Archive for 2007

  • Why Is Stan O’Neal Gone?
    , October 29th, 2007 at 2:00 pm

    This graph might help explain it.
    image540.png
    Goldman (GS) must be doing something right. The stock is at another new high today.

  • Next Year’s Buy List
    , October 29th, 2007 at 10:22 am

    Each year, I unveil the new Buy List in mid-December, and I’ll start tracking it on January 1. I’m not even close to making the new list but, as usual, it will closely resemble this year’s list.
    Most of the current stocks will stay on, but here are the stocks I’m thinking of ditching. Fair Isaac (FIC), Fiserv (FISV), Graco (GGG), Harley-Davidson (HOG), Sysco (SYY), Varian (VAR) and WR Berkley (BER).
    Of course, this isn’t final but I wanted to let you know my thoughts beforehand.

  • WSJ: O’Neal at Merrill
    , October 28th, 2007 at 2:41 pm

    Not much of a surprise:

    Merrill Lynch & Co. Chief Executive Stan O’Neal has decided to leave the firm, according to a person familiar with the matter.
    An announcement on his departure could come today or Monday morning, this person said. The firm’s board of directors is expected to do a broad search to find a replacement and will look internally and externally.
    Those in the running for Mr. O’Neal’s job include Laurence Fink, chief executive of money manager BlackRock Inc. and Gregory Fleming, Merrill’s co-president. There could also be some power-sharing arrangement involving the two men, or a temporary solution to give the board more time to find a permanent replacement. Bob McCann, head of Merrill’s huge brokerage arm, is also considered a candidate for a top job, according to Wall Street executives.
    Mr. Fink’s name has been mentioned repeatedly over the past week, but people familiar with the matter said the board hasn’t had extensive discussions with him.
    Directors have grown increasingly frustrated since Merrill announced $5 billion in write-downs three weeks ago. In the past week, the size of the hit grew by more than $3 billion, and Merrill reported a $2.24 billion net loss for the third quarter. Analysts say several billion dollars in additional write-downs may be in store.

  • Oil Over $90
    , October 26th, 2007 at 3:30 pm

    Barry Ritholtz has a great post looking at the rise in crude. He identifies five crucial factors:

    1. Increasing Global Demand: Booming growth in China and along the Pacific rim is only the beginning of the global story. India, Korea, Russia, Brazil, and Australia are expanding. Even “old Europe” has experienced a spurt in growth. This may be an old story, but it has yet to fully run its course.
    2. Falling U.S. Dollar: The dollar is at 15 year lows versus a basket of currencies. Blame the Federal Reserve for failing to protect the currency, and forcing capital to go where its treated better.
    Fun thought of the day: Imagine if every time Treasury Secretary Hank Paulson said “We have a strong dollar policy” — and the dollar dropped yet further, his nose grew another inch, Pinocchio-style. I originally was going to suggest a college drinking game where you do a shot each time, but I wouldn’t want all those alcohol-related deaths on my conscience.
    3. Wars in Iraq, Afghanistan: Its why I flipped bullish on Crude way back in 2002. The two hot wars in the Middle East have increased tensions, reduced Iraq’s oil output, and generally led to higher terror premiums for Crude Oil. Future administrations should take note of this simple formula: Mid-East War = Higher Crude Prices.
    4. Supply constraints: US crude oil stocks unexpectedly fell by 5.3 million barrels last week, and we have a variety of infra-structure issues contributing to this factor. Globally, there is a tight supply of ships, refineries, pipelines, and storage facilities. This contributes to a minimum amount of reserve — no buffer — which means Crude Oil Futures fluctuate even more than they might otherwise.
    5. Saber-rattling against Iran: The increased jaw-boning against Tehran in general and the Revolutionary Guard in particular. A variety of analysts have noted that threats of US sanctions against Iran and tension on the Iraqi border had also helped fuel the oil rally.

    Barry has been rightly critical of the government’s inflation data for a long time. But what’s interesting is the prices at the pump haven’t risen nearly as much as crude prices.
    ch.gaschart.gif

  • Looking at the Credit Crunch
    , October 26th, 2007 at 3:10 pm

  • Goldman Record: 299 New Directors
    , October 25th, 2007 at 11:07 am

    I was passed over. Again.

