Archive for September, 2011

  • Morning News: September 28, 2011
    , September 28th, 2011 at 6:20 am

    EU Barroso Calls For Use Of Fiscal Policy To Boost Growth

    Greek Vote Approves a Despised Property Tax

    Greek Strikes Maintain Momentum

    Nagging Fears on Europe Slow a Wall Street Rally

    Euro Crisis Makes Fed Lender of Only Resort

    Obama Jobs Plan May Prevent 2012 Recession

    Dallas Fed President Fisher Says Central Bank Is Under Attack From Ron Paul, Barney Frank

    Health Insurers Push Premiums Sharply Higher

    Free Checking Falls to 45% of Customer Accounts, Bankrate Says

    Taiwan Semiconductor Shares Climb After New York Chip Venture with Intel

    For Bank of America, a $50 Billion Claim of Havoc Looms

    Time Warner Balks at European Media Prices

    SABMiller a Step Closer to Snaring Australia’s Foster’s

    United Feeling Merger Pains

    Tasgall Group: Granger Things Have Happened

    Szelhamos Rules: You Know What I Like

    Be sure to follow me on Twitter.

  • The 50-DMA Is In Sight
    , September 27th, 2011 at 2:55 pm

    I’ll feel much better when the S&P 500 finally crosses above its 200-day moving average. The 50-DMA, however, may be broken very soon.

    The 200-DMA is running about 1,281 right now but the 50-DMA is currently at 1,208.

  • Richard Fisher on Dissenting
    , September 27th, 2011 at 2:17 pm

    At the last FOMC meeting, Dallas Fed President dissenting from approving the Fed’s policy statement. Today, he explained why. Here’s part of his speech:

    One other factor gave me pause and that was, and remains, the moral hazard of being too accommodative. For years, I have been arguing that monetary policy cannot solve the problem of substandard economic performance unless it is complemented by fiscal policy and regulatory reform that encourages the private sector to put to work the affordable and abundant liquidity we are able to create as the nation’s monetary authority. These actions are not within the Fed’s purview; they are the business of Congress and the president. Chairman (Ben) Bernanke said it well in his recent speech at Jackson Hole (Wyo.): “Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank.” Both within the FOMC and in public speeches, I have argued that until our fiscal authorities get their act together, further monetary accommodation―be it in the form of quantitative easing or performing “jujitsu” on the yield curve through efforts such as Operation Twist―will represent nothing more than pushing on a string.

  • The S&P 500 is +2.25% at Noon
    , September 27th, 2011 at 12:03 pm

  • The Upcoming Third-Quarter Earnings Season
    , September 27th, 2011 at 10:52 am

    This is, thankfully, the final week of the third quarter. In a few weeks, the third-quarter earnings season will begin.

    For last year’s Q3, the S&P 500 reported earnings of $21.56. Wall Street currently expects earnings of $24.72 for this year’s Q3 which represents an increase of 14.7%. For the second quarter, the S&P 500 earned $24.86 so sequential earnings may decline slightly.

    Earnings growth for the fourth quarter is actually expected to accelerate to 18.7%. But I wouldn’t be surprised to see those estimates get pared back between now and the end of the year.

    Here’s the expected earnings third-quarter growth for the 10 S&P 500 sectors:

    Consumer Discretionary 12.6%
    Consumer Staples 7.8%
    Energy 50.3%
    Financials 2.8%
    Health Care 11.4%
    Industrials 10.5%
    Information Technology 15.2%
    Materials 27.7%
    Telecommunication Services 2.2%
    Utilities 1.7%

  • Share Traders More Reckless Than Psychopaths, Study Shows
    , September 27th, 2011 at 9:43 am

    From Spiegel:

    Two weeks ago, yet another case of rogue trading shocked the financial world when UBS trader Kweku Adoboli was arrested for allegedly squandering some $2.3 billion with a risky and unauthorized investment scheme. The 31-year-old, who had been based in London for the Swiss bank, remains in jail. The bank’s chief executive Oswald Grübel, meanwhile, has resigned over the scandal — the third major embarrassment to rattle the institution in just a few years.

    The situation mirrors a similar scandal at French bank Société Générale, where another young “rogue trader,” Jérôme Kerviel, gambled away billions in 2010. He is still serving a three-year jail sentence. But why do these situations keep arising in the financial world?

    According to a new study at the University of St. Gallen seen by SPIEGEL, one contributing factor may be that stockbrokers’ behavior is more reckless and manipulative than that of psychopaths. Researchers at the Swiss research university measured the readiness to cooperate and the egotism of 28 professional traders who took part in computer simulations and intelligence tests. The results, compared with the behavior of psychopaths, exceeded the expectations of the study’s co-authors, forensic expert Pascal Scherrer, and Thomas Noll, a lead administrator at the Pöschwies prison north of Zürich.

    Appetite for Destruction

    “Naturally one can’t characterize the traders as deranged,” Noll told SPIEGEL. “But for example, they behaved more egotistically and were more willing to take risks than a group of psychopaths who took the same test.”

    Particularly shocking for Noll was the fact that the bankers weren’t aiming for higher winnings than their comparison group. Instead they were more interested in achieving a competitive advantage. Instead of taking a sober and businesslike approach to reaching the highest profit, “it was most important to the traders to get more than their opponents,” Noll explained. “And they spent a lot of energy trying to damage their opponents.”

    Using a metaphor to describe the behavior, Noll said the stockbrokers behaved as though their neighbor had the same car, “and they took after it with a baseball bat so they could look better themselves.”

    The researchers were unable to explain this penchant for destruction, they said.

