Archive for January, 2013

  • Q4 GDP = -0.1%
    , January 30th, 2013 at 9:06 am

    A few moments before today’s GDP report, I tweeted that if the number is negative, Twitter would go into complete melt down mode. I was only kidding, but the GDP number was in fact negative. Well, -0.1%. And it was Rick Santelli, CNBC’s in-house scare-monger, that melted down.

    As odd as this may sound, the GDP report truly wasn’t that bad. There was a big drop off in military spending. There was also a decline in inventory build-ups which is hardly a bad thing. The numbers “under the hood” were rather decent:

    Real personal consumption expenditures increased 2.2 percent in the fourth quarter, compared with an increase of 1.6 percent in the third. Durable goods increased 13.9 percent, compared with an increase of 8.9 percent. Nondurable goods increased 0.4 percent, compared with an increase of 1.2 percent. Services increased 0.9 percent, compared with an increase of 0.6 percent.

    Real nonresidential fixed investment increased 8.4 percent in the fourth quarter, in contrast to a decrease of 1.8 percent in the third. Nonresidential structures decreased 1.1 percent; it was unchanged in the third quarter. Equipment and software increased 12.4 percent in the fourth quarter, in contrast to a decrease of 2.6 percent in the third. Real residential fixed investment increased 15.3 percent, compared with an increase of 13.5 percent.

    fredgraph01302013a

  • Morning News: January 30, 2013
    , January 30th, 2013 at 6:51 am

    Deutsche Bank Seen Missing Goldman-Led Gains on Cost Rise

    Santander’s Capital in Focus as Spain Property Purge Ends

    Japan Has Changed The Game, And Now There Really Could Be A Currency War

    Consumer Confidence in U.S. Falls to Lowest Level Since 2011

    New York Fed Study That Just Came Out Makes Yesterday’s Collapse In Consumer Confidence Even More Scary

    TARP Watchdog Spars With Treasury on Ally Financial Exit

    Breuer Leaves Justice Department With Shift in Tactics

    European Cloud Over Ford

    Analysts See the Good in Amazon’s Poor Results

    UPS’s Dropped TNT Acquisition Is Formally Blocked by EU

    Roche Boosted By Robust US Sales

    LG Electronics Posts Loss After EU Fine

    Canon Sees Profit Growth on Weaker Yen

    Joshua Brown: Business Lessons From The Beatles

    Phil Pearlman: Research In Motion: The Phone’s The Thing

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  • Rotten Day for our Buy List
    , January 29th, 2013 at 4:53 pm

    I always try to upfront about the performance of our Buy List. There are a lot of sketchy characters on the Internet, so I want to be as transparant as possible. Fortunately, we’ve done well over the years so there’s been a lot of celebrating. But there are bad days, too, and today was one.

    For the day, our Buy List dropped 0.34% while the S&P 500 gained 0.51%. Ouch, that stings. The good news is that we’re still ahead of the index for the year.

    The culprits are easy to spot. Ford fell by 4.64% and Harris lost 4.39%. Our Buy List is very well-diversified so we can often shake off one stock having a bad day, but two weaklings is tough. Outside Ford and Harris, we were only modestly behind the S&P 500 today.

    What’s more important to me is that I thought both earnings reports were quite good. I like Ford a lot. While Harris’ lower guidance was troubling, the shares are still going for less than 10 times forward earnings. I expect both stocks to rebound soon.

    Today’s lesson: Not every day is a winner for us, but we’re still focused on the long-term.

  • The Market Isn’t Rallying, the Fear Premium Is Fading
    , January 29th, 2013 at 10:56 am

    The U.S. stock market isn’t rallying so much as the fear premium is slowly fading away. The net effect, of course, is the same: rising share prices. But bear in mind what’s going on under the hood; earnings estimates for 2013 are lower than they were several months ago. The Street currently expects the S&P 500 to earn about $112 this year. In April, it was close to $119.

