Author Archive

  • The Beta Trade
    , December 14th, 2010 at 3:27 pm

    What’s been happening continues to happen.

    After today’s Fed announcement, Treasury yields spiked along the yield curve.

    It’s almost like a wave hit the yield curve — the later maturities turned first and the process gradually moved to the shorter-term maturities.

    The 30-year yield bottomed in late August at 3.53%. It’s now up more than one full percent.

    Then the 10-year yield bottomed on October 8th at 2.38%. It’s up by 118 points since then.

    Then the 5-year yield bottomed on November 4th at 1.03%. It’s up 102 points since then, meaning the yield has basically doubled.

    This is the Beta Trade. Money is going out of bonds and into riskier assets like stocks, and cyclical stocks in particular.

    Here’s a look at the three-month, five-year, ten-year and thirty-year yields over the past two years:

  • Today’s Fed Policy Statement
    , December 14th, 2010 at 2:17 pm

    Here’s today’s Fed statement:

    Information received since the Federal Open Market Committee met in November confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment. Household spending is increasing at a moderate pace, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have continued to trend downward.

    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

    To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

    The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

    The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Sarah Bloom Raskin; Eric S. Rosengren; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

    Voting against the policy was Thomas M. Hoenig. In light of the improving economy, Mr. Hoenig was concerned that a continued high level of monetary accommodation would increase the risks of future economic and financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy.

    There’s not a single item in this statement that should be considered a surprise.

  • Bed Bath & Beyond Hits All-Time High
    , December 14th, 2010 at 1:58 pm

    Bed, Bath & Beyond (BBBY) just broke out to a new 52-week high. On April 26, the stock got as high as $48.52.

  • Noon Market Update
    , December 14th, 2010 at 11:57 am

    The market is up again today. This looks to be the ninth rally for the S&P 500 in the last ten sessions (granted, some of those “up days” were puny).

    The Buy List is doing well. Both Fiserv (FISV) and Becton, Dickinson (BDX) are at new highs today.

    Christopher Danely, an analyst at J.P. Morgan, has said that Intel (INTC) is in danger of missing Wall Street’s earnings estimate.

    Danely writes that checks in Asia find orders from the PC food chain in November were stable with October levels, but didn’t increase. He notes that Intel had indicated it needed an uptick in November and December orders to meet its Q4 outlook; he thinks the chip maker is “tracking towards the low end of its Q4 revenue guidance.”

    The analyst notes that notebook contract manufacturer shipments in November were seasonal, but below plan, with shipments flat with October, below expectations of a 2% rise. For Intel (and the notebook makers) to meet estimates, he says, the industry will need to see an above-seasonal December. Danely notes that the notebook manufacturers are forecasting a 1% sequential rise in shipments, above the seasonal average 10% decline.

    Danely thinks Intel is likely to miss the $11.4 billion midpoint of guidance, and will come in flat sequentially at $11.1 billion.

  • Morning News: December 14, 2010
    , December 14th, 2010 at 7:57 am

    World Stocks Rise, Dollar Falls Before Fed

    Euro Hits 3-week High Vs. Dollar as U.S. Yields Ease

    Oil Steadies Near $88.50, Eyes on U.S., China

    China Says Regrets WTO Ruling on US Tire Tariff

    Japanese Government to Extend Stock Tax Breaks for 2 Years

    ECB’s Trichet Calls for `Maximum’ Flexibility of Region’s Rescue Fund

    Bank Regulators to Tackle Capital Standards

    Wellstream Brings GE Energy to $4.3 Billion in Deals

    Dell Seeks More Data-storage Firms

    Icahn’s Lionsgate Bid: Out of Time — and Luck

    From Russia With Profits?

  • Brett Favre Won’t Start
    , December 13th, 2010 at 7:02 pm

    It’s official: Brett Farve’s starting games streak will come to an end at 297.

    The streak began on September 20, 1992.

    To put this into context, the Friday before that game, the Dow was at 3,327.05. The 30-year Treasury was at 7.32%. The Nasdaq Composite was at 589.12. Gold was at $347.20.

    Also, Jenn Sterger was eight years old.

  • The Fed’s “Mr. No”
    , December 13th, 2010 at 6:41 pm

    The New York Times profiles the Fed’s contrarian, Thomas Hoenig who is the president of the Kansas City Fed.

