Archive for November, 2007

  • My Favorite Links
    , November 15th, 2007 at 2:39 pm

    I don’t do this often enough, but please visit my links page to read some of my favorite stock bloggers. Here are some blogs I’ve been reading lately:

  • 10Q Detective
  • Abnormal Returns
  • Bespoke Investment Group
  • The Big Picture
  • Mebane Faber
  • Footnoted.org
  • Infectious Greed
  • Jeff Matthews
  • Jeff Miller
  • The Kirk Report
  • Marginal Revolution
  • David Merkel
  • The Mess That Greenspan Made
  • Random Roger’s Big Picture
  • Felix Salmon
  • The Stalwart
  • Wall Street Folly

  • Modest Inflation Last Month
    , November 15th, 2007 at 11:55 am

    The Wall Street Journal reports:

    The consumer price index rose 0.3% in October, the Labor Department said Thursday, matching September’s increase. The core CPI, which excludes volatile food and energy prices, advanced 0.2% for a fifth-straight month. The headline and core gains matched Wall Street expectations, according to a Dow Jones Newswires survey.
    Unrounded, the CPI rose 0.293% last month. The core CPI advanced 0.159% unrounded.
    Consumer prices were up 3.5% from a year ago. The core CPI was up 2.2% compared to the same month a year ago, up from 2.1% in September.
    Still, that remains near the 2% top end of the Federal Reserve’s assumed comfort zone for annual core inflation. The Fed’s preferred gauge, the core price index for personal consumption expenditures, is within that range at 1.8% annual growth through September.

    The government’s inflation data comes in for a lot of well-deserved ribbing. Still, the overall trend of inflation is tame. The United States is in no danger of slipping into hyper-inflation.
    Even after high inflation was defeated in the early 1980s, the core CPI rate was often over 5% and that didn’t impede growth. The year-over-year core rate hasn’t gone over 3% or under 1% in over a decade.

  • The Yield Curve Widens
    , November 14th, 2007 at 12:28 pm

    image552.png
    Eighteen months ago, the long end of the yield curve was almost perfectly flat. Today, some daylight can finally be seen between the long-end yields. Even though the 30-year yield isn’t to new lows, the five-year yield certainly is.

  • Attention Math Nerds
    , November 13th, 2007 at 1:58 pm

    Here’s a spreadsheet of some multiple regressions I ran.
    I looked at the daily changes of the 10 S&P industry groups against each other. The regressions are the columns not the rows. (I’m afraid I’m out of my depth mathematically, so if anything looks off, please let me know.)
    Healthcare and Staples seem to be strongly related. I like to think of them as subsets of one large group called Defensives. Also, Energy and Materials are strongly related. I was surprised to see such a strong connection between Financials and Consumer Discretionary stocks.

  • Fear the Yen
    , November 13th, 2007 at 12:27 pm

    Here are some stunning stats from Ken Fisher in yesterday’s Financial Times:

    Forget the falling dollar. What we should fear is a rising yen. The most amazing statistic you never heard is: the year-to-date daily correlation between ups and downs in the global stock market versus spreads between the yen and the euro is 93 per cent. That is beyond eye-popping.

    I had no idea it was that strong:

    The 2007 year-to-date daily correlation coefficient between changes in the yen/euro spread and the MSCI World Index – best reflecting the total developed world stock market – is 0.93. For the S&P 500, it is 0.89, for the FTSE 100, 0.86, and for Germany’s DAX, 0.87. All higher than most people can fathom.
    The correlation of the MSCI World to the yen/sterling spread is lower, at 0.75, but is still sky-high. To the Australian dollar it is 0.86 and to the Canadian dollar 0.81. All breathtakingly high. Only to the U.S. dollar, which everyone fears, is it materially lower at 0.37.

