Author Archive

• The New Buy List
  Eddy Elfenbein, December 28th, 2011 at 8:52 am

  To reiterate, here’s the Buy List for next year. This list will go into effect on Tuesday, January 3rd which is the first day of trading next year.

  For tracking purposes, I assume the Buy List is a $1 million portfolio equally dividend into 20 positions of $50,000 each based on the closing price of December 30, 2011.

  AFLAC ($AFL)

  Bed, Bath & Beyond ($BBBY)

  CR Bard ($BCR)

  CA Technologies ($CA)

  DirecTV ($DTV)

  Fiserv ($FISV)

  Ford ($F)

  Harris ($HRS)

  Hudson City Bancorp ($HCBK)

  Johnson & Johnson ($JNJ)

  Jos. A. Bank Clothiers ($JOSB)

  JPMorgan Chase ($JPM)

  Moog ($MOG-A)

  Medtronic ($MDT)

  Nicholas Financial ($NICK)

  Oracle ($ORCL)

  Reynolds American ($RAI)

  Stryker ($SYK)

  Sysco ($SYY)

  Wright Express ($WXS)

• J&J Breaks $66
  Eddy Elfenbein, December 28th, 2011 at 8:48 am

  The big European news story today was a major bond auction held in Italy and it went much better than feared, though people were fearing the worst. The Italian government sold nine billion euros’ worth of six-month debt. The rate was 3.25% which is a huge drop from last month’s auction at 6.5%.

  The S&P 500 has been up for the last five trading days, and the futures are currently pointing towards a sixth rally. The market turned on October 3rd so the S&P 500 is looking to close out its best fourth quarter since 1999.

  Although Abbott Labs ($ABT) will soon depart our Buy List, the stock just did a Jerome Simpson to a new 52-week high. Johnson & Johnson ($JNJ) which is an amazingly stable stock, is starting to drift higher. Yesterday, the shares closed above $66 for the first time in more than five months.

• Morning News: December 28, 2011
  Eddy Elfenbein, December 28th, 2011 at 7:27 am

  Italy’s Borrowing Costs Drop Sharply at Auction

  NYSE, Deutsche Boerse Merger Date Extended

  Afghanistan Signs Major Oil Deal with China’s CNPC

  ECB Says Banks Increased Overnight Deposits

  U.S. Declines to Say China Is Manipulator in Yuan ‘Quarrel’

  Calgary Oil Turns Canada Into Energy Superpower

  Wendy’s Adds Foie Gras Burger in Japan Return

  Bernanke Drive for Openness May Include More Briefings

  No Relief in Report on Housing

  MetLife to Sell Bank Unit to GE Capital

  A Great Divide Over Oil Riches

  Times Co. Agrees to Sell Regional Newspaper Group

  The High Cost of Failing Artificial Hips

  ‘Mismanaged’ Sears Loses Customers to Macy’s

  Joshua Brown: Your Tax Dollars at Work: Case-Shiller Edition

  Randall Wray: Unemployment Insurance for the 21st Century: The Job Guarantee as an Alternative to Enforced Idleness

  Be sure to follow me on Twitter.

• Walmart: The Mother of All Trading Ranges
  Eddy Elfenbein, December 27th, 2011 at 3:28 pm

  On Friday, Walmart ($WMT) closed at $59.99 and the stock doesn’t look like it will close above $60 today. That’s not too surprising. The stock of the giant retailer has been stuck in a trading range for nearly 12 years.

  Think about this: Not once in over 3,000 trading days has WMT closed above $64 or below $42. The last time it did was on January 19, 2000 when it closed at $64.06.

  
  Here’s a look at WMT’s closing prices by range:

  Lower	Upper	Count
  $42	$44	64
  $44	$46	181
  $46	$48	335
  $48	$50	481
  $50	$52	362
  $52	$54	581
  $54	$56	451
  $56	$58	270
  $58	$60	204
  $60	$62	49
  $62	$64	25

  More than 78% of the time, the stock been between $48 and $59.99.

