Cyprus Looks to Reject Deal
Posted by Eddy Elfenbein on March 19th, 2013 at 10:52 am

The latest out of Cyprus is that the parliament seems certain to reject the bailout deal. There’s now talk of a Plan B which would have the same deposit tax but exempt folks with less than $20,000 in the bank. The problem with that is that would cause Cyprus to come up short on the amount of cash they need. Banks are still closed on the island and I’m afraid to see what will happen on Thursday morning when banks eventually reopen.

There is an interesting solution to this mess. Last night, Felix Salmon highlighted a remarkably simple three-step plan by Lee Bucheit and C. Mitu Gulati:

1. All insured depositors to be protected. Indeed, the public announcement of the bailout package would liberally sprinkle adjectives such as “sacred” and “inviolable” in front of the words “insured deposits” wherever they appear.

2. Holders of deposits in excess of the insured €100,000 minimum would receive, at par, interest-bearing bank certificates of deposit for those excess amounts. Depositors would be given the option of taking CDs of, say, five or ten years’ duration, with differing interest rates designed to encourage a longer stretch out. Also, to encourage a takeup of the longer dated CDs, the Government could offer a limited recourse guarantee on the ten-year CDs benefiting from a pledge of a portion of the Cypriot gas revenues that should come on line when those CDs mature. The CDs would be freely tradable and liquid in the hands of the holders.

3. The maturity dates of all sovereign bonds would be extended by a fixed number of years, let’s say five years. By our reckoning, this would reduce the total amount of the required official sector bailout funding during a three-year program period by about €6.6 billion.

This seems much easier. I don’t think the authorities understood the backlash of taxing bank accounts. That’s something that seems so opposed to the rule of law. In the West, we don’t just seize assets because we want to.

With the plan above, nobody has their wealth confiscated. There’s still pain to be had but folks who are in for the long haul won’t feel it as much. The CDs can trade but they’ll be going for a deep discount, so some savers would be punished.

FactSet Earns $1.14 Per Share
Posted by Eddy Elfenbein on March 19th, 2013 at 10:25 am

This morning, FactSet Research Systems ($FDS) reported second-quarter (ending February) adjusted earnings of $1.14 per share which was three cents better than Wall Street had been expecting. This is good news and it was actually better than the forecast FactSet gave three months ago when they said earnings should range between $1.11 and $1.13 per share.

Interestingly, at the time of that guidance, Wall Street was disappointed because they had been expecting $1.13 per share. FactSet said they expected revenues to range between $212 and $215 million. Today they reported that Q2 revenues rose 7% to $213.1 million.

The problem, if you can even call it that, is that banks have been working hard to cut costs. JPMorgan recently announced plans to decrease headcount by as much as 17,000.

“While we were pleased to achieve ASV growth of $17.3 million in the quarter, we continue to operate in a challenging sell-side environment” said Philip A. Hadley, Chairman and CEO. “”Our second quarter results include growing adjusted EPS by 12% and free cash flow by 11%. I am also proud to share that FactSet was recently named one of FORTUNE’s 100 Best Companies to Work For, marking our fifth appearance on that list in the last six years.”

For Q3, FactSet sees revenues ranging between $213 and $216 million, and earnings-per-share coming in between $1.14 and $1.16. Wall Street had been expecting revenues of $217 million and earnings of $1.13 per share.

I’m happy with today’s numbers but the shares are currently down about 3% today. Still, FactSet has had a good run since the start of the year. Business continues to go well for them.

Morning News: March 19, 2013
Posted by Eddy Elfenbein on March 19th, 2013 at 6:40 am

Cyprus Banks Like Iceland’s Dwarf Economy as Clients Pay

Cyprus Set to Reject Tax on Bank Deposits

Benchmark JGBs Down Slightly Ahead Of Cyprus Vote, FOMC

India Rate Cut Eclipsed by Reform Risk as Singh Loses Key Ally

Bernanke Tightens Hold on Fed Message Against Hawks

Homebuilder Confidence in U.S. Unexpectedly Fell in March

Wheat Crop Seen Near Record as U.S. Drought Recedes

U.S. Drug Costs Dropped in 2012, but Rises Loom

Apple Seen Raising Dividend More Than 50% to $16 Billion

Ryanair Places $15.6 Billion Order for 175 Boeing 737-800 Planes

BMW Sees Flat 2013 Pretax Profits As Costs Rise

The Costs Of US Wars Have Lingered For More Than 100 Years

How to Take Social Security If You Earn a Lot More Than Your Spouse

Jeff Miller: Weighing The Week Ahead: The Importance Of Planning And Preparation

Phil Pearlman: Panicking About Cyprus? Here’s What To Do First…

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The Trend in Earnings Estimates
Posted by Eddy Elfenbein on March 18th, 2013 at 10:31 pm

Over the past year, Wall Street has scaled back its earnings estimates for the S&P 500. What’s interesting though is that beyond Q1, which ends in two weeks, the dropping forecasts have come mostly come to an end. For Q4, in fact, estimates have started to rise. Note the large gap between Q1 and Q2 earnings estimates.

