• Dividend Stocks Have Been Crushed
    Posted by on June 3rd, 2013 at 12:05 pm

    Check out this chart. It shows the Utility Sector ETF ($XLU) divided by the S&P 500.

    sc06032013

    Over the last few weeks, the utes have badly lagged the rest of the stock market (though they’re ahead sharply today). It’s not just utes but it’s most stocks that pay rich dividends. Telecoms have struggled as well. The reason is that the market feels — wrongly in my opinion — that the Fed will soon raise interest rates. If that happens, then high-yielding stocks won’t be as important.

  • Stocks Over Bonds Since the Election
    Posted by on June 3rd, 2013 at 10:58 am

    The stock market is down just a tad this morning. The ISM report for May was pretty much a bust. In response, gold is up and bonds are down. With stocks, financials are down the most while energy is leading. As I said recently in the newsletter, don’t expect the Fed to taper any time soon.

    We learned this weekend that DirecTV ($DTV) is one of three outfits that have bid more than $1 billion for Hulu. My feeling is that DTV’s management is pretty conservative when it comes to acquisitions so the odds of them buying Hulu are low. Still, it could happen. Hulu has looked to sell itself in the past but they balked at the offers they got.

    Here’s a look at how badly the stock market has beaten the bond market since the election.

    big.chart06032013

    In January, I said that Facebook ($FB) was “horribly overpriced.” The stock is down 25% since then. I do believe that the stock market is efficent — it just takes its time.

  • May ISM = 49.0
    Posted by on June 3rd, 2013 at 10:24 am

    The May ISM just came in at 49.0. This was the lowest reading in nearly four years.

    Today’s report suggests that the economy is weaker than people had thought. Fortunately, we’re still a long way from the danger zone. The economy has come in between 48.0 and 49.9 a total of 65 times. Only eight have been during recessions.

    image1338

  • Ford Sales Up 14% in May
    Posted by on June 3rd, 2013 at 10:13 am

    Another good month for Ford ($F). Sales were up 14% thanks to strong truck sales.

    Ford Motor Co. says its U.S. sales rose 14 percent in May as demand for the F-Series pickup hit a six-year high.

    Ford sold 71,604 F-Series trucks, the most since March of 2007. F-Series sales were up 31 percent over last May as construction crews and other small businesses drove demand.

    Other strong sellers included the Ford Fusion sedan, which gained 10 percent, and the Ford Escape, which was up 26 percent. Ford sold more than 29,000 Escapes, for its best sales month since the small SUV’s introduction 13 years ago.

    Sales of the new luxury Lincoln MKZ sedan were up 42 percent.

    Ford announced it will increase third-quarter North American production by 10 percent to 740,000 vehicles. Second-quarter production is unchanged at 800,000 cars and trucks.

    The stock is currently up 22 cents to $15.90. Ford broke $16 per share on Thursday and Friday but has yet to close over it.

  • Morning News: June 3, 2013
    Posted by on June 3rd, 2013 at 7:09 am

    Draghi Sees Signs of Stabilization in ‘Challenging’ Economy

    Emerging Market Dominoes to Fall as SocGen Sees Rout

    Germany Plans One Billion Euros Aid for Spanish SMEs

    Gilts Trail in Worst Global Bond Month Since 2004

    China Growth Limited by Struggling Small Manufacturers

    UAE Creates $15 Billion Aluminum Firm in State Merger

    Trial on E-Book Price-Fixing Puts Apple in Spotlight

    Bank of America $8.5 Billion Settlement Heads for Court Showdown

    Hedge Fund, Under Fire, Braces for Withdrawals

    In China, Concern of a Chill on Foreign Investments

    Amazon’s Cloud Could Threaten A Whole New Area Of Enterprise Tech, Morgan Stanley Warns

    Is This Really The End For The Great Emerging Markets Bull Run?

    Bernanke at Princeton Offers Seniors Advice From Love to Money

    Joshua Brown: Smart and Stupid Arguments for Active Management

    Jeff Miller: Weighing The Week Ahead: Will The Interest Rate Surge Continue?

    Be sure to follow me on Twitter.

  • Johnny Cash – I’ll Fly Away
    Posted by on May 31st, 2013 at 8:09 pm

  • Personal Income Unchanged for April
    Posted by on May 31st, 2013 at 10:08 am

    The government reported this morning that personal income was unchanged in April. Economists were expecting an increase of 0.1%. So far, the market doesn’t seem terribly interested.

