Goldman Sachs: Perfect for the Quarter
Posted by Eddy Elfenbein on May 10th, 2010 at 4:04 pm

DealBreaker reveals this little fact: Traders at Goldman Sachs were profitable every single day last quarter.

Goldman Sachs just revealed in an SEC filing that its traders made money on every single trading day last quarter, a record for the firm. Net revenue for trading was $25 million or higher in all of the first quarter’s 63 trading days with 35 of those days bringing in more $100 million, according to the filing.

That’s one smart squid.

Deep Value at Wendy’s
Posted by Eddy Elfenbein on May 10th, 2010 at 1:07 pm

This Thursday, Wendy’s/Arby’s Group (WEN) will report its earnings. My prediction is that earnings will be seen as either very good news or very, very bad news. (Impressive analysis, no?)
The reason why I’m highlighting Wendy’s is that it’s a good example of what you often find in value investing. I’m not terribly impressed by the business but the market, as evidenced by the share price, is far less impressed. It’s the gap between perception and price that value investors seek out—even if that still leaves you with a mediocre company.
Wendy’s business has not been doing well, but at $5 the stock is well below its true value. The stock is even going less than book value which is $5.16 per share. In September 2008, (Triarc the owner of Arby’s) bought Wendy’s for $2.34 billion. We can now see that the merger isn’t working out. The Wendy’s side of the business has been sluggish but it’s the Arby’s side that’s really hurting things.
The company is investing lots of money in an effort to turn things around. I’m skeptical but at least they’re trying. Arby’s is getting killed at the price level, so management is aiming to expand their value meals. To give you an idea of what Wendy’s/Arby’s Group’s valuation is like, the current price/sales ratio is about 0.62. At McDonald’s (MCD), it’s 3.35.
The arguments in favor of Wendy’s/Arby’s Group is that the company is profitable, albeit barely. They also pay a very modest dividend. I think a good way of looking at the stock price is seeing it as the sum total of two very different outcomes. I’m making up these numbers but I think it will illustrate my point. Let’s say that the market thinks there’s a 25% chance WEN will go to $14 and a 75% chance that it will go to $2. The whole adds up to $5 but you can see that just under the surface are wildly divergent views.
I don’t know if management’s plans will pay off but we’ll get a hint this Thursday. I think the stock is a good, but highly risky, buy.

AFLAC Soars
Posted by Eddy Elfenbein on May 10th, 2010 at 11:02 am

The stock market is having a very strong morning. We’ve basically closely the gap from everything we lost during last week’s panic. The Dow is currently up 360 points and our Buy List is doing even better. Thanks to the European bailout news, AFLAC (AFL) is doing especially well. The supplemental insurer is currently up $5.40 which is over 12%.
I realize I’m beginning to sound like a broken record, but the cyclicals are the key stocks to watch. The Morgan Stanley Cyclical Index (^CYC) is up 5.22% which is well ahead of the S&P 500. This is clearly the “it” index of this market.

Economist Tells Truth, Apologizes
Posted by Eddy Elfenbein on May 10th, 2010 at 10:45 am

J.P. Morgan Economist Calls Senators ‘Ignorant’
The hearings exposed an unnerving ignorance of fundamental principles of market economics by folks who have a hand in remapping rules of finance that will be with us for a while.

We begin counting, now. Three…two…

JP Morgan apologizes for memo trashing Senators

Order Your Federal Reserve Comics Today
Posted by Eddy Elfenbein on May 7th, 2010 at 10:08 am

No, I’m not making this up.

Decent Emplyoment Report
Posted by Eddy Elfenbein on May 7th, 2010 at 8:38 am

After yesterday’s turmoil, Wall Street was early anticipating today’s jobs report. The good news is that it was a good report. Good, not great. This is especially good because few people were expecting good news.
The non-farm payroll report said that the U.S. economy created 290,000 jobs last month and another 230,000 in the month before that. So that’s 520,000 jobs over two months. Not bad.
The problem, of course, is that in the 24 months prior to that, the economy shed 8.25 million jobs. In other words, we still have a long, long way to go.

The unemployment rate rose to 9.9% after being stuck at 9.7% for the first three months of the year. This figure, however, is a bit misleading. Breaking out the decimal points, the unemployment rate for March was 9.749% and it rose to 9.863% last month. While this is being reported as a 0.2% rise, it was, in fact, an increase of 0.114%.

Watch the Market Tumble
Posted by Eddy Elfenbein on May 7th, 2010 at 12:01 am

(Via: TBI)

The Buy List Survives
Posted by Eddy Elfenbein on May 6th, 2010 at 11:50 pm

I’m happy to report that our Buy List survived today, bruised but still alive. The average of our 20 stocks was down -3.03% compared with 3.24% for the S&P 500.

The only one of our stocks that appeared to be impacted by the glitch was Reynolds American (RAI). Reynolds dropped from $53.55 to $36.35 and rallied to $51.53.

WTF!
Posted by Eddy Elfenbein on May 6th, 2010 at 11:30 pm

So I head out for a meeting this afternoon and the market goes bananas. I trust you people to take care of these things when I’m not watching.
Ok, let’s dissect what happened. The market had been drifting lower during the early afternoon. Then at around 2:30, all hell broke loose. At one point the Dow was down 1,000 points (or 998.5 to be exact). The market then staged a furious 650.7-point rally to close down “only” 347.80 points.
Traders had been worried about Greece, the British election and tomorrow’s jobs report. However, something truly odd was going on. Accenture (ACN), for example, dropped from around $40 a share to a penny. Procter & Gamble (PG) and Philip Morris (PM) were also down sharply without explanation. Six companies traded at $0. Someone had clearly blundered
As of now, nobody knows exactly what happened but it seems that the computers started to rise up against us. Or more specifically, someone with a fat finger hit the wrong button. There was a rumor that a guy at Citigroup dumped $16 billion worth of S&P futures, instead of the $16 million he was supposed to. Hey, these things happen. Billion…million. Tomay-to…tomah-to.
What may have happened is that one series of program sells kicked in another serious of sells and it quickly snowballed. The Nasdaq has said that it will cancel hundreds of trades made between 2:40 p.m and 3 p.m. The quote of the day belongs to the WSJ’s Evan Newmark: “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.”
Bear in mind that on any given day, roughly 50% to 75% of all trades are done through high-frequency trading. The hero of the day turned out to be Jim Cramer. He was on CNBC with Erin Burnett and told viewers, “That’s not a real price. Just go buy Procter & Gamble.”

Score One for Efficient Markets!
Posted by Eddy Elfenbein on May 6th, 2010 at 1:56 pm

You better sit down for this one.
Earlier I mentioned that Fiserv (FISV) started spiking around noon.
The reason seems to be that Blackstone (BX) and others are in talks to buy Fidelity National Information Services (FIS).
Yes, they’re confusing the ticker symbols.

Or possibly, folks are buying FISV because they think other people will mistake the ticker symbols which will lead to…even more people buying FISV!
In other worlds, welcome to Wall Street.
(I should add that the two companies are competitors so some reaction to the buyout should be expected.)