Archive for June, 2012

  • RIP: Count Robert de La Rochefoucauld
    , June 30th, 2012 at 11:58 pm

    This is one amazing life:

    Count Robert de La Rochefoucauld, who has died aged 88, escaped from Occupied France to join the Special Operations Executive (SOE); parachuted back on sabotage missions, he twice faced execution, only to escape on both occasions, once dressed as a Nazi guard.

    Other disguises also came in useful. On the run in occupied Bordeaux he dressed as a nun. In later life he helped Maurice Papon to flee to Switzerland.

    Robert Jean-Marie de La Rochefoucauld was born in Paris on September 16 1923, one of 10 children of an aristocratic family which lived in old-fashioned splendour on Avenue de la Bourdonnais, in the shadow of the Eiffel Tower. An ancestor was François de La Rochefoucauld, famous for his maxims. Robert’s mother (née Wendel) was daughter of the Duke of Maillé. His father’s family retained a private carriage which was hitched on to trains during rail journeys.

    Read the whole thing.

  • “The Worst Deal in the History of American Finance”
    , June 29th, 2012 at 2:13 pm

    I love this quote from a WSJ article on Bank of America ($BAC):

    Bank of America Corp. thought it had a bargain four years ago when it paid $2.5 billion for tottering mortgage lender Countrywide Financial Corp. But the ill-fated decision has already cost the Charlotte, N.C., lender more than $40 billion in real-estate losses, legal expenses and settlements with state and federal agencies, according to people close to the bank.

    “It is the worst deal in the history of American finance,” said Tony Plath, a banking and finance professor at the University of North Carolina at Charlotte. “Hands down.”

    The acquisition of Countrywide, which was completed almost exactly four years ago, turned Bank of America into a huge mortgage lender just as the U.S. housing market collapsed.

  • BBBY Completes Cost Plus Deal
    , June 29th, 2012 at 9:14 am

    Bed Bath & Beyond ($BBBY) just announced that they completed the Cost Plus deal. Now that the deal is done, the company said that it will subtract “several cents” off the Q2 guidance of 97 cents to $1.03 per share. BBBY also said the deal will be “slightly accretive” to earnings for the second half of the year. They reiterated their full-year guidance for earnings growth in a range of “high single to a low double digit percentage.”

  • CWS Market Review – June 29, 2012
    , June 29th, 2012 at 6:52 am

    The stock market got a surprise on Thursday when the Supreme Court ruled that President Obama’s healthcare reform was constitutional. I’m neither a legal scholar nor a political pundit, so I’ll skip any discussion of the wisdom of SCOTUS’ action.

    I will, however, briefly discuss what this decision means for investors. The short answer is that it doesn’t mean terribly much. Shortly after the decision became public, the Dow got an 80-point haircut. Of course, traders are by nature fear-based mammals, so nearly anything unexpected can cause a sell-off. At one point, the Dow was off by 176 points. Late in the day, however, the market regrouped and rallied to close down by just 24 points. So even the market doesn’t seem have strong convictions about this news.

    What the Healthcare Decision Means for Investors

    It’s a tricky game trying to measure the long-term market impact of any legislation, particularly highly complicated legislation like the Patient Protection and Affordable Care Act which runs 906 pages long. Bear in mind that ever since the Senate passed the bill on Christmas Eve 2009 (the upper chamber was considered the tougher battle), the Dow has gained 2,000 points. Of course, I’m not saying that healthcare reform caused the rally, but it didn’t prove to kill it either. Also, most of the mandates don’t start until 2014, and there’s still a lot of politics to play between now and then, particularly an election which is just four months away. There are just too many variables in play to make a definitive statement.

    Going into Thursday, investors had clearly been a bit nervous about healthcare stocks. As a result, there are a lot of good values in this sector, particularly the four healthcare stocks on our Buy List: Johnson & Johnson ($JNJ), Medtronic ($MDT), Stryker ($SYK) and CR Bard ($BCR). I’m still amazed that JNJ yields more than 3.6%, which factors in the company’s recent dividend increase (its 50th in a row). BCR has done so well that it just broke out to an 11-month high. I’m raising my buy price to $106 per share. I should add that one impact of the SCOTUS decision is that the 2.3% excise tax on domestic sales of medical device companies like Medtronic and Stryker will be in place for next year. Of course, Congress can always alter that provision.

