Morning News: January 28, 2016
Posted by Eddy Elfenbein on January 28th, 2016 at 7:08 am

Japan’s Economy Minister Resigns Over Money Scandal, Denies Bribery

Saudi Arabia Keeps Pumping Oil, Despite Financial and Political Risks

Oil Producer Azerbaijan in Talks for International Aid

How Will Higher Interest Rates Impact Your Finances?

Deutsche Bank Loses Ground in Trading as Overhaul Tested

EU Considering Probe of Google Tax Deal in UK

Ford’s 2015 Profit Jumps on Stronger Sales

Samsung Elec Warns of Difficult 2016 as Smartphone Troubles Spread

Smarthphones’ Death Knell

Facebook Reports Soaring Revenue, Buoyed by Mobile Ads

Time Warner Cable’s Revenue, Profit Beat Estimates

Bristol Myers Guidance Tops Estimates

How a High-Flying Lawyer Botched His Big Case Against GM

Joshua Brown: What Is Beijing Trying to Signal to Us?

Roger Nusbaum: Crude Oil Is Not Going Out of Business

Be sure to follow me on Twitter.

Today’s Fed Statement
Posted by Eddy Elfenbein on January 27th, 2016 at 2:01 pm

No rate change as expected. Here’s today’s statement:

Information received since the Federal Open Market Committee met in December suggests that labor market conditions improved further even as economic growth slowed late last year. Household spending and business fixed investment have been increasing at moderate rates in recent months, and the housing sector has improved further; however, net exports have been soft and inventory investment slowed. A range of recent labor market indicators, including strong job gains, points to some additional decline in underutilization of labor resources. Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation declined further; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. Inflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.

Given the economic outlook, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Esther L. George; Loretta J. Mester; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo.

Surprisingly short statement. The Fed is staying the course. They expect inflation to rise to 2%, but oil and the dollar have made that quite difficult.

Biogen Soars
Posted by Eddy Elfenbein on January 27th, 2016 at 1:25 pm

Today is shaping up to be a very strong day for our Buy List. Shares of Biogen (BIIB) have been up nearly 10% today. Stryker (SYK) is also having a very good day thanks to its earnings report.

I can’t be sure just yet but it looks like the Buy List is outperforming the S&P 500 by about 60 basis points. That’s very good. We still have the Fed announcement coming later this afternoon. There are also four more Buy List earnings reports tomorrow.

One small news item. Late last year, Hormel Foods (HRL) announced plans for a 2-for-1 stock split. That was approved today by shareholders. The split is due for February 9.

Biogen Earns $4.50 per Share
Posted by Eddy Elfenbein on January 27th, 2016 at 8:07 am

Biogen (BIIB) crushed their earnings estimates. For Q4, the biotech company earned $4.50 per share which was 42 cents better than estimates.

Revenue increased 7.5% to $2.84 billion, above the $2.71 billion analysts had forecast. The company cited the solid performance from its multiple sclerosis drugs and the strong adoption of its hemophilia therapies.

Tecfidera sales rose 8.4% to $992.8 million. Its revenue benefited from an increase in wholesale inventory.

Sales of the drug have been pressured recently because fewer new patients were being prescribed the drug, in part because of doctors’ concerns about a rare side effect that was linked to a patient death last year.

For 2016, Biogen forecast adjusted earnings of $18.30 and $18.60 a share, while analysts forecast $18.45 a share. The company said it expects revenue of $11.1 billion to $11.3 billion; analysts forecast $11.3 billion.

The shares are up about 6% in pre-market trading.

Morning News: January 27, 2016
Posted by Eddy Elfenbein on January 27th, 2016 at 6:56 am

China Shares End Lower, Taking 2016 Losses to $1.8 Trillion

RBS Sees $5.2 Billion Asset Value Hit, Clouding Dividend

Fed Faces a Messier Economic Picture Six Weeks After Rate Hike

Subprime Reasoning on Housing

Oil Resumes Decline Near $30 as U.S. Supplies Worsen Global Glut

The Dollar Keeps Rising, for Good or Evil

Toyota Stays Top-Selling Carmaker for Fourth Year as VW Retreats

Fiat Finds $1 Billion in Savings From Unlocking Chrysler’s Cash

The Problem With AT&T

Ericsson Earnings Fall Short as U.S. Rebound Stays on Hold

Chase Planning Rollout of Card-Free ATMs

Mitsubishi Electric, Hitachi Get $150 Million EU Cartel Fine

Sundance Roars For a Black Film, and Fox Searchlight Bids $17 Million

Cullen Roche: Three Things I Think I Think: Scary Stories Edition

Jeff Carter: Corporate Inversions: It’s Just Math

Be sure to follow me on Twitter.

Stryker Earned $1.56 per Share for Q3
Posted by Eddy Elfenbein on January 26th, 2016 at 4:13 pm

Stryker‘s (SYK) earnings are out. For Q4, the company earned $1.56 per share. As I said in Friday’s newsletter, this isn’t such a big surprise since they already told us earnings would be between $1.53 and $1.56 per share.

Quarterly sales grew 3.7% to $2.7 billion. That’s 7.0% in constant currency.

“With 2015 organic sales growth of 6.1%, bolstered by a strong fourth quarter increase of 6.4%, our top line results came in above our initial guidance,” said Kevin A. Lobo, Chairman and Chief Executive Officer. “This performance reflects the strength of our diversified revenue model, a commitment to innovation and the competitive advantage of our sales and marketing organizations. Our full year adjusted diluted EPS also exceeded our initial expectation, underscoring our commitment to delivering sales growth at the high end of med tech and leveraged earnings gains. With these results and the current momentum across our businesses, we feel well positioned heading into 2016.”

