Archive for March, 2014

  • Morning News: March 20, 2014
    , March 20th, 2014 at 6:55 am

    EU Reaches Deal on Banking Union

    Merrill’s Irish Bank Rescue Estimate EU47 Billion Off Mark

    In Hong Kong, Betting Big on Bitcoin

    Morning MoneyBeat: Janet Yellen Goes Off Script

    Yellen Assertion of No Rate Change Doubted as Yields Rise

    Speed Trader Sees Sisyphean Task in High-Frequency Crackdown

    PayPal + eBay Better Together — eBay Inc. Statement March 19, 2014

    China Telecom Profit Gains on High-Value Customers

    China’s Alibaba Invests $215 Million in Startup Tango

    Oracle Reports Gains, But Rivals Grow Faster

    Toyota is Fined $1.2 Billion for Concealing Safety Defects

    Ex-IMF Chief Strauss-Kahn-led Hedge Fund Aims to Raise $2 Billion

    Starbucks CEO: ‘I Am Concerned About Dairy’

    Jeff Miller: Using Your NCAA Bracket to Help Your Investing

    Roger Nusbaum: What If Grantham Is Right?

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  • “Six Months” Freaks Out the Market
    , March 19th, 2014 at 5:08 pm

    This was a rather odd day on Wall Street today. At 2 pm, the Fed came out with its policy statement, and it was pretty much as expected. People expected more tapering. Well, that’s what we got. People expected they’d ditch the Evans Rule. We got that, too.

    The stock market fell shortly after 2 pm, and the near-term part of the yield curve showed some weakness, particularly the 2s and 5s. The S&P 500 dropped from around 1,873 to around 1,865. So it was not a huge drop; it was probably traders selling on the news.

    One newsworthy item was the “blue dots” in the Fed’s guidance. There’s now a solid majority at the FOMC that believes that interest rates will rise next year. In fact, 10 of the 16 FOMC members think rates will be 1% or higher by the end of next year. That seems pretty hawkish, but I’d be careful not to read too much into that. The end of next year is still 21 months away. The stock market soon had second thoughts and the S&P 500 quickly came back to the high 1,860s.

    Then Janet Yellen began her press conference, her first as Fed chair, and the market quickly headed south again. Even though she spoke for an hour, she made one small comment that the market latched onto. While the Fed statement said that it would be a considerable time between the end of QE and the first rate increase, she defined that as “around six months.” Well, that kind of freaked people out.

    Let’s back up. If the Fed continues on its current tapering path, that would end QE around December of this year. Six months after that places us around June 2015. I think that’s earlier than people were expecting. In fact, this is so odd that I suspect that Yellen misspoke, and the market is making too much out of this. The S&P 500 bounced off 1,850 and rallied up to close at 1,860.77 for a loss of 0.61%.

    The utility stocks dropped the most today, which makes sense because investors like to buy utes as an interest rate play. Defensive areas like healthcare and staples were down the least.

    Let me also touch on Oracle ($ORCL). The stock was down sharply in yesterday’s after-hours session. I think it was off by more than 5%. Their guidance on the conference call wasn’t so bad. Sure enough, the stock opened at $37.80 and got as low as $37.40, but by early afternoon ORCL rallied as high as $38.96 per share. Yes, Oracle was positive by 12 cents! But due to Janet’s “six months” comment, ORCL closed lower by 29 cents or 0.75% which was basically inline with the overall market.

  • The Fed’s Updated Guidance
    , March 19th, 2014 at 2:43 pm

    Here’s the Fed’s updated guidance. They make it clear that this is not a matter of policy.

    The important part is the blue dots in figure 2. Thirteen of the 16 FOMC members see the Fed raising interest rates next year.

  • The Fed Tapers Again
    , March 19th, 2014 at 2:02 pm

    The Evans Rule is gone! Here’s the statement.

    Information received since the Federal Open Market Committee met in January indicates that growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.

    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and labor market conditions will continue to improve gradually, moving toward those the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.

    The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in April, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $25 billion per month rather than $30 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $30 billion per month rather than $35 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

    The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

    To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. (Now here comes the newsy stuff so pay attention – Eddy) In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

    When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

    With the unemployment rate nearing 6-1/2 percent, the Committee has updated its forward guidance. The change in the Committee’s guidance does not indicate any change in the Committee’s policy intentions as set forth in its recent statements.

    Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Richard W. Fisher; Sandra Pianalto; Charles I. Plosser; Jerome H. Powell; Jeremy C. Stein; and Daniel K. Tarullo.

    Voting against the action was Narayana Kocherlakota, who supported the sixth paragraph, but believed the fifth paragraph weakens the credibility of the Committee’s commitment to return inflation to the 2 percent target from below and fosters policy uncertainty that hinders economic activity.

  • Morning News: March 19, 2014
    , March 19th, 2014 at 7:20 am

    West Readies Tighter Sanctions After Russia Seals Crimea Claim

    Goldman Sachs Rules at the Bank of England

    Vietnam Ramps Up Measures to Clean Up Bad Banking Debt

    What to Watch From the Fed Meeting

    Trading Probe Breaks String of Gains for U.S. Exchange Operators

    New Alliances in Battle for Corporate Control

    Snowden Has One Very Important And Potentially Devastating Question to Answer

    J.P. Morgan Agrees to Sell Commodities Business

    Toyota and Justice Department Said to Reach $1.2 Billion Settlement in Criminal Case

    The Biggest Threat To The U.S. Auto Industry From GM’s Recalls

    BMW Sees ‘Clear Growth’ in 2014 Pretax Profit

    Oracle Quarterly Results Disappoint Wall Street; Shares Fall

    Luck Vs. Skill: What Bill Gross and Bill Miller Have in Common

    Cullen Roche: Will the Bank of England’s Report on Endogenous Money Change Anything?

    Howard Lindzon: The Era of Curation and Verticalization…My Interview with Michael Covel

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  • Oracle’s Q4 Guidance: 92 to 99 Cents Per Share
    , March 18th, 2014 at 11:14 pm

    From Oracle‘s ($ORCL) conference call.

    As we said before, we are committed to returning value to our shareholders through earnings growth, stock repurchases and a dividend. This quarter we repurchased 55.4 million shares for a total of $2 billion.

    Over the last 12 months we have repurchased nearly 360 million shares for a total of $10.7 billion and reducing our — reduced our share count by 5%. We also paid out more than $1.6 billion in dividends this fiscal year so far.

    Stock repurchases and dividends have totaled more than 85% of free cash flow over the last 12 months and the Board of Directors declared a quarterly dividend of $0.12 per share.

    Now to the guidance and if currency were to stay where it is today than the impact of currency would be minimal, of course, this could change quickly. New software license and cloud subscription revenue growth is expected to range from zero to 10%. Hardware product revenue growth is expected to range from zero to 10%.

    As a result, total revenue growth on both GAAP and non-GAAP basis is expected to range from 3% to 7% in reported dollars. Non-GAAP EPS is expected to be somewhere between $0.92 and $0.99 in constant dollars and in reported dollars. GAAP EPS is expected to be $0.79 to $0.86.

    Now I want to remind you the last year we recognized an acquisition-related benefit of $269 million in connection with the Pillar Data Systems earn-out, excluding that benefit GAAP EPS last Q4 would have been $0.74.

    This guidance assumes a GAAP tax rate of 21.5% and a non-GAAP tax rate of 23.5%, and of course it may end up being different.

    Wall Street had been expecting 96 cents per share.

  • Oracle Earned 68 Cents Per Share
    , March 18th, 2014 at 4:59 pm

    Oracle‘s ($ORCL) earnings are out. The company earned 68 cents per share for fiscal Q3, which is at the low end of their range of 68 to 72 cents per share. Revenue came in at $9.31 billion which was below consensus of $9.36 billion.

    Net income in the third quarter rose 2.4 percent to $2.57 billion, or 56 cents a share. New software-license and cloud-subscription sales, a closely watched indicator of future revenue, rose 3.6 percent to $2.42 billion, the company said today.

    Oracle is the second-largest maker of business applications behind SAP AG, and it entered the computer-server market with the 2010 acquisition of Sun Microsystems. Hardware product sales rose 8 percent to $725 million during the quarter.

    Oracle is under pressure in its three main businesses, Thill said. Microsoft Corp. has gained ground in database software, along with newer companies such as MongoDB Inc. and Couchbase Inc. that are chipping away at more established providers. Other customers are leaving Oracle because they’re putting data in the cloud with vendors like Amazon.com Inc.

    In business applications, programs that handle tasks like finance, client management and human resources, customers are defecting to cloud-based suppliers like Salesforce.com (CRM) and Workday. In hardware, Oracle has “missed more quarters than they’ve made,” Thill said.

