Archive for November, 2011

  • Income Tax Poll Results
    , November 5th, 2011 at 3:31 pm

    I want to thank everyone who participated in my recent (and highly unscientific) poll on the proper tax rate on $10 million. We had a total of 624 votes.

    The answers were widely distributed but I calculated an estimated median tax rate of 33.53%.

    Tax Rate Votes Percentage
    0% 21 3.27%
    1% to 5%   4 0.62%
    5% to 10% 9 1.40%
    10% to 15% 18 2.80%
    15% to 20% 47 7.32%
    20% to 25% 77 11.99%
    25% to 30% 78 12.15%
    30% to 35% 95 14.80%
    35% to 40% 102 15.89%
    40% to 45% 65 10.12%
    45% to 50% 47 7.32%
    50% to 55% 34 5.30%
    55% to 60% 5 0.78%
    60% to 65% 11 1.71%
    65% to 70% 4 0.62%
    70% or more 25 3.89%

    I’ve previously done similar polls for $25,000, $40,000, $100,000, $250,000 and $1 million.

    Here are the results by estimated median vote:
    $25,000: 2.66%
    $40,000: 8.31%
    $100,000: 16.33%
    $250,000: 22.69%
    $1,000,000: 28.23%
    $10,000,000: 33.53%

    Breaking out a little math, we can make a three-bracket tax code that links the data above. It looks like this:

    The first $21,245 is tax-free.
    $21,245 to $74,275 is taxed at 17.73%.
    $74,275 to $671,715 is taxed at 26.93%.
    Over $671,715 is taxed at 34.12%.

    There are lots of ways to connect the data. We could add one more bracket at 10% and create a little more realistic code:

    The first $18,350 is tax-free.
    $18,350 to $28,410 is taxed at 10%.
    $28,410 to $85,628 is taxed at 20%.
    $85,628 to $85,628 is taxed at 27%.
    Over $676,779 is taxed at 34.1%.

  • Triumph Visits Occupy Wall Street
    , November 4th, 2011 at 2:18 pm

  • The October Jobs Report
    , November 4th, 2011 at 8:32 am

    The economy created 80,000 jobs last month compared with Wall Street’s estimate of 100,000. Private sector jobs increased by 104,000.

    The revision for September was plus 102,000.

    The unemployment rate dropped 0.1% to 9%. The long-term unemployment number fell by 366,000 to 5.9 million.

    Since the recession officially ended 28 months ago, the unemployment rate has dropped from 9.5% to 9%.

  • Moog Earns 83 Cents Per Share
    , November 4th, 2011 at 7:01 am

    Moog ($MOG-A) just reported earnings for its fiscal fourth quarter of 83 cents per share, ten cents more than Wall Street’s forecast.

    For all of 2011, Moog earned $2.95 per share. For 2012, the company sees sales increasing by 8% to $2.52 billion and EPS rising 12% to $3.31. Wall Street had been expecting $3.25 per share.

    Moog Inc. announced today fiscal year 2011 sales of $2.33 billion, up 10%. Net earnings were $136 million and earnings per share of $2.95 were up 26% and 25%, respectively compared to last year.

    For the fourth quarter, sales of $619 million were up 8% from last year. Net earnings were $38 million, up 18%, and earnings per share of $.83 were 17% higher than last year.

    Aircraft sales for the year were $851 million, up 12% from the year previous, driven by very strong military and commercial aftermarket sales. Military sales were $498 million with sales on the F-35 Joint Strike Fighter, V-22 tilt rotor and the Blackhawk helicopter mostly unchanged. Military aftermarket sales were $204 million, a Company record. Commercial aircraft sales for the year of $314 million were 20% higher on stronger sales to Boeing and Airbus. Sales to business jet manufacturers were $33 million, a 24% improvement. Commercial aftermarket revenues of $100 million were 21% higher than a year ago. The Company’s navigation aids product line had sales of $38 million.

