Archive for November, 2015
-
Morning News: November 12, 2015
Eddy Elfenbein, November 12th, 2015 at 6:08 amDraghi Stimulus Hint Underpins Stocks, Knocks Euro
Greece Comes to a Standstill as Unions Turn Against Tsipras
Russia’s Oil Rivalry With Saudis Masks the Bigger Iranian Threat
CICC Keeps It `Conservative’ With 300% China IPO Return Forecast
Apple, Banks in Talks on Mobile Person-to-Person Payment Service
Rolls Royce Plunges in London as Executive Jet Market Sags
Lenovo Posts Narrower-Than-Expected Loss Amid Phone Restructure
Macy’s Fights Downward Spiral With Bet on Off-Price Backstage Stores
Wal-Mart Goes ‘Deep’ on Holiday Inventory in Bid to Boost Sales
Kroger/Roundy’s Tie-Up Is A Win-Win For Both Parties
Airbnb Pledges to Work With Cities and Pay ‘Fair Share’ of Taxes
Merck KGaA Raises Forecast as Quarterly Profit Tops Estimate
The Next Internet? Marijuana Delivered as Easy as Pizza
Cullen Roche: Why No One Should Support the Gold Standard
Jeff Carter: What’s SnapChat Worth?
Be sure to follow me on Twitter.
-
Why Active Managers Lose
Eddy Elfenbein, November 11th, 2015 at 3:41 pmInteresting article at Bloomberg View. The authors address the puzzling reason why so many active managers lose to the indexes, even before fees.
The reason, they contend, is that stock returns are very unevenly distributed. The big winners are really, really big. So big that they skew the whole sample. So while the total index reflects that, it’s very hard for an active manager to select one of those few big winners.
Here is a simple illustration of our main idea:
Consider an index of five securities. Four (though we don’t know which) will return 10 percent and one will return 50 percent.
Suppose active managers choose portfolios of one or two securities and each investment is weighted equally. There are 15 possible one or two security “portfolios.” Of these, 10 will earn returns of 10 percent, because they will include only the 10 percent securities. Just five of the 15 portfolios will include the 50 percent winner, earning 30 percent if part of a two-security portfolio and 50 percent if it is the sole asset in a one-security portfolio. The mean average return for all possible actively managed portfolios will be 18 percent; the median actively managed portfolio will earn 10 percent. The equally weighted index of all five securities will earn 18 percent.
In other words, the average active-management return will be the same as the index, but two-thirds of the actively managed portfolios will underperform the index because they will omit the 50 percent winner.
It should be noted that there are some stock-pickers who have done quite well.
-
The TED Spread and Equity Returns
Eddy Elfenbein, November 11th, 2015 at 11:54 amI was curious to see if there’s a connection between the TED Spread and equity returns. The answer seems to be no, but there are some notable exceptions. That’s one of the issues in doing research—you spend a lot of time crunching the numbers only to reach a dead end. Still, I thought I’d share my results with you.
The TED Spread got a lot of attention during the financial crisis and it’s faded away since then. The TED Spread is the difference between the short-term Treasury yield and the Eurodollar yield (TED standing for Treasury-Eurodollar).
In short, this measures the level of panic within the financial system. For the most part, the TED Spread bounces between 0.1% and 0.5%. When folks get nervous, it spikes up to 0.7% and can even go as high as 1%. During the financial crisis, it spiked over 2% and got as high as 4.58%. That shows you just how scary those days were.
I went to the Federal Reserve’s database and took all the TED Spread numbers going back to 1986 and compared them with the Wilshire 5000 Total Return Index. I then divided the Ted Spread numbers into 10 buckets of increasing value (0.09% to 0.2%, 0.21% to 0.25%, etc.). I then saw how the market performed on those days, and I annualized those results.
Here’s what I got.
