Archive for April, 2011
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Morning News: April 13, 2011
Eddy Elfenbein, April 13th, 2011 at 7:28 amStocks, Commodities Fall on Japan Nuclear Crisis; Bonds, Swiss Franc Gain
Japan Diminishes Its Economic Outlook
Deutsche Bank Said to Change U.S. Unit Ahead of Capital Rules
BRICS Push Resource-Hungry China to Buy Finished Goods
Banks Face Sovereign Debt Scrutiny in EU Stress Tests
Here’s Why France’s Wealth Tax Is Awesome
China’s Record Bank Lending May Spur Fitch Rating Downgrade
Gold Slumps As Equities, Commodities Retreat
In F.D.I.C.’s Proposal, Incentive for Excessive Risk Remains
Impatience Over Recovery at Morgan Stanley
Unilever and P&G Fined $456 Million for Price Fixing
Cisco Shutters Flip, Two Years After Acquisition
Dilbert’s Scott Adams: How to Get a Real Education
Joshua Brown: The False Hope of Higher Prices
Paul Kedrosky: S&P 500 vs. English: No “T’s” Please. We’re Public.
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A Summary of Calendar Effects
Eddy Elfenbein, April 12th, 2011 at 2:54 pmEric Falkenstein writes today on the end-of-the-month anomaly. I’ve always been suspicious of these calendar effects.
Some do exist, but they’re often hard to exploit. Or, they have existed but are no longer important.
Perhaps the most dramatic is the days-of-week effect. I looked at the data and found that Monday has been the worst day of the week for stocks by far. Over the last twenty years, however, Monday has done much better. Historically, all of the market’s capital gain has come on Wednedays and Fridays. The rest of the time, the market is net down.
I also looked at the turn-of-the-month effect, but instead of the period Eric discussed, I looked at the last four days of the month followed by the first three days on the following month. That adds up to less than one-third of the total trading days in a year, yet the market has performed at an annualized rate of over 28%. The rest of the time, the market is down.
I recently looked at the First Day of the Month and found that it’s beaten the market since 1996.
Although it’s not a calendar effect, I’ve always been impressed by the market’s correlation to the previous day’s performance. For the time period I looked at (1950 to 2008), the S&P 500’s entire gain had come on days following up moves of 0.64% or more. Half the market’s gain came on day’s following 3.2% up moves which happens less than once a year.
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Colorado Springs House Listing
Eddy Elfenbein, April 12th, 2011 at 1:55 pmI just stumbled across this house listing in Colorado Springs. This is a crazy cool house.
For the same price, you could get a very nice cardboard box in NW Washington, DC.
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Ford Warns Quake Could Hurt Profit
Eddy Elfenbein, April 12th, 2011 at 11:30 amFord said the problem isn’t their facilities but that of their suppliers:
Supply disruptions stemming from the earthquake in Japan could hurt Ford Motor Co’s earnings, the automaker said in a securities filing with U.S. regulators on Monday.
The U.S. automaker, which has no auto plants in Japan but uses suppliers based there, said it was looking for alternate sources of auto parts as necessary.
The filing was another indication to investors from a U.S. automaker that missed shipments of parts from Japan could have far-reaching effects on financial performance.
“Because the situation in Japan continues to develop, supply interruptions related to other materials and components from Japan could manifest themselves in the weeks ahead,” the company said in the filing.
Ford said its operations in Asia, including joint ventures, could be affected by parts shortages from late April through May. The company said it did not expect the disruptions to have a “material impact” on results, but said if a replacement could not be found for a particular auto part, it could cut or cease vehicle production.
A loss of output could hurt Ford’s financial condition as well as that of its financing arm, Ford Motor Credit, the company said in a filing.
Here’s the SEC filing.
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S&P 500 = 1,310
Eddy Elfenbein, April 12th, 2011 at 11:25 amSo far today, it’s a soggy day on Wall Street. The S&P 500 is off by a little over 1%. Once again, the cyclicals are leading the market lower. A few weeks ago, I talked about how the leadership of the cyclicals was coming to an end. Since then, the Morgan Stanley Cyclical Index ($CYC) largely kept pace with the market, but it started to break down yesterday. As I’ve said before, the cyclicals tend to move in…well, cycles. Once a trend gets started, it often lasts for a long time.
The good news is that although the Buy List is down today, it’s still running ahead of the market. This is because we don’t have as many cyclical stocks as the broader market. That really helped us yesterday. The S&P 500 dropped by 0.28% while our Buy List rose by 0.41%.
Let me say a few words about trading Nicholas Financial ($NICK). The stock traded as high as $12.99 yesterday but I think it was simply due to the internal mechanics of trading. The stock then traded at $12.32 before closing at $12.70. Today, it went back to $12.31 and is now at $12.50. Don’t be fooled into thinking there’s something more going on. The stock is absorbing more volume and is hence showing more volatility. I expect more good news from NICK when it reports earnings again in a few weeks.
