Archive for July, 2014

  • Wells Fargo Earned $1.01 for Q2
    , July 11th, 2014 at 10:01 am

    Wells Fargo reported Q2 earnings this morning of $1.01 per share which matched expectations. Unfortunately, this report snapped WFC’s streak of quarterly earnings increases at 17.

    Net income for the second quarter advanced to $5.73 billion, or $1.01 a share, from $5.52 billion, or 98 cents, a year earlier, the San Francisco-based lender said today in a statement. The average estimate of 31 analysts surveyed by Bloomberg was $1.01 a share excluding special items. Earnings per share fell from $1.05 in the three months ended March 31.

    Chief Executive Officer John Stumpf, 60, has sought to counter a drop in mortgage revenue as higher interest rates crimp new home loans. He’s expanded in businesses including credit-card and auto lending, investment banking and retail wealth management to help cover the shortfall.

    “Our strong results in the second quarter reflected the benefit of our diversified business model,” Stumpf said in the statement. “Our results also reflected strong credit quality driven by an improved economy, especially the housing market.”

    The lender set aside $217 million to cover bad loans, or 67 percent less than a year earlier, according to the statement. Wells Fargo released $500 million in loan-loss reserves, matching the estimate of Sanford C. Bernstein & Co.’s John McDonald.

    The stock is down this morning, but not by much. WFC’s revenue slid to $21.1 billion but topped expectations. Mortgage revenue fell 39%. The bank seems to be managing itself well during a critical turn for the industry.

  • CWS Market Review – July 11, 2014
    , July 11th, 2014 at 7:06 am

    “Never buy at the bottom, and always sell too soon.” – Jesse Livermore

    Friends, allow me to introduce you to Cynk Technologies ($CYNK). This is a stock which has soared from 10 cents on June 21 to nearly $22 yesterday.

    I should warn you that Cynk has a few minor operating problems. For example, the company has no assets revenues, and only one executive. Or perhaps, only one employee. In fact, we’re not exactly sure if the company exists. Also, they’re based in Belize.

    Outside that, things are going swimmingly. You gotta admit—that’s some rally. Cynk has a paper value of $6 billion. The stock has rallied more in the last three weeks than Apple has since their IPO 34 years ago.

    big.chart07112014

    Beyond my mocking, there’s an important lesson here. Those of us who force rationalism and sobriety on the market are engaged in a constant war, and we’re not always winning. The suckers are out there. Who knows how garbage like Cynk gets going? Once people start buying it, the irrational exuberance mentality builds on itself. Soon people bid it up simply because they think the stock will go up, which in turn causes more people to buy…which in turn causes the stock to go up.

    Remember, there are lots of finance professors today who tell us how efficient the market is, who say that the market is rational and that it’s impossible for an investor to beat the market over the long haul. Please. The market is made of humans, and it has all our virtues and vices. The rally in Cynk Technologies is a perfect example.

    In this week’s CWS Market Review, we’ll talk about the big news in the minutes from the Federal Reserve’s last meeting. It looks like the Fed’s QE program will end earlier than we thought. We’ll also look at the big buyback announcement from Bed, Bath & Beyond. Later on, we’ll run down some of our Buy List stocks as they get ready for earnings season. But first, what exactly are the Fed’s plans for the rest of this year?

    QE to End during Q4

    On Wednesday afternoon, the Federal Reserve released the minutes from their June 17-18 meeting. Even though the policy statement from that meeting was largely what everyone expected, the minutes, which are released three weeks later, contained a surprise. The Fed members plan on ending their bond buying program in October.

    Let’s take a step back. The original bond-buying program (Quantitative Easing or QE) had the Fed buying $85 billion worth of bonds each month. That was $45 billion in Treasuries and $40 billion in mortgage-backed securities. At each meeting since December, the Fed has tapered the program by $10 billion.

    Projecting forward, I had assumed that would leave the final $5 billion to be tapered at the December meeting. Apparently not. The Fed minutes indicated that they’re looking for a $15 billion taper in October.

    The timing here is important because, as I mentioned in last week’s issue, Janet Yellen has said that the Fed will start raising interest rates “something on the order of six months” after QE is over and done with. Some on Wall Street have referred to this as the Fed’s TT strategy, meaning they want a clear separation between tapering and tightening. I think that’s right. We can probably look forward to the Fed´s increasing short-term interest rates sometime next spring, about two months earlier than I expected.

