• Today’s Fed Statement
    Posted by on June 23rd, 2010 at 2:28 pm

    A hint of optimism?

    Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually. Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months. 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 moderate for a time.
    Prices of energy and other commodities have declined somewhat in recent months, and underlying inflation has trended lower. 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.
    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 action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer-run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly.

    The market is happy!
    Dow Jones reports that the futures market now sees a 22% chance of a Fed hike in January. Before the meeting, it was 32%.

  • Medtronic Gives 2011 Outlook
    Posted by on June 23rd, 2010 at 9:32 am

    Once again, the stock market looks to rise this morning. The Federal Reserve is meeting in Washington and will almost certainly leave interest rates unchanged. Traders, however, will dissect the Fed’s policy statement for any hint of a change in direction. I’ve said that I believe the Fed will raise rates before most people expect.
    As for now, the dominant fact is that unemployment is close to 10% and inflation is very tame. In Britain, the results of their most recent policy meeting showed that one member did vote to increase rates (shocker), but everyone else wanted to continue with low rates.
    Medtronic (MDT) said that it expects earnings of 79 cent to 81 cents per share for its fiscal first quarter which ends next month. That’s below Wall Street’s estimate of 84 cents per share so the stock may come down today, but the news isn’t that bad. For the full year, Medtronic sees earnings ranging between $3.45 and $3.55 per share while the Street sees earnings coming in at $3.51 a share. The stock is now below $38 a share so Medtronic is going for a decent valuation.

  • Update on Momentum Stocks
    Posted by on June 22nd, 2010 at 2:59 pm

    Here’s an update to the chart of the historical performance of momentum stocks. This is one of the most fascinating phenomena in finance. Stocks that have done well, on average, continue to do well.
    The chart shows the historical performance of stocks ranked by momentum decline (meaning 10% slices).
    image951.png
    The deciles are perfectly rank ordered. The stocks that had been doing the best, do the best. The stocks that had been doing the worst, fare the worst.
    The data comes from Dr. Ken French’s website. Just to be clear, momentum is defined by performance over the 11-month period starting 12 months ago and ending one month ago. The one-month directly prior to each period is excluded. At the end of the month, the whole thing is repeated. The data series goes back over 80 years.
    Here’s how each decile has performed:
    Decile 1: 16.79%
    Decile 2: 13.11%
    Decile 3: 12.42%
    Decile 4: 10.63%
    Decile 5: 9.42%
    Decile 6: 8.47%
    Decile 7: 8.05%
    Decile 8: 5.73%
    Decile 9: 4.54%
    Decile 10: -1.73%

  • The Yuan Rally Fades Away
    Posted by on June 22nd, 2010 at 1:37 pm

    Yesterday’s yuan rally totally collapsed and we’re not advancing much at all today. The market is becoming similar to a World Cup match—little scoring and lots of buzzing in the background.
    The Buy List is finally having a good day today. I said before that I was wary of Bed Bath & Beyond (BBBY), but I didn’t expect such a pullback in that stock. I’ll be very curious to hear what they have to say about Q2 when Q1 earnings come out tomorrow.
    The most notable move today is that energy stocks aren’t doing well. This is good four our Buy List’s relative performance since we’re underweighted in energy.
    I’m also surprised by the rally in the five-year Treasury. The yield has dropped from 2.3% yesterday to 2% today. That’s a big move. What’s interesting is that the five-year T-note has tried repeatedly to break below 2% and it just can’t stick. It bounced off 2% last December and has had a longer battle with 2% ever since late April. If I knew more about technical analysis, I might call it “resistance.”

  • Dow 1,000
    Posted by on June 21st, 2010 at 12:35 pm

    Peter Brimelow finds this gem in a recent Elliot Wave Theorist:

    The only way for the developing configuration to satisfy a perfect set of Fibonacci time relationships is for the stock market to fall over the next six years and bottom in 2016.

    Got that. To be more specific, they see the Dow plunging below 1,000 as a very realistic scenario.
    I’m curious about the off-chance that we don’t satisfy a perfect set of Fibonacci time relationships. Hey, stranger things have happened.

  • Bed Bath & Beyond’s Earnings Report
    Posted by on June 21st, 2010 at 10:47 am

    This Wednesday, Bed Bath & Beyond (BBBY) is due to report its first-quarter earnings. This will be for the quarter that ended with the month of May.
    I’m a little anxious about this report. Up until last Wednesday, the stock had had a pretty good run. During the financial crisis, the shares got to as low as $16 in November 2008. They hit a peak of $48 earlier this year.
    The company is doing very well and BBBY has creamed earnings for the last few quarters, particularly the last five. But at this price, I can’t say that the stock is a screaming bargain. It’s a very good stock at a fair price, not a great price.
    The current consensus on Wall Street is that BBBY will earn 48 cents a share for Q1. That’s probably low but not by much. In April, the company gave a range of 44 to 48 cents per share. That’s a lowball. My expectation is that BBBY will earn 52 to 54 cents a share. I’m curious what they’ll say for Q2 expectations.

  • What’s the Best Stock of the Last 5 Years?
    Posted by on June 21st, 2010 at 10:35 am

    It’s up more than 10-fold.
    I’ll give you a hint: Shatner is involved.

  • The Cold War Is Officially Over
    Posted by on June 21st, 2010 at 9:40 am

    The BBC reports:

    Russia to drop capital gains tax to attract investment
    Russia will scrap capital gains tax on long-term direct investment from 2011, President Dmitry Medvedev has said.
    Mr Medvedev said that in terms of improving Russia’s investment climate “we, I hope, are moving forward”.
    He also said the number of “strategic” firms, in which foreign investment is restricted and which cannot be privatised, would fall from 280 to 41.

  • The Onion: White House Jester Beheaded For Making Fun Of Soaring National Debt
    Posted by on June 21st, 2010 at 9:33 am

    The rest of the media missed this one:

    WASHINGTON—After serving 12 years in the position, Motley, the official White House Jester, was beheaded Tuesday after delivering a poorly received jape about the spiraling national debt before President and Mrs. Obama.
    “For crimes of great arrogance and cheek, His Idiocy the White House Jester has been sentenced to a swift demise,” White House Press Secretary Robert Gibbs said following the death sentence. “Let it be heard over every city and suburb of this land that the National Debt is no topic for frivolity, and the mailed hand of Obama shall smite all offenders.”
    Motley, who used his last words to beg in vain for Obama’s mercy, was executed on the North Lawn at the strike of noon.

    Read more…

  • JoS. A. Bank Clothiers Declares 50% Stock Dividend
    Posted by on June 21st, 2010 at 9:19 am

    Joe Banks (JOSB) announced today a 50% stock dividend. In other words, that’s a three-for-stock stock split. If you own 200 shares, you’ll get another 100 and you can expect the share price to drop by 33% (yes, a 50% increase followed by a 33% drop brings you back to where you started).
    Ultimately, a stock split doesn’t mean anything to shareholder value. Companies say that do it to increase liquidity but that didn’t hold back Berkshire Hathaway (BRKA) for many years. In reality, these are nice press releases companies like to put out throughout the year. And JOSB has done well.