Cramer on Goldman Sachs
Posted by Eddy Elfenbein on October 19th, 2010 at 4:13 pm

Incidentally, he’s got a good point.

Johnson & Johnson Lifts Forecast
Posted by Eddy Elfenbein on October 19th, 2010 at 10:35 am

Johnson & Johnson (JNJ) came out with its earnings report this morning. Personally, I don’t worry so much about the details of JNJ’s earnings report. I’m more concerned with their earnings forecast. JNJ is such a solid blue-chip stock that they’re always going to come in pretty close to their forecast. If it’s up or down a few pennies per share, I don’t really much care.

Three months ago, JNJ lowered their 2010 full-year EPS guidance from $4.80 to $4.90 to a range of $4.65 to $4.75. The good news today is that they raised their full-year guidance to $4.70 to $4.80 thanks to favorable exchange rates. That’s it. I’m done. I have all I need to know.

If you’re interested in the details, however, I’ll mention that JNJ earned $1.23 per share which was eight cents higher than Wall Street’s consensus, and three cents higher than one year ago. Revenue came in at $15 billion which was below Wall Street’s forecast of $15.2 billion; and that’s probably why the stock is down today.

To recap, they beat by eight cents and raised full-year guidance, and the stock is down. This is why I don’t much worry about short-term market moves. When I own a stock I just want to know that everything is fine, and everything is fine at JNJ.

Update: The Wall Street Journal reports, “Johnson & Johnson Ekes Out Profit.” Just so we’re clear, by “eke” they mean “earned $3.42 billion.”

23 Years Ago Today
Posted by Eddy Elfenbein on October 19th, 2010 at 8:03 am

Twenty-three years ago today was Black Monday, Wall Street’s worst day ever. The Dow dropped from 2246.74 to 1738.74—a loss of 508 points or -22.61%.

To put this in some perspective, the second-worst percentage loss was roughly half that (-12.91% on October 28, 1929).

Now let’s take another look at this historic market crash. From the day the market crashed until today, the Dow has gained 540.96%. Add in dividends and it’s up 1,050.32%. (Yes, dividends do that much!) Annualized, that comes out to 11.20%. Let’s not forget inflation which has climbed by 89.95% over the last 23 years, which is 2.83% annualized.

But what if you had invested right before Black Monday, on the previous Friday? (Wow, you’d be one unlucky SOB!) From that starting line, the Dow has gained 395.99%. Throw in dividends and you’re up 750.57%. Annualized, that’s 9.97%.

Now I’m not saying that Black Monday wasn’t a big deal, but viewing it from the very long term adds a new dimension. Calling it right by one day changes your annualized returns from 11.20% to 9.97%. That’s just 123 basis points per year.

So the biggest crash in history isn’t too different from what investors throw away all the time every year with needless trading or exorbitant mutual fund fees.

Bottom line: Using common sense can be just as good as making a once-in-a-century call.

Morning News: October 19, 2010
Posted by Eddy Elfenbein on October 19th, 2010 at 7:49 am

Asian Stocks, U.S. Futures Fall After Apple, IBM Results; Oil, Dollar Drop

World Bank Blames U.S. for Unruly Capital Flows

Basel Committee Agrees on Liquidity Rules for Banks

Banks Restart Foreclosures

Bank of America Reports $7.3 Billion Loss, Citing Charges

Federal Bank’s Kansas City President Warns Against Low Rates

UnitedHealth Profit Soars Past Estimates

BNY Mellon Third-Quarter Profit Rises as Market Rebound Lifts Assets, Fees

Lack of Mortgages Frustrates Young Saudi Homebuyers

A Hedge Fund Soared, Controlled by Women, or So It Claimed

Seven in a Row
Posted by Eddy Elfenbein on October 18th, 2010 at 4:38 pm

Our Buy List increased for the seventh-straight day. The Buy List rose 0.66% today which was just below the 0.72% of the S&P 500. For the year, the Buy List is up 9.49%.

The New Normal
Posted by Eddy Elfenbein on October 18th, 2010 at 1:47 pm

Old: If you build a better mousetrap, the world will beat a path to your door.