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Morning News: April 12, 2011
Eddy Elfenbein, April 12th, 2011 at 7:24 amThe Global Losing Streak Is Continuing, After An Ugly Night In Japan
U.K. Inflation Unexpectedly Slows as Stores Cut Food Prices
Bank of Japan Minutes Show Concern on Quake Impact
Allied Irish Banks’ Loss Soars to $15 Billion, Axes 2,000 Jobs
Yuan Forwards Decline After IMF Highlights Global Recovery Risk
IEA Says Oil Price Hurting Economy, Maintains Demand Outlook
Oil Advances a Fourth Day in New York on Libyan Conflict, Mideast Unrest
Gas Prices Rise, and Economists Seek Tipping Point
Building a Takeover Bid Over Takeout
The One Thing You Must Realize About PIMCO’s Big Bet Against Treasuries
Futures Slip as Alcoa Disappoints
Glencore Said to Plan $9 Billion to $11 Billion Initial Offering
Level 3 To Acquire Global Crossing In $1.9B All-Stock Deal
Google Goes Green, Invests $168 Million in Ivanpah Solar Power
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NICK = $12.99
Eddy Elfenbein, April 11th, 2011 at 12:20 pmSomething’s up with Nicholas Financial ($NICK). The stock gapped up to $12.99 just now. The all-time high is $13.18 (split-adjusted) from five years ago.
I’m not sure why there’s a surge. It could just be due to an order imbalance. About 13,000 shares have been traded which is high but far from unprecedented.
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3M Close to All-Time High
Eddy Elfenbein, April 11th, 2011 at 11:41 amShares of 3M ($MMM) have been as high as $94.64 today which is a fresh 52-week high. That’s actually a three-and-a-half year high.
This recent rally brings MMM very close to its all-time high price of $97 reached in October 10, 2007.
I highlight MMM because it’s a very diversified manufacturing firm. If it’s near an all-time high, it suggests that much of the non-financial economy is recovering.
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Stiglitz Calls for New Reserve Currency
Eddy Elfenbein, April 11th, 2011 at 11:01 amOver the weekend, Nobel laureate Joseph Stiglitz called for a new global reserve currency.
The world economy needs a new global reserve currency to help prevent trade imbalances that are reflected in the national debt of the U.S., said Nobel-prize winning economist Joseph Stiglitz.
A “global system” is needed to replace the dollar as a reserve currency and help avoid a weakening of U.S. credit quality, said Stiglitz, a professor at Columbia University in New York. The dollar fell to an almost 15-month low against the euro last week, and the U.S. trade deficit widened more than forecast in January to the highest level in seven months.
“By taking off the burden of any single country, we don’t have to have trade deficits,” Stiglitz said in an interview in Bretton Woods, New Hampshire. “Things would be much worse if it were not the case that Europe was having even more of a problem, but winning a negative beauty pageant is not the way to create a strong economy.”
Many others have floated this idea and I think it’s a fascinating concept.
The issue is that there’s one currency that the central banks of the world prefer to hold and that’s the U.S. dollar. That’s not much of a surprise since the United States has the world’s largest economy.
There’s debate around the idea that there can only be one reserve currency at a time. The reasoning is that the reserve currency needs to be unique and therefore there can be only one. I’m not sure if that’s theoretically true, but in practice it certainly has been true. The central banks of the world prefer U.S. dollars, though euros play a minor role as well.
But here’s the catch about having the dollar as the world’s reserve currency: there’s an inherent conflict in what the world needs out of it and what the United States needs out of it. We’re not always on the same page. Formally, this is known as the Triffin dilemma in honor the economist Robert Triffin. In fact, the Chinese specifically blamed the Triffin dilemma for the world economy going kablamo in 2008.
In real world concerns, being the world’s reserve currency means that the normal situation for the U.S. is to run a current account deficit. (Of course, one “unnormal” scenario would be a plunging dollar.) The world lets us finance our deficits on the keep and we waste little time in taking advantage of it.
No one has an inherent motive to change the status quo. Until a crisis comes, calling for a new global reserve currency is a futile exercise. The point of a reserve currency is that it doesn’t have to be called for—it’s immediately understood. It’s like telling visitors to Rome that they may want to check out some place called St. Peter’s.
The trend will continue until it stops. I don’t know when that will be, but I know that the end won’t be pleasant.
Edward Harrison has more.
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Employment and Re-Election Chances
Eddy Elfenbein, April 11th, 2011 at 7:50 amSince 1948, ten presidents have run for re-election. Three times the unemployment rate was 7.4% or more in November of the election year. Each one of those times, the incumbent president has been defeated.
The other seven times, the jobless rate has been 7.2% or less. All seven times, those incumbent presidents have won re-election.
The March 2011 jobs report said the unemployment rate was 8.828%. If the relationship holds up, President Obama has 20 months to lower the jobless rate by 1.5%.
For the March jobless rate to be equal to the rate in November 1984 (the lowest on the chart for an incumbent victory), there would need to be 2.5 million more jobs.
Eddy Elfenbein is a Washington, DC-based speaker, portfolio manager and editor of the blog Crossing Wall Street. His