Low Range Upper Range Count Return 0.09% 0.20% 933 10.11% 0.21% 0.25% 900 11.02% 0.26% 0.35% 801 16.12% 0.36% 0.50% 1,221 4.52% 0.51% 0.60% 763 9.46% 0.61% 0.85% 1,200 13.35% 0.86% 1.00% 411 9.46% 1.01% 1.40% 681 26.86% 1.41% 2.00% 303 26.01% 2.10% 4.58% 110 -59.52% In other words, the Ted Spread was between 0.09% and 0.20% 933 times. Over that period, the market had an annualized return of 10.11%.
There doesn’t appear to be any clear trend until we exceed 1%. The stock market does very poorly over 2.10%, but that doesn’t happen often. Interestingly, the market does quite well between 1% and 2.10%.
My hunch is that that reflects the market chilling out as the TED Spread falls from its elevated position. For example, the TED Spread was still quite high after the 1987 crash. At the market low in March 2009, the TED Spread was still over 1%. This means it may not be the TED Spread itself that’s important to the stock market, but the direction of the TED Spread. Of course, that’s a guess (and for another project).
Whenever I do research like this, I want to find a variable that has a consistent impact on stocks. For example, I found that stocks do well when the 10-year TIPs yield is low. The lower the better, and the higher the worse. Those are the types of relationships I want to find.
Morning News: November 11, 2015
Eddy Elfenbein, November 11th, 2015 at 7:12 amChina Car Sales Get Jump-Start From Tax Cut
Pound Gains as Unemployment Decline Bolsters Case for Rate Boost
Dollar Lower on Position Adjustments
Shoppers Blew $1 Billion in the First Eight Minutes of the World’s Biggest Online Shopping Spree
Alstom Wins $3 Billion Indian Railways Contract
Fidelity Marks Down Value of Snapchat Stake by 25%
AB InBev Gets SABMiller for $107 Billion as U.S. Deal Agreed
Molson Coors Nears Deal to Buy Out Remainder of MillerCoors Venture
Charges Announced in J.P. Morgan Hacking Case
McDonald’s Won’t Spin Off Real Estate Holdings
Can Retail Robots Make Brick and Mortar Shops Competitive Again?
Attorney General Tells DraftKings and FanDuel to Stop Taking Entries in New York
Joshua Brown: Don’t Sleep on Gen X
Howard Lindzon: Scheme or Racket? …and Eric Schneiderman
Be sure to follow me on Twitter.
Morning News: November 10, 2015
Eddy Elfenbein, November 10th, 2015 at 7:08 amCreditors Withhold 2 Billion Euro Bailout Payment From Greece
Two-Child Policy Will Boost China’s GDP Growth by 0.5%, Government Says
IEA Sees OPEC Market Share Growth in 2020 as Rivals Stagnate
Pimco Suit Sheds Light on Murky Investor Fees
Buffett’s $1 Billion Purchase That Got Buried in Record Quarter
GE, Alstom Land $5.6 Billion Deals to Supply Indian Railway
D.R. Horton Profit Jumps, as do New Home Orders and Closings
ABN Amro IPO Values Bank at Over $16 Billion
Tencent Shows Its Resilience With Strong Profit, Revenue Growth
Ackman’s Biggest Valeant Regret Is Being Unable to Buy More
Match’s Parent Aims to Cash in on Dating Boom
The Rise of Airbnb’s Full-Time Landlords
U.S. Government, Electrolux Argue at Trial Over GE Appliance Deal
Cullen Roche: Economic Bellweather CSX on the State of the Global Economy
Roger Nusbaum: Jobs Up! Rate Hike On?
Be sure to follow me on Twitter.
The Impact of Bad Weather on Analysts
Eddy Elfenbein, November 9th, 2015 at 2:32 pmI wouldn’t read too much into this fun, but I think it’s fun nonetheless:
To investigate the influence of weather on analysts, the team looked at 636,000 market observations by 5,456 brokerage-firm analysts known as sell-side analysts from 1997-2004. Because the researchers knew where the analysts were located, they could check the weather during each of the 636,000 observations.
