Archive for December, 2010

• Morning News: December 16, 2010
  Eddy Elfenbein, December 16th, 2010 at 6:53 am

  Wall Street Futures Point to Flat Open for Stocks

  SNB Leaves Key Rate Near Zero to Stop Franc From Appreciating

  Dollar Gains Against Euro, Pushing Stocks Lower

  Record Plunge in Foreclosures, Thanks to Robo-signers

  Spanish 10-Year Bonds Fall After Borrowing Costs Rise at Auction

  Rift Over Wall Street Blame May Dull Impact of U.S. Financial Crisis Panel

  Seven Samurai of New Japan Inc.

  Industrial Output Posts Strongest Gain In 5 Months

  BP Falls Most in Four Months After U.S. Files Oil Spill Lawsuit

  G.M. Buys Back $2.1 Billion in Preferred Shares

  Icahn Seeks Dynegy for $665 Million

  Disinflation Continues in November Core CPI Report

• Damn It Feels Good to Be a Swiss Banker
  Eddy Elfenbein, December 15th, 2010 at 4:49 pm

  Check out some of the details from the dress code at UBS:

  The regulations designate a 1.5 millimeter maximum fingernail length for men, suggests that female bankers wear makeup and put on perfume directly after showering and not after lunch, advocates that shoes be changed daily to bring greater levels of “peace and serenity,” and mandates employee underwear that is skin-toned and “always made of superior quality textiles.”

  And that’s just the beginning.

  The Swiss bank is pioneering its precision dress code in six pilot projects designed for employees that deal with the public in order to project “truth, clarity …respect … our values and culture.”

  The dress-for-banking-success manual is broken down into tips and guidance and includes chapters titled, “Shoes and Belts,” “Blouses,” “Personal Touch” (jewels and makeup), “The Suit,” and “The Shirt.”

  Men should don footgear with a shoehorn; women should not wear new shoes. Suits must not only be charcoal grey, black, or dark blue, but dress coats must always be buttoned when employees stand, and open when sitting. Skirts must reach the middle of the knee with a tolerance for extending 5 centimeters below the joint.

  Stockings that are “opaque” are out. Socks? Always black. Women may wear no more than seven jewels, men three. Scarves are compulsory, and to be tied with “authorized knots.”

• So What Happens After One of the Greatest Bull Markets in History?
  Eddy Elfenbein, December 15th, 2010 at 2:59 pm

  CNBC tells us: What, Me Worry? Investors Are Suprisingly Bullish on Stocks

  Call it being complacent over complacency—redundant for sure, but an expression of how even a healthy level of fear has seemed to come completely out of the stock market.

  As the stock market has churned to two-year highs, sentiment levels as expressed through a variety of gauges have reflected extremely buoyant attitudes among investors. Surveys from Investors Intelligence and the American Association of Individual Investors both show bullish sentiment more than 2 to 1 ahead of market pessimism.

  Similarly, the CBOE Volatility Index, an options play that is considered a gauge of near-term fear (when it’s elevated) and complacency (when it’s falling), has been hovering around levels last seen in April.

  I don’t believe there’s a strong connection between the VIX and future stock returns, though there is some evidence that very low levels (below 13) are good for stocks.

  The only connection is that the VIX is a pretty good indicator of future volatility, but it doesn’t say which way. That’s why I don’t get too concerned about where the VIX is. When the recent bull market began in March 2009, the VIX was close to 50.

• Industrial Production Rises More Than Expected
  Eddy Elfenbein, December 15th, 2010 at 11:46 am

  Remember how the world was supposed to end? Still not happening:

  Industrial production in the U.S. increased more than forecast in November, helped by gains in computers, home electronics and appliances, signaling factories will support economic growth into next year.

  Output at factories, mines and utilities rose 0.4 percent, the biggest gain since July, after a revised 0.2 percent drop in October, figures from the Federal Reserve showed today in Washington. Economists forecast a 0.3 percent gain, according to the median of 75 projections in a Bloomberg News survey. Manufacturing rose 0.3 percent for a second month.

  Assembly lines are speeding up as business investment and exports grow and consumer spending accelerates. Manufacturing will continue to play a role in the economic recovery, which Fed policy makers yesterday said was not strong enough to reduce a jobless rate that’s been hovering near 10 percent.

  Capacity utilization rose 75.2%. By historical standards, that’s very low but it’s the highest level since October 2008.

  Here’s a look at industrial production. (Kind of a V??)

