Archive for July, 2014

• Life Imitates Parody
  Eddy Elfenbein, July 9th, 2014 at 11:55 am

  Yesterday, Bloomberg ran this headline:

  Concern Over ‘Severe’ Pullback Sends U.S. Stocks Lower

  As a joke, I tweeted this three months ago:

  Stocks Are Down on Fears of Lower Share Prices

• The One- and Two-Year Treasuries
  Eddy Elfenbein, July 9th, 2014 at 11:45 am

  I thought this was a simple but fascinating graph. It shows the yields for the one- and two-year Treasuries.

  The difference between the red and blue line reflects the expectations that the red line will increase. The wider the spread, the more the red line is expected to rise over the next year. In 2009, those expectations were massively wrong. Gradually, the spread got narrower and narrower until 2011 and 2012 when there was very little difference.

  In the last year, there’s finally been some daylight between the two lines. While the one-year yield hasn’t moved much, the two-year is beginning to creep higher. It recently cracked 0.5%. By looking at the two lines we can infer where the market expects the one-year yield to be one year hence.

  The takeaway is that the market expects the Federal Reserve to do nothing to interest rates in the short term, but it expects an increase about one year from today.

• NYT on James H. Simons
  Eddy Elfenbein, July 9th, 2014 at 11:31 am

  The New York Times profiles James H. Simons, the only person who’s ever made money off math:

  Dr. Simons received his doctorate at 23; advanced code breaking for the National Security Agency at 26; led a university math department at 30; won geometry’s top prize at 37; founded Renaissance Technologies, one of the world’s most successful hedge funds, at 44; and began setting up charitable foundations at 56.

  This year, he was elected to the National Academy of Sciences, an elite body that Congress founded during Lincoln’s presidency to advise the federal government.

  With a fortune estimated at $12.5 billion, Dr. Simons now runs a tidy universe of science endeavors, financing not only math teachers but hundreds of the world’s best investigators, even as Washington has reduced its support for scientific research. His favorite topics include gene puzzles, the origins of life, the roots of autism, math and computer frontiers, basic physics and the structure of the early cosmos.

  Wow.

• Ford Close to Breakout
  Eddy Elfenbein, July 9th, 2014 at 11:25 am

  Shares of Ford ($F) got as high as $17.38 today. That’s two pennies shy of its highest price since October. After getting crushed in Europe, the automaker sees a profit coming soon.

  Ford Motor Co., targeting an end to losses in Europe, maintained its forecast to return to profitability in the region by 2015, as it reported auto sales for the first six months that outpaced the broader industry.

  “We are very, very pleased with where we are on our European transformation plan,” Stephen Odell, Ford’s Europe chief, told reporters today at the company’s headquarters in Dearborn, Michigan.

  Auto sales in Europe are growing this year after falling to a two-decade low in 2013. The company has said it expects a smaller loss in the region this year and a return to profitability in 2015. The second-biggest U.S. automaker’s pretax operating loss in Europe narrowed to $194 million during the first quarter from a loss of $425 million during the same period last year.

  Ford’s sales in Europe this year through June rose 6.6 percent from a year earlier, outpacing industry growth of 6.3 percent, the company said. For the first six months, the automaker’s market share in Europe, which it defines as 20 nations, was about 8 percent.

  Earnings are due out in two weeks. Wall Street expects earnings of 38 cents per share which is down from 45 cents for last year’s Q2.

• Morning News: July 9, 2014
  Eddy Elfenbein, July 9th, 2014 at 6:47 am

  Why UBS Says Brazil’s 7-1 Trouncing Is Bearish for Stocks

  Wall Street Aims to Clear Low Bar For Earnings Season

  Why Alcoa Gained and The Container Store Tumbled As Earnings Season Kicks Off

  Trucks Left In The Dust as China Vehicle Market Races Ahead

  Chinese Teens Beat U.S. Peers in Money Smarts

  Vatican Bank Profits Tumble as Pope Francis Orders an Overhaul

  Carlos Slim to Dismantle Mexican Empire

  FOMC Minutes Loom Large

  Fed’s Kocherlakota Gives Lukewarm Welcome to U.S. Unemployment Drop

  Citigroup Is Said to Be Close to Settling Inquiry Into Mortgage Securities

  Amazon Offers Authors 100% of Sales Amid Dispute

  European Companies See Opportunity in the ‘Right to Be Forgotten’

