• Morning News: January 31, 2014
    Posted by on January 31st, 2014 at 7:05 am

    Markets Jittery Again

    Fall in Eurozone Inflation Rate Fuels Deflation Concerns

    BBVA, Spanish Peers Post 2013 Earnings Recovery

    US Downgrades India’s Air Safety Rating to Sub-Saharan Standards

    Economy Grew 3.2% in Fourth Quarter, Fueling Hopes for Faster Recovery

    A Guide to Obama’s Plan for Retirement Savings

    Amazon Looks at Boosting Prime Fee, as Earnings Miss

    Exxon Stumblies as Major Oil Producers Try To Find Footing

    Honda Q3 Profit Doubles, Sales Get Weak Yen Boost

    Zynga Announces NaturalMotion Acquisition Alongside Layoffs

    Microsoft Seen Testing Insider Nadella’s Will to Revamp

    To Grow, Bitcoin May Need to Shed Its World of Intrigue

    For Millions, the Super Bowl Action Will Be on Twitter

    Cullen Roche: When the Foundation of Modern Econ Begins to Crumble…

    Jeff Miller: When Good Models Go Bad

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  • Report: Satya Nadella to Be Microsoft CEO
    Posted by on January 30th, 2014 at 7:55 pm

    Reports are coming out that Microsoft ($MSFT) is about to name Satya Nadella as their new CEO:

    The board of directors at Microsoft is preparing to tap Satya Nadella as CEO Steve Ballmer’s successor and is holding discussions to replace Chairman Bill Gates, according to a report.

    A candidate to replace Gates as chairman, John Thomson, the software giant’s lead independent director, has emerged as well, according to Bloomberg News, citing people briefed on the process.

    USA TODAY could not independently confirm the decision. Microsoft did not immediately respond to a request for comment.

    As of Thursday night, Microsoft’s board was meeting. An announcement was expected as soon as Friday. Microsoft shares were up 1%, to $37.20, in after-hours trading.

    Should Ballmer and Gates depart, the software giant would be without its two most recognizable figures for the first time in its 39-year history.

    The report said that Nadella jumped forward as the front runner in recent weeks as Ballmer’s replacement. However, the plans aren’t finalized, according to the report.

    Nadella, who joined Microsoft in 1992, is in charge of the company’s enterprise and cloud businesses.

  • Q4 GDP = 3.2%
    Posted by on January 30th, 2014 at 8:49 am

    The government just reported that the economy expanded by 3.2% in the last three months of 2013. That’s one of the better growth rates in the past few years.

    This also breaks a small three-quarter streak of accelerating growth rates. For all of 2013, the economy grew by 1.9%. This was the eighth-straight year that GDP grew by less than 2.8%.

    fredgraph01302014

  • Morning News: January 30, 2014
    Posted by on January 30th, 2014 at 7:14 am

    Global Markets Slip After Fed’s Decision on Stimulus

    Europe’s New Volcker Rule Enrages Everyone Equally

    Calm Broken in Markets Amid Concern of Emerging Contagion

    Spain Says Post-Recession Recovery Speeds Up End 2013

    Lenovo Swallows Motorola: Indigestion Coming?

    Google Still Wins by Selling Motorola for Cheap

    Facebook Shares Surge On First Ever $1 Billion Mobile Ad Revenue Quarter

    Time Warner Cable Reports 2013 Fourth-Quarter and Full-Year Results

    Dassault Systèmes and Accelrys to Join Forces

    Royal Dutch Shell Halts Alaska Exploration as Profits Fall

    BSkyB Revenue Increases as It Signs Up Record TV Customers

    Diageo Boss: ‘Emerging Markets Remain Attractive’

    Target Says Criminals Attacked With Stolen Vendor Credentials

    Roger Nusbaum: Do Portfolio Diversifiers Belong in Client Portfolios?

    The Reformed Broker: Games People Play: That 1929 Analogy

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  • Qualcomm Earns $1.26 Per Share
    Posted by on January 29th, 2014 at 4:05 pm

    Qualcomm ($QCOM) just reported fiscal Q1 (Dec) earnings of $1.26 per share which was eight cents more than the Street was expecting:

    Qualcomm Incorporated, a leading developer and innovator of advanced wireless technologies, products and services, today announced results for the first quarter of fiscal 2014 ended December 29, 2013.

    “We are pleased with the start to our fiscal year, with record results in quarterly revenues, device sales reported by licensees and MSM chip shipments,” said Dr. Paul E. Jacobs, Chairman and CEO of Qualcomm. “Looking forward, we expect our performance to reflect the continued strong global growth of smartphones, our chipset leadership position and our competitive strengths in 3G/4G technologies and products.”

    (…)

    Non-GAAP First Quarter Results*

    Non-GAAP results exclude the QSI (Qualcomm Strategic Initiatives) segment and certain share-based compensation, acquisition-related items and tax items.

    Revenues: $6.62 billion, up 10 percent y-o-y and 2 percent sequentially.

    Operating income: $1.85 billion, down 24 percent y-o-y and 5 percent sequentially.

    Net income: $2.16 billion, down 2 percent y-o-y and up 19 percent sequentially.

    Diluted earnings per share: $1.26, even y-o-y and up 20 percent sequentially.

    Effective tax rate: 18 percent.

    Detailed reconciliations between results reported in accordance with GAAP and Non-GAAP results are included within this news release.

