Author Archive

  • JM Keynes: Currency Trader
    , January 13th, 2016 at 8:40 am

    From Neil Irwin at the NYT:

    But winning big in currencies is harder than it looks — even if you happen to be one of history’s greatest economic thinkers.

    That’s the conclusion two scholars reached after scouring the records of John Maynard Keynes, the British economist who, when he wasn’t advancing economic thought in the 1920s and 1930s, spent a great deal of time investing in stocks and currencies. At the peak in 1936, Keynes had more than 250,000 pounds invested, the equivalent of $23 million today.

    But even while writing a treatise that would be one of the foundational texts of 20th-century economics (“The General Theory of Employment, Interest and Money,” published in 1936) and hobnobbing at the highest levels of global finance, his returns were pretty, well, mediocre. He had an average annual return of 8.9 percent from 1920 to 1927, and a mere 2.5 percent from 1932 to 1939, according to research by Olivier Accominotti of the London School of Economics and David Chambers of the Cambridge Judge Business School newly published in The Journal of Economic History.

    (…)

    Keynes bet that the United States dollar would appreciate — just before Franklin Delano Roosevelt abandoned the gold standard in 1933, a move that caused the dollar to lose value. Keynes did correctly predict that France and the Netherlands would eventually abandon the gold standard in the 1930s, leading to declines in the franc and guilder. But he was early, and so incurred years of losses on the trade before his economic foresight paid off.

    “In many cases he called currencies right in terms of direction,” Mr. Chambers said. “But his great frustration was how to time a trading position. That was the thing he found most difficult.”

    This is a good point about investing: even if you’re right on the big picture, you still need to get the timing right. In The Big Short, the guys were right but they had to wait and wait and suffer big losses until they hit their payday.

    From the final day of trading in 1986 until April 12, 1988, the Dow gained 11.3%. True, it wasn’t in a straight line.

  • Morning News: January 13, 2016
    , January 13th, 2016 at 6:33 am

    Gundlach Paints Bearish Outlook for 2016 Investing, Economy

    Oil Rebounds From Below $30 as Threat of Further Drop Persists

    RBS Warns: Sell Everything

    Chinese Exports Post First Annual Decline Since 2009

    China Trade Surprise Brings Relief

    Russia Mulls Budget Cuts and Bank Stake Sales

    Nigeria State Oil Company Holds First IPO by 2018

    MetLife Unit’s SIFI Off-Ramp Seen Pressuring AIG as Icahn Looms

    Yum Shares Rise After December Gain in China Same-Store Sales

    PC Sales Drop To Historic Lows

    Qualcomm, TDK Join Forces in $3 Billion Radio-Chip Venture

    Big Beer’s Plan to Sell to Consumers Who Hate Them

    ’Bellwether’ G.M. Trial Opens Over Defect Claim

    Cullen Roche: The Bear Market Playbook

    Jeff Carter: What Skills Will People Need In The Future?

    Be sure to follow me on Twitter.

  • Our Buy List Nearly Doubled the Market Today
    , January 12th, 2016 at 5:02 pm

    Today was an excellent day for our Buy List. Of course, I stress the benefits of looking at the long-term so we shouldn’t get too excited about one good day. But it was a very good day. Our Buy List gained 1.54% today which nearly doubled the S&P 500’s gain of 0.78%.

    Seven trading days into the year, we’ve opened up a small lead against the overall market. Or more accurately, we’re down but not by quite as much. Through today, our Buy List is down 4.02% YTD compared with a loss of 5.14% for the S&P 500.

    Cognizant Technology Solutions (CTSH) was our top performer today. The stock gained 6.28% in today’s session. There’s been some horrible flooding in India and Cognizant wanted to update investors on their status. The good news is that Cognizant won’t be financially impacted by the floods. The company reiterated their 2015 full-year guidance for earnings of at least $3.03 per share. That means they expect Q4 earnings of at least 77 cents per share.

    “Cognizant extends its gratitude to its employees, business partners, government agencies, and others involved in recovery efforts that helped in quickly bringing our business operations back to normal,” said Gordon Coburn, President of Cognizant. “We are also grateful to our clients for their understanding of the circumstances, and their support of our Business Continuity Plan actions taken during the flood to successfully ensure continued delivery of services.”

    After the closing bell, Ford Motor (F) announced a special 25 cent dividend. This is on top of their regular 15 cent quarterly dividend. The dividend will be paid on March 1 to shareholders of record on January 29. The automaker also said it expects record profits for 2015 and equal or better profits for 2016. The stock is down about 3% in the after-hours market.

