Archive for April, 2016

• Will oil crack the S&P 500?
  Eddy Elfenbein, April 14th, 2016 at 6:04 pm

• Wells Fargo Earns 99 Cents Per Share
  Eddy Elfenbein, April 14th, 2016 at 12:01 pm

  Wells Fargo (WFC) kicked off Q1 earnings season for our Buy List. The big bank earned 99 cents per share which beat estimates by two cents per share.

  The San Francisco-based bank reported a profit of $5.46 billion, or 99 cents a share. That compares with $5.8 billion, or $1.04 a share, in the same period of 2015. The latest results included a tax benefit of 7 cents a share.

  Analysts polled by Thomson Reuters had expected earnings of 97 cents a share.

  Revenue rose 4.3% to $22.2 billion, making Wells Fargo the first big bank to report rising revenue in the first quarter. Analysts had expected $21.61 billion.

  Analysts have long looked to Wells Fargo as a bellwether of the housing market, but in recent quarters they are also looking to the bank as a barometer for how falling oil prices are affecting big banks.

  Low oil prices have pushed many energy firms into distress, which affects Wells Fargo more than other large banks since it is one of the most sizable lenders to the industry. Within Wells Fargo’s energy loan book, the number of loans labeled as “classified,” or in danger of defaulting, is on pace to exceed 50% this year, up from 38% in the fourth quarter.

  In the first quarter, Wells Fargo charged off $204 million in energy loans, an increase of about 75% from the amount it charged off in the fourth quarter. The bank also added $200 million to funds for loans that could sour because of deterioration in its oil and gas portfolio. That marked the first time since 2009 that Wells Fargo built up reserves for loan losses reserves instead of releasing them.

• Jobless Claims Fall to 42-Year Low
  Eddy Elfenbein, April 14th, 2016 at 10:57 am

  This week’s initial jobless claims report fell to 253,000. That’s the lowest since November 1973.

• Core Inflation Cools Off
  Eddy Elfenbein, April 14th, 2016 at 10:53 am

  The government reported on March consumer inflation this morning. It appears that core inflation is cooling off. For March, core consumer prices rose by 0.069%. The previous two months were 0.283% and 0.293%. Those were two of the highest readings in the last ten years.

  The headline CPI rose by just 0.1% which was below expectations of 0.2%.

• Morning News: April 14, 2016
  Eddy Elfenbein, April 14th, 2016 at 7:15 am

  Pound Falls After BOE Considered Brexit Risks in Policy Decision

  Draghi’s German Baggage Follows Him to Washington After ECB Spat

  Japan Stocks Continue Their Roll—at Least for Now

  IEA Sees Oil Oversupply Almost Gone in Second Half on Shale Drop

  Fed Beige Book Notes Job, Wage Growth; March Drop in Sales Reflects Caution

  Regulators Warn 5 Top Banks They Are Still Too Big to Fail

  BofA Profit Misses Estimates on Dealmaking Slump, Energy Loans

  Energy XXI Files for Bankruptcy After $5 Billion Expansion

  Unilever Sales Fall on Currencies, Offsetting Better Volume, Prices

  Gap Taps Syngal to Be Old Navy’s President

  BlackRock Profit Falls 20% as Market Volatility Curbs Fees

  Investor Group Pushes for Shakeup at Chipotle

  Plan for Woman on $10 Bill in Question as Hamilton Fans Lobby

  Cullen Roche: Janet Yellen (Might Have) Nailed It*

  Jeff Carter: Networks, Target Markets and Company Structure

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• Stocks Against Bonds — Who Will Win?
  Eddy Elfenbein, April 13th, 2016 at 2:35 pm

  

  Here’s a chart I like to look at every so often. It’s stocks versus bonds which is the classic Wall Street grudge match.

  For my stock proxy, I use the Vanguard 500 Index Fund (VFINX) and for bonds, I use the Vanguard Long-Term Investment-Grade Bond Fund (VWESX). I suppose people could quibble with those choices, but I think they’re broadly fair. The data here goes back to 1990. (Note that the chart has a log scale.)

  Ideally, stocks should return more than bonds, but only by a little bit. I think the equity risk premium has probably been overstated, but I do think it’s real. It’s probably around 1.5% to 2% long-term. The chart here shows how disruptive the stock market of the late 90s was. Bonds have beaten stocks over the last ten years, and over the last 14 through 19 years.

