65 Years Ago Today
Posted by Eddy Elfenbein on April 27th, 2007 at 2:01 pm

This is a big year for stock market history buffs. In 2007, we’re celebrating the 100th anniversary of the Panic of 1907 (okay, maybe not celebrate), the 75th anniversary of the 1932 low, the 25th anniversary of the 1982 bull market and the 20th anniversary of the 1987 crash. It’s also been five years since the 2002 low and ten years since the East Asian financial crisis. All in all, happy times for the market history crowd.

Tomorrow will mark another milestone—65 years since the 1942 low. On April 28, 1942, The Dow bottomed at 92.92.

That’s not just low. It’s low, low, loooow. The market was still reeling from Pearl Harbor, and the country was starting to realize how much work lay ahead. The only good news was Jimmy Doolittle’s daring raid over Tokyo ten days before.

But think about how investors must have felt. This was 13 years after 1929, yet the market was still just one-quarter of its peak. The Dow was even 10% below its level from January 1906, more than 36 years before! That would be like the Dow today trying to break 770.

The night, FDR gave a fireside chat detailing his economic policy for the war. This is part of what he said:

You do not have to be a professor of mathematics or economics to see that if people with plenty of cash start bidding against each other for scarce goods, the price of those goods (them) goes up.

Yesterday I submitted to the Congress of the United states a seven-point program, a program of general principles which taken together could be called the national economic policy for attaining the great objective of keeping the cost of living down. I repeat them now to you in substance:

First. we must, through heavier taxes, keep personal and corporate profits at a low reasonable rate.

Second. We must fix ceilings on prices and rents.

Third. We must stabilize wages.

Fourth. We must stabilize farm prices.

Fifth. We must put more billions into War Bonds.

Sixth. We must ration all essential commodities which are scarce.

Seventh. We must discourage installment buying, and encourage paying off debts and mortgages.

I do not think it is necessary to repeat what I said yesterday to the Congress in discussing these general principles. The important thing to remember is that earn one of these points is dependent on the others if the whole program is to work.

Some people are already taking the position that every one of the seven points is correct except the one point which steps on their own individual toes. A few seem very willing to approve self-denial — on the part of their neighbors. The only effective course of action is a simultaneous attack on all of the factors which increase the cost of living, in one comprehensive, all-embracing program covering prices, and profits, and wages, and taxes and debts.

The blunt fact is that every single person in the United States is going to be affected by this program. Some of you will be affected more directly by one or two of these restrictive measures, but all of you will be affected indirectly by all of them. Are you a business man, or do you own stock in a business corporation? Well, your profits are going to be cut down to a reasonably low level by taxation. Your income will be subject to higher taxes. Indeed in these days, when every available dollar should go to the war effort, I do not think that any American citizen should have a net income in excess of $25,000 per year after payment of taxes.

Good golly! Can you imagine any politician giving a speech like that?

In today’s terms, $25,000 is about $315,000.

I would hardly say this speech was the catalyst, but the market did indeed take off. This was probably the greatest long-term bull market in history.

Within two years, the Dow was up 50%, and it doubled by 1945. By 1955, the Dow was up fivefold, and it doubled again ten years later. The market really didn’t see any pause until 1966 when inflation started to have a major impact. Twenty four years after FDR’s speech, the Dow had advanced close to 1,000% and that’s not counting dividends.

First-Quarter GDP Report
Posted by Eddy Elfenbein on April 27th, 2007 at 9:53 am

The government reported today that the economy grew at an annualized rate of just 1.26% for the first three months of the year. That’s pretty weak. It’s the slowest quarter in four years.
I’m also troubled by the trend. This marks the fourth straight quarter of below-trend growth (the long-term trend is about 3%).
GDP data is very trend-sensitive. If the economy is growing by over 3%, it tends to stay that way. In the late 1990s, we had 18 straight quarters of over 2.6% growth. If it’s under 3%, it also tends to stay that way. In the early part of this decade, we had 11 straight quarters of under 2.8%.
The breakout points are very important.

