100 Years Ago — King Edward’s Funeral
Posted by Eddy Elfenbein on May 26th, 2010 at 11:12 pm

This week marks the 100th anniversary of the funeral of King Edward VII. This was an interesting event in world history since it was the last great gathering of European monarchs.
Just about every king or crown prince was invited (see a listing here). In fact, many of them were related to the late king. The soon-to-hated Kaiser was Edward’s nephew. You’d hardly know that in just a few years the whole world these people knew was to be blown apart by the Great War.
King Edward’s funeral is also used as an entry point in George Dangerfield’s book “The Strange Death of Liberal England.” For a student of history, the ceremony serves as a good dividing line between two periods. Two worlds, really. If you want to read really good writing, check out pages 18 and 19 here.
The Library of Congress has some footage of the funeral which I’ve embedded below. Everyone is marching by rank so in the very back of the line is a commoner—the representative of a still-strange form of government—Former President Teddy Roosevelt. This is oddly symbolic because even though the U.S. was at the back of the line, it was about to become the world’s most powerful nation.

I’ve watched this a few times. I can’t be sure but I think TR appears at 4:53 in the lower right part of the screen. Here’s the NYT‘s coverage and it confirms that TR is carrying his overcoat.

John Wren’s $41 Million ‘Golden Coffin’
Posted by Eddy Elfenbein on May 26th, 2010 at 1:02 pm

This is one of the most outrageous executive perks I’ve ever heard of. The heirs of John Wren, the CEO of Omnicom Group (OMC), will receive $41 million from the company at the time of his death.

At Omnicom Group, the chief executive gets paid until death does him part — and then even after that.
The holding company offers CEO John Wren and other top employees a perk commonly known as a “golden coffin” — a death benefit granted to heirs after the officer’s ultimate demise. Omnicom investors today rejected a proposal calling on the company to rein in this form of generosity, which could mean an additional $41 million in payouts to the 57-year-old Mr. Wren’s survivors.
The proposal’s proponent, Amalgamated Bank’s LongView investment fund, argued that it makes no sense for shareholders to make payments to the CEO in return for no services. It added that senior executives have ample time while alive to build a pension fund, buy life insurance or engage in other estate-planning activities.
“Instead of pay-for-performance, golden-coffin provisions are simply ‘pay for no pulse,'” said Scott Zdrazil, director of corporate governance at Amalgamated Bank of New York.

FinReg’s from Mays Past
Posted by Eddy Elfenbein on May 26th, 2010 at 12:44 pm

From Gary Alexander:

The Aldrich-Vreeland Act was passed May 30, 1908, in response to the Panic of 1907. The punitive measures included a tax of up to 10% on notes based on securities other than federal bonds. It also established a commission to investigate the currency and banking systems. President Theodore Roosevelt named Aldrich – a Rhode Island Republican and namesake for his grandson, Nelson Aldrich Rockefeller – as chairman of the National Monetary Commission. All this came about five years before the birth of the Federal Reserve and Internal Revenue Service in 1933.
The Securities Act of 1933 was signed into law on May 27, 1933. It was designed to prevent future Panics – now called Depressions. This federal legislation of securities required all new issues to be registered with the Federal Trade Commission. A year (and a week) later, the Securities and Exchange Commission (1934) was formed on June 6, 1934 to enforce the Securities Act. Before that, states oversaw securities offerings under a variety of “blue sky” Kansas enacted the first blue sky law in 1911. By 1933, 47 states (all but Nevada) enacted them
Ironically, May 27, 1933 was also the opening day of the “Century of Progress” World’s Fair in Chicago, and the opening day for Walt Disney’s early cartoon effort, “Who’s Afraid of the Big Bad Wolf?”

Unitedhealth Group Offers Huge Dividend Increase
Posted by Eddy Elfenbein on May 26th, 2010 at 11:41 am

Hooray for Unitedhealth Group (UNH)! The company is jumping on my lonely call for much-increased dividends. UNH said it’s going to start paying a quarterly dividend of 12.5 cents per share instead of its measly three cents a share it paid annually.
My only question is why they didn’t they do this years ago? For the past few years, Unitedhealth has made about $3 per share, yet they only paid out about 1% of that to shareholders. What did they do with their money? You guessed it—large share buybacks. And what did shareholders get for all those buybacks? Not much at all. For over four years, the stock has been a dud.
The AP writes: “UnitedHealth is the largest publicly traded health insurer based on revenue. Stifel Nicolaus analyst Tom Carroll says it is extremely unusual for a health insurer to offer more than a token dividend.” I don’t think UNH will be the last. The projected dividend yield works out 1.7%.

Fascinating Factoid of the Day
Posted by Eddy Elfenbein on May 26th, 2010 at 9:39 am

From Matt Ridley’s The Rational Optimist:

Pollution from driven cars has fallen so fast it is now below that of parked cars in 1970.

Back Up to 10,000
Posted by Eddy Elfenbein on May 25th, 2010 at 3:27 pm

The market has turned around sharply since this morning. The Dow is currently at 9987 which is over 200 points above today’s low.
Bed Bath & Beyond (BBBY), Jos. A Bank Clothiers (JOSB) and Intel (INTC) are now up for the day. Hang on. The last half hour of trading will be crucial.

