Archive for November, 2006

• Expeditors International of Washington Earned 29 Cents a Share
  Eddy Elfenbein, November 7th, 2006 at 9:33 am

  Expeditors‘ (EXPD) earnings came out before the bell. The company earned 29 cents a share for the third quarter which matched estimates. Last year, EXPD netted 22 cents a share. The shares are a bit pricey here. Since the beginning of the year, the stock is up over 40% for us. The shares are going for about 36 times next year’s earnings.

• The Buy List YTD
  Eddy Elfenbein, November 6th, 2006 at 4:23 pm

  Today was one of the best days for our Buy List this year. The strange thing about today is that energy stocks started off horribly, as everything else rallied. But then after lunch, the energy sector rallied to close the gap.
  The thing about this market is that energy stocks are the most differentiated from the rest of the market. In other words, all the other sectors kinda sorta move together. But energy is off doing its own thing. Back in the day, tech stocks used to be like this.
  Since the Buy List doesn’t have any energy stocks, it’s pretty easy to tell if we’re going to have a good day or a bad day. All 20 of our stocks were up today. For the year, the Buy List is up 9.04%. The S&P 500 is up 10.53%. Our daily volatility is about 19% greater than the S&P 500.
  
  Sometime next month, I’ll unveil the 2007 Buy List.

• One Percent Days
  Eddy Elfenbein, November 6th, 2006 at 2:43 pm

  Here’s an example of how much Wall Street has changed over the past few years.
  The S&P 500 is currently up about 1% for the day. If it holds, this would be our third session in the past 12 weeks with a swing of more than 1%. Yet none of those days has been over 1.3%. For the six year period from 1998 through 2003, the market averaged a daily swing of over 1.3%.

• Fiserv Reaches All-Time High
  Eddy Elfenbein, November 6th, 2006 at 12:19 pm

  The stock did nothing for months, and now it’s rolling. Shares broke $50 earlier today, and $51 isn’t too far away. We’re up over 17% for the year in Fiserv.

• Maybe the World Isn’t Such a Dangerous Place
  Eddy Elfenbein, November 6th, 2006 at 10:00 am

  The WSJ notices that insurance prices are dropping:

  Homeowners’ insurance costs are falling in many parts of the nation. Car-insurance prices are rising at a slower rate than inflation. This year, companies are spending less than they did in 2005 to protect themselves against injuries to their employees, lawsuits aimed at directors and officers and liability claims in general. The cost of some life insurance, too, has fallen in recent years, as has insurance against terrorism.
  The trend isn’t universal. In hurricane-prone areas, homeowners still face higher insurance rates. And health-insurance costs continue to soar because of spiraling health-care costs.
  But the widespread declines in insurance rates indicate that many risks that directly touch Americans’ lives are on the decline. Car-collision claims have decreased in frequency, thanks in part to safer cars and safer driving. Workplace-injury claims are down, in part because of improved technology. Americans are living longer, meaning life insurers often face lower odds of making big payments on the term policies they write.
  Americans “are getting better at controlling risk,” says Richard Zeckhauser, a professor of political economy at Harvard University. “In general, technological advance has made the world a safer place.”

• Emotions Versus Finance
  Eddy Elfenbein, November 5th, 2006 at 3:15 pm

  The Washington Post looks at how ego and vanity are affecting the housing crash…er, slowdown.

  Evidence is mounting that people set prices, particularly for housing, as much on ego and self-image as on an objective review of the market. That’s one reason for the phenomenon known as “sticky prices” — home sellers who won’t cut their demands enough to make a deal. It helps explain why the unsold inventory of homes has risen so high, and why, despite this rise, home prices in the Washington area have fallen only slightly. There were 24,741 homes for sale in September in Washington and the close-in suburbs, up from 13,950 a year earlier.
  Economic researchers have found that emotions are a bigger influence than was previously believed in how people make financial decisions. For a long time, economists believed that human beings made decisions like robots, that people applied simple logic in making financial choices. But a body of research developed over the past two decades, known as neuroeconomics or behavioral economics, has shed light on how powerful a role the unconscious mind plays. New imaging technology, meanwhile, is allowing scientists to peer inside people’s brains while they wrestle with financial decisions.
  These studies have illuminated a few key concepts: Many people will pass up sure profits for illusory ones. Some will turn down profits if they believe someone else is unfairly profiting more. Some will even refuse to sell if they believe they may come to regret it, because fear of future regret can be as powerful a motivator as money in the pocket today.
  In other words, people will cling to prices they recall from a brighter day, even when market conditions have changed; they will walk away from a sale if they feel the buyer is getting too good a deal at their expense; and they are terrified that [if they sell now] the market will rebound and they will feel like fools.

