A Quarter Much Like The Last One?

By KAREN RICHARDSON

June 26, 2008; Page C1

It is confessional time in the quarter -- the moment every three months when companies are most likely to come forward to acknowledge their profit shortcomings to investors. So far, no news might be good news.

With just a few days left until the end of the second quarter, 81 companies in the S&P 500-stock index have issued profit warnings. That's included companies like United Parcel Service, Ford Motor and Citigroup. Meanwhile, 41 have preannounced positive results.

 

 

The mix of positive warnings and negative warnings is pretty much in line with historical levels, says John Butters, director of U.S. earnings at Thomson Reuters. Just ahead of the end of the first quarter, for example, 88 companies warned they would miss expectations, while 39 companies said they would beat them.

That suggests the second quarter could be shaping up to look a lot like the past few quarters: truly dismal for the likes of banks, auto makers and home builders, but not so bad -- all things considered -- for the rest.

Excluding the battered financial sector, the S&P 500 is expected to report second-quarter earnings growth of 8.1%. That compares with 7% in the first quarter, and 11.7% in the fourth quarter of last year, according to Mr. Butters. Strip out energy, too, and S&P 500 profits are expected to be up 3.9% this quarter, compared with 2.7% in the first quarter.

It isn't great news for bulls, who don't get great earnings to push stocks higher. But it also looks like the bears won't soon get the big bust they've been waiting for.

How Much to Blame Fed For Bouncing Bubble?

There's a bubble theory about the miseries afflicting the economy and financial markets right now. It goes something like this:

Ever since the tech-stock bubble burst at the end of the 1990s, the Federal Reserve has kept the economy from feeling too much pain by using low interest rates to push that bubble from one asset class to another. First it went from tech stocks to housing, keeping consumers spending and the economy more or less afloat. Now, some say, the bouncing bubble has landed in a place that's not so helpful: commodities.

"For 10 years, we've been rolling forward every piece of bad news, and finally we've run out of things to roll forward to," says Howard Simons, a strategist at Chicago-based Bianco Research. "We've kept creating bubble after bubble after bubble. Now instead of asset inflation we have consumer inflation."

The next bubble might also be floating to the alternative-energy sector, which raised nearly $14.8 billion in initial public offerings of stock last year -- more than the $11.6 billion that tech-stock IPOs raised in 1998, according to Dealogic.

To be sure, much about the energy boom is out of the Fed's control. It doesn't drive economic growth in China, India and other emerging markets, a source of commodities demand.

But the Fed certainly could go a long way toward hurting commodity prices by raising rates until the global economy cracks. Wednesday's actions made clear it's in no hurry to do that.

Go RedBull

March 1, 2008

The Art of the Save, for Goalie and Investor

By PATRICIA COHEN

When it comes to choosing what to do, sometimes the best thing is nothing.

Consider Radek Cerny, the No. 1 goalkeeper for Tottenham Hotspur, who was facing off against Manchester United’s exuberant young midfielder, Cristiano Ronaldo, for a penalty kick during the recent fourth round of the Football Association Cup in Britain. As Ronaldo’s foot swung back for the kick, Cerny leapt to the left expecting a sharp shot to that corner. The ball barreled into the lower right.

Goal!

Cerny’s mistake, in Ofer H. Azar’s eyes, is that he moved to one side instead of remaining in the center, where he would have had a greater chance of stopping the ball.

Mr. Azar is not a coach or a goalie. Actually, he does not even play soccer. He’s a lecturer in the School of Management at Ben-Gurion University of the Negev in Israel. Mr. Azar, however, is interested in decision-making, and the split-second response of goalies to penalty kicks struck him and several of his colleagues as a perfect real-life test case of why people sometimes make irrational decisions.

Classical economists often criticize experiments on how emotions influence financial decisions because they do not involve meaningful monetary rewards. Examining professional soccer players seems to solve that problem.

“Incentives are huge,” Mr. Azar and his collaborators argue in a paper that appeared not long ago in The Journal of Economic Psychology. What’s more, “goalkeepers face penalty kicks regularly, so they are not only high-motivated decision-makers, but also very experienced ones.”

The Israeli scholars are not looking to break into the Premier League. Their point is that a preference for action over inaction can play a significant role in all kinds of economic choices.

