Morning News: January 30, 2015
Posted by Eddy Elfenbein on January 30th, 2015 at 7:03 am

Russia Unexpectedly Cuts Key Rate as Economy Eclipses Ruble

Russian Banks Rush to Rescue Credit-Starved Large Corporates

Spain Grows at Fastest Rate in Seven Years

China In New Steps Against Foreign Tech

Intuit Cries Uncle, Will Reverse TurboTax Deluxe Changes

Apple’s Shares Should Continue To Rise

Amazon Shares Jump as Earnings Top Expectations

Dealing With Recalls, Honda Cuts Profit Forecast for the Year

Lilly Lowers 2015 Revenue Forecast Citing Strong U.S. Dollar

Google Revenue Hurt by Rising Dollar

Qatar Airways Takes $1.7 Billion Stake in British Airways-Owner IAG

Shake Shack, Born in a Park, Is Going Public With Big Dreams

Dendreon Reaches Agreement for Valeant to Serve as “Stalking Horse Bidder” in Court-Supervised Sales Process

Roger Nusbaum: The Benefits of Proper Risk Budgeting

Joshua Brown: The First Casualty of a Bear Market

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30-Year Yield Off All-Time Low
Posted by Eddy Elfenbein on January 29th, 2015 at 2:21 pm

After yesterday’s Fed meeting, the yield on the 30-year Treasury dropped down to 2.29%. That’s the lowest since the Treasury started issuing 30-year bonds in 1977.

Today, it’s risen a bit to 2.34%.

Initial Jobless Claims at 15-Year Low
Posted by Eddy Elfenbein on January 29th, 2015 at 2:17 pm

This morning we learned that initial jobless claims dropped to 265,000 last week. That’s the lowest figure since April 15, 2000. It’s also the second-lowest report since December 1, 1973. That means we just had one of the strongest jobs reports in 41 years,

Now I should caution that the jobless claims report tends to be very “noisy,” meaning it bounces around a lot. That’s why it’s important to focus on the larger trend rather than the last one or two data points. Still, the longer trend has been quite impressive, and looks ready to continue.

Morning News: January 29, 2015
Posted by Eddy Elfenbein on January 29th, 2015 at 7:10 am

Carney Says ECB QE Not Enough Without Fiscal Support

Fed Upbeat on U.S. Economy, Cites Strong Job Gains

Ford Fourth-Quarter Profit Slumps 98%

The One Missing Ingredient In Facebook’s All-Out Drive For TV Ad Dollars

McDonald’s Promotes Easterbrook to Supersize His U.K. Success

Alibaba Holiday-Quarter Revenue Disappoints

Time Warner Cable Gains Subscribers; Results Miss

Potash Corp’s Profit Beats as Potash Sales Rise, Costs Fall

Thermo Fisher Fourth-Quarter Results Top Expectations on Life Tech Buy

Boeing Says Dreamliner to Yield More Cash in ’15

Shell to Cut Spending by $15 Billion Over Three Years

Nokia’s Network Unit Beats on North America Growth

Diageo Reports Better Quarter But US And China Still Drag

Cullen Roche: The Fed’s “Crazy Train” and the Stability that Breeds Instability

Jeff Carter: Great Advice For Entrepreneurs (and Investors)

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Qualcomm Had Good Earnings But Poor Guidance
Posted by Eddy Elfenbein on January 28th, 2015 at 9:15 pm

After the bell, Qualcomm ($QCOM) reported Q4 earnings of $1.34 per share which was nine cents better than estimates.

Underlining the strength of broader phone demand, and illustrating how much most phone makers still depend on its chips, Qualcomm topped estimates for fiscal first-quarter profit and gave a rosy forecast for the current period.

A record quarter for Apple Inc.’s iPhone, which uses a Qualcomm modem chip, helped the chipmaker’s earnings. For the period ended Dec. 28, Qualcomm’s net income rose to $1.97 billion, or $1.17 a share, from $1.88 billion, or $1.09, a year earlier. Sales rose 7.2 percent to $7.1 billion. Excluding certain costs, profit was $1.34 a share. Analysts on average had projected profit of $1.25 a share on sales of $6.94 billion.

Profit before some items in the second quarter, which ends in March, will be $1.28 to $1.40 a share, the company said Wednesday. Sales will be $6.5 billion to $7.1 billion. On average, analysts projected profit of $1.28 a share and revenue of $6.72 billion, according to data compiled by Bloomberg.

The problem is that the company lowered their full-year guidance:

Sales for fiscal 2015 will be $26 billion to $28 billion, the San Diego-based company said in a statement. Profit excluding certain costs for the year will be $4.75 to $5.05 a share. The company previously projected as much as $28.8 billion in revenue and $5.35 in per-share profit.

The stock fell 8.3% in the after-hours market.

