Author Archive

• August ISM = 50.6
  Eddy Elfenbein, September 1st, 2011 at 10:28 am

  On the first business day of each month, the ISM Manufacturing number comes out. This is the report that has been freaking people out recently.

  Let me explain: The break-even point for the ISM is 50. Any number above that indicates a growing economy; anything below 50 indicates a shrinking one.

  The ISM for April was 60.4 which is very high. That dropped to 53.5 for May. In June, it bumped up to 55.3. Then in July, the ISM dropped to 50.9.

  So there you have it: a clear downward trend to recession. Well, not exactly. Some folks were expecting today’s ISM report for August to continue the trend and hit the mid-40s. Instead, it seems to have stalled just above 50, which is perfectly fine.

  Historically, the odds of a recession shoot up when the ISM is below 45 and we’re still way above that. I ran the numbers and found that the ISM printed between 50.0 and 51.0 forty-nine times, and only three of those were official NBER recessions. In other words, there’s still no solid proof that a Double Dip is on the way. It may happen, but the numbers don’t yet show it.

  I keep harping on the “Fear Trade” but this is exactly what’s driving the markets. Notice that stocks turned higher when the ISM came out. So we rallied, not on good news, but simply because the bad news failed to show up. That tells you how fearful traders are.

  For now, it’s not so much that stocks are going up and bonds are going down, but they’re walking back the ground they unreasonably took over the last several weeks. This should continue.

  

• Thank You!
  Eddy Elfenbein, September 1st, 2011 at 10:16 am

  We just finished a record traffic month here at Crossing Wall Street. So while the market was falling apart, folks were coming here!

  All told, we had over 84,000 visitors and 114,000 page views during the month of August. I want to thank everyone who came on by and I hope you become a regular visitor to our humble home.

• Morning News: September 1, 2011
  Eddy Elfenbein, September 1st, 2011 at 5:21 am

  IMF, ECB at Odds Over Sovereign-Debt Damage to Banks, FT Says

  Euro-Zone Manufacturing Contracts

  China Shares End Down After Wen’s Comments, Higher August PMI

  BRICs No Cure for Global Economy This Time

  East Asian Bond Issuance Drops

  U.K. House Prices Decline Most in 10 Months

  London Loses as Banks Look to Book Trades Overseas

  Deutsche Telekom Unprepared for AT&T Deal Collapse

  In T-Mobile Suit, Consumers Are Central

  European Distilling Giant Pernod’s Earnings Get Boost From Emerging Markets

  Saab Auto Expects Big Loss

  Solar Firm Aided by Federal Loans Shuts Doors

  Sony Tablets Face Tough Sell on Price, Hardware

  Bank of New York Mellon Chief Resigns in a Shake-Up

  James Altucher: Abolish the Presidency. It’s a Useless Job.

  Stone Street: AT&T Bringing Call Center Jobs Back to The U.S. Hooray!!! Wait, What?

  Be sure to follow me on Twitter.

• Another Look at the Fear Trade
  Eddy Elfenbein, August 31st, 2011 at 10:40 am

  The bulls are charging today. The S&P 500 broke through 1,230 this morning. Joey Bank ($JOSB) has been up as much as 12% today. This is a pretty stunning reversal from just a few days ago.

  Once again, stocks are up while bonds, gold and volatility are down. As I described before, this is the unwinding of the “Fear Trade” which gripped Wall Street this summer.

  Here’s a closer look at the Fear Trade:

  

  Notice how closely gold ($GLD) and bonds ($TLT) moved together and both moved in the opposite direction of stocks.

• Jos. A Bank’s Blow-Out Quarter
  Eddy Elfenbein, August 31st, 2011 at 9:31 am

  The S&P 500 looks to open higher again today. I think the index has a good chance of breaking 1,220 today, the final trading day of the month. Frankly, August has been a terrible month for the market. We closed July at 1,292.28.

  Today could be the fourth up day in a row. I have to repeat myself from the other day. Imagine if this statement turned out to be true: “The sell-off ended three weeks ago and we’ve already gained back close to 40% of what we lost.”

  The big economic news this morning was the ADP report which showed that the economy created 91,000 private sector jobs in August. The government will release its employment numbers on Friday.

  Jos. A Bank Clothiers ($JOSB) reported outstanding second-quarter earnings this morning of 74 cents per share which was six cents more than estimates. Revenues were very strong, up 22.5% to $230.7 million. The consensus was $210.8 million so that’s a big beat. Same-store sales rose 14.7% and year-over-year direct marketing sales rose 27.8%.

  After the hiccup we saw for Q1, I can safely say that this was a very strong quarter.

  “With this quarter’s results, we have achieved earnings growth in 39 of the past 40 quarters when compared to the respective prior year periods, including 21 quarters in a row,” said R. Neal Black, the company’s president and CEO, in a statement. “While sales are just one component of overall profit and August is a relatively small sales month, our comparable store sales in August are up slightly compared to the same period last year, despite the impact of the recent hurricane.”

  The stock has gapped up 10% this morning.

• Morning News: August 31, 2011
  Eddy Elfenbein, August 31st, 2011 at 6:15 am

  German Unemployment Falls as Hiring Holds Up

  Weak U.K. Confidence Raises Recession Fears

  European Inflation Holds Steady in August

  Nymex Crude Oil Steady; Below $89/Bbl; EIA Data Awaited

  Home Prices in U.S. Showed Signs of Stabilizing

  Fed Divisions Led to a Compromise on Interest Rates

  Toshiba, Hitachi, Sony Team Up in LCD Venture

  Exxon Wins Arctic Deal, Gives Russia U.S. Access

  French Retail Giant Carrefour Posts Loss, Cuts Forecast

  AT&T Vows to Bring Back 5,000 U.S. Jobs if Merger Approved

  Charities Struggle With Smaller Wall Street Donations

  Exercise Restraint to Prevent Premature Speculation

  How to Deflate a Gold Bubble (That Might Not Even Exist)

  Joshua Brown: Will Tomorrow’s Business Stars Come from Agriculture?

