Hudson City Deal Finally Approved
Posted by Eddy Elfenbein on October 1st, 2015 at 11:23 pm

In 2012, I added Hudson City Bancorp (HCBK) to our Buy List. That August, the bank announced that it was merging with M&T Bank (MTB).

We got a good price for Hudson and it was a 30% winner for us in 2012. Since it was going to merge, I didn’t include HCBK on our 2013 Buy List.

The merger, however, did not get approved. Not until this week.

The deal repeatedly stalled as the Fed reviewed Buffalo, New York-based M&T’s anti-money-laundering controls. Hudson City has also faced scrutiny from regulators and agreed this month to pay more than $30 million to resolve an investigation by the Justice Department and the Consumer Financial Protection Bureau into allegations of discriminatory lending practices.

The delay, which analysts have called one of the longest in U.S. banking history, has served as a cautionary tale for other lenders seeking to increase in size through acquisitions and has exacerbated a slowdown in deal-making.

We added Hudson at $6.25 per share. Just before the merger announcement, it got to $6.44 per share. Hudson jumped $1.01 on the day of the news. It eventually closed 2012 at $8.13, which is where we exited our position. The stock closed today at $9.76 per share. In the 2.75 years since we sold Hudson, it gained 20%. The S&P 500 is up about 35% over that time.

Ford’s Best September in 11 Years
Posted by Eddy Elfenbein on October 1st, 2015 at 11:30 am

This morning’s ISM came in at 50.2. That’s on the low side, but it’s still above 50 which signals the economy is still expanding.

Two other economic reports are in our immediate view. One is that initial jobless claims rose to 277,000. The big September jobs report is tomorrow.

We also learned that construction spending rose 0.7% in August. Overall, construction spending is up 13.7% in the last year.

The best news was a very good report for auto sales. Ford (F) had its best sales month in 11 years.

Ford Motor Co. posted a 23 percent year-over-year rise to 221,599 vehicles sold in September.

The strong result for the Dearborn automaker was broad-based, with cars, trucks and utilities all posting double-digit sales gains.

The company’s retail sales increased 23 percent, and overall Ford had its best September performance in 11 years.

It joined fellow Detroit Three automakers FCA US and GM in posting double-digit gains for the month. Sales gains were aided by a later Labor Day holiday weekend selling period but the industry as a whole has also been strong.

For Ford, retail sales of the all-important F-Series trucks rose 28 percent, pushing truck sales to their highest level in nine years. Ford brand SUV sales were up 27 percent, marking that category’s best September since 2003. And sales of Ford commercial vans jumped 86 percent in route to their best September sales since 1986.

Morning News: October 1, 2015
Posted by Eddy Elfenbein on October 1st, 2015 at 7:05 am

Putin’s Economic Might Is Withering Away

Charting the Markets: China Factory Data Sends Global Equities Higher

Lagarde Says Fed Hike, Slower China to Test Global Economy

Forget Rates and Payrolls: It’s Earnings That Really Matter

Fed’s Dudley Open to Adjusting Rules to Improve Liquidity

Oil Drillers Spared More Misery by U.S. Judge’s Fracking Ruling

Tsinghua Deal to Connect Western Digital to Powerful China Tech Set

1,129 Days Later… Bank Deal Approved

How Glencore’s Crazy Month Makes Greek Banks Look Tame

Fiat Chrysler Workers Appear to Reject Contract Proposal

The Other Victims of the Volkswagen Scandal: Dealers

Pacific Trade Partners Make Progress on Autos Hurdle

Young Americans Are Giving Up on Getting Rich

Cullen Roche: How Long Can You Stick With Failing Factor Investing?

Joshua Brown: Are You Ready For The Next Bear Market?

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Buy List Performance YTD
Posted by Eddy Elfenbein on September 30th, 2015 at 4:39 pm

The third quarter is now on the books.

For the first three quarters of 2015, our Buy List is down 2.22% while the S&P 500 is off by 6.74%.

Adding in dividends, our Buy List has lost 1.37% while the S&P 500 is down 5.29%.

Morning News: September 30, 2015
Posted by Eddy Elfenbein on September 30th, 2015 at 7:08 am

Eurozone Faces Renewed Deflation Threat as Consumer Prices Fall

German Labor Market Resilient Despite Unemployment Uptick

China’s Xi Struggles to Show Softer Side on U.S. Charm Offensive

WTO Cites China, U.S., Refugee Costs As Risks To Trade Growth

A Key Tenet of Janet Yellen’s ‘Lowflation’ Call Might Be Off the Mark

Petrobras Raises Gasoline and Diesel Prices Amid Cash Crunch

Chesapeake Guts Workforce to 10-Year Low on Gas-Price Rout

ComScore to Buy Rentrak in Stock Deal Topping $800 Million

Big Shift At Ralph Lauren And A Big Blow For The Gap

Amazon Taps ‘On-Demand’ Workers for One-Hour Deliveries

Potential Anheuser-Busch InBev Takeover of SABMiller Has Pitfalls

Elon Musk Delivers Tesla’s First Model X SUVs in California

Drone-for-Hire Business Makes Big Bet on Industry

Jeff Carter: The Icahn Speaks

Howard Lindzon: My Business Insider Story… and The Death of TV of Course

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Value Has Underperformed for Eight Years
Posted by Eddy Elfenbein on September 29th, 2015 at 1:49 pm

Check out this chart which shows the S&P 500 Value Index divided by the S&P 500. This shows that value stocks have lagged the overall market for more than eight years.

Some of this is because financial stocks are often put in the value bucket, and those stocks were not treated well during the financial crisis.

