Author Archive

• Morning News: October 3, 2014
  Eddy Elfenbein, October 3rd, 2014 at 6:42 am

  Euro-Area Malaise Frustrates Draghi as Stimulus Readied

  Lagarde: Economic Growth ‘Too Low’

  As Yen Gets Weaker, Consumers Writhe

  Fed’s Dudley Defends Examiners After Criticism

  U.S. Jobless Claims Drop, Point to Stronger Labor Market

  U.S. Factory Orders Post Record Decline on Aircraft Payback

  Perry Capital Appeals Fannie, Freddie Bailout Ruling

  JPMorgan Password Leads Hackers to 76 Million Households

  Here’s Why Warren Buffett Is Buying Car Dealerships

  Bill Gross’ Former Fund: Too Big to Succeed?

  Yahoo and eBay Pressed to Return to Cores

  UBS Faces Fine of Up To $6.3 Billion in French Tax Probe

  Disney Extends CEO Iger’s Contract for Two Years to 2018

  Jeff Carter: Investors Are Sick of Convertible Notes

  Joshua Brown: Why the Yield Curve Matters

  Be sure to follow me on Twitter.

• Two Weeks Minute-By-Minute
  Eddy Elfenbein, October 2nd, 2014 at 4:02 pm

  Nothing to say, I just thought this was a cool chart. Here’s a minute-by-minute look at the last two weeks. The intra-day high was reached early on the morning of Friday, September 19.

  

• Dividends Rose 12.5% in Q3
  Eddy Elfenbein, October 2nd, 2014 at 11:32 am

  Last quarter was another strong quarter for dividends. For the first time ever, the S&P 500 paid out more than $10 per share in dividends. (That’s the dividend-adjusted number; every $1 on the index is worth about $8.88 billion.)

  Dividends for Q3 were $10.02 per share which is an increase of 12.50% over last year’s Q3. Note that over the same time, the index has increased its price by 17.29%. So in terms of dividend yield, the S&P 500 has a slightly higher valuation but both dividends and stock prices are growing roughly inline with each other. That’s why I think much of this “bubble” talk is very premature.

  Dividends have grown by more than 10% for 14 of the last 15 quarters. The only exception was the fourth quarter of last year, and that’s because the fourth quarter of 2012 had been unusually strong (+22.77%) so investors could take advantage of the new tax laws. Dividends for Q3 are up more than 77% from the third quarter of 2010 while the index is up by 73%. Yes, the dividend yield is slightly higher than what it was four years ago. Some bubble.

  Over the last four quarters, the S&P 500 has paid out $38.49 in dividends. Going by the index’s close on Tuesday (1,972.29) that comes to a trailing dividend yield of 1.95%.

  Here’s a chart showing the S&P 500 (in blue, left scale) along with dividends (in black, right scale). The two lines are scaled at a ratio of 50-to-1 which means that whenever the lines cross, the trailing yield is exactly 2%. For the last three years, both lines have stuck by each other pretty closely. You can also see how cheap the market was in early 2009.

  

• Morning News: October 2, 2014
  Eddy Elfenbein, October 2nd, 2014 at 7:14 am

  Draghi’s ECB Buying Spree Expected to Start Modestly

  Borrowers Will Struggle When Rates Increase

  Russian Officials Say No Plans for Capital Controls

  WTI Crude Slips Below $90 for First Time in 17 Months

  Corporate U.S. Healthiest in Decades Under Obama With Lower Debt

  Rocket Internet Prices Shares At Top Of Range For Largest German Tech IPO In 14 Years

  Sears Holdings Corporation Announces Intent to Conduct Rights Offering of Sears Canada Shares

  Amazon Is Plagued By Dangerous Currents

  Pepsi to Launch Naturally Sweetened Soda on Amazon, Bypassing Stores

  Coca-Cola Revises Executive Pay After Criticism

  Blackstone Scores $1.1 Billion Gain in Vivint Solar Debut

  PayPal Unlikely to Stay Single For Long After Split From eBay

  Bond King Bill Gross Departs for Realm of the Unknown

  Edward Harrison: Everything You Always Wanted to Know About Gold

  Credit Writedowns: Deleveraging, What Deleveraging? The 16th Geneva Report on the World Economy

  Be sure to follow me on Twitter.

