But Then Again….
Posted by Eddy Elfenbein on March 16th, 2007 at 7:24 am

Forbes:

Greenspan Warns Of Subprime Infection

AP:

Greenspan: Subprime Spillover Unlikely

Amgen Continues to Plunge
Posted by Eddy Elfenbein on March 15th, 2007 at 1:41 pm

Shares of Amgen (AMGN) used to trade at a nice premium to the market. Not anymore.
The stock has plunged this year, and it’s on the verge of making a 21-month low today. Still, the earnings appear to be fine. The company missed Street estimates by five cents a share last quarter, but it was still a big increase over last year’s fourth-quarter.
Here’s a look at Amgen’s stock with the earnings-per-share line in gold. The two lines are scaled at 25-to-1 (when the lines cross, the P/E ratio is exactly 25).

You can really see how far the valuation has fallen. Going by the same earnings multiple of just a few years ago, the stock could easily be worth $100 today.
At the beginning of the year, Amgen said it expects earnings of $4.30 to $4.50 a share for 2007. The company recently stood by that forecast.

Yikes!
Posted by Eddy Elfenbein on March 15th, 2007 at 12:48 pm

From the Denver Post:

Whoever sent a package with a disabled explosive device to Denver- based Janus Capital Group in late January could next send working bombs to financial-industry executives at home, a leading security expert has warned.
“There is no doubt in my mind that the next time we hear from him, we will see real devices. That is the frightening part,” said Fred Burton, vice president of counterterrorism for Stratfor in Austin, Texas.
Stratfor, also called Strategic Forecasting, is a corporate intelligence and risk-management company that has advised corporate clients targeted by the threatening letters.
The mailer, who identifies himself as “the Bishop,” has made escalating threats in a series of 15 known mailings sent over 18 months to financial- service firms, primarily in the Midwest, said Wanda Shipp, a postal inspector in Chicago.

Read more…

Cylical to S&P 500 Near 13-Year High
Posted by Eddy Elfenbein on March 15th, 2007 at 11:17 am

I know I’ve become a bore on this topic, but I think it’s big news. The Morgan Stanley Cyclical Index (^CYC) is still outperforming the overall stock market. If today’s activity holds up, then the CYC-to-S&P 500 ratio will surpass the peak from last May, and touch the highest point in 13 years.

Kvetchin’ Gretchen
Posted by Eddy Elfenbein on March 15th, 2007 at 9:26 am

Did anyone see Lost last night? Wouldn’t there be tons of dead animals around that sonic wall thing? Also, am I the only person who thinks about these things?
ANYWAY
Larry Ribstein rips into Gretchen Morgenson:

All of this highlights what I’ve been saying about Morgenson for many months. It’s not about her views, or about whether her targets are behaving well or badly. It’s about the journalism: shoddy, hysterical, unsophisticated, misleading, and often just simply poor. More importantly, it’s about the standards of her employer, which persists not only in highlighting her opinions, but in putting them on the front page as “news.”

Dealbreaker has more.

Harley and the Subprime Market
Posted by Eddy Elfenbein on March 15th, 2007 at 8:26 am

From Forbes:

Americans not only bought homes they couldn’t afford, they also spent money they didn’t have on Harleys.
In a note on Wednesday, Edward Aaron, an analyst for RBC Capital Market, said that Harley-Davidson’s financial unit has seen increased delinquencies and losses on loans given out over the past few years.
One reason for that phenomenon, he said, is the same reason that the subprime lenders are in financial turmoil — that is — they lent money to risky borrowers.
“While we don’t know which borrowers are accounting for the acceleration of loss rates in Harley’s loan securitizations, it’s stands to reason that the lower credit quality customer’s would be accounting for most of that change,” he said.
That doesn’t mean Harley is on the verge of implosion, Aaron said in an interview. But it may cause the motorcycle company’s earnings to sputter over the next few years.

This is old news. Herb Greenberg wrote about Harley’s finance unit years ago.

Finally….
Posted by Eddy Elfenbein on March 14th, 2007 at 9:11 pm

The book I’ve been waiting my whole life for.

What If the Stock Market Was a Bond?
Posted by Eddy Elfenbein on March 14th, 2007 at 2:55 pm

Here’s an unusual post. But it’s my blog, so deal.
I was curious what the historical stock market performance would look like if the stock market was a bond.
Strange? Let me take a step back and explain.
I have the monthly total return figures (including dividends) for the stock market going back to the 1920s. I wanted to take those same monthly changes, apply them to an imaginary bond and see what the yield would have been through the years.
I assumed that it’s a bond of infinite maturity and pays a fixed coupon each month. Actually, the amount of the coupon doesn’t matter, as long as it’s the same each month.
I have to think that many investors would be better served if there were such an investment vehicle. If they knew that the market’s current yield was something like 7% or 8%, they might treat their investments very differently.
What’s interesting is that investing in the 19th century wasn’t too far from this. Many stocks traded at or near “par” which was often $100 a share. Every year, the company would pay out an annual dividend, say $5 or $8 a share, sometimes none, sometimes $10 or $15. They dividend was the game, and there wasn’t nearly as much emphasis on long-term capital gains.
There’s one hitch though. I have to choose a starting yield-to-maturity for December 1925. So this isn’t a completely kosher experiment because the starting point is based on my guess. If I choose a number that’s too high, then the historical performance won’t be able to keep up, and the yield-to-maturity would grow higher and higher and soon leave orbit. Conversely, if my starting YTM is too low, the yield would gradually get pushed down to microscopic levels.
Fortunately, the data makes my job easy. If I start with 6.6%, the market’s yield gets
out of control by the 1970s. If I start with 6.5%, the yield goes to rock bottom levels by today. By my judgment, the best looking line starts with 6.538%.
Here’s what it looks like:

I have to stress that even though this “bond” is complete make believe, this reflects what the actual stock market really did for the past eighty-two years.
Over the last eight decades, the yield has averaged about 10.2%, which is right in line with the market’s long-term total return. Through February 2007, it stood at 8.3%. Seven years ago, it got down to 5% (by comparison, long-term Treasuries were going for 6.5%).

Reader Quiz
Posted by Eddy Elfenbein on March 14th, 2007 at 1:37 pm

OK class, here’s a short quiz. Let’s say the stock market sells off. We’re told it’s because investors have grown complacent about risk and bid up prices to irrational levels.
If that’s true, which stocks should do better—growth or value?

Despite the selling, growth is outperforming value.

It’s Not Over Over There
Posted by Eddy Elfenbein on March 14th, 2007 at 10:07 am

More selling in Asia. Once again, the Indian market bore the brunt of the selling:

Here’s a roundup of the Asian markets.