• Morning News: November 10, 2010
    Posted by on November 10th, 2010 at 6:44 am

    G-20 Unity Born in Crisis Fractures as Leaders Pursue Own Ends

    Dollar Edges Lower

    Bank of England Says Inflation Likely to Drop Toward 2% Within Two Years

    U.S.-South Korea Trade Talks Hang in the Balance

    Oil and Gas M&A Gains in 3Q

    Tokyo Shares End At Highest Since June As Yen Weakens, Banks Rally

    Millions of Homeowners Keep Paying on Underwater Mortgages

    ING Says It’s Preparing U.S. Insurance Unit for Possible IPO

    Lenovo 2nd-Quarter Net Profit Up 44%; Sees Improving Gross Margin

    Chevron Bets on Shale gas with $3.2 Billion Atlas Buy

    The Randomness of Win-Loss Records

  • Silver Margin Raised
    Posted by on November 9th, 2010 at 4:43 pm

    ZeroHedge reports that the CME has raised the margin requirement for silver from $5,000 to $6,500.

    The price for the Silver ETF (SLV) dropped sharply this afternoon on insane volume. The ETF traded 145 million shares today. Over the summer, the daily volume was often around 5 million.

    So that’s one way to halt a bubble (at least for a little while).

    What’s interesting is that this is a similar strategy to what the Comex did 30 years ago to pop the Silver bubble when the Hunt Brothers tried to corner the world silver market. They’d have gotten away with it, too, if it hadn’t been for the meddling Comex.

    In January 1980, Time magazine reported: “Over the past nine months they have earned an estimated $2 billion to $4 billion, and one former business associate sets the Hunts’ silver holdings at 100 million oz.”

    That was a lot of money back then.

    The bottom came out of the silver market on Thursday March 27, 1980, which is now known as Silver Thursday. Here’s a look at the historical performance of silver (the chart only tracks up to two years ago; that’s all I could find). I now turn it over to Wikipedia:

    Background

    Nelson Bunker Hunt and Herbert Hunt, the sons of Texas oil billionaire Haroldson Lafayette Hunt, Jr., had for some time been attempting to corner the market in silver. In 1979, the price of silver jumped from $6/oz to an all-time record high of $48.70/oz. The brothers were estimated to hold one third of the entire world supply of silver (other than that held by governments). The situation for other prospective purchasers of silver was so dire that the jeweller Tiffanys took out a full page ad in the New York Times, condemning the Hunt Brothers and stating We think it is unconscionable for anyone to hoard several billion, yes billion, dollars worth of silver and thus drive the price up so high that others must pay artificially high prices for articles made of silver.

    But on January 7 1980, in response to the Hunt’s accumulation, the exchange rules regarding leverage were changed, when Comex adopted ‘Silver Rule 7’ placing heavy restrictions on the purchase of commodities on margin. The Hunt brothers had borrowed heavily to finance their purchases, and as the price began to fall again, dropping over 50% in just four days, they were unable to meet their obligations, causing panic in the markets.

    Silver Thursday

    The Hunt brothers had invested heavily in futures contracts through several brokers, including the brokerage firm Bache Halsey Stuart Shields, later Prudential-Bache Securities and Prudential Securities. When the price of silver dropped below their minimum margin requirement, they were issued a margin call for $100 million. The Hunts were unable to meet the margin call, and, with the brothers facing a potential $1.7 billion loss, the ensuing panic was felt in the financial markets in general, as well as commodities and futures. Many Government officials feared that if the Hunts were unable to meet their debts, some large Wall Street brokerage firms and banks might collapse.

    To save the situation, a consortium of US banks provided a $1.1 billion line of credit to the brothers which allowed them to pay Bache which, in turn, survived the ordeal. The U.S. Securities and Exchange Commission (SEC) later launched an investigation into the Hunt brothers, who had failed to disclose that they in fact held a 6.5% stake in Bache.

    Aftermath

    The Hunts lost over a billion dollars through this incident but the family fortunes survived. They pledged most of their assets, including their stake in Placid Oil, as collateral for the rescue loan package they obtained. However the value of their assets (mainly holdings in oil, sugar and real estate) declined steadily during the 1980s, and their estimated net wealth declined from $5 billion in 1980 to less than $1 billion in 1988.

    The Hunt Brothers later become the inspiration for Mortimer and Randolph Duke in the movie Trading Places.

  • Concerns About ETFs
    Posted by on November 9th, 2010 at 4:18 pm

    Good segment:

  • The Mess at Dean Foods
    Posted by on November 9th, 2010 at 3:54 pm

    Last March, I highlighted Dean Foods (DF) as a potential value play. To be fair, I didn’t say to run out and buy it at $15. I said: “Dean is in rough shape right now, but if things start to turnaround by the middle of 2011, the stock could rally quite handsomely.”

