Archive for January, 2015

  • Today’s Fed Statement
    , January 28th, 2015 at 2:02 pm

    Here’s today’s Fed statement:

    Information received since the Federal Open Market Committee met in December suggests that economic activity has been expanding at a solid pace. Labor market conditions have improved further, with strong job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately; recent declines in energy prices have boosted household purchasing power. Business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has declined further below the Committee’s longer-run objective, largely reflecting declines in energy prices. Market-based measures of inflation compensation have declined substantially in recent months; survey-based measures of longer-term inflation expectations have remained stable.

    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to decline further in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate. The Committee continues to monitor inflation developments closely.

    To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.

    The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

    When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

    Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams.

  • Morning News: January 28, 2015
    , January 28th, 2015 at 7:05 am

    German Consumer Sentiment to Reach 13-Year High in February

    China Accuses Alibaba Of Lax Merchant Control, Tells It To Stop Being Arrogant

    Alibaba Creates a Consumer Credit Rating Service

    London’s Canary Wharf: Qatar Bid Wins Battle

    Consumer Confidence in U.S. Rises More Than Forecast on Jobs

    Morgan Stanley: The Fed Isn’t Raising Rates Until March 2016

    Obama Proposes Offshore Drilling From Virginia to Georgia

    Apple Smashes Forecasts, Selling 74.5 Million iPhones In Q1

    TE Connectivity to Sell Broadband Network Unit to CommScope

    Nintendo’s Outlook Disappoints and Mario Can’t Save Wii U

    Roche Earnings Stagnate for First Time in Three Years on Costs

    H&M Posts Rise in Quarterly Profit, Plans 400 New Stores

    In DuPont Fight, Activist Investor Picks a Strong Target

    Ben Carlson: Would Keynes Have Been Fired As a Money Manager Today?

    Roger Nusbaum: 11 Investing and Personal Finance Hacks

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  • Stryker Earns $1.44 per Share
    , January 27th, 2015 at 4:14 pm

    Stryker ($SYK) just reported Q4 earnings of $1.44 per share. That was one penny below expectations. For all of 2014, the company made $4.73 per share. Here’s the outlook for 2015:

    We expect 2015 constant currency sales growth in the range of 5.5% to 7.0%, including organic sales growth in the range of 4.5% to 6.0%. Based on current foreign currency exchange rates we expect adjusted diluted net earnings per share to be in the range of $1.05-$1.10 and $4.90-$5.10 in the first quarter and the full year, respectively. If foreign currency exchange rates hold near current levels, we expect sales in the first quarter and full year of 2015 to be negatively impacted by approximately 3% to 4% and adjusted diluted net earnings per share to be negatively impacted by approximately $0.08 and $0.30 in the first quarter and the full year, respectively.

    Wall Street had been expecting $1.17 per share for Q1, and $5.14 for the whole year.

    Shorter version: Business is going well but the strong dollar is causing some pain.

  • My Watch List
    , January 27th, 2015 at 1:08 pm

    Below is my latest Watch List. This is my unofficial list of high-quality stocks I like to follow. If a stock is on this list, then there’s a very good chance that it’s in the upper 5% of well-run companies on Wall Street. This is the elite.

    I’m often asked how I go about selecting the stocks for my Buy List. It’s actually very simple. I have this Watch List of stocks and if one of them falls down to a very attractive price, then it becomes a contender for the new Buy List. I like to think of the Watch List as the minor leagues for the Buy List. Strong prospects earn their way up the ladder.

    The Watch List is very informal. Unlike the Buy List, I’m constantly adding and deleting names. In fact, I have a bad habit of letting the Watch List grow too large. I often find myself adding three names for every one I delete. It’s simply not possible to follow 130 stocks.

    Every few months I promise myself that this will be the time to trim down the Watch List. Well, I actually did it this time! Over the past several weeks, I trimmed the Watch List down to 76 names.