    I was baffled by the Fed’s move. On Twitter, I wondered, “Why the heck wasn’t this in the last FOMC policy statement?” Binyamin Appelbaum, the New York Times reporter who covers the Fed, responded, “Really good question.” If they had been considering these steps, this should have been mentioned. Or Janet Yellen could have mentioned it in her post-meeting press conference.

    I often tease the bond market, but its reaction was surprisingly tame. The yield on the 10-year Treasury is back down to 2.55%. The interesting part of the yield to watch is the one- and two-year Treasuries. The yield for the one-year has basically stayed the same, right around 0.10%. But the yield on the two-year has slowly crept higher. The yield recently broke 0.5%, and the three-year yield hit 1%. Both cases are near three-year highs. What does this mean? It tells us that the market doesn’t expect any rate increases soon. But in about a year, rates will move higher. Until then, the Fed is on the side of investors.

    The stock market has now gone 58 trading days in a row without rising or falling by more than 1%. That streak looked like it was going to come to an end on Thursday morning, as the stock market opened lower. Shares of Portugal’s Banco Espirito Santo plunged as investors were concerned about the bank’s viability. This triggered a sell-off in some European markets. Fortunately, the stock market founds its legs, and the S&P 500 closed lower by 0.41%.

    I do have some concerns about what’s been driving the rally. Companies have opened up their wallets and bought back tons of shares. Lately, that money river has started to dwindle. Let’s consider some facts: In MarketWatch, Mark Hulbert noted that in June, buybacks fell to an 18-month low. That’s worrisome because there’s been a semi-strong relationship between buybacks and share prices. According to David Santschi, the CEO of TrimTabs, the correlation coefficient between buybacks and stock prices is 0.61.

    The few shares outstanding have helped boost earnings-per-share, although nominal profit growth hasn’t been that great. In fact, sales growth has been downright tepid. Hulbert writes, “Over the past five years, for example, per-share sales growth for S&P 500 companies has been an annualized 2.4%, lagging far behind the 20% annualized earnings-per-share growth rate.”

    That’s why this earnings season is so important. The growing evidence we have suggests that the economy did much better in Q2 than in Q1. Earnings reports can confirm that. It will also let us know if more consumers are heading out to stores and buying stuff. Janet Yellen and her friends at the Fed have done everything they can to lead consumers to water. Now we have to see if they’ve taken a drink.

    Bed Bath & Beyond Announces $2 Billion Buyback

    Speaking of stock buybacks, Bed Bath & Beyond ($BBBY) decided to make a news splash on Monday when they announced a massive $2 billion share-repurchase program.

    This makes a lot of sense if you think your company’s shares are underpriced. I’m not a big fan of share buybacks. I’d rather see that money go to shareholders as dividends. But I have to give credit to BBBY because they’ve actively worked to reduce their share count. Too many buyback programs simply mask executive compensation.

    BBBY’s existing buyback program was down to $681 million on May 31. This new program will be wrapped up by the end of FY 2016, which is about 18 months from now. Since 2004, the home-furnishing store has bought back $6.6 billion worth of its stock. It’s painful for me to consider how many companies have wasted billions of dollars in profits buying back inflated shares.

    BBBY got a nice bump on Monday, and the shares nearly pierced $60 this week. The company still needs to deliver on its guidance for this year, but this buyback program is a strong vote of confidence from management. Bed Bath & Beyond remains a good buy up to $61 per share.

    Three Buy List Earnings Reports Next Week

    I’m writing this newsletter early on Friday. Later this morning, Wells Fargo ($WFC) is due to report their Q2 earnings. That will be our first Buy List stock to report this season. The bank has increased its earnings for the last 17 quarters in a row, and Wells has topped expectations for the last 10 quarters in a row. That streak may be in jeopardy this time around. Wall Street expects Wells to report $1.01 per share, along with a slight revenue decline.

    A few years ago, Wells Fargo went into mortgages in a big way, but backed off considerably last year and this year. They’re now the leading bank in the country, and their earnings report will be an important sign of how well the industry is faring. Keep up with the blog for details on their earnings report.

