Morning News: April 26, 2011
Posted by Eddy Elfenbein on April 26th, 2011 at 7:33 am

Canadian Banks Aren’t Cracking China

Greek 2010 Budget Deficit Revised Higher

Most European Stocks Climb as UBS Surges; U.S. Futures Advance

Dollar Falls on Speculation Fed May Keep Supporting Economy After QE Ends

US Stock Futures Post Modest Gains Ahead Of Ford Earnings, FOMC

Gold Dips; Silver Partly Recovers From Asia Swoon

Oil Drops From 31-Month High as Saudi Arabia Signals Discomfort With Price

ICE, Nasdaq: Explain Rival Deal’s New Synergies

Biggest Banks Beating Estimates Can’t Hide 13% Drop in Revenue

Smaller Cars Lift Ford’s Profit to $2.55 Billion

UBS Attracts Highest Inflows Since 2007 as Profit Tops Estimates

Netflix 1Q Net Soars But 2Q Outlook Disappoints

Minmetals Drops Equinox Bid After Being Trumped by Barrick’s $7.68 Billion

Aegon Sells Transamerica Re

APPARENTLY QE2 IS “DISAPPOINTING”…

Joe Weisenthal: What I Read

Joshua Brown: Thirty Two New ETFs in Three Days

Paul Kedrosky: How Gold Compares to Past Bubbles

Department of Awesome Ticker Symbols
Posted by Eddy Elfenbein on April 25th, 2011 at 9:56 pm

The new iPath Pure Beta Precious Metal ticker symbol = BLNG.

(HT: StockJockey)

Shiller Vs. Seigel
Posted by Eddy Elfenbein on April 25th, 2011 at 7:02 pm

I find this discussion frustrating because I disagree with both parties on major points. Having said that, I think that Professor Seigel has the better argument.

I’ve often criticized Professor Shiller’s attachment to the 10-year P/E Ratio, which he calls the Cyclically Adjusted P/E Ratio (or CAPE). The problem is that both stock prices and earnings are cyclical so it makes sense that their valuation metrics should be cyclical as well.

The other problem with looking so far back into the past is that the CAPE begins to tell you less about current valuations and more about the past earnings trend. Professor Seigel makes this point and he’s correct: the elevated CAPE highlights how poor earnings have been since 2001. I don’t know how that portends a poor-performing stock market.

The other issue is that many people don’t see what Professor Shiller is doing. He makes it clear that he’s not trying to predict market tops or bottoms. He’s trying to assess a very long-term market outlook. This is something he makes very clear yet he’s earned a reputation for making accurate market calls which he never has.

If you followed CAPE you would have missed out on much of the greatest buying opportunity of the last 70 years. Shiller was bullish during part of the run but he turned cautious very early. In fact, Shiller is routinely credited for being accurate when he’s really being consistently cautious.

Don’t get me wrong — I think Shiller’s goal of making long-term assessments of the market is important. But I’m far more concerned with the question of where the stock market (and individual stocks) should be priced right now.

Personally, I think the yield curve does a better job than the P/E Ratio does.

More: Megan McArdle takes Shiller’s side.

Supply of New Homes Is Lowest Since August 1967
Posted by Eddy Elfenbein on April 25th, 2011 at 10:45 am

Check out today’s housing report. The supply of homes on the market is at its lowest since since August 1967. Yet prices are still down from a year ago!

The Commerce Department said on Monday sales rose 11.1 percent to a seasonally adjusted 300,000 unit annual rate, after an upwardly revised 270,000 unit pace in February.

Economists polled by Reuters had forecast new home sales climbing to a 280,000-unit pace last month from a previously reported record low 250,000 unit rate.

Compared to March last year sales were down 21.9 percent.

The market for new homes is being squeezed by competition from previously owned homes and a deluge of foreclosed properties, even though inventories of new houses are at a 43-1/2 year low.

A report last week showed there were 3.55 million previously owned homes on the market in March, well above the economy’s natural rate of between 2 million and 2.5 million.

When foreclosed homes and those that are highly delinquent are taken into account, economists say supply is anywhere in the range of 8 million to 9 million.

The median sales price for a new home rose 2.9 percent last month to $213,800 from February. Compared with March last year, the median price fell 4.9 percent.

Ford Earnings Preview
Posted by Eddy Elfenbein on April 25th, 2011 at 8:33 am

Three months ago, Ford reported terrible earnings. Part of the reason is that the company didn’t “manage” its expectations well. That’s why Wall Street felt so let-down. The next earnings report is due out tomorrow.

