Archive for June, 2010

• Democracy at Work
  Eddy Elfenbein, June 11th, 2010 at 4:36 pm

• Everybody Predicted the Financial Crisis
  Eddy Elfenbein, June 10th, 2010 at 11:33 pm

  BusinessWeek has a story on the emerging optimism of folks who, we’re told, predicted the financial crisis. I’ve never understood the fetish the media has for finding gurus.
  More importantly, if you look closely at the predictions these folks made, none of them was right, and more than a few were comically wrong. Specifically, the story mentions Michael Panzner, Nouriel Roubini, Gary Shilling, Robert Prechter, Peter Schiff, Nassim Nicholas Taleb, Marc Faber, Stephen Roach, Meredith Whitney, David Rosenberg, Jeremy Grantham and James Grant.
  Some like Grant and Roubini are interesting to listen to though I don’t credit Roubini with predicting the crash. However, he was closer than anybody. Rosenberg has been massively wrong. Still others like Prechter, Taleb and Roach, I can’t even take seriously.
  I’ll repeat what I’ve said before, it always pays being a perma-bear. All you need to do is be vague and never give a date. Disaster is just around the corner. Then, whenever anything bad happens, immediately take credit for predicting it. With investing, there’s always something to worry about.
  I’d also add that be able to predicting complex events like the credit crisis doesn’t mean you’ll be better at seeing other events. The event will often be so unusual that the skill set needed to see it and the problems underneath is a very poor prerequisite for seeing other complex events. Time and chance happeneth to us all.
  Being right most likely means that you have some advantage at the center of a bubble. Predicting the markets isn’t like shooting foul shots. If you get one in the bucket, it doesn’t say much about how you’ll do next. In fact, if you get the last event right, you’re probably at a disadvantage in seeing the next turn of the market because your biases have been confirmed.
  Both George Soros and Nassim Nicholas Taleb said that what we’re in is worse than the Great Depression. Not only is that empirically incorrect, it’s incorrect by a lot. The fall in GDP this time around is much less than the 1930s. Here’s a prediction for you: Neither will be held accountable for this prediction.

• Another Defeat for Humans
  Eddy Elfenbein, June 10th, 2010 at 2:48 pm

  
  Artificial Intelligence beats the pros in investing:

  The ability to predict the stock market is, as any Wall Street quantitative trader (or quant) will tell you, a license to print money. So it should be of no small interest to anyone who likes money that a new system that works in a radically different way than previous automated trading schemes appears to be able to beat Wall Street’s best quantitative mutual funds at their own game.
  It’s called the Arizona Financial Text system, or AZFinText, and it works by ingesting large quantities of financial news stories (in initial tests, from Yahoo Finance) along with minute-by-minute stock price data, and then using the former to figure out how to predict the latter. Then it buys, or shorts, every stock it believes will move more than 1% of its current price in the next 20 minutes – and it never holds a stock for longer.

  Yes, I think it’s call front-running — acting on information before anyone else. The strategy was invented by Nathan Rothschild 200 years ago when he used carrier-pigeons to get the 411 on the Battle of Waterloo.
  Personally, I’m more impressed than someone actually reads the articles at Yahoo Finance.

• Bernanke Warns
  Eddy Elfenbein, June 9th, 2010 at 3:37 pm

  
  Some recent headlines:
  Bernanke Warns Congress Not To Cut Spending, Cautions About ‘Fragile’ Recovery
  Bernanke Says the Federal Debt Is ‘Unsustainable’
  Bernanke warns about creating new bubbles
  Bernanke Warns Deficits Threaten Financial Stability
  Bernanke warns US economy still faces ailing housing and employment
  Fed’s Bernanke warns of risk to bank independence
  Bernanke Warns of Small-Bank Risks
  Bernanke warns of political meddling
  Bernanke warns of lower lending

  Here’s more and more and more and more and more.

• The World Cup: How to Get Out of the First Round
  Eddy Elfenbein, June 9th, 2010 at 12:10 pm

  The World Cup starts on Friday and I was curious as to America’s chances of making it to the knockout tournament.
  Let’s go over the rules: The World Cup is divided into two parts. In the first stage, the 32 teams are divided into eight groups of four teams each. The four teams play each other in a round-robin tournament and the two teams that do the best advance to the knockout stage. In the round-robin, you get three points for a win and one point for a tie. If teams have the same number of points, the tie-breakers are (in order) goal differential, total goals, head-to-head and then they draw lots.
  (I’ve only looked at the results since 1998 and they came very close to drawing lots in 2002 but ultimately didn’t need to. Paraguay edged out Slovenia 3-1 at the same time South Africa lost to Spain 3-2. Paraguay advanced on account of having scored one more goal.)
  The current format started in 1998. For this year, the U.S. is in Group B which has England, Algeria and Slovenia. The quality ranking is generally considered to be England, us, Slovenia then Algeria.
  So what do we need to do to advance? In the round-robin, you can score anywhere from zero to nine points (eight is mathematically impossible). Here are how the teams have done by point totals in the round-robin since the current format started in 1998:
  Points……………Advancing
  0…………………..0-8
  1…………………..0-14
  2…………………..0-6
  3…………………..1-13
  4…………………..7-7
  5…………………..11-0
  6…………………..7-0
  7…………………..14-0
  9…………………..8-0
  The bubble seems to be four points. That’s what we got in 2002 and we made it to the knockout round. We even made it to the Final 8 after we beat Mexico. After that, we lost to Germany.
  Theoretically, it’s possible to get five points and not advance, but that would be highly unusual. Conversely, it’s possible to get two points and advance. It’s possible to advance without winning a game as Chile did in 1998 (three ties). In all practical senses, if you get five points (a win and two ties), you’re in.
  So if we lose to England on Saturday, we’re not out of it. Coming away with a tie would be great and a win, of course, would be spectacular. The tough games will come against Algeria and Slovenia in particular. There’s little room for error in the games you’re supposed to win. If we go 1-1-1, then our destiny may not be in our own hands.
  Even if we do advance, that’s only the beginning. Here’s how the teams have done in the championship round by points scored in the round-robin:
  3…………………..0-1
  4…………………..4-7
  5…………………..7-11
  6…………………..6-7
  7…………………..13-13
  9…………………..15-6

