Archive for 2011

• Markets Nervous Ahead of Obama’s Speech
  Eddy Elfenbein, September 8th, 2011 at 9:28 am

  Yesterday was an excellent day for the stock market. However, given the recent volatility trend and trading range, we may give it back very soon. What I’m waiting for is a catalyst that will push the market out of its 1,120-1,230 trading pattern. President Obama’s jobs speech may help, but the market doesn’t seem to fare well whenever a government official speaks.

  The markets were a little surprised this morning when the jobless claims number rose by 2,000 to 414,000 last week. The Street was expecting 405,000. The other big news was that the OECD cut its economic growth forecast for the U.S. economy for the third quarter to 1.1% and 0.4% for the fourth quarter.

  I want to reiterate my point that the evidence of a Double Dip recession is far from conclusive. For example, Tuesday’s ISM Services index came in at 53.3 which was an increase over July and it was higher than Wall Street’s forecast. Also, the July trade deficit shrank by 13.1% to 44.8 billion. Exports rose 3.6% to $178 billion which is the highest ever.

• Morning News: September 8, 2011
  Eddy Elfenbein, September 8th, 2011 at 4:56 am

  Berlusconi Austerity Plan Passes Senate

  ECB to Signal Change in Policy Tack

  Trichet May Choose Liquidity Over ECB Rate Cut

  BOE May Mull More Stimulus on Market Strains

  Lagarde Uses IMF Role to Seek End to Debt Haggling

  Fitch Warns of Downgrades for China, Japan

  Japanese Government Bonds Inch Down on Treasuries; 5-yr Sale Draws Moderate Demand

  Crude Oil Declines From 5-Week High as Libyans Discuss Output, Storm Spins

  Rising Fears of Recession

  Some Hedge Funds, to Stay Nimble, Reject New Investors

  Moynihan Tries to Keep Bank of America Intact

  Best Buy Selling Other Online Retailers’ Products Via Its Site

  Blunt E-Mail Raises Issues Over Firing at Yahoo

  Papermaker Owned by Cerberus Files for Bankruptcy

  U.S. Slips to Fifth Place On Competitiveness List

  Stone Street: Hurricane Irene v. New Jersey: The Aftermath (Site Visit)

  James Altucher: How To Be The Smartest Person On The Planet

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• Gold and Gibson’s Paradox
  Eddy Elfenbein, September 7th, 2011 at 12:08 pm

  When I wrote about my gold model last year, I discussed Gibson’s Paradox and a paper from 1988 by Larry Summers and Robert Barsky. My model is largely based on the ideas from that paper.

  Strangely enough, that paper is getting some attention today. Paul Krugman writes about gold prices on his blog today. At the end of the post, Larry Summers alerts him to the 1988 paper. Tyler Cowen also highlights the paper.

• Icahn Not Giving Up on Clorox
  Eddy Elfenbein, September 7th, 2011 at 11:11 am

  If nothing else, Carl Icahn is entertaining. When we last caught up with the billionaire, he was trying to take over Clorox ($CLX). Actually, that’s not quite correct. Icahn was bidding for Clorox is an attempt to get someone else to take it over. I’m not exactly sure how that makes sense but hey, it’s his money.

  First, Icahn offered $76.50 per share which the board shot down. He then came back with $80 per share which the board also shot down.

  The market never took Icahn’s bid very seriously although the stock did break above $74 per share. I wrote, “If I were a CLX shareholder, I’d get out of the stock right now.” I can claim I got that one was right as the market quickly soured on CLX. But August 18th, it dropped as low as $63.56 per share which was lower than where it was before Icahn made his first offer.

  Last week, Icahn said that if no one is willing to buy Clorox for $78 per share, he’ll buy the thing himself and break it up. Once again, the board showed no interest. The stock got up to $72 very briefly but it couldn’t hold on. The market clearly doesn’t take Icahn’s bids very seriously.

  My view is that Clorox is basically a $60 stock, plus or minus a few dollars. I’d only be interested in it if the market price fell close to $50, Other than that, you’re wasting your time with it. Let Icahn waste his money on this.

  

• 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.