Archive for 2006

  • How Important Are Resistance Levels
    , September 7th, 2006 at 12:07 pm

    Mark Hulbert writes that the Wilshire 5000 Total Return Index (^DWCT) is closing in on its all-time high of 47.84098 and wonders about the psychological impact:

    Yet I don’t know of any advisers who are focusing on the 47.84098 level. So it’s hard to see how it is a psychological barrier for the market.

    Ahem…just for the record, I’ve written about the pending new high here, here and here.
    But there is the question of how seriously the market takes resistance levels. I don’t have much faith in technical analysis, but that’s not because the market doesn’t think it’s unimportant. Resistance levels clearly play a role. The Wilshire 5000 Total Return Index came oh so close to a new high before backing away.
    The Dow flirted with 1,000 six years before it finally broke through. The NASDAQ didn’t fall apart until it jumped above 5,000, which was also half of the Dow.
    But Hulbert is right, the market can’t be watching the Wilshire Total Return, can it? The thing about financial markets is that they’re smarter than we realize. There’s a reason to what happens, even if we may not recognize it.
    For example, there’s a fascinating correlation between the progress of the Smoot-Hawley tariff bill through Congress in 1929 and the reaction of the stock market. But at the time, the financial media wasn’t at all focused on this disastrous tariff bill.
    The stock is a collection of millions of participants, and collectively it has almost a magic eye that’s focused on certain events. Even though no one (well, almost no one) has been talking about the Wilshire 5000 Total Return Index doesn’t mean the market is ignoring it.

  • Tyler Cowen on China and Trade
    , September 7th, 2006 at 11:47 am

    You know how our trade deficit with China is ruining us? Tyler Cowen says to think again:

    The Chinese keep the yuan low, relative to the dollar, by buying up United States Treasury securities; as of early 2006, the Chinese central bank held up to $470 billion in Treasury securities. This huge accumulation of relatively low-yielding assets is the investment strategy of risk-averse bureaucrats, but it may bring longer-term benefits. Those assets can someday be sold or otherwise transferred to underdiversified Chinese financial institutions. The accumulation gives the Chinese a stake in American prosperity and signals that the Chinese are committed to long-term participation in the global economy. On the American side, the Treasury market is more liquid and the budget deficit can be financed at lower cost.

  • Best Day of 2005
    , September 6th, 2006 at 5:09 pm

    Thanks to Donaldson (DCI) gaining 16%, today was our best day of the year against the rest of the market. The S&P 500 was down -0.99%, while the Buy List gained 0.06%.
    For the year, however, we’re still trailing the market 4.16% to 0.65%. Aside from Donaldson, we have three more earnings reports this month. FactSet Research Systems (FDS) reports on September 19. The next day, Biomet (BMET) and Bed Bath & Beyond (BBBY) will report.

  • Energy Is Starting to Fade
    , September 6th, 2006 at 12:59 pm

    The Energy Sector is getting smacked around today, and frankly, it’s long overdue. Two weeks ago, I mentioned how the Dow Jones Oil & Gas Index (^DJUSEN) kept making charges at 500, but the index couldn’t seem to break through. Right after my post, it happened again. The index hit 500, and wham-o—it’s back down again.
    Today oil is down to $68.25 a barrel. Less than two months ago, oil came within a hair of $80. According to GasBuddy.com, prices at the pump have turned sharply lower in the last month. The average price for gas is down about 30 cents a gallon.
    What’s going on here? One of the reasons for the fall in oil prices is that we’re now at the end of the driving season in the U.S. There was also yesterday’s news of the huge oil reserve found in the Gulf of Mexico. Experts are saying it’s the biggest find in a generation. The well was drilled underneath 7,000 feet of water, and then another 20,000 feet of seabed.
    The Oil Services Index ETF (OIH) is down about 2% today. Big energy stocks like Occidental Petroleum (OXY) and Schlumberger (SLB) are down over 3%. So what is doing well? The second-best performer on the NYSE today is our very own Donaldson (DCI).

  • The Cost of the Back-Dating Scandal
    , September 6th, 2006 at 11:00 am

    From today’s New York Times:

    Three researchers at the University of Michigan estimated that backdating stock options between 2000 and 2004 helped sweeten the average executive’s pay by more than 1.25 percent, or about $600,000. But the fallout from the recent options investigations has caused those executives’ companies to fall in market value by an average of 8 percent, or $500 million each.
    “For about $600,000 a year to the executives, shareholders are being put at risk to the tune of $500 million,” the study concludes.

    This scandal isn’t going to go away. Christopher Cox will be testifying today on Capitol Hill about back-dating.

