Author Archive

• Morning News: September 19, 2011
  Eddy Elfenbein, September 19th, 2011 at 5:14 am

  Berlin Election Deals Blow to Merkel Coalition

  IMF’s Traa Says Additional Effort Needed to Cut Greek Deficit

  Greece Under Scrutiny for Next Aid Payment

  Italian Cuts Negative for Local Governments, Moody’s Says

  China to Limit Stimulus in Slump: Deutsche Bank

  Crude Drops to One-Week Low on Outlook

  Obama Plan to Cut Deficit Will Trim Spending by $3 Trillion

  Bernanke Joins King Tolerating Inflation

  Fed Runs Risk of Doing Less Than Investors Expect

  Moody’s Stays Negative on States, Local Governments

  Scrutinizing Google’s Reign

  UBS Trading Loss Was $2.3 Billion; Gruebel Stays as Chief

  Lloyds Director Departs for Resolution

  Payless Poised for Buyout at 76% Discount

  Jeff Miller: Weighing the Week Ahead: Expecting Magic from the Fed?

  Todd Sullivan: August Industrial Production

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• Morning News: September 16, 2011
  Eddy Elfenbein, September 16th, 2011 at 5:43 am

  India Raises Rates, Breaks Ranks With BRICs

  UK’s Brown: Euro Area Cannot Survive In Present Form

  NYSE Owners Lose Big on German Embrace

  China Consolidates Grip on Rare Earths

  5 Central Banks Move to Supply Cash to Europe

  UBS Trader Gets No Miracle as Loss Leads to Arrest

  Geithner Presses Euro Zone to Leverage Bailout Fund

  Delta One Desks Are Big Moneymakers

  Goldman to Close Global Alpha Hedge Fund

  Barclays to Open London Precious Metals Vault

  Citic IPO to Raise Up to $1.94 Billion; ManU Scores Singapore Listing Approval

  Esprit Shares Tumble 20% After Dismal Earnings

  Air France Splits $12 Billion Order Between Airbus, Boeing

  Silver Lake Is Said to Weigh Buying Yahoo

  Paul Kedrosky: Taleb: People Kept Telling Me I Was an Idiot

  James Altucher: Ten Scams You Encounter Every Day

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• Morning News: September 15, 2011
  Eddy Elfenbein, September 15th, 2011 at 5:36 am

  Greece Is to Remain in Euro: Sarkozy, Merkel

  European Stocks Gain on Backing for Greece

  China Ties Aiding Europe to Its Own Trade Goals

  Italy Gives Final Approval to Austerity Plan

  U.K. Retail Sales Fall

  Crude Oil a Tad Lower; US Stocks Data, Euro Woes Weigh

  Europe Won’t Allow a Lehman-Like Collapse, Geithner Says

  Supercommittee to Get Push From Senators to Increase Savings

  Automakers and U.A.W. Still Talking

  US Orders Bank Of America To Pay $930,000 To Fired Whistleblower

  UBS Says It Had $2 Billion Loss From Unauthorized Trading

  Groupon Back on Track for Its IPO

  Facebook Delays IPO

  Toys R Us Holiday Mantra: In Exclusives We Trust

  Jeff Miller: Finding the Best Information about Europe

  Stone Street: Financial Regulation: One Step Forward, Twelve Steps Back – FINRA’s Bid for More Power

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• Benford’s Law and Greece
  Eddy Elfenbein, September 14th, 2011 at 9:17 am

  I’ve written about Benford’s Law before. The law predicts the frequency at which first numbers ought to appear in a random distribution. The law has been used to catch folks who have fudged their data.

  Tim Harford highlights some researchers who have turned Benford’s Law on Greece’s economic data:

  Manipulated data often fail to satisfy Benford’s Law. A manager who must submit receipts for expenses over £20 may end up filing claims for lots of £18 and £19 expenses – and the data will then contain too many ones, eights and nines. A forensic accountant can easily check this, and while not an infallible check (fraudster Bernard Madoff filed Benford-compatible monthly returns), it’s an indicator of possible trouble.

  Which brings us back to the data Greece submitted to the European statistics agency. According to Rauch and his colleagues, Greek data are further from the Benford distribution than that of any other European Union member state. Romania, Latvia and Belgium also have abnormally distributed data, while Portugal, Italy and Spain have a clean bill of health.

  Would a Benford-style analysis have helped spot Greece’s problems? In principle, yes. In practice, one wonders whether politics would have trumped statistics. A shame: according to Benford’s Law, Greece’s data were particularly odd in 2000, just before it joined the euro.

  (H/T: Jason Zweig)

• Retail Sales Unchanged
  Eddy Elfenbein, September 14th, 2011 at 8:58 am

  The futures indicate that the market will open higher this morning. The surprising news of this morning is that the Democrats lost the by-election to replace Anthony Weiner in New York’s ninth congressional district. This was seen as a relatively safe seat for the Democrats.

  The retail sales report for August was unchanged from July. Wall Street was expecting an increase of 0.3% so this was a bit of a surprise. Some economists are concerned that the summer swoon had a larger impact on consumer spending than was first realized. Also, the initial retail sales report for July showed an increase of 0.5%. That was revised down to 0.3%.

  The PPI report showed that wholesale inflation was flat last month which is welcome news for inflation hawks. The “core rate” rose by just 0.1%.

  There’s more bad news for French banks this morning. These banks had the most exposure to the problems in Greece. Moody’s has downgraded the long-term debt of two major French banks, Société Générale and Crédit Agricole. Additionally, BNP Paribas is under review for a downgrade. Actually, some investors think Moody’s action could have been harsher.

