• Corporate Profit Margins to Hit 18-Year High
    Posted by on March 15th, 2011 at 10:35 am

    From Bloomberg:

    Record earnings fueled by the highest profit margins since 1993 are giving executives more leeway than ever to boost dividends as the bull market enters its third year.

    Margins will climb to 8.9 percent in 2011, the highest level in at least 18 years, according to data compiled by Bloomberg on non-financial companies in the Standard & Poor’s 500 Index through March 11. Greater profitability combined with dividend cuts during the credit crisis have pushed earnings to 6.53 percent of the gauge’s price, or 3.5 times more than its payout rate, close to the record 3.6 multiple in January.

    A total of 95 companies led by Aetna Inc. (AET) and Carnival Corp. have raised dividends as the fastest economic expansion in six years and five straight quarters of earnings growth increased confidence among chief executive officers. Of the 380 that pay dividends, 378 are forecast to maintain or increase them, according to data compiled by Bloomberg using options prices, profits, management statements and peer comparisons.

    The article notes that there have been 95 dividend increases in the S&P 500 and zero decreases this year.

  • What To Do Now?
    Posted by on March 15th, 2011 at 10:14 am

    The stock market is down sharply today. The world is beginning to learn of the extent of the damage in Japan combined with the explosions at the nuclear plants.

    The market’s initial response to the news from Japan was rather restrained. The S&P 500 dropped 0.60% yesterday, which is far from alarming; plus the market rallied in the afternoon.

    As I write this, the market is down 1.81% and we’ve been down as much as 2.72% this morning. The Nikkei dropped over 1,000 points today which is a loss of 10.55%. Since Friday, the Japanese market has lost 16.1%.

    The stock jitters have clearly spread to the U.S. market. The Volatility Index (^VIX) is up 2.66 this morning to 23.79. Both oil and gold are down sharply.

    Barry Ritholtz makes a good point this morning: When people ask, “how should I be investing now?” the answer is that your contingency plan should already be in place.

    I’m happy say that I wouldn’t make any changes to my Buy List. They’re all good companies and it’s very, very likely that they will remain being good companies.

    Investing isn’t about predicting the future. No one can do that. In fact, being a good investor means beginning with the assumption that you can’t predict the future, so what can you do? It’s always good to start with good first principles and that means investing in solid businesses.

    At times like this, traders madly scramble for “plays.” Solar stocks, for example, are doing well today. I strongly advise against chasing any of these “Japan plays.” I remember that on the first day of trading after 9/11, shares of Sturm Ruger (RGR) jumped more than 10%. Why? Were we all going to buy guns to shoot the terrorists? As you might expect, it didn’t take long for RGR to give back all of its gains.

    The one alarming stock we have is AFLAC (AFL) and that stock is currently down close to 10% today. So far, the company has made it clear that they haven’t suffered much damage. Until I hear more, I’ll continue to trust the company more than nervous traders.

    The other news from AFLAC is that they fired comedian Gilbert Gottfried, who was the voice of the AFLAC duck, for making tasteless comments on his Twitter feed. I should add that he’s not the voice of the duck in the ads that run in Japan. Bear in mind that this is one of the best marketing campaigns in recent history. AFLAC’s name recognition has risen from 2% before the duck to 90% today.

    My advice on what to do now is just sit and wait. We don’t know all the facts yet, and more importantly, we don’t know what the long-term implications will be. I know it’s painful to watch your stocks go down, but you’re just as likely to make things worse by joining the panic.

  • Morning News: March 15, 2011
    Posted by on March 15th, 2011 at 6:18 am

    Stocks Slide as Japan Plummets on Nuclear Concern; Oil Falls, Bonds Surge

    Futures Tumble After Nikkei Plunges

    EU Debt-Relief Pact Puts Pressure on Nations to Cut Deficits: Euro Credit

    German Investor Confidence Unexpectedly Declined in March

    Crude Oil Drops as Loss of Demand in Japan Outweighs Middle East Tension

    Earthquake Dents Japan’s Chances in China’s Luxury Car Market

    Gold Declines as Investors Sell to Cover Drop in Other Assets

    Disaster in Japan Batters Suppliers

    U.S. Seizes Two Banks; Year’s Total at 25

    How Long Can the Fed Continue to Downplay Inflation?

