• Wells Fargo CEO Talks with Cramer
    Posted by on September 17th, 2015 at 7:48 pm

  • The Fed Does Nothing
    Posted by on September 17th, 2015 at 2:02 pm

    Here’s today’s statement:

    Information received since the Federal Open Market Committee met in July suggests that economic activity is expanding at a moderate pace. Household spending and business fixed investment have been increasing moderately, and the housing sector has improved further; however, net exports have been soft. The labor market continued to improve, with solid job gains and declining unemployment. On balance, labor market indicators show that underutilization of labor resources has diminished since early this year. Inflation has continued to run below the Committee’s longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation moved lower; survey-based measures of longer-term inflation expectations have remained stable.

    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term. Nonetheless, the Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring developments abroad. Inflation is anticipated to remain near its recent low level in the near term but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.

    To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward 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. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.

    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. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

    When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

    Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams. Voting against the action was Jeffrey M. Lacker, who preferred to raise the target range for the federal funds rate by 25 basis points at this meeting.

    Here are the Fed’s economic projections.

  • Oracle’s Q2 Guidance
    Posted by on September 17th, 2015 at 10:22 am

    From the conference call:

    I am going to give you constant currency guidance, but if exchange rates remain the same as they are right now, we expect to see a currency headwind of about 6% on revenue and $0.05 on earnings per share. But again, it could be significantly worse. Maybe if we are lucky, it could be a little bit better. All of my guidance today is on a non-GAAP basis and in constant currency. So, here it goes.

    SaaS and PaaS revenue is expected to grow 36% to 40%. Cloud IaaS revenue is expected to grow 5% to 9%. Total cloud and on-premise software is expected to grow from 0% to 2%. Total revenue is expected to range from a negative 2% to a positive 1%. Non-GAAP EPS in constant currency is expected to be somewhere between $0.63 and $0.66. Now, this assumes a non-GAAP tax rate of 25.5%. Of course, if this quarter is any example, it may end up being different. Looking further out, we expect to see a material acceleration in SaaS and PaaS revenue. As a result, I am providing full fiscal year guidance for some key items. As before, my guidance on the full year is in constant currency.

    SaaS and PaaS revenue is expected to grow around 50%. On-premise software is expected to grow approximately 1%. Total cloud and on-premise software is expected to grow between 3% and 4%. Finally, SaaS and PaaS gross margins are expected to materially improve in the second half and exit the year at around 60%.

  • Morning News: September 17, 2015
    Posted by on September 17th, 2015 at 6:29 am

    China, U.S. Reach Agreement on High-Speed Rail Before Xi Visit

    Swiss Central Bank Leaves Interest Rates Unchanged

    BOJ Governor Kuroda Comments at News Conference

    Silent on Priorities, Yellen Makes Fed Choice a Cliffhanger

    Health Care Gains, But Income Remains Stagnant, the White House Reports

    U.S. Home-Builder Confidence Climbs in September, Industry Group Says

    It’s Time To Get Serious About Reducing Food Waste, Feds Say

    Altice to Buy Cablevision

    GM Said to Settle Criminal Case Over Ignition Switches

    Expedia-Orbitz Deal Gains Antitrust Clearance

    AB InBev, SABMiller Deal Expected to Face Global Antitrust Grilling

    Oracle’s Revenue Misses Estimates as License Sales Decline

    U.S. Judge Certifies Class Action Over Target Corp Data Breach

    Roger Nusbaum: Learning From Target Date Funds Without Actually Using Them

    Cullen Roche: Three Things I Think I Think – Stupid Markets Edition

    Be sure to follow me on Twitter.

  • Oracle Earns 53 Cents per Share
    Posted by on September 16th, 2015 at 4:39 pm

    After the closing bell, Oracle (ORCL) reported fiscal Q1 earnings of 53 cents per share which was one penny ahead of expectations. Once again, the strong dollar was a big factor. Total revenues fell 2% to $8.4 billion but rose by 7% in constant currency. Oracle earned 62 cents per share in last year’s Q1.

    “Our traditional on-premise software business plus our new cloud business grew at a combined rate of 6% in constant currency,” said Oracle CEO, Safra Catz. “This growth is being driven by new SaaS and PaaS annual recurring cloud subscription contracts which almost tripled in the quarter. As our cloud business scales-up, we plan to double our SaaS and PaaS cloud margins over the next two years — starting from 40% this just completed Q1, to approximately 60% this coming Q4, and then on up to 80% two years from now. Rapidly growing cloud revenue combined with a doubling of cloud margins will have a huge impact on EPS growth going forward.”

    “In Q1 SaaS and PaaS revenue was up 38% in constant currency — in Q4 that revenue growth rate will be over 60%,” said Oracle CEO, Mark Hurd. “That cloud revenue growth rate is being driven by a year-over-year bookings growth rate of over 150% in Q1. Our increasing revenue growth rate is in sharp contrast to our primary cloud competitor’s revenue growth rates which are on their way down.”

