Morning News: August 14, 2015
Posted by Eddy Elfenbein on August 14th, 2015 at 6:44 am

As Greek Bailout Deal Passes, Alexis Tsipras Faces Rebellion

Greece: Third Time Lucky?

China’s Renminbi Devaluation May Initiate New Phase in Global Currency War

Jobless Claims in U.S. Holding Just Above a Four-Decade Low

In Good Times or Bad, Brazil Banks Profit

In a Show of Confidence, Americans Boost Spending

Solar is Having a Great Year, Except on Wall Street

General Electric Sells GE Capital Bank’s Online Platform to Goldman Sachs

King Digital Entertainment’s Profit Down

Maersk Adjusts To Weakness in Shipping and Oil Markets

Cisco’s Money Can’t Buy It Love

Apple Said to Delay Live TV Service to 2016 as Negotiations Stall

VW Has Spent Two Years Trying to Hide a Big Security Flaw

Cullen Roche: The China Slowdown in Perspective

Jeff Carter: Flexible Work and Flexible Employees

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Morning News: August 13, 2015
Posted by Eddy Elfenbein on August 13th, 2015 at 5:23 am

China Central Bank Tries to Soothe Global Markets, Says No Reason For Yuan To Fall Further

Deutsche Bank Employees Charged in Emissions Trading Case

India Court Overturns Nestlé Maggi Noodles Ban

The Fed Is on Thinner Ice Than It Realizes, and It May Be Setting Us Up for Recession

Alibaba Revenue Misses Expectations; $4 Billion Stock Buyback Is Planned

Cisco Rises in Germany as Sales Top Estimates on Americas Growth

Lenovo Faces Motorola Hangover, Cuts 3,200 Jobs as Sales Slide, Profit Tumbles

Maersk Soars as Earnings Show Company Defying Market Headwinds

Drinks Bottler Coke HBC Sales Up Slightly

News Corp Posts Loss on Education Write-Down

NBCUniversal Invests $200 Million in Vox Media

Data-Storage Startup Pure Storage Files for IPO

Roche Buys ‘Superbug’ Diagnostics Firm For Up to $425 Million

Cullen Roche: Is More Information Making Us Worse Investors?

Joshua Brown: A New “Headwind” is Born

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How the Market Behaves at All-Time Highs
Posted by Eddy Elfenbein on August 12th, 2015 at 3:31 pm

Finance people tend to be numbers people. I’d certainly include myself in that group. You can mention any financial topic and there are dozens of studies, charts and regressions on it. Name it and the numbers have been crunched.

This obscures an important point. All these numbers do is explain a few basic truths about the market. What can be told with numbers only reinforces what can be said with words, and usually only a few words.

The important truths about the market aren’t many and they aren’t complicated. Investors need to understand them. On Monday, for example, I highlighted the recent behavior of Royal Caribbean (RCL). The stock dove in October due to fears of Ebola. It’s recovered and gone on to soar to new heights.

With our RCL example, the important truth is that stocks oscillate between large, quick downdrafts and long, slow up trends. The downs are fast and dramatic, the recoveries are slow and boring. Yet, it’s the boring part that makes all the difference. People spend too much time worrying about the painful declines and not enough time on riding out the long rallies.

Earlier this year, I looked at all the daily closes for the S&P 500 going back to the 1930s. I found that all the days where the market went up or down by more than 1.17% canceled each other out. The entire gain came from the low volume days. You hear a lot about tail risk, but the important part of the distribution is the tall heads.

(Incidentally, the market’s returns aren’t merely fat-tailed, they’re tall-headed as well. That’s “leptokurtic” if you’re looking to impress people.)

Most of the market’s big one-day gains have come right after big one-day losses. I asked Ryan Detrick, a must-follow on Twitter, to look at how the S&P 500 has behaved when it’s at a new all-time high. As I suspected, the market is far calmer than it normally is, and the return has been better as well.

Since 1950, there have been 1,026 trading days following a new high. (Technically, we could say the study goes back to 1929 because it took until 1954 for the index to make a new high.) That’s about 6.2% of the time, or one new high in every 16.1 days.

Of those 1,026 new highs, the market rose the following day nearly 56% of the time. That compares with 53% for all days.

To me the arresting fact is the standard deviation. For all market days, the standard deviation is 0.965%. But when the market’s at a new high, it’s only 0.611%. That’s more than 36% less volatility.