• The Plunge in Oil
  Eddy Elfenbein, October 1st, 2014 at 11:33 am

  Here’s a look at the recent drop in oil prices.

  

• ISM Drops to 56.6 in September
  Eddy Elfenbein, October 1st, 2014 at 10:56 am

  The ISM for September just came in at 56.6. That’s a drop from 59.0 last month. Still, the reading for September is one of the highest in the last three years.

• Ford Sales Drop 2.7% Last Month
  Eddy Elfenbein, October 1st, 2014 at 10:48 am

  Welcome to October! The recent news of ebola hitting the United States, combined with other stories, has rattled investors’ nerves. For the first time since August 18, the S&P 500 is trading below 1,960.

  Several Buy List stocks are feeling the pain today; AFLAC ($AFL) is below $57.60 and Ford ($F) is down below $14.60. Ford reported that its sales dropped 2.7% which was slightly worse than expectations.

  Despite the decline in total deliveries, Ford had a record September for sales of its Fusion sedan, which rose 8.6 percent to 21,693, and its Explorer mid-size SUV had its best September since 2006, rising 0.8 percent to 13,770. Sales of the Lincoln Navigator large SUV rose 24 percent to 1,013.

  Sales of F-Series pickups, Ford’s top-selling and most-profitable product line, fell 1 percent to 59,863. Ford’s truck production is constrained because it shut one of its two F-Series factories at the end of August to convert it to build a new aluminum-bodied version going on sale later this year.

  ADP reported that the economy created 213,000 jobs last month. The official report from the government will come out on Friday. Wall Street currently expects 215,000 jobs.

  The Commerce Department reported an unexpected drop for construction spending for August. Wall Street had been expecting an increase of 0.5%. Instead, it was a drop of 0.8%.

• Morning News: October 1, 2014
  Eddy Elfenbein, October 1st, 2014 at 7:13 am

  Surprise German Slide Weighs on Eurozone Manufacturing

  Japan Banks, ANZ Among Nine Foreign Lenders to Gain Myanmar Licenses

  Getting Ready for Rising Rates

  U.S. Lawsuits Related To Fannie Mae, Freddie Mac Profits Dismissed

  Sen. Warren: We Need Regulators Who ‘Work for the American People’

  EBay, Bowing to Carl Icahn’s Pressure, Will Split Off PayPal

  A Separate PayPal Still Must Solve the Payments Puzzle

  Yahoo Stands to Reap $11 Billion in Breakup

  Insider Case by S.E.C. Is a Step Removed From Herbalife Itself

  New Pimco Captain’s Style: More Teamwork, Fewer TV Cameras

  Adidas Aims to Placate Investors With $1.9 Billion Return

  Rupert Murdoch’s News Corp To Buy Property Listings Site Move For $950M

  Reddit Raises $50 Million From Powerhouse Silicon Valley Investors

  Jeff Carter: Investors Are Sick of Convertible Notes

  Jeff Miller: What Will Be The Message From The Economic Data Deluge?

  Be sure to follow me on Twitter.

• Three Quarters Down
  Eddy Elfenbein, September 30th, 2014 at 4:59 pm

  That’s the end of the third-quarter. The year is officially 75% over, and the decade is already 47.5% past.

  For the year, the S&P 500 is up 6.70%. Add in dividends, and the S&P 500 is up 8.34%.

  For the year, our Buy List is up 1.83%. With dividends, we’re up 2.89%.

  Here’s the stock-by-stock gain not including dividends:

  Stock	Symbol	31-Dec	30-Sep	Gain/Loss
  DirecTV	DTV	$69.06	$86.52	25.28%
  Microsoft	MSFT	$37.41	$46.36	23.92%
  Wells Fargo	WFC	$45.40	$51.87	14.25%
  Fiserv	FISV	$59.05	$64.64	9.46%
  Medtronic	MDT	$57.39	$61.95	7.95%
  Stryker	SYK	$75.14	$80.75	7.47%
  CR Bard	BCR	$133.94	$142.71	6.55%
  eBay	EBAY	$54.87	$56.63	3.21%
  IBM	IBM	$187.57	$189.83	1.20%
  Ross Stores	ROST	$74.93	$75.58	0.87%
  Qualcomm	QCOM	$74.25	$74.77	0.70%
  Moog	MOG-A	$67.94	$68.40	0.68%
  Express Scripts	ESRX	$70.24	$70.63	0.56%
  Oracle	ORCL	$38.26	$38.28	0.05%
  McDonald’s	MCD	$97.03	$94.81	-2.29%
  Ford Motor	F	$15.43	$14.79	-4.15%
  Cognizant Tech.	CTSH	$50.49	$44.77	-11.33%
  AFLAC	AFL	$66.80	$58.25	-12.80%
  CA Technologies	CA	$33.65	$27.94	-16.97%
  Bed Bath & Beyond	BBBY	$80.30	$65.83	-18.02%

