Nathan Rothschild “Buy when blood is running in the streets”
Allied Signal’s Lawrence Bossidy “We never took advantage of
the Mexican crisis to grab bargains south of the border. We missed that boat there…we won’t have that
problem with
“Companies that are growing the fastest are ones that are the most fanatical about costs” XRX – CEO G. Richard Thomas
“Cash is a fact, earnings an option”
“Not only a dog, a dog with fleas”
“Don’t want to catch a falling knife”
“Just like the tides, as it rises, all boats will rise”
“Demographics – you’re not wrong unless there is a plague”
“There is a big difference between a hedge fund that hedges and a hedge fund that is leveraged”
“Hedge Fund managers can bet on the Super Bowl with their client’s money if they wanted to”
“Everybody’s a genius in a bull market”
“It’s hard to get profits if you aren’t selling anything”
“An understanding of insurance is vital for the CEO…there is nothing more important than understanding risk management” - Warren Buffet
“They threw the baby out with the bath water”
“Tree’s don’t grow to the sky”
“Nobody ever went broke taking a profit”
“The market climbs a wall of worries”
“It’s a dead cat bounce”
“Booms and Bust cycles have always been a part of the American business culture”
“No one starts a business of his own who is happy with their current job”
“20th Century business decisions makers had been hampered by pervasive uncertainty” – Alan Greenspan
“The key is translating productivity into profits” – Paul David on the Internet model
“People underestimate the length of time it takes to discover a new business model”
“Anytime you can improve gross margin and reduce inventory in a difficult market, it’s a good thing” Michael Capellas – CPQ
“A crisis is the moment you improvise”
“It’s always better to admit that you may not be up for the job rather that fumble it”
“Technological advances almost seem to require periodic investment mania”
“It was true ten years ago, and its true now. When the economy is down, companies change hands”
“I don’t believe in the V-shaped recovery scenario for the
“You don’t do a merger just to fill in one or two years” – Merck’s CEO Raymond Gilmartin
“Debt isn’t like wine, it won’t get better with age”
“A direct sales force is the most expensive thing in the world”
“If (stock) options aren’t a form of compensation, what are they? If compensation isn’t an expense, what is it? And if expenses shouldn’t go into calculations of earnings, where in the world should they go” – Warren Buffet on Stock Options
“When you have a CFO become CEO, companies never grow”
“If something doesn’t sell, I never say, ‘well people didn’t understand it’, If people don’t understand it, it doesn’t belong in the store” – Reed Krakoff, CEO of Coach
“When you do a lot of deals, you can promise great things – and without ever having to prove it…it all works fine until the deals stop” – serial acquirers
“
“We have witnessed time and again that after an asset
inflation has developed into a major bubble, it is impossible to soft-land that
market” – Yutaka Yamaguchi – Bank of
“Anything but results is Philosophy”
“If I want sustainable profits, I’m going to invest in the longer term, even if it has a negative impact on the short term” – Nestle CEO Peter Brabeck
“You don’t christen a ship with the name of a ship you sank”
“Investors ignore risk if they look at earnings alone”
“It’s all about the war now. B.S. moves us 30 cents, confirmed stories move us a dollar” – regarding rumors of terrorism and captures/attacks
“This market will whiplash you like a scolded women” – Tokyo Joe (Yun Soo Oh Park)
“
“We argue today that
“It’s in bad times when good deals are struck”
“If you don’t have your costs in line with your competitors, you will forever struggle, if not perish” – Stephen Wolf – Longtime airline industry titan – CEO of Republic, United, and US Air
“Enjoy the rally, but be ready to sell into it when the chorus girls are kicking high and the bubbly is popping” – David Roche – President of Independent Strategy
“All business keep or lose their competitive advantage based on how well they execute thousands of little tasks”
“It’s not how big the competition is, it’s how fast the competition is moving” – Jack Welch
“Companies were bought on buzz without having any traction in the market” – thought on the Internet craze of the late 1990’s
“In a liquidity-driven rally, fundamentals matter less and less” – Jesse Eisinger – WSJ
“Tech investors are more faddish than teeny-boppers” – Jesse Eisinger – WSJ
“The stock market isn’t the economy” - Jesse Eisinger – WSJ
“The hardest part of emerging-market investing is properly pricing political risk” – George Hognet – State Street Global Advisors
“We’re not going to beat the competition by being the competition” – Jeff Weiner S.V.P. of Search at Yahoo
“We cannot protect the American people from reality…There are many, many quality engineers around the world who want to participate.” – Carly Fiorina on work place globalization
“A lot of transforming mergers are done by people who are very smart and correctly predict a shift in their business model or very desperate because their existing business model is evaporating in their face and the only solution is to buy someone else’s business model” – Charles Nathan – NY merger lawyer
“It’s hard to run your calculator when your holding your pom pom’s” – John Gavin – SEC Insight Inc. – on inherently bullish analysts
“One rate hike alone isn’t enough to derail a bull market. Usually it takes two or three or even four” – Sam Burns – Ned Davis Research
“A Management team distracted by a series of short term targets is as pointless as a dieter stepping on a scale every half hour” – Google founders, Larry Page and Sergy Brin on a company’s ability to predict their business guidance on a narrow range for each quarter
“I try to make it very clear that change is no criticism of the past” – Niall Fitzgerald – Co-chairman of Unilever
“There are no tired brands… only tired brand managers” - Niall Fitzgerald – Co-chairman of Unilever
“If you’re not a risk taker, you can’t make any money” – Sumner Redstone
“The Fed’s action was as surprising as getting a tie for father’s day” – Art Cashin – UBS
“Never short a dull market”
“Japan is to the US financial markets what Saudi Arabia is to the world oil markets – the primary provider of capital” – Joe Quinlan – Chief Market Strategist, B of A Capital Management
“Never let a small loss turn into a big loss!”
