Author Archive

• “Credit Losses Were Down 27% Sequentially”
  Eddy Elfenbein, April 13th, 2011 at 10:53 am

• JPMorgan Chase Earns $1.28 Per Share
  Eddy Elfenbein, April 13th, 2011 at 7:33 am

  JPMorgan Chase ($JPM) just reported Q1 earnings of $1.28 per share. Wall Street was expecting $1.16 per share. I said I was expecting $1.24 per share.

  I have to explain something about bank earnings. When a bank calculates its profits, it has to estimate how many of its loans will turn out to be bad. That’s not so easy. If they over-estimate, then they need more loan loss reserves and that will decrease their current profit.

  What we’ve been seeing from JPM is that they’ve been decreasing their loan loss reserves thanks to improvements in their assets. This is often criticized as somehow manipulating their bottom line. It’s not. This is how banking works. Unless you’re able to predict with perfect accuracy, you’re going to have to add or delete loan loss reserves.

  J.P. Morgan Chase & Co.’s first-quarter profit jumped 67% as it set aside less for potential loan losses and revenue fell less than expected.

  The first big bank reporting results, J.P. Morgan has seen earnings surge in recent quarters, largely because improving asset quality has led it to set aside less to cover loan losses. It has said loans are growing, and in the fourth quarter the bank saw revenue climb from year-earlier levels at operations tied to both Wall Street and Main Street.

  In the latest period, the investment-banking arm’s profit slid 4.1% as net revenue dipped 1%. The retail financial-services business’ loss widened as revenue dropped 19%.

  The company’s bottom line again benefited from it setting aside sharply less to cover potential loan losses. Many banks have seen lower reserves boost earnings amid signs of credit improvement. Credit-loss provisions were $1.17 billion, down from $7.01 billion a year earlier and $3.04 billion in the prior quarter.

  J.P. Morgan reported a profit of $5.56 billion, or $1.28 a share, up from $3.33 billion, or 74 cents a share, a year earlier. The latest period included a net three cents in gains as a benefit from reduced credit-card loan loss reserves more than offset the impact of mortgage servicing rights asset adjustment and estimated expense of foreclosure-related matters.

  Revenue on a managed basis, which excludes the impact of credit-card securitizations and is on a tax-equivalent basis, slid 8.5% to $25.79 billion.

  Analysts polled by Thomson Reuters had most recently predicted earnings of $1.16 on $25.27 billion in revenue.

  “The firm’s results reflected a strong quarter across the investment bank and solid performance from card services, commercial banking, treasury & securities services, and asset management,” Chief Executive James Dimon said.

  

• Morning News: April 13, 2011
  Eddy Elfenbein, April 13th, 2011 at 7:28 am

  Stocks, Commodities Fall on Japan Nuclear Crisis; Bonds, Swiss Franc Gain

  Japan Diminishes Its Economic Outlook

  Deutsche Bank Said to Change U.S. Unit Ahead of Capital Rules

  BRICS Push Resource-Hungry China to Buy Finished Goods

  Banks Face Sovereign Debt Scrutiny in EU Stress Tests

  Here’s Why France’s Wealth Tax Is Awesome

  China’s Record Bank Lending May Spur Fitch Rating Downgrade

  Gold Slumps As Equities, Commodities Retreat

  In F.D.I.C.’s Proposal, Incentive for Excessive Risk Remains

  Do-Nothing Congress as a Cure

  Impatience Over Recovery at Morgan Stanley

  Unilever and P&G Fined $456 Million for Price Fixing

  Cisco Shutters Flip, Two Years After Acquisition

  Dilbert’s Scott Adams: How to Get a Real Education

  Joshua Brown: The False Hope of Higher Prices

  Paul Kedrosky: S&P 500 vs. English: No “T’s” Please. We’re Public.

• A Summary of Calendar Effects
  Eddy Elfenbein, April 12th, 2011 at 2:54 pm

  Eric Falkenstein writes today on the end-of-the-month anomaly. I’ve always been suspicious of these calendar effects.

  Some do exist, but they’re often hard to exploit. Or, they have existed but are no longer important.

  Perhaps the most dramatic is the days-of-week effect. I looked at the data and found that Monday has been the worst day of the week for stocks by far. Over the last twenty years, however, Monday has done much better. Historically, all of the market’s capital gain has come on Wednedays and Fridays. The rest of the time, the market is net down.

  I also looked at the turn-of-the-month effect, but instead of the period Eric discussed, I looked at the last four days of the month followed by the first three days on the following month. That adds up to less than one-third of the total trading days in a year, yet the market has performed at an annualized rate of over 28%. The rest of the time, the market is down.

  I recently looked at the First Day of the Month and found that it’s beaten the market since 1996.

  Although it’s not a calendar effect, I’ve always been impressed by the market’s correlation to the previous day’s performance. For the time period I looked at (1950 to 2008), the S&P 500’s entire gain had come on days following up moves of 0.64% or more. Half the market’s gain came on day’s following 3.2% up moves which happens less than once a year.

