Bank of America Drops on 13-Month-Old News
Posted by Eddy Elfenbein on November 30th, 2010 at 2:52 pm

Shares of Bank of America (BAC) are down today.

Why? It’s because Julian Assange of Wikileaks fame said yesterday that early next year he will release information that could take down “one or two banks.”

So, what banks?

Raw Story found that last October he told Computer World that he had 5GB from Bank of America.

In other words, the stock is down today on news that was first reported 13 months ago.

Exxon Mobil’s Taxes
Posted by Eddy Elfenbein on November 30th, 2010 at 1:46 pm

Senator Bernie Sanders of Vermont has tweeted:

Last year Exxon made $19 BILLION in profit. Guess what? They paid zero in taxes & got $156 mill. refund from the IRS.

This is technically accurate but very misleading. Exxon Mobil (XOM) paid zero federal taxes but they indeed had a massive tax bill last year.

Before taxes, XOM recorded a profit of $34.8 billion. They paid $15.1 billion in taxes to foreign countries. The U.S. tax code allows them to deduct that tax bill from what’s due to the IRS.

CNN/Money explains:

Exxon paid the most taxes last year of any U.S. company, by far — but not a cent went to the IRS for income taxes. That’s because the oil giant does business in some of the mostly highly taxed countries in the world. Want to extract petroleum in Nigeria? Be prepared to fork over up to 85% of your profit in tax payments.

Exxon doled out more than $15 billion in income tax payments to foreign countries last year. U.S. tax codes allow companies to take massive deductions in light of those international charges, which knocked Exxon’s federal income-tax bill down into negative territory.

That said, Uncle Sam gets his money in other ways. Including sales taxes and duties, Exxon recorded $7.7 billion in U.S. tax costs last year, and paid even more overseas.

Its grand total in global taxes for the year? A whopping $78.6 billion. The company’s effective income tax rate was a hefty 47%, its highest in three years.

Investor Quiz
Posted by Eddy Elfenbein on November 30th, 2010 at 10:44 am

According to the BIS, how large is the swaps market?

I’ll give you a hint: $583 trillion.

To put that into proper perspective, think of it this way: If you took that sum in the form of $100 bills, then stacked those bills on the floor of the Grand Canyon, that’s a shitload of money.

Right at the 50-DMA
Posted by Eddy Elfenbein on November 30th, 2010 at 10:26 am

The S&P 500 is currently battling with its 50-day moving average. For a brief period yesterday, the index fell below the 50-DMA, and we’re fighting it again today.

The current reading for the 50-DMA is 1177.31.

I’m not a big fan of technical analysis but I make an exception for the 50-DMA. It’s one of those dumb ideas that works for a really smart reason. The key is that the stock market is a momentum-driven data series. What happens yesterday impacts what happens today. Each day’s move is not independent of the day before.

What this means for investors is that once the market gets moving in one direction, the odds are very likely that it will continue in that direction. The turning point is just about impossible to know. Historically, however, once the market breaks its average close for the past 50 trading sessions, that is often a decent indicator. It’s not good, but it’s good enough.

Morning News: November 30, 2010
Posted by Eddy Elfenbein on November 30th, 2010 at 7:27 am

Wall Street Set for Lower Open

Debt Worries Push Euro to Multi-week Lows

Retailers Report Strong Holiday Sales Online and in Stores

EU Agrees on Rules for Future Bailouts

Oil Has ‘Everything Going for It’ as Haven, Cameron Hanover Says

Banks Resisting Fannie, Freddie Demands to Buy Back Mortgages

E.U. Opens Antitrust Investigation into Google

Netflix Partner Criticizes Comcast

Google’s Groupon Offer: $5.3 Billion, With $700 Million Earnout

Your Money

The Big Uneasy

The Next Ten Years…

Recession/Expansion by ISM Level
Posted by Eddy Elfenbein on November 29th, 2010 at 4:25 pm

Here’s some research I was playing around with this afternoon and I thought I’d post it. This shows the historical record of the economy being in an expansion by ISM reading.

In other words, the ISM has been between 49.0 and 49.9 41 times. According to NBER’s recession dating, 36 of those months have been months of economic expansion.

The ISM has been 46.5 or greater on 613 months and 581 of those have been in expansion (or 94.78%).

The ISM has been 42.7 or less for 75 months and just 11 of those have been in expansions (14.67%).

The real gray area is from 41.0 to 44.9. The ISM has now been above 52.4 for 15-straight months and we get the next reading at 10 am on Wednesday.

Thought for the Day
Posted by Eddy Elfenbein on November 29th, 2010 at 2:11 pm

The Wall Street Journal reports:

Stocks tumbled as investors worried that the $112.61 billion Irish bailout might not be enough to contain the euro-zone debt crisis.

$112.61 billion works out to just over $25,000 for each citizen of Ireland. This is what “might not be enough.”

Investors Wisely Regain Skepticism
Posted by Eddy Elfenbein on November 29th, 2010 at 1:17 pm

Here’s an article from MSNBC on how investors are losing faith in the stock market:

The Wall Street insider trading investigation may lead everyday investors — already rattled by a stock market meltdown, a one-day “flash crash” and the Madoff scandal — to finally conclude that the game is rigged.

“A large part of trading has to do with trust, and I don’t have it,” says Mark Swenson, a 43-year-old plumber from New Hampshire who refuses to buy individual stocks.

