Archive for December, 2008

  • Leucadia’s Unmined Potential
    , December 6th, 2008 at 9:37 pm

    One more Barron’s link. The magazine says there’s good value in Leucadia National (LUK). This is great to see since the media rarely does stories on Leucadia. The two principles, naturally, “couldn’t be reached for comment.”

    Fans argue that Leucadia is oversold, noting that it rarely has traded below book in the past decade and in recent years typically has commanded 1.5 to two times book. The stock could hit $30 in the next year if the company’s equity holdings turn around and if Steinberg and Cumming take advantage of the current financial distress to display their old stock-picking magic. Says one Leucadia holder: “I don’t think that they suddenly took stupid pills.” Given market declines since Sept. 30, Leucadia’s book value has now probably fallen closer to $20 a share.
    Steinberg and Cumming, who couldn’t be reached for comment, focus on minimizing Leucadia’s tax bill. The company now has $1.6 billion of deferred tax assets, indicating that it expects to shield some $5 billion of future profits from federal income taxes. Strip out that tax asset to reflect no future gains, and estimated book falls to around $14 a share. “That’s a worst-case assumption. You’re not paying much above that for the stock,” says a recent Leucadia investor.

    The stock is down from $57 to $18. Thirty years ago it was going for a split-adjusted price of 3.3 cents a share.

  • Bubbles in the Lab
    , December 6th, 2008 at 9:31 pm

    Virginia Postrel has a fascinating article in The Atlantic about economists who have created asset bubble in simulated markets.

    The great thing about a laboratory experiment is that you can control the environment. Wall Street securities carry uncertainties—more, lately, than many people expected—but this experimental security is a sure thing. “The fundamental value is unambiguously defined,” says the economist Charles Noussair, a professor at Tilburg University, in the Netherlands, who has run many of these experiments. “It’s the expected value of the future dividend stream at any given time”: 15 times 24 cents, or $3.60 at the end of the first round; 14 times 24 cents, or $3.36 at the end of the second; $3.12 at the end of the third; and so on down to zero. Participants don’t even have to do the math. They can see the total expected dividends on their computer screens.
    Here, finally, is a security with security—no doubt about its true value, no hidden risks, no crazy ups and downs, no bubbles and panics. The trading price should stick close to the expected value.
    At least that’s what economists would have thought before Vernon Smith, who won a 2002 Nobel Prize for developing experimental economics, first ran the test in the mid-1980s. But that’s not what happens. Again and again, in experiment after experiment, the trading price runs up way above fundamental value. Then, as the 15th round nears, it crashes. The problem doesn’t seem to be that participants are bored and fooling around. The difference between a good trading performance and a bad one is about $80 for a three-hour session, enough to motivate cash-strapped students to do their best. Besides, Noussair emphasizes, “you don’t just get random noise. You get bubbles and crashes.” Ninety percent of the time.

    Read the whole thing.

  • Barry in Barron’s
    , December 6th, 2008 at 9:17 pm

    Barry Ritholtz is interviewed in this weekend’s Barron’s. Here’s a sample:

    Given the uncertainty in the market at large, what appeals to you right now?
    We’ve been trading the two-to-one leveraged [exchange-traded funds].
    One is the Ultra S&P ProShares [ticker: SSO] — for every dollar the Standard & Poor’s 500 moves, it moves two dollars. And there’s also Ultra Triple Q ProShares [QLD], the Nasdaq 100-version of the SSO. The flip of the QLDs are the QIDs, which are the negative two-for-ones on the Nasdaq. We’re starting to look at that. We are now running about 70% cash, which is inordinately high, but some of the names we’re watching, and have owned in the past, are NuVasive [NUVA], a medical-device company, Stanley Works [SWK], a great infrastructure story, LG Display [LPL] and Luminex [LMNX]. Industries we like are infrastructure, defense, biotech and medical devices.

    Barry’s book, Bailout Nation, is due out next year.
    (H/T: Kedrosky)

  • Best Goal You’ll See All Day
    , December 5th, 2008 at 6:22 pm

  • The Buy List So Far
    , December 5th, 2008 at 5:20 pm

    That was a nice turnaround. Hey, let’s fire another half million! (Kidding…)
    Let’s see how we’re doing. With just 17 trading days left, the Buy List is down 38.22% for the year compared with 40.34% for the S&P 500 (not including divs).
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    Man will I be happy when this year is done.

  • Crimson in the Red
    , December 5th, 2008 at 5:13 pm

    Ha-vahd goes to the bond mah-ket.

