• NYT Editorial: Financial Advisers Should Act Solely in the Interests of Their Clients
    Posted by on April 9th, 2015 at 7:21 am

    From yesterday’s New York Times:

    Successful Investing for the Long Haul


    For more than a month now, the White House has been vetting a proposal by the Labor Department that would require financial advisers to act solely in the interests of clients when giving advice on retirement accounts.

    The White House should move the process forward without further delay. Its own research has shown that biased advice costs retirement investors billions of dollars a year in excess fees and commissions.

    Prompt issuance of a so-called fiduciary rule for retirement advisers would also send a signal to the Securities and Exchange Commission, which has balked at imposing a similar duty on all the various financial professionals who give advice on nonretirement investments.

    This week, an article in The Times by Jeff Sommer indicated how such a rule might change the nature of financial advice for the better.

    The article looked at the latest evidence on whether it is possible to beat the stock market over time. As in past studies, the answers ranged from “no” to “most probably not,” depending on the measures used. One of the studies compared actively managed domestic stock funds, in which managers buy and sell stocks in an attempt to outperform the market, with the Standard & Poor’s 1,500 index, a proxy for the total United States stock market. At least three-quarters of actively managed mutual funds failed to beat the index over three, five and 10 years.

    If all advisers had a fiduciary duty to their clients, stock recommendations would focus mostly if not entirely on low-cost index funds, which don’t try to beat the market but merely to match it. Index funds are not lucrative for commission-based advisers to recommend because they don’t generate the fees and commissions associated with active trading. But they would be better for investors who would be zeroing in on the best long-term return they can reasonably expect at the lowest possible cost.

    Even if index investing became the norm, many people would still need advice on, say, budgeting and goal setting, allocating their holdings among different asset classes, choosing funds and handling specific financial challenges. Such services, delivered by advisers who have a duty to act in investors’ best interests, would clearly be valuable — and an improvement over current practices that all too often steer investors to high-cost products and strategies when lower-cost ones offer a better deal.

  • Morning News: April 9, 2015
    Posted by on April 9th, 2015 at 7:19 am

    It’s 1950 for Cameron as BOE Extends Period of Record-Low Rates

    Why This Earnings Season Could Be The Worst Since 2009

    Wall St. Is Told to Tighten Digital Security of Partners

    Blankfein’s Bet on Goldman Sachs Bond Trading Seen Reaping Gains

    What the Shell-BG Deal Says About Oil Prices and Deal Making

    Dimon Says JPMorgan Must Be Ready for Greek Exit From Euro Area

    Dimon Says Once-in-3-Billion-Year Treasury Move Warning Shot

    Google Plots New YouTube Subscription Service as Soon as This Year

    Zynga Cofounder Pincus Returns as CEO Two Years After Stepping Down

    Google Buying Twitter Would Be Like Microsoft Buying Yahoo

    Why TNT Acquisition Is A Good Deal For FedEx

    Alcoa Posts Strong Q1 Profit But Revenue Lacks Luster

    Samsung Expects Record Galaxy Shipments, S6 Edge Shortage

    Credit Writedowns: Is Greece’s Debt Odious?

    John Hempton: So What Exactly Do You Get With Bank of the Internet Stock?

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  • Bed Bath & Beyond Earns $1.80 Per Share
    Posted by on April 8th, 2015 at 4:22 pm

    Bed Bath & Beyond (BBBY) earned $1.80 per share for fiscal Q4 which is largely what was expected. Their outlook, however, was weak. The company sees Q1 earnings between 90 and 95 cents per share. The stock is off by 3% in the after-hours market.

    From the earnings report:

    For the fourth quarter of fiscal 2014, the Company reported net earnings of $1.80 per diluted share ($321.1 million) compared with net earnings for the fourth quarter of fiscal 2013 of $1.60 per diluted share ($333.3 million). Net sales for the fourth quarter of fiscal 2014 were approximately $3.337 billion, an increase of approximately 4.2% from net sales of approximately $3.203 billion reported in the fourth quarter of fiscal 2013. Comparable sales in the fourth quarter of fiscal 2014 increased by approximately 3.7%, compared with an increase of approximately 1.7% in last year’s fiscal fourth quarter. Comparable sales for the fourth quarter of fiscal 2014 include an approximate 0.2% unfavorable impact from the change in the Canadian currency exchange rate.

    For the fiscal full year ended February 28, 2015, the Company reported net earnings of $5.07 per diluted share ($957.5 million) compared with $4.79 per diluted share ($1.022 billion) in the full year of fiscal 2013. Net sales for fiscal 2014 were approximately $11.881 billion, an increase of approximately 3.3% from net sales of approximately $11.504 billion in fiscal 2013. Comparable sales for both fiscal 2014 and fiscal 2013 increased by approximately 2.4%.

