Looking Ahead to Friday’s Jobs Report
Posted by Eddy Elfenbein on January 7th, 2015 at 8:14 am

The big December jobs report is due out on Friday morning. The government will release several key figures regarding the employment situation including nonfarm payrolls, labor force participation and the unemployment rate.

This report will be one of the first times in a long time that I’m not so concerned about non-farm payrolls. Those have been growing at a steady clip for several months, and I expect that to continue. What I’m looking for now is to see an increase in average hourly earnings (AHE).

Until now, workers haven’t seen much of an increase in their wages. In fact, AHE has largely tacked 2% growth which is basically inline with inflation. The AHE for November wasn’t too bad. I’ll be very curious to see if there was more in December.

The other number to see will be hours worked. This is one of those reports that sounds counter-intuitive. You might think you’d want to see fewer hours worked, but in terms of the macro economy, we want to see more. More hours and at higher wages.

While inflation is still quite modest, an increase in wages will probably foreshadow an increase in consumer prices. As long as oil and other commodities are plunging, inflation isn’t a problem. The strong dollar has probably given the Fed a few more months to forego raising rates, but any sign of inflation will change that.

During the recession, the U-6 unemployment rate got a lot of attention. This is the regular unemployment rate plus part-time for economic reasons and marginally attached workers. This was considered a broader and more accurate gauge of the jobs market. In April 2010, it hit 17.2%%. It’s been dropping and for November, the U-6 was 11.4%. It’s taken a while but the jobs market is beginning to get back to something vaguely normal.

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

Paris on Terrorism Alert After 11 Killed in Magazine Attack

Deflation Hits Eurozone as Energy Prices Fall

Bank of England Minutes Underscore Turbulence of Financial Crisis

Unemployment at Record Low in Germany, Record High in Italy

Deal-Maker Macron Woos Vegas by Pledging France Can Change

Greece 10-year Borrowing Rate Tops 10% on Eurozone Exit Fears

Iran Accuses Saudis of Oil Conspiracy

How $50 Oil Changes Almost Everything

Solutions Needed in India For A Better Society

J.C.Penney Proves Skeptics Wrong With A Holiday Sales Surprise

Boeing Reports Record Orders, Deliveries to Airlines in 2014

Intel Budgets $300 Million for Diversity

Why Your Cable Bill Is Going Up Again in 2015 – Sports

Cullen Roche: The Austerity That Never Happened

Roger Nusbaum: How Can The Bond Bull Keep Going?

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The 10-Year Is Back Below 2%
Posted by Eddy Elfenbein on January 6th, 2015 at 3:24 pm

Another strange trading day. The S&P 500 dropped as low as 1,992.44 which was a loss of 1.39%, but it’s recovered some since then. The major banks have been hit especially hard. The Financial Sector was down the most, although our own Wells Fargo ($WFC) was one of the better banks, meaning down the least. Small-caps are also feeling the pain.

But the real action has been in the bond pits. I used to think there was no way that bond yields would come back to their July 2012 lows. Those were multi-decade lows. Now I’m not so sure. The 10-year yield is back below 2%. The 10-year got as low as 1.89% today. The 30-year got down to 2.47%. The spread between the 10- and 30-year is now less than 60 basis points which it hasn’t been in five years. My favorite indicator, the 2-10 spread, is at a two-year low (but still far from pre-recession levels).

Crude oil is down yet again. The black stuff for February delivery got down to $47.55 per gallon.

Morning News: January 6, 2015
Posted by Eddy Elfenbein on January 6th, 2015 at 7:02 am

Euro Area Menaced by Relapse Risk as ECB Weighs Action

Samaras Faces Greek Voters Skeptical of His Euro-Exit Warnings

Japan’s Big Firms Celebrate Cheaper Crude

As Oil Drops Below $50, Can There Be Too Much of a Good Thing?