Zeroing In on the Bond Market
Posted by Eddy Elfenbein on May 25th, 2010 at 2:25 pm

Bloomberg wins the award for cheekiest headline: “Strippers Declare Inflation Dead as Dealers Revive Zero-Coupon Treasuries.” The article is, of course, about stripped zero-coupon bonds (though I’m sure exotic dancers are probably privy to much inside Wall Street info).
Strips are zero-coupon Treasury bonds. So instead of getting semi-annual dividend checks, you get all your money back once the bond matures. The hitch is that zeros can be very volatile—in fact, as volatile as stocks. The longer term the bond, the more volatile it can be.
Of course, if you plan on holding the zeros to maturity, there’s no risk at all. It’s just like a T-bill. One method of investing that zero-buyers use is laddering their purchases. They work their portfolio so bonds come done each year, so there’s a continuous stream of cash.
If you time zeros right, you can make a lot of money (that’s a big if though). The Bloomberg article notes that with inflation so low, investors are crowding into zeros. The 30-year zero is up close to 17% this year. What can I say, that’s pretty darn good. Zeros typically have a higher yield-to-maturity compared to similarly dated coupon bonds. Think of zeros as like regular Treasuries but they have their own automatic dividend reinvestment program. Although they’ve done well this year, I would steer clear of all Treasuries of all maturities, TIP or not, coupon or not.
One more thing…and this is for all you math nerds. If you want to know what should be the difference between the coupon yield of a bond and its zero-coupon equivalent, then you get to be super geeky and whip out Euler’s Number (the mathematical constant e which I’m rounding off 2.718).
For example, a 5% coupon bond is e^.05, then subtract 1, which is about 5.127% for the zero.
This comes from the compound-interest problem that was solved by mathematician Jacob Bernoulli (the guy pictured above). I’ll turn it over to Wikipedia:

The compound-interest problem
Jacob Bernoulli discovered this constant by studying a question about compound interest.
One example is an account that starts with $1.00 and pays 100% interest per year. If the interest is credited once, at the end of the year, the value is $2.00; but if the interest is computed and added twice in the year, the $1 is multiplied by 1.5 twice, yielding $1.00×1.5² = $2.25. Compounding quarterly yields $1.00×1.254 = $2.4414…, and compounding monthly yields $1.00×(1.0833…)12 = $2.613035….
Bernoulli noticed that this sequence approaches a limit (the force of interest) for more and smaller compounding intervals. Compounding weekly yields $2.692597…, while compounding daily yields $2.714567…, just two cents more. Using n as the number of compounding intervals, with interest of 100%/n in each interval, the limit for large n is the number that came to be known as e; with continuous compounding, the account value will reach $2.7182818…. More generally, an account that starts at $1, and yields (1+R) dollars at simple interest, will yield eR dollars with continuous compounding.

Maybe the Worst Is Over…For Today
Posted by Eddy Elfenbein on May 25th, 2010 at 10:59 am

The worst of the selling seems to have passed this morning. The S&P 500 reached a low of 1040.78. So far, the Buy List is holding up much better than the rest of the market although that’s not saying much today. We’re basically going through the Flash Crash again but not nearly as fast.
Nicholas Financial (NICK) is up slightly. I thought Medtronic (MDT) would be doing better, but it’s still early.
The good news today is that the consumer confidence report showed more optimism from Americans.

The Conference Board, based in New York, said Tuesday that its Consumer Confidence Index rose to 63.3, up from a revised 57.7 reading in April. Economists surveyed by Thomson Reuters had expected 59.
The increase was boosted by consumers’ outlook over the next six months, one component of the index, which soared to 85.3 from 77.4, the highest seen since it reached 89.2 in August 2007, before the economy entered in a recession.
The other component of the index, which measures how shoppers feel now about the economy, rose to 30.2 from 28.2.

The problem, of course, is that these are Americans, not Europeans.

So Long Dow 10,000
Posted by Eddy Elfenbein on May 25th, 2010 at 9:20 am

The pre-market activity is signaling another down day for the markets. The Dow looks to fall below 10,000 (yet again).
The troubles are once again coming from Europe. The euro is below $1.22 and it’s close to the low it reached last week.
The market’s activity is similar to what happened in 2008. I’m not saying this is a repeat or it’s on the same scale, but we’re seeing the similar moves. For example, investors are filing out of gold, oil and stocks and into U.S. Treasuries.
In the Treasury market, the five-year yield is down to a puny 1.91%. That’s just absurd! Who really wants to lock-in 1.91% over the next five years? I guess someone does because that’s where it is but it’s less than 10% for the entire time. The ten-year yield is just 3.10%.
The good news today came from Medtronic (MDT), one of our trusty Buy List stocks. The company earned 89 cents per share which beat Wall Street’s estimate by a penny a share. Medtronic’s revenue jumped to $4.2 billion from $3.13 billion a year ago. This just barely topped Wall Street’s forecast of $4.19 billion.
This earnings report was for Medtronic’s fourth quarter. Their fiscal year ends on April 30. For the current fiscal year, the company forecasts earnings growth between 10% and 13%. Excluding charges, that means the company is looking for EPS between $3.54 and $3.64. At $40 a share, the stock is a bargain although it may be even more of a bargain later today.

People Think, Machines Don’t
Posted by Eddy Elfenbein on May 25th, 2010 at 8:31 am

Here’s a provocative ad:

Of course, on many days I wonder if “thinking” is an advantage or a disadvantage.