• Evaluating Greenspan
  Eddy Elfenbein, November 4th, 2006 at 3:58 pm

  Reason discusses Alan Greenspan’s legacy as Fed Chairman with Milton Friedman, Ron Paul, James Grant, Bryan Caplan and Jeff Saut. Here’s a sample:

  Reason: Analysts often complain that Greenspan did nothing to help solve our low savings rates and our trade deficits. Is the Fed relevant to these problems? Are they problems at all?
  Friedman: I do not think you or I can say what the right savings rate is or should be. There’s nothing wrong with a person, family, or country saying, “We have high enough income. We don’t need more. We’re going to spend it all.” We can have a perfectly prosperous and active economy along those lines. I don’t think it’s helpful to ask, “Is this rate right or wrong?” Instead we should ask, “Have we adopted polices that reduce incentives to save?”
  In that respect, there’s a great deal to be done. The tax system distorts the incentive to save, sometimes pro-saving and sometimes anti. Government should ask itself how best to maintain institutions under which you have an undistorted market in savings.
  So far as foreign balance of payments is concerned, we have to let the dollar float. You shouldn’t try to control the price of foreign exchange any more than you should try to control the price of other things. The country seems to have learned that price controls are not good.
  I do not believe that [mass foreign holding of U.S. securities] is something to be feared. The only reason [a widespread loss of will to buy U.S. Treasury securities] would happen is if our central bank followed inflationary policies that made it undesirable to hold American securities, and that’s our fault, not theirs. I think the concern that has been expressed about foreign balance of payments is in large part mistaken and in large part reflects the defects of statistics available.
  If you have a foreign owner of a bond or stock who loses confidence in the American economy and sells, whom do they sell it to? They have to sell it to people with a stronger confidence in the U.S. economy who are willing to hold on to it. If the foreigners dump bonds or stock and use dollars to buy other U.S. assets, there’s no net effect. If they use them to buy consumer goods, then that means an increase in balance of payments, a plus on income accounts.

• Implied Tradesports Markets
  Eddy Elfenbein, November 3rd, 2006 at 3:13 pm

  
  This is a favorite topic of mine. In investing, we can look at two markets and imply a third. That’s basically how options work. Well…we can do the same for predictions markets.
  At Tradesports, they offer futures contracts for how many seats they Democrats will pickup in the house. They offer contract for several different scenarios (i.e., greater than 14.5 seats, or greater than 19.5 seats). Assuming a logonormal distribution, we can find an implied mean and standard devation.
  The chart above shows the mean number seats the Democrats looks to gain (black line) with plus and minus one standard deviation bands (red lines).
  As of the last trade, the market believes the Democrats have a 60.2% chance of gaining at least 19.5 seats, and a 46.9% of gaining 24.5 seats. A 60.2% chance is +0.258 standard deviations, and a 46.9% chance is -0.078 standard deviations. So those 5 seats are worth 0.336 standard deviation. Therefore, one standard deviation is nearly 15 seats. The Democrats are now projected to gain over 23 seats, but the market still believes its wide open.

• Whole Foods Crashes
  Eddy Elfenbein, November 3rd, 2006 at 11:33 am

  Whole Foods Market (WFMI) is down over 23% in today’s session. I wonder if anyone saw this coming.

• A Story of Two Bulls
  Eddy Elfenbein, November 3rd, 2006 at 11:20 am

  
  Not all Bull Markets look the same. The chart above shows the Morgan Stanley Cyclical Index (^CYC) and the Morgan Stanley Consumer Index (^CMR) since March 2003. While cyclical stocks have been highly volatile, especially in recent months, the conumser stocks have quietly rallied.