November 2006

The latest housing report was released today by the OFHEO – Office of Federal Housing Enterprise Oversight – covering 3Q for 2006. From the report:

OFHEO House Price Index Shows Declines in Five States, Continued Deceleration in Others. (more…)

I woke up this morning and saw the following headlines:

Mergers and acquisitions are running at $3.1 trillion this year, a truly astounding number.

So, what are the implications to the rest of us? Those of us who didn’t own PD, EOP, or LSE before this mornings news? (more…)

Here’s another random assortment of interesting things happening out there in the rest of the world…

WSJ’s newly free blog states that there is chatter that another hedge fund may be on the brink of failing and that it may be responsible for some of the gyrations in the energy, bond, and currencies…

Before the election, many people thought there was a plausible conspiracy to keep the gas price down and help the republicans get re-elected. Unfortunately, crude oil keeps going down. Maybe it is just the futures contracts expiring? If so, this is a time to be a buyer…

The NYMEX IPO’ed this week to much fanfare and excessive jubilation. Come on people, NYMEX is worth $12 billion? Seems like everyone likes the exchanges — it’s the 7th exchange to go public in the US and every one of them has posted ridiculous gains since their IPOs.

Let’s all make fun of Jim Cramer together. Oh, let’s make fun of Donald Rumsfeld too while we’re at it…

P/E compression takes a long time.

The bearish case: Dr. Copper predicts a recession. The bullish case: I’ll let it speak for itself.

Take comfort in the fact that you’re rich — even if you make minimum wage. “Fed Min Wage= $5.15/hr. At 40 hrs/week, 52 weeks per year, our worst case scenario is still in the top 13th percentile of the world.”

Want to buy a supercomputer? Try the PS3. Just don’t send your personal assistant and let them name-drop… To sum up… Sony (SNE) creates batteries that burst into flames, and now sells an $800 gaming console for $500.

While it seems like everyone was very excited about the Dow Jones hitting all time highs only a couple of weeks ago, no one seems to notice or really care that the NDX (Nasdaq 100 index) has finally broken above the highs set back in January.

While the S&P 500 and the Dow have been powering forward, the NDX has been struggling just to hit a 52 week high.

In other news this morning, DR Horton, one of the larger home builders in the US, had this news release: “…fourth-quarter earnings fell 51 percent as customers canceled orders for new houses.”? (Bloomberg)? The stock (DHI) is up over 9% in pre-market trading…

I saw an ad for the newly redesigned website, and went to take a look… the website is nice, but I found a rather dubious headline chart:


Now it’s nice to see the relative performance of the major indexes, but why would you compare them like this? The Dow was up over 100 points on Monday, while the Nasdaq Composite was up less than 50 points. Does that contain any relevant information?

If they were trying to show anything accurately, they would show that the Nasdaq was up 1.5% and the Dow was up 1.2% on Monday. In fact, the Nasdaq Composite has outperformed the Dow since August.

Yes, indexing has a ton of good benefits, but there can also be some interesting side-effects for the astute observer…

This quote is from Bill Cara’s blog on the effects of the re-balancing of the Dow Jones AIG commodities index in January of 2007:

On this assumption there will be heavy buying of Nat gas, coffee and crude and large selling of nickel zinc, wheat and copper. Substantial selling is likely in nickel and zinc; less selling in copper and aluminum. We suspect these changes will occur during the January roll-period.

There are other salient points in the post, specifically that no one can predict how much an effect this re-balancing will have as there’s no easy way to tell how much money is being invested based on the index.

I find it very interesting that this phenomenon is occurring, and I’m sure some nimble traders are trying to capitalize on this special situation…

The head of NovaGold Resources Inc. says he’s “embarrassed” for Barrick Gold Corp. after shareholders again resisted a takeover offer from the world’s largest bullion producer, prompting Barrick to extend the hostile bid for a fifth time.

“Isn’t this starting to get embarrassing for them? It should be. I’m embarrassed for them,” Rick Van Nieuwenhuyse, NovaGold’s president and chief executive officer, said in an interview.

There is an interesting history to the book Margin of Safety by Seth Klarman… the book was published in 1991 to limited fanfare, but once out of print, die-hard value investors started bidding up the price of used copies (there’s a certain irony in that statement…) and now consider the book a collectible.

Business Week has a brief article called The $700 Used Book:

In the book, he describes buying Texaco (CVX ) bonds in the wake of the company’s sudden 1987 bankruptcy. What prompted the filing was the loss of a multibillion-dollar lawsuit, not insolvency. In the ensuing panic, investors dumped the bonds, and Klarman got them at distressed prices. His bet was that Texaco would make good on the debt, and he was right.

There are three copies available on eBay for as low as $510, so it’s possible that the value of value investing has been falling… though the price for a used copy on Amazon is over $1000.

As Business Week pointed out, libraries that carry the book report that the book often goes missing… as is the case at nearby Duke’s Ford Library (“Missing“).

There was news this morning that Canada is considering changing it’s tax laws regarding unit trusts. They’re proposing to remove the special tax status of the trusts (they’re similar to REITs in the US — they pay little or no corporate tax if they pay out a majority of their revenue for the year). As a result, the entire TSX income trust sub-index was down 12% in early trading today.

The trust status was being abused by some Canadian companies (i.e. a telephone company was about to convert to trust status), and the immediate consequences of the proposal would most affect new trusts — existing trusts can operate under the same tax situation for 5 more years.

This is particularly noteworthy because (a) I own a few shares of Canadian unit trust companies, and (b) this is a powerful reminder of some less obvious risks in the market. (more…)