• Will They Ever Learn?
    Posted by on August 11th, 2011 at 10:37 am

    Once again, regulators consider a bad idea that refuses to die:

    Europe Considers Ban on Short Selling

    BRUSSELS — A European market regulator is considering recommending a temporary ban on negative bets against stocks across the Continent in an effort to stop the tailspin in the markets.

    The European Securities and Markets Authority, a body that coordinates the European Union’s market policies, has been requesting information from member states about such bets against stocks, known as short-sales.

    In such deals, a trader sells borrowed shares in hopes that they will decline in value before he has to buy them back to close out his loan. The difference in price is his profit, or loss. Critics say short-selling encourages speculation and pushes stock prices down, sometimes feeding on itself in a panicked market, while advocates say it keeps the market honest and maintains liquidity.

    “We are discussing with national authorities and together we will decide whether we need coordinated action,” Victoria Powell, a spokeswoman for the authority, said Thursday. She declined to comment on the timing of any decision or its possible scope.

    Short-selling is crucial to an orderly market. It’s difficult to over-state how important this is. Shorting is what gives a trader his power. It’s an energy field created by all tradeable securities. It surrounds us, penetrates us, and binds the markets together.

    Short-selling is most important right now because it helps the market uncover the weakest firms. I find it interesting that regulators continue to blame short-sellers. The fact is that regulators overwhelmingly failed in finding problem spots in the economy and that’s exactly what the shorts did.

  • Understatement of the Year
    Posted by on August 11th, 2011 at 10:16 am

    Ladies and gentlemen, I hope you’re sitting down:

    Bank of America execs say they regret Countrywide Purchase

    In other news, Napoleon concedes that invading Russia “may have been a bad idea.”

  • Dividend Yields on S&P Financial Stocks
    Posted by on August 11th, 2011 at 9:39 am

    Financial stocks have been getting battered and bruised. The Financial Sector ETF ($XLF) was over $17 earlier this year. Now it’s at $12.

    Here’s a look at how some the dividend yields stack up:

