Archive for July, 2007

• The Stock Market Adjusted For Inflation
  Eddy Elfenbein, July 18th, 2007 at 5:48 pm

  Here’s a look at the S&P 500 including dividends and adjusted for inflation. You can see that we’re just shy of the market’s peak from a few years ago.
  

• Associated Banc-Corp
  Eddy Elfenbein, July 18th, 2007 at 11:32 am

  Here’s another example of a stock with a great long-term track record that no one has ever heard of. Associated Banc-Corp (ASBC) is a mid-cap bank based in Green Bay, WI.
  What’s interesting is that ASBC pays a generous dividend and it often has 10% or 20% stock dividends, so the stock’s true long-term record is a bit hidden.
  Here’s a chart going back to the beginning of 1985. Since then, ASBC has had a total return of over 2,140%. The S&P 500 is up about 1,506%.
  
  The stock is currently going for less than 14 times earnings and it’s yielding 3.8%.

• Amphenol Beats Earnings and Raises Guidance
  Eddy Elfenbein, July 18th, 2007 at 11:10 am

  This morning, Amphenol (APH) reported earnings of 46 cents a share, one penny more than expectations. Net income rose 58% over last year. Sales rose 14% to $688.8 million which was also above expectations.
  The company boosted its full-year EPS guidance to $1.79 to $1.83, up from earlier guidance of $1.75 to $1.80. APH also expects full-year sales in the range of $2.71 billion to $2.75 billion, up from its previous range of $2.67 billion to $2.72 billion.
  For this quarter, the company is expecting EPS of 44 to 46 cents. The Street is expecting 45 cents.
  The stock is currently down this morning, but it’s really giving back its gain from late yesterday.

• Bernanke’s Testimony
  Eddy Elfenbein, July 18th, 2007 at 10:51 am

  Here’s the key part of Bernanke’s testimony today:

  Overall, the U.S. economy appears likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy’s underlying trend. Such an assessment was made around the time of the June meeting of the Federal Open Market Committee (FOMC) by the members of the Board of Governors and the presidents of the Reserve Banks, all of whom participate in deliberations on monetary policy. The central tendency of the growth forecasts, which are conditioned on the assumption of appropriate monetary policy, is for real GDP to expand roughly 2-1/4 to 2-1/2 percent this year and 2-1/2 to 2-3/4 percent in 2008. The forecasted performance for this year is about 1/4 percentage point below that projected in February, the difference being largely the result of weaker-than-expected residential construction activity this year. The unemployment rate is anticipated to edge up to between 4-1/2 and 4-3/4 percent over the balance of this year and about 4-3/4 percent in 2008, a trajectory about the same as the one expected in February.
  I turn now to the inflation situation. Sizable increases in food and energy prices have boosted overall inflation and eroded real incomes in recent months–both unwelcome developments. As measured by changes in the price index for personal consumption expenditures (PCE inflation), inflation ran at an annual rate of 4.4 percent over the first five months of this year, a rate that, if maintained, would clearly be inconsistent with the objective of price stability. Because monetary policy works with a lag, however, policymakers must focus on the economic outlook. Food and energy prices tend to be quite volatile, so that, looking forward, core inflation (which excludes food and energy prices) may be a better gauge than overall inflation of underlying inflation trends. (I’m glad Bernanke said this. There’s a myth that the Fed ignores food and energy. That’s simply not true. – Eddy) Core inflation has moderated slightly over the past few months, with core PCE inflation coming in at an annual rate of about 2 percent so far this year.
  Although the most recent readings on core inflation have been favorable, month-to-month movements in inflation are subject to considerable noise, and some of the recent improvement could also be the result of transitory influences. However, with long-term inflation expectations contained, futures prices suggesting that investors expect energy and other commodity prices to flatten out, and pressures in both labor and product markets likely to ease modestly, core inflation should edge a bit lower, on net, over the remainder of this year and next year. The central tendency of FOMC participants’ forecasts for core PCE inflation–2 to 2-1/4 percent for 2007 and 1-3/4 to 2 percent in 2008–is unchanged from February. If energy prices level off as currently anticipated, overall inflation should slow to a pace close to that of core inflation in coming quarters.
  At each of its four meetings so far this year, the FOMC maintained its target for the federal funds rate at 5-1/4 percent, judging that the existing stance of policy was likely to be consistent with growth running near trend and inflation staying on a moderating path. As always, in determining the appropriate stance of policy, we will be alert to the possibility that the economy is not evolving in the way we currently judge to be the most likely. One risk to the outlook is that the ongoing housing correction might prove larger than anticipated, with possible spillovers onto consumer spending. Alternatively, consumer spending, which has advanced relatively vigorously, on balance, in recent quarters, might expand more quickly than expected; in that case, economic growth could rebound to a pace above its trend. With the level of resource utilization already elevated, the resulting pressures in labor and product markets could lead to increased inflation over time. Yet another risk is that energy and commodity prices could continue to rise sharply, leading to further increases in headline inflation and, if those costs passed through to the prices of non-energy goods and services, to higher core inflation as well. Moreover, if inflation were to move higher for an extended period and that increase became embedded in longer-term inflation expectations, the re-establishment of price stability would become more difficult and costly to achieve. With the level of resource utilization relatively high and with a sustained moderation in inflation pressures yet to be convincingly demonstrated, the FOMC has consistently stated that upside risks to inflation are its predominant policy concern.

