• Looking Ahead to Bed, Bath & Beyond’s Earnings Report
    Posted by on September 21st, 2009 at 9:36 am

    Bed, Bath & Beyond (BBBY) is due to report its fiscal second-quarter earnings on Wednesday. I’ve been eagerly awaiting this earnings report because last earnings report was surprisingly strong. The company was certainly helped by Linens ‘N Things going under, so I’m curious if last quarter’s earnings were an outlier or if BBBY’s business is truly recovering.
    For the fiscal first quarter, Wall Street was expecting earnings of 25 cents a share, but Bed, Bath & Beyond actually earned 34 cents a share for a large earnings beat. This also topped the result from the first quarter of one year before which broke a five-quarter run of lower year-over-year declines. After the earnings report, the stock got a nice one-day bounced but didn’t really start to rally for another two weeks. Since then, the stock has been on an impressive run.
    For the second quarter, the consensus on the Street is for earnings of 47 cents a share, which is a penny higher than one year ago. I’m expecting 50 cents a share. There’s a lot to like about BBBY. The balance sheet has $857 million in cash, or $3.27 a share, and zero debt. In July, the company was highlighted in Barron’s and Time.
    The smart thing that BBBY did was to fight Linens ‘N Things on price. The downside is that there are too many coupons out there and it’s hurting their margins. Net margins for the last four quarters are down to 6% compared with 10% four years ago. That effectively erases the benefits of 66% jump in sales.

  • Quote of the Day
    Posted by on September 20th, 2009 at 12:44 pm

    From David Merkel:

    Auction rate preferred securities — when I was younger, I wondered how they worked. By the time I figured that out, the market failed.

  • David K. Levine Responds to Krugman
    Posted by on September 19th, 2009 at 12:19 pm

    At the Huffington Post:

    More to the point: our models don’t just fail to predict the timing of financial crises – they say that we cannot. Do you believe that it could be widely believed that the stock market will drop by 10% next week? If I believed that I’d sell like mad, and I expect that you would as well. Of course as we all sold and the price dropped, everyone else would ask around and when they started to believe the stock market will drop by 10% next week – why it would drop by 10% right now. This common sense is the heart of rational expectations models. So the correct conclusion is that our – and your – inability to predict the crisis confirms our theories. I feel a little like a physicist at the cocktail party being assured that everything is relative. That isn’t what the theory of relativity says: it says that velocity is relative. Acceleration is most definitely not. So were you to come forward with the puzzling discovery that acceleration is not relative…
    Of course some people did predict the crisis. Some might even have been smart enough to know that if they consistently predict the opposite of a consensus point forecast, eventually they will be right when everyone else is wrong. If I say every year: there will be war; there will be an asset market crash; there will be a recession; there will be famine; we will run out of oil – eventually I’ll be right. These kind of predictions are only meaningful if more people than can be attributed to random good luck got it right at the right time or if whatever method they used to reach that conclusion is replicable. Or does the ability to replicate results fall under the category of “not very interesting because that would be an elegant theory?”

  • Trader Quits Job to Run Hot Dog Stand
    Posted by on September 18th, 2009 at 4:37 pm

    This doesn’t seem kosher:

    “I’ve heard lots of people moaning about their jobs,” said Mr Brause. “As soon as people get to management level they dream of this, and this was a dream of mine for a while because I was pretty fed up with my job too. The office politics was terrible.”
    But as the sausages sizzled on a hot plate, Thomas said quitting his high-powered job had not made life less stressful.
    “I work 14-hour days,” he said. “I get up at 0530. This is more stressful than before! I did my previous job for 24 years so I was very used to it. Now, I have to learn a lot of things and cope with circumstances I’ve never seen before.
    “But I would say I’m happier. If you’re not happy with your job, it’s bad for you. I lost everything but it was an opportunity. So now I’m here – and I’ll see where I am in a year’s time.”

  • Beeker Goes Down
    Posted by on September 18th, 2009 at 4:26 pm

    0226-beeker.jpg
    From Dennis Kneale: “newflash to friends fans & foes: my 8pm show, “cnbc reports,” just got cancelled. let the blogosphere dance with joy! me? i’m devastated.”
    Finally. I hope the network moves toward the kind of journalism that David Faber does, and away from the gimmicks of Kneale.