Based on the calculations, comparing responses of analysts in good weather and bad when earnings announcements were made, analysts experiencing bad weather were 9% to 18% less likely to issue an annual earnings forecast; a recommendation to buy, hold or sell; or a target-price recommendation. Dr. deHaan says the calculations were designed to measure only the effect of weather, and canceled out such influences as characteristics of the firm, analyst or market conditions.
Snap-on Raises Dividend by 15%
Eddy Elfenbein, November 9th, 2015 at 10:28 amThis morning, Snap-on (SNA) announced a 15.1% dividend increase. The quarterly payout will rise from 53 to 61 cents per share.
Annually, that comes to $2.44 per share. This year, Snap-on should earn about $8.06 per share. Last year, they earned $7.11 per share. That keeps their payout ratio around 30%.
There have been a few times when SNA has skipped raising its dividend so it doesn’t have a long streak like some others. Still, the company has a long trend of raising dividends.
The Small-Cap Premium is Bunk
Eddy Elfenbein, November 9th, 2015 at 10:10 amThe other day, I wondered if the value premium was a thing of the past. Today, I’ll set my sights on the small-stock premium.
This is the observation that smaller-cap stocks have historically outperformed their larger peers over the long haul. I’m very suspicious on this point. It could be that smaller companies are more nimble and have a greater ability to adapt to a changing marketplace.
The problem, however, is how this is measured. We have to remember how unbalanced the stock market is. There are a small number of giant companies, and thousands of tiny ones.
When divided into size deciles, the smallest 10% of stocks comprise about 3% of the total market. That’s about the size of one mega-cap stock. It would be like looking at the long-term outperformance of one particular S&P 25 stock and claiming a premium for it.
There’s also an issue of how volatile this premium is. Here’s a look at the Russell 2000 divided by the Russell 3000. This shows that over the last 37 years, small-caps have underperformed.
For it to be a premium, I think it needs better performance than that.
There’s also a larger problem methodology. Michael Batnick relates the poor statistical foundation that the long-term returns are based on.
Morning News: November 9, 2015
Eddy Elfenbein, November 9th, 2015 at 7:15 amOECD Warns of Global Trade Slowdown, Trims Growth Outlook Again
China’s Trade Drop Means More Stimulus Measures Are Coming
Yergin Joins OPEC in Seeing Oil Market Balanced as Soon as 2016
Dollar Bulls are Vulnerable as Currency’s Strength May Cap Rates
Banking Giants Learn Cost of Preventing Another Lehman Moment
Regulators Urge Broader Health Networks
Dish Tops Profit Expectations Despite Pay-TV Subscriber Losses
Ericsson, Cisco Pool Telecom, Internet Savvy in Wide-Reaching Alliance
Snapchat Triples Video Traffic As It Closes the Gap With Facebook
PrairieSky Agrees to Acquire Canadian Natural Royalty Assets
Boeing Ends Dubai Drought With $8 Billion 737 Deal From Jet
Bonus Pay on Wall Street Is Likely to Fall, a Report Says
Jeff Miller: What Will Higher Interest Rates Mean for Financial Markets?
Be sure to follow me on Twitter.
Moog Earned 75 Cents per Share
Eddy Elfenbein, November 6th, 2015 at 1:29 pmThis morning, Moog (MOG-A) became our final Buy List stock to report earnings for this season. The company reported fiscal Q4 earnings 75 cents per share. However, 13 cents went to “incremental restructuring and impairment costs.” The company also said that they were hit by four cents due to a higher-than-expected tax bill. Wall Street had been expecting 92 cents per share, and the company gave us a forecast of 91 cents per share.
The market doesn’t seem too upset with the earnings miss. The shares are currently up about 1%.
The good news is that they’re standing by their forecast for next year of $4 per share.
