• Morning News: October 26, 2012
    Posted by on October 26th, 2012 at 6:29 am

    Spain’s Unemployment Reaches Record as Bailout Looms

    9 More Banks Subpoenaed Over Libor

    S. Africa Budget Deficit Widens, Prompts Spending Cap

    Japan Stock Futures Gain as Yen Falls to 4-Month Low on Stimulus

    Consumer Spending Probably Helped Lift U.S. Economic Growth

    Jobless Claims in U.S. Show Limited Labor Market Progress

    Apple Profit Rises 24% on Sales of iPhone 5

    Spending Spree Stains Amazon With Red Ink

    P&G’s Results Top Forecast, Easing Pressure on CEO

    Flight Delays, Cancellations Hurt United’s Profit

    Best Buy Warns On Profit; U.S. Unit Head To Leave

    Samsung’s Success Is Its Biggest Weakness

    Citi Chairman Is Said to Have Planned Chief’s Exit Over Months

    Roger Nusbaum: People Who Think They Are Conservative Investors

    Howard Lindzon: And on the Eighth Day God Said…Let There be Apple

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  • The Volatility Trades Gets Crowded
    Posted by on October 25th, 2012 at 2:37 pm

    From Bloomberg:

    Investors are flocking to the options market at an unprecedented rate to place bets on Standard & Poor’s 500 Index volatility, a sign they see risks increasing after the calmest election year in two decades.

    Outstanding contracts tied to the Chicago Board Options Exchange Volatility Index reached 9.01 million on Oct. 16, the highest level ever, according to data on open interest compiled by Bloomberg. Calls that pay should the VIX increase have almost tripled this year to 4.38 million, while puts climbed 52 percent to 2.14 million, the data show.

    Election Year

    Traders are snapping up VIX options after the gauge, which moves in the opposite direction of the S&P 500 about 80 percent of the time, lost 22 percent in 2012 through yesterday. That’s the largest annual drop for any election year since it was created in 1990, according to data compiled by Bloomberg. The VIX has climbed 22 percent since Oct. 18 as the equity gauge retreated 3.3 percent.

    “The market is uncertain of the outcome of the election,” Andrew Greeley, a senior managing director at Stamford, Connecticut-based Acorn Derivatives Management Corp., which manages more than $500 million in volatility assets, said yesterday. “It will be range-bound until it is decided. Soon after the election, we could experience a stronger move.”

  • NYT Profits Plunge 85%
    Posted by on October 25th, 2012 at 10:35 am

    Yesterday I noted that the put-call ratio on the stock of the New York Times ($NYT) had soared 30-fold in two days.

    It turns out, they were on to something.

    Today the NYT reported that its earnings plunged 85%. The stock has been down as much as 15% today.

    Profit for the quarter sank to $2.28 million, or two cents a share, from $15.7 million, or 10 cents, a year earlier.

    The loss from continuing operations was two cents a share, compared with earnings of five cents a share from continuing operations year ago. Excluding severance and other items, the loss from continuing operations was one cent in the most recent quarter.

    Revenue declined 0.6% to $449 million, and operating margin narrowed to 1.9% from 4.7%

    Advertising revenue fell 8.9% on a 11% decline in print ad sales. Digital advertising revenue decreased 2.2%.

    Circulation revenue rose 7.4%. Paid digital subscriptions across the company were roughly 592,000, an 11% increase from the second quarter.

    Analysts polled by Thomson Reuters had most recently forecast earnings of eight cents on revenue of $479 million.

  • Wright Express is Now WEX Inc.
    Posted by on October 25th, 2012 at 10:24 am

    Wright Express ($WXS) has changed its name to WEX Inc.

    Wright Express Corporation, today announced its name change to WEX Inc. The new name reflects the Company’s transformation and growth strategies which are focused on physical, digital and virtual corporate card payment solutions for businesses internationally. The Company will continue to be listed on the New York Stock Exchange under the ticker WXS.

