Author Archive

• The Stock Market’s Plunging Volatility
  Eddy Elfenbein, February 17th, 2012 at 9:15 am

  Where has all the volatility gone? Sometimes a simple chart tells it all. Here’s a look at the daily changes in the S&P 500 since last August.

  In just six months, we’ve gone hyperactive to nearly comatose. Notice how many daily swings were over 2% last summer. But we haven’t had any since before Christmas. The biggest down day we’ve had all year was a puny 0.69% drop last Friday.

  

• Morning News: February 17, 2012
  Eddy Elfenbein, February 17th, 2012 at 6:10 am

  Germany Seeks to Avoid Two-Step Vote on Greek Aid

  Sarkozy Pledges Referendums at First Rally

  ECB to Swap Greek Bonds for New Debt to Avoid Loss

  U.K. Retail Sales Unexpectedly Rise on Household Goods

  Regulators Make Nice as U.S. Banks Bristle Over Tough Examiners

  Congress Will Auction Public Airwaves to Pay for Benefits

  Moody’s Warns Big Banks of Possible Credit Rating Cuts

  Baidu’s Profit Rises 77%

  GM Earns Record Net Income While Fixing Opel Will Take Longer

  Apple’s iPhone Loses China Market Share

  Anglo American Profit Climbs 23% on Output

  Icahn to Bid $2.6 Billion for CVR

  Graff Diamonds Said to Prepare $1 Billion I.P.O. in Hong Kong

  Yelp Expects Its I.P.O. to Price at $12 to $14 a Share

  Doug Huber: Manufacturing In Decline?

  Cullen Roche: The U.S.A. is Not the Roman Empire

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• DirecTV’s Outlook for 2012 and 2013
  Eddy Elfenbein, February 16th, 2012 at 11:54 pm

  Transcript from Seeking Alpha:

  Next, I would like to make a few comments on our consolidated outlook. We expect to grow earnings per share to well over $4 this year, on pace to achieve our EPS target of at least $5 in 2013. Before interest and taxes, cash flow is expected to grow in the low double-digit range. However, free cash flow is likely to come in relatively flat compared with 2011, due mostly to our cash taxes, which will be higher in 2012, due to greater earnings and higher cash tax rate of 30% range, primarily related to the reversal of accelerated depreciation and benefits associated with prior year economic stimulus programs.

  Finally, regarding our balance sheet, at this time, we still believe there are significant value in DIRECTV’s stock price, which merits our capital allocation strategy for share repurchases. Therefore, as Mike stated earlier, we expect to continue repurchasing shares at a pace of about $100 million per week. We also expect to opportunistically exit the debt markets in the near future. Once we get beyond 2012 with our balance sheet re-leveraging substantially completed, the level of buybacks will be based on a number of considerations, including strategic opportunities, our share price, leverage capacity and further investments in Latin America. If we accomplish all of these targets and deliver the expected financial results, I believe we will continue generating substantial shareholder value by leading the industry in revenue and earnings growth, as well as returning cash to shareholders.

  The stock is at $45 which means it’s going for 11 times this year’s earnings and for nine times 2013’s.

• DirecTV Beats by Ten Cents Per Share
  Eddy Elfenbein, February 16th, 2012 at 3:25 pm

  Before the opening bell this morning, DirecTV ($DTV) reported fourth-quarter earnings of $1.02 per share. That was ten cents more than Wall Street was expecting, and it’s a 38% increase over Q4 2010. After opening higher, the shares are currently down about 2% today.

  The numbers show that DirecTV continues to do very well. The major issue for them is that it’s become more expensive to get new customers. That’s to be expected. For the fourth-quarter, DTV gained a net 125,000 subscribers in the United States which was less than Wall Street’s forecast. Comcast, however, is hemorrhaging subscribers. DirecTV continues to make major gains in Latin America. The company added 590,000 new subscribers in that region last quarter.

  DirecTV also announced another $6 billion share buyback program. Frankly, that doesn’t impress me so much. I’d much rather have the company pay this money out to shareholders rather than hope for a capital gain. Plus, DirecTV just announced a slew of new equity awards for senior execs.

  Again, I have no problem with the senior brass getting paid tons of money (as long as the company is well run). But just pay them in cash! There’s no need to do this two-step of giving them stock options and then trying to force the stock higher. It simply dilutes future earnings.

  

• Malaysia Islamic Clerics Forbid Forex Trading
  Eddy Elfenbein, February 16th, 2012 at 11:36 am

  

  Via Eclectic Linkfest I saw this story:

  Malaysia Islamic clerics forbid forex trading

  Malaysia’s highest Islamic body has issued an edict forbidding foreign exchange trading by Muslim individuals, saying such speculation violates Islamic law.

  The National Fatwa Council ruled forex trading by money changers or between banks was allowable but trading by individuals “creates confusion” among the faithful, according to a report issued Wednesday by state news agency Bernama.

  Council chairman Abdul Shukor Husin warned “there are many doubts about it (forex trading) and it involves individuals using the Internet, with uncertain outcomes,” Bernama reported.

  “A study by the committee found that such trading involved currency speculation, which contradicts Islamic law,” he was quoted saying.

  Forex and religion don’t have a great history. The only time Jesus used physical force is when he expelled the money-changers from the temple. Matthew 21:12-13:

  And Jesus went into the temple of God, and cast out all of them who sold and bought in the temple, and overthrew the tables of the moneychangers, and the seats of them that sold doves,

  And said unto them, It is written, My house shall be called the house of prayer; but ye have made it a den of thieves.

  Skipping over any doctrinal issues, trading foreign currency is a terrible idea for individual investors. It’s a zero-sum game and you most likely won’t win.

  You’ll notice that it’s always around forex that trading outfits style their sales pitches in order to lure in customers. If you’re saving for your retirement, trust me — stay away from forex.

• “We Don’t Make Anything Anymore.” Really?
  Eddy Elfenbein, February 16th, 2012 at 11:20 am

  One of the biggest misconceptions about the U.S. economy is that we “don’t make anything anymore.” Not only is it not true, it’s very not true. The fact is that the United States is a manufacturing superpower. In the last 25 years, industrial production is up by more than 70%.

  The difference, of course, is that far fewer people work in that sector. But that’s a big leap to say “we don’t make anything anymore.” We do. We’re just a lot more efficient.

  

• 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.