QOTD
Posted by Eddy Elfenbein on June 29th, 2010 at 9:39 am

From Ambrose Evans-Pritchard:

As for the Fed, I venture to say that a common jury of 12 American men and women placed on the Federal Open Market Committee would have done a better job of setting monetary policy over the last 20 years than Doctors Bernanke and Greenspan.

The Supremes Help Tobacco Stocks
Posted by Eddy Elfenbein on June 28th, 2010 at 2:26 pm

The market is doing very well for us today. AFLAC (AFL) spiked as high as $46.20 before pulling back below $45. It’s still holding on to a nice gain.
Reynolds American (RAI) is getting a nice boost thanks to the Supreme Court’s decision in favor of the tobacco companies. All the major tobacco stocks are doing well today. RAI got as high as $54 a share earlier today.
This is a very split market today. The consumer stocks are doing well while the economically sensitive stocks are down. The Morgan Stanley Consumer Index (^CMR) is up 0.52% while the Morgan Stanley Cyclical Index (^CYC) is down -0.65%.

First in Business Worldwide
Posted by Eddy Elfenbein on June 28th, 2010 at 10:35 am

Jump ahead to the 7 minute mark:

(Via: ZeroHedge)

Stock Buyback Fail
Posted by Eddy Elfenbein on June 28th, 2010 at 9:59 am

I loathe stock buybacks, but this one really takes the cake.
Guess what oil company spent $37 billion in buying back its own stock between 2005 and 2008, only to see that investment drop to $15 billion today?
I’ll give you a hint: BP (BP).
That’s about $12 per share that went out the window.
A few weeks ago, several emailers asked if BP was a good buy. I said that a falling stock isn’t a cheap stock. It’s only cheaper compared to where it was. At the time, BP was at $38 a share. On Friday, the stock made a new 52-week low below $27.

The Duck Ducks Greece
Posted by Eddy Elfenbein on June 28th, 2010 at 9:41 am

I haven’t made much of a secret that I think AFLAC’s (AFL) stock is absurdly low. I think the market is very nervous over what’s in AFLAC’s portfolio, especially in Europe, and that’ understandable. The most unnerving aspect of a financial crisis is that you never know who is exposed to what, until too late. The company, however, has made it clear that its portfolio is doing fine.
Today the company reports that it has dumped all of its Greek sovereign bonds. AFLAC got $270 million for the bonds, which is a loss of $67 million, or around 14 cents a share. That’s barely a dent.
AFLAC has also reduced its exposure to perpetual securities (also known as “hybrids”) through two separate transactions. This is how they describe the sales:

The company also exchanged a perpetual, Upper Tier II security of a European issuer for a higher-rated, fixed maturity, senior debt instrument. In addition, the company further reduced its perpetual Upper Tier II holdings through a privately negotiated transaction with another European issuer.

Hmmm. A bit murky, no? The important news is that those sales will bring in $80 million in profit to their Q2 GAAP earnings, or about 17 cents per share.
This is very good news and it shows investors how well AFLAC manager risk. Kriss Cloninger III, the president and CFO said:

Although these transactions resulted in losses on a statutory accounting basis, we estimate they will add approximately 20 points to our risk-based capital ratio by reducing investment concentrations and reinvesting into higher-rated debt securities. As we have repeatedly discussed, our primary focus is to maintain a strong capital position. That is especially true today, given uncertainty in the global economic environment and the volatility of capital markets. As such, we will continue to assess the creditworthiness of issuers in our portfolio and manage our investments in a way that reflects our risk tolerance and the objectives we’ve set for earnings growth. In that regard, we continue to believe our objectives of increasing operating earnings per diluted share 9% to 12% in 2010 and 8% to 12% in 2011, before the impact of currency translation, are achievable.

Last year, AFL made $4.85 per share. For this year, they said they expect to earn somewhere between $5.24 to $5.56 per share.

Lowest Mortgage Rates in 50 Years
Posted by Eddy Elfenbein on June 26th, 2010 at 11:11 am

Not that anyone has any money:

Mortgages are cheaper today than they’ve been in a half-century. If only most people had the job security, the credit score and the cash to qualify.
The average rate for a 30-year fixed loan sank to 4.69 percent this week, beating the low set in December and down from 4.75 percent last week, Freddie Mac said Thursday. Rates for 15-year and five-year mortgages also hit lows.
Rates are at their lowest since the mortgage company began keeping records in 1971. The last time they were any cheaper was the 1950s, when most long-term home loans lasted just 20 or 25 years.

Today’s Ugly GDP Report
Posted by Eddy Elfenbein on June 25th, 2010 at 10:15 am

When the initial first-quarter GDP report came out two months ago, I said it was pretty bad.
Now here we are two months later and it turns out that GDP growth was worse than we thought. The government said the economy grew by just 2.7% during the first three months of the year.

North Korea Says We Owe Them $65 Trillion
Posted by Eddy Elfenbein on June 24th, 2010 at 11:27 pm

$64.96 trillion to be exact due to 60 years of hostility:

The official North Korean news agency, KCNA, says the cost of the damage done by the US since the peninsula was divided in 1945 is estimated at $US64.96 trillion.
The compensation call comes on the eve of the 60th anniversary of the start of the 1950-1953 Korean War.
KCNA said the figure includes $US26.1 trillion arising from US “atrocities” which left more than 5 million North Koreans dead, wounded, kidnapped or missing.
The agency also claims 60 years of US sanctions have caused a loss of $US13.7 trillion by 2005, while property losses were estimated at $US16.7 trillion.
The agency said North Koreans have “the justifiable right” to receive the compensation for their blood.
It said the committee’s calculation did not include the damage North Korea had suffered from sanctions after its first nuclear test in 2006.

Bed Bath & Beyond Earns 52 Cents a Share
Posted by Eddy Elfenbein on June 24th, 2010 at 9:34 am

I was somewhat right about Bed Bath & Beyond‘s (BBBY) earnings report. The company earned 52 cents a share for its May quarter. My range of 52 to 54 cents a share was more than Wall Street’s consensus of 48 cents a share.
I was also right that the big news would be the company’s outlook for this quarter. BBBY said to expect earnings for the August quarter to range from 59 to 63 cents a share. Wall Street was expecting 63 cents per share.
For the full-year, BBBY said it expects profit growth of 15%. Last year, the company made $2.30 a share so that translates to earnings of $2.65 per share for this year. That’s five cents below Wall Street’s view. In April, BBBY’s original forecast was for EPS growth of 10% to 15% for this year, so there’s really no downgrade at all. In fact, I think $2.65 is probably on the low side.
The stock was off sharply in the after-hours market yesterday but it seems to have recovered somewhat. This news really isn’t that bad; I’d say it’s closer to fine-tuning than poor guidance. The good news is that profit margins continue to improve. This is the fifth straight quarter that year-over-year net margins are up.
For the last four quarters, BBBY’s net margin is just over 8%. That’s a huge improvement from under 6% just a few quarters ago. To give you some perspective, that kind of margin growth turns a sales increase of 12% into profit growth of close to 50%.
Here’s a look at the trailing four-quarter EPS going back a few years. The red line is the company’s forecast.

The company has clearly recovered from the recession. To many people make the mistake of lumping BBBY in with housing stocks. Their business is affected by housing but it’s not so heavily dependent on the overall health of that sector.
My view is that if you can get this stock below $40, you’re getting a good deal.
Here are the earnings results going back a few years:

It’s Always Sunning On Wall Street
Posted by Eddy Elfenbein on June 24th, 2010 at 9:05 am

Via Paul Kedrosky comes this chart showing how rarely Wall Street tells us to sell.