    Symbol Stock
    ABC AmerisourceBergen
    ABT Abbott Laboratories
    ADS Alliance Data Systems
    AL Air Lease
    AME Ametek
    ANSS Ansys
    ANTM Anthem
    APH Amphenol
    AZO AutoZone
    BCPC Balchem
    BDX Becton, Dickinson
    BIIB Biogen Idec
    CATM Cardtronics
    CTAS Cintas
    CERN Cerner
    CHD Church & Dwight
    CL Colgate-Palmolive
    COST Costco
    CPRT Copart
    CVS CVS Health
    DHR Danaher
    DKS Dick’s Sporting Goods
    DLX Deluxe
    EV Eaton Vance
    FAST Fastenal
    FDS FactSet Research Systems
    FL Foot Locker
    FTI FMC Technologies
    GGG Graco
    GPN Global Payments
    GWW W.W. Grainger
    HEI HEICO
    HSIC Henry Schein
    HSNI HSN Inc
    HSY Hershey
    HUB-B Hubbell
    ICE Intercontinental Exchange
    IDXX IDEXX Laboratories
    IEX IDEX
    IFF International Flavors & Fragrances
    INTU Intuit
    IPCM IPC Healthcare
    IT Gartner
    JBHT JB Hunt Transport Services
    JKHY Jack Henry & Associates
    MDT Medtronic
    MIDD Middleby
    MKC McCormick
    MTD Mettler-Toledo International
    MWIV MWI Veterinary Supply
    NKE Nike
    NTCT NetScout Systems
    OSIS OSI Systems
    PB Prosperity Bancshares
    PSA Public Storage
    PZZA Papa John’s International
    RAI Reynolds American
    RMD ResMed
    ROL Rollins
    SBUX Starbucks
    SEIC SEI Investments
    SJI South Jersey Industries
    SLGN Silgan Holdings
    SRCL Stericycle
    STJ St. Jude Medical
    SWI SolarWinds
    TJX TJX
    TMO Thermo Fisher Scientific
    TSCO Tractor Supply
    TXRH Texas Roadhouse
    TYL Tyler Technologies
    V Visa
    VFC V.F. Corp
    VSI Vitamin Shoppe
    WEX WEX
    ZMH Zimmer Holdings

  • Spies and Finance
    , January 27th, 2015 at 11:48 am

    Yesterday, the FBI arrested a Russian businessman named Evgeny Buryakov and charged him with being an agent of Russian intelligence.

    Buryakov was in the U.S. on “non-official status,” meaning he didn’t have diplomatic immunity, while his two co-conspirators (Igor Sporyshev and Victor Podobnyy) had official status but they had already split back to Mother Russia.

    Reading the details of their story, it’s pretty embarrassing. These guys come across more like Boris Badenov rather than international men of mystery. The spies are on the phone complaining about their jobs.

    While it’s easy to dismiss these buffoons as merely buffoons, noted strategy analyst John Schindler cautions that there’s something more sinister afoot. Bear in mind that Vladimir Putin is a former KGB officer and that he takes spy warfare seriously. Putin believes Russia is in a Holy War with the west, the U.S. especially, and he intends to win.

    Schindler notes that the important part of the story, the part that we ought to be paying attention to, is that the spies were targeting the U.S. financial infrastructure. They were looking for information on topics like high-frequency trading and automated trading algorithms. Basically, anything that could be used to destabilize our financial markets.

    As with the Illegals Network in 2010, journalists and commentators who are ignorant of Russian espionage tradecraft are blowing this story off as being of little consequence, even comedic. There is, however, nothing funny about this case. In the first place, it shows that the Kremlin continues to collect economic intelligence in the West, using various covers to steal information of many sorts. This is a big win for the FBI and U.S. counterintelligence, but luck was on our side here, and that cannot be counted on.

    Moreover, Illegals have many purposes, including functioning as long-term sources to maintain agent networks in the event of war, when diplomatic facilities close and Legals get pulled home. Given the parlous state of relations between the West and Russia now, this is not a theoretical concern. The Kremlin, unlike most Western intelligence services, tends towards the long-view and worst-case planning with utmost seriousness.

