Archive for 2011

  • Stockmageddon
    , August 3rd, 2011 at 5:40 pm

    What a crazy day on Wall Street. Even after yesterday’s plunge, the market started off on a bad foot this morning. By 10:40 am, the S&P had lost 1.55%.

    Then we suddenly rallied and closed at 1,260.34 which is a gain on the day of 0.50%. Our Buy List did even better as it gained 0.68%.

    The S&P 500 finally snapped its streak of seven-straight down days. The Dow had fallen for eight straight days in a row (and the S&P 500 was only up a measly 0.09% on the day before its streak began). Johnson & Johnson ($JNJ) has fallen for eight straight days. In the last two weeks, the stock market has lost a total of $1.07 trillion in market value.

    Every day we’ve been getting hit with bad economic news. On Friday, it was the GDP. On Monday, it was the ISM manufacturing index. Yesterday, it was consumer spending. The bad economic news today was that the ISM service index hit its lowest level since February 2010.

    There’s no big economic report due tomorrow (the initial jobless claims figure isn’t that important). But the big report will be the jobs number on Friday morning. I hope I’m not ruining your suspense when I say that it won’t be good. Wall Street is expecting a gain of 115,000 jobs. This morning, ADP said in its jobs estimate that the economy created 114,000 new jobs last month. Wall Street is getting the message. JPMorgan Chase ($JPM) cut its estimate for third-quarter growth to 1.5%.

    This morning, I posted on Wright Express’ ($WXS) good earnings report and higher guidance. At least I thought it was a good report. At one point, shares of Wright were down 6.75%. Then, much like the overall market, WXS started to surge. The stock closed the day at $47.21. That’s 1.48% higher than yesterday’s close and 8.83% above today’s low. I have no idea how that makes sense, but that’s daily market activity for you.

  • The Onion: “Drunken Ben Bernanke Tells Everyone At Neighborhood Bar How Screwed U.S. Economy Really Is”
    , August 3rd, 2011 at 12:49 pm

    The Onion is on the scene:

    SEWARD, NE—Claiming he wasn’t afraid to let everyone in attendance know about “the real mess we’re in,” Federal Reserve chairman Ben Bernanke reportedly got drunk Tuesday and told everyone at Elwood’s Corner Tavern about how absolutely fucked the U.S. economy actually is.

    Bernanke, who sources confirmed was “totally sloshed,” arrived at the drinking establishment at approximately 5:30 p.m., ensconced himself upon a bar stool, and consumed several bottles of Miller High Life and a half-dozen shots of whiskey while loudly proclaiming to any patron who would listen that the economic outlook was “pretty goddamned awful if you want the God’s honest truth.”

    “Look, they don’t want anyone except for the Washington, D.C. bigwigs to know how bad shit really is,” said Bernanke, slurring his words as he spoke. “Mounting debt exacerbated—and not relieved—by unchecked consumption, spiraling interest rates, and the grim realities of an inevitable worldwide energy crisis are projected to leave our entire economy in the shitter for, like, a generation, man, I’m telling you.”

    “And hell, as long as we’re being honest, I might as well tell you that a truer estimate of the U.S. unemployment rate is actually up around 16 percent, with a 0.7 percent annual rate of economic growth if we’re lucky—if we’re lucky,” continued Bernanke, nearly knocking a full beer over while gesturing with his hands. “Of course, if everybody knew that, it would likely cripple financial markets across the entire fucking globe, even in various emerging economies with self- sustaining growth.”

    After launching into an extended 45-minute diatribe about shortsighted moves by “those bastards in Congress” that could potentially exacerbate the nation’s already deeply troublesome budget imbalance, the Federal Reserve chairman reportedly bought a round of tequila shots for two customers he had just met who were seated on either side of him, announcing, “I love these guys.”

    Numerous bar patrons slowly nodded in agreement as Bernanke went on to suggest the United States could pass three or four more stimulus packages and “it wouldn’t even matter.”

    “You think that’s going to create long-term economic growth, let alone promote job creation?” Bernanke said. “We’re way beyond that, my friend. There are no jobs, okay? There’s nothing. I think that calls for another drink, don’t you?”

    While using beer bottles and pretzel sticks in an attempt to explain to the bartender the importance of infusing $650 billion into the bond market, the inebriated Fed chairman nearly fell off his stool and had to be held up by the patron sitting next to him.

