Morning News: October 16, 2012
Posted by Eddy Elfenbein 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

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The 50-DMA Holds Again
Posted by Eddy Elfenbein 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 Eddy Elfenbein 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 Eddy Elfenbein 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 Eddy Elfenbein 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 Eddy Elfenbein 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.

Morning News: October 15, 2012
Posted by Eddy Elfenbein on October 15th, 2012 at 5:38 am

Markets Look For More Action, Less Talk On The Eurozone

Global Economy Distress 3.0 Looms as Emerging Markets Falter

Santander, RBS Pick Up Pieces

China Shares End Lower Following Profit Warnings

Tame China Inflation Takes Pressure Off Policymakers

India Inflation Rises To 7.8 Percent In September

Bernanke Defends Fed Stimulus As China, Brazil Raise Concerns

Forecasts For Faster GDP Growth Entail Avoiding Fiscal Cliff

Crude Oil Drops as Iran Offers Nuclear Talks

Softbank to Buy 70% of Sprint as Son Seeks Growth in U.S.

CNH Rejects Fiat Industrial Merger Terms

Amazon.com Says E-Book Refunds May Be Coming

Microsoft Makes New Push Into Music

Joshua Brown: Beating the Show-Offs

Cullen Roche: Cracks in the Profit Facade….

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The 50-DMA Holds!
Posted by Eddy Elfenbein on October 12th, 2012 at 6:12 pm

It was close. Very, very close. But the S&P 500 closed just barely above its 50-DMA. The index closed Friday at 1,428.59. The 50-DMA is now 1,328.38.

S&P 500 Threatens to Close Below 50-DMA
Posted by Eddy Elfenbein on October 12th, 2012 at 1:59 pm

For the first time since June 28th, the S&P 500 may close below its 50-day moving average. The index came close a few times in July but never did. The key number to watch today is 1,428.37.

JPMorgan Easily Beats Estimates
Posted by Eddy Elfenbein on October 12th, 2012 at 1:04 pm

JPMorgan Chase ($JPM) reported its Q3 earnings this morning and as I expected, they easily surpassed Wall Street’s consensus. For July, August and September, the bank raked in $5.7 billion or $1.40 per share which was 18 cents above the Street’s forecast. Profits were up 34% and revenues rose 6% to $25.9 billion. The Street had been expecting $24.5 billion for the top line.

More good news is that the losses from the London Whale debacle are basically ending. JPM execs said that the trade is still unwinding and the red ink has been reduced to a “modest” loss for Q3. All told, the trade cost them $6.2 billion. JPM said that core loans rose by 10% and mortgages were up by 29%. Overall, this was a very good quarter for JPM.

“I would hope for America’s sake we start to fix the things that make the mortgage underwriting too tight,” Mr. Dimon said on a conference call with reporters.

Throughout its core lending businesses, JPMorgan showed signs of strength. The commercial banking group reported record revenue. The volume of credit card sales jumped 11 percent over the previous year, bolstering the broader unit. The card services and auto business posted profits of $954 million, up 12 percent.

With the improving credit environment, JPMorgan set aside less money to cover potential losses. In the mortgage banking business, the bank cut the amount of reserves by $900 million. Across the bank, JPMorgan set aside $1.79 billion of such funds, compared with $2.41 billion a year earlier.

The stock gapped up earlier today but has since pulled back to the mid-$41 area which is where it was during the first part of this week.