Archive for 2014

• The Stock Market’s Reaction
  Eddy Elfenbein, June 18th, 2014 at 2:55 pm

  The stock market seems mildly pleased with today’s Fed statement:

  

• The Fed’s Economic Projections
  Eddy Elfenbein, June 18th, 2014 at 2:34 pm

  Here are the updated economic projections from today’s FOMC meeting.

  The bottom line is that the Fed sees the economy and labor market improving. Most Fed members think that the first rate increase will come next year. The blue dots for interest rate projections are very widely dispersed for 2016. In other words, there’s little consensus on what will happen beyond 18 months out.

• Today’s Fed Statement
  Eddy Elfenbein, June 18th, 2014 at 2:04 pm

  More tapering. Starting in July, the Fed will buy $20 billion in Treasuries and $15 billion in MBS. Here’s today’s Fed statement:

  Information received since the Federal Open Market Committee met in April indicates that growth in economic activity has rebounded in recent months. Labor market indicators generally showed further improvement. The unemployment rate, though lower, remains elevated. Household spending appears to be rising moderately and business fixed investment resumed its advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective, but 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 and labor market conditions will continue to improve gradually, moving toward those the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.

  The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in July, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $15 billion per month rather than $20 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $20 billion per month rather than $25 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. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

  The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

  To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, 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 developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

  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; Stanley Fischer; Richard W. Fisher; Narayana Kocherlakota; Loretta J. Mester; Charles I. Plosser; Jerome H. Powell; and Daniel K. Tarullo.

  I need to add that there’s no excuse for an FOMC statement to ramble on this long. It should be short and to the point.

• Morning News: June 18, 2014
  Eddy Elfenbein, June 18th, 2014 at 6:33 am

  New EU Resolution Rules Mark Progress in Removing Support

  Gilts Advance as BOE Minutes Damp Bets of Imminent Rate Increase

  BOJ to Provide Almost 5 Trillion Yen to Banks to Boost Lending

  Japan’s Parliament Begins Debate on Introducing Casinos

  China’s Shipping Alliance Rejection Underscores Protectionist Worries

  Grand Central: Why The market Doubts Fed Rate Dot Plot

  Consumer Price Index Jumps 0.4% in May as Inflation Heats Up

  French Government Rejects Siemens-Mitsubishi Bid for Alstom

  Elon Musk Seeks to Hasten Shift to Solar By Building Factory

  Why Buying Micros Would Be a Bad Deal for Oracle

  Popeyes Buys Its Recipes for $43 Million. Wait, Popeyes Didn’t Own Its Recipes?

  What’s Up With This Green Coca-Cola?

  Adobe’s Cloud Solutions Fuel Strong Financial Results

  Roger Nusbaum: Nothing New Under the Sun

  Joshua Brown: “the essence of shadow banking is giving people a liquid claim on illiquid assets.”

  Be sure to follow me on Twitter.

• Benzinga’s PreMarket Prep
  Eddy Elfenbein, June 17th, 2014 at 12:06 pm

  Yesterday, I was on Benzinga’s PreMarket Prep show. I think my audio was a bit low, which isn’t what I’m like in real life. Thanks to everyone at Benzinga for inviting me!

• Inflation Continues to Rise
  Eddy Elfenbein, June 17th, 2014 at 11:32 am

  The government reported that inflation rose again last month. Consumer prices edged up 0.4% in May which was the largest increase in more than a year. The “core rate,” which excludes food and energy, rose by 0.3% which was the largest increase since 2009.

  I want to be careful not to overstate the case. No, there’s no danger of hyperinflation. Rather, the trend of disinflation, lower price increases, seems to have come to an end. In the last year, headline inflation is up 2.1% and core inflation is up 2.0%. Overall, I think this is a good thing as inflation moves closer to the Fed’s target zone.

  

• Middleby to Split 3-for-1
  Eddy Elfenbein, June 17th, 2014 at 10:52 am

  Apple ($AAPL) recently split 7-for-1 but there’s another high-priced stock that’s due to split. Next week, Middleby ($MIDD) will split its shares 3-for-1.