    The stock is down about 5% in the after-hours market.

  • Stocks Climb as Invasion Fears Fade
    , March 18th, 2014 at 11:32 am

    The stock market is working its way higher again today. The S&P 500 cracked 1,870 earlier today. The good news is that tensions in Eastern Europe seem to be falling lower. Shares of the Russian ETF ($RSK) are up another 3.3% today. It’s up more than 11% from last Thursday’s low. We also got a favorable report on housing starts.

    This is the first day of the two-day Fed meeting. All the action, however, will come tomorrow when the Fed releases its statement, updates its forecasts and Janet Yellen holds her first press conference.

    On our Buy List, Microsoft ($MSFT), of all stocks, is doing very well today. The shares are up nearly 4% and it’s close to hitting $40. The company may introduce Office for Apple’s iPad next week.

    Microsoft Chief Executive Officer Satya Nadella will begin unveiling his vision for the company when he debuts a version of Office for Apple Inc.’s iPad and offer some features of the application for free at an event next week, said people with knowledge of the announcement.

    The Redmond, Washington-based company will introduce Office for the iPad with limited capabilities that can be upgraded to premium versions requiring a subscription to the Office 365 Internet-based software, said the people, who asked not to be identified because the plans aren’t public. At the event, which will be held March 27 in San Francisco, Nadella will also discuss his commitment to software services that work on Microsoft’s Windows and rival operating systems, the people said yesterday.

    Microsoft last closed above $40 in July 2000.

  • Morning News: March 18, 2014
    , March 18th, 2014 at 6:45 am

    Putin’s Motives Rooted in History Remain a Mystery Abroad

    Germany’s Top Court Upholds Legality of ESM Rescue Fund

    Bank of England Names Two New Deputy Governors

    Fed Seen Adopting Qualitative Rate Guidance as Job Market Gains

    With Alibaba IPO Official, Pressure Mounts on Yahoo

    GM Stock Unfazed by Recall Saga; CEO Mary Barra Issues Video Apology

    Hertz Will Spin Off Equipment Rental Unit to Focus on Cars

    Massachusetts to Cut Ties With CGI Group Over Troubled Online Health Exchange

    Quiznos Files for Bankruptcy; Can it Ever Compete With Subway?

    Walmart to Offer Customers Credit for Used Video Games

    Tesla Fights For a Place to Park

    Bitcoin Revelation Under Scrutiny

    $1 Billion Contest: Some Already Cashing In

    Jeff Carter: Is There Something Amiss?

    Joshua Brown: You Tell Me…

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  • The Return of Bank Dividends
    , March 17th, 2014 at 2:24 pm

    The largest U.S. banks are currently going through another round of “stress tests” in order to prove to the Federal Reserve that they can withstand another financial crisis. Of course, this test comes seven years after it was truly needed. The test results will be made known on March 20 and March 26.

    The immediate effect for investors is that some of these banks will get the green light to raise their dividends and increase share buybacks. Citigroup and Bank of America, for example, only pay out one penny per quarter. Citi is expected to earn nearly $5 per share this year, and BAC is projected to make $1.32 per share. In 2011, BAC asked the Fed if they could do a modest dividend increase. The Fed said no.

    The truth is that nowadays these banks are quite profitable. Of course, we don’t know which banks could fail the test. The largest banks will most certainly pass, but this test includes some smaller ones and I’m sure someone will be left out. I suspect Citigroup will jack up its dividend soon, but that will also be complicated by a recent $400 million fraud decision. The unknown legal bills will weigh on several other banks as well.

    The six largest U.S. banks may return $47.8 billion starting in April, the estimates show. That compares with $23.6 billion for the prior year, according to Stifel Financial Corp.’s KBW unit. The firms gave back $66.4 billion in the 2007 calendar year, data compiled by Bloomberg show.

    “The dividends and buybacks — the sheer size of them — suggest there is plenty of profit to play with,” David Ellison, a Boston-based mutual-fund manager specializing in financial stocks at Hennessy Advisors Inc., said in a phone interview. “It shows that if a bank is run appropriately, it’s very profitable.”

    I’ve told investors that in light of the uncertainty, the best way to value these banks is by the dividend yield (though that’s not the only way). The issue is that many of the other traditional valuation metrics don’t work well with the big banks.

    I would be very careful about committing any funds to financials right now. It’s not that there’s long-term danger, but whoever fails the test will surely be punished by the market.