  Walmart has, of course, paid a dividend over the last 12 years. Since January 2000, the dividend has added 18.1% towards its total return.

• Looking at Factor Investing
  Eddy Elfenbein, December 27th, 2011 at 1:02 pm

  The Wall Street Journal has an interesting article on the growth of “factor investing.” I think this is a fascinating area and I’ve been interested in it since before it even had a name.

  I never cared much for the traditional Capital Asset Pricing Model. Instead, I’ve been interested in areas where this model fails—and there are many. Value stocks, for example, have a long-proven ability to outperform the broader market. Low volatility is another area. The response from academics has been to assert that the model indeed still works, but we need to adjust things for these “factors” like value and low vol.

  I’m afraid they’re stretching things out too far and would be best served by ditching their model. Personally, I don’t care about all about preserving models but I like the idea of keying in on factors that have shown their ability to beat the market. The question is, can we isolate these factors and invest in them reliably?

  What the article fails to mention is that the important thing isn’t the factor itself. Instead, it’s the characteristic. Let me explain.

  Factor investors try to isolate the particular zig and zag shape of, say, most value stocks. What they want to find is anything that correlates to that line. That’s the factor, but that’s not what’s truly important. Instead, it’s the value characteristic that’s important. Even value stocks that don’t correlate with the value factor have shown themselves to be superior performers.

  Last month, Eric Falkenstein wrote:

  Daniel and Titman documented that it was the characteristic, rather than the factor, that generated the value and size effects. They did an ingenious study in that they took all the small stocks, and then separated them into those stocks that were correlated with the statistical size factor Fama and French constructed, and those that weren’t. That is, of all the small stocks, some were merely small, and weren’t correlated with the size factor of Fama-French, and the same is true for some high book-to-market stocks.

  Remember, in risk it is only the covariance of a stock to some factor that counts. Daniel and Titman found that the pure characteristic of being small, or having a high book-to-market ratio, was sufficient to generate the return anomaly, independent of their loading on the factor proxy. In the APT or SDF, the covariance in the return with something is what makes it risky. In practice, it is the mere characteristic that generates the return lift.

  (…)

  The standard equity groupings of size, value/growth, and now volatility, are best done directly, and not via an exposure to factor-mimicking portfolios.

  This is pretty damaging to the standard model because it claims that you can only beat the market by paying for it with more risk. That risk can only be found by correlating with the factor. But it’s not the factor that’s beating the market, it’s the characteristic.

  This is a reason why, despite my interest in factor investing, I think investors are wise to steer clear of these products. There’s no magic formula out there besides “focus on good stocks and wait.”

• Consumer Confidence Surges In November
  Eddy Elfenbein, December 27th, 2011 at 11:05 am

  I hope everyone had a nice three-day weekend. On Friday, the stock market closed at its highest level in six weeks. That’s especially impressive to see investors willing to hold stocks over the long weekend. We also broke above the 200-day moving average.

  The S&P 500 is modestly higher this morning, although this should be a very quiet week of trading. The only major news is that shares of Sears ($SHLD) are getting clocked for a 20% loss this morning on the news that it’s closing 120 stores due to poor sales.

  I have a feeling that at the end of this week, the S&P 500 won’t be terribly far from 1257, which is where the index started the year.

  On Friday, the government reported that personal income and consumer spending both rose by 0.1% last month. Frankly, that’s pretty tepid but it basically fits with my view that the economy is recovering at a slow pace. The durable goods report was a bit stronger. It showed a 3.8% increase for November, which is the biggest gain in four months.

  Today’s consumer confidence report was very strong. The index popped from 55.2 to 64.5. Wall Street was expecting 59.

• Morning News: December 27, 2011
  Eddy Elfenbein, December 27th, 2011 at 6:45 am

  Italians Cut Spending in Worst Christmas in 10 Years

  In Europe, Securities Overseer Spreads Gospel of Streamlined Regulation

  Currency Agreement for Japan and China

  China Investment Wave Unlikely to Swamp EU

  Iran Regime Profiting From Sanctions: U.S.

