Author Archive

  • The Long View
    , July 6th, 2010 at 9:30 am

    Even after adjusting for dividends, the S&P 500 is back where it was 10-1/2 years ago.
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  • Welcome Back!
    , July 6th, 2010 at 7:35 am

    I hope everyone had a great Fourth of July weekend. The early indications are that the market will rally today. Geez, it’s about time! Thanks to another dismal jobs report the S&P 500 closed Friday at 1,022 which was the lowest close since last September. For an economic recovery, ten months with no stock gains isn’t much of a recovery.
    The good news is that earnings season will start next week. Aloca (AA) is usually the first major company to report and they’re scheduled to report next Monday. JPMorgan Chase (JPM) will report next Thursday and General Electric (GE) reports next Friday. Those are the early birds and they’ll give us an indication of how things will shake out.
    I’m expecting pretty decent earnings growth for the stock market. For the second quarter of 2009, the S&P 500 earned $13.81 per share and I expect Q2 earnings for this year to be around $20 per share.
    That may sound like tremendous growth but profits are really rebounding from very low levels. (very, very, very low levels).
    Even though the economic recovery is proving to be rather weak, the past earnings have been so poor that it’s not to hard to show earnings growth coming off depressed levels. The S&P 500 will probably earn around $80 to $85 per share this year which means the market is currently going for about 12 to 13 times this year’s earnings. That’s just a guess but I think it’s a fairly reasonable one. This earnings season, many companies will give us a better idea of what to expect for the second half of 2010.
    I continue to think that equity prices look good at this level, especially since you can’t even make 3% in a 10-year Treasury bond. The problem is that the market has been going down despite the low prices. As always, the market is in charge and we’re just following along.
    Long for nice gains from AFLAC (AFL) and Medtronic (MDT). The Buy List has outperformed the S&P 500 for the last five sessions and eight of the last nine sessions.

  • Herb on the Street
    , July 1st, 2010 at 4:32 pm

  • Some Numbers from Today
    , July 1st, 2010 at 1:49 pm

    Goldman Sachs (GS) has traded as low as $129.50 today. Their book value is $128.33.
    Morgan Stanley (MS) is now 17% below its book value.
    A two-year US Treasury will yield you about 0.5%. One share of Johnson & Johnson (JNJ) yields about seven times that.

  • The Dow Yields More than the 10-Year
    , July 1st, 2010 at 11:35 am

    Thanks to an ugly day in the markets, the yield on the 10-year Treasury stands at 2.899%. The indicated yield for the Dow is 2.97%.

  • ISM Index Drops
    , July 1st, 2010 at 10:09 am

    The ISM report came out today and it showed a drop from 59.7 in May to 56.2 for June. As I’ve written before, the ISM report is probably one of the best indicators for telling us if the economy is in a recession or not.
    Any reading above 50 indicates that the economy is growing. Below 50 means it’s shrinking. Even though the reading is still above 50, this was a big drop from May. This is the biggest drop since late 2008. Wall Street was expecting a drop but only to 59.
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    The Institute for Supply Management noted in today’s press release that “if the PMI for June (56.2 percent) is annualized, it corresponds to a 4.8 percent increase in real GDP annually.”

  • Mid-Year Report Card
    , June 30th, 2010 at 4:38 pm

    The first half of the year is now over. Overall, it’s been an ugly time for the stock market. The S&P 500 is down -7.57% for the first half and our Buy List is down -4.00%.
    To reiterate the rules of the Buy List, it’s a list of 20 stocks that I choose at the beginning of each year. Once the list is set, I can’t make any changes throughout the year. I assume the portfolio is equally weighted at the start of the year.
    Here’s a look at each stock on our Buy List, the price at the beginning of the year, the price at the close of today and the profit/loss:

    Symbol Buy Current Profit
    AFL $46.25 $42.67 -7.74%
    BAX $58.68 $40.64 -30.74%
    BDX $78.86 $67.62 -14.25%
    BBBY $38.61 $37.08 -3.96%
    EV $30.41 $27.61 -9.21%
    LLY $35.71 $33.50 -6.19%
    FISV $48.48 $45.66 -5.82%
    GILD $43.27 $34.28 -20.78%
    INTC $20.40 $19.45 -4.66%
    JNJ $64.41 $59.06 -8.31%
    JOSB $42.19 $53.99 27.97%
    LUK $23.79 $19.51 -17.99%
    MDT $43.98 $36.27 -17.53%
    MOG-A $29.23 $32.23 10.26%
    NICK $6.89 $8.23 19.45%
    RAI $52.97 $52.12 -1.60%
    SEIC $17.52 $20.36 16.21%
    SYK $50.37 $50.06 -0.62%
    SYY $27.94 $28.57 2.25%
    WXS $31.86 $29.70 -6.78%

    Our biggest winner is Jos. A Bank Clothiers (JOSB), followed by Nicholas Financial (NICK) and SEI Investments (SEIC).
    Our biggest loser is Baxter International (BAX) followed by Gilead Sciences (GILD).
    Here’s how the Buy List has done compared with the market during the first half of the year. I track the Buy List as if it’s a $1 million portfolio.
    image959.png
    We had a great start to the year. By April 15, we were up 14.1% which was more than 5% ahead of the S&P 500. Since then, our Buy List has shed -15.88% compared with -14.93% for the S&P 500.
    Including dividends, the Buy List is down -3.19% for the year while the S&P 500 is down -6.65%. Four the four-and-a-half years of the Buy List combined, we’re up 11.26% versus a loss of -9.15% for the S&P 500.
    Finally, if this matters to anyone, the beta for this year is running at 0.917. Historically, our beta is 0.938.

  • Some Context
    , June 30th, 2010 at 3:49 pm

    We’re now 1.05% of our way through the millennium. That’s the same ratio that a three-year Treasury will do for you.

  • The Market’s Mid-Year Cycle
    , June 30th, 2010 at 3:31 pm

    Earlier we pointed out that the stock market has had a very dramatic effect at the turn of each month. Since 1932, most of the S&P 500’s capital gain has come during a seven-day period at the turn of each month—specifically, the last four trading days and the first three trading days of each month. This represents about one-third of the total trading days. During the rest of the month, the stock market actually lost money.
    Investing in just the last four days and first three days of each month would have returned over 63,000% (not including trading costs). Annualized, that’s 8.6%. However, if you consider that it’s really only 32% of the time, the true annualized rate is over 28%. The rest of the month—the other 68% of the time—has resulted in a combined loss of close to 78%.
    It is important which month we’re talking about. The most dramatic surge comes at the turn of the year. During that seven-day stretch, the market has gained an average of 1.59%. The mid-year seven-day period is the fourth-best averaging a gain of 0.60%.
    A few years ago, I ran the numbers on the entire history of the Dow and found that the Dow gains 1.37% between June 27 and July 6. Historically, there’s been an average gain of 4.17% from June 27 to September 6. Historically, the Dow has peaked on September 6 and pulled back until late October (and it’s not just 1929 distorting the series that causes this).
    image534.png
    Please note that I don’t see these historical quirks as useful trading strategies. What I think is important is that the market clearly sees turning points at the different times of the year.

  • The Higher Ed Bubble Continues
    , June 30th, 2010 at 10:09 am

    More evidence that the advantages of a college degree are vastly overrated:

    “Some universities are getting paid to have people show up, take a class, and flunk out,” says Lee. “If you bought cars, and half the cars didn’t work within the first six months, and you couldn’t get your money back, people would be pretty outraged.”