“Consolidation always is more attractive when and industry is getting hammered, not when it is making record profits” – WSJ Article – Oct 21, 2004
“The best time to fix something is when you’re still making great money but your P/E ratio is going down” – Larry Selden, Colombia University
“You should view yourself as a portfolio of customers not product lines” - Larry Selden, Colombia University
“Sell is not a bad word” – James Kramer
“If your Bearish and right, people hate you. If your Bearish and wrong, people laugh at you. You can’t win” – Michael Metz – Oppernheimer
“There is so much money in China…any revaluation of the Chinese Currency against the dollar would make US targets [companies] even less costly for Chinese acquisitions” – Fred Hu – Goldman Sachs Honk Kong – June 2005
“You never pull the trigger until you know you can win – Robert Ailes – CEO of Fox News – June 2005
“The market can stay irrational longer than you can stay solvent” – Vince Kaminski
“A rolling loan gathers no loss” – attributed to the subprime meltdown when subprime loans, etc. were bundled, securitized, and traded.
AT&T in 1951 - First company with one million shareholders
CEO’s are often seen as having superior general management and leadership skills, not specialized industry knowledge
Dominos CEO and founder Thomas Monagham – office in Ann Arbor – 2 story, 3,500 sqft., fireplace, 2 bathrooms, ceiling is silk, leather tiles, window looks out to companies 80 buffaloes – Sold Domino’s for $1B, now on an all out catholic crusade to make the church in his own vision – Owned and sold Detroit Tigers
Al Dunlap (Chainsaw Al) made famous by his aggressive downsizing of Scott Paper in 1994
Bonds have risk too - as interest rate rise – this will make them worthless
Radio was the original WWW.
Early RCA radios had “World – Wide Wireless” imprinted on them
In the 1960’s – companies that ended with “onics” or “tron” were the “.com’s” of today” – buyers didn’t care as long as it sounded electronic
Hart-Scott-Rodino Act – All mergers must be submitted for approval by Federal Regulators who have 30 days to answer or will ask for more information
Corporate debt represents 46% of the nation’s gross domestic product
Today’s companies can grow more quickly because they are more dependent on intellectual capital rather than physical capital – Michael Mauboussin – CSFB
US companies with junk bonds – 5.4% defaulted in 1999
15 technology stocks are today worth more than the entire market in 1990 – observed at the height of the late 90’s bull market
On Recession – economies total output is 1% below its full capacity, rates should fall by half a % point
Greenspan doesn’t like the rule – “Employs a forecast that the future will be like the past which always isn’t the case”
30% of all trading volume is by retail investors
Average holding period for an issue in 1999 - 150 days. In 1990 – 730 days
Short Interest – reflects the number of shares that have yet to be repurchased to give back to lenders – the higher the short interest the more people have shorted stocks
The US Stock Market represents less than 40% of the total stock market capitalization in the world
Snapple – Original creators, Lennie Marsh, Hyman Golden, Arnold Greenburg, sold Snapple to buyout firm Thomas H. Lee for $130M – was then sold to Quaker Oats for $1.7B, 2 yrs later sold in 1997 to Triarc for $300M (Quaker had huge problems with it), now being sold to Cadbury for $1.45B in 2000
US GDP (Total value of the Nation’s output of goods and services) accounts for almost 30% of the worlds output – was 26% in 1992
US companies make almost ½ of all the worlds corporate profits
Napster accounted for 3%-4% of all Internet traffic in 2000
Luxury Tax – 4% on amounts over $38,000 – was 5%
AirBall Lending – AirBall is the portion of the loan not backed by hard assets, such as equipment but simply based on expectations of business growth
The Bursting of the Internet Bubble in 2000 – Erased more than 3 Trillion in market value
Bear Market – 20% drop from the highs, or 15% drop for 18 months, or Dow down 30% for 50 calendar days
How bad is the sky falling?
· Routine Decline – Drop of 5% in Dow
· Correction – Drop of 10%
· Bear Market – Drop of 20%
· Panic - Bear market or severe correction lasting several weeks
· Crash – Decline of 20% of more. There were only two crashes, one in 1929 and 1987.
