Archive for February, 2012

• Morning News: February 29, 2012
  Eddy Elfenbein, February 29th, 2012 at 5:55 am

  ECB’s Second Three-Year Loan May Be Last

  Europe Delays Debt Talks After Signs of Uncertain Support

  Papademos Gets Backing for $4.3B of Cuts

  Swap Talks Over Greece Could Test the Market

  France Says Google Privacy Plan Likely Violates European Law

  Japan Industrial Output Beats Forecast

  U.S. Cuts Iran Cash Pipeline

  Jewelers Want Platinum for Asians After Gold Vaults

  Home Prices Hit New Depths

  Taxpayers Win as Fed Wraps AIG Bond Sale

  Apple Dividend May Return Part of $98 Billion Cash

  A Record Buyout Turns Sour for Investors

  CVC to Buy Nordic Group Ahlsell for $2.4 Billion

  Standard Chartered Profit Climbs to Record

  Charges Push First Solar Into the Red

  Credit Writedowns: Miserable Wants Company

  Joshua Brown: Kitchen Nightmares – Wall Street Style

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• Morning News: February 28, 2012
  Eddy Elfenbein, February 28th, 2012 at 5:32 am

  Merkel Wins Greek Aid Vote After Warning Lawmakers

  S&P Downgrades Greece To Selective Default, Cites CACs

  Greece Running Out of Alternatives: Krugman

  Santander Agrees to Take Over Polish Bank

  Spain’s Task Gets Tougher After Deficit Miss

  “Big Four” Auditors Brace for Big Changes in China

  Blueprint of China Reforms Leaves Role of Party Vague

  A U.S. Boon in Low-Cost Borrowing

  Bending the Tax Code, and Lifting A.I.G.’s Profit

  U.S. Rule Set for Cameras at Cars’ Rear

  Blackstone Makes $2 Billion Natural Gas Investment

  Bayer Cuts Outlook as Plastics Disappoint

  Panasonic Picks TV Head as New President, Record Loss Looms

  Once Film-Focused, Netflix Transitions to TV Shows

  Dividing Dimon? Analyst Offers Case for a JPMorgan Split

  Cullen Roche: Understanding the Modern Monetary System

  Stone Street: Why I’m Not Looking for a Weak NFP Number

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• Warren Buffett’s 2011 Shareholder Letter
  Eddy Elfenbein, February 27th, 2012 at 2:01 pm

  Warren Buffet just released his latest shareholder letter. It’s always an interesting read. I also like how Buffett is frank about his mistakes. Here’s a good sample:

  Last year, I told you that “a housing recovery will probably begin within a year or so.” I was dead wrong. We have five businesses whose results are significantly influenced by housing activity. The connection is direct at Clayton Homes, which is the largest producer of homes in the country, accounting for about 7% of those constructed during 2011.

  Additionally, Acme Brick, Shaw (carpet), Johns Manville (insulation) and MiTek (building products, primarily connector plates used in roofing) are all materially affected by construction activity. In aggregate, our five housing-related companies had pre-tax profits of $513 million in 2011. That’s similar to 2010 but down from $1.8 billion in 2006.

  Housing will come back – you can be sure of that. Over time, the number of housing units necessarily matches the number of households (after allowing for a normal level of vacancies). For a period of years prior to 2008, however, America added more housing units than households. Inevitably, we ended up with far too many units and the bubble popped with a violence that shook the entire economy. That created still another problem for housing: Early in a recession, household formations slow, and in 2009 the decrease was dramatic.

  That devastating supply/demand equation is now reversed: Every day we are creating more households than housing units. People may postpone hitching up during uncertain times, but eventually hormones take over. And while “doubling-up” may be the initial reaction of some during a recession, living with in-laws can quickly lose its allure.

  At our current annual pace of 600,000 housing starts – considerably less than the number of new households being formed – buyers and renters are sopping up what’s left of the old oversupply. (This process will run its course at different rates around the country; the supply-demand situation varies widely by locale.) While this healing takes place, however, our housing-related companies sputter, employing only 43,315 people compared to 58,769 in 2006. This hugely important sector of the economy, which includes not only construction but everything that feeds off of it, remains in a depression of its own. I believe this is the major reason a recovery in employment has so severely lagged the steady and substantial comeback we have seen in almost all other sectors of our economy.

