Archive for November, 2013

• Equity Returns and TIP Yields
  Eddy Elfenbein, November 20th, 2013 at 10:24 am

  Here’s a look at the relationship between equity returns and the yield on 5-year Treasury Inflation Protected securities. The 5-year TIPs yield is the y-axis and the monthly gain/loss of the S&P 500 is the x-axis.

  I haven’t run a regression but by eye-balling the chart, there seems to be a weak negative correlation. In other words, the dots kinda form a downward sloping trend. This makes sense — the lower the real yield you get in fixed income, the greater the desire for alternatives.

  

  Earlier this year, the 5-year TIPs yield shot up from around -1.4%, where it had been for a few months, to -0.2% in just a few weeks. Later, it broke into positive territory for a brief shining moment. Currently, the yield is hanging out around -0.47%.

• Morning News: November 20, 2013
  Eddy Elfenbein, November 20th, 2013 at 6:58 am

  BOE Sees Case for Keeping Record-Low Rate Beyond 7% Jobless

  FX Dealers Said to Use Day Traders to Make Personal Bets

  As Myanmar Modernizes, Old Trades Are Outpaced By New Competitors

  Citing Fed’s Efforts, Bernanke Says U.S. Economy Is Growing Stronger

  Yahoo Boosts Share Buyback by $5 Billion

  GlaxoSmithKline to Divest $740 Million Stake in South Africa’s Aspen

  Roark Capital Group to Acquire CKE Restaurants from Apollo Global Management

  Nissan Unfazed by EV Delays, Dismisses Rivals’ Fuel Cell Targets

  Nokia Investors Approve Phone Unit’s Sale to Microsoft

  Lowe’s Raises Outlook As Housing Rebound Boosts Sales

  Staples Quarterly Sales Fall 4%

  In Extracting Deal From JPMorgan, U.S. Aimed for Bottom Line

  JPMorgan’s Mortgage Confessions Don’t Include O.J. Simpson

  Jeff Miller: Four Costly Ideas

  Cullen Roche: Jeremy Grantham – The Market Bubble Isn’t Here Yet But It’s Coming

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• Newsletter Feedback
  Eddy Elfenbein, November 19th, 2013 at 7:43 pm

  CWS Market Review just celebrated its third birthday and I’d like to ask you for feedback. Tell me what you like about it, and what you don’t like. Is it too short? Too long? Too in-depth or not deep enough? Should it come more often or on different days of the week? Let me know! I want to hear from you.

  Just send me an email with “Feedback” in the subject line. Also, don’t be shy in saying that it’s fine as is. That’s important feedback as well.

• Lower Oil Helps Retail
  Eddy Elfenbein, November 19th, 2013 at 12:33 pm

  One of my goals with this blog is to help people think properly about investing. For example, I often caution against folks looking to predict the next big bubble.

  The following is a good example of how people ought to approach investment analysis. Over the last two years, oil stocks (black line) have not done very well relative to the broader market. At the same time, the retail sector (blue line) has done quite well.

  These two events are related. Lower prices at the pump act like an immediate tax cut for consumers. What do they do with that money? They spend it. Of course, there would be times when consumers simply sit on that cash. Please note that we’re talking about relative performance. Where retail leads the market is exactly where oil falls short.

  Check out this chart:

  

• Medtronic Earns 91 Cents per Share
  Eddy Elfenbein, November 19th, 2013 at 9:16 am

  Medtronic’s ($MDT) second-quarter earnings are out and the company earned 91 cents per share. That’s one penny better than estimates. This was a solid quarter for MDT; quarterly revenue was up 2.4% to $4.19 billion. Medtronic’s CEO Omar Ishrak said, “Our second quarter revenue growth was in-line with our outlook for the year, and we are performing at or better than the market in almost every one of our business lines.” That’s something nice to hear from your CEO.

  The WSJ:

  Sales in the cardiac rhythm disease management segment, which includes defibrillators, pacemakers and tools for treating a common rhythm disorder rose to $1.27 billion, up 5% excluding currency fluctuations. Overall defibrillators revenue increased 4% while pacemaker sales grew 2%, excluding currency impacts.

  Medtronic’s spinal-products business posted a sales decline of 3% excluding currency impacts.

  Most importantly, Medtronic reaffirmed their full-year guidance of $3.80 to $3.85 per share. They see revenue rising by 3% to 4%. Note that MDT’s fiscal year ends in April. The shares are close to the 52-week high from last week, which was the highest price in nearly eight years. The all-time high was $62 per share from December 2000.

