Archive for 2013

  • ADP Reports Jobs Gain of 166,000
    , October 2nd, 2013 at 12:15 pm

    ADP, the private payroll firm, reported that the economy created 166,000 new jobs last month. This comes ahead of Friday’s big jobs report from the government. The ADP report has a mixed record of predicting the government’s numbers. Economists were expecting ADP to report 180,000 new jobs, so the miss is probably weighing on today’s market. ADP also revised its August jobs number down by 17,000.

    While the stock market rose yesterday, as it has on many first days of the month this year, it’s giving back about half that gain today. Energy is the only sector that’s great while staples and industrials are down the most.

    There are a few items to pass on about our Buy List stocks:

    Some Microsoft (MSFT) investors are trying to get Bill Gates out as chairman of Microsoft. Given how many shares he owns, Bill can largely do whatever he wants. But if Gates is more interested in philanthropy, then he may want to leave as chairman so he can focus on giving away his fortune full time. It’s not a bad idea, and the investors are probably right. My view is that the stock would most likely rise on such an announcement, so that’s why I’d support it.

    There’s also been talking of Alan Mulally leaving Ford (F) to become CEO of Microsoft. I doubt that would happen. Mulally seems happy where he is and the Ford turnaround is still unfolding. Also, Mulally is 68. MSFT needs to find an energetic, young CEO.

  • Volatility Falls to Seven-Year Low
    , October 2nd, 2013 at 9:03 am

    For all the problems on Wall Street, in Washington and around the world, the stock market has been quite calm recently. This last quarter was the least volatile in seven years.

    The average daily change for the Standard & Poor’s 500 Index narrowed to 0.45 percent in the third quarter, the smallest since the end of 2006, data compiled by Bloomberg show. The Chicago Board Options Exchange Volatility Index slid 8.3 percent since June 28, a retreat that coincided with a 5.3 percent advance in the S&P 500 and a 39 percent windfall for investors who used an exchange-traded note that bets against equity swings.

    U.S. stock fluctuations are narrowing as investors become more confident that the four-year bull market is sustainable, corporate profits top all-time highs and growth in China and Europe show signs of strengthening. The Fed this month refrained from slowing its monthly bond buying, saying it needs more evidence of an improvement in the American labor market.

    “Toward the end of August everyone was geared up for the first tapering from the Fed and a market sell-off, but it didn’t happen,” Justin Golden, a partner at Lake Hill Capital Management LLC, said via phone on Sept. 27. The New York-based hedge fund trades options on equity indexes and commodities. “People think the markets are pretty smooth sailing for the next few months.”

    Here’s a look at the daily changes in the S&P 500 going back a few years. You can see just how erratic things were during the financial crisis, and again during the great freakout of 2011.

    fredgraph10022013

    From 2008 through 2010, the S&P 500 rose 1.5% or more 103 times. It’s happened just once this year, on the first trading day of the year.

  • Morning News: October 2, 2013
    , October 2nd, 2013 at 6:55 am

    Déjà vu for the ECB

    China Faces Steep Climb to Exploit Its Shale Riches

    How Oil Reforms Could Trigger Mexico’s Biggest Economic Boom In A Century

    Sweden Faces its Own Shutdown: Cause? Jellyfish

    Crude Oil Trades Near Two-Month Lows Ahead of Inventory Data

    Treasury Taking Final Steps to Avoid Default

    Dollar Seen as Shutdown Loser as Growth Hit Spurs QE

    Businesses Are Feeling Effect of Partial Government Shutdown

    Auto Sales Fall in September

    SAP Ventures Raises $650 Million Fund as IPOs Increase

    Icahn Pushes Apple CEO for $150 Billion Share Buyback

    New York to Sue Wells Fargo Over Mortgage Settlement

    The Popular ‘Risk Parity’ Asset Allocation Strategy Has 2 Fundamental Flaws

    The Reformed Broker: The Forward Earnings Outlook With Brian Gilmartin

    Pragmatic Capitalism: Government Shuts Down – Markets Rally?

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  • Dividends Rose 14.64% in Q3
    , October 1st, 2013 at 3:56 pm

    Dividends had another good quarter for Q3. The S&P 500 paid out 14.64% more in dividends than in last year’s Q3.

    So far, dividends are running 14.14% ahead of last year’s pace. Q4, however, will be a tough comp because of the rush to payout dividends last year ahead of higher taxes. Still, the payout for Q3 of this year nearly topped last year’s Q4.

    Before we’re done, the dividends paid out in 2013 will probably be more than 50% higher than what was paid out in 2010. That’s remarkable.

    The dividend payout ratio for the last four quarters is now just over 33%. Except for the depths of the financial crisis, that’s the highest ratio in more than 10 years. (During the financial crisis, the ratio climbed not due to higher dividends but to plunging earnings.)

    I’ve mentioned this before, but I’m amazed at how steady the market’s dividend yield has been over the last decade. It’s largely hovered between 1.7% and 2.3%. The yield spiked over 4% during the financial crisis, but settled back near 2%.

    Despite the fancy metrics people used, all you needed to do was take the amount of dividends paid out in the last year and multiply by 50. That would have gotten you a very good estimate of where the S&P 500 would be.

    Here’s a log chart of the S&P 500 (blue line, left scale) along with its dividends (black line, right scale). I scaled the two lines by a log difference of 1.7 which is just over 50. In other words, whenever the lines cross, the dividend yield is 2%.

    image1357

  • Strong Mid-Cap Outperformance
    , October 1st, 2013 at 10:29 am

    Here’s something unusual. Mid-cap stocks are strongly outperforming small- and large-caps today. Mid-caps usually fall in the middle of the two, as you would expect.

