The Swiss Fed Gives Up
Posted by Eddy Elfenbein on January 15th, 2015 at 11:11 am

The central bank of Switzerland has spent a ton of money trying not to let the franc fall below 1.20 to the euro. But Mario Draghi is determined to weaken the euro in order to save Europe.

Today, the Swiss finally gave up and abandoned their price cap. This chart tells it all.

The Swiss ETF ($EWL) is doing well today. Until May, EWL had largely kept pace with the American market. But since May, it’s lagged badly. The last few days, however, have been quite good.

Morning News: January 15, 2015
Posted by Eddy Elfenbein on January 15th, 2015 at 7:29 am

Interstate Conflict Is Biggest Worry of Davos Attendees

German Economy Expanded 1.5% in 2014

Swiss Franc Rockets After SNB Scraps Currency Cap

Syriza Massages Foreign Policy Goals as It Smells Power

Iran’s Budget Assumes $40 Oil After Prices Decline 33%

What Rajan Wants From Modi to Keep Cutting India’s Rates

GM Sees Improved Profit in 2015 on China, U.S. Growth

JPMorgan CEO Dimon Says Banks ‘Under Assault’ By U.S. Regulators

Caesars Unit Files For Bankruptcy Protection In Bid To Trim Debt

Uniqlo Operator Vows to Improve Work Conditions in China

Wells Fargo & Company Still Best In Class

Samsung, Blackberry Deny They’re in Talks About a Deal

Lennar Profit Rises as Homebuilder Reports Higher Revenue

Credit Writedowns: Pie in the Sky

Jeff Miller: Positions For 2015: Still Plenty Of Life In The ‘Aging Bull’

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Wells Fargo’s CFO on Q4 Earnings
Posted by Eddy Elfenbein on January 14th, 2015 at 7:12 pm

Another Down Day
Posted by Eddy Elfenbein on January 14th, 2015 at 1:21 pm

The S&P 500 is testing the lows from last Tuesday. So far, we’re holding just above them. The big losers today are Energy and Materials, while financials are just behind. This looks to be another four-day losing streak for the S&P 500.

The 10-year Treasury has been as low as 1.78%.

Wells Fargo Earns $1.02 per Share for Q4
Posted by Eddy Elfenbein on January 14th, 2015 at 11:33 am

Earnings season has begun for our Buy List. The lead-off batter is Wells Fargo ($WFC). This morning, the big bank reported Q4 earnings of $1.02 per share. That matched Wall Street’s forecast. Net income rose slightly, from $5.37 billion to $5.38 billion.

Looking at the top line, WFC’s revenue rose 4% to $21.44 billion. The Street had been expecting $21.24 billion. The bank benefited from loan growth. Total average loans rose 4% to $849.4 billion. On the downside, Wells said that expenses rose to the highest level in two years.

WFC’s net interest margin, the key metric for any bank, fell a bit to 3.04%. For the whole year, Wells had net income of $21.82 billion on revenue of $84.35 billion. That’s an increase of 4% and 1%, respectively. The bank earned $4.10 per share in 2014.

Overall, this was an OK earnings report. Wells continues to do well, but the environment is less friendly towards banking.

Morning News: January 14, 2015
Posted by Eddy Elfenbein on January 14th, 2015 at 6:51 am

World Bank Cuts Global Growth Forecast

Draghi Buoyed as EU Court Aide Supports 2012 Bond-Buy Plan

Russian Finance Minister Promises to Limit Government Spending

India to Become Fastest-Growing Economy in PM Narendra Modi Government’s 4th Year

Asia Markets Are Hurting As Oil Continues Falling

China Stocks Rise Most in Week, Banks Rally Amid PBOC Support

How Inversions Leaped From the Shadows to Doom Treasury Nominee

$340 Million in Federal Funds Awarded to U.S. Conservation Projects

Uber Agrees To Share Trip Data in Boston While Refusing to Do So in New York

Burberry Cautious on Profits After Hong Kong Protests Put Off Shoppers in One of World’s Top Luxury Goods Markets

Alibaba Buys Controlling Stake in Digital Marketing Firm AdChina

Tesla to Hike Electric Car Output to ‘A Few Million’ by 2025

IRS Warns Of Delayed Refunds, Long Waits For Taxpayers & Possible Shutdown

Roger Nusbaum: Barron’s Makes The Case For Active Management

Joshua Brown: Should We Be Worried About Margin Debt?

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How Much Is Google Worth?
Posted by Eddy Elfenbein on January 13th, 2015 at 12:02 pm

Shares of Google ($GOOGL) have been sliding lower since the late summer. The stock recently dipped below $500, and is now near a 13-month low. Google shareholders aren’t used to seeing a lot of pain, at least not since the Financial Crisis.