Since 1960 every time the FED has lowered interest rates, stock have done better – Except 2001
“The Temp boom (temp job placement) is a huge change in the
way the economy works. It’s one reason
the
Leveraged Buyout – A group of investors acquires a company largely with borrowed money. The debt ultimately paid with funds generated by the acquired company’s operations or sales of its assets
Hotels – Lodging historically is in the top 10 best performing industry groups for six months after the beginning of an economic slowdown
Hotels growth is measured by average revenue per available room
Going Concern Clause – if an auditor has substantial doubt about a clients ability to continue as a going concern, it must say so in its report on the company’s financial statement
Since 1996 the NASDAQ has tracked the economy remarkably close, in particular, consumer spending. “The NASDAQ has become almost four times as important than disposable income in explaining swings in consumer spending” – ISI Group - 2000
Investment in Software and info-processing equipment makes up almost 40% of business investment and in 2000 accounted for 30% of inflation-adjusted economic growth
Mortgage rates usually drop before the Fed eases rates, not after. Bond Market investors anticipate rate reductions weeks or even months in advanced pushing yields in the bond market lower
Chapter 7 – Liquidation
Chapter 11 - Reorganization
49 of the companies in the NASDAQ 100 are in
Capitulation – When many investors have lost faith in stocks and have surrendered – so that everybody who’s getting out of the market already has sold out, which relieves downward pressure
Patent Office – In 2000, granted 182,223 or 72% of the 252,871 patent applications it received, of those 889 were business method patents – takes an average of 26 months to rule on the patent
Every recession since WWII has followed rising inflation caused either by an oil-price pike, excessive consumer demand, or some combination of the two
There is no direct economic measure of excess capacity for high tech – people use “over hang” – the difference between desired amount of high tech equipment and the actual amount
Return on equity – how efficiently assets are used
Sub Prime Loans – lending to individual with poor credit – like consumer junk bonds
P/E – How much value the market places on each dollar of a corporations earnings
Companies that have increased their shares outstanding the most, returns have tended to lag behind the overall market by an average of three percentage points a year
Window Dressing – Purchases by mutual fund managers to adjust their holdings in advance of their quarterly report filings – term used if they have been sitting on cash and their fund is supposed to be fully invested in the market
Stranded Costs – capital invested in fixed assets that don’t produce the expected returns, probably won’t anytime soon, and can’t be easily converted to uses demanded by new economic realities
Capital expenditures don’t affect the operating results most closely watched by Wall Street, the deals allow companies to bolster reported revenue. “…It raises the real question of whether companies are creating real economic value or sham transactions financially engineered to report to shareholders.” - Lynn Turner , Former SEC Chief Accountant
Together with suppliers and other related business, the auto
industry accounts for nearly 6% of the
Merger Arbitrage “Risk Arbitrage” – shorting the stock of the acquirer and buying shares of the target
The Fed lowered the short-term fed-funds rate 11 times in 2001 to 1.75%
When debt tied to equity – if the stock price falls – may trigger any debt repayments that can cripple a company
Vendor Financing Agreement – Suppliers lend its customers money in which to buy their equipment – was rampant in the late 90’s /2000 Internet Bubble
The top 50 companies in the world control 80% of the capital spending
In
Synthetic Lease – Allows companies to get the tax benefits associated with owning real estate while keeping the debt associated with it off its balance sheets
Deflation – the worse deflation gets, the harder it is for business to pay their debts and the higher the amount of bad loans banks will face
“Special-purpose entities” = off-the-books partnerships
Savings and Loan “Scandal” of the 1980’s – short version –
Congress raised the deposits made in banks that were federally covered by
insurance (FDIC) from $40,000 to $100,000 in 1980. S&L’s came about by savvy businessmen and
had investors put up to $100,000 of their own money into the S&L banks to
reap larger interest rates than the plain vanilla regional banks. The S&L’s then made a ton of bad
loans/investments and the government had to pick up the bill and reimbursed all
the people who made deposits. Prime
example was Charles Ketting, building the most luxurious resort in
Treating Stock Options as an expense would lower earnings of
nearly every major corporation in the
The flip side to Stock Options – Options don’t cost the company any cash – companies are just giving out shares, they can’t be expensed accurately because it’s too hard to calculate their value
In 1952, tangible assets such as real estate, equipment and inventories represented 78% of the assets of US non-financial corporation’s – today 2002 only representing 53% - Shift due to patents, copyrights and goodwill
Defense Science Board – The Pentagons internal think tank
The military will need an average of about 16 gigabytes per second of bandwidth to fight a war in 2010
Cemex –
Profitless prosperity – Ram memory and disk drives
July 2002 – Foreigners hold 40% of the US Treasury marketable debt, 24% of corporate bonds, 13% of US equities
A Falling dollar – can produce an uptick in inflation – boosting import prices makes it easier for domestic manufactures to raise their own prices
Nations currency – weathervane – shows which direction the winds of international capital is blowing
80% of US imports arrive via US seaports
Six Sigma – Means 3.4 defects per ever million occurrences – concentrates on eliminating defects from the work process – Made famous by Jack Welch of GE
Consumers – 2002 – consumer spending has accounted for
2/3rds of all
Take the “PIL” – looks at forecasts for profits, interest rates, and liquidity, to come up with a predicted value for a stock index - Tom Gavin CFSB
The
“Dead Peasant” Life Insurance – policy on employees without their knowledge and payable to the company when the employee dies – one in four companies in the Fortune 500 have it. Wal-Mart has taken out 350,000 of these policies
Number of venture capital funds in the US – 3568 – In Texas-161, In Mass-451, In NY – 474, In California-1166
Cash balances of a company provide a floor to a stock price – If a publicly traded company trades below its level of net cash (total cash – any debt on hand), question the company’s survival
Deflation – Dangerous because it makes it hard to boost the economy by cutting interest rates – makes debt harder to pay
· In a deflationary environment, you don’t want to be in debt - Cash is king
·
Prince Alwaleed bin Tala – The largest single foreign
investor in the
Under-funded Pensions – 143 out of the 600 companies in the S&P 600 small cap had under-funded pensions at the end of 2001
A strong currency has the same effect as a policy to increase interest rates
9 of the 10 last recessions have been preceded by sharply higher energy prices
The competitiveness of the
Ethylene – World’s largest commodity chemical
Bond Prices often get jittery towards the end of a recession or early in an economic recover
Melting Ice Cube Problem – When a company’s core product is in decline
“A Fed that is more tolerant of inflation has always been a negative for bonds because the stance will ultimately lead to higher inflation that the Fed will need to quell by raising rates” – Bill Gross
September is when stock have done the worst during the past century
Junk bonds are considered worth the risk if the yields are at least five percentage points above the 10 Year Treasury Notes
Economic barometer – Uniform Rental - As companies increase/downsize their operations so does the number of uniforms that the company will need
Current Account Balance/Deficit – measures foreign interest
in the
2002 –
Monophony – When a company gains enough power to push their suppliers prices down
Oligopsony – When a few companies get together and push their suppliers prices down
Goldilocks economy – Not too hot, no too cold
“Scorched Earth Defense” – When your company is being taken over and you yourself buy a company for stock and put a big block of stock in “friendly” hands
Merger Anyone? – More than 70% of the big bang mergers from 1995 to 2003 have failed to create significant shareholder value – WSJ
World population living outside the
Mutual Funds – Funds need about $100M to assets to be consistently profitable
Bottoms take longer to form than tops
“If you look up on Wednesday what companies are announcing
on Friday, then you short them. That’s
because there is a 25% greater probability they’re going to announce a negative
earnings surprise.” – Professor Della Vigna –
Japans Ministry of Finance buys US Treasury’s through the Bank of Japan
Beta – Measure of Volatility in a stock – It’s a statistical comparison of the fluctuation of a stocks share price verses fluctuation of the S&P 500 (or another index)
Is there a problem with having large amounts of cash on the balance sheet? – Problem is that your return on capital will lag.