Free Money in Bond Markets Shows Global Economy Still Struggling

Goldman Sachs Says JPMorgan Chase Should Be Broken Up

Verizon Is Said to Approach AOL for Possible Takeover, Venture

Amazon Again Emphasizes Sellers’ ‘Record-Setting Year’ But Fails To Open Kimono

Hyundai Motor to Spend $74 Billion Over 4 Years on Facilities, R&D

Dish Network Unveils Sling, a Streaming Service to Rival Cable (and It Has ESPN)

Coach to Buy Luxury Shoe Maker Stuart Weitzman

Hackers Steal $5 Million From Major Bitcoin Exchange

Why New Credit Cards May Fall Short on Fraud Control

Jeff Carter: When Will US Companies Scream About The Dollar?

John Hempton: A Comment on Current Chinese Vs. WWII Iron Ore Demand

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Oil Drops Below $50
Posted by Eddy Elfenbein on January 5th, 2015 at 10:18 pm

It’s not over yet for oil. Spot West Texas closed below $50 per barrel today. The close was $49.95. This is the first time oil has closed below $50 in five-and-a-half years.

It was a rough day for stocks as well. The S&P 500 dropped for the fourth day in a row, something it had not done all of last year.

The S&P 500 lost 1.83% today but the losses were heavily concentrated in energy. The Energy Sector of the S&P 500 lost 3.99% today. In contrast, Consumer Staples were down just 0.77% and Healthcare was down 0.61%. This is, of course, why they’re called defensive sectors.

There are also renewed worries that Greece might leave the euro. As an interesting historical side note, in the mid-19th century, there was an attempt at monetary union among several European countries.

The Latin Monetary Union grew to include France, Belgium, Italy, Switzerland, Spain, Greece, Romania, Bulgaria, Venezuela, Serbia and San Marino. In 1908, Greece was temporarily kicked out of the union for diluting its gold coins.

Dividends Rose 10% in Q4
Posted by Eddy Elfenbein on January 5th, 2015 at 1:08 pm

I often tell investors that dividends are easily the most important and most overlooked part of investing. Dividends tend to grow and reinvesting those dividends gets you more shares which begets you still more dividends. The effect may be small each week, but it adds up. Consider that in the last 20 years, the S&P 500 price index is up 348%. But the Total Return Index, which includes dividends, is up 555%.

The numbers are in for the fourth quarter and dividends paid out by companies in the S&P 500 rose by 9.96% over last year’s Q4. That’s actually the second-slowest growth rate in the last 16 quarters. The slowest was Q4 of 2013 which came one year after the big dividend surge in late 2012 to pay out dividends before the tax rate went up. In the last four years, dividends paid out by the S&P 500 are up more than 73%.

For the year, the S&P 500 paid out $39.44 in index-adjusted dividends. That’s an increase of 12.72% over 2013. But here’s what interesting: The S&P 500 price index rose 11.39% last year. In other words, dividends grew faster than prices. That means the S&P 500 ended the year with a slightly higher dividend yield than it started the year. Despite all the talk of a stock bubble, at least one measure of the market’s valuation moved lower.

As I’ve pointed out before, for most of the last 12 years, the S&P 500 hasn’t strayed very far from a trailing dividend yield of 2%. The only exception was during the worst of the financial crisis, but once the storm passed, the market quickly moved back to 2%. It’s also interesting that the dividend payout ratio (the percent of profits being paid out as a dividend) has hovered near 33% for the last two years.

Ford Down 3.5% Today
Posted by Eddy Elfenbein on January 5th, 2015 at 10:28 am

Shares of Ford are down 3.5% after the stock was downgraded by an analyst at Citigroup. The analyst kept the price target the same at $17 per share but lowered Ford to “neutral” from “buy.” Ford also reported December sales growth of 1%.

Ford Motor posted its best December sales figure since 2005. Ford’s U.S. sales rose 1% to 220,671 vehicles. But overall 2014 sales were flat vs. a year ago at 2.48 million vehicles on a planned 15% reduction in daily rental sales.

(…)

“Demand for the all-new F-150 also is very high, and it now is the fastest-turning vehicle in Ford showrooms, averaging just five days on dealer lots in December,” said John Felice, Ford vice president, U.S. Marketing, Sales and Service in the release.

F-Series sales total 74,355 vehicles in December and 753,851 vehicles for 2014 as lower gas prices helped boost demand for larger trucks and SUVs.

