Archive for October, 2011

• Morning News: October 19, 2011
  Eddy Elfenbein, October 19th, 2011 at 5:37 am

  European Banks Vow $1 Trillion Shrinkage

  Spain Rating Cut for Third Time Since 2010

  Bunds Slip on EFSF Deal Report, Losses Seen Limited

  Greece Paralyzed By Two-Day Strike Ahead Of Vote

  Demand at Home Aids China Growth

  Japan Vows Tax Cuts for Foreign Firms to Spur Quake Rebound

  Crude Oil Up On Equities; Focus On Euro Debt

  Gloom Grips Consumers, and It May Be Home Prices

  Heavy Is the Head That Wears Crown

  Intel’s Third-Quarter Earnings Outpace Wall Street Forecasts

  Yahoo Profit Falls 26%, but Its Media Sites Draw More Views

  BSkyB Profit Rises 16 Percent on Web Demand

  Harley Weighed Down by Margin Worries

  SABMiller Gets Anadolu Stake After Exchange

  Goldman Loss Offers a Bad Omen for Wall Street

  Phil Pearlman: Apple, Intel and Post Earnings Announcement Drift

  Cullen Roche: QE2 Hurt The Economy?

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• Apple Misses?
  Eddy Elfenbein, October 18th, 2011 at 5:00 pm

  Yes, it’s true. Apple ($AAPL) just reported third-quarter earnings of $7.05 per share which was 17 cents below estimates.

  Of course, since Apple always beats the Street, investors were really expecting much more. There was even talk of Apple netting $8 or $8.50 per share. This is very surprising.

  For the full fiscal year, which ended in September, Apple earned $27.68 per share which was a huge increase over the $15.15 earned in the year before.

  Here’s a look at Apple and its EPS from a chart I made one month ago:

  

• Earnings Season So Far
  Eddy Elfenbein, October 18th, 2011 at 2:40 pm

  It’s still early but we have some numbers on Q3 earnings.

  Of the 500 companies in the S&P 500, 60 have reported so far. Of the 60, 41 have beaten estimates, 13 have missed and six have come inline.

  Earnings are tracking for a result of $24.26 which is an increase of 7.4%. However, a few of the financial stocks have crowded the early part of the earnings season so the final figure should be much better. Wall Street expects earnings growth of 12.1% (that’s 14% when you exclude financials).

  The bottom line: Earnings are still healthy. For now.

• J&J Beats By Three Cents
  Eddy Elfenbein, October 18th, 2011 at 11:00 am

  Good news for Johnson & Johnson ($JNJ). The company reported Q3 earnings this morning of $1.24 per share which was three cents more than Wall Street’s consensus.

  I said in the most recent CWS Market Review that I thought JNJ could deliver earnings of $1.25 per share, so I was off by one penny.

  For the first three quarters of 2011, the company has already earned $3.87 per share. I also said last week that JNJ could raise each end of its quarterly guidance by five cents per share (it was at $4.90 to $5 per share). Again I was close — they raised the low end to $4.95 per share.

  The WSJ has the 411:

  Sales rose 6.8% to $16 billion, just short of the Thomson estimate of $16.02 billion. Favorable currency rates contributed 4.2 percentage points of the growth. U.S. sales dropped 3.7%, while non-U.S. sales rose 16.4%.

  J&J’s biggest unit, medical devices and diagnostics, had sales of $6.3 billion, up 6% from a year earlier. Sales growth was helped by products for diabetes care, joint-replacement parts and surgical products. The cardiovascular care division continued to post sales decline due to diminished sales of drug-coated stent devices, a business J&J has decided to exit.

  J&J expects to close its planned acquisition of Synthes in the first half of 2012, Mr. Caruso said.

  J&J’s pharmaceutical unit sales increased 9% to $5.98 billion, with Remicade gaining 15%, HIV drug Prezista up 37% and cancer drug Velcade up 20%.

  Sales of antibiotic Levaquin plunged 91% due to generic competition. U.S. sales of cancer drug Doxil dropped 87% due to a shortage caused by production problems at a contract manufacturer.

