September 2006

This from a business article about Accenture (ACN):

Buyback: Accenture management is clearly troubled by the fall in valuation. It has announced a buyback price per share that is not greater than $24.75 nor less than $22.50. The Board of Directors of Accenture authorized the use of $650 million of existing cash from operations to fund the offer, as well the use of up to an additional $123 million should Accenture SCA choose to increase the size of the offer in response to shareholder demand. This aggregates to about 5% of current market cap. (more…)

When I read this?AP report, my head spun.? Why?? That’s what happens when the media spins every number coming out of the Fed until you can’t help but get some bodypart caught in the whirlpool.? This is a perfect example of what happens when monthly changes in economic releases are compared instead of looking at year-over-year.? Ahead Of The Curve spends several chapters discussing the flaws of comparing one month to the next instead of looking at annual rates of change.

If you believe this article, we are all doomed.? But a simple glance at y/y charts shows that income has been?accelerating like a shot and that this, in turn, has now caused consumption rates to turn upwards.? So the very numbers that spell doom to this writer, are actually reflective of an improving picture.? Same numbers, completely opposing views.? Here are the y/y charts of my two favorite economic indicators, real hourly income and real PCE (i.e. consumption):

09292006income-1.jpg09292006pce-1.jpg (more…)

As we might have noticed, the Dow Jones Industrial Average (DJIA) just broke it’s all time high of 11,722.98 briefly in trading yesterday.? Woo-hoo.? With this new high, I noticed a post over at The Big Picture that looked at the actual change in the Dow components since the high was set on January 14, 2000.? (Take a look at his post for the data table.)
The interesting thing is that of the 30 Dow component companies, only 10 are above their prices back in 2000.? Fifteen of the 30 are down 20% or more!

Someone has been eating?my economy.

Check out this commentary from Tom Graff:

I’ve argued that home prices are sticky on the downside, because people are very reluctant to put their home up for sale at a loss. In many cases, people just can’t put their home up for sale at a loss. Let’s say I buy a $200,000 house with 10% down. The house declines in value by 5%. Now I’ve invested $20,000 and have a $10,000 loss. I want to buy a bigger home for $300,000. I have to pay off a $180,000 loan with sale proceeds of $190,000. In order for me to put 10% down again, I’ve got to come up with $20,000 in cash. If I’m like most Americans, I haven’t saved very much, so coming up with the cash would be difficult.

So what do I do? I just stay in my current house. Ride out the housing downturn.

If people delay their decision to trade up in houses, the effect is to lower supply. I think this creates a floor to how far home prices can fall in general. Maybe not so much in a given area, particularly those where investor speculation was rampant, but nationwide. This is why I’m not terribly bearish on housing, and why I don’t think housing will compel the Fed to cut rates early in 2007.

That is an interesting perspective.? As someone who has gone through the process of selling a home, I know that is exactly how I felt.? A loss wasn’t acceptable and I certainly couldn’t afford to make up any shortfalls.? What makes something like +4% a year, normally a modest number, attractive is the leverage provided by house values.? But that’s not so good when it turns negative.? But the one thing that makes it different from a stock or other investment is that you can live in it.? As long as you can afford it, you don’t have to sell it.? But the one thing this thesis leaves out is the affordability factor.? What if you can’t afford it?? It becomes like a margin call.? Still, I like the common sense of this point of view.

I assume?Nicholas M. Maounis named his fund Amaranth after the flowers of the same name that represent immortality in several literary and cultural traditions.? Pride goes before the fall.? Isn’t it ironic? Don’t you think?? It’s like Amaranth on your wedding day…ohhh, crap.? I hate getting caught singing cheesy songs while I blog.? So embarassing.

Anyway, I looked up the plant on Wikipedia and found out that he might have wanted to check a few more associations before picking this name.? For example (more…)

It seems like quite a few people are claiming the rally on Monday and Tuesday this week is simply just mutual fund (or even pension fund) window dressing. It got me thinking about what it really consists of and whether or not it happens.? Here’s Investopedia’s take on window-dressing:

A strategy used by mutual fund and portfolio managers near the year or quarter end to improve the appearance of the portfolio/fund performance before presenting it to clients or shareholders. (more…)

I had the good fortune of spending some time in a waiting room this morning where today’s Wall Street Journal was available for reading… and since I don’t subscribe to the WSJ I will have to paraphrase what I read in one of the cover stories…

Stocks and bonds rallied yesterday on the comments from Federal Reserve Governor Richard Fisher who said the economy is strong despite a slowing housing market and right now inflation is the biggest risk. […] The comments led to expectations that the Fed is done raising rates.

Am I wrong, or am I the only person who read “the economy is strong” and “inflation is the biggest risk” as preparing the way for another rate hike? When the economy is strong, that means it should be able to handle the impact of more hikes without too much trouble. If inflation is a worry, then the Fed could/should raise rates to stop it from getting out of control.

Am I missing something here? It’s just like with the last 7 FOMC rate hikes, everyone was convinced that the Fed was going to pause despite all the messages to the contrary. The market cheerleaders kept singing the same song, almost verbatim despite being wrong 6 times in a row…

[Note that I’m not saying the Fed should raise rates, but rather the reaction to Fisher’s comments was unusual…]

In light of Jason’s commentary on gold’s technical picture, I set out to understand exactly why gold has reached this position in an attempt to shed some possible light on how it might act going forward.? My adventure has taken me down so interesting back alleys to say the least.? I began by pulling out the Commitment of Traders reports from the CFTC.? I’ve been studying these reports more and more lately and now I had an excuse to do a more concentrated study on one market. (more…)

I’d like to look at the technical situation in the gold markets and compare the current correction to the market situation back in 2002. Hopefully we can learn something, and maybe even anticipate the direction of the gold market a bit… I’m not going to cover the fundamental story, or why we want to own gold… that’s a topic for another post…

There are many a gold bug that think that gold will travel in a straight line — straight up! They buy at any price, and expect the world to fall apart on any given day. It would all be a lot easier if the price of gold moved in a straight line, but alas, we have to deal with reality here.

Price changes in gold can be violent, and it’s incredibly painful as you expect prices to go straight up, when in reality they go down by 21% in a two week period as the HUI index did from 9/11 to 9/21.

Next Page »