Amazon Turns to the Bond Market
Posted by Eddy Elfenbein on November 27th, 2012 at 11:29 am

Ben Bernanke’s strategy of lowering interest rates to the floor and announcing to the world that he intends to keep them there until to 2015 has radically altered the investing landscape. Investors have plowed an astounding $1.33 trillion into high-yield and investment-grade bonds this year.

Not surprisingly, yields for bonds have dropped, and they’ve dropped for both the high-grade stuff and for the low-grade junk. Only with some concerns about the fiscal cliff have junk bonds recently pulled back. Besides that, it’s been a great year for junk bonds.

Amazon.com ($AMZN) went to the bond market for the first time since 1999. The company doesn’t have major plans for the money, just general business operations like buying their HQ building. Moody’s rated their bonds as Baa1 which is three levels above speculative grade.

Looking at the yield Amazon got, it was a shrewd move. The company issued $750 million of three-year notes which yield just 38 basis points more than a similar Treasury. Amazon also issued $1 billion in five-year notes (63 basis points above similar Treasuries) and another $1.25 billion in 10-year bonds (93 basis points).

Consumer Confidence Hits Four-Year High
Posted by Eddy Elfenbein on November 27th, 2012 at 10:40 am

The stock market is down again this morning, but not by much. We were actually positive for a few moments shortly after today’s open.

There was a mixed bag of economic news today. The best news was that the Consumer Confidence Index rose to 73.7 for November. That’s the highest reading since February 2008.

On the downside, there had been some initial optimism about a rescue deal for Greece, but now traders seem rather skeptical on the details.

Euro-area finance ministers cut the rates on loans made under the first bailout of Greece in May 2010. They also suspended interest payments for a decade on lending agreed under the country’s second bailout. The ministers outlined a plan for the Mediterranean nation to buy back its debt at distressed rates. They authorized Greece to receive a 34.4 billion-euro ($44.6 billion) loan installment in December.

“This has been a very difficult deal,” Luxembourg Prime Minister Jean-Claude Juncker told reporters in Brussels after chairing a 13-hour meeting that ended early today. “All initiatives decided upon today will bring Greece’s public debt clearly back on a sustainable path.”

The Case-Shiller index showed that home prices rose 3% year-over-year in September. That’s the biggest increase since 2010. The slow recovery in housing is clearly helping consumer sentiment. The Commerce Department also released a decent report on orders for durable goods.

Morning News: November 27, 2012
Posted by Eddy Elfenbein on November 27th, 2012 at 7:27 am

IMF Buy Time With Greek Deal – Debt Crisis Live

OECD Sees Risk of Fresh Contraction in Global Economy

China Shares at Lowest Close in Nearly 4 Years on Earnings, Share Glut

Britain Selects a Canadian to Lead the Bank of England

Spain Tops Target at Bill Sale as Greece Eases Funding

Mortgage Interest Deduction, Once a Sacred Cow, Is Under Scrutiny

SEC Chief’s Exit Opens Void

Black Friday May Not Save November Sales

Lehman Sells Property Firm in a Deal Worth $6.5 Billion

ConocoPhillips To Flee Kazakhstan With $5 Billion Sale

Facebook Shares Jump 8.1% After Former Naysayer Changes His Mind

Former SAC Trader to Appear in Court

Knowledge Is Money, but the Peril Is Obvious

Cullen Roche: Hulbert: Insiders Are Very Bullish

Jeff Carter: Taxing the Rich

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Facebook Gets an Upgrade
Posted by Eddy Elfenbein on November 26th, 2012 at 10:38 am

The S&P 500 is down this morning but we’re still above the key 1,400 level. Here’s an interesting fact I noticed this morning: When the S&P 500 first got to where we are today, Barack Obama was 37 years old.

Speaking of President Obama, the White House issued a report this morning saying that if Congress doesn’t act on the “Fiscal Cliff” (a registered trademark of CNBC), all sorts of awful terrible things are going to happen. The financial media says that this is why the markets are down. I can’t say if that’s true (who knows why the market does what it does?) but I wouldn’t think a report like that would scare traders for long.