    The stat in the personal income report that I find most interesting is real personal income after transfer payments. That’s a mouthful but it’s one of the better gauges for how the economy is performing. It rose by 0.3% in April.

    Here’s a look at the data series:

    fredgraph05312013

    The big jump at the end of last year was due to the dividend payouts. What I find interesting is that, looking past the December spike, the rising trend is continuing.

  • CWS Market Review – May 31, 2013
    Posted by on May 31st, 2013 at 7:05 am

    “As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes.”
    – John Maynard Keynes

    Last Wednesday, May 22nd, the stock market experienced a very rare event. The indexes jumped up early in the day, hit a new intra-day high, then turned around and closed lower by more than 1% (see the chart below). That may not sound like much, but it totally freaked traders out, and they’re an irritable crew to begin with.

    big05310213

    Why did this put everyone on edge? Because the last two times this happened were just before the market crashes of 2000 and 2007. Despite the big intra-day swing, the stock market is still holding up well, and I’m surprised at the number of folks who are convinced that we’re headed for an imminent downturn. Let’s look at the evidence.

    Is a Market Crash Imminent?

    As usual, I’m not going to bother with trying to predict what the herd will do. As investors, we need to accept reality on reality’s terms. The fact is that the bears have not been treated well by this market. As long as the S&P 500 stays above its 50-day moving average (right now about 1,598), I think we’re mostly safe. As always, I urge all investors to take a conservative approach and focus on high-quality stocks like the ones you see on our Buy List.

    Speaking of our Buy List, it’s been red hot lately. I probably shouldn’t mention it, as it might jinx us, but our Buy List has finally caught up to the overall market. Since April 18th, our Buy List is up 10.43%, which is ahead of the S&P 500’s 7.32%. Ten of our Buy List stocks are up more than 20% for the year, and Microsoft ($MSFT) is up 31% this year.

    Ford Motor ($F), in particular, has been a rock star for us. Did anyone else notice that Ford finally broke $16 per share on Thursday? Good, me too. As impressive as Ford’s run has been, the stock is far from expensive. Ford currently trades at less than 10 times next year’s earnings estimate. I’m looking forward to another good earnings report in late July. This week, I’m raising my Buy Below on Ford to $18 per share.

    Several of our financial stocks have also been performing very well. On Thursday, both of our large banks, JPMorgan Chase ($JPM) and Wells Fargo ($WFC), hit new 52-week highs. I’ve been cautious on raising my Buy Below prices, but this week, I’m going to raise my Buy Below on WFC to $46 per share. Last week, I mentioned that Nicholas Financial ($NICK) looked especially attractive below $13.70. The sale didn’t last long. On Thursday, NICK jumped up to $14.82. I’ve also been very impressed with AFLAC ($AFL) recently. The stock came close to breaking $57 on Thursday. I still think AFL is a bargain.

    What Do Higher Long-Term Rates Mean for Us?

    At the end of September 2012, analysts on Wall Street were expecting 2013 earnings for the S&P 500 of $114.96. Today, the consensus is down to $109.53, yet the S&P 500 has gained more than 14% over that time. What’s changed is that the earnings multiple has slowly expanded. One dollar in earnings, or expected earnings, is worth more than that same dollar a few months ago. Every day, it seems like investors become less and less nervous. Interestingly, this week we learned that consumer confidence rose to a five-year high. (Just once, I’d love to see a rise in consumer confidence reported as a drop in consumer humility.)

    The odd aspect of this rally is how gradual it’s been. It’s also as if we go up by a small amount each day. The S&P 500 has only had one 2% down day all year. But the interesting action lately hasn’t been in the stock market—it’s been in the bond market. After hearing warnings of this for months, long-term interest rates have finally started to rise. On Tuesday, the yields for the middle part and long end of the yield curve had their highest rates in more than a year. Bear in mind, of course, that interest rates are still very low. Uncle Sam can borrow for five years at a measly 1%. At the beginning of May, the five-year fetched 0.65%.

    The move in the bond market is being mirrored by a similar move in the stock market. The difference is that stocks aren’t going down; they’re going up, but the more defensive names are trailing. Remember last week, when I talked about the Garbage Stock Rally? This is how it’s playing out.

    We can really see evidence of this by looking at the weakness of utility stocks. Investors like to buy boring utilities, so they’re protected from sudden downdrafts. Yet we’ve had a bull market, and utes have gotten clobbered anyway. From April 29th to May 30th, the Utilities Sector ETF ($XLU) dropped nearly 9%. What’s happening is that investors are choosing growth over dividends. Interestingly, Warren Buffett just made a big purchase in the utility sector. Berkshire Hathaway’s MidAmerican Energy said it’s buying NV Energy for $5.6 billion.