    In the fourth quarter, Aircraft sales of $228 million were up 13% from the same quarter last year. Military aircraft sales were up 13%, once again the result of higher sales in the aftermarket. Commercial aircraft revenues in the quarter of $81 million were 10% higher. Boeing Commercial revenues were flat while revenues for products sold to business jet manufacturers were slightly higher. Sales to Airbus increased 36% as production increased on existing Airbus programs.

    The Space and Defense segment had another strong year. Sales of $356 million were up 9%. Sales of controls on tactical missiles, at $66 million, were up 39% and offset lower sales on satellites. Deliveries for the Driver’s Vision Enhancer (DVE) system were about equal to last year. Security and surveillance product sales were up $21 million, helped by the 2010 Pieper acquisition. Sales to NASA on the Space Launch System and Crew Launch Vehicle development programs were up $10 million to a total of $28 million.

    Space and Defense fourth quarter sales were up only slightly from a year ago at $93 million. The growth was mainly driven by NASA programs and security and surveillance products.

    Sales for the year in the Industrial Systems segment were $629 million, a 15% increase. Capital equipment market sales were higher, reflecting strong demand for plastics machine controls, metal forming press controls and specialized test equipment. Sales of simulator motion systems were $69 million, up 43%. Wind energy sales, at $132 million, were lower than last year reflecting reduced demand from turbine manufacturers in China.

    Industrial sales in the fourth quarter of $173 million were up 8%. Capital equipment sales were up 28% to $52 million and wind energy sales were $39 million.

    Components Group sales for the year of $353 million, and for the fourth quarter of $89 million, were slightly lower than last year. Growth in marine, medical and industrial markets offset the weaker military aircraft and space and defense markets. Animatics, a third quarter 2011 acquisition, added $5 million in sales to the year.

    The Medical Devices segment generated sales of $142 million, up 12% from last year. The segment showed significantly improved sales in the second half of the year. For the quarter, sales in Medical Devices of $37 million were up 18% from a year ago.

    Year-end backlog of $1.3 billion was up $144 million, or 12%, from a year ago.

    The Company updated its guidance for fiscal 2012. The current forecast has sales increasing 8% to $2.52 billion, net earnings of $152 million and earnings per share of $3.31, a 12% increase over fiscal 2011.

    “Fiscal 2011 was another great year for our company,” said R.T. Brady, Chairman and CEO. “Strong sales growth produced even stronger earnings growth. Many good things are happening. Airplanes that we’ve worked on for years are moving into production. NASA now has a plan. The recovery in our industrial markets continues and our medical business is back on track. We look forward to an even stronger 2012.”

  • CWS Market Review – November 4, 2011
    , November 4th, 2011 at 6:23 am

    Even though October was the eighth-best month for the S&P 500 of the last 70 years, the market has taken back some of those gains thanks to the recent political chaos in Greece. Here’s what happened: George Papandreou, the Greek Prime Minister, surprised everyone on Monday by putting the euro zone bailout plan up for a referendum. Simply put, that freaked out everyone—and I mean everyone.

    For a few hours it looked like Greece was really honestly going to default. Monsieur Sarkozy said that the Greeks wouldn’t get a single cent in aid if they didn’t adhere to the original terms of the bailout. It got so bad that the European bailout fund had to cancel a bond offering. Yields on two-year notes in Greece jumped to 112%.

    Yes, 112%.

    The ECB, under its new head Mario Draghi, stepped in and cut rates by 0.25% which seemed to calm folks down. At least for a little while. Only after his party revolted against the idea did Papandreou decide to ditch the referendum. That’s what traders wanted to hear. On Thursday, the S&P 500 jumped 1.88%, and the index is now up barely for the year.

    So we dodged a bullet for the time being, but we’re not yet out of the woods. I think it’s obvious that Greece will get the aid although the details are still unclear. My fear is that this latest cure only addresses the symptoms and not the underlying problem.

    The issue isn’t that Greece mismanaged its finances (which it did) but rather that the euro zone as currently constructed is inherently unworkable. As it now stands, the countries on the periphery of Europe have to run massive trade deficits with the heart of Europe (Germany, mostly), and without the ability to downgrade their currencies, they’re forced to run large public-sector deficits.

