Archive for 2011

  • Morning News: May 20, 2011
    , May 20th, 2011 at 7:58 am

    France’s Christine Lagarde Is Favored to Head IMF

    Bank of Japan’s Shirakawa Sees Supply Constraints Easing But Nuclear Problems Remain A Threat

    Greek Government Bonds Fall on Reprofiling Concern; German Bunds Advance

    Another Big Spain Problem: Mountains Of Hidden Debt Are About To Be Revealed

    China Gold Imports to Rise After Investment Overtakes India, Council Says

    Gold Drops as Expectations of Slowing Inflation Curb Precious-Metal Demand

    Dollar Weakens Ahead of Federal Reserve Minutes

    LinkedIn’s Surge Sets Stage for More Internet I.P.O.’s

    Head of Japanese Utility Steps Down After Nuclear Crisis

    ABN Amro Reports Doubling in Profit, May Boost Savings Goal

    Prada Wins Approval for $2 Billion Initial Offer

    Liberty Media Offers $1 Billion for Barnes & Noble

    BP Cuts Oil Spill Burden With $1 Billion Mitsui Deal

    Many With New College Degree Find the Job Market Humbling

    Paul Kedrosky: The Triple-Digit IPO League Tables

    Brian Shannon: Stock Market Video Analysis 5/19/11

    Phil Pearlman: IPO Fun Facts from Renaissance Capital: Not Even Close to Bubble Levels

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  • Medtronic Device Helps Paraplegic Stand
    , May 19th, 2011 at 9:20 pm

    Bloomberg reports:

    Rob Summers, a 25-year-old day trader paralyzed from the chest down five years ago, now stands on his own with the aid of a Medtronic Inc. (MDT) device originally designed for a different application.

    The device, sold by Minneapolis-based Medtronic to control pain, delivers electrical stimulation to Summers’ lower spinal cord that helps him move his toes, ankles, knees and hips, and even take steps on a treadmill with the aid of a harness. The Los Angeles man’s case, described in the U.K. medical journal The Lancet, may spell hope for about 12,000 U.S. patients who incur spinal cord injuries yearly.

  • The S&P 500 With and Without Financials
    , May 19th, 2011 at 4:14 pm

    Barry Ritholtz posted a chart of the S&P 500 with and without the financial sector. I constrcuted my own version of the same chart below (though see my note below). The Financials now make up 15.3% of the index which is down from over 22% before the crash (20 years ago, they were under 10%).

    What really stands out is how much of the market’s rally between 2003 and 2007 was due to Financials. Take them away and the market still did well, but it wasn’t the great bull run that appeared on the surface. Naturally, much of the crash was heavily laid on the shoulders of Financials as well. (The same goes for the Tech sector during the late 90s and early Aughts.)

    If investors had avoided Financials all together, they still would have been in for a rollercoaster ride, but not as dramatic a ride as it was for broad-market investors.

    Barry Ritholtz posted

    (Note: I don’t have the historical weightings so I had to imply them from the historical daily indexes. As a result, my chart may differ slightly from S&P’s data.)

  • Will the 90s Ever End?
    , May 19th, 2011 at 2:57 pm

    I think we have a full mania on our hands.

    Jim Cramer has already said that LNKD’s valuation is crazy. Earlier today, Barry Ritholtz posted a list of prominent IPO runups between 1975 and 2006.

    I scanned the list and the biggest one-day pop seems to belong to theglobe on November 13, 1998. I had completely forgotten about them. The stock was priced at $9, got as high as $97 and closed the first day of trading at $63.50. Then in May 1999, the stock split 2-for-1 (why?). By 9/11/2001, theglobe was worth less than 10 cents per share. The company ceased operations in 2008. Today the shares are on the Pink Sheets going for 0.2 cents per share.

  • The Obama Portfolio
    , May 19th, 2011 at 12:02 pm

    Carla Fried looks at President Obama’s portfolio:

    Ben Bernanke might not be ready to raise the federal funds rate just yet, but the Obamas sure seem to be anticipating bond rates heading higher (and thus prices taking a fall). They report having between $1.1 million-$5.25 million invested in Treasury bills and another $1 million to $5 million in Treasury notes. T-bills have a maximum maturity of one year, while T-notes have maturities between 2 and 10 years. There were no longer-term bond holdings listed. Maybe it’s just easier and patriotic to stick with Treasuries when you’re the Obamas, but if your household taxable income was north of $1.3 million in 2010, as the Obamas’ was, you should probably give tax-exempt municipal bonds a look see.

