Archive for November, 2014

• Morning News: November 6, 2014
  Eddy Elfenbein, November 6th, 2014 at 6:33 am

  Draghi Tests Limits of Power as ECB Enters 2014 Endgame

  German Factory Orders Rise Less Than Forecast as Growth Stalls

  Credit Agricole Slams Government Policy as Weak France Drags on Q3 Banking Results

  Companies Sign Secret Tax Deals With Luxembourg

  John Sfakianakis on Falling Oil Prices’ Impact on the Middle East

  Time Warner Profit Beats Third-Quarter Estimates

  America’s Big Car Comeback and the Twilight of Pure Driving

  Tesla Pledges to Boost Output as Loss Widens

  Whole Foods Shares Are Soaring

  Siemens Says Profits Jump 25% in Year Ended September

  Chinese PC Maker Lenovo Reports 19% Rise in Profits

  AstraZeneca Lifts Sales Forecast as Nexium Keeps on Giving

  Qualcomm Says FTC Is Investigating It

  Roger Nusbaum: Will Robo Advisors Kill The Financial Services Industry?

  Cullen Roche: Thoughts on the Inherent “Unfairness” of Capitalism

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• Ireland Isn’t in the UK
  Eddy Elfenbein, November 5th, 2014 at 5:40 pm

  For the record, the Republic of Ireland is not part of the UK.

• Qualcomm Misses Earnings
  Eddy Elfenbein, November 5th, 2014 at 4:28 pm

  Qualcomm ($QCOM) just reported fiscal Q4 earnings of $1.26 per share. That’s five cents below estimates. Revenue rose 3% to $6.69 billion which was below consensus estimates of $7.016 billion. For the year, Qualcomm earned $5.27 per share which was an increase of 17% from last year.

  For this quarter (ending in December), Qualcomm sees EPS ranging between $1.18 and $1.30. Wall Street had been expecting $1.43 per share. They expect sales to be between $6.6 billion and $7.2 billion.

  For this current fiscal year, Qualcomm expects earnings between $5.05 and $5.35 per share, and revenue between $26.8 billion and $28.8 billion.

• Q3 Earnings Season Calendar
  Eddy Elfenbein, November 5th, 2014 at 10:08 am

  We’re now in third quarter earnings season. Sixteen of our 20 Buy List stocks have quarters that ended in September. Here’s a list of each stock’s projected earnings date along with Wall Street’s current estimates and the earnings results. Please note that some of these dates may change.

  Stock	Symbol	Date	Estimate	Result
  Wells Fargo	WFC	14-Oct	$1.02	$1.02
  eBay	EBAY	15-Oct	$0.67	$0.68
  Stryker	SYK	16-Oct	$1.14	$1.15
  International Business Machines	IBM	20-Oct	$4.32	$3.68
  McDonald’s	MCD	21-Oct	$1.37	$1.51
  CA Technologies	CA	22-Oct	$0.62	$0.65
  CR Bard	BCR	22-Oct	$2.10	$2.15
  Microsoft	MSFT	23-Oct	$0.49	$0.54
  Ford Motor Company	F	24-Oct	$0.19	$0.24
  AFLAC	AFL	28-Oct	$1.43	$1.51
  Fiserv	FISV	28-Oct	$0.84	$0.86
  Express Scripts	ESRX	28-Oct	$1.29	$1.29
  Moog	MOG-A	31-Oct	$1.08	$1.12
  Qualcomm	QCOM	5-Nov	$1.31	$1.26
  Cognizant Technology Solutions	CTSH	5-Nov	$0.59	$0.66
  DirecTV	DTV	6-Nov	$1.30	$1.33

• Cognizant Tech Earns 66 Cents per Share
  Eddy Elfenbein, November 5th, 2014 at 8:45 am

  Good earnings news this morning from Cognizant Technology Solutions ($CTSH). The company earned 66 cents per share which was seven cents more than expectations. Quarterly revenues rose 11.9% to $2.58 billion.

  For Q4, Cognizant sees earnings of at least 63 cents per share. Wall Street had only been expecting 59 cents per share. That would bring full-year earnings to at least $2.57 per share. CTSH also said they expect revenues to range between $2.61 and $2.64 billion. That was above the Street’s forecast of $2.59 billion. When CTSH was hit three months ago, it was due to concerns about their top-line growth.

  “Revenue growth was slightly ahead of our revised forecast and, as expected, non-GAAP operating margins were within our target range of 19-20% as we absorbed the impact of annual wage increases during Q3,” said Karen McLoughlin, Chief Financial Officer. “Our balance sheet remains strong as cash and short term investments increased during the quarter by almost $500 million to $4.6 billion. Later this quarter, we anticipate utilizing $1.7 billion of this cash, in addition to $1 billion of floating rate debt through a syndicated term loan, to fund the previously announced acquisition of TriZetto.”

  The shares have been up by as much as 6% today. That’s on top of the 11% rally over the 11 days going into earnings season.

• Morning News: November 5, 2014
  Eddy Elfenbein, November 5th, 2014 at 7:09 am

  Dollar Up After U.S. Elections, Euro Weakness to Test SNB’s Floor

  Euro Area Limping Toward Deflation Fuels QE Calls as ECB Meets

  Russian Central Bank Moves Towards Rouble Float With Intervention Cap

  WTO Impasse Due to Unreasonable Posturing By Rich Nations: FM Jaitley

  Republicans Gain From Voter Dissatisfaction Over Economy

  Invesco Fund Treads Risky Path as Major Investor in Distressed Corporate Debt

  Eldorado Gold Said to Weigh $1.5 Billion Sale of China Mines

  Alibaba’s Revenue Up 54% in First Quarter as Publicly Traded Company

  Sysco Reports First Quarter Diluted EPS of $0.47

  ING Group Moves Up Final Payment of Bailout Money to Dutch Government

  Toyota Raises Full-Year Profit Forecast

  CVS Revenue Rises on Strength at Pharmacy

  Hannover Re ‘Confident’ of Meeting Full-Year Target

  Cullen Roche: What if the Fed Isn’t the Wizard Behind the Economic Curtain?