    Whenever bonds start to fall, there’s often a fear that we’re entering a debt crisis. This time around, these fears are simply nonsense. For one, stocks are rallying from the down turn in bonds. While this rally has seen cyclicals do well (like Ford), the real strength has come from financials (as I mentioned earlier). Twenty months ago, the Financial Sector ETF ($XLF) dropped below $11. On Thursday, it closed at $20.17. Last December, I tweeted, “I still think buying XLF, sitting back and cracking a beer will be a tough strategy to beat in 2013.” Indeed it has. The XLF is up 23% on the year.

    This leads me to think that higher long-term rates signal growing optimism for the economy. The U.S. dollar has also been doing well. Remember that financial markets tend to lead the economy by a few months, so the strength for the economy hasn’t shown up just yet.

    For now, I encourage investors not to be rattled by any short-term moves. We’ve had a long stretch of low volatility, and those don’t last forever. Get used to seeing higher interest rates. Mortgage rates have been climbing as well. I don’t believe the Fed is close to shutting off the stimulus. This is a very good time for stocks. Investors should focus on quality and be careful not to chase any stocks. Wait for good stocks to come to you. One stock that looks especially good right now is Oracle ($ORCL). The company is due to report earnings in about three weeks. I’m raising my Buy Below on Oracle to $38 per share.

    Before I go, I want to make two more adjustments to our Buy Below prices. I’m raising CA Technologies’ ($CA) Buy Below to $29, and I’m dropping Cognizant‘s ($CTSH) down to $70 per share.

    That’s all for now. There are a few important economic reports next week. On Monday, we’ll get the ISM report for May. The ISM has come in at 49.9 or better for the last 46 months in a row. Let’s see if the streak stays alive. For the latter half of the week, the focus will be on jobs. On Wednesday, ADP will release its monthly jobs report. The initial claims report comes out on Thursday. Then the all-important May jobs report comes out on Friday morning. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy

  • Morning News: May 31, 2013
    Posted by on May 31st, 2013 at 6:02 am

    Euro-Area Inflation Accelerates as Food Costs Offset Energy Drop

    IMF Warns Over Yen Weakness

    Frankfurt “Blockupy” Protesters to Target ECB, Banks and Airport

    What They Said: India’s Growth Slumps to a Decade Low

    Unions Press to End Special Trade Status for Bangladesh

    ANALYST: The Dominoes Are Falling, As the Fed’s Turning Point Is Crushing Emerging Market Currencies

    GDP: U.S. Economic Growth Revised To 2.4% For Q1

    Treasury Extends HAMP Mortgage-Modification Program Through 2015

    Americans Have Rebuilt Less Than Half Of Wealth Lost To The Recession, Study Says

    Smithfield Traders Wager Shuanghui’s Deal Wins

    Not So Anonymous: Bitcoin Exchange Mt. Gox Tightens Identity Requirement

    Sell U.S. Treasuries Before They ’Crash,’ Bank of America Says

    General Petraeus, the General Partner

    John Hempton: Practical Lessons in Assessing Exotic Risks

    Phil Pearlman: The Difficulties of Measuring Sentiment

    Be sure to follow me on Twitter.

  • Shady Stock Buybacks
    Posted by on May 30th, 2013 at 10:57 am

    James Saft at Reuters highlights an issue that I’ve often discussed. Namely, companies using stock buybacks to mask their executive compensation.

    You know those “shareholder-friendly” stock buybacks the market is so excited about? Most of that money is going to offset options granted to executives.

    Perhaps even better, much of the funding for this transfer of assets (or just reward for managerial excellence in a competitive marketplace, if you prefer) is being funded by debt.

    And what is making this latest debt binge possible? Quantitative easing.

    That is pretty much all you need to know as an investor, both about the state of American corporate governance and monetary policy.

    Here are the facts about S&P 1500 companies, excluding financials, courtesy of Societe Generale quantitative analyst Andrew Lapthorne:

    “In the first quarter of 2013, buybacks done to offset the dilution from executive stock options reached a post-crisis high. Meanwhile, the amount of buybacks done to reduce the overall share count (i.e. for the benefit of shareholders) reached a 32-month low,” he writes in a note to clients.

    In other words, companies buying up shares with one hand and handing them out to employees with the other. And, at least in the first quarter, they were handing out so many that more than half of the billions being spent on buybacks was simply going to keep pace with new share issues, much of which is compensation.