Archive for August, 2007

• The Last Shall Be First and the First Last
  Eddy Elfenbein, August 9th, 2007 at 10:37 pm

  Here’s a simplified version of what’s been happening in the market. This is the sector returns of the S&P 500 for the last three weeks and the three weeks before that.
  Sector……………June 28 to July 19……….July 19 to August 9
  Energy…………………..8.79%……………………-9.49%
  Staples………………….1.61%……………………-1.34%
  Healthcare……………..0.46%……………………-4.32%
  Industrials………………6.41%……………………-6.59%
  Tech………………………5.74%……………………-6.13%
  Materials………………..7.58%……………………-9.98%
  Telecom…………………-0.24%……………………-3.59%
  Utilities…………………..5.02%……………………-4.72%
  Discretionary…………..1.60%……………………-8.85%
  Financials………………-0.81%……………………-7.43%
  Notice a pattern?

• Wall Street Engulfed In Selling Panic!!!!
  Eddy Elfenbein, August 9th, 2007 at 5:25 pm

  

• The Great Bull Market
  Eddy Elfenbein, August 8th, 2007 at 2:07 pm

  This Monday is the 25th anniversary of one of the greatest moments in Wall Street history, the release of Fast Times at Ridgemont High. This movie created a cultural reference point for an entire generation of Wall Street traders. In earlier generations, things like the Bible and Shakespeare performed a similar role.
  This Sunday will also be important. It’s the 25th anniversary of the beginning of the Bull Market. On Thursday, August 12, 1982, the Dow bottomed out at 776.92.
  To add some perspective, the market’s P/E ratio was less than half of today’s P/E ratio. The dividend yield was about four times that of today’s yield.
  The following Tuesday, August 17, the market skyrocketed a phenomenal (get this) 38 points. That was the most points ever and percentage-wise, it was the second-best day since the Depression.
  Over the last 25 years, the S&P 500 has returned 2,700% (dividends and capital gains) while gold and inflation have both roughly doubled (sorry gold bugs).
  Here’s to the next 25 years!

• Leucadia National
  Eddy Elfenbein, August 8th, 2007 at 12:48 pm

  Leucadia National (LUK) seems to be weathering the subprime crisis quite well. If you’ve never heard of Leucadia, well…that’s pretty much how the company wants it. They own a hodgepodge of businesses; some real estate here, some timber there. Nothing terribly exciting.

  The only interesting thing about Leucadia is that it’s about as close as you can get to owning a private company that just so happens to have a ticker symbol. The company might as well have “no comment” as its slogan. They have no earnings calls, no guidance, no investor conferences, no analyst coverage, nothing.

  Despite this, they somehow make money! In the last 25 years, shares of LUK are up 34,000%. That’s more than almost every other stock—Intel, Apple, GE, even Berkshire Hathaway—you name it and LUK probably beats it.

  But here’s the interesting part: Leucadia’s last 22% has come this week. I have no idea why. (More buyers than sellers?) Make no mistake; this is a rough market but there are still a lot of good stocks out there.

• Brian Hunter Crying Foul
  Eddy Elfenbein, August 8th, 2007 at 10:29 am

  From today’s WSJ:

  Brian Hunter, whose bad bets triggered the collapse of hedge fund Amaranth Advisors LLC, says a federal investigation into his possible involvement in an alleged multibillion-dollar manipulation of the natural-gas markets is hurting the start-up of his new fund venture.
  Mr. Hunter said Solengo Capital Advisors has been pushed to “the brink of complete disintegration” by a probe by the Federal Energy Regulatory Commission and resulting civil charges against him and his previous employer, Amaranth. The statement was made in documents filed late last week in the federal District of Columbia court as part of a suit against FERC that Mr. Hunter filed in late July.

  I wonder if the fact that he lost $6 billion in one week is hurting him as well.

• Graco Hits New High
  Eddy Elfenbein, August 7th, 2007 at 5:46 pm

  
  I added Graco (GGG) to the Buy List at the start of this year. So far, it hasn’t been that impressive a stock. The earnings have been blah, and the stock has mostly been stuck in a trading range.
  Until today. The shares vaulted past $43 and nearly hit $45. I honestly have no idea what the catalyst was. The next earnings report won’t come for another two months.
  Sometimes on Wall Street, you just don’t know what moves a stock.

