Archive for July, 2008

  • Markets in Everything
    , July 17th, 2008 at 2:05 pm

    At Intrade, Senator Obama’s contract to win the presidency is up to 66.1 and McCain’s is at 29.8.
    But here’s the noteworthy part. Hillary’s contract is still around and it’s at 4.6; Gore’s is at 2.0. Yesterday, a trade for Hillary went off at 6.9.
    Obviously, a tragic event isn’t the only scenario in mind. But still, is the unthinkable really that probable?

  • Danaher and Math
    , July 17th, 2008 at 1:03 pm

    Maybe I’m missing something, but I’m going through Danaher’s (DHR) earnings report and the numbers don’t add up. For the second quarter, the company earned $363.448 million and the number of diluted shares is 336.551. That comes to $1.08 a share while the company lists it as $1.09. I know it’s just a penny, but there shouldn’t be any mistakes here. That really undermines my faith in a company.
    Am I missing something?

  • Banking Index +22%
    , July 16th, 2008 at 5:41 pm

    The S&P Banking Index (^BIX) jumped 22% today. That’s not one stock; that’s the entire index!
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  • Is it Time to Raise Rates?
    , July 16th, 2008 at 1:19 pm

    Megan McArdle says yes. Today’s inflation report shows that consumer prices rose by 1.1% last month which is the largest jump in 26 years. For the last 12 months, the headline rate has been 5.02% while the core rate is 2.41%. With the Fed at 2%, this means that real interest rates are still negative.
    The market isn’t expecting the Fed to raise rates anytime soon. According to the Cleveland Fed, the futures market is pretty much convinced (over 80%) that the Fed will hold steady at its August meeting.
    Going by Professor Mankiw’s Fed Funds Rate equation, the Fed is way too loose. His equations is:

    Federal funds rate = 8.5 + 1.4 (Core inflation – Unemployment)

    Let’s plug in the numbers the numbers from June:

    Federal funds rate = 8.5 + 1.4 (2.41 – 5.50)

    That comes to a rate of 4.174% which is more than double where the Fed is.

  • Buy List Earnings
    , July 16th, 2008 at 10:13 am

    The next few days will be busy for a few stocks on our Buy List. Here are some upcoming earnings dates and Wall Street’s current estimate.
    Amphenol (APH)……………..….….July 17…………..$0.58
    Danaher (DHR)………………..…….July 17…………..$1.06
    Harley-Davidson (HOG).….…….July 17…………..$0.76
    Stryker (SYK)…………………….….July 17…………..$0.73
    Lincare (LNCR)………………..…….July 21…………..$0.71
    Unitedhealth Group (UNH)….….July 22…………..$0.65
    AFLAC (AFL)………………………….July 23…………..$1.01
    SEI Investments (SEIC)………….July 23…………..$0.33
    WR Berkley (WRB)…………..…….July 23…………..$0.85
    Fiserv (FISV)………………………….July 29…………..$0.80

  • Poll: How Would You Rate the Economy?
    , July 15th, 2008 at 11:04 pm

    Look at the enormous recent change in perceptions of the economy.
    image694.png
    Nearly 40% of the public has shifted its opinion of the economy in the last 12 months.

  • Citigroup Shares Fall to Lowest Since Company Formed in 1998
    , July 15th, 2008 at 11:15 am

    From Bloomberg:

    Citigroup Inc., the biggest U.S. bank, fell to the lowest level in New York trading since former Chairman and Chief Executive Officer Sanford Weill created the company through a merger in October 1998.
    Citigroup, which has lost almost half its value on the New York Stock Exchange this year, dropped 43 cents to $14.79 at 9:31 a.m., the lowest since Oct. 8, 1998, the day the New York-based bank was formed through the $36 billion combination of Travelers Group Inc. and Citicorp.

    It’s rail on Citigroup Day at Crossing Wall Street. It turns out the bank also likes to keep a couple of assets “off the balance sheet.” By couple, I mean $1.1 trillion.
    When talking about Citigroup, it’s hard to explain how large this company—and I think its size is part of the problem. Citi has 374,000 employees which isn’t much less than the size of Washington. Citi’s payroll, however, will be declining over the next few months.
    According to Citi’s most recent balance sheet, the company has assets of $2.187 trillion, and liabilities of $2.087 trillion. That’s amazingly large, and that’s just the stuff on the books.
    The company is due to report earnings on Friday and it won’t be pretty. The analysts are all over the map on this one, but the consensus is listed as -61 cents a share. I think taking the under is a pretty safe bet.
    Six months ago, the company reported a loss of nearly $10 billion. Three months ago, Citi reported a loss of $5 billion.

  • The S&P 500 Bounces Off 1,200
    , July 15th, 2008 at 10:52 am

    The S&P 500 hit a low of 1200.43 this morning. The index hasn’t broken through 1,200 since Halloween 2005. We first broke 1,200 on December 23, 1998.
    The VIX also above 30 for the first time since March.