    Even presidents need a personal emergency fund. The Obamas reported having between $250,001-$500,000 sitting in a checking account at JP Morgan Chase Private Client Asset Management account. They also stated that they earned less than $1,000 in interest on their checking account. Even if we assume they are closer to the $250,000 side of that range, that amount of interest sounds incredibly low. If the President and First Lady followed the advice of MoneyWatch’s Allan Roth, they could have earned triple that amount on their cash.

    I may be the leader of the free world, but when it comes to stocks, I invest passively. The Obamas report having between $200,000-$450,000 invested in the Vanguard 500 Index Fund. Clearly the Obamas are hip to cost controls within their own financial lives. The annual expense ratio they pay is 0.06 percent, since with more than $10,000 invested, they qualify for Vanguard’s lowest cost Admiral share class. That means they spend about 1 percentage point less a year than do investors in the average stock fund, a huge advantage when you consider that plenty of folks are telling us we’ll be lucky to earn 5 or 6 percent a year from stocks in the coming years. Too bad neither the Obama administration nor the folks on Capitol Hill have seen their way to make it law that every 401(k) must offer participants at least one low-cost index fund.

  • Was LinkedIn Screwed By Its Underwriters?
    , May 19th, 2011 at 11:09 am

    So with LinkedIn‘s ($LNKD) monster IPO surge this morning, we should ask if this means that they were let down by their underwriters. Bear in mind that the offering range was already raised by about 30% just before it was priced. If you price at $45 and the stock soars to $90 or so, that means the company left all the money on the table.

    Or maybe not. At Business Insider, Pascal-Emmanuel Gobry writes:

    In fact, it’s probably because they were AFRAID of having a pop that they upped the price early on to mop up demand.

    But here’s the thing. Along with designer handbags, stock is the only good where demand goes up with price.

    Economics 101 says that when demand for something limited is high, the price will go up, which will lower demand to match the supply. But that’s not how the stock market works, is it? When the price gets high, more people buy, and the price gets higher.

    Excitement about the LinkedIn IPO was always high but it started becoming feverish after LinkedIn’s underwriters bumped it up to 40. “There’s so much demand! It means it’s going to be a huge IPO!” Which, of course, became a self-fulfilling prophecy. A person close to big investors told us that they couldn’t even get shares in the IPO because it was so oversubscribed.

    There’s a frenzy because there’s a frenzy which in turn leads to a bigger frenzy. This is why I steer clear of most IPOs.

  • LinkedIn Soars
    , May 19th, 2011 at 10:11 am

    I haven’t written about the LinkedIn ($LNKD) IPO since, honestly, I don’t know much about these types of businesses. It’s rare for people who write about investments to confess their ignorance, so I may be breaking some sort of rule.

    Nevertheless, shares of LNKD were priced at $45 yesterday.

    The opening trade = $83. Bespoke notes that at this rate, LNKD will be bigger than 136 companies in the S&P 500.

    The stock has now gotten as high as $90. This means that a company worth $8.5 billion made a grand total of $15 million last year.

  • Morning News: May 19, 2011
    , May 19th, 2011 at 7:20 am

    Germany Backs a European for IMF Head Replacement

    France’s Lagarde May Stake Claim as First Female IMF Chief

    Yen Falls as Japan Enters Recession

    Asian Shares End Mixed; Grim GDP Data Weigh Tokyo Shares

    IEA Calls on Oil Producers to Act as Prices Risk Recovery

    Oil in N.Y. Trades Near Highest in More Than a Week on U.S. Supply Decline

    LinkedIn’s Biggest Backers Will Own $2.5 Billion Stake After Initial Sale

    Glencore Rises After $10 Billion I.P.O.

    Air France Posts Annual Profit on Economy

    Sears Swings To 1Q Loss But Revenue Falls Less Than Expected

    Takeda Signs Deal To Buy Nycomed For EUR9.6 Billion

    World’s Second Largest Brewer SABMiller Full-Year Profit Beats Estimates

    Delta-Northwest Merger’s Long and Complex Path

    Howard Lindzon: Chasing…a Tactic, not a Strategy!

    Todd Sullivan: Orion Crushes

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  • S&P Sectors Year-To-Date
    , May 18th, 2011 at 9:52 pm

    Our Buy List is heavily tilted toward healthcare stocks. That wasn’t a smart move in previous years but it’s helping out this year.

