Archive for March, 2013

• Morning News: March 19, 2013
  Eddy Elfenbein, March 19th, 2013 at 6:40 am

  Cyprus Banks Like Iceland’s Dwarf Economy as Clients Pay

  Cyprus Set to Reject Tax on Bank Deposits

  Benchmark JGBs Down Slightly Ahead Of Cyprus Vote, FOMC

  India Rate Cut Eclipsed by Reform Risk as Singh Loses Key Ally

  Bernanke Tightens Hold on Fed Message Against Hawks

  Homebuilder Confidence in U.S. Unexpectedly Fell in March

  Wheat Crop Seen Near Record as U.S. Drought Recedes

  U.S. Drug Costs Dropped in 2012, but Rises Loom

  Apple Seen Raising Dividend More Than 50% to $16 Billion

  Ryanair Places $15.6 Billion Order for 175 Boeing 737-800 Planes

  BMW Sees Flat 2013 Pretax Profits As Costs Rise

  The Costs Of US Wars Have Lingered For More Than 100 Years

  How to Take Social Security If You Earn a Lot More Than Your Spouse

  Jeff Miller: Weighing The Week Ahead: The Importance Of Planning And Preparation

  Phil Pearlman: Panicking About Cyprus? Here’s What To Do First…

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• The Trend in Earnings Estimates
  Eddy Elfenbein, March 18th, 2013 at 10:31 pm

  Over the past year, Wall Street has scaled back its earnings estimates for the S&P 500. What’s interesting though is that beyond Q1, which ends in two weeks, the dropping forecasts have come mostly come to an end. For Q4, in fact, estimates have started to rise. Note the large gap between Q1 and Q2 earnings estimates.

  

  These of course are just estimates and analysts don’t have a great track record, but it’s interesting to note that earnings acceleration is widely expected to begin soon. We won’t have hard evidence until the second quarter earnings season starts after July 4th.

  I’m not yet convinced that earnings will be so rosy later on this year. But if Wall Street’s forecast is correct for this year and next ($111.25 and $124.72), then I think this rally has more room to run. If the market were to trade at 14 times 2014’s estimate, which is hardly excessive, that translates to an S&P 500 of 1,746.

• 11:35 Market Update
  Eddy Elfenbein, March 18th, 2013 at 11:35 am

  So far, the big financial stocks are down the most. Morgan Stanley ($MS) is down about 4%, while Citigroup ($C) and Goldman ($GS) are both down more than 2%.

  One of the stocks I like to watch, Rackspace Hosting ($RAX), is up 6% after a blog said that IBM ($IBM) may be interested in buying them. The numbers at RAX are amazing but I’m afraid the shares are way too expensive.

  The latest news out of Cyprus is that they’re going to postpone the deposit tax debate to tomorrow. The latest is that banks will be closed there tomorrow and on Wednesday.

• Cyprus Gets Bailed In
  Eddy Elfenbein, March 18th, 2013 at 11:09 am

  The financial world was rattled this weekend by the dramatic plans out of Cyprus. All bank accounts there will be dinged in order to help bailout the banking sector. The initial plans say that accounts in excess of 100,000 euros will be subjected to a one-time tax of 9.9%. Accounts under 100,000 euros will be hit by 6.75%.

  Let me explain the background. Cyprus has become a tax haven, and a lot of Russian oligarchs have used Cyprus’ banks in order to stash their earned cash from, shall we say, unsavory activities. That’s really who the authorities are going after. As a result of Cyprus’ tax haven stand, their banking system has grown overly large so any attempt to bail them out by their government would soon become a sovereign debt crisis. From the European perspective, elections are coming up in Germany so Angela Merkel is in no mood to come to the rescue yet again. That leads us to this one-time deposit tax.

  What are the ramifications for the U.S. market? I’m inclined to say, not much. In fact, this might even help our markets because it will increase the demand for dollars and peace of mind. Treasury bonds are up today. Last night, I saw that S&P 500 futures were down by as much as 19 points. We’re down today, but only by eight points. Gold is currently up but only by $10 per ounce. That’s hardly a big move.

