Archive for June, 2015

• Morning News: June 26, 2015
  Eddy Elfenbein, June 26th, 2015 at 7:03 am

  Chinese Stock Indexes Plunge

  Chinese Stock Plunge Leaves State Media Speechless

  New Partnership Aims To Improve Consumer Lending In China

  Why It Won’t Be a Default If Greece Misses IMF Payment Next Week

  IMF to Fed: Drop the Dots

  Supreme Court Allows Nationwide Healthcare Subsidies

  Jeb Hensarling’s Fight Against Ex-Im Bank Succeeds, For The Moment

  Capital One, Apollo Among Bidders for GE Health-Care Lender

  Aetna Closing In on Deal to Acquire Humana

  Charter Lists Consumer Benefits to Win Merger Approval

  Is Greece Lehman Brothers, Or Is It RadioShack?

  Sorry Not Sorry: Why CEOs Need To Apologize More

  Whole Foods Is Ripping You Off (And It Has Been For Years)

  Jeff Carter: Entrepreneurship is About Overcoming Obstacles

  Howard Lindzon: Robinhood Just Made ‘Passive’ Investing Easier Than Ever

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• Personal Spending Rises 0.9%
  Eddy Elfenbein, June 25th, 2015 at 12:03 pm

  This morning, the government said that personal spending rose by the most in nearly six years. In May, PCE jumped 0.9% which beat Wall Street’s estimates of 0.7%. Initial jobless claims rose by 3,000 but are still quite low. This is the 16th week in a row they’ve been below 300,000.

  Bloomberg notes that the S&P 500 is going for its ninth-straight week without a move of more than 1%. That’s the longest streak since August 1993.

  Insurance stocks are doing well thanks to the Supreme Court’s Obamacare ruling. Eli Lilly (LLY) is up 4.7% and UnitedHealth Group (UNH) is up 2.8%. On our Buy List, AFLAC (AFL) and Express Scripts (ESRX) are doing quite well today.

  Bed Bath & Beyond (BBBY) is down today after its soggy earnings report, but only by 2.4%. I was afraid it might be worse.

  It’s hard to provide an update on the situation in Greece as headlines are changing so quickly. The EU and Greek government haven’t yet reached a deal and time is running out. Plus, the banking system looks ever-more fragile as people pull out their money.

• Morning News: June 25, 2015
  Eddy Elfenbein, June 25th, 2015 at 7:14 am

  Dueling Greece Plans Presented as Ministers Race for Aid Deal

  Austria Bemoans Greek Lack of Urgency

  ECB Holds Athens Lifeline Unchanged as Bundesbank Protests

  Businesesses Worry About Shouldering Burden of Greek Debt

  China Moves to Scrap Rule Limiting Bank Loans to 75% of Deposits

  Slower Quarters Leave U.S. Economy’s Expansion Stuck in First Gear

  TransUnion Valued at $4 Billion in I.P.O.

  Monsanto Quarterly Earnings Outdo Analysts’ Expectations

  Disney Raises Dividend 15%, Will Start Paying Semi-Annually

  Vivendi Boosts Telecom Italia Stake as Brazil Decision Looms

  Options Bears Take Fresh Stab at Biotech Amid Rally Topping 500%

  The Rise of the Compliance Guru – And Banker Ire

  Takata Chief Apologizes For Airbag Problems

  Joshua Brown: Chart o’ the Day: Global Growth Outlook by Country

  Cullen Roche: Where Does Money Come From?

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• Bed Bath & Beyond Earns 93 Cents per Share
  Eddy Elfenbein, June 24th, 2015 at 4:38 pm

  Bed Bath & Beyond (BBBY) just reported fiscal Q1 earnings of 93 cents per share. That was one penny below expectations. The stock is down after-hours. Honestly, I was afraid it was going to be worse.

