Posts Tagged ‘Standard & Poors 500’

Warren Buffett Chooses His Likely Successor

Wednesday, November 10th, 2010

Warren Buffett taps hedge fund manager Todd Combs to take over Berkshire Hathaway.  At age 75, mega-billionaire and Chairman of Omaha-based Berkshire Hathaway, Inc., Warren Biffett has likely selected the person who will succeed him when he eventually retires.  The chosen one – who will head a holding company that owns such diverse businesses as Geico and Dairy Queen — is said to be 39-year-old Todd Combs, currently a hedge fund manager with Castle Point Capital in Greenwich, CT.

According to Carol Loomis, a writer for Fortune magazine and a friend of Buffett, “The word ‘investment’ is key to that last sentence.  As chairman of Berkshire, Buffett has two jobs: He runs the business as CEO, and he manages Berkshire’s huge investments in securities.  It is the investment job for which Combs is the leading contender.  Buffett’s hiring of Combs at least partially satisfies a commitment Buffett made to Berkshire’s shareholders more than three years ago in his 2007 annual letter.  Buffett said were he to die ‘tonight,’ the company would have three outstanding candidates for the CEO half of his job.  On the investment side, however, he conceded that good candidates were not lined up in the wings.”

Berkshire Hathaway recently said its net worth grew by $5.6 billion in 2005, a 6.4 percent rise in book value. That compares with a 4.9 percent growth projection in the Standard & Poor’s 500-stock index, marking the first year since 2002 that Berkshire beat the S&P.  Since 1965, Berkshire’ average yearly gain has been 21.5 percent, more than twice that of the S&P.

In his letter to shareholders, Buffett wryly noted that death wasn’t the only circumstance in which he would have to be replaced.  He said he is relying on his board to show him the door if his cognitive abilities ebb as he ages, “particularly if this decay is accompanied by my delusionally thinking that I am reaching new peaks of managerial brilliance.”

Residential Sector Delivers Positive News

Tuesday, May 18th, 2010

Residential market recovery appears to be steady as she goes.  The latest numbers on housing starts, new home sales and rising prices indicate that the residential recovery is for real.  Because the housing crash was a primary cause of the Great Recession, word that the sector is rebounding is good news.  Housing permits and starts have increased in the last several months, and new house sales increased in March.

Even though the Case-Shiller home price index showed mixed numbers for January and February, there was better news found in a recent government report on the producer price index for single-family residential construction through March.  This measure of the average change in the cost of materials for new home construction has risen three percent since last summer.  Economists are interested in the producer price index because it is a critical factor in the pricing of existing homes.  Inflation hawks may claim that this statistic is a portent of rising prices in the general economy.

According to Casey B. Mulligan, an economist at the University of Chicago, a little inflation is not a bad thing for housing.  “It’s quite possible that inflation-adjusted housing prices will not significantly increase, but even if a housing price increase resulted merely from general inflation, it would be welcome because anything that raises housing prices can help alleviate the extraordinary prevalence of foreclosures that derives largely from the fact that debt-strapped homeowners can no longer sell their homes for enough to cover their mortgage,” Mulligan said.

Financial Reform Legislation Faces Uphill Battle in the Senate

Wednesday, April 14th, 2010

The most sweeping financial reform legislation since the 1930s will be debated in a polarized Senate.  Senator Christopher Dodd (D-CT), chairman of the Senate Banking Committee, introduced revised legislation to regulate the nation’s financial system.  The plan would create a nine-member council, led by the Treasury secretary, to be on the alert for systemic risks, and direct the Federal Reserve to oversee the nation’s largest and most interconnected financial institutions.

The bill, which would be the most comprehensive change in financial rules since the Depression, would preserve much of the existing regulatory system, which has been criticized as being too disjointed.  Additionally, it would rely on a new mechanism for seizing and liquidating large financial companies on the verge of failure.  This would reduce, but not eliminate, the possibility of future bailouts.

The legislation incorporates a version of the Volcker Rule, a proposal from former Federal Reserve Chairman Paul Volcker that would make certain that legislators ban banks from investing in or owning hedge and private-equity funds.  Republicans and Wall Street strongly object to that idea.  Dodd’s legislation takes a fairly tough line with financial firms in general.  The proposed consumer protection agency would be given the authority to write and enforce rules for banks with more than $10 billion in assets.  The oversight also would apply to mortgage companies, credit card issues and other lenders – a move that Republicans oppose.