Fiscal ’15 was a challenging year for our company across multiple fronts,” said John Scannell, Chairman and CEO. “In the face of these challenges, we delivered solid earnings and record cash flow. We are projecting a stronger fiscal ’16 with earnings per share of $4.00, up 19% on sales growth of about 2%.”
This was a tough year for Moog. Earnings-per-share fell from $3.52 to $3.35. Sales fell 4.6% to $2.53 billion.
- Tweets by @EddyElfenbein
-
Archives
- May 2024
- April 2024
- March 2024
- February 2024
- January 2024
- December 2023
- November 2023
- October 2023
- September 2023
- August 2023
- July 2023
- June 2023
- May 2023
- April 2023
- March 2023
- February 2023
- January 2023
- December 2022
- November 2022
- October 2022
- September 2022
- August 2022
- July 2022
- June 2022
- May 2022
- April 2022
- March 2022
- February 2022
- January 2022
- December 2021
- November 2021
- October 2021
- September 2021
- August 2021
- July 2021
- June 2021
- May 2021
- April 2021
- March 2021
- February 2021
- January 2021
- December 2020
- November 2020
- October 2020
- September 2020
- August 2020
- July 2020
- June 2020
- May 2020
- April 2020
- March 2020
- February 2020
- January 2020
- December 2019
- November 2019
- October 2019
- September 2019
- August 2019
- July 2019
- June 2019
- May 2019
- April 2019
- March 2019
- February 2019
- January 2019
- December 2018
- November 2018
- October 2018
- September 2018
- August 2018
- July 2018
- June 2018
- May 2018
- April 2018
- March 2018
- February 2018
- January 2018
- December 2017
- November 2017
- October 2017
- September 2017
- August 2017
- July 2017
- June 2017
- May 2017
- April 2017
- March 2017
- February 2017
- January 2017
- December 2016
- November 2016
- October 2016
- September 2016
- August 2016
- July 2016
- June 2016
- May 2016
- April 2016
- March 2016
- February 2016
- January 2016
- December 2015
- November 2015
- October 2015
- September 2015
- August 2015
- July 2015
- June 2015
- May 2015
- April 2015
- March 2015
- February 2015
- January 2015
- December 2014
- November 2014
- October 2014
- September 2014
- August 2014
- July 2014
- June 2014
- May 2014
- April 2014
- March 2014
- February 2014
- January 2014
- December 2013
- November 2013
- October 2013
- September 2013
- August 2013
- July 2013
- June 2013
- May 2013
- April 2013
- March 2013
- February 2013
- January 2013
- December 2012
- November 2012
- October 2012
- September 2012
- August 2012
- July 2012
- June 2012
- May 2012
- April 2012
- March 2012
- February 2012
- January 2012
- December 2011
- November 2011
- October 2011
- September 2011
- August 2011
- July 2011
- June 2011
- May 2011
- April 2011
- March 2011
- February 2011
- January 2011
- December 2010
- November 2010
- October 2010
- September 2010
- August 2010
- July 2010
- June 2010
- May 2010
- April 2010
- March 2010
- February 2010
- January 2010
- December 2009
- November 2009
- October 2009
- September 2009
- August 2009
- July 2009
- June 2009
- May 2009
- April 2009
- March 2009
- February 2009
- January 2009
- December 2008
- November 2008
- October 2008
- September 2008
- August 2008
- July 2008
- June 2008
- May 2008
- April 2008
- March 2008
- February 2008
- January 2008
- December 2007
- November 2007
- October 2007
- September 2007
- August 2007
- July 2007
- June 2007
- May 2007
- April 2007
- March 2007
- February 2007
- January 2007
- December 2006
- November 2006
- October 2006
- September 2006
- August 2006
- July 2006
- June 2006
- May 2006
- April 2006
- March 2006
- February 2006
- January 2006
- December 2005
- November 2005
- October 2005
- September 2005
- August 2005
- July 2005