• Edit the Fed!
  Eddy Elfenbein, September 30th, 2014 at 10:49 am

  One of my recent pet peeves has been the growing length of FOMC policy statements. The statements have grown steadily longer without conveying more information. They’re terribly written and needlessly jargon-filled.

  I’m not merely complaining about their general ugliness, but more importantly, such writing is bad policy. The central bank ought to be able to communicate with the public in a clear and concise manner. George Orwell famously wrote how the English language gets abused when it’s in the hands of the government. The Fed simply needs to say, “this is what we’re doing and this is why we’re doing it.”

  The last statement ran on to 895 words. I wanted to try my hand at rewriting it. First, here’s the Fed’s version:

  Information received since the Federal Open Market Committee met in July suggests that economic activity is expanding at a moderate pace. On balance, labor market conditions improved somewhat further; however, the unemployment rate is little changed and a range of labor market indicators suggests that there remains significant underutilization of labor resources. Household spending appears to be rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains 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. 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, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced and judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year.

  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 October, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $5 billion per month rather than $10 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $10 billion per month rather than $15 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 end its current program of asset purchases at its next meeting. 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; Narayana Kocherlakota; Loretta J. Mester; Jerome H. Powell; and Daniel K. Tarullo. Voting against the action were Richard W. Fisher and Charles I. Plosser. President Fisher believed that the continued strengthening of the real economy, improved outlook for labor utilization and for general price stability, and continued signs of financial market excess, will likely warrant an earlier reduction in monetary accommodation than is suggested by the Committee’s stated forward guidance. President Plosser objected to the guidance indicating 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,” because such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee’s goals.

  Now here’s my version:

  The data released since we met in July suggests that the economy is growing modestly. The jobs market’s getting better, but there are still too many Americans out of work. The good news is that households and companies are spending again, but the housing market is weak. The government’s smaller budget deficits are also holding back growth, but the impact here is waning.

  Since the economy is improving, we’ve decided to taper our bond purchases again. Starting next month, the New York Fed will buy $10 billion per month of Treasuries and $5 billion per month of mortgage-backed securities. That’s a decrease of $5 billion for each. We’re also continuing to reinvest the interest and principal from these bonds. The goal of this policy is to keep long-term interest low, which in turn will help the economy.

  Ideally, we’ll decide to wrap up our bond-buying program at our next meeting in late October, but there’s no guarantee. If the outlook for the economy changes, then we’re prepared to change as well.

  Importantly, we still believe the economy currently demands a very loose monetary policy. In our view, we’ll need to keep interest rates low for a considerable time after the bond-buying ends. This is especially true if inflation continues to run below our 2% target. In fact, we may have to keep rates low even when we’re near our goals of 2% inflation and maximum employment. The key drivers of our policy will be the financial markets, the labor market and inflation (both expectations and signs of incipient inflation).

  The Committee approved today’s policy by a vote of 8 to 2. The yes votes were:

  Yellen (Chair)
  Dudley (Vice-Chair)
  Brainard
  Fischer
  Kocherlakota
  Mester
  Powell
  Tarullo

  The votes against were:

  Fisher
  Plosser

  President Fisher believes the economy is doing well enough already and that we’ll soon need to pull back on monetary stimulus. President Plosser doesn’t believe interest rates will need to stay low for a considerable time after our bond-buying policy ends. He thinks the economy has already made considerable progress towards our goals.

  Was that so hard?

  The Fed’s version is 895 words. Mine is 344. I concede that there may be some subtle nuances that the Fed wanted to convey that I didn’t pick up on. After all, it’s written by a committee. Still, there’s no excuse for such horrible writing especially on important matters of public policy. I’m certain my version conveyed 95% of what the Fed was trying say but I needed less than half as many words.