• Goldman’s P/E Ratio = 5.7
  Eddy Elfenbein, June 9th, 2010 at 12:04 am

  Wow, the trailing Price/Earnings Ratio for Goldman Sachs (GS) is 5.74.
  For the year, Wall Street expects Goldman to earn $19.57 a year, then $20.57 in 2011.
  At Goldman’s current price, this year’s earnings estimate represent 14.2%, and 14.9% for next year. The stock is just 7% above its book value.
  I’m not saying that Goldman is a bargain but the market certainly doesn’t have much faith in the bank’s future earnings potential.
  

• Becky Quick: Obama Sullied Office with Ass-Kick Remark
  Eddy Elfenbein, June 8th, 2010 at 1:36 pm

  The relevant part starts around 5:40.
  
  In other news, CNBC did special reports on porn and weed.

• Arden Group
  Eddy Elfenbein, June 8th, 2010 at 11:48 am

  Here’s another little-known stock with an amazing track record. Arden Group (ARDNA) runs 18 Gelson’s supermarkets in Southern California.
  The company has a market value of about $280 million and it’s almost entirely ignored by Wall Street. In fact, it’s not uncommon for Arden to trade a few hundred shares a day.
  Twenty-eight years ago, the stock was going for about 84 cents a share. In September 2008, ARDNA reached a high of $199.99 a share. That’s a gain of about 24,000% which easily beat the S&P 500’s gain of about 1,000% over the same period.
  The stock has plunged all the way to $88 a share. It reached a new 52-week low last week. For some reason, the company pays a microscopic dividend of 25 cents a quarter.
  Here’s Arden’s EPS for the last few years.
  Year……….EPS
  2000………….$3.41
  2001………….$3.79
  2002………….$4.14
  2003………….$4.90
  2004………….$6.70
  2005………….$5.87
  2006………….$7.16
  2007………….$9.24
  2008………….$7.80
  2009………….$6.84
  

• Europe’s Effect on the US
  Eddy Elfenbein, June 8th, 2010 at 10:40 am

  Chicago Fed President Charles Evans made some interesting remarks about the economy. He said that the problems in Europe are bad but they made not hurt us that much:

  There are a few channels through which the European sovereign debt problems could influence us here. European efforts to lower debt will likely weigh on their economic growth over the medium term. This will translate into less demand by Europeans for U.S. products. In addition, the dollar already has appreciated relative to the euro. This means that European consumers find our products to be relatively more expensive than before. At the same time, prices for European goods in terms of the dollar have fallen, boosting our demand for European imports. All of these channels work in the direction of lowering U.S. net exports, which, all else being equal, would tend to reduce the outlook for U.S. GDP growth.
  However, a couple of factors suggest that these trade effects of the European fiscal situation on the U.S. economy are likely to be limited. Although the euro-11 economy is large, it represents only about 15 percent of U.S. exports. In comparison, our single largest trading partner, Canada, accounted for over 19 percent of domestic exports last year. And while the dollar has appreciated almost 18 percent relative to the euro since late November, the broad dollar exchange rate that is a trade-weighted average across all currencies has appreciated only 5.1 percent over the same period.
  Nonetheless, if events in Europe evolve so that they have a more severe and broad impact on financial markets, then the scope of the problems for the U.S. could be magnified. Fortunately, our direct exposure to European debt is limited. But an intensification of liquidity or solvency problems in Europe and some related spillover losses in U.S. markets could cause a marked increase in investor risk aversion. More lenders could pull back on intermediation, restricting the flow of credit to fund worthy spending projects of U.S. firms and households.

• Intel Looks Good Below $20 a Share
  Eddy Elfenbein, June 8th, 2010 at 10:22 am

  Intel (INTC) dropped below $20 a share this morning. The stock has been as low as $19.88. Bear in mind that the company has solidly beaten estimates for the last three quarters.
  Just one month ago, Intel said it was “highly confident” that it would achieve its goal for the second quarter.

  Intel Corp expects to double its earnings growth in the next few years and on Tuesday raised its long-term margin outlook, as the world’s top microchip maker spreads its chips beyond PCs to gadgets like smartphones and televisions.
  Chief Executive Paul Otellini told investors on Tuesday that Intel is eager to establish a footprint in fast-growing — but intensely competitive — markets, diversifying beyond a PC market it now dominates.
  “We are poised to take smart computing into whole new segments where it hasn’t been before,” Otellini said at the company’s annual investor meeting at Intel’s Santa Clara, California, headquarters.
  The company also said it remains “highly confident” that it will achieve its financial goals for the current quarter despite rising concerns about European economies amid Greece’s financial crisis.