  Epicurean Dealmaker: Too Funky for Me

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• Donaldson Earns 84 Cents Per share
  Eddy Elfenbein, August 30th, 2011 at 2:41 pm

  I often tell investors not to worry about a stock once they’ve sold it, especially if they sell it for a profit. Of course, this is the advice that I most often don’t follow myself.

  At the end of 2009, I decided to drop Donaldson ($DCI) from my 2010 Buy List. I only switch five stocks each year. Donaldson is in the filtration biz. Exciting, I know, but it’s a wonderful company and I’m kicking myself for culling it from the Buy List.

  In 2010, DCI rallied for 38.5% (including dividends) and it’s up another 1.5% this year, which is still better than the overall market. Yesterday, the company reported Q4 earnings of 84 cents per share which was five cents better than estimates.

  For the year just ended, Donaldson earned $2.87 per share which was a nice jump over the $2.10 per share they made the year before. Donaldson also gave full-year 2012 guidance of $3.15 to $3.45 per share. That’s very wide but I expect it to be narrowed as the year goes on. I always prefer to have companies that provide guidance even if it’s far from exact.

  If we take the midpoint of the range ($3.30), DCI is going for 17.8 times earnings which is a bit rich for this market. Still, that’s what I thought in late 2009 and the stock has continued to outperform. If they keep beating expectations like they have been doing, Donaldson’s stock should see brighter days.

• Nicholas Financial to Pay 10-Cent Dividend
  Eddy Elfenbein, August 30th, 2011 at 8:31 am

  Nicholas Financial ($NICK) just said that it’s paying a dividend:

  CLEARWATER, Fla., Aug 30, 2011 Nicholas Financial, Inc. announced today that its Board of Directors has declared a cash dividend of $.10 per share on its common stock, to be paid on September 20, 2011 to shareholders of record as of September 13, 2011.

  Peter L. Vosotas, Chairman and CEO noted, “Our capital position and continued confidence in our earnings capability played a large part in the Board of Director’s decision to declare a cash dividend.” Subject to market conditions and profitability targets, the Company anticipates it will continue to declare quarterly cash dividends in the future, however no assurances can be given. In the fiscal year ended March 31, 2011 we reported earnings of $1.41 per share. In the first quarter of our 2012 fiscal year which ended June 30, we reported earnings of $0.44 per share.

  All things being equal, I’d prefer they not pay a dividend, but I’m not strongly opposed to one, either.

  There are lots of things worse you can do with your money like share buybacks or lousy acquisitions. Ultimately, paying a dividend is a safe move. The important point is that NICK is very profitable. Ideally, I’d like to see them use every penny of cash flow to expand their business. However, the share price is very underpriced so I understand the board’s need to highlight why investing in NICK is a good thing to do.

  The best thing about a dividend is that each investor can decide if they want to purchase more shares of the company with their dividend. Nobody ever went to the poorhouse by cashing dividend checks.

  Since this is a quarterly dividend, it gives shares of NICK a yield of nearly 3.5%. That’s pretty rich and NICK will have no problem covering it.

• Morning News: August 30, 2011
  Eddy Elfenbein, August 30th, 2011 at 5:07 am

  Berlusconi Agrees to Overhaul Austerity Plan

  Euro Weakens as Trichet Spurs Bets Rate Rises Over; Franc Gains

  India’s Economy Grows More Than Estimated

  Two of Greece’s Biggest Banks Plan to Merge

  Gold Bounces After 2% Fall

  Oil Near Two-Week High as Spending Counters Forecast Gain in U.S. Supplies

  Economic Adviser Pick Is Known as Labor Expert

  Consumers Ramp Up Spending

  Russia’s Gazprom Boosts First-Quarter Profit 44%

  Bank of America to Sell China Bank Stake for $8.3 Billion

  Lehman to Seek Creditor Vote on $65 Billion Payout

  Pimco’s Gross Has ‘Lost Sleep’ Over Bad Bets

  The Predictive Power of “Stocks as Bonds”

  Gold Prices Bubbling Away

  Howard Lindzon: Identity…The Road to Hell

  Todd Sullivan: Flashback…..2000

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• The Fear Trade Is in Full Retreat
  Eddy Elfenbein, August 29th, 2011 at 5:30 pm

  Today was a great day for the stock market. Gold, bonds and the $VIX were down and stocks were way up. The S&P 500 opened higher and continued to rally throughout the day. We closed at 1,210.08 which is a gain of 2.83%, and it’s our highest close since August 3rd. The index is up more than 8% over the last three weeks.

  Naturally, just after I did a post highlighting how weak Mondays have been, the market gave us a very good Monday. I’m happy to report that our Buy List was particularly strong today. The 20-stock portfolio gained 3.56% which is 73 basis points more than the rest of the market. Twelve of our 20 stocks gained more than 3% today.

  Imagine if this statement turned out to be true: “The sell-off ended three weeks ago and we’ve already gained back close to 40% of what we lost.”

  The financial sector was the big winner today. The Financial Sector ETF ($XLF) gained 4.15% today. The S&P 500 is now not that far from its 50-DMA (1,259) and its 200-DMA (1,283).

  I also have a correction. Jos. A Bank ($JOSB) will reports its earnings later this week, not today as I originally wrote.