• The Market Isn’t Rallying, the Fear Premium Is Fading
    Posted by on January 29th, 2013 at 10:56 am

    The U.S. stock market isn’t rallying so much as the fear premium is slowly fading away. The net effect, of course, is the same: rising share prices. But bear in mind what’s going on under the hood; earnings estimates for 2013 are lower than they were several months ago. The Street currently expects the S&P 500 to earn about $112 this year. In April, it was close to $119.

    So why are investors willing to pay more for less? Multiples are driven by sentiment, and the widespread fear that plagued the market is melting away. Let’s look at the performance of stocks versus bonds. From mid-2011 to mid-2012, bonds (especially secure U.S. Treasury bonds) soared. Stocks are only beginning to play catch up.

    big.chart01292013

    Remember last year how everyone was watching what was happening in the Spanish or Italian bond market? Not so anymore. The guys at Bespoke note that European spreads are near 52-week lows.

    The Spanish and Italian stock markets are also rebounding after severe losses.

    big.chart01292013a

    Junk bond spreads are plummeting.

    fredgraph01292013

    As sentiment returns to normal, volatility is fading away as well.

    big.chart01292013b

    Even gold, which had been a big winner for so long, hasn’t been able to make a new high in nearly 18 months.

    fredgraph01292013a

  • Harris Beats But Lowers Full-Year Guidance
    Posted by on January 29th, 2013 at 10:26 am

    Besides Ford Motor ($F), we had another Buy List earnings report this morning. Harris Corp. ($HRS), the communications equipment company, reported earnings of $1.25 per share for the December quarter which is the company’s fiscal second quarter. The consensus on Wall Street was for earnings of $1.20 per share. Revenue dropped from $1.31 billion to $1.29 billion.

    While these results were good, the news that has me concerned is that Harris lowered its full-year guidance. Before, the company saw earnings ranging between $5.10 and $5.30 per share. Harris lowered that range by 10 cents at both ends. The company now sees earnings ranging between $5 and $5.20 per share. Harris sees revenue dropping by 2% to 4%. The previous range was flat to negative 2%. The company blamed the lower guidance on “slower government spending resulting from growing budget uncertainty.”

    Shares of Harris are currently down about 2.2% today.

  • Ford Motor Beats Earnings for Q4
    Posted by on January 29th, 2013 at 9:01 am

    Ford Motor ($F) posted strong quarterly results this morning. For Q4, the company earned 31 cents per share, which was six cents per share more than expectations. Ford earned 20 cents per share during Q4 of 2011.

    Quarterly revenue rose from $32.6 billion to $34.5 billion. Wall Street had been expecting $32.94 billion. In terms of net earnings, Ford earned $1.59 billion last quarter compared with $1.03 billion the year before. For the entire year, Ford raked in $5.66 billion on revenue of $134.3 billion.

    The equation continues to be the same: they’re doing well in North America, but not so well in Europe. During 2012, Ford lost $1.75 billion in Europe. To give you an idea of how rough that is, they only lost $27 million there in 2011. In fact, the company said today that it’s expecting to lose $2 billion in Europe this year. Previously Ford had said they expected the same loss for this year as they had last year. Pre-tax earnings in North America rose 110%.

    The New York Times described Ford’s Q4 as a “microcosm of Ford’s recent overall performance.” That’s a nice way of putting it. Alan Mulally, the head honcho, said, “We are well positioned for another strong year in 2013, as we continue our plan to serve customers in all markets around the world with a full family of vehicles.”

    As bleak as things look in Europe, I like the steps that Ford is taking there. They’re being very aggressive, and they’re way ahead of GM. Basically, Ford is doing in Europe today what they did in North America a few years ago. Namely, restructure, reorganize and streamline operations. It’s painful in the short-term as we’re seeing in Europe today. But it’s very profitable in the long-term as we can see in Ford’s North American results today.

    The stock looks to pull back a little today. Don’t be alarmed. Ford continues to do very well.