“Our regulatory structure, constructed in a piecemeal fashion over many decades, remains hopelessly inadequate,” Dodd, who is retiring from the Senate at the end of this term, said.  “There hasn’t been financial reform on the scale that I’m proposing this afternoon since the 1930s….  It is certainly time to act.”

House Sales, Prices on the Upswing

Wednesday, December 9th, 2009

Home prices nationally are on the rise again, according to a new report issued by the Standard &Poor’s/Case-Shiller Home Price Index. The average sale price rose 3.1 percent during the third quarter of 2009, the same percent increase reported during the second quarter.  On the downside, that statistic is still nine percent lower than the number reported one year ago.

In Chicago, prices rose 1.1 percent from August on a seasonally adjusted basis.  Local prices were still 10.6 percent below the level reported for September of 2008, the fifth consecutive month to report an increase.  At the same time, Chicago-area home sales jumped by one-third in October, compared to a year ago, according to the Illinois Association of Realtors.   The group cited lower home prices, affordable mortgage rates and the federal tax credit for first-time buyers as reasons for the rise.

According to David Blitzer, chairman of the Index Committee at Standard & Poor’s, “We have seen broad improvement in home prices for most of the past six months.”  Case-Shiller’s 20-City Composite index rose 0.3 percent compared with the August numbers.  The city with the worst-performing market is Las Vegas, where prices have fallen for 37 months in a row and now are 55.4 percent off their highs.  Chicago home prices rose 1.2 percent during the third quarter.

In another snapshot of the housing market, a report from First American CoreLogic revealed that nearly 25 percent of all mortgage borrowers are underwater.  This condition, as well as the high number of foreclosures, raise doubts about the staying power of the recent upward price trend.

Will Yankees World Series Victory Unleash the Bulls on Wall Street?

Thursday, November 19th, 2009

Odd correlation between Yankees World Series victories and Wall Street.  There’s a rather odd correlation between the New York Yankees winning the World Series and Wall Street.   A Yankee win historically has coincided with a bull market.  An analysis by Standard & Poor’s Capital IQ reveals an average of double-digit yearly returns from stocks when the Yankees win the World Series.  By contrast, the stock market tends to fall in years when the Yankees lose the championship.

An analysis of the 22 years since 1936 in which the Yankees won the World Series found that the Standard & Poor’s 500-stock index rose a minimum of 10 percent over the previous year.  By contrast, when the Yankees lose the World Series, stocks fell 13 percent on average.  Additionally, when the series ends after six games (as happened this year), the average return rises to 15 percent.  The average fell to just eight percent if the series goes for seven games.

Despite the Yankees’ record, Wall Street tends to prefer National League victories versus the American League.  An analysis of the 30 World Series wins by National League teams since 1936 show that the stock market rose an average of 15 percent the following year.

There are exceptions to the rule.  When the Yankees won the 1936 World Series, the stock market declined 34.7 percent over the next year.  The worst record belongs to the Boston Red Sox, who saw the stock market decline by 37 percent after their 2008 World Series victory.  Coincidence or not, it will be interesting to see if this yardstick proves true this time around.

Nothing Succeeds Like Success

Thursday, March 12th, 2009

Tuesday, March 10’s 379.44 stock market spike – the best finish since Thanksgiving – came on the heels of Citigroup, Inc.’s news that it had made a healthy profit during the first two months of 2009.  At the end of the day, the stock market had soared to a 6,926.49 close.

man-with-cigarSo, what did it?  It wasn’t a bold move by Treasury Secretary Timothy Geithner.  It wasn’t the American Recovery and Reinvestment Act.  It wasn’t hope.  It wasn’t a government plan.

The catalyst that triggered the 5.8 percent Dow Jones Industrial Average stock market rise was honest-to-God good news.  The revelation was in the form of a leaked memo written by Citigroup CEO Vikram Pandit stating that the banking giant had enjoyed its best financial performance in more than a year.  The memo, written to reassure the bank’s employees about its stability, said that Citigroup had recorded an operating profit of $8.3 billion before taxes and special items through the end of February.  This was Citigroup’s best performance since the third quarter of 2007 and puts it into a sound cash position.

The memo did not detail what the special items involved, but they could include credit losses and writedowns.  Still, the news kicked off a buying frenzy.  Worldwide financial stocks rose, with Citigroup up 38 percent for the day.

Broader indices like the Standard & Poors 500 index rose 43.07 to 719.60; NASDAQ soared 89.64 points to 1,358.28.