    Stock Symbol Price Dividend Yield
    Ace Limited ACE $59.35 $1.43 2.41%
    AFLAC AFL $35.57 $1.20 3.37%
    AIG AIG $22.14
    AIMCO AIV $23.32 $0.48 2.06%
    Assurant AIZ $31.23 $0.72 2.31%
    Allstate ALL $24.32 $0.84 3.45%
    Ameriprise Financial AMP $41.19 $0.92 2.23%
    Aon Corporation AON $43.36 $0.60 1.38%
    AvalonBay Communities AVB $125.67 $3.57 2.84%
    American Express AXP $42.80 $0.72 1.68%
    Bank of America BAC $6.77 $0.04 0.59%
    BB&T Corporation BBT $19.86 $0.64 3.22%
    Franklin Resources BEN $109.44 $1.00 0.91%
    Bank of New York Mellon BK $19.46 $0.52 2.67%
    Berkshire Hathaway BRKB $67.60
    Boston Properties BXP $95.66 $2.00 2.09%
    Citigroup C $28.49 $0.04 0.14%
    Chubb Corporation CB $56.51 $1.56 2.76%
    CB Richard Ellis Group CBG $16.67
    Cincinnati Financial CINF $24.03 $1.60 6.66%
    Comerica CMA $24.22 $0.40 1.65%
    CME Group CME $239.21 $5.60 2.34%
    Capital One Financial COF $41.05 $0.20 0.49%
    Discover Financial Services DFS $21.88 $0.24 1.10%
    Equifax EFX $29.54 $0.64 2.17%
    Equity Residential EQR $56.01 $1.35 2.41%
    E*TRADE Financial ETFC $10.66
    First Horizon National FHN $6.76 $0.04 0.59%
    Federated Investors FII $16.91 $0.96 5.68%
    Fifth Third Bancorp FITB $9.42 $0.24 2.55%
    Genworth Financial GNW $5.78
    Goldman Sachs GS $110.34 $1.40 1.27%
    Huntington Bancshares HBAN $4.71 $0.16 3.40%
    Hudson City Bancorp HCBK $6.10 $0.32 5.25%
    Health Care REIT HCN $43.40 $2.86 6.59%
    HCP HCP $31.44 $1.92 6.11%
    Hartford Financial Services HIG $18.15 $0.40 2.20%
    Host Hotels & Resorts HST $12.00 $0.12 1.00%
    IntercontinentalExchange ICE $109.80
    Invesco Plc IVZ $16.62 $0.49 2.95%
    Janus Capital Group JNS $6.49 $0.20 3.08%
    JP Morgan Chase JPM $34.37 $1.00 2.91%
    KeyCorp KEY $6.20 $0.12 1.94%
    Kimco Realty KIM $15.87 $0.72 4.54%
    Loews Corporation L $34.54 $0.25 0.72%
    Legg Mason LM $24.63 $0.32 1.30%
    Lincoln National LNC $20.67 $0.20 0.97%
    Leucadia National LUK $26.43 $0.25 0.95%
    Moody’s MCO $29.15 $0.56 1.92%
    MetLife MET $31.83 $0.74 2.32%
    Marsh & McLennan MMC $26.83 $0.88 3.28%
    Morgan Stanley MS $16.45 $0.20 1.22%
    M&T Bank MTB $70.39 $2.80 3.98%
    The NASDAQ OMX Group NDAQ $21.47
    Northern Trust NTRS $36.13 $1.12 3.10%
    NYSE Euronext NYX $26.87 $1.20 4.47%
    People’s United Financial PBCT $10.74 $0.63 5.87%
    Plum Creek Timber PCL $35.25 $1.68 4.77%
    Principal Financial Group PFG $22.16 $0.55 2.48%
    Progressive PGR $17.31 $0.40 2.31%
    ProLogis PLD $26.40 $1.12 4.24%
    PNC Financial Services PNC $45.28 $1.40 3.09%
    Prudential Financial PRU $47.77 $1.15 2.41%
    Public Storage PSA $109.62 $3.80 3.47%
    Regions Financial RF $4.23 $0.04 0.95%
    Charles Schwab SCHW $12.05 $0.24 1.99%
    SLM Corporation SLM $13.08 $0.40 3.06%
    Simon Property Group SPG $107.89 $3.20 2.97%
    SunTrust Banks STI $17.69 $0.04 0.23%
    State Street STT $33.24 $0.72 2.17%
    Torchmark TMK $33.56 $0.29 0.86%
    T. Rowe Price TROW $49.04 $1.24 2.53%
    The Travelers Companies TRV $49.04 $1.64 3.34%
    Unum Group UNM $21.31 $0.42 1.97%
    U.S. Bancorp USB $21.43 $0.50 2.33%
    Vornado Realty Trust VNO $77.51 $2.76 3.56%
    Ventas, Inc. VTR $44.99 $2.30 5.11%
    Wells Fargo WFC $22.88 $0.48 2.10%
    XL Group XL $18.78 $0.44 2.34%
    Zions Bancorporation ZION $16.06 $0.04 0.25%

  • Morning News: August 11, 2011
    Posted by on August 11th, 2011 at 7:41 am

    Central Bankers Race to Protect Growth

    French Banks Lead European Sector Lower

    Italy’s Tremonti Seeks Budget Reform

    Financial Turmoil Evokes Comparison to 2008 Crisis

    In U.S. Stress Tests, a Tool to Gauge Contagion in Europe

    Treasuries Fall Before Auction of 30-Year Bonds; U.S. Stock Futures Rise

    U.S. Futures Rise Amid Volatile Trade

    Gold Slips In Asia As Base Metals See Renewed Buying Interest

    Insiders Buy Stocks at Highest Rate Since 2009

    Apple’s Market Crown Is Tribute to Agility: The Ticker

    Chinese E-Commerce Giant Alibaba Reports Q2 Net Up, Sees Global Econ Threat to H2

    Internet Co AOL Authorizes $250 Million Stock Repurchase Program

    Fitch: Capital One On Negative Watch On Bid For HSBC Card Unit

    Anheuser-Busch InBev’s US Cost-Cutting, Brazil Price Hikes Boost Profit

    Paul Kedrosky: How the West Was Lost and Where it Got Us

    Stone Street: Trina Solar (Potential) Fraud Investigation Update: Definitely, Maybe…

    Be sure to follow me on Twitter.