    Another bargoer confirmed Bernanke stood about 2 inches from her face and sprayed her with saliva, claiming inflation was going to “totally screw” consumer confidence and then asking if he could bum a smoke.

    “Sure, we could hold down long-term interest rates and pursue a program of quantitative easing, but c’mon, we all know that’s not going to make the slightest bit of difference when it comes to output, demand, or employment,” Bernanke said before being told to “try to keep [his] voice down” by the bartender. “And trust me, with the value of the U.S. dollar in the toilet, import costs going through the roof, and numerous world governments unprepared for their own substantial debt burdens, shit’s not looking too good for us abroad, either.”

    “God, I’m so wasted,” added Bernanke, resting his head on the bar.

    Later in the evening, Richard Kampman, a truck driver who was laid off in 2010, said Bernanke approached him in the men’s restroom and attempted to strike up a conversation about various factors contributing to the current financial crisis.

    “He stumbled up to the urinal and started mumbling on about the depressed housing sector or something,” said Kampman, who claimed Bernanke had to use both hands on the wall to steady himself. “Then after a while he just sort of stopped and I couldn’t tell if he was laughing or crying.”

    “Then he puked all over the sink and the mirror,” Kampman added.

    Customers at the bar told reporters the “shitfaced” and disruptive Bernanke refused to pay for his drinks with U.S. currency, claiming it was “worthless.” Witnesses also confirmed that near the end of the evening, Bernanke put money into the jukebox and selected Dire Straits’ “Money For Nothing” to play five times in a row.

    “This is what it’s all about,” said Bernanke, who reportedly danced alone in the middle of the dark tavern. “Fucking love this song.

  • S&P 500’s P/E Drops to 21-Year Low
    , August 3rd, 2011 at 10:48 am

    Thanks to the market’s recent sell-off, the Price/Earnings Ratio for the S&P 500 is now at a 21-year low. The S&P 500 is currently going for just 13.43 times trailing earnings. That’s an earnings yield of close to 7.5%. The market’s P/E Ratio hasn’t been this low since November 1990.

    Here’s a look at the S&P 500 in the black line along with its earnings in the gold line. The black earnings follows the left scale and the gold line follows the right. The two lines are scaled at a ratio of 16-to-1 which means that the market’s P/E Ratio is exactly 16 whenever the two lines cross.

    Obviously, the future part of the earnings line is based on Wall Street’s forecast. I should caution you that Wall Street has been known to be wrong about these things.

    Here’s a look at the S&P 500’s P/E Ratio:

    The P/E Ratio reached a peak of 30.4 on January 4, 2002. This means that valuations have dropped by 55% in nearly a decade.

    The P/E Ratio is a good measure of valuation but it’s not the only one you should use. Like all others, it has some problems and we may be seeing why right now.

    The problem with the P/E Ratio is that the earnings line looks backwards in time while current stock prices always peer into the future by a few months. Due to this mismatch, the P/E Ratio can give you false readings.

    For example, the ratio could be artificially low right now. Instead of indicating a cheap market, it may be the result of stocks forecasting lower earnings. That would mean higher trailing earnings are being divided by declining stock prices. That, in turn, would cause the ratio to fall.

    Conversely, during the initial stage of a bull market, the P/E Ratio often rises even though stocks continue to rally. Again, it’s not necessarily a sign of high valuations but rather of stocks anticipating strong earnings growth in the near future. Look at how the black line jumped in 2009 before the gold line eventually turned.

  • Investing in the Lottery
    , August 3rd, 2011 at 9:22 am

    Fascinating article from the Boston Globe:

    UNDERLAND – Billy’s Beer and Wine sold exactly $47 worth of lottery tickets the day before Marjorie Selbee arrived, just another sleepy day for the liquor store in this tiny Western Massachusetts town. But from the moment the 70-something woman from Michigan entered the store early July 12, Billy’s wasn’t sleepy anymore.

    Over the next three days, Selbee bought $307,000 worth of $2 tickets for a relatively obscure game called Cash WinFall, tying up the machine that spits out the pink tickets for hours at a time. Down the road at Jerry’s Place, a coffee shop in South Deerfield, Selbee’s husband, Gerald, was also spending $307,000 on Cash WinFall. Together, the couple bought more than 300,000 tickets for a game whose biggest prize – about $2 million – has been claimed exactly once in the game’s seven-year history.

