Estimates for Q2
Posted by Eddy Elfenbein on July 10th, 2010 at 9:13 pm

With second quarter earnings season about to begin, here are the EPS growth and sales growth estimates from S&P:

The good news is that earnings are growing faster than sales. The means that profit margins are expanding. The warning sign is that margin-expansion can’t continue forever. At some point, sales growth needs to pick up.

Monty Python’s Soccer
Posted by Eddy Elfenbein on July 10th, 2010 at 4:29 pm

In honor of tomorrow’s World Cup final, I give you this classic from Monty Python.

It occurred to me that given a match-up between the Netherlands and Spain, this same skit could be done with painters (“Rembrandt to Van Gogh, pass to Vermeer.”)

Geither Supports 20% Tax Rate on Dividends and Capital Gains
Posted by Eddy Elfenbein on July 9th, 2010 at 10:05 am

Good news for investors. Treasury Secretary Tim Geithner says the White House supports a 20% tax rate on dividends and capital gains. There was concern that they were looking to raise these rates to 39.6%.

Congress currently is planning to extend most of the Bush breaks – particularly those for middle-income earners – for some period, perhaps only a year or two. But budget rules that lawmakers passed earlier this year anticipated the Bush-era breaks for higher income earners would expire immediately. That would mean the tax on dividends for higher earners would return to the pre-Bush ordinary income rate. That rate is expected to rise to 39.6% next year.

A 20% tax rate is an increase from the current 15% rate but it’s a lot better than what it could have been

“The Hooters of the Internet”
Posted by Eddy Elfenbein on July 9th, 2010 at 9:42 am

Bloomberg has a nice profile of Henry Blodget and The Business Insider, a website which has been generous enough to link to me many times. The profile runs over 4,000 words and, to coin a phrase, it’s both fair and balanced.
Due to Blodget’s past history, which I won’t go into here, he’s not terribly well-liked in many quarters. However, those feelings seem to carry over into an overly harsh reaction to his attempt to build a profitable website.

While time seems to have dispersed the mob of torch-wielding villagers seeking to barbecue Blodget over his perceived Wall Street sins, a new rabble of critics has gathered, furious about what his new media venture says about the future of the news business. The big knocks can be summed up by “WTF-Businessinsider.com,” a 31/2-minute videotaped rant posted online in June by a 37-year-old performance artist named Loren Feldman, whose site 1938 Media is known for skewering Internet personalities with online puppet shows. “When does embarrassment set in for any of you guys?” Feldman shouts in the video, apparently enraged by the fact that a senior-level TBI reporter had to consult Wikipedia to identify the legendary management expert Peter Drucker. Feldman sums up the criticisms, familiar to Blodget and all of his competitors: that TBI “scrapes” content, i.e., much of what the site posts is actually just repurposed news from other websites; that TBI uses gimmicks to generate Web traffic, including Web slide shows, which require viewers to click through several times. A typical recent example: “18 Awesome Wall Streeters and the Celebrities They (Apparently) Look Like.”
Blodget sees nothing to apologize for. Is there really value in creating stories like “15 Ways Justin Bieber Is Taking Over the World,” just because people will click on it, I ask him. “There’s no question about that,” says Blodget, who has a habit of listening to every question while flashing a megawatt smile. “Every minute, we’re watching the click rate of every story we have on the site. Part of the job of our editors is recognizing that what we’re trying to do is create content that people want to read….And I’m under personal pressure to build a self-sustaining business. Without that, we disappear.”

Blodget apparently believes he ought to try a different approach from the failing strategy currently employed by most traditional media. Critics say that TBI is far too superficial which doesn’t make much sense to me. I’ve never understood the sacredness which media professional attach to their profession,
News has always been raucous and entertaining. Blodget and TBI have a sense of the fun that major financial outlets sorely lack. (Don’t even get me started on the Economist.) Most of all, I think critics are upset that it’s working.

Sorry Folks, There’s No Such Thing as the PPT
Posted by Eddy Elfenbein on July 8th, 2010 at 3:54 pm

After the stock market crashed in 1987, Ronald Reagan did what presidents like to do, he created a commission to look at what went wrong. The commission was formally called the President’s Working Group on Financial Markets.
Ever since it was created, conspiracy theorists have had a field day. They’ve taken this small and not-very-important fact and somehow interpreted it to mean that the government, in the form of the Federal Reserve, buys stock to support the market.
They refer to the Working Group as the Plunge Protection Team, or the PPT (get it?). They continue to hold to this belief even though it makes no sense, there’s absolutely zero evidence for it and if it did exist, it hasn’t worked very well.
This morning, CNBC interviewed Damon Vickers of Nine Points Capital. He said that the markets are looking very dicey “unless the Plunge Protection Team comes in.” (See 2:38.)

