• The Dow-to-Gold Ratio Since 1968
    Posted by on October 16th, 2012 at 2:00 pm

    I usually caution investors from looking at these types of charts, so you’ll have to excuse me, but here’s a look at how the Dow has performed in terms of gold since 1968.

    The difference is that I think this chart is interesting for its own sake. I don’t think there’s any useful analysis here. For one, it leaves out dividends which add up over the decades.

    The trend of gold’s out-performance over the past several years is remarkable. If the Dow had kept pace with gold since August 25, 1999, it would be at 77,800 today instead of 13,500.

    On January 21, 1980, the ratio got down to 1, but by August 1999, it had risen to 44. Since then, it’s been down, down, down. In August of last year, the ratio fell below 5.8. By this past August, the ratio got back over 8.2, and today we’re right around 7.75.

  • September Industrial Production = +0.4%
    Posted by on October 16th, 2012 at 10:49 am

    The government reported this morning that industrial production rose by 0.4% last month which was above Wall Street’s consensus of 0.2%. This was an interesting report to watch because industrial production took a big hit in August when it dropped by 1.4%. That may have just been a blip instead of the beginning of a long-term trend. This also confirms the strength we’re seeing from consumers. Retail sales just had their biggest two-month gain in nearly two years. The Commerce Department said that retail sales rose by 1.1% in September which comes after a 1.2% increase in August.

    The government also reported that the CPI rose by 0.6% in September. But the core rate, which excludes food and energy, rose by just 0.1%.

    Goldman Sachs ($GS) reported third-quarter earnings of $2.85 per share. That was 73 cents per share above forecasts. The company also raised its quarterly dividend by four cents to 5 cents per share. In the same quarter one year ago, Goldman lost 84 cents per share.

    Perhaps the biggest news today is that Vikram Pandit resigned as CEO of Citigroup ($C). This was a big surprise. Apparently Pandit and the board clashed over how to lead the business. Citigroup aside, I’d like to see more instances of a board winning conflicts with CEOs. The stock has lost 88.4% since Pandit took over in 2007.

    So far, 48 companies in the S&P 500 have reported earnings and 35 have topped estimates.

  • Johnson & Johnson Earns $1.25 Per Share
    Posted by on October 16th, 2012 at 9:43 am

    Good news for Johnson & Johnson ($JNJ). The company reported third-quarter earnings of $1.25 per share which was four cents more than expectations. JNJ also raised full-year guidance from a range of $5.00 to $5.07 per share, to a new range of $5.05 to $5.10 per share.

    Sales of recently approved drugs, including Zytiga for prostate cancer, Xarelto for stroke prevention and Stelara for psoriasis helped push revenue 6.5 percent to $17.1 billion for the quarter, from $16 billion a year earlier. The June purchase of Synthes Inc. with novel financing that used cash that had accumulated outside the U.S. also bolstered the company’s quarterly earnings.

    “We continue to see improving fundamentals at J&J across all of its segments,” Derrick Sung, an analyst at Sanford C. Bernstein & Co. in New York, said in an Oct. 12 note to investors. “In pharma, J&J will start seeing contributions this year” from products that could generate nearly $7 billion annually by 2015, he said. “J&J’s competitive position and growth prospects are now strengthened by the closing of the Synthes acquisition.”

    For the first nine months of this year, JNJ has earned $3.91 per share. That means they see Q4 coming in between $1.14 and $1.19 per share. The stock has a very good shot of making a new 52-week high today, and then making a run at the all-time high set four years ago.

    In July, JNJ lowered their full-year guidance from $5.07 to $5.17 per share to $5.00 to $5.07 per share. So they’re taking back a good deal of that lowering.

    The Street currently expects JNJ to earn $5.47 per share for 2013. With today’s earnings report, I think that will be bumped up a few pennies. JNJ remains a very good buy.

