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The S&P 500 Has Officially Doubled!
Posted by Eddy Elfenbein on February 16th, 2011 at 10:21 amCongratulations folks–we finally did it. On March 6, 2009, the S&P 500 hit an intra-day low of 666.79. That was the lowest reading in 12-1/2 years.
This morning, the index broke through 1,333.58 marking an official double. This is the market’s fastest double in over 70 years.
It took us 492 trading days (or just under two years) to double which works out to an average of 14 basis points per day.
The S&P 500 doubled from its low of January 23, 1995 to its high of July 7, 1997 in 620 trading days or 29.5 months.
I don’t have the intra-day numbers for decades past but by going by the daily close, the S&P 500 doubled in just 510 trading days from September 14, 1953 to September 23, 1955. That’s nine days over two years.
The S&P 500 had a monster run when it doubled between March 14, 1935 and September 21, 1936. That’s just 385 trading days (I’m excluding Saturday trading which lasted until 1952) which is slightly more than 18 months.
The biggest of all rallies came from July 8, 1932 to May 10, 1933. In just ten months or 202 trading days, the S&P 500 doubled from 4.41 to 8.82.
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Be Careful of Investing By Stock Screeners
Posted by Eddy Elfenbein on February 16th, 2011 at 9:00 amReaders often ask me what my “formula” is for investing. Honestly, I don’t have one. I like to keep it simple: I follow a small group of very strong companies and jump in when the price looks good. It’s nothing more complicated than that.
I think people find extra comfort when there’s some exacting formula like: “the dividend yield must be X or the P/E Ratio must be 0.7158 compared to its growth rate.”
The problem is that these numbers can lead you astray. That’s also why I’m leery of stock screeners. They can be interesting, but I’m careful not to place too much faith in them.
A good example is the stock Biogen Idec (BIIB). This is a terrific company and the profits are killing it right now.
When we look at Biogen we see strongly growing profits and that it’s trading at a reasonable earning multiple. The stock is going for 11.5 times this year’s earnings estimate and for 11.1 times the estimate for 2012.
Normally, that’s a fantastic bargain. The problem is that when we look more carefully at Biogen’s business, we can see several weaknesses. The company has been relying too much on price increases for growing their profits. That’s paying off handsomely now, but it’s very doubtful that this can last much longer.
In this case, the market is probably right to discount Biogen’s stock. Stock screeners don’t detect those problems. This is more commonly known as a Value Trap. That’s when you spot a stock that superficially appears to be cheap, but then you learn it’s cheap for a good reason.
Many of the stocks on the Buy List are in some way “damaged goods.” Deluxe (DLX) is a perfect example. The company has lots of problems and I don’t want to pretend it doesn’t. But in my opinion, the problems are manageable as opposed to a company like General Motors, where I’m afraid their problems are too deep to be manageable.
Are Biogen’s problems manageable? Perhaps, but I can’t say for sure. With investing, I never take a risk I don’t need to. All stocks are assumed to be “sells” until proven otherwise. That’s why I’ll keep a close eye on Biogen, but I’m not a buyer.
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Morning News: February 16, 2011
Posted by Eddy Elfenbein on February 16th, 2011 at 7:51 amBofE Governor King Says Bank of England May Keep Rate at Record Low for Months to Come
Gold Fluctuates Near 4-Week High on Inflation, Rate Concerns
America Accepts Defeat in NYSE Takeover
Confidence in Equities Among Global Investors at Record, BofA Merrill Says
Goldman Sachs Said to Have Been Warned of SEC Suit
Legal Fees at Fannie Are Called Avoidable
Sanofi Agrees to Buy Genzyme for at Least $20.1 Billion
Abu Dhabi to Purchase Outstanding Shares of Spain’s Cepsa for $5.4 Billion
Borders Files Bankruptcy as Expense Cuts Don’t Stem Losses
Dell Blows Past Targets, but Doubt Persists
World’s Largest Miner BHP in $80 Billion Expansion Spree, Puts Off Big Takeovers
Peltz’s Trian Offers to Buy Discounter Family Dollar for Up to $60 Per Share
Daimler’s Profit Misses Estimates on Mercedes Development Costs
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Earnings Season Details
Posted by Eddy Elfenbein on February 15th, 2011 at 7:28 pm4Q earnings season going strong, with 372 reports in, median surprise of 3.83% and surprise ratio of 3.44 for EPS, 1.40% and 2.33 for revenues.
