• Momentum: Not Monthly, but Daily
    Posted by on September 20th, 2010 at 1:08 pm

    Andrew Haldane of the Bank of England recently had a remarkable chart showing the success of momentum investing. Being in the market the month following an “up” month has historically creamed a buy-and-hold strategy.
    The problem is that the data was wrong. Well, not wrong exactly but it was the wrong data. Haldane was using a monthly average for the index instead of the close. When you use the close, the chart looks very different.
    Still, historically there’s been a very strong momentum effect. Instead of looking at monthly totals, I once looked at daily changes. The stock market has done very well on days following “up” days, and it’s done poorly on days following “down” days.
    I found that the market’s entire capital gain has come on days following +0.64% or more gains. That’s only about 20% of the time. The other 80% of the time, the market is net flat. “Half the market’s gain came on day’s following 3.2% up moves. On average, that happens slightly less than once a year.”
    While this strategy has been very successful historically, the impact has faded greatly over the past 15 to 20 years.

  • Gold Adjusted for Inflation
    Posted by on September 20th, 2010 at 12:19 pm

    Despite the rally, gold is still well below its value from 30 years ago.

    Gold is still far below its inflation-adjusted high after a record rally, and at least one indicator suggests the precious metal won’t approach that peak any time soon.
    The CHART OF THE DAY shows the gold price relative to January 1980, when the metal reached $873 an ounce. Yesterday’s record close in New York trading equals $454.88 an ounce in real terms, reflecting an increase in the U.S. consumer price index, according to data compiled by Bloomberg.
    Gold would have to rise above $2,435 an ounce to exceed its high from three decades ago, based on the CPI’s current reading. That’s 91 percent higher than the closing price of $1,272.20 in New York trading yesterday.

  • The ISM Told Us
    Posted by on September 20th, 2010 at 11:54 am

    I’ve often said that the monthly ISM index has been a pretty reliable indicator of when NBER dates recessions. This time around, the ISM was slow in telling us when the recession started but was pretty good on getting the end.

    The subject of recession dating is quite literally academic — it depends on what you call a recession. Here’s NBER’s official statement on how it pinpoints a peak and trough in the economic cycle.

    fredgraph092010.png

    I’ve found that the tipping point on the ISM index is about 44.4. According to NBER, the recession began in December 2007 when the ISM was still around 50. It danced around 50 until the financial crisis of that September.

    The ISM jumped from 43.2 in May 2009 to 45.3 in June to 49.1 in July. The index has been above 50 every month since August 2009.

  • Time Machine
    Posted by on September 20th, 2010 at 11:13 am

    Now that an independent body has declared the recession over, let’s take a look at some of the more wrong-headed forecasts:
    From March 6, 2009:
    Roubini Says Recession May Continue Until End of 2010
    Or the absurd fight between Dennis Kneale and bloggers. The fight quickly turned into exactly what Kneale wanted — a publicity stunt — but it originally began when Kneale said the recession had just ended.

  • Recession Over! (Technically)
    Posted by on September 20th, 2010 at 10:28 am

    It’s official, the recession ended in June 2009 according to the National Bureau of Economic Research:

    The Business Cycle Dating Committee of the National Bureau of Economic Research met yesterday by conference call. At its meeting, the committee determined that a trough in business activity occurred in the U.S. economy in June 2009. The trough marks the end of the recession that began in December 2007 and the beginning of an expansion. The recession lasted 18 months, which makes it the longest of any recession since World War II. Previously the longest postwar recessions were those of 1973-75 and 1981-82, both of which lasted 16 months.
    In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month. A recession is a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. The trough marks the end of the declining phase and the start of the rising phase of the business cycle. Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion.
    The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007. The basis for this decision was the length and strength of the recovery to date.

