Archive for June, 2014

  • The Stock Market Is Up 10 of 12 Days
    , June 9th, 2014 at 10:04 am

    The stock market has risen for 10 of the last 12 trading days, and it’s up again this morning. The big news this morning is that Apple ($AAPL) has now split 7-for-1. The stock is currently at $92 per share. It’s currently the most valuable company in the world with a market cap of more than $550 billion. The combined value of Apple and Exxon ($XOM) comes to $1 trillion.

    There’s not a lot of movement on our Buy List this morning, although I’ll point out that Ford ($F) is over $17 per share, and Bed Bath & Beyond ($BBBY) is up to $62.72, which is the highest price in about a month. Oracle ($ORCL) and Wells Fargo ($WFC) are both at new 52-week highs.

    On Friday, the Volatility Index ($VIX) dropped down to 10.73. That was the lowest figure in seven years. The VIX is up to 11.12 this morning.

  • Morning News: June 9, 2014
    , June 9th, 2014 at 6:42 am

    Brightening Global Economy Puts FTSE Within Reach of Multi-Year Highs

    Lagarde Says IMF ‘Got It Wrong’ on Rallying U.K. Economy

    Ukraine Gas Talks Resume in Brussels to Avoid Cut-off This Week

    Japan Growth Picks Up More Than Estimated on Investment

    China’s Yuan Bounces After Another Surprise Strong Fix Against Dollar

    U.S. Crude Rises as China Exports Gain Steam

    President’s Speech: 6 Agendas of Modi Government That Will Make The Common Man Happy

    Tyson Wins Battle to Buy Hillshire

    Hertz’s Accounting Woes Wider Than Thought

    Time Inc. to Set a Lonely Course After a Spinoff

    Amazon Expands Middleman Role in Latest Online Payments Push

    McClendon Firm to Buy Leases in Permian Basin for $2.5 Billion

    Rogue Vietnam Banker Jailed For 30 Years Over $1 Billion Fraud

    Cullen Roche: Low Global Inflation Means “Accommodative Policy” is Here to Stay

    Jeff Miller: Weighing the Week Ahead: Time for a Market Breakout?

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  • Mickey Mantle Day, 45 Years Ago
    , June 7th, 2014 at 4:02 pm

    Mickey Mantle showed up for spring training in 1969 and realized he couldn’t play another season. At 37, the Mick realized he was too old: “I can’t play anymore. I don’t hit the ball when I need to. I can’t steal when I need to. I can’t score from second base when I need to. I have to quit.”

    On June 8, the Yankees held Mickey Mantle Day at Yankee Stadium.

  • Apple Splits!
    , June 6th, 2014 at 5:56 pm

    Shares of Apple ($AAPL) closed today at $645.57. On Monday morning, there will be seven times the number of shares outstanding and the stock price should fall by 6/7ths.

    Today’s closing price works out to $92.22 post split. The split puts Apple’s share price roughly in the range of many stocks in the Dow.

    There are currently 861.38 shares outstanding of Apple. That will increase to 6.029 billion.

    big.chart06062014a

  • Medtronic’s CEO on CNBC
    , June 6th, 2014 at 1:25 pm

  • May NFP = +217K
    , June 6th, 2014 at 8:57 am

    The U.S. economy created 217,000 new jobs last month. The unemployment rate stayed at 6.3%. Expectations were for an increase of 215,000. Private payrolls grew by 216,000 compared with expectations of 210,000.

    Nonfarm payrolls finally topped the peak from January 2008. In 25 months, the U.S. economy lost 8.71 million jobs. In the next 51 months, we gained 8.81 million jobs. So in 76 months, we’ve gained 98,000 jobs.

  • CWS Market Review – June 6, 2014
    , June 6th, 2014 at 7:12 am

    “I don’t expect the consensus to be right. I’m just surprised by how wrong it has been.” – Jim Bianco

    This has been a remarkably efficient stock market. I say that because it’s effortlessly made fools of everyone.

    Remember all that talk about “a bubble” and that we’re “due for a correction”? Well, apparently Mr. Market wasn’t cc’d on that. On Thursday, the S&P 500 rallied for the 14th time in the last 19 sessions. The index hit yet another all-time high. (I was particularly impressed when it blew past the historically significant 1,929 marker.)

    big.chart06062014

    As we look at this rally, we have to keep in mind all the negative news that could have tripped us up—like the lousy Q1 GDP report, or the ongoing tensions in Ukraine. None of that seems to matter. Everyone, it seemed, was expecting a mass rotation out of bonds. Didn’t happen. Instead, bond yields have plummeted this year.

