Archive for August, 2011

• The Buffett Bailout
  Eddy Elfenbein, August 25th, 2011 at 11:25 am

  The market had opened higher today thanks to the news that Warren Buffett was investing $5 billion into Bank of America ($BAC). In exchange, Buffett will get 6% preferreds. He always gets amazing deals. Shares of BAC rose as much as 25% today. In a matter of minutes, Buffett had made a cool (unrealized) gain of $700 million. So after publicly insisting that they don’t need to raise capital, BAC goes ahead and raises capital.

  The good news is that Buffett’s move helped the financials. AFLAC ($AFL) briefly cracked $37 and JPMorgan Chase ($JPM) got to $38.57. Even Nicholas Financial ($NICK) rose to $11.45.

  Sadly, the market has already given back much of those gains, and the S&P 500 is back in the red. Wall Street is focused on Ben Bernanke’s speech in Jackson Hole tomorrow. I really think this is a non-event; I don’t expect any major news. Plus, some of the recent data has been better which takes some of the heat off the Fed.

  The most interesting activity has come in the gold pits. Gold dropped $104 yesterday and the fall continues today. Two days ago, gold got to $1,917.90 per ounce. Now it’s at $1,739.

• Morning News: August 25, 2011
  Eddy Elfenbein, August 25th, 2011 at 4:42 am

  Asian Stocks Rise as U.S. Durable-Goods Orders, Home Prices Beat Forecasts

  German Consumer Sentiment Weakens

  Crude Oil Advances in New York on Fed Speculation, U.S. Supply Decline

  Gold Margins Raised 27% on CME’s Comex After Biggest Price Drop Since 2008

  Dollar Falls Versus Euro on Speculation Bernanke May Announce More Easing

  Bernanke Signaling No QE Backed by Higher Data

  Jobs Steps Down at Apple, Saying He Can’t Meet Duties

  Distilling Giant Diageo Surges on Full-Year Profit Growth

  Toll Brothers 3Q Earnings Up 54%, Revenue Slumps

  France’s Credit Agricole’s Quarterly Net Drops 11% on Greece

  Commodities Trader Glencore’s First-Half Profit Increases 57%

  Bank of America Shares Rise as Capital Debate Continues

  Buffett’s Berkshire Wins EU Okay for Lubrizol Buy

  Fugitive Moody’s Analyst Ordered to Pay $35 Million to S.E.C.

  Howard Lindzon: Steve Jobs…What Has He Ever Done for Us?

  Joshua Brown: He’s Got the Whole World in His Hands

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• Gold Can’t Be in a Bubble Because It’s Gone Up So Much
  Eddy Elfenbein, August 24th, 2011 at 7:12 pm

  Please listen to this clip and tell me I heard this right. Beginning at 5:13, the guy says that gold isn’t in a bubble because — are you ready? — it’s gone up so much.

  I’m not kidding. He really says that: “I’m getting kinda sick of the bubble chat because it’s an absurd conversation. OK. Look at what gold has done! You would have massively outperformed over an extended period of time at a lower volatility. That’s a good investment.”

  Now if you’ll excuse me, I’m going to light myself on fire.

• Steve Jobs Resigns
  Eddy Elfenbein, August 24th, 2011 at 6:48 pm

  Here’s the press release via the WSJ:

  August 24, 2011–To the Apple Board of Directors and the Apple Community:

  I have always said if there ever came a day when I could no longer meet my duties and expectations as Apple’s CEO, I would be the first to let you know. Unfortunately, that day has come.

  I hereby resign as CEO of Apple. I would like to serve, if the Board sees fit, as Chairman of the Board, director and Apple employee.

  As far as my successor goes, I strongly recommend that we execute our succession plan and name Tim Cook as CEO of Apple.

  I believe Apple’s brightest and most innovative days are ahead of it. And I look forward to watching and contributing to its success in a new role.

  I have made some of the best friends of my life at Apple, and I thank you all for the many years of being able to work alongside you.

  When Steve Jobs rejoined Apple ($AAPL) in December 1996, the stock was around $6 per share. It closed today at $376. That’s a gain of more than 6,000%.

• What If the Stock Market Were a Bond?
  Eddy Elfenbein, August 24th, 2011 at 2:06 pm

  Here’s an update to one of my crazier/demented/possibly brilliant ideas. I was curious to see what the historical performance of the stock market looks like, but in the form of a bond.

  Crazy? Let me explain.

  I took the historical market performance of the Wilshire 5000 (including dividends) and invented a hypothetical long-term bond that matched the index’s gains step-for-step.

  I assumed that it’s a bond of infinite maturity and pays a fixed coupon.

  There’s one hitch, though. I have to choose a starting yield-to-maturity for the beginning of the data series in December 1970. So this isn’t a completely kosher experiment because the starting point is based on my guess.