Ford Motor Co. (F), the second-largest U.S. automaker, may report its largest first-quarter profit since 1998 tomorrow as fuel-efficient new models helped sales gain amid surging U.S. gasoline prices.

Profit excluding some items may have climbed to 50 cents a share, according to the average of 14 analysts’ estimates, from 46 cents a year earlier. Net income may have risen to $2.1 billion, the average of three analysts’ estimates compiled by Bloomberg, and the most since a $17.6 billion profit in the first quarter of 1998.

Chief Executive Officer Alan Mulally has worked to boost fuel economy, and sales of more efficient new models such as the Fiesta subcompact and Explorer sport-utility vehicle have risen as gas prices gained this year. Investors remain concerned that surging fuel costs may hurt consumer confidence and car sales, said Gary Bradshaw, a fund manager at Hodges Capital Management.

“I don’t feel as good as I would if I was filling up at the pump for $2.89 instead of $3.89 a gallon,” said Bradshaw, whose Dallas-based firm owns about 200,000 Ford shares. “I still think Ford’s lineup will weather the storm. They’re better prepared this time.”

The Rise in Gasoline Prices
Posted by Eddy Elfenbein on April 25th, 2011 at 8:01 am

Here’s a look at the recent run-up in gasoline prices at the pump. This is an average from GasBuddy.com.

In states with higher taxes and stricter standards, prices at the pump are even higher. Higher gas prices act like a regressive tax on American consumers, and that hinders economic growth.

Morning News: April 25, 2011
Posted by Eddy Elfenbein on April 25th, 2011 at 7:44 am

Policy Worries Hit Shanghai; Earnings Concerns Dog Tokyo

China Yuan Falls By Daily Limit Against Dollar Late; Uptrend Still Likely

Dollar Vulnerable, Aussie Hits New 29-year High

Philippine Peso, Bonds Advance as Fed Policy Weakens U.S. Dollar

Nasdaq Faces Schumer Inquiry in Bid for NYSE Euronext, WSJ Says

Silver Surges 5% on Dollar and Gold at Record

Crude Oil Higher In Asia; Dollar Down Before Fed Meet

U.S. S&P 500 Index Futures Advance Before New Home Sales Data

Sales of New Homes in U.S. Likely to Climb From Record Low

Toyota Leads Japan Automakers’ Drop in Output After Quake

Corn Seen Topping Wheat, Raising Tyson Costs, Helping Syngenta

Apple’s iPad Miss Prompts Cuts in Forecast

Chinese Internet Portal Sohu.com Net Rises 48%

B/E Aerospace 1Q Net Up 49% On Higher Sales; Outlook Raised

Howard Lindzon: The Bull Market is Here to Stay and Silicon Valley to Pave Streets With Gold and Silver

Joshua Brown: Become a Macro Strategist in Five Easy Steps!

Royal Wedding Prop Bets
Posted by Eddy Elfenbein on April 24th, 2011 at 10:33 am

There’s a market for everything:

What color hat will the Queen wear at the Wedding of Prince William and Kate Middleton?

Yellow 2/1
Blue 3/1
Pink 5/1
Purple 6/1
Cream/Beige 7/1
White 9/1
Apricot 10/1
Green 10/1
Red 12/1
Orange 14/1
Brown 16/1
Black 20/1
Grey 20/1

Will Prince William and Kate Middleton’s first child be a boy or a girl? (must have a child for action)

Boy -105
Girl -105

Will Prince William and Kate Middleton’s first pregnancy result in twins? (must have a child for action)

Yes +2500
No -5000

Which couple will have a child first? (must have a child for action)

Prince William and Kate Middleton -120
Zara Phillips and Mike Tindall -120

When will Prince William and Kate Middleton’s first have a child?
(must have a child for action)

Before January 1st 2013 -120
After January 1st 2013 -120

Will Kate Middleton’s Say the word “obey” in her vows?

Yes -135
No -105

Which of these guests will be seen crying during the ceremony? (tears must be visible for winner)

Carole Middleton (Mother of Kate) 3/2
Philippa Middleton (Sister of Kate) 5/2
Michael Middleton (Father of Kate) 10/1
The Queen 12/1
Prince Charles 25/1
Prince Harry 25/1
Prince Philip 25/1

What will be the total estimated Worldwide TV viewers of the wedding? (according to BBC)

Over 1.75 Billion -120
Under 1.75 Billion -120

Will the Wedding Car break down on the way to Westminster Abbey? (according to BBC)

Yes +5000

Will Prince Harry (Best Man) drop the Wedding Ring during the Ceremony?

