Archive for 2006

• Random Thoughts
  Eddy Elfenbein, August 31st, 2006 at 11:08 am

  I hope things are as quiet where you are as they are here on the 81st floor of the Crossing Wall Street Tower.
  Here are a few completely random thoughts for this morning. Do you realize that 2006 is already two-thirds over? That means this decade is also two-thirds over. Scary! We’re entering the late-aughts!
  The yield on the 10-year T-bond (^TNX) dipped below 4.75% this morning. Wow. That’s a drop of 50 basis points since June. (Of course, June was way back in the mid-aughts, so that may explain it.)
  Yahoo Finance has gone all blinky. Take a look. I think it’s a good thing, except it seems harder to scroll down longer portfolios.
  One month ago, Wall Street was expecting a GDP report of 3% growth. It came in at 2.5%, and the S&P jumped 1.2%. Yesterday, the GDP report said “no, you were right the first time—it was 2.9%.” Yesterday, the S&P did nothing. Weird.
  The Census Bureau came out with its big yearly report yesterday. You can geek out to the data. Here’s something that probably surprises most people, but not me. The median family income for Prince George’s County, MD is $74,767. For Orange County, CA, it’s $74,396. In other words, the PG is richer than the OC.

• First Industrial Realty
  Eddy Elfenbein, August 31st, 2006 at 10:20 am

  Congratulations to Warren Buffett who not only turned 76 yesterday, but he also got married.
  Here’s a quick Buffett story. In late 1999, a man paid $210,000 for a wallet, in what could have been the worst wallet investment in history. There are, however, a few facts I need to add. First, it was for charity. Second, it was Buffett’s old wallet.
  Oh…and did I mention the stock tip? I guess that could help explain the price tag. Inside the wallet, Buffett left a stock tip. The stock he recommended was First Industrial Realty (FR).
  The wallet buyer graciously made the stock tip public. I don’t have a reference to the exact day, but I think I’m going to go with December 17, 1999. The records show that shares of FR had one their biggest jumps ever on eight times their normal volume. After all, this is a sleepy Real Estate Investment Trust (or REIT).
  Now I have to remind you that in late 1999, no one was buying REITs. No one. Tech was king. To add some perspective, Morgan Stanley has a REIT Index (^RMS). In October 1997, the index got over 365. By December 1999, it was down to 265. To reiterate, no one was buying REITs.
  REITs aren’t supposed to move a whole lot. They have a special tax advantage, and the trade-off is that they must pay out almost all of their profits as dividends. So while every dot.com was soaring, the high yield stocks weren’t standing still, they were falling. The higher tech went, they lower these stocks fell.
  On December 16, 1999, FR closed at $24.39. For the previous 12 months, it had paid four quarterly payments of 60 cents a share. So without even looking at the company, we know it was yielding 9.8%. Plus, the company had just raised its dividend to 62 cents a share, so investors could count on a yield of close to 10.2%.
  Not only did FR jump on December 17, but the news of Buffett’s recommendation lifted the entire REIT sector. Who knew that real estate was about to take off?
  Yesterday, First Industrial closed at $43.35 a share, so the stock has climbed over 67% from the price after the Buffett news was made public. If you include the very generous dividends, which are now at 70 cents a share, the investment in FR would have made you over 180%. Over the same period, the S&P 500 is down about 8%, although dividends have given the index a slight gain.
  If the wallet buyer started with a portfolio of $350,000 (let’s consider the $210,000 an advisory fee—60% would embarrass even a hedge fund manager), and the remaining $140,000 was all put into First Industrial, he would be ahead today.
  So maybe it wasn’t the worst wallet investment in history.

• RadioShack Lays Off Employees Via E-Mail
  Eddy Elfenbein, August 30th, 2006 at 3:38 pm

  The New Economy kinda resembles the old:

  RadioShack Corp. followed through on its announced plans to cut about 400 jobs, but the electronics retailer has been forced on the defensive about its method of notifying laid-off employees by e-mail.
  Employees at the Fort Worth headquarters received an e-mail Tuesday morning telling them they were being dismissed immediately.
  “The work force reduction notification is currently in progress,” the notice stated. “Unfortunately your position is one that has been eliminated.”