    * The following should be considered in regards to the year-over-year and sequential comparisons:

    The first quarter of fiscal 2014 results included:

    $665 million gain ($430 million after tax), or $0.25 per share, in discontinued operations associated with the sale of substantially all of the operations of our Omnitracs division; and

    $444 million charge ($346 million after tax), or $0.20 per share, that resulted from an impairment charge on certain property, plant and equipment related to our QMT division.

    The fourth quarter of fiscal 2013 results included:

    $173 million charge (before and after tax), or $0.10 per share, related to the verdict in our litigation with ParkerVision.

    First Quarter Key Business Metrics

    MSMTM chip shipments: 213 million units, up 17 percent y-o-y and 12 percent sequentially.

    September quarter total reported device sales: approximately $61.6 billion, up 16 percent y-o-y and 2 percent sequentially.

    September quarter estimated 3G/4G device shipments: approximately 276 to 280 million units, at an estimated average selling price of approximately $219 to $225 per unit.

    Cash and Marketable Securities

    Our cash, cash equivalents and marketable securities totaled $31.6 billion at the end of the first quarter of fiscal 2014, compared to $28.4 billion a year ago and $29.4 billion at the end of the fourth quarter of fiscal 2013. On January 22, 2014, we announced a cash dividend of $0.35 per share payable on March 26, 2014 to stockholders of record as of the close of business on March 5, 2014.

    For fiscal Q2 (ending March), QCOM sees revenues between $6.1 billion and $6.7 billion, and EPS between $1.15 and $1.25. Wall Street had been expecting $1.26 per share.

    They kept their full-year revenue guidance the same at $26 billion to $27.5 billion, but they raised their full-year EPS guidance range by five cents; from $4.95 to $5.15, to $5.00 to $5.20. Wall Street had been expecting $5.09 per share.

    The shares are up about 2% after hours.

  • Today’s Fed Statement: More Tapering
    Posted by on January 29th, 2014 at 2:02 pm

    Hot off the presses:

    Information received since the Federal Open Market Committee met in December indicates that growth in economic activity picked up in recent quarters. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate declined but remains elevated. Household spending and business fixed investment advanced more quickly in recent months, while the recovery in the housing sector slowed somewhat. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective, but 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 and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as having become more nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.

    Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee continues to see the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in February, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 billion per month. 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. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

    The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

    To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to 1/4 percent will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal. 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.

    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Richard W. Fisher; Narayana Kocherlakota; Sandra Pianalto; Charles I. Plosser; Jerome H. Powell; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen

    This is pretty much what I expected. The only minor surprise was that Narayana Kocherlakota didn’t dissent. Binyamin Appelbaum of the NYT tweeted: “Kocherlakota told me he would only dissent if he thought doing so would influence his colleagues. Apparently he decided it wouldn’t.”

  • Triumph Group Bombs
    Posted by on January 29th, 2014 at 12:21 pm

    In the CWS Market Review from December 27, I listed some of the finalists for this year’s Buy List. One of them was Triumph Group ($TGI), which is a maker of aerospace parts.

    I’m glad we didn’t choose Triumph Group because it just bombed earnings. Earnings for Q4 came in 24 cents below expectations ($0.99 versus $1.23). Triumph also lowered this year’s guidance from $5.25 per share to $4.75 per share. The stock has been down as much as 19% today.

    Triumph Group is a well-run company and I suspect they’ll come back. This is one to keep an eye on.

  • Morning News: January 29, 2014
    Posted by on January 29th, 2014 at 6:40 am

    Impact of Turkey Rate Decision Fades Fast

    EU Unveils Plan to Ban Banks’ Proprietary Trading

    ‘Fragile Five’ Is the Latest Club of Emerging Nations in Turmoil

    Obama Seeks Trade Deals Sought by Biggest U.S. Companies

    New York State Regulator Promises Tough Bitcoin Rules

    LG Beats Its Rivals in Q4 Smartphone Sales

    Pressure Builds for Apple to Overhaul or Expand Product Portfolio

    Sony Credit Cut To Junk Status As Smartphones ‘Cannibalize’ Its TV And PC Businesses

    American Airlines, US Airways Report Combined $1.95 Billion earnings for 2013

    Fiat Scraps Dividend After Chrysler Buy

    McDonald’s Seeks to Out-Latte Starbucks Amid Coffee Wars

    Ford Posts Higher Profit But Faces Pressure in U.S.

    Another Score for Crowdfunding: Indiegogo Raises $40 Million

    Russia Bucks the Trend – Talks the Ruble Lower

    Credit Writedowns: Turkey Moves, Focus Shifts to Fed

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  • MyRA
    Posted by on January 28th, 2014 at 10:16 pm

    From President Obama’s State of the Union address:

    Let’s do more to help Americans save for retirement. Today, most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401ks. That’s why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It’s a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in. And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little to nothing for middle-class Americans. Offer every American access to an automatic IRA on the job, so they can save at work just like everyone in this chamber can. And since the most important investment many families make is their home, send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive for future generations of Americans.

    I don’t know the details yet, but I’m having a hard time imagining what the benefits could be.

  • The Small-Cap Value Rally
    Posted by on January 28th, 2014 at 4:05 pm

    In reference to yesterday’s post on the small-cap premium, I want to look at the performance of small-cap value stocks compared with the rest of the market.

    The difference is quite startling. This chart below has the Vanguard 500 Index Fund (VFINX) in black along with the Vanguard Small-Cap Value Index Fund ($VISVX) in blue. Both include dividends. I also set both funds to 100 on April 8, 1999, which was the start of small-cap outperformance.

    image1382