  Joshua Brown: Corporate America Goes to the Polls

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• Morning News: November 4, 2014
  Eddy Elfenbein, November 4th, 2014 at 6:46 am

  ECB’s Coeure Presses Euro Zone Governments to Reform Economies

  EU Cuts Growth Outlook as Inflation Seen Below ECB Forecast

  Santander Profit Rises

  Korean Dividend Worries Spur $2 Billion Foreign Outflows

  Macau Oct Gaming Revenues Set For Worst Drop on Record

  U.S. Deficit Decline to 2.8% of GDP Is Unprecedented Turn

  Oil Just Crashed To A 3-Year Low

  J.P. Morgan Being Probed by Justice Department

  Dish Posts Revenue Below Estimates As It Loses Pay-TV Users

  Sprint to Cut 2,000 Jobs as Mobile Customers Keep Leaving

  Sysco Shares Fall As Merger Hits a Snag

  SUV Sales Help BMW Earnings

  Hollywood Works to Maintain Its World Dominance

  Jeff Carter: Big Business Embraces The Crowd

  Credit Writedowns: Home Prices Since 1870: No Price Like Home

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• The Falling Yen
  Eddy Elfenbein, November 4th, 2014 at 12:11 am

  Nothing profound to say here, just stunned by the dramatic fall of the yen versus the dollar.

  

• UK Government to Pay Off Old War Debts
  Eddy Elfenbein, November 3rd, 2014 at 7:14 pm

  The Wall Street Journal has an interesting story today. Her Majesty’s government is preparing to pay off some of its debts…some of its reeeeally old debts.

  In 1927, Winston Churchill, Chancellor of the Exchequer, consolidated a bunch of outstanding war debt into one big bond. The bond was a callable perpetuity, meaning it never matured but the government could call it in at any time. That’s what they’re doing now. The coupon is 4%.

  A bond with infinite maturity is often referred to as a consol bond (or a perpetuity), but the name comes from consolidation, which the government did a few times with a mass of outstanding debt.

  The 4% Consols includes debt dating back to the Napoleonic War. Now that interest rates have dropped, it’s in the government’s best interest to get rid of the higher-yielding bonds. The WSJ adds that the War Loan from 1932 may be next to be bought out.

  The 1932 War Loan has a complicated history. That year, Neville Chamberlain announced that the government would call its 5% War Loan. Bondholders were given the option of taking cash or continuing to hold the bond, but at 3.5%. This was technically legal, but some say that it was a default by the UK government. There’s about 2 billion pounds left of this bond.

  A reader writes in to say:

  Sorry, but you have botched this story. Don’t worry, because almost everyone does, including Reinhard and Rogoff.

  The correct story is that the 1917 War Loan was issued at 5% as a callable Bond 1929/42. In other words callable any time after 1929 and before 1942. That was specified in the Prospectus, so everyone knew they were buying callable Bond.

  In 1931 the Government announced that it was calling the Bond – note, not changing the coupon – by redeeming it at full face value, and holders had a choice of being paid out in cash, or in a new 1932 War Loan at 3.5%. I sort of assume we don’t call redeeming a Bond at full face value a “default”, do we?

  The reasons for calling the Bond was simple; by 1932 interest rates had fallen from 1917’s 5% to 3.5%.

  When the Bond was called, 8% of the holders chose to be paid out in cash, and 92% exchanged the 1917 loan for the 1932 loan. Why? it’s simple; if they took cash, they would only be able to invest it at 3.5% anyway, so taking the new 1932 Bond was a wash.

  As for the ‘some say”, well of course some say. “Some say” because they want to be able to pin a default on an otherwise perfect record. Now ask yourself why the UK would want to pin a default on its own perfect record.

  I’m remind of the saying that nothing’s as surprising as the past.

• The Strong Dollar Trade Is Back
  Eddy Elfenbein, November 3rd, 2014 at 5:44 pm

  A few weeks ago, I wrote a lot about the Strong Dollar Trade. This was a shift in the market characterized by a surge in the U.S. dollar, lower bond yields, lagging small caps and energy stocks and plunging gold.

  The Strong Dollar Trade softened up the market for what I’ll call our brief Ebola Panic, which came as quickly as it went. But the S&P 500 hit an all-time on Friday and reached another one today. The index got as high as 2,024.46 during today’s trading, although today’s close was just a hair below Friday’s close.

  But we’re still seeing much of the Strong Dollar Trade in action. Small-caps lagged today. Energy stocks are as weak as ever. Gold had a brief rally, but that’s fallen on its face. Gold is now the lowest it’s been in more than four years.

  In Japan, the government announced new stimulus measures which weakened the yen even further. Note how AFLAC ($AFL) sat out Friday and Monday’s rally, despite last week’s good earnings report. Two years ago, the yen was going 80 for the dollar. Now it’s down to 140 to the dollar. That’s a stunning fall.

  A few quick notes to add: CA Technologies ($CA) has rallied 14.3% since October 13. This stock drives me crazy but that’s a nice rebound. Also, shares of Bed Bath & Beyond ($BBBY) have been slowing crawling their way back. Today, BBBY closed at its highest price in nearly seven months. Lastly, I dropped JPMorgan Chase ($JPM) from this year’s Buy List. At the time, it was a tough call. Given today’s news of a criminal probe, I’m so relieved they’re no longer on the Buy List. The shares are down more than 4% for the year.