About That $100 Oil Trade
Posted by Eddy Elfenbein on January 3rd, 2008 at 11:12 am

The big news yesterday was that oil hit $100 a barrel even though it was just one trade. Now it looks like the trade was done by a guy so he could…tell his grandchildren.

An independent trader ‘seeking his moment of fame’ caused oil prices to hit unprecendented levels of $100-a-barrel yesterday following a single deal.
The buyer, who was trading on his own money bought 1,000 barrels of crude oil from a colleague, which is the minimum allowed.
Strangely, he then sold then back almost immediately, making a loss of $600. The move left industry insiders questioning the reasons behind the deal.
Stephen Schork, a former trader at Nymex and editor of the oil market Schork Report told the Financial Times: “A local trader just spent about $600 in a trading loss to buy the right to tell his grandchildren he was the one who did it.
“Probably he is framing right now the print reflecting the trade,” he added.

Pat Robertson Predicts Stock Market Crash
Posted by Eddy Elfenbein on January 3rd, 2008 at 10:23 am

God told him:

Religious broadcaster Pat Robertson predicted Wednesday that 2008 will be a year of violence worldwide and a recession in the United States, followed by a major stock-market crash by 2010.
Sharing what he believes God has told him about the year ahead is an annual tradition for Robertson.

However, God/Robertson’s track record isn’t what you would expect.

Last year, Robertson predicted that a terrorist act, possibly involving a nuclear weapon, would result in mass killing in the United States. Noting that it hadn’t come to pass, Robertson said, “All I can think is that somehow the people of God prayed and God in his mercy spared us.”

That’s all he can think of?

Oh Erin!
Posted by Eddy Elfenbein on January 3rd, 2008 at 8:24 am

We already caught you.
Update: From Men’s Health, 8 Ways to Impress Me By Erin Burnett (via Deal Breaker)

How to Spot a Market Top
Posted by Eddy Elfenbein on January 3rd, 2008 at 7:08 am

Ever heard the saying, “they don’t ring a bell at the top?”
Think again.

“Stock” beats “sex” in Google China keyword searches
BEIJING (Reuters) – The names of three banks and the word “stocks” beat “sex” to become four of the most Googled words in China last year, according to a Google China list seen on Thursday.
China Merchants Bank, Industrial and Commercial Bank of China and China Construction Bank ranked second, third and sixth, according to a list supplied by Google China on its website (www.google.cn).
“On the Chinese mainland, it was money and technology that took the honours last year,” the China Daily said, pointing out that “sex” was the most popular keyword for Google users in some other countries.
Fourth on the list was “stock”, not surprising with Shanghai shares having risen 97 percent last year. At number 1 was “QQ”, a Chinese instant message service and a brand of car.
China’s Central Bank, the Ministry of Finance and Banking Regulatory Commission ranked first, third and fifth in the “Most Popular Departments” list, the Web site said.
In another list named “qiu zhi”, or “seeking knowledge”, “what is a blue chip” and “how to invest in the stock market” were the most searched questions on Google in China, while “what is love” and “how to kiss” ranked top of the global list.

One Day Down
Posted by Eddy Elfenbein on January 2nd, 2008 at 4:39 pm

Ugh, this is NOT how I wanted to start the year. Believe it or not, January 2 is historically the second best day of the year. Only October 20 has done better.
Every stock on the Buy List closed lower except for little Nicholas Financial (NICK). I told you it was cheap! All told, the Buy List was down 1.58% today compared with the S&P 500’s -1.44%.
The big news tomorrow will be earnings from Bed Bath & Beyond (BBBY).

Investors Haven’t Done Well?
Posted by Eddy Elfenbein on January 2nd, 2008 at 3:10 pm

Dean Baker writes:

In fact, investors in stock have not done very well over the last decade. The S&P 500 rose by a cumulative total of 52.6 percent from December 1997 to December 2007. After adjusting for inflation, the increase was 17.3 percent, which translates into real growth of just 1.6 percent a year. Add in a dividend yield of approximately the same size and we get that the average real return on stocks over the last decade has been 3.2 percent, a bit lower than the yield available on inflation indexed government bonds at the time.