    I think it’s interesting that many hospital stocks did very well on Thursday. In February, I tweeted that Community Health Systems ($CYH) looked “very attractive” at $20. After the decision came out on Thursday, CYH jumped more than 8% to close at $27.54 per share. That’s a 38% gain in less than five months.

    The bottom line about the healthcare ruling is this: Don’t expect to see many companies drop coverage for their employees. Some will certainly rework their plans. The law will impact companies with employee counts near 50, since that’s the line where the $2,000 per employee penalty kicks in. However, very few of those companies are publicly traded. The overwhelming driver of stocks isn’t healthcare; it’s earnings.

    Breaking Down Second-Quarter Earnings Season

    Since early May, the S&P 500 has spent much of its time between its 50-day moving average at the upper end and its 200-DMA at the lower end. This trend can’t last much longer because these two lines are closing in on each other. I think it’s a good sign that the index has so far been unable to convincingly break below its 200-DMA. The next major hurdle will be the second-quarter earnings season.

    The numbers continue to be very much in favor of stocks right now. Consider that the U.S. Treasury just auctioned off seven-year notes at an all-time record low yield. The cash held at companies in the S&P 500 totals $1 trillion. Bloomberg notes that the S&P 500 is currently trading at 12.5 times earnings compared with its 50-year average of 15. If the S&P 500 were to trade at 15 times its earnings estimate for next year, the index would be at 1,772. That’s a 33% jump from here.

    Friday marks the last trading day of the first half of 2012. In a few days, second-quarter earnings season will start. Over the past few weeks, Wall Street has pared back its estimate for Q2 earnings. More than three times as many stocks have offered disappointing guidance as have offered guidance above expectations.

    Only a few weeks ago, analysts were expecting a modest increase in earnings. Now the Street sees earnings for the S&P 500 falling by 1.1% for the second quarter. If analysts are right, this would be the first earnings decline since the third quarter of 2009. My take is that many firms are trying to lowball the public so they can impress investors later on with earnings surprises.

    Certainly, Europe is to blame for much of this sluggishness. In fact, Ford ($F) just said that it expects to see a loss of $570 million from its overseas business. That’s about triple the loss from Q1. What makes this interesting is that Ford says that it’s still doing well in North America; plus Ford Credit, the auto financing business, is going strong. Incidentally, that’s probably a good omen for Nicholas Financial ($NICK).

    When looking at stocks, I’m not so concerned if a company isn’t doing well due to macroeconomic issues such as Ford is having Europe. Those problems come and go. What’s far more important is that the factors related to the firm’s efficiency are doing well, and Ford’s results in North America indicate that that remains to be the case.

    A good example of the opposite is what happened to Procter & Gamble ($PG). The company lowered its earnings forecast for the second time. The first time P&G did it, they listed several reasons why. Analysts on the conference call were puzzled because those issues didn’t seem to be affecting their competitors nearly as much. That’s when it’s time to be concerned about a stock.

    JPMorgan Is a Good Buy Below $38

    JPMorgan Chase ($JPM) will probably be our first Buy List stock to report Q2 earnings. This will be the first time we’ll see the impact of the massive London trading losses. On the conference call in May, Jamie Dimon said that the losses totaled $2 billion and could be another $1 billion more.

    This is a tricky situation for JPM because they need to make the issue public but not so public that they give incorrect information or tip their hand to traders who will work hard to crush the bank’s efforts to unwind the trade. That’s probably been going on for some time.

    On Thursday, the New York Times reported that the losses could be as much as $9 billion. To quote the NYT, this info was “according to people who have been briefed on the situation.” This may sound counter-intuitive but I think this news may help the stock in the near-term because now the loss has a floor. Anything that’s less than $9 billion will look like good news. Interestingly, Wall Street’s estimate for JPM’s Q3 earnings has come down, but it is still at $1.05 per share which is a very good number.

    I’m still astounded by the stupidity of this trading loss. Mark Williams, a BU finance professor, said, “Essentially, JPMorgan has been operating a hedge fund with federal insured deposits within a bank.” As maddening as this episode has been I still think JPM is a good value, and even Goldman Sachs added the stock to their conviction list. I rate JPM a good buy anytime the stock is below $38 per share.