    Goldman Sachs promoted a record 299 people to managing director, the company’s second-highest rank after partner.
    Managing directors are appointed annually, while partners are named every other year. The promotions take effect on Dec. 1, the start of the firm’s new fiscal year, the company said in a statement yesterday. Last year Goldman named 262 new managing directors and 115 partners.
    Chairman and CEO Lloyd Blankfein and Goldman set aside $16.9 billion to pay salaries, benefits and bonuses in the first nine months of the year, surpassing the record for all of last year.
    Partners and managing directors are typically the highest paid of the firm’s 29,905 employees. Fifty-seven percent of the new managing directors work outside the U.S. and 19 percent are women.
    Including the new promotions, Goldman now has 1,384 managing directors and 383 partners. The largest portion of the new managing directors work in investment banking, said a spokeswoman for the firm.
    Of the new managing directors, 30 percent are in Europe, the Middle East and Africa, 10 percent are in Japan, and 17 percent are in the rest of Asia, including China and India.

  • Bernanke Warns
    , October 24th, 2007 at 12:21 pm

    0%2C1020%2C656132%2C00.jpg
    Bernanke Warns on US Housing, Economy
    Bernanke warns stock investors
    Bernanke warns against ad hoc regulation of derivatives
    Bernanke warns of economic ‘drag’
    Bernanke Warns of Possible ‘Crisis’ From Budget Gap
    Bernanke warns of worse to come in subprime fallout
    Bernanke Warns Inflation Remains A Significant Risk
    Bernanke warns of ‘vicious cycle’ in deficits
    Bernanke warns about economic isolationism
    Bernanke warns of falling economy
    Bernanke warns action needed soon on budget
    Bernanke warns US about burden of ageing population
    Bernanke Warns Of Growing Inequality
    Bernanke warns against protectionism
    Greenspan home robbed

  • Aflac’s Earnings Report
    , October 24th, 2007 at 12:05 pm

    Aflac (AFL) has been a great stock for us this year. At one point, it hit $60 a share today making it about a 30% winner for us. Yesterday, the company reported earnings of 85 cents a share, three cents more than estimates. Last year, AFL made 73 cents a share. That’s a decent growth rate.
    For the fourth quarter, Aflac sees earnings of 75 cents to 70 cents a share.
    This is a busy day for earnings. Later we’ll have Graco (GGG), Fiserv (FISV) and Varian (VAR).

  • XLK or QQQQ?
    , October 24th, 2007 at 10:51 am

    I was recently asked what’s the difference, in trading terms, between the Nasdaq 100 (QQQQ) and the S&P 500 Tech Spyders (XLK).
    The short answer is nothing. For most circumstances, both ETFs will behave very similarly. As a proxy for the tech sector, I prefer using the XLK.
    The longer answer is that there are some differences and if you use these ETFs for trading you might want to be aware of them
    First, let me explain that the Nasdaq 100 is an index of the 100 largest nonfinancial stocks on the Nasdaq. For many years, this has been used as a proxy for large-cap tech stocks. The S&P 500 Tech index is simply a grouping of all the tech stocks in the S&P 500.
    The important thing to keep in mind about the Nasdaq is that it’s very oligarchic, meaning there are a small number of very, very big stocks, and tons of teeny, weeny stocks. The NYSE is like that as well, but it’s much more pronounced on the Nasdaq. I don’t think most investors realize how important this is. Outside of the big tech names, the NYSE still has a huge advantage over the Nasdaq.
    Not only do a few very large tech stocks have a large say in what the Nasdaq 100 does, but they tend to be strongly correlated with one another so their influence is even greater.
    Of the 500 stocks on the S&P 500, only 73 are from the Nasdaq and more than half of those are in the tech sector. Ironically, of the 500 S&P stocks, they categorize 73 as being in the tech sector.
    So for most practical uses, the QQQ and XLK will behave the same. The big difference is that the Nasdaq 100 also had a modest weighting in consumer discretionary stocks. This would be stocks like Starbucks (SBUX) or Bed Bath & Beyond (BBBY). The ETF for this sector is XLY. So while the XLK is highly correlated to the QQQ, you can improve the correlation some by holding a ratio of about 4-to-1, XLK to XLY. You can improve it some more by using a small amount of margin.
    By correlation, I mean that the daily changes are correlated by over 95%. (Note: I got my numbers using the data from the indexes, not the ETFs.) Even with that it’s still a perfect match. The big tech winners this year have come from the Nasdaq (stocks like Google or Apple), so there pushing the QQQQ more than what you might normally expect.
    Let me also add that the Rydex Inverse OTC 2x mutual fund (RYVTX) is designed to do twice what the Nasdaq 100 does each day.

  • The First Day of the Month
    , October 23rd, 2007 at 2:59 pm

    Here’s a surprising stat. Since the beginning of this decade, all of the market’s gain have come on the first day of the month. The rest of the time, the S&P 500 is down.
    image539.png
    The blue line represents the first day of the month, the black line is the S&P 500. For the decade, the S&P 500 is up 2.52% and the first day is up 33%.
    The last seven first days have all been up. In the decade, there have only been 94 first days out of nearly 2,000 trading days, or about 4.8% of the time.