• GM to IPO
    Posted by on August 12th, 2010 at 11:33 am

    General Motors, a division of the U.S. government, just reported Q2 net income of $1.5 billion. Not too bad. But the big news is that the CEO Ed Whitacre is out and the company is gearing up for an IPO. This will be one of the most anticipated offerings ever.
    One old rule of investing is to pay attention whenever a government has a yard sale. You can often pick up cheap bargains. In fact, that’s how Carlos Slim and Silvio Berlusconi made their big bucks.
    GM is planning to raise between $12 billion and $16 billion in a public offering. According to reports, the IPO will involve 20% of the company’s shares. Since Uncle Sam currently owns 61%, the IPO would bring the governments total to under 50%.
    My only fear is that the current market is a rotten environment for an IPO. Debt is loved and stocks are unloved. That tells me that it’s a better call for GM to issue bonds and buy the Treasury’s shares from them.

  • 28 Years Ago
    Posted by on August 12th, 2010 at 11:05 am

    It was 28 years ago today that the 1982-2000 bull market started. The Dow closed at 776.92 on August 12, 1982.
    Just like this year, the following day was a Friday the 13th. In fact, two movies opened that Friday, Friday the 13th, Part 3 and Fast Times at Ridgemont High. As Gary Alexander points out, it was five years later, on August 13, 1987, that the Dow broke 2700 for the first time. That was a 250% rally!
    Gary writes:

    Since the big 1982-99 bull market began on Friday, August 13, 1982, there have been 46 trading days falling on Friday the 13th, with a historical record of more than 2-to-1 positive outcomes: We’ve seen 31 up and 15 down days (67% positive). More recently, six of the last seven Friday the 13th markets have risen, including a whopper (+165.77) on June 13, 2008, right before the financial crisis struck in October.
    Basically, when we’re in a bull market, Friday the 13th becomes exceptionally lucky. During the 1990s bull market, stocks rose 13 times (vs. 3 down days) on Friday the 13th. However, there were four straight declining Friday the 13th trading days from 2002 to 2004, as the big bear market of 2000-03 ended.

  • I Didn’t Realize the Reversion was Going to be so Mean!
    Posted by on August 12th, 2010 at 10:40 am

    Ugh! The market is getting hit hard for the second day in a row. The S&P 500 was down -2.82% yesterday and we’ve been down by as much as -1.17% today. Some buyers seem to be crawling out from their hiding places, but we’ll have to see what happens.
    Clearly, investors were spooked by this week’s Fed decision, plus some poor economic reports and Cisco’s results. Let me caution you to wait this one out. The fact is that interest rates are already so low, there’s not much place else for investors to go but stocks and gold—and the latter trade is looking very crowded.
    The 10-year T-bond dipped under 2.7% recently which is just…nuts. That means that the government will pay you just 27% over the next ten years for the privilege of renting your money. I think this isn’t so much a statement on the U.S. government’s finances and it’s one about the level of anxiety of investors. A 10-year at 2.7% is basically throwing in the towel and refusing to play anymore.
    For individual names, I really like Intel (INTC) below $20 a share.

  • The 5-Year TIPs Have Gone Blutarsky
    Posted by on August 11th, 2010 at 2:22 pm

    The yield on the 5-Year Treasury Inflation Protected Bond has dropped to 0.0. Here’s a chart of the 5-year and 10-year TIPs (Felix’s chart is much bigger).
    fredgraph081110.png
    To me, this is pretty astounding. There are investors who are willing to stash their money away for five years, just to get no real return for it. They’re terrified to step off the pier even a tiny bit.

  • The Four-Day Work Week
    Posted by on August 11th, 2010 at 12:52 pm

    I’ve long argued that being lazy is an advantage with investing.
    Spurred on by my previous post showing how the market has performed this year by each day of the week, I looked at how the S&P 500 performed has performed since the beginning of 2009 if we were to exclude all Fridays.
    image970.png
    I should add that these numbers don’t include transaction costs. It seems that investors have grown leery of holding stocks going into the weekend.

