Archive for 2006

  • The Noonday Market
    , June 19th, 2006 at 11:32 am

    I was all set to give this market a yellow card, but things are looking somewhat better today, at least our stocks are. My advice is, don’t be overly impressive with Thursday’s rally. It was quite nice, yes. But we gained back what we had just lost. The key is watching the behavior of long-term interest rates. Whenever long-term bonds and the stock market part company, the odds greatly increase that something big is about to happen.
    The best news is the energy stocks keep falling. The Dow Oil and Gas Index (^DJUSEN) is down again today. When I set the Buy List for this year, I avoided all energy stocks. I thought that the sector was overpriced. Naturally, it went even higher. If you want to beat the S&P 500, I think all an investor needs to do is stay away from basic materials and energy. I just don’t see how those prices can hold up.
    The Buy List is beating the broader market again today. Our biggest gainer is Fair Isaac (FIC), which is up nearly 4%. We have three earnings reports coming. FactSet (FDS) reports tomorrow. Bed Bath & Beyond (BBBY) reports on Wednesday, and Biomet (BMET) comes the Wednesday after. And don’t forget that Expeditors (EXPD) will be splitting 2-for-1 soon.
    I think Bed Bath & Beyond is very a good buy right (full disclosure, I do own it). The Street’s current earnings estimate is for 35 cents a share, which the company will almost certainly beat. One small side note, since BBBY does a large percentage of its business during the holidays, the company ends its fiscal year in February (hence the unusual reporting date). This earnings report will be for its first quarter, so the totals will be a lot less than it had for the fourth quarter. Nothing is wrong, that’s perfectly normal for them.
    The stock is trading at less than 17 times this year’s earnings. Plus, I wouldn’t be surprised to see the company guide higher after the earnings report.

  • Nestle to Buy Jenny Craig
    , June 19th, 2006 at 9:19 am

    Despite the conflict of interest, Nestle SA is buying Jenny Craig for about $600 million. One company wants to make you fat, the other tries to make you thin. Interesting synergy there. Based in Switzerland, Nestle is the largest food company in the world.
    This is an interesting move for Nestle. The weight-loss market is huge. Stocks like NutriSystem (NTRI) and Medifast (MED) have been some of the best-performing stocks of the past few years. NutriSystem’s stock was up over 1,160% last year.
    Also, the owners of Jenny Craig will make a killing. The company was bought by private equity firms in 2002 for $115 million. That’s a profit of over 400% in four years.

  • Profiting From Deflation
    , June 16th, 2006 at 3:58 pm

    For all the talk we hear about inflation, Charles Schwab (SCHW) has seen its profits explode even as it has cut its prices. Actually, the company hasn’t merely cut its prices, it has repeatedly hacked them. Still, Schwab will make more money this year than it did at the height of the tech bubble. Now Schwab has announced yet another round of price cuts:

    The company’s comeback coincided with a decision two years ago to dismantle a maze of higher prices and new fees imposed to recoup some of the revenue that evaporated as investors made fewer stock trades.
    The about-face has been orchestrated by founder Charles Schwab, who returned as the company’s chief executive in July 2004 after the board ousted his right-hand man, David Pottruck.
    With its latest price decreases effective July 1, Schwab’s top commission for an online trade of up to 1,000 shares will fall by $7, or 35 percent, to $12.95 — still slightly above Internet rivals like TD Ameritrade Holding Corp. and Scottrade Inc.
    Still, the new price is a far cry from two years ago when Schwab charged as much as $29.95 per online trade. The company also is reducing or dropping a bevy of other service fees.
    “We are reasserting and protecting our value proposition,” Dodds said.
    By cutting its fees, Schwab will temporarily relinquish some revenue in hopes of regaining it back — and then some — as the lower prices encourage customers to trade more stocks and keep more money in the company’s accounts.
    The strategy has paid off so far. Schwab’s customers ended May with $1.27 billion in their accounts, up from $985 million before the price-cutting began two years ago. Meanwhile, the brokerage averaged 269,600 revenue generating-trades last month, a 59 percent increase from the previous year.
    If the upcoming price cuts had been effect during this year’s first quarter, Schwab estimated its revenue for the period would have been trimmed by about $25 million, or 2 percent.
    Schwab backtracked on its fees after realizing its higher prices had alienated many cost-conscious customers originally drawn to the brokerage as a moneysaving alternative to more traditional Wall Street firms.