    For most of Wall Street, earnings season will heat up next week. As of now, I know of three Buy List stocks that are due to report next week: eBay on July 16, and Stryker and IBM on July 17. (There could be other earnings reports but some companies aren’t very good at communicating their plans.)

    Three months ago, eBay ($EBAY) said it expected Q2 earnings of 67 to 69 cents per share. Wall Street had been expecting 70 cents per share. Even though it was a small disappointment, the stock has not fared well. The shares have slid from nearly $60 in March to $48 recently. I think that’s a big overreaction.

    I also want to see what they have to say about their full-year guidance. In April, the online showroom reiterated guidance of $2.95 to $3.00 per share. That’s up from $2.71 last year. The stock closed the day on Thursday at $50.33, which is a bargain.

    Stryker ($SYK) is one of those companies that regularly churn out steady earnings increases. In 2012, they made $4.07 per share, and last year, they made $4.30 per share. For this year, Stryker has given guidance of $4.75 to $4.90 per share. Wall Street expects Q1 earnings of $1.09 per share. I think there’s an outside chance that Stryker will go for a big merger, or possibly be bought out. That seems to be the direction of the industry. Stryker remains a good buy up to $87 per share.

    IBM ($IBM) has been a disappointment this year. Big Blue has frustrated investors, and the shares lagged during much of the second quarter. The last earnings report wasn’t very good. Since the beginning of July, however, the stock has perked up. For next week’s earnings report, Wall Street expects $4.29 per share for Q2.

    One interesting angle is that IBM said it expects earnings of “at least” $18 per share for the entire year. Wall Street doesn’t buy it, but IBM hasn’t backed down. The Street’s consensus is at $17.87. More than earnings, IBM’s problem is topline growth. If their guidance is right, then IBM is going for just 10.5 times this year’s earnings. IBM is a buy up to $197 per share.

    A few more quick notes. Satya Nadella, the CEO of Microsoft ($MSFT), sent a company-wide e-mail yesterday. In it, he laid out his vision for the company. Although the e-mail wasn’t long on specifics, I like the way he’s taken over things there. MSFT will report earnings on July 22.

    Also, Ford Motor ($F) said they expect to turn a profit in Europe next year. That’s very good news. The automaker has been bleeding money in the Old World, but we know they’ve been working to turn things around. Ford got as high as $17.45 on Tuesday. I expect to hear more good results later this month.

    I also want to lower my Buy Below price on Ross Stores ($ROST) to $71 per share. I like Ross, but I want my Buy Below to reflect the stock’s disappointing spring.

    That’s all for now. Earnings season will start to heat up next week. Within a few days, we’ll get a sense of how strongly earnings are coming in. We’ll also get a few key economic reports. The Industrial Production report comes out on Wednesday, along with the Fed’s Beige Book. Housing starts and building permits are due out on Thursday. 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: July 11, 2014
    , July 11th, 2014 at 6:55 am

    Rising Bond Yields Point to Rate Rises

    Portugal’s BES Steadies Nerves, Losses Still a Puzzle

    Tobacco Companies Bolster a Bruised FTSE

    Germany Uncouples From Past With Post-Wall World Cup Bid

    World Has Ample Oil Now But Risks “Extraordinarily High” – IEA

    The U.S. Has Good Reason to Be Fed Up With China’s Economic Policy

    Money Market Fund Assets Rise $5.37 Billion

    Family Dollar Posts Lower Profit, as Carl Icahn Presses for a Sale

    Amazon Is Serious About Drones, Asks FAA For Permission To Start Test Flights

    Infosys Reports 21% Rise in Quarterly Profit

    German Auto-Parts Maker Launches Takeover Bid of TRW Automotive

    A Difficult Quarter Again Seen for Banks

    Reynolds and Lorillard in Talks to Sell Assets to Imperial

    Roger Nusbaum: The Most Important Investing Trait? Patience

    Howard Lindzon: Disney or CYNK…

    Be sure to follow me on Twitter.

  • My Thoughts on Competitive Advantage
    , July 10th, 2014 at 1:29 pm

    I’ve always been a bit unimpressed by studies of business management. I can’t get through the writings of Peter Drucker without feeling like I’m reading a list of Benjamin Franklin-like truisms, just loaded up with modern business jargon. “An apple a day keeps the doctor away” becomes “companies utilizing preventative management systems have proven to be a net reducer of future operating costs,” and so on.

