The Dollar and Euro Move Near Parity
Posted by Eddy Elfenbein on March 11th, 2015 at 9:25 am

Thanks to the start of European QE, and the prospect for higher rates soon in the U.S., the dollar has been surging against the euro. Ten months ago, one euro was worth $1.39. Today that same euro gets you just $1.06. That’s a 12-year low. Now people are wondering if we’ll hit parity soon.

Interest rates in Europe are becoming a joke. The 10-year bond in Germany just fell to 0.2%. In other words, you get 2% combined for the entire life of the bond!

Adding to the dollar’s rally is next week’s Fed meeting. The talk on Wall Street is that the Fed will abandon its “patient” language which will set the stage for rate hikes. The last time the Fed raised interest rates was June 2006.

Morning News: March 11, 2015
Posted by Eddy Elfenbein on March 11th, 2015 at 7:09 am

Ex-Soviet Republics Feeling Putin’s Ruble Pain Now

China Data Paint Gloomy Picture

China to Increase Scrutiny of New Zealand Milk

Euro Nears Parity With U.S. Dollar

Crude Falls to One-Month Low as Glut Seen Growing, Dollar Gains

History Suggests OPEC’s Days Could Be Numbered

Next Step in Global Cost and Efficiency Program

Banking Arbitration Hurts Consumers, Regulator Says

Alibaba in Talks to Invest in Indian Online Marketplace Snapdeal

Ineos to Acquire Stakes in Igas, a Boost to British Shale Gas

UBS Poaches Bank of Montreal Oil Banking Team

Google Could Be About to Do a $1 Billion Deal That Would Solidify Its Domination of Mobile Advertising For Years

Retiring Google CFO Writes The Best ‘Spend More Time With Family’ Memo Ever

Credit Writedowns: Five Investing Themes That Need Further Examination

Howard Lindzon: Charles Schwab versus The Robo’s and Wealthfront…

Be sure to follow me on Twitter.

The S&P 500 Loses 1.70%
Posted by Eddy Elfenbein on March 10th, 2015 at 7:20 pm

Today was a rough day for the stock market. The Dow lost 332 points. The S&P 500 lost 35.27 points or 1.70%. The trading year is still young, but today was the second-worst day this year for the S&P 500. Friday was the third-worst.

The S&P 500 dropped below its 50-day moving average, and it’s not too far from 2,001.28 which is the current 200-DMA.

Since the bull market started six years and one day ago, the S&P 500 has fallen 5% or more 12 separate times. Each time it has rallied to a new high. At today’s close, we’re down 3.46% from the last closing high.

Here’s a chart of the 12 dips, along with what might become Lucky #13:

It’s odd how January was quite bad, then February was very good, and now March looks soggy. Calendar months are apparently becoming feast or famine.

Breaking down the market, the low vol stocks fell much less than high beta stocks. Of course, that’s what they’re supposed to do but it appeared particularly dramatic today. The S&P 500 Low Vol Index fell just 1.18% today while the High Beta Index lost 2.18%. They were exactly 1% apart.

The big-cap S&P 100 fell 1.81% while the smaller-cap Russell 2000 lost 1.24%. The Tech Sector was the big loser with a loss of 2.19%. Financials were just behind at 2.12%. Utilities fared the best with a loss of just 0.16%. Bonds did quite well. The Long Bond ETF (TLT) gained 1.32% today.

Not too long ago, crude oil appeared to be recovering. Not anymore. Spot West Texas fell to $48.76 today. That’s the lowest close in a month.

The Buy List had another good day — and by that, I mean we sucked a little bit less than everybody else. Our Buy List lost “only” 1.59% today which is the fifth day in a row we’ve beaten the S&P 500. Unfortunately, three of those days were losses, and Qualcomm’s dividend news wasn’t enough to beat the anti-tech trend today. QCOM lost 1.13% today which was one of the better results in the large-cap tech sector.

Specialty Drug Spending
Posted by Eddy Elfenbein on March 10th, 2015 at 12:59 pm

The S&P 500 Falls Below Its 50-DMA
Posted by Eddy Elfenbein on March 10th, 2015 at 12:16 pm

The Market Can Rally Past Profits
Posted by Eddy Elfenbein on March 10th, 2015 at 11:17 am

Over at Bloomberg, Lu Wang notes that the market can and has rallied past its peak profitability:

Even if corporate profitability peaked today in the U.S., the market would rally for another year.

That’s the finding of Jason Trennert, the chief investment strategist at Strategas Research Partners in New York, who studied the relationship between equities and earnings margins since 1949. On average, the peak in profit margins came four quarters before the market’s top, the study shows.

(…)

Thanks to near-record low interest rates, stagnant pay and more than $2 trillion of share buybacks, chief executive officers have increased profit by an average 15 percent a year since 2009, three times faster than sales.

Operating margins for S&P 500 companies, the difference between revenue and expenses, climbed to a record 10.1 percent in the third quarter of 2014 and probably slipped to 9 percent in the final three months, data compiled by S&P Dow Jones Indices show.

Profit margins peaked in September 2006 during the last bull market, four quarters before the S&P 500 reached an all-time high in October 2007, data compiled by Strategas show. The equity gauge’s record in March 2000 came 10 quarters after corporate profitability hit a high. The shortest gap occurred in 1973, when there was only one quarter between peaks of margins and the market.