  GM Korea Workers Approve Strike as Wage Talks Stall

  Joshua Brown: 361 Capital Weekly Research Briefing

  Jeff Carter: How to Kill Your Company

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• Capitalism – Born in England, Nourished in America
  Eddy Elfenbein, July 8th, 2014 at 11:25 pm

  Capitalism – Born in England, Nourished in America

  By Gary Alexander
  Navellier Marketmail

  The Bank of England was born 320 years ago, in July 1694. Here’s a short description of that important event from “War and Gold: A 500-Year History of Empires, Adventures and Debt,” by Kwasi Kwarteng:

  “The setting up of the Bank of England allowed the government to borrow more cheaply. The initial amount raised was 1.2 million pounds at a time when total government spending in any given year was not much more than this sum. This money was raised by individuals pledging or ‘subscribing’ to lend certain amounts…There was an initial cap of 20,000 pounds for each individual subscription.

  “The subscription books were opened in the Mercers’ Chapel on 21 June, 1694. A total of 300,000 pounds, a quarter of the initial sum, was subscribed on the first day. By noon on 2 July, in less than 11 days, the whole of the amount had been raised. There were over 1,200 subscribers and the very first names on the list were those of the King and the Queen, who subscribed 10,000 pounds jointly.”

  The Bank of England, in turn, paid 8% a year interest, a relatively high rate even then. The Bank of England was privately owned for over 250 years, until it was nationalized by Atlee’s Labor Party in 1946.

  In his 1930 Treatise on Money, British economist John Maynard Keynes wrote that the modern age began with the accumulation of capital in the 16th century, “which resulted from the treasure of gold and silver which Spain brought from the New World to the Old.” Keynes claimed this “profit inflation… created the modern world.” Capital creation “commenced in 1519 when the Aztec spoils arrived, and terminated as early as 1588, the year of the Armada.” However, Spain’s power soon eclipsed because it spent its gold on Armadas, rather than banking it and using the new assets as the basis for loans.

  The British and the Dutch were able to build banking and stock market systems, while Spain created sinking assets – wooden ships. France also went the wrong direction. In the same year the Bank of England was founded, 1694, Scotsman John Law fought a duel in London, killing Edward Wilson. Law was sentenced to death, but he mysteriously escaped and fled to Amsterdam, where he picked up some lessons from Europe’s oldest stock exchange, founded in 1609 by the Dutch East India Company. Law then migrated to France where he created one of the great bubbles of all time, the Mississippi Company. His unique idea was to sell paper representing the hope of finding gold or silver in swampy delta land.

  John Law consolidated the considerable debts of the spendthrift kings of France by creating shares in this pipedream of gold in America, specifically along the Mississippi River. Shares multiplied 60 fold from 1716 to 1719. Like 1929 or 1999, commoners reaped princely fortunes. Law promised that France would dominate all of Europe, and he could “ruin England and Holland” whenever he pleased, but Law’s Papier-mâché empire fell apart in early 1720 and Law fled Paris to seek his fortune in other European cities.

  While France’s fortunes faded – in part due to the despotism which grew out of the French Revolution (225 years ago next Monday) – Britain continued to prosper throughout the 1800s. Between the fall of Napoleon in 1815 and World War I in 1914, Britain’s per capita wealth quadrupled, in real terms.

  British historian Niall Ferguson wrote in The Cash Nexus that “Between 1816 and 1899, the UK government ran a deficit in excess of 1% of GNP in only four years.” This was the golden era, literally. Historian A.J.P. Taylor wrote in The Origins of the Second World War that the British people “reared in the stable economic world of the later nineteenth century” assumed that “a country could not flourish without a balanced budget and a gold currency.” The terrors of World War I put an end to that belief.

• Reynolds and Lorillard Look to Merge
  Eddy Elfenbein, July 8th, 2014 at 2:23 pm

  One of my former Buy List stocks, Reynolds American ($RAI), is looking at a major merger with Lorillard ($LO). No deal has come forth yet, but both companies seem to be seriously interested. There’s been talk about some sort of deal for a long time, but now, it’s getting serious. I think we can expect some news by the end of the month.

