Archive for April, 2007

  • Buffett Goes Off the Rails
    , April 9th, 2007 at 12:45 pm

    resopes.bmp
    Warren Buffett is investing in railroads:

    Warren Buffett’s company recently invested in three railroads, and in the process, Berkshire Hathaway Inc. became the largest shareholder in the Burlington Northern Santa Fe Corp., according to a company filing and a media report that the company confirmed.
    The disclosure sent Burlington Northern shares up more than 7 percent in midday trading Monday.
    Omaha-based Berkshire Hathaway revealed in a filing with the Securities and Exchange Commission that it owned 39 million shares of Burlington Northern as of last Thursday. The cable network CNBC reported Buffett said Berkshire had also invested in two other railroads that he declined to name.

  • The Solengo Kerfluffle
    , April 7th, 2007 at 7:40 pm

    Before the suits find out, you can download the Solengo Capital marketing piece here.
    (Hat Tip: Gary Weiss).

  • Volatility Returns! Then Leaves
    , April 5th, 2007 at 2:26 pm

    Remember how volatility finally returned on February 27? Well, it turns out that it didn’t stick around for too long.
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    Following 2/27, the S&P 500 had three +1% days and one -2% day, but in the last two weeks, the market has gone back to being as dull as usual.
    For the last ten days, the S&P 500 has had an average daily swing of 0.49%, which is just about what it did for the six months prior to 2/27.
    The Volatility Index (^VIX) is back below 13 today.

  • Danaher (DHR)
    , April 5th, 2007 at 12:45 pm

    I’m surprised more people don’t know about Danaher (DHR), especially considering how many people pay 2/20 to hedge fund managers who don’t have a prayer of beating DHR.
    Earnings will come out two weeks from today. The company has already given us a range of 75 to 77 cents a share, which probably means 77 or 78 cents a share.
    For last year’s first quarter, Danaher made 66 cents a share, so were talking about pretty good earnings growth. S&P just reported that earnings growth for the S&P 500 officially came in below 10% for fourth quarter, the first time that’s happened in 18 quarters.
    Here’s a chart of Danaher (blue line is price, black is EPS and red is the forecast):
    image455.png
    The right and left axes are scaled at 20-to-1, so when the lines cross, the stock has a P/E ratio of 20.

  • The Real Estate Roller Coaster
    , April 4th, 2007 at 10:17 pm

  • Is It Too High or Too Low?
    , April 4th, 2007 at 10:16 am

    Here’s something to consider. This is a chart of Apple‘s (AAPL) stock for the first five years after its IPO.
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    In June 1983, the stock ran up to $7.84 a share (adjusted for three 2-for-1 splits), then plunged about 75% to less than $1.82 a share. So it was overpriced at $7.84, right?
    But if you were unlucky enough to have bought it at the exact top, the stock is still up about 1,100% since then compared with 775% for the S&P 500. Including dividends, the S&P 500 would still come out ahead, but it’s interesting to think about “too expensive” means.

  • Subprime Homsick Blues
    , April 4th, 2007 at 9:37 am

    James Surowiecki looks at the subprime mess:

    The backlash against the subprime lenders is understandable, since their business practices were often reckless and deceptive. Instead of responding to the slowdown in the housing market by cutting back their lending, they pressed their bets—last year, six hundred billion dollars’ worth of subprime loans were issued. Many of the lenders hid their troubles from investors, even as their executives were dumping stock; between August and February, for instance, New Century insiders sold more than twenty-five million dollars’ worth of shares. And there’s plenty of evidence that some lenders relied on what the Federal Reserve has called “fraud” and “abuse” to push loans on unwitting borrowers.
    For all that, “predatory lending” is a woefully inadequate explanation of the subprime turmoil. If subprime lending consisted only of lenders exploiting borrowers, after all, it would be hard to understand why so many lenders are going bankrupt. (Subprime lenders appear to have been predators in the sense that Wile E. Coyote was.) Focussing on lenders’ greed misses a fundamental part of the subprime dynamic: the overambition and overconfidence of borrowers.

    It’s seems that subprime lenders are in a never-ending cycle. If their standards are too loose, they’re accused of being predatory. If their standards are too tight, then they’re accused of “redlining.”

  • How Harley Could Roar Back
    , April 4th, 2007 at 7:58 am

    Michael Brush looks at the problems facing Harley (HOG):

    Harley-Davidson finances about half the motorcycles it sells. Now, many of those customers are having a hard time keeping up with payments — and the company is getting less for the Hogs it repossesses because used bike prices have been weakening.
    The problems may only get worse. As lending standards tighten because of concerns about low-end borrowers, sales growth could suffer. Somewhere between 10% and 15% of bikes sold last year were rolled out of the showrooms by subprime borrowers. Already, the company has taken 2007 earnings growth guidance down to 4%-6% — a hefty cut from the prior range of 11% to 17%.

    He thinks it could go back to $75 a share. We’ll find out more when earnings are announced on April 19. Due to the strike, I’m not expecting much, but the test will be whatever guidance the company gives.

  • Solengo Sues Dealbreaker
    , April 3rd, 2007 at 11:54 am

    Did you know POS Legal Action is an anagram of Solengo Capital?

    Solengo Capital Advisors ULC, a hedge fund company formed by a trader involved in one of the largest hedge-fund collapses ever, has sued a Web site for posting a copy of Solengo’s investor prospectus.
    The copyright lawsuit, filed in federal court in Manhattan, alleges the prospectus was posted in its entirety on Dealbreaker.com on Wednesday. The Web site’s publisher and editors refused to remove the document.
    The Greenwich, Conn.-based company’s complaint alleges the document was stamped “confidential” and contains the venture’s planned structure, trading and risk management platforms, offering information and biographies of its founders.
    “This proprietary information is integral to Solengo’s ability to gain an edge over competitors, standing in the marketplace and appeal to potential investors,” the lawsuit says. (Hey, they know how to use stock photos! Let’s invest.)
    Elizabeth Spiers, Dealbreaker’s publisher and founder; John Carney, the Web site’s editor in chief; and Bess Levin, a contributing editor, were all named as defendants. (Muffy??)
    Calls seeking comment from Spiers and the New York-based Web site’s general manager weren’t immediately returned Monday. A comment on the Web site attributed to Levin said that “writing ‘confidential’ on a document does not obligate DealBreaker or anyone else to keep your secrets secret.”
    Solengo was founded by Brian Hunter, a one-time star energy trader at shuttered hedge fund Amaranth Advisors LLC. Amaranth lost more than $6 billion in September, making it one of the largest hedge fund collapses in history.

    Naked Shorts has a PDF of the Legal Fun. One of Greg’s readers points out that Solengo’s lawyers, Kobre & Kim, are having some trouble with that principal/principle thing.

  • Europe tops US in stock market value
    , April 3rd, 2007 at 8:40 am

    Sacrebleu:

    Europe has eclipsed the US in stock market value for the first time since the first world war in another sign of the slipping of the global dominance of American capital markets.
    Europe’s 24 stockmarkets, including Russia and emerging Europe, saw their capitalisation rise to $15,720bn (€11,819bn) at the end of last week, according to Thomson Financial data. That exceeded the $15,640bn market value of the US.
    The rise of the euro against the dollar, growth of east European markets such as Russia and stock market outperformance spurred by improving profitability have seen Europe close a long-held gap with the US. Ian Harnett at Absolute Strategy Research, who identified the move, said this marked a “seismic shift” in markets.