Archive for November, 2007

• A Look at Apple’s 10-K
  Eddy Elfenbein, November 19th, 2007 at 9:47 am

  Michelle Leder reads Apple’s 10-K so we don’t have to:

  When Apple (AAPL) came out with its Iphone at the end of June, there was a flurry of activity to take it apart. That’s kind of the way I feel about the 10-K they filed late yesterday. There were so many interesting disclosures in the 170-page filing, that it’s hard to know where to begin. The filing also included the compensation and perks information that’s more commonly found in the proxy.
  Yes, Steve Jobs still made a single buck last year, but that’s still more than Google (GOOG) CEO Eric Schmidt made for serving as a director at Apple. As the filing notes, “Upon his initial appointment to the Board on August 29, 2006, Dr. Schmidt declined the annual retainer fee and the automatic stock option grant to purchase 30,000 shares to which new directors are entitled under the Director Plan. Instead, Dr. Schmidt purchased 10,000 shares of the Company’s common stock on the open market.”
  Former Vice President Al Gore, who earlier this week became a partner at VC firm Kleiner Perkins, was the lowest paid director (next to Schmidt) but was the biggest beneficiary of the free computer equipment that Apple gives to its directors. Gore received $15,245 worth of Apple swag. Directors are eligible to receive two free computer systems a year, but clearly this includes some extra bells and whistles.
  One of Apple’s risk factors is its ties to a single carrier for the Iphone. In the US, that’s AT&T (T), which has faced criticism for its slow network, but the company also lists 02, T-Mobile and Orange as well. In that same risk factor, Apple notes that because these agreements “require each carrier to make revenue-generating payments” to Apple, the frenzy to unlock the Iphone “could have a material adverse effect on the Company’s future financial condition and operating results” which is why Apple keeps on coming up with new ways to prevent that from happening.
  Finally, there were some interesting details about the free Iphones, which Apple employees had been rumored to receive. According to the K, each of Apple’s 21,600 employees, including the named executives received a free Iphone, which the company then grossed-up for taxes. Judging by one of the footnotes to the summary comp chart, some employees received a $250 gross-up and others received a $379 gross-up, which presumably was the difference between the 4 and 8-gig models. The only employee who didn’t get the free Iphone appears to be Steve Jobs, who the filing notes did not get a gross up for the Iphone, or, for anything else.

• A-Rod and W-Buf
  Eddy Elfenbein, November 19th, 2007 at 7:13 am

  It looks like A-Rod will re-sign with the Yankees. He’ll also win his third MVP award today. The Wall Street Journal reports that A-Rod got some help in his negotiations with the Yankees from none other than Warren Buffett:

  Mr. Rodriguez’s initial defection happened in late October, a tense period for the team during which its beloved manager Joe Torre was effectively ousted after the Yankees were eliminated in the playoffs. Hoping to net a richer contract elsewhere, Mr. Boras advised his client to exercise his opt-out clause, a move reported Oct. 29. The player reluctantly took his agent’s advice, say people familiar with his thinking, even though he and his wife Cynthia were eager to stay in New York and have him continue to play for the Yankees.
  Amid deafening criticism by sports writers and on talk radio, a worried Mr. Rodriguez called Mr. Buffett, say people familiar with the matter. The two had become friends a few years ago, after the slugger flew to Omaha to meet with the investing guru and rabid baseball fan. After that, the two met socially several more times, say the people familiar with the matter. Signifying their mutual admiration, an autographed Rodriguez jersey hangs at Berkshire Hathaway’s Omaha headquarters.
  Mr. Buffett’s advice was simple, says a person familiar with the matter: approach the Yankees solo, without Mr. Boras. “A-Rod really loves being a Yankee,” says Mr. Buffett. He declined to comment on the substance of any conversation with Mr. Rodriguez, saying he doesn’t discuss private talks.

  Of course, they’re not such an odd couple. A-Rod could be a billionaire before his career is up.

• RIP: John Noble
  Eddy Elfenbein, November 17th, 2007 at 12:25 am

  Have a look at this amazing obituary of John Noble, an American who lived in Germany during the World War II. Although he was never charged with any crime, Noble was sent to Buchenwald.
  By the Soviets.

