Archive for December, 2009

  • The Sunshine Effect: When financial markets respond to the weather
    , December 10th, 2009 at 2:12 pm

    From Fordham University:

    Market reactions to earnings surprises are higher when earnings are announced on very sunny days in New York City, according to a recent study by two accounting professors.
    The discovery of this “sunshine effect” was originally published in the Spring 2009 issue of the Journal of Accounting, Auditing and Finance by John J. Shon of Fordham University and Ping Zhou of Baruch College. Their paper, “Are Earnings Surprises Interpreted More Optimistically on Sunny Days? Accounting Information and the Sunshine Effect,” also found similarly negative effects for days that were rainy and/or snowy. The paper also found that the Sunshine Effect:
    – Is most prominent for firms that are more likely to be followed by naive investors and less prominent for firms that are more likely to be followed by sophisticated investors;
    – Causes average bid-ask spreads to be lower on sunny days relative to cloudy days, suggesting that market-makers may be a contributing factor; and
    – Exists for companies traded on the NYSE and the AMEX, but not for those traded on the NASDAQ.
    “Investors who spark these reactions are, truly, high on the weather,” said Shon, an assistant professor of accounting and taxation at Fordham. “These sunshine-induced overreactions and underreactions are reversed within days.”

  • The Range-Bound Market
    , December 10th, 2009 at 11:09 am

    It appears that the Humpy Pattern has given way to a sideways market. For the last month, the S&P 500 has been locked in a range of less than 2.2%.
    image879.png

  • Eli Lilly Confirms 2010 Outlook
    , December 10th, 2009 at 10:36 am

    There’s good news from Lilly (LLY), although the market isn’t taking it that way. The company said it expects to earn $4.65 to $4.85 next year. That’s pretty good considering the stock is currently under $35.
    The problem for Lily is that several of their top drugs come off patent over the next few years. They’ve said that they plan to introduce two new drugs a year starting in 2013. Bloomberg reports: “Lilly said it has more than 60 drugs in clinical development and expects in 2011 to have 10 medicines in the final stage of trials generally required for U.S. approval.”

  • Bunning Vs. Bunning
    , December 9th, 2009 at 10:43 am

    This clip of Senator Jim Bunning has received a great deal of praise across the Internet. In my opinion, it’s cheap demagoguery.

    Bunning congratulates himself for opposing Bernanke’s nomination four years ago. He also criticizes Bernanke for his loose monetary policy. Yet one of the reasons he opposed Bernanke’s nomination four years ago was for his tight money policy.

    But Bunning has been a critic of the Fed course of “measured” hikes in short-term interest rates in order to fight inflation, saying that there is not sufficient inflationary pressures to justify the 11 quarter-percentage point hikes since June 2004.

    Incidentally, Bunning closes by calling the Fed “the Creature from Jekyll Island.” This is a reference to a crackpot Bircher conspiracy screed of the same name by G. Edward Griffin.
    Even for nutter stuff, this one is off the deep end. Here’s part of one review:

    G. Edward Griffin lays out this conspiratorial version of history in his
    book The Creature from Jekyll Island. His
    amateurish take on history is highly suspect, however. Gerry
    Rough, in a series of well- researched essays on U.S. banking history,
    reveals many historical inaccuracies, inconsistencies, and even contradictions
    in Griffin’s book and others of its genre.

    As to the conspiracy:

    Also in 1910, Senator Nelson Aldrich, Frank Vanderlip of National City (today know as Citibank), Henry Davison of Morgan Bank, and Paul Warburg of the Kuhn, Loeb Investment House met secretly at Jeckyll Island, a resort island off the coast of Georgia, to discuss and formulate banking reform, including plans for a form of central banking. The meeting was held in secret because the participants knew that any plan they generated would be rejected automatically in the House of Representatives if it were associated with Wall Street. Because it was secret and because it involved Wall Street, the Jekyll Island affair has always been a favorite source of conspiracy theories. However, the movement toward significant banking and monetary reform was well-known. It is hardly surprising that given the real possibility of substantial reform, the banking industry would want some sort of input into the nature of the reforms. The Aldrich Plan which the secret meeting produced was even defeated in the House, so even if the Jekyll Island affair was a genuine conspiracy, it clearly failed.
    The Aldrich Plan called for a system of fifteen regional central banks, called National Reserve Associations, whose actions would be coordinated by a national board of commercial bankers. The Reserve Association would make emergency loans to member banks, create money to provide an elastic currency that could be exchanged equally for demand deposits, and would act as a fiscal agent for the federal government. Although it was defeated, the Aldrich Plan served as an outline for the bill that eventually was adopted.

    So there, I’ve done Rachel Maddow’s work for her today “GOP senator references crackpot Bircher conspiracy!!”
    As you might expect, Griffin believes in more conspiracies:

    In 1974, Griffin wrote and published the book World Without Cancer,[15][16] and released it as a documentary video; its second edition appeared in 1997, and it was translated into Afrikaans, 1988, and German, 2005. It stated that cancer is a metabolic disease facilitated by the lack of Laetrile (called Vitamin B17 by its American developer), a view which has not been accepted by the majority of scientists. Because the position had been labeled “quackery” by the American Cancer Society, as well as the U.S. Food and Drug Administration and the American Medical Association, Griffin responded that such groups had a “hidden economic and power agenda”.[2][17]

    Griffin said that a grouping of financial, political, and industrial interests at “the very top of the world’s economic and political power pyramid” have “created a popular climate of bias that makes scientific objectivity almost an impossibility” and have dominant influence over the medical profession, medical schools, and medical journals.[18] A critical review in the American Journal of Public Health considered this view a “conspiracy” theory and stated that as “an emotional plea for the unrestricted use of the Laetrile as an anti-tumor agent, the scientific evidence to justify such a policy does not appear within it.”[19]