  Wise monetary and fiscal policies play an important role in tempering recessions, but these tools don’t create households nor eliminate excess housing units. Fortunately, demographics and our market system will restore the needed balance – probably before long. When that day comes, we will again build one million or more residential units annually. I believe pundits will be surprised at how far unemployment drops once that happens. They will then reawake to what has been true since 1776: America’s best days lie ahead.

• Greed Is No Longer Good
  Eddy Elfenbein, February 27th, 2012 at 1:38 pm

• Mike Mayo: JPM Worth More If Split Up
  Eddy Elfenbein, February 27th, 2012 at 12:47 pm

  From Bloomberg:

  JPMorgan Chase & Co. (JPM), the largest U.S. bank by assets, should consider breaking up and selling businesses because its parts are worth one-third more than its market value, according to Mike Mayo, an analyst at CLSA Ltd.

  While JPMorgan’s stock has outperformed its peers, the New York-based company has trailed the leading firms in its individual businesses, Mayo wrote in a note e-mailed today. JPMorgan executives must make the case at tomorrow’s investor conference for why the firm shouldn’t be broken up, he wrote.

  “At what point does the conglomerate discount become so great that it encourages the company to take action?” Mayo wrote. “The stock seems undervalued, but the question is how and when this value gets realized?”

  Wall Street expects the bank to earn $4.66 per share which means it’s going for 8.2 times earnings. Warren Buffett owns JPM on his personal account.

• Declining Q1 Earnings Estimates
  Eddy Elfenbein, February 27th, 2012 at 12:23 pm

  This chart comes courtesy of Standard & Poor’s. It shows Wall Street’s evolving estimate for Q1 earnings.

  

  In late-July, Wall Street was expecting Q1 earnings of $26.43. That’s now down to $23.86. That would be an increase of just 5.76% from the first quarter of 2011.

  The almost-final numbers for Q4 show earnings of $23.76 which is an increase of 8.34% over Q4 from 2010. Q4 earnings were 6.05% below those from Q3.

• Half a Trillion Watch
  Eddy Elfenbein, February 27th, 2012 at 11:50 am

  I’m officially putting shares of Apple ($AAPL) on my “Half a Trillion Watch.” By my math, once the stock gets to $536.27 per share, the market value will be $500 billion. We’re getting pretty close; shares of Apple have been as high as $524.74 today.

• Harris Corp Raises Dividend 18%
  Eddy Elfenbein, February 27th, 2012 at 10:22 am

  Good news from Harris Corp. ($HRS). The company raised its quarterly dividend from 28 cents per share to 33 cents per share. The company also said that it’s raising its payout ratio target from 20% to 25%.

  The annual dividend rate is $1.32 per share. Going by Friday’s close, the stock now yields 3.09%. Using the company’s target rate of 25%, $1.32 per share implies total earnings of $5.33. Wall Street currently expects Harris to earn $5.35 per share for the fiscal year ending in June 2013. The stock is currently going for eight times that.

• S&P 500 Closes at 44-Month High
  Eddy Elfenbein, February 27th, 2012 at 10:17 am

  I wanted to mention this before but Friday’s close made it official: The S&P 500 closed at 1,365.74 which is its highest close since June 5, 2008.

  

• Morning News: February 27, 2012
  Eddy Elfenbein, February 27th, 2012 at 5:41 am

  Germany Crisis Role in Focus After G-20 Rebuff

  Europe Gets Ready for Round 2 of Bank Loans

  Emerging Economies to Challenge U.S. Hold on World Bank

  China Money Rate Drops to 2-Week Low as Reserve Cut Takes Effect

  Audi-Led Global Carmakers May Be Shut Out of China’s Fleet

  Yen Hits 9-month Low Vs. Dollar, Euro Holds Firm

  HSBC Says on Path to Meet Profit Goal in 2013

  Nokia Offers Cheaper Windows Phone to Battle Android

  Apple’s Lead in Smartphones Is Not Guaranteed

  Maersk Profits Drop, Sees Weaker 2012

  Ahold to Buy Online Retailer Bol.com for 350 Million Euros

  Elpida Files for Protection in Biggest Japanese Bankruptcy for Two Years

  A Buffett Heir, but Who?

  BP Said to Consider $14 Billion Spill Settlement

  Epicurean Dealmaker: Cogito, Ergo Whom?

  James Altucher: Ten Lessons I Learned from Shark Tank

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