Archive for June, 2014

• May ADP +179,000
  Eddy Elfenbein, June 4th, 2014 at 11:47 am

  This Friday is the big jobs report. It appears that nonfarm payrolls will finally exceed their pre-recession peak. The peak came in January 2008. The last report was 113,000 short of that.

  Today we got a preview of the jobs report when ADP said that 179,000 private sector jobs were created last month. That was below expectations of 210,000. Frankly, the ADP report hasn’t been a good indicator of what the government says.

  There were two other econ reports today. The trade deficit for April rose to $47.3 billion. About half the trade deficit is due to China. Also, the ISM Non-Manufacturing Index for May was 56.3. That’s up from 55.5 in April. The Employment Index rose to 52.4.

  The S&P 500 got as high as 1,927.61 this morning which is an all-time intra-day high. The 10-year yield has bounced up to 2.6%. That’s still very low, but it’s a turn from the very low levels reached last week.

• Is This the Year of Value?
  Eddy Elfenbein, June 4th, 2014 at 9:37 am

  At the WSJ, Rob Curran wonders if this is the year of value.

  David Santschi, chief executive of TrimTabs Investment Research Inc. estimates that between April 1 and May 30, $4.1 billion, or 3.2% of assets, flowed out of growth-biased ETFs while $5.6 billion, or 3.7% of assets, flowed into value-oriented ETFs.

  “In the past two months there was an overwhelming preference for value over growth—it’s pretty dramatic to see a split like that,” Mr. Santschi says.

  Among mutual funds, Morningstar Inc.’s large-value category is up 4.6% for 2014 through May, while large-growth funds have returned 2.2%. Small-value funds are up 0.7%, while small-growth funds are down 4.7%.

  “Rotations this strong, while infrequent, are typically followed by periods where value outperforms,” said Morgan Stanley chief U.S. equity strategist Adam Parker in a recent research note. In an interview, Mr. Parker says a key variable this time is investors’ perception of economic growth. Counterintuitively, economic optimism appears to favor value stocks over faster-growing ones.

  “If it’s a slow-growth world, the premiums for growth expand,” meaning investors will pay more for stocks of companies that can expand even in a weak economy, he says. In his view, investors stopped paying top dollar for fast-growing companies because of an emerging consensus that the economy would be much stronger—and corporate growth easier to come by—later in 2014.

  Value actually bottomed out in 2012, and has been leading the market for nearly two years.

• Morning News: June 4, 2014
  Eddy Elfenbein, June 4th, 2014 at 6:52 am

  Krugman Condemnation of Sweden Triggers Riksbank Review Talk

  Lithuania On Course to Adopt Euro

  Euro Seen Hamstrung Ahead of ECB Meeting, Aussie Eyes GDP

  UK Services Sector Expands by More Than Expected in May

  U.S.-China Solar-Products Dispute Intensifies

  Senate Confirms Three Obama Nominees to CFTC

  Fed’s Fisher Sees No Rate Hikes Until Next Year

  Carl Icahn Buys $51 Million in Fannie Mae, Freddie Mac Shares

  Dai-ichi to Buy Protective Life for $5.7 Billion

  GM’s Barra Aided by Fed Rates as Congress Blasts Recalls

  Walmart’s ‘Made in USA’ Push Exposes Strains of Manufacturing Rebirth

  Elon Musk Staying at Tesla Another 4-5 Years

  Will the FAA Let Hollywood Fly Camera Drones?

  Credit Writedowns: Repairing the Transmission of Monetary Policy Through Asset-Backed Securitisation

  Economics as Engineering

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• Ford Has Best May in 10 Years
  Eddy Elfenbein, June 3rd, 2014 at 10:52 am

  Shares of Ford ($F) are doing well today thanks to a good sales report. Ford had their best May in 10 years. Ford sold 254,084 cars which is a 3% increase from last year. Fusion and Escape had their best months ever.

  Ford’s truck sales weren’t very good, but that’s because they’ve been holding back on incentives. The company is trying to manage their inventories as they get ready to shutdown plants in a move to change over to the new F-150 pickup.