When the economy has been doing poorly, officials are more likely to “be tempted to ‘do something,’ ” they argue, even if the risks outweigh the possible gains. “If things turn bad, at least they will be able to say that they tried to do something, whereas if they choose not to change anything and the situation continues to be poor (or becomes worse), it may be hard to avoid the criticism that despite the warning signs they ‘didn’t do anything.’ ”

That sort of thinking can affect whether managers stick with their firm’s current strategy or change course. And, apparently, whether goalkeepers stand still or take a leap.

The soccer field has turned out to be a popular laboratory among economists, with penalty kicks a particular favorite.

Awarded after certain kinds of fouls, or sometimes to decide a championship match, a penalty kick pits one player against the goalkeeper. (Mano a pie instead of mano a mano, though, since the goalie is allowed to use his hands.)

Standing just 36 feet away, the kicker sends the ball hurtling at the goal at 60 to 80 m.p.h., giving the goalie just 0.2 to 0.3 second to respond. Given the speed, the goalkeeper has to decide what to do even before observing the direction of the kick. Stopping a penalty kick is considered one of the most difficult challenges in sports. Not surprisingly, 80 percent of all penalty kicks score.

For their study, Mr. Azar, along with Michael Bar-Eli, a sports psychologist; Ilana Ritov, a psychologist; and two graduate students, scanned the top leagues in the world, collecting data on 311 penalty kicks. Then they computed the probability of stopping different kicks (to the left, the right or center) with different actions (jumping left, right, or staying put) to see which one “maximizes his chance of stopping the ball.”

According to their calculations, staying in the center gives the goalkeeper the best shot at halting a penalty kick — 33.3 percent, instead of 14.2 percent on the left and 12.6 percent on the right.

Yet when the group analyzed how the goalkeepers had actually reacted to these penalty kicks, they discovered the goalies remained in the center just 6.3 percent of the time.

The reason, Mr. Azar contends, is rooted in how the players feel after failing to block the ball.

Their soccer speculations build on the work of Amos Tversky and the Nobel Prize winner Daniel Kahneman, who explored the idiosyncrasies of decision-making. In a landmark study, the two psychologists found that people had more regrets when they lost $1,200 because they chose to act, (in this case, change an investment), than people who lost $1,200 because they left their investments untouched.

What Mr. Azar and his collaborators wanted to show was that in certain situations, those results could be reversed: when acting was the standard response — like a goalkeeper’s jumping to one side on a penalty kick — not acting would make someone feel a deeper emotional pang. The result is an unconscious bias toward action.

To check, they asked 32 goalkeepers in Israel’s Premier League and National League to rate how bad they felt on a scale of 1 to 10 after missing penalty kicks. As it turned out, about half of the group said “10” no matter where they stood.

Of the remaining 15, 11 felt worse when they remained in the center instead of jumping to the side. Nothing definitive, the authors acknowledge, but it does at least suggest “that goalkeepers feel worse about a goal being scored when it follows from inaction (staying in the center) than from action (jumping).”

Outside the stadium, Mr. Azar and company argue that “action bias” can influence not just goalies but also investors as they decide to sell their stocks (action) or leave their portfolio untouched (inaction) during a downturn, and whether a worker chooses to look for a better job or stay put.

Marcel Zeelenberg, a social psychologist at Tilburg University in the Netherlands, has found that a bias toward action or inaction often depends on whether a previous result was good or bad. After a team has a big loss, for example, the expectation is that the coach should replace the starting players, whereas after winning, leaving the lineup unchanged is considered the normal response.

In an e-mail message, Mr. Zeelenberg said he thought the Israelis’ “paper is convincing because it uses real, already existing data to test a theory that was recently developed and tested only in the lab.”

Paul Romer, an economist at the Graduate School of Business at Stanford University, said the study illustrated an important point about economic decision-making.

“How people feel about various kinds of activities means a lot about what they decide to do,” Mr. Romer said. “In many situations, we just look at the narrow monetary payoffs and we forget about the effects of preference or feelings.”

For instance, going to school for an extra year will mean higher wages in the long run, Mr. Romer said, but “going to school can be very rewarding and satisfying for some, and very painful for others.” By looking solely at the financial rewards, “you might miss the single most important factor in determining that decision.”

Shame, humiliation, feelings about one’s competence — all of these emotions play a huge role in decision-making.

“There is a very large social component to feelings,” Mr. Romer said. “Economists typically assume that people understand what makes them feel good,” but “people actually don’t always understand what makes them happy.”

