Archive for September, 2009

  • Just In Case No One Remembers
    , September 17th, 2009 at 12:02 am

    From almost the exact bottom, March 12, 2009, Nouriel Roubini wrote a column in Forbes “How Low Can The Stock Markets Go? The answer: Lower … much lower.”
    To be clear, I’m not trying to paint Roubini in a bad light. I’m trying to point out the folly of market forecasts.

  • Fourth Downs: Kick, Punt or Go for It?
    , September 16th, 2009 at 7:26 pm

    Brian Burke runs the excellent Advanced NFL Stats blog. He combs through mountains of data to uncover interesting aspects of the game.
    Burke recently completed a big study looking at fourth downs and the advantages of going for it versus kicking or punting. As it turns out, football teams ought to go for it on fourth downs far more than they do.
    After crunching tons of data, this is the chart Burke came up with showing the recommended option of what to do on fourth down.
    The charts shows that football coaches have been far too risk averse. In fact, if they were to follow the advice on Burke’s chart, I think the number of field goal attempts would plummet.
    The lingering question is why are coaches so conservative? Perhaps it has to due with the fact that the future points you might get are abstract, whereas punting down field is obvious.
    Bear in mind that the advantage of going for it on fourth down isn’t that you’ll make the first down. Instead, it’s the net result of giving up the ball versus surrendering the ball with a punt farther down field. There are lots of variables in play.
    There is a financial equivalent (I’m sure you were waiting). What Burke’s study is really looking is risk management. That’s what a lot of investing is about as well. The question investors need to ask isn’t if Dell is a good investment. Instead, is Dell a good investment given its risk compared with other investments with similar risk?
    Behavioral economists have shown that we’re not so good at measuring probabilities. We’re far more likely to horde what we have rather than risk an uncertain payoff (See here where I asked: Which would you choose; $1,000 guaranteed or a 50% chance at making $3,000?)
    For many years now, gold has outperformed stocks and Treasuries have beaten stocks for decades. According to conventional wisdom, that’s not supposed to happen but it did. Punting on fourth down is conventional wisdom so it will take a brave coach to be the first one to challenge this orthodoxy.

  • Another New High
    , September 16th, 2009 at 4:46 pm

    The market was up yet again today. This was the eighth rally in the last nine sessions. I’ve been a fan of this rally, and I’ve had a lot of fun teasing the doubters, but it’s started to look tired to me (I mentioned I sold Dell earlier today).
    For the year, the S&P 500 is now up over 18% not including dividends, and it’s up 58% since the March 9th closing low. Our Buy List has done even better, up 36.3% for the year and 80.3% since March 9th.
    The VIX, or volatility index, got close to a new 52-week low today. Interestingly, the VIX rose today even though it usually falls on days when stocks rally. In October, the VIX came close to breaking 90. Today, it’s at 23.
    Here’s a look at the S&P 500 (black line, right scale) and the VIX (blue line, right scale):
    image854.png

  • Technical Number to Watch
    , September 16th, 2009 at 3:04 pm

    When the S&P 500 hits 1,066.86, that’s exactly a 60% gain from the March 6 intra-day low.

  • Bed Bath & Beyond Makes New High
    , September 16th, 2009 at 2:54 pm

    Bed Bath & Beyond (BBBY) just broke out to a new 52-week high today. The stock has been as high as $38.38 in today’s trading. In July, Barron’s said that stock was headed to $40 and it looks like they might be right. At the time of their call, BBBY was at $32.65.
    One of the new stocks I added to this year’s Buy List was Baxter International (BAX). I’m pleased with how the company has performed although the share price hasn’t done that well. It’s currently up about 3% this year. The company beat earnings estimates by two cents a share in January, April and July. That’s a good sign.
    The company said today that its goal is to grow EPS by 11% to 13% over the next five years. For this year, they see EPS in a range of $3.76 to $3.80. That’s what they had said in July when they raised guidance slightly. They also raised guidance in April (notice a trend here). I’m sticking with Baxter.

