Archive for March, 2007

  • WallSt.Net Podcast
    , March 5th, 2007 at 3:49 pm

    Here’s a podcast I did recently with Kristin Friedersdorf of WallSt.net.

  • Red Robin Reports Great Earnings, But On Closer Inspection, Maybe Not So Great
    , March 5th, 2007 at 3:12 pm

    Last week, Red Robin Gourmet Burgers (RRGB) reported great earnings. The company beat earnings expectations by 16 cents a share, and the stock jumped 7.6%. But David Phillips at 10-Q Detective has read the fine print:

    1. 2006 was a 53-week fiscal year. In fiscal 2006, the fifty-third week added $14.4 million to restaurant sales and $0.11 to diluted earnings per share.
    2. Earnings benefited, too, from a 3.0% drop in its effective tax rate to 30.6% for 2006. The decrease was primarily due to more favorable tax credits and state apportionment factors resulting from a shift in income to states with lower tax rates—aggregate state income tax rate fell 1.9% to 2.6% in fiscal 2006. This creative accounting boosted income about 6 cents per share. Management anticipates that its 2007 effective tax rate will be approximately 32 percent.
    3. In 2006, Red Robin reduced the expected life of its outstanding option grants more than 50% to 2.6 years! By cutting the time it thinks its ‘team members’ will hold options, the burger maker was able to trim compensation costs.
    We estimate that the three aforementioned factors added at least 22 cents to Red Robin’s bottom line in 2007.

    Oh.
    To quote Emily Litella, “nevermind.”

  • The Fall in India
    , March 5th, 2007 at 11:09 am

    Stock markets in Asia were slammed again today. The market in India was particularly hard hit. The major index there, the Sensex (^BSESN), dropped 471 points, which is a fall of 3.66%. The index has now lost 2,400 points in the last two weeks.
    This came as a shock to many, but not to observers of CNBC’s “On the Money.” Last week, one sharp-eyed commentator said that the problems in India are in many respects, worse than China’s.
    Over the last four years, the Sensex has risen 400%. But now the economy is overheating, and government is starting to lose control of inflation. Are you ready for the latest plan to fight rising wheat and rice prices? The government has banned futures trading for wheat and rice. Oh dear lord.
    India is the second-largest producer of wheat and rice, so if you see the price of naan go up, you’ll know who to blame. It’s as if the government read a history of the Nixon Administration, got to the part about their economic policies and said, “Hey, let’s try that!” The government has raised taxes. The central bank has raised interest rates. The current accounts situation is bad and getting worse. As a proportion of the economy, India’s deficit is twice that of the United States. Plus, the country carries a huge debt. There’s an old phrase that the market “climbs a wall of worry,” but in India, the market has charged up a wall of ignorance.
    I admire many things about the Indian economy. I recently profiled Cognizant Technology Solutions (CTSH), which is a New Jersey-based company, but a leading outsourcer to India. The company has had stunning results over the past few years. Coincidentally, Cognizant rang the opening bell today from India.
    But as far as the Indian stock market goes, I think things will soon get much worse.

  • Cramer on Biotech
    , March 5th, 2007 at 7:51 am

    In New York magazine, Jim Cramer looks at four biotech stocks; Genentech, Celgene, Gilead and Genzyme. I’d also throw in Amgen. I really wish JJC would do more articles like this. He’s good at it, and I think he’s right.

  • Economists as Forecasters
    , March 4th, 2007 at 7:02 am

    Don’t get too worried about Greenspan’s forecast for the economy (whatever it is he said). In today’s NYT, Daniel Gross reminds us that economists have been awful predictors:

    The Economist reported that in March 2001 — the month the last recession began — 95 percent of American economists believed that there wouldn’t be a recession. In February 2001, the 35 professional forecasters surveyed by the Federal Reserve Bank of Philadelphia collectively predicted growth at an annual rate of 2.2 percent for the second quarter of 2001 and 3.3 percent for the third quarter. It’s as if meteorologists stood outside as the storm clouds approached and informed television viewers that endless sunshine was ahead.

    Maybe it’s not the economists’ fault. Perhaps predicting recessions is inherently impossible. To do it, you have to expect the unexpected:

    Christina Romer, professor of economics at the University of California, Berkeley, says economists can’t predict recessions for the same reason stock market analysts can’t accurately predict market crashes. “Both kinds of events, by their nature, are not predictable events,” she said. Almost all the postwar recessions were preceded by a shock, like a spike in short-term interest rates, or a sharp rise in oil prices. “It’s impossible to see the shocks coming,” Ms. Romer said.