• Morning News: November 19, 2013
  Eddy Elfenbein, November 19th, 2013 at 6:44 am

  O.E.C.D. Forecasts Lower Growth for Euro Zone

  Wall Street Pushes Back on CFTC’s Advisory for Overseas Swaps

  Alan Greenspan: Never Saw It Coming

  Crap Works

  Fed Ponders How to Temper Tapering Without Rate Increase

  Regulators See Value in Bitcoin, and Investors Hasten to Agree

  Was Carl Icahn Right to Put a Damper on Markets?

  U.S. Poised to Announce $13 Billion JPMorgan Settlement

  BNY Mellon Says $8.5 Billion BofA Deal ‘Easy Decision’

  Dutch Firm to Spin Off Drug Making Business in $2.6 Billion Deal

  U.S. Regulator Opens Probe of Fire in Tesla Electric Cars

  Labor Panel Finds Illegal Punishments at Walmart

  Hollywood Studios Facing Upheaval at Highest Levels

  Joshua Brown: Dow Breaks 16,000, S&P Breaks 1,800, Whatever.

  Roger Nusbaum: Markets Have More Moving Parts Than That

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• Buffett Buys ExxonMobil
  Eddy Elfenbein, November 18th, 2013 at 3:57 pm

  Last week Warren Buffett revealed that he bought a cool $3.7 billion worth of ExxonMobil ($XOM). That’s about 1% of the total company. Non-professional Investors should take note that Buffett is buying a blue-chip stock which hasn’t done very well. So many investors think you should only buy stocks near their highs.

  I’ve been puzzled by XOM’s poor performance. Just a few weeks ago, I did a blog post asking “What Happened to ExxonMobil?” Since the beginning of the bull market in 2009, XOM has not only lagged the S&P 500, but it’s lagged the Energy Sector as well. I noted that if XOM had merely kept pace with the S&P 500, their market cap would be over $700 billion today.

  So is it a buy now? I’m on the fence. I think the stock is cheap but I can’t say how strong the long-term potential is. But if Buffett is doing it, then it’s probably a very smart move.

• Larry Summers at IMF Economic Forum
  Eddy Elfenbein, November 18th, 2013 at 10:55 am

  Summers can be frustrating, but he makes some great points here.

• What Happens to Stocks When Disaster Strikes?
  Eddy Elfenbein, November 18th, 2013 at 10:06 am

  This week marks the 50th anniversary of the tragic assassination of President John Fitzgerald Kennedy, followed by the shooting of his accused assassin Lee Harvey Oswald on national TV. The stock market was closed shortly after the President’s death and it remained shuttered during his funeral on Monday.

  What happened next? The market went into a “free fall,” right? Nope. On Tuesday, November 26, 1963, the Dow gained 32 points (+4.5%). Then came Thanksgiving Day, after which the market rose further on Friday, gaining an impressive 5.5% in the week after the shooting of a popular President.

  The Dow continued to rise in December (+1.75%), closing 1963 up 17%. These double-digit gains continued for the next two years, as the Dow rose 14.6% in 1964 and 10.9% in 1965. As it turned out, the economic benefits of the Kennedy-Johnson tax cuts in 1963-64 overrode the tragic events in Dallas.

  The Market’s Main Concern on Friday, November 22, 1963

  If you look at the financial press on the day the President was shot, the biggest concern on Wall Street was a Ponzi scheme in the vegetable oil market! Fifty years ago, on Tuesday, November 19, 1963, Anthony “Tino” DeAngelis and his Crude Vegetable Oil Refining Co. (CVORC) filed for bankruptcy.

  That may sound innocent enough, but CVORC turned out to be a shell corporation for speculation in vegetable oil futures. As of November 19, 1963, “Tino” owed two major brokerage firms of the day (Williston & Beane, and Ira Haupt & Co.) so much margin money that it endangered the existence of both brokerage firms. On Wednesday, November 20, the New York Stock Exchange suspended both firms from trading, which put their other 9,000 speculative trading customers at risk. Even American Express was at risk for guaranteeing the warehouse receipts for all these trades. Young investor Warren Buffett used the steep plunge in American Express ($AXP) stock to buy 5% of the company for just $20 million.