  • The Emergence of Volatility
    Posted by on August 10th, 2011 at 10:55 pm

    Today was the Dow’s third 500+ loss in the last five days. Not too long ago, daily swings of more than 200 points were rare.

    Check out how dramatically daily volatility has increased:

  • Out of Stocks and Into Bonds
    Posted by on August 10th, 2011 at 9:12 pm

    Sometimes one chart says it all. This is the S&P 500 ETF ($SPY) compared with the Long-Term Treasury ETF ($TLT).

    The two lines are nearly perfect mirror images. In the last three weeks, the lines have dramatically diverged. Going by this metric, the market isn’t nearly as unbalanced as it was two-and-a-half years ago.

  • Belloc 2011
    Posted by on August 10th, 2011 at 8:49 pm

    Whatever happens, the rioters have got: The Maxim gun, and the police have not.

  • The Misweightings of the Dow
    Posted by on August 10th, 2011 at 8:12 pm

    Below is a listing of the 30 stocks in the Dow Jones Industrial Average ($DJIA). The Dow is a price-weighted index which means that it’s calculated by adding up all the prices of the 30 stocks and dividing by an index divisor. The divisor is currently 0.132129493.

    Price-weighting is a really bad idea and it’s a holdover from the days before computers. The S&P 500 is based on each stock’s market value which is a far more accurate measure.

    Because of the Dow’s price-weighting, you get some screwy results, and that’s only gotten worse lately. For example, the entirety of Bank of America ($BAC) is now worth just 51 Dow points. The stock’s depressed share price means that it has the smallest weighting in the index. In fact, it’s twice as smallest as the second-smallest.

    I’ve listed each stock in the index along with today’s closing price, the stock’s weighting in the Dow, the market cap, the weighting if the Dow were market cap-weighted and lastly, the discrepancy. In other words, Alcoa has 2.15 times the weighting in the Dow that it should have. We can see that Travelers ($TRV) has three times the weighting in the Dow as General Electric ($GE) even though GE’s market cap is more than seven times TRV’s.

    Stock Price Weighting Mkt Cap Weighting Difference
    Alcoa $11.60 0.82% $12.34 0.38% 2.15
    American Express $42.80 3.02% $51.09 1.58% 1.92
    Boeing $57.41 4.05% $42.55 1.31% 3.09
    Bank Of America $6.77 0.48% $68.61 2.12% 0.23
    Caterpillar $83.51 5.90% $53.95 1.67% 3.54
    Cisco $13.73 0.97% $75.52 2.33% 0.42
    Chevron $90.57 6.39% $181.41 5.60% 1.14
    DuPont $44.83 3.17% $41.74 1.29% 2.46
    Disney $31.54 2.23% $59.62 1.84% 1.21
    General Electric $15.09 1.07% $159.96 4.94% 0.22
    Home Depot $28.51 2.01% $45.39 1.40% 1.44
    Hewlett-Packard $29.86 2.11% $61.93 1.91% 1.10
    IBM $162.54 11.48% $194.12 5.99% 1.92
    Intel $19.93 1.41% $105.51 3.26% 0.43
    Johnson & Johnson $60.20 4.25% $165.02 5.09% 0.83
    JPMorgan Chase $34.37 2.43% $136.05 4.20% 0.58
    Kraft Foods $32.80 2.32% $57.93 1.79% 1.29
    Coke $63.96 4.52% $146.86 4.53% 1.00
    McDonald’s $84.08 5.94% $86.75 2.68% 2.22
    3M $78.23 5.52% $55.51 1.71% 3.22
    Merck $29.81 2.10% $92.01 2.84% 0.74
    Microsoft $24.20 1.71% $202.75 6.26% 0.27
    Pfizer $17.05 1.20% $134.71 4.16% 0.29
    Procter & Gamble $58.51 4.13% $166.89 5.15% 0.80
    AT&T $27.88 1.97% $165.22 5.10% 0.39
    Travelers $49.04 3.46% $20.53 0.63% 5.46
    United Technologies $67.44 4.76% $61.28 1.89% 2.52
    Verizon $33.66 2.38% $95.28 2.94% 0.81
    Walmart $48.41 3.42% $168.11 5.19% 0.66
    Exxon Mobil $68.03 4.80% $330.77 10.21% 0.47

  • Disney Plunges on Earnings
    Posted by on August 10th, 2011 at 11:14 am

    Shares of Disney ($DIS) are getting crushed today on a questionable earnings report.