When companies are buying back stock, it may be good for you as a shareholder, but it is also saying that maybe they don’t have that great of growth prospects in their core business – Michelle Clayman, New Amsterdam Partners
When long term bond rates fall as short term rates rise, the bond market is telling us the economy is going down a path that is weaker than average – Richard Bernstein – Merrill Lynch
4Q2004 –
One difference between and EFT and a Mutual Fund – Mutual funds recalculate share price once a day while EFT’s trade all day
Sovereign Wealth Funds – Pools of foreign government money used in investing in other countries.
· More than 60% of US companies didn’t pay any Federal taxes for the period between 1996 and 2000 – these were boom years for the economy/corporations and it was under a Democratic President (Clinton)
·
70% of foreign owned companies doing business in
the
· In 2000 – 45.3% of large US companies and 37.5% of large foreign owned companies paid NO tax liabilities
· The base federal tax rate is 35%
Five Tips for Turing around a drab brand – From JC Penny’s Allen Questrom - 2004
· Be, Patient. Turnarounds take a long time
· Old rules of doing business can still be relevant, but choose what makes sense today
· Simplify your objectives and makes them understandable
· Don’t try so many new things that you lose focus on your main competency
· The more employees who understand a new strategy, the more likely it will work.
Amortization of Goodwill – lowers the earnings of companies that have made acquisitions. Goodwill is the difference between the purchase price paid for an acquisition and the fair value of the acquired companies net assets. If a company has Goodwill on its books, it must now amortize, or reduce, that asset over a period of time which can last many years. People argue that it’s a non-cash charge and leveraging it gives a false impression of the true earning power. Thus it’s reported two ways: With Goodwill Amortization – “reported earnings” and Without Goodwill Amortization – “cash earnings”
Book Value – the difference between a company’s assets and its liabilities
Cash Flow – GAAP – cash receipts minus cash distributions for a given reporting period – Has three different categories – cash flow from operating activities, cash flow from financing activities and cash flow from investing activities
EBITDA – Earnings before Interest, Taxes, Depreciation, and amortization – NOT THE SAME AS CASH FLOW – It doesn’t reflect changes in companies liquidity
Extraordinary Items – GAAP – items that are both unusual in nature an infrequent in occurrence, like acts of God – counts when calculating net income – not in income from continuing operation
Free Cash Flow – the cash the company has left over after its pays dividends and makes capital expenditures
Financing Gap – the shortfall between corporate investment needs and internally generated cash
Goodwill – an accounting term for the difference between what an acquiring company pays for an acquisition and the value of the net assets of the acquiring company
Income From Continuing Operations – GAAP – Revenues and expenses stemming from a company’s ongoing operations, after taxes. It includes interest income and expenses and other non-operating gains and losses. It excludes only three things: discontinued operations, cumulative effects of changes in accounting principles, and extraordinary items
Net Debt – Company’s debt minus the cash and cash equivalents it has on hand - Often much lower than total debt in which the cash isn’t always readily available for repayment of debt
New Goodwill Rules – Goodwill has to be written down entirely as soon as it is deemed overvalued – with the old rules – you could write goodwill down gradually
Operating Earnings – Pro Forma – Ongoing Earnings – Core Income – Economic Earnings - ALL MEAN THE SAME THING! – Aren’t concepts under the GAAP (Generally Accepted Accounting Principles)
Operating Income – GAAP – Revenue less cost of goods sold and related operating expenses stemming from a company’s normal business activity. I t does exclude interest income and expenses, dividend income, taxes, and extraordinary items
Operating profit margin – ratio of operating profit to revenue
SG&A – Accounting figures which include costs such as salaries, rent, advertising, and travel – gauge on how tightly companies control expenses
Special Charges, One Time, Unusual, Exceptional Charges – expenses that are ordinary costs of doing business, but the company don’t want investors concerned about it when valuing their stock – NOT A GAAP TERM! – NOT considered and Extraordinary Item and can’t be considered as one
If expensed today – operating expense, If expensed tomorrow – capital investment
Percentage of Completion Accounting” – Companies can book revenue they believe they will collect later to offset start-up costs – but only the management knows what the assumption are – Investors are in the dark – especially discomforting if the company has credibility problems
“If a company has taken 14 consecutive quarters of “special charges,” these charges aren’t special, they’re a normalized cost of doing business” – Motorola has had 15 consecutive quarters of special charges – Vivian Mamelac
REG - G – Prohibits companies from giving greater prominence in their earnings release to non-GAAP financial metrics than they do to comparable GAAP figures – Companies cannot use non-GAAP terms
“EBITDA is a lousy proxy for cash flow from operations because most of the fun and games happens in changes in operating assets” – Howard Schilit
EBITDA – “The only case in which you can use EBITDA with absolute certainty is when you know the company doesn’t have to reinvest anything in the core business to maintain its competitive nature, and there are only a few business where that is the case” – Tim Chanus – Hedge Fund Manager
Free Cash Flow might overstate the true earnings power of a company because technology changes can upend a company’s competitive position, a company might be under investing in technologies that aren’t counted in capital expenditures – Jesse Eisinger –WSJ
FASB – Financial Accounting Standards Board – Set the country’s accounting rules
Return on Equity (ROE) – Net Income/Shareholder Equity – Measures that return on capital contributed by shareholders only
Return on Invested Capital (RIOC) – Return on ALL capital employed including debt – measures “real cash to cash” return – Best used on highly leveraged companies
McGraw-Hill Company (MHP) www.mcgraw-hill.com and Standardandpoors.com
· Formed in 1941 with the merger of Standard Statistics and Poor’s Publishing
· S&P has changed 20% of the index’s components in the past four years
· New stocks to the S&P 500 outperform the avg. by 3.06% on their additional date – why? - assets linked to index.