  If I choose a number that’s too high, the historical performance won’t be able to keep up, and the yield-to-maturity would grow higher and higher and soon leave orbit. Conversely, if my starting YTM is too low, the yield would gradually get pushed down to microscopic levels.

  Fortunately, the data makes my job easy. After 41 years, the window I have to work with is pretty narrow. Starting with 9.2% is too high, and 8.8% is too low. After playing with the numbers, I finally settled on 9%.

  Even though this “bond” is completely make-believe, it reflects what the actual stock market really did for the past 41 years. Through yesterday, the yield stood at 12.96%.

  

• Remember that Double Dip…Yeah, About That
  Eddy Elfenbein, August 24th, 2011 at 10:57 am

  More positive economic news today:

  Orders for U.S. durable goods climbed more than forecast in July as a surge in demand for aircraft and autos eclipsed a decrease in business equipment, including computers and machinery.

  Bookings for goods meant to last at least three years rose 4 percent, the most in four months, after falling a revised 1.3 percent in June, a Commerce Department report showed today in Washington. The median projection of 81 economists surveyed by Bloomberg News called for a 2 percent gain. Orders excluding the volatile transportation category, unexpectedly advanced 0.7 percent.

• Morning News: August 24, 2011
  Eddy Elfenbein, August 24th, 2011 at 5:27 am

  European Bank Job ‘Bloodbath’ Surpasses 40,000

  Italy’s Eni Lobbies Rebels to Keep Libya Oil Dominance

  Moody’s Cuts Japan’s Rating One Notch, Citing Its Giant Debt

  Japan Rolls Out New Yen-Stopping Measures

  Turkish Lira Weakens First Day in Three After Moody’s Downgrades Japan

  German Business Confidence Falls

  Markets Will Look for Hints in Bernanke’s Words

  New S.&P. Chief Knows Crisis and Change

  Australian Brewing Giant Foster’s CEO Open to ‘Sensible’ Takeover Talks

  Australian BHP Billiton’s Oil, Gas Earnings Rise 38% on Surging Prices, Output Gain

  Heineken Slumps on Flat Forecast

  Hertz to Begin Renting Electric Cars in China

  Sell Big or Die Fast

  10 Most Popular Stocks Among Hedge Funds

  Todd Sullivan: Do Rising Auto Sales Discount Double Dip Scenario?

  Stone Street: A Rare Mea Culpa: Rating Downgrades and MBS

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• Possible Bottom Forming
  Eddy Elfenbein, August 23rd, 2011 at 4:30 pm

  Yesterday, I tweeted saying that today would be a good day for a 400-point rally. Well, we got 322 points. I guess I should have done that three weeks ago.

  In any event, the S&P 500 has formed some major bottom points recently. I’m not a technician, but I’ll pass this along to give you a sense of what traders are watching.

  The S&P 500 has closed at very similar levels on a few days during the past two weeks. On August 8th, it closed at 1,119.46, then two days later it closed at 1,120.76. Last Friday, we closed at 1,123.53 and yesterday at 1,123.82. Not making a new low is the key event.

  The story seems to be that the low bar is holding up. The bears have tried a few times to bring us lower but they haven’t been able to do it. This may give the bulls more confidence.

  We’ve seen rallies like today before. In fact, it’s only the third-best day of the last eleven. But if we start seeing some real follow-through, which has been sorely lacking, the bulls may finally take back the stage.

  

• Mylan +130,000%
  Eddy Elfenbein, August 23rd, 2011 at 12:12 pm

  Since the beginning of 1978, shares of Mylan ($MYL) are up 130,000%. That’s enough to turn an investment of $8,000 into $10.4 million. The stock is now going for about nine times this year’s earnings estimate.

  I don’t know how to embed this chart, but you can see for yourself.

• Peter Brandt on My Gold Model
  Eddy Elfenbein, August 23rd, 2011 at 10:47 am

  Peter Brandt, who knows basically everything there is to know about commodities trading, recently had some very kind words for my gold model:

  This past week I read a blog post that nearly knocked my socks off. It was a huge déjà vu moment. It was one of the best postings I have read in years.

  Each morning I briefly cruise through the posts made the previous day by the StockTwits blogging community, plus a half dozen other blogs I really like.

  For the most part the verb “cruise” is very accurate. I am a very selected consumer of the opinions of others. I have little time for a regurgitation of the news of the day. I mainly look for original research, sophisticated insight into risk management protocols, bold and original thinking and unique market perspectives.

  This past week one post led me to a post from October 2010 that knocked my socks off. It was profound. Let me explain.

  On Thursday I read a blog post by @EddyElfenbein (Crossing Wall Street), titled Updating the Gold Model. BTW, Crossing Wall Street is one of my favorite blogs. However, this was not the post that captivated me. But, this post led me to a post from October 6, 2010 by Eddy, titled, “A possible model for the price of gold“.

  Read the whole thing.