    But the Selbees, who run a gambling company called GS Investment Strategies, know a secret about the Massachusetts State Lottery: For a few days about every three months, Cash WinFall may be the most reliably lucrative lottery game in the country. Because of a quirk in the rules, when the jackpot reaches roughly $2 million and no one wins, payoffs for smaller prizes swell dramatically, which statisticians say practically assures a profit to anyone who buys at least $100,000 worth of tickets.

    Read the whole thing.

  • Wright Express Earns 91 Cents Per Share
    , August 3rd, 2011 at 8:55 am

    Stocks continue to plunge yet earnings for our Buy List stocks have been pretty strong. This morning, Wright Express ($WXS) announced adjusted second-quarter earnings of 91 cents per share. That’s four cents more than Wall Street was expecting. In May, Wright told us to expect Q2 earnings between 83 and 89 cents per share so they even topped their internal forecasts.

    Here are some details about the quarter:

    Total revenue for the second quarter of 2011 increased 55% to $141.3 million from $91.4 million for the second quarter of 2010. Net income to common shareholders on a GAAP basis was $40.6 million, or $1.04 per diluted share, compared with $30.0 million, or $0.77 per diluted share, for the second quarter last year.

    On a non-GAAP basis, the Company’s adjusted net income for the second quarter of 2011 increased 33% to $35.5 million, or $0.91 per diluted share, from $26.8 million, or $0.68 per diluted share, for the same period a year ago.

    Wright Express uses fuel-price derivative instruments to mitigate financial risks associated with the variability in fuel prices in North America. For the second quarter of 2011, the Company’s GAAP financial results include an unrealized $13.9 million dollar pre-tax, non-cash, mark-to-market gain on these instruments. See Exhibit 1 for a full reconciliation of adjusted net income.

    “The second quarter was another great quarter for Wright Express. We once again reported robust growth in our other payments solutions segment, and benefited from strong fleet transaction and vehicle growth, as well as higher fuel prices in our fleet segment, relative to the prior year. On the international front, we continued to perform well with the successful launch and implementation of BP’s portfolio in Australia and we are seeing solid execution in our Australian fleet business. Wright Express remains well-positioned for sustained growth as we further expand our fleet business in North America and diversify our revenues by leveraging new opportunities on the horizon,” said Michael Dubyak, Chairman, President and Chief Executive Officer.

    Wright is also updating its 2011 guidance for the second time this year. In May, the company increased its full-year EPS guidance range from $3.17 – $3.37 to $3.40 – $3.60. The new range is $3.50 – $3.62.

    “We are updating our full-year 2011 guidance as we believe that our business will experience continued solid performance through the last two quarters of 2011 in spite of the uncertainty that exists in the broader economic landscape. We expect our second half performance will continue to be driven by exceptional growth in our other payments solutions segment, organic growth in our fleet business and investments in our international opportunities,” said Steve Elder, Senior Vice President and Chief Financial Officer.

    * For the third quarter of 2011, Wright Express expects revenue in the range of $145 million to $150 million and adjusted net income in the range of $35 million to $37 million, or $0.89 to $0.95 per diluted share.

    * For the full year 2011, the Company expects revenue in the range of $550 million to $560 million and adjusted net income to be in the range of $136 million to $141 million, or $3.50 to $3.62 per diluted share.

    Third quarter 2011 guidance is based on an assumed average U.S. retail fuel price of $3.72 per gallon, and approximately 39.0 million shares outstanding. Full-year 2011 guidance is based on an assumed average U.S. retail fuel price of $3.64 per gallon and approximately 39.0 million shares outstanding. In addition, the fuel prices referenced above are based on the applicable NYMEX futures price. We are assuming the exchange rate of the Australian dollar will remain at a premium to the US dollar for the remainder of the year.

    The Company’s guidance also assumes that third quarter 2011 domestic fleet credit loss will range from 18 to 23 basis points, and that domestic fleet credit loss for full year 2011 will range from 15 to 19 basis points

    .