  Middleby is not very well known but it’s been an amazing performer. The shares are currently at $246. Shortly after 9/11, they hit $2. That’s a 123-fold gain in less than 13 years.

  So you’d think Middleby would be a highly popular stock, right? Not at all. Only a few analysts follow it. I think the high nominal share price may scare some traders away. Miidleby usually trades about 150,000 shares each day. That may sound like a lot but consider the action at Bank of America which often trades more than 70 million shares per day.

  Here’s how Middleby describes itself:

  The Middleby Corporation is a global leader in the foodservice equipment industry. The company develops, manufactures, markets and services a broad line of equipment used for commercial food cooking, preparation and processing.

  Sexy, I know.

  Too many investors think that a great company has to be someone inventing the 12th dimension. That’s simply not the case. It can often be a boring company in a dull industry that does its job very, very well.

  

  Side note: I’m glad to see the decline and fall of stock splits. In the 90s, companies split their shares by small amounts all the time. In my opinion, splits should be at least 2-for-1, and more often 3-for-1 or 4-for-1. Splits should happen once every 15 years or so. The airliner JetBlue split 3-for-2 three times in three years despite the stock not really doing much.

• Morning News: June 17, 2014
  Eddy Elfenbein, June 17th, 2014 at 6:45 am

  IMF Cuts Growth Outlook, Says Full Employment Years Off

  Aussie Declines as Central Bank Says Recovery Uncertain

  UK House Prices ‘Rise 9.9% in a Year’

  Argentina Vows to Service Debt Despite New Legal Blow

  Economists: Take Fed ‘Dot Plots’ With a Big Grain Of Salt

  Moody’s Raises New York State’s GO Bond Rating to Aa1

  Siemens, Mitsubishi Value Alstom Unit at $19.2 Billion

  GM Safety Crisis Grows With Recall of 3 Million More Cars for Ignition Issues

  Hillshire Takes Tyson Deal, Drops Its Own Bid for Pinnacle Foods

  Australia’s Woodside Petroleum In Play As A Takeover Target After Shell Makes Its Exit

  The Fusion of Solid State Storage

  S.E.C. Fines Hedge Fund in Demotion of Whistle-Blowing Employee

  Stephen Colbert’s In-House Tech Startup Wants to Fix TV Scripts

  Cullen Roche: The Bankrupt Economics of David Brat

  Jeff Carter: To Innovate Don’t Ask, “What Else Can Be Ubered?”

  Be sure to follow me on Twitter.

• Industrial Production Rises 0.6%
  Eddy Elfenbein, June 16th, 2014 at 10:21 am

  On the economic news front this morning, the Federal Reserve reported that Capacity Utilization rose last month to 79.1%. That’s close to a six-year high. In theory, that’s supposed to be an early warning sign of inflation, but I don’t think it’s a very good barometer. During much of the 1980s and 90s, Capacity Utilization was much higher than where we are now, and inflation wasn’t much of an issue.

  The Fed also reported that U.S. Industrial Production jumped 0.6% last month. Economists had been expecting an increase of 0.5%. The rise for May is especially good to see after the drop of 0.3% we had in April. In the past year, Industrial Production is up 4.3%.

  The Fed meets tomorrow and on Wednesday. Expect to see another tapering announcement. The FOMC will also update their economic projections.

• Medtronic Raises Dividend by 9%
  Eddy Elfenbein, June 16th, 2014 at 9:53 am

  I was very curious to see how Medtronic ($MDT) would open today, and the shares have opened higher. As a very general rule, stocks of acquiring companies usually fall on the news of a buyout, while the company being bought soars. Covidian (COV), not surprisingly, is much higher today, but it’s interesting that Medtronic is up as well. I suspect the market likes this deal and is particularly fond of the tax issue.

  As if there’s not enough Medtronic news this morning, the company also announced a 9% increase to its dividend. The quarterly dividend will rise from 28 cents per share to 30.5 cents per share. For the year, that’s $1.22 per share. This is the 37th year in a row that Medtronic has increased its dividend.

  The stock is currently at $63.35 which is a gain of 4.37%.