Archive for February, 2009

• Stocks Hate the Dollar
  Eddy Elfenbein, February 20th, 2009 at 12:46 am

  A strong dollar used to be good for U.S. stocks, but since the credit crisis broke, that relationship has completely reversed itself.
  Here are some numbers: Starting from the beginning of 1999 and going through September 17, 2008, on days when the dollar has rallied against the euro, the S&P 500 was up an annualized rate of 34.9%. But when the dollar fell against the euro or stayed the same, the S&P 500 dropped by an annualized rate of 26.7%. Stocks clearly liked a strong dollar.
  Since September 18, the numbers are striking. On days when the dollars has rallied against the euro, the S&P 500 has fallen at an annualized rate of 95.7%. When the dollar has lost ground to the euro, the S&P is up by an amazing 747.5% annualized. Of course, that’s a much smaller sample size, but the early evidence suggests that stock investors now favor a weaker greenback.

• New York Times Suspended Dividend.
  Eddy Elfenbein, February 19th, 2009 at 7:29 pm

  Not a big surprise:

  The publisher said in a statement today it suspended its quarterly dividend of 6 cents a share to help reduce debt, three months after slashing the payout. It joins McClatchy Co., owner of the Sacramento Bee, and Media General Inc. in halting dividends.
  The suspension will save New York Times about $34.5 million annually, based on shares outstanding. The publisher is cutting jobs and selling assets as advertising dwindles. It’s seeking buyers for its stake in the Boston Red Sox baseball team and is in talks about a sale-leaseback on its Manhattan headquarters.
  “It’s going to be very challenging for them to generate much free cash flow even after this cut,” said Mike Simonton, a credit analyst at Fitch Ratings. “It’s certainly a prudent move to preserve liquidity in light of the difficult credit market and their heavy debt burden.”
  New York Times fell 20 cents, or 5.4 percent, to $3.51 at 4:15 p.m. in New York Stock Exchange composite trading, before the announcement. The shares have declined 82 percent in the past 12 months.
  “Today’s decision provides the company with additional financial flexibility given the current economic environment and the uncertain business outlook,” Chairman Arthur Sulzberger Jr. said in the statement. The Ochs-Sulzberger family controls New York Times and has benefited from the dividend on its Class B stock.

  Here’s the Times opining against cutting dividend taxes in 2003.

• Dow Closes at 6-Year Low
  Eddy Elfenbein, February 19th, 2009 at 4:35 pm

  The Dow closed today at 7,465.95, its lowest close since October 9, 2002. The Dow is off 47% from its high of 14164.53 which came on October 9, 2007.
  The Dow is now lower than where it was on June 9, 1997.
  

• Irish Bank Workers Spat Upon
  Eddy Elfenbein, February 19th, 2009 at 4:14 pm

  I hope your day is going better than this:

  Irish bank workers are being spat at and threatened with physical violence by customers who are incensed at scandals in the industry, a union said on Thursday.
  The IBOA, which represents over 20,000 workers in Ireland’s financial sector, said staff at banks had been facing growing abuse.
  “We are seeing this kind of abuse not just in the working day but even socially in the evening,” said IBOA general secretary Larry Broderick.

  Same thing happened to John Rambo after the Nam.
  (Via: Alea.)

• Santelli Calls for Tea Party
  Eddy Elfenbein, February 19th, 2009 at 2:00 pm

  Grab your pitchforks. We have a leader.
  

• Speaketh thy Beard
  Eddy Elfenbein, February 18th, 2009 at 1:51 pm

  Ben at the National Press Club. Here’s an excerpt:

  Some observers have expressed the concern that, by expanding its balance sheet, the Federal Reserve will ultimately stoke inflation. The Fed’s lending activities have indeed resulted in a large increase in the reserves held by banks and thus in the narrowest definition of the money supply, the monetary base. However, banks are choosing to leave the great bulk of their excess reserves idle, in most cases on deposit with the Fed. Consequently, the rates of growth of broader monetary aggregates, such as M1 and M2, have been much lower than that of the monetary base. At this point, with global economic activity weak and commodity prices at low levels, we see little risk of unacceptably high inflation in the near term; indeed, we expect inflation to be quite low for some time.
  However, at some point, when credit markets and the economy have begun to recover, the Federal Reserve will have to moderate growth in the money supply and begin to raise the federal funds rate. To reduce policy accommodation, the Fed will have to unwind some of its credit-easing programs and allow its balance sheet to shrink. To some extent, this unwinding will happen automatically, as improvements in credit markets should reduce the need to use Fed facilities. Indeed, where possible, we have tried to set lending rates and other terms at levels that are likely to be increasingly unattractive to borrowers as financial conditions normalize. In addition, some programs–those authorized under the Federal Reserve’s so-called 13(3) authority, which requires a finding that conditions in financial markets are “unusual and exigent”–will, by law, have to be phased out once credit market conditions substantially normalize. However, the principal factor determining the timing and pace of that process will be the Federal Reserve’s assessment of the condition of credit markets and the prospects for the economy.
  A significant shrinking of the balance sheet can be accomplished relatively quickly, as a substantial portion of the assets that the Federal Reserve holds–including loans to financial institutions, temporary central bank liquidity swaps, and purchases of commercial paper–are short-term in nature and can simply be allowed to run off as the various programs and facilities are scaled back or shut down. As the size of the balance sheet and the quantity of excess reserves in the system decline, the Federal Reserve will be able to return to its traditional means of making monetary policy–namely, by setting a target for the federal funds rate.
  Importantly, the management of the Federal Reserve’s balance sheet and the conduct of monetary policy in the future will be made easier by the recent congressional action to give the Fed the authority to pay interest on bank reserves. Because banks should be unwilling to lend reserves at a rate lower than they can receive from the Fed, the interest rate the Fed pays on bank reserves should help to set a floor on the overnight interest rate. Moreover, other tools are available or can be developed to improve control of the federal funds rate during the exit stage. For example, the Treasury could resume its recent practice of issuing supplementary financing bills and placing the funds with the Federal Reserve; the issuance of these bills effectively drains reserves from the banking system, thereby improving monetary control. As we consider new programs or the expansion of old ones, the Federal Reserve will carefully weigh the implications for the exit strategy. And we will take all necessary actions to ensure that the unwinding of our programs is accomplished smoothly and in a timely way, consistent with meeting our obligation to foster maximum employment and price stability.

• Analysts Were Way Off
  Eddy Elfenbein, February 18th, 2009 at 12:29 pm

  I prefer to use trailing Price/Earning Ratios, though it’s not the only metric I use, when looking at stocks. The problem with forecasts is how far wrong you can be. The guys at Bespoke have tracked how poorly analysts did this past earnings quarter. Just four-and-a-half months ago, Wall Street saw a rosy future.
  
  It’s actually worse than that. If I understand the chart correctly, it shows the sum of the previous four quarter earnings. Wall Street analysts weren’t even close this earnings quarter.

• Hedgies to Consolidate
  Eddy Elfenbein, February 18th, 2009 at 12:25 pm

  From Bloomberg:

  Hedge funds are looking to consolidate after record investment losses and customer withdrawals cut assets by 37 percent in the second half of 2008, squeezing their main source of fees. As many as 40 percent of the 9,000 hedge funds and funds of funds may disappear in the next two years, according to Karamvir Gosal, a New York-based investment banker at Jefferies Putnam Lovell. While some will return money to investors and shut their doors, mergers and acquisitions will be more prevalent than in the past.
  “The conditions at the moment lend themselves to a surge in M&A activity in the hedge-fund world,” said Udi Grofman, a partner at Schulte Roth & Zabel LLP, a New York-based law firm that advises hedge funds. “We’ve already seen some players looking to take advantage of the low valuations and get their foot in the door, particularly when it comes to managers specialized in areas that are likely to be active in the near future, like mortgages and distressed debt.”

• Yesterday’s Close
  Eddy Elfenbein, February 18th, 2009 at 12:23 pm

  The Dow finished yesterday at 7,552.60 just 0.31 point above the November 20th close which was the lowest close since March 2003.

• New York Times’ Share Price Less Than Sunday Newspaper Price
  Eddy Elfenbein, February 17th, 2009 at 10:46 pm

  Check out this very ugly chart:
  
  Shares of NYT (NYT) dropped 29 cents today to close at $3.77. The Sunday paper goes for $4 at the newsstand.
  Maybe they could save costs by printing the paper on their stock certificates.