• Morning News: September 14, 2011
  Eddy Elfenbein, September 14th, 2011 at 5:32 am

  Risk Rises at ECB as Europe Banks Lose Deposits

  From Europe, Mounting Pressure Over Greece’s Debt

  French Banks Downgrade Revives Euro Debt Fears

  European Shares Turn Positive on Euro Bonds Hopes

  Asia Corporate Sentiment Slides on Global Worries

  World Must Cut Deficits, Not Rely on China: Wen

  Gold Declines as Stocks, Commodities Drop on European Debt Risk

  Crude Oil Drops From Six-Week High on Concern Economic Recovery to Falter

  Geithner Takes Tougher Tone on Europe

  Banks Brace for a Season of Fall-Offs

  RIM Poised to Miss Tablet Estimates as IPad Wins

  Dell Sets $5 Billion Buyback

  Demand at Target for Fashion Line Crashes Web Site

  Soaring U.S. Poverty Casts Spotlight on ‘Lost Decade’

  Joshua Brown: Short Interest Explodes, Face-Ripper™ Coming?

  Phil Pearlman: If It Weren’t for the Sales Tax Break, Amazon Would be Getting Crushed By Best Buy

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• The Power of Momentum
  Eddy Elfenbein, September 13th, 2011 at 7:49 am

  In a post yesterday, I criticized some sloppy analysis which tried to make overly broad statements based on long-term stock data. Here’s a good example of how long-term data ought to be used. The chart below shows the historical performance of stocks ranked by momentum decile (meaning 10% slices).

  I took the numbers from Ken French’s data library. The reason why this is a more sound method is that we’re using long-term data to isolate one particular aspect of stock performance.

  It turns out that stocks that are in motion have a very long record of continuing to stay in motion. Just to be clear, momentum is defined by performance over the 11-month period starting 12 months ago and ending one month ago. The month directly prior to each period is excluded. At the end of the month, the whole thing is repeated.

  

  The deciles are perfectly ranked by momentum. The portfolio with the highest momentum did the best. The second-best came in second and so on, all the way down to the worst momentum which came in last.

  Decile	Gain
  Low	-1.58%
  2	4.73%
  3	5.85%
  4	8.09%
  5	8.46%
  6	9.38%
  7	10.68%
  8	12.35%
  9	13.11%
  High	16.72%

• Morning News: September 13, 2011
  Eddy Elfenbein, September 13th, 2011 at 5:00 am

  More Job Cuts Loom for European Banks With Fixed Pay

  Wary Investors Start to Shun European Banks

  I.M.F. Chief’s Change of Tune on Bank Capital

  Italian Bonds Decline Before Debt Auction; German Bunds Fall

  Gold Rebounds 1% on Persistent Euro Zone Worries

  Nikkei Rises From 2 1/2-Year Low as Trichet Eases Europe Worry

  Treasury Yield 8 Basis Points From Record Low on Debt Concerns

  HP Extends $11.2 Billion Autonomy Offer

  Microsoft May Disappoint With 19% Payout Boost

  Detroit Sets Its Future on a Foundation of Two-Tier Wages

  Broadcom’s Chip Valuation Signals 39% Gain for Cavium

  Obama Team Backed $535 Million Solyndra Aid as Auditor Warned on Finances

  Outsiders’ Ideas Help Bank of America Trim Jobs and Costs

  More College Grads Defaulting on Student Loans

  Todd Sullivan: Lehman and Used Car Sales

  Howard Lindzon: Momentum Monday (09/12/11)…Why Visibility is Dead and Why Apple and Amazon Love It!

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• Goldman Breaks Below $100
  Eddy Elfenbein, September 12th, 2011 at 2:54 pm

  Shares of Goldman Sachs ($GS) dropped below $100 very briefly today. This is an enormous drop off from the start of the year when the stock was at $168. Bear in mind that Goldman earned over $22 per share in 2009.

  

• From the Department of Silly Analysis
  Eddy Elfenbein, September 12th, 2011 at 12:59 pm

  E.S. Browning’s “Abreast of the Market” column today features a very bullish forecast made by Professor Richard Sylla of NYU.

  Using 10-year averages of annual market returns, including dividends and adjusted for inflation, Prof. Sylla and his colleagues found that U.S. stocks have risen and fallen in surprisingly consistent waves for more than 200 years. The pattern has become even steadier since World War II.

  I think this sort of analysis is highly superficial yet (and?) it seems to be very popular. First, looking at very long-term market performance is interesting from a historical perspective but much of this data is far from rigorous. The stock market was a minor speck of the American economy in 1790. Equity markets in a modern sense didn’t develop until the 1920s. Plus, the markets were not very efficient through the 1960s. I like to look at long-term data as well, but it’s a mistake to draw precise conclusions from it.

  If the market sticks to its long-term pattern, Prof. Sylla says, the Dow Jones Industrial Average could climb to 20250 by the end of 2020, up 84% from today. The Standard & Poor’s 500-stock index might hit 2300, up 99% from Friday’s close of 1154.23.

  It’s one thing to say that stocks are below their long-term average. I’m fine with that and it’s something you can easily show. But as with many in the art of pseudo-forecast, Professor Sylla is hedging his call beyond reason.

  Now a recovery with 6.5% average annual returns, equal to the historical inflation-adjusted average, would fit, he says. He isn’t saying stocks will rise that much each year, just that this could be the average.

  Prof. Sylla does see a 25% chance that the next decade could fall well short of that.

  Sorry–this is where you lose me. A 25% chance isn’t exactly small. Making any forecast and giving yourself a one-in-four chance of being WAY off the mark makes the other 75% totally worthless.