What Does the Futures Market Expect and When Does it Expect it?
Posted by Eddy Elfenbein on January 28th, 2015 at 2:55 pm

As readers of my blog know, I’m a big fan of Bespoke Investment Group. They always have great research and info. Lately, Bespoke has been running a “Countdown to Liftoff” chart. This is based on Fed Funds futures and it shows how much time the futures market thinks there is between now and the first Fed rate hike.

I suggested slightly altering the chart to show the y-axis as a date. Bespoke was good enough to pass along their data, so here’s what the chart looks like.

This chart may look a bit off at first because both axes are dates, but bear with me. The x-axis shows the date. The y-axis indicates when people thought the first rate hike was coming.

Starting in the fourth quarter of 2013, the market was expecting the first rate hike by mid-2015. In March 2014, Yellen sent the market into a tizzy with her “something on the order of six months” remark, referring to the period between the end of QE and the first rate increase.

That remained the case all the way through September of last year when August 2015 was seen as I-Day. Lately, however, the first rate hike expectation is beginning to drift back. The market currently sees a rate hike in November 2015. After today’s Fed news, I think we’re soon going to see the futures market point to 2016.

Today’s Fed Statement
Posted by Eddy Elfenbein on January 28th, 2015 at 2:02 pm

Here’s today’s Fed statement:

Information received since the Federal Open Market Committee met in December suggests that economic activity has been expanding at a solid pace. Labor market conditions have improved further, with strong job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately; recent declines in energy prices have boosted household purchasing power. Business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has declined further below the Committee’s longer-run objective, largely reflecting declines in energy prices. Market-based measures of inflation compensation have declined substantially in recent months; 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. 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. Inflation is anticipated to decline further 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 lower energy prices and other factors 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. Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.

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; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams.

Morning News: January 28, 2015
Posted by Eddy Elfenbein on January 28th, 2015 at 7:05 am

German Consumer Sentiment to Reach 13-Year High in February

China Accuses Alibaba Of Lax Merchant Control, Tells It To Stop Being Arrogant

Alibaba Creates a Consumer Credit Rating Service

London’s Canary Wharf: Qatar Bid Wins Battle

Consumer Confidence in U.S. Rises More Than Forecast on Jobs

Morgan Stanley: The Fed Isn’t Raising Rates Until March 2016

Obama Proposes Offshore Drilling From Virginia to Georgia

Apple Smashes Forecasts, Selling 74.5 Million iPhones In Q1

TE Connectivity to Sell Broadband Network Unit to CommScope

Nintendo’s Outlook Disappoints and Mario Can’t Save Wii U

Roche Earnings Stagnate for First Time in Three Years on Costs

H&M Posts Rise in Quarterly Profit, Plans 400 New Stores

In DuPont Fight, Activist Investor Picks a Strong Target

Ben Carlson: Would Keynes Have Been Fired As a Money Manager Today?

Roger Nusbaum: 11 Investing and Personal Finance Hacks

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Stryker Earns $1.44 per Share
Posted by Eddy Elfenbein on January 27th, 2015 at 4:14 pm

Stryker ($SYK) just reported Q4 earnings of $1.44 per share. That was one penny below expectations. For all of 2014, the company made $4.73 per share. Here’s the outlook for 2015:

We expect 2015 constant currency sales growth in the range of 5.5% to 7.0%, including organic sales growth in the range of 4.5% to 6.0%. Based on current foreign currency exchange rates we expect adjusted diluted net earnings per share to be in the range of $1.05-$1.10 and $4.90-$5.10 in the first quarter and the full year, respectively. If foreign currency exchange rates hold near current levels, we expect sales in the first quarter and full year of 2015 to be negatively impacted by approximately 3% to 4% and adjusted diluted net earnings per share to be negatively impacted by approximately $0.08 and $0.30 in the first quarter and the full year, respectively.

Wall Street had been expecting $1.17 per share for Q1, and $5.14 for the whole year.

Shorter version: Business is going well but the strong dollar is causing some pain.

My Watch List
Posted by Eddy Elfenbein on January 27th, 2015 at 1:08 pm

Below is my latest Watch List. This is my unofficial list of high-quality stocks I like to follow. If a stock is on this list, then there’s a very good chance that it’s in the upper 5% of well-run companies on Wall Street. This is the elite.

I’m often asked how I go about selecting the stocks for my Buy List. It’s actually very simple. I have this Watch List of stocks and if one of them falls down to a very attractive price, then it becomes a contender for the new Buy List. I like to think of the Watch List as the minor leagues for the Buy List. Strong prospects earn their way up the ladder.

The Watch List is very informal. Unlike the Buy List, I’m constantly adding and deleting names. In fact, I have a bad habit of letting the Watch List grow too large. I often find myself adding three names for every one I delete. It’s simply not possible to follow 130 stocks.

Every few months I promise myself that this will be the time to trim down the Watch List. Well, I actually did it this time! Over the past several weeks, I trimmed the Watch List down to 76 names.