Archive for January, 2012

• Morning News: January 19, 2012
  Eddy Elfenbein, January 19th, 2012 at 6:37 am

  Hedge Funds May Sue Greece if It Tries to Force Loss

  Spain Passes Key Bond Test, France Also in Demand

  Commerzbank Says It Can Meet Capital Rules

  Mervyn King Faces Jobless Specter in 2012

  China Said to Consider Easing Lending Constraints, Capital Rules for Banks

  Falkland Islands Oil Could Triple U.K. Reserves

  Crude Oil Advances in New York on Shrinking Stockpiles, Iranian Risks

  S&P 500 Rallying Most Since 1987 as Bernanke Helps Offset Europe

  FBI Sweep Targets Big Funds

  In Fight Over Piracy Bills, New Economy Rises Against Old

  Warm Winter Deflates Prospects for Retailers

  Sony Ericsson Swings to Q4 Loss Before Ownership Change

  Kodak Files for Bankruptcy Protection

  TransCanada ‘Dead Money’ If Keystone XL Can’t Be Salvaged

  The ‘New American Home’ Continues Shrinking

  Joshua Brown: A Massive Multi-Year Breakout for Biotechs

  Stone Street: On the Upcoming Carlyle Group IPO: Is the Juice Worth the Squeeze (Glencore Redux)

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• Bed Bath & Beyond Breaks $61 Per Share
  Eddy Elfenbein, January 18th, 2012 at 12:23 pm

  Here’s a real world lesson in investing. Last month, shares of Bed, Bath & Beyond ($BBBY) got knocked down after the company’s earnings report. I thought the earnings report was very good but the traders apparently disagreed. The shares were brought down from over $61 to under $57 within a few days. I said in CWS Market Review that the drop in the stock was hard to understand.

  Now let’s march forward a few weeks. Even though no important news has come out from the company in the last month, the shares have quietly recovered. Today BBBY got as high as $61.39. It’s almost as if nothing happened. Once again, a company’s true value will eventually win out. Though it may take a while.

  The S&P 500 is up again today. This could be our ninth rally in 11 days so far this year. The technology sector is especially strong today as are homebuilders. The major banks were sluggish yesterday but a strong earnings report from Goldman ($GS) is giving the sector a lift today. The S&P 500 has beaten estimates for the last 11 quarters in a row but this one may break the streak. In fact, there’s a very good chance that Q4’s earnings will come in below Q3’s.

• Morning News: January 18, 2012
  Eddy Elfenbein, January 18th, 2012 at 5:39 am

  World Bank Cuts Outlook as Euro Region Contracts

  Greek Premier Says Creditors May Be Forced to Take Losses

  S&P Downgrades See Muted Market Response

  World Bank Warns Developing Nations of Slowing Growth

  Europe Leans Toward Blocking NYSE-Deutsche Borse Merger

  IEA Slashes Oil-Demand Forecast

  Protest on Web Uses Shutdown to Take On Two Piracy Bills

  Inspector General to Leave S.E.C.

  Fannie Fees Fail to Offset Record Low Lending Rates

  Yahoo Co-Founder Jerry Yang Exits Company

  Citigroup Earnings Fall Short of Expectations

  Wells Fargo’s Investment Bank Skirts Fourth-Quarter Cliffs

  Hedge Fund Giant Man Group Posts Further Outflows, To Cut $75 Million Costs

  Industry Weighs Effect of Ship Accident

  Jeff Miller: Positioning for 2012: Don’t Forget About Stocks

  Jeff Carter: Calculating the USA Mood

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• The S&P 500 Breaks 1,300
  Eddy Elfenbein, January 17th, 2012 at 1:01 pm

  For the first time since August 1st, the S&P 500 broke above 1,300 today. The index is nearly 21% off its October low.

  

• Morning News: January 17, 2012
  Eddy Elfenbein, January 17th, 2012 at 5:46 am

  U.K. Inflation Slowed to Six-Month Low of 4.2%

  ‘Bloated’ London Banks Shrink in the City

  Spain Borrowing Costs Fall at Auction

  Euro Officials Say EFSF Has Enough Funds After Downgrade

  Draghi Questions Role of Ratings Companies

  Bond Coupon Is ‘Prime Difference’ in Greek Debt Negotiations, IIF Says

  South Korea Frets as U.S. Ups Oil Pressure on Iran

  Nigerian Unions End Strike as President Offers Subsidy

  China Fourth-Quarter GDP Grows 8.9%

  Europe Seeks to Prevent U.S. Dominating Cloud

  Wikipedia to Go Dark on Wednesday to Protest Bills on Web Piracy

  Samsung Group to Expand Investment by 12%

  AIA Sizes Up Bid for $6 Billion ING Asia Insurance Unit

  Burberry Sales Jump Amid Tough Economy

  The Invisible Hand Behind Bonuses on Wall Street

  Olympus Panel Finds Auditors Liable

  Cullen Roche: Where Is Inflation Headed?

