• Bottomfishing in Homebuilders
    Posted by on February 1st, 2008 at 2:35 pm

    I’m not much of a fan of bottomfishing for investments. There are two reasons. First is that stocks can go much lower than you assume. It’s very hard to know where it will end. The second is that when the selling does end, it usually takes a knowledge of the company or industry that only very few people have. A lower stock price doesn’t mean that a stock is cheaper. Strangely, much of the evidence suggests just the opposite.
    Having said that, here’s a look at the battered Homebuilders ETF (XHB). For those brave souls who bought a few days ago, they’re already seeing some nice gain.
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  • The Kirk Report’s Top 10 Stock Screeners
    Posted by on February 1st, 2008 at 1:27 pm

    Charles asked his readers for the best stock screeners. Here’s what they gave him:
    1. AAII’s Stock Investor Pro
    2. Amibroker
    3. Investor’s Business Daily
    4. Morningstar
    5. MSN Deluxe Screener
    6. SmartMoney
    7. Stock Screen Machine
    8. StockCharts
    9. Worden TeleChart/Blocks
    10. Yahoo Finance
    I can’t claim to be familiar with all of these, but Charles’ readers prefer AAII by “a wide margin.”

  • Nominal GDP
    Posted by on February 1st, 2008 at 12:33 pm

    Wednesday’s GDP report was awful. It now looks like the economy has entered a recession, or a best, a situation very close to one.
    Here’s a look at nominal, meaning not adjusted for inflation, GDP growth. Some folks think this is where the Fed Funds rate ought to be. For the last quarter, nominal GDP growth came in at 3.2% (annualized) and the Fed is now down to 3%.
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    The problem with GDP is that one lousy quarter usually leads to another lousy quarter. The data series is very trend sensitive. For real GDP, the magic point seems to be 2.8%.
    In 1990-91 there were seven straight quarters below 2.8%.
    Then 26 of the next 34 were above 2.8%.
    This was followed by 11 straight quarters below 2.8% (in 2000 to 2003).
    Then nine out of 12 were above, and only three of the last nine were below.
    Over the last 60 years, 57% of the quarters have had growth above 2.8%. But one quarter with above 2.8% growth has a 66% chance of being followed by another above 2.8%. A quarter with less than 2.8% growth has a 44% chance of being followed by another one below 2.8%.

  • J’accuse!
    Posted by on February 1st, 2008 at 12:11 pm

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    The strange case of Jerome Kerviel is getting stranger. The WSJ reports:

    Société Générale says wayward trader Jérôme Kerviel lost the bank $7.2 billion. But that was last week. He’s now on his way to cult celebrity — and he still hasn’t lost his job.
    Société Générale has stopped paying Mr. Kerviel and told him not to come to the office, but it hasn’t managed to formally fire him. French law stipulates that to do that, the bank must first call him in for a sit-down meeting and explain its dissatisfaction. He has the right to bring along a trade-union official, a lawyer or anyone else he’d like.
    That will be complicated: A pair of Paris judges this week released Mr. Kerviel from custody but forbade him to have contact with the bank. “This is a very peculiar case,” says Emmanuel Dockès, a law professor at l’Université Lyon 2, Mr. Kerviel’s alma mater in central France.
    Reviled by Société Générale as a malevolent fraudster and “mutating virus,” Mr. Kerviel, 31 years old, is now being hailed by a growing band of fans as “Robin Hood,” “the Che Guevara of Finance” and even a genius worthy of the Nobel Prize in economics.

    By calling him “the Che Guevara of Finance,” do they mean that he personally shot countless people, including children, for “ideological crimes,” and tried to blow up the Statue of Liberty? Eh…probably not.

    “Let’s be honest: No one likes banks…and people like the rich to get cheated,” says Christophe Rocancourt, a celebrated French con man who swindled wealthy Americans in the 1990s by masquerading as a French member of the Rockefeller family, a film producer and various other people.
    Edward Yardeni, an American economist who runs an investment-strategy consulting firm, credits Mr. Kerviel with helping save the U.S. from recession. “Merci beaucoup, Jérôme,” says Mr. Yardeni, a former chief economist at Deutsche Bank. Société Générale’s unwinding of Mr. Kerviel’s bad bets, he says, accelerated a market slide that prodded the Fed to slash interest rates.
    Mr. Yardeni says French courts will have to decide whether Mr. Kerviel belongs in prison, but “we owe Jérôme quite a few thanks,” and he “certainly deserves a footnote in American economic history.”
    The French Communist Party, meanwhile, has compared Mr. Kerviel with Alfred Dreyfus, a Jewish French army officer whose persecution by the military hierarchy at the end of the 19th century has become a byword for gross injustice.

    Wow, I didn’t even know the PCF was still around! Those boys really did have a tough century. It wasn’t just anyone who opposed World War 2 and supported the wars in Indochina and Algeria, plus the Soviet invasion of Afghanistan. There are, however, some problems with their comparison. For example, Captain Dreyfus lost his job and was sent to Devil’s Island. Kerviel is probably looking at a move deal.

