Archive for 2011

  • Not A Happy Day for Silver
    , May 5th, 2011 at 9:14 pm

    Earlier, I mentioned the dramatic plunge in silver. Dave Kansas at the WSJ has a nice summary:

    Silver selling continued after the official Comex market close, sending poor man’s gold down more than 11% on the day to $34.980. Silver has lost nearly 30% this week.

    And the pressure may continue. At the close today, CME, which owns Comex, will enforce a 16.7% increasing in trading deposit requirements. That means speculators in the benchmark 5,000-ounce silver contract will now be asked to put up $18,900 per contract to open a position, and maintain $14,000 of that to keep the contract overnight.

    Investors must exit positions if they can’t afford the higher margins requirements. The exchange raises margins during times of high volatility to ensure market participants are adequately capitalized.

    Silver traded as high as $48 at the start of the week. It is still up more than 100% in the last year.

    Joe Weisenthal of Business Insider has described silver as being like a highly-leveraged equity position (aka, a high Beta trade) and I think he’s exactly right. In other words, whatever the market does, silver is likely to do two to three times that.

  • The Flash Crash One Year On
    , May 5th, 2011 at 12:13 pm

    One year ago tomorrow was the Flash Crash. Between 2:42 pm and 2:47 pm on May 6, 2010, the Dow lost 600 points.

    The WSJ’s Evan Newmark said: “Today’s market was neither orderly nor efficient nor trustworthy. It was just a bunch of computers making ugly, messy love with each other. And your money hung in the balance.” (Here’s CNBC in fast motion.)

    The next day, Felix Salmon told you it was time to sell your stocks.

    Since the close of trading on May 7, 2010, the S&P 500 is up 21.28%.

    Oopsie!

    I don’t mean to tweak Felix. Seriously, I don’t. He’s not a stock-picker and I am so I can assure you I’ve made countless more bad calls than he has (Netflix anyone?).

    I do want to show you that plenty of smart people can be wrong about the market’s direction. In fact, if you want to look at it closely, Felix was correct about the market for the first two months.

    Plus, Felix offered wise cautions about investing in stocks. I’d add that I’m precisely the kind of greedy speculator that Felix granted an exception to. My qualm is that Felix said that we were entering a period of massive volatility. As it turns out, we weren’t. When Felix recorded that, the $VIX was around 40. Last week, it got as low as 14.27.

    Even if we were entering a period of high volatility, that shouldn’t dissuade people who are long-term stocks investors (assuming they’re aware of the risks in owning equities to begin with).

    My point is that there’s nothing inherently bearish about high volatility. For the most part, volatility doesn’t seem to play a large role in equity returns. When the $VIX is at very low levels — below 13 — the market has performed a little bit better, but that’s at the extreme.

    Volatility simply means that stocks will bounce around a lot from day to day. The best cure for high volatility is patience.

  • Remember That Silver Rally…Yeah, About That
    , May 5th, 2011 at 10:52 am

    The Silver ETF ($SLV) is down 24% this week.

    In 1980, Silver Thursday came four weeks before Desert One. So from two data points, I can conclude that U.S. military raids are bearish for silver.

  • Nicholas Financial Earned 40 Cents Per Share
    , May 5th, 2011 at 9:53 am

    NICK did it again. Another great quarter:

    Nicholas Financial, Inc. announced that for the three months ended March 31, 2011 net earnings increased 46% to $4,772,000 as compared to $3,260,000 for the three months ended March 31, 2010. Per share diluted net earnings increased 43% to $0.40 as compared to $0.28 for the three months ended March 31, 2010. Revenue increased 13% to $16,095,000 for the three months ended March 31, 2011 as compared to $14,256,000 for the three months ended March 31, 2010.

    For the year ended March 31, 2011, net earnings increased 55% to $16,805,000 as compared to $10,865,000 for the year ended March 31, 2010. Per share diluted net earnings increased 52% to $1.41 as compared to $0.93 for the year ended March 31, 2010. Revenue increased 11% to $62,774,000 for the year ended March 31, 2011 as compared to $56,472,000 for the year ended March 31, 2010.

    “Our strong growth in earnings per share for the fourth quarter and year ended March 31, 2011 were favorably impacted by the revenue contribution from new branches and a reduction in the net charge-off rate,” stated Peter L. Vosotas, Chairman and CEO. “We reported record revenues and earnings every quarter this year. In addition, we opened six new branch offices in the past year. We entered two new states with a branch in Chicago, Illinois and one in St. Louis, Missouri. We expect to add four to eight new branches during the upcoming year and will also continue to pursue buy-side opportunities as they arise.”