  Ford got as high as $16.72 today.

• The Pros and Cons of Stop Orders
  Eddy Elfenbein, June 3rd, 2014 at 10:11 am

  In the WSJ, Simon Constable looks at the pros and cons of stop orders.

  Sometimes when you’ve made substantial gains on a stock or exchange-traded fund, you face a tough choice: Do you sell to lock in the profit? Or hold on for more gains but risk losing what’s been made?

  One way to have your cake and eat it too is to use a trailing stop order: an order to sell your position if the price falls by a predetermined percentage or dollar amount. Most orders are set 20% below the current price, says Eddy Elfenbein, editor of the Crossing Wall Street newsletter. Some people also periodically cancel the orders and reset them at higher prices if there is a rally. Stop orders cost a little more than simple market orders.

  Mr. Elfenbein notes that once you have a gain on paper, it’s psychologically very hard to watch it disappear. The ability to protect those gains makes the trailing stop order very appealing.

  But these orders aren’t without peril. “There is a risk you get ‘stopped out’ of a good position,” Mr. Elfenbein says. How so? Flash crashes—or temporary drops caused by electronic trading glitches or errors—may cause a position to be sold when it would have been better to hold on.

  I find myself agreeing with myself.

• Morning News: June 3, 2014
  Eddy Elfenbein, June 3rd, 2014 at 6:44 am

  Eurozone Inflation Rate Fall Adds to Pressure on ECB

  France Says Mooted BNP Paribas’ $10 Billion U.S. Fine ‘Unreasonable’

  Dutch Caution Stalls Banks’ $12 Billion Hybrid Debt Plan

  UAE Business Activity Growth in May Dips from Record High

  China PMIs Fuel Hope Economy is Stabilizing, Property Still a Wild Card

  Obama Unveils $1 Billion Europe Security Fund

  Treasuries Drop Most in More Than Month on Manufacturing

  A Century Later, Aviation is Still Hamstrung by Fragmentation

  Wal-Mart Tops Fortune 500 List, Apple Climbs

  Hillshire Brands Board Authorizes Discussions with Pilgrim’s Pride and Tyson Foods

  Andreessen Lead $66.5 Million Round for Zenefits in ‘Halley’s Comet’ Deal

  U.S. Goes Back to Publishers on Prices

  Valeant and Ackman Break From the Deal Playbook, Yet Again

  Jeff Carter: The LA Kings Taught Entrepreneurs A Lesson

  Howard Lindzon: American Investors Are Too Diversified!

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• S&P Total Return Index
  Eddy Elfenbein, June 2nd, 2014 at 3:44 pm

  Here’s a long-term look at the S&P 500’s Total Return Index, meaning dividends are included. Even though the market was insanely overpriced in 2000, if you wait long enough, the market will reward you.

  

  Historically, the gains from the peaks in 2000 and 2007 are very modest in annualized terms, but they are gains.

• Gold Breaks Down
  Eddy Elfenbein, June 2nd, 2014 at 3:27 pm

  Gold has traditionally been the all-purpose investing hedge. The yellow metal had stabilized at around $1,300 for several days. Lately, however, it’s broken down.

  

  What’s going on? On one hand, modest inflation appears to be picking up. But only by a small amount. Also, world tensions appear to be cooling down. At least, for now.

  Last June, gold dropped to an intra-day low of $1,179.40 per ounce. It’s currently at $1,242.90

• The Double Dip Scares of 2010 and 2011
  Eddy Elfenbein, June 2nd, 2014 at 1:02 pm

  Wall Street has a very short memory. For two consecutive summers (2010 and 2011), people were obsessed with the idea that the U.S. economy was about to fall into a double dip recession.

  Of course, that never happened, but the fears were very real. Here’s a look at the Google Trends for “double dip recession.”

• Oops! May ISM Was 55.4
  Eddy Elfenbein, June 2nd, 2014 at 12:20 pm

  Here’s an odd one. The original report that the ISM figure for May was 53.2 turns out to have been incorrect. Now we’re told the correct number was 55.4, which is much closer to expectations.

  I’m not aware of any correction like this happening before.