  On Friday morning, November 22, Merrill Lynch and others stepped up to rescue their broker brethren. Hours before the Dallas shooting, NYSE president G. Keith Funston was trying to avoid a crash caused by liquidation of the 20,700 customer accounts at Ira Haupt. Friday’s 24-point Dow decline was partly due to the vegetable oil crisis, exacerbated by the news from Dallas, which caused the market to close.

  This goes to show that the worst news of the day tends to make us forget what seemed important the day before. How many people know that two famous British authors – C.S. Lewis and Aldous Huxley – also died on November 22, 1963? Their obituaries were buried in the press coverage of JFK’s death.

  The Market Rose after Most Major Historical Tragedies

  Think back to some of the major political or personal tragedies of the last 75 years. In most cases, the market rose for several days after the unexpected, tragic event. Here is a list of our darkest days:

  1939: Hitler invaded Poland on September 1, 1939, launching World War II with shocking speed, reaching Warsaw within a week. September 1 was the Friday before Labor Day weekend, so how did the market fare when it re-opened? On Tuesday, September 5, 1939, the Dow rose 12.87 points (a massive +9.5% daily rise). In the first half of September 1939, the Dow rose a near-euphoric 14.6%.

  1941: After a surprise attack on Pearl Harbor, the initial market reaction was surprisingly mild. After the Sunday morning attack of December 7, 1941, the Dow declined less than 3% on Monday, December 8 (falling from Dow 115 to 112), but then the market stayed remarkably level over the next two months, dipping briefly below 100 in April, then resuming its inexorable rise during the rest of World War II.

  1962: In the week of October 22-26, 1962, the Cuban Missile Crisis brought the world to the brink of annihilation, but the stock market stayed surprisingly calm, falling less than 1% for the week, then rising strongly (+3.5%) in the two days after the threat faded. The much bigger collapse in 1962 came in the spring, when the market fell 28% after President Kennedy launched a verbal war with U.S. Steel.

  1968 brought two more tragic assassinations, on April 4 (Martin Luther King, Jr.) and June 6 (Robert F. Kennedy). King was shot on a Thursday evening, spawning riots in dozens of cities. The Dow fell less than 1% the next day. The Dow rose 2.15% on the following Monday and 4.6% for week after King’s death. After RFK’s death, the market fell just 1%, but then erased that loss in the next few trading days.

  1986: On January 28, the explosion of the space-shuttle Challenger on a sunny Tuesday morning had no impact on Wall Street. The market gained 1.2% that day, and it kept rising the next day, week and month.

  2001: The attack on America on September 11 was targeted at our financial heart, so the market fell sharply when it re-opened the following week, but it’s important to remember that America was already in the midst of a recession and a bear market when that attack happened. Still, the market reached its September 10th levels within two months, on November 9, 2001, and it kept rising into the spring of 2002.

  The lesson here is that the stock market will probably leave you plenty of room to make an orderly exit during the worst of times, but the greater investment risk you face in such traumatic times would be to sell stocks in a panic, followed by a failure to re-enter the market in time. If you assume the worst and sell all stocks after a crisis, you could miss the quick recovery as America finds strength in adversity.

  – Gary Alexander of Louis Navellier’s Market Mail.

• Morning News: November 18, 2013
  Eddy Elfenbein, November 18th, 2013 at 7:00 am

  Abu Dhabi Banks Maneuver for $137 Billion in Asia to Africa

  Spain Bank Bad Loan Ratio Climbed to 12.7% in September

  RBS Says It’s In Discussions to Sell Equity Derivatives Unit

  Thailand Cuts Economic Growth Forecast as Exports Falter

  Oil Slips Towards $108 Ahead of Iran Nuclear Talks

  Fed’s Rosengren Says Banks With Broker-Dealer Units Pose Risks

  What Yellen Didn’t Tell Congress and Why It Matters

  Presssure Builds to Finish Volcker Rule on Wall St. Oversight

  Geithner Joins Warburg in Shift to Buyouts From Bailouts

  U.S. Agencies to Say Bitcoins Offer Legitimate Benefits

  Boeing, Airbus Reel in Persian Gulf Orders

  Lloyds to Sell Asset Management Unit for $1.06 Billion

  Larry Summers Gave An Amazing Speech On The Biggest Economic Problem Of Our Time

  Jeff Miller: Weighing the Week Ahead: Can Investors Think Beyond the Bubble Machine?

  Howard Lindzon: The Year 2013 Global Markets in Review…Live Like a Rockstar, #askJPM, and the Trillion Dollar Bitcoin Industry

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