Morning News: November 5, 2014
Posted by Eddy Elfenbein on November 5th, 2014 at 7:09 am

Dollar Up After U.S. Elections, Euro Weakness to Test SNB’s Floor

Euro Area Limping Toward Deflation Fuels QE Calls as ECB Meets

Russian Central Bank Moves Towards Rouble Float With Intervention Cap

WTO Impasse Due to Unreasonable Posturing By Rich Nations: FM Jaitley

Republicans Gain From Voter Dissatisfaction Over Economy

Invesco Fund Treads Risky Path as Major Investor in Distressed Corporate Debt

Eldorado Gold Said to Weigh $1.5 Billion Sale of China Mines

Alibaba’s Revenue Up 54% in First Quarter as Publicly Traded Company

Sysco Reports First Quarter Diluted EPS of $0.47

ING Group Moves Up Final Payment of Bailout Money to Dutch Government

Toyota Raises Full-Year Profit Forecast

CVS Revenue Rises on Strength at Pharmacy

Hannover Re ‘Confident’ of Meeting Full-Year Target

Cullen Roche: What if the Fed Isn’t the Wizard Behind the Economic Curtain?

Joshua Brown: Corporate America Goes to the Polls

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Morning News: November 4, 2014
Posted by Eddy Elfenbein on November 4th, 2014 at 6:46 am

ECB’s Coeure Presses Euro Zone Governments to Reform Economies

EU Cuts Growth Outlook as Inflation Seen Below ECB Forecast

Santander Profit Rises

Korean Dividend Worries Spur $2 Billion Foreign Outflows

Macau Oct Gaming Revenues Set For Worst Drop on Record

U.S. Deficit Decline to 2.8% of GDP Is Unprecedented Turn

Oil Just Crashed To A 3-Year Low

J.P. Morgan Being Probed by Justice Department

Dish Posts Revenue Below Estimates As It Loses Pay-TV Users

Sprint to Cut 2,000 Jobs as Mobile Customers Keep Leaving

Sysco Shares Fall As Merger Hits a Snag

SUV Sales Help BMW Earnings

Hollywood Works to Maintain Its World Dominance

Jeff Carter: Big Business Embraces The Crowd

Credit Writedowns: Home Prices Since 1870: No Price Like Home

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The Falling Yen
Posted by Eddy Elfenbein on November 4th, 2014 at 12:11 am

Nothing profound to say here, just stunned by the dramatic fall of the yen versus the dollar.

UK Government to Pay Off Old War Debts
Posted by Eddy Elfenbein on November 3rd, 2014 at 7:14 pm

The Wall Street Journal has an interesting story today. Her Majesty’s government is preparing to pay off some of its debts…some of its reeeeally old debts.

In 1927, Winston Churchill, Chancellor of the Exchequer, consolidated a bunch of outstanding war debt into one big bond. The bond was a callable perpetuity, meaning it never matured but the government could call it in at any time. That’s what they’re doing now. The coupon is 4%.

A bond with infinite maturity is often referred to as a consol bond (or a perpetuity), but the name comes from consolidation, which the government did a few times with a mass of outstanding debt.

The 4% Consols includes debt dating back to the Napoleonic War. Now that interest rates have dropped, it’s in the government’s best interest to get rid of the higher-yielding bonds. The WSJ adds that the War Loan from 1932 may be next to be bought out.

The 1932 War Loan has a complicated history. That year, Neville Chamberlain announced that the government would call its 5% War Loan. Bondholders were given the option of taking cash or continuing to hold the bond, but at 3.5%. This was technically legal, but some say that it was a default by the UK government. There’s about 2 billion pounds left of this bond.

A reader writes in to say:

Sorry, but you have botched this story. Don’t worry, because almost everyone does, including Reinhard and Rogoff.

The correct story is that the 1917 War Loan was issued at 5% as a callable Bond 1929/42. In other words callable any time after 1929 and before 1942. That was specified in the Prospectus, so everyone knew they were buying callable Bond.

In 1931 the Government announced that it was calling the Bond – note, not changing the coupon – by redeeming it at full face value, and holders had a choice of being paid out in cash, or in a new 1932 War Loan at 3.5%. I sort of assume we don’t call redeeming a Bond at full face value a “default”, do we?

The reasons for calling the Bond was simple; by 1932 interest rates had fallen from 1917’s 5% to 3.5%.

When the Bond was called, 8% of the holders chose to be paid out in cash, and 92% exchanged the 1917 loan for the 1932 loan. Why? it’s simple; if they took cash, they would only be able to invest it at 3.5% anyway, so taking the new 1932 Bond was a wash.

As for the ‘some say”, well of course some say. “Some say” because they want to be able to pin a default on an otherwise perfect record. Now ask yourself why the UK would want to pin a default on its own perfect record.