  J&J’s consumer unit sales rose 5% to $3.74 billion, helped by baby-care, skin-care and oral-care products. Combined sales of over-the-counter medicines and nutritional products in the U.S. dropped 24% due to a series of recalls of OTC medicines stemming from manufacturing-quality lapses.

  J&J said it expects to ship a limited supply of certain recalled OTC products later this year, and to reintroduce products throughout 2012.

  The shares are down slightly so far but the stock currently yields close to 3.6%.

  

• Morning News: October 18, 2011
  Eddy Elfenbein, October 18th, 2011 at 5:34 am

  Euro Leaders’ Crash Crisis Campaign Bogs Down

  France Risks Losing Top Grade on Bailout Fund

  China’s Economic Growth Slows

  Chinese Company Scandals Are Spurring Due Diligence In HK -HK Exchanges Exec

  Banks to Mimic Bank of America With New Fees

  Farmers Facing Loss of Subsidy May Get New One

  Energy Deals See an Upswing as Bargains Abound

  Fed Officials at Odds on Inflation Threat

  Citigroup and Wells Fargo Shares Fall on Lower Quarterly Revenue

  Worries Persist for IBM

  Danone 3Q Sales Euro 4.81 Billion Vs. Euro 4.35 Billion; Confirms 2011 Targets

  An Investor Creates a Tempest in a Coffee Cup

  The Missed Red Flags on Groupon

  Accounting Board Criticizes Deloitte’s Auditing System

  Porsche Made in Leipzig Lowers Labor Costs

  Joshua Brown: And the Men Who Hold High Places…

  Paul Kedrosky: Traders Warn of Market Cracks

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• The Current Mind of the Market
  Eddy Elfenbein, October 17th, 2011 at 1:36 pm

  Here’s another table that explains the point I’ve been trying to make — namely that the stock market is currently being pulled in two different directions by competing theses.

  On one hand, you have the view that everything’s fine and the market will rally higher. This will help the cyclical stocks plus the financials. On the other hand, you have the bearish view that only the defensive stocks will thrive.

  As a result, each day we get one or the other. Either the financials lead a cylical rally, or the financials get pounded and the cyclicals swoon. The down days are generally worse than the up days.

  The following table shows the average move of each S&P sector group based on the last 59 trading days (29 down, 30 up).

  Sector	Up Days	Down Days
  Financials	2.15%	-2.83%
  Industrials	1.84%	-2.33%
  Materials	1.81%	-2.41%
  Energy	1.79%	-2.39%
  Discretionary	1.69%	-1.92%
  Tech	1.59%	-1.70%
  S&P 500	1.58%	-1.92%
  Healthcare	1.24%	-1.53%
  Telecom	1.00%	-1.20%
  Utilities	0.97%	-0.98%
  Staples	0.93%	-1.04%

  This is the source of the market’s recent volatility. It’s not about risk. Instead, it reflects the market’s internal tug-of-war.

• Breaking Down the Bear
  Eddy Elfenbein, October 17th, 2011 at 11:42 am

  Since the market topped on April 29th, the S&P 500 has lost 10.2%. What’s interesting is that the losses have not been spread out equally. Here’s a look at the losses by each sector.

  Utilities 2.50%
  Staples -1.85%
  Tech -1.85%
  Discretionary -4.64%
  Healthcare -6.66%
  Telecom -7.32%
  S&P 500 -10.20%
  Energy -16.70%
  Industrials -17.04%
  Materials -17.22%
  Financials -22.94%

  Outside of the Financials and the major cyclical groups, the market hasn’t been that bad.

  Here’s an interesting stat: The Financials have been either the best- or worst-performing sector for 30 of the last 50 trading days. The Financials ended Friday also at exactly one-third of their all-time high (169.901 versus 509.553, a loss of 66.657%).

  The Consumer Staples are only down 4.55% from their all-time high reached in May. The Techs are down 4.41% from a 10-year high (they still have a looong way to go to make an all-time high).

• Bed Bath & Beyond Hits New 52-Week High
  Eddy Elfenbein, October 17th, 2011 at 10:07 am

  The stock market is down a bit this morning but we’re still holding on to most of the gains we made from Friday’s big push. The S&P 500 is currently down about 5.5 points.