  For the first quarter of fiscal 2015, the Company reported net earnings of $.93 per diluted share ($158.5 million) compared with net earnings for the first quarter of fiscal 2014 of $.93 per diluted share ($187.1 million). Net sales for the first quarter of fiscal 2015 were approximately $2.738 billion, an increase of approximately 3.1% from net sales of approximately $2.657 billion reported in the first quarter of fiscal 2014. Comparable sales in the first quarter of fiscal 2015 increased by approximately 2.2%, compared with an increase of approximately 0.4% in last year’s fiscal first quarter. Comparable sales for the first quarter of fiscal 2015 include an approximate 0.3% unfavorable impact from the year over year change in the Canadian currency exchange rate.

  For fiscal Q2, which is more than half over, Bed Bath sees earnings ranging between $1.18 and $1.23 per share. The Street had been expecting $1.23 per share.

  The Company is modeling a 2.0% to 3.0% increase for comparable sales for the fiscal 2015 second quarter and continues to model a 2.0% to 3.0% increase for the remainder of the year. Net earnings per diluted share are modeled to be in the range of $1.18 to $1.23 for the fiscal 2015 second quarter and to be between relatively flat and a mid-single digit percentage increase for the fiscal full year.

  Here are some quarterly financial stats going back a few years.

  Quarter	Sales	Gross Profit	Operating Profit	Net Profit	EPS
  May-99	$356,633	$146,214	$28,015	$17,883	$0.06
  Aug-99	$451,715	$185,570	$53,580	$33,247	$0.12
  Nov-00	$480,145	$196,784	$50,607	$31,707	$0.11
  Feb-00	$569,012	$238,233	$77,138	$48,392	$0.17
  May-00	$459,163	$187,293	$36,339	$23,364	$0.08
  Aug-00	$589,381	$241,284	$70,009	$43,578	$0.15
  Nov-01	$602,004	$246,080	$64,592	$40,665	$0.14
  Feb-01	$746,107	$311,802	$101,898	$64,315	$0.22
  May-01	$575,833	$234,959	$45,602	$30,007	$0.10
  Aug-01	$713,636	$291,342	$84,672	$53,954	$0.18
  Nov-02	$759,438	$311,030	$83,749	$52,964	$0.18
  Feb-02	$879,055	$370,235	$132,077	$82,674	$0.28
  May-02	$776,798	$318,362	$72,701	$46,299	$0.15
  Aug-02	$903,044	$370,335	$119,687	$75,459	$0.25
  Nov-03	$936,030	$386,224	$119,228	$75,112	$0.25
  Feb-03	$1,049,292	$443,626	$168,441	$105,309	$0.35
  May-03	$893,868	$367,180	$90,450	$57,508	$0.19
  Aug-03	$1,111,445	$459,145	$155,867	$97,208	$0.32
  Nov-04	$1,174,740	$486,987	$161,459	$100,506	$0.33
  Feb-04	$1,297,928	$563,352	$231,567	$144,248	$0.47
  May-04	$1,100,917	$456,774	$128,707	$82,049	$0.27
  Aug-04	$1,273,960	$530,829	$189,108	$120,008	$0.39
  Nov-05	$1,305,155	$548,152	$190,978	$121,927	$0.40
  Feb-05	$1,467,646	$650,546	$283,621	$180,980	$0.59
  May-05	$1,244,421	$520,781	$150,884	$98,903	$0.33
  Aug-05	$1,431,182	$601,784	$217,877	$141,402	$0.47
  Nov-06	$1,448,680	$615,363	$205,493	$134,620	$0.45
  Feb-06	$1,685,279	$747,820	$304,917	$197,922	$0.67
  May-06	$1,395,963	$590,098	$148,750	$100,431	$0.35
  Aug-06	$1,607,239	$678,249	$219,622	$145,535	$0.51
  Nov-07	$1,619,240	$704,073	$211,134	$142,436	$0.50
  Feb-07	$1,994,987	$862,982	$309,895	$205,842	$0.72
  May-07	$1,553,293	$646,109	$154,391	$104,647	$0.38
  Aug-07	$1,767,716	$732,158	$211,037	$147,008	$0.55
  Nov-08	$1,794,747	$747,866	$203,152	$138,232	$0.52
  Feb-08	$1,933,186	$799,098	$259,442	$172,921	$0.66
  May-08	$1,648,491	$656,000	$118,819	$76,777	$0.30
  Aug-08	$1,853,892	$739,321	$187,421	$119,268	$0.46
  Nov-08	$1,782,683	$692,857	$136,374	$87,700	$0.34
  Feb-09	$1,923,274	$785,058	$231,282	$141,378	$0.55
  May-09	$1,694,340	$666,818	$142,304	$87,172	$0.34
  Aug-09	$1,914,909	$773,393	$222,031	$135,531	$0.52
  Nov-09	$1,975,465	$812,412	$245,611	$151,288	$0.58
  Feb-10	$2,244,079	$955,496	$370,741	$226,042	$0.86
  May-10	$1,923,051	$775,036	$225,394	$137,553	$0.52
  Aug-10	$2,136,730	$874,918	$296,902	$181,755	$0.70
  Nov-10	$2,193,755	$896,508	$305,110	$188,574	$0.74
  Feb-11	$2,504,967	$1,076,467	$461,052	$283,451	$1.12
  May-11	$2,109,951	$857,572	$288,948	$180,578	$0.72
  Aug-11	$2,314,064	$950,999	$371,636	$229,372	$0.93
  Nov-11	$2,343,561	$958,693	$357,020	$228,544	$0.95
  Feb-12	$2,732,314	$1,163,669	$550,765	$351,043	$1.48
  May-12	$2,218,292	$887,199	$313,398	$206,836	$0.89
  Aug-12	$2,593,015	$1,032,669	$365,137	$224,330	$0.98
  Nov-12	$2,701,801	$1,074,010	$361,649	$232,750	$1.03
  Feb-13	$3,401,477	$1,394,877	$598,034	$373,872	$1.68
  May-13	$2,612,140	$1,032,971	$323,101	$202,490	$0.93
  Aug-13	$2,823,672	$1,113,484	$389,766	$249,304	$1.16
  Nov-13	$2,864,837	$1,121,690	$374,647	$227,197	$1.12
  Feb-14	$3,203,314	$1,297,437	$527,073	$333,299	$1.60
  May-14	$2,656,698	$1,030,885	$300,701	$187,052	$0.93
  Aug-14	$2,944,905	$1,134,045	$368,741	$223,953	$1.17
  Nov-14	$2,942,980	$1,128,974	$352,683	$225,408	$1.23
  Feb-15	$3,336,593	$1,325,875	$532,168	$321,061	$1.80
  May-15	$2,738,495	$1,044,133	$273,269	$158,451	$0.93

