Archive for November, 2009

• Keep It Classy, Fast Money
  Eddy Elfenbein, November 30th, 2009 at 7:51 pm

  
  (Via: TBI)

• Amazon Hits New High
  Eddy Elfenbein, November 30th, 2009 at 1:12 pm

  Shares of Amazon (AMZN) got as high as $135.25 today.
  
  Here’s something to think about: Amazon reached its 1999 closing high of $106.69 (adjusted for splits) on December 10, 1999 — almost exactly ten years ago. The stock didn’t break that closing high until October 23, 2009.
  So was Amazon’s stock a bubble 10 years ago? Yes and no. Even if you bought at the exact top, you’ve made a very small profit (although it’s basically been erased by inflation). But still, you’ve done a lot better than the S&P 500. Excluding dividends, the S&P 500 is down about 23% since December 10, 1999.

• Clinton in Bed with Goldman Sachs
  Eddy Elfenbein, November 30th, 2009 at 12:47 pm

  But this time, it’s Chelsea:

  Chelsea Clinton, daughter of ex-US President Bill Clinton and Secretary of State Hillary Clinton, is engaged to marry her long-term boyfriend.
  She is marrying Marc Mezvinsky, a banker at Goldman Sachs, with whom she became friends as a teenager.
  A spokesman for former President Clinton confirmed that the couple got engaged over last week’s Thanksgiving holiday.

  Congratulations to the happy couple.

• Girls Can’t Trade
  Eddy Elfenbein, November 30th, 2009 at 11:21 am

  Not too sure about this one:

  What does traders’ success on the market floor depend on? Earlier studies have shown that one’s level of testosterone did affect one’s daily results. Since “prenatal androgens have organizing effects on the developing brain, increasing its later sensitivity to […] testosterone”, it would make sense that prenatal androgens also have a structural effect on a trader’s results on the long term.A surrogate marker is commonly used to define one’s exposure to prenatal androgens: the second-to-fourth digit length ratio, noted 2D:4D. Such market has been found to predict professional athletes’ performance. In this paper, the autors test the hypothesis that a high exposure to prenatal androgens as indicated by 2D:4D would also predict traders’ long-term profit.

• Spotting the Bubble In Dubai
  Eddy Elfenbein, November 30th, 2009 at 10:28 am

  Here’s what I wrote about Dubai four years ago:

  I’ve been thinking about what’s the biggest investment bubble in the world right now. After careful consideration, I decided that Baidu (BIDU) comes in a close second. In fact, it’s so close that it has the syllables right, just in the wrong order. Not even Baidu can match what’s going on now in Dubai.
  Dubai is one of the emirates of the United Arab Emirates. This city is being built up so quickly it’s almost like science fiction. The Burj Al Arab (pictured above) is the largest hotel in the world. It’s over 1,000 feet tall and sits on an artificial island just off the beach. Each room comes with its own butler. The hotel is so big, the Statue of Liberty can fit in the atrium. Pedestal too. (If you’re interested in staying there, here are some details.)
  The world largest building is also being built here. Oh, did I mention the new airport? It will be the size of Heathrow and O’Hare combined. It doesn’t end there. There’s the Dubai Waterfront. I don’t even know how to describe this one. It’s basically a giant artificial city being built on the water. Imagine the Tower of Babel, but with WiFi. The development will be larger than the island of Manhattan. Nearly one of every four construction cranes in the world is currently in Dubai. This is just absurd.
  As you might expect, Dubai has a stock market and it’s doing rather well. I believe this is the entire listing. Their market is making our Nasdaq bubble look like a wimp. In the last 12 months, the Dubai market is up 162%. In the 12 months before that, it was up 181%. Going back three years, the Dubai market is up over 1,000%. One observer said that Dubai is “like Singapore on steroids.”
  There’s also an indoor ski slope, and an underwater hotel is being planned. The city is being flooded with workers from all parts of the world. According to a survey, Dubai will need 150,000 new housing units a year.
  This is a good time to remember that there’s an interesting correlation between market crashes and the largest buildings in the world. The Empire State Building went up just as our market crashed. The Petronas Towers were built as the Asian Tigers fell apart. The World Trade Center and Sears Tower accompanied the crash of the early 1970s. Even the Nasdaq’s shiny new office was opened just before its bubble burst.
  The price of oil is already well below its high price. What’s good for consumers here isn’t good news for Dubai. I think Dubai is ready for a fall.

• Online Sales Rise
  Eddy Elfenbein, November 30th, 2009 at 9:48 am

  I don’t put a great deal of faith in Black Friday numbers. It’s true that this is an important time of year for many retailers, but the direction of their businesses can hardly be measured accurately in just one day’s total.
  If there is good news, then it seems to be that online buying is higher than it was one year ago. The Internet tracking firm comScore says that e-commerce sales on this past Friday were up 11% over a year ago. Online sales for Thanksgiving Day were up 10% from last year.
  While these numbers are encouraging, I think their significant is dwarfed by the jobs market. Once new jobs are created, it will signal that consumer spending will trend in the right direction.

• I’m Back
  Eddy Elfenbein, November 30th, 2009 at 8:43 am

  I took a few days off to rest and relax in Puerto Rico. I realize that I had neglected to mention this on the blog, though I posted a few updated on Twitter (you can follow my Twitter feed here). I apologize for disappearing without an explanation.
  Now I’m back safe and sound in the office. Let’s get to some of the important news from last week.
  First, Medtronic (MDT) posted very good earnings results for their fiscal second quarter. Excluding charges, the company made $850 million or 77 cents per share. Sales rose 8% to $3.84 billion. Wall Street was expecting 74 cents per share on revenue of $3.75 billion.
  Medtronic also said they expect their full-year profit to range between $3.17 and $3.22 per share. Their previous range was $3.10 to $3.20. On Tuesday, the stock gapped up 7.3%.
  Over the weekend, Barron’s had some nice things to say about Sysco (SYY).