• Colorado Springs House Listing
  Eddy Elfenbein, April 12th, 2011 at 1:55 pm

  I just stumbled across this house listing in Colorado Springs. This is a crazy cool house.

  For the same price, you could get a very nice cardboard box in NW Washington, DC.

• Ford Warns Quake Could Hurt Profit
  Eddy Elfenbein, April 12th, 2011 at 11:30 am

  Ford said the problem isn’t their facilities but that of their suppliers:

  Supply disruptions stemming from the earthquake in Japan could hurt Ford Motor Co’s earnings, the automaker said in a securities filing with U.S. regulators on Monday.

  The U.S. automaker, which has no auto plants in Japan but uses suppliers based there, said it was looking for alternate sources of auto parts as necessary.

  The filing was another indication to investors from a U.S. automaker that missed shipments of parts from Japan could have far-reaching effects on financial performance.

  “Because the situation in Japan continues to develop, supply interruptions related to other materials and components from Japan could manifest themselves in the weeks ahead,” the company said in the filing.

  Ford said its operations in Asia, including joint ventures, could be affected by parts shortages from late April through May. The company said it did not expect the disruptions to have a “material impact” on results, but said if a replacement could not be found for a particular auto part, it could cut or cease vehicle production.

  A loss of output could hurt Ford’s financial condition as well as that of its financing arm, Ford Motor Credit, the company said in a filing.

  Here’s the SEC filing.

• S&P 500 = 1,310
  Eddy Elfenbein, April 12th, 2011 at 11:25 am

  So far today, it’s a soggy day on Wall Street. The S&P 500 is off by a little over 1%. Once again, the cyclicals are leading the market lower. A few weeks ago, I talked about how the leadership of the cyclicals was coming to an end. Since then, the Morgan Stanley Cyclical Index ($CYC) largely kept pace with the market, but it started to break down yesterday. As I’ve said before, the cyclicals tend to move in…well, cycles. Once a trend gets started, it often lasts for a long time.

  The good news is that although the Buy List is down today, it’s still running ahead of the market. This is because we don’t have as many cyclical stocks as the broader market. That really helped us yesterday. The S&P 500 dropped by 0.28% while our Buy List rose by 0.41%.

  Let me say a few words about trading Nicholas Financial ($NICK). The stock traded as high as $12.99 yesterday but I think it was simply due to the internal mechanics of trading. The stock then traded at $12.32 before closing at $12.70. Today, it went back to $12.31 and is now at $12.50. Don’t be fooled into thinking there’s something more going on. The stock is absorbing more volume and is hence showing more volatility. I expect more good news from NICK when it reports earnings again in a few weeks.

• Morning News: April 12, 2011
  Eddy Elfenbein, April 12th, 2011 at 7:24 am

  The Global Losing Streak Is Continuing, After An Ugly Night In Japan

  U.K. Inflation Unexpectedly Slows as Stores Cut Food Prices

  Bank of Japan Minutes Show Concern on Quake Impact

  Allied Irish Banks’ Loss Soars to $15 Billion, Axes 2,000 Jobs

  Yuan Forwards Decline After IMF Highlights Global Recovery Risk

  IEA Says Oil Price Hurting Economy, Maintains Demand Outlook

  Oil Advances a Fourth Day in New York on Libyan Conflict, Mideast Unrest

  Gas Prices Rise, and Economists Seek Tipping Point

  Building a Takeover Bid Over Takeout

  The One Thing You Must Realize About PIMCO’s Big Bet Against Treasuries

  Futures Slip as Alcoa Disappoints

  Glencore Said to Plan $9 Billion to $11 Billion Initial Offering

  Level 3 To Acquire Global Crossing In $1.9B All-Stock Deal

  Google Goes Green, Invests $168 Million in Ivanpah Solar Power

  Paul Kedrosky: Delusions: Then and Now

  Joshua Brown: Peking Zuck

• NICK = $12.99
  Eddy Elfenbein, April 11th, 2011 at 12:20 pm

  Something’s up with Nicholas Financial ($NICK). The stock gapped up to $12.99 just now. The all-time high is $13.18 (split-adjusted) from five years ago.

  I’m not sure why there’s a surge. It could just be due to an order imbalance. About 13,000 shares have been traded which is high but far from unprecedented.

• 3M Close to All-Time High
  Eddy Elfenbein, April 11th, 2011 at 11:41 am

  Shares of 3M ($MMM) have been as high as $94.64 today which is a fresh 52-week high. That’s actually a three-and-a-half year high.

  This recent rally brings MMM very close to its all-time high price of $97 reached in October 10, 2007.

  I highlight MMM because it’s a very diversified manufacturing firm. If it’s near an all-time high, it suggests that much of the non-financial economy is recovering.