Archive for May, 2006

• Today’s Rally
  Eddy Elfenbein, May 25th, 2006 at 3:02 pm

  Don’t be fooled by today’s rally. It’s good, but it’s not that good.
  Here are today’s top 15 performers in the S&P 100:
  EL PASO CORPORATION……………..6.41%
  GEN MOTORS……………………………5.55%
  HALLIBURTON CO……………………..5.05%
  ALLEGHENY TECH NEW………………4.69%
  FORD MOTOR CO………………………3.90%
  WILLIAMS COS…………………………3.87%
  BAKER HUGHES INTL………………….3.57%
  WAL MART STORES……………………3.50%
  CHEVRON CORP………………………..3.42%
  SCHLUMBERGER LTD………………….3.31%
  COMPUTER SCIENCES CP……………3.18%
  EXXON MOBIL CP………………………2.90%
  BRISTOL MYERS SQIBB……………….2.88%
  BURLINGTN N SANTE FE……………..2.50%
  ALCOA INC……………………………….2.22%
  It’s heavily tilted to energy and materials, the two areas that have been feeling the most pain.

• The Real Meaning of the Enron Verdict
  Eddy Elfenbein, May 25th, 2006 at 2:35 pm

  I wanted to get a head start on the discussion of the “real meaning” of the Enron verdict.
  Some may say that it’s a classic tale of human arrogance and greed.
  To me, I see it as easy way to publicly moralize. Plus, I have an excuse to post a photo of Bethany McLean, former Goldman analyst and co-author of Enron: The Smartest Guys in the Room.
  
  It’s a win-win for everybody. (Except Skilling and Lay of course.)

• It’s Al Goldman TV!
  Eddy Elfenbein, May 25th, 2006 at 2:03 pm

  The Chief Market Strategist at A.G. Edwards gets all metaphorical:

  We believe the animal that best describes the current stock market is a turtle. Think about it. A turtle plods along making slow progress and often stops to rest as it carries a heavy load on its back. A turtle’s shell is like a wall of worry, and it grows heavier as the turtle ages. Investors may try to speed up the turtle but to no avail. What we all must do is adjust to the turtle’s physical limitations and abilities. Yes, a turtle is slow-moving, but it can chug along for an extended period–remember the old parable about the turtle and the hare.

  He later says that the turtle might be driven off a cliff. I’m not kidding.
  Here’s the video.

• Guilty
  Eddy Elfenbein, May 25th, 2006 at 1:30 pm

  From CNN:

  Skilling was found guilty on 19 counts of conspiracy, fraud, false statements and insider trading. He was found not guilty on eight counts of insider trading.
  Lay was found guilty on all six counts of conspiracy and fraud. In a separate bench trial, Judge Sim Lake ruled Lay was guilty of four counts of fraud and false statements.
  Both Lay and Skilling could face 20 to 30 years in prison, legal experts say.
  Judge Lake set sentencing for the week of Sept. 11 and ordered Lay to surrender his passport and post a cash bond. No home confinement was ordered.

• Fire Ballmer
  Eddy Elfenbein, May 25th, 2006 at 11:08 am

  Paul Kedrosky says it’s time to fire Steve Ballmer:

  With today’s news that Microsoft’s Vista could indeed slip further into next year, as I had promised would happen, there is only one rational response from Microsoft’s board: Fire Steve Ballmer. He has long been an erratic force inside the company — someone with real strengths, but also horrible deficiencies (among which is being utterly tonedeaf) — and it is finally clear that the latter permanently outweigh the former.
  Of course, Ballmer had any decency he would simply resign. The odds of that happening, however, are very low.

  Hmmm…decency from Ballmer? Let’s look at the evidence:

  F**king Eric Schmidt [Google’s chief executive] is a f***ing p****. I’m going to f***ing bury that guy. I have done it before, I will do it again. I’m going to f****ing kill Google.

  Yep, it’s a long shot.

• GDP Growth Revised to 5.3%
  Eddy Elfenbein, May 25th, 2006 at 10:27 am

  First-quarter GDP growth was revised higher to 5.3%. Even though that’s an impressive number–the best in 2-1/2 years–it still came in below Wall Street’s forecast of 5.7%.
  Here’s how the economy has done for the last 10 years:
  
  GDP growth is highly “trend-like.” The magic point is 3%. When GDP growth is over 3%, there’s a 70% chance that the following quarter will also be over 3%. If GDP growth is below 3%, then there’s only a 39% chance that the next quarter will be over 3%.
  The key is spotting those points when the economy breaks out of its trend. In the fourth quarter of 2005, the economic fell to 1.7% leading to fears of a recession. But we defied the odds and are growing strongly again. For now.

