Archive for October, 2010

  • Nicholas Financial Hits Three-Year High, Also Something about Google
    , October 14th, 2010 at 7:12 pm

    The stock market had a fairly quiet day today. At one point the S&P 500 was down about 1% but it rallied into the close. All told, the S&P 500 lost 4.29 points which is just -0.39%.

    Our Buy List, however, had a decent day. The portfolio gained 0.18% and we’re now up 8.44% for the year. AFLAC (AFL) got as high as $55.76 but couldn’t hold to its gains. We’ve had a pretty good run lately with AFL. Let’s remember that this stock was below $45 less than three months ago.

    How about Nicholas Financial (NICK)? Our little used-car financier got up to $9.75 today which is a three-year high. Woo-hoo!

    The big news after today’s close is Google’s (GOOG) earnings. They blew the doors off last quarter. The stock is currently up nearly $50 per share in the after-hours market which is about 9%. For Q3 Google earned $7.64 per share (after charges) which beat the Street by 96 cents per share. Online advertising, it seems, is back. Google’s revenues rose to $5.48 billion which was $220 million above the Street’s consensus.

    Google is sitting on a cash position of—are you ready for this?—$33.4 billion. That’s just crazy.

  • How Good Is Warren Buffett?
    , October 14th, 2010 at 2:00 pm

    According to Insider Monkey, Buffett hasn’t done so well over the past decade:

    Your source for free real-time insider trading data, Insider Monkey, analyzed the returns of Warren Buffett’s Berkshire Hathaway between 1977 and 2009. We ran hundreds of regressions to calculate Warren Buffett’s alpha(skill) for every single month, using both 5-year and 10-year historical performance data. The results based on 10-year data are smoother but paints the same picture as the results based on 5-year data. Contrary to the general perception, Buffett has not had any alpha for the past 10 years. Let us repeat that: Buffett, no alpha, for the past decade. You would have been better off if you had invested your money with David Einhorn.

    See here for the details.

    I would be interested to know how well Berkshire has done sans Geico. It could turn out that the great stock-picker really only chose one winner — a really, really big winner.

  • Ray Irani to Step Down at OXY
    , October 14th, 2010 at 12:57 pm

    Interesting news today. Ray Irani will step down as CEO of Occidental Petroleum (OXY) in May 2011. He’s been CEO ever since Armand Hammer died in December 1990.

    When Irani took over, shares of OXY were at $10.38 adjusted for a stock split. Today, the stock is at $84.32. That works out to a return of 11% per year and it doesn’t include dividends.

    Occidental Petroleum said Chief Executive Ray Irani will step down next May, and that it would cut the salaries of its top executives to bring them more in line with peers.

    The salary cuts would “substantially” reduce the pay of its CEO, COO and other senior executives, Occidental said in a statement adding that Chief Operating Officer Stephen Chazen will take over as CEO.

    “Under the new program, at all performance levels, the compensation for Occidental’s chairman and chief executive officer is expected to be lower than that of one or more peer companies,” the company said.

    Irani’s pay has garnered media attention over the years, and in July he was featured in the Wall Street Journal’s front page for earning $857 million in the past decade, making him third on the list of best-paid public company executives in that time.

    I don’t want to defend Irani’s pay, but let’s add some perspective. His 10-year total of $857 million works about to about $1.06 per share. That’s obviously a lot of money but it’s hardly something that has been a drag on the stock over the last decade.

  • Your Credit Risk Chart of the Day
    , October 14th, 2010 at 12:21 pm

    Here’s an interesting chart. This shows the yield spread between AAA corporate bonds and BAA bonds.

    Normally, BAA bonds yield about 1% more than AAA for the added risk. Sometimes this goes as low as 0.5% and sometimes it goes as high as 1.5%.

    During the credit crisis, however, all hell broke loose. By December 2008, the spread reached 350 basis points.

    In other words, everybody was terrified to lend to anyone, unless they were of the lowest credit risk. As bad as the chart looks, the spread fell back to the normal range by the summer of 2009.