  

• Morning News: December 15, 2010
  Eddy Elfenbein, December 15th, 2010 at 7:39 am

  Fed Signals Stronger Economy Won’t Slow $600 Billion Stimulus

  Spain on Watch Ahead of EU Summit

  Ghana’s New Oil Wealth May Trigger Borrowing Spree

  Germany Stiffens Opposition to Bigger Bailout in European Central Bank Face-Off

  Sidestepping the U.S. Dollar, a Russian Exchange Will Swap Rubles and Renminbi

  Crude Ends Lower After Fed Holds on Policy

  Gold Declines as Stronger Dollar Curbs Demand for Alternative Investments

  Social Media Shapes New Investment Strategy

  Best Buy Misses 3Q Expectations

  Novartis takes full ownership of Alcon in $12.9 Billion Deal

  Starbucks-Kraft Spat Brewing Since January

  You Don’t Make A Deal Until…

• The Beta Trade
  Eddy Elfenbein, December 14th, 2010 at 3:27 pm

  What’s been happening continues to happen.

  After today’s Fed announcement, Treasury yields spiked along the yield curve.

  It’s almost like a wave hit the yield curve — the later maturities turned first and the process gradually moved to the shorter-term maturities.

  The 30-year yield bottomed in late August at 3.53%. It’s now up more than one full percent.

  Then the 10-year yield bottomed on October 8th at 2.38%. It’s up by 118 points since then.

  Then the 5-year yield bottomed on November 4th at 1.03%. It’s up 102 points since then, meaning the yield has basically doubled.

  This is the Beta Trade. Money is going out of bonds and into riskier assets like stocks, and cyclical stocks in particular.

  Here’s a look at the three-month, five-year, ten-year and thirty-year yields over the past two years:

  

• Today’s Fed Policy Statement
  Eddy Elfenbein, December 14th, 2010 at 2:17 pm

  Here’s today’s Fed statement:

  Information received since the Federal Open Market Committee met in November confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment. Household spending is increasing at a moderate pace, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have continued to trend downward.

  Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

  To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

  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 for the federal funds rate for an extended period.

  The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

  Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Sarah Bloom Raskin; Eric S. Rosengren; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

  Voting against the policy was Thomas M. Hoenig. In light of the improving economy, Mr. Hoenig was concerned that a continued high level of monetary accommodation would increase the risks of future economic and financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy.

  There’s not a single item in this statement that should be considered a surprise.

• Bed Bath & Beyond Hits All-Time High
  Eddy Elfenbein, December 14th, 2010 at 1:58 pm

  Bed, Bath & Beyond (BBBY) just broke out to a new 52-week high. On April 26, the stock got as high as $48.52.

  

• Noon Market Update
  Eddy Elfenbein, December 14th, 2010 at 11:57 am

  The market is up again today. This looks to be the ninth rally for the S&P 500 in the last ten sessions (granted, some of those “up days” were puny).

  The Buy List is doing well. Both Fiserv (FISV) and Becton, Dickinson (BDX) are at new highs today.

  Christopher Danely, an analyst at J.P. Morgan, has said that Intel (INTC) is in danger of missing Wall Street’s earnings estimate.

  Danely writes that checks in Asia find orders from the PC food chain in November were stable with October levels, but didn’t increase. He notes that Intel had indicated it needed an uptick in November and December orders to meet its Q4 outlook; he thinks the chip maker is “tracking towards the low end of its Q4 revenue guidance.”

  The analyst notes that notebook contract manufacturer shipments in November were seasonal, but below plan, with shipments flat with October, below expectations of a 2% rise. For Intel (and the notebook makers) to meet estimates, he says, the industry will need to see an above-seasonal December. Danely notes that the notebook manufacturers are forecasting a 1% sequential rise in shipments, above the seasonal average 10% decline.

  Danely thinks Intel is likely to miss the $11.4 billion midpoint of guidance, and will come in flat sequentially at $11.1 billion.

• Morning News: December 14, 2010
  Eddy Elfenbein, December 14th, 2010 at 7:57 am

  World Stocks Rise, Dollar Falls Before Fed

  Euro Hits 3-week High Vs. Dollar as U.S. Yields Ease

  Oil Steadies Near $88.50, Eyes on U.S., China

  China Says Regrets WTO Ruling on US Tire Tariff

  Japanese Government to Extend Stock Tax Breaks for 2 Years

  ECB’s Trichet Calls for `Maximum’ Flexibility of Region’s Rescue Fund

  Bank Regulators to Tackle Capital Standards

  Wellstream Brings GE Energy to $4.3 Billion in Deals

  Dell Seeks More Data-storage Firms

  Icahn’s Lionsgate Bid: Out of Time — and Luck

  From Russia With Profits?