So what do the men on the field think?

Danny Cepero, a goaltender with the New York Red Bulls, said he could understand the emotional downside of doing nothing. If you stay put because you think a ball is coming straight up the middle and miss, he said, “you look like a fool.

“Definitely it’s more acceptable to pick a side and just go.”

Still, Mr. Cepero was skeptical that staying in the center makes the most sense. “You rarely see a goalkeeper stand in the middle and make a save,” he insisted.

To Des McAleenan, the Bulls’ goaltending coach, no computer analysis can capture the complexity of players’ responses. “Now, everybody’s got extensive dossiers on the opposition,” he said.

The journal article does point out that the center strategy is not an absolute rule; if goalkeepers spend more time in the middle, penalty kickers would undoubtedly shift their strategy and their aim.

But for the moment, Mr. Azar’s team would advise those who play soccer or the market that nothing is sometimes better than something.

QUICK CHANGE NEW YORKERS ADJUST TO THE NEW MARKET

By MAX GROSS, New York Post October 18, 2007 -- THERE'S something of a Twilight Zone dynamic to New York City real estate. While the rest of the country writhes in mortgage agony, much of New York seems to be bouncing like a carefree 8-year-old on a trampoline.
This is especially surprising, given how dire the future seemed just a month ago. People were holding their breath, tightening their belts and preparing for Armageddon. It never came. (Or, at least, it hasn't come yet.) And it won't
When we recently canvassed several top brokers at major real-estate firms, many reported that the rug hadn't been pulled out at all - and some even said business has improved.
"I'd say traffic has more than doubled than this time last year, which is beyond comprehension," says Prudential Douglas Elliman vice chairman Dolly Lenz.
"The interesting effect on the market is that it truly made the - well, it's hard to say 'low-end' because it really isn't low-end - but less-expensive buyer jump to buy," Lenz says.
"It used to be that buyers could put down 5 percent or 10 percent and, provided they were employed and provided they were breathing, they could get a loan. Now, it's at least 20 percent down and income verification. And so for things that are up to $6 million, people are [buying quickly] because the fear is that now it's 20 percent - next it'll be 30 percent. Next 40 percent."
With buyers like this in the market, sales appear to be brisk.
"I'd say the pall has lifted," says Barbara Fox, president of Fox Residential Group. "All of a sudden, things that we hadn't been able to sell over the summer are selling."
"We had 45 percent more sales than the same time last year," says Hall Willkie, president of Brown Harris Stevens, of his firm's third quarter. "Prices are up in every category, and the market has been very strong."
Of course, most of the third-quarter sales figures were for properties that went to contract before the subprime market melted down, but Willkie notes that Brown Harris Stevens has seen roughly the same number of signed contracts last month as the firm did last September.
And it's difficult to argue with the numbers: Market data that came out last week showed that Manhattan condos had reached a record average price of more than $1.6 million.
Things are heating up in the outer boroughs as well.
"I am busier than ever!" says Brooklyn broker Rodolfo Lucchese, who works out of the Corcoran Group's Fort Greene office. "Bidding wars, all-cash offers."
Late last month, Brown Harris Stevens opened the sales office for Hunters Point Condos, a new development in Long Island City, and sold 40 units (20 percent of its inventory) on the first day.
But no statistics or anecdotes can speak for our entire diverse market. It would be foolish not to acknowledge that some things have changed. And there are, no doubt, would-be buyers who've adjusted their expectations or temporarily taken themselves out of the game.
"I've had several buyers who reduced their price range," says Prudential Douglas Elliman broker Tamir Shemesh, "but I've always had that . . . If someone was looking at about $10 million, now they're looking in the range of $6 million, $7 million. One client looking to upgrade decided to hold off."
But Shemesh adds that inventory is still incredibly tight and that he's seen bidding wars.
NYP Home also spoke to numerous buyers about their confidence in the market and how their plans have been altered. Here are their stories.
Bite the bullet
Some buyers who started the process in the middle of the summer had to grin and bear the subprime market's blowup, even if they weren't subprime borrowers.
James Moore and Sara Nardi signed a contract for an Upper East Side two-bedroom for $995,000 back in June. But as they waited to close, they saw rates shoot up like crazy.
"We were a little panicked," says Nardi. "The banks got really tight and until the 12th hour they were examining everything with a fine-tooth comb. We had to have letters signed from our parents and financial statements."
