Archive for December, 2012

• Our Buy List YTD
  Eddy Elfenbein, December 6th, 2012 at 12:25 am

  There are now just 17 trading days left in 2012, and our Buy List holds a narrow lead over the S&P 500. Through Wednesday, our Buy List is up 12.90% for the year while the S&P 500 is up 12.06%.

  That doesn’t include dividends, which I will include in the final tally, but it’s not that much. I estimate that the S&P 500 yields around 15 to 20 basis points more than the Buy List.

  Our Buy List‘s beta for the year is running at 1.0475.

  

• December 6: A Good Day to Buy
  Eddy Elfenbein, December 5th, 2012 at 1:10 pm

  From Gary Alexander:

  On Friday, December 6, 1974, the U.S. stock market reached its lowest reading during the last 50 years, hitting 577.6 on the Dow. In the 38 years since then, the Dow is up 2,150%, or about 8.7% per year.

  On Monday, December 6, 1982, the Dow gained 24.3 points (+2.36%) in one day, rising from 1031 to 1055, capping a 36% gain in less than four months, up from a low of 777 on August 13, 1982. But the stock market, far from peaking, went on to gain another 20% in 1983 and 250% from 1982 to 1987.

  On Monday, December 6, 1994, Orange County (California) declared Chapter 9 bankruptcy, the single biggest bankruptcy filing by a U.S. municipality. The Dow fell 60 points (-1.7%) in the next two days to 3685. (P.S. Within five years, the Dow tripled and Orange County went back into the black.)

  On Friday, December 6, 1996, the Dow fell 55 points, and 140 points (-2.1%) for the week, from 6522 to 6382, mostly in reaction to Alan Greenspan’s Washington speech, in which he said that financial markets could be exhibiting “irrational exuberance.” (P.S. The Dow rose another 77% in the next three years

• Intel Borrows Money To Buy Its Own Stock
  Eddy Elfenbein, December 5th, 2012 at 12:41 pm

  The stock market had a nice reversal today. The Dow went from being down 30 points to being up 130. Shares of Apple ($AAPL) are taking a beating today. At one point, Apple was down $30 per share.

  Citigroup ($C) is also in the news. The shares are up close to 6% on the news that the bank will lay off some 11,000 employees. I’m never impressed with these bold cost-cutting announcements. A good company should always be looking for ways to cut costs. Sadly, these big announcements usually get a big ovation from Wall Street.

  This morning’s jobs report from ADP said that 118,000 jobs were created last month. The big report comes Friday from the government. Economists expect to see a gain of 93,000 jobs. Also, the ISM Services Index rose to 54.7 last month. That was better than expectations.

  I see that Intel ($INTC) is going to the bond market to raise $6 billion. What’s interesting is that Intel is going to use the proceeds to buy back shares. This makes a lot of sense. Intel’s dividend currently yields 4.6%.

  The bond offering is $3 billion in five-years at 1.35%, $1.5 billion of 10-years at 2.7%, $750 million of 20-years at 4% and $750 million of 30-years at 4.25%.

  While this makes sense for Intel, I can’t say I’m a big fan of these moves. I’d much rather see Intel stick to its business and make money that way than by trying to goose a few pennies per share by financial engineering.

• RIP: Dave Brubeck
  Eddy Elfenbein, December 5th, 2012 at 12:09 pm

  Dave Brubeck died today one day shy of his 92nd birthday.

  By the way, I love the mid-60s style in this clip. I feel like I want to stop by Sterling Cooper for a scotch.

• Morning News: December 5, 2012
  Eddy Elfenbein, December 5th, 2012 at 7:17 am

  Euro-Area Manufacturing, Services Contract for 10th Month

  As Budget Talks Continue, Markets Change Little

  Euro Crisis Feeds Corruption as Greece Slides in Rankings

  Global Shipping Industry’s Troubles Are Threat for Biggest German Banks

  In Tax Fight, G.O.P. Seeks a Position to Fall Back On

  U.S. Bank Earnings Up 6.6% on Growth in Revenue, FDIC Says

  HSBC Sells Stake in Chinese Insurer for $9.4 Billion

  Philips, LG And Others Fined 1.47 Billion Euros by EU for Cartel

  US Auto Sales Race To 5-Year High For November

  Olive Garden Parent Cuts View On Restaurant Sales Drop

  Pandora Media Blames ‘Fiscal Cliff’ For Lowered Outlook

  AT&T Seeks Freedom From Ma Bell’s Rules in Internet Era

  Ex-Trader at Rochdale Is Arrested After $1 Billion Trade in Apple

  Roger Nusbaum: Learning About Skill vs Luck

  Jeff Miller: A Bull Market in Bad Predictions

  Be sure to follow me on Twitter.

• Mega-Cap Stocks Dominate Wall Street
  Eddy Elfenbein, December 4th, 2012 at 1:02 pm

  One important point about the stock market that I think many investors don’t fully appreciate is how skewed the market is toward very large stocks. Simply put, Wall Street is comprised of a small amount of gigantic companies, and thousands of much smaller ones. The gap is dramatic.