  Here’s the mistake I think that many investors make. They tend to draw out the chain of events beyond reason. We see this with Cypress in that people are afraid that a Rubicon has been crossed and authorities will go after any bank savings. The precedent has been set so there’s no turning back. The fear is that next there will be a bank run in Portugal. Then Spain. Then Italy. All across Europe, bank accounts will be drained.

  Slow down. Those concerns are definitely real, but it’s still very unclear how certain that risk is. I’m puzzled why the hit to smaller savers in Cyprus is so large. I would think that it should be aimed at the larger fish, and perhaps the plans will be reworked to do that. Until we know more, no one should be worried about Cyprus bringing down the U.S. stock market.

• Morning News: March 18, 2013
  Eddy Elfenbein, March 18th, 2013 at 6:27 am

  Central Banks Want Libor Replaced With Several Rates

  Asia Stocks Drop Most in Eight Months on Cyprus Bank Levy

  Cypriot Outrage Over Tax Could Derail Euro-Area Bailout

  Experts Raise Eyebrows On New Russia Central Bank Chief

  Taiwan’s Perng Says Sustained Currency Intervention Not Needed

  Moody’s Sees Defaults as PBOC Warns on Local Risks

  To Reassure Investors, Fed Stresses It Will Not End Stimulus

  Tax Credits or Spending? Labels, but in Congress, Fighting Words

  Trading Hearings Put Focus Back on JPMorgan’s Chief

  Panasonic Advances After Report It May Exit Plasma TV

  Sharp Hit By Delay In Qualcomm Investment

  Big Mac Fights Subway Shrimp in Russia Fast-Food Fracas

  SAC’s Plotkin Said to Have Been Tipped By Analyst

  Howard Lindzon: Connecting the Volatillity Dots…Art over Science?

  Joshua Brown: F*ckin’ Europe. Again.

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• Happy St. Patrick’s Day
  Eddy Elfenbein, March 17th, 2013 at 11:29 am

  I realize that makes for two Swedish Chef videos this weekend.

• The New Chef at ESPN
  Eddy Elfenbein, March 15th, 2013 at 6:45 pm

• Dow Utilities Adjusted for Inflation
  Eddy Elfenbein, March 15th, 2013 at 1:41 pm

  Yes, dividends add a lot, but the Dow Utilities Average (^DJU) really hasn’t added much over the years.

  

• DirecTV Jumps 6%
  Eddy Elfenbein, March 15th, 2013 at 10:42 am

  Here are a few quick hits this morning.

  The Dow is currently down 44 points, so we may have trouble keeping the streak going.

  DirecTV ($DTV) is up strongly this morning, about 6%, after the company said it won’t bid for Vivendi’s Brazilian division GVT. I think they dodged a bullet. The stock is at a new 52-week high.

  More good economic news today. The Federal Reserve reported that industrial production rose by 0.7% last month. Economists were expecting an increase of 0.4%. Industrial production is one of four keys to follow to see if we’re in a recession (see how well it aligns with the grey recession bars below). The other three are non-farm payrolls (which we got last Friday), real personal income excluding transfer payments and real manufacturing and trade sales.

  

  The Labor Department said that inflation rose 0.7% last month, but that was largely due to higher gasoline prices. That’s the biggest rise in more than three years. However, the core rate, which excludes food and energy, rose by just 0.2%.

  Once again, health care inflation came in below core inflation. Core inflation rose by an annualized rate of 2.11% in February while medical inflation was up just 1.85%. That may not sound like a big deal, but consider that medical costs have risen about 2% faster than core inflation, pretty consistently, for more than 40 years. For the last six months, they have behaved very much the same.

  Here’s the medical prices sub-index of the CPI divided by core inflation. The ratio looks like it a hit a brick wall a few months ago, though I’m cautious because it’s a very short time span.

  

• Mila Kunis Likes Stocks
  Eddy Elfenbein, March 15th, 2013 at 8:20 am

  The Dow’s winning streak may be in jeopardy.