Author Archive

• Is the U.S. Economy Still Accelerating?
  Eddy Elfenbein, March 29th, 2012 at 9:56 am

  That’s the big question: Is the rate of growth of the U.S. economy still increasing?

  It may sound odd to many to say that the U.S. economy is not only growing but also it’s accelerating. But I assure you that’s what happened during much of 2011.

  Bear in mind that the economy went from near-0% growth to very mediocre growth, but that still counts as acceleration. Check out the last four bars on this chart:

  

  The government updated its Q4 GDP report this morning to show no change in its original number that the economy grew, in real terms, by 3.0% for the final three months of 2011.

  But growth for this quarter may come in below that. The major bright spot is that jobless claims continue to decline. Today’s report showed that, once again, jobless claims fell to their lowest point since April 2008. The Labor Department said that claims fell by 5,000 to 359,000. Wall Street was expecting an better number of 350,000.

  The fact that it was slightly below expectations may be the reason the market is down this morning. The S&P 500 is currently at 1,397 which is down about eight points from yesterday’s close.

• Muppets Vs. Goldman Sachs
  Eddy Elfenbein, March 28th, 2012 at 10:48 am

  From Funny or Die

  Muppets vs. Goldman Sachs from Neal McDonough

  HT Josh Brown

• Joey Bank Drops After Earnings Report
  Eddy Elfenbein, March 28th, 2012 at 10:12 am

  Shares of Jos. A. Bank Clothiers ($JOSB) are down sharply today after the company reported fiscal Q4 earnings of $1.78 per share. The stock has been down as much as 10% today. Despite the sharp drop in the stock, the earnings were inline with Wall Street’s forecast.

  In the earnings report, the CEO warned:

  The first quarter of 2012 has started out more slowly than we had planned with declines in both comparable store sales and Direct Marketing sales for the first 8 weeks of the quarter. The declines are primarily due to weaker than expected traffic and also due to the warmer winter weather which is resulting in significantly lower sales of outerwear and cold weather merchandise. We are making marketing changes to address the sales trend. We believe that these changes will be effective and appealing to our customers; however we remain cautious about the outcome of the first quarter of 2012.

  The company just wrapped up a very strong year. Sales rose 14.2% to nearly $1 billion. The key metric for the industry is comparable store sales, and that rose by 7.6% last year. That’s very good. Net income increased by 13.6% to 97.5 million, and earnings-per-share rose from $3.08 to $3.49.

  I’d urge shareholders not to be too worried about today’s sell-off. The stock often gets knocked around after earnings — good or bad — and eventually recovers. Last June, shares of JOSB dropped 13.3% after the company missed earnings by two cents per share. Yet by October, the stock had nearly made up all the lost ground. (The next two earnings reports beat by six cents and by two cents.)

  I’m going to lower my buy price from $54 to $52 per share.

• Morning News: March 28, 2012
  Eddy Elfenbein, March 28th, 2012 at 8:13 am

  ECB: Private-Sector Loan Growth Slows In February

  Italy Sells Bills at Lowest Since 2010 as Crisis Concerns Ease

  News Corp. Piracy Claims Are Serious, Australia Says

  Total Downplays Risks From North Sea Leak

  Disasters Hit Lloyd’s of London

  Brent Breaches $125 on Crude Stocks Rise, Possible Release

  Gross Says Credit Expansion to Create Inflation, Slow Growth

  Consumer Confidence in U.S. Holds Close to One-Year High

  Court Considers Health Law Fate If Coverage Rule Voided

  Knowing Cost, the Customer Sets the Price

  Pentair, Tyco’s Flow Unit Plan $4.53 Billion Combination

  Magic Johnson Group to Buy L.A. Dodgers for $2 Billion

  Foxconn Counts on Apple’s Future Through Sharp Investment

  Roger Nusbaum: Volatility is Not an Asset Class

  Epicurean Dealmaker: Altar of a Minor God

  Be sure to follow me on Twitter.

• More On Investors Warming Up to Risk
  Eddy Elfenbein, March 27th, 2012 at 11:23 am

  Here’s another graph showing how investors are willing to take on more risk. This shows the spread between the yield on the 10-year Treasury bond and the yield on BofA Merrill Lynch US Corporate BBB Index.

  

  Late last year, the spread was over 280 basis points. This means that investors were demanding extra incentive to buy riskier assets. Since then, the spread has narrowed to 180 basis points. That’s a dramatic change in just a few weeks.

  Before the financial crisis, the spread was often around 120 basis points. Last spring, the spread got that low again but started to rise over the summer as fear increased during the debt ceiling debate and renewed fears in Europe.

• Home Prices Near 10-Year Low
  Eddy Elfenbein, March 27th, 2012 at 10:31 am

  The Case-Shiller report shows that home prices are the lowest they’ve been since early 2003.

  Year-to-year, unadjusted January prices declined 3.9% for the 10 major markets while the 20-city index dropped 3.8%. The latest year-to-year drop represented a marginal improvement over the 4.1% decline reported last year for both indexes. Just three cities reported annual growth. Denver home prices edged up 0.2%. Detroit and Phoenix–two cities that have seen massive price declines in recent years–reported year-to-year increases of 1.7% and 1.3%, respectively. Atlanta again posted the biggest drop–at nearly 15% year-to-year.

  BTW, here’s an article from early 2003 warning us that there’s no housing bubble:

  But people have been wondering about a “housing bubble” since early 2001, and it hasn’t popped yet.

  For one thing, housing, like politics, is always local. There are some parts of the country — Sacramento, we’re looking at you — where bubbles seem to have formed, with prices rising higher than the market apparently can support.