According to the AP, Americans spent $59 billion over the Black Friday weekend. That’s up 13% from last year and an all-time record. I should add Barry Ritholtz’s advice to be very wary of any claims of robust Black Friday sales.

Facebook ($FB) is up this morning to $25.72 as an analyst at Bernstein raised his price target to $33. Sorry, but I still think that’s way too high.

Ethan Allen ($ETH) has had a very strong year. The company just announced a 41-cent special dividend. I love seeing that. Most companies would be tempted to waste it on a poor acquisition. Why not give it back to the owners? Good for ETH.

I sent out the latest CWS Market Review last night (a bit delayed due to Thanksgiving). In it, I mentioned the upcoming earnings report from Jos. A Bank ($JOSB) but noted that the company hadn’t yet set an earnings date. This morning, the company said it will hold its conference call on Thursday morning so I assume the earnings will come out earlier that morning. Wall Street expects earnings of 55 cents per share which would be a one penny increase over last year.

Seth Jayson at the Motley Fool has a nice write-up on Moog ($MOG-A).

Morning News: November 26, 2012
Posted by Eddy Elfenbein on November 26th, 2012 at 6:24 am

Pound Slips From Three-Week High Before EU Chiefs Meet on Greece

New Eurozone Talks On Financial Aid To Greece

Qatar Disposes of Barclays Warrants, Holds 6.7% Stake Steady

Goldman Turns Down Southern Europe Banks as Crisis Lingers

Tamar Group Inks $4 Billion Israel Corp Natgas Deals

GSK Invests in India, Nigeria

Sandy Washed Away Job Market Gains

For VW, the Path to Global Dominance Leads Through China

UBS Fined $47.5 Million in Rogue Trading Scandal

Autonomy Founder Challenges H.P.’s Claims

Renesas Said to Agree to $2.2 Billion INCJ Buyout Plan

Samsung Addresses Labor Issues at China Suppliers

‘Twelve Days Of Christmas’ Gift List Soars To Record $107,300

Joshua Brown: Selected Passages from Nassim Nicholas Taleb’s ‘Antifragile’

Phil Pearlman: Market Structure, Apple Inc. & Research in Motion

Jeff Miller: Weighing the Week Ahead: More Noise than Signal?

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CWS Market Review – November 25, 2012
Posted by Eddy Elfenbein on November 25th, 2012 at 8:41 pm

“If it’s stupid but it works, it isn’t stupid.” – Anonymous

I hope everyone had a nice Thanksgiving. Due to the holiday, trading on Wall Street was shortened last week. The exchanges were closed on Thursday, and trading ended early on Friday. The good news is that despite the limited hours, traders were in a buoyant mood. The S&P 500 jumped over its 200-day moving average on Monday, and on Friday, it once again cleared 1,400.

Breaking the 200-DMA is a crucial milestone for us. I’m happy to say that for the first time in several weeks, I’m very bullish on the stock market. In the past several issues of CWS Market Review, I’ve warned investors to expect a rough market and adopt a more conservative posture. But with the election behind us, the clouds have cleared, and I see a strong year-end rally ahead of us. In fact, I think the S&P 500 can break 1,500 by the early part of 2013.

In this week’s CWS Market Review, I’ll discuss my outlook for the stock market. I’ll also highlight the strong earnings report we got from Medtronic ($MDT). The shares are back over $43. I’ll also take a look at the upcoming earnings from Jos. A Bank Clothiers ($JOSB). But first, let’s look at the market’s new sunny disposition.

Expect a Strong Year-End Rally

Since mid-September, the stock market has been variously concerned with the election, the impending fiscal cliff, renewed violence in the Middle East and still more economic dysfunction from Europe. The market’s default response is to worry excessively about worst-case scenarios. Then, when the impending concern finally arrives, we see that it wasn’t so bad after all. That’s been the script for the last two months.

