Archive for January, 2010

• S&P 500 Erases Most of this Year’s Gain
  Eddy Elfenbein, January 21st, 2010 at 3:05 pm

  The S&P 500 closed 2009 at 1115.10. At one point today, we dipped below that to 1114.84. It seems like only Monday that we were over 1150.

• The Volcker Rule
  Eddy Elfenbein, January 21st, 2010 at 2:35 pm

  The White House announced its major initiative today.

  Declaring that huge banks had nearly brought down the economy by taking “huge, reckless risks in pursuit of profits,” President Obama on Thursday proposed legislation to limit the scope and size of large financial institutions.
  The changes would prohibit bank holding companies from owning, investing, or sponsoring hedge fund or private equity funds and from engaging in proprietary trading — what Mr. Obama called the Volcker Rule, in recognition of the former Federal Reserve chairman, Paul A. Volcker, who has championed the restriction.
  In addition, Mr. Obama will seek to limit consolidation in the financial sector, by placing curbs on the growth of the market share of liabilities at the biggest firms. An existing cap, put in place in 1994, put a limit of 10 percent on the share of insured deposits that can be held by any one bank. That cap would be expanded, officials said, to include liabilities other than deposits.
  Both changes require legislation by Congress, and Republican leaders, as well as the banking industry, signaled on Thursday that they would resist the proposals.

  This is a big deal and I expect most of the proposal to pass. I think this will have a major impact on the hedge fund industry. I’m also surprised that Tim Geithner has been tossed overboard.
  I suspect that when a discussion is held on a future financial crisis, someone will say, “Well, it all started back in January 2010 when the government decided…”

• Goldman’s Huge Quarter
  Eddy Elfenbein, January 21st, 2010 at 11:40 am

  Goldman Sachs (GS) reported its best quarter ever:

  Goldman posted quarterly profit of $4.95 billion, or $8.20 a share, for the quarter, on revenue of $9.62 billion. Analysts surveyed by Thomson Reuters predicted earnings of $5.20 a share and revenue of $9.65 billion.
  In the year-earlier period Goldman had a loss of $2.29 billion, or $4.97 a share, on negative revenue of $1.58 billion. The prior-year period ended on Nov. 28, before the company shifted to a different reporting calendar.
  Fixed-income trading slowed after extraordinary profits in the previous three quarters. Revenue from fixed income, currency and commodities was $3.97 billion, down from the $5.99 billion in the third quarter.
  But investment-banking revenue moved higher, after falling almost a third in the third quarter. It rose 82% from the previous quarter to $1.64 billion.
  Revenue from principal investments, those made with the firm’s own capital, fell from the previous period.
  The investment bank’s impressive results in 2009 propelled it further ahead of rivals, many of which have struggled to overcome the credit crisis. Goldman has been able to take on more risk and grab market share while competitors were licking their wounds.

  The company is setting aside $16 billion for bonuses which works out to about $500,000 per employee.

• Copper Calls Top in Stocks. Wait…What?
  Eddy Elfenbein, January 20th, 2010 at 2:58 pm

  Copper, apparently, is a pretty good predictor of stock prices.

  The stock market may be headed to or already mired in a correction mode, with the price of copper among the signals telegraphing caution for equities.
  “Copper prices recently recorded a 12-month rolling rate of return in excess of 150%. Historically such a ‘copper cropper’ has market a ‘grading top’ in copper and telegraphed caution for the equity markets,” writes Jeffrey Saut, an investment strategist at Raymond James.
  Not all, however, agreed with Saut’s take.
  “I still believe the uptrend is currently in place, that we’re in a full-fledged bull market,” said Robert Pavlik, chief market strategist at Banyan Partners LLC.
  While copper futures hit a new high earlier this month, “there is no indication in the five-month chart that copper is about to approach a correction of any sort,” said Pavlik.
  Used in both residential and commercial construction, copper has long been dubbed the metal “with the PhD” due to its ostensible ability to forecast changes in the economy based on its pricing and demand.

  And if you’re planning on converting your entire retirement nest egg into pennies, think again. A modern penny on only one part per 40 copper, the other 39 parts are zinc.
  The old alloy (pre 1982) was 95% copper and just 5% zinc. The metal in that penny is now worth more than one penny. The government, however, has made melting them down a crime.

• Berkshire Votes to Splti 50-for-1
  Eddy Elfenbein, January 20th, 2010 at 2:53 pm

  If you’ve always wanted to own a piece of Warren Buffett but didn’t want to shell out a few thousand dollars, you’re in luck. The company voted to split the B shares by 50-for-1.
  The pricey A shares aren’t splitting. These are the shares currently for nearly $105,000.
  The B shares are worth about $3500 and will be worth about $70 after the split takes effect.