• Correction Prevents Mistakes
  Eddy Elfenbein, May 25th, 2006 at 7:23 am

  The Saudi market crash is causing thousands of marriages to be called off:

  The stock market crash, which affected more than 3.5 million middle income investors, has delayed the marriages of many people this summer, Asharq Al-Awsat newspaper reported.
  Every summer, tens of thousand of Saudis get married but this year, the number is expected to drop by more than 50 percent.
  Fahd Al-Harbi, a wedding hall owner, said that many people who had made reservations cancelled them after the crash.
  Al-Harbi said that many wedding hall owners would reduce prices to attract customers and that he had reduced his prices by more than 50 percent.
  Saleh Al-Muntasheri has postponed his wedding which was scheduled for the summer because of the crash. He said that he had lost SR120,000.
  Ahmad Ali is another Saudi who lost money in the crash. He said he had lost SR67,000 which had taken him more than five years to save.
  He said he had been forced to cancel his wedding because he could not afford it and that he would not borrow the money.

• Donaldson’s Earnings
  Eddy Elfenbein, May 24th, 2006 at 4:19 pm

  Donaldson (DCI) just reported earnings of 43 cents a share, two cents better than Street estimates.
  The company also narrowed its full-year guidance to a range of $1.49 a share to $1.54 a share. The previous range was $1.47 to $1.57.
  Since the company has already made $1.12 a share through the first three quarters of this fiscal year, it means that it’s forecasting earnings of 37 cents to 42 cents a share for this quarter.
  It also virtually guarantees a 17th straight year of rising earnings. Here are some historical financials on Donaldson:
  Year………….Sales……………..EPS
  1990…………$422.9……………$0.19
  1991…………$457.7……………$0.21
  1992…………$482.1……………$0.23
  1993…………$533.3……………$0.26
  1994…………$593.5……………$0.30
  1995…………$704.0……………$0.37
  1996…………$758.6……………$0.42
  1997…………$833.3……………$0.50
  1998…………$940.4……………$0.57
  1999…………$944.1……………$0.66
  2000…………$1,092.3…………$0.76
  2001…………$1,137.0…………$0.83
  2002…………$1,126.0…………$0.95
  2003…………$1,218.3…………$1.05
  2004…………$1,415.0…………$1.18
  2005…………$1,595.7…………$1.27
  2006…………$1,690.0…………$1.53 (est)
  2007…………$1,780.0…………$1.68 (est)
  Revenues for the quarter came in on the low side. Here’s a chart of Donaldson’s EPS. I used a logarithmic scale so you can see how steady the increases have been. The red is the forecasted range. Also, there were some minor charges last year, which explains the slight dip.
  
  Companies don’t get much more dependable than that. Owning DCI is as close as you’ll get these days to owning a bond with a 13% coupon.

• Eaton Vance
  Eddy Elfenbein, May 24th, 2006 at 3:47 pm

  Here’s a cool stock: Eaton Vance (EV) just reported another solid quarter. The company earned 29 cents a share compared with 23 cents last year, although the Street was looking for 32 cents. No worries, the shares are higher today.
  Over the last 31 years, the stock is up about 230,000%–and that doesn’t include dividends. And it’s still not in the S&P 500!
  

• 1987 Redux?
  Eddy Elfenbein, May 24th, 2006 at 3:13 pm

  Lately, we’ve been hearing a lot of silly talk about how now is “just like 1987.”
  Please. I need more than “a new Fed chairman and rising interest rates” to see the similarities. Unless Cutting Crew is getting popular again, then no–this is not like 1987.
  There is, however, one big change going on in the market, and it’s actually more important that the level of stocks. I think the leadership of cyclicals stocks has run its course.
  Here’s a chart of the Morgan Stanley Cyclical Index (^CYC) divided by the S&P 500:
  
  There are three other times that cyclicals have burned out at this level. On May 10, the ratio peaked at 0.672. It’s fallen back since, and it’s down again today.