  Credit Writedowns: Greece and the IMF Appear to be Pushing For as Much as a 75% Haircut

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• Morning News: January 16, 2012
  Eddy Elfenbein, January 16th, 2012 at 6:59 am

  Euro Leaders Race to Salvage Rescue Plans

  Euro Decoupling as Draghi Rate Cuts Fail to Restore Correlation Confidence

  Portuguese Bonds Lead Euro-Region Declines After S&P Ratings Downgrades

  Inefficient Economies Seen as Drag on Europe

  Wary Banks Boost ECB Deposits; Reserve Change Due

  China Developers Launch Funds to Bridge Finance Gap

  Nigeria’s Naira Falls; Trading Limited After Protests Suspended

  India Inflation at 2-Year Low

  Brent Supported as Iran Warns Gulf Exporters

  Bills to Stop Web Piracy Invite a Protracted Battle

  In Silicon Valley, the Ripe Scent of New Money

  Sorry, Here’s Why Raising The Retirement Age Won’t Save Social Security

  Carnival Falls as Cruise-Ship Disaster May Cost $95 Million

  China’s Pollution Is So Insane You Can See It From Space

  Epicurean Dealmaker: All’s Fair…

  Howard Lindzon: There is NEVER a Bubble in Schlepping

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• Assorted Links
  Eddy Elfenbein, January 13th, 2012 at 6:33 pm

  The trading week is over and Wall Street has a three-day weekend.

  There were a few more items I wanted to cover so I’ll use this post to tie up some loose ends.

  My post on the Fed funds interest rate model drew a lot of attention. Professor Mankiw discussed it here which drew a response from Paul Krugman. Ryan Avent, Matthew Yglesias and Scott Sumner also added comments.

  Bloomberg conducted a survey of primary dealers and found that they think the Fed won’t raise rates until the second quarter of 2014.

  S&P downgrades several European countries.

  Lisa Du at Business Insider selected some highlights from Jamie Dimon’s earnings conference call. Glad to see Jamie coming out of his shell.

  Today, the Morgan Stanley Cylical Index (^CYC) snapped its 10-session streak of beating the S&P 500.

  DirecTV ($DTV) is raising rates.

  Hudson City ($HCBK) was downgraded by Nomura.

  Ford ($F) recalls 539,000 minivans, SUVs worldwide

  Williams-Sonoma ($WMS) cut its outlook which is bad for them. The problem is that it led to selling of Bed Bath & Beyond ($BBBY).

• Five-Year Treasury Yield Hits All-Time Low
  Eddy Elfenbein, January 13th, 2012 at 1:51 pm

  The yield on the five-year Treasury got down to 0.77% today. That’s the lowest yield ever.

  In 1981, the five-year yielded 16.27%. Five years ago, it was close to 5% and 11 months ago, it was going for 2.4%.

  

• JPMorgan Chase Earns 90 Cents Per Share
  Eddy Elfenbein, January 13th, 2012 at 10:17 am

  Disappointing, but it could have been much worse. The New York Times reports:

  The fourth-quarter slump was owed in part to declining revenue and a slowdown in JPMorgan’s sprawling investment bank, which suffered from the sluggish economic recovery in the United States and concerns that the European debt crisis will sweep across the continent.

  The investment bank booked a $567 million accounting loss in the fourth quarter tied to the perceived riskiness of its own debt, reversing a one-time gain from last quarter that propped up earnings across Wall Street. In all, the unit’s profits sank 52 percent to $726 million in the fourth quarter.

  Shares of JPMorgan were down more than 3 percent, to about 35.55, in morning trading.

  Despite the turmoil in the fourth quarter, Jamie Dimon, JPMorgan’s chairman and chief executive, highlighted the firm’s gradual progress since the financial crisis. He also sounded a note of cautious optimism about the broader economic recovery.

  “We have a mild recovery that might actually be strengthening,” Mr. Dimon said in a conference all with reporters, adding that the comeback appears to be “broad.”

  The bank’s earnings report comes a day after Mr. Dimon announced the second major shuffling of his management team in a year. Jay Mandelbaum, head of strategy and business development, will leave the bank. And Barry Zubrow, JPMorgan’s risk management chief who guided the bank through the financial crisis, will now head corporate regulatory affairs, among other changes.

  With the steady growth in profits last year, JPMorgan has emerged from the crisis as one of Wall Street’s most dominant firms. In 2011, JPMorgan stripped Bank of America of its title as the nation’s biggest bank by assets. Bank of America is still struggling to shed the legacy of the subprime mortgage mess.

  Investment banking isn’t stable so it wouldn’t be unusual to see that business, along with trading, come roaring back in the future. This really doesn’t tell us about the underlying strength of the bank.

  Jamie Dimon said that the Q4 results were “modestly disappointing.” I think that’s right. I still like JPM and the stock has a very good valuation. Watch for a dividend increase.