    SCHW.bmp

  • Happy Birthday Smoot-Hawley!
    , June 16th, 2006 at 10:45 am

    Tomorrow is the 76th birthday of the Smoot-Hawley Tariff. President Hoover signed the bill into law on June 17, 1930. The president ignored the pleas of over 1,000 economists urging him not to sign the tariff.
    By the way, today is the 76th anniversary of the stock market crashing 8%–one of the worst days in history. I wonder if there’s some sort of connection.
    Incidentally, also on this day in 1930, the Braves traded veteran spitballer Burleigh Grimes to the St. Louis Cardinals. At the time, the Cards were in fourth place, but Grimes’ pitching helped them rally to win the pennant. His name lives on in the form of a widely panned musical comedy about the stock market.

  • Fair Isaac Cutting 200 Jobs
    , June 16th, 2006 at 10:00 am

    I’m usually wary of a press release which announces a new cost-cutting initiative. A well-run company should always be looking to cut costs. There’s nothing new about it, it just is. But the truth is, these announcements work, meaning it moves the stocks. This morning, it’s Fair Isaac‘s (FIC) turn:

    Fair Isaac Corp., which develops credit scoring systems, said Thursday it will cut 200 jobs as part of its restructuring plan, reducing annual costs by $24 million.
    The layoffs will affect workers in the company’s product management, delivery and development units. The cuts will mean one-time severance and related costs of $5.7 million, to be recorded this quarter, Fair Isaac said.
    The restructuring also calls for a new chief marketing officer role and the transition of some engineering, quality assurance and maintenance work to Bangalore, India.

    The stock is up about 3% this morning.

  • The Best Day Since 2003
    , June 15th, 2006 at 4:42 pm

    The market broke its streak of 987 straight days without a daily swing of 2% or more. Today, the S&P 500 (^GSPC) gained 26.12 points, or 2.12%.
    The last 2%-er came on October 1, 2003 when the S&P 500 gained 2.23%.
    By the way, 987 is a Fibonacci number. (Spooky!)

  • The Noonday Market
    , June 15th, 2006 at 11:53 am

    The market is building on yesterday’s late-day surge. So far, it’s the cyclicals leading the charge. The Morgan Stanley Cyclical Index (^CYC) is up 1.87%. Dow Jones tracks 100 industry groups, right now, 94 are higher. The energy and materials sectors are doing the best.
    Gold is higher today. The metal fell late yesterday even after Tuesday’s big plunge.
    This morning, the Labor Department said that unemployment claims dropped to 295,000 last week. That’s the lowest level in four months. Speaking of employment, McKinsey says that the jobless rate in Sweden is 15%, nearly three times the government’s estimate. Wow.
    In the debt market, once again we have a split day. Yields at the long end of the yield curve are higher, while short-term rates are slightly lower. Once you get past maturities of five years, the yield curve is pretty darn flat.
    I’ll have to give Bear Stearns (BSC) the award for best broker earnings of the week. The company earned $3.72 a share, 60 cents more than estimates. Both Goldman (GS) and Lehman (LEH) reported good earnings earlier this week, but it didn’t help their stocks.
    There was some good news yesterday for Harley-Davidson (HDI), one of our Buy List stocks. Anthony Gikas, the analyst at Piper Jaffray, polled 30 Harley dealers and 28 said that business is meeting or exceeding expectations. The stock is trading at less than 13 times next year’s earnings. Also, the New York Times talked with Kevin Rollins at Dell (DELL).
    Oh, and thanks to everyone who wrote in to complain about my World Cup bashing. Interestingly, approximately 98.4% of you mentioned baseball. So I have to admit, yesterday’s Saudi-Tunisia game was very good. The Germany-Poland game was also good except for the German’s late goal. I was really hoping to see the Poles walk away with a tie.
    Two quick headlines to note. First, this one made me giggle. The other is from the New York Post on Dick Grasso taking the fifth 168 times, “Grasso Pass-o.” You gotta love the NYP for its headlines.