  • Ben’s Testimony
    , July 15th, 2008 at 10:40 am

    Here’s part of today’s testimony from Ben Bernanke:

    The U.S. economy and financial system have confronted some significant challenges thus far in 2008. The contraction in housing activity that began in 2006 and the associated deterioration in mortgage markets that became evident last year have led to sizable losses at financial institutions and a sharp tightening in overall credit conditions. The effects of the housing contraction and of the financial headwinds on spending and economic activity have been compounded by rapid increases in the prices of energy and other commodities, which have sapped household purchasing power even as they have boosted inflation. Against this backdrop, economic activity has advanced at a sluggish pace during the first half of this year, while inflation has remained elevated.
    Following a significant reduction in its policy rate over the second half of 2007, the Federal Open Market Committee (FOMC) eased policy considerably further through the spring to counter actual and expected weakness in economic growth and to mitigate downside risks to economic activity. In addition, the Federal Reserve expanded some of the special liquidity programs that were established last year and implemented additional facilities to support the functioning of financial markets and foster financial stability. Although these policy actions have had positive effects, the economy continues to face numerous difficulties, including ongoing strains in financial markets, declining house prices, a softening labor market, and rising prices of oil, food, and some other commodities. Let me now turn to a more detailed discussion of some of these key issues.
    Developments in financial markets and their implications for the macroeconomic outlook have been a focus of monetary policy makers over the past year. In the second half of 2007, the deteriorating performance of subprime mortgages in the United States triggered turbulence in domestic and international financial markets as investors became markedly less willing to bear credit risks of any type. In the first quarter of 2008, reports of further losses and write-downs at financial institutions intensified investor concerns and resulted in further sharp reductions in market liquidity. By March, many dealers and other institutions, even those that had relied heavily on short-term secured financing, were facing much more stringent borrowing conditions.
    In mid-March, a major investment bank, The Bear Stearns Companies, Inc., was pushed to the brink of failure after suddenly losing access to short-term financing markets. The Federal Reserve judged that a disorderly failure of Bear Stearns would pose a serious threat to overall financial stability and would most likely have significant adverse implications for the U.S. economy. After discussions with the Securities and Exchange Commission and in consultation with the Treasury, we invoked emergency authorities to provide special financing to facilitate the acquisition of Bear Stearns by JPMorgan Chase & Co. In addition, the Federal Reserve used emergency authorities to establish two new facilities to provide backstop liquidity to primary dealers, with the goals of stabilizing financial conditions and increasing the availability of credit to the broader economy. We have also taken additional steps to address liquidity pressures in the banking system, including a further easing of the terms for bank borrowing at the discount window and increases in the amount of credit made available to banks through the Term Auction Facility. The FOMC also authorized expansions of its currency swap arrangements with the European Central Bank and the Swiss National Bank to facilitate increased dollar lending by those institutions to banks in their jurisdictions.
    These steps to address liquidity pressures coupled with monetary easing seem to have been helpful in mitigating some market strains. During the second quarter, credit spreads generally narrowed, liquidity pressures ebbed, and a number of financial institutions raised new capital. However, as events in recent weeks have demonstrated, many financial markets and institutions remain under considerable stress, in part because the outlook for the economy, and thus for credit quality, remains uncertain. In recent days, investors became particularly concerned about the financial condition of the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. In view of this development, and given the importance of these firms to the mortgage market, the Treasury announced a legislative proposal to bolster their capital, access to liquidity, and regulatory oversight. As a supplement to the Treasury’s existing authority to lend to the GSEs and as a bridge to the time when the Congress decides how to proceed on these matters, the Board of Governors authorized the Federal Reserve Bank of New York to lend to Fannie Mae and Freddie Mac, should that become necessary. Any lending would be collateralized by U.S. government and federal agency securities. In general, healthy economic growth depends on well-functioning financial markets. Consequently, helping the financial markets to return to more normal functioning will continue to be a top priority of the Federal Reserve.

  • Jim Rogers Lets Loose
    , July 14th, 2008 at 12:16 pm

    Jim Rogers overcomes his shyness to express some dissatisfaction with the government:

    U.S. investor Jim Rogers said the U.S. government’s plan to bolster Fannie Mae and Freddie Mac is an “unmitigated disaster.”
    The largest U.S. mortgage lenders are “basically insolvent” after the collapse of the subprime mortgage market, said Rogers, who in April 2006 correctly predicted oil would reach $100 a barrel and gold $1,000 an ounce.
    Taxpayers will be saddled with debt if Congress approves Treasury Secretary Henry Paulson’s request for the authority to buy unlimited stakes in and lend to the beleaguered companies that purchase or finance almost half of the $12 trillion in U.S. home loans, Rogers said.
    “These companies were going to go bankrupt if they hadn’t stepped in to do something, and they should go bankrupt,” Rogers said.