Archive for January, 2010

• GDP +5.7%
  Eddy Elfenbein, January 29th, 2010 at 6:02 pm

  Good news! Real Q4 GDP growth came in at 5.7%. That’s the best growth in over six years. This probably means that the recession is over, even though it still doesn’t feel like it.
  Interestingly, the GDP report also showed that nominal GDP increased by a slight 0.81% over the fourth quarter in 2008. This comes after three straight declines. If it weren’t for the lag time, this metric would make a good interest rate peg for the Federal Reserve.
  
  Here’s a look at the Fed fund rates over the same period.
  
  You can see that in the period of 2002 to 2004, the Fed Funds rate was well below nominal GDP growth.

• Bin Laden Comes Out Against Dollar
  Eddy Elfenbein, January 29th, 2010 at 1:21 pm

  And he’s reading Noam Chomsky:

  He called for a worldwide boycott of American goods and the dollar. He faulted the United States for failing to sign the Kyoto Protocol, which sought to curb global warming by restricting greenhouse gas emissions. And he offered a word of praise for Noam Chomsky, the American linguist and liberal political activist.
  “Noam Chomsky was correct when he compared the U.S. policies to those of the Mafia,” Al Jazeera quoted Mr. bin Laden as saying. “They are the true terrorists and therefore we should refrain from dealing in the U.S. dollar and should try to get rid of this currency as early as possible.”

  By the way, the Saudi riyal is tied to the U.S. dollar.

• Ben Bernanke Wins
  Eddy Elfenbein, January 28th, 2010 at 3:45 pm

  Ben gets another term. The cloture vote was 77-23 and the confirmation vote was 70-30.
  In the cloture vote, Democrats voted 53 to 5, and Republicans voted 23 to 17. The two independents split (Lieberman Yes, Sanders No). Note that Senator Kirk is still in office.
  The seven senators who voted for cloture but against the nomination were Boxer, Dorgan, Franken, Harkin, Kaufman, LeMieux and Whitehouse.
  Full roll calls after the jump.

  (more…)

• Lily’s Earnings
  Eddy Elfenbein, January 28th, 2010 at 2:34 pm

  The earnings parade continues. Eli Lilly (LLY) just reported Q4 earnings of 91 cents a share which was a penny below expectations although revenues exceeded expectations.

  For the full year, Lilly earned $4.33 billion, or $3.94 per share, compared with a loss of $2.07 billion, or $1.89 per share, in 2008. Revenue rose 7 percent to $21.84 billion from $20.37 billion.
  Looking ahead, the company expects a profit of $4.65 to $4.85 per share in 2010, excluding any possible impact from the health care overhaul currently being considered by Congress. Analysts expects a profit of about $4.73 per share.

  At $4.73 per share, that means the stock is going for 7.5 times this year’s earnings.

• The Global Business Oath
  Eddy Elfenbein, January 28th, 2010 at 2:03 pm

  Felix Salmon is in Davos and he points us to something that truly cannot be parodied, the Global Business Oath:

  As a business leader I recognize that
  * The enterprise I lead must serve the greater good by bringing together people and resources to create value that no single individual can create alone,
  * My decisions can have far-reaching consequences that affect the wellbeing of individuals inside and outside my enterprise, today and tomorrow,
  * As I reconcile the interests of different constituencies, I will face choices that are not easy for me and others.
  So I promise that
  1. I will manage my enterprise diligently and in good faith and will not let personal considerations and compensation supersede the long-term interest of my enterprise and society at large,
  2. I will understand and uphold, both in letter and spirit, the laws and contracts governing my own conduct and that of my enterprise,
  3. I will respect and protect the human rights and dignity of all people who are affected by my enterprise and will oppose all forms of discrimination and exploitation,
  4. I will respect and protect the right of future generations to enjoy a clean and resourceful planet,
  5. I will not engage in nor tolerate bribery or any other form of corruption,
  6. I will represent the performance and risks of my enterprise accurately and honestly to each of the constituencies that are affected by it,
  7. I will actively engage in efforts to finding solutions to critical social and environmental issues that are central to my enterprise, and
  8. I will invest in my own professional development as well as the development of other managers under my supervision.
  In exercising my professional duties according to these principles I recognize that my behavior must set an example of integrity and responsible conduct.
  This pledge I make freely and upon my honor.

  I pledge to use inane sound bites, empty slogans and boring cant in the service of all humanity.
  P.S. I misread the title of Felix’s post. “Youthful swearing at Davos” didn’t mean what I had hoped.

• Baxter Reports In Line
  Eddy Elfenbein, January 28th, 2010 at 12:20 pm

  For the first time in 20 quarters, Baxter International (BAX) failed to beat expectations:

  Baxter International reported a 1 percent profit increase for the fourth-quarter on Thursday, meeting Wall Street expectations but failing to impress analysts accustomed to bigger gains from the medical products maker.
  The company’s broad mix of medically necessary products — including blood plasma, kidney dialysis treatments and cancer drugs — continued to post solid returns, though analysts said its guidance for 2010 appeared conservative.
  Baxter earned $572 million, or 94 cents per share, up from $569 million, or 91 cents per share, a year prior. Revenue rose 11 percent to $3.47 billion from $3.13 billion.
  Excluding charges, the Deerfield, Ill., company said it earned $1.03 per share, in-line with estimates by analysts polled by Thomson Reuters.
  While the company successfully met Wall Street projections, Leerink Swann analyst Rick Wise noted that the company has beat such estimates the last 20 consecutive quarters. The last period when the company achieved in-line results was in 2004, according to an investment note from Wise.

