Archive for 2013

• ADP Jobs Report: +192K
  Eddy Elfenbein, January 30th, 2013 at 2:39 pm

  The big jobs report is this Friday. The last few initial claims reports have been quite good. Another positive omen was today’s jobs report from ADP, the private payroll firm. According to ADP, 192,000 private sectors jobs were created last month. Wall Street had been expecting 175,000.

  Small businesses led the way, hiring 115,000 workers. Medium-sized businesses added 79,000 jobs, while large firms cut 2,000 positions.

  “That’s a good solid number,” said Mark Zandi, chief economist for Moody’s Analytics, which works with ADP on the report. “The job growth is broad-based, across may industries.”

  Most jobs were created in the service sector, which added 177,000 positions. The goods producing sector added 15,000. Bright spots included construction, trade, and professional services. The manufacturing sector lost 3,000 jobs.

• Today’s Fed Statement
  Eddy Elfenbein, January 30th, 2013 at 2:20 pm

  Here it is:

  Information received since the Federal Open Market Committee met in December suggests that growth in economic activity paused in recent months, in large part because of weather-related disruptions and other transitory factors. Employment has continued to expand at a moderate pace but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has shown further improvement. Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. 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 growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. Although strains in global financial markets have eased somewhat, the Committee continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.

  To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. 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. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

  The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

  To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. 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.

  Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

• The U.S. Economy Grew Less in the Last 39 Years Than in the 26 Years Before That
  Eddy Elfenbein, January 30th, 2013 at 9:21 am

  Earlier this morning, I tweeted out a fact that got a lot of attention so I wanted to flesh it out a bit more.

  The US economy grew more in real terms from 1947 to 1973 than from 1973 to 2012. That’s 26 years compared with 39 years, exactly 50% longer.

  The total growth was almost exactly the same, but the earlier, and shorter, period won by a nose. To be specific, the U.S. economy grew by 176.84% from 1947 to 1973, and 176.60% from 1973 to 2012. Here’s the data source at the FRED database.

  

  The U.S. economy also grew less over the last 12 years than in the five years prior to that. Over the last 20 quarters (five years), real GDP has grown by 2.41%. Historically, the economy should grow around 16% to 17% over a five-year stretch.

• Q4 GDP = -0.1%
  Eddy Elfenbein, January 30th, 2013 at 9:06 am

  A few moments before today’s GDP report, I tweeted that if the number is negative, Twitter would go into complete melt down mode. I was only kidding, but the GDP number was in fact negative. Well, -0.1%. And it was Rick Santelli, CNBC’s in-house scare-monger, that melted down.

  As odd as this may sound, the GDP report truly wasn’t that bad. There was a big drop off in military spending. There was also a decline in inventory build-ups which is hardly a bad thing. The numbers “under the hood” were rather decent:

  Real personal consumption expenditures increased 2.2 percent in the fourth quarter, compared with an increase of 1.6 percent in the third. Durable goods increased 13.9 percent, compared with an increase of 8.9 percent. Nondurable goods increased 0.4 percent, compared with an increase of 1.2 percent. Services increased 0.9 percent, compared with an increase of 0.6 percent.

  Real nonresidential fixed investment increased 8.4 percent in the fourth quarter, in contrast to a decrease of 1.8 percent in the third. Nonresidential structures decreased 1.1 percent; it was unchanged in the third quarter. Equipment and software increased 12.4 percent in the fourth quarter, in contrast to a decrease of 2.6 percent in the third. Real residential fixed investment increased 15.3 percent, compared with an increase of 13.5 percent.

  

• Morning News: January 30, 2013
  Eddy Elfenbein, January 30th, 2013 at 6:51 am

  Deutsche Bank Seen Missing Goldman-Led Gains on Cost Rise

  Santander’s Capital in Focus as Spain Property Purge Ends

  Japan Has Changed The Game, And Now There Really Could Be A Currency War

  Consumer Confidence in U.S. Falls to Lowest Level Since 2011

  New York Fed Study That Just Came Out Makes Yesterday’s Collapse In Consumer Confidence Even More Scary

  TARP Watchdog Spars With Treasury on Ally Financial Exit

  Breuer Leaves Justice Department With Shift in Tactics

  European Cloud Over Ford

  Analysts See the Good in Amazon’s Poor Results

  UPS’s Dropped TNT Acquisition Is Formally Blocked by EU

  Roche Boosted By Robust US Sales

  LG Electronics Posts Loss After EU Fine

  Canon Sees Profit Growth on Weaker Yen

  Joshua Brown: Business Lessons From The Beatles

  Phil Pearlman: Research In Motion: The Phone’s The Thing

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• Rotten Day for our Buy List
  Eddy Elfenbein, January 29th, 2013 at 4:53 pm

  I always try to upfront about the performance of our Buy List. There are a lot of sketchy characters on the Internet, so I want to be as transparant as possible. Fortunately, we’ve done well over the years so there’s been a lot of celebrating. But there are bad days, too, and today was one.

  For the day, our Buy List dropped 0.34% while the S&P 500 gained 0.51%. Ouch, that stings. The good news is that we’re still ahead of the index for the year.

  The culprits are easy to spot. Ford fell by 4.64% and Harris lost 4.39%. Our Buy List is very well-diversified so we can often shake off one stock having a bad day, but two weaklings is tough. Outside Ford and Harris, we were only modestly behind the S&P 500 today.