I noted that this recent selloff was a bit different from typical selloffs in that economically cyclical sectors had been holding up well. That told me that this was more of a nervous reaction rather than a precursor to a prolonged downturn. The problem is that once the market’s mood gets going, it’s hard to shut it off. That’s why I think the breaking of the 200-day moving average last week was so important. Bespoke Investment Group noted that all ten sector groups within the S&P 500 remain below their 50-day moving averages.

When we look at the numbers, the math is still clearly in favor of stocks. While the third-quarter earnings season was hardly a blockbuster, the outlook remains decent. Profits were down 3.6% from a year ago, but earnings did beat expectations. Analysts have gradually pared back estimates for Q4, but that’s largely ended. The consensus on Wall Street now expects earnings for the S&P 500 of $25.77, which would be an increase of 8.6% over last year’s Q4. That’s not bad. It may come down to the wire, but the S&P 500 is currently on track to earn almost exactly $100 for all of 2012. With the S&P 500 now over 1,400, we’re hardly overpriced.

But what about next year? While earnings estimates for 2013 had been dropping, they’ve recently stabilized. Wall Street currently expects earnings of $113.45 for 2013. That means the S&P 500 is going for less than 12.5 times next year’s earnings. I’ve also been impressed by the earnings guidance we’ve seen for next year (Medtronic is a very good example of that).

Now compare a stock market at 12.5 times earnings with the 10-year Treasury bond currently yielding 1.69%. Even if stocks don’t advance at all next year, the dividend yield will easily top the 10-year T-bond. While the Treasury purports to offer safety, I think the true risk now is being out of the stock market. Interestingly, the S&P 500 closed the day on Friday almost exactly 4% below its highest close since 2007.

When we open the hood on the recent sell-off, I’m immediately struck by how resilient high-quality stocks like AFLAC ($AFL) have been. Since the market peaked on September 14th, AFL has gained 4.5%. The stock finished the day on Friday about 1% from a fresh 52-week high. This tells us that investors aren’t scared. They’re just being more selective. This is also why I’m so optimistic that our Buy List will beat the market for the sixth year in a row.

Medtronic Is a Solid Buy but Don’t Chase It

Last Tuesday, Medtronic reported earnings of 88 cents per share, which matched Wall Street’s consensus. As I indicated in last week’s CWS Market Review, Medtronic usually comes very close to the consensus, which is one of the reasons why I like the stock.

The good news for Medtronic is that their two largest business segments, heart rhythm management and spinal products, appear to be stabilizing. The bad news is that Medtronic, like so many other companies, is feeling the squeeze of weak growth from Europe and Asia. For the quarter, total revenue grew by 2% to $4.095 billion.

I’m still satisfied that Medtronic is executing well. The most important news in this earnings report is that Medtronic reiterated its full-year earnings forecast of $3.62 to $3.70 per share. Note that this is for the fiscal year that ends next May.

In the last issue of CWS Market Review, I lowered my Buy Below on Medtronic to $44 per share. I’m going to keep it there. Even though Medtronic has recovered nicely since the earnings report, investors shouldn’t chase it. Always be patient, and wait for good stocks to come to you. We’re in this game for the long haul. Medtronic remains a very solid buy any time you see it below $44 per share.

Jos. A Bank Clothiers Is a Good Buy up to $48

The next Buy List stock to report on will be Jos. A Bank Clothiers ($JOSB). While the company hasn’t confirmed the earnings date yet, it will probably be around next Wednesday. Frankly, JOSB has been a disappointment this year. We always want to be candid about our investing mistakes. The company had a terrible earnings report in May, and the stock got slammed. Investors then overreacted and expected even more dire news from Joey Banks. When the last earnings report turned out to be not nearly as bad as expected, the shares surged. Short sellers had ganged up on JOSB, so they were hit hard by the rally. In fact, it was a classic short-covering rally as the stock was propelled higher by short sellers covering their bets.

My advice is to remain cautious of JOSB. For the time being, I’m keeping my Buy Below price at $48 per share. JOSB is a good stock, but it’s another stock not worth chasing. Before I’m willing to raise my Buy Below, I want more proof that the company has worked out its short-term problems. To be fair, the company told us in advance that fiscal Q1 has started poorly. Let’s see what the company has to say this time.

