Archive for December, 2010

  • Brett Favre Won’t Start
    , December 13th, 2010 at 7:02 pm

    It’s official: Brett Farve’s starting games streak will come to an end at 297.

    The streak began on September 20, 1992.

    To put this into context, the Friday before that game, the Dow was at 3,327.05. The 30-year Treasury was at 7.32%. The Nasdaq Composite was at 589.12. Gold was at $347.20.

    Also, Jenn Sterger was eight years old.

  • The Fed’s “Mr. No”
    , December 13th, 2010 at 6:41 pm

    The New York Times profiles the Fed’s contrarian, Thomas Hoenig who is the president of the Kansas City Fed.

    This is an odd time to profile Hoenig since he rotates off the FOMC at the end of the year. Tomorrow’s meeting will be his last.

    This caught my eye:

    By keeping interest rates too low for too long, in his view, the Fed contributed to the dot-com bubble that burst in 2001 and the even bigger housing bubble that popped in 2007.

    The Nasdaq had its highest close on March 10, 2000 at 5,048.62. The index closed the year at 2,470.52, meaning the tech bubble had already popped by 51% before 2001 even began.

    Tuesday’s Fed vote will be Mr. Hoenig’s last, because the presidents of the Fed’s regional banks, other than New York, share votes under a rotation system. Mr. Hoenig does not have a vote next year, and he must retire after he turns 65 in September.

    As for his future, Mr. Hoenig is certain that he will not follow other Fed veterans who have gone to work on Wall Street. “I can tell you one thing,” he said. “I’ll never work for a too-big-to-fail bank.”

    Um…you already do.

  • Baxter Approves Share Repurchase of $2.5 Billion
    , December 13th, 2010 at 4:23 pm

    Another Buy List stock, Baxter International (BAX), is buying back its stock:

    Baxter International Inc. announced today that its Board of Directors has approved a share repurchase authorization of up to $2.5 billion of the company’s common stock.

    Baxter has approximately $600 million of remaining authorization under a previous $2.0 billion share repurchase program approved in July 2009. Shares will be repurchased in the open market at times and amounts determined by the company based on its evaluation of market conditions and other factors.

    “This approval is consistent with our disciplined capital allocation approach and reflects the confidence we have in our ongoing ability to generate strong cash flows and deliver increased value to our shareholders,” said Robert J. Hombach, chief financial officer.

    Over the last five years, the company has returned more than $10 billion to shareholders in the form of dividends and share repurchases. Baxter has doubled its dividend rate during this period, and recently announced a 7 percent increase for 2011.

  • AFLAC Buying Dollar-Denominated Debt
    , December 13th, 2010 at 1:17 pm

    Bloomberg notes that AFLAC (AFL) is buying as much as $1 billion worth of corporate bonds through the end of this year:

    Columbus, Georgia-based Aflac, the world’s biggest seller of supplemental health insurance, is shifting from Japanese government securities and focusing on dollar-denominated corporate debt rated A with a duration of about 10 years. Japanese government bonds due in 7 to 10 years yield about 0.99 percent, compared with 4.52 percent for A rated U.S. corporate debt.

    “Given that interest rates are so low you have to look at your duration preferences,” Kriss Cloninger, president and chief financial officer of Aflac, said in an interview last week. “At the time we were placing the money, we felt the risk- reward advantage was with shorter-duration corporates as opposed to the longer-term Treasuries.”

  • The New S&P Dividend Aristocrats
    , December 13th, 2010 at 12:01 pm

    Here’s the new list of the S&P 500 Dividend Aristocrats. These are stocks that have increased their dividends for 25-straight years. For the year, this index is up 17.57%.

