Author Archive

• More Good Economic News: Jobless Claims Fall to Four-Year Low
  Eddy Elfenbein, February 16th, 2012 at 9:52 am

  We had some more positive economic news. Or at least, a lack of terrible economic news. The Labor Department reported that first-time claims for unemployment benefits dropped to a seasonally adjusted 348,000. That’s the lowest number in four years. To give you some perspective, in 2009 jobless claims soared well over 600,000 a few times. Wall Street economists were expecting today’s report to be 365,000, so we’re running a little ahead of expectations. This is more evidence that the jobs market is slowly getting better.

  

  The other good news is that wholesale prices rose by just 0.1% in January. Economists were expecting an increase of 0.4%. Wholesales prices actually fell by 0.1% in December. The takeaway is that inflation still isn’t a major problem for wholesalers. Typically, inflation shows up here first.

  Still, we can’t say that there’s no threat of inflation down the road. Today’s report showed that the “core rate,” which excludes food and energy, rose by 0.4%. Economists like to look at the core rate because food and energy prices can be very volatile.

  

• Morning News: February 16, 2012
  Eddy Elfenbein, February 16th, 2012 at 5:37 am

  China to Surpass India as Biggest Gold Market This Year, Council Predicts

  Iran Warns 6 Countries in Europe It Will Cut Off Oil

  For London Youth, Down and Out Is Way of Life

  Oldest Swiss Private Bank is Newest U.S. Target

  Summers, Clinton Lead Contenders for World Bank

  Citigroup Whistle-Blower Says Bank’s ‘Brute Force’ Hid Bad Loans From U.S.

  Morgan Stanley, UBS May Be Cut Up to Three Levels by Moody’s

  Kellogg Wins Pringles After Diamond Deal Falls Apart

  Nestle Sees 2012 Earnings Gain as Sales Beat

  SocGen Fourth-Quarter Net Drops 89% on Investment Bank Loss

  Renault Profit Stagnates as Europe Car Market Shrinks

  French Distilling Giant Pernod Raises Annual Forecast After First-Half Profit Gains

  Olympus Former Chairman and Six Others Arrested Over Fraud

  Jeff Carter: The Price of A Gallon of Gas

  Jeff Miller: Investors: Read a Lot, Get Squat!

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• The Sports Illustrated Swimsuit Cover Indicator
  Eddy Elfenbein, February 15th, 2012 at 4:28 pm

  CNBC has the stats on one of the more unusual stock market indicators: the Sports Illustrated Swimsuit Cover Indicator.

  49 covers from 1964 until now:

  * 25 blonde covers — average annual return of Dow 10 percent, S&P 10.9 percent
  * Note: The covergirl from 2008, Marissa Miller, is a blonde and the Dow and S&P fell 34 and 39 percent, respectively
  * 20 brunette covers — average annual return of Dow 2.2 percent, S&P 2.3 percent
  * 3 covers with multiple models of varied hair color
  * 1 cover with a redhead

  Additionally, the models’ nationality may also yield an interesting result. Since 1978, the S&P 500 posted an average return of 14.3 percent when an American was on the cover of the magazine versus an 10.8 percent increase when a model from another country was selected, according to Bespoke Investment Group.

• Nope, QE3 Still Ain’t Coming
  Eddy Elfenbein, February 15th, 2012 at 2:26 pm

  I’m amazed how many people claim that the Federal Reserve is about to embark on a third round of bond buying (better known as quantitative easing or QE). This is despite the Fed’s repeated assertions that it’s not coming.

  Just the other day, SocGen said that QE3 is coming soon. Even 36% of top economists think QE3 will come sometime this year.

  Where do they get this idea?

  Last June, I wrote a piece titled “Sorry Folks, QE3 Ain’t Coming.” and I feel like I have to say it again: QE3 ain’t coming.

  The Fed released the minutes of its January meeting today. The media has latched on to a very minor mention of QE3:

  A few members observed that, in their judgment, current and prospective economic conditions–including elevated unemployment and inflation at or below the Committee’s objective–could warrant the initiation of additional securities purchases before long. Other members indicated that such policy action could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2 percent over the medium run.

  That’s it? That’s hardly anything. All it says is that “a few” members think QE3 could at some point be needed. That’s a giant leap from, “it’s coming.” Furthermore, the political backlash would be intense, especially during an election year.

