemline theory was also on the ball in 1987. Miniskirts were all the rage, and the stock market was at a matching high. But then the market quickly crashed in October, right when designers such as Bill Blass decided that miniskirts looked ridiculous. Hemlines dropped and so did the market. Coincidence? I think not!

    I just learned from CNBC that USA Today reports that “Short shorts are sexier, and totally hip.” This also means that I’m only two media degrees of separation away from knowing what’s totally hip.

    Inseams are inching up this spring. Capris begat gauchos, which crept up to become bermudas. Now, short shorts — thigh grazers with 2½- and 3-inch leg lengths — are emerging as the top bottom.

    The market closed lower today. Daisy Duke, I blame thee.

  • Defending Buy-and-Hold
    , April 7th, 2006 at 2:52 pm

    The most e-mail I get is whenever I defend buy-and-hold investing. Despite all the evidence in its favor, too many investors dismiss this simple, proven strategy. The complaint I hear most often is that buy-and-hold has been a flop for the past several years.
    My defense is that I don’t favor buy-and-hold per se. More accurately, I favor buy-and-buy-and-buy-and-hold. This is much closer to reality for investors as they usually add to their portfolios each month.
    Let’s assume an investor put $200 in the S&P 500 at the beginning of each month starting in January 2000. That’s an investment of $15,000 (75 X $200). Today, that portfolio would be worth about $18,100 even though the market is down about 2% over that same time.
    More good news for the Buy List today. We’ve finally pulled ahead of the S&P 500 for the year. Harley-Davidson (HDI) is our next stock to report earnings. The announcement is scheduled for Wednesday. The current estimate is for 86 cents a share. Reuters notes that some investors are nervous before the announcement. I’m not one of them. Harley is cheap at this price.
    Also, the Oil ETF (USO) will debut on the Amex Monday. Hopefully, there will be a silver one soon.

  • Biomet’s Future
    , April 7th, 2006 at 10:06 am

    The New York Times has an article this morning on Biomet (Biomet Won’t Say So, but Investors Expect a Sale).
    Well, I don’t expect one. It’s hard to say, but I don’t think Biomet will be sold any time soon. Sure, it could happen, but let’s look at the facts. The company is in a very strong position. Unlike many companies in similar situations, Biomet can easily afford to walk away from a deal it doesn’t like.

    Many analysts project that a successful takeover bid would have to top $10 billion. And industry experts say that Biomet, which is nearly debt-free, will be under no pressure to accept a low bid. Biomet reported net income of $307.6 million on revenues of $1.49 billion in the nine months that ended Feb. 28.
    “It’s big enough to survive as a stand-alone company so this won’t be a distress sale,” said Anthony G. Viscogliosi, a principal at Viscogliosi Brothers, a consulting and investment firm in New York that specializes in orthopedics.

    There’s also the question of who the buyer would be.

    The management shake-up and CNBC report sparked speculation about who might acquire Biomet. Those prominently mentioned included Medtronic, which is a broad-based medical device maker and a leader in spinal implants that has historically denied interest in the rest of the orthopedics business, and Abbott Laboratories, a drug maker that has been diversifying into orthopedic devices as part of a strategy to develop a broad portfolio of medical products.
    Bids by Zimmer, DePuy and Stryker are viewed as less likely for many reasons, including antitrust concerns. But the British company Smith & Nephew is a major orthopedics company with complementary strengths that many would see as a logical partner in a merger of equals. The combined company would have a 20 percent share of the knee and hip market, nearly the same as Stryker.

    Let’s round up the usual suspects. I think Medtronic (MDT) is at the top of the list, followed by Johnson & Johnson (JNJ).

  • Today’s Jobs Report
    , April 7th, 2006 at 10:05 am

    This morning, the government reported that the unemployment rate fell to 4.7% last month, the lowest in 4-1/2 years. The economy added 211,000 new jobs in March.
    This was stronger than the Street was expecting. The yield on the 30-year Treasury broke 5% this morning, and the 10-year yield isn’t far behind. I guess those worries of an invested yield curve are gone. (For now.)
    For all you data nerds, here’s a spreadsheet of the unemployment rate going back to 1948, and here are non-farm payrolls going back to 1939.
    Enjoy.

