Author Archive

  • What If the Stock Market Were a Bond?
    , March 14th, 2012 at 9:15 am

    Here’s an update to one of my crazier/demented/possibly brilliant ideas. I was curious to see what the historical performance of the stock market looks like, but in the form of a bond.

    Crazy? Let me explain.

    I took the historical market performance of the Wilshire 5000 (including dividends) and invented a hypothetical long-term bond that matched the index’s gains step-for-step.

    I assumed that it’s a bond of infinite maturity and pays a fixed coupon.

    There’s one hitch, though. I had to choose a starting yield-to-maturity for the beginning of the data series in December 1970. So this isn’t a completely kosher experiment because the starting point is based on my guess.

    If I chose a number that was too high, the historical performance wouldn’t be able to keep up, and the yield-to-maturity would grow higher and higher and soon leave orbit. Conversely, if my starting YTM was too low, the yield would gradually get pushed down to microscopic levels.

    Fortunately, the data made my job easy. After four decades, the window I had to work with is pretty narrow. Starting with 9.2% was too high, and 8.8% was too low. After playing with the numbers, I finally settled on 8.95%.

    Even though this “bond” is completely make-believe, it reflects what the actual stock market really did for the past four decades. Through yesterday, the yield stood at 7.74%.

  • Morning News: March 14, 2012
    , March 14th, 2012 at 5:56 am

    In a First, Europeans Act to Suspend Aid to Hungary Unless It Cuts Deficit

    China Yuan Down Late On PBOC Guidance, Depreciation Concerns

    Tudou Owners Get World’s Best Deal Taking Youku Stock

    London Shops Disappear as Olympics Pays $1.2 Billion for Cycling

    Enel Targets Renewables, Latin America to Counter Italian Slump

    Brent Crude Dips Below $126 Ahead of US Oil Data

    U.S. Said to Have Received Saudi Assurances on Ample Oil Supply

    Fed Says 15 of 19 Banks Have Adequate Capital in Stress Scenario

    In Otherwise Dour Report From Fed, the Tiniest Touch of Optimism

    Bayer Sees Healthcare Business Driving Growth

    Cathay Pacific Declines on Profit Drop, ‘Challenging’ Outlook

    End of An Era for Britannica

    In Private Equity I.P.O., a Shareholder Fear of Losing Favor

    Motley Fool: The CPI Is a Conspiracy! (Or Maybe You Just Don’t Understand It)

    Epicurean Dealmaker: Welcome to the Sausage Factory

    Jeff Miller: The Quest for Yield (Part 6): Enhancing the Yield from Your Dividend Stocks

    Be sure to follow me on Twitter.

  • Britain to Offer a 100-Year Gilt
    , March 13th, 2012 at 10:40 pm

    Here’s an interesting story from our cousins across the pond. The Brits are looking to float a 100-year gilt. The general rule is that the larger your debt, the longer your average maturity should be. Her Majesty’s government currently has a debt of 1 trillion pounds.

    Is this a wise move? Well, it depends. If the bond market responds favorably, then yes, it’s a good move. If not, then it’s a bad move. It all depends on what interest rate investors demand. I wouldn’t be surprised if investors like what they see.

    The government is also considering never-ending bonds. By the way, something magical happens with perpetuities. When you calculate the yield to maturity, you simply divide the coupon by the price and presto.

    If this float goes well, I’d be interested to see the U.S. Treasury give a long-dated bond a try. While we’re at it, I wouldn’t mind seeing a gold-backed bond either.

  • Big Day Today for Our Buy List
    , March 13th, 2012 at 4:35 pm

    Today was a great day for our Buy List, especially the financial stocks on the list. The Buy List gained 2.19% today compared with 1.81% for the S&P 500. For the year, the Buy List is up 12.25% to the S&P 500’s 11.00%.

    Symbol Gain
    JPM 7.03%
    HCBK 6.69%
    NICK 4.73%
    AFL 3.00%
    MDT 2.82%
    WXS 2.52%
    F 2.17%
    DTV 2.09%
    MOG-A 2.06%
    S&P 500 1.81%
    SYK 1.77%
    CA 1.65%
    BCR 1.51%
    ORCL 1.41%
    JOSB 1.39%
    FISV 0.97%
    HRS 0.76%
    BBBY 0.43%
    JNJ 0.35%
    SYY 0.07%
    RAI -0.07%

  • JPMorgan Chase Raises Dividend to 30 Cents
    , March 13th, 2012 at 3:16 pm

    In last week’s CWS Market Review, I wrote:

    Jamie Dimon can easily afford to raise JPMorgan’s ($JPM) dividend from the current 25 cents to, say, 30 cents per share. Jamie has said that he’d prefer to ditch the dividend altogether but he understands that shareholders like it. The dividend increase last year was announced on March 18th, so another increase may come soon.

    Sure enough, look at what just happened:

    JPMorgan Chase & Co. (JPM) said it boosted its common stock quarterly dividend by 5 cents to 30 cents a share.

    The lender also authorized a new $15 billion stock buyback program, of which up to $12 billion is approved for this year and up to an additional $3 billion is approved through the end of the first quarter of 2013. JPMorgan said the Federal Reserve raised no objections to the proposed capital distributions.

    The shares are currently up about 6% today. Going by this afternoon’s price, JPM yields 2.8%.

    BTW, have you signed up for our free newsletter? Well…what are you waiting for??

  • Raven’s Blowout Quarter
    , March 13th, 2012 at 2:42 pm

    Last year, I called Raven Industries ($RAVN) “the best company you’ve never heard of.” The company makes reinforced plastic, electronics, flow control devices, and balloons. I noted that shares of Raven were up more than 210-fold in 30 years.

    Raven just reported earnings of 60 cents per share, 12 cents more than expectations. The stock has been up by as much as 6% today.

    Raven said in today’s earnings report: “For the company overall, while quarterly growth in every division could be difficult to sustain in the year ahead, we believe that meeting our long-term target of at least 10 percent growth in earnings is possible.”

    Look for the 26th-straight dividend increase sometime soon.

  • Tour of Ancient Rome
    , March 13th, 2012 at 2:30 pm

    Rome Reborn 2.2: A Tour of Ancient Rome in 320 CE from Bernard Frischer on Vimeo.

  • Today’s FOMC Satement
    , March 13th, 2012 at 2:17 pm

    Here it is:

    Information received since the Federal Open Market Committee met in January suggests that the economy has been expanding moderately. Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated. Household spending and business fixed investment have continued to advance. The housing sector remains depressed. Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer-term inflation expectations have remained stable.

    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects moderate economic growth over coming quarters and consequently anticipates that the unemployment rate will decline gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook. The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.

    To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

    The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.

    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014.

  • Stock Market at All-Time High
    , March 13th, 2012 at 1:10 pm

    Today looks to be the day. The Wilshire 5000 Total Market Full Cap Index is on pace to close at an all-time high today.

    This is the broadest measure of the stock market and it includes dividends. If the current market holds up, we’ll exceed the peak from October 7, 2007.

    On our Buy List, we had three new 52-week highs; Nicholas Financial ($NICK) got to $14.09, CA Technologies ($CA) hit $27.50 and Fiserv ($FISV) traded at $68.50.

  • The VIX Nears Five-Year Low
    , March 13th, 2012 at 12:59 pm

    This morning, the Volatility Index ($VIX) traded below 14 for the first time since June 2007.