Archive for 2006

  • Walgreen: Still Too Expensive
    , September 25th, 2006 at 3:28 pm

    Shares of Walgreen (WAG) are getting nailed today as the company reported earnings of 41 cents a share, which was in line with Wall Street’s estimate. But judging from today’s price action, I think it’s safe to say that someone out there was expecting a little more. Even though the stock is down on in line earnings, I’m still taking a pass on Walgreen.
    With the latest earnings, Walgreen’s price/earnings ratio falls to about 26. CVS (CVS), on the other hand, is trading at 19 times earnings. No matter how you slice it, I just don’t see how Walgreen can justify a 36% valuation premium, (not that I like CVS either).
    Both companies face a new challenge–Wal-Mart (WMT). The Beast from Arkansas announced that it will now start selling generic drugs. Wal-Mart is legendary for beating the competition in any new market it enters. Actually, “beating” is a rather kind word. Wal-Mart thoroughly annihilates the competition. Then dances on their grave.
    The company is starting small and only focusing on the Tampa Bay market. But if it goes well, Wal-Mart could expand the program. This is a very profitable sector; Walgreen’s stock is up around 600-fold in the last 32 years. Also, in addition to Wal-Mart, competitors like Target (TGT) could jump in. This won’t have much of a short-term impact on either CVS or Walgreen, but it’s another risk factor weighing on both stocks.

  • Goldman and Morgan Are the Winners in Amaranth’s Fall
    , September 25th, 2006 at 11:20 am

    Well…they lost the least.

    Securities firms are poised to earn about $8 billion on prime brokerage to the $1.2 trillion of mostly unregistered pools of capital that let managers participate substantially in the gain or loss of the money invested. Goldman and Morgan Stanley will collect the most fees, as well as market insights, for providing services to hedge funds, according to Celent LLC, the Boston-based firm founded in 1999 to provide research and consulting advice to financial-services companies.
    “It looks like there has been no fallout for the prime brokers,” said Michael Holland, who manages $4 billion at New York-based Holland & Co. Amaranth “makes those businesses look much more attractive rather than less attractive.”
    That wasn’t so apparent eight years ago, when Long-Term Capital Management LP collapsed on inauspicious trades after banks allowed the hedge fund to leverage its $2.3 billion of capital into a portfolio of about $125 billion of securities. The New York Federal Reserve organized a $4 billion bailout and regulators urged Wall Street to limit lending and monitor the risks that its clients are taking.

  • The Invaluable Consultant
    , September 24th, 2006 at 4:38 pm

    toothpaste for dinner
    toothpastefordinner.com

  • Blodget on Amaranth
    , September 24th, 2006 at 2:34 pm

    In Slate, Henry Blodget looks at the Amaranth blow-up:

    The only plausible conclusions that can be drawn from the crackups of Amaranth, et al, are that 1) they didn’t know the risks they were taking, or 2) they knew and didn’t care.

    He thinks more are on the way, and I agree.

  • Citigroup sees S&P hitting 1,500 by end of 2007
    , September 22nd, 2006 at 10:43 am

    From Reuters:

    Citigroup Inc. set 2007 year-end targets of 1,500 for the Standard & Poor’s 500 index (that’s 14.3% over 15 monnths) and 12,750 for the Dow Jones industrial average, with the cash on corporate balance sheets providing some downside protection.
    In a research note, analyst Tobias Levkovich forecast another year of high-single-digit gains. The risk of a decline in the S&P 500 index was modest given that at S&P 500 companies, excluding financial firms, cash holdings are about 8 percent of market capitalization.
    Citigroup said that after weighing several factors, it predicted the S&P would range between 1,400 on the low end and 1,630 on the high end as 2007 comes to a close.

    Given the current yield curve, this strikes me as somewhat overly optimistic.