    Griffin’s websites refer visitors to doctors, clinics, and hospitals with alternative cancer treatments,[20] including sellers of laetrile,[15] a product of apricot seeds.[21] He does not sell laetrile himself.[15]

    Griffin’s productions referenced the work of biochemist Dr. Dean Burk, head and chief chemist of the Cytochemistry Section of the National Cancer Institute, who served for over 30 years. Funded by the McNaughton Foundation, Burk described his experiments to Griffin as showing that Laetrile and glucosidase set “the cancer cells dying off like flies.”[22] A systematic review in Supportive Care in Cancer, of 36 reports containing laetrile intervention data, found no controlled clinical trials, little evidence for laetrile’s effectiveness, and doubts about its safety.[3]

    Griffin became the founder and president of the Cancer Cure Foundation (now the Cure Research Foundation).[23] During the 1980s, he returned to producing films about terrorism, subversion, and Communism.

  • Nicholas Financial’s Stock Dividend
    , December 9th, 2009 at 10:21 am

    I had additional shares of Nicholas Financial (NICK) credited to my account on Monday due to the 10% stock dividend. This is in effect an 11-for-10 split.
    The share price, however, showed no evidence of splitting which means that the stock actually gapped up. Normally, I would have expected to see NICK pull back around 10%. Perhaps no one noticed.
    In any event, I’m adjusting the Buy List records to account for the split. At the beginning of the year, the Buy List “bought” 21,276.595 shares of NICK at $2.35 for a position of $50,000. The Buy List assumes all 20 positions are equally weighted at the beginning of the year for a total portfolio of $1 million.
    We now have 23,404.2545 shares of NICK and the cost basis is $2.136364.

  • After 63 Years, Eisenstadt Is Out at Value Line
    , December 9th, 2009 at 12:49 am

    This is sad:

    For 63 years, Samuel Eisenstadt was probably Value Line Inc.’s most valued employee. The statistician created an investment strategy that proved successful for decades and was endorsed by none other than Warren Buffett. But today he embarks on something new—unemployment.
    Late last Friday afternoon, the firm’s new chief executive, Howard Brecher, called Mr. Eisenstadt and told him that his services were “no longer needed” and he was retiring, effective immediately, according to Mr. Eisenstadt. Yet the 87-year-old, who helped drive the Nazis out of France and Belgium as a member of the U.S Army’s 8th Armored Division, was in no mood to be shoved aside.
    “I refuse to accept the explanation that I’m retiring,” Mr. Eisenstadt said. “I’m not retiring, and I don’t plan to retire. My mind is still sharp and wrapped up in my work. This is a very sad ending, and it really hurts.”

    (Via Salmon)

  • One-Month Treasury Bill Is a Blutarsky
    , December 8th, 2009 at 11:52 pm

    Here’s an arresting stat: The latest Treasury auction for one-month T-bills went off at a Blutarsky—0.0%.
    In other words, the government can borrow money for free for the next month. For now, this fact helps the spending brigades in Congress. Just about any spending short of burning money or filling the money hole will likely be a cost benefit for taxpayers. However, I don’t see any chance for second stimulus, plus Bernanke came down against it as well. (By the way, Paul Krugman argues that the very fact that the stimulus has failed is precisely why we need another. This is why more professors don’t get elected.)
    The zero-rate auction was incredibly popular. The bid-to-cover was 5.33 which is very high. There’s a technical reason why this bill was so popular. It will be the first one to expire in the new year. This means the institutional guys just want a safe place to park their money until 2010 begins.

  • Amazon’s Skyhigh Valuation
    , December 8th, 2009 at 12:40 pm

    I’ve been bashing Amazon.com (AMZN) for the past few months (and have been dead wrong). Still, I wanted to show you just how crazy the share price has gotten.
    Here’s a chart of Amazon and its earnings-per-share.
    image878.png
    The blue line is Amazon’s share price and it follows the left scale. The black and red line shows Amazon’s earnings-per-share and it follows the right scale. The black shows the trailing figures and the red is Wall Street’s projection.
    The two axises are scaled at a ratio of 50-to-1 which means that Amazon’s P/E Ratio is exactly 50 whenever the lines cross.
    A 50 P/E Ratio is very high, but even if we use that as a valuation, the stock is more than a year ahead of itself — even taking into account the tremendous growth forecast.

  • Rogue Trader Executed
    , December 8th, 2009 at 10:48 am

    Yikes:

    China on Tuesday executed a former securities trader for embezzlement, the first person in the industry to be put to death, but millions of yuan are still missing, a state newspaper said.
    Yang Yanming was sentenced to death in late 2005 and took the secret of the whereabouts of 65 million yuan ($9.52 million) of the misappropriated funds to his grave, the Beijing Evening News said.
    The report added that Yang was the first person working in China’s securities sector to be executed.
    “Preserve your moral integrity and don’t set too much store by business results,” Yang told the newspaper before the sentence was carried out.
    He was the general manager of the Beijing securities trading department of the China Great Wall Trust and Investment Corp., which became Galaxy Securities, from 1997 to 2003.
    Conscious that the growing gap between rich and poor could generate resentment, China is battling corruption and stock trading abuses. It has used the death penalty as a deterrent in serious cases.

    (Via: TBI)

  • What Will the Fed Do at Its Next Three Meetings?
    , December 7th, 2009 at 2:09 pm

    According to the futures market, nothing.
    The FOMC meets next week, then in January and again in March. The Cleveland Fed tracks what the futures market thinks will happen and the overwhelming view is that the Fed will keep rates at its current band between 0% and 0.25%.