  • Donaldson Does It Again
    , September 5th, 2006 at 5:43 pm

    I’ve learned never to say “I love a stock,” but I’m in serious like with Donaldson (DCI). The company just had another fantastic earnings report. The company has now increased its earnings for 17 straight years.
    For the fourth quarter, DCI earned 43 cents a share, three cents more than the Street was expecting. The stock is up 10% after-hours.
    For the year, Donaldson earned $1.55 a share on sales of $1.694 billion. Here are the results going back to 1990:
    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…………$1,694.0…………$1.55
    Donaldson sees 2007 EPS coming in at $1.72 to $1.82 a share, which is above Wall Street’s forecast.

  • What’s That Hissing Sound?
    , September 5th, 2006 at 12:58 pm

    danville.jpg
    It could be a housing bubble coming to an end. Today we learn that home price appreciation had its sharpest pullback EVER. (Well, the records only go back to 1975, but still….)

    New evidence of a housing market slowdown emerged Tuesday – growth in the price of a single family home was just 1.17 percent in the second quarter, a decline of more than one percentage point from the prior quarter when prices grew 2.20 percent.
    The Office of Federal Housing Enterprise Oversight (OFHEO), which released the report, said it was the slowest quarterly increase since the fourth quarter of 1999 and was the sharpest quarter-to-quarter pullback since OFHEO began the index in 1975.
    The year-over-year price gain was 10.06 percent.
    OFHEO’s numbers are generally regarded as the most accurate gauge of housing prices. Instead of measuring the average sale prices of homes, it compares repeat sale prices of the same single family homes.

    Here’s how home prices are doing in 151 markets.
    Danville, IL is listed as the lowest-priced housing market. Sooo…I’d thought I’d help out the good folks there. Here’s a listing for a five-bedroom waterfront crib in Danville. That’s it in the picture above. It can all be yours for $599,000.

  • Inco Break Merger Agreement with Phelps Dodge
    , September 5th, 2006 at 10:01 am

    As everyone knows, the national sport of Brazil is soccer. Even though America always gets creamed in the World Cup, we know that it’s better that we excel at our national sport, business.
    Well, that may be changing. Phelps Dodge (PD) offered to buy Inco, a Canadian nickel miner, for $17.4 billion. Nickel, if you haven’t noticed, has been soaring to NASDAQian heights (Googlesque?). Today, Inco said that the deal is off, and they’re looking at a rival bid from Brazil’s Companhia Valo de Rio Dolce (or CVRD).
    The interesting thing is that both bids are for $17.4 billion. The difference is that PD’s is cash and stock, CVRD’s is all cash. Now Inco has a pay PD a termination fee.
    What’s next? The U.S. will lose an international basketball tournament?

  • New York Farm a Front in Foie Gras Fight
    , September 1st, 2006 at 2:28 pm

    From the AP:

    Three times a day, workers at the Hudson Valley Foie Gras farm wade into duck pens, grab birds one at a time and slide a 15-inch metal tube inside the animals’ long necks. The force feeding fattens the ducks’ livers, which is sold as foie gras.
    This sprawling farm northwest of New York City is the nation’s No. 1 producer of the velvety delicacy — and a target for force feeding opponents trying to build on recent successes in Chicago and California.
    The farm faces a series of legal complaints from the Humane Society of the United States that, if successful, would cripple business. Operators of the farm are fighting back and trying to show that the feeding process is not the animal torture portrayed by foes.
    “It’s not harmful to catch the ducks. They’re not going crazy,” said operations manager Marcus Henley. “There’s no pain evidenced when I watched it.”
    These are difficult days for foie gras (fwah-GRAH), French for “fat liver.” High-wattage celebrities like Paul McCartney oppose it. California is banning force-fed foie gras starting in 2012 and Chicago in August banned foie gras sales. Similar bans are proposed in other states and cities.

    Yep, it’s a slow news day.

  • Wachovia, Golden West shareholders OK merger
    , August 31st, 2006 at 4:25 pm

    The shareholders have spoken:

    Wachovia Corp. and Golden West Financial Corp. easily won shareholder approval on Thursday for their merger, which would combine the fourth-largest U.S. bank with the No. 2 U.S. savings and loan.
    The acquisition of Oakland, California-based Golden West would give Wachovia its first significant branch presence on the U.S. West Coast, and significantly expand its mortgage operations. Wachovia is based in Charlotte, North Carolina.
    Regulators still must approve the deal.
    At separate shareholder meetings, about 93 percent of Wachovia shares cast and 99 percent of Golden West shares cast voted in favor of the merger, representatives for the companies said.
    The companies valued the merger at $25.5 billion when they announced it in May and expect it to close in the fourth quarter. Golden West shareholders would receive 1.051 Wachovia shares and $18.65 in cash for each of their shares.