    The March quarter is the end of NICK’s fiscal year. For the year, NICK made $1.41 per share which is an increase over the 93 cents per share they made in the year before.

    Let’s add some perspective, shall we? Based on yesterday’s close, NICK is going for 9.22 times trailing earnings. That’s an earnings yield of 10.85%. Meanwhile, we know that NICK’s portfolio is vastly improving.

    For this past quarter, the provisions for credit losses were just $101,000 or 0.16% as a percentage of average finance receivables, net of unearned interest. One year ago, that was running at 3%. A year before that, it was 6%.

    Low interest rates continue to help NICK. The borrowing rate for this past quarter was just 4.21% (I believe NICK’s credit line is LIBOR plus 300 with some additional charges.)

    Here’s my updated spreadsheet with all the details.

    Optimistically, NICK can earn $1.60 to $1.70 per share for this fiscal year.

  • Nine Stocks Up over 900% Since 9/11
    , May 5th, 2011 at 9:05 am

    Jeff Reeves lists nine stocks that have risen over 900% since 9/11.

    Here’s a summary:

    Apple ($AAPL) +3,930%

    Amazon ($AMZN) +2,120%

    CNOOC ($CEO) +1,140%

    Green Mountain Coffee ($GMCR) +2,840%

    HMS Holdings ($HMSY) +4,670%

    Imax Corp. ($IMAX) +3,390%

    Intuitive Surgical ($ISRG) +1,830%

    F5 Networks ($FFIV) +1,170%

    Priceline ($PCLN) +1,530%

  • Morning News: May 5, 2011
    , May 5th, 2011 at 7:55 am

    BOE Holds Interest Rate at 0.5% on Signs Recovery Is Fading

    Portugal Says 78 Billion Euros Sufficient, Flags Recession

    Banks Hit Stocks, Investors Jumpy Over Rates

    China Yuan Flat Late Ahead Of China-US Meeting, Key Announcements

    Silver Investors Dump Bets on Costs

    Food Prices Rise to Near-Record as Inflation Accelerates

    U.S. Stock Futures Fall, Indicating Fourth Decline for S&P 500

    Fed Presidents Signal Record Stimulus Won’t Be Removed Soon

    Debt Ceiling Has Some Give, Until Roof Falls In

    Wal-Mart Tops Fortune 500 Again

    Costco’s April Same-Store Sales Rise 12%

    Banco Bilbao Vizcaya Argentaria First-Quarter Profit Drops to $1.7 Billion

    ING Reports Rise in Q1 Earnings, Will Repay Dutch State

    ConAgra May Have to Go Hostile After Ralcorp Rejects Offer

    Joshua Brown: RenRen and Skimpy Financials

    Paul Kedrosky: Milken, The Shorter Version

  • Thoughts on the U.K.’s Alternative Vote Referendum
    , May 4th, 2011 at 10:00 pm

    Tomorrow, voters in the U.K. will go to the polls for the second-ever nationwide referendum. The vote is to decide what electoral system is used to select members of the House of Commons.

    The choice is between the present system which is known as First Past the Post (FPTP) and the alternative system known as Alternative Vote (AV).

    FPTP is pretty straightforward. Whoever gets the most votes wins—even if it’s a minority of votes which often happens in a three-or-more party system.

    The Alternative Vote system let’s the voters rank all of the candidates in order of preference. The candidate with the lowest total is eliminated. The votes for that candidate are then given to the next highest-preferred choice. The process continues until one candidate has a majority. In the U.S. this is often known as instant run-off.

    The back story is that in the last general election, the Conservative Party fell 20 seats short of holding a majority in the House of Commons. In order to form a government, the Tories had to form a coalition with the Liberal Democrats. The pound of flesh secured by the Lib Dems was for this national referendum.

    As the U.K.’s third party, the Lib Dems naturally thought AV would help them in future elections. This looks like an historic miscalculation. According to the latest polls, AV is trailing badly. In other words, their major concession turned out to be absolutely worthless.

    I’m more interested in the mathematical strategy behind the two electoral systems. Critics of FPTP say that it unfairly gives out-sized results to the established parties. The numbers certainly back up this criticism. In the last general election, Labour (which came in second) outpolled the Lib Dems, 29% to 23%. Yet, Labour won 258 seats to the Lib Dems’ 57.

