Archive for April, 2009

  • Another Victory for Technical Analysis
    , April 20th, 2009 at 12:46 pm

    The S&P’s rally begins almost exactly six years after the last turnaround. It even picks the devlish 666 as a bottom.
    Then on Friday, the index finally surpasses gold for the first time in three months.
    So of course we were due for a selloff!!
    image795.png

  • The Battering of Quants
    , April 20th, 2009 at 12:30 pm

    Bloomberg wakes up to the fact that momentum quant funds have been getting killed:

    Companies with the most debt and lowest returns on assets are turning the biggest six-week rally in stocks since 1938 into a bloodbath for last year’s best- performing trading strategy.
    Investors using so-called quantitative momentum strategies — which speculate that the worst stocks in the past 12 months will continue to decline — have become this year’s biggest losers after banks and companies that rely on consumer spending surged. Quant momentum managers may have lost 27 percent this month in the U.S., the most since at least 1993, while those in Europe may have dropped 20 percent in March and 24 percent in April, according to data compiled by JPMorgan Chase & Co.
    “Not in a million years would we have expected this gyration to be as vicious and enduring as it has been,” Steven Solmonson, the head of Park Place Capital Ltd., a hedge fund that oversees $150 million, said in an interview from New York. “The quants got whipsawed badly.”

  • Eli Lilly’s Earnings Jump 23%
    , April 20th, 2009 at 9:26 am

    Eli Lilly (LLY) is one of our new additions to this year’s Buy List. The company just reported decent earnings this morning. AP reports:

    Eli Lilly & Co. said Monday flat costs and strong sales of several top-selling drugs boosted first-quarter profit 23 percent, surpassing Wall Street expectations.
    Higher sales volume and increased prices helped boost revenue from many of Lilly’s drugs. Those factors helped offset a reduction in revenue caused by the stronger dollar, the company said.
    Sales of the antidepressant Cymbalta, Lilly’s second-best seller, grew 17 percent to $709 million, and the insulin Humalog saw revenue rise 11 percent to $450.6 million.
    Lilly earned $1.31 billion, or $1.20 per share, compared with profit of $1.06 billion, or 97 cents per share, during the same period a year earlier. Revenue rose 5 percent to $5.05 billion.
    Analysts polled by Thomson Reuters expected profit of 99 cents per share on revenue of $5.05 billion.

    That’s a huge earnings beat. The company also reiterated its full-year EPS forecast of $4 to $4.25 which means the stock is far from fully valued. The stock also pays a dividend close to 6%. Eli Lilly is a great buy.
    image794.png

  • The Allure of Outrage
    , April 19th, 2009 at 7:19 pm

    Clay Shirky has a very good and honest post on the narcotic allure of moral posturing. I think this is a bigger problem that many people realize.
    What I find so frustrating about such much political discourse is that people don’t want to be proven right—they want to be proven better.
    (HT: Felix)

  • Rabbit Hood
    , April 19th, 2009 at 4:54 pm

    They really don’t get much better than this:

  • Event Risk Is Driving Markets
    , April 17th, 2009 at 4:43 pm

    Peter Boockvar from a recent speech:

    If the DJIA goes to 10,000, great! But if gold goes to $2000 at the same time, maybe not so great. If the stock market was left to its own devices, than I would say 400-500 in the S&P would be its inevitable destination as 10x ’09 earnings of about $40-50 would be a fair multiple based on previous bear market bottoms. Unfortunately, our officials won’t let it happen as any recovery that may soon ensue will be darkened by the insidious hidden tax of inflation, debasement of our currency and excessive sovereign debt that will take more and more tax dollars (aka, money sucked out of the private sector and shifted to government) to finance.
    We all have to understand that the Fed and Treasury have embarked on a grand experiment. We now have a marketplace where fundamental analysis is being trumped by huge event risk of a different kind, Washington, DC kind, where some new acronym program, some reckless comment from a Congressman or some new asset class Bernanke Capital Management deems attractive to him, is driving markets.

    (Note: I originally misidentified the speaker as Barry Ritholtz. This has since been corrected).

  • Best Question of the Day
    , April 17th, 2009 at 11:44 am

    The award goes to Alea.
    The New York Times writes: A.I.G. Chief Owns Significant Stake in Goldman.
    Alea asks, “Is Owning 0.00535714% of Goldman Sachs Significant?”

  • My Weak Defense of the Federal Reserve
    , April 17th, 2009 at 10:39 am

    I’m not a terribly big fan of the Fed, but here’s a weak defense of monetary policy over the past several years. Core CPI inflation has not only remained low, but it’s also been surprisingly consistent. That’s an important point and we should give credit where it’s due.
    This chart shows Core CPI (in blue) along with an exponential trendline (in black). The takeaway is that an analyst could have ignored all the data on M2 or M3 and production and all that jazz. Instead, just assume that prices would rise 0.18% each month and that would be a pretty good way to go.
    image793.png
    A reader adds:

    Just to let you know, there’s a little flaw in this analysis: the 0.18 would have only been known *with insight*. In a nutshell, things look more predictable with insight.
    The correct way to do this is to measure the size of the inflation surprise: i.e. for each month in I.1995:IV.2009 compute a best estimate of next month’s cpi using all information available up to that point.
    You’ll find that w/o insight (even) Core CPI is a tough one to get right, but perhaps more worryingly so, has gotten tougher to get since 2001.

    (No Seeking Alpha repost)

  • Buy List YTD
    , April 16th, 2009 at 4:36 pm

    Through today, the Buy List is up 3.54% compared with a loss of 4.20% for the S&P 500 (dividends not included). The red line is the Buy List, the black is the S&P 500.
    image792.png
    It’s still early, but it’s a good start to the year.

  • Yahoo Finance – Historical Quote FAIL
    , April 16th, 2009 at 2:52 pm

    There’s not much I like about Yahoo, but I know Yahoo Finance is wildly popular among individual investors. It’s just about all they got. If I were them, I’d sell it to a brokerage.
    I don’t have the exact details, but their historical quotes are massively screwed up. When you click on historical quotes, you can see an adjusted price column that accounts for dividends. That’s great, but I don’t think the dividends are ever adjusted for stock splits. As a result, you get massively wrong historical numbers.
    As I said, I’m not sure about this but let’s look at Public Service Enterprise Group (PEG) which is one of those great performing utilities that no one ever talks about. The dividends have increased every year like clockwork. Since 1982, there have been two splits; a 3-for-2 in 1987 and a 2-for-1 last year.
    Here’s a log chart since 1982. The black line is the regular price adjusted for the two splits, the blue line is the dividend adjusted price:
    image791.png
    As you go back in time, the lines get wider apart to adjust for dividends but there’s no way it should move that dramatically.
    Looking at their numbers, the stock price rose 147% during the 1990s while the adjust price rose 648%. That means that dividends accounted for gains of over 200%, or an average of 11.7% a year. There’s no way that can be right.
    I know people use Yahoo Finance to get track of their gains and losses. Don’t do it.