408 Bps Ahead of the S&P 500
Posted by Eddy Elfenbein on April 18th, 2011 at 12:26 pm

Although the market has stumbled recently, our Buy List is opening a nice lead over the S&P 500. By the close on Friday, our lead stood at 4.08%.

Industrial Production Continues to Rise
Posted by Eddy Elfenbein on April 18th, 2011 at 12:05 pm

On Friday, the government reported that industrial production rose by 0.8% in April. Industrial production has climbed sharply off its low but it still has a long way to go to surpass its September 2007 high.

Industrial production increased more than forecast in March, led by a rebound in consumer goods manufacturing, a sign that factories will keep driving the U.S. economy.

Output rose 0.8 percent, the fifth straight gain, after a revised 0.1 percent rise in February, the Federal Reserve said today in Washington. Economists surveyed by Bloomberg News projected a 0.6 percent gain, according to the median estimate. Manufacturing, which makes up 75 percent of the total, climbed 0.7 percent following a 0.6 percent increase. Utility output and mining also rose.

Factories in the U.S. are benefiting from gains in business investment, expanding economies overseas and inventory rebuilding. The pace of production may cool temporarily as some factories scramble to replace supplies of parts interrupted after last month’s earthquake and tsunami in Japan.

“The economy is really starting to take shape,” said Bricklin Dwyer, an economist at BNP Paribas in New York. While “we expect a cool down” in the next couple of months because of events in Japan, that will be “a short-lived phenomenon,” he said. “We’ve seen global manufacturing increase since the crisis.”

S&P 500 Breaks Below 1300
Posted by Eddy Elfenbein on April 18th, 2011 at 10:03 am

Ugly day today. Standard & Poor’s put a “negative” outlook on America’s debt rating.

“We believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium-and long-term budgetary challenges by 2013,” New York-based S&P said in a report today. “If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.”

I really don’t understand a debt rating for the U.S. Treasury bonds. America’s debt is “rated” every day in that it’s priced by traders.

Sure, the long-term numbers look awful but the reality is that investors keep buying our debt, and they’re willing to give us a good deal.

The S&P 500 is again below its 50-DMA.

Taibbi Swings and Misses — Again
Posted by Eddy Elfenbein on April 18th, 2011 at 9:44 am

As long-term readers know, I’m not a fan of Matt Taibbi. I think he’s a dishonest journalist who distorts facts and bends narratives to suit his agenda.

I hate giving Taibbi any time but since he’s respected by so many, I feel compelled to point out his lousy reporting. Taibbi’s MO is take a perfectly understandable yet slightly complex story and retell it.

But in Taibbi’s retelling, he’ll leave out key facts and imply sinister motives to people he doesn’t like. He’ll then sprinkle in forced sex and drug references to give his lousy reporting a sophomoric “edge.”

Fortunately for us, Ari I. Weinberg at the WSJ tears apart his latest:

Taibbi, famous for dubbing Goldman a “vampire squid,” is simply piling on the gotchas, trying to whip disparate, innocuous facts into one scary soufflé of ominousness.

Back to his story, and items omitted or glossed over.

The women, directly along with other investors, invested in a fund called Waterfall TALF Opportunity, LLC. The fund was one of over 100 funds set up specifically to borrow and invest through the Term Asset-Backed Securities Loan Facility (TALF).

This program, as Taibbi begrudgingly concedes, was designed to restart the market for pooled loans of credit cards, auto loans, mortgages, student and small business loans. Somehow Taibbi, and Rolling Stone, omit the notion that you, me and the magazine’s readers were the ultimate beneficiaries of revived credit markets. Neither Taibbi nor Rolling Stone responded to a request for comment.

Bastiat 2011
Posted by Eddy Elfenbein on April 18th, 2011 at 9:16 am

In 1845, French economist Frédéric Bastiat wrote his famous satire, The Candlemaker’s Petition. This was a move by the candlemakers to protest unfair business competition from the sun.

That, of couse, was satire. This isn’t.

In a related note, Rep. Chris Van Hollen warns us that “This Republican Plan simply rations health care and choice of doctor by income.” I hate to break this to Rep. Van Hollen, but nearly everything is rationed by income.

Q1 Earnings Calendar
Posted by Eddy Elfenbein on April 18th, 2011 at 8:40 am

It’s still early but here’s a look at the earnings calendar for our Buy List stocks:

These are all the stocks that follow the March/June/September/December reporting cycle. The only two I’ve excluded are Leucadia ($LUK) and Nicholas Financial ($NICK) since they’re not followed on Wall Street.

J&J in Talks to Buy Synthes
Posted by Eddy Elfenbein on April 18th, 2011 at 8:16 am

The big news this weekend for Johnson & Johnson ($JNJ) is that it’s in talks to buy Synthes. This would be a huge deal for J&J. I have to say that I’m very skeptical of large-scale mergers. The historical evidence suggests that these deals usually don’t boost profitability.

No deal has been announced yet but the market is guessing that it will be valued at about $20 billion. J&J’s current market value is $165 billion. According to the most recent balance sheet, the company has a cash balance of $27.66 billion so this purchase won’t require any financing.

Buying Synthes, the biggest maker of devices to treat bone fractures and trauma, would end months of speculation about talks between J&J and U.K. device maker Smith & Nephew Plc. Synthes would give New Brunswick, New Jersey-based J&J a line of hip screws, surgical power tools and instruments to treat spinal and soft-tissue injuries that had $3.69 billion in 2010 sales, boosting the U.S. company’s share of the market for trauma care.

“If I were J&J, I would rather buy Synthes,” said Lisa Bedell Clive, an analyst with Sanford C. Bernstein Ltd. in London, in a phone interview today. “It’s the chance to become the market leader in trauma,” which has more long-term growth and profit margin potential than replacement hips and knees.

This could be a very smart move for J&J. Given the fact that its price hasn’t moved much, they’ve been forced into doing something. At this point, I don’t see how buying Synthes is a negative for J&J.

Morning News: April 18, 2011
Posted by Eddy Elfenbein on April 18th, 2011 at 6:58 am

Euro Down On Regional Debt Concerns, But Losses Limited

China Yuan Up Late As Stronger Currency Helps Curb Inflation

Tokyo Shares End Off 0.4% Amid Pre-Earnings Caution, Stronger Yen

Spain’s T-bill Yields Jump on Periphery Jitters

G-20 Names ‘Too Big to Ignore’ Economies, Downplays Shocks

Bonello Urges ECB Caution in Raising Rates as Most-Indebted Nations Suffer

Gold Is Little Changed After Reaching a Record on Concern About Inflation

UAE’s Oil Minister Says Crude Oil Market Is Well Supplied

Bernanke Briefings May Offset Fed Hawks With Words as New Tool

Debt Ceiling Increase Is Expected, Geithner Says

Synthes Says It’s In Talks With J&J on Possible Combination

Chinese Telecomm Equipment Giant Huawei Reports Profit, Reveals Board Details

Inflationary Adventures in Extremistan

Matt Taibbi’s Fact Souffle

Euro vs. Invasion of the Zombie Banks

Howard Lindzon: The ‘Swipe’ and ‘Tap’ Economy Continues To Pick up Steam

“Parasites who persistently avoid either purpose or reason perish as they should”
Posted by Eddy Elfenbein 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 Eddy Elfenbein on April 15th, 2011 at 1:01 pm

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