ADP Jobs Report = 158,000
Posted by Eddy Elfenbein on April 3rd, 2013 at 10:01 am

The private payroll firm, ADP, reported this morning that 158,000 jobs were created last month. That’s causing the market to be down slightly this morning. The big report, however, will come on Friday when the government releases its numbers.

The ADP number was actually the smallest gain in five months and it came in just below Wall Street’s expectations. ADP revised its figures for February higher by 39,000 but January was revised lower by 38,000.

Morning News: April 3, 2013
Posted by Eddy Elfenbein on April 3rd, 2013 at 6:43 am

Cyprus, IMF Reach Bailout Agreement

Canada Seen Beating U.S. in $150 Billion Asia LNG Race

The Bernanke Fed’s Printing Press Explosion Now Exceeds Two Trillion Dollars

A Debate in the Open on the Fed

SEC Approves Using Facebook, Twitter for Company Disclosures

Americans Seize Second Chance Post-Foreclosure

Apple Conviction Sinks At Goldman Sachs

Hewlett-Packard Falls on Goldman Downgrade

Pay-As-You-Weigh Airfares The ‘Next Step’

Bitcoin Goes On Insane Move Overnight As It Surges To $145 And Then Plunges To $126

Report Urges Barclays To Make Pay Realistic

Algorithms Play Matchmaker to Fight 7.7% U.S. Unemployment

J.C. Penney Slashes Pay of Its Chief

Jeff Carter: What Would You Tell A Law School Student About Startups?

Cullen Roche: Understanding the Modern Monetary System – Part 1 Part 2a Part 2b

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Ford’s Sales Rose 6% Last Month
Posted by Eddy Elfenbein on April 2nd, 2013 at 2:18 pm

Shares of Ford ($F) are back over $13 on news of strong sales:

Ford Motor reported a healthy March sales gain of 6% as buyers embraced its redesigned Fusion sedan, Escape SUV and its truck models.

Fusion and Escape both had their best month of sales and best quarter ever, Ford said.

Explorer SUV was up 33% from a year ago, posting its best month since the redesign in 2010.

F-series truck boomed, up 16%, tallying the best first quarter since 2007, when the auto slump began.

Wall Street analyst Ryan Brinkman at J.P. Morgan noted that “sales were particularly strong for several of Ford’s more profitable models, including the Explorer and F-series.”

Ford-brand vehicles sold well enough to outweigh a disastrous showing by Ford’s upmarket Lincoln brand. It was down 22.5%, mustering a minuscule 6,825 sales.

Ford is trying to revive the brand by pitching it as the Lincoln Motor Co., but so far the marketing move has no traction.

Lincoln had no gainers. Every model fell considerably. Together, Lincoln cars — MKZ and MKS — were off 31.1%. SUVs — MKX, MKT and Navigator — dropped 22.5%

Overall, Ford said car sales were about even with a year ago, trucks were up 6% and SUVs rose 14%.

The Trannies are In Charge
Posted by Eddy Elfenbein on April 2nd, 2013 at 12:31 pm

I’ve been very impressed by the surge in transportation stocks. Check out the performance of the Dow Transports compared with the S&P 500.

Since September 21, the Dow Transports are up 25%. If the Dow Industrials had done the same, they’d be closing in on 17,000 today. I think the strength of the trannies indicates good things for the economy.

Market Return By Size Decile
Posted by Eddy Elfenbein on April 2nd, 2013 at 10:37 am

Here are more results from the Ibbotson Yearbook. This shows the famous size premium. Researchers have found that over the long term, smaller stocks have done better than larger stocks. I’ll explain more why I think the size premium is overrated.

This chart shows the performance of the stock market by size decile, meaning each 10% size grouping of stocks. The results are almost perfectly rank ordered: The smallest have done the best and the largest have done the worst.

As impressive as this looks, the results are a bit deceptive. The reason is that the out-performance of small stocks isn’t a constant. Instead, small stocks outperform or underperform for many years at a time. If you catch the cycle right, you can do very well, but if not, you’re in for decades of lagging the market. Conisder that Decile 1 has beaten out Decile 10 over the last 29 years, and Decile 2 has edged out Decile 9 over the last 45 years.

So while it appears to be true that small stocks do better over the long term, that term is so long that it’s irrelevant for the average investor.

Kid Dynamite’s “You’re Absolutely Right!”
Posted by Eddy Elfenbein on April 2nd, 2013 at 10:22 am

On April Fool’s Day, Kid Dynamite announced a new service:

For the low base price of $49 (payable via Paypal link on my right sidebar), I will agree with anything you say. Just ship me $49 on Paypal, tell me your thesis, and I’ll tell you that you are right! You’ll feel good about yourself and you’ll gain the “confidence” to maintain your position and not get shaken out of a winner.