    Also after the bell, Stryker (SYK) narrowed its full-year range for 2015. The previous range was $5.07 to $5.12 per share. Now it’s $5.09 to $5.12 per share. This is the third revision to their full-year range. The initial guidance was for $4.90 to $5.10 per share, then it went to $5.06 to $5.12 per share. Earnings are due out on January 26.

  • High Yielding Dividend Aristocrats
    , January 12th, 2016 at 2:06 pm

    Thanks to the recent market selloff, many good stocks are going for decent prices. Here’s a list of Dividend Aristocrats that are currently yielding over 3%. To become a Dividend Aristocrat, a company needs to have raised its dividend for the past 25 years in a row.

    AbbVie ABBV 4.23%
    Archer-Daniels-Midland ADM 3.28%
    AT&T T 5.66%
    Chevron CVX 5.30%
    Cincinnati Financial CINF 3.29%
    Coca-Cola KO 3.17%
    Consolidated Edison ED 3.92%
    Emerson Electric EMR 4.34%
    Exxon Mobil XOM 3.96%
    Genuine Parts GPC 3.11%
    HCP, Inc. HCP 6.11%
    Johnson & Johnson JNJ 3.07%
    Leggett & Platt LEG 3.23%
    McDonald’s MCD 3.05%
    Nucor NUE 4.15%
    Procter & Gamble PG 3.46%
    Sysco SYY 3.09%
    T. Rowe Price TROW 3.20%
    Target TGT 3.09%
    Wal-Mart Stores WMT 3.05%

    Also on our Buy List, Ford and Wells Fargo both yield over 3%, while Microsoft and AFLAC aren’t far away.

  • Biogen’s CEO on CNBC
    , January 12th, 2016 at 12:57 pm

  • Morning News: January 12, 2016
    , January 12th, 2016 at 7:09 am

    European Stocks Rise as Commodities Pare Drop, China Stabilizes

    `Murderous’ Yuan Rate Jolts Hong Kong as Top Currency Hub

    Following The U.S Shale And Saudi Arabian Chess Match, Saudi Arabia Just Yelled ‘Checkmate’

    China Car Sales Growth Slows Further

    African Sunshine Can Now Be Bought and Sold on the Bond Market

    Arch Coal Files for Bankruptcy in Latest Blow to U.S. Miners

    Ford Chairman: ‘We Are In An Experimental Stage’

    Airbus Beats Boeing in 2015 Order Race, Lags On Deliveries

    Starbucks Plans Thousands of New Stores in China

    The New Republic Is For Sale Again

    China Tech Billionaire Buys Gay Dating App Grindr

    Tinder Is Internally Ranking Its Users Based on ‘Desirability’

    Why Corporate America Should Ditch the Script During Quarterly Earnings Calls

    Joshua Brown: The Death of a Brokerage Firm

    Roger Nusbaum: 2016 Opens With a Kick to the Throat

    Be sure to follow me on Twitter.

  • Oil at $31.13 per Barrel
    , January 11th, 2016 at 6:21 pm

    It’s not that oil is down — we know that. It’s that it keeps dropping. Today was another down day. Spot crude closed at $31.13.

    The decline is simply remarkable. Some on Wall Street are talking about $20 oil.

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  • New Small-Cap Low
    , January 11th, 2016 at 12:04 pm

    The Russell 2000 just dipped below its low from October 15, 2014. The index is at its lowest point since October 9, 2013.

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    The Russell 2000’s relative performance against the S&P 500 peaked on March 4, 2014. It’s been downhill ever since.

  • Buy List Updates
    , January 11th, 2016 at 9:46 am

    Here are a few news items from the past week about our Buy List stocks that I wanted to pass along:

    Undervalued Pick of the Day: Stericycle

    Alliance Data Announces New Stock Repurchase Program

    Cerner Upgraded by RBC Capital Mkts

    Wells Fargo Upgraded by Citigroup

    Microsoft Stock Poised For Yet Another Winning Year

    Is Microsoft CEO Nadella’s Turnaround Strategy Working?

    Ford Changes Pension Reporting, Sees Rise in 2015 Profit

    Ford’s Chairman Is on Quest to Reinvent Auto Maker

    Goldman upgraded Wells Fargo to “buy” from “neutral.”