    That’s all for now. Next week is vacation time for me so there won’t be an issue of CWS Market Review. I’m off to Newport for July 4th and some sailing. I hope everyone has a happy Fourth. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy

  • Morning News: June 29, 2012
    , June 29th, 2012 at 6:05 am

    EU Leaders Ease Debt-Crisis Rules on Spain

    European Leaders Agree to Use Bailout Fund to Aid Banks

    Japan’s Industrial Output Falls Most Since 2011 Quake

    Xi Jinping Millionaire Relations Reveal Fortunes of Elite

    Yuan Has Worst Quarter Since Peg Ends as Europe Hurts Growth

    In Health Care Ruling, Investors See a Mixed Blessing

    AB InBev Buys Out Corona Maker Modelo for $20 Billion

    Slim Wins in Europe as KPN Stake Reaches His Goal of 28%

    Ford Says Operating Profit Substantially Lower in Quarter

    Jpmorgan Likely To Post $4 Billion To $6 Billion Trade Loss

    UTC Helped Build China’s First Military Attack Copter

    In Setback, RIM Delays BlackBerry’s Next Version

    Credit Suisse Upbeat on Profits

    RBS Set For Fine as Barclays Boss Remains Defiant

    Joshua Brown: Jason Zweig on the Near-Death of Equities

    Phil Pearlman: The Smart Money Is Dead. Long Live The Smart Money!

    Be sure to follow me on Twitter.

  • Nike Bombs
    , June 28th, 2012 at 4:24 pm

    In May, I listed 13 “stocks to avoid.” One of the stocks I listed was Nike ($NKE). At the time, Nike was at $108.26 per share.

    The stock closed today at $96.89. Shortly after today’s close, Nike reported earnings of $1.17 per share which was 20 cents below Wall Street’s expectations.

    The stock is down to $88.50 after hours.

  • Healthcare Reform is Upheld: What It Means for Stocks
    , June 28th, 2012 at 12:20 pm

    President Obama’s healthcare reform was upheld today by the Supremes. So what does it mean for investors? The good news is, not too much, at least for now. The Dow instantly fell 100 points, but honestly, that’s just nervous traders who’d get scared of their own shadows.

    Bear in mind that since the Senate originally passed the bill on Christmas Eve in 2009, the Dow has gained 2,000 points. Of course, I’m not saying that it caused the rally, but it didn’t prove to kill it either. Also, most of the mandates don’t start until 2014, and there will be a lot of politics between now and then.

    The bottom line: Don’t expect to see many companies drop coverage for their employees. Some will certainly rework their plans. The law will impact companies with employee counts near 50 since that’s the line where the $2,000 per employee penalty kicks in. However, very few of those are publicly traded.

  • Morning News: June 28, 2012
    , June 28th, 2012 at 7:11 am

    European Leaders Seek to Overcome Divisions at Summit

    European Bank Union ‘Premature’

    German June Unemployment Rises as Crisis Starts to Bite

    Shenzhen’s ‘Mini-Hong Kong’ To Test China’s Financial Ambitions

    BG Group Completes Karachaganak Agreement With Kazakh Government

    After Years of False Hopes, Signs of a Turn in Housing

    Consumer Bureau Issues Warning on Reverse Mortgages

    Crowdfunding Rules: Hurry Up and Wait

    Not All of Wall Street “Friending” Facebook

    JPMorgan Trading Loss May Reach $9 Billion

    Google Tries Something Retro: Made in the U.S.A.

    New York Times to Publish Chinese-Language Version Online

    IVP Raises $1 Billion Venture Fund

    Howard Lindzon: The Stock Market in 2012 – Hackers and Chasers

    Credit Writedowns: Germany is a First-Class Passenger on the Euro Titanic

    Be sure to follow me on Twitter.

  • Gold: The Anti-Currency
    , June 27th, 2012 at 2:06 pm

  • The July 4th Rally
    , June 27th, 2012 at 10:08 am

    Stock investors are familiar with the Santa Claus Rally, and the historical data backs it up. However, there’s another less-known rally that happens around the middle of the year.

    From June 29th to July 6th, the Dow has averaged a 1.31% gain. That may sound small but bear in mind that it’s roughly one-sixth of the Dow’s average annual gain, and it’s come in just one week.

    The July 4th Rally is the first leg of a larger historical summer rally that extends from June 29th to September 6th. Over that time, the Dow has gained an average of 4.07%.  That’s more than half the Dow’s annual gain coming in just over two months.

    By the way, these numbers are based on the Dow’s entire history from 1896 to last November (that’s when I ran the study).