There are some stipulations of course: the $49 base price includes basic confirmation bias, but I can spice it up a bit for additional fees:

for an additional $9 each, you can choose from the following options:

1) I’ll use the word “banksters”

2) I’ll blame selloffs on “naked shorts” or “market maker manipulation”

3) I’ll talk trash about fiat money

4) I’ll tell you that everyone else is a sheeple, and that YOU are one of the few who has seen the dire reality of the situation

Read the whole thing. He’s joking, of course, but it’s sad how many investors buy into that nonsense.

Morning News: April 2, 2013
Posted by Eddy Elfenbein on April 2nd, 2013 at 6:31 am

Unemployment in Euro Zone Reaches a Record High of 12 Percent

Cypriots Feel Betrayed by European Union

Chinese Factories Rise But U.S. Manufacturing Slows

Abe Says BOJ May Miss Price Target If Global Economy Changes

Low-Cost Drugs in Poor Nations Get a Lift in Indian Court

Stockman Sundown Belied by Stocks Showing Morning for Investors

Nasdaq to Buy Treasurys Platform for Up to $1.23 Billion

Raw-Material Bull Market Fading as Supply Expands

Airlines Rejected by Top Court on Price Advertising Rules

Apple CEO Cook Apologizes for China IPhone Warranties

A $25 Million Question Over a Bid for Dell

Glencore Pushes Back Xstrata Deal Due To China Probe

Wal-Mart Customers Complain Bare Shelves Are Widespread

Roger Nusbaum: Barron’s Picks Up A Random Roger Theme?

John Hempton: Cupid PLC’s Strange Balance Sheet

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The Stock Market Since 1925
Posted by Eddy Elfenbein on April 1st, 2013 at 1:37 pm

I just got the latest edition of the Ibbotson SBBI Yearbook. This is a well-known resource for investors which covers the long-term data on stocks, bonds, bills and inflation. Over the next few days, I’ll post some of the charts from the updated yearbook.

I’m always a bit leery of studies of long-term market returns, especially when the study goes into the 19th century. The idea of a stock market that the average consumer can participate in is a relatively recent phenomenon.

Here’s a chart of the stock market’s return since 1825. The red line is capital gains, the blue is dividends and the black is both together. After 188 years, one dollar turned into more than $4.2 million; annualized, that comes to 8.45%. Of that, 5.02% is from dividends and 3.27% is from capital gains.

Before the bull market of the 1920s, the stock market was almost entirely one of dividends. You’d buy a stock near its par value (usually $100) and wait for the board of directors to declare the dividend each year—and that was the stock market.

Think of it this way: during the last third of the 19th century, inflation fell by about 2% per year on average. If you were getting a stock that paid 5% per year in dividends and had zero capital appreciation, you were basically matching long-term real returns. That idea is very foreign to modern investors, but that’s how things worked back then. The idea of steadily rising capital gains is not a constant.

The phrase “this time is different” is often mocked but the bull market of the 1920s really did permanently change the market from one that focused on dividends to one that focused on capital gains.

Another concern I have is that using this long-term data creates overly optimistic expectations. I doubt that the extraordinary success of the United States over the past 180 years is easily repeatable. Even in the more recent past, I think the era of post-World War II prosperity was a one-off deal.

Dividends Continue to Rise
Posted by Eddy Elfenbein on April 1st, 2013 at 11:25 am

The dividend numbers are in for the first quarter and the S&P 500 paid out $7.954 per share (that’s an index-adjusted figure). This was a 12.2% increase over the first quarter of 2012 and it marks the ninth-straight quarter that dividends have grown by double digits.

Due to tax reasons, there was a surge of dividends in Q4. Dividends rose more than 22.7% over the fourth-quarter of 2011, but I’m glad to see that the dividend trend still continues. For the last four quarters, the S&P 500 has paid out $32.112. At 2%, that comes to 1,605.60.

Here’s a look at the S&P 500 (in blue, left scale) and its dividend (in black, right scale). The two lines are scaled at a ratio of 50-to-1 so whenever the lines cross, the market’s dividend yield is exactly 2%.

What I find interesting is that this latest bull market seems much more solid than the previous two, especially the tech boom of the late 1990s. Dividends have been rising quite steadily. Except for the worst part of the financial crisis, the S&P 500 has mostly had a dividend yield of about 2% for the last 10 years.

Weak ISM Leads the Market Lower
Posted by Eddy Elfenbein on April 1st, 2013 at 11:01 am

The market is down so far this morning (and month and quarter). The March ISM came in at 51.3 which is down from February’s surprisingly strong 54.2.

Any reading above 50 indicates that the manufacturing sector is expanding. Below 50 means it’s shrinking. Forty-three of the last 44 months have been above 50.0. Although today’s ISM is weaker than expected, today’s report is still well above the danger zone.