Reported (372 firms) fourth quarter earnings growth of 27.4%, expected (128 firms) year-over-year growth of 34.1% for the firms yet to report. On the Revenue side, 8.50% growth reported, but decline of 2.50% expected for those yet to report.
Reported net margins (372 firms) rise to 9.65% from 8.22% a year ago, down from 9.93% in third quarter. Margins excluding financials rise to 8.54% from 7.76% last year and 8.67% in third quarter.
Net margins expected (128 firms) to expand to 6.29% (among those yet to report) from 4.57% a year ago, and from 6.09% in third quarter. Excluding Financials, margins expected to rise to 6.02% from 5.86% a year ago, but down from 6.19% in the third quarter.
Full-year total earnings for the S&P 500 expected to jump 43.8% in 2010, 14.9% further in 2011. Growth to continue in 2012 with total net income expected to rise 12.1%.
Total revenues for the S&P 500 expected to rise 6.42% in 2010, 5.28% in 2011, and 5.42% in 2012. Excluding Financials, revenues expected to be up 10.00% in 2010, 6.62% in 2011 and 5.74% in 2012.
Net Margins marching higher, from 5.88% in 2008 to 6.42% in 2009 to 8.68% expected for 2010, 9.47% expected for 2011 and 10.07% in 2012. Major source of earnings growth. Net margins ex-Financials 7.79% in 2008, 7.12% in 2009, 8.21% expected for 2010, 8.75% in 2011, and 9.29% in 2012.
Revisions ratio for full S&P 500 at 1.73 for 2011, at 1.82 for 2012, both very bullish readings. Ratio of firms with rising to falling mean estimates at 1.98 for 2011, 1.81 for 2012, also very positive readings. Total revisions activity still expanding, making the revisions ratios more significant.
S&P 500 earned $544.3 billion in 2009, expected to earn $785.5 billion in 2010, $902.7 billion in 2011. In 2012, the 500 are collectively expected to earn $1.012 Trillion.
S&P 500 earned $57.62 in 2009: $82.82 in 2010 and $95.17 in 2011 expected, bottom up. For 2012, $106.69 expected in an early read. Puts P/Es at 15.96x for 2010, and 13.89x for 2011 and 12.39x for 2012.
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Job Losses Were Even Worse Than Thought
Posted by Eddy Elfenbein on February 15th, 2011 at 3:11 pmThe government recently conducted its annual update to its benchmark for calculating nonfarm payrolls. As it turns out, the job losses were even worse than we originally were told.
Here’s a comparison of old and new (the jobs figures and in thousands):
From January 2008 to February 2010, the economy lost 8.75 million jobs.
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Is There a More Frivolous Columnist Than Paul Farrell?
Posted by Eddy Elfenbein on February 15th, 2011 at 2:35 pmThis column by Paul Farrell at MarketWatch is truly one of the most idiotic things I’ve read in a long time. Here’s the opener:
Fed boss Ben Bernanke is the most dangerous human on earth, far more dangerous than Hosni Mubarak, Egypt’s 30-year dictator, ever was. Bernanke rules a monetary dictatorship that will trigger the coming third meltdown of the 21st century.
But this reign of economic terror will end.
Just as Mubarak was blind to the economic needs of the masses and democratic reforms, Bernanke is blind to the easy-money legacy that’s set the stage for revolution, turning the rich into super rich while the middle class stagnates and peanuts trickle down to the poor.
Warning, Egypt also had a huge wealth gap before its revolution. Bernanke is the final egomaniac in America’s bubbling 30-year wealth gap, where the top 1% went from owning 9% of America’s wealth to owning 23% during this…
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JPM’s Investor Day
Posted by Eddy Elfenbein on February 15th, 2011 at 8:34 amJPMorgan Chase (JPM) is having its investor day today. TheStreet notes that Wall Street loves the stock. JPM has 28 “buy” ratings and five “holds.”
JPMorgan stands to benefit from every facet of economic growth, ranging from higher consumer spending to a buoyant equity market. However, the recent quarterly performance was bolstered by a net decrease in credit reserves to $33 billion. Although JPMorgan’s investment-banking revenue decreased 21% during the quarter, hurt by higher expenses, the bank ranked No. 1 for global fees. In contrast, the bank’s real estate portfolio produced a quarterly net loss of $823 million, an improvement from the $1.7 billion loss in the year-earlier quarter, but still a sign of weakness. JPMorgan boosted its allowance for loan losses on the Washington Mutual credit-impaired loan portfolio to $2.1 billion. JPMorgan bought WaMu in 2008.