    Despite the market’s resiliency, what’s truly been remarkable is how little trading volume there’s been. In less-technical terms, where the heck did everybody go? Trading volume has plunged, and the bull just doesn’t care. In this week’s CWS Market Review, we’ll take a look at what this low-volume, low-volatility rally means for us and our Buy List.

    I’ll also highlight some of the recent economic news. We had some interesting drama on our Buy List recently. Shares of Stryker spiked after the company denied a report that they were looking to buy Smith & Nephew. Then another one of our Buy List stocks, Medtronic, had the same rumor hit them! What’s going on? I’ll untangle it all in a bit. But first, let’s look at where the economy stands.

    Finally, an All-Time High for Jobs

    On the first business day of each month, the Institute for Supply Management releases its Manufacturing Index. I like to keep a close eye on the ISM report for a few reasons. One is that it comes out so quickly. A lot of economic reports come weeks after the fact. It’s also one of the econ reports that’s not endlessly revised.

    The ISM also has a good track record of lining up with recessions and expansions. Here’s how it works: Any number above 50 means that the manufacturing sector is expanding, while readings below 50 mean it’s contracting. When the index is below 45, it usually corresponds to a recession. The ISM Index has been 49.0 or better for the last 59 months in a row, which lines up exactly with the current expansion.

    On Monday, ISM had some problems. They had to revise their May report not once, but twice. It’s embarrassing, but they finally settled on a figure of 55.4, which was only 0.1 below what Wall Street had been expecting. That’s a decent number, and it suggests that the manufacturing sector is still healthy. For now, I don’t believe there’s a risk of an imminent recession.

    On Monday, we also learned that construction spending rose by 0.2% in April. Frankly, that was a bit weak. Economists had been expecting an increase of 0.7%. Also on Monday, we learned that housing inventory is up 10.5% from a year ago. This is very important, since there was so much overbuilding during the expansion. All that excess inventory had to be burned off. Inventory is still quite low, and prices have been rising. Housing isn’t the biggest part of the economy, but it’s probably the biggest part in determining the direction of the economy.

    Then on Tuesday, carmakers reported good sales for the month of May. Sales for GM rose 13%, and sales for Chrysler rose 17%. Sales at Ford ($F) rose only 3%, but that’s actually a decent performance. Ford’s been cutting back on its incentives in an attempt to manage its inventory. This was the best May for Ford in ten years. On Thursday, shares of Ford got as high as $16.89, which is a six-month high. I like this stock a lot. Ford remains a solid buy up to $18 per share.

    Now about the jobs report. As usual, I’m writing this newsletter to you early on Friday morning, and the big jobs report will come out later this morning. In fact, it’s probably out by the time you’re reading this (check the blog for updates). It’s always a hazard guessing how many new jobs were created. The government is very clear that their estimates have a very wide error range (the standard deviation has been 236,000), but that doesn’t stop Wall Street from playing the guessing game. What’s more important to me, however, is the general trend of new jobs. Fortunately, that’s been rather good lately. Of course, there are still lots of unemployed folks out there, especially long-term unemployed.

    On Wednesday, ADP, the private-payroll folks, said that 179,000 private-sector jobs were created last month. That was below expectations, but I should caution you that ADP doesn’t have a great track record as a bellwether for the government’s report. On Thursday, the Labor Department said that unemployment claims rose to 312,000 last week. That’s a good number. Since this number bounces around a lot, economists like to focus on the four-week moving average, which is now at a seven-year low.

    It’s very likely that Friday’s jobs report will show that we finally surpassed the peak employment set in January 2008. In other words, it’s taken us six and a half years to create a few thousand jobs. As rough as that sounds, the economy lost 8.7 million jobs in 25 months. It then took another 51 months, more than twice as long, to make them all back. Wall Street has high expectations for this report. The current consensus is for 213,000 jobs. The economy added 288,000 jobs in April.

    Also on Thursday, the Federal Reserve released the big “Flow of Funds” report. This is always an interesting report to see. According to the Fed, U.S. household net worth rose to $81.8 trillion at the end of Q1. In the last five years, our net wealth has risen by more than $26 trillion.

    Overall, the broad economy appears to be doing well. More folks on the Street expect GDP for Q2 to be over 3%. It could be as high as 4%. One of the better economist reports is the Fed’s Beige Book. It’s a bit on the wonky side, but it has some good tidbits. The most recent Beige Book reported growth in all 12 of the Fed’s regions.

    Another one of my favorite economic indicators is the yield spread between the two- and ten-year Treasuries. While the 10-year has rallied this year, it still yields 219 basis points more than the two-year. That’s a big gap. Whenever that spread turns negative, you can be sure the economy will soon hit a rough patch. The 2-10 spread has a much better track record than a lot of highly paid folks on Wall Street. The 2-10 has been over 200 basis points every day for nearly a year.

