Archive for September, 2006

• Neuroeconomics
  Eddy Elfenbein, September 12th, 2006 at 9:15 am

  John Cassidy has a fascinating article in this week’s New Yorker on the emerging field of neuroeconomics.

  Trust plays a key role in many economic transactions, from buying a secondhand car to choosing a college. In the simplest version of the trust game, one player gives some money to another player, who invests it on his behalf and then decides how much to return to him and how much to keep. The more the first player invests, the more he stands to gain, but the more he has to trust the second player. If the players trust each other, both will do well. If they don’t, neither will end up with much money.
  Fehr and his collaborators divided a group of student volunteers into two groups. The members of one group were each given six puffs of the nasal spray Syntocinon, which contains oxytocin, a hormone that the brain produces during breast-feeding, sexual intercourse, and other intimate types of social bonding. The members of the other group were given a placebo spray.
  Scientists believe that oxytocin is connected to stress reduction, enhanced sociability, and, possibly, falling in love. The researchers hypothesized that oxytocin would make people more trusting, and their results appear to support this claim. Of the twenty-nine students who were given oxytocin, thirteen invested the maximum money allowed, compared with just six out of twenty-nine in the control group. “That’s a pretty remarkable finding,” Camerer told me. “If you asked most economists how they would produce more trust in a game, they would say change the payoffs or get the participants to play the game repeatedly: those are the standard tools. If you said, ‘Try spraying oxytocin in the nostrils,’ they would say, ‘I don’t know what you’re talking about.’ You’re tricking the brain, and it seems to work.”

• Then and Now
  Eddy Elfenbein, September 11th, 2006 at 4:13 pm

  Top 10 Industry Groups Since 9/11
  General Mining…………………………860.40%
  Consumer Electronics………………..389.37%
  Nonferrous Metals……………………289.10%
  Exploration & Production…………..208.42%
  Steel……………………………………….205.84%
  Coal………………………………………..203.65%
  Gambling…………………………………173.41%
  Home Construction…………………..149.68%
  Commercial Vehicles & Trucks…….139.50%
  Oil Equipment & Services…………..138.14%
  Bottom 10 Industry Groups Since 9/11
  Automobiles……………………………-40.14%
  Airlines…………………………………..-38.83%
  Tires……………………………………..-35.18%
  Gas Distribution………………………-32.30%
  Automobiles & Parts………………..-25.73%
  Fixed Line Telecommunications….-21.18%
  Pharmaceuticals………………………-19.90%
  Telecommunications………………….-18.22%
  Aluminum………………………………..-17.48%
  Broadcasting & Entertainment……-16.84%
  Market and Economic Stats
  …………..September 10, 2001…………..September 11, 2006
  Dow………………….9,605.51…………………….11,396.84
  S&P 500…………….1,092.54…………………….1,299.54
  Nasdaq……………..1,695.38…………………….2,173.25
  30-Year T-Bond………5.44%…………………….4.94%
  90-Day T-Bill…………..3.18%…………………….4.81%
  Unemployment Rate….4.9%……………………..4.7%
  Nonfarm Payrolls….131,776…………………..135,500
  CPI……………………….2.7%………………………..4.2%
  Core CPI………………..2.7%………………………..2.7%
  In five years, 3.7 million jobs have been created. The unemployment rate is down. Long-term rates are lower. All the major indexes are up, and core inflation is the same.
  (Note: Unemployment rates and NFP are for August. The NFP is in thousands. The inflation rates are for the trailing 12-month period through August.)

• 40,000 Children
  Eddy Elfenbein, September 11th, 2006 at 2:15 pm

  Here’s something to keep in mind the next time you hear someone complain about the evils of Global Capitalism. From the New York Times, October 2, 2001:

  Though the Sept. 11 terrorist attacks will very likely take a heavy toll on the economies of the United States and other wealthy nations, they may have an even greater impact on poor nations that do not have safety nets in place to absorb a sharp economic downturn, the World Bank predicted in a report issued today.
  Slower growth in world trade, a slump in tourism, lower commodity prices and falling foreign investment could reduce economic output across the developing world, straining already weak social service and health care systems, the bank said. It estimated that 40,000 children worldwide will likely die from disease and malnutrition and 10 million people will fall below the bank’s extreme poverty line of $1 dollar a day or less as a direct result of slower economic growth.