  • Intrade on Healthcare Reform
    , September 16th, 2009 at 1:07 pm

    The futures market doesn’t expect anything to happen before the end of the year:
    chart124721675729522848.png

  • Sold My Position in Dell
    , September 16th, 2009 at 12:56 pm

    I used to be a big fan of Dell (DELL) which was a horrible mistake on my part. Nevertheless, any investor will have good ideas and dumb ideas. This was a dumb one.
    I initially bought Dell in late 2005 around $30.50 a share and rode it all the way down to $8 earlier this year. When you’re down that much, the temptation is to say “Screw this” and sell out at any price. Fortunately, I fought that and held on for a bit more.
    I decided to come up with a fair price and wait until Dell came within range. The fair price I chose was $15 a share. The stock recently hit it though I held out for a little more and sold today at $17.
    big.chart091609.gif
    It’s easy to talk about your winners but I wanted to share some of my big losers as well. Still, the lesson is the same and that’s not to let your emotions get the best of you.

  • Archbishop of Canterbury: Bankers Have Failed to Repent
    , September 16th, 2009 at 10:31 am

    The Archbishop of Canterbury, Dr. Rowan Williams, has said that bankers have failed to repent for the financial crisis.

    Dr Williams said: “There hasn’t been a feeling of closure about what happened last year. There hasn’t been what I would, as a Christian, call repentance. We haven’t heard people saying ‘well actually, no, we got it wrong and the whole fundamental principle on which we worked was unreal, empty’.”
    Asked if the City was returning to business as usual he said: “I worry. I feel that’s precisely what I call the ‘lack of closure’ coming home to roost. It’s a failure to name what was wrong. To name that, what I called last year ‘idolatry’, that projecting of reality and substance onto things that don’t have them.”

    Dr. Williams has already shown himself to be economically illiterate (“Every transaction in the developed economies of the West can be interpreted as an act of aggression against the economic losers in the worldwide game”), but this last statement is truly bizarre. More importantly, it has zero understanding of the credit crisis. As Oliver Kamm points out: “You could have saints and archangels trading derivatives, but if their risk models are wrong then you’ll get the same result.”

  • One Year Ago Today
    , September 15th, 2009 at 12:21 pm

    Me one year ago today:
    The Fed’s Suez Crisis
    Something that struck me about Lehman’s demise is how little power the Federal Reserve really has. Don’t get me wrong, the Fed is darn powerful, but it’s not all-knowing and all-seeing, despite what some folks think. The Fed is powerful because people think it’s powerful.
    Analysts hang on every word in a statement or testimony, but in the case of Lehman Brothers (LEH), the Fed really couldn’t do much. Wall Street basically stood up to the Fed and the central bank was exposed. Since Bear was the first, the Fed can open its mouth and get its way. But the Fed can’t make the weaker argument the stronger, and that’s what was needed with Lehman.
    I’d say the Lehman story was a combination of too much debt—at one time they were leverage 40-to-1, they didn’t know what they owned, and they refused to listen to any criticism. To top it off, they had horrible luck too. That’s not a good combination.
    With Level 3 assets (these are basically assets that can’t be priced easily so we have to trust Lehman for the price), Lehman once claim they their Level 3 stuff was up 9%, even though the market was down by 10%. When people called them on it, Lehman got mad and blamed the shorts. That’s just arrogance. Then they spent something like $22 billion on Archstone? I mean, what the hell? Talk about the wrong price, the wrong industry at the wrong time. Aside from that, it was a great deal!
    Einhirn and other shorts said they didn’t know what their stuff was worth and they were undercapitalized. Fuld & Co. just refused to listen. I don’t think they’re crooks at all, they sincerely believed in what they were doing. Until the end, the company was offering assurance to investors.
    With Bear and Lehman we often heard about counterparty risk. Well, that theory got shot down with Lehman. I’m going to go on the idea that the reason there wasn’t a deal for Lehman is that no one wanted one. If someone wanted, it would have happened. Novel thinking I know. But it tells us that the Street is hardly concerned about counterparty risk. JPM was concerned about with Bear because it was mostly their risk.
    I heard Hank Paulson talk about bringing stability to the markets. Yeah, right. That’s basically like the flea giving orders to the dog. The Fed and the Treasury do not have this thing contained. If the housing market recovers, then the problem goes away. It’s as simple as that.

  • Boo Hoo Column of the Day
    , September 15th, 2009 at 12:17 pm

    The following is from Jane Pedreira, a former senior Veep at Lehman:

    I was robbed first by Ben Bernanke, the Federal Reserve chairman, and Henry Paulson, the former Treasury secretary, who refused to support a sale of the company, and later by the bankruptcy judge who approved the sale of Lehman to Barclays for peanuts.
    I am still unable to pay all of my bills. I know the public at large doesn’t have sympathy for Wall Street employees, but did I deserve to be robbed because of the mistakes of others?

    Oh brother.
    (Via: Carney)