    We even broke below 1% during the early part of this year. The spread jumped up to 1.4% due to fears about Europe, but that, too, has subsided. I wouldn’t be surprised to see us break below 1% again before the year is over.

    The message is that the worst of the financial crisis is behind us. We’re now dealing with the damage leftover in the form of very high unemployment.

  • Yahoo Jumps on Potential Bids
    , October 14th, 2010 at 10:28 am

    I’ve not been a fan of Yahoo (YHOO) for some time. I just don’t get what impresses so many other people about this company. They were in a perfect position to own the Internet and they blew it. Big time. Everything that is Google (GOOG) today should say “Yahoo” on it. Instead, they wanted to win Hollywood over.

    When the stock was at $31, I said I wouldn’t touch it for half that. I was right and the stock plunged. Then Microsoft (MSFT) came in and offered Yahoo—what else?—$31 per share. At the time, that was a 62% premium over its current price. In one of the classic business blunders of all time, Yahoo said no; they wanted $40 or more. Microsoft raised to $33. Again, Yahoo said no; they wanted more. Then Microsoft decided to forget about it. Forget $33. Forget $31. Forget it all. Once Yahoo’s stock started to plunge, Yang said, “Hey, you can still buy us!”

    Stupid, stupid, stupid!

    The stock has been bouncing around in the mid-teens for several months now. The shares are up around 7% today on more buyout news:

    Yahoo Inc. (YHOO) shares jumped Thursday on speculation AOL Inc. (AOL) and several private equity firms might be interested in buying the company.

    Silver Lake Partners and Blackstone Group LP (BX) are among the firms that have expressed interest in either teaming up with AOL to buy Yahoo or trying to take it private on their own, the Wall Street Journal reported late Wednesday. The report added that at least two or three other firms could be interested in participating if a formal buyout proposal is drawn up.

    But the report cautioned that the discussions–involving private-equity firms, AOL executives and financial advisers–are preliminary and don’t yet involve Yahoo.

    Shares recently jumped 7% to $16.30 in early trading, wiping way most of 2010’s declines and leaving the stock down just 3% this year.

    The notion Yahoo may be in play lifted the depressed stock, which has traded in the teens since the company fought off Microsoft Corp.’s (MSFT) overtures a couple years ago. Yahoo has struggled to compete with online-search giant Google Inc. (GOOG), and management has been criticized as being too slow with the company’s turnaround efforts.

    “Looking back on the M&A situation with Microsoft, that was probably one of the most botched responses to a potential acquisition I’ve seen in my 12 years on Wall Street,” S&P equity analyst Scott Kessler said. “The reality is at that time, Yahoo was being offered $31 a share, and now the stock is basically trading at half that value.”

    Many analysts seemed to doubt the validity of the chatter, citing its complex nature and the likely high price Yahoo would require for a deal. UBS said it’s unlikely Yahoo would sell out for less than $22 to $25 a share.

    “Plus Yahoo has resisted takeovers in the past,” Benchmark Co. analyst Clayton Moran said. “I’m skeptical a deal gets done, or if it does, that it creates material value above the current stock price.”

    Personally, I’d be wary of paying more than $11 per share for Yahoo. It just ain’t worth it.

  • Trade and PPI Weigh on Market
    , October 14th, 2010 at 10:11 am

    Wall Street continues to take the David Arquette/Courteney Cox news in stride. The Dow is currently off 20 points. Our Buy List is modestly higher.

    Reynolds American     (RAI) came within one penny of making a new 52-week high this morning. The stock is up over 13% for the year for us — and that doesn’t include the big dividend.

    Other news impacting finance this morning is that the report on the U.S. trade gap for last month climbed higher than expected. The gap grew by 8.8% to $46.3 billion compared with Wall Street’s estimate of $44 billion. Imports rose by 2.1%, while exports increased 0.2%. Here’s a stunning fact: Trade knocked off 3.5 percentage points from Q2 GDP growth. That’s the most since 1947 and imports grew at the fastest pace since 1984.