  • Dear March
    , March 3rd, 2007 at 11:43 pm

    Dear March, come in!
    How glad I am!
    I looked for you before.
    Put down your hat—
    You must have walked—
    How out of breath you are!
    Dear March, how are you?
    And the rest?
    Did you leave Nature well?
    Oh, March, come right upstairs with me,
    I have so much to tell!

    – Emily Dickinson

  • It’s Been a Long Week, I Figured You’d Enjoy This
    , March 3rd, 2007 at 7:38 am

  • How Are Sell-Offs Healthy?
    , March 2nd, 2007 at 3:50 pm

    Yesterday, the AP ran a story, “Market plunge seen as healthy.”

    As difficult as it might be to explain to investors who lost a total of $632-billion in Tuesday’s market carnage, a correction isn’t necessarily a bad thing. It may have reacquainted investors with the concept of risk.
    “Corrections like this are the financial equivalent of castor oil,” said Hans Olsen, chief investment officer at Bingham Legg Advisers in Boston. “It’s good for you, you don’t like it, but you have to take it.”

    This is one of my pet peeves. People often want to make capital markets into something they’re not. They get carried away with sloppy metaphors.
    For the record, markets are not at all like human beings. Going to the dentist may be very unpleasant, but ultimately good for you. Markets do not work that way. A sell-off is a sell-off. A rally is a rally. There’s no such thing as a good, or “healthy” sell-off, or a bad rally.
    I have to stop and think, what exactly does a healthy sell-off mean? I honestly don’t understand the phrase. I think it’s one of those phrases people repeat often enough without considering what it means. When you say it, you sound intelligent–even a bit clinical. But is a “healthy” sell-off one that will immediately turnaround? If it is, why isn’t the market doing right now, instead of…well, selling off?
    I absolutely agree that sell-offs are natural. That’s capitalism. This is what markets look like. But the healthy part I don’t get—the idea that implicit in the sell-off is reason for it not to sell-off. Does that make sense to you?
    Here are quotes from the past week:
    International Herald Tribune

    Tuesday was a “a healthy reminder, especially to individual investors, that markets don’t go straight up,” Sonders said.

    Bloomberg

    “The correction was a healthy shake-out for those who had become complacent,” said Piers Hillier, head of European equities at WestLB Mellon Asset Management in London. “I don’t think we’re out of the woods.”

    Even Larry Kudlow!

    The plunge follows a 20% run-up that began last summer, and some analysts believe it was overdue. Indeed, 3% corrections are normal and healthy.

    MarketWatch:

    Large stock market declines can be a healthy cleansing for the industry. Declines purge the products, people and practices that plague the industry — those things that in a rising market suffer little or no consequence for the bad things they do.

    York Dispatch:

    “Frankly, it’s expected and it’s overdue,” said Crooks, a 34-year veteran of the industry. “I think it may indeed turn into a 5 to 10 percent correction (drop in price). And I think that would be very healthy.”

    Reuters:

    “I think risk has been underpriced in the market and frankly I’m glad to see this happening because it’s a healthy phenomenon.” said Ed Walczak, portfolio manager at Vontobel Asset Management in New York.

  • Merrill Lynch Called It
    , March 2nd, 2007 at 12:50 pm

    They didn’t get it right in the clown’s mouth, but one month ago, Merrill had an inkling of what was to come.

    The bank said 2007 would be the “year of the dividend”, with fear returning as the VIX and VDAX volatility indexes – widely used in option trading – rise from record lows.
    “We think global interest rates are going to rise a lot more than investors are discounting, and this is a worrisome outlook for profits,” said Khuram Chaudhry, chief European strategist.
    “We’ve seen liquidity everywhere, in equities, property, bonds. It’s been a one-way bet for investors, and they’ve taken on a lot of risk. But they’re not looking beyond the news to the slow drip-drip effect of interest rates. It matters when central banks tighten monetary policy,” he said.

    (H/T: B-Riz.)

  • Keeping the Y-Axis Real
    , March 2nd, 2007 at 12:42 pm

    DealBreaker looks at Tuesday’s “plunge” with some perspective. Here’s how the market has done YTD:
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