    Stocks Symbol
    3M MMM
    AFLAC AFL
    Abbott Labs ABT
    Air Products & Chemicals APD
    Archer-Daniels-Midland ADM
    Automatic Data Processing ADP
    Bard, C.R. BCR
    Becton, Dickinson BDX
    Bemis BMS
    Brown-Forman BF/B
    CenturyLink CTL
    Chubb CB
    Cincinnati Financial CINF
    Cintas CTAS
    Clorox CLX
    Coca-Cola KO
    Consolidated Edison ED
    Dover DOV
    Ecolab Inc. ECL
    Emerson Electric EMR
    Exxon Mobil XOM
    Family Dollar Stores FDO
    Grainger, W.W. GWW
    Hormel Foods HRL
    Johnson & Johnson JNJ
    Kimberly-Clark KMB
    Leggett & Platt LEG
    Lowe’s LOW
    McCormick & Co. MKC
    McDonald’s MCD
    McGraw-Hill MHP
    PPG Industries PPG
    PepsiCo PEP
    Pitney Bowes PBI
    Procter & Gamble PG
    Sherwin-Williams SHW
    Sigma-Aldrich SIAL
    Stanley Black & Decker SWK
    Target TGT
    VF Corp VFC
    Wal-Mart Stores WMT
    Walgreen WAG

  • A&P Files for Bankruptcy
    , December 13th, 2010 at 8:42 am

    As it’s officially known, The Great Atlantic & Pacific Tea Company (GAP), or A&P, has filed for bankruptcy.

    The Great Atlantic & Pacific Tea Co., the 101-year-old U.S. operator of almost 400 supermarkets under names including Waldbaum’s, The Food Emporium and Pathmark, sought bankruptcy protection after failing to successfully compete with wholesale clubs and drugstores.

    The retailer, which also runs stores under its own name, Super Fresh and Food Basics, had $8.8 billion in sales for the year ended in February, according to its website. Yesterday, it listed assets of $2.5 billion and debt of $3.2 billion in a Chapter 11 filing in U.S. Bankruptcy Court in White Plains, New York. A shift in consumer spending at wholesale clubs, supercenters and drugstores hurt sales in the quarter ended Sept. 11, A&P said in a regulatory filing.

    “We have taken this difficult but necessary step to enable A&P to fully implement our comprehensive financial and operational restructuring,” Chief Executive Officer Sam Martin said in a statement yesterday. “We could not complete our turnaround without availing ourselves of Chapter 11.”

    This is a sad day, but honestly, things weren’t looking so good on Friday when the shares dropped by 67%. That’s usually a bad sign.

    Jim Cramer called A&P exactly right over a year ago: “This one is bad. Why would I want to be on the worst operator in the group? That one is a sell, sell, sell.”

    A&P has a long and proud history. The company actually was the darling of Wall Street at the beginning of the depression since it was one of the very few companies that continued to do well.

    Benjamin Graham famously used the example of A&P in his book the Intelligent Investor (pages 200 to 203).

  • Sector Relative Strength By 10-Year T-Bond Movement
    , December 13th, 2010 at 8:27 am

    When the 10-year Treasury bond moves higher or lower, there’s a corresponding movement of stock sectors. For the most part, cyclical stocks do well and consumer stocks lag. I wanted to show what the historical relationship has been.

    I went to the data library hosted by Dartmouth Professor Ken French. He has a listing of 49 industry groups going back to 1963. I broke down the daily relative performance by days when the yield on the 10-year Treasury rose, stayed the same, and fell.

    The following results are annualized. In other words, when the yield on the 10-year T-bond rose, gold stocks outperformed the market by an average of 26% per year. When the yield on the 10-year fell, gold stocks underperformed by 23% per year.

