Archive for June, 2010

  • Update on Momentum Stocks
    , June 22nd, 2010 at 2:59 pm

    Here’s an update to the chart of the historical performance of momentum stocks. This is one of the most fascinating phenomena in finance. Stocks that have done well, on average, continue to do well.
    The chart shows the historical performance of stocks ranked by momentum decline (meaning 10% slices).
    image951.png
    The deciles are perfectly rank ordered. The stocks that had been doing the best, do the best. The stocks that had been doing the worst, fare the worst.
    The data comes from Dr. Ken French’s website. Just to be clear, momentum is defined by performance over the 11-month period starting 12 months ago and ending one month ago. The one-month directly prior to each period is excluded. At the end of the month, the whole thing is repeated. The data series goes back over 80 years.
    Here’s how each decile has performed:
    Decile 1: 16.79%
    Decile 2: 13.11%
    Decile 3: 12.42%
    Decile 4: 10.63%
    Decile 5: 9.42%
    Decile 6: 8.47%
    Decile 7: 8.05%
    Decile 8: 5.73%
    Decile 9: 4.54%
    Decile 10: -1.73%

  • The Yuan Rally Fades Away
    , June 22nd, 2010 at 1:37 pm

    Yesterday’s yuan rally totally collapsed and we’re not advancing much at all today. The market is becoming similar to a World Cup match—little scoring and lots of buzzing in the background.
    The Buy List is finally having a good day today. I said before that I was wary of Bed Bath & Beyond (BBBY), but I didn’t expect such a pullback in that stock. I’ll be very curious to hear what they have to say about Q2 when Q1 earnings come out tomorrow.
    The most notable move today is that energy stocks aren’t doing well. This is good four our Buy List’s relative performance since we’re underweighted in energy.
    I’m also surprised by the rally in the five-year Treasury. The yield has dropped from 2.3% yesterday to 2% today. That’s a big move. What’s interesting is that the five-year T-note has tried repeatedly to break below 2% and it just can’t stick. It bounced off 2% last December and has had a longer battle with 2% ever since late April. If I knew more about technical analysis, I might call it “resistance.”

  • Dow 1,000
    , June 21st, 2010 at 12:35 pm

    Peter Brimelow finds this gem in a recent Elliot Wave Theorist:

    The only way for the developing configuration to satisfy a perfect set of Fibonacci time relationships is for the stock market to fall over the next six years and bottom in 2016.

    Got that. To be more specific, they see the Dow plunging below 1,000 as a very realistic scenario.
    I’m curious about the off-chance that we don’t satisfy a perfect set of Fibonacci time relationships. Hey, stranger things have happened.

  • Bed Bath & Beyond’s Earnings Report
    , June 21st, 2010 at 10:47 am

    This Wednesday, Bed Bath & Beyond (BBBY) is due to report its first-quarter earnings. This will be for the quarter that ended with the month of May.
    I’m a little anxious about this report. Up until last Wednesday, the stock had had a pretty good run. During the financial crisis, the shares got to as low as $16 in November 2008. They hit a peak of $48 earlier this year.
    The company is doing very well and BBBY has creamed earnings for the last few quarters, particularly the last five. But at this price, I can’t say that the stock is a screaming bargain. It’s a very good stock at a fair price, not a great price.
    The current consensus on Wall Street is that BBBY will earn 48 cents a share for Q1. That’s probably low but not by much. In April, the company gave a range of 44 to 48 cents per share. That’s a lowball. My expectation is that BBBY will earn 52 to 54 cents a share. I’m curious what they’ll say for Q2 expectations.

  • What’s the Best Stock of the Last 5 Years?
    , June 21st, 2010 at 10:35 am

    It’s up more than 10-fold.
    I’ll give you a hint: Shatner is involved.

  • The Cold War Is Officially Over
    , June 21st, 2010 at 9:40 am

    The BBC reports:

    Russia to drop capital gains tax to attract investment
    Russia will scrap capital gains tax on long-term direct investment from 2011, President Dmitry Medvedev has said.
    Mr Medvedev said that in terms of improving Russia’s investment climate “we, I hope, are moving forward”.
    He also said the number of “strategic” firms, in which foreign investment is restricted and which cannot be privatised, would fall from 280 to 41.

  • The Onion: White House Jester Beheaded For Making Fun Of Soaring National Debt
    , June 21st, 2010 at 9:33 am

    The rest of the media missed this one:

    WASHINGTON—After serving 12 years in the position, Motley, the official White House Jester, was beheaded Tuesday after delivering a poorly received jape about the spiraling national debt before President and Mrs. Obama.
    “For crimes of great arrogance and cheek, His Idiocy the White House Jester has been sentenced to a swift demise,” White House Press Secretary Robert Gibbs said following the death sentence. “Let it be heard over every city and suburb of this land that the National Debt is no topic for frivolity, and the mailed hand of Obama shall smite all offenders.”
    Motley, who used his last words to beg in vain for Obama’s mercy, was executed on the North Lawn at the strike of noon.

    (more…)

  • JoS. A. Bank Clothiers Declares 50% Stock Dividend
    , June 21st, 2010 at 9:19 am

    Joe Banks (JOSB) announced today a 50% stock dividend. In other words, that’s a three-for-stock stock split. If you own 200 shares, you’ll get another 100 and you can expect the share price to drop by 33% (yes, a 50% increase followed by a 33% drop brings you back to where you started).
    Ultimately, a stock split doesn’t mean anything to shareholder value. Companies say that do it to increase liquidity but that didn’t hold back Berkshire Hathaway (BRKA) for many years. In reality, these are nice press releases companies like to put out throughout the year. And JOSB has done well.

  • Market Looks to Rally on Yuan News
    , June 21st, 2010 at 9:14 am

    Good news this morning. The market will most likely get a lift today thanks to China agreeing to let the yuan rise against the dollar. I know currency news is as dull as dirt, but this time it matters. The Chinese currency is now at its highest level in two years and it had its biggest one-day gain in five years.
    Let me explain: China keeps a very tight leash on the yuan. Even though this was the biggest move since 2005, the rally was a lousy 0.42%. The Chicoms keep the yuan artificially low and that doesn’t sit well with the rest of the world, including me. One dollar will get you 6.7976 yuan. My take is that this was a just a nice gesture from China ahead of the next G-20 meeting.
    The good news for us is that Asian markets like the news a lot. Not surprisingly, the major airline stocks inside China some very good gains. The downside is that oil rose. This makes sense since investors think it will spur greater demand from China.
    Reuters lists some of the winners and losers from today’s move. The winners include automakers, consumers and tech, foreign heavy machinery makers, luxury firms and Chinese financials. The losers are foreign financials and commodity firms.
    fredgraph062110.png

  • No Follow Through
    , June 16th, 2010 at 9:11 am

    The frustrating thing about this market is that there’s zero follow through. Every time we try to rally, we seem to give it all back the next day. For 13 of the last 17 sessions, the market has closed in the opposite direction from the day before.
    From April 29 through June 1, the S&P 500 rose just eight times. The following day, every single time, the market closed lower. Since then, only two of the last five rallies have been followed by rallies and both were very modest (about 0.4%).
    The S&P 500 hasn’t had a three-day win streak in two months. It looks like we’re going have a lower open. Again.
    The only bright spot is over the last nine down days, seven have been followed by rallies.