Yes +2500

What will be the color of the first bikini shot on Honeymoon worn by Kate Middleton? (photo must be taken and published in British newspapers)

White 2/1
Black 5/2
Blue 5/1
Cream/Beige 6/1
Green 8/1
Red 8/1
Yellow 12/1
Any other color 2/1

What color dress will Victoria Beckham wear to the wedding?

Grey 5/2
Purple 3/1
Any other color 4/1
Brown 5/1
Cream/Beige 5/1
Blue 7/1
White 7/1
Green 12/1
Red 12/1
Yellow 12/1
Pink 14/1

Who will catch the wedding bouquet at the Royal Wedding? (no action if outcome cannot be found, all wagers have action)

Philippa Middleton 11/1
Chelsea Davy 15/1
Princess Beatrice 15/1
Princess Eugenie 15/1
Sarah Ferguson 25/1

Will Kate Middleton get the order of Prince William’s names wrong during the vows?

Yes +2000

Will an objection be raised to the marriage during the vows?

Yes +10000

Will Prince Harry Forget the Wedding Rings?

Yes +10000

Will Kate Middleton jilt Prince William at the altar?

Yes +50000

How long will Prince William and Kate Middleton’s first kiss be after they tie the knot?

0-3 Seconds -130
3.01-6 Seconds +110
6.01-10 Seconds +500
10.01 Seconds to 1 minute +2500
Over 1 minute +25000

What will be the estimated crowd number to line the route to Westminster Abbey? according to BBC)

Over 3 Million -115
Under 3 Million -115

Simon’s Cat: ‘Hop It’
Posted by Eddy Elfenbein on April 22nd, 2011 at 6:58 pm

CWS Market Review – April 22, 2011
Posted by Eddy Elfenbein on April 22nd, 2011 at 10:27 am

First-quarter earnings season is kicking into high gear and, so far, Wall Street likes what it sees. The S&P 500 has rallied strongly for the last three days. In fact, the index is getting close to its pre-quake high.

The Dow, which isn’t as cyclically focused as the S&P 500, has already broken those highs. On Thursday, the Dow closed at 12,505.99 which is its highest close since June 5, 2008.

To give you some context on what Dow 12,500 means, the Dow first closed over 12,500 in late 2006. Going back in time, the Dow first broke 125 in 1925 and it first cracked 1,250 in 1983. That’s 58 years to grow 10-fold, followed by another 28 years to grow 10-fold. A 100-fold gain over 86 years works out to about 5.5% per year.

To give you an example of how well this earnings season is going, General Electric ($GE) not only beat earnings but the company raised its dividend for the third time since July. The overall numbers are still early but this is shaping up to be the ninth-straight earnings season in which results have topped expectations. So far, 137 companies in the S&P 500 have reported and earnings are up 18.2%. Three out of every four reports have exceeded analysts’ expectations.

Much of the gains in equities have been tempered by the rapid run-up in the price of gold. Twelve years ago, gold got as low as $251 per ounce. Now, it’s over $1,500 per ounce. And as strong as gold has been, silver has been even stronger. May silver futures got as high as $46.40. That’s a 31-year high! Silver hasn’t been this high since the Hunt brothers tried to corner the market.

Bespoke Investment Groups notes that the gold-to-silver ratio is now down to 32. Just two years ago, it was at 80. Wow! (Plato said the ratio was 12 in his day.) Over the last ten years, silver is up 937%! If silver continues like this, it could replace gold for first place medal at the Olympics.

As I’ve written before, gold has historically been very sensitive to short-term interest rates. As long as short-term rates are negative, the outlook for gold remains bright. The danger is that if the Federal Reserve increases rates before the market expects it to, which I think is very likely, gold may take a big fall. The dollar just fell to a 15-month low versus the euro.

Speaking of the Fed, they meet again next week. Don’t expect to hear any major news on interest rates. But next Thursday, we’ll get our first look at the Q1 GDP report. The Street has already convinced itself that the report is going to be lousy, and there certainly are a lot of reasons to be down on the economy. But if GDP growth comes in stronger-than-expected (the current consensus is for 1.7% which strikes me as a bit of low-balling), the Fed may decide to turn the money spigots down from max speed. Some Wall Streeters now think a Fed rate increase could come next year.