    “Today begins a new chapter in our Company’s evolution with the launch of our new, international brand, WEX Inc. This new brand is built on a foundational set of Company values ― integrity, innovation and execution ― that have remained constant as we have grown,” said Michael E. Dubyak, chairman, president and CEO of WEX Inc. “Over the last 30 years, we have achieved a leadership position in the rapidly changing corporate payments industry through our passion to deliver precision solutions, combined with our persistence in delivering an exceptional customer experience. The ongoing execution of our growth strategy further enables WEX Inc. to diversify its business and expand our international footprint, while maintaining our focus on expanding our core Americas’ fleet business.”

    Since its beginnings as a fleet card provider in 1983, through a successful initial public offering in 2005, WEX Inc. has grown exponentially to become an international company with 2011 revenues of approximately $553 million.

  • Durable Goods Orders Jump 9.9%
    Posted by on October 25th, 2012 at 10:09 am

    The stock market is gaining back some lost territory this morning. The S&P 500 is currently up about 10 points. Yesterday, the index closed at a seven-week low.

    This morning, the Labor Department reported that jobless claims dropped by 23,000. I should caution you that that number has been swinging wildly in recent weeks. Economists have been closely watching the jobs figures for any sign confirming the improving trend in employment. Next Friday, we’ll get the jobs report for October and that will tell us a lot more.

    Also this morning, the Commerce Department said that orders for durable goods soared 9.9% last month. That’s the biggest jump since January 2010.

    The market is intensely focused on Apple’s ($AAPL) earnings which will come out after the close. I think the financial media greatly distorts the impact of well-known stocks. Apple is certainly important but please, there’s still another 97% of the stock market.

    A few items for our Buy List.

    Ford ($F) said it’s going to lose $1.5 billion in Europe this year. That’s much higher than their previous forecasts. The company is working to restructure its European operations which include shutting down a plant in Belgium in 2014. This is unfortunate but it has less to do with Ford and more to do with the weakness in Europe.

    Medtronic ($MDT) is under fire this morning. The company is accused of manipulating studies on bone growth after spinal surgery.

    The doctors and researchers who were the authors of the studies were part of a $210 million consulting and royalty payments program by Minneapolis-based Medtronic and never disclosed their ties or the company’s influence in their papers, the panel said in its report.

    “Medtronic’s actions violate the trust patients have in their medical care,” Senator Max Baucus, a Montana Democrat and committee chairman, said in a statement. “Medical journal articles should convey an accurate picture of the risks and benefits of drugs and medical devices, but patients are at serious risk when companies distort the facts the way Medtronic has.”

    I can’t speak to the accusation but Medtronic has strongly denied doing anything wrong. The stock is currently up this morning.

    Lastly, CA Technologies ($CA) will report after the close.

  • Morning News: October 25, 2012
    Posted by on October 25th, 2012 at 5:53 am

    Spain’s Bad Bank Seen as Too Big to Work: Mortgages

    UK Growth Fastest Since 2007

    Draghi Defends Bond Buying Program

    Yen Weakens Past 80 Per Dollar on Bets BOJ to Ease More

    Crude Oil Options Fall as Futures Slide Below $86 a Barrel

    Fed Keeps Rates Low, Says Growth Is Moderate

    U.S. Sues BofA Over Mortgage Sales

    Zynga, Survival at Stake, Beats Forecasts

    Facebook Shares Soar After Beating Estimates on Mobile

    Credit Suisse to Cut More Costs as Quarterly Profit Falls

    Ford Expected To Announce Southampton Transit Plant Closure

    Unilever Sales Beat Estimates as Brazil Leads Gains

    Ex-Goldman Director to Serve 2 Years in Prison on Insider Trading Case

    Phil Pearlman: Talking Facebook on Reuters TV with BuzzFeed’s Jon Steinberg

    John Hempton: CEO Dead Pool

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  • AFLAC’s Q4 Guidance
    Posted by on October 24th, 2012 at 3:42 pm

    Here are some key bits from AFLAC’s earnings call this morning:

    I was very pleased that the Board of Directors approved the 6.1% increase in the quarterly cash dividend effective with the fourth quarter payment. This marks the 30th consecutive year we’ve increased cash dividend to the shareholders. We continue to believe that we are well-positioned to achieve our stated earnings objectives of 3% to 6% increase in operating earnings per diluted share, excluding the impact of foreign currency.