I’m remind of the saying that nothing’s as surprising as the past.

The Strong Dollar Trade Is Back
Posted by Eddy Elfenbein on November 3rd, 2014 at 5:44 pm

A few weeks ago, I wrote a lot about the Strong Dollar Trade. This was a shift in the market characterized by a surge in the U.S. dollar, lower bond yields, lagging small caps and energy stocks and plunging gold.

The Strong Dollar Trade softened up the market for what I’ll call our brief Ebola Panic, which came as quickly as it went. But the S&P 500 hit an all-time on Friday and reached another one today. The index got as high as 2,024.46 during today’s trading, although today’s close was just a hair below Friday’s close.

But we’re still seeing much of the Strong Dollar Trade in action. Small-caps lagged today. Energy stocks are as weak as ever. Gold had a brief rally, but that’s fallen on its face. Gold is now the lowest it’s been in more than four years.

In Japan, the government announced new stimulus measures which weakened the yen even further. Note how AFLAC ($AFL) sat out Friday and Monday’s rally, despite last week’s good earnings report. Two years ago, the yen was going 80 for the dollar. Now it’s down to 140 to the dollar. That’s a stunning fall.

A few quick notes to add: CA Technologies ($CA) has rallied 14.3% since October 13. This stock drives me crazy but that’s a nice rebound. Also, shares of Bed Bath & Beyond ($BBBY) have been slowing crawling their way back. Today, BBBY closed at its highest price in nearly seven months. Lastly, I dropped JPMorgan Chase ($JPM) from this year’s Buy List. At the time, it was a tough call. Given today’s news of a criminal probe, I’m so relieved they’re no longer on the Buy List. The shares are down more than 4% for the year.

October ISM = 59.0
Posted by Eddy Elfenbein on November 3rd, 2014 at 10:15 am

It’s the beginning of November and that means this week is dedicated to the important turn-of-the-month econ reports.

First up is the October ISM report. The Street had been expecting 56.9 and the actual number was 59.0. That’s a good showing. It ties August for the strongest ISM since April 2011.

We never follow just one report, but the ISM has a pretty good track record of lining up with recession. A reading of about 45 is the danger area. So far, it looks like a recession is not on the horizon.

Morning News: November 3, 2014
Posted by Eddy Elfenbein on November 3rd, 2014 at 6:41 am

Cheaper Tomorrow? Bank of Japan Battles Entrenched ‘Deflation Mindset’

China Oct PMIs Point to Cooling Economic Momentum, Growth Target At Risk

Man Running World’s Biggest Wealth Fund Tackles China Riddle

Eurozone Manufacturing Growth Slows, Survey Shows

Europe Shifts on Priorities for Telecoms

Argentina Suspends P&G’s Operations After Accusing It Of Committing Tax Fraud

Gold Bulls Retreat With $1.3 Billion Pulled From Funds

Apple Plans Investor Call Ahead of Potential Bond Sale

HSBC Logs Rising Profits, Takes $378 Million Hit for Forex Scandal

What Did Publicis Buy in $3.7 Billion Deal for Sapient?

Diageo Rules Out New Talks With Beckmanns on Cuervo Brand

Alibaba’s First Earnings to Test Mettle, Investor Enthusiasm

Monster Moves to Restore a Faded Job Search Brand

Howard Lindzon: My Predictions for 2015…Quantitative Socialism

The Epicurean Dealmaker: Quis Custodiet Ipsos Custodes?

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The Hidden Ball Trick
Posted by Eddy Elfenbein on November 1st, 2014 at 10:56 pm

S&P 500 = 2,018.05
Posted by Eddy Elfenbein on October 31st, 2014 at 4:21 pm

The S&P 500 closed the week and month at 2,018.05. That’s the highest close ever. The S&P 500 is up 9.18% for the year. The total return index, which includes dividends, is up 10.99% for the year.

Six of our Buy List stocks hit new highs today: CR Bard ($BCR), Fiserv ($FISV), Medtronic ($MDT), Moog ($MOG-A), Ross Stores ($ROST) and Stryker ($SYK).

The Stock Market Soars Above 2,000
Posted by Eddy Elfenbein on October 31st, 2014 at 11:54 am

Today is a very good day for stocks. The big news was that Japan announced massive new stimulus measures.

The S&P 500 has been as high as 2,017.45 this morning which is less than two points away from its all-time intra-day high. The index is on track to close above its all-time high close of 2,011.36 set on September 18.

Thanks to its good earnings report, Moog ($MOG-A) is leading the Buy List today. The shares have been as high as $79.24 which is a gain of 6.2%. I also see that Ross Stores ($ROST) hit $82 per share which is a fresh high for them.