• Brit Obit of the Day
  Eddy Elfenbein, September 11th, 2006 at 12:01 pm

  His Majesty King Taufa’Ahau Tupou IV of Tonga from the Telegraph:

  The son of Queen Salote, who endeared herself to Londoners when she came over for the Coronation in 1953 and drove smiling through the rain in an open carriage, the King was the world’s only Methodist sovereign and for many years, according to the Guinness Book of Records, the world’s heaviest.
  A jovial man-mountain of energy, he was 6ft 4in tall and at his peak weighed some 35 stone. Although he belonged to a people famous for feasting, he was sometimes troubled by his size: “In his heart,” as one of his aides once put it, “His Majesty is a thin man.” But cutting down did not come easily. “My doctor’s put me on a diet,” the King said in 1999. “I’m only allowed to eat three yams a day. But a yam can be 6ft long.”
  advertisementWhen the King, who succeeded his mother in 1965, came on visits to London he would sometimes decline the use of his Embassy’s Mercedes (number plate TON 1), preferring a more commodious Rolls-Royce — with, as he explained, “more leg room”.

  And later:

  The Crown Prince belonged to the 43rd generation of direct descendants of Aho’eitu, the first Tui Tonga (supreme ruler) who lived in the 10th century. More distantly, he descended from the sky god Tangeroa.

• Logistics Company Offers Long-Range Appeal
  Eddy Elfenbein, September 11th, 2006 at 10:01 am

  The WSJ‘s Heard on the Street column looks at Expeditors International (EXPD):

  Shares of Expeditors International of Washington Inc. might be a “momentum” investor’s trash in the coming weeks, but the logistics company’s stock is likely a long-term investor’s treasure.
  Expeditors primarily buys air- and ocean-freight space at wholesale prices and resells it to commercial customers who need shipping services to and from Asia, the U.S. and Europe. The Seattle company, founded in 1979, has been a standout performer in this increasingly lucrative niche. By consolidating customers’ shipments and offering customs brokerage to speed delivery, the company has built an enviable book of steady clients.
  But the company’s stock price — which has nearly tripled over the past five years — is off almost 30% since the end of June, according to Thomson Financial. The fall has happened despite second-quarter net income that was up more than 50% from a year earlier. As of 4 p.m. Friday in Nasdaq Stock Market composite trading, Expeditors’ shares fell 55 cents, or 1.4%, to $39.26, giving the company a market capitalization of $8.4 billion.
  This recent tumble might be because the shares had attracted quick-trigger momentum investors who worry that a slowing economy could temporarily depress freight volumes. Stock analysts, who project 18% annual earnings growth over the next five years, have gotten skittish, too, as the stock’s price/earnings ratio has risen to more costly levels. The stock is rated a “hold” by 11 of the 13 analysts who cover it. The other two have “buy” and “outperform” ratings, according to Reuters Estimates.
  Despite what might be a bit of a blue period, many investors say shareholders reading short-term economic tea leaves or worrying about today’s valuation might deserve the designation of cynic as defined by Oscar Wilde — someone “who knows the price of everything and the value of nothing.”
  “The stock has been volatile lately, and that’s probably an indication of its owners and not the company’s results,” says Joe Fath, a senior stock analyst who covers the company at T. Rowe Price Group Inc., which owned 682,000 shares on June 30, according to regulatory filings.
  “The market has become very short-term focused, and it can create an opportunity here for long-term investors,” says Ed Han, manager of the $143.9 million Transamerica Premier Growth Opportunities Fund, in which Expeditors was the top holding on June 30.
  Bulls admit that recent pressure on the stock is understandable. The increasing number of professional investors concerned with quarterly or even monthly returns will likely dump shares of any company in the logistics or transportation sector because of economic worries.
  The company’s enviable profit-growth track record has translated into a perennially high price/earnings ratio, and stocks with rich per-share multiples often are sold first when investors get antsy. Today, the company’s shares trade at a little more than 30 times their expected earnings for 2007, which is almost double the P/E ratio of the average stock in the Standard & Poor’s 500-stock index. That also is higher than the valuations of competitors such as CH Robinson Worldwide Inc., UTI Worldwide Inc. and EGL Inc. Yet, over the past decade, the stock has averaged an annual gain of 35%.
  Beneath a high valuation, bulls say, is a company that has consistently, if quietly, churned out above-average profit without needing heavy investment or acquisitions. Further, they say the company should continue to do so through market-share gains and industry growth in a sector where demand should track with powerful outsourcing and globalization trends.
  “They are simply the best at executing in a business benefiting from global trends whose growth is pretty much inexorable,” says Ken Broad, who has followed the company at different firms for a decade and owns shares in the $428.8 million Delaware Select Growth Fund he manages. He adds that Expeditors is one of only two stocks in his personal portfolio.
  Why so smitten?
  One reason is the basic appeal of this type of logistics business. Even big retailers, manufacturers and technology companies that ship products world-wide every day aren’t experts at international supply-chain management. With more companies’ outsourcing work to lower-cost markets and using “just-in-time” inventory management to avoid having big stockpiles of goods, getting materials to distant spots and through customs on time is increasingly important.
  A big chunk of Expeditors employees’ pay is pegged directly to the amount of profitable business they bring in. And without expensive factories or equipment to replace and repair, more of every dollar in revenue gets to the bottom line, and the company doesn’t have a penny of long-term debt.
  This combination has led to ample free-cash flow that the company has used to repurchase shares, buy real estate in important gateway cities and build its book of business. The company’s return on equity and return on capital have averaged well above 20% over the past decade, according to researcher Capital IQ. The company has raised the amount it pays out in dividends each year for more than a decade.
  To be sure, those expecting the company and its stock to grow at or above its historically high clip likely will be disappointed. The company’s growth likely would be pinched in an extended economic downturn. The business could be hurt if its stock enters a prolonged downturn because stock options are a significant carrot in its performance-based pay structure.
  At the same time, a business that sells expertise at healthy rates, has no debt and has a growing market is the kind of business that makes patient investors lick their chops — even if the road seems a bit bumpy in the near term.