    Harvard College on Friday launched a $1.5 billion three-part taxable bond offer with Goldman Sachs, Morgan Stanley and JPMorgan acting as lead managers, according to IFR.
    The Triple-A-rated university is planning to sell $500 million in 5-year, 10-year and 30-year notes, with all maturities expected to price at a yield spread of 337.5 basis points over comparable Treasuries, said IFR, a Thomson Reuters service.
    The proceeds of the sale will be used to refinance taxable commercial paper and for other corporate purposes.
    The bond sale comes just two days after the world’s richest university announced that its endowment has lost 22 percent, or about $8 billion, in the last four months.
    That has placed it on track for its worst annual returns in 40 years.

    +337 for Harvard! I mean, Yale I could understand, but not Harvard…
    (H/T: Alea)

  • What Will the Fed Do?
    , December 5th, 2008 at 2:24 pm

    The Federal Reserve meets again on December 15-16. They actually increased that meeting from a one-day to a two-day affair.
    The target rate for Fed Funds is currently at 1%. Just recently, the futures market expected a 0.5% cut. But now it looks like a 0.75% cut. (Note: that’s corrected from an earlier version).
    By the way, have you noticed that the Fed is having a lot of trouble staying on target recently?
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  • Job Losses Soar
    , December 5th, 2008 at 10:47 am

    Ugh…it’s not looking so good.

    U.S. employers axed payrolls by 533,000 jobs in November, the most in 34 years and far more than expected, government data on Friday showed, as the year-old recession hammered every corner of the U.S. economy.
    U.S. stock markets opened lower, oil prices and the dollar weakened and U.S. government bond prices rallied as the data showed the U.S. downturn was deepening.
    “You can’t get much uglier than this. The economy has just collapsed, and has gone into a free fall,” said Richard Yamarone, chief economist at Argus Research in New York.
    The Labor Department said the unemployment rate rose to 6.7 percent last month, the highest since 1993, from 6.5 percent in October. It would have been even higher except for an exodus of Americans who became discouraged in their search for work and left the labor force.

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    According to the BLS, there are currently 10.3 million Americans out of work.

  • Michael Moore’s Curious Economics
    , December 4th, 2008 at 12:34 pm

    At the Huffington Post, Michael Moore writes:

    Of course, the auto magnates used be the Masters who ruled the world. They were the pulsating hub that all other industries — steel, oil, cement contractors — served. Fifty-five years ago, the president of GM sat on that same Capitol Hill and bluntly told Congress, what’s good for General Motors is good for the country. Because, you see, in their minds, GM WAS the country.

    This is the myth that refuses to die. Charles Wilson was the head of General Motors in the 1950s when President Eisenhower selected him to be the Secretary of Defense. During his confirmation hearings, Wilson was asked if he could make a decision against of the interest of General Motors. He said he could but he could think of such a situation “because for years I thought what was good for the country was good for General Motors and vice versa.”
    Ever since, this humble statement of dedication to public service has been twisted into sounding like some statement of Nietzschean corporatism. Moore even has to add “bluntly” to his description.
    So what’s Mike’s plan. Nationalize the car companies. I’m serious; he wants the government to buy all the outstanding stock, but he’s quick to add “None of us want government officials running a car company, but there are some very smart transportation geniuses who could be hired to do this.”
    I’m a little lost of the logic here. Does he think the problem is simply poor management? If so, why is it dragging down all of the companies at once? His complaint is that the companies’ restructuring plan involves cutting jobs. Although that seems perfectly obvious to me, Moore finds it idiotic.
    His plan is took nationalize the companies, turn them over to “very smart transportation geniuses,” force them to build environmentally friend cars and not lay anyone off.
    Though I do agree with one part of Moore’s take: “Let me just state the obvious: Every single dollar Congress gives these three companies will be flushed right down the toilet.”

  • Buy List Updates
    , December 4th, 2008 at 10:37 am

    Here’s some recent news on our stocks.
    Amphenol (APH) cuts fourth-quarter guidance.
    Stryker (SYK) increases dividend by 21%.
    Joseph A. Bank’s (JOSB) quarterly profits rise 31% and beat expectations.
    Bed Bath & Beyond (BBBY) lowers Q3 outlook.
    Medtronic (MDT) is sued over bone product. Here’s the company’s response.
    UnitedHealth (UNH) affirms guidance. Plus their new product: Insurance that covers your insurance!