• Buy List Reaches New High
    Posted by on December 16th, 2010 at 5:32 pm

    I’m happy to see that our Buy List has reached a new high for the year. Our Buy List is now up 14.99% for the year (not including dividends). The S&P 500 is up 11.46% for the year.

    The beta for the portfolio this year is 0.9485.

  • Time to Sell Hawkins
    Posted by on December 16th, 2010 at 5:21 pm

    A few times this year I highlighted one of my favorite micro-cap stocks, Hawkins (HWKN). This is how I described them earlier this year:

    Hawkins is a specialty chemical company based in Minnesota. So if you’re in, say, Fargo and you need a shipment of sodium hydroxide, well…these are the boys to call. They’ve been around for many years and the company is largely in family hands. They do what they do, and they do it well.

    The odd thing about Hawkins is that they used to split their stock almost every, but by small amounts. You’d get a 10%, 15% or 20% stock dividend each year. As a result, the nominal share and dividend price didn’t move much, but the stock really did very well.

    I’ve watched Hawkins for years, so it’s odd for me to see the stock become so popular lately. The shares closed at a new all-time high of $49.20 — and I say that that is way too much. If I owned the stock (which I don’t), I’d sell it right now. It’s had a good ride, but $50 is simply too expensive.

  • FedEx Raises Forecast Despite…
    Posted by on December 16th, 2010 at 11:46 am

    Good news for FedEx (FDX). The company raised its EPS range to $5 to $5.30 from $4.80 to $5.25. This is the third time that FedEx has raised its forecast.

    The company reported earnings of 89 cents per share which is a drop from the $1.10 per share they earned a year ago. I like to follow FDX because I think this is a good indicator of the broader economy. (I’ve also said that FDX would be a better fit for the Dow than many of the current members.)

    Excluding charges from a legal reserve and the combination of its freight and national LTL operations, earnings were $1.16 per share. The company in September had forecast earning $1.15 to $1.35 per share.

    Revenue jumped 12% to $9.63 billion. Analysts were expecting $9.7 billion.

    Sales in the express-shipping segment—FedEx’s biggest contributor to revenue—jumped 13% as international-priority average daily volume increased 11%, led by exports from Asia. U.S. domestic revenue per package rose 5% while average daily package volume increased 3%.

    Revenue for the ground-shipping segment also rose 13%, as average daily volume rose 7%.

    Freight revenue climbed 14%.

    The CEO, Fred Smith, said: “We’re now more bullish about the remainder of the year.” I think this is good news for the economy. Several economists have been raising their forecasts for the fourth quarter. J.P. Morgan sees Q4 GDP coming in at 3.5% and Morgan Stanley is now up to 4.3%.

  • Morning News: December 16, 2010
    Posted by on December 16th, 2010 at 6:53 am

    Wall Street Futures Point to Flat Open for Stocks

    SNB Leaves Key Rate Near Zero to Stop Franc From Appreciating

    Dollar Gains Against Euro, Pushing Stocks Lower

    Record Plunge in Foreclosures, Thanks to Robo-signers

    Spanish 10-Year Bonds Fall After Borrowing Costs Rise at Auction

    Rift Over Wall Street Blame May Dull Impact of U.S. Financial Crisis Panel

    Seven Samurai of New Japan Inc.

    Industrial Output Posts Strongest Gain In 5 Months

    BP Falls Most in Four Months After U.S. Files Oil Spill Lawsuit

    G.M. Buys Back $2.1 Billion in Preferred Shares

    Icahn Seeks Dynegy for $665 Million

    Disinflation Continues in November Core CPI Report

  • Damn It Feels Good to Be a Swiss Banker
    Posted by on December 15th, 2010 at 4:49 pm

    Check out some of the details from the dress code at UBS:

    The regulations designate a 1.5 millimeter maximum fingernail length for men, suggests that female bankers wear makeup and put on perfume directly after showering and not after lunch, advocates that shoes be changed daily to bring greater levels of “peace and serenity,” and mandates employee underwear that is skin-toned and “always made of superior quality textiles.”

    And that’s just the beginning.

    The Swiss bank is pioneering its precision dress code in six pilot projects designed for employees that deal with the public in order to project “truth, clarity …respect … our values and culture.”

    The dress-for-banking-success manual is broken down into tips and guidance and includes chapters titled, “Shoes and Belts,” “Blouses,” “Personal Touch” (jewels and makeup), “The Suit,” and “The Shirt.”

    Men should don footgear with a shoehorn; women should not wear new shoes. Suits must not only be charcoal grey, black, or dark blue, but dress coats must always be buttoned when employees stand, and open when sitting. Skirts must reach the middle of the knee with a tolerance for extending 5 centimeters below the joint.