• Fedipus Rex
  Eddy Elfenbein, August 7th, 2007 at 2:33 pm

  The great thing about reading the Wall Street Journal is you never know on what page you’ll find the front page story.

  Today’s edition contains an excellent article by Greg Ip and Jon Hilsenrath on the birth and untimely death of the credit boom. Most impressively, the pair got Alan Greenspan to go on the record. This question for any discerning reader (or investor) is, “what’s Mr. Greenspan motive for doing so?“

  Well, let’s take a look at what he has to say. Here the maestro defends himself against the charge of bring interest rates too low:

  Mr. Greenspan raised vague fears with colleagues over the possibility this policy could create distortions in the economy, but he says today that such risks were an acceptable price for insuring against deflation. “Central banks cannot avoid taking risks. Such trade-offs are an integral part of policy. We were always confronted with choices.”

  Oh dear lord. This is a completely meaningless answer. We know you face choices, Alan, so does everybody else. The question is, “were those choices correct?” As usual, he refuses to acknowledge his mistake.

  But that’s not all—and this is the most maddening part. Greenspan now admits that he was the one who was really concerned about a real estate bubble all along. Honest he was.

  Looking back, he says today: “We tried in 2004 to move long-term rates higher in order to get mortgage interest rates up and take some of the fizz out of the housing market. But we failed.”

  This is a stunning statement. Did it ever occur to him that he failed in large measure to his initial non-mistake? His answer is equal parts disingenuous and disgraceful. First, the Fed has no business managing mortgage interest rates. Yet in 2004, it was Greenspan who urged investors to get adjustable-rate mortgages.

• Fed Statement
  Eddy Elfenbein, August 7th, 2007 at 2:15 pm

  No rate change.
  Here’s the statement:

  The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.
  Economic growth was moderate during the first half of the year. Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy.
  Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures.
  Although the downside risks to growth have increased somewhat, the Committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the outlook for both inflation and economic growth, as implied by incoming information.

• Stockbroker Charged With Trying to Kill Canadian Finance Minister
  Eddy Elfenbein, August 7th, 2007 at 2:05 pm

  Wow, I didn’t know Canada even had a finance minister.
  Here’s the 411:

  A stockbroker from Louisiana has been charged with threatening to kill Finance Minister Jim Flaherty and his family.
  The U.S. Attorney’s Office alleges that 59-year-old Lloyd Dewitt Tiller, Jr., of Shreveport, La., sent threatening e-mails to the Canadian official late last year and early this year.
  Mr. Tiller allegedly claimed he and his clients lost almost $6-million after Mr. Flaherty’s decision to tax income trusts last fall.
  In the first e-mail, sent on Nov. 13, he threatened to hurt Mr. Flaherty.
  In the second, sent Jan. 18, he “threatened to injure both Mr. Flaherty and members of his family,” the U.S. Attorney for the Western District of Louisiana, Donald Washington, wrote in a statement.
  In February, a plainclothes guard was assigned to Mr. Flaherty after investor anger over the Conservatives’ income-trust tax. The minister’s office at the time refused to discuss whether a death threat prompted the extra security measures.
  Global News reported Monday night that Mr. Tiller allegedly wrote that “I am going to cut your … throat … you can’t hide, I will find you,” and “You have killed my business as a stockbroker … you have ruined my life and many of my clients life (sic) and I hear you think it is funny.”

  You realize that sending a death threat by email would make the shortest Law & Order episode ever.

• Curious Merger Math
  Eddy Elfenbein, August 7th, 2007 at 9:53 am

  This is an interesting article from Business Week on the unusual math that surrounds corporate mergers:

  For six years private equity firm Thomas H. Lee Partners tapped the credit markets to buy one consumer-products brand after another and roll them all up into United Industries Corp. But even though United’s total debt jumped from $375 million to $860 million by 2005, its leverage—one measure of a deal’s riskiness—didn’t move much.
  How could that be? Part of it was the magic of merger math, a naturally occurring phenomenon that has helped drive $1 trillion in buyouts since the boom began in 2004. It’s a pretty simple illusion that happens when a company with a lot of leverage buys one with less. That combined debt load is then spread across all the assets of the new corporate entity. So some key measures of leverage often remain the same or even drop, making it appear from one angle as though there were no additional risk. That can be true even if the acquirer pays the seller a premium, which is usually the case.