  To cope with a weak economy and lackluster market, Sysco has been slashing costs, seeking to lift productivity and has been benefiting from fast-food business, which tends to be more recession-resistant than other restaurants. But Wall Street hasn’t paid much notice. Sure, the stock has rallied about 40%, to 27, from its March low, but the Standard & Poor’s 500 is up 62% in the same span, and Sysco continues to trade well below the 40 it fetched five years ago.
  Sysco’s shares probably are worth about 10% more today. They also yield a tasty 3.7% dividend. In several years, the shares could return to 40 apiece, as the company’s price/earnings multiple, now 14.7 times next year’s earnings, returns to its historic ratio of 20.

  Finally, Becton Dickinson (BDX) raised its quarterly dividend to 37 cents per share from 33 cents per share.

• The Coffee Wars, Begun They Have
  Eddy Elfenbein, November 23rd, 2009 at 2:15 pm

  This is pretty cool. There’s an old-fashioned bidding war going on in, of all things…the coffee sector!
  First, Peet’s Coffee & Tea (PEET) offered to buy little Diedrich Coffee (DDRX) for $26 a share. That was a 28% premium for Diedrich.
  This morning, Green Mountain Coffee Roasters (GMCR) confirmed that it’s offered $30 a share for Diedrich. You may recall that I recently highlighted GMCR as the top-performing stock of the decade (up 7,895.4%).
  Peet’s has now has raised its bid to $32 a share.
  Will Green Mountain respond? Apparently someone thinks so. Shares of Diedrich are currently around $33.50.
  Oh…one more thing. Eight months ago you could have picked up Diedrich for — are you ready? — 21 cents a share.

• The New York Times Falls for Dollar Cost Averaging
  Eddy Elfenbein, November 23rd, 2009 at 1:37 pm

  Jeff Somer recently wrote in the New York Times:

  Experts say amateur investors tend to make two basic mistakes: they are swayed by emotion, and assume that recent performance will predict the future. Yet it’s not hard to sidestep these pitfalls with help from classic strategies known as asset allocation, portfolio rebalancing and dollar cost averaging.
  Basically, these approaches work this way: After assessing your needs and risk tolerance, you set up and maintain a broadly diversified portfolio, adding regular contributions if you can. These practices mitigated investor losses over the last few years, and have an excellent long-term track record. But they are often ignored or discounted.

  Oh boy. Dollar cost averaging (DCA) is the myth that will never die. It’s sad to see even the New York Times passing this on as sound advice.
  The idea of DCA is that you put a set amount of money in the market each month. If you’re like many investors and have a set amount available to invest each month, that’s fine practical advice.
  The problem is when DCA is compared with the option of lump sum investing. If don’t have the option, fine, go with DCA. But if you do have the option, go lump sum all the way. The advantage of dollar-cost averaging was blown to smithereens 30 years ago in this article by George Constantinides.
  Somer goes on to write:

  Left to their own instincts, most people are “momentum investors,” setting themselves up for failure, said Louis S. Harvey, the president of Dalbar. “When the going gets tough, investors tend to panic, and that happened last year. They sold when the market went down. When it goes up and things get expensive, they tend to buy.”
  Sophisticated people often make these mistakes, perhaps because, on an intellectual level, investment decisions are different from those in many other parts of life, said Francis Kinniry, who heads the Investment Strategy Group at Vanguard.

  Wrong again. Strange that a person at an index fund is critical of active investing! In fact, momentum investing is one of the very few strategies that have been shown to beat the market consistently. The difficulty with momentum that investors have is they’re afraid to sell when a high momentum stock loses its momentum.
  Somer is correct that your emotions aren’t your friends when it comes to investing. Neither, however, is the Wall Street establishment.

• Peter Schiff Contra Roubini
  Eddy Elfenbein, November 23rd, 2009 at 9:42 am

  Here’s a video of Peter Schiff explaining why he disagrees with Nouriel Roubini’s assessment that gold is in a bubble.
  
  I post this video because it highlights the concern I have about (some but not all) gold bulls. It’s that Schiff’s argument can used to favor gold at any price. I understand what he’s saying and I think it has merit, but there’s no numerical anchor to the argument: “They’re printing money, so buy gold.” Up to $5,000? Up to $10,000? I’m curious at what point would the price of gold outweigh the thesis.
  There are all sorts of formulae to calculate prices for stocks or bonds. They’re far from perfect, but at least they’re something. What is it for gold? Can anyone show me numbers that have historically tracked the price of gold?
  Also, is Schiff’s thesis that gold should always track inflation? This is another part I don’t get. The real price of gold has outrun inflation over the past several years, even if you don’t trust the CPI numbers gold is still a big winner. Gold has even rallied as we’ve had deflation.
  I would guess that, if anything, gold might have a weak relationship to the acceleration of inflation rather than its overall level. Still, this would be difficult to measure and this decade probably wouldn’t be a good example.
  A few folks, including Schiff, are predicting that gold will reach $5,000 an ounce. I wonder if any gold bugs would be willing to buy a gold option from me. Say, a strike price of $4,000 for one year from today. I’ll do you a favor and take as little as $200.
  No, I’m not serious but I am curious as to what gold bugs would be willing to pay for that trade.