• Stocks Mirror Bonds
    Posted by on February 2nd, 2011 at 11:47 am

    Here’s an interesting chart. This shows the S&P 500 in black along with the long-term Treasury ETF (TLT). Viewed this way you can see that they’re almost perfect mirror images.

    Yesterday, the 30-year closed at a yield of 4.61%. That’s the second-highest yield in over nine months while the S&P 500 closed at its highest level since June 25, 2008.

    The message over the last few months is clear: stocks have been rising as bonds have been falling. As I wrote earlier, this is exactly what QE2 was supposed to do.

  • Gas Prices At Two-Year High
    Posted by on February 2nd, 2011 at 11:34 am

    Energy stocks have been doing very well lately as oil prices gradually climb higher. Thanks to the political unrest in Egypt, oil is currently around $91 per barrel which is just below a two-year high.

    There had been some concern that oil flows through the Suez Canal would be disrupted but it appears that that ain’t gonna happen.

    The problem with higher prices at the pump is that they act like an across-the-board tax increase on consumers.

    The folks at GasBuddy track prices at the pump and we can see that the actual price paid has nearly doubled in the last two years.

  • Dissecting AFLAC’s Results
    Posted by on February 2nd, 2011 at 10:34 am


    My favorite part was Becky Quick saying that AFLAC has 30 million shares outstanding and Amos replying that it’s close to 500 million.

    With a company like AFLAC, I don’t mind a small earnings miss. The earnings were still well within the company’s range. AFLAC had a very strong year.

    I was concerned about how much AFLAC’s shares would fall today. So far, they’re down about 3%. Any pullback is a good buying opportunity.

  • Morning News: February 2, 2011
    Posted by on February 2nd, 2011 at 7:47 am

    Oil Trades Near 28-Month High as Egypt Riots Add ‘Risk Premium’

    EU Leaders Plan Euro Pledge as Investors Bet on Debt Strategy

    Ireland Downgraded One Level to A- By S&P on Bank Bailout Costs

    China Is Poised to Raise Rates Again, Bankers Say

    Irish, Spanish Bonds Gain on Optimism Debt-Crisis Solution Can Be Struck

    Why York Capital Management’s Dinan Worries About Fate of Small Hedge Funds

    Dish Network to Buy Satellite Firm DBSD North America Inc. for $1 Billion

    Panasonic Profit Up On Japan Sales, But Outlook Unchanged

    EMI Taken Over by Citigroup in Deal to Write Off Debts

    Earnings Rebound at Nomura but Miss Expectations

    Unilever May Post Fastest Annual Growth of Polman’s Reign

    Leigh Drogen: The Absurdity of Making Brokers Into Fiduciaries

    Howard Lindzon: The Art of Jim Cramer

  • AFLAC Earns $1.33 Per Share
    Posted by on February 1st, 2011 at 4:31 pm

    After the closing bell, AFLAC (AFL) reported Q4 operating earnings of $1.33 per share which was two cents below Wall Street’s expectation.

    As I said before, I’m not terribly concerned with AFLAC’s earnings. Instead I was focused on earnings guidance for this year.

    Earlier, the company had said they expect operating growth to come in at the low end of their 8% to 12% target for 2011. For 2010, AFL’s operating earnings were $5.53 per share. Eight percent growth works out to $5.97 per share on a stock that closed today at $58.53.

    Basically, AFLAC isn’t telling us anything we didn’t already know or reasonably expect. In my book, no bad news is very good news for AFLAC. The stock is going for less than ten times the low end of the company’s estimate.

    This is the outlook section from today’s earnings report:

    Commenting on the company’s fourth quarter and full-year results, Chairman and Chief Executive Officer Daniel P. Amos stated: “Aflac had a very solid year from a financial perspective, despite ongoing challenges in the economic landscape. Our results were consistent with our guidance for the fourth quarter and the full year. Growth of operating earnings per diluted share was in line with our goal of a 9% to 12% increase before the impact of foreign currency.

    “Aflac Japan gets high marks for a great fourth quarter and year, following strong sales results in 2009. Our strategy of offering relevant products through an expanding distribution system contributed to sales results that exceeded our targets for two consecutive years. 2010 was the year of the bank channel, having secured buy-in from more than 90% of banks in Japan who’ve agreed to sell Aflac products. We have also customized our product portfolio to appeal to new market segments by enhancing the benefits of our existing product line. In addition, our Japanese operations continued to improve top-line growth throughout 2010, while the expansion of the profit margin also enhanced Aflac Japan’s earnings growth.

    “We are also pleased with the operations and financial results of Aflac U.S. As we discussed throughout 2010, sales growth in the United States was primarily held back by the ongoing weak economic environment. We believe Aflac U.S. sales have been impacted by consumer confidence and small business sentiment that continues to hover at low levels. While we remain cautious in our short-term sales outlook for Aflac U.S., our longer-term view has not changed. We believe the need for the products we sell remains very strong and we are taking measures to better reach potential customers through our product and distribution strategy. This includes broadening our product portfolio to include group products in addition to our traditional individually issued products.