  • Looking at Market Correlations
    , January 11th, 2016 at 8:35 am

    Here’s some data I’ve been working on that I thought I’d share with you. Below is a table showing the correlations of the daily changes of the 10 S&P 500 sectors. (I apologize for the crowded data.) I’ve also included the daily changes for the S&P 500 and for our Buy List. The data only covers calendar year 2015.

    Date Ene Disc Spl Fin HC Ind Tech Mats Tele Utes S&P 500 BL
    Energy 60.3% 56.8% 65.2% 53.8% 69.1% 59.0% 79.2% 57.0% 38.6% 73.1% 65.0%
    Discretion. 60.3% 81.8% 86.6% 80.3% 85.7% 84.3% 74.4% 70.8% 49.7% 92.9% 91.6%
    Staples 56.8% 81.8% 80.8% 75.3% 83.9% 78.0% 70.4% 73.0% 63.8% 88.3% 85.7%
    Financials 65.2% 86.6% 80.8% 76.1% 87.7% 83.2% 77.3% 75.2% 46.5% 93.3% 91.9%
    Healthcare 53.8% 80.3% 75.3% 76.1% 76.4% 76.8% 67.2% 58.1% 47.9% 87.0% 84.0%
    Industrials 69.1% 85.7% 83.9% 87.7% 76.4% 86.0% 84.8% 76.0% 54.3% 94.2% 91.3%
    Tech 59.0% 84.3% 78.0% 83.2% 76.8% 86.0% 74.7% 71.2% 45.8% 92.6% 90.0%
    Materials 79.2% 74.4% 70.4% 77.3% 67.2% 84.8% 74.7% 67.0% 44.9% 84.8% 79.3%
    Telecom 57.0% 70.8% 73.0% 75.2% 58.1% 76.0% 71.2% 67.0% 52.2% 78.2% 74.7%
    Utilities 38.6% 49.7% 63.8% 46.5% 47.9% 54.3% 45.8% 44.9% 52.2% 56.6% 52.3%
    S&P 500 73.1% 92.9% 88.3% 93.3% 87.0% 94.2% 92.6% 84.8% 78.2% 56.6% 96.5%
    Buy List 65.0% 91.6% 85.7% 91.9% 84.0% 91.3% 90.0% 79.3% 74.7% 52.3% 96.5%

    A few things to note.

    First is how strongly stocks are correlated with one another. At least in the near-term. Even a low daily correlation is around 60% or 70%. This means that just by being a stock, you’ll get tossed around with whatever the market’s doing that day. This is actually good news for stock-pickers because it means that good stocks can get knocked down with everything else, thereby creating good bargains. The shorter the time period, the greater the impact of the overall market.

    I also think it’s interesting how the Industrials have the highest correlation with the broader S&P 500. I’ve noticed this in previous years as well. In other words, the Industrials stand out by being the most similar to everyone else.

    Oddly, I find that this makes sense yet I’m not sure why. Perhaps it’s that the Industrials lie at the middle C of the economy. While sectors like Energy or Finance can diverge from the broader economy, the Industrials are unlikely to because…well, that is the economy. I’m not exactly sure, but it’s not due to size. Industrials are big but not the biggest.

    But this also means that if you wanted to build a cheap-but-somewhat-decent index, you could probably use as few as five major industrial stocks. By this, I mean companies like DuPont or 3M. Sure, it would be far from perfect, but considering how small it is, it would be pretty darn good.

    Naturally, over the short term, a stock will reflect the broader market and its sector. But as time goes on, the value specific to each company would gradually move to the surface and the higher categories would lose importance. On the table, you can see how strongly correlated the Buy List is with the S&P 500 on a daily basis, yet after 12 months, we had no trouble separating ourselves from the market last year.

    It’s interesting to see sector relationships in the market. For example, Energy and Materials are often closely related, yet Materials are usually closer to Industrials than Energy is. Staples and Healthcare are often close, but not so much last year. Tech is often a lone wolf, not much correlated with anyone. In that regard, it’s the opposite of Industrials.

    I suspect that the numbers on the table for Utilities are unusually low. Last year was probably an aberration for the Ute sector. Typically, I’d expect a higher correlation with defensive sectors like Staples and Healthcare.

    Finally, don’t overthink this table. I think it’s interesting but only in the sense that it gives us a glimpse at how the market behaves. None of these correlations is stable. The major lesson is that a powerful market trend can carry off any stock.