· Conrail - only IPO that went straight to the S&P 500
· 1997 – S&P500 had a 33.4% return - average mutual fund returned 24.2%
· Return:
· S&P 500
· Year Gain/Loss Close
· 1999 19.53 % 1469
· 2000 (9.19%) 1334.226
· 2001 (13.04%) 1448.083
· 2002 (23.37%) 879.819
· 2003 26.38% 1111.916
· 2004 8.99% 1211.92
· P/E Multiple:
· 1987 - P/E multiple of 12
· Aug 2001 – P/E of 22.2
· Long Term average P/E of 14.5
· 2/3/98 - S&P went past the 1000 milestone
· S&P weighed by market value of its components, GE most influential stock in S&P
· Rules used to prevent real estate companies from being in the index
· REITS now allowed in the index - 2002
· Chrysler was forced out of the index due to Daimler being foreign. Foreign companies not allowed in the S&P
· Among the companies in the S&P 500, the average company derives 23% of earnings from abroad
· Financial companies including banks make up 21% of the market value of the S&P 500 (2003) – was 17% in 2000
· Companies picked by a panel
· S&P Triple A Credit Rating:
· ExxonMobil. GE, J&J, Pfizer, UPS and ADP
· Past companies that had Triple A ratings
· GE – Lost Triple A rating in 1981
· Ford – Lost Triple A rating in 1986
· Coke - Lost Triple A rating in July 1986
· AIG - Lost Triple A rating in 2005
· Companies have to issue bonds to be rated – Reason why many tech companies like Microsoft do not have ratings
· In 2001 – S&P downgraded the credit rating of 771 companies
·
Founded
in 1882 by Charles Dow, Edward Jones, and Charles Bergstresser – three
reporters
·
Started
the Wall Street Journal
·
Launched
its first stock indicator in 1884 – now called the Dow Transports
·
Dow
Jones Industrial Average launched in May 1896
·
Companies picked by a panel
|
Alco (AA) American Express (AXP) AT&T (T) Boeing (BA) Caterpillar (CAT) Citigroup (C) Coca-Cola (KO) Du Pont (DD) Eastman Kodak (EK) Exxon/Mobil (XOM) |
General Electric (GE) General Motor (GM) Hewlett Packard (HWP) Home Depot (HD) Honeywell (HON) Intel (INTC) International Paper (IP) Johnson & Johnson (JNJ) Microsoft (MSFT) |
McDonalds (MCD) Merck (MRK) J.P. Morgan (JPM) Phillip Morris (MO) Proctor Gamble (PG) United Technology (UTX) Wal-Mart (WMT) Walt Disney (DIS) |
|
Airborne Freight (ABF) American Airlines Group (AMR) Alexander & Baldwin (ALEX) CNF Transportation (CNF) CSX Corp. (CSX) Delta Airlines (DAL) FedEx (FDX) GATX Corp. (GMT) |
Roadway Express (ROAD) Ryder Systems (R) Southwest Airlines (LUV) United Airlines (UAL) Union Pacific (UNP) US AIR (U) US Freightways (USFC) XTRA (XTR) Yellow (YELL) |
|
American Electric Power (AEP) Consolidated Edison (ED) Consolidated Natural Gas (CNG) Duke Power (DUK) Enron (ENE) |
PECO Energy (PE) Pacific Gas &
Electric (PCG) Public Service
Ent. (PEG) Unicom Corp. (UCM) Williams Cos. (WMB) |
The Dow 30
·
In 1999 -
Allied Signal, Chevron, Goodyear, Sears, Union Carbide replaced by Home Depot,
Intel, SBC, MSFT, Honeywell (Honeywell and Allied Signal merged)
·
Price weighted – thus IBM, MRK, J.P. Morgan have
disproportionate impact
·
10/28/97 biggest 1day point gain
·
Five of the ten biggest one day point losses in
the Dow occurred in 1997 (Not taking into account 2001)
·
Eight of the ten biggest one day point gains
occurred in 1997 (Not taking into account 2001)
·
Return:
·
Year Gain/Loss Close
·
1997 22.64% 7908.25
·
1998 16.10% 9181.43
·
1999 25.22% 11497.12
·
2000 (6.18%) 10786.85
·
2001 (7.10%) 10021.5
·
2002 (16.76) 8341.63
·
2003 25.3% 10453.92
·
2004 3.15% 10783.01
·
2005 0.46% 10717.50
·
Feb 1, 2002 – Nikkei dropped below the Dow – last
time was in August 1957 (Nikkei peaked at 38915.89 on the last day of trading
in 1989)
·
For every $1 move in a Dow stock it effects the
Dow average by seven points – 2003
·
The Dow has been down for the past three years,
2002, 2001, 2000 – it hasn’t been down for four consecutive years since 1932
·
The Dow has crossed over the 10,000 mark 35
times from March 1999 to May 2002
·
Dow changes April 8 2004:
·
Leaving
the Dow – Eastman Kodak (EK), AT&T (T), International Paper (IP)
·
Entering
the Dow – American International Group (AIG), Pfizer (PFE), Verizon (VZ)
·
The
Dow’s make-up has been changed 43 times (ending 2005)
·
Original
Dow 12 members: American Cotton Oil, American Sugar Refining Co., American
Tobacco, Chicago Gas, Distilling & Cattle Feeding Co., General Electric,
Laclede Gas & Light Co., Tennessee Coal, Iron, Railroad, National Lead,
North American Co., US Leather, US Rubber Co.
