• September ISM = 56.2
    Posted by on October 1st, 2013 at 10:07 am

    Good morning and welcome to anarchy! Well, not complete anarchy, but we do have a partial government shutdown. I’m not sure how long this will last but it’s unpleasant to watch our dysfunctional political process.

    On to today’s market. We had a good read for today’s ISM. The number came in at 56.2. Any number above 50 indicates an expansion. Below 50 is a contraction. This is the third month in a row that the ISM has topped 55.

    Two academics have a method for calculating the odds of a recession. The latest update was this morning, but that’s off of July’s data. In any event, they peg the odds of a recession at 1.34%.

    Shares of AFLAC ($AFL) are having a good day. The stock was upgraded by FBR Capital. They also raised their price target to $70 per share. AFL has been as high as $63.30 today. The 52-week high is $63.63.

    Ford ($F) just reported another strong month for sales. Last month was their best month in seven years.

    The biggest sales driver was the continuing boom in pickup truck sales, with the F-Series trucks posting a fifth consecutive month of more than 60,000 sales.

    The redone Fusion mid-size sedan also continued its strong year with sales up 62% to 19,972, while the Fiesta subcompact was up 29% to 5,043 — and Ford said these cars were building sales in markets where Ford has been week in the past.

    “We’re particularly encouraged by the strength of the Fusion and Fiesta, especially in coastal markets,” said Ken Czubay, U.S. sales head, in a statement.

    Ford said Fusion retail sales were up 59% in the West and 26% in the Southeast, while Fiesta is up 41% in the West.

    Continuing to show signs of life for the nearly moribund Lincoln brand, the new MKZ sedan sold 2,874, up 12%, adding a fifth monthly best, Ford said.

    The stock is back above $17 this morning. Look for another good earnings report later this month.

  • Morning News: October 1, 2013
    Posted by on October 1st, 2013 at 6:50 am

    Euro Zone Factory Growth Eases But Strong Demand Enables Price Hikes

    Abe Orders Japan’s First Sales-Tax Increase Since ’97

    Vatican Bank Discloses Annual Earnings Report for First Time

    The Federal Government Shuts Down For The First Time In 17 Years

    U.S. Stock-Index Futures Advance as Government Shutdown Begins

    The One Word Missing From All Those Obamacare Ads

    Google Moves Nearer to Search Deal with EU

    Twitter’s ‘Stealth IPO’ Shines Spotlight on JOBS Act’s Effects

    Ikea to Sell $9,200 Solar-Panel Kits in All U.K. Stores

    Buffett’s Berkshire Set To Get Nearly $2.15 Billion Of Goldman Stock

    JPMorgan Insider Helps Justice Department in Probe

    Sugar Industry Highlights Conflicts Over Trade Pacts and Land

    Do NFL Underdogs Consistently Beat the Spread?

    Joshua Brown: 10 Terms Investment Pros Use to Raise Money

    Credit Writedowns: QE: Exit-path Implications for Collateral Chains

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  • Final Q3 Numbers
    Posted by on September 30th, 2013 at 4:37 pm

    The third quarter is on the books. For the year, the S&P 500 is up 17.91% while our Buy List is up 24.12%. Including dividends, the S&P 500 is up 19.79% and our Buy List is up 25.57%.

    If we hold on for three more months, it will be our seventh-straight market-beating year.

    Our #1 performer is Moog (up 42.99%). Second is Bed Bath & Beyond (38.37%). Six of our stocks are up more than 30%, and 13 are up more than 20%. The worst stock, and our only loser, is Oracle (-0.45%).

    The “beta” of our Buy List is 1.0035, and the daily correlation with the S&P 500 is 93.2%. At an annualized rate, the return from dividends of the S&P 500 is a bit more than our Buy List: 2.13% to 1.55%.

    The combined 7-3/4 years of our Buy List is up 103.8% to the S&P 500’s 58.90%. (That would be rebalanced every year.)

  • The Close Race Between Stocks and Bonds
    Posted by on September 30th, 2013 at 1:26 pm

    Here’s a graph that tells a lot and every investor should remember this lesson. The following chart shows the total return of stocks (blue) along with the total return of long-term corporate bonds (red). The data begins in October 1986.

    fredgraph09302013

    What you can see is that the two lines follow each other pretty closely. Over the last 27 years, stocks and long-term bonds have performed about the same. Despite stocks running ahead of bonds in 1987, the late 1990s and again last decade, the two lines have always come back together.

  • Q3 Earnings Preview
    Posted by on September 30th, 2013 at 11:16 am

    There are only a few hours left in Q3. Wall Street’s consensus for the S&P 500’s earnings is down to $26.85. That’s down from $29.10 one year ago, and $30.27 eighteen months ago.

    Despite the reduced estimate, if Wall Street hits it, that would be growth of 11.88% which would be the strongest in two years.

    For Q2, the S&P 500 earned $26.36 which was up only 3.66% from the year before. That was the second-straight quarter of growth for the index. Both quarters in the latter half of 2012 saw earnings declines. There was a lot of talk of an earnings recession but it was more accurately a very modest decline.

    Analysts currently peg full-year earnings for the S&P 500 at $107.87. For next year, they see earnings of $121.90.

  • September: 11 of 12 Up, Then 7 of 8 Down
    Posted by on September 30th, 2013 at 10:48 am

    The stock market is down again on fears of a government shutdown which looks very likely. Today is the final day of the third quarter which is also the end of Uncle Sam’s fiscal year. Folks across town can’t seem to reach an agreement, so for the first time in 17 years, the federal government will partially close down.

