Archive for 2007

• 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.

• My Favorite Links
  Eddy Elfenbein, 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
  Eddy Elfenbein, 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
  Eddy Elfenbein, November 14th, 2007 at 12:28 pm

  
  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
  Eddy Elfenbein, 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.