Archive for January, 2008

• You Know It’s a Gold Rally When….
  Eddy Elfenbein, January 16th, 2008 at 11:51 am

  People sell their fillings.

  Down the street at First National Pawn, customers have walked in carrying jewelry, coins and other items scrounged up to take advantage of the bullish prices, said manager Ryan Johnson.
  “People have been digging around,” he said.
  Some have even rummaged up their old teeth with gold fillings. Johnson said they often drop the teeth into soda pop to separate out the gold fillings. That gold can then be smelted and used later for jewelry or other products.
  Gold business picked up at the pawnshop about three weeks ago and has been brisk as the price continued climbing.
  “It’s skyrocketing, but we expect it to go higher,” Johnson said.

• The Real Total Return of the S&P 500
  Eddy Elfenbein, January 16th, 2008 at 10:32 am

  Here’s a look at the real total return of the S&P 500, meaning adjusting for inflation and dividends:
  
  We’re up a lot, but we still have a long way to go. Those are monthly numbers so it only goes through the end of 2007. It doesn’t reflect our little swoon at the beginning of the year.
  The long-term real rate return for commons stocks has been about 7% (notice I said “long-term”). Over the last twelve years, stocks have returned an average of 6.92% a year.

• This Can’t Be Good….
  Eddy Elfenbein, January 16th, 2008 at 9:31 am

  Katie Holmes is ringing the opening bell.
  My gut says sell. My thetans say buy!

• At 92, Anna Schwarz Blames the Fed
  Eddy Elfenbein, January 16th, 2008 at 6:43 am

  Still going strong at 92, Anna Schwartz lays into the Federal Reserve:

  “They need to speak frankly to the market and acknowledge how bad the problems are, and acknowledge their own failures in letting this happen. This is what is needed to restore confidence,” she told The Sunday Telegraph. “There never would have been a sub-prime mortgage crisis if the Fed had been alert. This is something Alan Greenspan must answer for,” she says.

• The Subpime Crisis Graphs
  Eddy Elfenbein, January 15th, 2008 at 2:32 pm

  If you’re completely confused, the BBC has an excellent explanation of subprime crisis. Lots of graphs. Here’s one of the U.S. housing market:
  

• The S&P Nears a 14-Month Low
  Eddy Elfenbein, January 15th, 2008 at 1:34 pm

  The S&P 500 is back below 1390 again. We’re over 11% off the October 9 closing high of 1565.15.
  We’re very close to the lowest close of 2007, which was 1386.95 (March 16). Before that, we’d have to go back to November 2006.

• 2008 Index of Economic Freedom
  Eddy Elfenbein, January 15th, 2008 at 11:13 am

  From the Wall Street Journal:
  

  The nearby table shows the 2008 rankings but doesn’t tell the whole story. The Index also reports that the freest 20% of the world’s economies have twice the per capita income of those in the second quintile and five times that of the least-free 20%. In other words, freedom and prosperity are highly correlated.
  The 2008 Index finds that while global economic liberty did not expand this year, it also did not contract. The average freedom score for the 157 countries ranked is nearly the same as last year, which was the second highest since the Index’s inception. This is somewhat of an achievement considering the rising protectionist and anti-immigration sentiment in the U.S., the uncertainty created by spiking global energy prices, Al Gore’s highly effective fear mongering about global warming, and the continuing threat of the Islamic jihad.

• Hot CEOs Mean Hot Profits
  Eddy Elfenbein, January 15th, 2008 at 10:50 am

  A new academic study finds that more profitable companies have more attractive CEOs.

  Using photographs of the highest and lowest ranked Fortune 1000 companies’ CEOs, psychologists Nicholas Rule and Nalini Ambady quizzed ordinary college students to determine which of the pictured faces were characteristic of a leader.
  Without knowledge of the pictured individuals’ job titles, and by rating the faces on competence, dominance, likeability, facial maturity and trustworthiness, the students were able to distinguish between the successful and the not-so-successful CEOs.
  Despite the ambiguity of the images, which were cropped to the face, put into grayscale and standardized in size, ratings of power- and leadership-related traits from CEOs’ faces were significantly related to company profits.
  “These findings suggest that naive judgments may provide more accurate assessments of individuals than well-informed judgments can,” wrote the authors. “Our results are particularly striking given the uniformity of the CEOs’ appearances.” The majority of CEOs, who were selected according to their Fortune 1000 ranking, were Caucasian males of similar age.

  Could be, but color me skeptical.
  (Via Joe Weisenthal)

• Citigroup’s Loses $10 Billion
  Eddy Elfenbein, January 15th, 2008 at 8:18 am

  Today is Reckoning Day for Citigroup (C). The company just reported its worst loss ever. Thanks to subprime investments gone bad, Citigroup incurred a write down of $18 billion. For the quarter, Citi lost nearly $10 billion, or $1.99 a share. That’s like burning $100 million every day. I think it’s safe to assume that Citigroup tried to thorw out as much garbage as it could, but I still expect to see more. The Street was looking for a loss of $1.03 a share. For last year’s Q4, Citi reported a profit of $1.03 a share.
  The company also said that it will cut its quarterly dividend from 54 cents a share to 32 cents a share. That’s not as bad as I thought. Going by yesterday’s close, that implies a yield of 4.4% which beats most of the yield curve. Citigroup also announced job cuts of 4,200.
  The big problem for Citigroup is its eroding capital base. That’s why it has turned again to outside investors for a capital infusion. The Wall Street Journal reports:

  A new round of investments announced Tuesday includes $12.5 billion of preferred securities. The Government of Singapore Investment Corp., or GIC, will buy $6.88 billion, which follows the government fund’s plan to invest $9.6 billion in Switzerland’s UBS AG. Other investors include former Chairman and Chief Executive Sandy Weill and Prince Alwaleed bin Talal bin Abdulaziz Alsaud, already one of Citi’s biggest investors.
  Citigroup also announced it would offer public investors about $2 billion in newly issued convertible preferred securities.

  I thought the last bit was interesting. I’m not sure how much demand there is from investors to sink more money into Citigroup, but we’ll find out.

• Not So Efficient Markets
  Eddy Elfenbein, January 15th, 2008 at 7:35 am

  Here’s an interesting setback for the Efficient Market Hypothesis. Researchers ran a wine tasting and found that people preferred wines they thought were more expensive. Not wines that are more expensive, just wines they think are pricier.

  Researchers scanning the volunteers’ brains while they drank confirmed they enjoyed the pricier wines more. The experiment helps explain how marketing practices can influence both the preferences of consumers and the enjoyment registered by their brains, said Antonio Rengel, one of the study’s authors.
  “The lesson is a very deep one, not only about marketing but about the human experience,” said Rangel, an associate professor of economics at the California Institute of Technology in Pasadena. “This study shows that the expectations that we bring to the experience affect the experience itself.”

  On a related note, I’m raising the price of Crossing Wall Street to $1 million a year.