• Gladwell Vs. Blogosphere
  Eddy Elfenbein, August 30th, 2006 at 12:45 pm

  Recently, I linked to a New Yorker article on Dependency Ratios by Malcolm Gladwell, so I feel an obligation to post some of the criticism. First in the fray was the blogger Winterspeak. Gladwell responded. Then Jane Galt jumped in, followed by a (comically) snippy response from Gladwell, and then a Galt rejoinder.
  Personally, I don’t think Gladwell comes off well. (Hat tip: DealBreaker.)

• Second-Quarter GDP
  Eddy Elfenbein, August 30th, 2006 at 8:50 am

  Second-quarter GDP growth was revised higher to 2.9% today from the initial estimate of 2.5%. I knew this was going to be a higher revision. I just didn’t know how much.
  The bottomline is that I don’t see this as being a soft landing scenario. At least, not just yet. Let’s add some perspective. In the 10 quarters previous to Q2, the economy grew by an average of 3.4% a year. Now we’re tossing in a 2.9%-er. That’s not a big change. It’s still well within the bounds of its previous trend. Three of those 10 quarters had growth less than 2.9%.
  

• The Buy List So Far
  Eddy Elfenbein, August 29th, 2006 at 9:44 am

  Here’s how the Buy List has done this year.
  
  Through yesterday, we’re down -0.47% and the S&P 500 is up 4.29%. Only two months ago, we were ahead of the market.

• Tomorrow’s GDP Report
  Eddy Elfenbein, August 29th, 2006 at 9:16 am

  One of my pet peeves is the initial report on GDP. Every three months, the government reports on how well the economy did in the just-ended quarter. The first report comes out at the end of the first month of each quarter (January, April, July and October). It’s then updated twice more, at the end of each succeeding month. Tomorrow, the second-quarter report will be revised.
  My complaint is that the later revisions came often be quite large. My feeling is that if that’s the case, just wait until you have a better number. There’s no use feeding us information which can deviate so much. Take your time and get it right.
  At the end of July, the government said that the economy grew, in real terms, by 2.5% for the second three months of the year. I thought this was way too low. Before the report came out, I wrote that I would be surprised if GDP came in at less than 3.4%. I still feel that way.
  When looking at the markets, it’s important not to be too attached to your current outlook. Keynes said, “When the facts change, I change my mind—what do you do, sir?”
  That’s always good to remember. But I have a suspicion that the facts haven’t changed. Perhaps all this “soft landing” talk is a bit early.
  Bear in mind that it’s not unusual for the GDP to be adjusted by large amounts. For the first quarter, the government initially said that the economy grew by 4.8%. This was later revised to 5.6%. That’s a big change. What we tolerate in economic stats, we would never sit still for in baseball scores. And even after everything is said and done, the GDP numbers can still be altered. With the last report, the government also adjusted every GDP stat going back to 2003.
  I’ll have more tomorrow morning when the latest revision comes out.

• S&P 500 Near Three-Month High
  Eddy Elfenbein, August 28th, 2006 at 2:31 pm

  There’s nothing so screwed up in the stock market that a bond rally can’t fix. The 10-year yield got down to 4.78% on Friday. The S&P 500 is poised for its highest close of the summer. If the market holds up, this will be the highest close since May 11.

• Investors Financial Services
  Eddy Elfenbein, August 28th, 2006 at 9:57 am

  If you had told me at the beginning of the year that SEI Investments (SEIC) would be the top-performing Buy List stock, I would have thought you were some sort of marijuana addict. The company has posted terrific earnings for the past few quarters.
  Another stock that’s somewhat similar to SEIC is Investors Financial Services (IFIN). Here’s the chart:
  

• Sunday Reads
  Eddy Elfenbein, August 27th, 2006 at 11:31 am

  
  This is a good day to head to the hammock for a good read. Here are two things you might like.
  The New Yorker has a fascinating story by Sylvia Nasar (of Beautiful Mind fame) and David Gruber about Grigory Perelman, a mysterious Russian mathematician and the solution to one of math’s greatest problems.
  Also, Natural History has an interesting article on the excavation of a Neolithic settlement in Turkey.