The Euro Falls to Nine-Year Low
Posted by Eddy Elfenbein on January 5th, 2015 at 9:46 am

The euro (aka the German peso) has fallen to a nine-year low against the dollar. The currency dropped down to $1.1924. Today we learned that German inflation is at its weakest since 2009. Brent crude just dropped below $55 per barrel, and West Texas is below $52.

Explaining Our Methodology
Posted by Eddy Elfenbein on January 5th, 2015 at 9:24 am

I wanted to make a few comments about our Buy List’s methodology. As I’ve found out, if you have a publicly-available free Buy List that’s done very well, some unpleasant people will call you a fraud or a liar. They’ll question your math or a bunch of other things.

There’s not much you can do about cranks, but I’ve always gone out of my way to make our Buy List as transparent as possible. The set-and-forget rules are about as simple as you can get. I even take the extra step of making my new buys public two weeks before the changes take effect. You’d think that would mollify some people. Not so.

Long story short, it’s a good time to restate what my goal is with the Buy List. I want to show regular investors that a disciplined approach can prosper and even beat the market. That’s why I do a few other things with my Buy List that I don’t often highlight. For example, I try to make sure that the Buy List is easy to replicate. This characteristic doesn’t get as much attention as it should. We don’t select any oddball foreign stocks or trade in unusual commodities or currencies. We don’t use margin, options or ETFs. There’s no shorting. Nor do we speculate on the North Bulgarian exchange in New Zealand pesos or anything like that. Around here, we keep it straightforward.

Also, nearly all our companies are at least mid-caps, and many are large-cap blue-chip names. We don’t dabble in IPOs or thinly traded pink sheets. I always have the average investor in mind. The companies on our Buy List also have pretty standard operations. And of course, we keep our trading to a minimum.

At the beginning of each year, I assume the Buy List is equally weighted among the 20 stocks. I also treat each year’s Buy List as a separate entity. In other words, we start over again at 0% at the start of each year. Here I can understand how some people might disagree with this decision.

My rationale is this: if I treated the Buy List as one never-ending unit, I could show that we’ve made huge long-term gains in a stock like Fiserv, but very few blog readers have been following us the entire time. It’s a question of making things as comprehensible as possible for as many folks as possible. (Honestly, I can see tracking the Buy List either way, but I think the separate year-by-year approach is the easiest and fairest.)

Occasionally I list our full nine-year total returns, but that means an investor rebalanced the portfolio at the end of each calendar year. I don’t think it’s wrong to do this, but I want to make it clear what it means.

Every so often, we’ve had spin-offs or buyouts. I try to deal with these as best I can. Years ago, we got cash for our Biomet shares. I distributed that cash into the 19 remaining Buy List stocks. When Golden West Financial was bought out, we got shares of Wachovia, and that became a new member of the Buy List.

I’ve always been careful to detail on the blog how all the calculations are made. Later this year, eBay will hopefully spin off PayPal. If all goes well, we’ll get the shares, and I’ll decide what to do with them in December. As always, the decisions I make are designed to make investing as easy as possible for average investors.

Morning News: January 5, 2015
Posted by Eddy Elfenbein on January 5th, 2015 at 7:02 am

German Savers Brace for $2.3 Trillion ECB Question on QE

Germany Should Not Scoff At Greece

China Eases Export Controls on Rare Earths After Losing WTO Case

China Stocks Start 2015 With a Bang

Japan December Final Manufacturing PMI Shows Sustained Growth

Oil Extends Decline From 5 1/2-Year Low as Glut Persists

Nissan Exceeds Analyst Estimates to Finish Best U.S. Year

BMW to Pay $820 Million in Subsidies to China Dealers Amid Slowdown

American Airlines Pilots’ Union Agrees to 23% Pay Rise

Amazon Sellers Sold Record-Setting More Than 2 Billion Items Worldwide in 2014

Berkshire Soars as Buffett Shifts Focus From Stocks to Takeovers

PlayStation 4 Faces Resurgent Rivals in Xbox One and Wii U

Target CEO $47 Million Retirement Illustrates 401(k) Gap

Jeff Miller: Time For the “January Effect”?

Epicurean Dealmaker: Nerd Intersectionality

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