    Carlyle Forms $5 Billion Shipping Joint Venture

    Buffett Still Gets Lubrizol at Lehman-Bust Price After 183% Gain: Real M&A

    HP’s Apotheker Accelerates Move Into Cloud Computing, Increases Dividend

    Joshua Brown: Uranium Sector Trashed

    Paul Kedrosky: Long-Term Growth in U.S. GDP Per Capita: Graph

  • The Japanese Market Tanks
    Posted by on March 14th, 2011 at 12:32 pm

    The Japanese Nikkei 225 (^N225), the Japanese counterpart of the Dow, dropped 6.18% today to close at 9,620.49. The index is actually lower than it was on the final day of 1983 when it closed at 9,893.82. At the same time, the U.S. Dow closed at 1,258.64.

    This means that in 27 years, we’ve gone up by more than 10-fold while the Japanese market is down slightly. The Nikkei used to be 14 times the Dow. Now it’s 20% less.

  • The Onion: Hidden Bank Fees
    Posted by on March 14th, 2011 at 11:09 am

    The Onion has the news:

    As a result of recent regulations prohibiting certain types of account fees, banks are finding new ways to make money from their customers. Here are some of the hidden charges now being applied:

    * Wells Fargo—$10 to speak to a human teller, $20 to speak to a cute one

    * Chase—$2 fee if Chase Rewards debit card is placed next to a debit card from a competing bank

    * Citibank—Customers who think Citibank has a ‘y’ in its name are penalized, monthly, on an increasing scale

    * Bank of America—Safe deposit boxes now on coin-operated timers

    * HSBC Bank USA—HSBC gets 10 percent cut of all birthday money

    * TD Bank—$1 for stopping in any TD branch location to warm up while out walking on a cold day

    * Regions Bank—$10 Felix-the-Cat-opt-out charge will be administered to anyone choosing a check design not featuring silent-film-era cartoon character Felix the Cat

    * SunTrust—$1.75 High Roller fee applied when card is used at locations other than CVS

  • Update on AFLAC
    Posted by on March 14th, 2011 at 8:51 am

    The market seems determined to believe that AFLAC‘s (AFL) business was badly damaged by the earthquake. The stock opened 5.8% lower today even though the company has said it’s doing well.

    Aflac Inc., a U.S.-based insurance company that sells health and life insurance to one out of every four people in Japan, said Monday that its Japanese sales will likely face only a minimal impact from the earthquake and tsunami there.

    Early estimates for the losses for insurers and reinsurers around the globe are ranging from $10 billion to $50 billion.

    “We remain ready to respond to the needs of our policyholders by paying claims swiftly, and will prioritize our response to those in the affected areas,” Aflac Japan President and Chief Operating Officer Tohru Tonoike said in a statement.

    Nonetheless, its shares fell $2.30, or 4.1 percent, to $53.25 in pre-market trading.

    Aflac, based in Columbus, Ga., said it is the biggest insurance company in Japan in terms of individual policies in force. But the company said less than 5 percent of Aflac Japan’s new sales and in-force premiums come from the hard-hit Iwate, Miyagi and Fukushima prefectures there.

    Aflac Japan’s main offices, which include corporate offices in Tokyo and operational centers in Tokyo and Osaka, did not incur any damage and are fully operational. The company said all of Aflac Japan’s workers are safe. Aflac said it continues to reach out to its independent sales force to assess their needs.

    Two of Aflac Japan’s 82 sales offices, both in the same building in Sendai, have minimal damage. They will be closed temporarily due to power outages.