• CWS Market Review – January 13, 2012
  Eddy Elfenbein, January 13th, 2012 at 5:31 am

  The stock market continues to have an impressive 2012. The S&P 500 has closed higher on seven of the eight trading days so far. The index is now up 3.01% for the year while our Buy List is up by 3.57%.

  Things are about to get much more interesting as the earnings reports start coming in for our Buy List stocks. JPMorgan Chase ($JPM) will report on Friday. Wall Street will be watching this report very closely for signs of how well the banking sector did during Q4. For most banks, it’s not going to be pretty.

  The consensus among analysts is for JPM to report 90 cents per share, and what I’ll be paying most attention to is any full-year earnings guidance from the bank. JPM remains one of the best-run large banks around, and the stock is cheap. Be sure to visit the blog for the latest earnings news.

  In this week’s CWS Market Review, I want to shift gears and talk more about the bond market since that’s often a future driver of stock prices. Beginning in late July of last year, the long end of the Treasury market took off while stocks slumped. Even though stocks have recovered somewhat, Treasury yields remain low. Very, very low.

  Last week I said that the bond market’s 30-year bull run may already be over. The bond market had other ideas and yields dropped even lower this past week. The Treasury has had no problems auctioning off new debt. Just this week, an offering of 10-year debt was auctioned off at the lowest yield ever. On Wednesday, the yield on the five-year Treasury nearly hit an all-time low.

  Honestly, I don’t see how much longer these low yields can last. The math is, quite simply, horrible. Investors can’t even get 2% from a 10-year Treasury while there are gobs of blue chip stocks yielding 3% or more. Sysco ($SYY), for example, yields 3.68% and Johnson & Johnson ($JNJ) yields 3.50%. Compare this to even a two-year Treasury which will fetch you a yield of just 0.22%. Sure it’s safe, but at what price?

  Part of the reason for the wide stock-bond divergence is probably the safe haven effect. When things get bumped, investors gravitate toward safety. Or in this case, they stampede. The latest trouble spot is Germany where it appears that their economy is in a recession. Short-term yields there recently turned negative, so that may be driving some of the demand for our debt.

  What’s especially puzzling about the latest rally in bonds is that it’s occurring amid positive economic news and a rally in cyclical stocks. Cyclical stocks often do well as long-term yields rise. This isn’t a hard rule, but it’s a well-known generality.

  Last week I said that cyclical sector is starting to look more attractive. The Morgan Stanley Cyclical Index (^CYC) has outperformed the broader market for ten straight sessions. This clearly reflects greater optimism for the U.S. economy, although the market would have had a tough time becoming more pessimistic. To be fair, last week’s jobs report wasn’t too bad, and earlier this week, we learned that consumer credit had its largest monthly gain in a decade. I think it’s possible that Q4 GDP topped 4%.

  As far as corporate earnings go, I continue to be a realist. I think that more than a few companies will disappoint investors this earnings season. We’ve already seen plenty of lower guidance. This is Wall Street’s old trick of lowering the bar to six inches off the ground and expecting a standing ovation for stepping over it. That ain’t gonna happen this time around.

  Many of our Buy List stocks will serve as an oasis. Stryker ($SYK), for example, just gave very good preliminary guidance for 2012. The company won’t report its Q4 earnings until January 24th, but it already said to expect a sales increase of 11%. Stryker also said that full-year earnings should range between $3.72 and $3.74 per share. By my count, this is the second time the company has raised the low-end of its guidance.

  But I was most impressed to hear the company say that earnings-per-share should rise by “double digits” in 2012. I don’t think many companies will be telling investors that this month, and even fewer will be able to deliver. I don’t have any such doubts about Stryker. We should also remember that last month the company raised its quarterly dividend by 18%. That sends a strong message to investors. Until now, I had been urging some caution towards Stryker until I heard better news. Now that it’s here I feel much better about the stock. Stryker is an excellent buy up to $55 per share.

  Shares of CA Technologies ($CA), one of our new stocks this year, also had some good news this week. The shares got a nice lift on Thursday when Taconic Capital, a prominent hedge fund, announced that it had acquired a large position. Any holding of more than 5% has to be made public, and Taconic got a hair more than 5% so they most certainly knew their position would cause a splash. Shares of CA Technologies jumped 4.2% on Thursday. The stock is already up 7.9% for the year.

  Taconic is known as an activist investor, which means they make recommendations about how to quickly improve a business. In the case of CA, I have to admit that their ideas are very sound. CA Technologies is a very strong buy up to $24 per share.

  I’m particularly optimistic about Ford ($F) right now. The company said that it ended 2011 on a strong note and the stock seems to be riding the cyclical rally. I think the stock can reasonably hit $15 before the end of the year.

  That’s all for now. Be sure to keep checking the blog for daily updates. The stock market will be closed on Monday in honor of Dr. Martin Luther King. The civil rights leader would have been 83 years old. I’ll have more market analysis for you in the next issue of CWS Market Review!

  – Eddy