New: Make shoddy mousetraps with inferior parts and non-unionized illegal immigrant labor. Due to the anti-mousite discriminatory practices of your industry, the race-baiting reverend shakes down your firm for a “contribution” to a charity which he just so happens to run. In exchange, the reverend provides you the political connections to overbid for a lucrative contract with the city. In exchange for that, you hire the senator’s wife as your Chief Diversity Officer with a hugely inflated salary and minimal responsibilities. The senator then pushes for two bills: the first requires do-nothing certification for the entire mouse trap industry thereby raising the cost of entry and protecting you; and the second mandates “approved” mousetraps in all residential buildings (we’re told this will somehow “protect our children”). Once the recession comes, your firm receives bailout funds from the Treasury’s MARP program which was designed by the Treasury Secretary who just so happens to be your former chairman. Congress also limits the liability of a class actions suit brought by mice severally impaired by your product (60 Minutes did a thing…they filmed you slamming the door on Morley). Finally, you’re able to get 0% financing through the Federal Reserve whose stock you just so happen to own.

The 30/10 Spread Reaches an All-Time High
Posted by Eddy Elfenbein on October 18th, 2010 at 12:25 pm

Here’s a look at the spread between the yield on the 30-year T-bond and the 10-year T-bond.

Over the last 20 years, the spread has usually been between 20 and 70 basis points (note that the regular 30-year T-bond was retired for a bit in the early 2000s).

Recently, however, the spread has surged to 140 basis points. The previous high was 111 points in October 1992. That coincided with the low point of the recession.

I think a good way to view this chart is as an inversion of investor optimism on equities.

After Billions of Dollars of Support, Citi Makes 7 Cents Per Share!
Posted by Eddy Elfenbein on October 18th, 2010 at 11:26 am

As I write this this morning, the market is very slightly on the positive side. The Buy List is mostly doing well. Reynolds American (RAI) is at a new 52-week high, thanks to its dividend increase and stock split news. Both Eli Lilly (LLY) and Fiserv (FISV) are inches away from new 52-week highs.

The big news the market is digesting this morning is Citigroup’s (C) earnings. I’m not a terribly big fan of Citigroup’s stock right now (which, by the way, you and I own about one-eight of as taxpayers). The shares are cheap by many measures but I think the investment is far from a sure thing. I never like to take chances I don’t need to take.

Similar to JPMorgan (JPM), Citigroup is doing better due to loan-loss reserves. All told, the bank made $2.2 billion last quarter which is seven cents per share. The Street was expecting six cents, so I guess that’s good. Lower trading brought revenues down 10% to $20.7 billion.

The stock is up over $4 per share. I wish I could like Citi more than I do. Perhaps if the stock was lower or if the company paid out a decent dividend, then I might be more interested. JPM is a much better buy.

Buy List Earnings Calendar
Posted by Eddy Elfenbein on October 18th, 2010 at 9:05 am

We’re heading into the peak of earnings season. Here’s a look at the upcoming earnings dates for our stocks on the March/June/September/December cycle.

I didn’t include Leucadia and Nicholas Financial on the calendar because Wall Street doesn’t follow them. The Leucadia earnings report isn’t a big deal, but I’ll have an analysis of NICK since I believe I’m the only person who follows it.

Morning News: October 18, 2010
Posted by Eddy Elfenbein on October 18th, 2010 at 7:29 am

BEFORE THE BELL: US Stock Futures Drop; Citigroup Results Due

Dollar Index Off Lows on Doubts How Far Fed Will Ease

BP Sells Venezuela, Vietnam Assets to TNK-BP for $1.8 Billion

Northeast Utilities to Buy NSTAR for $9.5 Billion

Banks Shared Clients’ Profits, but Not Losses

BHP and Rio Tinto Scrap $116 Billion Iron Ore Joint Venture

EU Debates New Debt Rules as Euro Surges

Crude Trades Near One-Week Low Because of Outlook for Weaker Fuel Demand

Production in the U.S. Probably Rose for 14th Time in 15 Months

Starbucks Remakes its Future with an Eye on Beer and Wine

Is Chaos Brewing?