    Cost Plus World Market was excluded from the comparable sales calculations through the end of the fiscal first half of 2013 and is included beginning with the fiscal third quarter of 2013. Linen Holdings is excluded from the comparable sales calculations and will continue to be excluded on an ongoing basis because it represents non-retail activity.

    Share Repurchase Program

    During the fourth quarter of fiscal 2014, the Company repurchased approximately $947 million of its common stock, representing approximately 11.8 million shares. Of this total, approximately $782 million, representing approximately 10.3 million shares, were from open market repurchases, and the remaining $165 million and 1.5 million shares represented the net settlement at the completion of the Company’s $1.1 billion accelerated share repurchase program in December 2014. As of February 28, 2015, the remaining balance of the current $2.0 billion share repurchase program was approximately $884 million.

    Fiscal 2015 Financial Model

    The Company is modeling a 2.0% to 3.0% increase for comparable sales for both the fiscal 2015 first quarter and full year, net earnings per diluted share to be between $.90 to $.95 for the first quarter of fiscal 2015, and to be between relatively flat and a mid-single digit percentage increase for the fiscal full year. The Company’s fiscal 2015 model includes the impact of approximately $.24 per diluted share related to four non-comparable items between its 2014 results and its 2015 model. These non-comparable items are: an increase in the 2015 tax rate due to a reduction in the amount of distinct tax events modeled in fiscal 2015; a credit card fee litigation settlement benefit in fiscal 2014 that is not expected to reoccur in 2015; the modeled unfavorable foreign currency exchange rate impact in 2015; and an increase in investments in compensation and benefits in 2015 beyond those historically planned. The modeling of net earnings per diluted share is based upon a number of assumptions which will be described in the Company’s fourth quarter of fiscal 2014 conference call. Information regarding access to the call is available in the Investor Relations section of the Company’s website.

  • The China Bubble
    Posted by on April 8th, 2015 at 12:56 pm

    I often tell investors that true stock bubbles are relatively rare. That runs counter to what we often hear, but I stand by it.

    Of course, just because the market goes down doesn’t mean it was a bubble beforehand. Sometimes the fundamentals deteriorate. What I call a bubble is when prices soar way, way beyond fundamentals, and that doesn’t happen very often — at least not in the U.S. market.

    But looking at China, we can see a highly chaotic market. The Shanghai Composite has nearly doubled in nine months. As crazy as that is, it doesn’t come close to the incredible rally of just a few years ago. From late 2005 to October 2007, the Shanghai Composite rallied 460% in less than two years. Soon afterwards, it lost nearly all of it.


    This is why I’m suspicious of the Chinese market. Healthy markets simply shouldn’t move like that.

  • What if the Stock Market Were a Bond?
    Posted by on April 8th, 2015 at 11:45 am

    Here’s an update to one of my more off-the-wall ideas. I was curious to see what the historical performance of the stock market looks like, but in the form of a bond.

    Crazy? Let me explain.

    I took all of the historical market performance of the Wilshire 5000 (including dividends) and invented a hypothetical long-term bond that matched the market’s daily gains step-for-step.

    I assumed that it’s a bond of infinite maturity and pays a fixed coupon.

    There’s one hitch, though. I have to choose a starting yield-to-maturity for the beginning of the data series in December 1970. So this isn’t a completely kosher experiment because the starting point is based on my guess.

    If I choose a number that’s too high, the historical performance won’t be able to keep up, and the yield-to-maturity would grow higher and higher and soon leave orbit. Conversely, if my starting YTM is too low, the yield would gradually get pushed down to microscopic levels.

    Fortunately, the data makes my job easy. After four decades, the window I have to work with is pretty narrow. Starting with 10% is too high, and 8% is too low. After playing with the numbers, I finally settled on 8.93%.

    Even though this “bond” is completely make-believe, it reflects what the actual stock market really did for the past 44 years. It’s the same old stock market but it’s expressed in the form of a bond. Through yesterday, the “bond’s” yield stood at 5.35%.

    Here’s what the actual stock market looks like, expressed in the form of a bond. For comparison, I added Moody’s AAA Bond Index (in red). That series starts in 1983.


    It’s been more than seven years since the red line was higher than the blue. This is why I often say that the math still favors stocks. When you hear people say that the stock market is expensive, you have to wonder “compared to what?” Lower bond yields are tough competition for stocks and that ought to raise valuations.

  • Morning News: April 8, 2015
    Posted by on April 8th, 2015 at 7:22 am

    Japan’s Dilemma Over the China-led Infrastructure Bank

    US Authorities Upgrade India’s Aviation Safety Rating

    Learning Mandarin in the Tundra – Russia Invites China Into Oil Business

    Cubans Eager for More Clarity on Doing Business With U.S.