    Speaking of traders, Cullen Roche of Pragmatic Capitalist points us toward this video which made the rounds yesterday. Lots of people think this trader in the video is some sort of brave truth teller.

    My take is that his comments are silly and frivolous. He doesn’t say anything more than “things are bad because they’re bad because they’re not good.” Sadly, this sort of thing is popular these days.

    Felix Salmon has more.

  • Morning News: September 27, 2011
    , September 27th, 2011 at 5:22 am

    Global Takeover Rebound Falters on European Woes

    European Shares Lifted by Euro Zone Debt Plan Hopes

    European Loan Growth Quickened in August, Defying Debt Crisis

    Strikes Grind Greece to a Halt

    France’s Pre-Louis XIV System Helps Cap Debt Costs

    S&P Forecasts Strain for China Property Developers

    Gold Rallies After Biggest Three-Day Drop Since Lehman Collapse

    Geithner Tells Europe to ‘Get On With It’ After Global Chiding Over Crisis

    Freddie Mac Loan Deal Defective, Report Says

    Sales of New U.S. Homes Fell to Six-Month Low in August

    S.&P. Target of Inquiry in Securities

    Buffett Spots Fresh Bargain: Shares in His Own Company

    Rival Ad-Tech Firms to Become One

    Deloitte Sued for $7.6 Billion, Accused of Missing Fraud

    JPMorgan Seeks to Move Lehman’s $8.6 Billion Lawsuit

    Goldman Sachs Draws Up Deeper Cuts

    Jeff Miller: Investors: Prepare to be deceived on the Europe Story

    Phil Pearlman: The Tao of Missing a Trade

    Be sure to follow me on Twitter.

  • SEC May Move Against S&P
    , September 26th, 2011 at 12:47 pm

    The AP reports:

    The staff of the Securities and Exchange Commission is considering recommending civil legal action against Standard & Poor’s over its rating of a 2007 collateralized debt offering.

    Collateralized debt obligations, also known as C.D.O.’s, are securities tied to multiple underlying mortgage loans. The securities generally gain value if borrowers repay. But if borrowers default, investors lose money. Soured C.D.O.’s have been blamed for making the 2008 financial crisis worse. Ratings agencies have been accused of being lax in rating the investment.

    The S.E.C. staff said it may recommend that the commission seek civil money penalties, disgorgement of fees or other actions.

    S.& P. has been under fire for its recent downgrade of United States long-term debt, as well as several bad calls it made leading to the financial crisis and economic meltdown that began in 2008. The unit’s president stepped down last month.

    McGraw-Hill Companies, which owns S.& P., said Monday that it received a so-called Wells notice from the S.E.C. on Thursday. A Wells notice is a warning to a company that the commission is considering enforcement action.

    S.& P. said it has been cooperating with the commission and plans to continue cooperating on the matter.

    Shares of McGraw-Hill ($MHP) are down about 1% today.

  • The Plunge in Microsoft’s Valuation
    , September 26th, 2011 at 12:28 pm

    For the last 16 months, shares of Microsoft ($MSFT) have mostly been locked in a tight trading range between $24 and $28 per share. The stock has crept out of that range only a few times.

    What’s amazing is how far Microsoft’s valuation has fallen (see chart below). The stock dipped below $25 per share today. For the last fiscal year, the computer giant earned $2.69 per share, so that’s a trailing P/E Ratio of 9.3.

    Analysts on Wall Street expect earnings for the current fiscal year, ending in June 2012, of $2.86 per share. For the year after that, analysts see earnings of $3.13 per share. So the company is still growing, albeit not like it was 15 years ago.

    The chart below shows MSFT’s price over the last ten years along with its earnings-per-share and P/E Ratio. Notice how steeply the P/E Ratio has plunged.

    Basically, MSFT has shifted from being a growth stock into being a value stock. It must sound odd to anyone who remembers the go-go days of the 1990s to call Microsoft a “value stock,” but look at the facts.

    The company just raised its quarterly dividend by 25% to 20 cents per share. At $25 per share, an 80-cent annual dividend comes yields 3.2% which is more than a 30-year Treasury.

    Bear in mind that Microsoft is rated Triple-A while U.S. government debt is not.

  • Icahn Pulls Out of Clorox
    , September 26th, 2011 at 11:36 am

    The AP reports:

    Billionaire investor Carl Icahn’s withdrawal of his slate of directors for Clorox Co.’s board likely stemmed from his inability to find a potential buyer for the consumer products company, an analyst said Monday.

    “We conclude Icahn’s real learning was likely that no strategic acquirer was ready, willing and able,” John San Marco of Janney Capital Markets wrote in a client note.

    In a filing with the Securities and Exchange Commission, Icahn said he still thinks selling the company — which makes salad dressing, beauty products and other goods — is the best way to maximize shareholder value but that most shareholders don’t seem to support the idea.

    Icahn, known for shaking up struggling companies, had proposed to either sell Clorox or buy it himself for at least $78 per share. The company had dismissed the proposal as not credible. In August, Icahn said he wanted to install himself and 10 other directors on the company’s board.

    I can’t say I’m surprised. The stock is currently at $66 per share. This was a waste of time and money for Icahn. The share price of CLX is now lower than where it was before Icahn started this crusade.

    This is what I wrote two months ago when CLX was at $74:

    In my opinion, these bids over-value Clorox. Wall Street currently expects the company to earn $4.06 per share this fiscal year (which ends next June). That values CLX at nearly 20 times forward earnings. That’s just too rich.

    I hate watching boards shoot down offers of over-payment. I doubt an offer like this will come again soon. I’m not sure any competing bids will come along, and Icahn may be forced to pull his offer. If I were a CLX shareholder, I’d get out of the stock right now.