    Sector Lower Same Higher
    Gold -23.00% -7.05% 26.00%
    Coal -15.78% 0.28% 25.98%
    Mines -17.71% 9.59% 22.94%
    Steel -20.78% -6.50% 19.29%
    Mach -13.69% 0.63% 15.28%
    Fin -9.26% 1.80% 14.12%
    Txtls -14.55% 3.91% 13.35%
    Chips -11.90% -2.05% 11.61%
    FabPr -16.83% -7.90% 9.68%
    Hardw -9.19% -0.59% 9.21%
    Oil -4.42% 0.12% 9.03%
    Autos -9.94% -7.96% 8.59%
    LabEq -8.42% 6.10% 7.06%
    Clths -5.08% 0.46% 6.57%
    Fun -1.33% 9.20% 5.89%
    Rubbr -4.52% 5.62% 5.36%
    Agric -7.57% 15.07% 4.96%
    Cnstr -5.24% 0.40% 3.52%
    Chems -2.71% -1.85% 3.28%
    RlEst -12.84% -6.19% 3.12%
    BusSv -3.04% 1.86% 2.60%
    Boxes 0.60% -3.12% 1.78%
    Aero 0.45% 7.65% 1.71%
    Ships -3.99% 1.26% 1.60%
    ElcEq 5.68% 2.10% 0.55%
    Books -1.66% 3.55% 0.12%
    Paper 2.06% -4.46% -0.41%
    BldMt 0.68% -1.30% -0.53%
    Trans 0.12% -0.34% -0.73%
    Toys -7.55% 7.76% -0.83%
    Whlsl 2.99% 2.19% -1.33%
    Rtail 6.99% -3.93% -3.01%
    Telcm 4.98% -10.47% -3.22%
    Other -6.73% 2.28% -5.62%
    Meals 10.10% 6.55% -5.63%
    Insur 6.57% 1.60% -6.14%
    Util 7.73% -4.30% -6.97%
    Guns 8.00% 7.02% -7.37%
    Softw -1.75% -13.53% -7.98%
    Banks 7.12% -2.28% -8.01%
    Food 16.16% 1.71% -9.76%
    Soda 17.37% 0.54% -10.44%
    PerSv 3.01% 2.54% -11.41%
    MedEq 14.93% 13.41% -11.78%
    Drugs 15.91% 9.99% -12.35%
    Smoke 27.57% 4.22% -12.94%
    Beer 22.66% 3.38% -14.14%
    Hshld 15.37% 6.00% -14.14%
    Hlth 13.04% 11.53% -17.10%

  • Morning News: December 13, 2010
    , December 13th, 2010 at 7:30 am

    Treasury Yields Rise Again, Equities Gain

    European Stocks Gain for Sixth Day; Kazakhmys, Wellstream Rise

    Yen Falls as Signs of Economic Recovery and Stock Gains Ease Risk Aversion

    Wall Street Sees Record Revenue in Recovery From Bailout

    GE to Buy UK Oil Pipemaker Wellstream for $1.3 Billion

    A Secretive Banking Elite Rules Trading in Derivatives

    Infographic: How Color Affects Our Purchasing Habits

    I Want to Work at CNBC

    Wal-Mart to Close Moscow Office

    Sanofi Extends Offer for Genzyme

    Netflix Vs. Its Vendors

  • The Fed Made the Mess Worse
    , December 12th, 2010 at 4:16 pm

    If you’re curious why the Federal Reserve did everything it could to bail out the banking system, the reason is due to an event that happened 80 years ago this weekend.

    Yesterday was the 80th anniversary of the collapse of the Bank of United States. The bank’s odd-sounding name was an attempt to fool depositors into thinking the bank was backed by the government.

    According to Milton Friedman, the bank’s failure was the critical date of the Depression. At the time, it was the largest bank failure in U.S. history. This is when the Fed’s lack of response turned a regular recession into a massive depression.

    According to Friedman, BOUS was a sound bank. Even when it was forced to liquidate, it paid off depositors 83.5 cents on the dollar.

    Friedman discussed the failure of the Bank of United States and its repercussions in Free to Choose (see pages 80 to 82).

  • Netflix Joins the S&P 500
    , December 10th, 2010 at 2:37 pm

    The stock they’re replacing: The New York Times (NYT).