Archive for May, 2007

  • Economist of the Empire
    , May 6th, 2007 at 5:12 pm

    Angus Burgin reviews Prophet of Innovation, Thomas McCraw’s biography of Joseph Schumpeter:

    As with many such stories, Schumpeter’s begins with a rapid ascent. Born into a bourgeois family that had resided in the Moravian hamlet of Triesch for four centuries, he gained entrance — via his mother’s remarriage to a much older three-star general — into Viennese society and the most prestigious schools in the empire. His precocious academic abilities led him through the two great centers of economic thought in continental Europe: the University of Vienna, home to the great second generation of the Austrian School; and Berlin, the academic center of the Austrians’ bitter rivals, Gustav von Schmoller and the German historical economists. Through a combination of work and fortune, he became the youngest tenured professor of political economy in the empire at age 28, secretary of state for finance in Austria’s First Republic at 36, and a prosperous bank chairman four years later.
    Schumpeter remained a mess of contradictions, however, and his personal triumphs were quickly matched by stunning reversals. Soon after receiving tenure, his harsh classroom discipline inspired a crushing, and largely unprecedented, student boycott of his lectures. He lost his fortune in the Viennese stock market crash of 1924, and spent the next decade laboring to repay the ensuing debt. And in a forever devastating setback, he lost his beloved second wife and son in childbirth just two years later. Following his financial and familial ruin, Schumpeter structured his remaining life around two competing sentiments: a retrospective pessimism that gradually permeated his worldview and a relentless desire to produce academic works worthy of his youthful ambitions. The Schumpeter who arrived at Harvard in 1927, where he would serve as a central influence for a generation of graduate students, was at once intensely passionate and socially removed. His subsequent works, from the seminal popular work “Capitalism, Socialism and Democracy” (1942) to his encyclopedic and still unparalleled “History of Economic Analysis” (1954), remain suspended between cool objectivity and moments of fiery, often cynical, judgment.

  • Friday Night Jazz: Artie Shaw
    , May 4th, 2007 at 9:25 pm

    artie1typ0iu.jpg
    This week, Barry Ritholtz let me sit in with him at TBP’s Friday Night Jazz. Thanks Barry! Here’s my take on the great Artie Shaw.

    Artie Shaw was cool. Not Elvis cool or Sinatra cool, but a darker, more subdued cool.

    What Shaw did was make things look easy. Check out this clip and notice how, even after six decades, his music hasn’t aged a bit. It’s still fresh and smooth. It’s just…cool. (You gotta love Shaw’s reply to the compliments: “Yeah, yeah. Glass of water.” Pure cool.)

    Artie Shaw was the very last of the big bandleaders. He died a year ago at age 94 and fifty years after his last performance. He wound up outliving all the greats—Goodman, Herman, Miller. Those names may loom larger today, but back then, Shaw’s star was the brightest. He was making $60,000 a week—not bad for the Depression. With America poised to enter World War II, Time magazine reported that Germans’ vision of America was “skyscrapers, Clark Gable and Artie Shaw.”

    Fascists, apparently, have issues with tall buildings.

    When Shaw hired Billie Holiday, he became the first white bandleader to hire a full-time black singer. But Shaw detested the limelight. In fact, Shaw hated the words “jazz” and “swing.” No, he considered himself a musician. He hated the audience. He hated the singers. He hated the dancers. He hated other bandleaders (“Benny Goodman played clarinet. I played music.“)
    By 1951, Shaw walked away from music altogether and became—what else?—a dairy farmer. Crazy, maybe, but cool in its own way. Duke Ellington told him, “Man, you got more guts than any of us.”

    So what did Shaw like? Women. Lots and lots of them. He was married eight times. He nabbed Betty Grable which would have pleased most men. Not Shaw. While they were engaged, he ran off with Lana Turner. (Whoa, Duke was right!) Shaw had an affair with Rita Hayworth. He dumped Judy Garland. He married Ava Gardner before Sinatra. How in earth did he have time enough time for music?

    Ah, the music. Brilliant. Here’s an example: In 1938, Shaw took an obscure and forgotten Cole Porter song and made it a jazz classic. Have a listen to “Begin the Beguine.”

    If you’re keeping score, that’s a Jewish bandleader playing Negro music written by a homosexual.

    Exceedingly trivial trivia: “Begin the Beguine” has been performed a gazillion times since. In the movie, The Rocketeer, it’s performed by Melora Hardin, who’s better known as Jan in The Office. (Told you it was trivial.)

    If you’ve never heard of Shaw and want to get your feet wet, I’d recommend: The Very Best of Artie Shaw.

    That pretty much has it all. Personally, I love “Star Dust” and “Deep Purple.” Wonderful stuff.
    Two others you might enjoy are: The Complete Gramercy Five Sessions (all the big band guys made smaller bands after the war); and Last Recordings: Rare and Unreleased.

    Barry adds: “There is a terrific recording of Shaw at NPR: Performance by Shaw of Shaw’s 1940 Concerto for Clarinet.”

    This post can also be found at Barry’s blog, “The Big Picture.”

  • Nicholas Financial’s Earnings
    , May 4th, 2007 at 1:28 pm

    Nicholas Financial (NICK) just reported earnings of 29 cents a share versus 28 cents a year ago. Revenue dropped 1% to $12,044,000. The March quarter is the company’s fiscal fourth quarter, so NICK just wrapped up its 18th straight record year for sales and earnings.
    Overall, I think this was a decent earnings report. Not terrific, but decent.