    On Friday Aflac CEO Dan Amos said he expected the number of claims to be high, but that the company was well prepared to cover them. He was scheduled to fly into Japan on Sunday.

    Aflac said its 2011 operating earnings will be at the low end of its 8 percent to 12 percent range for growth, excluding the impact of currency.

    In February the company said it expected full-year adjusted earnings of $5.97 per share, excluding the impact of the dollar-yen exchange rate. At the time Aflac said its reported earnings would likely come in between $6.09 and $6.34 per share if the yen remained strong.

  • Buffett Buying Lubrizol for $9 Billion
    Posted by on March 14th, 2011 at 8:07 am

    It must be nice having $9 billion in cash sitting around. But as I mentioned before, cash pays next to nothing so you might as well put it work.

    Warren Buffett’s Berkshire Hathaway (BRKA) just announced that it’s buying chemical company Lubrizol (LZ) for $9 billion.

    Let’s look at some of the numbers. In 2008, LZ made $4.09 per share. In 2009, their EPS jumped to $7.55 and last year, they made $9.91. Wall Street expects LZ to make $11.31 per share this year and $12.48 per share next year.

    The stock closed Friday at $105.44 and Buffett is buying it all for $135. Two years ago, it was going for less than $24.

  • Morning News: March 14, 2011
    Posted by on March 14th, 2011 at 6:40 am

    Quake Selloff Wipes $287 Billion Off Tokyo Stock Market

    Japan Adds $183 Billion to Economy, Doubles Asset Purchases

    Disruptions of Power and Water Threaten Japan’s Economy

    Auto Plants in Japan Remain Closed as Companies Take Stock

    Irish ‘Bad Boys’ Vow to Keep Tax Rate After Sarkozy Summit Spat

    Trichet Thwarted as Euro Leaders Decline ECB’s Bond-Buying Role

    Yuan Forwards Strengthen as Policy Makers Show Inflation Concern

    Treasury Investors Focus on Fed, Bank of Japan

    Oil Falls to Two-Week Low in New York as Japanese Quake May Limit Demand

    Berkshire Hathaway to Buy Lubrizol for $9 Billion

    Spanish Wind-Energy Giant Iberdrola Advances After Qatar Holding Purchases Stake for $2.8 Billion

    Hong Kong, China Shares Up on Coal, Steel Plays in Quake Aftermath

    Number of the Week: Companies’ Cash Hoard Grows

    Joshua Brown: Corporate Cash: Scared Money Don’t Make No Money

    Lost City of Atlantis, Swamped by Tsunami, May Be Found

  • Booker White: Poor Boy Long Way from Home
    Posted by on March 11th, 2011 at 4:12 pm

    The weekend is here. Let Booker White play away your blues.

  • AFLAC and the Japanese Earthquake
    Posted by on March 11th, 2011 at 11:01 am

    Like you, I’m in shock by the news of the devastating earthquake in Japan. I can’t even imagine what an 8.9 quake is like. I was completely unraveled when a 3.6 quake hit DC last year.

    My first thoughts turn to the injured and deceased and their families. If anything, I’m surprised that the loss of life hasn’t been greater. I think that speaks well of the orderliness of Japanese citizens. Since we talk about finance around here, I should comment on the financial implications of this disaster.

    Naturally, AFLAC is going to be affected. The stock opened down 3.2% but it seems to have recovered a little bit. The stock is currently down 1.2%.

    The WSJ got hold AFLAC’s CEO:

    Aflac Inc. Chief Executive Dan Amos said Japan will bounce back quickly if the nation’s actions after the 1995 Kobe earthquake are any guide.

    “I believe within a short period of time they will recover,” Mr. Amos said in a telephone interview on CNBC. Aflac, which sells supplemental health and life insurance, does a majority of its business in Japan. Mr. Amos said Aflac wasn’t exposed to property claims.

    Update: Saner heads prevailed. AFL lost just 15 cents today.