Archive for September, 2013

• Interview with the CEO of Harris Corp.
  Eddy Elfenbein, September 10th, 2013 at 11:03 am

  Katie Spence of the Motley Fool recently caught up with Bill Brown, the CEO of Harris Corp. ($HRS). Here’s part of their talk:

  He continued: “We are focusing our portfolio, maximizing cash flow, returning more capital to investors through higher dividends, and increasing investment in R&D.”

  Further, Brown’s statement regarding the focus on the portfolio isn’t just lip service. In fiscal 2011, Harris built a state-of-the-art off-site data center called the Harris Cyber Integration Center, which was supposed to be used for cloud computing. Harris had also expanded into broadcast communication services by offering hardware and software products. However, when Brown took over as CEO in November 2011, he examined Harris’ business portfolio, and he came to a conclusion: “I first took a hard look at our portfolio of businesses and decided that our prospects for success in our broadcast and cyber integrated solutions businesses were low, and we divested them.”

  In short, Brown found that the broadcast communication services didn’t align with Harris’ overall strategy and portfolio, and the profits for off-site cloud computing weren’t there — so instead of pouring more money into these ventures to try and force them to work, Harris cut the fat. His decision resulted in a better-aligned company, and additional savings.

  “By executing the restructuring actions announced in April faster than expected and expanding their scope somewhat, we generated additional savings in the quarter,” Brown said. “These actions are now expected to generate annualized cost savings of $60 million, versus the $40 million to $50 million originally anticipated.”

  Harris started off the year poorly, but has rallied strongly since the spring. Take note that good companies don’t just sit around and wait for the environment to improve. They’re always thinking about new opportunities. That’s the strength of good management.

• Morning News: September 10, 2013
  Eddy Elfenbein, September 10th, 2013 at 6:11 am

  IMF’s Lagarde: Euro Zone Still Has Far to go on Fiscal Union

  China’s August Power Output Climbs 13.4% Year-On-Year

  Banks Seen at Risk Five Years After Lehman Collapse

  Institutional Money Managers Bail on the Market

  Regulators Ask Humans How to Deal With Robot Traders

  Credit Card Use Falls; Borrowing for Cars and School Rises

  The Border Is a Back Door for U.S. Device Searches

  Koch Industries Buys Molex Incorporated In Deal Valued At $7.2 Billion

  Neiman Marcus Sold for $6 Billion to Canada Pension Plan, Ares

  Icahn Gives Up Dell Fight While Saying Offer Too Low

  Twitter Acquires MoPub for $350 Million In Order To Build A Mobile Ad Exchange

  BofA Cuts Jobs as Mortgage Slump Ensnares JPMorgan, Wells Fargo

  5 Resasons the Bond Bull Market Isn’t Over

  Credit Writedowns: Tapering, Chinese Stabilization, European Recovery, Japanese Investors

  Joshua Brown: Fate or Destiny?

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• Back Above the 50-DMA
  Eddy Elfenbein, September 9th, 2013 at 9:50 pm

  We closed higher again today. This was our fifth-straight rally. Today was the best day for the S&P 500 since August 1st. The index is now above its 50-day moving average.

  

• The Economy and the Stock Market Aren’t the Same
  Eddy Elfenbein, September 9th, 2013 at 2:40 pm

  Don’t read too much into this chart, but I think it’s interesting for investors to take note of. This is a scatterplot of the annual change in nominal GDP (horizontal) along with the annual change in the S&P 500 (vertical):

  

  Just looking at it, there’s no correlation. In fact, it almost appears to be slightly negative.

  I think there are a few important takeaways. The first is that the stock market is not the economy. They are different animals though closely related. For one, the stock market tries to anticipate the economy so it will often lead it by a few months.

  Also, the stock market is concerned with corporate profits which is only a small part of the overall economy. Over the past few years, for example, corporate profits have grown quite well, but the overall economy has not.

  You should always hold economic news, good or bad, at a slight distance when considering your investments.

  Here’s nominal GDP (blue, left) along with the S&P 500 (right, red). Both are in log scale.

  

• Cyclical-S&P 500 Ratio Hits Two-Year High
  Eddy Elfenbein, September 9th, 2013 at 11:37 am

  Cyclical leadership continues. The Morgan Stanley Cyclical Index ($CYC) divided by the S&P 500 is at another two-year high.

  

• On Track for Five Straight Up Days
  Eddy Elfenbein, September 9th, 2013 at 11:31 am

  The stock market is up again in early trading this morning. This could be our fifth-straight rally this September, but that includes a microscopic gain on Friday. The Dow crossed back over 15,000. More importantly, the S&P 500 is inching closer towards its 50-DMA which is currently 1,666.50.

  The market appears to like the very strong GDP numbers from Japan. A report on Chinese exports was also better than expected. Cyclicals are doing well again today. Energy, Industrials and Materials are leading the rally. Finance, Utilities and Healthcare are in the rear, but still up for the day.

  Once again, the issue of Syria is weighing on the market. I don’t think any action in Syria would impact the markets or economy very much, but without other news, it will take on outsized influence. The Senate will vote on a resolution later this week. On our Buy List, shares of CR Bard ($BCR) have been as high as $118.47 today which is a new 52-week high. Ford Motor ($F) is also doing well.

  The Fed, of course, meets again next Tuesday and Wednesday. The current consensus on the Street is that they’ll taper their bond purchases by $10 billion per month.

• Morning News: September 9, 2013
  Eddy Elfenbein, September 9th, 2013 at 6:17 am

  Financial Crisis: Lessons of the Rescue, A Drama in Five Acts

  Economy in China Benefits from Stronger U.S. Demand

  China’s Inflation Slows to 2.6% in August

  Now or Never for Japan Reforms

  Mexico Tax Plan Adds Sweeping New Social Programs

  Russia to Brazil Intervention Adds to U.S. Debt Distress

  Here’s What Obamacare Will Actually Cost

  Investors Are Poised to Pay $6 Billion for Neiman Marcus

  Japan’s Suntory to Buy GSK Drink Brands Lucozade and Ribena for $2.7 Billion

  Kabel Deutschland Shareholders Fear Falling Shy Of Vodafone Goal

  Worries That Microsoft Is Growing Too Tricky To Manage

  Deloitte Fined 14 Million Pounds Over MG Rover Advice

  Nomura: These 6 Companies Are Set To Make A Fortune On The 2020 Olympics

  Jeff Miller: Weighing the Week Ahead: What Does the Syrian Crisis Mean for Stocks?

  Epicurean Dealmaker: I, Fembot

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• The Most Important Economic Chart in the U.S. Right Now
  Eddy Elfenbein, September 6th, 2013 at 11:58 pm

  Healthcare price index divided by the core inflation index:

  

  The trend is still young, but after decades of outpacing inflation, healthcare costs have been acting like everybody else.

  If this holds up, it’s a game-changer.

  Very soon, year-over-over healthcare inflation may come in below core inflation. That hasn’t happened in 32 years.

  

• Pictures from Life’s Other Side
  Eddy Elfenbein, September 6th, 2013 at 5:00 pm

• August NFP = 169k, Unemployment Falls to 7.3%
  Eddy Elfenbein, September 6th, 2013 at 8:42 am

  The August jobs report is out and it showed that 169,000 jobs were created last month. The weak part is that only 152,000 jobs were created in the private sector. The number for July was revised downward from 162,000 to 104,000. That’s a big revision. June was also lowered from 188,000 to 172,000.

  The unemployment rate actually ticked down from 7.4% to 7.3%.