    I’m reminded of fluffy TED talks that are long on anecdotes and iffy on data. Is a horizontal structure better than a vertical one? Beats me. I suppose it depends. Whatever works, works, and I don’t see the need to spin some grand theory out of it.

    With the ideas of Harvard professor Michael Porter, the leading guru on strategy and competitiveness, I take a more nuanced view. I’m inclined to think there are solid ideas in Porter’s work, but they’re buried under an overly mechanistic ideology (the five forces of this, the four corners of that).

    To me, Porter’s key insight is that the economist’s view of business is all wrong. Supply and demand and EMH are all fine and good for the textbooks, but a business is first and foremost concerned with differentiating itself and keeping competitors out. Perfect competition is for the birds.

    Ideally, you want to have a business with high barriers to entry and low barriers to exit, and you want to differentiate yourself with whatever it is you do. You can do that by exclusivity or by price. That’s your competitive advantage. Once you get that, then you get better managers, better advertising and a stronger brand name. But it starts with a competitive advantage.

    I think people often have difficulty with the concept of competitive advantage because they want to see sinister forces at work. And make no mistake: I do believe the tempering forces of free enterprise can sometimes break down and give a particular firm a lasting advantage that has nothing to do with its own inherent merit. It could be that they were in the right place at the right time.

    For example, many years ago, the Japanese government gave AFLAC a monopoly on selling cancer insurance, and this translates into a huge market share today. Naturally, this is unsettling to those of us raised on the idea that the world wants a better mousetrap. But the truth is, it doesn’t. It wants the one it’s heard of. Just like in politics, the incumbent holds a lot of power.

    Now I feel I must address the concept of First-Mover Advantage. This was a huge idea in the 1990s, and I think it served as unrecognized fuel for the Tech Bubble. The idea also goes by the name Winner-Take-All. (That was the name of a book in the 1990s, and the phrase turned up in Bill Clinton’s campaign speeches.)

    The idea is that an early entrant could establish an industry standard which remains in place simply because it’s already there. It’s not better—it’s just there. I can’t tell you how many times I was told that some Internet stock was just like the QWERTY keyboard. In the 1990s, Microsoft was an obvious example of a first mover that became enormously successful, but investors wanted to see were the next standard would be. There was even a magazine called the Industry Standard. Wikipedia tells us that “in 2000, it sold more ad pages than any magazine in America.” Unfortunately, the magazine achieved room temperature in August 2001.

    While being a first mover can certainly give one a competitive advantage, it doesn’t mean it will last. It’s also a bit more complicated than being first. For example, it’s nice to have lots of upgrade cycles.

    One of my friends who works with the U.S. Navy explained to me that there are only a handful of shipyards left that are capable of building modern, large-scale ships for the Navy. These shipyards have become, in effect, government sponsored quasi-monopolies. I doubt anyone wanted that to happen, but things turned out that way.

    This is an important point that Warren Buffett has often discussed. Nowadays, Buffett is the “aw shucks” face of nice-guy American capitalism, but it wasn’t always this way. In the 1970s, he and Munger bought the Buffalo Evening News. The Buffalo Courier-Express, a rival newspaper, did everything it could to make them seem like evil out-of-town capitalists. Buffett was beat up hard in the press, and I think that episode has stayed with him ever since.

    In the court case that followed, the opposing lawyer used Buffett’s words against him:

    Warren Buffett once said that owning a monopoly newspaper was like owning an unregulated toll bridge. His words were, “…in an inflationary world, a toll bridge would be a great thing to own if it was unregulated.” When he was asked for his rationale, he said, “Because you have laid out the capital cost. You build the bridge in old dollars and you don’t have to keep replacing it.” He was then questioned whether he used the term “unregulated” to mean the ability to raise prices. Buffett said, “That is true.”

    It sounds rough, but that’s about the best description of a competitive advantage I can think of. Investors should be on the lookout for these kinds of opportunities, but beware—a competitive advantage can be fleeting.

  • CYNK Technology +24,000%
    , July 10th, 2014 at 11:04 am

    Since June 17, CYNK Technology ($CYNK) is up nearly 25,000% — and it’s not clear if they exist.

    The company’s stock, which the folks at ZeroHedge first alerted us to, has gone from $0.10 on June 17 to $14.71 as of Wednesday’s close. At its current stock price, the company’s market cap is $4.29 billion.

