Are Investors Sexist?
Posted by Eddy Elfenbein on August 6th, 2010 at 11:09 pm

Having women on your board doesn’t hurt your profits, but it apparently hurts your stock.

In terms of a firm’s profitability, appointing women to the board of directors has very little, if any, effect, says Harvard sociologist Frank Dobbin. Yet the same cannot be said of stock value, which tends to decline slightly, according to his forthcoming paper that draws on data from 429 U.S. firms. He attributes it to “unconscious investor bias,” particularly among those with smaller holdings who “likely do not inspect their own motives for buying or selling stock.”
But the consequences of their decisions add up. According to another study published in the British Journal of Management, from 2001 to 2005, FTSE 100 companies with male-only boards were valued at 37% higher than those with women on the board—“a massive number,” says author Alex Haslam.

As a stock-picker, that’s fine by me. It’ll be easier for me to spot undervalued stocks.

Today’s Rotten Jobs Report
Posted by Eddy Elfenbein on August 6th, 2010 at 10:56 am

The official numbers came out today and the nation’s jobless rate held steady at 9.5%. Even though the economy is no longer receding, it’s not growing very quickly at all. The economy needs to grow at a certain pace just to absorb the new workers that enter the workforce. If not, the unemployment rate grows, or at best, it stagnates.
The private workforce grew by 71,000 jobs last month. That’s below expectations and it comes on top of the June number which was revised downward by 31,000. The complete data shows that the economy lost 131,000 jobs in July but that includes many census workers.
The other problem is that many people are simply leaving the job market all together. The seasonally-adjusted size of the civilian workforce is less than what it was in late 2007.

“The private sector is still hobbled and certainly is not nearly strong enough to overcome the drain on the government side,” said Robert A. Dye, senior economist at PNC Financial Services Group in Pittsburgh.
Mr. Dye added that employers were pushing for productivity gains among existing workers, as evidenced by a slight increase in the average workweek for private workers. “I think that many employers are realizing that they can get by with very lean payrolls and are pushing their employees as much as they can and without adding,” he said.
Although the unemployment rate did not worsen, that was in part because people continued to leave the labor force, which means they simply stopped looking for work during the month. In July, 181,000 people left the labor force.

If the employment-to-population ratio were the same as it was 10 years ago, then there would be 13.7 million more jobs.

What It’s Like Working at Goldman Sachs
Posted by Eddy Elfenbein on August 5th, 2010 at 1:33 pm

Here’s a sample:

Wall Street, like Scientology, has an all-inclusive and claustrophobic value system all its own. Particularly at Goldman Sachs, which prided itself as a breed apart from other firms, this provincialism went even further. Former employees who had left Goldman were rarely mentioned. The unanimous phrase for it was ‘no longer with the firm,’ said in the same tone used to describe the passing of a family member.
This tendency reached the height of comedy inside the strategies division, where some of the quants published academic papers on the more theoretical aspects of their work. If an author quit Goldman though, his name would be removed from the official version of the publication. It got to the point that some papers had no authors, and had apparently written themselves. So it goes. No longer with the firm.

Read the whole thing.

Update on the 10-year/30-Year T-Bond Spread
Posted by Eddy Elfenbein on August 4th, 2010 at 11:53 pm

Earlier I wrote, “the S&P 500 hasn’t shown any net capital gain whenever the 10-year/30-year spread is wider than 43 basis points.”
That’s correct, however, I looked into the numbers a little more and it seems that the recent financial crisis had an unusual impact on this data series.
In my mind, a positive spread ought to have a positive impact on equity prices. I found that if I take out the period from October 2007 to March 9, 2009—yeah, I know, that’s a very big if—then numbers start to make more sense. Suddenly, a positive 10/30 spread is good for stocks.
After taking out that awful 17-month stretch, here’s what I found. Stocks do well whenever the 10/30 spread is greater than -33 basis points (that’s about 95% of the time). Stocks do especially well when the spread is greater than 11 basis points which is about 63% of the time. A spread of more than 11 points translates to an annualized gain of 15.6% (not including dividends). When the spread is less than 11 basis points, the annualized gain is just 1%. To reiterate, we’re now at the highest spread ever.
So is what I’m doing kosher? Errr…it’s hard to say. I can be accused of data-mining because that’s exactly what I’m doing. However, as an analyst, we have to look at our data in context. When the world was falling apart, the numbers started to make very little sense. It’s almost like putting a magnet near a compass—all the readings go kablooey.
Ultimately, I think it’s ok to play with numbers like this as long as we understand that we’re looking at models of the market. When things get hot, any historical relationship can and will break down.

