• “Parasites who persistently avoid either purpose or reason perish as they should”
    Posted by on April 15th, 2011 at 2:14 pm

    The movie Atlas Shrugged is opening this weekend. The book came out in 1957 and it was absolutely panned by critics.

    Some of the readers didn’t like the criticism. Here’s one such response:

    November 3, 1957:

    To the Editor:

    Atlas Shrugged is a celebration of life and happiness. Justice is unrelenting. Creative individuals and undeviating purpose and rationality achieve joy and fulfillment. Parasites who persistently avoid either purpose or reason perish as they should. Mr. Hicks suspiciously wonders “about a person who sustains such a mood through the writing of 1,168 pages and some fourteen years of work.” This reader wonders about a person who finds unrelenting justice personally disturbing.

    Alan Greenspan, NY

    Yes, this is real.

  • Elmo Talks Money
    Posted by on April 15th, 2011 at 1:01 pm

    It’s scary how many adults need these kinds of lessons.

  • The CPI Report for March
    Posted by on April 15th, 2011 at 10:48 am

    Today’s CPI report said that headline inflation rose 0.5% in March which was inline with economists’ expectations. The core rate rose by 0.1% which was half of what was expected.

    Economists were expecting headline inflation to rise 0.5% and core inflation to rise 0.2%.

    With my blog I like to find the stats behind what’s reported by the media. Breaking out the decimals, we see that headline inflation actually rose by 0.549% for March. In other words, the CPI was just a teeny tiny bit from rounding up to 0.6%.

    While it’s really not that big of a deal, and we should laugh at the idea of the government’s measurements being so accurate, if the media had said that headline inflation rose by 0.6% in March, I think the market’s behavior would be very different today.

    Breaking out the core rate, we see that it rose by 0.135% in March which is still below the 0.2% expected by economists but not as much as the media reports would lead us to believe.

    By the way, those numbers are seasonally adjusted. The non-seasonally adjusted headline rate, rose by an annualized rate of 12.35%.

    Here’s a look at the annualized monthly core seasonally-adjusted inflation rate:

  • Morning News: April 15, 2011
    Posted by on April 15th, 2011 at 7:33 am

    Eurozone Inflation Continues To Surge And It’s Not Just Food And Fuel Anymore

    Moody’s Cuts Ireland Rating Two Levels, Outlook Negative

    Greece Will Cut Spending, Sell Assets to Meet Debt Goal; Won’t Restructure

    China Vows to Punish Those Responsible for Leaking Economy, Inflation Data

    Singapore’s Policy Tightening May Prompt Asia to Step Up Inflation Fight

    World Bank and I.M.F. Discuss Inequality in Middle East

    U.S. Wholesale Prices Rise 0.7% in March

    Nestle Sales Beat Analyst Estimates on Emerging Markets

    High Costs Slow Google’s Profit

    BofA Earnings Miss Big, And The Stock Is Slipping

    Mattel Profit Drops 33% as Costs Rise

    Zipcar Opens Up 67% Post-IPO

    Pressure to Unwind CVS Merger

    Paul Kedrosky: Shutdowns and Foreign Debt

    James Altucher: How Kai Fu Lee Talked Me Out of Making a Million Dollars

  • Microsoft Looks Very Cheap
    Posted by on April 14th, 2011 at 1:40 pm

    If you’re looking for a good stock to buy, I just noticed that there’s some sort of software outfit in the Seattle area. Here’s a look at Microsoft‘s ($MSFT) stock and its EPS line.

    The stock line is in blue and if follows the left scale. EPS is in gold and it follows the right. The two lines are scaled at a ratio of 15-to-1. The forward earnings represent Wall Street’s consensus.

    Microsoft is currently expected to earn $2.63 per share in this calendar year which means the stock is trading at about 9.6 times this year’s estimate.

    The S&P 500 is expected to earn 96.69 this year which means it’s trading at 13.5 times this year’s estimate. That means MSFT is going for a 29% discount to the market’s valuation.

    On top of that, MSFT is holding $4.76 per share in cash which generates almost no income. This means that the “operations” assets of Microsoft are probably going for around eight times earnings.

  • What Number for the Equity Risk Premium?
    Posted by on April 14th, 2011 at 12:11 pm

    I’ve often said that the equity risk premium is probably a lot lower than most people realize. This is the amount that investors pay to own stocks over the risk-free rate of Treasury bills.