    Hey, Where Did Everybody Go?

    On Thursday, the S&P 500 closed at 1,940.46, which is another all-time high. But what’s interesting is that the market has rallied on very low volatility and low volume. The trading volume has declined remarkably. On Wednesday, trading in the S&P 500 ETF ($SPY) hit a new low for the year.

    Last month, an average of 1.8 billion shares were traded in the S&P 500 companies. That’s the lowest volume in six years. During May, an average of $26 billion was traded each day in S&P 500 companies. That’s down from $32 billion in April.

    Also, the market’s breadth continues to narrow. On May 23, the S&P 500 made a new high, but only 24 stocks in the index made a new 52-week high. I’ll warn you that these are traditionally negative signs; the problem is that you never know when the trouble will begin.

    Earlier this week, the Volatility Index ($VIX) dropped down to 11.29, which is the lowest level in more than a year. (Warning: math stuff ahead.) If you’ve ever wondered what the VIX is, it’s the market’s estimate of the S&P 500’s standard deviation over the next month. The hitch is that it’s expressed in annualized terms. To turn it into a monthly figure, just divide the VIX by the square root of 12, which is 3.46. So the current VIX of 11.68 means that traders think the S&P 500 will move up or down by 3.37%, or about 65 points, over the coming month.

    Only two years ago, the European bond market was ready to sink into the Adriatic. Now bond yields in the Old World are at their lowest point since the Battle of Waterloo. Mario Draghi just dropped the deposit rate from 0% to -0.1%. The European Central Bank is now the first major central bank in the world to go to negative interest rates. So much of the European economy is still in shambles. In 1914, Lord Grey famously said, “the lamps are going out all over Europe.” This time, it’s not a metaphor.

    On this side of the pond, the market still seems reasonably priced despite the rally. Analysts on Wall Street currently expect earnings this year for the S&P 500 of $119.82. The estimate for next year is $137.38, but that’s probably too high. As long as yields stay low, the spreads are wide, and the economy is generating more than 150,000 new jobs each month, then the bull case is intact.

    As always, investors should focus on high-quality stocks like the ones on our Buy List. As long as they’re below my Buy Below price, I think they’re good buys. Right now, I especially like AFLAC ($AFL), Bed Bath & Beyond ($BBBY), Ford ($F), Oracle ($ORCL) and Wells Fargo ($WFC).

    Smith & Nephew & Stryker & Medtronic

    Here’s a bit of an odd story. Last week, the Financial Times reported that Stryker ($SYK) was looking to bid on Smith & Nephew ($SNN), a British orthopedics company. But Stryker was all, “um…no, we’re not planning any bid.”

    Here it gets a little confusing. Stryker had been interested in SNN, but they were only in the evaluating stage. Now that Stryker has said they’re not going to make a bid, according to British law, they can’t bid for six months. But SNN is allowed to go to them.

    Once Stryker pulled itself out of the running, shares of SYK shot up. I mentioned this in last week’s issue, and I raised our Buy Below. Stryker has continued to rally, and it recently broke $86 per share. Stryker continues to be a good buy up to $87 per share.

    This week, another of our Buy List companies is rumored to be very interested in Smith & Nephew, and this time it’s Medtronic ($MDT). But Medtronic is much more serious about a deal than Stryker ever was. With the implementation of the Affordable Care Act, everyone is looking to cut costs. This is driving pressure for medical-device makers to merge. Everyone wants to have “scale.” With a merger, Medtronic could also lower its tax bill by moving its HQ overseas. (That’s right, Her Majesty’s corporate tax is lower than Uncle Sam’s. Someone alert George III.)

    So far, Medtronic has not commented, but I think a deal is a very real possibility. Usually, the acquiring firm sees its share price drop, but when the news broke yesterday, shares of Medtronic gapped up about $3 per share. The stock pulled back on Thursday, but it’s still higher than when the news broke.

    I can’t say I’m a big fan of this deal, but I recognize that this, or something very similar, will have to happen. Medtronic remains a good buy up to $65 per share.

    Buy List Update

    Our Buy List has been uncharacteristically sluggish lately. For the year, the S&P 500 is up 4.98%, while our Buy List is up 2.67% (not including dividends). Of course, that’s not a huge deficit, and I think we can make it up by the year’s end, but it’s not how our Buy List usually behaves.

    I don’t shy away from highlighting underperformance, but I don’t get rattled by it, either. The problem has mostly been very recent. Since May 12, the S&P 500 is up by 2.31%, while the Buy List has barely budged, up 0.19%. A lot of this reflects the changing character of the rally. As we’ve discussed before, fewer and fewer stocks are leading the market higher.