    So why are investors willing to pay more for less? Multiples are driven by sentiment, and the widespread fear that plagued the market is melting away. Let’s look at the performance of stocks versus bonds. From mid-2011 to mid-2012, bonds (especially secure U.S. Treasury bonds) soared. Stocks are only beginning to play catch up.

    big.chart01292013

    Remember last year how everyone was watching what was happening in the Spanish or Italian bond market? Not so anymore. The guys at Bespoke note that European spreads are near 52-week lows.

    The Spanish and Italian stock markets are also rebounding after severe losses.

    big.chart01292013a

    Junk bond spreads are plummeting.

    fredgraph01292013

    As sentiment returns to normal, volatility is fading away as well.

    big.chart01292013b

    Even gold, which had been a big winner for so long, hasn’t been able to make a new high in nearly 18 months.

    fredgraph01292013a

  • Harris Beats But Lowers Full-Year Guidance
    , January 29th, 2013 at 10:26 am

    Besides Ford Motor ($F), we had another Buy List earnings report this morning. Harris Corp. ($HRS), the communications equipment company, reported earnings of $1.25 per share for the December quarter which is the company’s fiscal second quarter. The consensus on Wall Street was for earnings of $1.20 per share. Revenue dropped from $1.31 billion to $1.29 billion.

    While these results were good, the news that has me concerned is that Harris lowered its full-year guidance. Before, the company saw earnings ranging between $5.10 and $5.30 per share. Harris lowered that range by 10 cents at both ends. The company now sees earnings ranging between $5 and $5.20 per share. Harris sees revenue dropping by 2% to 4%. The previous range was flat to negative 2%. The company blamed the lower guidance on “slower government spending resulting from growing budget uncertainty.”

    Shares of Harris are currently down about 2.2% today.

  • Ford Motor Beats Earnings for Q4
    , January 29th, 2013 at 9:01 am

    Ford Motor ($F) posted strong quarterly results this morning. For Q4, the company earned 31 cents per share, which was six cents per share more than expectations. Ford earned 20 cents per share during Q4 of 2011.

    Quarterly revenue rose from $32.6 billion to $34.5 billion. Wall Street had been expecting $32.94 billion. In terms of net earnings, Ford earned $1.59 billion last quarter compared with $1.03 billion the year before. For the entire year, Ford raked in $5.66 billion on revenue of $134.3 billion.

    The equation continues to be the same: they’re doing well in North America, but not so well in Europe. During 2012, Ford lost $1.75 billion in Europe. To give you an idea of how rough that is, they only lost $27 million there in 2011. In fact, the company said today that it’s expecting to lose $2 billion in Europe this year. Previously Ford had said they expected the same loss for this year as they had last year. Pre-tax earnings in North America rose 110%.

    The New York Times described Ford’s Q4 as a “microcosm of Ford’s recent overall performance.” That’s a nice way of putting it. Alan Mulally, the head honcho, said, “We are well positioned for another strong year in 2013, as we continue our plan to serve customers in all markets around the world with a full family of vehicles.”

    As bleak as things look in Europe, I like the steps that Ford is taking there. They’re being very aggressive, and they’re way ahead of GM. Basically, Ford is doing in Europe today what they did in North America a few years ago. Namely, restructure, reorganize and streamline operations. It’s painful in the short-term as we’re seeing in Europe today. But it’s very profitable in the long-term as we can see in Ford’s North American results today.

    The stock looks to pull back a little today. Don’t be alarmed. Ford continues to do very well.