The Cyclical Rally Lives
Posted by Eddy Elfenbein on April 26th, 2007 at 2:43 pm

The rally in cyclical stocks is still going strong. Last month, I pointed out that on March 19, the ratio of the Morgan Stanley Cyclical Index (^CYC) versus the S&P 500 reached a 13-year high.
The ratio backed off some afterward as the cyclicals slightly underperformed the overall market. But that changed last week. This recent leg of the bull market has been greatly helped by the cyclicals. Yesterday, the overall CYC reached an all-time as it closed over 1,000 for the first time.
The CYC-to-S&P ratio has now fully recovered and it close to making another 13-year high. In fact, it’s not too far from taking out the 1994 high as well.
Here’s a look at how the ratio has done over the past few weeks:

And here’s how the ratio has done over the last 30 years:

Update: It happened. The ratio made a new 13-year high today. The S&P 500 closed 0.08% lower while the CYC rose 0.02%.

P/E Ratios Are at a 20-Month High
Posted by Eddy Elfenbein on April 26th, 2007 at 1:55 pm

Thanks to yesterday’s surge, the P/E ratio of the S&P 500 is up to 16.87 (I use smoothed operating earnings). That’s the highest it’s been since August 2005.
Still, it’s hardly excessive but we’re starting to see the impact of slower earnings growth. At the start of the year, first-quarter earnings were projected to be up 8.7%. They’ll probably be up 4% to 5%. Fortunately, most of the damage is confined to the autos and homebuilders.
So far.

Even CEO Can’t Figure Out How RadioShack Still In Business
Posted by Eddy Elfenbein on April 26th, 2007 at 12:47 pm

From The Onion:

The retail outlet boasts more than 6,000 locations in the United States, and is known best for its wall-sized displays of obscure-looking analog electronics components and its notoriously desperate, high-pressure sales staff. Nevertheless, it ranks as a Fortune 500 company, with gross revenues of over $4.5 billion and fiscal quarter earnings averaging tens of millions of dollars.
“Have you even been inside of a RadioShack recently?” Day asked. “Just walking into the place makes you feel vaguely depressed and alienated. Maybe our customers are at the mall anyway and don’t feel like driving to Best Buy? I suppose that’s possible, but still, it’s just…weird.”

Earnings: The Good, the Bad and the Very Ugly
Posted by Eddy Elfenbein on April 26th, 2007 at 11:03 am

This has been a very busy week for earnings. Let’s run down some of the recent reports from the stocks on our Buy List.
Graco (GGG) reported yucky earnings after the bell on Tuesday. The company made 50 cents a share, which was seven cents below Wall Street’s estimate and a penny less than last year. Not good! Revenue rose just 3% to $197.5 million. The stock dropped 5% yesterday to $40 a share.
Right after I mentioned that SEI Investments (SEIC) was at a new high, the company reported blah earnings. For the first quarter, SEIC earned 62 cents a share, one penny shy of expectations. Of course, that’s still good growth over last year’s 54 cents a share, but Wall Street wanted better. Me too. The stock fell 3.6% yesterday.
At least, AFLAC’s (AFL) earnings were a bright spot. The company reported operating earnings of 82 cents a share, three cents more than estimates. Revenue rose 5% to $3.75 billion. The stock rose 4.5% yesterday. That helped ease some of the pain.
Fair Isaac (FIC) already announced that it would have bad earnings. Well, they were right. Analysts had been looking for 59 cents a share, but the company said it would be 35 cents to 37 cents a share. The results came in at 37 cents a share. The stock dropped last week when the earnings shortfall was announced, so the shares didn’t do much yesterday. I’m not encouraged by this.
Fiserv (FISV) had a bit of a mixed picture:

Fiserv first-quarter earnings rise

Fiserv 1Q profit slips

Actually, they’re both right. Net income fell, but earnings-per-share rose from 64 cents to 66 cents. Analysts, on average, were expecting 67 cents. I’m not worried about FISV. This is a solid company.
Varian Medical (VAR) is today’s problem child. The company made 46 cents a share for the first quarter, which was in line with expectations. But VAR’s EPS outlook for next quarter is for 35 to 36 cents, which is well below the Street’s forecast of 45 cents. VAR sees full-year EPS of $1.79 to $1.81 compared with the Street’s forecast of $1.85. The stock is down about 7% this morning.
Finally, Respironics (RESP) had good news this morning. The company reported earnings of 46 cents a share, one penny better than expectations. RESP also said this quarter’s earnings will be 50 cents to 52 cents a share compared with the Street’s forecast of 48 cents a share. Full year EPS is expected to be $1.74 to $1.76 compared with the Street’s outlook for $1.63.
Unfortunately, the Buy List hasn’t benefited as much as I hoped from this recent up move in the market. For the year, the Buy List (red line) now trails the S&P 500 (black line), 5.44% to 3.55%. It all turned recently. Since April 5, the S&P 500 is up 3.58% while the Buy List is up just 1.15%.