• College Endowments Got Hammered Last Year
  Eddy Elfenbein, January 28th, 2010 at 12:11 pm

  The New York Times reports that the average college endowment lost 18.7% last fiscal year which is the worst showing since the Great Depression.

  The study, by the National Association of College and University Business Officers and Commonfund, a nonprofit organization that manages university investments, also found that in the last year, many endowment managers increased the move from traditional fixed-income instruments and stocks into alternative investments like private equity, hedge funds, venture capital and private-equity real estate — all of which performed badly in fiscal 2009.
  Unusually, the universities with endowments over $1 billion had the greatest decline, an average of 20.5 percent. Harvard, Yale and Stanford, the wealthiest universities, all lost more than 26 percent of their endowment values.
  At the same time, the study found, debt rose, especially at the largest universities, and gifts declined.
  The 2009 losses in endowment income come on top of an average loss of 3 percent in fiscal 2008. The three-year average return, which most universities use to determine how much of their assets to spend, was negative 2.5 percent, compared with the five-year average of 2.7 percent, and the 10-year average of 4 percent.

  
  If there were only some place these school could receive free market-beating investing advice.

• Still At Zero
  Eddy Elfenbein, January 27th, 2010 at 4:45 pm

  Here’s the latest Fed statement:

  Information received since the Federal Open Market Committee met in December suggests that economic activity has continued to strengthen and that the deterioration in the labor market is abating. Household spending is expanding at a moderate rate but remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software appears to be picking up, but investment in structures is still contracting and employers remain reluctant to add to payrolls. Firms have brought inventory stocks into better alignment with sales. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.
  With substantial resource slack continuing to restrain cost pressures and with longer-term inflation expectations stable, inflation is likely to be subdued for some time.
  The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter. The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets.
  In light of improved functioning of financial markets, the Federal Reserve will be closing the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility on February 1, as previously announced. In addition, the temporary liquidity swap arrangements between the Federal Reserve and other central banks will expire on February 1. The Federal Reserve is in the process of winding down its Term Auction Facility: $50 billion in 28-day credit will be offered on February 8 and $25 billion in 28-day credit will be offered at the final auction on March 8. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30 for loans backed by new-issue commercial mortgage-backed securities and March 31 for loans backed by all other types of collateral. The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth.
  Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted.

• Gilead Sciences Leads Our Buy List Higher
  Eddy Elfenbein, January 27th, 2010 at 10:38 am

  The market is somewhat soggy this morning, but our Buy List is being helped by a very strong earnings report from Gilead Sciences (GILD). For the fourth-quarter, the company earned 93 cents a share which easily beat Wall Street’s estimate of 85 cents a share. The company now projects 2010 net products sales of $7.6 billion to $7.7 billion, which translates to a growth rate of 17% to 19% for this year. Wall Street had been forecasting earnings of $3.31 a share for this year, but that will now increase.
  The shares have been up by as much as 6.6% today. Here’s a look at the earnings call from Seeking Alpha
  The other earnings report was from Stryker (SYK), and that wasn’t so strong. On absolute terms, they did just fine as they almost always do. Stryker earned 82 cents a share but that merely matched Wall Street’s consensus. They reiterated their 2010 outlook of $3.20 to $3.30 per share. I’m fine with that but I guess investors wanted a little more.
  Here’s the CEO on CNBC this morning.
  .
  Stryker is down about 4% this morning.

• Investing By Day of the Month
  Eddy Elfenbein, January 26th, 2010 at 10:12 pm

  Here’s a breakdown of how well the stock market has performed during the first 10 trading days of the month. Each line is based on S&P 500’s cumulative gain on each particular trading day of the month (i.e., being long on the X day of the month, then all cash until the X day of the following month).
  
  The clear winners are the first three days of the month. In fact, stocks aren’t worth the bother for the next seven days. (I know the last few days of the month are also quite good, but I’ll look at that another time.)
  If you had invested solely during the first three days of each month, you would have made 5,824% (dividends not included) over the last 78 years. Even though this represents a small sliver of time (about 13.7%), it’s still a hefty portion of the S&P 500 gain which is about 14,000%.
  The combined return of the fourth through tenth day is a tad over 100% which is less than inflation.
  Here’s a breakdown of the average daily gains:

  Day	Gain
  First	0.115%
  Second	0.166%
  Third	0.155%
  Fourth	0.033%
  Fifth	0.018%
  Sixth	-0.042%
  Seventh	0.029%
  Eighth	0.000%
  Ninth	0.046%
  Tenth	-0.011%

  To give you a reference point, a daily return of 0.1% works out to over 28% a year.