    I can’t remember another time when the middies were so far from the pack. Perhaps the index is unduly influenced by a few sectors that are up today.

    big10012013

  • September ISM = 56.2
    , October 1st, 2013 at 10:07 am

    Good morning and welcome to anarchy! Well, not complete anarchy, but we do have a partial government shutdown. I’m not sure how long this will last but it’s unpleasant to watch our dysfunctional political process.

    On to today’s market. We had a good read for today’s ISM. The number came in at 56.2. Any number above 50 indicates an expansion. Below 50 is a contraction. This is the third month in a row that the ISM has topped 55.

    Two academics have a method for calculating the odds of a recession. The latest update was this morning, but that’s off of July’s data. In any event, they peg the odds of a recession at 1.34%.

    Shares of AFLAC ($AFL) are having a good day. The stock was upgraded by FBR Capital. They also raised their price target to $70 per share. AFL has been as high as $63.30 today. The 52-week high is $63.63.

    Ford ($F) just reported another strong month for sales. Last month was their best month in seven years.

    The biggest sales driver was the continuing boom in pickup truck sales, with the F-Series trucks posting a fifth consecutive month of more than 60,000 sales.

    The redone Fusion mid-size sedan also continued its strong year with sales up 62% to 19,972, while the Fiesta subcompact was up 29% to 5,043 — and Ford said these cars were building sales in markets where Ford has been week in the past.

    “We’re particularly encouraged by the strength of the Fusion and Fiesta, especially in coastal markets,” said Ken Czubay, U.S. sales head, in a statement.

    Ford said Fusion retail sales were up 59% in the West and 26% in the Southeast, while Fiesta is up 41% in the West.

    Continuing to show signs of life for the nearly moribund Lincoln brand, the new MKZ sedan sold 2,874, up 12%, adding a fifth monthly best, Ford said.

    The stock is back above $17 this morning. Look for another good earnings report later this month.

  • Morning News: October 1, 2013
    , October 1st, 2013 at 6:50 am

    Euro Zone Factory Growth Eases But Strong Demand Enables Price Hikes

    Abe Orders Japan’s First Sales-Tax Increase Since ’97

    Vatican Bank Discloses Annual Earnings Report for First Time

    The Federal Government Shuts Down For The First Time In 17 Years

    U.S. Stock-Index Futures Advance as Government Shutdown Begins

    The One Word Missing From All Those Obamacare Ads

    Google Moves Nearer to Search Deal with EU

    Twitter’s ‘Stealth IPO’ Shines Spotlight on JOBS Act’s Effects

    Ikea to Sell $9,200 Solar-Panel Kits in All U.K. Stores

    Buffett’s Berkshire Set To Get Nearly $2.15 Billion Of Goldman Stock

    JPMorgan Insider Helps Justice Department in Probe

    Sugar Industry Highlights Conflicts Over Trade Pacts and Land

    Do NFL Underdogs Consistently Beat the Spread?

    Joshua Brown: 10 Terms Investment Pros Use to Raise Money

    Credit Writedowns: QE: Exit-path Implications for Collateral Chains

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  • Final Q3 Numbers
    , September 30th, 2013 at 4:37 pm

    The third quarter is on the books. For the year, the S&P 500 is up 17.91% while our Buy List is up 24.12%. Including dividends, the S&P 500 is up 19.79% and our Buy List is up 25.57%.

    If we hold on for three more months, it will be our seventh-straight market-beating year.

    Our #1 performer is Moog (up 42.99%). Second is Bed Bath & Beyond (38.37%). Six of our stocks are up more than 30%, and 13 are up more than 20%. The worst stock, and our only loser, is Oracle (-0.45%).

    The “beta” of our Buy List is 1.0035, and the daily correlation with the S&P 500 is 93.2%. At an annualized rate, the return from dividends of the S&P 500 is a bit more than our Buy List: 2.13% to 1.55%.

    The combined 7-3/4 years of our Buy List is up 103.8% to the S&P 500’s 58.90%. (That would be rebalanced every year.)

  • The Close Race Between Stocks and Bonds
    , September 30th, 2013 at 1:26 pm

    Here’s a graph that tells a lot and every investor should remember this lesson. The following chart shows the total return of stocks (blue) along with the total return of long-term corporate bonds (red). The data begins in October 1986.

    fredgraph09302013

    What you can see is that the two lines follow each other pretty closely. Over the last 27 years, stocks and long-term bonds have performed about the same. Despite stocks running ahead of bonds in 1987, the late 1990s and again last decade, the two lines have always come back together.

  • Q3 Earnings Preview
    , September 30th, 2013 at 11:16 am

    There are only a few hours left in Q3. Wall Street’s consensus for the S&P 500’s earnings is down to $26.85. That’s down from $29.10 one year ago, and $30.27 eighteen months ago.

    Despite the reduced estimate, if Wall Street hits it, that would be growth of 11.88% which would be the strongest in two years.

    For Q2, the S&P 500 earned $26.36 which was up only 3.66% from the year before. That was the second-straight quarter of growth for the index. Both quarters in the latter half of 2012 saw earnings declines. There was a lot of talk of an earnings recession but it was more accurately a very modest decline.

    Analysts currently peg full-year earnings for the S&P 500 at $107.87. For next year, they see earnings of $121.90.