Lindsay San Looks at Stryker (SYK)
Posted by Eddy Elfenbein on April 26th, 2007 at 8:39 am

Next week, the stock celebrates 28 years since its IPO. Since then, the shares are up 800 fold, or 27% a year, which is even better than Berkshire Hathaway.

Dow 13000
Posted by Eddy Elfenbein on April 25th, 2007 at 4:01 pm

Wow, what a day!
The Dow (^DJI) shot up 135.95 points to break 13000. This comes just 127 trading days after breaking 12000. The index closed today’s trading at 13089.89.
The bull keeps on charging. I’m too modest to mention that I defended the bull six months ago and again two months ago, so I’ll just play it cool.
The Dow isn’t the only one partying. The S&P 500 is at 1495.42, only inches away from 1,500 — a number it hasn’t seen in over six years. The Nasdaq is at 2547.89 and is closing in on 2,584 which is a Fibonacci number. I have know idea what it means, but you can use this as a conversation starter.
What pushed us over the top today is what’s been driving us all along, energy. The S&P Energy Index (^DJUSEN) was up 2.07%. The Morgan Stanley Cyclical Index (^CYC) shot up 1.28% to close at 1,010.56, its first ever close over 1,000.
Here’s my estimate of how many Dow points each stock has added since October 19 when the Dow broke 12000:
Honeywell………………………100.85
Boeing…………………………….99.80
Altria……………………………….99.06
IBM…………………………………94.27
Exxon……………………………..82.81
Alcoa………………………………66.88
Merck……………………………..64.20
McDonalds……………………….63.88
Coke……………………………….55.51
JP Morgan Chase………………48.35
AT&T……………………………….43.80
DuPont……………………………40.39
Amex………………………………35.35
Caterpillar………………………..34.21
Citi………………………………….31.94
Disney……………………………..30.31
Home Depot……………………..29.17
AIG………………………………….27.39
United Tech………………………24.71
HP…………………………………..18.77
Intel………………………………….9.98
Procter & Gamble………………..8.37
Microsoft……………………………5.69
3M……………………………………4.63
Verizon……………………………..3.58
Wal-Mart……………………………2.60
GE…………………………………….1.06
Pfizer………………………………-11.05
GM………………………………….-16.01
J&J………………………………….-27.31

Royal Bank-Led Group Bids $98.5 Billion for ABN Amro
Posted by Eddy Elfenbein on April 25th, 2007 at 3:32 pm

I told you this wasn’t over. Now a group led by RBS is making a counter offer of $98.5 billion for ABN Amro. Barclay’s bid is for about $90 billion.

Royal Bank of Scotland Group Plc, Santander Central Hispano SA and Fortis offered 72.2 billion euros ($98.5 billion) to buy ABN Amro Holding NV, sparking the biggest takeover battle in the financial-services industry.
The Royal Bank-led group offered 39 euros a share, with 70 percent in cash and 30 percent in stock, the companies said in a statement today. The group said its approach is 13 percent higher than the all-stock bid ABN Amro accepted from Barclays Plc two days ago. Barclays’s bid was worth 67 billion euros at the time.
The fight for control of Amsterdam-based ABN Amro, which has branches in 53 countries, centers on its LaSalle unit in Chicago. ABN Amro and Barclays elbowed Royal Bank Chief Executive Officer Fred Goodwin aside by agreeing to sell LaSalle to Bank of America Corp. for $21 billion. Goodwin said today that LaSalle will be a “major piece” of any bid.

The numbers here are staggering. Let’s see if Barclays makes a move.

Respironics On Wall Strip
Posted by Eddy Elfenbein on April 25th, 2007 at 9:32 am