  Tobacco has been a great sector for investors and both stocks have done very well over the last several years. There are a lot of hurdles to a potential RAI-LO deal (legal, anti-trust, divestitures, etc.) Right now, the tobacco industry is very profitable. They’re not exactly monopolies, but some of the dynamics are the same. RAI pays a big fat dividend of 4.3%.

  Overall, I’m not a big fan of deals like this. I think both companies would rather not do this deal. Mergers done out of fear are often bad omens. My other concern is that after years of above-market gains, these stocks are no longer the bargains they used to be.

  

• The Bond Market Is Holding Up
  Eddy Elfenbein, July 8th, 2014 at 10:18 am

  The stock market is down again today. The S&P 500 is currently holding around 1,966. What’s interesting is that the small-caps have been in serious retreat. The little guys have been trailing the market since the beginning of the month. The Russell 2000 broke 1,200 last week. It’s now close to 1,170. Remember that that index tends to be weighted towards domestic manufacturers.

  I continue to be surprised by the strength of the bond market. Despite more evidence of a stronger jobs market, and a wee bit more inflation, Treasury yields are holding firm. The yield on the 10-year had bounced up to 2.7% last week, but it’s now back down to 2.57%.

  There’s not much going on in the market until earnings season begins later this month. Alcoa ($AA) is the first major company to report after today’s close. But after that, there’s not much until Wells Fargo ($WFC) reports on Friday.

  Shares of Amazon ($AMZN) are weak today. The stock plunged from $408 in January to $284 by May. It’s been trying to rally since then. I’ve always thought Amazon was way overpriced and I’ve been consistently wrong about that.

• Morning News: July 8: 2014
  Eddy Elfenbein, July 8th, 2014 at 6:46 am

  Euro’s Reserve Appeal Fades as ECB Prompts Decline

  Macro Horizons: More Bad News From Germany

  Commerzbank Said Next to Face Penalties in U.S. Probe

  Here’s What Temasek Bought Over the Past Year

  Brent Oil Erases Iraqi Rally in London as Futures Retreat

  Gold Shines Again as Hedge Funds Boost Wagers on Advance

  Soybeans Slide for Seventh Session on Harvest Prospects

  Smartphones Weigh on Samsung Elec as Guidance Disappoints

  GM Korea CEO Warns of Output Cut as Strike Vote Looms

  BMW Brand Auto Sales up 7.3% in June in China, US

  Air France-KLM Shares Hit by Profit Warning

  Crumbs, The Cupcakery That Couldn’t, Closes Up Shop

  Box Raises $150 Million In Cash And Reports 2014 Sales Growth As It Crawls Toward IPO

  Epicurean Dealmaker: You Go First

  Howard Lindzon: Web Video Mega Trend Continues, The Future of (Digital) TV… and a TubeMogul Update

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• Morning News: July 7, 2014
  Eddy Elfenbein, July 7th, 2014 at 6:52 am

  European Stocks Drop With Treasuries as Commodities Fall

  Lagarde: Global Economic Recovery Could Be ‘Less Robust Than Expected’

  China Q2 GDP Seen Steady at 7.4%, Recovery In Sight As Stimulus Kicks In

  Oil Slips Towards $110 as Supply Fears Fade

  Defense Trade Coming Undone in $2 Trillion S&P 500 Rally

  Carney’s Hawkish Turn Seen Setting Fashion for Yellen

  Gowex, The Spanish Wi-Fi Firm, Admits to False Accounts For Four Years

  Still-Divided Washington Readies for Start of Recreational Marijuana Sales

  Helvetia Agrees to Buy Nationale Suisse for $2 Billion

  TeliaSonera Agrees to Buy Tele2 Norway for $744 Million

  ADM Expands Food-Ingredient Offering with Acquisition of WILD Flavors

  Lafarge, Holcim Lay Out Asset Sales Needed for Merger

  In Discounter War, Will Aldi’s Coke Rush Fall Flat?

  Credit Writedowns: The Euro Crisis: Muddling Through, or The Way To a More Perfect Euro Union?

  Jeff Miller: Weighing the Week Ahead: Time for a Mid-Course Correction?

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