    Index Name Market Cap Index Level 1 Day MTD QTD YTD
    Total Return
    S&P 500 (TR) N/A 2,270.57 0.90% -1.53% 1.39% 7.39%
    Price Return
    S&P 500 $12,221,340.74 1,340.68 0.88% -1.68% 1.12% 6.60%
    Sectors
    Healthcare $1,444,958.57 420.57 0.78% 3.18% 9.81% 15.29%
    Energy $1,506,967.27 554.08 1.97% -7.35% -5.98% 9.34%
    Staples $1,324,423.86 331.90 0.20% 2.30% 7.47% 9.33%
    Discretionary $1,315,259.47 319.92 1.15% -0.14% 3.74% 8.25%
    Utilities $411,564.56 172.23 -0.34% 2.45% 6.37% 8.09%
    Industrials $1,351,418.87 323.85 1.11% -3.20% -0.60% 7.55%
    Telecom $371,777.50 134.60 0.29% 0.34% 1.01% 4.55%
    Tech $2,192,686.04 419.77 0.74% -2.34% 0.51% 3.76%
    Materials $432,495.54 241.82 2.10% -4.98% -3.02% 0.92%
    Financials $1,869,789.06 214.39 0.49% -2.77% -2.86% -0.18%

  • AFLAC Down on Lower Guidance
    , May 18th, 2011 at 12:45 pm

    AFLAC ($AFL), one of my favorite stocks, is down sharply today due to a lower forecast from the company. Dan Amos, the CEO, told a dinner audience last night that the company is expecting to grow its earnings by 0% to 5% next year.

    Let’s remember that the company said it expects to earn between $6.09 and $6.34 per share for this year. Wall Street’s consensus for 2011 is currently $6.22 but I think $6.30 is probably more accurate. At 0% to 5%, that implies 2012 earnings of $6.30 to $6.61 per share. Wall Street had been expecting $6.64 per share.

    Market Watch noted these comments from Randy Binner at FBR Capital Markets:

    “While we believe the guidance may be overly conservative and there were positive comments on 2Q11 sales growth and de-risking activities, we believe Aflac shares trade based on EPS,” Binner wrote in a note to investors Wednesday. “As such, we would expect shares to adjust to the lower EPS outlook.”

    I agree that this forecast is overly conservative. This would be the slowest growth in AFLAC’s history. Ultimately, they may hit Wall Street’s forecast (which will soon be lowered) of $6.64 per share.

    Still, 2012 is a long way away and AFLAC is sticking with its growth forecast for 2011. AFLAC has set the bar low and now it’s up to them to surpass it.

    The important news is that AFLAC is working to “de-risk” its portfolio:

    Insurer Aflac Inc. said it will incur a loss of about $31 million before taxes in the second quarter as it sells off some investments that had been flagged as problematic by analysts and investors.

    The largest loss, of $72 million, is tied to the sale of holdings in Irish Life and Permanent Group Holdings PLC (IL0.DB), according to a regulatory filing Tuesday. The company also sold off sovereign debt from Tunisia at a pre-tax loss of $5 million.

    Those losses were offset by gains of $18 million from the sale of perpetual securities issued by Lloyds Banking Group PLC (LLOY.LN) and $28 million of perpetual securities from Royal Bank of Scotland Group PLC (RBS.LN).
    The asset sales are part of Aflac’s ongoing effort to unload some of its sovereign and bank debt from financially stressed regions, and reduce the size of the largest positions in its investment portfolio. The company sold off Greek debt in the first quarter.

    Such investments have made some investors and analysts nervous in recent years, first amid the 2008 financial crisis and later when the European Union grappled with the mounting debts of Greece and other member nations last year.

    AFLAC has said that it’s looking to increase its dividend by 1% to 10% this year and next year. Plus, the company projects repurchasing 3 million to 12 million shares this year and zero to 12 million next year.

    The yen’s impact on 2011’s operating earnings is pretty straightforward. At an exchange rate of 87.69 yen per dollar, the earnings will grow by 8% to $5.97 per share for 2011. Every one point below that adds roughly five cents per share to AFL’s bottom line. Currently, the exchange rate is 81.4 so that’s good for us.

    The stock has been as low as $50 today. There’s no reason to sell AFLAC based on today’s news. The company is still fundamentally sound. They’re merely preparing themselves for what may be a more difficult environment.