Becky Quick: Obama Sullied Office with Ass-Kick Remark
Posted by Eddy Elfenbein on 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
Posted by Eddy Elfenbein on 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
Posted by Eddy Elfenbein on 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
Posted by Eddy Elfenbein on 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.

The Economics of the World Cup
Posted by Eddy Elfenbein on June 8th, 2010 at 9:45 am

Goldman Sachs has an interesting report on the economics of the World Cup.
Foreign Policy writes:

UEFA’s (Union of European Football Associations) selection of the 2012 Euro Cup host proved prescient, as well. Picking in 2007, Poland won the rights to host the tournament (OK, co-host with Ukraine, but since then UEFA has suggested Poland be the sole host, which the Poles have graciously declined to accept). Poland, however, was the only bid country that hasn’t suffered economic decline since — and yes, Greece was the first bid country eliminated.
Other notable findings: the Growth Environment Scores (a Goldman-devised figure of sustainable economic growth and productivity) of respective countries loosely correlate to soccer performance, but a much stronger connection exists between the improvement of economic conditions and national soccer teams. (Algeria, which did not qualify for the 2006 finals in Germany, posted the highest GES improvement among developing countries over the last four years.) The report also argues that success is partially dependent on the number of males aged 18-34 in countries, and provides a UN chart with predictions for 2050. If the claim is accurate, the Nigerian Super Eagles are going to be really, really good in a few decades.
Lastly, Goldman offers their own predictions of the semi-finals (I won’t spoil, though I will say it’s what my predictions are as well), and lists the probability (with their metrics) that each country will become World Cup champions.
It’s lengthy, but an extremely interesting read, and provides the best rundown of the Cup to come that I’ve seen. Check it out.

Bubbles Past, Present and Future
Posted by Eddy Elfenbein on June 7th, 2010 at 12:34 pm

Investment bubbles are often harder to spot than people think. Sure, in retrospect it looks easy. But at the time, events aren’t so obvious. In fact, after the fact can be difficult as well.
Let me show you what I mean. Consider Amazon.com (AMZN). The stock was a classic bubble when it rose from $1.50 (split-adjusted) in mid-1997 to over $100 by 1999. Naturally, the bubble burst and shares of Amazon fell all the way back to $6 shortly after 9/11.
So we all learned our lesson, right? But hold on, Amazon slowly recovered and traded as high as $150 just a few weeks ago (absurdly overvalued in my opinion, but that’s for another time). So even if you bought Amazon at its peak during the Internet craziness, you’d still have a modest profit today while many stock investors have had no profits at all. That is, if you held on to AMZN during some very unpleasant periods. The bubbleness is relative.
Yahoo (YHOO), by contrast, closed the first day of the new millennium at $118-3/4 (fractions, remember those). The stock closed Friday at $15 so YHOO is still off by more than 87%. So that’s a bubble, right. But I don’t think the bursting is quite done. Supposed Yahoo continues to fall, that would mean we’re in a bubble right now as well. But again, the future isn’t so obvious.
eBay (EBAY) is another problematic bubble. Back in the fun days, the stock rose from $2 to $25 in a little over six months. The bubble bust and the stock dropped to $7. Yet, by the end of 2004, eBay was closing in on $60. Again, if you had held on, you would have been in the black. The stock was back down to $10 last March.
So where’s the bubble? It depends where you stand.

S&P 500 Industry Groups
Posted by Eddy Elfenbein on June 7th, 2010 at 10:21 am

Here’s a look at how the different industry groups within the S&P 500 have performed this year:

What’s interesting is that the last stage of the bull market (February to April) was largely driven by three industry groups (industrials, financials and discretionaries). Those have also been the areas that are down the most since the market started heading south. Outside of those three, the market has been fairly stable.
Consumer staples are down just -7.9% from their 2010 high while financials are off by more than -17.1%. What’s interesting is that financials seems to have lost their downward momentum since May 20. From May 20 through June 4, financials are the third best-performing sector. Perhaps that’s a sign that the worst is over. Second-quarter earnings reports are only a month away.