  • Just In Case No One Remembers
    Posted by on September 17th, 2009 at 12:02 am

    From almost the exact bottom, March 12, 2009, Nouriel Roubini wrote a column in Forbes “How Low Can The Stock Markets Go? The answer: Lower … much lower.”
    To be clear, I’m not trying to paint Roubini in a bad light. I’m trying to point out the folly of market forecasts.

  • Fourth Downs: Kick, Punt or Go for It?
    Posted by on September 16th, 2009 at 7:26 pm

    Brian Burke runs the excellent Advanced NFL Stats blog. He combs through mountains of data to uncover interesting aspects of the game.
    Burke recently completed a big study looking at fourth downs and the advantages of going for it versus kicking or punting. As it turns out, football teams ought to go for it on fourth downs far more than they do.
    After crunching tons of data, this is the chart Burke came up with showing the recommended option of what to do on fourth down.
    The charts shows that football coaches have been far too risk averse. In fact, if they were to follow the advice on Burke’s chart, I think the number of field goal attempts would plummet.
    The lingering question is why are coaches so conservative? Perhaps it has to due with the fact that the future points you might get are abstract, whereas punting down field is obvious.
    Bear in mind that the advantage of going for it on fourth down isn’t that you’ll make the first down. Instead, it’s the net result of giving up the ball versus surrendering the ball with a punt farther down field. There are lots of variables in play.
    There is a financial equivalent (I’m sure you were waiting). What Burke’s study is really looking is risk management. That’s what a lot of investing is about as well. The question investors need to ask isn’t if Dell is a good investment. Instead, is Dell a good investment given its risk compared with other investments with similar risk?
    Behavioral economists have shown that we’re not so good at measuring probabilities. We’re far more likely to horde what we have rather than risk an uncertain payoff (See here where I asked: Which would you choose; $1,000 guaranteed or a 50% chance at making $3,000?)
    For many years now, gold has outperformed stocks and Treasuries have beaten stocks for decades. According to conventional wisdom, that’s not supposed to happen but it did. Punting on fourth down is conventional wisdom so it will take a brave coach to be the first one to challenge this orthodoxy.

  • Another New High
    Posted by on September 16th, 2009 at 4:46 pm

    The market was up yet again today. This was the eighth rally in the last nine sessions. I’ve been a fan of this rally, and I’ve had a lot of fun teasing the doubters, but it’s started to look tired to me (I mentioned I sold Dell earlier today).
    For the year, the S&P 500 is now up over 18% not including dividends, and it’s up 58% since the March 9th closing low. Our Buy List has done even better, up 36.3% for the year and 80.3% since March 9th.
    The VIX, or volatility index, got close to a new 52-week low today. Interestingly, the VIX rose today even though it usually falls on days when stocks rally. In October, the VIX came close to breaking 90. Today, it’s at 23.
    Here’s a look at the S&P 500 (black line, right scale) and the VIX (blue line, right scale):
    image854.png

  • Technical Number to Watch
    Posted by on September 16th, 2009 at 3:04 pm

    When the S&P 500 hits 1,066.86, that’s exactly a 60% gain from the March 6 intra-day low.

  • Bed Bath & Beyond Makes New High
    Posted by on September 16th, 2009 at 2:54 pm

    Bed Bath & Beyond (BBBY) just broke out to a new 52-week high today. The stock has been as high as $38.38 in today’s trading. In July, Barron’s said that stock was headed to $40 and it looks like they might be right. At the time of their call, BBBY was at $32.65.
    One of the new stocks I added to this year’s Buy List was Baxter International (BAX). I’m pleased with how the company has performed although the share price hasn’t done that well. It’s currently up about 3% this year. The company beat earnings estimates by two cents a share in January, April and July. That’s a good sign.
    The company said today that its goal is to grow EPS by 11% to 13% over the next five years. For this year, they see EPS in a range of $3.76 to $3.80. That’s what they had said in July when they raised guidance slightly. They also raised guidance in April (notice a trend here). I’m sticking with Baxter.