Morning News: April 14, 2011
Posted by Eddy Elfenbein on April 14th, 2011 at 7:32 am

BRIC Leaders Say Increasing Commodity Prices Pose Threat to Global Growth

Yuan Advances to 17-Year High on Speculation Tightening Likely

Greek Debt Pressured by Restructuring Speculation

U.S. Commodities Day Ahead: Gold Gains on Japan, Libya, Prices

Obama Sets Deadline for Deficit Deal in Challenge to Republicans

U.S. Economy: Retail Sales Rise for Ninth Straight Month

To Sweeten Deal, NYSE Considers a Dividend

Goldman Sachs Misled Congress After Duping Clients: Sen. Levin

Vows of Change at Moody’s, but Flaws Remain the Same

Glencore Starts $11 Billion IPO as Goldman Sachs Says Abandon Commodities

ProLogis to Make Bid for PEPR Valuing Fund at $1.7 Billion

Roche Sales Fall 9% on Stronger Franc

Lower Reserves Drive J.P. Morgan Profit

Joshua Brown: Peak Fish and Other Insights from Agriculture 2.0

James Altucher: How I Helped Mark Cuban Make a Billion Dollars and 5 Things I Learned from Him

Putting the Budget Into Context
Posted by Eddy Elfenbein on April 13th, 2011 at 9:12 pm

Philip Greenspun puts the the budget deficit into easier-to-grasp context: just divide everything by 100,000,000:

We have a family that is spending $38,200 per year. The family’s income is $21,700 per year. The family adds $16,500 in credit card debt every year in order to pay its bills. After a long and difficult debate among family members, keeping in mind that it was not going to be possible to borrow $16,500 every year forever, the parents and children agreed that a $380/year premium cable subscription could be terminated. So now the family will have to borrow only $16,120 per year.

The Decline In Day-to-Day Correlation
Posted by Eddy Elfenbein on April 13th, 2011 at 3:24 pm

Yesterday, I posted a round-up of some research I had done on Calendar Effects on the stock market.

I noted that I had been impressed by the correlation in the market’s day-to-day returns. In simple terms, what the market does on one day, it has been very likely to do on the next day.

This relationship, however, is more complicated than I thought. In the years just before World War II, the day-to-day correlation was absent. In fact, it was slightly negative. After the war, the correlation grew and it reached a high point between the Kennedy Assassination and the market plunge of 1973.

Here’s a look at the day-to-day correlation for changes in the S&P 500 for rolling periods of 1,000 trading days which is roughly four years (though it’s a little shorter before 1950 due to Saturday trading).

From mid-1968 to mid-1972, the correlation was an amazing 0.35. After that, things started to change and the correlation gradually sank. By the time of the 1987 crash, the day-to-day correlation was effectively zero.

Correlation hasn’t merely declined but it’s actually started to appear again, just headed in the other direction. From 2003 through 2010, the correlation has been -0.12.

General Electric’s Tax Payment Hoax
Posted by Eddy Elfenbein on April 13th, 2011 at 12:21 pm

Earlier today, some media outlets picked up a hoax story that General Electric ($GE) was going to pay the government its $3.2 billion tax refund.

The hoax press release, which you can see here, claimed that GE CEO Jeffrey Immelt had informed the Obama administration that his company was returning $3.2 billion to the Treasury and “will furthermore adopt a host of new policies that secure its position as a leader in corporate social responsibility.”

The release included what seem to be some pretty obvious fake quotes, including this, attributed to Immelt: “All seven of our foreign tax havens are entirely legal. But Americans have made it clear that they deplore laws that enable tax avoidance. While we owe it to our shareholders to use every legal loophole to maximize returns – we also owe something to the American people. We didn’t write the laws that let us legally avoid paying taxes. Congress did. But we benefit from those laws, and now we’d like to share those benefits.”

The AP nonetheless ran a four-paragraph story that began, “Facing criticism over the amount of taxes it pays, General Electric announced it will repay its entire $3.2 billion tax refund to the US Treasury on April 18.”

The hoax was put out by some left-wing group. I honestly don’t understand what point they were trying to make. If anything, the idea of a company trying to buy the public’s affection with a tax payment needs to be spoofed as much as any corporate tax policy.

But let’s look past that and look at the numbers. A $3.2 billion check from GE would work out to about 30 cents per share. Meanwhile, GE’s stock has lost $40 per share (that’s 4,000 cents) over the last 10-and-a-half years.

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

JPMorgan Chase Earns $1.28 Per Share
Posted by Eddy Elfenbein on 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
Posted by Eddy Elfenbein on 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
Posted by Eddy Elfenbein on 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
Posted by Eddy Elfenbein on 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
Posted by Eddy Elfenbein on 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.