    The Labor Department said that wholesale prices rose by 0.4% last month. However, the “core rate,” which doesn’t include food and energy prices, rose by just 0.1%. As it turns out, the core reading explains a lot since food prices rose by 1.2% in September and since energy prices rose by 0.5%.

    Overall, this news will give Bernanke & Co more room to operate. I think the Fed will go ahead with QE2 at their meeting in early November. I expect that the Fed will announce a program to buy, say, $300 billion to $500 billion worth of Treasuries in an attempt to get the economy moving again.

  • Morning News: October 14, 2010
    , October 14th, 2010 at 7:43 am

    World Stocks Hit Two-year High, Led by Emerging Markets

    Franc Strengthens to Record Versus Dollar on Fed Easing Concerns

    Goldman No. 1 at Rating Financial Companies With 38% Right

    Bankers Ignored Signs of Trouble on Foreclosures

    Yahoo Surges on Reports of Buyout by AOL

    Oil Climbs a Second Day on Speculation of Renewed Fed Action

    Dollar Pummeled after Singapore Widens FX Band

    Pimco Sells Treasuries on Prospect Fed Easing Round to Have Limited Impact

    Spain’s Santander Funds at Higher Rate to Inferior Banks

    Education Trade Update

  • Bernanke Warns
    , October 13th, 2010 at 8:48 pm

    Notice a pattern?

    Bernanke Warns of High Budget Deficits

    Bernanke Warns of Devastating Economic Collapse

    Bernanke Warns of Threat from Deficit

    Ben Bernanke Warns of Looming Economic Crisis

    Fed Chairman Ben Bernanke Warns Against Hasty Action on the US Deficit

    Bernanke Warns U.S. of ‘Unsustainable’ Debt Level

    Federal Reserve Chairman Ben Bernanke Warns Congress that the Federal Reserve Will Not “Print Money” to Pay for the Exploding U.S. National Debt

    Bernanke Warns About Creating New Bubbles

    Bernanke Warns Against Narrowing Fed Focus

    Bernanke Warns of Small-Bank Risks

    Bernanke Warns Economic Outlook ‘Uncertain’

    Bernanke Warns of Tax Hikes or Benefit Cuts to Deal With Deficit

    Bernanke Warns of Need for Monetary Tightening

    Bernanke Warns Mortgage Rates Could Rise on Debt Worries

    Ben Bernanke Warns Hedge Fund Billionaires

    Greenspan Home Robbed

  • The 7-Year TIPs Yield Is Now Negative
    , October 13th, 2010 at 4:16 pm

    Amazing! Bond 36,000 continues.

  • Holding on to Nice Gains Today
    , October 13th, 2010 at 3:23 pm

    The market is holding on to decent gains as we head into the closing bell. The S&P 500 has been as high as 1,184.38. Interestingly, that’s near the close of 1,186.75 on July 17, 1998 which was the closing high before the market plunged later that year. The subsequent rally was so strong it nearly makes us forget how nasty that downturn was.

    Despite having decent earnings, shares of Intel (INTC) have sold off today. However, the stock is merely giving back its run-up going into earnings. As I said before, this is a good buy under $20.

    JPMorgan Chase (JPM) has also pulled back some after a good earnings report. This isn’t a major sell-off but I think JPM looks good under $40. As I said this morning, it’s possible that JPM could restore its 38-cent quarterly dividend. I doubt they’ll do that, but they could if they wanted to.

    Apple (AAPL) also made news today by busting through $300 per share. I was happy to see AFLAC (AFL) get as high as $55.55 today. This is still an excellent stock to own. Wright Express (WXS) is one of the quieter stocks on our Buy List, but don’t let that fool you. The stock hit a fresh 52-week high today. It’s up 18% on the year for us. Jos. A Bank Clothiers (JOSB) also made a new high today. The stock is up 67% year-to-date.

    Tomorrow we’ll get the report on wholesale inflation, and on Friday, we’ll get the report on consumer inflation. On the earnings front, Google (GOOG) reports tomorrow as does AMD (AMD). On Friday, GE (GE) reports. The good thing about the GE report is that the company is so diversified that it’s almost like a private sector GDP report.