    This is a gain of more than 24,000%. For some perspective, Apple, one of the most successful companies and stocks of the last generation, is up about 18,000% since it went public in 1980.

    But there is, as you could imagine, a slight problem with CYNK: It’s not clear if there’s any value to it.

    The website associated with the company is introbiz.com. On introbiz.com, under the “About IntroBiz” section, it states that, “Thru our marketplace you may both buy and sell the ability to socially connect to individuals such as celebrities, business owners, and talented IT professionals.”

    This premise, as we understand it, is basically a Facebook-like social network where you would pay IntroBiz (or CYNK, or whoever), to connect you with someone else.

    CYNK has been as high as $16.69 per share today.

  • Is a Consolidating Industry a Good Buy?
    , July 10th, 2014 at 10:57 am

    Here’s a thinking-out-loud post. And I have to warn you beforehand, I have no conclusions to draw. This is a lot of just me babbling. But bear with me.

    The issue I’ve been pondering lately is: Is an industry undergoing consolidation likely to be a good or bad investment?

    I lean towards thinking it’s a bad one, but I’m not fully convinced. The crux with a thought exercise such as this is that it deals with generalities, and it makes us focus on why a particular industry might be undergoing consolidation.

    On the plus side, an investor can do quite well if they own the target of a buyout. He can make a handsome premium overnight. But obviously, there are risks as well. Even announced deals can fall though. The acquisition target usually has to be a smaller player that offers something the big boys don’t have. The economics of the industry have to reach a point where it’s easier to buy market share rather than go out and work for it. On top of that, if financing is important, then the bond market has to cooperate as well. Sometimes, that means the junk-bond market.

    I often look at previous buyouts and quite frankly am baffled as to why a large organization which must have had a lot of smart folks working for it made such an obviously poor decision. Hindsight bias? Possibly. Yet all too often, Company A’s motives for buying Company B remain mysterious. It’s surprising how often the answer is nothing more complicated than they felt that they had to do it before Company C moved in. These moves are made by people who thought that they had no other option, or were choosing the least-worst option. Hence it’s good to be generous when judging the past.

    So what causes a merger wave in an industry? There are times when the driving force is a change in regulations. In 1999, Congress repealed parts of the Glass-Steagall Act, which spurred a wave of banking consolidation. In fact, Citicorp bought Travelers (to form Citigroup) before Congress acted. They forced the issue and assumed, correctly, that Congress would change the law. With a regulatory-related change, I would be hesitant to say that the industry in question is either good or bad for investors because so many variables are in flux. For example, I’m inclined to believe the big-tobacco settlement was very bullish for tobacco stocks, yet I’m not sure of the specifics.

    In my mind, the strongest bear argument against a consolidating sector is that it isn’t consolidating because it’s growing too fast. At some level, future growth is broadly seen as being in doubt. And that’s probably right.

    In a commodity-related business, a fall in the price of the commodity can spark a wave of consolidation. In the late 1990s, the price of oil dropped sharply, and in 1999, Exxon merged with Mobil to form ExxonMobil (I’m still surprised they haven’t dropped the Mobil part). The year before, British Petroleum and Amoco got hitched.

    It’s a matter of simple economies of scale: the variable costs are falling relative to fixed costs. You can bring two companies together and cut redundancy like accounting, legal and HR. Of course, these types of mergers are most likely preceded by lower share prices. If things turn around, then sure, it can be quite bullish.

    Yet for as much attention as mega-mergers get, their track record isn’t so impressive. AOL Time Warner comes to mind. Many mergers look great on paper, but it’s not so easy merging two different cultures. If the fixed costs are high enough, that can be a high barrier to entry—which I could see being worth paying a premium for.

    A merger wave can also be caused by surplus. There are simply more companies than are necessary. As an investor, I would be very wary of that situation.

    I also worry about mergers ruining good balance sheets. The companies are saddled up with large amounts of debt, and that can hurt margins which are already under pressure. Perhaps a consolidating industry is neither bearish nor bullish; it’s something that just happens.

    Overall, I’m leery of an industry that’s consolidating. The forces driving the mergers probably outweigh any perceived bargains.