  Bespoke Investment Group recently pointed out that the 49 largest stocks in the S&P 500 make up half its value. That’s about right in the long-term average. That’s pretty stunning once you think about it. You only need to own one-tenth of the stocks to get half the index. The other 90% make up the other half.

  According to Russell Investments, the Russell 200 represents 64% of the U.S. market while the Russell 1000 represents 92%. Even within the big boys, the largest dominate. The top 50 stocks in the Russell 3000 make up 40% of its value. To closely mimic the market an investor can own a very small number of stocks.

  According to S&P, the current S&P 100 is worth $8.84 trillion and the S&P 500 is worth $12.59 trillion. So the top 20% account for 70% of the value.

  The Wilshire 5000 Total Market Index closed yesterday at 14,781.65. That number is supposed to be an approximation of total U.S. market cap in billions. In other words, the U.S. market is roughly $14.78 trillion. Adding that on to the S&P data, it means that thousands of companies are no more than a rounding error.

  Even on our Buy List, which is pretty well diversified, the large stocks would dominate any cap weighting. Oracle ($ORCL), JPMorgan ($JPM) and Johnson & Johnson ($JNJ) would make up about two-thirds of our Buy List if it were cap-weighted. The other 17 would make up the remaining one-third. Please note that I DO NOT favor cap weighting. At the beginning of the year, I assume that each position on the Buy List is equally weighted.

  One takeaway for investors is that a big secret on Wall Street is how easy it is for someone to be a closet indexer. I can easily construct a small portfolio that closely follows the market without appearing to. A few years ago, I found that a three-stock index fund of DuPont, Disney and United Technologies had an 85.4% correlation with the daily movements of the S&P 500. If we added five more stocks (Walmart, ExxonMobil, American Express, Verizon and IBM), the daily correlation rose to 95%.

• Morning News: December 4, 2012
  Eddy Elfenbein, December 4th, 2012 at 6:58 am

  EU Debates Bank Supervisor

  Greek Bond Buyback Offer Tops Expectations

  Euro Zone Factory Prices Nearly Flatline In October

  Australia Cuts Main Interest Rate

  Chinese Companies Caught In SEC Crossfire

  World’s Richest Man Faces Clampdown in Latin America

  GOP Makes Counteroffer In Cliff Talks

  U.S. November Auto Sales Rise

  Investors’ Risky Bet on the Ghost of Freddie Past

  Banks Discover Money Management Again as Trading Declines

  Abramovich To Vote 22 Percent Stake In Norilsk

  Oracle Moves 2013 Dividends Up To Beat Possible Tax Hike

  Dish Announces Non-Recurring Dividend of $1 a Share

  Joshua Brown: A Very Bad Bet: How Wall Street Deluded Itself

  Howard Lindzon: Momentum Monday …Stock Picking is NOT a Hobby…The Stocktwits 50…Baidu has a Competitor and Adobe is Interesting?

  Be sure to follow me on Twitter.

• Oracle Accelerates Dividend
  Eddy Elfenbein, December 3rd, 2012 at 4:33 pm

  Oracle ($ORCL) is the latest company to jump on the dividend bandwagon in order to avoid taxes. The company said that it will pay out its second, third and fourth quarter dividends on December 21st (date of record on December 14th). Each dividend is six cents per share so the total payment will be 18 cents per share.

  To make this clear, Oracle’s fiscal year ends on May 31st, so the company just wrapped up its fiscal second quarter.

  This isn’t a special dividend. The December payment will be in lieu of dividends for the rest of the fiscal year.

  Oracle also announced that it will release its Q2 earnings on December 18th.

• November ISM Sinks Stocks
  Eddy Elfenbein, December 3rd, 2012 at 3:38 pm

  The stock market started this morning on a small rally, but once the ISM came in below expectations, stocks quickly turned south. For November, the ISM was 49.5. Frankly, that’s not too terrible, but it was below expectations. For October, the ISM was 51.7 and that’s what economists were expecting for last month.

  The ISM usually doesn’t hit the danger area until 44 or 45. Since 1948, the ISM has fallen between 40.0 and 49.9 a total of 43 times; only three were during recessions.

  Ford ($F) opened up strongly today on good sales news. November sales were up 6%. Sales of their F-series trucks were up 18%. That’s the highest since 2005. Shares of Ford were as high as $11.70 before the market got weak. That was a seven-month high.

  

• Scott Sumner on Asset Prices
  Eddy Elfenbein, December 3rd, 2012 at 12:46 pm

  If you’re not familiar with Scott Sumner, then I suggest you give this video a quick listen. He’s an economics professor at Bentley, and he’s gained a following as one of the creators of the market monetarists school, said to be the first school of economic thought created on the Internet. Sumner’s description of the Great Recession is rather heterodox but it seems to be gaining respectability.