  • Biomet’s Press Release
    , April 6th, 2006 at 3:02 pm

    Biomet (BMET) confirms that it has hired Morgan Stanley.

    Biomet, Inc. confirmed today that Morgan Stanley & Co. Incorporated is assisting it in exploring strategic alternatives focused on enhancing shareholder value. The Company stated that no decisions have been made and there is no assurance that this exploration will result in any specific action. Daniel P. Hann, interim President and Chief Executive Officer, said, “We believe that this review is a prudent exercise and is consistent with management’s commitment to our shareholders and Team Members.”
    The Company also stated that it does not expect to disclose developments with respect to its exploration of alternatives unless required.

    Or in the event the story is leaked to CNBC.

  • Link-A-Rama
    , April 6th, 2006 at 2:49 pm

    If you haven’t had a chance, please check out my fantabulous blogroll. It features some of the interweb’s most bestest and brightest.
    Here are a few items I’ve been reading. At 10Q Detective, David Phillips has a self-help column. Jeff Matthews looks at the labor shortage in China.
    Wall Street Folly can’t wait for Overstock’s next earnings. My advice is to ignore the stock and go long tinfoil.
    Tim Iacono looks at the recently released Fed transcripts. Jay Walker has some wise words from Warren Buffett.
    Mark Mahorney looks at exchange outsourcing. I think we’re going to see more of this. At Deal Breaker, MBP writes on being an ambassador for the firm.
    Enjoy. I’ll be here when you get back.

  • The Midday Market
    , April 6th, 2006 at 12:40 pm

    It’s a down day so far as oil is looking to make a run at $68 a barrel. The 30-year Treasury has been as high as 4.98% today. The S&P 500 is currently at 1303, which is a loss of about 0.6%.
    The Buy List is holding up well mostly thanks to Bed Bath & Beyond (BBBY). The stock is trading about 6% higher after the company reported strong earnings yesterday. The stock is getting a slew of upgrades today.
    Also, two economists look at why beautiful people earn more money.

  • “As Long as It’s a Commodity.”
    , April 6th, 2006 at 9:25 am

    The commodity markets are soaring again. Gold is over $600 an ounce, the highest since 1981. In London, oil made a new high. Silver is over $12 an ounce. Interestingly, the gold/silver ratio is still pretty high at 50-to-1. The Mint Act of 1792 pegged the ratio at 15.1-to-1.
    From Bloomberg this morning:

    “Commodities are the flavor of the month,” David Gornall, head of foreign exchange and bullion at Natexis Commodity Markets Ltd. in London, said in an interview today. “Gold, silver, zinc or copper, it doesn’t really matter what it is, as long as it’s a commodity.”

    From Karl Marx in 1867:

    A commodity appears at first sight an extremely obvious, trivial thing. But its analysis brings out that it is a very strange thing, abounding in metaphysical subtleties and theological niceties.

    Heck, even Harvard is investing in timber.

  • Merck Gets Split Decision in Vioxx Trial
    , April 6th, 2006 at 9:16 am

    Yesterday, a jury awarded a man $4.5 million after finding that Vioxx contributed to his heart attack, but two plaintiffs received almost nothing. Today, the punitive phase of the trial begins.
    Bed Bath & Beyond (BBBY) looks to open at $41 a share. Lehman Brothers (LEH) finally announced a 2-for-1 stock split. Bonds are lower this morning, especially the long-end of the yield curve. The 30-year yield is up to 4.94%.
    In Slate, Daniel Gross looks at the stock market and presidential approving ratings: “Stocks did better when presidents were doing poorly, and they did worse when presidents were more popular.” Strange.

  • Bad Stock Tip Leads to Classroom Brawl
    , April 6th, 2006 at 8:21 am

    From Saudi Arabia:

    A bad stock tip led to a fistfight in a classroom, reported Al-Madinah recently. The fighters weren’t the students, but rather the teachers. The fight broke out when two teachers entered the classroom of another teacher to confront him on a bad stock tip that resulted in financial losses. The argument escalated into a fight. The Ministry of Education is investigating the incident and has pledged to punish the behavior. Education officials have been confronting a problem in recent months of teachers skipping class to invest in the stock market. Now, it seems, some teachers think they’re not only qualified to give stock tips, but also to engage in violent behavior when the tips turn out to be bad.

    Probably a Catholic school. I hear those places are rough.