    The equation boils down to this: The euro zone needs fiscal union or the euro dies. Perhaps a smaller euro zone could make it. If the EU was just a trading club for the rich nations of Western Europe, fine—that might work. But what’s happening now, I fear, is just delaying a problem that can’t be avoided.

    The problems in Europe are having an unusual side effect on the stock market here. What we’re seeing is an unusually high correlation among stocks. In other words, nearly every stock is moving in the same direction, whether it’s up or down. It’s important for investors to understand this. The last time correlation was this high was in October 1987 when the market crashed.

    Bespoke Investment Group, one of my favorite sites, tracks what it calls “all or nothing days” which is when the advance/decline line for the S&P 500 exceeds plus or minus 400. Since the start of August, more than half of the trading days have been “all or nothing days” which is a rate far greater than seen in previous years. The current market divide has energy, industrial, material and most importantly, financial stocks, soaring on up days, while volatility, gold and bonds rally on down days. The market is behaving like a legislature that has only extremists and no moderates.

    I don’t believe the high correlation portends any ugliness for the U.S. market. Instead, I think it reflects the dominance of geo-political events over the market. Though one important side effect is that when everyone moves the same way, it becomes much harder for hedge fund managers to stand out from the crowd. That’s why we’ve seen crazy action in stocks like Amazon.com ($AMZN) and Netflix ($NFLX).

    As depressing as the news is from Europe, there’s been more cause for optimism here in the U.S. While the economy is far from strong, it appears that the threat of a Double Dip recession in the near-term has fizzled. Last week, we learned that the economy grew by 2.5% for the third quarter. Job growth, of course, has been distressingly poor.

    I’m writing this early Friday morning ahead of the big jobs report. Economists expect that the jobless rate will remain unchanged at 9.1% and that 100,000 new jobs were created last month. Even if we hit that expectation, that’s still pretty poor.

    The good news is that this has been a decent earnings season for the market and especially for our Buy List. The S&P 500 is on track to post record quarterly earnings. The latest numbers show that of the 415 S&P 500 stocks that have reported so far, 288 have beaten expectations, 89 have missed and 38 were in line with estimates. Outside the S&P 500, 64.5% of companies have beaten estimates and that’s better than the previous two quarters. Our Buy List has done even better. Of the 12 Buy List stocks that have reported so far, ten have beaten earnings estimates, one missed and one was inline.

    On Tuesday, Fiserv ($FISV) reported third-quarter earnings of $1.16 per share which was two cents better than estimates. The company also raised its full-year guidance (man, I love typing those words) from $4.42 – $4.54 per share to $4.54 – $4.60 per share. Shortly before the earnings report, Fiserv’s stock gapped up to over $61 but then pulled back after the earnings report came out. Fiserv is a good buy up to $62 per share.

    Our star for the week and perhaps for the entire earnings season was Wright Express ($WXS). The stock soared 12% on Wednesday after its blowout earnings report. The company, which helps firms track their expenses for their vehicle fleets, reported third-quarter earnings of 99 cents per share which was six cents better than Wall Street’s consensus. That’s a 38% jump over last year. The company also said that it expects between 88 cents and 94 cents per share for the fourth quarter (the Street was expecting 94 cents per share). I was happy to see Wright extend its gain on Thursday as well. I rate Wright Express a buy up to $53.

    The big disappointment this week came from Becton, Dickinson ($BDX). For their fiscal fourth quarter, Becton reported earnings of $1.39 per share which was inline with Wall Street’s estimate. The problem was their guidance for the coming year. Becton said that they expect earnings to range between $5.75 and $5.85 per share. That’s far below Wall Street’s forecast of $6.19 per share. I’m disappointed by this news but Becton is still a solid company. Sometime later this month the company will likely raise its dividend for the 39th year in a row. Investors shouldn’t chase this one but if the shares pull back below $65, I think Becton will be a good buy.

    I also need to explain what happened to Leucadia National ($LUK) this week. A ratings company downgraded Jefferies ($JEF) in the wake of the immolation of MF Global. Leucadia owns about one-quarter of Jefferies so that impacted their stock as well. However, it’s not clear that Jefferies’s health is anywhere as dire as MF Global’s. Actually, the facts indicate that it’s almost certainly not.