    Forget Interest Rates, the Fed Has Another Big Decision to Make in the Next Year

    Charles Grassley Questions Diversion of Fannie and Freddie Earnings

    Oil Price Falls Ahead of U.S. Inventory Data

    5 Things to Know About the Biggest Oil Merger in a Decade

    Berkshire to Acquire $560 Million Axalta Stake From Carlyle

    McDonald’s Looks to Beef Up Image With $5 Mega-Burger

    Rite Aid Sales Grow on More Prescription Orders

    Bezos’s Blue Origin Nears Opportunity to Take Tourists Into Space

    JPMorgan Algorithm Knows You’re a Rogue Employee Before You Do

    Jeff Carter: Farming Meets Tech – People Got To Eat

    Roger Nusbaum: Figuring It Out: Being Positive

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  • Bed Bath & Beyond’s Quarterly Stats
    Posted by on April 7th, 2015 at 1:28 pm

    To get ready for tomorrow’s Bed Bath & Beyond (BBBY) earnings report, here are some quarterly stats I have for the past few years.

    Quarter Sales Gross Profit Operating Profit Net Profit EPS
    May-99 $356,633 $146,214 $28,015 $17,883 $0.06
    Aug-99 $451,715 $185,570 $53,580 $33,247 $0.12
    Nov-00 $480,145 $196,784 $50,607 $31,707 $0.11
    Feb-00 $569,012 $238,233 $77,138 $48,392 $0.17
    May-00 $459,163 $187,293 $36,339 $23,364 $0.08
    Aug-00 $589,381 $241,284 $70,009 $43,578 $0.15
    Nov-01 $602,004 $246,080 $64,592 $40,665 $0.14
    Feb-01 $746,107 $311,802 $101,898 $64,315 $0.22
    May-01 $575,833 $234,959 $45,602 $30,007 $0.10
    Aug-01 $713,636 $291,342 $84,672 $53,954 $0.18
    Nov-02 $759,438 $311,030 $83,749 $52,964 $0.18
    Feb-02 $879,055 $370,235 $132,077 $82,674 $0.28
    May-02 $776,798 $318,362 $72,701 $46,299 $0.15
    Aug-02 $903,044 $370,335 $119,687 $75,459 $0.25
    Nov-03 $936,030 $386,224 $119,228 $75,112 $0.25
    Feb-03 $1,049,292 $443,626 $168,441 $105,309 $0.35
    May-03 $893,868 $367,180 $90,450 $57,508 $0.19
    Aug-03 $1,111,445 $459,145 $155,867 $97,208 $0.32
    Nov-04 $1,174,740 $486,987 $161,459 $100,506 $0.33
    Feb-04 $1,297,928 $563,352 $231,567 $144,248 $0.47
    May-04 $1,100,917 $456,774 $128,707 $82,049 $0.27
    Aug-04 $1,273,960 $530,829 $189,108 $120,008 $0.39
    Nov-05 $1,305,155 $548,152 $190,978 $121,927 $0.40
    Feb-05 $1,467,646 $650,546 $283,621 $180,980 $0.59
    May-05 $1,244,421 $520,781 $150,884 $98,903 $0.33
    Aug-05 $1,431,182 $601,784 $217,877 $141,402 $0.47
    Nov-06 $1,448,680 $615,363 $205,493 $134,620 $0.45
    Feb-06 $1,685,279 $747,820 $304,917 $197,922 $0.67
    May-06 $1,395,963 $590,098 $148,750 $100,431 $0.35
    Aug-06 $1,607,239 $678,249 $219,622 $145,535 $0.51
    Nov-07 $1,619,240 $704,073 $211,134 $142,436 $0.50
    Feb-07 $1,994,987 $862,982 $309,895 $205,842 $0.72
    May-07 $1,553,293 $646,109 $154,391 $104,647 $0.38
    Aug-07 $1,767,716 $732,158 $211,037 $147,008 $0.55
    Nov-08 $1,794,747 $747,866 $203,152 $138,232 $0.52
    Feb-08 $1,933,186 $799,098 $259,442 $172,921 $0.66
    May-08 $1,648,491 $656,000 $118,819 $76,777 $0.30
    Aug-08 $1,853,892 $739,321 $187,421 $119,268 $0.46
    Nov-08 $1,782,683 $692,857 $136,374 $87,700 $0.34
    Feb-09 $1,923,274 $785,058 $231,282 $141,378 $0.55
    May-09 $1,694,340 $666,818 $142,304 $87,172 $0.34
    Aug-09 $1,914,909 $773,393 $222,031 $135,531 $0.52
    Nov-09 $1,975,465 $812,412 $245,611 $151,288 $0.58
    Feb-10 $2,244,079 $955,496 $370,741 $226,042 $0.86
    May-10 $1,923,051 $775,036 $225,394 $137,553 $0.52
    Aug-10 $2,136,730 $874,918 $296,902 $181,755 $0.70
    Nov-10 $2,193,755 $896,508 $305,110 $188,574 $0.74
    Feb-11 $2,504,967 $1,076,467 $461,052 $283,451 $1.12
    May-11 $2,109,951 $857,572 $288,948 $180,578 $0.72
    Aug-11 $2,314,064 $950,999 $371,636 $229,372 $0.93
    Nov-11 $2,343,561 $958,693 $357,020 $228,544 $0.95
    Feb-12 $2,732,314 $1,163,669 $550,765 $351,043 $1.48
    May-12 $2,218,292 $887,199 $313,398 $206,836 $0.89
    Aug-12 $2,593,015 $1,032,669 $365,137 $224,330 $0.98
    Nov-12 $2,701,801 $1,074,010 $361,649 $232,750 $1.03
    Feb-13 $3,401,477 $1,394,877 $598,034 $373,872 $1.68
    May-13 $2,612,140 $1,032,971 $323,101 $202,490 $0.93
    Aug-13 $2,823,672 $1,113,484 $389,766 $249,304 $1.16
    Nov-13 $2,864,837 $1,121,690 $374,647 $227,197 $1.12
    Feb-14 $3,203,314 $1,297,437 $527,073 $333,299 $1.60
    May-14 $2,656,698 $1,030,885 $300,701 $187,052 $0.93
    Aug-14 $2,944,905 $1,134,045 $368,741 $223,953 $1.17
    Nov-14 $2,942,980 $1,128,974 $352,683 $225,408 $1.23
  • The Rate Hike Gets Pushed Back
    Posted by on April 7th, 2015 at 8:03 am