• The Bank of Starbucks
  Eddy Elfenbein, November 16th, 2007 at 7:40 pm

  I always liked this Starbucks (SBUX) in suburban Maryland. It’s so obvious that it used to be a bank. The even kept the drive-thru:
  

• The Decline of Fannie
  Eddy Elfenbein, November 16th, 2007 at 11:18 am

  I have to say that I’m amazed by the decline and fall of Fannie Mae (FNM). Not that the company doesn’t deserve it, but to anyone who know who remembers the esteem with which this stock was held, the recent fall has to be disheartening. In the last six weeks, the shares are down -41%.
  Shares of Fannie Mae were a no brainer for years. From late 1981 to late 2001, the stock went from 50 cents a share (adjusted for a 12-for-1 split) to $80 a share. Throw in dividends and that’s about another 100% to your return. That’s a return to investors of over 30% a year for two decades!
  Today the stock broke below $38 a share, a level it first hit 11 years ago. Fannie Mae was loved by everyone. Peter Lynch touted it in his books. It was politically popular. Who could be against homeownership? Unlike the tobacco stocks, which everyone hated.
  Here’s perhaps the most amazing stat: Both Fannie Mae and Altria (MO) are projected to earn $4.68 a share next year. Yet, Altria is going for $73 a share, which is close to twice FNM’s price.

• Inflation and Sex
  Eddy Elfenbein, November 16th, 2007 at 10:46 am

  When people are asked what the inflation rate is, apparently your gender is an important factor. Caroline Baum has the 411:

  “That men and women occasionally see things differently is not a remarkable observation,” says Michael Bryan, economist at the Federal Reserve Bank of Cleveland. “But that the sexes could report vastly different perspectives on the rate at which prices are rising over a long period of time is astonishing.”
  Bryan has studied decades of data on this battle of the sexes, using the University of Michigan Survey of Consumers, a joint survey conducted by the Cleveland Fed and Ohio State University among others. He found that demographics played a role in determining the public’s estimates and predictions of inflation.
  Those who are rich, married, white and middle-aged have lower inflation perceptions and expectations than those who are poor, single, non-white and young. That seems almost intuitive: Society’s “haves” are better positioned to endure cost-of- living increases than the “have-nots.”
  New View
  Yet even after holding income, age, education, race and marital status constant, “men and women hold very different views on the rate at which prices are changing.” Bryan writes in a November 2001 commentary, “The Curiously Different Inflation Perspectives of Men and Women.” Women consistently think inflation is 1.9 percentage points higher than men, and they expect prices to rise 2.1 percentage points more than men.

  Baum recommends that Bernanke should go to Tupperware parties. But how does she know he doesn’t?

• Nassim Nicholas Taleb on Charlie Rose
  Eddy Elfenbein, November 16th, 2007 at 8:31 am

• Homebuilding Stocks
  Eddy Elfenbein, November 16th, 2007 at 7:53 am

  Here’s a colorful look at how some homebuilders have done for the past five years. As you can see, a company’s industry group is a major indicator of returns:
  

• Sign of the Times
  Eddy Elfenbein, November 15th, 2007 at 6:32 pm

  The dollar’s prestige continues to suffer:

  In a video for the movie “American Gangster,” hip-hop maestro Jay-Z thumbs through a wad of 500-euro notes on a night of cruising through the concrete canyons of New York, a city where the euro isn’t legal tender.

• The Cyclical Bear Market
  Eddy Elfenbein, November 15th, 2007 at 4:31 pm

  Over the summer, I had several posts about how the outperformance of cyclical stocks was soon going to end. I particularly looked at how the Morgan Stanley Cyclical Index (^CYC) was doing relative to the S&P 500 (^SPX)
  Here’s part of a column I wrote for Real Money five months ago.

  The boilermaker index has been on fire recently. The CYC is up over 22% this year and up over 40% in the past 11 months. Going back to the March 2003 low, the CYC has jumped 180%, which doubles the S&P 500. Not too shabby.
  But the best has come recently.
  This year, the CYC has already set an amazing 40 new highs. In April it burst through 1000, and it’s quickly closing in on 1100. Like all good rallies, however, this must come to an end, and I’m afraid it won’t be pretty.
  The important thing to remember is that cyclical stocks are…well, cyclical. They move up, and they move down. Personally, I like the “up” part the best. Historically, each cycle has lasted around five to seven years, so the clock is running out on this latest cycle, which began in September 2000 just as the tech sector was returning from its romp through Bubblestan.
  Another important fact to remember is that cyclicals have a nice habit of outperforming the stock market when the market itself is doing well but underperforming when stocks take a beating.

  The end finally came on July 19. Since then, the CYC is down -13.4% while the S&P 500 is down just -6.6%.
  
  I think the underperformance will continue for a few years.