In the last 60 years, the S&P 500 has risen by more than 2% following a new high just three times. The normal market sees 2% up days more than four times more frequently. It’s probably more appropriate to say that volatility rises when the market is off its high than to say that volatility is lower at the top.

In the last 60 years, the biggest rally off a new high came on January 6, 1999 when the S&P 500 gained 2.21%. Of all days, that’s only the 265th best day.

If you had invested solely in those 1,026 days (with no transaction costs), you would have made 95.6%. Those 1,026 days are equal to about four years. The annualized return works out to 18%.

Let’s consider this hypothetical. Let’s say the entire stock market only offered two rewards. For 95% of the time, the market gained 1.2% a month. For 5% of the time, it lost 10% a month. Those are your only two outcomes.

That’s a good way to think about market behavior. The annualized outcome of our hypothetical is about 7.5%, but there are pronounced dips along the way. If you invest for several years, you’ll likely experience more than a few down months bunched together. The long-term trend, however, is unmistakable.

You’ll notice that market commentators spend far too much time talking about the inevitable declines than they do on what drives the vol gains. As a successful investor, view downturns as both necessary and fleeting.

Morning News: August 12, 2015
Posted by Eddy Elfenbein on August 12th, 2015 at 7:18 am

Greek Bank Bailout Funds Depend on Business Plan, Stress Test

Gold Recovers as Yuan-Struck Investors Seek Safe Haven

IEA Sees Oil Glut Through 2016 After Reaching 17-Year High

Google CEO Sundar Pichai Symbolizes the New India

Fidelity National Agrees to Buy SunGard for $9.1 Billion

GE to Sell Health-Care Lending Operations to Capital One for $9 Billion

Ford Moves Commercial Truck Production to Ohio From Mexico

Alibaba Growth Slowest in Three Years

Pearson Sells 50% Stake in the Economist Group

On-Demand Startup Zirtual Will Be Back in Business Thanks to Startups.co

Indian Government Seeks Almost $100 Million in Damages From Nestlé

Who’s Behind the 96 Million ‘Shade Balls’ That Just Rolled Into L.A.’s Reservoirs?

American Apparel Warns It Needs to Raise Money

Cullen Roche: The Dunning Kruger Effect in Finance

Jeff Carter: Competitive Devaluation; Not the Way To Run an Economy

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Moog Adds Four Million Shares to Buyback Plan
Posted by Eddy Elfenbein on August 11th, 2015 at 8:48 pm

After the bell, Moog (MOG-A) said they’re adding four million shares to their existing share buyback program.

The original plan was to buy back nine million shares. So far, they’ve bought back 8.3 million.

After giving effect to the increase in authority, the Company will be able to acquire an aggregate of 4.7 million shares of its Class A and Class B common stock at management’s discretion. The timing of repurchases will depend upon several factors, including various debt covenants, market and business conditions. The Company does not expect the pace of purchases to match that of the previous 18 months, in part due to compliance requirements with financial covenants included in its debt agreements. The program may be discontinued at any time.

“Our cash flow has been strong over the last few years,” said John Scannell, Chairman and CEO. “This has afforded us the opportunity to return nearly $600 million of value to our shareholders in the form of a share repurchase program that we initiated in early 2014. We are pleased to have the flexibility to continue this program.”

On Friday, the stock got down to $64.28 per share. That’s the lowest price since April 25, 2014.

Morning News: August 11, 2015
Posted by Eddy Elfenbein on August 11th, 2015 at 6:58 am

Greece, Lenders Clinch Bailout Deal After Marathon Talks

German Economic Sentiment Unexpectedly Deteriorates in August

Yuan Devaluation Worsens Debt Woes for Local Governments and Companies

Japan Restarts Nuclear Reactor, 4 Years After Fukushima. What’s At Stake?

U.S. Government Bonds Post Big Selloff

Small Business Owners’ Optimism Bumping Along

Officials Downstream From Colorado Mine Spill Demand Answers

Pichai Tapped to Run Restructured Google Within Alphabet

Shake Shack Reports Higher Quarterly Sales and Profits

U.S. Postal Service Narrows Its Loss

Symantec Agrees to Sell Data Storage Unit to Carlyle

Revenue Falls at Kraft, Heinz

Tax Scam Losses Exceed $20 Million

Roger Nusbaum: Investors Don’t Want Their MTV

Howard Lindzon: The Race to $1 Trillion…Google and Financial Engineering

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Buffett Buys Precision Castparts
Posted by Eddy Elfenbein on August 10th, 2015 at 2:39 pm

The big news is that Warren Buffett is buying Precision Castparts (PCP) for $37.2 billion. This is his biggest deal ever.