• Q1 GDP Revised Higher to -0.2%
  Eddy Elfenbein, June 24th, 2015 at 12:58 pm

  The first quarter was bad for the economy but not quite as bad as previously thought. This morning, the government revised Q1 GDP up to -0.2%. That matches what the Street had been expecting.

  The harsh winter weather and port delays that damped growth at the start of the year have given way to increases in consumer spending and housing, bolstering Federal Reserve projections that the setback was temporary. Still, pockets of weakness remain as lower oil prices continue to hinder investment in the energy industry and a firm dollar restrains global sales.

  “What we are seeing here does validate the story that the first-quarter weakness was transitory,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, who correctly forecast GDP. “The consumer is coming back to overall decent growth.”

• Ford Rallies on Goldman Upgrade
  Eddy Elfenbein, June 24th, 2015 at 12:06 pm

  Shares of Ford Motor (F) are finally getting some love. The stock is up today thanks to an upgrade from Goldman Sachs. They raised the stock from a buy to a hold. The shares, which had been as low as $14.86 one week ago, have been as high as $15.66 today.

  The firm increased its price target to $19 from $18, citing Ford’s “superior” growth outlook and its improving positioning in China.

  Goldman expects earnings momentum to accelerate through 2016 driven by production of the new F-150 pick up truck.

  Analysts noted that Ford is seeing strong truck pricing and has limited exposure to China.

  Bed Bath & Beyond (BBBY) reports after the closing bell. Spencer Jakab looked at the stock in today’s WSJ:

  So Bed Bath is looking a bit rumpled. But management’s strong track record and the company’s proven ability to throw off cash should make it interesting at its current price to both public and private investors.