  But on a national level, economists believe the supply of available housing is low enough to keep demand strong and keep prices from falling suddenly.

  “1.85 million new homes being built per year in a population of 290 million and growing doesn’t seem to be outrageous,” Robertson said.

  Economists warn that the housing market should slow down when interest rates start to rise, but that’s not expected to happen for quite some time — not until the situation in Iraq is cleared up, at the very earliest.

  And the only thing that’s going to bring interest rates up significantly in the short term is stronger economic activity, anyway, which will offset a good bit of the damage to the housing sector.

  “If we’re in a situation where rates are higher because the economy’s great, the housing market is going to be last thing I’ll be worried about,” said Brown Brothers Harriman economist Lara Rhame, a former Fed economist.

  For the most part, economists expect a gradual slowdown in the housing market through 2003 — the National Association of Realtors, for example, thinks home-price growth will slow to 3.0 percent by the fourth quarter.

• Walgreen Earns 78 Cents Per Share
  Eddy Elfenbein, March 27th, 2012 at 9:58 am

  Last Friday, I tweeted:

  $WAG is looking like a good value. Earnings are next week. Anyone else think it can be a $40 stock? $$

  This morning, Walgreen ($WAG) reported quarterly earnings of 78 cents per share which was one penny better than estimates:

  For the quarter ended Feb. 29, Walgreen reported a profit of $683 million, or 78 cents a share, down from $739 million, or 80 cents a share, a year earlier. The latest period included inventory provisions of $72 million compared with $56 million a year earlier. Analysts polled by Thomson Reuters most recently projected earnings of 77 cents.

  Gross margin edged up to 28.9% from 28.8%. Overhead costs were up 4.1%.

  Earlier this month, Walgreen reported that total sales edged up 0.8% to $18.7 billion.

  The stock has been as high as $35.49 this morning, which is more than 5% higher since the time of my tweet.

  Walgreen’s business isn’t in the best shape, but I think the shares are a good value here. The company was hurt last quarter by exiting Express Script’s network. Walgreen said the impact of the exit was seven cents per share. They were also hurt by a mild flu season (bad news for us is good news for Walgreen).

  I like the numbers here. Wall Street currently expects Walgreen to earn $2.62 per share for the fiscal year (ending this August), and $2.91 for the fiscal year after that. Even if the company posts mediocre results, I think it can hit $40 by the end of this year.

• Morning News: March 27, 2012
  Eddy Elfenbein, March 27th, 2012 at 7:36 am

  O.E.C.D. Chief Urges Europe to Increase Euro Firewall to 1 Trillion Euros

  German Strike Disrupts Flights

  EU Probes UTC’s Proposed Goodrich Buy

  Hungarian Central Bank to Offer 2-Year Loans From April 3

  Afren Expects More Companies to Enter Kenya After Tullow’s Find

  U.S. Stock Futures Little Changed Before Confidence Data

  Awaiting Health Law Ruling, and Preparing Plan B

  U.S. Agency Seeks Tougher Consumer Privacy Rules

  Goldman Diaspora Falters as Flamand Hedge Fund Declines

  Sharp To Tie Up With Hon Hai Precision In LCD Panel Ops

  China Life Expects 2012 Profit To Be Better Than 2011’s – Vice President

  Lennar First-Quarter Profit Beats Analysts’ Estimates on Revenue

  Apple CEO in China Mission to Clear Up Problems

  Michaels Stores Prepares for an I.P.O.

  Credit Writedowns: A Primer on Minsky

  Howard Lindzon: Man Pants, Crowdfunding and Momentum Monday…Liquidity Meets Window Dressing Meets Good Mood …

  Be sure to follow me on Twitter.

• Moog Breaks Above $44
  Eddy Elfenbein, March 26th, 2012 at 12:09 pm

  One of the more puzzling stocks on our Buy List has been Moog ($MOG-A). Despite impressive earnings, the stock hasn’t done much of anything.

  Moog’s stock took a hit earlier this month and I highlighted it in the March 9th issue of CWS Market Review. The stock finally came to life today and broke above $44 per share. The story continues to look very good. Moog has reiterated its forecast of full-year earnings of $3.31 per share.

  I’m expecting another good earnings report in a month.

  

• …And We’re Back Over 1,400
  Eddy Elfenbein, March 26th, 2012 at 9:34 am

  The stock market looks set to rally today. On Friday, we gained back a little ground after our three-day sell-off. The good news today came from Germany where a report showed that business confidence is rising.

  German business optimism has edged higher for a fifth consecutive month but failed to match the pace of improvement seen earlier this year, as the eurozone debt crisis continues to leave scars on Europe’s largest economy.

  The Munich-based Ifo institute said its business sentiment indicator had risen from 109.7 in February to 109.8 this month – the highest since last July. But the latest increase was noticeably smaller than in previous months. “The German economy is losing some of its momentum,” said Hans-Werner Sinn, Ifo’s president.

  March’s index rise was the result of German companies taking a more upbeat view on the outlook for the next six months. Their assessment of current business conditions was unchanged. Retailers’ optimism increased strongly, while the mood in manufacturing turned slightly more pessimistic.

  Ben Bernanke spoke today on “recent developments in the labor market” and noted the puzzle that unemployment is declining despite fairly modest growth in the economy. Normally, such declines in unemployment need much stronger GDP growth. Bernanke gave some reasons why this is happening, but the key takeaway for investors is that the Fed seems to believe that short-term rates will stay near zero through at least 2014.

  If you have time, I encourage you to read Bernanke’s speech. He’s very clear on what he means, and what Bernanke says is so contradictory to what we’re told he means. The Fed’s next meeting will be in late April.