  • Another Up Monday
    Posted by on September 20th, 2010 at 10:02 am

    Happiness reigns again on Wall Street, at least for now. The averages are modestly higher although we’re still below the Iron Curtain of 1130. I’m not a big fan of technical analysis but I do concede that markets often seem to act with undue deference towards “resistance points.” That’s happening again as the S&P 500 has tried and repeatedly failed to stay over 1130 for very long. But if this is going to be our fourth straight week of gains, then we’re off to a good start.
    The big news this week will be tomorrow’s Fed meeting. I don’t expect any change in rates—meaning, if we had something like interest rates. However, I’ll be curious if there’s any real change in the Fed’s policy statement.
    The other news item that I’ll be watching closely is the earnings report from Bed Bath & Beyond (BBBY). This is due to come on Wednesday. Here’s my latest take on BBBY’s earnings report.
    Finally, here’s a look at the S&P 500 along with the earnings:
    image986.png
    The implication is that the market is cheap IF the earnings scenario holds. The future earnings projections isn’t from me — that’s Wall Street’s consensus via S&P.

  • Morning News: September 20, 2010
    Posted by on September 20th, 2010 at 9:42 am

    Egged on by Hedge Funds, Oliver Stone Turns on Goldman Sachs
    Wall Street’s Profit Engines Slow Down
    Nissan to Double China Capacity
    Bond Markets Get Riskier
    Verizon Names President, COO
    Lennar Reports Profit as Cost Cuts Contribute to Wider Home-Sale Margins
    OIL FUTURES: Crude Nudges Higher, But Volumes Are Thin
    Pocket money ‘Cut for Youngsters’

  • Oracle Hits Nine-Year High
    Posted by on September 17th, 2010 at 2:21 pm

    Wow, Mark Hurd hasn’t been on the job very long and Oracle (ORCL) is already doing well. The company just reported very strong results. The stock is now over $27 which is a nine-year high.

    Oracle reported a net income of $1.35 billion, or 27 cents a share, compared with a profit of $1.12 billion, or 22 cents a share, for the year-earlier period. Revenue rose 48% to 7.5 billion. Adjusted income was 42 cents a share.
    Analysts had expected the company to report adjusted earnings of 36 cents a share on revenue of $7.3 billion, according to a consensus survey by FactSet Research.
    Oracle has been widely expected to benefit from rising corporate spending on information technology. But Oracle Co-President Safra Catz said in a call with analysts that “what’s really going on is we have a lot of company-specific momentum in each line of business.”

    The stock is up 11% since Hurd came on board 11 days ago.

  • Morning News: September 17, 2010
    Posted by on September 17th, 2010 at 9:02 am

    London Hotel Revenue Returns to 2008 Level on Business Travel
    US STOCKS-Futures Rise After Strong Tech Earnings
    Cheapest Stocks Fail to Lure Investors as Bullish Signs Mount
    U.S. to Sell G.M. Stake Over Time
    Johnson & Johnson Aims to Buy Vaccine Maker Crucell
    Senate Approves Small Business Bill
    Apple Said to Negotiate With Publishers Over Digital Newsstand
    FedEx Delivers Int’l Profits but Cuts US Jobs

  • Department of No Duh!
    Posted by on September 16th, 2010 at 2:06 pm

    Academic study:

    Young, male, testosterone-fuelled CEOs more likely to start or drop deals: UBC study
    Too much testosterone can be a deal breaker, according to Sauder School of Business researchers at the University of British Columbia. Their paper, to be published in the INFORMS journal Management Science on September 10, shows that young CEOs with more of the steroidal hormone in their system are more likely to initiate, scrap or resist mergers and acquisitions.
    The study by Sauder Finance Professors Maurice Levi and Kai Li, and PhD student Feng Zhang, titled “Deal or No Deal: Hormones and the Mergers and Acquisitions Game,” shows that testosterone – a hormone associated with male dominance-seeking in competitive situations – can be a negative factor in high-stakes decision-making.
    “We find a strong association between male CEOs being young and their withdrawal rate of initiated mergers and acquisition,” says Prof. Levi, whose research relies on the established correlation between relative youth and increased levels of testosterone.

    (HT: Dealbreaker)