    This is an odd time to profile Hoenig since he rotates off the FOMC at the end of the year. Tomorrow’s meeting will be his last.

    This caught my eye:

    By keeping interest rates too low for too long, in his view, the Fed contributed to the dot-com bubble that burst in 2001 and the even bigger housing bubble that popped in 2007.

    The Nasdaq had its highest close on March 10, 2000 at 5,048.62. The index closed the year at 2,470.52, meaning the tech bubble had already popped by 51% before 2001 even began.

    Tuesday’s Fed vote will be Mr. Hoenig’s last, because the presidents of the Fed’s regional banks, other than New York, share votes under a rotation system. Mr. Hoenig does not have a vote next year, and he must retire after he turns 65 in September.

    As for his future, Mr. Hoenig is certain that he will not follow other Fed veterans who have gone to work on Wall Street. “I can tell you one thing,” he said. “I’ll never work for a too-big-to-fail bank.”

    Um…you already do.

  • Baxter Approves Share Repurchase of $2.5 Billion
    , December 13th, 2010 at 4:23 pm

    Another Buy List stock, Baxter International (BAX), is buying back its stock:

    Baxter International Inc. announced today that its Board of Directors has approved a share repurchase authorization of up to $2.5 billion of the company’s common stock.

    Baxter has approximately $600 million of remaining authorization under a previous $2.0 billion share repurchase program approved in July 2009. Shares will be repurchased in the open market at times and amounts determined by the company based on its evaluation of market conditions and other factors.

    “This approval is consistent with our disciplined capital allocation approach and reflects the confidence we have in our ongoing ability to generate strong cash flows and deliver increased value to our shareholders,” said Robert J. Hombach, chief financial officer.

    Over the last five years, the company has returned more than $10 billion to shareholders in the form of dividends and share repurchases. Baxter has doubled its dividend rate during this period, and recently announced a 7 percent increase for 2011.

  • AFLAC Buying Dollar-Denominated Debt
    , December 13th, 2010 at 1:17 pm

    Bloomberg notes that AFLAC (AFL) is buying as much as $1 billion worth of corporate bonds through the end of this year:

    Columbus, Georgia-based Aflac, the world’s biggest seller of supplemental health insurance, is shifting from Japanese government securities and focusing on dollar-denominated corporate debt rated A with a duration of about 10 years. Japanese government bonds due in 7 to 10 years yield about 0.99 percent, compared with 4.52 percent for A rated U.S. corporate debt.

    “Given that interest rates are so low you have to look at your duration preferences,” Kriss Cloninger, president and chief financial officer of Aflac, said in an interview last week. “At the time we were placing the money, we felt the risk- reward advantage was with shorter-duration corporates as opposed to the longer-term Treasuries.”

  • The New S&P Dividend Aristocrats
    , December 13th, 2010 at 12:01 pm

    Here’s the new list of the S&P 500 Dividend Aristocrats. These are stocks that have increased their dividends for 25-straight years. For the year, this index is up 17.57%.

    Stocks Symbol
    3M MMM
    AFLAC AFL
    Abbott Labs ABT
    Air Products & Chemicals APD
    Archer-Daniels-Midland ADM
    Automatic Data Processing ADP
    Bard, C.R. BCR
    Becton, Dickinson BDX
    Bemis BMS
    Brown-Forman BF/B
    CenturyLink CTL
    Chubb CB
    Cincinnati Financial CINF
    Cintas CTAS
    Clorox CLX
    Coca-Cola KO
    Consolidated Edison ED
    Dover DOV
    Ecolab Inc. ECL
    Emerson Electric EMR
    Exxon Mobil XOM
    Family Dollar Stores FDO
    Grainger, W.W. GWW
    Hormel Foods HRL
    Johnson & Johnson JNJ
    Kimberly-Clark KMB
    Leggett & Platt LEG
    Lowe’s LOW
    McCormick & Co. MKC
    McDonald’s MCD
    McGraw-Hill MHP
    PPG Industries PPG
    PepsiCo PEP
    Pitney Bowes PBI
    Procter & Gamble PG
    Sherwin-Williams SHW
    Sigma-Aldrich SIAL
    Stanley Black & Decker SWK
    Target TGT
    VF Corp VFC
    Wal-Mart Stores WMT
    Walgreen WAG