    “Furthermore, our balance sheet remained strong throughout 2010, and we believe that our investment approach of effectively matching assets to policy liabilities is the most prudent approach for our policyholders and shareholders. More than anything, we have intensely focused on assessing our capital level. Aflac’s capital position from a U.S. regulatory standpoint steadily improved throughout 2010. Our goal was to end 2010 with a higher risk-based capital (RBC) ratio than our year-end 2009 RBC ratio of 479%. Although we have not yet finalized our statutory financial statements, we estimate our 2010 RBC ratio exceeded 580%. I believe our ability to maintain a strong RBC exemplifies our effective capital management strategy.

    “Our decision as to whether to increase the dividend or repurchase our shares is a function of our capital position. As a result of strong capital levels and solid financial strength, I am pleased 2010 marked the 28th consecutive year Aflac has increased cash dividends. Our capital position also gave us the confidence to resume our share repurchase program, and we purchased two million shares in the fourth quarter. We anticipate repurchasing six to 12 million shares in 2011.

    “As we look ahead to 2011 sales opportunities in the United States, with the unemployment rate showing little sign of improvement and the confidence of consumers and employers remaining relatively low, we expect sales to be flat to up 5% for Aflac U.S. In Japan, with two consecutive years of strong sales results, we expect sales to be in the range of down 2% to up 3%.

    “As I commented in our third quarter release, we will likely be at the low end of the 8% to 12% range for operating earnings per share growth in 2011. Although interest rates have increased somewhat in the United States recently, they have not increased as much in Japan, and yen yields remain very low. If we assume 8% earnings per share growth, we would earn $5.97 per diluted share, excluding the impact of the yen. If the yen averages 80 to 85 to the dollar for the full year, we would expect reported earnings to be in the range of $6.09 to $6.34 per diluted share.”

  • S&P 500 Breaks 1,300 Again
    Posted by on February 1st, 2011 at 11:08 am

    Fiserv (FISV), Leucadia National (LUK) and Nicholas Financial (NICK) are all at new highs today.

    On top of that, AFLAC (AFL) is very close to a new high.

    The S&P 500 got as high as 1,302.63 which is just 0.04 shy of the 29-month high.

  • $45 Per Share? Yes We Can!
    Posted by on February 1st, 2011 at 10:45 am

    Guess what stock is up 172% since Obama became president?

    Answer = Haliburton (HAL). It’s at another 52-week high this morning.

  • January ISM = 60.8
    Posted by on February 1st, 2011 at 10:14 am

    Wow. The ISM was very strong. The index for January hit 60.8 up from 58.5 in December.

  • Another Look at the Cyclical Top
    Posted by on February 1st, 2011 at 9:54 am

    On January 10th, the ratio of the Morgan Stanley Cyclical Index (^CYC) to the S&P 500 reached an all-time high of 0.844.

    Then from January 11th to January 21st, the CYC underperformed the S&P 500 for seven-straight sessions. This lead me to say that cyclicals were probably headed for a long period of underperformance.

    The CYC responded by beating the S&P 500 for four-straight days before getting crushed on Friday. That turned out to be the CYC’s worst relative performance in over five months.

    The CYC looks to outperform the S&P 500 again today. Here’s an updated look at the CYC divided by the S&P 500:

  • Waiting on AFLAC and the ISM
    Posted by on February 1st, 2011 at 9:09 am

    Yesterday, the Dow closed out its best January in 14 years. Today, the focus will be on the ISM report which is due out later this morning and AFLAC’s earnings which are due after the bell.

    The current estimate for the ISM Index is 57.5 which sounds about right. As I’ve mentioned before, the ISM is probably one of the best indicators that tells us if we’re in a recession or not.

    The index is wired so that any reading above 50 indicates that the economy is expanding and any reading below 50 signals a contraction. NBER, the folks who date recessions, have shown a strong tendency to declare months below 45 as recessions. In the chart below, notice how strongly declines in the ISM correspond with recessions (the grey bars).

    January will most likely be the 18th-straight month of a 50+ reading. What I especially like about the ISM is that it comes out on the first business day of the month, and there aren’t endless revisions.

    We’re also going to get a report on construction spending plus auto and truck sales.

    The economic news that came out yesterday was very encouraging. The Chicago PMI, which gauges economic activity, jumped to its highest level since 1984. For January, the index hit 68.8 up from 66.8 in December.

    The Commerce Department reported that personal incomes rose 0.4% in both November and December. The problem is that spending rose by 0.7% in December and 0.3% in November.

    The numbers showed that Americans saved $613 billion in December which was a drop of $20 billion from November. The savings rate fell from 5.5% to 5.3%. This data series will get a jolt this year thanks to the 2% cut in payroll taxes which began on January 1st.