The Shrinking Stock Market
Posted by Eddy Elfenbein on March 27th, 2013 at 12:19 pm

Since 2000, the U.S. stock market has been shrinking. USA Today has some numbers:

The Wilshire 5000 index is a market measure of all the U.S.-based firms that have shares that can be traded. For decades, it’s been a proxy for the size, breadth and value of the entire stock market.

But even the Wilshire 5000 can’t maintain enough companies to reach its namesake number. There now are 3,678 companies in the index, is down by more than a third in a decade and off by nearly half from its level in 2000, says Wilshire Associates.

The number of publicly traded companies always ebbs and flows, but the current number has fallen steadily since at least 2000. At 3,678, the number of companies available for the public to invest in is much closer to the low of 3,069 in February 1971 than to the high of 7,562 in July 1998. Granted, there are thousands of stocks traded on “Pink Sheets” and other lightly or unregulated markets, but the Wilshire 5000 only includes those that trade on an exchange such as the New York Stock Exchange or Nasdaq.

It’s not just a blip with the Wilshire 5000. The total number of listed securities trading on the Nasdaq OMX and NYSE Euronext exchanges was 4,916, according to the World Federation of Exchanges. The number of listed securities on these two critical exchanges has fallen every year since 2009 and is down 32% since 2000 and 39% from the recent peak in 1997. Making that more troubling: That number includes listings that aren’t companies, such as exchange-traded funds, which have soared in popularity.

JPMorgan Chase’s Legal Woes
Posted by Eddy Elfenbein on March 27th, 2013 at 11:36 am

I’m a big fan of JPMorgan Chase ($JPM) as an investment but I have to concede that the bank is not exactly Mr. Popular with the American public. The bank’s legal problems continue to mount, and I think it’s time for Jamie Dimon to go. He’s a brilliant executive but he’s now more of a liability than an asset. As a rule of thumb, banks should be boring. Having Jamie around makes JPM anything but boring. He recently expressed his disagreement with an analyst by saying, “that’s why I’m richer than you.” Some people find this hilarious. Me, not so much.

The New York Times noted that “at least” eight different federal agencies are currently investigating JPM. Yikes, that ain’t good. Plus, there’s still the problem of the London Whale fiasco and now the Feds are looking at criminal charges that JPM lied to investors. If that’s not enough, the Feds are also looking at the possibility that the bank didn’t reveal suspicions about Bernie Madoff.

Earlier this year, the big banks agreed to a settlement over mortgages abuses. The banks were supposed to go through their mortgages one-by-one and rectify the mistakes. Well, JPM screwed this up. To be fair, the other banks are having difficulty resolving this as well, but it’s another headache JPMorgan doesn’t need.

Again, to be fair to JPM, many of these issues seem to be areas where the bank was acting in good faith but simply bungled. Plus, the amount of money involved, even in the London Whale trade, are relatively small compared with the bank’s overall profile, but there are too many headlines to worry about.

Personally, I’d like to see Jamie go, and I’d like to see the bank split up.

We Still Can’t Make a New High
Posted by Eddy Elfenbein on March 27th, 2013 at 11:08 am

The stock market yet again approached its all-time record, and yet again stepped back from a new high. The S&P 500 got as low as 1,551 this morning but it’s been gaining back ground since then.

There doesn’t seem to be a wide dispersal in today’s market, meaning most stocks are behaving similarly. Some of the defensive areas like utilities and healthcare are up a small amount while the more cyclical areas are down, but nothing too serious.

Late yesterday, shares of Nicholas Financial ($NICK) dropped from close to $15 to $14.35 at the end of trading. The selling continued this morning and the shares bounced off $14.01. No, there’s no news about a buyout. I think this is pure speculation. I warned investors to expect some of this. Unfortunately, this is part of owning stocks and there’s not much we can do. If there’s any news about NICK, I will let you know.

Morning News: March 27, 2013
Posted by Eddy Elfenbein on March 27th, 2013 at 5:48 am

Amid Crisis, Cypriots Look Inward

Cyprus Capital Controls First in EU Could Last Years

Fitch Upgrades Philippines To Investment Grade; Outlook Stable

U.S. Asks Liechtenstein For Data In Swiss Banking Probe

Sales of New Homes Sink 4.6% in February

Fed Tells Citi To Improve Anti-Laundering Systems

Berkshire Set to Get Big Goldman Stake

Is J.C. Penney a Lost Cause?

JPMorgan Chase Faces Full-Court Press of Federal Investigations

Ericsson In Talks To Buy Microsoft’s TV Software Unit

Allianz Buys Turkey’s Yapi Kredi Sigorta for $879 Million

In a Faded Wall St. Scandal, Lessons for a Current One

$616 Million Poorer, Hedge Fund Owner Still Buys Art

Howard Lindzon: Bitcoin…The Jurassic Park of Currencies

Jeff Carter: Should You Work From Home?