    Some academics decided to do a broad survey to see what others think:

    US Market Risk Premium Used in 2011 by Professors, Analysts and Companies: A Survey with 5.731 Answers

    The average Market Risk Premium (MRP) used in 2011 by professors for the USA (5.7%) is higher than the one used by analysts (5.0%) and companies (5.6%). The standard deviation of the MRP used in 2011 by analysts (1.1%) is lower than the ones of companies (2.0%) and professors (1.6%). Most previous surveys have been interested in the Expected MRP, but this survey asks about the Required MRP. The paper also contains the references used to justify the MRP, comments from 58 persons that do not use MRP, and comments of 110 that do use MRP. The comments illustrate the various interpretations of the required MRP and its usefulness.

    Professors, analysts and companies that cite Ibbotson as their reference use MRP for USA between 2% and 14.5%, and the ones that cite Damodaran as their reference use MRP between 2% and 10.8%.

    Wow, the professors think it’s 5.7%! That’s quite high — and it’s down from 6% in 2010.

    My preference is to see what investors demand to own stocks over long-term Treasuries, and I think that’s probably around 1.5% to 2%.

  • The Truth About JPM’s Dividend Plans
    Posted by on April 14th, 2011 at 10:26 am

    Sometimes I’m simply baffled by what gets reported in the news. Yesterday, JPMorgan Chase ($JPM) reported good earnings and at one point, the stock got over $47 per share.

    The shares, however, slid during the rest of the day and close at $46.25. The stock is down close to $1 today.

    The media reported that the stock fell after Jamie Dimon said not to expect another dividend increase. Here’s what the FT had to say:

    Shares in the group were initially up 1.4 per cent, but retreated after Jamie Dimon, the chief executive, said the company would see no further dividend increases for several quarters. The shares finished 0.8 per cent lower at $46.25.

    Let’s make something perfectly clear — there was absolutely nothing negative in what Dimon had to say. JPM has historically increased its dividend for Q1, and that’s exactly what they did. They raised the dividend from five cents per share to 25 cents per share.

    Dimon said they need approval for another increase. He didn’t at all say it had to do with a lack of profits. Also, whether they pay the dividend or not has zero baring on the stock’s return to investors.

    The only reason for the stock to be down is if there was some reason to believe that the profits would be down, and Dimon said nothing like that.

    This is from TheStreet:

    “I wouldn’t look for a dividend increase the next couple of quarters,” Dimon said on the earnings call, in response to an analyst question. “We would have permission to do a little bit more on the dividend, but we would have to ask regulators for an increase in this environment.”

    That’s it. That’s all he said. If you knew nothing about JPM but its dividend history, you wouldn’t expect another dividend increase so soon. But you’d probably expect one a year from now. How could anyone read something negative into that? I have no idea but sometimes on Wall Street, the rule is sell first and ask questions later.

  • The Cyclicals Are Trailing Again
    Posted by on April 14th, 2011 at 10:11 am

    I often talk about looking at the relative performance of cyclical stocks versus the rest of the market. I think this is an important indicator of what the market is thinking.

    The ratio of the Morgan Stanley Cyclical Index ($CYC) to the S&P 500 reached a top in early January and another in mid-February. The CYC is trailing the market for the seventh day in a row.

    This is very important because these cycles tend to last for years once they get started. If the Dow had kept pace with the CYC since the March 2009 low, it would be close to 25,000 today.

  • Ford Expands Recall of F-150
    Posted by on April 14th, 2011 at 9:47 am

    Shares of Ford ($F) are down again today. The company just announced that it’s expanding its recall of F-150 trucks due to problems with the airbag.

    The recall covers trucks from the 2004 through 2006 model years. Ford’s F-Series pickup is the top-selling vehicle in America.

    The company in February agreed to recall more than 150,000 of the trucks. But on Thursday U.S. safety regulators said that Ford will add to the recall because the trucks’ air bags can go off unexpectedly and injure drivers.

  • 2010 Leucadia Shareholder Letter
    Posted by on April 14th, 2011 at 9:17 am

    The latest shareholder letter is out. If you own shares of LUK, I recommend giving it a read. Cumming and Steinberg lay out what they’ve been up to in an easy-to-follow way.