  • Morning News: January 29, 2013
    , January 29th, 2013 at 6:37 am

    In Japan, Dreamliner Woes Test Cozy Corporate Ties

    Economists React: Reserve Bank of India Cuts Key Policy Rate

    Royal Bank of Scotland Bonuses Spell Trouble For Osborne

    Monti Minister to Defend Paschi Bailout After Hidden Losses

    Iceland Wins Case On Deposit Guarantees

    Bernanke Seen Buying $1.14 Trillion in Assets in 2014

    Durable-Goods Demand Points to U.S. Factory Pickup

    The Chief of Yahoo Lifts Sales, and Spirits

    Caterpillar Chief Faults China Unit

    Philips Exits Consumer Electronics

    Little Debbie Maker to Buy Drake’s Brand, Hostess Says

    As Music Streaming Grows, Royalties Slow to a Trickle

    The Great ETF Mega-War

    Jeff Miller: Weighing the Week Ahead: Will the Average Investor Take the Plunge?

    Howard Lindzon: What Could go Wrong? …And Is Apple Still Leading The Market

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  • Ford Beating GM in Europe
    , January 28th, 2013 at 4:55 pm

    Interesting but not a surprise.

    When Ford Motor Co. (F) posts fourth- quarter results tomorrow, the numbers probably won’t look great, likely the lowest operating profit of the year. Those figures mask the optimism coming from an unlikely place: Europe.

    Using its turnaround in the U.S. as a road map, Ford is moving more briskly to recover in Europe than its competitors. While Ford will report a loss of more than $1.5 billion for the full year in Europe and has forecast a similar result for 2013, Chief Financial Officer Bob Shanks said in an interview this month during the Detroit auto show, those losses will begin to disappear in about two years.

    Ford will be about a year ahead of General Motors Co. (GM) in efforts to revamp operations in the region, said Peter Nesvold, a Jefferies Group Inc. analyst with a buy rating on the shares. Ford’s board signaled increased conviction in the company’s European restructuring plan by doubling the quarterly dividend earlier this month, he said.

    “In the case of Ford, ultimately, this is the team that without external help was able to accomplish in North America what almost nobody thought was going to be possible,” Nesvold, who is based in New York, said in a telephone interview. “The problems aren’t identical in Europe, but they are similar.”

  • The 10-Year Yield Hits 2%
    , January 28th, 2013 at 1:58 pm

    Today the market seems to be dancing around important price points. The yield on the 10-year Treasury touched 2%. Of course, that’s very low but it’s the highest yield in nine months. This is another example of investors favoring riskier assets.

    The S&P 500 is right at 1,500 on the nose. It’s moving just a few fractions above or below. According to Bloomberg, 150 companies in the S&P 500 have reported so far. Of those, 75% have beaten on earnings and 67% have beaten on sales.

    The latest numbers I have show analysts’ forecast earnings of $112.21 for the S&P 500 for this year. While the Q4 numbers for 2012 are still coming in, the Street sees full-year earnings on track for $97.51. Interestingly, Wall Street expects earnings growth to accelerate all year. Last April, the Street thought 2013 earnings would be $119.

    I see that Oracle ($ORCL) has been as high as $35.72 today. That’s the highest price since last May. Medtronic ($MDT) and WEX Inc. ($WXS) both hit new 52-week highs.

  • Going for Nine in a Row
    , January 28th, 2013 at 10:08 am

    The S&P 500 is going for its ninth-straight rally in a row, but the market is down a bit right now. JoS. A Bank ($JOSB) is having a very rough morning. The shares are down about 16%.

    On our Buy List, Bed Bath & Beyond ($BBBY) is getting clipped by 2.6% thanks to a downgrade at Goldman Sachs.

    The good economic news today was that orders for durable goods rose by 4.6% last month.

    The gains were led by a 56.4 percent increase in military aircraft orders and a 10.1 percent increase in commercial aircraft orders.

    Orders for machinery, communications equipment and primary metals such as steel also showed increases.

    Still, demand for core capital goods, a measure of business investment plans, rose just 0.2 percent. That followed two straight monthly gains of 3 percent.

    Orders for durable goods, which are expected to last at least three years, can fluctuate from month to month. For all of 2012, durable goods orders rose 4.1 percent. But demand for core capital goods fell 0.3 percent for the year.