Dow Date
1000 Nov. 14, 1972
2000 Jan. 8, 1987
3000 Apr. 17, 1991
4000 Feb 23, 1995
5000 Nov. 21, 1995
6000 Oct 14, 1996
7000 Feb 13, 1997
8000 July 16, 1997
9000 Apr. 6, 1998
10000 Mar. 29, 1999
11000 May 3, 1999
11722.90 Jan 14, 2000 – all time high
Date Point change % of change
10/27/97 -554.26 7.18%
8/31/98 -512.61 6.37%
10/19/87 -508 22.61%
8/27/98 -357.36 4.19 %
Frank Russel Co – The Russel 3000 index - The Russel 2000
index – The Russel 1000 index www.russel.com
·
Russel
3000 measures the performance of the
·
Russel
1000 measures the performance of 1000 of the largest companies in the Russel
3000 index
·
Russel
2000 measures the performance of the 2000 smallest companies in the Russel 3000
index – Companies with market capitalization of less than $1.4B
·
Adds and
subtracts companies to their list on a single day each year based on market
capitalization – usually on May 31st
·
Called
the Russel Shuffle
·
Revised
each June 25th based on the companies market cap on the final
trading day in May
·
Market
capitalization of less than $1.5B
·
Companies
shares must trade above $1
·
Russel
2000 Return:
·
2001 –
up 2.48%
·
2002 –
down 20.48%
·
2003 –
up 45%
·
2004 – up 17%
· Founded 1792
· In 1998 had 3,058 listed stocks
· Has 3,525 listed stocks - 2000
· 2003 – 6384 traded companies on NYSE and NASDAQ
· As of June 2002 – 2163 listed stocks
· Chairman Richard Grasso
· Resigned September 2003 over perceived generous pay package/retirement package of $140M for his 36 year tenure at the NYSE
· 27 member board
· Single letters available on the NYSE?
· H, I, J, M, P, U, W, Z and now possible T and G (AT&T and Gillette separate mergers in 2005)
· Acquired Archipelago Holdings, an electronic stock exchange and creating a new company called NYSE (NYX)
·
National Association of Securities Dealers
Automated Quotation System – Launched 1971
·
5,200
listed stocks
·
2003 – 6384 traded companies on NYSE and NASDAQ
·
2005 – 3193 listed stocks – July 2005
· Had a P/E multiple of 19 in late 1988
·
The
NASDAQ and delisting – A company will receive a warning if their stock trades
below one dollar for 30 consecutive days
·
NASDAQ
Composite Return:
·
Year Gain/Loss Close
·
1998 39.6% 2192.7
·
1999 85.6% 4069.3
·
2000 (39.29%) 2470.5
·
2001 (21.05%) 1950.4
·
2002 (31.52%) 1335.5
·
2003 50% 2003.37
·
2004 8.59% 2175.44
·
Nasdaq
100 – (QQQ) – the 100 largest non financial stocks traded in the Nasdaq –
Changes made every December
NASDAQ Composite:
1000 July 17, 1995
2000 July 16, 1998
3000 Nov. 3, 1999
4000 Dec. 29, 1999
5000 Mar. 9, 2000
5048 Mar. 10, 2000 - Top
AMEX (American Stock Exchange) www.amex.com
Chicago Mercantile Exchange www.cmr.com
Pacific Stock Exchange www.pacificex.com
Hong Kong Futures www.hkfe.com
Hong Kong Stock Exchange www.sehk.com.hk
Korean Stock Exchange http://www.kse.or.kr/e_index.html
London Stock Exchange www.londonstockexchange.com
Paris Stock Exchange http://www.bourse-de-paris.fr/home.htm
Toronto Stock Exchange http://www.tse.com
Vancouver Stock Exchange http://www.cdnx.ca
Tokyo Stock Exchange http://www.tse.or.jp/eindex.html
|
Czech – Krouna |
Indo – Rupiah |
Philo- Poeso |
United Arab - Piram |
Gross Domestic
Product
Consumer Price Index
Producer Price Index
Housing Starts
Employment
ISM’s Purchasing Managers Index – Released by the Institute for Supply Management
The Federal Reserve Board www.federalreserve.com
· Chairman Alan Greenspan
· Chairman’s have a four year term
· Term lasts till August 2004 – He is unable to pick his successor
· Congress approved his fifth and final four year term – June 2004
· Second longest servicing chairman
· Was appointed in 1987 by Ronald Regan
· G.W. Bush Ok’d him for another four years – can technically be in position until February 2006
· Was President Ford’s Chief Economist
· In 2005 – Mr. Greenspan is 70 years old
· Married to NBC correspondent Andrea Mitchel
· By law, the Chairman must address congress and its monetary policy two times a year – usually in February and July
· The report was once called the Humphrey-Hawkins report
· Mr. Greenspan has addressed congress 35 times from 1987 to July 2005
· “What is happening amongst our trading partners has a greater effect on the US than we can readily understand directly…that leads us to be, obviously, quite sensitive to what we see going on abroad.”