  The fact is that the employment outlook is (slowly) improving. There was never any real pressure for QE3 and whatever there was, has faded. I’m not saying whether it’s needed or not, but the idea that QE3 is coming is simply a pipedream.

• The Market Is Doubting the Fed’s Timetable
  Eddy Elfenbein, February 15th, 2012 at 10:26 am

  The Federal Reserve has said that it doesn’t see itself raising interest rates until late 2014. Well, that’s fine and good. Guys in suits can say whatever they want, but the market often has other ideas. Right now, the market thinks a rate increase may come sooner than the Fed realizes.

  As I’ve pointed out before, longer-term interest rates are slowly beginning to creep higher. For over three years, Benrnanke & Co. have kept overnight rates between 0% and 0.25%. Howard Packowitz at the WSJ notes that the futures market is doubting the Fed’s forecast:

  Fed-funds futures Tuesday priced in a 90% chance for the FOMC to lift the funds rate to 0.5% at its meeting in late June 2014, from a 94% chance at Monday’s settlement.

  An earlier rate hike is possible based on pricing of a shorter-dated contract. It priced in a 40% chance for a 0.5% rate after the late-January 2014 FOMC meeting, up from a 36% chance at Monday’s settlement.

  It’s still too early to say exactly what the Fed will do, but I think it’s very possible that the Fed will move before late 2014. This changing market sentiment is also what’s leading investors to take on riskier assets (this is a theme I discussed in last week’s CWS Market Review). In the meantime, watch how cyclical stocks perform relative to the broader market. That will most likely be an early indicator of higher rates.

• Warren Buffett Loads Up on DirecTV
  Eddy Elfenbein, February 15th, 2012 at 7:04 am

  In its latest regulatory filing, Berkshire Hathaway ($BRKA) detailed its portfolio changes. Since our strategy here isn’t too different from Buffett’s, we sometimes make similar moves. For example, Berkshire raised its stake in DirecTV ($DTV) by five-fold. On the other hand, they cut their stake in Johnson & Johnson ($JNJ). Interestingly, Buffett is now totally out of ExxonMobil ($XOM).

  It also bought about 1.7 million shares in Liberty Media, veteran dealmaker John Malone’s media venture which has stakes in everything from baseball teams and satellite radio to bookstores and cable networks.

  Berkshire’s quarter was also notable for a number of large moves. It raised its stake in at least five companies by more than 20 percent, including recent newcomers to the portfolio like Intel and General Dynamics. It also took a new stake in kidney dialysis provider DaVita.

  In contrast, it slashed portfolio stalwart Johnson & Johnson by 23 percent. Berkshire had been its fifth-largest shareholder, according to Thomson Reuters data. It also sold its entire position in oil major Exxon Mobil.

  DirecTV is due to report its earnings tomorrow. Wall Street expects 92 cents per share for the quarter and $4.38 per share for the year. If the yearly forecast is correct, that means DTV is growing at 29% while going for just over 10 times earnings.

• Morning News: February 15, 2012
  Eddy Elfenbein, February 15th, 2012 at 5:49 am

  Greece Fights to Win Aid With Pledges to Counter EU Doubts

  Portugal’s Debt Efforts May Be Warning for Greece

  Euro-Zone Economy Shrinks

  Austria Bank Capital Needs Decisive for Aaa Rating, Moody’s Says

  China Pledges to Invest in Europe Bailout Funds, Hold Euros

  China Yuan Down Late On PBOC Guidance; Strong Euro Limits Losses

  Italian Economy Slips Into Recession, Contracts 0.7 Percent

  Italian Oil Giant Eni Reports 2nd ‘Giant’ Mozambique Gas Find

  Fed Clears Capital One’s Deal for ING Direct

  Tentative Deal Reached to Preserve Cut in Payroll Tax

  French Banking Giant BNP Paribas’ Fourth-Quarter Profit Beats Estimates; Shares Surge

  Yahoo-Alibaba Talks Falter as Investor Steps Up Pressure

  Berkshire Takes Stakes in Liberty Media, DaVita as Weschler Joins Buffett

  Peugeot to Sell Property, Gefco Stake as 2011 Profit Falls

  Adidas Rises to Record as Puma Beats Forecast

  Edward Harrison: The Political Economy of a Greek Default (and Euro Zone Exit)