Nicholas Financial Rings the Closing Bell
Posted by Eddy Elfenbein on August 4th, 2010 at 8:39 pm

Here’s the video and some pictures.

Thanks Nancy
Posted by Eddy Elfenbein on August 4th, 2010 at 4:48 pm

From Mark Hulbert:

(T)he Dow between 1897 and 2004 produced an annualized return of 5.3% when Congress was out of session, in contrast to just 0.4% when it was in session.

CNN:

House to return from summer break next week, Pelosi says

(Via: Abnormal Returns)

Record Spread Between 10-Year and 30-Year Treasury Bonds
Posted by Eddy Elfenbein on August 4th, 2010 at 10:52 am

The spread between the 10-year (^TNX) and 30-year Treasury (^TYX) is now at its widest spread ever since the 30-year started trading in 1977.
Here’s a look at the two yields:

As you can see, the two bonds track each other pretty closely so it’s hard to see the difference. Here’s a look at just the difference between the two:

The spread is now at 114 basis points. We just took out the previous high of 111 points from October 6, 1992.
So what does this mean for the stock market? It’s hard to say. It could mean that the deflation bet is off the table for now.
I ran the numbers and was surprised to learn that the S&P 500 hasn’t shown any net capital gain whenever the 10-year/30-year spread is wider than 43 basis points.

Polo Ralph Lauren Beats by 32 Cents
Posted by Eddy Elfenbein on August 4th, 2010 at 10:30 am

This morning’s earnings report from Polo Ralph Lifshitz (RL) really caught my eye. Earnings grew by 57%. The company earned $1.21 per share which is 32 cents better than expectations. That’s a huge earnings beat. RL said that for this quarter it expects sales to grow at a high-single-digits pace, although operating margins won’t be as high.

The company saw the gradual return of luxury customers late last year. However, in May it anticipated pressure from the euro’s recent woes and rising raw-materials and labor costs. Polo in recent years has been expanding in Asia—where many high-end brands are seeking growth as North American and European markets slow—and the company recently agreed to take control of its distribution in South Korea.
Clothing retailers, especially luxury brands, were hurt last year as consumers cut spending. Polo was shielded from some of the declines because each of its brands has its own distribution channel and target customer.

The stock is currently going for less than 15 times the estimate for next fiscal year (ending March 2012).

Jobs Report Lifts Stocks
Posted by Eddy Elfenbein on August 4th, 2010 at 9:55 am

Good news for Intel (INTC) today. The Federal Trade Commission said it has reached a deal with Intel regarding an anti-trust case. The problem was that Intel wasn’t charging people enough for its chips. I’m not making that up.
Like many anti-trust cases, the complaint wasn’t brought by a customer but by one of Intel’s competitors, Advanced Micro Devices (AMD). The two companies settled a civil trial last year when Intel had to fork over $1.25 billion.
The good news is that this time Intel won’t pay a dime in damages. Instead, the company will have to alter the way it sells some of its products.
The market is in a good mood this morning thanks to an optimistic jobs report from ADP. On Friday, we’ll get the official employment report from the government but the private payroll company likes to provide its own sneak-peak. According to ADP, payrolls grew by 42,000 last month and the figure for June was revised higher to a gain of 19,000. I’m not very impressed by those number but at least they’re positive!

Buy List YTD
Posted by Eddy Elfenbein on August 3rd, 2010 at 4:23 pm

Here’s an update on how the Buy List is doing so far this year. Through today, the average of the 20 stocks is up 3.03% compared with 0.48% for the S&P 500 (neither figure includes dividends). We’re on track for beating the market for the fourth straight year.

The rules of the Buy List are that I chose 20 stocks at the beginning of the year. Once they’re chosen, it’s set. I can’t make any changes during the entire year.
For tracking purposes, I assume the Buy List is a $1 million portfolio, equally weighted with $50,000 in 20 different positions as of the closing price of the previous year. Each year, I only change five of the stocks.
By mid-April, we had a big 6% lead over the market but that’s been cut in half since then. We’re still 2.55% ahead of the market.
Here’s our stock-by-stock record:

If you started the year with, say, $10 billion and followed my advice, I would have made you over $300 million.
And I don’t charge nothing neither!