• Today’s CPI Report
  Eddy Elfenbein, July 18th, 2007 at 10:35 am

  The government reported that headline consumer inflation rose by 0.2% last month. The core rate rose by 0.2%.
  

• Buy List Earnings This Week
  Eddy Elfenbein, July 17th, 2007 at 4:49 pm

  The earnings parade will start for our stocks this week. Tomorrow, Amphenol (APH) reports. Then on Thursday, Danaher (DHR), Unitedhealth (UNH) and Harley-Davidson (HOG) report.
  Except for Harley, none of the earnings should be a big surprise. The only surprise will be how the market reacts. For Harley, I think the current expectations are too low.

• Crashing DealBreaker
  Eddy Elfenbein, July 17th, 2007 at 1:28 pm

  I was in New York last week and while riding in a cab, the driver spotted a printer left on the curb. He pulled over, hopped out, grabbed the printer, tossed it in the trunk, then hopped back in and kept driving. You had to see it—it was all one fluid motion. See, this is why I love NYC.
  My destination was the offices of one of my favorite blogs, DealBreaker. I won’t bore you with the details, but after passing the reception area and security checkpoints (including retinal scan), I finally arrived at their palatial offices. I had no idea blogging was so profitable.
  Naturally, I brought my camera to record to the events.
  Here’s DealBreaker’s very talented Editor-In-Chief John Carney. Note the whiteboard in the background. They never use it. Instead, it serves as ironic symbolism of John’s alienation and disaffection from the mainstream media. (Plus, it’s cheap.) Here’s John quietly reflecting on the eloquence and understated humor of his previous post.
  
  More John. Here he is on the phone. Probably putting the screws to some Wall Street bigshot. (You can see why CNBC loves him!)
  
  John’s a wonderful guy and he even treated me to lunch. At one point, I tried to take a picture of Bess Levin, DealBreaker’s heartbreaker. But before I could, several large men wrestled me to the ground. Then Bess crushed my camera under the heel of her four inch leather stilettos. So in lieu of any Bess photos, I give you that mental image.
  I did manage to get one shot of her messy desk. Naturally, dear reader, I’m as appalled as you are. And yes, that is a shuttlecock just under the screen.
  
  Anyway, if you haven’t read DealBreaker, I highly recommend it. It’s one of the best and funniest sites on the Internets.

• GE’s Balance Sheet
  Eddy Elfenbein, July 17th, 2007 at 11:44 am

  How big is General Electric (GE)? This should give you an idea.
  I was scanning the earnings press release. Under “Assets” the company list $124.4 billion in the category of “Other.”

• Wall Street Loves Obama
  Eddy Elfenbein, July 17th, 2007 at 11:32 am

  
  (Via Yglesias) Senator Obama’s top contributors are Lehman Brothers, $160,760; Citadel Investment Group, $152,150; Goldman Sachs, $103,550; JP Morgan Chase, $101,950 and Citigroup $61,125.
  Here’s an old post looking at his investment portfolio.

• The Exchange Rate’s Impact on the Stock Market
  Eddy Elfenbein, July 17th, 2007 at 10:59 am

  The U.S. dollar has been in freefall lately, but it seems to have little or no impact on the stock market’s rally. In fact, it seems to be helping.
  I decided to do a little analysis and see how much the exchange rate, the dollar/euro in particular, impacts equity prices.
  From the beginning of 1999 to the end of June, the euro and the stock market were traded on about 2100 days. On days when the euro rose against the dollar, the S&P 500 lost a combined 66%. Annualized, that works out to a loss of -22.88% a year. When the euro fell against the dollar, the S&P 500 gained an annualized 35.30%.
  Here are the annualized rates for the S&P 500 sector groups:
  ……………………………Euro Up………………..Euro Down
  Energy……………………9.28%…………………..17.58%
  Discretionary…………-28.57%…………………..47.76%
  Staples…………………..-5.07%……………………8.21%
  Financials………………-27.26%…………………..51.23%
  Healthcare……………..-12.84%………………….17.39%
  Industrials……………..-21.50%…………………..40.90%
  Tech……………………..-44.04%…………………..69.80%
  Materials…………………..0.32%…………………..16.17%
  Telecom………………….-24.73%…………………..19.24%
  Utilities……………………-2.40%……………………7.43%