  Japan to Ease Ban on Arms Exports

  China 2012 Rare-Earth Export Quota Almost Same as This Year

  U.S. Rental Demand Lifts Housing Sector

  S&P Index in 2011 Moves Least Since 1970

  Obama Wins Most Demand for Debt Since 1995

  TV Prices Fall, Squeezing Most Makers and Sellers

  Sony to Cease Its Flat-Screen Partnership With Samsung

  E&Y Audit Panel Says No Violations in Olympus Handover

  Howard Lindzon: The Mattress ‘Sell’ Indicator…or What is the Stock Market ‘Sleep Number’

  Epicurean Dealmaker: TED’s Greatest Hits of 2011

  Be sure to follow me on Twitter.

• The Decline of Education
  Eddy Elfenbein, December 26th, 2011 at 6:43 pm

  Here’s part of an interesting discussion with Alex Tabarrok and Russ Roberts:

  What’s wrong with our education system? Let’s talk about K-12. Here’s two remarkable facts, which have just blown me away. Right now, in the United States, people 55-64 years old, they are more likely to have had a high school education than 25-34 year olds. Just a little bit, but they are more likely.

  So, you look everywhere in the world and what do you see? You see younger people having more education than older people. Not true in the United States. That is a shocking claim. Incredible. And the reason is that the drop-out rate has increased? Exactly. So, the high school dropout rate has increased. Now, 25% of males in the United States drop out of high school. And that’s increased since the 1960s, even as the prospects for a high school dropout have gotten much worse.

  We’ve seen an increase, 21st century–25% of males not graduating high school. That’s mind-boggling. Why? One of the underlying facts relating to education, which is has stayed true, which is that the more education you get on average–and I’m going to talk about why on average can be very misleading–high school graduates do better than high school dropouts; people with some college do better than high school graduates; people graduating from college do better than people with some college; people with graduate degrees do better than college grads. And the differences are large. Particularly if you compare a college graduate to a high school dropout, there is an enormous difference. So, normally we would say: Well, this problem kind of solves itself. There’s a natural incentive to stay in school, and I wouldn’t worry about it. Why should we be worrying about it? It doesn’t seem to be working. Why isn’t it working and what could be done? I think there’s a few problems. One is the quality of teachers I think has actually gone down. So I think that’s a problem.

• Morning News: December 26, 2011
  Eddy Elfenbein, December 26th, 2011 at 6:30 am

  Fair Trade Proving Anything But in $6 Billion Market

  S.Korea Delegation Heads North as Kim Jong Un Elevated

  Nigeria Christmas Day Bombings Kill at Least 26

  Yuan Hits All-time High, On Track for Over-4% Gain in ’11

  China May Establish Credit-Rating Companies

  Abu Dhabi Aldar Board to Discuss Sale of Some Assets, Projects This Month

  IMF’s Lagarde Warns Global Economy Threatened

  China, Japan to Back Direct Trade of Currencies

  Turkey, Azerbaijan Agree on 7 Billion Euro Gas Pipeline Plan

  American Firms See Europe Woes as Opportunities

  A Year of Disappointment at the Movie Box Office

  Sony to Sell LCD Venture Stake to Samsung for $940 Million

  Fukushima Probe Highlights Nuclear Regulator

  Cullen Roche: Will The Shorter Business Cycle Lead To Recession in 2012?

  Jeff Miller: Weighing the Week Ahead: A Respite from European Concerns?

  Be sure to follow me on Twitter.

• Merry Everything!
  Eddy Elfenbein, December 24th, 2011 at 12:19 pm

  

  I want to wish everyone a Merry Christmas and a happy, healthy and profitable New Year.

  The past year has been a great one for Crossing Wall Street. Our Buy List is in the black, and the e-letter has grown by leaps and bounds. I want to thank all my readers for their continued support.

  I also owe major thanks to Howard Lindzon, Phil Pearlman and the team at StockTwits. I also want to thank Marcia Hippen for her invaluable editing skills and for helping me get the e-letter out each week.

  Let’s hope 2012 brings us more profits—in all our endeavors.