Walmart’s Awful $15 Billion Share Repurchase
Posted by Eddy Elfenbein on June 4th, 2010 at 10:40 am

Do they do this just to annoy me?

At its 40th Annual Meeting of Shareholders today, Wal-Mart Stores, Inc. announced that its Board of Directors approved a new repurchase program that authorizes the company to repurchase $15 billion of its shares. This program replaces the previous $15 billion program, which was announced June 5, 2009 and had approximately $4.7 billion of remaining authorization. Under the program, repurchased shares are constructively retired and returned to unissued status.
“Share repurchase and dividends represent great ways to return value to our shareholders. In fact, in the first quarter of fiscal 2011, our $3 billion purchase representing 55.6 million shares, was a record for Walmart,” said Tom Schoewe, Wal-Mart Stores, Inc. executive vice president and chief financial officer. “During the past three years, our commitment to share repurchase was reflected in the company buying $18.5 billion of shares. In addition to share repurchase, Walmart will pay shareholders more than $4.5 billion in dividends during fiscal year 2011.”

A great way to return value to shareholders is to return money to shareholders. Notice that a back buy announcement is in dollar figures not share figures because the share price will move, and not always in the way you want.
Walmart (WMT) has 3.76 billion shares outstanding so $15 billion is about $4 a share on a $51 stock. The stock is exactly where it was 11 years ago. This is another example where shareholders would have been much better off with dividends instead of stock repurchases.

The Disappointing May Jobs Report
Posted by Eddy Elfenbein on June 4th, 2010 at 10:12 am

Today’s unemployment was surprisingly weak. The jobless rate for May was 9.698%. That’s below the peak rate of 10.147% from last October but we’re slightly above where we were in January and February.
Here are some eye-opening stats: Over the last 10 years, the labor market has increased by 12 million yet the number of employed has risen by 2.8 million and the number of unemployed has grown by 9.2 million. It’s as if the unemployment is running at 77% for the number of new people added to the workforce. Not to mention the labor force participation rate has fallen from rough two-thirds to less than one-half.
Nonfarm payrolls rose by 431,000 but that was almost entirely due to government hiring of census workers.

“The U.S. employment data was disappointing,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman, in a statement. Mr. Chandler noted that private-sector job creation, a crucial measure, reached only 41,000, compared with expectations for 180,000 and a three-month moving average of 155,600.
“The fact that the unemployment rate ticked down is not really good news,” he added, “as the decline in unemployment was not a function of more jobs but a reflection of people leaving the work force.”
The May figures suggest that the job market still has a long way to go. The economy has to add more than 100,000 jobs every month to absorb the new entrants to the market. And they are joining a labor pool that is already swollen with 15 million Americans looking for work.
More than eight million people have lost their jobs since the start of the recession in December 2007.

A Falling Stock Isn’t Always a Cheaper Stock
Posted by Eddy Elfenbein on June 3rd, 2010 at 12:56 pm

One of the hard parts about investing is that good buys are often tarnished in some way. That’s why the market discounts the price. You have to be brave enough to overlook the bumps and bruises to find a gem (yep, I’m mixing metaphors—deal).The key for investors is judge whether the negatives are truly damaging to the business or merely a passing problem.
I’ve gotten some emails recently about BP (BP). If you’re not familiar with this story, the company has apparently had some public relation problems of late. Hey, these things happen. BP’s stock has dropped sharply from about $60 about six weeks ago to around $38 today.
So it’s a bargain, right?
Probably not. Just because the stock is down, doesn’t mean BP is a good buy. It only means that it’s cheaper than where it was, and that says little about where it will be. I think investors would be well-advised to steer clear of BP. The shares will hit bottom but I don’t think that’s come just yet. The difficulty is that even if this is a tremendous overreaction, the knowledge required to make that judgment is way outside my expertise. It’s not just me. It’s outside everyone’s expertise because BP’s future will probably be a heavily politicized one.