· The Fed lowered the short-term fed-funds rate 11 times in 2001 to 1.75%
· 13 Federal Funds cuts in the past 2 ½ years – From 6.5% to 1% - July 2003
· Summer 2003 – Fed rate at 1% - 45 year low
· The Fed Fund rate bottomed out at 1% in June of 2004
US Treasury www.ustreas.gov
Past Secretaries
· Robert F. Rubin - July 11 1995 to July 2nd 1999
·
· Paul H. O’Neill – Jan 20th to present – resigned December 2002
· 225 person agency created in 1974 to take some control over the budget process from the White House
· Makes predictions two times a year – how fast the economy is growing, where interest rates are heading, and employment - uses these number to predict how much money the federal government will collect in taxes and spend in outlays for budget surplus or deficits
The Trade Deficit
· As the trade deficit continues to expand, The US is forced to increase borrowing to pay for the rising tide of foreign goods and services and thus will increase interest rates
· $125 - $150 B trade deficit $50B w/China $50Bw/Japan
·
In 73’ the
· In July of 2000, reached new record high of $31.84B
The European Union
· Comprised of 25 Nations – Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, U.K., Cyprus, Czechoslovakia, Slovakia, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovenia
·
Originally 15 Nations:
· Has a population of 376M – world’s 2nd largest economy – GDP of $9,097.8B
· Euro launched on January 4th, 1999
· Full converted January 1st 2002
· Has a cap on running budget deficits of more than 3% of the country’s gross domestic product
· 10 nations entered May 1 2004 – now 25 nation European Union would have 444M people (NAFTA has 387M)
· Those getting in – Cyprus, Czechoslovakia, Slovakia, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovenia
·
EU – 2007 – Those looking to enter:
·
Population: US 281.4M,
· The EU forbids governments bailing out national companies – BUT France has bailed out three companies and the EU has not said a thing
·
· Tax Harmonization – EU initiative to end competitive tax breaks among its member states
· European Central Bank – President Jean-Claude Trichet
· Executive arm of the EU
· Obliged to review all mergers and acquisitions involving companies with combined world-wide sales of more than 5B in Euros (around $4.3B) and European sales of at least 250M Euros, regardless where the companies are based
· Has the power to seal off corporate offices to look for evidence for as long as they like. They also can go in personal homes, cars, all private property of company executives
·
Mario Monti of
· Blamed for collapsing the GE Honeywell deal
· Under current conditions - cannot break up companies once they have merged
·
New proposal by Mario set forth on September 27,
2000 – will be able to break up companies that do business in Europe – thus
will include many and most
· Proposal can be found at http://www.europa.eu.int/
·
· European Currency – EMU - economic and monetary union – Euro launched on January 4th , 1999
· January 1st 2002 – the euro will be introduced in notes and coins for everyday use. In March of 2002, the old currency will no longer be legal tender
Originally 51 members – now 191
Security Council – US, Britain, China, France and Russia (the winners of WWII and have permanent seats on the council and voting rights) and 10 countries that the general assembly elects for 2 year term
General Assembly – Debate Forum – Overseas UN administration and every country gets a say
· Has a $130B in Government debt
·
·
President Luiz Inancio Lula da Silva –
· Worlds’ 9th largest economy
·
Largest economy in
· Largest exporter of raw sugar in the world, No.2 for soybeans, No.3 in beef exports
· Whirlpools leading foreign market
· $260B in public debt - 170M consumers
·
·Arable territory is held by just 3% of all landowners
· Premier Zhu Rongji
· Now Wen Jiabao
· Considered a $1.3B consumer market
· Had $266.2B in exports in 2001
· World’s fourth largest industrial base
·
No.2 petroleum user in the world – took over
No.2 spot from
· Has a 11% general tariff on goods
· In 2002 - accounted for just 3.8% of the world’s gross domestic product but contributed to more than 15% of global growth
·
· Basically fixes the Yuan at 8.28 to the US dollar – As the dollar moves so does the Yuan – fixed currency
· Why? – A strong Chinese currency will starve the growth of its exports and limit the speed of Chinese companies to grow globally
·
· Yuan also called Renminbi (RMB)
·
US imports 40% of its plastic bags from
· 600M people expected to move from farms to cities in the next 20 years
· President Hosni Mubarak
· Prime Minister Atef Obeid
· World’s 3rd largest industrial base
· Helmut Kohl
· Gerhard Schroeder
·
Social spending has reached close to 30% of
gross domestic product (second only to
· Suharto resigned and/or thrown out - B.J. Habibe took his place.
· Habibe thrown out
· Megawati Sukarnoputri - New President
· Mew president Susilo Bambang Yudhoyonu
· Glokar, biggest political party
· Has $140B in external debt - 60% of which is owned by private companies
· Iraqi Intelligence organization - Mukhabarat
Israeli
· Ehud Barak
·
Ariel
· Prime Minister Ryutaro Hashimoto – resigned in July 98’ from economic woes was in Liberal Democratic Party.