  • Morning News: January 29, 2013
    Posted by on January 29th, 2013 at 6:37 am

    In Japan, Dreamliner Woes Test Cozy Corporate Ties

    Economists React: Reserve Bank of India Cuts Key Policy Rate

    Royal Bank of Scotland Bonuses Spell Trouble For Osborne

    Monti Minister to Defend Paschi Bailout After Hidden Losses

    Iceland Wins Case On Deposit Guarantees

    Bernanke Seen Buying $1.14 Trillion in Assets in 2014

    Durable-Goods Demand Points to U.S. Factory Pickup

    The Chief of Yahoo Lifts Sales, and Spirits

    Caterpillar Chief Faults China Unit

    Philips Exits Consumer Electronics

    Little Debbie Maker to Buy Drake’s Brand, Hostess Says

    As Music Streaming Grows, Royalties Slow to a Trickle

    The Great ETF Mega-War

    Jeff Miller: Weighing the Week Ahead: Will the Average Investor Take the Plunge?

    Howard Lindzon: What Could go Wrong? …And Is Apple Still Leading The Market

    Be sure to follow me on Twitter.

  • Ford Beating GM in Europe
    Posted by on January 28th, 2013 at 4:55 pm

    Interesting but not a surprise.

    When Ford Motor Co. (F) posts fourth- quarter results tomorrow, the numbers probably won’t look great, likely the lowest operating profit of the year. Those figures mask the optimism coming from an unlikely place: Europe.

    Using its turnaround in the U.S. as a road map, Ford is moving more briskly to recover in Europe than its competitors. While Ford will report a loss of more than $1.5 billion for the full year in Europe and has forecast a similar result for 2013, Chief Financial Officer Bob Shanks said in an interview this month during the Detroit auto show, those losses will begin to disappear in about two years.

    Ford will be about a year ahead of General Motors Co. (GM) in efforts to revamp operations in the region, said Peter Nesvold, a Jefferies Group Inc. analyst with a buy rating on the shares. Ford’s board signaled increased conviction in the company’s European restructuring plan by doubling the quarterly dividend earlier this month, he said.

    “In the case of Ford, ultimately, this is the team that without external help was able to accomplish in North America what almost nobody thought was going to be possible,” Nesvold, who is based in New York, said in a telephone interview. “The problems aren’t identical in Europe, but they are similar.”

  • The 10-Year Yield Hits 2%
    Posted by on January 28th, 2013 at 1:58 pm

    Today the market seems to be dancing around important price points. The yield on the 10-year Treasury touched 2%. Of course, that’s very low but it’s the highest yield in nine months. This is another example of investors favoring riskier assets.

    The S&P 500 is right at 1,500 on the nose. It’s moving just a few fractions above or below. According to Bloomberg, 150 companies in the S&P 500 have reported so far. Of those, 75% have beaten on earnings and 67% have beaten on sales.

    The latest numbers I have show analysts’ forecast earnings of $112.21 for the S&P 500 for this year. While the Q4 numbers for 2012 are still coming in, the Street sees full-year earnings on track for $97.51. Interestingly, Wall Street expects earnings growth to accelerate all year. Last April, the Street thought 2013 earnings would be $119.

    I see that Oracle ($ORCL) has been as high as $35.72 today. That’s the highest price since last May. Medtronic ($MDT) and WEX Inc. ($WXS) both hit new 52-week highs.

  • Going for Nine in a Row
    Posted by on January 28th, 2013 at 10:08 am

    The S&P 500 is going for its ninth-straight rally in a row, but the market is down a bit right now. JoS. A Bank ($JOSB) is having a very rough morning. The shares are down about 16%.

    On our Buy List, Bed Bath & Beyond ($BBBY) is getting clipped by 2.6% thanks to a downgrade at Goldman Sachs.

    The good economic news today was that orders for durable goods rose by 4.6% last month.

    The gains were led by a 56.4 percent increase in military aircraft orders and a 10.1 percent increase in commercial aircraft orders.

    Orders for machinery, communications equipment and primary metals such as steel also showed increases.

