S&P 500 = 1,310
Posted by Eddy Elfenbein on April 12th, 2011 at 11:25 am

So far today, it’s a soggy day on Wall Street. The S&P 500 is off by a little over 1%. Once again, the cyclicals are leading the market lower. A few weeks ago, I talked about how the leadership of the cyclicals was coming to an end. Since then, the Morgan Stanley Cyclical Index ($CYC) largely kept pace with the market, but it started to break down yesterday. As I’ve said before, the cyclicals tend to move in…well, cycles. Once a trend gets started, it often lasts for a long time.

The good news is that although the Buy List is down today, it’s still running ahead of the market. This is because we don’t have as many cyclical stocks as the broader market. That really helped us yesterday. The S&P 500 dropped by 0.28% while our Buy List rose by 0.41%.

Let me say a few words about trading Nicholas Financial ($NICK). The stock traded as high as $12.99 yesterday but I think it was simply due to the internal mechanics of trading. The stock then traded at $12.32 before closing at $12.70. Today, it went back to $12.31 and is now at $12.50. Don’t be fooled into thinking there’s something more going on. The stock is absorbing more volume and is hence showing more volatility. I expect more good news from NICK when it reports earnings again in a few weeks.

Morning News: April 12, 2011
Posted by Eddy Elfenbein on April 12th, 2011 at 7:24 am

The Global Losing Streak Is Continuing, After An Ugly Night In Japan

U.K. Inflation Unexpectedly Slows as Stores Cut Food Prices

Bank of Japan Minutes Show Concern on Quake Impact

Allied Irish Banks’ Loss Soars to $15 Billion, Axes 2,000 Jobs

Yuan Forwards Decline After IMF Highlights Global Recovery Risk

IEA Says Oil Price Hurting Economy, Maintains Demand Outlook

Oil Advances a Fourth Day in New York on Libyan Conflict, Mideast Unrest

Gas Prices Rise, and Economists Seek Tipping Point

Building a Takeover Bid Over Takeout

The One Thing You Must Realize About PIMCO’s Big Bet Against Treasuries

Futures Slip as Alcoa Disappoints

Glencore Said to Plan $9 Billion to $11 Billion Initial Offering

Level 3 To Acquire Global Crossing In $1.9B All-Stock Deal

Google Goes Green, Invests $168 Million in Ivanpah Solar Power

Paul Kedrosky: Delusions: Then and Now

Joshua Brown: Peking Zuck

NICK = $12.99
Posted by Eddy Elfenbein on April 11th, 2011 at 12:20 pm

Something’s up with Nicholas Financial ($NICK). The stock gapped up to $12.99 just now. The all-time high is $13.18 (split-adjusted) from five years ago.

I’m not sure why there’s a surge. It could just be due to an order imbalance. About 13,000 shares have been traded which is high but far from unprecedented.

3M Close to All-Time High
Posted by Eddy Elfenbein on April 11th, 2011 at 11:41 am

Shares of 3M ($MMM) have been as high as $94.64 today which is a fresh 52-week high. That’s actually a three-and-a-half year high.

This recent rally brings MMM very close to its all-time high price of $97 reached in October 10, 2007.

I highlight MMM because it’s a very diversified manufacturing firm. If it’s near an all-time high, it suggests that much of the non-financial economy is recovering.

Stiglitz Calls for New Reserve Currency
Posted by Eddy Elfenbein on April 11th, 2011 at 11:01 am

Over the weekend, Nobel laureate Joseph Stiglitz called for a new global reserve currency.

The world economy needs a new global reserve currency to help prevent trade imbalances that are reflected in the national debt of the U.S., said Nobel-prize winning economist Joseph Stiglitz.

A “global system” is needed to replace the dollar as a reserve currency and help avoid a weakening of U.S. credit quality, said Stiglitz, a professor at Columbia University in New York. The dollar fell to an almost 15-month low against the euro last week, and the U.S. trade deficit widened more than forecast in January to the highest level in seven months.

“By taking off the burden of any single country, we don’t have to have trade deficits,” Stiglitz said in an interview in Bretton Woods, New Hampshire. “Things would be much worse if it were not the case that Europe was having even more of a problem, but winning a negative beauty pageant is not the way to create a strong economy.”

Many others have floated this idea and I think it’s a fascinating concept.

The issue is that there’s one currency that the central banks of the world prefer to hold and that’s the U.S. dollar. That’s not much of a surprise since the United States has the world’s largest economy.

There’s debate around the idea that there can only be one reserve currency at a time. The reasoning is that the reserve currency needs to be unique and therefore there can be only one. I’m not sure if that’s theoretically true, but in practice it certainly has been true. The central banks of the world prefer U.S. dollars, though euros play a minor role as well.

But here’s the catch about having the dollar as the world’s reserve currency: there’s an inherent conflict in what the world needs out of it and what the United States needs out of it. We’re not always on the same page. Formally, this is known as the Triffin dilemma in honor the economist Robert Triffin. In fact, the Chinese specifically blamed the Triffin dilemma for the world economy going kablamo in 2008.

In real world concerns, being the world’s reserve currency means that the normal situation for the U.S. is to run a current account deficit. (Of course, one “unnormal” scenario would be a plunging dollar.) The world lets us finance our deficits on the keep and we waste little time in taking advantage of it.