“I’d follow the trend of margins,” Trennert said. “They’re not noisy and there are clear cycles.”

Morning News: March 10, 2015
Posted by Eddy Elfenbein on March 10th, 2015 at 7:13 am

Draghi Urged Greece to Allow Troika Back Before It’s Too Late

A Tap on Brakes for China Car Sales

Russia’s Well for Corporate Bailouts Appears to Be Running Dry

New Zealand Market Shudders at Threat to Dairy Industry

Brent Oil Futures Fall Below $58 as Dollar Hits 11-Year High

Gold Drops to Three-Month Low on Dollar, U.S. Rate Expectations

Obama Directing Changes to Make Student Loan Navigation Easier

Former SEC Director Rips the Red Tape Off His Mouth

New Credit Suisse Boss Has Plenty of Challenges in His In-Tray

GM Sets Buyback, Placating Activists

Under-Fire Uber Pledges to Enlist 1 Million Female Drivers By 2020

Lovin’ Goes Only So Far as McDonald’s Sales Slide Again

7 Reasons People Think They Can Ignore Warren Buffett’s Advice

Joshua Brown: The Riskalyze Report: Advisors Buy the Corporate Bond Dip

Cullen Roche: Tax Loss Harvesting – Too Good to Be True?

Be sure to follow me on Twitter.

Qualcomm Raises Their Dividend by 14%
Posted by Eddy Elfenbein on March 9th, 2015 at 6:06 pm

In Friday’s CWS Market Review, I said that Qualcomm (QCOM) may soon be raising its dividend. Good timing! After the closing bell today, Qualcomm announced a 14% dividend increase plus a share buyback program of $15 billion. They plan to spend $10 billion of that within the next year. For comparison, Qualcomm currently has a market cap of $120 billion.

The quarterly dividend will rise from 42 to 48 cents per share. That’s $1.92 per share on the year which works out to a yield of 2.64% based on today’s closing price.

The company added:

”Our business continues to generate substantial operating cash flow, and today’s announcement represents an important step in returning that cash to our owners while still preserving the strategic flexibility needed to drive stockholder value through growth,” said Steve Mollenkopf, CEO of Qualcomm Incorporated. “I am pleased that we continue to build on our track record of returning capital to stockholders, having exceeded each of our capital return commitments in 2014 and returned approximately $37 billion to stockholders since these programs began in 2003.”

The shares are up 3% in the after-hours market. Qualcomm said they intend to return 75% of their free cash flow to shareholders in the form of dividends and share buybacks. Last year, they returned 93% to investors.

Curiously, Qualcomm said, “The Company plans to finance the capital return program primarily by accessing the public debt markets in 2015.” If it’s all coming out of free cash, then why do they need to tap the bond market? Qualcomm currently has more than $30 billion in cash. I assume it’s a repatriation issue, but the press release doesn’t make that clear.

Mark Haines Calls the Bottom; March 10, 2009
Posted by Eddy Elfenbein on March 9th, 2015 at 12:49 pm

iDow
Posted by Eddy Elfenbein on March 9th, 2015 at 11:07 am

Forty years ago last Thursday, Steve Wozniak went to a meeting of the Homebrew Computer Club. He came away so impressed that it led him to build the Apple 1. Forty years and one day later, it was announced that Apple (AAPL) is being added to the Dow Jones Industrial Average.

A lot can be said about how the Dow is not a very good index, and I agree, but it still represents the apex of American business. Next year the Dow will be celebrating its 120th anniversary. Just being that old deserves some respect.

Last year, Apple split its stock 7-for-1. At the time, I thought this was a play to get in the Dow.

In Apple’s case, they could be playing to get into the Dow Jones 30. Since the Dow is a price-weighted index, a $560 share price would have an outsized influence on the index. But an $80 value could be more reasonable in the eyes of the index keepers. Right now, Travelers (TRV) is the smallest company in the Dow. In fact, if its market cap were to double, it would still be the smallest company in the Dow. Apple is worth more than 15 times Travelers, so I think TRV is a top candidate to get the boot.

I was wrong about Travelers. It’s AT&T (T) that’s getting the boot. The Dow is calculated by adding up the prices of all 30 stocks and dividing by a current divisor. If you’re curious, the divisor is published each day in the WSJ. It’s currently 0.15571590501117. More simply, each $1 in a Dow stock is worth about 6.42 points.

The Dow doesn’t change very often. They made no changes to the index between 1939 and 1956 and that was a great time for the market. They made a big change in 1959 when they added and deleted five stocks. After that, no changes were made until 1976.

AT&T was added to the index in 1999 when it was SBC Communications. It later bought the legacy AT&T and took its name. The original AT&T (meaning Ma Bell) was added to the Dow in 1916 when the index expanded from 12 to 20 stocks. That remained in the index past the break up of AT&T. It wasn’t removed from the index until 2004 when SBC bought it.

Verizon remains in the Dow. The company was formed when a Baby Bell (Bell Atlantic) merged with GTE. So some of the old AT&T lives on in the Dow, but after nearly 100 years, the name AT&T is no longer in the Dow Industrials.

While it’s true the Dow isn’t a great index, sometimes people pile on. It generally follows the S&P 500 pretty closely. Personally, I prefer the S&P 500, which just celebrated its 58th birthday last week.