JPMorgan’s diversified approach, particularly its retail and small-business exposure, is proving a superior strategy to the capital-markets exclusivity of Goldman Sachs (GS). Furthermore, loan modifications and amplified lending to small businesses has helped JPMorgan, which, like most too-big-to-fail institutions, accepted funds from the Troubled Asset Relief Program, or TARP, to restore its public image faster than peers. However, a recent suit against the company, alleging it complied in Bernie Madoff’s Ponzi scheme, has taken a PR toll as has admission that the bank wrongly overcharged thousands of military families, with members serving overseas, on their mortgages and improperly foreclosed on more than a dozen.
In the morning news, we pointed out that Marriott (MAR) is planning to split itself into two companies. I like to see when good companies split themselves up. Investors can often find good deals.
Recently, Motorola split itself into Motorola Mobility (MMI) and Motorola Solutions (MSI). I’ve written before that I highly doubt either company will keep Motorola in their names. Also, I think MSI will probably be the stronger performer.
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Morning News: February 15, 2011
Posted by Eddy Elfenbein on February 15th, 2011 at 7:34 amDeutsche Boerse, NYSE Boards to Vote Today on Combining
Asian Markets End Mixed: China Flat Despite Below-View CPI
Inflation Hits Nearly 5 Percent in China, With Food Costs Soaring
Bank of Japan Tones Up Economic Optimism, Keeps Rates on Hold
Train Strike Adds to Debt-laden Portugal’s Woes
Companies Raise Prices as Commodity Costs Jump
Bernanke Would Defend Lehman Actions to His `Deathbed’
FedEx Cuts Forecast, Citing Fuel and Weather
Elop, Ballmer Give Nokia-Microsoft Software Accord Hard Sell
Marriott to Split Into Two Companies
Paul Kedrosky: Google Goes After Content Firms Again
Joshua Brown: Advising Social Media Millionaires
Howard Lindzon: The Rich are Early and Late…Because They Can Afford to Be
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The Federal Reserve Pays More in Taxes than the Bottom Two-Thirds of American Earners Combined
Posted by Eddy Elfenbein on February 14th, 2011 at 10:28 pmHere’s a look at three sources of revenue for the federal government: individual income taxes, corporate income taxes and payments from the Federal Reserve. The chart is in billions of dollars and the numbers come from President Obama’s budget.
What’s fascinating is that the Fed’s payments are getting to be a hefty share of the government’s revenue (although the White House projects it will fall off soon). For 2010 and 2011, the Fed’s share is equal to 8.4% and 8.3% of individual income taxes respectively.
Given the heavily skewed nature of income taxes, the Federal Reserve pays more in taxes than a hefty slice of America.
We don’t yet have the income tax distribution figures for 2010. The latest are from 2008 and they show that the bottom 50% of taxpayers paid 2.7% of all income taxes. The second quartile (25% to 50%) paid 10.96% of all income taxes.
Assuming that same distribution held in 2010 and will hold in 2011, and by using some very rough interpolation, we can estimate that the Federal Reserve will probably pay more in taxes this year and last year than the bottom two-thirds of all Americans combined.
Update: David Merkel helpfully tweets: “The Fed doesn’t pay taxes; they remit excess seigniorage revenue to the Treasury, which they gather through punishment of savers.”
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Buffett Makes Some Moves
Posted by Eddy Elfenbein on February 14th, 2011 at 10:11 pmAccording to the latest filings, Warren Buffett has made some changes to his massive portfolio which included trimming two stocks on our Buy List (FISV and BDX).
Berkshire sold off 5 million shares of Bank of America Corp., 187,000 Comcast Corp. shares, 6.5 million Lowe’s Cos. shares and 3.6 million shares of Nike Inc.
Berkshire also unloaded 1.9 million shares of Becton, Dickinson & Co., 3.9 million shares of Fiserv Inc., 6.1 million shares of Nalco Holding Co. and 3.4 million shares of Nestle.
And Berkshire reduced its stake in Bank of New York Mellon Corp. just three months after it revealed a new investment of nearly 2 million shares in the bank. At year end, Berkshire held 1.79 million shares of BNY Mellon.
Besides investments, Berkshire owns more than 80 different subsidiaries, including clothing, insurance, furniture, utility, jewelry and corporate jet companies.
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