    Most individual investors are unaware of how much modern trading is dominated by machines. These are highly sophisticated operations. Whenever you buy a stock, it’s very likely you’re buying it from a machine. Whenever you sell a stock, it’s very likely a machine bought it from you. There’s a vast army of computers that do nothing all day but trade at insanely high speeds to eek out a micro-penny’s profit on each trade. The worry is that once one robot starts selling massively, it could trigger all the other robots to sell as well.

    Could this really happen? I don’t know, but we’ve had Flash Crashes before. It’s realistic enough that the Russians were looking into it. The trio was especially interested in ETFs (exchange traded funds). On the other hand, rather than them attacking us, they have been interested in finding out if we had been attacking them.

    The irony here is that it’s been the Russian system that’s been destabilized. The Russian economy has been clobbered by the recent fall in oil. The ruble has been smashed and the Russian Fed has responded by jacking up interest rates. As I’ve noted before, the Russian ETF ($RSX) is in a severe bear market. Capital outflows ballooned from $60 billion in 2013 to $150 billion last year.

    It may soon get worse for Russia. Yesterday, S&P cut Russia’s bond rating to junk (and someone may have known). The U.S. wants to kick Russia out of the SWIFT banking network. This is the standardized network that lets banks conduct international transactions. This is a big deal as it would isolate the Russian economy even more. Dmitry Medvedev said that Russia’s reaction would be “unlimited.” The fear is that with a busted up financial system, the Russian Fed won’t be able to conduct monetary policy.

    In 2009, a computer programmer (and Russian immigrant) named Sergey Aleynikov was arrested and accused of improperly copying computer codes that could be used to destabilize the markets. This was the inspiration for Michael Lewis’s “Flash Boys.” After years of legal battles, Aleynikov’s case was ultimately thrown out, although his life was nearly ruined.

    This is a secret world of spycraft and high finance. We may never know exactly what’s going on. In the meantime, it’s best to remember those haunting words by T.S. Eliot, himself a Lloyd’s Bank employee:

    Between the order
    And the confirmation
    Between the bid
    And the ask
    Falls the shadow.

  • Morning News: January 27, 2015
    , January 27th, 2015 at 7:07 am

    Greece’s Odd-Couple Only Agrees About Ending Austerity

    Russia’s Downgrade Has Important Political Implications

    British Economy Brows at Best Annual Rate Since 2007

    Doubts Grow About Mid-Year Rate Hike, But Fed Won’t Express Any

    Oil Price Recovers as Dollar Weakens Against Euro

    Winklevoss Twins: Bitcoin Will Explode Beyond $1 Trillion

    Wall Street Left With Skeleton Crews Down as Blizzard Bears Down

    Price Caps Leave Blizzard Riders Out in the Cold

    IBM Dismisses Forbes Report of Massive Layoffs

    Philips Lags Behind Its Profit Targets as Earnings Slide

    Ericsson Hurt by North American Slowdown

    Novartis Upbeat Despite Weaker Profit

    Shake-Up at Mattel as Barbie Loses Her Appeal

    Jeff Carter: First Regulated Bitcoin Exchange

    Joshua Brown: QOTD: Is Fundamental Indexing Passive or Active?

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  • Microsoft Earns 71 Cents per Share
    , January 26th, 2015 at 4:59 pm

    Microsoft reported fiscal Q2 earnings of 71 cents per share. That matched Wall Street’s consensus.

    The company’s bottom line has been hit in recent quarters by expenses related to job cuts started last summer and the Nokia mobile phone business that it acquired in April. The July plans included up to 18,000 jobs cuts, or about 14% of its workforce at the time, largely to clear up overlap with the Nokia businesses.

    For the period ended Dec. 31, Microsoft reported a profit of $5.86 billion, or 71 cents a share, down from $6.56 billion, or 78 cents a share, a year earlier. Microsoft said its per-share earnings in the latest quarter were hurt by 2 cents from costs related to integration and restructuring.

    Revenue increased to $26.47 billion from $24.52 billion.

    Analysts polled by Thomson Reuters expected per-share profit of 71 cents and revenue of $26.29 billion.