• Return to Reality
  Eddy Elfenbein, September 11th, 2006 at 9:45 am

  Gold is down $20 an ounce this morning. The metal is finally below $600. Oil is down another 89 cents a barrel. Crude has fallen for six straight sessions, the longest losing streak in three years.
  The odd thing is that bonds are lower this morning. The yield on the 30-year bond is up to 4.92%. Stocks are also down, but once again it’s a divided market. Cyclical stocks are feeling most of the pain. The Morgan Stanley Cyclical Index (^CYC) is down -0.76% while the Consumer Index (^CMR) is up 0.07%.
  Recently I wrote about Nicholas Financial (NICK). This little micro-cap has had some outstanding results. The stock has pulled back to under $13 a share, or less than 12 times earnings.

• Dell Delays Quarterly Earnings Report
  Eddy Elfenbein, September 11th, 2006 at 9:35 am

  DOJ and the SEC are looking into the company’s accounting practices:

  The company postponed an analyst meeting that was to be held on Sept. 13 and suspended its stock buyback program. Dell said in a statement today that it will reschedule the New York analyst event to a later date.
  The investigations by the SEC and the U.S. Attorney for the Southern District of New York indicate the possibility of misstatements in prior financial results, Dell said. The Round Rock, Texas-based company said it plans to file the report as soon as possible and is cooperating with the investigations.
  “We will take any appropriate remedial or corrective actions to address any problems,” Chairman Michael Dell said in the statement.

• Crossing Wall Street Five Years Ago
  Eddy Elfenbein, September 11th, 2006 at 6:36 am

  

• Adams Morgan: Now With 11% Fewer Crack Whores!
  Eddy Elfenbein, September 10th, 2006 at 1:14 am

  I thought I’d give you a few pictures of my ‘hood, the Adams Morgan section of Washington, DC.
  There’s no place in DC quite like Adams Morgan. Gay, straight, rich, poor, black, white, Hispanic, tranny vegans, goof-off stock bloggers, you name it, Adams Morgan has it.
  On Friday and Saturday night, the place turns into a frickin zoo. Eighteenth Street is home to some of the hippest bars and restaurants in the entire city. The place is packed and parking is a nightmare.

  (more…)

• Twelve Angry Men
  Eddy Elfenbein, September 9th, 2006 at 5:27 pm

  Don’t ever say this blog doesn’t present high culture.