  • What I’m Watching this Earnings Season
    Posted by on October 16th, 2012 at 9:24 am

    Outside of pure bottom line numbers, here are eight things I’m looking for this earnings season.

    1. How much has the dollar hurt revenues? This was a big factor during Q2. It shouldn’t be as much for Q3, but let’s see the details.

    2. Are companies raising dividends? This has been a big year for dividends. Goldman just raised its payout. Will this trend continue?

    3. Where are the strong areas? So far, there were impressive beats from ConAgra and Lennar. Does this mean that housing is continuing to lift the consumer?

    4. What kind of guidance are we seeing for Q4 and 2012? J&J just bumped up guidance after lowering it before.

    5. What are expansion plans like? A few retailers recently announced quite large hiring plans over the holidays. Walmart’s stock is at an all-time high.

    6. Do we have any clues what the holiday season will be like? We haven’t had a blow-out holiday season in a few years.

    7. Margin pressure. We stretched profit margins about as far as they can go. What kind of pricing pressure do firms have, especially at the high end?

    8. What’s the damage from Europe? This was another major theme during Q2. Do U.S.-based firms still have large exposure to the economic chaos there?

  • Morning News: October 16, 2012
    Posted by on October 16th, 2012 at 5:57 am

    Spain Considers EU Credit Line

    German Investor Sentiment Rose in October on ECB Plan

    U.K. Inflation Cools to 2.2%, Least in Almost Three Years

    China Credit Card Romney Assails Gives Way to Japan

    Soybeans Fall Below $15 for First Time Since July on Demand Drop

    Wall Street Rallies On Citigroup’s Earnings, Retail Sales

    Retail Sales Rise 1.1% In September, Beating Expectations

    5 Huge Myths About Social Security

    Japanese Firm Softbank To Buy 70% Of Sprint For $20.1 Billion

    Citigroup Profit Beats Estimate on Gains From Bond Trading

    There Will Be a Factory Skills Shortage. Just Not Yet

    Inside Yahoo! How Marissa Mayer Can Turn it All Around

    The BlackBerry as Black Sheep

    2 From U.S. Win Nobel in Economics

    Credit Writedowns: Switzerland And The Euro Zone: An Overlooked Currency War In Europe

    Jeff Carter: F%^$ You Money

    Be sure to follow me on Twitter.

  • The 50-DMA Holds Again
    Posted by on October 15th, 2012 at 6:00 pm

    The biggest difference between theory and practice on Wall Street is technical analysis. Every academic dismisses it as voodoo, but nearly everyone who follows the market regularly gives it at least some credibility.

    Personally, I’m in the doubter camp but I do have to concede that the market seems to take moving average points seriously. Perhaps it’s just a coincidence — yet another attempt to find logic in a random pattern — but the S&P 500 just made a near perfect bounce off its 50-DMA.

  • WMT and JNJ Break Out from Long Ranges
    Posted by on October 15th, 2012 at 1:26 pm

    In June, shares of Walmart ($WMT) finally took out the stock’s all-time high from 12.5 years before. For much of that time, the stock was locked in what I called the “Mother of All Trading Ranges.” Consider this: For 3,107 straight trading days (or 148 months), Walmart never closed above $65 or below $42. Not once.

    Now we’re seeing a similar story with Johnson & Johnson ($JNJ). Last week, the stock came close to breaking through $70 per share which is something it hasn’t done in more than four years. While JNJ’s trading range hasn’t been as narrow or as long as Walmart’s, the stock has spent almost the entire past eight years bouncing between $57 and $72 per share.

    This could signal that after a very long rough patch, large-cap blue chips are ready to make new highs.

  • Lazard Lowers Harris to Sell
    Posted by on October 15th, 2012 at 12:20 pm

    Shares of Harris Corp. ($HRS) are down today after Lazard Capital lowered their rating on the stock to “Sell.” The stock has been down as much as 4.7% today. This comes after a drop of 4% on Friday.