Berkshire Hathaway, his $354 billion industrial empire, said on Monday that it would buy Precision Castparts for $32 billion. The move will help move Mr. Buffett’s company — which includes earlier acquisitions ranging from the Burlington Northern Santa Fe railroad to Fruit of the Loom underwear — further into the industrial sector. Including debt, the transaction is worth $37.2 billion.

Not only is the acquisition Mr. Buffett’s most ambitious — just weeks from his 85th birthday, but it is also a standout in what has been a banner year for mergers, with more than $2.7 trillion in deals already announced.

Deal watchers and fans of Berkshire Hathaway have long expected the conglomerate to strike huge deals with regularity. The company generates an enormous amount of cash from its various operations, sitting on nearly $67 billion as of June 30.

And Mr. Buffett has long spoken about his “elephant gun,” the huge pile of cash that Berkshire Hathaway has reserved for big deals, and his itchy trigger finger.

Berkshire is paying $235 per share for Precision Castparts. That’s a 21% premium. PCP’s fiscal year ends in March. Wall Street expects earnings of $13.94 for the calendar year of 2016. That means Buffett is paying 16.86 times next year’s earnings for PCP. That seems like a good price but not a screaming bargain.

What’s interesting is that Buffett is buying this stock after it’s had several great years. Since 1978, PCP is up over 158,000% to the S&P 500’s 2,100%.

From December 31, 1999 to December 31, 2013, PCP gained 4,003%. The S&P 500, in contrast, gained 25.8%. PCP has lagged the market since then, but Buffett clearly doesn’t have a problem with buying a stock that’s run up so much.

The Aftermath of Ebola
Posted by Eddy Elfenbein on August 10th, 2015 at 2:09 pm

Last October, the stock market got freaked by the spreading Ebola Virus. The entire stock market was hit, and travel stocks were attacked especially hard.

In just 11 days, shares of Royal Caribbean Cruises (RCL) fell 18.4%. Since then, RCL is up close to 70%.

It’s almost like there’s a lesson for investors in this.

Morning News: August 10, 2015
Posted by Eddy Elfenbein on August 10th, 2015 at 7:11 am

Greece, Lenders in Final Push to Seal New Bailout

Japan Poised for Nuclear Restart

China Stocks Bolt Higher on SOE Reform Speculation

UBS Wary as China Seeks Global Help to Clean Up Local Debt Mess

Oil Trades Near Five-Month Low as U.S. Drillers Deploy More Rigs

Tension Runs High in VIX as Stock Insurance Costs Most Since ’06

U.S. Index Futures Signal Stocks to Rebound; Berkshire Declines

Berkshire Hathaway to Buy Precision Castparts for About $37 Billion

Make in India Push: Apple iPhone Maker Foxconn to Start Maharashtra Manufacturing by 2018

Xiaomi Ties Up With Taiwan’s Foxconn to Assemble Smartphones in India

Alibaba to Invest $4.6 Billion in China Electronics Retailer Suning

Zynga Revenue Rises Despite Fewer Gamers

Here’s Why TV Got Hammered This Week – There’s a Tectonic Shift Underway

Jeff Carter: The Problem With Twitter

Joshua Brown: The Positive Feedback Loop is Broken

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OPEC is Effectively Dissolved
Posted by Eddy Elfenbein on August 7th, 2015 at 11:15 pm

Fascinating article by Ambrose Evans-Pritchard on the decline and fall of OPEC. Here’s a sample:

If the oil futures market is correct, Saudi Arabia will start running into trouble within two years. It will be in existential crisis by the end of the decade.

The contract price of US crude oil for delivery in December 2020 is currently $62.05, implying a drastic change in the economic landscape for the Middle East and the petro-rentier states.

The Saudis took a huge gamble last November when they stopped supporting prices and opted instead to flood the market and drive out rivals, boosting their own output to 10.6m barrels a day (b/d) into the teeth of the downturn.

Bank of America says OPEC is now “effectively dissolved”. The cartel might as well shut down its offices in Vienna to save money.

Read the whole thing.