  • The Worst Idea in the History of the World
    Posted by on February 1st, 2008 at 11:10 am

    I’m exaggerating, but not by much:

    New Debit Card Borrows Against 401k
    With the threat of a recession looming, many families are looking for ways to get some quick cash to make it through these hard times.
    In a move that financial analysts are calling a dangerous gamble, one company is offering a debit card that lets you tap into your 401k savings.
    Borrowing against your 401k isn’t a new concept, but financial planners say making that money so easily accessible through a debit card greatly increases the potential danger. Money taken out of a 401k now could mean less money left for retirement.
    The Reserve Solutions ReservePlus debit card lets employees borrow against their 401k plan by making withdrawals at ATMs, paying interest on the money withdrawn.

    Will the payouts be in cash or lotto tickets?

  • Today’s Jobs Report
    Posted by on February 1st, 2008 at 9:40 am

    The government just reported that the economy lost 17,000 jobs last month. This was the first decline in employment since 2003. The unemployment rate ticked down to 4.9% from 5.0%, but looking at the raw numbers, it really only dropped from 4.75% to 4.25%.
    It also looks like the BLS undated all the non-farm payroll numbers going back to 1990. I get a little annoyed seeing the government completely revised numbers from nearly 20 years ago. This revision could have happen earlier but it’s the first I’ve seen of it. Not surprisingly, payrolls weren’t as strong as previously believed. Here’s a look at the old and new numbers:
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    On the chart, the gaps looks small, but don’t let that fool you. There are about 400,000 jobs less than previously thought.
    Here’s a look at the number of jobs as a percent of the population. The regular unemployment rate only counts people in the labor force.
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  • The Risk Cycle
    Posted by on February 1st, 2008 at 9:05 am

    AEI recently published an interesting report on the economy. It’s a bit long, but here’s a sample:

    The temptation during the last half of 2007 was to view the problems tied to falling house prices as contained and manageable. At first, it was just a subprime crisis, but by the end of 2007, it had become clear that the subprime crisis was expanding into a real-estate sector crisis that, in turn, had been magnified by the securitization of claims on real estate whose value was falling. Every financial statement by a bank or investment bank that failed to specify underlying assumptions about the path of real-estate prices was and is subject to constant revision. Fourth-quarter reports by U.S. commercial and investment banks all reflect the sharply elevated losses attributed to worsening conditions in the real-estate market that, in turn, reduced the value of derivative securities on the balance sheets of U.S. financial institutions.
    The negative interaction between the real economy and the financial sector has been exaggerated in this cycle. House prices stopped rising in 2006 because they had exceeded affordability levels for most potential buyers. As house prices leveled off, the initial wave of problems emerged in the subprime sector late in 2006 and early in 2007. The hope of containment of the subprime problem evaporated in the summer of 2007 as leveraged investment funds like the Bear Stearns Asset-Backed Securities Fund collapsed. Unfortunately, in terms of providing a timely response to the rapidly deteriorating financial conditions tied to falling real-estate prices, the real economy grew strongly in the third quarter with substantial help–since reversed–from inventory accumulation and strong net exports. The real economy slowed during the fourth quarter, and the economy probably entered recession at year’s end. Substantial damage to the balance sheets of U.S. banks and investment houses had occurred that added to the negative pressure on the real economy.

  • The Surge in Tobacco Stocks
    Posted by on February 1st, 2008 at 9:01 am

    This November will mark the 10th anniversary of the Master Tobacco Settlement. The settlement was an outrageous agreement between the four largest tobacco companies on several state governments. The tobacco companies have to make huge payments to state governments. As a result, their business has to be protected. The government’s revenues are too dependent on them. Now cigarette prices are kept artificially high and the industry is well-protected.
    As you can see, the major tobacco stocks have done very well since the settlement was signed.
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  • Microsoft Bids for Yahoo
    Posted by on February 1st, 2008 at 8:38 am

    I’ve made of this story for months and now it’s coming true. Microsoft (MSFT) is offering $44 billion for Yahoo (YHOO). This comes out to $31 a share. I honestly don’t see how this makes sense at all.
    Before taking a detailed look at the businesses, just look at the numbers. For the last three years, Yahoo’s earnings-per-share have dropped from 58 cents to 52 cents to 47 cents. This year, the consensus is for 45 cents. I just don’t get how that equals $31.
    Years from now, business students will study how Yahoo was in perfect position to dominate the Internet, but they lost. Google didn’t have to win. The future was in Yahoo’s lap, but they went for Hollywood instead.
    Two earnings reports to pass along. AFLAC (AFL) earned 78 cents a share, two cents below estimates. Still, that’s a nice jump over the 66 cents they made last year. The company said that it’s looking to grow EPS by 13% to 15% this year, which works out to EPS of $3.70 to $3.76.
    Yesterday, SEI Investments (SEIC) reported earnings of 35 cents a share. That was inline with forecasts. The stock responded by dropping 80 cents a share.
    Also, Leucadia (LUK) is buying a large stake in AmeriCredit (ACF) which is an auto finance firm. Leucadia is a shrewd investor and I note this because ACF is in the same industry as our own Nicholas Financial (NICK). NICK will release its earnings on Tuesday.

  • Worst January Ever
    Posted by on January 31st, 2008 at 9:37 am

    With one day left, this could be the worst January ever. Through yesterday’s close, the Dow is down -6.2%. The record is -8.6% from 1916. The S%P 500 is down 7.7% which edges out the -7.6% from 1970. The Nasdaq is down -11.4% which easily beats the -8.6% from 1990.