The Market Is Smarter than You
Posted by Eddy Elfenbein on September 29th, 2015 at 12:05 pm

Let me begin this post by admitting that there’s something I don’t know. I realize, dear reader, that this may come as a great shock to you. But yes, this does happen to many great men, even me.

Here’s what I don’t know. Yields on Treasury Inflation Protected securities (TIPs) are much lower than I would expect, and I have no idea why. The 10-year TIPs yield is a minuscule 0.71%. I would think it would be much higher. Even above 2%. This completely baffles me.

But here’s our lesson. I’ve seen a lot of smart folks go into finance and quickly leave the ring battered and bruised. This is especially true for people with backgrounds in engineering and math. The market chews these people up.

I think the reason these people fail is that they don’t have adequate respect for the market. Ultimately, that’s what investing teaches you. A person with lots of equations would simply conclude that, in our case, the market is wrong on TIPs yields, and prices will soon adjust.

Perhaps. But that’s often not the case. The market has its reason for its prices. Sure, they may not be good reasons, but they are reasons. As an investor, you have to deal with markets as they are, not as you or your model would wish them to be. It takes a lot of guts to say that an immense, highly liquid market is wrong. The market always knows more than you do. Always.

I’m not a technical analyst but one of its great benefits is that it dispenses with “why” questions at the outset. Why is IBM down today? The technician would say “who cares?” He has no idea why, nor is he interested. But he’s keenly aware that whatever the reason, IBM is in fact down. That part we can agree on. It’s the ability to face reality head on that’s key for investors.

Maybe the market is picking up new information that you don’t yet see. Maybe the relationship you think is solid is merely transitory. Maybe the prices are “wrong” but the factor causing them is large and powerful and can outlast your position. As Keynes famously said, “Markets can remain irrational longer than you can remain solvent.”

Please don’t take this to mean that markets are always right, or even efficient. The whole reason for this blog is to show people that markets can be beaten. But don’t be so quick to dismiss the market’s opinions as irrational.

Morning News: September 29, 2015
Posted by Eddy Elfenbein on September 29th, 2015 at 7:11 am

Rajan Surprises Again With Bigger-Than-Forecast India Rate Cut

China’s 2017 Carbon Timetable May Be Hit by Slowing Economy

`Cold Fusion’ Needed as Central Banks Look for Help With Growth

Commodity Rout Hits Traders, Emerging Markets

The Perils of Forcing a Sale of Illiquid Assets

With Extremists Ascendant In House, Ex-Im Bank Supporters Need New Approach

U.S. Inflation Outlook Slumps to Six-Year Low as Fed Sees Pickup

How Congress May Have Saved Goldman Sachs From Itself

Yahoo to Go Ahead With Alibaba Spinoff Without IRS Approval

Halliburton and Baker Hughes Announce Additional Divestiture Proposals

Energy Transfer to Buy Williams For $33 Billion After Long Quest

Chip Cards Will Require Users to Dip Rather Than Swipe

Reynolds to Sell Some Brand Rights to Japan Tobacco For $5 Billion

Roger Nusbaum: Diesel Debacle

Cullen Roche: Did the Fed Cause the Commodity Bubble?

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Lowest Close Since August 25th
Posted by Eddy Elfenbein on September 28th, 2015 at 8:12 pm

Today was a very unpleasant day on Wall Street. The S&P 500 fell 2.57% to close at 1,881.77. This was the market’s lowest close since August 25.

To give you an idea of how ugly today’s market was, new lows beat the new highs by a score of 73 to 0. Ten stocks closed higher and 492 closed lower. (Yes, there really are 502 stocks in the S&P 500.) The Nasdaq lost just over 3%, and the Dow closed 1.89 points above 16,000.

Energy, Healthcare and Materials were down the most today. Biotech continues to feel the brunt of the sell-off. The Biotech ETF (IBB) was down 6.33% today. But we should remember that Biotech has had a tremendous rally since 2011 prior to a few weeks ago. IBB briefly peeked its head over $400 in July, and it was less than $90 four years ago.

The Healthcare selling spilled over into quality names. For example, both Stryker (SYK) and CR Bard (BCR) were down over 4% today. There’s no news today that should impact either one. Bed Bath & Beyond (BBBY) fell 4.4% to close at $57.15. The stock’s EV/EBITDA is currently 6.07. Wells Fargo (WFC) yields nearly 3%. Microsoft’s (MSFT) yield is now over 3.3%. Ford (F) is at 4.6%.

Utilities (XLU) and Staples (XLP) did the best today, meaning they were down the least. Except for health care, this was a classic defensive day. The 10-year yield is back to 2.1%.

There’s not much to say, but get ready to ride the madness out. I’ve been saying that this won’t be over until the VIX closes below 20, and that hasn’t happened yet. The VIX rose 16% today. It appears that the market wants to “retest” the low from August 24 when the S&P 500 got as low as 1,867.01.

I’ve been especially surprised by the weakness in Materials stocks. Of course, they should be down with the global meltdown in commodities but it’s still stunning to see how dramatic it’s been. Since June 18, the Material Sector ETF (XLB) is down 22%.

Q2 GDP Growth Revised to 3.9%
Posted by Eddy Elfenbein on September 28th, 2015 at 11:05 am

I didn’t mention this on Friday but the government revised higher its estimate for Q2 GDP growth to 3.9%. The initial report had been 2.3%. That was later increased to 3.7%, and now it’s up to 3.9%.

We won’t get an estimate of Q3 GDP until the end of October, but today’s personal income and spending reports hint that it could be over 3%. Since the recession ended, the economy has had a hard time delivering three quarters in a row of solid GDP growth.

Here’s a look at quarterly GDP over the last 25 years. You can see how the recoveries have grown softer.