    At one point on Thursday, shares of Jefferies were off by more than 20% but cooler heads prevailed and the stock finished the session down by just 2.1%. Leucadia took advantage of the panic and picked up one million shares of JEF. At the end of the day, Leucadia’s stock managed to close six cents higher. The stock remains an excellent buy. By the way, this a good lesson on why you should be careful with stop-losses. Panic can set in and bust you out of good trades.

    That’s all for now. In addition to tomorrow’s big jobs report, Moog ($MOG-A) is due to report earnings. Then on Monday, Sysco ($SYY) is scheduled to report. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy

  • Morning News – November 4, 2011
    , November 4th, 2011 at 5:12 am

    Papandreou Struggles to Hold on To Power

    European Stocks Rise as Greece Abandons Referendum; Hermes Gains

    Greek ‘Shocker’ Stiffens Irish, Portuguese Resolve

    ECB’s Mario Draghi Offers Hope He Can Do What Europe Needs for Euro

    Japan Starts Bailout of Tepco After Fukushima Causes More Losses

    French Banking Giant BNP Paribas Writes Down Greek Debt as Earnings Slump

    Royal Bank of Scotland Quarterly Profit Falls 63% on EU Crisis

    Don’t Bet on the BRICs

    Oil Rises to Three-Month High as Greece Backs Down on Referendum

    Jobless Claims in U.S. Fell to a One-Month Low Last Week

    As Regulators Pressed Changes, Corzine Pushed Back, and Won

    In an I.P.O., a Clamor for Groupon’s Deal

    Commerzbank Q3, 2012 Target Hit by Greece Impairment

    Starbucks Fourth-Quarter Profit Rises 29% as U.S. Sales Gain

    TPG Capital Enters the Fray for Yahoo

    Roger Nusbaum: Replacement Rate; Hokum and Hooey

    Jeff Miller: Who Gets the Jobs Story Wrong? Everyone!

    Be sure to follow me on Twitter.

  • Q3 Earnings Season So Far
    , November 3rd, 2011 at 11:09 am

    Bloomberg’s Wendy Soong has the numbers.

    Of the 500 companies in the S&P 500, 415 have reported earnings so far. Of that, 288 have beaten estimates, 89 missed and 38 were inline.

    Earnings are growing at 18% and are on track to hit $25.19 which would be an all-time record. Excluding financials, earnings are up 20% from one year ago.

  • Blast from the Past
    , November 3rd, 2011 at 9:05 am

    From the New York Times, April 2, 1998:

    Joining Euro A Dim Hope For Greece

    Greece never had a prayer of joining the first round of countries eligible for Europe’s common currency, so its exclusion from the list of 11 countries ready to adopt the euro in 1999 was not an issue here.

    Instead, the question is whether Greece, despite its belated efforts to trim its debts and shrink its overindulged state sector, is going to make it into the euro club in 2001 — a goal firmly held by the Socialist Government of Prime Minister Costas Simitis and cherished by many Greeks.

    For Greece, joining the euro is much like the dream many members of the former Soviet bloc have of joining NATO or the European Union. The tangible benefits of being admitted into the charmed circle may be debatable, but being left out is hell.

    ”It is already a negative thing to be out of the 11,” said Dimitri Papadimoulis, spokesman for the Coalition of the Left, an opposition party. ”But if we stay out after 2001 the cost will be painful. Now we are the European country in the Balkans. Then we would be another Balkan country in the Balkans.”

    With the devaluation in March of the drachma by 14 percent — the Greek currency is now part of a European exchange rate structure that is a prerequisite for future euro members — the Simitis Government is convinced that Greece is on its way.

    According to Finance Minister Yiannos Papantoniou, Greece has accepted prodding from its European partners to do in 18 months what it had already promised to do in three years: tackle its bloated public sector with the privatization of 11 publicly held companies, including several state banks, by the end of 1999.

    ”We have a mutual interest in succeeding,” Mr. Papantoniou said, speaking of Greece’s pledges to the other members of the European Union. ”At this point, I don’t see major risks. We are on the right way.”

