Archive for January, 2011

  • How to Build a Cyclicals ETF
    , January 5th, 2011 at 11:28 am

    I write a lot about cyclical stocks and the Morgan Stanley Cyclical Index (^CYC). The market has richly rewarded this sector over the last several months.

    There is not, to my knowledge, an ETF that tracks the CYC. Fortunately, dear reader, you have me. And fortunately for me, I have Excel’s LINEST function.

    Here’s a quick-and-dirty way to build your own Cyclical ETF. All you need to do is buy four different sector ETF’s in these ratios:

    4.07 shares of Materials Sector (XLB)
    9.30 shares of Industrials Sector (XLI)
    7.33 shares of Consumer Discretionary Sector (XLY)
    3.93 shares of Energy Sector (XLE)

    The model isn’t a perfect match, but it’s not too bad.

  • ADP +297,000
    , January 5th, 2011 at 10:15 am

    I’m usually pretty skeptical of the ADP employment forecast but I should note that it came in very strong today. According to ADP, employers added 297,000 jobs last month which is the largest monthly increase in 10 years.

    The official employment report comes out on Friday. ADP does its own private sector forecast. Overall, ADP’s track record is pretty mixed.

    Over the previous six reports, ADP’s initial figures were closest to the Labor Department’s first estimate of private payrolls in July, when it understated the gain in jobs by 29,000. The estimate was least accurate in October, when it underestimated the employment gain by 116,000.

    ADP’s initial November estimate showed a 93,000 gain in private employment compared with the government’s estimate of a 50,000 increase. October payrolls rose 79,000. Projections among the 33 economists surveyed by Bloomberg for December ranged from gains of 50,000 to 150,000.

    “There is certainly a strong signal in the ADP data,” Joel Prakken, chairman of Macroeconomic Advisers LLC, which produces the figures with ADP, said in a conference call with reporters. “It has accelerated in each of the last three months and the gains that we reported this morning were widespread.”

    Jeff Cox at CNBC’s NetNet notes that not everyone is buying the ADP number. We’ll know more on Friday.

  • Mutual Funds: Worst Year Ever
    , January 5th, 2011 at 10:09 am

    Think you had a bad year? The mutual fund industry just finished its worst year ever in terms of relative performance. Only 20% of actively managed funds were able to beat the Russell 1000.

    By the end of November, a quarter of all funds were beating the index but it got even worse in December.

    Given that the December rally was led by low priced, small cap, less liquid companies that are inherently difficult for large cap managers to meaningfully overweight, performance was hard to come by – last month, the lowest priced companies which constitute about 10% of the benchmark, contributed almost 20% of its returns.

    (Via: Aleph Blog)

  • Morning News: January 5, 2011
    , January 5th, 2011 at 7:50 am

    Stock Futures Fall as Commodities Fall, Dollar Weighs

    European Stocks Are Little Changed as Fed Signals Continuation of Stimulus

    Treasuries Climb as Federal Reserve Prepares to Buy Long-Term Debt Today

    As High Gas Prices Loom, New Congress Faces Pressure on Drilling

    Energy Markets: Hedge Funds Raise Crude Bets to Four-Year High

    F.D.I.C. Seeks $2.5 Billion From Executives of Failed Banks

    China’s Yuan Weakens as U.S. Recovery Bolsters Dollar Demand

    World Food Prices Rise to Record on Sugar, Meat Costs

    U.S. Auto-Industry Recovery May Continue With 12.9 Million Sales in 2011

    US Bank Closes Buyout of Bank of America Securitization Unit

    Qualcomm Is Said to Be Set to Buy Atheros for $3.5 Billion

    What Are Tech Companies Saving For?

    Stock Twits Interview: Howard Lindzon with Mark Cuban

  • Today’s Fed Minutes
    , January 4th, 2011 at 3:52 pm

    The Federal Reserve released the minutes today from its December meeting. This was the first chance they had to evaluate how well QE2 was working.

    What I find fascinating about the Fed’s internal debate is how radically different it is from what we’re often told the Fed is thinking or doing. Instead of being the “root of all evil,” the Fed is actually worth listening to.

    David Berman notes:

    In the policy makers’ view, higher yields aren’t the result of a failed program, called quantitative easing. They are the result of an improving economy, in part at least. They explain:

    “In the weeks following the November meeting, yields on nominal Treasury securities increased significantly, as investors reportedly revised down their estimates of the ultimate size of the FOMC’s new asset-purchase program. Incoming economic data that were viewed, on balance, as favorable to the outlook and news of a tentative agreement between the Administration and some members of the Congress regarding a package of fiscal measures also reportedly contributed to the backup in yields.”

    I stand by what I wrote just before the November QE2 announcement:

    Investors need to understand that QE2 will have a major influence on their investments. The most important aspect is that quantitative easing will help fuel a demand for riskier assets.

