Archive for September, 2010

  • Tomorrow’s GDP Report Isn’t Important
    , September 29th, 2010 at 11:54 am

    This going to be an interesting week for folks in the finance/econ stat biz. For one, Wall Street is about to close out its best September since 1939. Personally, I can do without the starting of major world wars.

    I’m happy to say that the Buy List is also wrapping up a great month. Through yesterday’s close, we’re up nearly 13% for September and we hit our highest close in four-and-a-half months.

    Tomorrow, the final GDP report comes out for the second quarter. This usually gets more attention than it deserves. The report will cover a period that began six months ago and ended three months later. The stock market usually focuses slightly forward, perhaps three to eight months ahead.

    On Friday, we’ll get the ISM index for September. Here’s the odd thing: There’s a decent correlation between ISM level and GDP growth so we might get a glimpse at Q3 growth. The correlation is around 40% which is far from perfect but it’s worth paying attention to.

    The past few quarters, however, have been a bit off-key. GDP growth has decelerated, meaning it’s still growing but the rate of growth has dropped over the last two quarters. That’s been one of the main drivers of the “Double Dip” thesis. I think the economy was impacted by problems in Europe much harder than people expected. The ISM has been fairly steady in the mid- to upper-50s. Normally, that signals growth of around 4%.

    If the economy has been growing that quickly, then we would now see some evidence in the jobs market. Unfortunately, that evidence has been sorely lacking. While there’s been some growth in jobs, it’s nowhere close to the kind of growth we normally see coming out of a recession. During the 1990’s, the economy regularly created huge amounts of jobs each month. We’ll get a look at the jobs market next Friday when the Labor Department releases its jobs report for September.

    Soon after that, earnings season will start. On October 7, Alcoa (AA) will be the first major company to report earnings. According to estimates, this earnings season will show a slight sequential decline from last quarter (meaning, Q3 earnings will be below Q2 earnings). I think estimates are just a bit too low, so that may mean there won’t be a sequential decline, but it’s hard to say right now.

  • Morning News: September 29, 2010
    , September 29th, 2010 at 7:25 am

    Savers Told to Stop Moaning and Start Spending

    After Recalls of Drugs, a Congressional Spotlight on J.& J.’s Chief

    BP to Create New Safety Division in Wake of Spill

    Stock Futures Point to Lower Open on Wall Street

    European Economic Confidence Unexpectedly Improves

    Barrick Says Gold Could “Easily” Exceed $1,500/oz

    Asian Shares End Mostly Higher; Tankan Survey Lifts Tokyo

    Food is the New Pharma: Nestlé Aims to Enter the Functional Foods Market

    Sometimes It’s Just a Black Duck

  • Costco Hits New 52-Week High
    , September 28th, 2010 at 12:49 pm

    Hats off to Costco (COST). The stock just broke out to a fresh 52-week high this morning.

    I think the stock has its pre-crash high of $75.23 (from May 14, 2008) in its sights, although it’s not easy to decipher what inanimate objects are thinking.

    There’s always a weird period when investing in Costco. They reported Q3 earnings on May 27, but the Q4 report won’t come out until mid-October. That’s 4-1/2 months without knowing how the business is doing.

    The last earnings report was in line with forecasts; the one before that missed by two cents and the one before that was in line. This tells me that the Street is seeing COST as a value play, not an emerging growth story.

  • US Economic and Equity Outlook from Goldman Sachs
    , September 28th, 2010 at 11:43 am

    GS Sep 10 Econ Update

    (Via: ZeroHedge).

  • 5-Year TIPs Back Near 0%
    , September 28th, 2010 at 11:24 am

    Here’s an eye-opening chart. This shows the yield on the 5-year Inflation-protected Treasury bond. During the crisis, the yield shot up over 4% as there was a rush to liquidity.

    Now, thanks to a lifeless recovery, the yield is back near 0% again. That means that in real terms, you’re not making a profit by lending money to the government.