  What’s more important to me is that I thought both earnings reports were quite good. I like Ford a lot. While Harris’ lower guidance was troubling, the shares are still going for less than 10 times forward earnings. I expect both stocks to rebound soon.

  Today’s lesson: Not every day is a winner for us, but we’re still focused on the long-term.

• The Market Isn’t Rallying, the Fear Premium Is Fading
  Eddy Elfenbein, January 29th, 2013 at 10:56 am

  The U.S. stock market isn’t rallying so much as the fear premium is slowly fading away. The net effect, of course, is the same: rising share prices. But bear in mind what’s going on under the hood; earnings estimates for 2013 are lower than they were several months ago. The Street currently expects the S&P 500 to earn about $112 this year. In April, it was close to $119.

  So why are investors willing to pay more for less? Multiples are driven by sentiment, and the widespread fear that plagued the market is melting away. Let’s look at the performance of stocks versus bonds. From mid-2011 to mid-2012, bonds (especially secure U.S. Treasury bonds) soared. Stocks are only beginning to play catch up.

  

  Remember last year how everyone was watching what was happening in the Spanish or Italian bond market? Not so anymore. The guys at Bespoke note that European spreads are near 52-week lows.

  The Spanish and Italian stock markets are also rebounding after severe losses.

  

  Junk bond spreads are plummeting.

  

  As sentiment returns to normal, volatility is fading away as well.

  

  Even gold, which had been a big winner for so long, hasn’t been able to make a new high in nearly 18 months.

  

• Harris Beats But Lowers Full-Year Guidance
  Eddy Elfenbein, January 29th, 2013 at 10:26 am

  Besides Ford Motor ($F), we had another Buy List earnings report this morning. Harris Corp. ($HRS), the communications equipment company, reported earnings of $1.25 per share for the December quarter which is the company’s fiscal second quarter. The consensus on Wall Street was for earnings of $1.20 per share. Revenue dropped from $1.31 billion to $1.29 billion.

  While these results were good, the news that has me concerned is that Harris lowered its full-year guidance. Before, the company saw earnings ranging between $5.10 and $5.30 per share. Harris lowered that range by 10 cents at both ends. The company now sees earnings ranging between $5 and $5.20 per share. Harris sees revenue dropping by 2% to 4%. The previous range was flat to negative 2%. The company blamed the lower guidance on “slower government spending resulting from growing budget uncertainty.”

  Shares of Harris are currently down about 2.2% today.

• Ford Motor Beats Earnings for Q4
  Eddy Elfenbein, January 29th, 2013 at 9:01 am

  Ford Motor ($F) posted strong quarterly results this morning. For Q4, the company earned 31 cents per share, which was six cents per share more than expectations. Ford earned 20 cents per share during Q4 of 2011.

  Quarterly revenue rose from $32.6 billion to $34.5 billion. Wall Street had been expecting $32.94 billion. In terms of net earnings, Ford earned $1.59 billion last quarter compared with $1.03 billion the year before. For the entire year, Ford raked in $5.66 billion on revenue of $134.3 billion.

  The equation continues to be the same: they’re doing well in North America, but not so well in Europe. During 2012, Ford lost $1.75 billion in Europe. To give you an idea of how rough that is, they only lost $27 million there in 2011. In fact, the company said today that it’s expecting to lose $2 billion in Europe this year. Previously Ford had said they expected the same loss for this year as they had last year. Pre-tax earnings in North America rose 110%.

  The New York Times described Ford’s Q4 as a “microcosm of Ford’s recent overall performance.” That’s a nice way of putting it. Alan Mulally, the head honcho, said, “We are well positioned for another strong year in 2013, as we continue our plan to serve customers in all markets around the world with a full family of vehicles.”

  As bleak as things look in Europe, I like the steps that Ford is taking there. They’re being very aggressive, and they’re way ahead of GM. Basically, Ford is doing in Europe today what they did in North America a few years ago. Namely, restructure, reorganize and streamline operations. It’s painful in the short-term as we’re seeing in Europe today. But it’s very profitable in the long-term as we can see in Ford’s North American results today.

  The stock looks to pull back a little today. Don’t be alarmed. Ford continues to do very well.

• Morning News: January 29, 2013
  Eddy Elfenbein, January 29th, 2013 at 6:37 am

  In Japan, Dreamliner Woes Test Cozy Corporate Ties

  Economists React: Reserve Bank of India Cuts Key Policy Rate

  Royal Bank of Scotland Bonuses Spell Trouble For Osborne

  Monti Minister to Defend Paschi Bailout After Hidden Losses

  Iceland Wins Case On Deposit Guarantees

  Bernanke Seen Buying $1.14 Trillion in Assets in 2014

  Durable-Goods Demand Points to U.S. Factory Pickup

  The Chief of Yahoo Lifts Sales, and Spirits

  Caterpillar Chief Faults China Unit

  Philips Exits Consumer Electronics

  Little Debbie Maker to Buy Drake’s Brand, Hostess Says

  As Music Streaming Grows, Royalties Slow to a Trickle

  The Great ETF Mega-War

  Jeff Miller: Weighing the Week Ahead: Will the Average Investor Take the Plunge?

  Howard Lindzon: What Could go Wrong? …And Is Apple Still Leading The Market

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