Archive for September, 2011

• The Trading Range of the Past Month
  Eddy Elfenbein, September 7th, 2011 at 10:01 am

  The S&P 500 is working to shake off its recent three-day slump. The index is up slightly for the week which I wouldn’t have believed when I saw the futures action late Monday night.

  For the past month, the S&P 500 has been in a wide trading range, between 1,120 on the low side and 1,230 on the high side. I think it’s interesting that the market, so far, hasn’t been able to break either boundary.

  

• Bartz Out at Yahoo
  Eddy Elfenbein, September 7th, 2011 at 9:32 am

  The market looks to open higher this morning. There’s good news for shareholders of Yahoo ($YHOO). The board has fired CEO Carol Bartz. I’ve never understood the appeal of shares of Yahoo. The numbers are pretty clear—the company isn’t that profitable.

  More than four years ago, I told investors that Yahoo was vastly overpriced. In May 2007, when the stock was at $31, I said I wouldn’t touch it for half that. Yesterday, the stock closed at $12.91 and I still don’t like it.

  I don’t think Yahoo’s main problem is leadership, though that is an issue. The company was in position to own the Internet ten years ago and they blew it. Their major problem is that they don’t know what business they’re in. I don’t see Yahoo as being special in any way. They’re simply a mediocre media company. That may sound harsh, but there are far worse things to be.

• Morning News: September 7, 2011
  Eddy Elfenbein, September 7th, 2011 at 6:04 am

  Swiss Open New Round in Currency War

  In Euro Zone, Banking Fear Feeds on Itself

  Court Limits Germany’s Ability to React to Debt Crisis

  Japan Unlikely to Move on Yen Soon

  Italian Senate to Hold Austerity Confidence Vote

  Obama to Propose $300 Billion Jobs Package: Reports

  Consumer Pick Vows to Streamline Regulations

  White House to Propose Plan to Help Postal Service

  Yahoo Ousts Bartz as CEO

  BofA Shakeup May Put Montag in CEO Contention

  IPO? Groupon Plans in Flux

  Sprint Adds Hurdle to AT&T Deal

  Vallares Deal Lifts Heritage, Gulf Keystone on Iraq Oil Optimism

  Saab Files for Bankruptcy Protection

  Paul Kedrosky: Fun with FXF

  Todd Sullivan: About That Airport

  Brian Shannon: Stock Market Video Analysis 9/6/11

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• The TIPs Yield Curve: Then and Now
  Eddy Elfenbein, September 6th, 2011 at 2:16 pm

  Here’s an interesting graph. This shows the TIPs yield curve from February 15th (in red) and the current curve (in blue).

  

  Bear in mind that this is for TIPs or Treasuries Inflation Protected securities so the swing in yields shouldn’t be very great. But in a little over six months, investors have dramatically pushed down yields. For example, the 10-year TIPs went from close to 1.5% to 0%.

• Treasury Term Premium Hits Record Low
  Eddy Elfenbein, September 6th, 2011 at 12:51 pm

  Today is shaping up to be a very ugly day. The S&P 500 is currently a bit off its low for the day, but that low was very, very low. The index bottomed at 1,140.13 and we’re at 1,153 right now. The bond market is slightly up for the day, and gold started to backslide at 11 am.

  The real weak spot today is in the energy sector. The financials are also doing poorly. Watch the Financial Sector ETF ($XLF). It’s a speculative buy if it drops below $12 per share.

  On our Buy List, Joey Banks ($JOSB) and Nicholas Financial ($NICK) have crawled into the black, plus a few other stocks look like they’re about to break into the money.

  

  I’ve been saying that bonds are insanely expensive and now a Fed model agrees with me. The part of the yield curve where you’re paid more money to lend your money for longer term is the term premium. That’s at a record low.

  A financial model created by economists at the Federal Reserve that includes expectations for interest rates, growth and inflation shows 10-year notes are the most overvalued ever.

  As Treasuries hover near record low yields amid stagnant U.S. employment and lingering European debt concern, the so- called term premium, which Fed Chairman Ben S. Bernanke cited in a 2006 speech in New York as a useful guide in setting monetary policy, fell to negative 0.54 percent today, indicating the notes are expensive when compared with the average 0.84 percent for the gauge this decade through mid-2007. The term premium touched negative 0.55 percent on Sept. 2, the lowest ever according to Bloomberg data that begins in 1976.

• The Fear Trade Still Lives
  Eddy Elfenbein, September 6th, 2011 at 9:21 am

  The Fear Trade isn’t leaving very quietly. The futures market indicates that the stock market is going to open about 2.5% lower this morning. Gold is back above $1,900 which is about 1% higher, and the bond market is up strongly as well.

  The yield on the 10-year Treasury got as low as 1.907% which is the lowest yield since the 1940s. The yield on the 10-year is now 173 basis points above the two-year yield. That spread is down 100 points in the last two months.

  Over the past few decades, a narrow 10/2 spread has often preceded a recession, but it needs to be much narrower than it is right now.

