Michael Covel: News & Info.

This excerpt from the wires struck me today:

Shares of mortgage finance companies Freddie Mac and Fannie Mae continued their plunge Wednesday as investors are increasingly convinced that the stocks will drop to zero if the government bails out the troubled companies…Fannie’s stock is down 87 percent so far this year, while Freddie has lost 90 percent of its value.

I have a question: Isn’t dropping 90% close enough to dropping to zero? Do you hang around for the last 10% down as some form of perverse “hanging on for the rebound”?

Why would investors give money to a trader with a 5 year lock up period who places “long” bets on a few firms? I am not sure why, but they apparently do. Billions of bets it seems.

I feel bad for this family (article), but blaming the appraiser is absolute nonsense. Doesn’t anyone take responsibility for their own errors? Ok, you got a faulty appraisal. Did you only trust? No verify? Did you not look around and ask yourself if the appraisal was accurate? No. It is easier to blame the appraiser hiding behind the tree and then let an AP reporter create a tear jerker article. Harsh from me? Or the truth?

Sent in by a reader.

Here is an excerpt from an email newsletter that arrived in my in box:

With the beautiful benefit of hindsight we know what happened to Starbucks - it grew too fast, opened too many stores, and sacrificed its own standards to meet unrealistic targets. The company first claimed that it only had a few hundred stores that it needed to close, and then the few hundred spilled into six hundred. Weak consumer spending will likely push Starbucks to re-examine its store count again, doubling or tripling the store closures. Starbucks percentage of new stores growth in 2007 was only slightly lower than it was in 1999. But in 1999 it had 2,000 stores; in 2007 it was pushing a 10,000 company owned stores mark. Let’s put this in perspective: in 1999 Starbucks opened 447 stores - 1.8 stores per working day; in 2007 that number more than tripled to 1,403 stores a year - 5.5 stores per working day. At this level of growth physical limitations come in: there is only so much real estate that fits a company’s criteria at a certain point in time. Management started sacrificing on the quality of their decisions, compromises were made that were unthinkable several years before. Stores were opened too close to each other or on the wrong side of the street, expensive leases were signed, they even hired baristas that would have fit in better at McDonalds - you get the idea. Unfortunately the present and the future will pay for the decisions of the past: stores will need to be closed, long-term leases terminated, charges taken, corporate costs created in hopes of high growth eliminated, and corporate culture of partnership strained by barista layoffs. Starbucks needs to go on a permanent growth diet (at least in the US), and realize that it has the metabolism of a 37 year old and can digest fewer new stores. By tightening its standards for opening new stores the company will be on the way to recovery, though at slower growth.

Isn’t their chart easier to follow than that explanation? Instead of waiting for management to turn the company around, why not wait for the chart to turn around?

I am sure the pay is good, but these CEO gigs can’t be much fun.

From the wires:

Jerry Webman, chief economist at Oppenheimer Funds Inc., said the swift pullback in stocks after the day’s economic readings illustrates the fragility of investor sentiment. He said the market’s volatility reflects an undercurrent of uncertainty and efforts by some traders to capitalize on shifts in the mood. “We react very strongly to bits of news,” he said. “The whipsaw danger is pretty high here.”

I don’t believe that any analyst can accurately predict when whipsaw danger is highest…whatever than means exactly!

Oh the joy that comes with being a fundamental analyst! That’s harsh! However, anyone taking an honest look at this chart knows damn well that the trend was straight down already. Whether or not some one analyst said something of consequence is irrelevant with THAT chart.

Nice research huh?

This excerpt from the wires today is interesting:

A stock bounce was hardly unexpected, though, after the Dow lost nearly 240 points Monday on worries about the sagging financial sector. Wall Street is torn: Energy prices, if they continue on their downward path, could provide big relief to consumers and in turn help the economy, but credit losses keep mounting at the nation’s major banks. The result is big swings in the market but little consistent direction. “We’re living from one piece of news to the next,” said Alan Gayle, senior investment strategist for RidgeWorth Capital Management. The market’s volatility is likely to continue unless it gets further evidence that oil prices are, indeed, on their way down, and that banks have already seen the bulk of their losses.

That poor reporter. He has to write something. He has to try and paint word pictures to explain volatility, but it is clearly a struggle for him. I am not sure how a reporter can wake up excited each day to go to a job that requires him to literally make stuff up to justify random price movements.