  • The Stock Market in Euros
    , May 4th, 2007 at 12:46 pm

    In July 2002, the dollar and the euro reached parity. But today, the euro is 35% higher.
    Here’s what the Wilshire 5000 Total Return Index (^DWCT) looks like in dollars (red line) and adjusted for euros (black line).
    image467.png

  • Microsoft to Buy Yahoo?
    , May 4th, 2007 at 8:10 am

    The New York Post:

    Stung by the loss of Internet advertising firm DoubleClick to Google last month, Microsoft has intensified its pursuit of a deal with Yahoo!, asking the company to re-enter formal negotiations, The Post has learned.
    While Microsoft and Yahoo! have held informal deal talks over the years, sources say the latest approach signals an urgency on Microsoft’s part that has up until now been lacking.
    The new approach follows an offer Microsoft made to acquire Yahoo! a few months ago, sources said. But Yahoo! spurned the advances of the Redmond, Wash.-based software giant. Wall Street sources put a roughly $50 billion price tag on Yahoo!.

    Fifty billion??
    No. No way. Never.
    By my math, that’s $36 a share, eight bucks above yesterday’s close. It’s eight times next year’s sales and 52 times earnings.
    If Google went for that much, it would be a $1,000 stock.

  • The Magazine Cover Indicator
    , May 3rd, 2007 at 10:33 am

    In August 1979, BusinessWeek ran its famous “Death of Equities” cover. The bull market began three years later (to the day).
    Now three finance professors have looked at the impact of magazine covers on stock prices. As you might guess, it’s a contrary indicator:

    A recent article in The Financial Analysts Journal by Thomas Arnold, John H. Earl Jr. and David S. North, all finance professors at the University of Richmond, called “Are Cover Stories Effective Contrarian Indicators?” offers an intriguing finding.
    The professors look at how a company’s stock responds to a cover story in BusinessWeek, Fortune and Forbes. They find that positive stories follow periods of positive performance and negative stories follow periods of negative performance, which admittedly is not too surprising. More interesting, they also find that the appearance of a cover story tends to signal the end of the abnormal performance. Hence, individuals who trade on such “news” are not likely to do well.
    This is not to say that articles in the financial press are not worth reading. Quite the contrary. They often provide insightful reporting and in-depth analysis. But by the time the articles have been researched, written and published, they are no longer news — the market price of the stock already reflects the company’s future prospects.
    Taken together, this research offers yet more support for the time-tested investment strategy of buy and hold. Anything that you think is news is old hat to the professionals. Trying to outguess the market is a sucker’s game.

  • Productivity Growth Slows
    , May 3rd, 2007 at 9:51 am

    The Labor Department reported that productivity growth slowed to 1.7% in the first quarter. That’s not a very good number, and productivity has been a bit sluggish in the past three years.
    Still, today’s report marks an important milestone. The “American Productivity Miracle” began exactly ten years ago. This reversed a 24-year slide in productivity.
    Despite weaker numbers in recent years, productivity has grown by an annual rate of 2.77% for the last ten years. To put that in perspective, in the ten years prior to that, productivity grew by just 1.56% a year. And in the ten years before that, it grew by just 1.23% a year.
    It’s hard to overstate the importance of improved productivity. It allows workers to do more with less. Inflation is also kept down due to higher productivity, and by extension, interest rates are lowered.

  • The Subprime Fallout hits GM
    , May 3rd, 2007 at 9:14 am

    How’s this for subprime fallout? Profits at GM (GM) dropped 90% from last year due to bad loans at its GMAC unit.
    This is sad because GM was improving so nicely. Last year, the company only lost $2 billion compared with the $10 billion it lost in 2005.
    But now the subprime mess has caught up with GM. Last year, GMAC’s Residential Capital earned $201 million. This year, it lost $905 million. GM had recently sold 49% of its stake in GMAC to Cerberus Capital Management.
    Bloomberg noted that the yield on GM bonds due in 2033 fell to 9.2%.

  • Dual-Class Share Structure
    , May 2nd, 2007 at 1:09 pm

    Just a quick note on Murdoch’s bid for Dow Jones (DJ). I can’t think of a better argument against dual-class shares than the Bancroft family’s public rift over the offer.
    The family’s super shares have ten times the voting power of the Class A shares (by the way, the same thing exists at many other companies like Google). There are at least 35 family members with super shares.
    A Bancroft family representative said that “slightly more than 50%” of DJ’s voting power is against the deal. Breaking out the math, that means that about 80% of the family’s 64% is voting “No.” But still, we now know that some in family are for it, and “some” is all we need to make a point. The idea of super shares is so families can maintain control, but families don’t act as a single unit.
    The idea of family control is turning back on itself. Couldn’t it be said that the family members in favor of the deal are speaking in the family’s interest? I certainly think so. Dear lord, it’s a 67% premium for a stock that hasn’t moved in eons. Before the offer, the stock was lower than where it was 24 years before while the Dow is up more than 10-fold. How much more evidence do we need that something needs to be done.
    The family can’t hold back change forever. The company will have to be revamped, and hopefully it will happen before the Dow Jones Murdoch Industrial Average goes up another 10-fold.

  • “They were able to manage through that fantastically.”
    , May 1st, 2007 at 8:44 pm

    IBD looks at Amphenol (APH):

    It’s hard to avoid: If a firm’s costs go up, its profits go down.
    Amphenol (APH) has impressed investors by bucking this logic.
    The firm makes connectors, the thousands of different products that link electronic gizmos. Its connectors end up in cars, planes and almost any device that uses electric or fiber optic signals. It also makes cables.
    To manufacture all this, it needs raw materials. They include gold, aluminum, copper and oil-based resin. Prices of those commodities have skyrocketed.
    Yet with material costs rising, the firm managed to boost profits.
    Raw materials were a “big head wind,” Shawn Harrison of Longbow Research said. “They were able to manage through that fantastically.”