    Let me caution investors not to get too rattled by this sell-off. I think Lazard is way off base here but let’s remember that Harris has had a very strong run since the summer. I had purposely kept my buy-below price at $50 even though the stock had cleared that hurdle. It even broke $52 per share recently. We want to stay disciplined and wait for good stocks to come to us.

    Good stocks can bounce around like that. In fact, Harris lost 15.6% between April 30 and May 18 of this year. Despite that, it’s still up over 30% on the year for us. That’s just how the stock market works.

    Harris is going for less than 10 times earnings, and the lower share price gives the dividend a yield of 3.15%. Only a few weeks ago, Harris raised their dividend by 12%. I expect another good earnings report in a few weeks. Harris remains a very solid buy.

  • Profits from HFT Down 35% from Last Year
    Posted by on October 15th, 2012 at 11:11 am

    The New York Times reports that profits from high-frequency trading are down big this year:

    Profits from high-speed trading in American stocks are on track to be, at most, $1.25 billion this year, down 35 percent from last year and 74 percent lower than the peak of about $4.9 billion in 2009, according to estimates from the brokerage firm Rosenblatt Securities. By comparison, Wells Fargo and JPMorgan Chase each earned more in the last quarter than the high-speed trading industry will earn this year.

    While no official data is kept on employment at the high-speed firms, interviews with more than a dozen industry participants suggest that firms large and small have been cutting staff, and in some cases have shut down. The firms also are accounting for a declining percentage of a shrinking pool of stock trading, from 61 percent three years ago to 51 percent now, according to the Tabb Group, a data firm.

    It is a swift reversal for trading firms that have often looked to other investors like profit machines, thanks to high-powered software and superfast data connections that can take advantage of small changes in the price of a stock.

    Part of the reason HFT is getting squeezed is a general decline in trading volume. There’s also been a decline in volatility. Rising markets tend to be much calmer than falling markets.

  • Four Years Ago Today: The Dow Loss of 7.87%
    Posted by on October 15th, 2012 at 10:56 am

    Today is the fourth anniversary of the Dow plunging 733.08. That was a loss of 7.87% which was the third-worst percentage loss of the past 80 years. The two that came ahead of that were both in 1987. This Friday will mark the 25th anniversary of the 1987 crash.

    Interestingly, the point loss of October 15, 2008 was less than the 777.68 point loss from September 29, 2008, just 16 days before. Since the market had dropped so much between those two points, the latter, smaller drop was a larger percentage loss. Measuring from the close of October 15 to the close from this past Friday, the Dow is up by 55.4%.

    The stock market is mostly flat today. I’m glad to see shares of JPMorgan Chase ($JPM) up a little today. Even though the bank reported good earnings and beat estimates as I expected, the market didn’t give the shares much of a boost on Friday.

    Here’s a stunning fact: Bespoke reports that the S&P 500 has closed lower on the first day of trading each week for 12 of the past 14 weeks. That’s always been a Monday except for the Tuesday after Labor Day. I guess news over the weekend has usually been bad.

    On the banking front, shares of Citigroup ($C) are up 3.2% today on a good earnings report. Profits actually fell to $1.06 per share but that was 10 cents ahead of expectations. I’m still pretty cautious on Citi. The previous two earnings reports were good but the Q4 report from last year was a disaster. Citigroup’s earnings were hurt by a $4.7 billion loss related to a joint venture brokerage business with Morgan Stanley ($MS).

    The Commerce Department reported that retail sales rose by 1.1% last month. The number for August was revised upward to 1.2%. When we knock out sales for cars, gasoline and building materials, retail sales rose by 0.9% for September which beat expectations for 0.3% growth.

    This is an important report because consumers drive the economy, and sluggish consumers have been responsible for sluggish economic growth this year. The trend of higher home prices seems to be translating into greater consumer spending.

    Finally, Alvin Roth and Lloyd Shapley won this year’s Nobel Prize for Economics.