    More specifically, quantitative easing will aid a shift toward growth stocks at the expense of bonds and value stocks. QE2 won’t affect the direction of the stock market, though that will remain strong, as much as it will alter the market’s internal leadership.

    Be careful of some of the commentary you see about the Federal Reserve. Some people just plain hate the Fed and are therefore blind to whatever the Fed does.

  • Motorola Splits in Two
    , January 4th, 2011 at 3:43 pm

    Nearly three years ago, Motorola announced plans to split itself in two. At the time, I said that instead of being one lousy company, Motorola would now be two lousy companies. That was a bit harsh.

    The split was delayed and delayed and pushed back. Today it finally came. Motorola is no more.

    One lesson for investors is to pay attention to when companies have spin-offs. Quite often, the less prominent company is a good buy.

    The two companies that Motorola has now become are Motorola Mobility (MMI) and Motorola Solutions (MSI). First, what’s the over/under on how long these guys keep “Motorola” in their name? Twelve months?

    The one to steer clear of is Motorola Mobility. I firmly expect these guys to be crushed to dust. Motorola Solutions, however, might be a compelling buy. They do the “everything else” part of Motorola’s business which is things like barcode scanners and two-way radios. I’m not recommending MSI just yet, but I certainly want to keep an eye on it. A lot of these businesses are slowing growth but are in well-protected industries.

    Just to give you an idea, in the last quarter, MSI had revenue of $1.9 billion while MMI had revenue of $2.9 billion. Despite having $1 billion less in sales, MSI had operating income of $321 million to MMI’s $3 million.

  • Ford’s Sales Rise 15% Last Year
    , January 4th, 2011 at 12:47 pm

    More good news for Ford (F). The company just reported that its sales rose 15% in 2010.

    The company sold 1.9 million cars and trucks and grabbed market share from rivals including General Motors and Toyota. Ford says 2010 was the second year in a row it gained U.S. market share, its first back-to-back increase since 1993.

    The Ford F-150 pickup was the best-selling vehicle in the U.S. last year. The company also saw strong sales of its Fusion midsize sedan and Edge, which has the roominess of an SUV but handles like a car. Sales of Ford’s luxury Lincoln brand rose only 4 percent for the year.

    Without the Volvo brand, which Ford sold last fall, Ford’s sales climbed 19 percent for the year.

    Wall Street now expects Ford to make $2.08 per share this year. The stock is currently at $17. The Q4 earnings report should come out at the end of the month.

  • Retail Sales Rise
    , January 4th, 2011 at 11:13 am

    The end-of-the-world continues to be delayed:

    Sales at U.S. retailers rose 3.6 percent last week from a year earlier, as some shoppers returned to stores to take advantage of post-Christmas discounts, dodging a snowstorm that assailed the East Coast.

    Sales for the week ended Jan. 1 rose 0.4 percent from the previous week, according to a chain-store sales index released today by New York-based International Council of Shopping Centers and Goldman Sachs Group Inc. That compared with a 1 percent gain a week earlier.

    The holidays can generate up to 40 percent of annual revenue for some retailers. While a Dec. 26 blizzard covered parts of the U.S. Northeast in more than a foot of snow, retailers including Urban Outfitters Inc., Gap Inc. and Columbus, Ohio-based Express Inc. lured shoppers with unique clothing later in the week, said Richard Jaffe, an analyst at Stifel Nicolaus & Co. in New York.

  • S&P 500 Monthly Dividend Yield
    , January 4th, 2011 at 9:55 am

    Here’s a chart you don’t see often. It’s the monthly dividend yield of the S&P 500. The problem with the normal yield chart is that it’s usually based on the trailing 12 months.

    The trailing one-month shows an obvious pattern. The first month of the quarter (January, April, July, October) usually has the lowest yield. The middle month (February, May, August, November) has the highest yield. The final month’s yield is usually slightly above the first month’s.

    I think it’s interesting that the yield jumped when the market plunged. Since then, however, it’s fallen back roughly to where it had been before the crisis.

  • Morning News: January 4, 2011
    , January 4th, 2011 at 7:26 am

    Stock Index Futures Inch Up

    Too-Big-to-Fail Banks Face New Limits Under EU Plan

    European Central Bank Weekly Bond Buys Slow to 164 Million Euros

    U.S. Consumer Bankruptcies Rose 9% in 2010 to 1.5 Million, Institute Says

    Inflation Jumps in Europe

    Buffett Locks In Rates on New Bonds Amid Rising Yields

    How Dope Smokers with the Munchies at 2AM Almost Destroyed the Number Three Wholesale Grocery Distributor in Australia

    New Year’s Resolution: Buy U.S. Stocks

    Facebook Deal Offers Freedom From Scrutiny

    Bank of America Deal on Loan-Repurchase Demands Sets `Template’ for Banks

    Motorola’s Jha Seeks to Defy History After Phone-Unit Spinoff

    Masters of the Universe Got They Swagger Back in 2010