    Shares of Walt Disney Co fell more than 14 percent in early trading Wednesday, a day after the company’s quarterly results failed to reassure investors that Disney could do well in a weak U.S. economy.

    Barclays Capital, Wunderlich Securities, RBC and Evercore Partners all cut their price targets for Disney and lowered their expectations for its theme parks and TV networks.

    Disney shares were down much more than its peer media companies despite posting solid results, dropping some $10 billion in market value.

    Fiscal third-quarter profit was boosted by management’s decision to move some deferred revenue related to ESPN to the third quarter from the fourth quarter.

    Excluding deferred revenue, results missed most analysts’ expectations

    Disney executives told analysts the company is not seeing any advertiser downturn at its TV networks which include ABC and cable networks like ESPN and Disney branded channels. They also said hotel bookings were down by 2 percent less than it had previously forecast.

    The odd thing is that the earnings report initially looked quite good. But once analysts dug through the numbers, they didn’t like what they saw. DIS got as low as $30.20 which is a 13% drop from yesterday’s close. The stock is lower than where it was in November 1997.

    Disney was a super-star stock in the 1960s and early 70s. It was one the most prominent of the Nifty 50 fad in the early 70s. Much like the rest of those stocks, Disney plunged hard in the 1973-74 bear market.

    The stock really didn’t get moving again until Michael Eisner took over in 1984. The stock soared by more than 42-fold from 1984 to 1998. Since then, the stock hasn’t done well at all.

  • The Fed Throws in the Towel and Stocks Soar
    Posted by on August 10th, 2011 at 8:30 am

    The Dow soared 429.92 points on Tuesday which came after Monday’s 634.76-point bloodbath. The S&P 500 jumped 4.74% yesterday which brings the loss for the week to 2.24%

    Yesterday was an unusually frantic day of trading. At the time of the Fed’s announcement, the market was modestly higher. Once the FOMC news was digested, the market tanked hard.

    By 2:45 pm, the S&P 500 hit 1,101.54 which was the lowest point in nearly a year. The market then suddenly put on a furious rally. From the intra-day low to the close, the market added 6.44%. Yowza. That ain’t bad for 75 minutes’ work.

    I’m not saying that the panic has passed, but I will note that the $VIX took a big tumble on Tuesday. That’s to be expected with a rally. The $VIX dropped 12.94 yesterday to close at 35.06. Once again, most of the decline came towards the end of the trading day.

    I mentioned earlier that Tuesday was a classic “snapback” rally. In other words, what did the worst on Monday did the best on Tuesday. What did the best on Monday did the worst yesterday. As a result, the Morgan Stanley Cyclical Index (^CYC) finally outpaced the market. Before today, the CYC trailed the S&P for 17 out of the last 18 days.

    Once again, the big action was in the bond market. Stocks go down and bonds go up. Then stocks go up and bonds…still go up.

    The yield on the 10-year Treasury reached an absurd all-time low of 2.0346%. Yes, that’s an all-time low. On July 1st, the 10-year yielded 3.2%. The yield on the two-year Treasury dropped as low as 0.157% yesterday. The yield on the 10-year TIPs dropped into the minus camp for the first time ever.

    Here’s a look at the dramatic change in the yield curve between July 25th and yesterday:

    There’s now very little difference between the two-year and three-year Treasury yield. That’s a direct result of the Fed’s announcement. The market doesn’t expect the Fed to raise interest rates for at least a few more years.

    Here’s a stat for you that shows you how much times have changed. Two years ago, a two-year Treasury yielded 1.32% and a three-year yielded 1.87%. That implied that the one-year yield would be at 2.97% in two years, meaning today.

    Instead of yielding 2.97%, the one-year currently yields 0.11%.