· Prime Minister Yoshino Mori took the helm after Hashimoto
· Hashimoto now replaced by Junichiro Koizumi
· Ruling Party – Liberal Democratic Party
· Yamaichi Securities Japan, after 100 years in the business, the country’s 4th largest brokerage firm shut down in the largest corporate failure in Japanese history - Nov. 24 1997
· As many as 75% of Japanese banks are already insolvent
·
· Ernesto Zedillo (PRI)
· Fox (Pan)
· Sultan Qaboos Bin Said al Said
· Prime Minister – Nawaz Sharif
· Alberto Kenyo Fujimori
· Current - Alejandro Toledo
· President
· Fidel Ramos
· Replaced by Joseph Estrad
· Replaced by Gloria Macapagal Arroyo
·
Abu Sayyaf – Rebel Islamic leader in
· House – Duma
·
· Prime Minister Goh Chok Toug
· President Thabo Mbeki
· President Roh Moo Hyun – Won presidency on an anti-American stance
· Taxes are often the subject of negotiations between local government officials and corporate CEO’s – Companies general pay corporate tax of 6%-10%
· Hugo Chavez
· President Robert Mugabe
|
Property |
Winner |
Paid (B) |
Premium |
|
Telesp
(Fixed line |
Telefonica,
Banco Bilboa Vizcaya, Iberdrola (all from |
4.94 |
64% |
|
|
|
|
|
|
Telesp
Celular |
|
3.07 |
226% |
|
Tele Norte
Leste (fixed line |
Andrade
Gutirres Grp |
2.93 |
1% |
|
Embratel (long
distance) |
MCI |
2.26 |
47% |
|
Tele Centro
Sul (fixed) |
Telecom
Italia, Opportunity Bank of |
1.77 |
6% |
|
Tele
Sudeste Celular |
Telefonica,
|
1.16 |
139% |
|
Telemig
Celular |
TIW of Canada,
Brazilian Pension Funds, Opportunity Bank of |
0.65 |
229% |
|
Tele Sul
Celular |
Telecom
Italia, Banco Bradesco, Globo of |
0.6 |
204% |
|
Tele
Nordeste Celular |
Telecom |
0.56 |
193% |
|
Tele Centro
Oeste Celular |
Splice do |
0.38 |
91% |
|
Tele Leste
Celular |
Telefonica,
Iberdrola |
0.37 |
241% |
|
Tele Norte
Celular |
TIW of |
0.16 |
109% |
In 1998 - 8695 mutual funds, only 34 outperformed the S&P500 for the 1,3,5,10 yrs
Fidelity Magellan – Robert Stansky, was Peter Lynch from 77’ to 90’
· Problems in 1997 for Fidelity Magellan
· Sold bonds - hurt in late 97’
· Phillip Morris only 20% gain
· Hurt by oil and tech
· From 19777 to 1990, the Fidelity Magellan fund returned 2,703% return (S&P 500 – 574%)
Mutual Fund General Info:
· If portfolio of more than $75,000 – cheaper to own stocks directly – only less than 75K – no-load funds
· From 1991 to 1998, a staggering 1.1Trillion has flown into stock mutual funds
· Mutual funds hold 21% of US stocks (was 19% in 1997)
· Shareholders actually own the fund
· How many funds are out there?
·
First American Mutual Fund – MFS
Hedge Funds – Investors need at least 200K in income in past 2 years with net worth of 1M – was 100 people max till 1996 now 500 investors
Typical fees - 1% annually & 20% of any profits
2002 – Largest Mutual Funds
1) Fidelity
2) Vanguard
3) Capital American
2005 – Largest mutual funds – as of April 30, 2005
Firm Assets under management in Billions
1) Fidelity Investments $851B
2) Vanguard Group $813
3) Capital Research $663
4) Franklin Templeton $237
5) Legg Mason $206 – With Citigroup asset swap
REITS Description and General Info
Real Estate Investment Trusts – avoids taxes – created in 1960 to encourage real estate investment by people of modest means
· REIT'S don’t pay corporate income taxes, so they must pay out 95% of their taxable income as dividends, which are taxed when shareholders pay their personal income. – But aren’t allowed to directly operate properties - Paired Shared REITS are.
National Assoc. of Real Estate Investment Trusts.
·
In 80’s REITS had a 5 fold increase. In 1998 REITS had a market cap of 1.3
Trillion representing ½ of investment grade property in
REITS moving into hospitals, car dealerships, fast food
restaurants,
REIT's Paired Shared – a long ago grandfather clause - Four publicly held REITS can run and operate companies and this shields profits from corporate taxes
To grow, REIT's have to issue stock, and if you issue stock when your stock price is low or depressed is crazy
Equity Office Properties Trust – Run by Sam Zell – Largest publicly traded real-estate company
· Starwood, (HOT) Owns Sheraton and Westin
· Patriot American Hospitality (PAH)
· Meditrust (MT)
· First Union Real Estate (FUR)
· Steel files 83% of the Trade Commission dockets for complaints, since September 30,1997
· Past two decades, steel filed about 46% of the nations unfair-trade complaints – steel accounts for less than 5% of US imports
· Filing and Fighting the case is part of its competitive strategy
· “You can use trade laws to affect the supply in the market place”
· “Whenever the market goes soft, for whatever reason, the steel industry will file, you can almost set your watch by it”
· The market gets week, the industry files trade cases and then imports from the target company drop. The case bumps along for a year or so, allowing domestic steel makers to raise prices. Even if the complaint is rejected, the market has time to rebound
· Once filed – months to wind through the 4-step process
· First, show ITC a “reasonable indication” of harm from imports.
· Commerce department can then set preliminary duties on imports.
· Importers must post a bond to cover those duties
· Imports of specialty steel have more than doubled in the past few decades
· Foreign mills have become far more aggressive in the past few decades
· Highly cyclical industry
·
· If US firm loses, duty is never collected and the bond lifted
· Past 10 yrs. Steel makers have lost 54% of the claims compared to 48% of non-steel cases
· Emergency Steel Guarantee Loan Program
· Cleveland Cliffs Inc. – manages ½ of the nations iron ore productions – owns less than 20% though