Archive for June, 2009

• The CWS Buy List First Half Review
  Eddy Elfenbein, June 30th, 2009 at 10:19 pm

  The first half of 2009 is now behind us and the Buy List is having a pretty good year. To review the rules, the 20 stocks I select at the beginning of the year are locked in place and I’m not allowed to make any changes during the year.
  I assume the portfolio is equally weighted at the beginning of the year. The average of the 20 stocks is currently up 14.53% for the year. Including dividends, we’re up 15.22%. By contrast, the S&P 500 is up 1.78%, and 3.16% with dividends.
  The average daily volatility of the Buy List is 3.18% greater than the market.
  Fourteen of our 20 stocks are up for the year, six are down. The best performer is Nicholas Financial (NICK) with a 123% gain. The second-best is Cognizant Technology Solutions (CTSH), one of our five new stocks this year, which is up 47.8%.
  The worst performer has been Aflac (AFL), which is down 32.2%. That’s bad but it was a lot worse. In fact, Aflac has nearly tripled off its March low. If I didn’t have my frozen-in-place rule, I could have easily sold out at the worst time. The second-worst performer has been Moog (MOG-A) which is now down 29.4% for the year.
  Since the March 9th low, the Buy List is up by over 51%. Let’s hope for a great second-half to 2009!

• Trivia Question: Who’s France’s Largest Private Employer?
  Eddy Elfenbein, June 30th, 2009 at 8:05 pm

  
  I’ll give you a hint: It’s McDonald’s (MCD).
  Mike Steinberger looks at How McDonald’s Conquered France:

  In the battle for France, Jose Bové, the protester who vandalized a McDonald’s in 1999 and was then running for president, proved to be no match for Le Big Mac. The first round of the presidential election was held on April 22, and Bové finished an embarrassing tenth, garnering barely 1 percent of the total vote. By then, McDonald’s had eleven hundred restaurants in France, three hundred more than it had had when Bové gave new meaning to the term “drive-through.” The company was pulling in over a million people per day in France, and annual turnover was growing at twice the rate it was in the United States. Arresting as those numbers were, there was an even more astonishing data point: By 2007, France had become the second-most profitable market in the world for McDonald’s, surpassed only by the land that gave the world fast food. Against McDonald’s, Bové had lost in a landslide.

• The Idea of Breaking Up Big Banks Is Nonsense According to the Chairman of a Big Bank
  Eddy Elfenbein, June 30th, 2009 at 1:12 pm

  HSBC’s Chairman Stephen Green has some interesting thoughts on the futility of trying contain financial crises:

  The global financial industry should not be revamped to try to ensure no bank was too big to fail, HSBC (HSBA.L) Chairman Stephen Green said on Tuesday.
  “It is unrealistic to believe that the industry can be reconstructed such that individual institutions are not too big to fail. Quite small and simple banks are too big to fail in a strict sense,” said Green, chairman of Europe’s biggest bank, in a speech at the British Bankers’ Association annual conference.
  “The notion that the failure of a bank can be contained by the conventional legal and administrative processes for handling business failures is nonsense.”
  Green said “narrow banking” was not the answer to ensure stability. “When you look at the different things that commercial banks do you can’t segregate those out meaningfully in this day of integrated capital markets,” he told Reuters in an interview after.
  Peter Sands, chief executive of Standard Chartered (STAN.L), agreed that breaking up the big banks was not the answer.
  “There is a case for restricting proprietary risk-taking, but (a new Glass-Steagall Act) is not the way to do it,” Sands said. “It gives an illusion of comfort, it won’t work, and it will be great for regulatory arbitrage.”

• About Auditing the Fed
  Eddy Elfenbein, June 30th, 2009 at 11:43 am

  The Federal Reserve is one of those topics where otherwise normal people start getting a little weird. I think it knocks about 10 points off people’s IQ. Israel is another topic like that. In fact, to some people, it’s not a separate topic.
  I mention this because there’s been a movement to support Congressman’s Ron Paul’s bill (HR 1207) which will require audits of the Federal Reserve. The bill already has enough cosponsors to pass the House easily. The Senate, however, could be a different matter.
  So what could anyone have against auditing the Fed? The problem I have isn’t the audit, but it’s the bizarre paranoia of more than a few of the bill’s supporters. What exactly do they expect to find out?
  There is a serious question as to what role the Federal Reserve ought to have. The issue before us is that the Fed has been taking on more and more job titles over the last year, not be design but by default. Congress’ prefer method seems to be outsourcing fiscal policy to the Fed and then blaming it for the consequences.
  Letting Lehman Brothers may have been a mistake, though I’m not convinced it brought on the collapse. Nationalizing AIG was a bad move and the Fed wasn’t pleased with it. Unlike a lot of folks, I’m not so judgmental about Greenspan’s low-rate policies earlier this decade. Not that I think they were right but I’m not convinced how obvious the wrongness was at the time. Monetary policy in hindsight is an easy thing to do.
  I consider these open questions but the fact is that these are decisions that the Federal Reserve has made and will have to make in the future. That’s a lot on their plate, plus they have their regulatory duties. Consider that over the past several months, the Fed’s balance sheet has more than doubled to over $2 trillion. One idea is to let the Fed issue its own bonds. The Fed wants to do that but Congress would never go for it. This brings me to my general rule about central banking, it should be as dull as possible.
  Technically, the Fed is audited but HR 1207 will require a full audit which will include their open market operations. Edward Flaherty writes that there’s a good reason why the Fed’s open market operations haven’t been audited:

  In 1978, the Federal Reserve’s Office of Inspector General was given authority to conduct audits, operations reviews, and investigations of Board of Governors’ programs and operations. In addition, GAO was given authority to audit the Board of Governors and the regional Federal Reserve Banks, branches, and facilities, subject to the limitation that it could not examine the Fed’s foreign exchange and open market monetary policy actions.
  One of the difficulties in understanding the audit issue is in the different types of audits. Most people think of audits as financial audits. These are principally concerned with whether an institution has spent the money and maintains the funds as it has claimed in its financial statements, and whether it is complying with procedures designed to safeguard it from misappropriation of funds. This is no doubt the kind of audit most people have in mind when expressing their concern over whether the Fed gets audited.
  But audits are also designed to review management efficiency and to evaluate the policy of an institution. It is the latter kind of audits that are the reason for the restrictions on GAO’s audit authority over the Fed. The concern is that more extensive audits will become policy evaluations second-guessing the Fed’s monetary policy, and not examinations of Federal Reserve financial safeguards and procedures. Under current law, policy is reviewed twice annually by the Congress.

  And here.

  In 1993 Wayne D. Angell, then a member of the Board of Governors, submitted testimony before a House subcommittee on the reasons for the restrictions on GAO access. He commented, By excluding these areas, the Act attempts to balance the need for public accountability of the Federal Reserve through GAO audits against the need to insulate the central bank’s monetary policy functions from short-term political pressures and to ensure that foreign central banks and governmental entities can transact business in the U.S. financial markets through the Federal Reserve on a confidential basis.
  In reference to a bill that would lift the constraints placed on the GAO’s audit authority over the Federal Reserve, Angell stated, The benefits, if any, of broadening the GAO’s authority into the areas of monetary policy and transactions with foreign official entities would be small. With regard to purely financial audits, the Federal Reserve Act already requires that the Board conduct an annual financial examination of each Reserve Bank…The process of conducting financial audits is reviewed by a public accounting firm to confirm that the methods and techniques being employed are effective and that the program follows generally accepted auditing standards…Further, a private accounting firm audits the Board’s balance sheet…Finally, and more broadly, the Congress has, in effect, mandated its own review of monetary policy by requiring semiannual reports to Congress on monetary policy under the Full Employment and Balanced Growth Act of 1978…In addition, there is a vast and continuously updated body of literature and expert evaluation of U.S. monetary policy. In this environment, the contribution that a GAO audit would make to the active public discussion of the conduct of monetary policy is not likely to outweigh the disadvantages of expanding GAO audit authority in this area.

  Ultimately, I’m puzzled by the anger directed at the Fed. Go ahead and audit them, but you should really be angry at Congress.

• 2009’s Dumbest Business Moments
  Eddy Elfenbein, June 30th, 2009 at 10:21 am

  Fortune has a roundup of the Dumbest Business Moments of 2009.
  My favorite is when the SEC banned Bernie Madoff from the securities industry. Exactly two weeks ago, nine years after they were first warned of him.

• Boring = Technical Analysis; Better = Technical Analysis Explained by Hot Aussie Chick
  Eddy Elfenbein, June 30th, 2009 at 10:16 am

  
  (HT: Timmay)

• Cramer’s Greatest Hits
  Eddy Elfenbein, June 30th, 2009 at 10:12 am

  Joe Weisenthal notes that Jim Cramer said that today is the exact bottom of the housing market. He said that last September.
  Check out Joe’s collection of Cramer’s greatest hits.

• Headline of the Day
  Eddy Elfenbein, June 30th, 2009 at 10:01 am

  First Place goes to CNN:

  Home prices drop, but at a slower rate

  My comment: I stopped reading after the comma.
  Second Place goes to the LA Times:

  Rising oil prices lift stocks higher

  My comment: ???????

• British Economy has Worst Quarter in 50 years
  Eddy Elfenbein, June 30th, 2009 at 9:43 am

  Bloomberg reports:

  The U.K. economy shrank more than previously estimated in the first quarter in the biggest contraction since 1958 as the recession choked industries from construction to services.
  Gross domestic product fell 2.4 percent from the final three months of 2008, compared with the prior measurement of a 1.9 percent drop, the Office for National Statistics said today in London. The median prediction in a Bloomberg survey of 28 economists was for a 2.1 percent decline. Construction activity plunged almost three times as much as originally estimated.
  Bank of England Governor Mervyn King said last week that Britain’s recovery from recession may turn out to be “a long, hard slog.” While business surveys have indicated the economic slump is easing, unemployment may continue to increase and net mortgage lending is the weakest since records began in 1993.
  “In big picture terms, it doesn’t really change the outlook,” said Nick Kounis, an economist at Fortis Bank Nederland Holding NV in Amsterdam and a former U.K. Treasury official. “The recovery is unlikely to be very strong any time soon. There’s more bad news for consumers ahead.”

  The lousy economy is apparently affecting everyone: Queen to run out of funds by 2012.

• BarryTV
  Eddy Elfenbein, June 29th, 2009 at 8:54 pm

  Here’s blogger and Carney-foil, Barry Ritholtz discussing Bailout Nation on C-Span’s BookTV.
  Here’s my review of Bailout Nation.