Here’s a look at Google’s share price along with its earnings-per-share. The black line is the stock and it follows the left scale. The gold line is EPS and it follows the right scale. The two lines are scaled at a ratio of 20-to-1 which means that whenever the lines cross the P/E Ratio is exactly 20. I don’t mean to suggest that 20 is the proper valuation for Google; this ratio simply makes the chart most readable. The future portion of the yellow is Wall Street’s consensus.

So where should Google’s price be? That’s not an easy question, but let’s try to make some reasonable estimates. According to Yahoo Finance, the consensus on Wall Street is that Google will make $30.28 for 2015. That’s a 17% increase over 2014’s earnings (remember, of course, that they still have to report Q4).

The estimated five-year earnings growth for Google is 16.99%. If we take my world-famous World’s Simplest Stock Valuation Tool (Forward P/E = half the growth rate plus eight), that gives us a fair value of $499.63. Since we’re among friends, let’s round that to $500 per share.

Looking into the balance sheet, there are a few items that work in Google’s favor. First, the company has $60 billion in cash, which works out to $88.53 per share. That’s roughly one-sixth of the share price. Obviously, that cash in the bank is barely earning Google any money. The vast majority of the earnings power comes from operations which are roughly valued at $412 per share. On the other side of the balance sheet, Google has $8.6 billion in debt which is easily manageable. Google is in no danger of financial trouble.

Google is going for an attractive valuation, but the big question is earnings. The company has missed Wall Street’s estimate the last four quarters in a row, and those misses have grown steadily larger, rising from 1.5% to 2.8%. That’s not all. In the last three months, the estimate for full-year 2015 has drifted lower by $1.16 per share. So you can see why the stock has suffered.

The search engine reports in another two weeks. If they deliver a major earnings beat, then I think Google will have shown Wall Street that it can hit those optimistic earnings forecasts. For now, I rate Google a buy anywhere below $510 per share. Stay tuned for earnings on January 29.

Morning News: January 13, 2015
Posted by Eddy Elfenbein on January 13th, 2015 at 7:11 am

Plummeting Oil Price Explained in Four Graphs

China Commodity Imports Surge on Low Prices

Iron Ore Imports by China Advance to Record as Price Collapses

This Is How India Controlled Its Once Untameable Inflation Problem

Treasury Yield Matches 20-Month Low as Notes Rise Before Auction

S.&P. Nears Settlement With Justice Dept. Over Inflated Ratings

Gold Rises to Highest Since October as U.S. Rate Outlook Weighed

How To Trade JPMorgan, Intel And Goldman Sachs

Uber Agrees to Share Data With Boston for Municipal Solutions

McDonald’s Walks Fine Line With ‘Signs’ Commercial

Citigroup Quietly Scales Back in Consumer Banking

$18.4 Billion Bankruptcy Bet on Caesars Is Backfiring With Lenders

Gross Says Pimco Fired Him After Offer to Scale Back Role

Jeff Carter: It’s About Effort, Not Difficulty

John Hempton: The Return of Cookie-Jar Earnings: United Technologies Edition

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10-Year Yield Approaches October Low
Posted by Eddy Elfenbein on January 12th, 2015 at 1:55 pm

The bond market reached a generational high in the summer of 2012. I didn’t think yields could go any lower. Now I’m not so sure.

During the ebola scare in October 2014, the 10-year yield got as low as 1.87% intra-day. We’ve gotten close to that level recently but haven’t busted through. That may happen soon.

Morning News: January 12, 2015
Posted by Eddy Elfenbein on January 12th, 2015 at 6:58 am

ECB’s Debate on QE Intensifies as Media Window Narrows

China Vehicle Sales Growth Forecast at 7% Amid Slowdown

Asia’s Richest Man Just Got Much Wealthier

Palm Oil Output in Malaysia Slumps Most Since 2006 on Floods

Yellen Proves Master of Math Forecasting U.S. Economy

U.S. Drivers Start 2015 With Cheapest Gas in Six Years

Shire to Buy NPS For $5.2 Billion to Boost Rare Disease Drugs

JD.com and Tencent Confirm $1.3 Billion Bitauto Investment

Roche Holding to Pay $1.03 Billion for Diagnostics-Firm Stake

Dollar Tree, Family Dollar See FTC Analysis Favorable to Their Merger

Volkswagen Aims to Tune in to Local Tastes in Latest U.S. Turnaround Plan

Two Blue-Chip Companies Drop UBS As Corporate Broking Adviser

Silicon Valley Turns Its Eye to Education

Howard Lindzon: The Passive Investing Bubble

Jeff Miller: Weighing the Week Ahead: A Message From the Bond Market?

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