    Stockings that are “opaque” are out. Socks? Always black. Women may wear no more than seven jewels, men three. Scarves are compulsory, and to be tied with “authorized knots.”

  • So What Happens After One of the Greatest Bull Markets in History?
    Posted by on December 15th, 2010 at 2:59 pm

    CNBC tells us: What, Me Worry? Investors Are Suprisingly Bullish on Stocks

    Call it being complacent over complacency—redundant for sure, but an expression of how even a healthy level of fear has seemed to come completely out of the stock market.

    As the stock market has churned to two-year highs, sentiment levels as expressed through a variety of gauges have reflected extremely buoyant attitudes among investors. Surveys from Investors Intelligence and the American Association of Individual Investors both show bullish sentiment more than 2 to 1 ahead of market pessimism.

    Similarly, the CBOE Volatility Index, an options play that is considered a gauge of near-term fear (when it’s elevated) and complacency (when it’s falling), has been hovering around levels last seen in April.

    I don’t believe there’s a strong connection between the VIX and future stock returns, though there is some evidence that very low levels (below 13) are good for stocks.

    The only connection is that the VIX is a pretty good indicator of future volatility, but it doesn’t say which way. That’s why I don’t get too concerned about where the VIX is. When the recent bull market began in March 2009, the VIX was close to 50.

  • Industrial Production Rises More Than Expected
    Posted by on December 15th, 2010 at 11:46 am

    Remember how the world was supposed to end? Still not happening:

    Industrial production in the U.S. increased more than forecast in November, helped by gains in computers, home electronics and appliances, signaling factories will support economic growth into next year.

    Output at factories, mines and utilities rose 0.4 percent, the biggest gain since July, after a revised 0.2 percent drop in October, figures from the Federal Reserve showed today in Washington. Economists forecast a 0.3 percent gain, according to the median of 75 projections in a Bloomberg News survey. Manufacturing rose 0.3 percent for a second month.

    Assembly lines are speeding up as business investment and exports grow and consumer spending accelerates. Manufacturing will continue to play a role in the economic recovery, which Fed policy makers yesterday said was not strong enough to reduce a jobless rate that’s been hovering near 10 percent.

    Capacity utilization rose 75.2%. By historical standards, that’s very low but it’s the highest level since October 2008.

    Here’s a look at industrial production. (Kind of a V??)

  • Morning News: December 15, 2010
    Posted by on December 15th, 2010 at 7:39 am

    Fed Signals Stronger Economy Won’t Slow $600 Billion Stimulus

    Spain on Watch Ahead of EU Summit

    Ghana’s New Oil Wealth May Trigger Borrowing Spree

    Germany Stiffens Opposition to Bigger Bailout in European Central Bank Face-Off

    Sidestepping the U.S. Dollar, a Russian Exchange Will Swap Rubles and Renminbi

    Crude Ends Lower After Fed Holds on Policy

    Gold Declines as Stronger Dollar Curbs Demand for Alternative Investments

    Social Media Shapes New Investment Strategy

    Best Buy Misses 3Q Expectations

    Novartis takes full ownership of Alcon in $12.9 Billion Deal

    Starbucks-Kraft Spat Brewing Since January

    You Don’t Make A Deal Until…

  • The Beta Trade
    Posted by on December 14th, 2010 at 3:27 pm

    What’s been happening continues to happen.

    After today’s Fed announcement, Treasury yields spiked along the yield curve.

    It’s almost like a wave hit the yield curve — the later maturities turned first and the process gradually moved to the shorter-term maturities.

    The 30-year yield bottomed in late August at 3.53%. It’s now up more than one full percent.

    Then the 10-year yield bottomed on October 8th at 2.38%. It’s up by 118 points since then.

    Then the 5-year yield bottomed on November 4th at 1.03%. It’s up 102 points since then, meaning the yield has basically doubled.

    This is the Beta Trade. Money is going out of bonds and into riskier assets like stocks, and cyclical stocks in particular.

    Here’s a look at the three-month, five-year, ten-year and thirty-year yields over the past two years:

  • Today’s Fed Policy Statement
    Posted by on December 14th, 2010 at 2:17 pm

    Here’s today’s Fed statement:

    Information received since the Federal Open Market Committee met in November confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment. Household spending is increasing at a moderate pace, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have continued to trend downward.

    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

    To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

    The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

    The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Sarah Bloom Raskin; Eric S. Rosengren; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

    Voting against the policy was Thomas M. Hoenig. In light of the improving economy, Mr. Hoenig was concerned that a continued high level of monetary accommodation would increase the risks of future economic and financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy.

    There’s not a single item in this statement that should be considered a surprise.