Archive for June, 2009

• CPI Came in Below Forecast
  Eddy Elfenbein, June 17th, 2009 at 9:19 am

  Both headline and core were up 0.1%:

  The cost of living in the U.S. rose less than forecast in May, culminating in the biggest 12-month drop in prices in almost 60 years.
  The consumer price index increased 0.1 percent after no change a month earlier, the Labor Department said today in Washington. In the 12 months ended in May, costs dropped 1.3 percent, the biggest decline since 1950.
  Higher commodity prices, including gasoline, will probably restrain Americans’ discretionary spending at a time when the economy is showing signs of stabilizing. The lack of sustained gains in sales is one reason companies are finding it difficult to pass increasing costs on to customers.

  

• People With Way Too Much Time on Their Hands
  Eddy Elfenbein, June 17th, 2009 at 8:55 am

  
  Here’s the original.

• Swan Song
  Eddy Elfenbein, June 16th, 2009 at 3:17 pm

  Mark Gimein looks at Nassim Taleb:

  But the failures of the Niederhoffers and AIGs do not translate to a validation of Taleb-style catastrophism because these two approaches turn out to be linked. They are mirror images. In noncatastrophic times, the Niederhoffers and AIGs make money consistently and quietly and then end up losing it conspicuously and painfully. The Talebs make money rarely, amaze everyone because they do it when everybody else is getting killed—and so make it easy to forget about years of steady losses. Over the long run, the anti-catastrophists often do fairly well (if they don’t get too greedy and make bets that cost them all their money in even a small market drop). But it is the catastrophists, a la Taleb, who look smarter. If you’re always planning for crisis, you look like a genius when it does come.
  Arguing against Taleb is a little embarrassing; who among us wants to side with the plodders when for the price of a paperback you can join the elect? But the experience of the markets here is important because it shows that neither consistently discounting the chance of unforeseen risks, as AIG did with such gusto, nor betting day after day on unforeseen catastrophes is a reliable way to make money.
  In his books Taleb presents a wealth of examples of how prone we are to discount the unexpected and unlikely, but what is notably missing from The Black Swan are examples of just how likely we are to overestimate the chances of unlikely events when they are presented to us under a spotlight. Taleb is, of course, right that we fail to anticipate what we are not looking for. But we also overanticipate when we are looking too hard for the outliers. Lottery players overvalue their chances of winning $10 million, and horse bettors put too much money on 100-1 long shots. People who watch the local news too avidly believe there is a child kidnapper around every corner, and followers of Taleb assume that every time they pass a dark alley, catastrophe is about to pop out with a bloody knife.

• FactSet Beats the Street
  Eddy Elfenbein, June 16th, 2009 at 12:01 pm

  One of my Buy List stocks, FactSet Research Systems (FDS), just reported another strong quarter. For the May quarter, which is their fiscal third quarter, FactSet earned 73 cents a share which was a penny better than estimates. Revenues rose 4.7% to $154.4 million which was slightly below the Street’s consensus.
  For Q4, FDS sees earnings coming in between 73 cents and 75 cents a share, and revenues between $152 and 157 million. The Street was expecting 72 cents on $155.45 million.
  FactSet said its operating margins and free cash flow rose even though they lost 34 clients last quarter. Client count is now at 2,033. The company also recently raised its quarterly dividend to 20 cents a share from 18 cents. This is an excellent stock to own.
  Here’s a look at FDS’ recent quarterly results with the red bar being my forecast for this quarter.
  

• Naked Shorting Is a Phoney Problem
  Eddy Elfenbein, June 16th, 2009 at 10:16 am

  John Hempton has an outstanding post on the government’s absurd war on naked short-selling. He says that it’s costing taxpayers one billion dollars.
  It’s a long post; here’s a sample:

  The story was that selling stock you did not own was producing “counterfeit shares”. I have yet to see mischievous naked short selling of any real business – though I have seen some fails-to-deliver (that is not actually being able to borrow the stock on the delivery date) remedied a few days later and with all obligations to the exchange cash collateralised over the interim period. There were plenty of “fails” but no real naked short selling “problem”. Hard to borrow stocks did fail regularly – but I assure you – and I have been doing this for years – when there were fails to deliver my broker called my short back and hey – presto – a few days later I had settled. If there was a “counterfeit share” it was cash collateralised and it was cancelled a few days later (in exchange for the cash collateral). The person who purchased the share from me got all the economic benefit of owning that share – and a full voting share was delivered to them within a modest time.
  Fails to deliver now are – with electronic settlement – a far lesser and far quicker remedied problem than they were in the days of paper certificates. And with the speed at which they are settled – and the ability to demand cash collateral when a party fails to deliver they cause no economic problem at all.