I’m afraid investors don’t realize how nuts this statement truly is. At 3:20, Joe Kernan rightly pressed him and even assumed Vickers was joking about the PPT. Vickers said “absolutely not” and goes to embarrass himself and his firm further by confusing the moves made by the government during the crisis with secret market manipulation.

I don’t think it’s totally out of the realm of possibility. I mean they’re out there buying Citicorp (sic) and Fannie Mae and Freddie and shoring up the economy when the economy is weak, why wouldn’t they be active in the S&P futures?

Well…because the moves are completely different and buying S&P 500 futures makes no sense at all. Since Mr. Vickers is a bear, his argument is even more bizarre since he believes the PPT is both real and incompetent.
(Via: Gregory White)

Dow +60 Points
Posted by Eddy Elfenbein on July 8th, 2010 at 3:18 pm

The double-dip thesis has ruled Wall Street for the last two months, but now the earnings story is starting to wake up. Who will win out? I’m leaning towards earnings but we’ll know a lot more in a few days once earnings season begins.
The good news is that our Buy List is perking up today. Wright Express (WXS), Reynolds American (RAI) and AFLAC (AFL) are all up more than 2% today. Reynolds broke $55 for the first time since April. The shares now yield 6.5%. The Buy List is now inches away from breaking even for the year.
This week is a bit frustrating since it’s short due to the holiday plus there’s no real news coming out. Next week, we’ll get some earnings, Fed minutes, inflation reports plus some retail sales numbers. Until then, traders are just trading.

The Dow Breaks 10,000…Again
Posted by Eddy Elfenbein on July 8th, 2010 at 9:36 am

Stocks suddenly seem popular again. The stock market had a very strong day yesterday. The Buy List is now down just a little over 1% for the year. Even though the market had several decent days over the past two months, we’ve had an awful time with follow-through.
This time, however, looks to be different. The futures are pointing higher thanks to a decent report on job loss claims. The government said that initial claims for unemployment fell to 454,000 last week, which was 11,000 below estimates.
I don’t think the market is that excited by a slightly better-than-expected job loss claims report. Instead, I think the market is looking for a reason to rally and it’s latching on to whatever’s out there.
The other big news is that the Bank of England and the European Central Bank both left interest rates alone. The Brits are at 0.5% and the ECB is at 1%.
Reuters reports:

The global private banking sector has the potential to grow by 60 percent if it can get hold of about $10 trillion in untapped wealth, held back by depressed returns and lack of investor trust, Scorpio Partnership said.

That’s a very big if.

Kass: Market Has Made Low For Year
Posted by Eddy Elfenbein on July 7th, 2010 at 2:40 pm

Doug is on starting at 9:45.

Not Giving in on Netflx
Posted by Eddy Elfenbein on July 7th, 2010 at 11:12 am

Several weeks ago I called Netflix “the absolute worst stock to buy right now.” My call was terrible. Wait, not just terrible but awful terrible. Since I posted that, shares of Netflix (NFLX) soared from $87 to as high as $128 (they’re now around $110).
Well, I’m not giving in—I still think Netflix is wildly overpriced. Only now, it’s even more so. The stock is currently going for more than 40 times this year’s earnings. Plus, as First Adopter pointed out, Netflix is about to be squeezed by higher postage rates.
The Post Office is, like everyone else, in a bit of financial trouble so it’s asking for an increase of two cents on first class stamps. The Los Angeles Times notes:

Seattle, Wash.-based Netflix, which ships an average of 2 million DVDs each day, said it’s “willing to take our share of the sacrifice to ensure a stronger, more viable United States Postal Service.”

Two cents on two million DVDs a day comes to $14.6 million a year. That’s more than 10% of what Netflix will make this year.
Update: Trefis has a good post at Forbes arguing that Netflix is an $82 stock:

P/E Ratios of Financial Stocks
Posted by Eddy Elfenbein on July 7th, 2010 at 10:04 am

I’m amazed at the low valuations given to so many financial stocks. Obviously, some caution is needed, but when is it too much?
The Financial Sector ETF (XLF) dropped from over $17 in mid-April to under $13.50 recently.
Here’s a list of the financial stocks in the S&P 500 with yesterday’s closing price, the current EPS estimate for next year and the forward P/E Ratio.