  • Google To Buy Googleplex
    , June 15th, 2006 at 7:36 am

    googleplex.jpg
    Google (GOOG) is forking over $319 million to buy the Googleplex. The previous owner was Silicon Graphics (remember them?).
    Here’s what the Googleplex looks like from 1,600 feet (via Google Earth).
    The New York Times reports that Google is building a massive double top-secret facility in The Dalles, Oregon.

    The fact that Google is behind the data center, referred to locally as Project 02, has been reported in the local press. But many officials in The Dalles, including the city attorney and the city manager, said they could not comment on the project because they signed confidentiality agreements with Google last year.
    “No one says the ‘G’ word,” said Diane Sherwood, executive director of the Port of Klickitat, Wash., directly across the river from The Dalles, who is not bound by such agreements. “It’s a little bit like He-Who-Must-Not-Be-Named in Harry Potter.”
    Local residents are at once enthusiastic and puzzled about their affluent but secretive new neighbor, a successor to the aluminum manufacturers that once came seeking the cheap power that flows from the dams holding back the powerful Columbia. The project has created hundreds of construction jobs, caused local real estate prices to jump 40 percent and is expected to create 60 to 200 permanent jobs in a town of 12,000 people when the center opens later this year.

    I won’t say that I’m worried, but it does remind me of this.

  • A Funny Story Out of Japan
    , June 15th, 2006 at 7:12 am

    Wanna hear a funny story?
    There’s this guy in Japan named Yoshiaki Murakami. (Wait, it gets better.)
    He’s a legend in the Japanese mutual fund industry. To some people, he’s like a folk hero. The reason for his popularity is that he stands up for shareholders, and let’s just say that that’s not too “groovy” among the Japanese financial elite (it’s too…American).
    But now Murakami is in serious hot water. Apparently, he heard from some guys at an Internet company called Livedoor that they wanted to buy a company called Nippon Broadcasting. Actually, Murakami didn’t think they were serious, but he already owned lots of Nippon, and he bought even more. Well, the Livedoor guys were serious, and they went after Nippon. The fight turned ugly and Livedoor lost. But the stock soared and Murakami sold his stake to Livedoor making a huge profit.
    That’s pretty smart business, except for a minor problem—it’s against the law. Now Murakami has been arrested for insider trading. This is a HUGE deal in Japan. It would be like the Feds busting Jim Cramer on live TV.
    But now, it’s gotten even weirder. It turns out that a guy named Toshihiko Fukui invested 10 million yen with Murakami. Oh, did I mention that he’s the head of the Bank of Japan? So not only has Cramer been arrested on live TV, but he’s managing Bernanke’s money! That’s what we’re talking about. Some people are now demanding Fukui’s resignation. The Japanese market just had its biggest one-day plunge since 9/11.
    Come to think of it, the story really isn’t that funny.
    The side story is that the Japanese economy is actually doing well for the first time in years. Fukui has hinted that he might lift interest rates from their current level of 0%. He just balked at an increase, but it’s coming soon. This scandal might actually have an impact on what the BOJ does.

  • The Argument Sketch
    , June 15th, 2006 at 6:53 am

    M: Oh look, this isn’t an argument.
    A: Yes it is.
    M: No it isn’t. It’s just contradiction.
    A: No it isn’t.
    M: It is!
    A: It is not.
    M: Look, you just contradicted me.
    A: I did not.
    M: Oh you did!!
    A: No, no, no.
    M: You did just then.
    A: Nonsense!
    M: Oh, this is futile!
    A: No it isn’t.
    M: I came here for a good argument.
    A: No you didn’t; no, you came here for an argument.
    M: An argument isn’t just contradiction.
    A: It can be.
    M: No it can’t. An argument is a connected series of statements intended to establish a proposition.
    A: No it isn’t.

    The “Argument Sketch” from Monty Python
    This is from CNBC yesterday. The video is about nine minutes long (after a brief Ford commercial). I don’t even know how to describe it. Joe Kernan is moderating an inflation “debate” between Diane Swonk of Mesirow Financial and Peter Schiff of Euro Pacific Capital.