  

  The concern today is that the Eurozone is about to plunge into recession and that this will drag the rest of the world down with them. Asian markets were also hit hard overnight. The Swiss franc has surged higher over the past several months as the euro has been rightfully kicked around. The Swiss central bank said today that it’s going to intervene in the currency market to “cap” the franc-to-euro rate at 1.2. The Swiss stock market loved this move.

  Bank shares are set to get pummeled again. Bank of America ($BAC) is now below where it was when Warren Buffett decided to rescue it.

• Morning News: September 6, 2011
  Eddy Elfenbein, September 6th, 2011 at 5:19 am

  World in ‘Dangerous’ Period With Europe Turmoil: Zoellick

  European Bankers Urge Leaders to Move Quickly on Debt Crisis

  Switzerland Caps Franc

  Greek 10-Year Bonds Fall on Concern Bailout Inadequate; Italian Notes Drop

  Futures Point to Wall Street Losses

  Crude Oil Choppy In Thin Trade, Taking Equity Cues

  China Loses WTO Appeal Against U.S. Tire Tariffs

  U.S. Banks Offered Deal Over Lawsuits

  Toshiba in Talks to Buy Shaw Group’s 20% Stake in Westinghouse

  Starbucks Plans Big Expansion in China

  Solyndra, Solar-Panel Maker in California, Files for Bankruptcy

  Telefonica Revamps Units to Stem Stock Decline

  The Fallacy Behind Tax Holidays

  Aleph Blog: The Yield Curve Can’t Invert With Fed Manipulation

  Epicurean Dealmaker: A Good Death

  Howard Lindzon: VIX 1,000… $6,000 Gold… and Dow Zero by October

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• Lower Earnings Guidance Is Running Below Normal
  Eddy Elfenbein, September 6th, 2011 at 12:09 am

  Bloomberg notes that despite that stock slump, lower earnings guidance from companies is running below average:

  The number of chief executive officers cutting profit forecasts fell 38 percent below average last month, even as the slowing economy pushed valuations to the lowest level at the start of September since 1985.

  A total of 138 companies reduced earnings forecasts in August, compared with the average of 221 for the same month since 2000, according to data compiled by Bloomberg. At the same time, the Standard & Poor’s 500 Index slumped 5.7 percent, pushing its price-earnings ratio to 13.3, the data show.

  For bears, the lowest multiples since March 2009 show companies will capitulate and lower their estimates, causing the benchmark index for American equities to fall this month, historically the worst for U.S. stocks, according to Bloomberg data since 1928. Bulls say CEOs are the better gauge and that lower multiples, combined with expectations for 15 percent earnings growth this quarter, will make stocks irresistible.

  The article also says that the profits of the S&P 500 have exceeded estimates for 10-straight quarters. The estimate for next year is at $112.32 which is probably too high. Even after that were to come down six or eight dollars, the S&P 500 would still look cheap.

• Morning News: September 5, 2011
  Eddy Elfenbein, September 5th, 2011 at 7:14 am

  Italian, Spanish Yields Near One-month Highs

  U.K. Services Sector Slows Sharply

  World Bank, China May Cooperate to Transfer Manufacturing Jobs to Africa

  China PBOC To Sell CNY3 Bln 1-Year Bills Tuesday

  Asian Shares End Lower; Weak US Jobs Heighten Global Slowdown Worries

  Trichet: EU States Must Approve Reforms Immediately

  Ex-Premier Faces Charges for Iceland’s Fiscal Woes

  Crude Oil Down In Asia; Economic Concerns Weigh

  Funds Boost Bullish Farm Bets on Shortages

  Stagnant U.S. Hiring May Signal Renewed Recession

  A Debate Arises on Job Creation and Environment

  Postal Service Is Nearing Default as Losses Mount

  Neither Smurf Nor Wizard Could Save Summer Movie Attendance

  With or Without an AT&T Deal for T-Mobile, Sprint Faces Daunting Challenges

  Joshua Brown: Mutual Fund Managers Failing Miserably in 2011 – Good News!

  Paul Kedrosky: More Density in Cities

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• No New Jobs Made Last Month
  Eddy Elfenbein, September 2nd, 2011 at 8:31 am

  The U.S. economy didn’t create one single new job last month. The unemployment rate stayed at 9.1%. The private sector created 17,000 jobs.

  Breaking out the digits, the unemployment rate increased from 9.092% to 9.093%. Over the last seven years, the labor force has grown by 6.03 million and there are only 54,000 new jobs.

  The economy showed no job growth in August, the first time there has been no increase in net jobs in the United States in 11 months.

  The flat performance in the job market was down sharply from a revised 85,000 gain of jobs in July, the Labor Department said Friday, and was far below a consensus forecast by economists of 60,000. The unemployment rate stayed constant at 9.1 percent in August.

  The nonfarm payrolls numbers were unchanged in August after a prolonged increase in economic anxiety that began with the brinksmanship in Washington’s debt-ceiling debate and was followed by the country’s loss of its triple-A credit rating, stock market whiplash and renewed concerns about Europe’s sovereign debt.

  The jobs figure, a monthly statistical snapshot by the Department of Labor, may appear more negative because it does not include 45,000 Verizon workers who were on strike when the survey was taken.