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Oh So Close…
Posted by Eddy Elfenbein on March 26th, 2013 at 7:06 pm

The S&P 500 closed today at 1,563.77. The index is now less than 0.0882% from its all-time close of 1,565.15 from October 9th, 2007.

Ten-Straight Up Tuesdays
Posted by Eddy Elfenbein on March 26th, 2013 at 11:12 am

The Dow has risen for the last 10 Tuesdays in a row. We’re going for #11 today. The Dow is currently up 96 points.

Johnson & Johnson Breaks $80
Posted by Eddy Elfenbein on March 26th, 2013 at 10:56 am

Yesterday I mentioned my bad call with Nike ($NKE); today I’ll highlight another misstep. I took Johnson & Johnson ($JNJ) off this year’s Buy List.

Shares of JNJ just broke through $80 per share this morning for a new all-time high. This is interesting because the stock had not strayed very far from $60 for more than a decade. It did a few times, but not for long. JNJ is currently up more than 14.5% for the year.

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Buffett, Goldman Rework Warrants
Posted by Eddy Elfenbein on March 26th, 2013 at 10:04 am

It’s good to be Warren Buffett. Back when the world was melting down, Berkshire Hathaway ($BRKA) bought warrants that gave them the right to buy 43.5 million shares of Goldman Sachs ($GS) at $115 each. These warrants expire on October 1st of this year. Shares of Goldman are now up to $147 apiece.

Goldman and Buffett are reworking the deal so instead of Buffett getting the difference between $115 and $147 in cash, he’ll get it in more stock. This is interesting first two reasons. One is that Buffett doesn’t want cash. I can’t blame him since interest rates are so low. Even Goldman’s lowly dividend of 1.4% looks good. The other reason is that Buffett is sticking with banks; more specifically, large banks. He already owns a big portion of Wells Fargo ($WFC) but he obviously sees no problem with sticking by Goldman a while longer.

Update: It looks like I had this wrong. Apparently, Buffett is only getting the number of shares worth the profit of those warrants. That will probably work out to about nine million shares. So instead of paying $5 billion to get $6.3 billion in stock, he’s paying nothing to get $1.3 billion in stock.

Morning News: March 26, 2013
Posted by Eddy Elfenbein on March 26th, 2013 at 6:39 am

Cyprus Banks Remain Closed To Prevent Run On Deposits

Stricter Rules But Signs of Disarray in Cyprus Deal

BRICS Nations Plan New Bank to Bypass World Bank, IMF

Ireland Lures Germans With EBay as Economy Rouses From Recession

New BOJ Chief Elaborates on Easing Plans

China Construction Bank Quarterly Net Rises 16% on Loans

Fed’s Fisher: Economy Starting To Move, Not Accelerating

Summly News App Tempts Yahoo To Make 17-Year-Old A Multimillionaire

SEC Approves Nasdaq’s $62 Million Settlement for Facebook

Hon Hai Posts Record Profit as Apple Expands Product Line

Dollar General Profit Tops Expectations, Shares Up

Apollo Jumps as Sales, Profit Beat Analysts’ Estimates

Ford CEO Mulally Says He’s Concerned About Japanese Yen

Roger Nusbaum: Winters Likes Watches

Stone Street: Fear Not Every Penny Stock

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Nike Continues to Soar
Posted by Eddy Elfenbein on March 25th, 2013 at 11:33 am

Here’s one of my more embarrassing calls. Last August, I said that Nike ($NKE) was absurdly overvalued at $95 per share. The stock has since split 2-for-1 so that was $47.50 post split. Thanks to a strong earnings report, the shares are at $59 today.

Oops.

The shoe company beat earnings by six cents per share:

Earnings excluding items rose to 73 cents per share from 60 cents a share in the year-earlier period.

Revenue improved about 9 percent to $6.19 billion from $5.66 billion a year ago.

Wall Street had expected Nike to report earnings excluding items of 67 cents a share on $6.23 billion in revenue, according to a consensus estimate from Thomson Reuters.

Orders for Nike-branded shoes and clothing scheduled for delivery from March through July 2013, known as futures orders, rose 6 percent compared to orders reported for the same period last year. In North America, the company’s biggest market, orders were up 11 percent.

As impressive as these numbers are, I still think Nike is too expensive. This is frustrating for me because I like the company a lot but I refused to chase it at a price that I think is unreasonable. Right now, I don’t see how paying more than $45 per share can be justified. The dividend works out to 1.4% which isn’t hard to beat elsewhere. Since 1984, Nike’s stock is up more than 250-fold.