• New Highs All Around
  Eddy Elfenbein, January 19th, 2010 at 11:01 am

  So far today, Aflac (AFL), Eaton Vance (EV), Johnson & Johnson (JNJ), Medtronic (MDT), Reynolds America (RAI) and Stryker (SYK) have all hit new 52-week highs. The Buy List is now up 6% for the year. Did I mention it’s January?
  Before I get too cocky, let me reread my previous post.

• The Market Doesn’t Always Do What We Want
  Eddy Elfenbein, January 19th, 2010 at 10:20 am

  Before Intel’s earnings came out I wrote, “The Street is looking for 30 cents a share which is definitely too low. I expect earnings around, 35 cents a share, but the mystery is how Wall Street will react.”
  I was more right than I realized. Intel obliterated the Street by earning 40 cents a share, yet the stock fell 3.2% the next day. So if exceeding expectations disappoints, you have to wonder what the true expectations were.
  There was some talk that Intel’s gross margins are now so high (67%) that there’s no way they can increase them anymore. Sure, I buy that. The company has said it’s targeting margins 61% for this year. But it in way means that Intel will be less profitable.
  The point for us is how unpredictable investing can be. Even when all the fundamentals go our way, we can still lose. If the market wants to go down, it will go down. The media and analysts will attempt to seize on any bit of info to explain the sell-off. Yet, the accurate explanation for why it happened is simply unknowable.
  Unfortunately, that doesn’t make for a good analyst report or news item. In the long run, stock prices do make sense. But in the short term, it might as well be astrology.

• Intel Delivers Huge Quarter
  Eddy Elfenbein, January 14th, 2010 at 4:17 pm

  Yesterday I said that I expected Intel (INTC) to report earnings of 35 cents a share which was well above Wall Street’s consensus of 30 cents a share. Even my optimistic estimate was too low. The company just reported earnings of 40 cents a share.
  Here’s a look at their future guidance:

  Q1 2010
  * Revenue: $9.7 billion, plus or minus $400 million.
  * Gross margin percentage: 61 percent, plus or minus 2 percentage points.
  * R&D plus MG&A spending: Approximately $3 billion.
  * Amortization of acquisition-related intangibles and costs associated with the Wind River acquisition: Approximately $20 million.
  * Impact of equity investments and interest and other: Gain of approximately $20 million.
  * Depreciation: Approximately $1.1 billion.
  Full-Year 2010
  * Gross margin percentage: 61 percent, plus or minus 3 percentage points.
  * Spending (R&D plus MG&A): $11.8 billion, plus or minus $100 million.
  * R&D spending: Approximately $6.2 billion.
  * Tax rate: Approximately 30 percent.
  * Depreciation: Approximately $4.4 billion, plus or minus $100 million.
  * Capital spending: Expected to be $4.8 billion, plus or minus $100 million.

  That Q1 revenue target of $9.7 billion +/-$400 million is well above Wall Street’s consensus of $9.35 billion.

• Barney Vs. Erin
  Eddy Elfenbein, January 14th, 2010 at 4:02 pm

  Here’s an entertaining interview of Barney Frank by Erin Burnett:
  

• The Dow Jones Hit Its Bull Market High 10 Years Ago Today
  Eddy Elfenbein, January 14th, 2010 at 6:48 am

  On Friday, January 14, 2000, the Dow closed at 11,722.98 — a level it wouldn’t break for over six years. That peak capped an amazing 17-1/2 year run. In the ensuring 10 years, we’ve lost about 1,000 points or roughly 8.9%. Inflation, or at least the CPI, has increased by about 28% which makes the inflation-adjusted close from ten years more like 15,000. Ten years ago, gold was going for about $280 an ounce (around $360 inflation adjusted).
  In the letters section of the January 2000 issue of the Atlantic, J. Douglas Van Sant of Stockton, California criticized the article in the September 1999 issue on Dow 36,000 by James Glassman and Kevin Hassett.
  Mr. Van Sant wrote:

  I would be willing to bet Glassman and Hassett that even ten years from now, when earnings and dividends should have nearly doubled, the Dow Jones Industrial Average will still be closer to its current level of 11,000 than to their hyperbolic projection of 36,000.

  Good call. The Dow closed yesterday at 10,680.77.
  Glassman and Hassett replied:

  To J. Douglas Van Sant we say, if the Dow is closer to 10,000 than to 36,000 ten years from now, we will each give $1,000 to the charity of your choice.

  I recommend Haiti.