For all of 2015, Stryker made $5.12 per share. Just for the record, let’s remember Stryker’s guidance for this year. In January, the initial guidance was $4.90 to $5.10 per share. Then in April it went to $4.95 to $5.10 per share.

In July, Stryker brought it up to between $5.06 and $5.12 per share. In October, they raised the low end by one penny per share. A few weeks ago, they raised the low end by another two pennies.

Stryker made $4.73 per share last year.

Sales for the year rose by 2.8% to $9.9 billion. Again, that’s 7.0% in constant currency.

Now for guidance.

We expect 2016 constant currency sales growth in the range of 5.0% to 6.0% and adjusted net earnings per diluted share to be in the range of $1.17-$1.22 and $5.50-$5.70 for the first quarter and full year. If foreign currency exchange rates hold near current levels, we expect net sales in the first quarter and full year of 2016 to be negatively impacted by approximately 1.1% and 1.0% and adjusted net earnings per diluted share to be negatively impacted by approximately $0.02-$0.03 and $0.12-$0.13 in the first quarter and full year.

This was another solid year for Stryker. Here’s the annual EPS trend for Stryker: $2.95, $3.33, $3.72, $4.07, $4.23, $4.73, $5.12. And now make that $5.50 to $5.70 for next year.

Bond Yields and Stock Yields
Posted by Eddy Elfenbein on January 26th, 2016 at 9:11 am

Sorry for the teeny type. Here’s a chart I made showing the yield of the S&P 500 (in blue) along with the yield on the 10-year Treasury (in red).

For decades, stocks yielded more than bonds. That changed in the mid-1950s when bonds paid better yields than stocks as Americans got used to capital gains.

That relationship lasted for over 50 years, but during the Financial Crisis stocks again out-yielded bonds. They’ve stayed pretty close to each other over the last four years.

Here’s some earlier (partial) data I was able to get from FRED.

Morning News: January 26, 2016
Posted by Eddy Elfenbein on January 26th, 2016 at 7:01 am

China Stocks Plunge to 13-Month Low Amid Capital Outflow Concern

African Economies, and Hopes for New Era, Are Shaken By China

OPEC’s El-Badri Calls on Global Oil Producers to Help Curb Glut

Russian Entente Nears as Allies Hint at End of Ukraine Sanctions

Iran’s Sanctions Lift, and the West Goes to Talk Business

The Five Scenarios Now Facing the Federal Reserve

Court Hands Administration, Environmentalists A Win In Electricity Supply Ruling

Hyundai Posts Lowest Profit in Five Years on China Slowdown

Twitter’s Overhaul of Top Ranks: Analysts React

So Far, Amazon and Netflix Are Sundance’s Top Buyers

J&J Sales Fall on Strong Dollar

U.S. Cruise Lines Look For Growth in China’s Waters

These Dudes Built An Igloo During The Blizzard And Listed It On Airbnb

Howard Lindzon: THE BANKS ARE CRASHING….Everyone to the FAZmobile

Joshua Brown: On Everyone’s Mind

Be sure to follow me on Twitter.

Stocks and Oil Are Correlated
Posted by Eddy Elfenbein on January 25th, 2016 at 12:56 pm

The WSJ notes that stocks and oil are 97% correlated this year. That’s the highest in 26 years.

The unusually strong link between the two markets partly reflects a common theme driving both: fears that a slowing Chinese economy could tip the global economy into recession. But as traders and investors in each market look at the other for clues as to how bad things are, they have exacerbated the overall bearish mood.

The recent pattern marks a shift in the dynamics of oil’s 19-month collapse. Traders who long worried that the oil market was suffering from oversupply are now growing increasingly concerned that demand may be weakening as well.

“There is a vicious-cycle mentality among investors,” said François Savary, Chief Investment Officer at Prime Partners, a Swiss investment firm managing $2.6 billion of assets. “It is become self-sustaining.”

In the chart above, red is the S&P 500 and black is oil.

It seems that we’ve turned a corner where lower oil went from being a net a benefit for the economy (lower gas prices, more consumer spending) to being a net negative for the economy (defaults, etc).

My Lousy Timing with McDonald’s
Posted by Eddy Elfenbein on January 25th, 2016 at 12:41 pm

It’s always good to look at my mistakes. In 2014, I added McDonald’s (MCD) to our Buy List. I can’t say I’m a big fan of their food, but I thought the stock was cheap and the company was poised for a turnaround.

My thesis was correct but my timing was off. The stock went nowhere during 2014 and I decided to boot it from the 2015 Buy List. Then in August 2015, the stock started to move. MCD went from a low of $87.50 in August to high today of $121.90.

This morning, the fast food joint reported good earnings.

McDonald’s Corp.’s fourth-quarter profit and revenue soundly beat analysts’ expectations, as the company’s move to all-day breakfast helped drive the best quarterly results in the U.S. in nearly four years.

Signs that a turnaround under Chief Executive Steve Easterbrook was beginning to take hold emerged in the third quarter, when McDonald’s U.S. division posted its first quarterly increase in same-store sales in two years. That momentum continued into the fourth quarter with the launch of breakfast all day in early October—the company’s biggest strategic change since it rolled out McCafe beverages nationwide in 2009.

Investors expected all-day breakfast to boost sales, but not this much. Sales at U.S. restaurants open at least 13 months jumped 5.7% in the fourth quarter—far above the 2.7% growth analysts were expecting and the best same-store sales results in the U.S. in 15 quarters. Globally, same-store sales rose 5%, while analysts were expecting growth of 3.2%.

As Keynes supposed said, “markets can remain irrational a lot longer than you and I can remain solvent.” The guys in The Big Short had to wait and wait for their big bet to pay off as well. But it took time.