  The SEC has now forced shorts to find a borrow before you can actually short the stock. Hempton points out the harm in this in the case of Citigroup. You can buy Citigroup at an 18% discount by buying the preferred. So there’s an arb play; long the preferred, short the common.
  Well, now you can’t do that with certainty. If you short Citi, you might be forced to buy it back at a higher price. As John points out, who is Citi’s largest shareholder? Taxpayers.

  So – in pursuing the bogus issue of naked short selling not only has the SEC diverted resources from its real job (which is chasing the real crims in the financial market such as Madoff) but it has imposed significant and real costs on the taxpayer and made it harder and more expensive for banks to raise capital in a financial crisis.
  But – I should not complain. It has put a reasonable risk arbitrage our way – and I hope to report back that – thanks to the SEC crackdown on a bogus issue our clients are just that little bit richer.
  Nonetheless I will know a commentator who really gets it when they defend modest levels of cash collateralised fails to deliver as a normal part of a normally functioning financial market. Naked short selling is good for markets, good for taxpayers and good for capitalism.

• PPI Rose Less than Forecast
  Eddy Elfenbein, June 16th, 2009 at 9:10 am

  Bloomberg reports:

  Prices paid to U.S. producers rose less than forecast in May as food expenses dropped, leading to the biggest 12-month slump in wholesale costs in a half century.
  The 0.2 percent increase in prices paid to factories, farmers and other producers followed a 0.3 percent gain in April, the Labor Department said today in Washington. Excluding food and fuel, so-called core prices unexpectedly fell.
  The lack of sustained gains in sales is one reason companies will need to keep a lid on prices, preventing inflation from flaring. The rising cost of commodities such as gasoline may further limit consumers’ discretionary spending at a time when the economy is showing signs of stabilizing.
  “Outside of oil, inflation is still tame,” James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, said before the report. “Given the huge amount of slack in the economy, the broad trend in inflation is more likely to be down than up.”
  Economists forecast producer prices would rise 0.6 percent, according to the median of 73 projections in a Bloomberg News survey. Estimates ranged from no change to a 2.3 percent gain.
  Compared with a year earlier, companies paid 5 percent less for goods, the biggest decrease since 1949 and reflecting the drop in fuel costs late last year that has since partially reversed.

  Meanwhile, Job title inflation reaches alarming levels.

• Morning Call
  Eddy Elfenbein, June 16th, 2009 at 8:56 am

  Detroit now has zero bookstore chains, zero national grocery chains, zero Chrysler Jeep dealers and only four Starbucks.
  G.M. Sells Saab to Swedish Automaker
  Smithfield swings to loss but bests estimates
  European car sales sink 4.9% in May
  Volvo says demand has bottomed out
  
  Best Buy posts lower quarterly profit, keeps view
  China to Pass Germany as Porsche’s Second-Biggest Market. Apparently, there is a substitute.
  One of the world’s largest dairy farms is in…Saudi Arabia?

• Captain America Redux
  Eddy Elfenbein, June 15th, 2009 at 11:42 pm

  The New York Times reports that Marvel Entertainment (MVL) is bringing back Captain America:

  More than two years after his comic book death, the sentinel of liberty known as Captain America is returning to the land of the living. “Captain America Reborn,” a five-part series published by Marvel Entertainment, will begin next month and is written by Ed Brubaker and illustrated by Bryan Hitch, one of the comic book industry’s most acclaimed artists. Mr. Brubaker is the regular writer of the Captain America series, including issue No. 25, published in 2007, in which the title hero was felled by an assassin’s bullet. It was a shot heard around the world as many news organizations carried word of the captain’s death. The story of his return begins in Captain America No. 600 (the series is returning to the original numbering from Volume 1, with a cover date of March 1941), which is in comic book stores now. New comics typically go on sale Wednesdays, but in an unusual move Marvel has allowed the comic to go on sale immediately.

  Conan O’Brien said they’ll start making Captain America once they get a loan from Captain China.

• Stunning Pictures from Iran
  Eddy Elfenbein, June 15th, 2009 at 5:15 pm

  The Iranian military raided Isfahan University of Technology (warnings graph images).

• S&P 500 and Gold Are the Same
  Eddy Elfenbein, June 12th, 2009 at 1:06 pm

  Gold and the S&P 500 are basically neck and neck today.