  • Hirsch: Dow to 38,820 By 2025
    , September 28th, 2010 at 10:32 am

    One of the more bizarre predictions to hit Wall Street of late is Jeffrey Hirsch’s call for the Dow to reach 38,820 by 2025. What makes this forecast especially unusual—besides the suspiciously-precise target—is that according to Hirsch, the market won’t start its “Super Boom” until 2017.

    But after looking at some numbers, perhaps his target isn’t so outrageous. (I’m not endorsing it; I’m merely saying it really isn’t that crazy.) The stock market closed 1999 at 11,497.12. Assuming a 5% growth rate for 25 years would bring the index to 38,933. Of course, that assumes a heck of a lot of mean reversion until then.

    Is a 5% trend a reasonable assumption? I think so. That could be 2% fellatio inflation and 3% real GDP growth. Unfortunately, once this awful patch of slow growth finally ends, I have my doubts about how contained inflation will be.

    Ultimately, let me remind individual investors that these types of predictions don’t matter. They’re fun parlor games but they shouldn’t play a role in your investing strategy. One of the best parts of investing is that you don’t need to predict the future. If you stick with high-quality stocks for the long-term, you’ll do well.

  • Morning News: September 28, 2010
    , September 28th, 2010 at 8:05 am

    Troubling Trades Found Ahead of Flash Crash

    The Value of a Piece of Facebook

    Stock Buybacks Are for Dummies Except Right Now: David Pauly

    Home Prices Probably Cooled, U.S. Consumer Sentiment Off

    Apple May Unveil Next iPad by June 2011, Goldman Says

    JPMorgan May Pursue FDIC Funds for WaMu Claims

    Facebook IPO Likely After Late 2012: Board Member

    Oakland: Southwest-AirTran Deal May Bring East Coast Routes

    Census Finds Record Gap Between Rich and Poor

  • Fact-Checking the Simpsons
    , September 28th, 2010 at 12:18 am

    I was watching the season premiere of “The Simpsons” at the Fox website. During the episode, Kent Brockman referred to Gandhi as being a winner of the Nobel Peace Prize.

    For the record, Nobel Peace Prize winners have included Yasser Arafat, Kofi Annan, Mikhail Gorbachev, Anwar Sadat, Lê Ðức Thọ and Wangari “AIDS was created by the West” Maathai.

    But no Gandhi.

  • The World’s Best Stock Market — Mongolia??
    , September 27th, 2010 at 10:37 pm

    Where’s the world’s best stock market not only this year, but for the past decade? I’ll give you a hint: Mongolia!

    Odd as it may sound, the stock market in Mongolia is up an amazing 1,600% over the past decade. Now don’t get too carried away; this is hardly a developed market. The market cap of the entire stock market is just $500 million.

    The good news is that the emergence of a class of investors is helping economic reforms:

    And the index and volumes are likely to go higher now that the government is making serious noise about finally cleaning up the exchange. In one of his first speeches, Prime Minister Sukhbaataryn Batbold highlighted the need to develop an equity market and the government is keen to encourage domestic listing, according to Roland Nash, head of research at Renaissance Capital.

    And change will come sooner, rather than later. The MSE is currently considering bids by the London Stock Exchange, Sweden’s OMX HEX and South Korea’s main exchange to provide management services for the national exchange and supply it with new trading technology. A decision on the winner is expected before the end of the year. “We are offering them technology as well as business development,” says Jon Edwards, who spearheads the LSE’s business in Eastern Europe. “The market is small and the listings needs to be cleaned up, but the potential is phenomenal. Mongolia could do better than Kazakhstan if they can put all the pieces in place.”

    Edwards says the MSE is right at the very beginning of the process, but if it follows the experience of other countries in the region that have attempted equity market reforms, the size of the market should go up by an order of magnitude.

  • Karl Pilkington on Dolphins with Rifles
    , September 27th, 2010 at 5:59 pm