No one has an inherent motive to change the status quo. Until a crisis comes, calling for a new global reserve currency is a futile exercise. The point of a reserve currency is that it doesn’t have to be called for—it’s immediately understood. It’s like telling visitors to Rome that they may want to check out some place called St. Peter’s.

The trend will continue until it stops. I don’t know when that will be, but I know that the end won’t be pleasant.

Edward Harrison has more.

Employment and Re-Election Chances
Posted by Eddy Elfenbein on April 11th, 2011 at 7:50 am

Since 1948, ten presidents have run for re-election. Three times the unemployment rate was 7.4% or more in November of the election year. Each one of those times, the incumbent president has been defeated.

The other seven times, the jobless rate has been 7.2% or less. All seven times, those incumbent presidents have won re-election.

The March 2011 jobs report said the unemployment rate was 8.828%. If the relationship holds up, President Obama has 20 months to lower the jobless rate by 1.5%.

For the March jobless rate to be equal to the rate in November 1984 (the lowest on the chart for an incumbent victory), there would need to be 2.5 million more jobs.

Interestingly, when an incumbent president hasn’t been on the ticket, the jobless rate hasn’t had much of an impact on which party wins.

Morning News: April 11, 2011
Posted by Eddy Elfenbein on April 11th, 2011 at 7:30 am

Organization for Economic Cooperation and Development Revises French Growth Forecast In Line With Government

Bank of Japan Cuts Economic View of Seven of Nine Regions After Quake

Another Huge Economic Warning Comes From The U.K.

China Reports First Quarterly Trade Deficit in Seven Years

Brent Crude Oil Falls In Asia; Gadhafi Agrees To Peace Plan

Gold Drops on Selling After Rally to Record; Silver Reaches 31-Year High

Rising Gas Prices Cut Two Ways

NYSE Euronext Rejects Bid by Nasdaq and ICE

PIMCO Officially Goes SHORT The US Treasury Market

Endo Pharma to Buy American Medical Systems for $2.6 Billion

Google Seals ITA Deal But Antitrust Review Looms

Glencore Chief Says Listing Is ‘Imminent’

Enriching a Few at the Expense of Many

Joshua Brown: Volume on Everyone’s Mind

James Altucher: The Easiest Way to Succeed as an Entrepreneur

Wall Street’s Consensus for 2012
Posted by Eddy Elfenbein on April 8th, 2011 at 12:43 pm

For 2009, the S&P 500 earned $56.87. That jumped to $83.77 last year. Wall Street’s current forecast for 2011 is $96.96.

This means that even after the stock market’s huge rally over the past two years, the forward P/E Ratio is still just 13.75. That’s an earnings yield of 7.27% which is far higher than anything you see in the Treasury market.

For 2012, Wall Street sees the S&P 500 earning $110.10. Let me caution you that forecasts so far ahead in time should be given a reasonable amount of doubt. But even going by those numbers, it means that the S&P 500 is currently going for 12.11 times next year’s earnings. The earnings yield comes to 8.25%.

My point is that the fundamentals greatly favor stocks over bonds. Given the past 11 years’ activity, investors are duly wary of that notion.

Stocks Against Bonds
Posted by Eddy Elfenbein on April 8th, 2011 at 11:46 am

I wish I had more to say, but this chart really says it all. The black line is the S&P 500 Spyders ETF ($SPY) and the gold line is the iShares Barclays 20+ Year Treasury Bond ETF ($TLT). They’re almost perfectly symmetrical.

Bed Bath & Beyond’s 2011 Projections
Posted by Eddy Elfenbein on April 8th, 2011 at 11:35 am

Courtesy of Seeking Alpha, here’s part of the transcript of Bed Bath & Beyond‘s ($BBBY) conference call:

Based on these and other planning assumptions, we are modeling net earnings per diluted share to be in the range of approximately $0.58 to $0.61 for the fiscal first quarter of 2011. For all of fiscal 2011, we are modeling net earnings per diluted share to increase by approximately 10% to 15%.

Before concluding this afternoon’s call, a few additional comments relative to our recently concluded fiscal fourth quarter. Our balance sheet remains strong and debt free. We ended fiscal 2010 with cash and cash equivalents and investment securities of approximately $1.9 billion. This includes approximately $112.9 million of investments related to auction rate securities. These securities have an estimated temporary valuation adjustment of approximately $3.2 million to reflect their current lack of liquidity. Since this valuation adjustment is deemed temporary, it did not affect the company’s earnings.

During the fourth quarter, we had approximately $8.4 million of redemptions of auction rate securities at par. Subsequent to the fourth quarter, we had approximately $5.8 million of auction rate securities redemptions at par, leaving a balance of approximately $107.1 million of these securities. As we have said in the past, and as we have experienced to date, we believe that given the high credit quality of these investments, we will ultimately recover, at par, all amounts invested in these securities.

Inventories continue to be tailored by store to meet the anticipated demands of our customers and are in good condition. As of February 26, 2011, inventories at cost were approximately $2 billion or $56.17 per square foot. Inventory per square foot was higher than in the prior year, primarily due to increased inventory levels required to support recent increases in comp store sales and timing of receipts.

Consolidated shareholders equity at February 26, 2011, was approximately $3.9 billion, which is net of all share repurchases, including the approximately $199 million representing approximately 4.1 million shares repurchased during fiscal fourth quarter of 2010.