“When a stock moves up 10 percent, you don’t know why,” he added. “We can pretend that everyone has access to the same information, but they don’t.”

Even before news broke that federal investigators were looking into whether hedge funds traded on inside information, small-time investors were pulling their money out of stocks — despite a remarkable run for the market since the spring of 2009.

Hedge funds are speculative funds which make large bets on market movements and are usually used by wealthy private investors or institutions.

Articles like this are written with a familiar hand-wringing tone. It’s supposed to be self-evident that this “loss of faith” is a bad thing. But from my view, it’s not bad thing at all.

Such articles could easily be reframed as “Good News: Investors Wisely Regain Their Skepticism.”

Earnings and Market Performance
Posted by Eddy Elfenbein on November 29th, 2010 at 12:59 pm

I was curious to see how the stock market performs when earnings are growing and when earnings are shrinking.

I looked at Robert Shiller’s data which goes back to 1871.

I found that there were 969 months when earnings grew from the previous year, 658 months when earnings fell and 46 when earnings stayed the same. That works out to 58% of the time with expanding earnings, 39% with falling earnings and 3% when earnings stayed the same.

Combined, the 969 months of growing earnings combined for a market advance of more 32,000%. Annualized, that works out to 7.44%.

For the unchanged earnings periods, the market rose by an annualized rate of 5.69%.

For the 658 months when earning fell from one year before, the market combined for a loss of nearly 40%. That works out to a loss of 0.92% on an annualized basis.

The takeaway is that the market’s performance is closely aligned with earnings growth. The difficulty is that you can’t always be sure what earnings are doing at the exact moment.

The other hitch is that Shiller’s data is a monthly interpolation of quarterly numbers. During this last cycle, earnings peaked in the second quarter of 2007 and bottomed in the first quarter of 2009.

The good news is that earnings are projected to continue growing.

Pat Robertson — Market Strategist
Posted by Eddy Elfenbein on November 29th, 2010 at 11:43 am

Google currently yields 385,000 results for the search “predicted the credit crisis” (without parentheses). With so many people apparently having seen disaster coming, it’s a wonder how it happened.

There is one prediction, however, that’s often overlooked. In case you missed it, I’ll give you a quick reminder. It’s from January 2008:

Religious broadcaster Pat Robertson predicted Wednesday that 2008 will be a year of violence worldwide and a recession in the United States, followed by a major stock-market crash by 2010.

Sharing what he believes God has told him about the year ahead is an annual tradition for Robertson.

On Wednesday’s “700 Club” broadcast, the founder of the Christian Broadcasting Network predicted that evangelism will increase and more people will seek God as the chaos develops. Robertson said, “We will see the presence of angels and we will see an intensification of miracles around the world.”

Last year, Robertson predicted that a terrorist act, possibly involving a nuclear weapon, would result in mass killing in the United States. Noting that it hadn’t come to pass, Robertson said, “All I can think is that somehow the people of God prayed and God in his mercy spared us.”

OK, maybe the miracles and angels jazz was a bit off, but you gotta give old Pat props on his market call. The stock market did indeed crash. He was right when a lot of “experts” were wrong.

Personally, I don’t get too worked up about Robertson’s calls. He’s also the guy who blamed 9/11 on “pagans, abortionists, feminists, gays, lesbians, the American Civil Liberties Union and the People For the American Way.” I won’t even mention Robertson’s claim of leg-pressing 2,000 pounds, which is far more than world-class athletes.

Pat loves to make crazy predictions. He’s seen the end of the world coming more than once. By the way, for all you gold bugs out there, the Reverend Mr. Robertson sees gold heading to $1,900 per ounce.

I don’t want to discuss the accuracy of Pat Robertson’s market forecasts. Instead, I want to highlight the uselessness of making market forecasts in the first place. These predictions might be fun as a parlor game but if you’re an investor, getting a market call right or wrong does nothing for you.

Market calls are useless. In fact, they’re worse than useless—they’re downright harmful because they give you the illusion of wisdom when they’re really just guesses about things that aren’t important.

The reality is that the market goes up and the market goes down. I’m not trying to be dismissive of the stock market. I want to convey the reality of owning a portfolio of businesses. The stock market bounces around every day, often for little or no reason. There are thousands of stocks traded on the major U.S. exchanges. The idea of trying to predict the outcome of thousands of different business with any sort of accuracy is lunacy.

Plus, even if a market call is accurate, what does it do for you? With so many stocks out there, plenty will buck the trend. Look at McDonalds (MCD). Shares of MCD are up 25% this year (through Friday). The stock has more than doubled over the last five years, which was a terrible time for the market.

The reason McDonalds has done well is because its business has done well. If you had listened to accurate forecasts about the economy or the stock market, you would have completely missed this stock. If you had ignored the noise and instead focused on McDonalds’ growing business, you would have found a gem.

It’s not like McDonalds was an unknown stock in 2005. They weren’t the only one, either. Amazon.com (AMZN) is up 260%. Apple (AAPL) is up over 360%.

To have a well-diversified portfolio, you only need eight to twelve stocks. Even if these are fairly large stocks, you still own a small drop of a very large bucket. My advice is to save the market calls for fun. Instead, focus on own owning growing, profitable businesses.

I think Pat Roberston summed it up well: “I have a relatively good track record,” he said. “Sometimes I miss.”

Don’t worry about missing, Pat. You’re wrong on lots of things. It’s not the end of the world.