    “We are still on target to book between $1.5 and $2.0 billion of new SaaS and PaaS business this fiscal year,” said Oracle Executive Chairman and CTO Larry Ellison. “That means Oracle would sell between 50% more and double the amount of new cloud business than salesforce.com plans to sell in their current fiscal year. Oracle is the world’s second largest SaaS and PaaS company, but we are rapidly closing in on number one.”

  • Microsoft Boosts Dividend by 16%
    Posted by on September 16th, 2015 at 12:44 pm

    I recently said I expected Microsoft (MSFT) to raise their quarterly dividend. It was at 31 cents per share, and I was expecting an increase to 34 cents per share. The board outdid me! They raised it to 36 cents per share. That’s a 16% increase. Microsoft now pays out $1.44 per share per year. Going by yesterday’s close, MSFT yields 3.3%.

    If you bought Microsoft on July 25, 1991 at $66 per share, adjusting for stock splits totaling 48-for-1, then your cost basis is $1.375 per share. That means your dividend is now over 100% based on your purchase price.

  • Weak CPI Report for August
    Posted by on September 16th, 2015 at 10:20 am

    The inflation report for August came out this morning. Headline inflation fell 0.071% last month. So we’re talking about raising interest rates while we’re experiencing deflation. Year-over-year inflation rose from 0.17% through July to 0.20% through August.

    It’s not just commodity prices. Core inflation rose by just 0.074%. That’s the lowest rate all year. Core inflation is now running at just over 2% this year.

    Here’s the year-over-year inflation rate (black) along with the Fed funds rate (blue). You can see that the Fed has kept real rates negative (black higher than blue), but that’s come undone recently. In other words, by doing nothing, the Fed has effectively tightened rates.

  • High Quality Wins
    Posted by on September 16th, 2015 at 9:40 am

    From Business Insider:

    Investing in the stock market may be easier than we think, according to Chris Montagu and the equities research team at Citi.

    They have identified that the strategy of investing in so-called high-quality stocks has returned 5% to 7% a year on average since 1995.

    All you have to do is pick out big, boring stocks with decent profit margins, low debt, and reliable income flows.

    Then sit back and wait.

  • The Dividend Bull Market
    Posted by on September 16th, 2015 at 9:32 am

    Here’s a look at the S&P 500 (blue line, left scale) along with its trailing dividends (black line, right scale). The two lines are scaled at a ratio of 50-to-1. That means that whenever the lines cross, the market’s dividend yield is exactly 2%.

    What’s striking is that dividends have risen right along with prices. Or perhaps, vice versa. I would hardly say that the market’s dividend yield is the end-all in valuations, but the persistence of 2% is noteworthy.

    Only recently has it broken down. Through June, the S&P 500 had paid out $41.74 in dividends for the previous four quarters. (That’s the index-adjusted number.) Companies are still churning out the dividend increases. Viewed from this perspective, the market is hardly a bubble. What I like about dividend analysis is how stable dividends are.

    I estimate that the trailing four-quarter dividend number will be $42.65 at the end of this month. To be yielding 2%, the S&P 500 would then need to be at 2,132.50 which would be a new closing high.

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  • 18 Years Ago Today, Steve Jobs Returns
    Posted by on September 16th, 2015 at 8:43 am

    Eighteen years ago today, Steve Jobs returned to Apple (AAPL), the company he founded. The stock closed that day, September 16, 1997, at $21.94 per share. Adjusted for two 2-for-1 and one 7-for-1 splits, Apple was trading at 78.3 cents per share in today’s terms. The high from this past spring was $134.54. The company is currently worth two-thirds of a trillion dollars.

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    Interestingly, the stock was not an immediate hit when Jobs came back. Within a few days, it dropped down to $12.75 per share, or about 45.5 cents adjusted for splits. That was barely above Apple’s IPO price from 17 years before.

    (Apple IPO’d at $22 per share; adjusted for splits of 56-for-1, that comes to 39.3 cents in today’s dollars. The IPO was the largest offering since Ford in 1956.)

    At its low point in 2003, Apple was lower than where it had been in 1983. Think about that! Twenty years of no gain, and this was well after Steve Jobs had returned.

    Apple’s single-worst day came on September 29, 2000 when the stock plunged 51.9%. The catalyst was that Apple said they were going to miss earnings. That was also Apple’s highest volume day. It traded over 1.8 billion shares that day.

    Apple has suffered other big drops. On the day of the 1987 crash, Apple fell 24.4%. The stock has fallen more than 10% in a single day 26 times, which is nearly once per year.

    Apple’s single-best day came on August 6, 1997 when it soared 33.2%. That was the day Steve Jobs, who was then an advisor to Apple, announced at a MacWorld trade show that Microsoft was investing $150 million in Apple preferred stock. That moved saved Apple. At the time, people in the crowd booed. Here’s the video:

    Jobs had left Apple 30 years ago this Friday, September 18, 1985. At the time, the stock was at $16.25 per share, or 29 cents adjusted for splits. So in the 12 years of his absence, Apple had gone from 29 cents to 78 cents. That was a gain of 170%, which works out to 8.6% annually.

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    In the last 18 years, the stock is up nearly 150-fold, or 32% annually.