    What’s interesting is that 11 of our 20 Buy List stocks are actually leading the market this year. The problem is that a small number of big losers like Bed Bath & Beyond and CA Technologies have weighed heavily on our gains.

    Before I go, I want to tighten up two of our Buy Below prices. I’m dropping CA Technologies ($CA) down to $31 per share, and I’m also lowering eBay ($EBAY) to $55 per share. I still like both stocks, but I want our Buy Belows to more closely reflect the current prices.

    That’s all for now. Next week is a slow week for the market. The only big economic report will be Thursday’s report on retail sales. The earnings reports for companies with quarters ending in May will start to come in. We have two of those of our Buy List: Bed Bath & Beyond and Oracle. Both are due to report later this month. I also expect to hear dividend news soon from CR Bard and Medtronic. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy

  • Morning News: June 6, 2014
    , June 6th, 2014 at 6:40 am

    ECB Moves for Negative Interest Rate to Combat Combination of Slow Growth & Superlow Inflation

    German Industry Output Rises Less Than Forecast in April

    France Plays Ukraine Peacemaker as Obama-Putin Converge

    Containing China’s Financial Risks a Priority: International Monetary Fund

    Pope Francis Shakes Up Vatican Finance Panel

    S.E.C. Chief Offers Rules to Govern Fast Trading

    Household Net Worth Hits Record High

    Bank of America Said to Be Negotiating At Least $12 Billion Fine to Settle Probes of Home Loans

    Arista Networks IPO Values Company at About $2.75 Billion

    Twitter Buys Native Ad Specialist Namo Media

    WhatsApp Co-Founder Mature Enough to Handle Windfall

    Mega-Mergers Are Killing Innovation

    GM’s Scandal is a Warning to All of Us Who Have Bosses: Speak Up!

    Cullen Roche: The ECB Goes Negative – What Does it Mean?

    Jeff Miller: Advice for Young Investors

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  • Morning News: June 5, 2014
    , June 5th, 2014 at 6:44 am

    Volatility Increases From Currencies to Bonds Before ECB

    Carney Finds Ally in Draghi as Key Rate Kept at 0.5%

    Dutch Bank ING Gets Set for Summer Share Sale for Insurance Arm

    German Manufacturing Rebounds Strongly

    China Should Aim for ‘Medium-High Growth,’ IMF Says

    What Alibaba’s Soccer Team Purchase Says About Chinese Real Estate

    Widening U.S. Trade Gap Dims Growth Views

    U.S. Economy Plods Ahead Without Any Sizzle: Beige Book

    Long-Distance Sprint for T-Mobile

    WhatsApp Focuses on Costs as it Prepares to Join Facebook

    Tesla’s First Supercharger Station in Beijing Now Operational

    Amazon Is NOT the Vladimir Putin of the Publishing World

    Roger Nusbaum: It’s Never Time to Flee A Valid Strategy

    Joshua Brown: Anatomy of an Advisor Scam

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  • This Just In: Oracle’s Still Not Dead
    , June 4th, 2014 at 11:32 pm

    At BloombergBusinessWeek, Ashlee Vance notes that Oracle ($ORCL) is still alive:

    Oracle’s decline into irrelevance was supposed to have started about 20 years ago with the arrival of the MySQL database in 1995.

    (…)

    The basic idea behind all the Oracle doom and gloom was that no new interesting work would take place on an old database.

    (…)

    And then, in 2010, Ellison did one of those things that only Ellison seems to be able to do. Oracle bought Sun Microsystems, and antitrust regulators, whom Ellison loves to openly ridicule, approved the deal. Oracle owned the past and the present.

    (…)

    The weird thing is that Ellison is as rich as ever thanks to Oracle’s ability to withstand a ton of competitive pressure. In the last week the company’s market capitalization rose above that of IBM, one of its major competitors in the database and business software market.

    (…)

    Of late, though, Oracle has started to demonstrate that it’s thinking more about the future. At the end of May it unveiled something called MySQL Fabric, a response to the NoSQL movement. And on June 10, Ellison is scheduled to show up for the launch of an entirely new database called Oracle Database In-Memory. As the name suggests, this database will make use of techniques currently in vogue that allow huge volumes of data to be stored in high-speed memory instead of on spinning hard disks. The result is that data analysis jobs run at record speed.

    These announcements underscore what Oracle has done perhaps better than any other major business software maker, which is make the transition from the old to the new in a highly profitable way.

    Last week, Oracle hit a 14-year high of $42.35 per share. The next earnings report should be out in two to three weeks.