Archive for December, 2013

• 2013: The Year the Fear Bubble Popped
  Eddy Elfenbein, December 26th, 2013 at 11:25 am

  Lately, many investors have been tripping over themselves in an attempt to call the current stock market “a bubble.” Me, I’m in the doubter camp. But what’s interesting is that this question misses a much larger point — we’ve been watching a bubble pop all year. The bubble was in fear.

  Here are a few charts that illustrate this point. Check out the return of the S&P 500 compared with the Long-Term Bond ETF (TLT):

  

  Volatility has also dropped. The S&P 500 had only three days all year of moves greater than 2%. Here’s the Volatility Index (VIX) going back three years:

  

  Check out gold, everyone’s favorite Doomsday investment, which has been falling like..well, a rock. This will be gold’s first losing year since 2000:

  

  Even within stocks, safe-haven sectors like utilities lagged the market:

  

  Meanwhile, small-cap stocks have been living large:

  

  And within bonds, the safety premium between risky and non-risky has narrowed dramatically:

  

  Whoa! Long-term TIPs yields are finally positive:

  

• Morning News: December 26, 2013
  Eddy Elfenbein, December 26th, 2013 at 7:15 am

  Japan’s Stock Rally Might Not Be Over

  China Forecasts 7.6% Economic Growth in 2013

  Alibaba Unit to Offer Telecom Services in China

  Erdogan Resignation Call Chokes Lira Prop-Up Plan

  Gold Steady at $1,200, Set for Worst Annual Loss in 32 Years

  U.S. Goods Orders, New-Home Sales Point to Growth

  US Mortgage Applications Fall as Refinance Hits 5-year Low -MBA

  Target Hackers Stole Encrypted Bank PINs, According to Source

  Tribune Plans to Buy Gracenote from Sony for $170 Million

  American Express Fined $75 Million for ‘Illegal’ Credit-card Practices

  Santa’s Sleigh Delayed After Snags at UPS, FedEx

  BlackBerry Co-Founder Mike Lazaridis Cuts Stake

  Japan’s Mizuho Chairman to Step Down Over Mob Loans Scandal

  Howard Lindzon: Stocks Crash Every Day, Markets Rarely Do…and Warnings are Dumb.

  Roger Nusbaum: The We’re Saving Too Much Is Spreading Like Wildfire

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• Merry Everything!
  Eddy Elfenbein, December 25th, 2013 at 8:13 am

  

  I want to take this opportunity to wish everyone a Merry Christmas and a happy, healthy and profitable new year.

  This has been a great year for Crossing Wall Street. The Buy List is finishing up another market-beating year. Traffic to the blog continues to be strong, and the newsletter, CWS Market Review, has a record number of subscribers.

  I want to thank Marcia Hippen for editing my posts and repairing my numerous typos. I also want to acknowledge my fellow financial bloggers Barry Ritholtz, Josh Brown, Joe Weisenthal, Tadas Viskanta and many, many others for their continued support. I’d also like to thank the people who follow and interact with me each day on Twitter. I now have over 13,000 Twitter followers. Watch out, Bieber!

  Most of all, I want to thank all of my readers for your continued support.

  Let’s hope 2014 brings us more success!

• Morning News: December 24, 2013
  Eddy Elfenbein, December 24th, 2013 at 7:06 am

  Fidelity to Amundi Seek Euro Shelter as Treasuries Loss Deepens

  China Money Rate Tumbles Most Since 2011 as PBOC Injects Cash

  Japan’s Nikkei 225 Extends Six-Year High on U.S. Data

  Budget Resolves Some U.S. Fiscal Woes With Spending Fights Ahead

  Brent Crude Futures Rise on Escalating Violence in South Sudan

  Consumer Spending Gains Lift Fourth-Quarter Growth

  U.S. Store Traffic Sinks 21% as Last-Ditch Deals Flop

  American Bankers Association Threatens Lawsuit Over Volcker Rule

  Jos. A. Bank Rejects Men’s Wearhouse Takeover Offer

  Twitter’s Jack Dorsey to Join Walt Disney’s Board

  Seagate Technology to Acquire Xyratex Ltd.

  Carlyle Near Deal to Buy J&J Diagnostics Unit

  Stock Market Resolutinos for 2014

  Credit Writedowns: Growth Rates in Consumer Income and Spending Have Diverged

  Jeff Carter: Are You Building a Pyramid?

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• The Buyback Rally
  Eddy Elfenbein, December 23rd, 2013 at 11:14 am

  S&P just ran the numbers and found that share buybacks hit $128.2 billion. That’s up 23.6% over last year’s Q3. In the last 12 months, the S&P 500 has shelled out $445.3 billion to repurchase its own stock.

  “Companies have significantly increased their shareholders’ returns through higher buybacks and regular cash dividends. These two expenditures combined, reached $207 billion in the quarter — the highest level since the fourth quarter of 2007 and almost three times the $71.8 billion level we saw in the Q2 2009 bear market,” notes Silverblatt. “Of the 394 issues which reported buybacks over the past year, 331 companies paid a cash dividend, with the buyback portion growing faster than dividends.”

  Buyback programs have significantly increased over the last year, notes Silverblatt. “Just keeping up with the current bull market means that companies have to pay 25% more for the same number of shares they repurchased last year. However, we are starting to see excess buying, where the repurchases outnumber the issuance, and therefore reduce the share count. The lower share count leads to higher EPS, and the market likes higher EPS,” adds Silverblatt.