    A few weeks later, Dean plunged after it badly missed its own forecasts. They had said to expect 25 cents to 30 cents per share, but they earned 23 cents per share. Never trust a stock that does that. The stock fell below $10.

    The stock is getting hammered again today:

    The company, which reported lower-than-expected quarterly profit after it cut prices to compete with private-label brands, saw its share price drop as low as $8.50, its lowest since 2001, when Suiza Foods bought Dean and took that name.

    Chief Executive Gregg Engles called Dean’s results “disappointing” and warned that price concessions will affect results well into 2011.

    “It is clear that a significant segment of customers… are cutting back on purchases of even basic items,” Engles said on a call with Wall Street analysts.

    He said retail prices for private-label milk were still far below historic levels. Dean Foods, based in Dallas, said butterfat prices rose 70 percent compared to a year earlier.

    Dean Foods would speed up its efforts to cut costs to deal with the rising prices, Engles said.

    Separately, Dean’s chief financial officer Jack Callahan is leaving for another company as of Nov. 30 and will be replaced by Chief Accounting Officer Shaun Mara.

    Callahan has been credited with running the company’s efforts to cut costs and his imminent departure raised some concerns on Wall Street.

    “It makes us wonder if the cost savings goals will be lowered,” Janney Capital Markets analyst Jonathan Feeney wrote in a note.

  • Baxter’s Dividend and Fiserv’s New High
    Posted by on November 9th, 2010 at 3:04 pm

    I knew this week was going to be slow for market news, but it’s duller than I had imagined it would be. Coming after a week jammed with elections, the Fed meeting, the jobs report and more earnings, this week is a nice relief.

    The best news today is that Baxter International (BAX) decided to raise its dividend. That’s a nice vote of confidence by the board and it’s also a good present for shareholders. As I’ve said many times, I greatly prefer cash dividends over stock buybacks.

    Shares of Fiserv (FISV) also broke out to a new 52-week high today of $56.12. The stock gets ever closer to its all-time high of $59.59 reached three years ago. The stock is going for just 12.5 times next year’s earnings. I find it amazing that Fiserv is trading at the same valuation as the rest of the market. This is a company whose earnings climbed steadily during the recession. Earnings-per-share this year will be more than double the EPS from 2004.

  • Gold Surges to Record High
    Posted by on November 9th, 2010 at 12:10 pm

    Gold is now down only 40% over the last 30 years (adjusted for inflation).

  • Alternative Investments
    Posted by on November 9th, 2010 at 11:59 am

    Since 2002, what asset class has averaged 11% per year?

    Give up? I’ll give you a hint: fine wine!

  • Apple Hits New All-Time High
    Posted by on November 9th, 2010 at 11:32 am

    Shares of Apple (AAPL) have been as high as $321.30 today. The stock is now up more than four-fold in less than two years.

  • JPMorgan Had Perfect Trading During Q3
    Posted by on November 9th, 2010 at 11:02 am

    From Bloomberg:

    JPMorgan Chase & Co. racked up a perfect trading record for the second time this year, making money every day last quarter after accomplishing the same feat in the first three months of 2010.

    Cumulatively, the results mean the New York-based bank made more than $200 million on 12 days in the first nine months and lost money on only eight, JPMorgan said today in a regulatory filing.

    JPMorgan, the No. 2 U.S. lender by assets, follows Bank of America Corp. in reporting a perfect record for the quarter. Goldman Sachs Group Inc., which makes the most revenue on Wall Street trading stocks and bonds, had losses in that business on two days during the third quarter while Morgan Stanley reported 10 losing days for the period.

    Trading revenue at eight of the biggest Wall Street firms declined an average 12 percent through September from the same period a year ago. Goldman Sachs generated 69 percent of revenue this year from trading, and said third-quarter trading results declined 36 percent. The seven days that New York-based Goldman Sachs made more than $100 million last quarter were the fewest since the fourth quarter of 2006.

    Morgan Stanley said yesterday it made more than $100 million on one day last quarter, versus 18 days in the third quarter of 2009.

    Morgan Stanley, also based in New York, had $1.43 billion in total sales and trading revenue for the third quarter, the lowest since the first quarter of 2009. Excluding losses and gains tied to its own credit spreads, Morgan Stanley generated $1.31 billion from trading fixed-income products, down 24 percent from the second quarter.

  • Baxter Raises Dividend
    Posted by on November 9th, 2010 at 9:56 am

    Good news from Baxter International (BAX). Three weeks after releasing a very good earnings report, the company is raising its quarterly dividend from 29 cents to 31 cents per share.

    The dividend is payable on January 5, 2011 to shareholders of record as of the close of business on December 10, 2010. Going by today’s price, Baxter yields 2.4% which is just below the yield of the ten-year Treasury.