  Last July, the company issued debt and launched a big share buyback. The moves were perhaps opportunistic, due to Bed Bath’s depressed share price. There is also the possibility they were meant to make it a less attractive leveraged-buyout candidate.

  Bed Bath’s debt-adjusted market value is currently just 7.1 times earnings before interest, taxes, depreciation and amortization. That is a 7% discount to its 10-year average.

  Meanwhile, its price and pristine balance sheet could still make the company interesting to private-equity firms.

• Morning News: June 24, 2015
  Eddy Elfenbein, June 24th, 2015 at 7:03 am

  Greece Handed New Terms as Tsipras Approaches Decision Time

  Italy Says Greece Must Act To Get Deal

  Hedge Fund ‘War Games’ in Monaco Predict No Greek Euro Exit

  German Business Confidence Hits Four-Month Low in June

  Spain Says Economy Growing At Fastest Rate Since 2008

  Korea Fund Has $18 Billion at Stake Backing Samsung on C&T

  Australia Commits to China-Led Bank

  U.S. Firms Fear Financing Drought as Deadline Looms For Trade Bank

  As U.S. Probes $12.7 Trillion Treasury Market, Trader Talk Is a Good Place to Start

  Ford Embraces Car-Sharing and Electric Bikes on a Crowded Planet

  Monsanto CEO Calls Syngenta Approach ‘A Long Game’

  IBM and Box Forge Global Partnership to Transform Work in the Cloud

  Wal-Mart to Impose Charges on Suppliers As Its Costs Mount

  Howard Lindzon: Congratulations Facebook ….Time to Buy Slack

  Cullen Roche: Did Schwab Just Kill the Non-Human Robo Advisor Services?

  Be sure to follow me on Twitter.

• The Disaster Of Confederate Monetary Policy
  Eddy Elfenbein, June 23rd, 2015 at 10:37 pm

  

  I won’t weigh in on the controversy surrounding the Confederate flag. But if you’re not persuaded by insurrection or slavery, at least consider the disaster that was Confederate monetary policy.

  Wars are expensive things and the Confederacy had trouble raising revenue with taxes; nor could they borrow effectively in the international bond market. So CSA Treasury Secretary Christopher Memminger turned to an old stand-by — the printing press.

  With no other avenue open, Secretary Memminger reluctantly turned to the printing press to meet the Confederacy’s financing needs. Memminger was aware that such a move would likely cause a rise in the price level and warned the government repeatedly about this danger, to no avail. The Treasury bills issued during the war had a peculiar feature: They were redeemable for gold two years after the war ended, which meant that the value of the bills was partially tied to expectations of victory for the Confederacy. So rapid was the expansion of the Confederate money supply that at one point during the war, the orders for new currency exceeded the printing capacity of the Treasury’s presses. To fill the order, the Treasury began to accept counterfeit currency as valid to further expand the supply of money.

  The enormous increase in the quantity of currency precipitated an era of hyperinflation in the Confederacy as more dollars chased fewer goods. The price level in the South rose by roughly 10 percent per month during the conflict and by the end of the war, the price level had increased in the Confederacy by a factor of 92, though imports tended to inflate more quickly and exports more slowly. At the same time, the blockade, military destruction, and the loss of workers to the war caused real wages and output to fall dramatically, with per-capita consumption falling by 50 percent in real terms. Indeed, if banks had not sharply increased their reserve ratios for fear of bank runs, the inflation created by excess money in the South would likely have been even more severe.

  Hyperinflation had a number of negative effects on the Southern wartime economy. As currency became useless as a store of value, the rate at which people spent their cash reserves — the velocity of money — increased, driving prices still higher. In many areas of the South, Confederate dollars became worthless unless accompanied by some valuable underlying commodity such as cotton or leather, impeding the smooth economic exchanges on which healthy economies depend. In border areas, the Union greenback currency became the preferred medium for exchange due to its superior stability. Faced with the danger of imminent invasion and the burden of supporting and hosting the military, the border areas tended to be particularly harmed by the war.