    The Senate gets together at 2 pm this afternoon. They’re probably going to pass a bill to keep the government going through December 15th, but they won’t include any of the House language about delaying Obamacare. Then it’s up to the House. I’m not a political guy so I have no idea what will happen, but I know that markets don’t like this at all.

    The S&P 500 is currently down about nine points which is a little over 0.50%. Here’s a very brief history of the S&P 500 during the month of September: first it rose eleven of twelve days, then it fell seven out of eight days.

    This morning, energy stocks are down the most while materials and healthcare stocks are down the least. While most of our Buy List is down today, there are a few pockets of strength. Medtronic (MDT), Moog (MOG-A) and Ross Stores (ROST) are currently showing green.

  • The Market Was a Decent Buy Going Into Lehman
    Posted by on September 30th, 2013 at 9:26 am

    Who’s up for a heterodox post?

    We’re coming up on the sixth anniversary of the stock market’s peak of October 9, 2007. I was looking at some data and I realized something I had never noticed before: the stock market became a decent buy several months before Lehman Brothers went under in September 2008. In fact, if you went into the market by mid-January 2008 and—yes—bought and held, you would have made out okay. Most of the market’s excess was burnt off by then.

    Note that I said “decent buy,” not “outstanding” or “outrageous,” but decent. I’m basing this on the market’s performance since then. Sure, I understand different people have varying opinions on what a decent return is, but I think my methodology is one that many people would find reasonable. That’s my goal, reasonable. I’ll try to be as dispassionate as I can.

    First, I took the Wilshire 5000 Total Return Index. That’s the broadest measure of the U.S. stock market, and it includes dividends. I then divided it by the CPI to get the “real total return.” I then divided that by a tend line growing at 5% per year. That means that whenever the line is moving up, the real total return is more than 5% per year. If the line is going down, it’s less than 5%–and perfectly flat, we’re making 5% on the nose.

    Here’s what we get:

    image1356

    To make it easier to read, I set the end point (Friday) at 100. So if you jumped into the broad market anytime the line in the chart above was below 100, investors would have made more than a 5% real return. By the time Lehman fell, the index was all the way down to 83. Outside a few minor exceptions, the index was below 100 starting on January 15, 2008.

    Here again, people might quibble with 5%. Historically, the number has been higher. Jeremy Siegel is known for the Siegel Constant of 7%. Unfortunately, I think that 7% figure is unduly biased by America’s post-war prosperity. I’m going for what I think is reasonable, and that’s why I chose 5%. Basically, it’s 2.5% from real GDP and 2.5% from dividends.

    I often tell investors to not worry about being the greatest investor of all time. Instead, think about being a good investor. Of course, now we learn of the all the gurus who predicted the financial crisis. Yet you didn’t need to have knowledge of that sort to make money. Just some patience and discipline.

    Henry Blodget recently wrote that he thinks the stock market will crash, but he’s not selling. That opinion may seem odd but if you had felt the same way in March 2008 (and held the entire market), you would have done okay.

    Not amazing. Not fantastic. But you’d be just fine today.

  • Morning News: September 30, 2013
    Posted by on September 30th, 2013 at 8:47 am

    Possibility of Delay Threatens European Bank Overhaul and the Region’s Economy

    Abe Bets It’s Different This Time With Sales Tax Rise

    Japanese Manufacturing PMI Hits Highest Level Since February 2011

    First U.S. Shutdown in 17 Years at Midnight Seen Probable

    Political Strife in U.S. and Italy Sparks Search for Safety

    Climbing Through the Debt Ceiling

    IPOs in Europe Leapfrog U.S. Amid Cheap Valuations

    Twitter CFO’s Knack for Explaining Will Be Handy in IPO

    Apple Passes Coca-Cola as Most Valuable Brand

    Rosneft Offers Lowball $1.5 Billion for TNK-BP Minorities

    British Game Maker Behind Candy Crush Seeking I.P.O. in U.S.

    Siemens CEO Kaeser Cuts 15,000 Jobs to Catch Up With GE

    S.E.C. Again Takes on Mark Cuban in Insider Case

    Jeff Carter: Angel List Syndicates: Cutting Edge Financing or Bubble?

    Jeff Miller: Weighing the Week Ahead: What Will the Government Shutdown Cost?

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  • The Buy List So Far
    Posted by on September 27th, 2013 at 4:58 pm

    I’ll have more details after Monday’s close, which is the end of Q3. But through Friday, our Buy List is up 24.49% for the year compared with 18.62% for the S&P 500. That’s a lead of 5.87% which is our widest lead of the year. On April 23, we were trailing the S&P 500 by 3.61% so this has been quite a turnaround for us.

    These numbers don’t include dividends, but that’s not a major factor. Our Buy List yields less than the S&P 500, but it’s only around 0.4%. If I have time, I’ll have the dividend-adjusted numbers on Monday.

    image1355

  • Watching the Five-Year Treasury
    Posted by on September 27th, 2013 at 1:26 pm

    Over the last few months, the five-year Treasury has emerged, in my opinion, as the most taper-sensitive security on Wall Street.

    In May, the five-year was yielding a puny 0.65%. By early September, it had jumped to 1.85%. Since the Fed decided not to taper in September, the yield has fallen to 1.4%.

    big.chart09272013b

    The yield has drifted lower a few times since then, but for the most part, 1.4% seems to be the new floor for the five-year. The lesson is that if you want to see what the market’s thinking about the Fed, first check the five-year.

    I think the next big test will be next Friday’s jobs report. The Fed has said they’ll be data-dependent, and this month proved that. If the jobs report comes in weak — say below 180K NFP — that could point to a lower yield for the five-year.