  Joshua Brown: Where Financial Firms Spend Ad Dollars Online

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• Tadas Viskanta on Why There’s Never Been a Better Time to Be an Individual Investor
  Eddy Elfenbein, February 14th, 2012 at 3:39 pm

  Tadas Viskanta of Abnormal Returns has a great post today on how Web 2.0 has unleashed a revolution for individual investors. Here’s a sample:

  This is not a novel theme for us. Indeed one thing we mention repeatedly in our forthcoming book is that investing has never been “cheaper or easier” to be an investor. Some of this has to do with the rise exchange traded funds. In other respects it has to do with the blossoming of the options markets. In large part, it has to do with technology. In short, never before have investors had access to data, analysis, opinion and social tools that are commonplace today. Let’s take these points one by one.

  1. Easier: Investors today can with a brokerage account and a computer is now only a few mouse clicks away from a globally diversified portfolio of ETFs that in terms of expenses rivals what institutions paid a decade ago. For all intents and purposes the expense ratio on the big ETFs is closer to 0.0% that 1.0%. Many brokers now allow online trading of individual bonds and overseas securities.
  2. Cheaper: Brokerage commissions continue to get driven towards $0 over time. In fact, many brokers today provide commission-free trading of a range of ETFs. Options strategies that would have been cost-prohibitive a few years ago are now viable strategies today. Do you remember when you used to have to pay extra for real-time quotes? Today those are a commodity.
  3. Richer: The range of asset classes, sectors and strategies available via ETFs is truly dizzying. It is even for interested parties hard to keep up. Will most of these more exotic strategies fail? Probably. But sometimes a strategy, like low volatility investing, that is based in deep academic research, becomes available to investors.
  4. More social: Blogging and microbloggging (StockTwits & Twitter) has opened up the world of idea generation to the masses. Anyone with a computer these days can put their ideas out there. The blogosphere and Twittersphere is a meritocracy, albeit imperfect, where the smartest and most generous contributors rise to the top. The social model is pushing into things like earnings estimates with Estimize and institutional-grade services like SumZero. Many bloggers these days make fun of the raft of ‘free’ webinars that go on these days. But if you think about it the software and Internet speeds were not there to make mass online seminars possible not all that long ago.
  5. Smarter: The raw material for investment analysis and trading is of course data. Financial and price data is for the purposes of most individual investors is free these days. Many firms are using data in interesting ways. In the area of fundamental data some firms like Trefis and YCharts are making fundamental analysis easier. A firm like AlphaClone allows you track the moves of (and invest) like the big hedge funds. When it comes to portfolio level data firms like Wikinvest are aggregating account data making analysis easier for investors.

• Retail Sales Report Weighs on the Market
  Eddy Elfenbein, February 14th, 2012 at 11:19 am

  The stock market is giving up some ground this morning.

  In mediocre news, today’s retail sales report wasn’t so bad. This had been particularly concerning since the holiday shopping season was rather sluggish. The Commerce Department said that retail sales rose by a seasonally adjusted 0.4% in January.

  Retail sales are important to watch because consumer spending constitutes about two-thirds of the economy. So if folks are out there putting some cash out, that probably reflects an improving jobs market and increased confidence.

  The weak spot in today’s report was car sales. If we were exclude car sales plus sales figures at gas stations, retail sales rose by 0.6%. That’s the best number in three months.

• Morning News: February 14, 2012
  Eddy Elfenbein, February 14th, 2012 at 6:31 am

  Italy, Spain Cut by Moody’s; U.K. Top Rank at Risk

  6 European Nations Get Downgrades

  German Investor Confidence at 10-Month High

  Immigrants Lose in Spanish Housing Market

  Greek Economy Shrinking Rapidly

  Oil Rises to Three-Week High as Iran Threat Counters Europe Debt

  For California, Attorney General Insisted on Better Terms in Foreclosure Deal

  At Volcker Rule Deadline, a Strong Pushback From Wall St.

  Boeing Signs Record $22.4 Billion Order With Lion Air

  Google Deal for Motorola Mobility Gets Clearance

  Capital One’s Deal for ING Direct Still in Limbo

  Chesapeake Eyes $12 Billion in Asset Sales Amid Cash Squeeze

  Empire State Building Owners File $1 Billion IPO, REIT Plan

  Apple Hits $500, Flirts With $500 Billion Valuation

  Pragmatic Capitalism: Financial Stress Index on the Rise

  Roger Nusbaum: We Own Apple

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