  The market is being helped by Citigroup’s ($C) earnings report which was quite good. The bank earned 84 cents per share which was two cents better than estimates.

  Citi’s losses from bad loans fell 41 percent during the quarter to $4.5 billion as defaults fell from its credit card loans for Citi-branded cards. That allowed Citi to add $1.4 billion to its earnings from credit reserves it set aside for deeper losses.

  The bank’s international consumer business increased 10 percent due to growth in Asia and Latin America. Its North American consumer business fell 9 percent from a year ago due mainly to lower average balances on its credit cards. Revenue in the card business also fell due to regulations that limit the ways banks can increase interest rates and fees.

  Citi said its stock and bond trading business was hurt by uncertainty in financial markets due to the debt crisis in Europe and a downgrade of the U.S. government’s credit rating in August.

  It could have been a lot worse. A lot. The shares are currently up about $1.

  I was very impressed by the recent fall in the $VIX and I suspect that to continue. Earlier this year, the $VIX had dropped below 15 and I think that will happen again over the next few months.

  On our Buy List, Bed Bath & Beyond ($BBBY) just broke out to another new 52-week high. The stock has been as high as $61.69 today.

  The other good news is that the UAW rank-and-file seem to favor the recent deal with Ford Motor ($F).

  UAW members at Ford went from voting 53 percent against the proposed contract on the morning of Oct. 14 to 62 percent in favor by yesterday at 8:30 p.m. New York time. The union said 14,845 members at Ford had cast ballots in favor of the labor deal while 9,076 voted against. Ford’s 40,600 U.S. hourly workers will conclude balloting tomorrow.

  If the deal wasn’t approved, there was a chance that Ford could have faced its first nationwide strike in 35 years. One analyst said the strike would have cost Ford $71 million per day.

• Morning News: October 17, 2011
  Eddy Elfenbein, October 17th, 2011 at 5:14 am

  G-20 Gives EU One Week to Fix Debt Crisis

  Bunds Fall, Wait for Policymakers to Deliver

  Bankers Balk at EU Push for Bigger Greek Losses

  Chinese Banks Increase Mortgage Rates as Property Prices Decline

  Oil Rises to Highest in a Month on Europe Debt Rescue Efforts

  Volcker Rule Divides Regulators

  Ex-AIG CEO Greenberg Says U.S. Senate Bill on Yuan a ‘Dumb Idea’

  Kinder Morgan to buy El Paso Corp. for $20.7 Billion

  G4S Acquires ISS For GBP 5.2 Billion, Creating Giant

  Amazon Signs Up Authors, Writing Publishers Out of Deal

  BP Says Anadarko to Pay $4 Billion to Settle Gulf Spill Claims

  Wal-Mart China Chief Resigns as Retailer Faces Pork Probe

  Olympus Shares Plunge 24% Following Chief Ouster

  Philips’ TV Deal at Risk, Plans 4,500 Job Cuts

  Jeff Miller: WEIGHING THE WEEK AHEAD: ESCAPE FROM THE TRADING RANGE?

  Howard Lindzon: Screw Diversification…and The Amazon Starve Wall Street Palooza

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• S&P 500 = 1,224.58
  Eddy Elfenbein, October 14th, 2011 at 4:29 pm

  Another strong day! The S&P 500 closed at 1,224.58 today which is the highest close since August 3rd. The market is now up 11.4% since October 3rd.

  This has been a pretty snappy run. Who knew October would be so good? The S&P 500 has now risen for seven of the past nine days. It’s 4.44% above its 50-DMA and we only need a push of 4.2% more to cross the 200-DMA.

  

  From the market top on April 29th to the October 3rd close, the S&P 500 lost 19.39%. The past nine days have basically cut that in half. We’re now 10.2% below our 2011 high.

  Interestingly, October may be a popular time for market turns. Of course, there were the events of 1929 and 1987. But the market marked an important low on October 9, 2002 and it peaked exactly seven years later on October 9, 2007.

  Perhaps October 3rd of 2011 marked another important low.