Archive for December, 2010

  • The New Yorker’s John Cassidy on China and Trade
    , December 8th, 2010 at 11:57 am

    In this week’s New Yorker, John Cassidy writes about China and state capitalism. The article is only for subscribers, but here’s some audio of Cassidy discussing the piece.

  • What Wikileaks has on BofA
    , December 8th, 2010 at 11:25 am

    The Onion has the story:

    * TARP bailout funded the Men’s Warehouse spree needed to restore confidence in the company

    * List of employees who have generously contributed to executive Catherine P. Bessant’s Bank of America fun run, employees who have not

    * Whenever CEO Brian Moynihan needs to buy a cup of coffee, he takes a few dollars from a random customer’s account

    * CFO Charles Noski has had to have the concept of interest explained to him eight times since being hired

    * There is nothing in the Bank of America vaults excepts bones of poor people

    * Tellers have been secretly cramming 51 cents into each roll of pennies to try and get rid of them all

    * Executives attempted to cover up a video showing a Bank of America helicopter strike on squatters in a Tampa-area foreclosed home

    * During the October 2008 collapse, then-CEO Ken Lewis proposed removing lollipops from lobbies to cut costs

  • Costco Posts Good Earnings
    , December 8th, 2010 at 11:15 am

    Shares of Costco (COST) have been in a blistering rally since last August. This is probably a good indication of the strength of the consumer (or at least, employed consumers).

    The stock recently broke $70 per share. It reached its all-time high in May 2008 at $75.23. Today this company reported decent earnings. The company earned 71 cents per share which was two cents more than the Street was expecting. Margins continue to expand as profits rose by 17% while sales rose by 11%.

    Costco has lifted sales since the recession by luring bargain-hungry consumers to pay for membership, which lets shoppers and small businesses buy discounted goods including groceries and televisions. Membership increased 3.6 percent to 58 million in the year through August, and fee revenue rose 10 percent to $416 million last fiscal quarter.

    “The quarter continued the theme of modest gross margin expansion, strong membership fee growth and execution on curtailing expenses,” Brian Sozzi, an analyst for Wall Street Strategies Inc. in New York, said in a note to clients.

    Costco fell 46 cents, or less than 1 percent, to $69.18 at 10:13 a.m. New York time in Nasdaq Stock Market trading. The stock rose 18 percent this year before today, while competitor BJ’s Wholesale Club Inc. gained 44 percent. Wal-Mart Stores Inc., the world’s largest retailer and operator of wholesaler Sam’s Club, climbed 3.1 percent in 2010.

    Membership Fees Up

    Costco’s gross profit, or income after cost of goods sold, as a percentage of total revenue rose to 12.9 percent from 12.8 percent. Selling and administrative costs as a portion of revenue dropped 0.2 percentage points.

    Sales at stores open at least a year, excluding fluctuations in gasoline prices and currency exchange rates, rose 5 percent, Costco said. Sales advanced 10 percent at the company’s 157 stores outside the U.S. and 4 percent at its 425 locations in the U.S. and Puerto Rico.

    Total revenue, including membership fees, rose to $19.2 billion from $17.3 billion a year earlier, the company said. Analysts predicted $18.8 billion, the average of 16 estimates.

    In many ways, this story is a like a microcosm of the broader economy. The earnings report is good and Costco’s stock has performed well over the past several months, but it seems like the margin-expansion story is hitting a wall. Gross profit margins aren’t even expanding any more, and SG&A can only be cut so much.

    The message is clear: For Costco and others to continue to grow, they need to see top-line growth. More sales means more consumers which means more employed consumers.

  • Morning News: December 8, 2010
    , December 8th, 2010 at 7:43 am

    U.S. Stock Index Futures Mixed; Eyes on Bonds

    Tax Deal: Rich Aren’t the Only Ones Who Benefit

    EU Banks Reportedly Face Further Stress Tests

    Bullish Commodity Bets Sustained Near Four-Year Peak, Data Show

    Euro Slips as Debt Worries Persist

    U.S. Fiscal Health Worse Than Europe’s: China Adviser

    Gasoline: $3 by Christmas and a ‘Mini-Apocalpyse’ in Spring?