    But here and in the rest of Europe, there is some lingering skepticism about the ability of the Simitis Government — heir to the left-wing political machine built by the late Andreas Papandreou — to meet the harsh criteria set down for euro membership, and survive politically.

    As the poorest country in the European Union, with a per capita gross domestic product half that of Germany, an economy that is even more dependent on a corrupt and inefficient public sector than many ex-Communist countries, and a reputation for squandering European Union subsidies, Greece’s chances of meeting the monetary union’s criteria are far from guaranteed.

    ”The next two years are going to be critical,” said Costas Stambolis, editor of an economic newsletter. ”The Government will have to undertake wage freezes, a shrinking of the public sector, restructuring. It will create a lot of unrest, and they will have to cope with it.”

    The devaluation of the drachma, considered inevitable by many analysts, was presented, and for the most part received, as a bold and confident sign of the Government’s commitment to Europe. The Athens stock market soared, while foreign investors were cheered by the Government’s tough-talking pledges to move swiftly ahead with privatization and hold down public spending.

    But critics have since found reason to worry. Initially at least, the devaluation has put Greece, if anything, further away from the fiscal goals set for euro membership. In a country heavily dependent on imports, devaluation has led to a slight surge in inflation, and a slowing of the decrease in public debt, much of which is held in foreign currencies.

    Mostly, the doubts have to do with the Government’s ability to follow through on its promises. ”Verbally they are doing extremely well,” said Stefanos Manos, a former Finance Minister. ”But I am not convinced this Government will reach the euro criteria in time. The social base that elects this Government is in the public sector. Simitis will not cut off the branch he is sitting on.”

    The Simitis Government has scored notable successes in bringing its fiscal affairs in order. Inflation, which was in the double digits a few years ago, was down to 4.3 percent in February, while Greece’s budget deficit, which was at an all-European high of 13.9 percent in 1993, had fallen to 4.2 percent in 1997, on its way to the 3 percent level set for entry into the euro.

    But many analysts see the final test of Greece’s eligibility to join the euro — to take place in the summer of 2000 — as one that is as political as it is economic.

    ”If we don’t make it by 2001, we will never make it, and Greece will be pushed out of Europe,” Mr. Manos said. ”Greece will have proved itself to be too different from the rest of Europe.”

  • Morning News: November 3, 2011
    , November 3rd, 2011 at 5:39 am

    Euro Crisis Shifts Mood for G-20

    Greece’s Euro Membership to be Put to Vote

    Draghi Faces Maelstrom on Debut as ECB President

    G-20 Leaders Mull Whether to Press for Yuan Flexibility

    French Banking Giant BNP Paribas Net Hit By Sovereign Debt

    Treasuries Rise as Europe Withholds Greek Aid

    Bernanke Gives Push to New Stimulus

    Fed Lowers Its Forecast for Growth, but Takes No Steps

    Private Employers Added More Jobs Than Expected in October

    NYSE Euronext Posts Profit Hike Amid Deal Talks

    Kraft Foods 3Q Net Up 22%, Lifts Full-Year View

    Unilever Sales Up As Emerging Markets Surge

    BMW Q3 Profit Gains on 5-Series, X3 Demand

    Cable TV and Movies Buoy News Corp. Profits

    Real Estate Services Giant Jones Lang LaSalle’s 3Q Net Off 8.7% On Acquisition Costs; Revenue Up

    Jeff Carter: CME Statement Regarding MF Global

    James Altucher: How to Change the World (Or…How to Occupy Yourself)

    Be sure to follow me on Twitter.

  • Great Day for Wright Express
    , November 2nd, 2011 at 9:49 pm

    So I guess the market liked the earnings report. Shares of Wright Express ($WXS) soared 12% today.

    Of course, we know better than to take one day’s move as a confirmation or rejection of our position. After all, Becton Dickinson ($BDX) was down 4.6% today.

    Still, it’s nice to see Wright get some market love. As Winston Churchill said on V-E Day, “We may allow ourselves a brief period of rejoicing.”

    Huzzah!