    Still, demand for core capital goods, a measure of business investment plans, rose just 0.2 percent. That followed two straight monthly gains of 3 percent.

    Orders for durable goods, which are expected to last at least three years, can fluctuate from month to month. For all of 2012, durable goods orders rose 4.1 percent. But demand for core capital goods fell 0.3 percent for the year.

  • JoS. A Bank Warns
    Posted by on January 28th, 2013 at 7:14 am

    At the end of last year, I decided to take JoS. A Bank Clothiers ($JOSB) off our Buy List. It wasn’t too much of a surprise for long-term readers of our humble blog. The company had not one, but two awful, terrible earnings reports last year.

    As I often point out, business problems aren’t like a sports team in a slump. You can’t just shake them off. If there’s a problem, there’s usually something important driving it and the problem will most likely get worse before its resolved.

    This past Friday evening at 8 pm, JOSB issued a press release. Without knowing too much about PR, you can be pretty sure that anything in a press release going out at that time isn’t going to be good news. And in this case, you would be correct.

    Joey Banks said that net income for FY 2012 would be “approximately 20%” lower than the year before. The silk tie has hit the fan. Neal Black, the CEO, said:

    The fourth quarter started out slowly, as the first two weeks of fiscal November were negatively impacted by the aftermath of Hurricane Sandy, the distractions created by the presidential election and the uncertainty of the fiscal cliff. Going into the critical holiday selling season, starting on Black Friday, we believed we had a strong marketing and promotional strategy for the period. However, many of the promotional items and a large part of our holiday assortment were items that sell best in cold weather and the weather was unseasonably warm.

    Oh dear lord. This is a cartoonish example of someone refusing to take responsibility; Hurricane Sandy, the fiscal cliff, the election and unseasonably warm weather. You gotta be kidding me. I hate to inform Mr. Black that presidential elections aren’t what we call unforeseen events.

    Let’s run some math. Last year, JOSB earned $3.49 per share, so a 20% decline would be earnings to $2.79 per share. For the first three quarters of this fiscal year (which ends at the end of the month), JOSB earned $1.83 per share. So that translates to Q4 earnings of 96 cents per share. How bad is that? Wall Street had been expecting $1.76 per share. In other words, this is a massive shortfall.

    I’m glad we got this dog off the Buy List. Monday’s opening trade will not be pretty.

  • Morning News: January 28, 2013
    Posted by on January 28th, 2013 at 6:47 am

    Davos Money Men Say World Emerges From Doldrums Fretting Relapse

    The Great Central-Banking Experiment: Will Unlimited Cash Solve Problems or Cause Them?

    ECB Says Impact of Proposed Banking Rules May Vary Across EU

    Euro Crisis Seen Reaping Social Toll With Record Jobless

    Monti Repeats Backing For Bank Of Italy Over Monte Paschi

    At Fed, Nascent Debate on When to Slow Asset Buying

    Toyota Retakes Global Lead From GM on Disaster Recovery

    Goldman Launches ICBC Selldown Of About $1 Billion

    Japan Eased Safety Standards Ahead Of Boeing 787 Rollout

    Boeing Risks $5 Billion in Revenue on 787 Probe’s Outcome

    Ryanair Boosts Full-Year Profit Forecast on Holiday Sales

    ERA Former Chairman Surprised by Caterpillar’s Siwei Writedown

    Beneath the Calm, SAC Works to Contain Fallout From Inquiry

    Edward Harrison: The Fed Changing Private Portfolio Preferences Through Quantitative Easing

    Jeff Carter: Microeconomics Monday-The Invisible Hand

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  • Frontline: The Untouchables
    Posted by on January 26th, 2013 at 7:33 pm

    Watch The Untouchables on PBS. See more from FRONTLINE.

    Watch The Untouchables on PBS. See more from FRONTLINE.

    Watch The Untouchables on PBS. See more from FRONTLINE.

    Watch The Untouchables on PBS. See more from FRONTLINE.