  The data also shows that 263 issues reduced and 188 increased their diluted share count in Q3, compared to 225 decreases and 242 increases in Q2. Significant changes (generally considered 1% or greater for the quarter) favored reductions, as 106 issues reduced their count by at least 1% and 28 issues increased them by at least 1%.”

  With low interest rates and decent valuations, it’s been a no-brainer for companies to buy back shares. By extension, the lower share count increases earnings-per-share even though it doesn’t affect operating income.

  

• The S&P 500 Is Up 400 Points This Year
  Eddy Elfenbein, December 23rd, 2013 at 10:52 am

  The S&P 500 is rising again today. The index is now up 400 points for the year. The Dow Jones needs to get another 1% before it will be up an amazing 10,000 points in this bull market.

  Don’t expect to see a lot of action this week on Wall Street. People are focused on the holidays. This is the first day of the historic Santa Claus Rally. The Dow has historically gained an average of 3.23% between December 22 and January 6. That’s 41% of its average yearly gain coming in just 5% of the year.

  The government reported that personal income rose 0.2% last month, while personal spending rose 0.5%. This probably hints that Q4 was another good quarter for the consumer side of GDP.

  Our financial stocks are doing well today. Both JPMorgan Chase (JPM) and Wells Fargo (WFC) touched fresh 52-week highs. Fiserv (FISV) came within two pennies of matching its high. We also have new highs from Harris (HRS) and Cognizant Technology (CTSH).

• Morning News: December 23, 2013
  Eddy Elfenbein, December 23rd, 2013 at 6:56 am

  China Cash Squeeze Persists Even After Central Bank Reassures Market

  In Banking Reform, Europe Zig-Zags But Still Moves Forward

  Dividends May Be Hit as APRA Changes Capital Rules for ‘Too Big to Fail’ Banks

  Russia Crisis Haunts Deutsche Bank’s Smith Seeing China Bust

  Carney Meddles in British Love Affair With Housing

  Libertarians And Millennials Are Going Crazy Over Bitcoin: What Are They?

  Economists See Little Cheer in Falling Joblessness

  Why the U.S. Leaves Its Credit-Card System Vulnerable to Fraud

  China Mobile to Sell iPhones on Jan. 17

  Oracle to Buy Responsys for $1.39 Billion

  Hyundai, Kia Expect To Beat 2013 Sales Goal; On Track To Sell More Than 7.5 Million Vehicles Globally

  BlackBerry’s CEO Writes Letter to Employees

  Swatch Wins $449 Million Award From Tiffany

  Howard Lindzon: The Perp Walk and Witch Hunts…We Need Better Aim!

  Jeff Miller: Weighing the Week Ahead: Lessons From 2013

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• Looking at this Year’s Changes
  Eddy Elfenbein, December 22nd, 2013 at 5:43 pm

  Now that I’ve given out the changes for next year’s Buy List, let’s look at how the changes for this year have worked out.

  The new stocks I added for 2013 were Cognizant Technology Solutions ($CTSH), FactSet Research Systems ($FDS), Microsoft ($MSFT), Ross Stores ($ROST) and Wells Fargo ($WFC).

  The five I deleted were Hudson City Bancorp ($HCBK), Johnson & Johnson ($JNJ), JoS. A Bank Clothiers ($JOSB), Reynolds American ($RAI) and Sysco ($SYY).

  Here’s how the new stocks have done compared with the S&P 500 (black line):

  

  Four of the five are beating the market. Only FactSet, with its recent drop, trails the market. The top new stock is Microsoft with a 37.8% YTD gain. Second is Ross Stores at 36.9%. Next is Cognizant at 32.9%. Fourth is Wells Fargo at 31.5%, and FDS is last at 24.3%.

  Only two of our five deletions beat the market:

  

  The top-performing deletion is JoS. A Bank with a 33.9% YTD gain, followed by Johnson & Johnson at 31.4%. In third is Reynolds American at 17.7%, then Sysco at 15.1%. In last place is Hudson City with a 13.1% gain. Hudson was supposed to merge with M&T Bank, but the deal has been delayed all year. The deal may take 28 months to complete.

  Here are the combined new buys, deletions and S&P 500 this year.

  

• Arden Group Bought Out
  Eddy Elfenbein, December 22nd, 2013 at 1:43 am

  On Friday, the news came out that Arden Group ($ARDNA) will be bought out by TPG for $126.50 per share. Arden owns a few Gelson’s supermarkets in Southern California.

  The reason why this is interesting is that Arden has been one of the most successful — and least known — micro-cap stocks around. The company has just three million outstanding shares. The only split I see is a 4-for-1 split in 1998. Arden almost never makes the news.

  But check out this long-term record. Since 1978, shares of ARDNA are up 29,317% compared with 1,812% for the S&P 500. That’s amazing; it’s an annualized gain of 17.6% per year and it would have turned an investment of $34,000 into $10 million. It’s even more impressive when you consider that ARDNA hasn’t been a strong performer over the past five years or so.

  No one on Wall Street follows ARDNA, and no one talks about them. But Arden has been a huge winner in a dull business. The stock usually trades less than 10,000 shares per share, and it’s not uncommon for daily volume to fall below 1,000 shares. Novice investors often assume that a good investment must be some company that’s trying to invent the 12th dimension. Not at all. There are lots of small, boring businesses that are hugely profitable. But being up 300-fold in 35 years is truly rare. Congratulations to Arden on their buyout.

• The Wolf Of Bedford Falls
  Eddy Elfenbein, December 20th, 2013 at 6:06 pm