    In this week’s Canadian election, the Conservative Party won 39.6% of the vote but they won 54.2% of the seats. In New Brunswick, the Conservatives won 43.9% of the vote but they took eight of the 10 seats. FPTP gives an advantage to top-tier parties that have broad geographic support. AV is generally favored by smaller parties or parties with a strong regional base.

    In the United States, AV is often favored by political progressives but I think they tend to overstate its impact, especially its advantage for them. I’ve often noticed that when progressives are out of power, they criticize procedural issues like voting systems or cloture or campaigns finance. I don’t mean to suggest these issues aren’t worthy of criticism. I’m merely skeptical of how much reforms will truly change things or help the political left.

    In the 2000 Presidential election, I think there were many voters who favored Ralph Nader over Al Gore but voted for Gore anyway out of a fear of throwing their vote away and thereby helping George W. Bush. Of course, this is precisely what happened.

    In that case, AV almost certainly would have helped Gore, especially in Florida. However, other marginal parties would be helped by AV. I think libertarian candidates or paleo-conservative candidates might get a surprisingly high number of first-round votes.

    It’s possible that right-of-center coalitions are inherently larger in a multi-party system and are therefore in a stronger position to win FPTP pluralities. The thinking is that it’s easier to rally disparate groups around the “No” banner than around the “Yes” banner.

    Turning to stats-speak, I think AV would fatten the tails but would probably have little discernable impact on the median.

    Ultimately, I’m a strong supporter of “Elfenbein’s Electoral Law” which states that as long as you have an open society with a free press and a robust culture of political debate, the electoral system doesn’t matter so much inregard to policy outcomes.

    (One counterexample would be the U.S. Senate’s archaic cloture rules which probably kept Jim Crow alive for 20 years longer than a parliamentary system would have allowed. Maybe 30 years. But that’s a chamber’s rule, not an electoral system.)

    The bottom line is that if you want to see your policy choice become law, you should start with having good arguments. Sigmund Freud said “The voice of Reason is small, but very persistent.”

    Finally, here’s tomorrow’s ballot question in Welsh:

    Ar hyn o bryd, mae’r DU yn defnyddio’r system “y cyntaf i’r felin” i ethol ASau i Dŷ’r Cyffredin. A ddylid defnyddio’r system “pleidlais amgen” yn lle hynny?

    Happy voting!

  • The NL Is Out-Batting the AL
    , May 4th, 2011 at 7:55 pm

    Here’s something strange I just noticed: Baseball defense is way up this year. The American League is currently batting 0.250 which is its lowest league average since 1972. Just five years ago, the AL batted 0.275. (Hmmm…it’s almost like there’s mysteriously less muscle in the game.)

    In fact, the AL’s batting is so low that it’s slightly below the DH-less National League which is batting 0.252. That’s never happened since the DH was introduced in 1973.

    Of course, it’s early May and this may be within the range of normal probability. Still, I’m curious if there’s something else going on.

  • How Much Is Google Really Worth?
    , May 4th, 2011 at 3:19 pm

    Google ($GOOG) certainly gets a lot of attention but the stock really hasn’t done that well over the past few years. Three-and-a-half years ago, the stock was around $725 per share. Since then, Google has slightly underperformed the S&P 500 (plus the S&P 500 pays a dividend and Google doesn’t).

    So how much should Google be worth? That’s hard to say. Let’s take a very basic look. Wall Street currently expects Google to earn $33.90 per share this year.

    The S&P 500 is currently trading at 13.85 times this year’s earnings estimate. If Google were carrying that multiple, it would be about $470 per share.

    However, Google is projected to grow its earnings faster than the overall market. Wall Street currently expects Google to earn $39.49 per share in 2012. The S&P 500 is going for 12.2 times next year’s estimate. So if Google carried that multiple, it would be $481 per share.

    In other words, Google’s growth premium adds some value but not a whole lot. The current price of $537 assumes a growth premium that lasts well into the future — and in my opinion — too far of a distance to make a reasonable estimate.

    This is a very rough estimate of Google’s price. What I mean to show you is the amount of future growth investors are placing in Google’s price. Sure, it may pay off, but consider that Google’s much-hoped-for future hasn’t paid off over the last three-and-a-half years.

  • Self-Directed Gen X Investors Outperformed Those With Advisors Last Year
    , May 4th, 2011 at 10:05 am

    From Cogent Research:

    Gen X affluent investors saw their investable assets grow by about 11% on average in 2010, with self-directed affluent Gen X investors seeing 28% asset growth and Gen X investors with an advisor just 3% growth on average during that same time period, according to the report.

    You can read the full report here.