    Bank of America Deal in Muni Case May Be `Tip of the Iceberg’

    Jim Beam Maker Fortune Brands to Split in Three After Ackman Builds Stake

    Citigroup Shares Rise After Bank Escapes U.S. Fetters

    Costco Wholesale First-Quarter Profit Gains 17% on Gasoline, Grocery Sales

  • From One Month Before the Bottom
    , December 7th, 2010 at 10:31 pm

    Here’s a blast from the past. This is from February 9th, 2009. I’m waiting for these two to grovel before Jon Stewart and be cheered on by the White House.

  • It’s a Cyclical World
    , December 7th, 2010 at 4:46 pm

    The rest of us are just paying rent.

    I know I’m sounding like a broken record, but consider these numbers: The Morgan Stanley Cyclical Index (^CYC) has now outperformed the S&P 500 for nine-straight sessions, 13 of the last 14 and 21 of the last 25.

    Since March 9, 2009, the CYC has outperformed the S&P 500 by a ratio of 256% to 81%.

  • The Gold/Silver Ratio
    , December 7th, 2010 at 3:39 pm

    Bespoke Investment Group posts the Gold/Silver ratio going back to 1975:

    They note that the ratio has tended to bounce between 40 and 80 over the past few years. The ratio is now down to 47.

    The Gold/Silver Ratio is a topic that has obsessed people for centuries. Plato mentioned that the Gold/Silver ratio was 12. In 1792, the U.S. Congress, at the advice of Alexander Hamilton, passed the Coinage Act of 1792. This was the government’s first attempt at price-fixing. The act defined a U.S. dollar as 371.25 grams of silver or 24.75 grams of gold. In other words, Hamilton pegged the Gold/Silver ratio at 15. In 1834, Congress had to bump it up to 16.

  • The One Chart That Explains It All
    , December 7th, 2010 at 1:20 pm

    I probably oversold this post with that title, but this chart will tell you a lot about what’s going on. Here you see the yield on the 30-year Treasury bond moving somewhat closely with the Morgan Stanley Cyclical Index (^CYC).

    In other words, investors are taking on more risk. They’re leaving the safety of Treasury bonds while simultaneously raising the value of cyclical stocks.

    What’s also happening is that the Volatility Index (^VIX) is falling. The VIX fell to 17.13 today. It was close to 50 in May.

    Does this contradict the chart? I don’t think so. While the risk preference of investors is rising, the implied volatility is falling. These are two risk measures, but they don’t necessarily measure the same thing. “Risk” is one word we use for many different developments. My guess is that the lower volatility reading reflects that investors are more locked into the current trend and is not a judgment of what that trend is.

  • The 2011 Buy List Announcement
    , December 7th, 2010 at 12:21 pm

    I’m going to unveil the Buy List for 2011 next Friday, December 17.

    The new Buy List will go into effect at the start of trading on Monday, January 3, 2011.

    I make each Buy List publicly known about two weeks before the end of the year so no one can claim that I fudge the numbers or front-run the stocks.

    As usual, once the Buy List is set, I can’t make any changes for the entire year.

    I plan to add and delete five stocks which is just one-quarter of the portfolio.

  • S&P 500 Breaks 1,230
    , December 7th, 2010 at 10:48 am

    Wall Street seems to like the tax deal, or at least stocks are rallying after that specific news has come out. The media loves to say that the market did X in response to event Z, but we can never be sure that Z was the cause of X.

    The S&P 500 broke 1,235 this morning which is its highest intra-day point in over two years. The market, however, has backed up some since then. Several of our Buy List stocks are doing well. Fiserv (FISV) is at a new 52-week high. Becton Dickinson (BDX) is inches from a new high. Moog (MOG-A) also hit a new high this morning.

    Interestingly, gold plunged $20 per ounce within a few minutes this morning.

    The CEO of Bank of America (BAC) said that the bank plans to raise its dividend next year. He said they’ll target 30% of earnings which will probably be 40 cents per year, or 10 cents per share per quarter.

    The old quarterly dividend got as high as 64 cents per share before it was slashed to just one penny per share.