  As a long-term investor, it’s disconcerting that simply relaxing in a bond portfolio has been so competitive with stocks. Will that continue? I’m not so sure.

  The current yield for VWESX is 4.21%, which makes me think that stocks are due for some more outperformance. Just the dividend yield gets you halfway there.

• 15-Week High
  Eddy Elfenbein, April 13th, 2016 at 10:25 am

  

  The S&P 500 touched a fresh 15-week intra-day high this morning. The index got as high as 2,076.45 which is the highest since December 30, 2015.

  The intra-day high from that day was 2,077.34, which means we have a chance of eclipsing that today.

  Update: We did it!

• Retail Sales and PPI
  Eddy Elfenbein, April 13th, 2016 at 10:07 am

  This morning’s retail sales report was a dud. The Street had been expecting an increase of 0.1%. Instead, retail sales fell 0.3% last month. This could be evidence that consumers are pulling back.

  While nine of 13 major categories showed gains last month, those increases weren’t large enough to offset the drop in autos, clothing and restaurants.

  Automobile dealers’ sales dropped 2.1 percent in March, the biggest decrease since February 2015. That was in line with industry data earlier this month that showed the torrid pace of car demand was leveling off. Purchases of cars and light trucks grew at a 16.5 million annualized rate in March, the slowest in more than a year, according to Ward’s Automotive Group.

  Economists like to focus on “core” retail sales, which excludes cars and gas stations. Here the Street had been expecting a 0.3% rise, but core sales rose by just 0.1%.

  The retail report showed sales decreased 0.9 percent at clothing chains, the biggest retreat since October, and a 0.8 percent drop at restaurants and bars.

  Another report showed that wholesale prices fell 0.1% last month. Economists had been expecting an increase of 0.2%. We’ll get the consumer price index report tomorrow.

• Nathan’s Famous
  Eddy Elfenbein, April 13th, 2016 at 8:29 am

  

  Did you know that Nathan’s Famous, the hot dog place, is publicly traded? It is. Their symbol is NATH.

  Here are some numbers: The stock closed yesterday at $43.69 per share. There are 4.35 million outstanding shares, which gives them a market value of $190 million. In Wall Street terms, that’s peanuts.

  But there’s another fact about NATH. The stock has been a gigantic winner! Since December 31, 1999, the S&P 500 Total Return Index is up 92.55%, but Nathan’s is up 1,936.36%.

  Check it out:

  

  In simpler terms, investing in hotdogs would have made your money grow by 18-fold while the rest of the stock market would have almost doubled it.

  Yet that’s still not the most arresting fact about investing in Nathan’s. What I find truly remarkable is that despite being based in New York, and being an icon of the city (Bernie just went there with Michael Stipe), AND being a tremendous winner, the stock isn’t followed by a single Wall Street analyst.

  Nathan’s might as well be invisible. Think about that. We can’t even say whether Nathan’s “beat consensus” because there isn’t any.

  I highlight this stock to show you that there are lots of great companies out there. It just takes a little digging. So much investment talk seems to focus on about 15 to 20 stocks, but there are thousands of stocks out there. In fact, it’s probably easier to find a bargain by looking at areas where Wall Street isn’t looking.

• Morning News: April 13, 2016
  Eddy Elfenbein, April 13th, 2016 at 7:05 am

  China Imports Record Oil as Higher Margins Boosts Purchases

  Eurozone Industrial Output Fell in February

  Puerto Rico’s Debt Crisis in Seven Questions

  Panama Leak Spurs Global Zeal to Crack Shell Companies, But How?

  JPMorgan First-Quarter Profit Beats Estimates on Trading

  Verizon Workers Strike on East Coast After Deadline Passes

  Peabody Energy Files for Chapter 11 Bankruptcy Protection

  Chesapeake Energy Scores Big Win To Avoid Bankruptcy

  The Relationship That Helped Sumner Redstone Build Viacom Now Adds to Its Problems

  Ford Announces Plans to Transform World Headquarters, Other Dearborn Facilities

  Emirates to Buy Two More Airbus A380 Superjumbos in $865 Million Deal

  No Loser in Cola Wars – Coke & Pepsi Thriving

  VW Executives to Accept `Significant’ Bonus Cuts Amid Unrest

  Roger Nusbaum: Heads (of State) Are Gonna Roll?

  Joshua Brown: My Favorite Trader on Twitter

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