  • The Forbes 400
    , September 22nd, 2006 at 10:11 am

    Forbes just came out with its new list of the 400 wealthiest Americans. Here’s the top 25 and their fortunes (in billions):
    1 William Henry Gates III……………….$53.0
    2 Warren Edward Buffett……………….$46.0
    3 Sheldon Adelson………………………..$20.5
    4 Lawrence Joseph Ellison……………..$19.5
    5 Paul Gardner Allen……………………..$16.0
    6 Jim C Walton……………………………..$15.7
    7 Christy Walton & family……………….$15.6
    7 S Robson Walton……………………….$15.6
    9 Michael Dell……………………………….$15.5
    9 Alice L Walton……………………………$15.5
    11 Helen R Walton………………………..$15.3
    12 Sergey Brin……………………………..$14.1
    13 Larry E Page……………………………$14.0
    14 Jack Crawford Taylor & family……..$13.9
    15 Steven Anthony Ballmer…………….$13.6
    16 Abigail Johnson………………………..$13.0
    17 Barbara Cox Anthony………………..$12.6
    17 Anne Cox Chambers………………….$12.6
    19 Charles De Ganahl Koch…………….$12.0
    19 David Hamilton Koch………………….$12.0
    21 Forrest Edward Mars Jr………………$10.5
    21 Jacqueline Mars………………………..$10.5
    21 John Franklyn Mars……………………$10.5
    24 Carl Icahn………………………………..$9.7
    25 John Werner Kluge……………………$9.1
    For the first time, everyone on the list is a billionaire.

  • Market gossip goes high-tech
    , September 21st, 2006 at 4:06 pm

    The Financial Times is on the story:

    Market gossip is to take on a more high-tech form thanks to a new automated system that will trawl through more than 40m internet sources – from blogs to regulatory filings – on behalf of hedge funds.
    Due for an official launch early next year, the platform is being run by a former Deutsche Bank executive and has received financing from, among others, Draper Fisher Jurvetson, the venture capital firm that backed Skype before it was sold to Ebay for $4.1bn last year. Ten hedge funds are trying out the system.
    Called Monitor110, the platform acts as an aggregator and a filter for hedge funds trying to keep up with the explosion of information sources on the internet, such as blogs. The blog search engine Technorati currently tracks 50m blogs, with about 175,000 new ones created every day.

    Let’s see. The hedgies watch the blogs, and the blogs make fun of the hedgies. All rather post-modern if you ask me.

  • Convergencification
    , September 21st, 2006 at 2:51 pm

    Step aside: The bond market is rolling today. The yield on the 10-year bond (^TNX) just fell below 4.65%, and the yield on the 30-year (^TYX) fell below 4.78%.
    Here’s some perspective: The 10-year is now 60 basis points below Bernanke.
    But there’s something else that’s been happening. The stock and bond markets have converged.
    For most of this spring, the stock and bond markets moved in completely opposite directions. If bonds zigged, stocks zagged. Check out this chart of the S&P 500 Spyders (SPY) and the American Century 2025 Fund (BTTRX):
    image2247.bmp
    They’re almost like mirror images.
    But in early June, everything changed. The two markets suddenly converged, and started to move like waltzing partners:
    image242.bmp
    What happened is the fight for capital changed. It was stocks against bonds. Then the paper assets decided to team up and kick the ass of real assets like gold and oil (think Rocky III):
    image251.bmp
    The gold line is the Oil ETF (USO).

  • Headline of the Week
    , September 21st, 2006 at 12:51 pm

    HP Spy Scandal Hits New Weirdness Level

    The old weirdness level just wasn’t cutting it.

    Not only did investigators impersonate board members, employees and journalists to obtain their phone records, but according to multiple reports, they also surveilled an HP director and a reporter for CNet Networks Inc. They sent monitoring spyware in an e-mail to that reporter by concocting a phony story tip.
    They even snooped on the phone records of former CEO and Chairwoman Carly Fiorina, who had launched the quest to identify media sources in the first place.

    If they had only put that much time, effort and creativity into something more useful…say, running HP’s business.

    And in a twist that might seem preposterous if it happened in a movie, The New York Times reported that HP consultants considered hiring spies to pose as clerical or custodial workers at CNet and The Wall Street Journal.

    Um…that did happen in a movie: Wall Street.
    And they’re right, it was preposterous.
    What if those consultants were really spies from Dell who were secretly trying to sabotage HP? How cool would that be?
    Honestly, I should be writing for 24.

  • Dell Gets Delisting Notice
    , September 21st, 2006 at 11:41 am

    OK, the Nasdaq isn’t really going to delist Dell (DELL). But still, you gotta get that 10-Q in sometime.