  The Confederate government passed the Currency Reform Act of 1864 in an effort to stem the rampant inflation ravaging the South. The Act effectively removed one third of all currency in the South from circulation by mandating that all large denomination bills be converted to 4 percent Treasury bonds before April 1, 1864, and imposing a 3-to-2 redemption ratio for small bills after the deadline. As people tried to get rid of their large notes, velocity spiked and in the months prior to the deadline, inflation rose to 23 percent a month. In the summer of 1864, though, price levels in the Confederacy finally stabilized and even declined slightly, just as monetary theory would predict following a contraction in the money supply. However, in the face of continuing pressure to meet war obligations, Congress authorized the printing of an additional $275 million in August of 1864, mostly reversing the effects of the Currency Reform Act.

  In contrast with the South, the Union successfully raised the $2.3 billion necessary to fund its war effort without causing hyperinflation. Though inflation was high in the North during the war — prices doubled in most Northern cities — it paled in comparison to the hyperinflation that plagued the Confederacy. The North drastically changed its tax collection system and financial infrastructure to accommodate the burdens of a long, expensive war. These wartime changes ultimately helped reshape the economic face of America.

  Whereas the South was mostly unable to raise funds through loans, the North financed roughly 65 percent of its war effort through borrowing. Wealthy Philadelphia financier Jay Cooke successfully orchestrated the sale of huge numbers of war bonds. In order to sell these issues, Cooke launched a massive advertising campaign aimed at middle- and working-class families who traditionally were not seen as a major source of funds. His campaign was a success, with almost 1 million working families purchasing war bonds. This advertising effort presaged the modern era in which bond issues to the general public were used to help pay for wars.

  During the war, the Union also managed to expand its tax base and revamp its collection system. After some initial tax measures in 1861, including the first federal income tax in U.S. history, the Union passed the Internal Revenue Act of 1862 which raised the income tax, enacted luxury and consumption taxes, and created the Bureau of Internal Revenue. In contrast to the Confederate bureaucracy where central control was weak and administrative capability lacking, the Bureau of Internal Revenue streamlined federal tax collection, a process so effective that the North raised 20 percent of its wartime revenue through taxation.

  The Union Congress also passed several important pieces of financial legislation during the Civil War. In 1861, the financial demands of the war began to deplete the gold reserves of both the banking sector and the Treasury. In response, private banks ceased redeeming currency for gold, and soon the Treasury followed suit. The government passed the Legal Tender Act of 1862, which allowed the issuance of legal tender currency not backed by gold. This marked the first time in U.S. history that a fiat currency, or a currency not backed by some underlying commodity, was used as legal tender. A year later the Union government passed the National Banking Act of 1863 which created a system of nationally chartered and regulated banks to ensure a market for Union war bonds. Preexisting banks were given very strong incentives to become nationally chartered. Once chartered they were subject to federal reserve requirements, had to accept all other national banks’ currencies at face value, and had to hold federal bonds as collateral against note issue.

  Both the Legal Tender Act and the National Banking Act were intended to be temporary measures to meet the exigencies of war. However, both sets of reforms lasted long after the conflict ended. More broadly, these acts, coupled with the expansion of taxation and the creation of the Bureau of Internal Revenue, marked an important shift in the power of the U.S. government. After the Civil War, the federal government had much more control over banking regulation and monetary policy, and much more power over the states generally.

• Buy List Closes at YTD High
  Eddy Elfenbein, June 23rd, 2015 at 4:32 pm

  The Nasdaq Composite closed today at an all-time high, and the S&P 500 closed at its highest level since May 22.

  Our Buy List closed at its YTD high, now up 5.93% for the year (dividends not included). The S&P 500 is up 3.17% on the year. Our current lead over the S&P 500 is 276 basis points which is the second-widest this year. On March 31, we were leading by 282 basis points.

  I haven’t included dividends in this post because I didn’t have the time, but please know that dividends are part of my final calculations. I’m not trying to hide anything. The S&P 500 does yield a bit more than our Buy List, but it’s not that big of a factor.

• No 2% Days this Year
  Eddy Elfenbein, June 23rd, 2015 at 9:43 am

  As a sign of falling volatility, the S&P 500 hasn’t had a single 2% daily move all year.