Archive for October, 2009
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Black Thursday—Eighty Years Ago
Eddy Elfenbein, October 22nd, 2009 at 9:17 amThe Great Depression began 80 years ago. Wall Street suffered Black Thursday on October 24, 1929. (The actual anniversary is Saturday, but since today is Thursday, I’m going for it).
The Dow had peaked on September 3 at 381.17. Traders were even breaking out their Dow 400 hats. Slowly, the market started losing ground. On October 23, the Dow dropped 6.33% to 305.85. Then on Thursday morning, the Dow dropped nearly 11% to 272.32.
In one of the great scenes in Wall Street history, around mid-day on Thursday several bankers got together and had Richard Whitney, the future president of the NYSE, to go down to the exchange and make a great show of buying huge blocks of stock for the pool. Whitney walked across the trading floor placing order far above current prices. A visitor named Winston Churchill watched in the gallery.
The tactic worked and stocks rallied. On Black Thursday, the Dow closed down just 2.1%. Check out this article from The Guardian. Here’s the final paragraph:Most experts claim that there is nothing in the general conditions to warrant pessimism. The deluge of selling today is said merely to have pumped water from a number of highly saturated overvalued securities. But the fact is that today’s crash affected good issues as much as bad ones. New York bankers were tonight blaming the panic on the technical inadequacy of the ticker-tape system (Quick! Call Patrick Byrne) in processing such massive volume trading. Whatever the reasons, the spree of easy money and over-confidennce is now over. The bear market has returned with a vengeance, crushing the dreams of an army of small investors some of whom lost everything: 11 speculators are said to have committed suicide.
The following Tuesday, the Dow crashed 12.8%, then another 11.7% on Wednesday bringing the index down to 230.07.
The closing low came on November 13 when the Dow hit 198.69. After that began a sucker’s rally as the Dow topped 290 by mid-April.
On July 8, 1932, the Dow bottomed out at 41.12 for a loss of 89%. An equivalent loss from today would bring the Dow to about 1,075.
Oh, I nearly forgot. That Richard Whitney guy? It turns out he a little embezzlement problem and got his ass locked up in Sing Sing.
Here he is denouncing Securities Exchange Act of 1934. Except for the name of the bill, this speech could be delivered verbatim today.
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From the New Yorker
Eddy Elfenbein, October 22nd, 2009 at 8:46 am -
So How Was Your Day?
Eddy Elfenbein, October 21st, 2009 at 8:19 pmIf you’re Steve Jobs…pretty good.
Shortly after 2 p.m., before the market tanked, Apple was up 9.71 points to an all-time intraday high of 208.62, and Disney was up .36 points to $29.71, together adding $103.5 million to Jobs’ bottom line.
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Newsweek Asks
Eddy Elfenbein, October 21st, 2009 at 7:55 pmWas Germany better off under the Nazis? Let’s look at key comparisons like forestry and divorces.
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The VIX Is Close to Going Below 20
Eddy Elfenbein, October 21st, 2009 at 11:43 amThe VIX has been as low as 20.10 today. We haven’t been below 20 since August 29, 2008.
The VIX isn’t strongly correlated to market returns. The only exception is that a very low VIX — lower than 13 — seems to be good for stocks. -
Buy List Earnings from Stryker, Lilly and SEI Investments
Eddy Elfenbein, October 21st, 2009 at 11:16 amThis is a bit strange. Lilly is down today on good news and Stryker is up on bad news. I don’t get it, but I didn’t write the rules.
Eli Lilly (LLY) earned $1.20 a share which was 18 cents better than estimates. The company also raised EPS guidance for next year to $4.30 to $4.40 from their earlier estimate of $4.20 to $4.30. The stock was up in the pre-market but is down now. I have no idea why, but Lilly is a great stock.
Stryker (SYK) is our big winner today. The company said it earned 69 cents a share for the third quarter which matched estimates. The company also cut its 2009 EPS forecast to $2.90 and $3 from $3.12 to $3.22, but that’s hardly a big deal since it’s just one more quarter.
SEI Investments’ (SEIC) business got hit hard last year, but it’s recovering nicely. The company earned 27 cents a share for the third quarter which is a 50% jump from the 18 cents a share it earned a year ago. They beat the Street by two cents a share.
Cognizant (CTSH), Danaher (DHR) and Sysco (SYY) are all at new 52-week highs today. -
No More Historical Comparisons Graphs
Eddy Elfenbein, October 21st, 2009 at 9:54 amStarting today, I refuse to look at any more charts that contain five or more squiggly lines, one labeled 2009, another labeled 1929, another 1974, another 1379. Enough!
These charts were kind of fun to look at a few months ago, but seriously, markets don’t trace out precise patterns from decades ago. On the morning of October 19, 1987, the WSJ famously ran a similar chart comparing the Dow’s current run with the market’s run-up in 1929, but there was one major difference. They altered the x-axis to make it a better fit. Once you start toying around with the data, you can make anything fit. -
NYT: Thin Line Separates Insider Trading and Research
Eddy Elfenbein, October 19th, 2009 at 11:05 pmThe NYT makes some good points about the Rajaratnam case:
A close reading of the two criminal complaints filed so far, and an associated civil complaint filed by the Securities and Exchange Commission, suggests a web in which hedge fund managers, analysts, corporate executives, and consultants and other people outside Wall Street traded tips — sometimes for money, sometimes for other tips, and sometimes for little more than the promise of unspecified future favors.
Not every trade that the complaint outlines was profitable. In fact, Mr. Rajaratnam’s hedge fund, the Galleon Group, lost millions of dollars buying shares of Advanced Micro Devices, the computer chip maker, after learning that the government of Abu Dhabi planned to invest in A.M.D., according to the complaint. The investment did occur, but A.M.D. stock plunged between August 2008, when Galleon began buying, and October 2008, when the deal was announced.
At other times, Mr. Rajaratnam received information from an unnamed witness who is cooperating with the government investigation. But the complaint does not state whether Mr. Rajaratnam knew the ultimate sources of the information he received from the witness. Nor does it allege that Mr. Rajaratnam paid the witness for the information.
Still, the existence of a cooperating witness — along with the fact that prosecutors wiretapped some of Mr. Rajaratnam’s conversations — gives them a great advantage in the case, said David S. Ruder, a law professor at Northwestern University and a former chairman of the S.E.C. The conversations may help show that Mr. Rajaratnam knew the information was valuable and that he should not be trading on it, Mr. Ruder said.
“It gets you around the mens rea, or state of mind question,” he said. “If you know it’s coming from an insider, or if you have strong reason to believe it’s coming from an insider, you’re in trouble.” -
How to Argue
Eddy Elfenbein, October 19th, 2009 at 10:42 pmThis is slightly off-topic but I wanted to highlight an excellent post written by Phil Birnbaum at his Sabermetrics Research site. This is one of my favorite blogs on sports statistics. Phil doesn’t post often, but when he does, the posts are consistently outstanding.
In the post, Phil rips apart an argument that purportedly shows anti-French discrimination in the NHL. I certainly understand if the topic isn’t of interest to you. Even if you’re not interested, you may want to check it out because it’s a perfect example of how to argue.
I sometimes think that learning how to present a case is a lost art. Phil’s post is methodical and clear-headed. He sticks to the facts, uses logic and questions assumptions. Reading Phil reminds me why I get so annoyed with people like Matt Taibbi because they take facts out of context, use false symmetries, mix up causation or simply betray their point in froth of “style.” Phil argues the way it should be done. -
CNBC Reports Bogus Press Release
Eddy Elfenbein, October 19th, 2009 at 5:14 pm
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