  • Morning News: August 3, 2011
    , August 3rd, 2011 at 7:34 am

    World’s Private Sector Stumbles as Debt Crisis Bites

    Franc Dives After SNB Move

    Japan Economy Minister: Up To BOJ Whether It Takes Further Steps

    China Joins Russia in Blasting U.S. Borrowing

    Worries Rise Over Spain and Italy Debt

    Gold Rallies to Record for Second Day as Signs of Slowdown Fire Up Demand

    Moody’s Affirms U.S. Rating, Warns of Downgrades

    AAA Rating Is a Rarity in Business

    Rep. Paul Introduces Bill to Cancel $1.6T in Debt Held by Federal Reserve

    British Banker Standard Chartered Forecasts Record Income

    French Banker Societe Generale Warns on 2012 Profit as Greece Scars Q2

    GM July US Sales Up 7.6% On Higher Car, Crossover Sales

    Dunkin Brands 2Q Net Falls 1% On Expenses

    Comcast Profit Up on Web Subscribers, NBCU Ad Sales

    James Altucher: The 10 Commandments of the American Religion

    Epicurean Dealmaker: I Think I’ve Said This Before

    Be sure to follow me on Twitter.

  • S&P 500 = 1254.05
    , August 2nd, 2011 at 5:14 pm

    There’s no other way to say it — today was a wipe-out for stocks. The S&P 500 plunged 32.89 points to close at 1,254.05.

    That’s a loss of 2.56% which is the index’s worst loss since August 11th of last year. The market has lost all of its gain for the year. The S&P 500 is currently 0.29% lower than where it was on December 31st. The market has now fallen for seven sessions in a row.

    Once again, it was the cyclicals that bore most of the pain. The Morgan Stanley Cyclicals Index (^CYC) dropped by 3.72%. The CYC is now below 1,000 and the index has shed 12.8% since July 7th.

    Despite the new loss among cyclicals, that group has been suffering for a while. The losses today seemed fairly evenly distributed. I didn’t see many stocks down more than 5%. Trading volume on the Nasdaq ran 17-to-1 negative.

    So what did well? That’s easy. Gold, for one. The yellow metal jumped to $1,644.50 an ounce. It wasn’t that long ago that the S&P 500 and gold were tracking each other. Gold is up even more after hours.

    Bonds also had a field day. The five-year Treasury yield dropped to 1.23% and the 10-year yield is down to 2.62%. Both are the lowest readings since November.

    The 30-year yield is down to 3.92% which is the lowest yield since last October.

  • Send Me a Question!
    , August 2nd, 2011 at 11:54 am

    Calling all readers: I want to try a Q&A post.

    Although this blog doesn’t have comments, I try to respond to all the emails I get. (I apologize that I can’t answer them all.)

    Sometime in the next week, I hope to post a round-up of the best email questions. Feel free to send me an email about any investing topic or stocks on the Buy List. (Don’t worry, I won’t post your name.)

    I’ll try to respond to everyone, but I may not be able to. You can email me at eddy@crossingwallstreet.com.

  • Q2 Earnings Summary for the S&P 500
    , August 2nd, 2011 at 11:40 am

    According to the latest numbers from Bloomberg, 360 of the 500 companies have reported. Earnings are up 18.5% and are tracking to hit $24.89 which would be an all-time record.

  • Update Q2 Buy List Earnings Calendar
    , August 2nd, 2011 at 10:25 am

    Stock Symbol Date Estimate Result
    JPMorgan Chase JPM 14-Jul $1.21 $1.27
    Johnson & Johnson JNJ 19-Jul $1.24 $1.28
    Stryker SYK 19-Jul $0.90 $0.90
    Abbott Labs ABT 20-Jul $1.11 $1.12
    Reynolds American RAI 22-Jul $0.71 $0.67
    Ford F 26-Jul $0.60 $0.65
    Fiserv FISV 26-Jul $1.08 $1.13
    Gilead GILD 26-Jul $0.99 $1.00
    AFLAC AFL 27-Jul $1.54 $1.56
    Deluxe DLX 28-Jul $0.71 $0.75
    Moog MOG-A 29-Jul $0.70 $0.73
    Becton, Dickinson BDX 2-Aug $1.43 $1.51
    Wright Express WXS 3-Aug $0.87
    Sysco SYY 15-Aug $0.57