  • Thank God It’s…Monday?
    Posted by on August 11th, 2010 at 10:38 am

    Here’s how the S&P 500 has performed this year by day of the week:
    Monday: +13.36%
    Tuesday: -1.30%
    Wednesday: +4.16%
    Thursday: -2.04%
    Friday: -11.94%

  • Why I’m Not a Day Trader
    Posted by on August 11th, 2010 at 10:20 am

    On July 27, Wright Express (WXS) came out with a good earnings report. The stock then dropped 5.4% that day.
    The market then had second thoughts. From July 28 to this past Monday, WXS rallied nearly 9% to reach a new 52-week high.
    The stock dropped 3.7% yesterday and it’s down over 4% today. Despite the ups and downs, there hasn’t been a major piece of news or information to judge Wright’s business since the earnings came out.

  • AFLAC Raises Dividend
    Posted by on August 11th, 2010 at 9:29 am

    As promised, AFLAC (AFL) just announced a dividend increase for the fourth quarter of 30 cents per share. This is an increase of 7.1% over the current dividend of 28 cents per share.
    This is AFLAC’s 28th consecutive annual dividend increase and it will continue AFLAC’s membership in the S&P Dividend Aristocrats. This dividend, however, is a rather wimpy and back-handed way to deliver your 28th in a row. They’re doing it just so they can say they’ve done it.
    The downside is that AFLAC waited until the fourth quarter to increase its dividend. Also, the dividend increase is much smaller than what AFL has been churning out. The company had raised its dividend by at least 12% every year since 1991.
    AFLAC also said that it’s resuming it share repurchase program after suspending it during the financial crisis. Dan Amos, the CEO, said, “Depending on market conditions, we may purchase up to three million shares as early as the fourth quarter of this year. We currently anticipate buying six to 12 million shares in 2011.”
    That’s equal to $300 million to $600 million, or roughly 64 cents per share to $1.28 per share. I would much rather see that go to cash dividends.

  • Larry Ellison Defends Mark Hurd
    Posted by on August 11th, 2010 at 8:59 am

    The CEO of Oracle writes the NYT: “The HP board just made the worst personnel decision since the idiots on the Apple board fired Steve Jobs many years ago.”

    Mr Hurd resigned from the world’s largest maker of personal computers on Friday night after an internal investigation, sparked by sexual harassment allegations from former HP contractor Jodie Fisher. The investigation found him not to have breached any harassment guidelines but to have broken the company’s business standards conduct after allegedly falsifying expenses claims to cover up his friendship with Ms Fisher.
    Mr Ellison claimed HP’s board voted 6-4 in favour of going public with Ms Fisher’s claims. “In losing Mark Hurd, the HP board failed to act in the best interest of HP’s employees, shareholders, customers and partners,” he continued. “Publishing known false sexual harassment claims is not good corporate governance; it’s cowardly corporate political correctness.”
    Ms Fisher said in her own statement that she did not have an “intimate sexual relationship” with Mr Hurd and that the pair have settled her claim privately.
    Mr Ellison also said that his friend did not commit expense fraud, saying such claims were “not credible” and showed the “HP board desperately grasping at straw in trying to publicly explain the unexplainable”.

  • Fed Statement
    Posted by on August 10th, 2010 at 2:00 pm

    Here it is:

    Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated.
    Measures of underlying inflation have trended lower in recent quarters and, with substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.
    The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
    To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.1 The Committee will continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.
    The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.
    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh.
    Voting against the policy was Thomas M. Hoenig, who judges that the economy is recovering modestly, as projected. Accordingly, he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted and limits the Committee’s ability to adjust policy when needed. In addition, given economic and financial conditions, Mr. Hoenig did not believe that keeping constant the size of the Federal Reserve’s holdings of longer-term securities at their current level was required to support a return to the Committee’s policy objectives.

    It looks like a modest victory for the doves. The market is rallying slightly but it could turn into something more.