Actually, the equity premium of stocks over long-term Treasuries has been much lower than most people realize. From 1969 to 2005, it’s only been 1.7% annualized. (These numbers are from Ibbotson.) That means investors can reasonable expect nominal equity returns of around 6%.
On the other hand, according to standard valuation models, the market is still very much underpriced. It’s been so dramatic that we could be going through a major shift in equity valuations. This could be one of the big stories of this decade (and hopefully, a post).
Also, the equity premium series is very volatile, so a 10-year period of zero to no premium isn’t that unusual. The 70s were worse and even the 80s don’t look that amazing. Though I would quibble with Baker’s statement that investors haven’t done well. Over the last five years, the total return of the Wilshire 5000 is 93.1% or 14.1% annualized.
(Via Salmon)

Gold at New All-Time High
Posted by Eddy Elfenbein on January 2nd, 2008 at 11:30 am

After 28 years, the price of gold has finally reached an all-time high. Although, inflation has increased by about 170% since then so gold needs to make it to $2300 an ounce to reach an inflation-adjusted high.

Update: Oil just peaked over $100 a barrel for the first time. I should remind everyone that investing in commodities has almost always been a loser’s game. The price of oil, for example, tends to be marked by sharp spikes.
A few weeks ago, Megan McArdle wrote:

One of the things that I was struggling to get across at a dinner a few weeks ago is how discontinuous prices on inelastic goods can be. That is, a few percentage points increase in demand against a relatively fixed supply doesn’t produce a few percentage points increase in price: it can produce huge spikes. That’s not intuitive; we feel as if prices and demand should grow at approximately the same rate. But people in the world have a lot of spare income they can use to bid up the price of oil; the speed with which its price is increasing is a measure of just how useful the stuff is.

If you want to know how well commodities have done, check out this chart of the CRB Index adjusted for inflation:

Nassim Nicholas Taleb on BookTV
Posted by Eddy Elfenbein on January 2nd, 2008 at 7:03 am

On After Words, David Brooks interviews Nassim Nicholas Taleb on the Black Swan. The program is an hour.

The 2008 Buy List
Posted by Eddy Elfenbein on December 31st, 2007 at 9:56 pm

Here’s my 2008 Buy List. For tracking purposes, I assume it’s a $1,000,000 portfolio and each position is worth $50,000. Here’s each stock, ticker, starting price and number of shares. This is what I’m referring to when I discuss how well the Buy List is doing.

Fifteen stocks return from 2007. The five new stocks are Clarcor, Leucadia National, Lincare, Moog and Stryker. The sells are Fair Isaac, Graco, Respironics and Varian Medical Systems. Biomet was bought out for cash in September.
The total market cap of all the companies is $303 billion. UnitedHealth is the largest at $74 billion. Nicholas Financial is by far the smallest at $71 million. The average dividend yield is 0.63%.
That’s it. The list is now “lock and sealed,” and I can’t touch it until next year.

The 2007 Buy List
Posted by Eddy Elfenbein on December 31st, 2007 at 5:35 pm

The 2007 trading year is over. For the year, our Buy List gained 4.99% compared with 3.53% for the S&P 500. Including dividends, the Buy List was up 5.58%, which just barely beat the S&P 500 at 5.49%.

This is impressive if you consider that our Buy List was more stable than the overall market. Our daily volatility was 8.92% less than the S&P 500.

In 2006, the Buy List gained 10.68%, while the S&P 500 was up 13.62%. Including dividends, the 2006 Buy List was up 11.43%, and the S&P 500 was up 15.80%.

For 2007, the best-performing stock was Respironics (RESP) which soared 73.46% followed by Amphenol (APH) which gained 49.39%. The worst stock was Nicholas Financial (NICK) which lost 38.73% followed by Harley-Davidson (HOG) which dropped 33.72%.

I track the Buy List as if it’s a $1 million portfolio. In September, Biomet was bought out at $46 a share. The proceeds were divided up into the remaining 19 stocks. This spreadsheet has more details on how well the Buy List did in 2007.

Here’s how the Buy List did throughout the year: