PPI Drops 0.8% in January
Posted by Eddy Elfenbein on February 18th, 2015 at 10:04 am

Here’s a look at the seasonally-adjusted PPI. That’s the index of wholesale prices. This means that the Fed is in no hurry to raise rates.

Wabtec Earns 95 Cents per Share
Posted by Eddy Elfenbein on February 18th, 2015 at 8:47 am

Wabtec ($WAB) earned 95 cents per share for Q4. That was a penny above consensus. For the year, WAB earned $3.62 per share. They also issued guidance of $4.05 per share for all of this year.

CEO Raymond T. Betler said: “We finished the year with a strong performance in the fourth quarter, and we are anticipating record results again in 2015. While we expect to face challenges this year, including global economic uncertainty and foreign currency exchange headwinds, we will benefit from ongoing investment in freight rail and passenger transit projects around the world. Our long-term growth prospects remain solid, thanks to our diversified business model, balanced strategies and rigorous application of the Wabtec Performance System.”

Morning News: February 18, 2015
Posted by Eddy Elfenbein on February 18th, 2015 at 6:59 am

Greece to Seek Extension on Loan Agreement

Swiss Prosecutors Search Offices of HSBC Unit

Kuroda Sees Inflation on Track as BOJ Keeps Record Stimulus

As Rivals Falter, India’s Economy Is Surging Ahead

U.S. Household Debt Rises Slightly

Mortgage Applications Plunge as Rates Hit Highest Level of the Year

Warren Buffett Buys a Stake in Rupert Murdoch’s 21st Century Fox

Soros Shifts to Europe, Asia as Investors Cut U.S. Equities

Snapchat Said to Seek Up to $19 Billion Value in Funding

Telecoms Tycoon Seeks to Buy Out Vivendi from Numericable

Sony Outlines 3-Year Recovery Plan, Targets $4.2 Billion Earnings

Why Tesla Continues To Flop In China

Why Candy Bars May Never Be The Same Again

Cullen Roche: Negative Volatility in Long Bonds Surges

Joshua Brown: Why Active Management Fell Off a Cliff – Perhaps Permanently

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The Impact of Higher Yields
Posted by Eddy Elfenbein on February 17th, 2015 at 1:58 pm

I spotted this at Bloomberg:

Following the biggest one-week jump in 10-year Treasury yields in more than a year, investors are selling the highest-yielding companies in the Standard & Poor’s 500 Index. The top quarter of dividend-yielding stocks in the S&P 500 have lost an average 0.4 percent since an employment report on Feb. 6 showed the U.S. is adding jobs at a faster rate than estimated. That compares with a gain of 2.6 percent for stocks with the smallest dividends, and a 1.7 percent climb in the benchmark gauge.

Stocks including utility companies and real-estate investment trusts have weighed on the benchmark gauge since Treasury yields climbed 32 basis points the week of the report, signaling caution to investors who piled into dividend stocks through the bull market, according to Sam Stovall, chief equity strategist at S&P Capital IQ.

Simple math: When bonds go down, those higher-yielding stocks lose some of their luster.

It’s Actually Happening
Posted by Eddy Elfenbein on February 17th, 2015 at 1:44 pm

The Nasdaq Composite is over 4,900, and it’s within sight of its all-time high reached 15 years ago. The index peaked at 5,048.62 on March 10, 2000. That’s 15 long years without making a new high.

That sounds bad but it’s been worse. The Dow didn’t break its September 3, 1929 high until November 23, 1954.

The Market Closed at Another High
Posted by Eddy Elfenbein on February 17th, 2015 at 9:37 am

I hope everyone had a nice three-day weekend. The stock market closed Friday at a new all-time high. The S&P 500 finished the week at 2,096.99 and the Dow is back over 18,000. This was almost certainly a new inflation-adjusted high. Our Buy List continues to outpace the climbing market as well. I try not to get worked up about short-term moves, but this is nice to see. This month, our Buy List is up 7.88% to the S&P 500’s 5.11%.

Things may get jittery this week as investors turn their attention to the soap opera between Greece and the rest of Europe. The debt talks have broken down but still, investors seem optimistic that some sort of deal will be reached. I think both sides are working hard to position themselves as not “caving in” in the eyes of their respective voters. Once this is achieved, they can hammer out a deal. Consider that consumer prices in Greece have fallen for 23 months in a row. This is a problem that the important people in suits cannot allow to go on much further.

The bond market has quietly retreated over the past few days, bearing in mind that this comes after a spectacular run. The yield on the 10-year Treasury fell as low as 1.65% on January 30 and February 2. Since then, the yield has drifted higher as it’s up to 2.06 this morning. That’s still very low, but it’s interesting to see the bond market finally move downward.

Morning News: February 17, 2015
Posted by Eddy Elfenbein on February 17th, 2015 at 7:06 am

Greek Euro Exit Risk Increases as EU Delivers Ultimatum

EU Hangs Tough, Waiting for Greece to Bend as Euro Wilts

German Investor Confidence Rises to One-Year High Before QE

U.K. Inflation Slows More Than Forecast to Record-Low

Putin’s Paradise Becomes Economic No-Go Zone

U.S. Companies Can Avoid Slow Torture of Venezuela Devaluations by Taking One Big Hit

U.S. Embedded Spyware Overseas, Report Claims

The Price of Getting Apple’s Attention: $12 Billion

Spain’s Caixabank Offers 1 Billion Euros for Whole of Portugal’s BPI

Canada’s Fairfax Snaps Up Lloyd’s Insurer Brit for $1.88 Billion

Liberty Global, Becoming a Big Fish, Risks Attracting the Eye of a Shark

Ford Guns for China’s App Addicts, Seeks WeChat Tie-Up

Dutch Startup WeTransfer Just Raised $25 Million to Expand into the US

Jeff Carter: Are You The Right Investor?

Credit Writedowns: Tax Anticipation Notes: A Timely Alternative Financing Instrument for Greece

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Jesse Livermore: The Greatest Trader Who Ever Lived
Posted by Eddy Elfenbein on February 16th, 2015 at 2:03 pm

When Jesse Livermore made his first stock trade at the tender age of 15, he didn’t hedge his bets. He consulted the charts he’d compiled working as a chalkboard runner in a Boston brokerage firm, and when the figures for the company in question, Burlington, checked out, he went all in, investing everything he had—all $5—in the railroad. Two days later, he cashed in his shares, for a profit of $3.12.

It was 1892.

Exhilarating, that first taste. The pendulum had begun to swing.

Livermore began to roam the streets of Beantown, frequenting its bucket shops, gambling counters that took bets on stocks without executing actual trades. His ability to recognize patterns in the ticker tape stood him in good stead. In six months, he’d accumulated $1,000. Five years later, it was $10,000—enough to make him persona non grata to every pseudo-broker in the city.

So he moved to New York and graduated to trading with real Wall Street firms. Something, however, was wrong. His system wasn’t delivering as expected. He watched his stake drop, first to $2,500, then to zero. At an age when most contemporary youth were still preoccupied with fraternity smokers and petting, the “Boy Plunger” (turn-of-the-century slang for “reckless gambler”) had already gone through a full cycle of boom and bust.

Livermore decided the problem lay in the lag time between the stock order and the execution of the purchase itself. So he borrowed $500 against future gains. The pendulum began to swing wider. Quickly making back what he’d lost, he increased his stash further, to $50,000. Then, on May 9, 1901, he lost it all, every penny, largely due to the frenzied pace of the day’s trading.

Again he hit the bucket shops, again accumulating a stake that allowed him to get back into the game. He returned to New York with what he termed a “fair-sized roll.” Then, on April 16, 1906, he was hit by a premonition. With no warning, he yielded to a strange urge to sell short a thousand shares of Union Pacific railroad—an urge even he admitted he didn’t understand. Two days later, the San Francisco Earthquake hit. Union Pacific was decimated; he’d made $250,000 literally overnight. Inexplicable, the sudden intuition, but just as inexplicable was what happened next: again trading in shares of Union Pacific, he violated two of his most cherished principles—never heed insider information, and always keep your own counsel—and sold short when a friend tipped him off that the stock was about to tank. It didn’t. His net loss: more than $40,000.

The arcs described by the pendulum continued to widen, the swings to grow ever more vertiginous. During the Panic of 1907, Livermore again shorted the market, earning $1 million in the course of a few days. He then proceeded to lose everything in an attempt to corner the cotton sector, declaring bankruptcy and running up debts of over $1 million by 1916. Once again, he amassed sufficient capital to recover, making first $3 million (in assorted commodities), then $10 million (in wheat). Then came his greatest moment: sensing the impending 1929 crash, he again shorted the market, emerging from the rubble of October 29 with a net profit of $100 million—well over a billion dollars in today’s money.

Five years later, he was bankrupt, his vast fortune completely wiped out, for reasons that remain mysterious even today.

Livermore rallied from his subsequent depression in the late 30s, pooling sufficient energy to write a book detailing his trading principles. But on November 20, 1940, the pendulum swung finally, irrevocably against him. In the cloakroom of the Sherry Netherland Hotel in Midtown Manhattan, he shot himself in the head with a .32 Colt automatic. A suicide note was found scribbled in his notebook: “I am a failure,” it said.

Who was Jesse Livermore? How could the world’s greatest trader, the author of one of the most staggering fortunes America had ever seen, end up hitting the wall in just five years? What drove him to take ever more manic risks with his trades, to the point where the harmonic oscillator of his own speculations ended by ripping him apart?

Livermore himself gives us a clue to his own mystery in Reminiscences of a Stock Operator, the book of interviews he wrote with the journalist Edwin Lefèvre:

The speculator’s chief enemies are always boring from within. It is inseparable from human nature to hope and to fear….The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope….It is absolutely wrong to gamble in stocks the way the average man does.

The great trader liked to style himself as a dispassionate analyst. Repeatedly in Reminiscences, we find him stepping back from the welter of the trading floor to admonish himself with conclusions drawn from his market smash-ups—conclusions that read like oracular utterances brought down from the sacred mount of traders: “I learned you must give up trying to catch the last eighth, or the first: these two are the most expensive eighths in the world,” and the like. But the excerpt above intimates that perhaps cold-blooded calculation wasn’t the whole story. That beneath the rational exterior lay something that was not rational, that had to do instead with dreams and forebodings and hidden compulsions. That this aloof, seemingly imperturbable man was in fact deeply attuned to the obscure rumblings of chaos.

For chaotic his life was, in spades. His broker, reflecting on his penchant for cruising the Manhattan streets at night in his canary-yellow Rolls Royce in search of young girls, quipped, “When Livermore is speculating, he is thinking of screwing, and when he is screwing he is thinking of speculating.” His first wife, Nettie Jordan, separated from him one year after their wedding, following a tearful scene in which he begged her to pawn her jewels to finance one of his bankruptcies. His second wife, Dorothy Wendt, was an 18-year-old Ziegfield Follies showgirl who responded to Livermore’s philandering by taking up with a Prohibition agent; after separating from both men, she went on to shoot her 16-year-old son, Jesse, Jr., through the chest with a .22-caliber rifle. Both Livermore’s son and his grandson were manic-depressive and suffered from alcoholism. Both committed suicide.

Nor was chaos a mere by-product of Livermore’s personal eccentricities—it was his stock in trade. The Great Bear of Wall Street made his greatest profits when he sold short, that is to say, when he capitalized on other traders’ helplessness in the face of their own hopes and fears. In an age when Wall Street optimism was almost an American religion, he learned to read, and profit by, the dark anxieties that flowed just beneath the surface of the zeitgeist and that were liable to break out at any moment. He was an expert at sensing the nature and scope of mass hysteria, the thresholds at which men begin to panic. It’s no accident, then, that his favorite book was Extraordinary Popular Delusions and the Madness of Crowds, the Scottish philosopher Charles Mackay’s dark treatise on the power of the irrational in history. Nor is it an accident that, in seeking to harness the forces of unreason that he knew so intimately, he ended up betrayed by them—betrayed and, ultimately, destroyed.

The man who all his life sought to codify the workings of the market into a foolproof set of rules was the same man who consistently violated those rules, helpless to resist his own compulsions. The man who proclaimed clear-sighted analysis as the key to the charts was also a man haunted by irrational dreams and forebodings, who depended upon an uncanny sixth sense to tell him which way the market was moving, and who ultimately succumbed to the same delusions he fought so hard to keep at bay.

Traders are not the same as investors. Investors, however aggressive, are devotees of the long term. Personality-wise they tend to be more sober, more thoughtful and restrained, a la Warren Buffett or Peter Lynch. Volatility is, if not their enemy, then at best an unpredictable confederate, to be regarded with suspicion. Traders, by contrast, live in the moment. They operate by learning to feel the market, sensing when to cut their losses, when to double down, when to follow the trend and when to go against everyone. Far from being adverse to volatility, they secretly hope to get inside it, to understand it and so ride it to victory.

Like all traders, Livermore dreamed of beating the market, pinning his hopes to the forces of order: reason, logic, calculation, monetary self-discipline. Yet like all traders, he ultimately came face to face with that which cannot be rationalized, not just in the great hurly-burly of Wall Street but inside himself, in the shadowy realm where desire becomes compulsion and ambition self-destructive obsession. So that in the end, his battle with the market was a stand-in for his larger battle with himself.

Livermore was well aware of the chaos inside him. That’s why, early in his career, he invested in $800,000 worth of annuities for his wife and children that he himself would be unable to touch: “I knew a trading man will spend anything he can lay his hands on. By doing what I did my wife and child are safe from me.”

In the end, Livermore’s dream was the great, illusory dream of gamblers everywhere: to impose form and coherence on chance itself. But he failed to treat chance with the proper respect: he got too close. His story reads like a dark pendant to that other great 1920s story of lives lost to the pursuit of wealth, The Great Gatsby. Like Fitzgerald’s hero, Livermore sought to define himself against the huge forces that were shaping an America on the verge of empire. His failure, no less than Gatsby’s, is a grim parable of the fate of the individual in the age of money.

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Morning News: February 16, 2015
Posted by Eddy Elfenbein on February 16th, 2015 at 7:16 am

Greek Markets Hold Steady as Crucial Debt Talks Approach

Euro Zone December Trade Surplus Higher Than Expected

Japan’s Out of Recession – But Not With Any Great Conviction

Oil Steadies Around $61, Kuwait Sees Prices Supported

Hackers Steal Up to $1 Billion From Banks, Security Co. Says

HSBC Says Sorry Over Past Standards at Swiss Bank

Currency Battle is Tethered to Obama Trade Agenda

With Port Talks Gridlocked, White House Move Ramps Up Pressure For a Deal

AIG Profit Drops 67% And Misses Street Estimates

Amazon Drone Plans Shot Down By Authorities

Infosys Buys Automation Tech Company Panaya Valued at $200 Million

Putin Lets Consumers Feel Pain as Russian Slump Deepens

Pinterest is Reportedly Trying to Launch a “Buy” Button This Year

Jeff Miller: Weighing the Week Ahead: Will Energy Stocks Support the Market Breakout?

Epicurean Dealmaker: Goldman Sachs Doesn’t Care What You Think

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Dividend Champions
Posted by Eddy Elfenbein on February 13th, 2015 at 11:43 am

Dividend Growth Investor tells me that the S&P 500 Dividend Aristocrats is an incomplete list. For example, the steel company Nucor paid a special dividend on top of its regular dividend. When they ended their special dividend, S&P considered that to be a dividend cut even though they continued to raise their regular dividend. That doesn’t seem fair.

Instead of the Dividend Aristocrats, Dividend Growth Investor recommends the Dividend Champions list complied by David Fish. That list has over 100 names. Fish also includes stocks that have raised their dividends at least 10 years in a row, and at least five years in a row. You can see the Dividend Champions here.