Before we turn to our Buy List, let me direction your attention to two free reports courtesy of the good folks at Money Morning. The first explains why silver will outperform gold by 400% (yes, 400%).

The other report is about the investment potential of shale. Consider this: There’s nearly 700 trillion cubic feet of shale gas in the United States-or more specifically, under the United States. Fracking technology is radically changing the rules (and economics) of the game. Check out Dr. Kent Moors’ report on Shale Gas & Fracking. Once again, both reports are completely free. I strongly urge you to get a copy.

Now let’s turn to our Buy List which continues to do very well for us. Through Thursday, our Buy List is up 9.73% for the year which is 3.39% more than the S&P 500. A few of our recent earnings stars like Oracle ($ORCL) and Bed Bath & Beyond ($BBBY) have been making new highs. Also, we’ve had a slew of good earnings this week (plus one clunker).

Let’s start with the good news. We saw positive earnings reports from Johnson & Johnson ($JNJ), Stryker ($SYK), Abbott Laboratories ($ABT) and Reynolds American ($RAI). JNJ topped Wall Street’s consensus by nine cents per share while the other three all beat consensus by a penny per share.

More importantly, these Buy List stocks are also reiterating their previous full-year forecasts. Too many investors ignore or downplay these types of announcements. Not me. It’s always nice to hear from your companies that they’re comfortable with their previous forecasts.

Abbott Labs, for example, said it’s sticking with its full-year guidance of $4.54 to $4.64 per share. Sure, the year is still young, but let’s break out some math. This forecast means the shares are going for about 11 times forward earnings. That’s not me or some analyst calling this; it’s the company itself. Plus, ABT has a pretty good track record on delivering what they say. On top of that, ABT currently yields 3.71%. In February, the company increased its dividend for the 39th year in a row. There aren’t many companies with track records like that. Thanks to the earnings report, I’m bumping up my buy price on Abbott Labs from $48 to $52. ABT is a very strong buy.

Reynolds American reiterated its full-year guidance of $2.60 to $2.70 per share. (BTW, I’m becoming major BFFs with that 53-cent quarterly dividend which now yields us over 5.8%.) RAI is an excellent buy anytime the price is below $38 per share.

Stryker had, in my opinion, the most bizarre reaction to its earnings report. The company earned 91 cents per share which was a penny higher than expectations. The company also maintained its full-year EPS guidance of $3.65 to $3.73. Yet the shares responded by dropping by 4.4% on Wednesday. Apparently, investors were a bit rattled by weak knee and hip sales. Personally, I’m not at all worried. I’m fully confident that the Baby Boomers will soon be lining up to buy new joints at the same rate they bought other types of joints back in the 1960s. If you don’t already own Stryker, this is a good time to take advantage of the pullback. SYK is a very solid buy up to $60.

I was very pleased to see JNJ raise its full-year EPS guidance. The earlier guidance was $4.80 to $4.90. Now it’s $4.90 to $5.00. Look for the company to raise its dividend soon which will be the 49th-straight yearly increase. JNJ is a conservative buy up to $65.

We did have one clunker-don’t think I forgot-and that was Gilead Sciences ($GILD). Gilead reported Q1 earnings of 87 cents per share which was 10 cents below Wall Street’s consensus. Ouch!

Shares of GILD got whacked for a 4.22% loss on Thursday. I’m not pleased with the results but there are a few bright spots. One is that the company is maintaining its full-year sales guidance of $7.9 billion to $8.1 billion. Secondly, GILD was already going for a low valuation. This week’s announcement raises the trailing P/E Ratio from 11 to 11.4 which is hardly dramatic. I’m not pleased with GILD’s results but the stock still looks favorable in relation to its risks. GILD is good opportunity for patient investors below $38 per share.

Looking ahead to next week, we’re going to get earnings reports from Ford ($F), Becton, Dickinson ($BDX), AFLAC ($AFL), Fiserv ($FISV) and Deluxe ($DLX). I expect good earnings from all of these stocks, and in particular, I’ll be looking out for higher earnings guidance.

I want to highlight two of these stocks-Deluxe and AFLAC. Deluxe already told us to expect earnings to range between 69 cents and 73 cents per share. Look for an earnings surprise here. My numbers say to expect at least 75 cents per share. For AFLAC, simply put, the stock is very inexpensive. The earthquake and tsunami in Japan scared Wall Street in a major way. The company has made it abundantly clear that it’s still doing well. Make no mistake: AFLAC is a very well-run ship. Next week, we’ll see the proof.

That’s all for now. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!