Before I go, I want to highlight some exceptionally good values on our Buy List. Moog ($MOG-A), for example, looks especially cheap right now. Also, CA Technologies ($CA) currently yields 4.5%. That’s a very good deal. I also really like Oracle ($ORCL) below $35 per share. The company will report its fiscal Q2 earnings in about three weeks. Look for another earnings beat.

That’s all for now. This Thursday, the government will release its revised estimate for third-quarter GDP growth. The initial report was for 2%. Economists expect the revision to be 2.8%. 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: November 23, 2012
Posted by Eddy Elfenbein on November 23rd, 2012 at 7:18 am

Draghi Says ECB Won’t Be Overburdened by Bank Supervision Role

Germany’s Business Confidence Unexpectedly Increases

EU Nations Far Apart On Budget But Summit Grinds On

Argentina to Appeal U.S. Court Ruling Ahead of December Bond Payment

S&P Keeps France’s AA-Plus Rating

Crackdown in Quebec: ‘Le Gap’ Won’t Do

Citigroup to Shut Almost Half of Greek Branches Amid Crisis

Diamond, Dimon’s Early Risks Made Them Better: Adoboli

Seeking Ways to Raise Taxes but Leave Tax Rate As Is

Early Start To U.S. “Black Friday” Shopping Frenzy

RIM Gains as National Bank Sees Better Outlook

New Trading Case Casts a Deeper Shadow on a Hedge Fund Mogul

Walmart Suspends India Employees

Josh Brown: The World According to Joe

John Hempton: Coca Cola Versus Hewlett Packard Advertising

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Morning News: November 22, 2012
Posted by Eddy Elfenbein on November 22nd, 2012 at 7:30 am

EU Budget Showdown Pits Bee Subsidies Against Veto Threat

Hollande Risks Squandering French Bonds’ Sweet Spot

Deal on Aid to Greece Is Within Reach, Germans Say

Catalan Banks Owing ECB $77 Billion May Stall Independence Drive

Tokyo Shares End at Highest Since Early May as Yen Slide Continues

Gold Steadies On Hopes For U.S. Fiscal Deal

Oil Prices Stay Steady Despite Mideast Conflict

Argentina Told to Pay Hedge Funds $1.3 Billion

U.S. Leading Economic Indicators Rose 0.2% in October

Fitch Cuts Sony, Panasonic Debt Ratings To “Junk” Status

SABMiller Says Weak Rand, Europe Currencies Curbed Sales

Schiff Bidding Seen Making Most Expensive Deal Pricier

Hostess Judge Approves Wind-Down of Twinkie Maker

Judge Rules United Not Liable for 9/11 Collapse

Credit Writedowns: Is There An Asian RMB Bloc?

Jeff Carter: Failure Is Hard

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“As God is my witness, I thought turkeys could fly”
Posted by Eddy Elfenbein on November 21st, 2012 at 3:46 pm

Morning News: November 21, 2012
Posted by Eddy Elfenbein on November 21st, 2012 at 7:29 am

After Latest Round of Bailout Talks, Greece Still In Limbo

Miles Says Bank of England Can Do More If U.K. Slump Persists

Japan Exports Drop Again, Adds To Recession Worry

Drought No Obstacle to Record Income for U.S. Farms

Bernanke Says Fiscal Cliff Fix May Bring ‘Very Good’ Year

Insider Crackdown Uses SAC Manager in Healthcare Pivot

Tiger Global Takes 9.9 Percent Stake In Groupon

News Corporation Completes Deal for 49% Stake in YES Network

Tax Threat Seen as Grinch Poised to Steal Holiday Sales

In HP-Autonomy Debacle, Many Advisers But Little Good Advice

Jenkins: Twinkies—A Defense

Insider Inquiry Inching Closer to a Billionaire

How to Read Financial News

Cullen Roche: 5 Risks Besides the Fiscal Cliff

Howard Lindzon: China China China…Seriously…Pay Attention

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