    In the second quarter, we have guided toward the low end of the range. However, reflecting the lower annual effective tax rate, we now expect operating earnings for 2012 to be better. If the yen average is JPY 80 to the $1 for the last 3 months of the year, we expect reported operating earnings for the fourth quarter to be in the range of $1.46 to $1.51 per diluted share.

    Under the same exchange rate assumptions, we expect the full year operating earnings to be $6.58 to $6.63 per diluted share, which would be roughly a 4% to 5% increase on a currency-neutral basis. We believe this is reasonable and achievable. Importantly, we continue to believe that 2013’s operating earnings per share will increase 4% to 7% on a currency-neutral basis.

    In addition to operating earnings growth, we also focused on producing industry-leading return on equities. On an operating basis, the third quarter ROE was 25.2%. For 2012 and 2013, we continue to believe it’s reasonable to see operating ROE in the area of 22% to 26%. We remain focused on our vision of being the leading provider of voluntary insurance in the United States and the #1 provider of supplemental insurance in Japan. In both segments, I am confident in our brand, the fundamental needs of our products, and more importantly, the success of Aflac. Overall, I believe we had the best quarter since 2008.

    I think traders wanted a bigger dividend increase, but don’t let that fool you; AFLAC is doing very well.

  • Today’s Fed Statement
    Posted by on October 24th, 2012 at 2:39 pm

    Here it is:

    Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has advanced a bit more quickly, but growth in business fixed investment has slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level. Inflation recently picked up somewhat, reflecting higher energy prices. Longer-term inflation expectations have remained stable.

    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective.

    To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of Treasury securities, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

    The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

    To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.

    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed additional asset purchases and disagreed with the description of the time period over which a highly accommodative stance of monetary policy will remain appropriate and exceptionally low levels for the federal funds rate are likely to be warranted.

  • Stocks and Oil Diverge
    Posted by on October 24th, 2012 at 12:29 pm

    Stocks and the price of oil had tracked each other closely until earlier this year as oil prices fell and stocks continued to rise.

  • Is Something Up at the New York Times?
    Posted by on October 24th, 2012 at 10:58 am

    Somebody somewhere somehow knows something. Or at least they think they do. The put-call ratio for the New York Times‘ ($NYT) stock has soared 30-fold in the last 48 hours:

    Two New York Times Co. (NYT) option trades pushed bearish wagers to the highest level ever after the publisher of the third-biggest U.S. newspaper by weekday circulation rallied to a 20-month peak.

    The ratio of outstanding puts to sell the stock versus calls increased almost 30-fold in two days to 4.1-to-1 on Oct. 22, an all-time high, according to data compiled by Bloomberg. A block of 8,500 January $10 puts changed hands that day after 10,000 traded at the end of last week, the data show. Times Co.’s shares climbed 37 percent this year through yesterday and touched its highest price since February 2011 last week.

    “The stock has had a nice run which you may want to hedge,” Boniface “Buzz” Zaino, a money manager at Royce & Associates LLC in New York, said yesterday via phone. His firm manages about $36 billion including shares of the publisher. “You could get a near-term bearish case based on concerns about the economy for the next six months and what’s going to happen to advertising dollars.”

    The stock has had an impressive run since May. At one point, NYT was at $5.88 on May 4th. Last week, the shares got as high as $11.07. The stock certainly appears to be over-priced here. Earnings are due out tomorrow.