These of course are just estimates and analysts don’t have a great track record, but it’s interesting to note that earnings acceleration is widely expected to begin soon. We won’t have hard evidence until the second quarter earnings season starts after July 4th.

I’m not yet convinced that earnings will be so rosy later on this year. But if Wall Street’s forecast is correct for this year and next ($111.25 and $124.72), then I think this rally has more room to run. If the market were to trade at 14 times 2014’s estimate, which is hardly excessive, that translates to an S&P 500 of 1,746.

11:35 Market Update
Posted by Eddy Elfenbein on March 18th, 2013 at 11:35 am

So far, the big financial stocks are down the most. Morgan Stanley ($MS) is down about 4%, while Citigroup ($C) and Goldman ($GS) are both down more than 2%.

One of the stocks I like to watch, Rackspace Hosting ($RAX), is up 6% after a blog said that IBM ($IBM) may be interested in buying them. The numbers at RAX are amazing but I’m afraid the shares are way too expensive.

The latest news out of Cyprus is that they’re going to postpone the deposit tax debate to tomorrow. The latest is that banks will be closed there tomorrow and on Wednesday.

Cyprus Gets Bailed In
Posted by Eddy Elfenbein on March 18th, 2013 at 11:09 am

The financial world was rattled this weekend by the dramatic plans out of Cyprus. All bank accounts there will be dinged in order to help bailout the banking sector. The initial plans say that accounts in excess of 100,000 euros will be subjected to a one-time tax of 9.9%. Accounts under 100,000 euros will be hit by 6.75%.

Let me explain the background. Cyprus has become a tax haven, and a lot of Russian oligarchs have used Cyprus’ banks in order to stash their earned cash from, shall we say, unsavory activities. That’s really who the authorities are going after. As a result of Cyprus’ tax haven stand, their banking system has grown overly large so any attempt to bail them out by their government would soon become a sovereign debt crisis. From the European perspective, elections are coming up in Germany so Angela Merkel is in no mood to come to the rescue yet again. That leads us to this one-time deposit tax.

What are the ramifications for the U.S. market? I’m inclined to say, not much. In fact, this might even help our markets because it will increase the demand for dollars and peace of mind. Treasury bonds are up today. Last night, I saw that S&P 500 futures were down by as much as 19 points. We’re down today, but only by eight points. Gold is currently up but only by $10 per ounce. That’s hardly a big move.

Here’s the mistake I think that many investors make. They tend to draw out the chain of events beyond reason. We see this with Cypress in that people are afraid that a Rubicon has been crossed and authorities will go after any bank savings. The precedent has been set so there’s no turning back. The fear is that next there will be a bank run in Portugal. Then Spain. Then Italy. All across Europe, bank accounts will be drained.

Slow down. Those concerns are definitely real, but it’s still very unclear how certain that risk is. I’m puzzled why the hit to smaller savers in Cyprus is so large. I would think that it should be aimed at the larger fish, and perhaps the plans will be reworked to do that. Until we know more, no one should be worried about Cyprus bringing down the U.S. stock market.

Morning News: March 18, 2013
Posted by Eddy Elfenbein on March 18th, 2013 at 6:27 am

Central Banks Want Libor Replaced With Several Rates

Asia Stocks Drop Most in Eight Months on Cyprus Bank Levy

Cypriot Outrage Over Tax Could Derail Euro-Area Bailout

Experts Raise Eyebrows On New Russia Central Bank Chief

Taiwan’s Perng Says Sustained Currency Intervention Not Needed

Moody’s Sees Defaults as PBOC Warns on Local Risks

To Reassure Investors, Fed Stresses It Will Not End Stimulus

Tax Credits or Spending? Labels, but in Congress, Fighting Words

Trading Hearings Put Focus Back on JPMorgan’s Chief

Panasonic Advances After Report It May Exit Plasma TV

Sharp Hit By Delay In Qualcomm Investment

Big Mac Fights Subway Shrimp in Russia Fast-Food Fracas

SAC’s Plotkin Said to Have Been Tipped By Analyst

Howard Lindzon: Connecting the Volatillity Dots…Art over Science?

Joshua Brown: F*ckin’ Europe. Again.

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Happy St. Patrick’s Day
Posted by Eddy Elfenbein on March 17th, 2013 at 11:29 am

I realize that makes for two Swedish Chef videos this weekend.

The New Chef at ESPN
Posted by Eddy Elfenbein on March 15th, 2013 at 6:45 pm

Dow Utilities Adjusted for Inflation
Posted by Eddy Elfenbein on March 15th, 2013 at 1:41 pm

Yes, dividends add a lot, but the Dow Utilities Average (^DJU) really hasn’t added much over the years.