Moore and Nardi had not locked in their rate when the meltdown hit, so they bit the bullet and locked in . . . at exactly the wrong time. When the Fed lowered rates, the rate they had secured didn't look so good anymore.
"We were actually in a position of locking in a rate and then when the rates went down, having to buy points [to lower their rate]," Nardi says. "We wound up spending an additional $17,000 to buy two points - but we did the math and it evens itself out over four years."
Summer panic aside, Nardi and Moore are confident that they got a good deal on the apartment they found with Halstead Property broker Jill Sloane.
"It's close to the East River, it's got a doorman, the lobby's completely renovated and in the back they're renovating a huge garden," says Nardi. "I only wished they allowed pets."
Time to rent ... a condo
Lucia Panzarella wanted an apartment with outdoor space and more room than her Midtown apartment. She and her husband were going to buy last spring, and began touring apartments on the Upper East Side and Upper West Side before taking a break from home shopping in the summer.
When the summer credit crunch came, they decided to rent instead. They found a 2,200-square-foot duplex penthouse condo in Harlem through their Halstead Property broker, Julia Boland. The owners had originally wanted to sell the home but couldn't find a buyer. Panzarella and her husband signed a one-year lease.
"I definitely think things are starting to appear to be stabilizing," says Panzarella, who has taken herself out of the market for the foreseeable future.
"We're definitely going to be watching the market," she says. "If it works more in our favor and we find something similar to this place, we could buy."
In the meantime, she loves her rental.
Make an offer ... that could be refused
"My offers will be below asking price," says Ben Schaye, a lawyer and recent transplant from Chicago, who is actively looking for a one-bedroom somewhere in Midtown/Hell's Kitchen.
Schaye, who has been looking on his own and with Manhattan Apartments broker Farrah Mogh, figures that things are still somewhat overpriced. "In a month or two months time [my offers] are probably going to be what they're asking for ... The asking prices haven't begun to reflect what the apartments are really worth."
So far, Schaye has been making offers as much as 15 to 20 percent below asking prices and, surprisingly, he has gotten nibbles from sellers. One of his offers was rejected out of fear that the co-op board wouldn't accept it, but the seller seemed satisfied with the proposed figure.
"I kind of welcomed" the credit crunch, says Schaye with a laugh. "I mean, I didn't think I would be much of a credit risk, and it would knock out some of the competitors."
Play the waiting game
"I was looking to buy - and I'm still looking to buy - but I think it's time to be cautious, to do homework," says Scott Berger.Berger, a recent transplant from California, had originally planned on purchasing something in the West Village or SoHo. He and his broker, Christina Vescovo of Halstead Property, spent much of the summer going to open houses during Berger's business trips to New York. But as his moving date approached and the credit crunch intensified, Berger decided there was really no need to hurry. He thinks that maybe a few months, or even a year, out of the game might be a good idea, giving him time to sit back, study and observe the market.
In the meantime, Berger has taken a one-bedroom rental in the East Village.
Think outside the box
Some buyers, like Michael Roggow, have decided to look outside their dream neighborhood.
"I wanted to move to Chelsea," says Roggow, who sold his house in Kew Gardens, Queens, earlier this year and began looking at properties. "Chelsea was a lot more expensive than I remember it. So what was I going to do? Live in a 350-square-foot studio? That was OK when I was 21 and just out of college, but now?"
Roggow and his broker, David Culver of Citi Habitats (above left), have decided to check out cheaper neighborhoods like Washington Heights and are waiting to see if the market will go down in the winter.
Damn the torpedoes, full speed ahead
Buyers and sellers each have separate anxieties about the market, but for somebody like Deborah Colitti, who is both a buyer and a seller, there is a kind of preternatural calm.
Colitti found a two-bedroom penthouse in the Village back in July that she closed on last week. (She won a bidding war to get it.) And she just put her current apartment - a one-bedroom at 720 Greenwich St. - on the market with Tamir Shemesh from Prudential Douglas Elliman.
"It's been on the market 10 days, and I've already got multiple offers," says Colitti.
And Colitti says that her experience has been extremely good, all things considered.
After the subprime crash, "all the banks were frozen for that four- to six-week period," she says. "They were dotting every 'i' and crossing every 't.'"
But in the end, there were no real problems. "It just took a lot of paperwork."
Colitti is now planning a renovation for her penthouse and sifting through the offers on her old apartment.