    The stock is down 3% after hours.

  • All Hail Starbucks!
    , January 26th, 2015 at 12:45 pm

    I have to confess that I’m not a consumer of Starbucks ($SBUX) — I’m just not a coffee drinker — but I’m a fan of the company. As a business, Starbucks has done incredibly well.

    I often tell investors that doing a business turnaround is far harder than it looks, and Starbucks pulled one off. The shares fell from $40 down to $7.

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    The stock is now at $88 and on Thursday, Starbucks reported another good quarter:

    Sales in the quarter, which ended Dec. 28 and was its first quarter for the 2015 fiscal year, rose 13 percent to $4.8 billion, while earnings rose to $983.1 million, from $540.7 million in the same quarter a year earlier, thanks to the Starbucks Japan purchase.

    Adjusted for that acquisition, earnings on each share of stock were 80 cents, a 16 percent increase over the same quarter last year. The figures for revenue and earnings per share were records for Starbucks.

    The company also announced that Kevin Johnson, the retired chief executive of Juniper Networks and a member of the Starbucks board, would become its new president and chief operating officer. Mr. Johnson replaces Troy Alstead, who starting in March will take a yearlong sabbatical from the company, as previously announced.

    Investment analysts were closely watching comparable-store sales performance, after five quarters of relatively lackluster traffic. The company used a mix of new products and promotions, including an increased selection of gift cards and a new latte, Chestnut Praline, to attract consumers during the critical holiday season.

    The company has an ambitious goal to nearly double sales and operating income over the next five years, and to that end, has begun acting on several strategies to make its stores more productive in the afternoons and evenings and increase their convenience to consumers.

    Last fall, it announced it would begin wine and beer sales, previously tested in the Chicago area, in about a quarter of its 12,000 stores, and more of the food being made through its purchase of La Boulange in 2012 is geared toward light lunch and dinner meals.

    Starbucks earns about 16 percent of its revenue from its mobile payment system, which is regarded as a model by others in the food industry, and it has been testing a new mobile ordering and payment system that it hopes will lift sales and shorten the time customers spend waiting in line.

    It also is working on a delivery service.

  • The Markets Post-Greece
    , January 26th, 2015 at 12:19 pm

    The stock market is holding up better today than I thought it would following the elections in Greece. The S&P 500 just turned positive for the day.

    Former Buy List stock, IBM ($IBM), is in the news today. The company is planning layoffs but not as large as had been expected. This is tough for me to see because the company is in more trouble than I had realized. The job cuts are difficult but are necessary for IBM to get back on track.

    The Federal Reserve meets tomorrow and on Wednesday, plus New York City is being hit with a massive snow storm (we’re getting a little here in DC but not much). We’re also waiting on Microsoft ($MSFT) to report after the close today.

    Gold, which had been rallying this year, is down a lot today following Greece. The yellow metal is back below $1,280 per ounce. Gold was recently above $1,300.

  • Morning News: January 26, 2015
    , January 26th, 2015 at 7:14 am

    Tsipras Forges Anti-Austerity Coalition in EU Challenge

    Tsipras Win Draws French Congratulations, German Threat

    German Business Confidence Exceeds Expectations

    Obama Fêted in Delhi as US Cements Closer Ties With India

    Economic ‘New Normal’ Needs Full Context

    Copper and Gold Prices Dip

    First U.S. Bitcoin Exchange Set to Open

    MWV and RockTenn Agree to Combination Creating a $16 Billion Global Packaging Leader

    AT&T Agrees to Buy Nextel Mexico for $1.875 Billion Minus Debt

    Post Holdings to Acquire MOM Brands for $1.15 Billion

    Unease for What Microsoft’s HoloLens Will Mean for Our Screen-Obsessed Lives

    Lenovo Brings Motorola Back to China as Moto X Phone Released

    NY Insider Trading Ruling Tests Prosecutors Beyond Wall Street

    Cullen Roche: Initial Thoughts on European QE

    Jeff Miller: Weighing the Week Ahead: Time to Focus on Europe?

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