    i thought this was an interesting chart. This is the futures contract for the September 2015 Fed funds rate. As the contract gets to 100, that means interest rates will be at 0%.


    Very gradually over the past 15 months, it’s dawned on the market that interest rates probably aren’t going up anytime soon.

  • Morning News: April 7, 2015
    Posted by on April 7th, 2015 at 7:14 am

    World Economy Ready to Bounce After Sluggish Opening to 2015

    America Immobilized as Iran-Saudi Arabia Proxy War Turns Bloody

    British Services Growth Hits Seven-Month High in March

    Aussie Moving Before RBA Third Month Spurs Regulator’s Probe

    Big Companies Pay Later, Squeezing Their Suppliers

    Samsung’s Profit Decline Moderates

    France’s Vivendi jumps Into Obstacle Race For Dailymotion

    Dutch TNT Express Accepts FedEx Offer In Cut-Throat Parcel Delivery Market

    Uber Is Winning Over Americans’ Expense Accounts

    Boeing Beats Airbus in First Quarter Net Orders, Deliveries

    Starbucks Sweetens Its College Tuition Program For Baristas

    Domino’s CEO: ‘We’ve Gotta Pay More’ To Hire Good Workers

    Google Accused of Using ‘Unfair and Deceptive’ Ads on YouTube Kids

    Pragmatic Capitalism: Should You Be Mostly Cash Like Mohamed El-Erian?

    Reformed Broker: Brian Gilmartin: The 4 Big Traits of Our Bull Market

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  • The Opening Day Market
    Posted by on April 6th, 2015 at 3:25 pm

    It’s finally Opening Day! At least for most teams.

    Well, the market was supposed to go down today, but as it likes to do, the market has fooled us all. This has turned into a good day for stocks. The S&P 500 is currently up 19 points of 0.92%. Energy stocks are leading the way while Finance and Healthcare are up the least. Surprisingly, the 10-year yield is up a few basis points to 1.91%. It was as low as 1.84% this morning.

    This morning we learned that the ISM Non-Manufacturing Index fell to 56.5 last month. Last week’s ISM Manufacturing report showed that the index fell for the fifth month in a row.

    On our Buy List, Snap-on (SNA) and AFLAC (AFL) hit new 52-week highs this morning. Microsoft (MSFT) is up more than 3% today. Another Buy List stock, Wells Fargo (WFC), raised their rating on MSFT. The big loser is Qualcomm (QCOM). The stock was downgraded by FBR Capital. Also, a website got their hands on the Galaxy S6 and found that it doesn’t use Qualcomm’s chips.

    Bloomberg has an interesting article noting that Amazon (AMZN) is luring away some of eBay’s (EBAY) loyal merchants.

    Amazon’s pool of merchants climbed to more than 2 million in 2014, while the number of sellers on EBay has remained flat at about 25 million in the past two years. Businesses that at first set up online storefronts on EBay say they’re surprised how quickly sales surge on Amazon once products appear on both sites.

    The move to Amazon, which boasts a bigger user base and offers more ways to ship merchandise, poses a threat to EBay, which pioneered the idea of an Internet marketplace where merchants big and small could hawk wares.

    Shares of eBay are flat today.