  • Morning News: July 10, 2014
    , July 10th, 2014 at 6:47 am

    Euro Strength Defies Draghi’s Loosening Plans

    Rate Rise Chatter Grows As Bond Yields Climb

    China Agrees to Reduce FX Intervention ‘As Conditions Permit’

    China June Trade Data Misses Forecasts, Doubts Over Economy Linger

    Modi Budget Relies on India Revenue Boost as Subsidies Untouched

    DLF Leads Surge in Property Shares as Jaitley Plans REIT Rules

    Aussie Teens Show Financial Smarts

    Fed Saw Investors as Too Complacent on Risk as Exit Plan Evolves

    Hedge Fund to Give American Apparel a Lifeline

    Alcoa’s Q2 Earnings Top, Turn to Profit – Analyst Blog

    Boeing Sees 4.2% Gain in Airliner Market to $5.2 Trillion

    IndiGo Said in Talks With Airbus on $20.6 Billion Order

    Is Sun Valley All About the Guest List?

    Edward Harrison: The Fed is Already Creating the Next Bubble

    Cullen Roche: Brazil’s Soccer Collapse and Economic Waste….

    Be sure to follow me on Twitter.

  • QE to End in Q3
    , July 9th, 2014 at 2:24 pm

    The Federal Reserve just released the minutes from its June 17-18 meeting. One surprise is that the central bank plans to end QE with a big $15 billion taper in October.

    Here’s Binyamin Appelbaum in the New York Times:

    The Federal Reserve intends to end its bond-buying program in October provided the economy continues to grow, according to an account published Wednesday of the central bank’s most recent policy-making meeting.

    The minutes of the June meeting reflected the confidence of Fed officials that the economy had rebounded from a rough winter and their expectation that growth would continue over the next few years. But it also reflected the growing consensus that damage from the recession would continue to limit the pace of growth.

    The Fed plans to add $35 billion to its holdings of Treasury and mortgage-backed securities in July, $25 billion in August and September, and a final $15 billion in October, according to the account. The Fed had previously left unclear whether it might extend the purchases by adding $5 billion in November and December.

    The minutes said that ending the purchases in October rather than December was not intended to signal any change in the timing of the next step in the Fed’s retreat – the first increase in its benchmark interest rate since December 2008. Investors generally expect the Fed to start raising interest rates next summer.

    This is, you know, kinda big news. On Twitter, I wondered: “Why the heck wasn’t this in the last FOMC policy statement?”

    Appelbaum responded, “Really good question.”

  • Wells’ Profit Streak Likely to End
    , July 9th, 2014 at 12:36 pm

    Wells Fargo ($WFC) reports earnings on Friday. The bank has increased profits for the last 17 quarters in a row. That streak has probably come to an end. Wells has also beaten expectations for the last 10 quarters in a row.

    The bank turned to other businesses as 30-year home-lending rates rose more than 1 percentage point, curtailing mortgage refinancings. Lenders probably made $109 billion of such loans in the second quarter, down from $453 billion in the final period of 2012, according to the Mortgage Bankers Association. Total quarterly originations will stay below $300 billion through 2015, the Washington-based group forecasts.

    Wells Fargo, which accounted for about 28 percent of U.S. mortgages in the first quarter of 2012, watched that share decline to 16 percent two years later. Mortgage-banking revenue slumped to $1.51 billion from $2.87 billion in the same period.

    Stumpf, 60, mostly left investment banking and trading to Wall Street before the 2008 purchase of Wachovia Corp. Wells Fargo’s push into those businesses drew a nod in February from JPMorgan CEO Jamie Dimon, whose firm was the largest global investment bank by revenue in 2013, according to data compiled by Bloomberg Industries.

  • Stocks and Buyback Correlation = 0.61
    , July 9th, 2014 at 12:03 pm

    You should read the whole thing, but I wanted to share three sentence from Mark Hulbert’s latest.

    New stock buybacks fell to $23.2 billion in June, the lowest level in a year and a half, according to fund tracker TrimTabs Investment Research. In May, the total was just $24.8 billion, and the monthly average in 2013 was $56 billion.

    (…)

    According to Santschi, the correlation coefficient between monthly buyback volume and the stock market’s level, for the period from 2006 until this spring, was 0.61.

    (…)

    Over the past five years, for example, per-share sales growth for S&P 500 companies has been an annualized 2.4%, lagging far behind the 20% annualized earnings per share growth rate.