  • Yay Me!
    , November 13th, 2007 at 12:09 pm

    This is a bit scary of me to say, but the Buy List has been doing incredibly well lately. We’ve beaten the S&P 500 for 14 of the last 17 days. Now I promise not to get too cocky because I’m still trailing the market for the year. In fact, just mentioning this makes me think that I’ll jinx it.
    Last week, I noted that the Buy List had its best day relative to the S&P 500 for the year. It was only the third time we’ve beaten the market by over 1% in a day. Well yesterday was the best day ever against the S&P 500. We were up 0.16% while the S&P 500 was down -1.00%.
    I’m stunned that these days are coming so close together. I build the Buy List to roughly conform to the overall market, but just do a little bit better (hopefully). Our daily correlation usually runs about 85%. Since October 18, the S&P 500 has dropped -6.55% while we’ve dropped just -1.54%. For the year, we still trail the S&P 500, 1.47% to 0.20%. But we’ve closed the gap enormously.
    The big story yesterday was the fall in energy and materials stocks. That’s the major missing piece on the Buy List, so whenever those sectors trail, we tend to lead the market. Yesterday was a strange day because the dollar has its best day in over a year. Also, the Dow fell below 13,000 but its fall, in percentage terms, was half of the S&P 500. Outside of a few stocks, the market had a blah day.
    Two small things to pass on. SEI Investments (SEIC) made news when it said it would provide financial guarantees for some of its money market funds. Also, Sysco (SYY) said it will raise its quarterly dividend by 15.8% to 22 cents a share.

  • Still a Bull
    , November 13th, 2007 at 11:13 am

    He’s a chart of why I still like the stock market. The black line is the S&P 500 and it follows the left scale. The yellow line is its earnings and it follows the right scale. I scaled it at 16.66 to 1 which has been roughly the average P/E ratio for the past few months.
    The part of the yellow line in the future is obviously projections. You can see that the market is anticipated to recover from a modest dent in earnings growth.
    image551.png

  • Breakfast at Wall Strip
    , November 13th, 2007 at 9:12 am

    Lindsay does a great Audrey Hepburn. Next, I hope they do My Fair Isaac. (“I could have bouuuught all night…”)

  • Leucadia National (LUK)
    , November 12th, 2007 at 2:26 pm

    One of my favorite stocks, Leucadia National (LUK), reported earnings on Friday. If you’re not familiar with Leucadia, it’s basically the Greta Garbo of the stock market. The company has no analysts who follow it, no earnings estimates, no whisper numbers, barely any press releases and it does minimal volume
    Talk about bare bones, check out their website.
    So what does Leucadia do? It’s often called a “mini Berkshire Hathaway” because it’s a holding company that buys assets on the cheap. For nearly thirty years, the firm has been run by Ian Cumming and Joe Steinberg. They own a hodgepodge of businesses; some real estate here, some timber there, even a winery. Nothing terribly exciting.
    But what is impressive is the stock’s long-term performance. Remarkably, Leucadia National has done even better than Berkshire Hathaway.
    Since the stock market bottomed in August 1982, shares of Leucadia National are up over 32,600%. Berkshire is up only 29,600%. (Poor Warren.) Actually, LUK has done even better because it paid out a ginormous dividend in 1999. The stock is up another 60% this year, and unlike Berkshire, they split the shares so normal humans can buy it.
    The lesson here is, don’t be afraid of companies that aren’t widely followed. Some of the best stocks are off Wall Street’s radar screen. Inhabitants of Wall Streetistan tends to see all time and space as neatly divided into three month chunks. The quarterly earnings game is tough to play and there’s a benefit to ignoring it altogether.

  • How to Profit from a Crash in China
    , November 12th, 2007 at 11:10 am

    Some market observers think the Chinese market is a bubble. Me, I’m convinced. The Shanghai Composite has basically doubled this year, and it doubled last year as well. That’s not normal and it shouldn’t be expected to continue. In fact, the index is already down about 15% from its peak.
    The good news for investors is that ProShares has launched a new ETF designed to profit off China’s misery. The UltraShort FTSE/Xinhua China 25 ProShare (FXP) moves twice in the opposite direction of the Chinese stock market. The underlying index is the FTSE/Xinhua China 25 Index (FXI). Check out how that index has done:
    image550.png
    Yep, that might be a bubble.