A Housing Boom?
Posted by Eddy Elfenbein on August 14th, 2012 at 10:51 am

Is there a housing boom afoot? Well, the simple answer is no. But there has been some modestly good news, and combined with some very cheap prices in housing-related stocks, that’s added up to a nice rally in the sector.

Check out this chart:

Lennar ($LEN, red line) has added some impressive gains. Our Bed Bath & Beyond ($BBBY, orange line) has also been a strong performer. I also included Lowe’s ($LOW, black line) in order to contrast it with Home Depot ($HD, blue line). Just because two companies appear similar doesn’t mean the stocks will perform the same way.

The S&P 500 Breaks 1,410
Posted by Eddy Elfenbein on August 14th, 2012 at 10:29 am

The stock market is up a little bit today thanks to some good economic news. The Commerce Department said that retail sales for July rose by 0.8%. That topped Wall Street’s estimate which was at 0.3%. The down note in the report is that retail sales for June were revised down to a drop of 0.7%. Bloomberg noted that there was strength across the board—all 13 categories of retail sales increased last month.

Once clue that the high-end of the market is doing well is that Saks ($SAKS) reiterated its sales forecast for the rest of this year. That’s a notable sign of confidence given the company’s rather weak Q2 earnings report.

The Labor Department reported that wholesale inflation rose by 0.3% last month. What’s interesting is that energy costs dropped by 0.4%. That’s the fourth monthly drop in a row. Remember that the lower prices at the pump often (but not always) translate to more cash in the pockets of consumers. Tomorrow we’ll get the report on consumer inflation.

The economic report this morning showed that business inventories increased by 0.1% in June. I don’t think there’s a major takeaway from this report (June is rather dated now) but it’s interesting that companies are keeping a tight lease on production. No one wants to churn out a bunch of stuff only to have it sit on a shelf in a warehouse. That costs money so companies are still a bit weary of shifting production into high gear.

The S&P 500 broke 1,410 this morning. If that holds up, it will be our highest close since early April. The closing high was 1,419.04. If (when) we take that out, it will be the highest close in more than four years.

The Buy List is doing fairly well this morning. I see that JPMorgan Chase ($JPM) got as high as $37.64 today. That’s very close to a post-Whale high. I must sound like a broken record about Ford ($F) but I think the stock is very cheap. On August 2, share of Ford got as low as $8.82. That’s truly amazing. Ford is finally showing some strength as it’s up over $9.50 today.

I’m also holding out hope for Harris ($HRS). The stock has rallied for nine days in a row but it’s down slightly today.

Morning News: August 14, 2012
Posted by Eddy Elfenbein on August 14th, 2012 at 7:51 am

Euro-Area Economy Contracted In Second Quarter On Spain

Hedge Funds Have $74 Billion As Europe Fire Sale Delayed

Currency Flows Reversing China To Colombia As Trade Slows

German Small Businesses Reflect Country’s Strength

Carlyle, China PE Firms Bid $3.5 billion for Focus Media

Greece Completes Largest Debt Sale in Two Years

French Economy Tests Hollande

Obama Announces Meat Purchase To Help Farmers Through Drought

Home Depot Profit Tops Estimates As Customer Spend More

Knight $440 Million Loss Sealed By New Rules On Canceling Trades

Groupon Tumbles After Sales of Daily Deals Miss Estimates

Ford Says Fiesta Vital To Lineup Despite Sales Slump

Deloitte CEO Defends Firm’s Standard Chartered Work

Pragmatic Capitalism: Q2 Earnings Surprises Masked Weaker Revenues

Howard Lindzon: How to Invest for Losses and Misery…and ‘Active’ vs. ‘Passive’

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VIX On Pace for 5-Year Low
Posted by Eddy Elfenbein on August 13th, 2012 at 3:15 pm

The Volatility Index ($VIX) is on pace for its lowest close since June 19, 2007.

So is a low VIX good for stocks? A few years ago, I looked at the numbers and found that a very low VIX does provide some benefit for the market:

To the extent there’s a tipping point, it seems to be a VIX of 13. Above 13, the S&P shows an annualized return of 3.0%, below 13 it jumps to 14.1%. However, 13 is a very low VIX reading; it’s been below 13 about 18% of the time.

“I’m an Outspoken Defender of the Truth”
Posted by Eddy Elfenbein on August 13th, 2012 at 1:57 pm

Jessica Pressler spent 122 minutes with Jamie Dimon and lived to tell the tale. Here are some highlights:

“Everyone is talking about the culture, the culture, and all that, and it’s just not true,” Dimon says. “Most bankers are decent, honorable people. We’re wrapped up in all this crap right now. We made a mistake. We’re sorry. It doesn’t detract from all the good things we’ve done. I am not responsible for the financial crisis,” he adds. “I hate to tell you. We were a port of safety in the storm. I find it unbelievable that that is the general theme—that you have to walk in a room and act like you are responsible for things you are not responsible for.”

He’s staring into the middle distance as he says all of this, as if addressing an invisible, unpersuadable audience. But when I ask if this episode has made him regret being such an outspoken defender of the banking industry, he looks at me point blank. “I’m an outspoken defender of the truth,” he corrects me. “Everyone is afraid of retaliation and retribution. We recently had an event with a hundred small bankers here, and 85 percent of them said they can’t challenge the regulation because of the potential retribution. That’s a terrible thing. Okay? This is not the Soviet Union. This is the United States of America. That’s what I remember. Guess what,” he says, almost shouting now. “It’s a free. Fucking. Country.”

I still think Dimon ought to resign but he is a piece of work.

Buy List Earnings Calendar
Posted by Eddy Elfenbein on August 13th, 2012 at 1:45 pm

JPMorgan to Float Five-Bonds
Posted by Eddy Elfenbein on August 13th, 2012 at 1:32 pm

JPMorgan Chase ($JPM) is looking to float some five-year bonds. The bank is hoping to lock-in a yield of 137.5 basis points above similar Treasury bonds. The five-year Treasury currently goes for 0.69%, so that translates to roughly 2.065%.

What’s interesting is that JPM bumped up its quarterly dividend to 30 cents per share. At the current price, the stock yields about 3.5%. In other words, the company can make an instant profit by issuing debt to buy their own stock.

Obviously if the company tried to sell enough debt to take themselves private, the yield would be much higher than 2.065%. But it’s interesting that the risk in owning equities is so high that it creates an obvious arbitrage opportunity for any company, especially the largest bank in America.

Pfizer Files for Animal Health Spin-Off
Posted by Eddy Elfenbein on August 13th, 2012 at 12:44 pm

I often tell investors that I’m not a big fan of most IPOs. There’s an implicit assumption in any IPO that the issuer can get a good price for themselves, and that’s to the detriment of shareholders. The academic research shows that this is more often than not correct.

I do like to pay attention when a company, especially a blue-chip company, has a yard sale. I take notice whenever I see a large company spin-off a smaller unit.

Today’s news is that Pfizer will be spinning off its animal health unit. This unit isn’t exactly small either. Last year, it generated sales of $4.23 billion. The independent company will be called Zoetis.

According to Bloomberg, current investors may be able “to swap a portion of their Pfizer shares for stock in the new company.”

I can’t say if Zoetis is a buy just now (we still don’t know the price), but it will definitely be a stock worth watching.

Sysco Earns 55 Cents for Q4
Posted by Eddy Elfenbein on August 13th, 2012 at 10:29 am

Good news this morning; Sysco ($SYY) reported fiscal Q4 earnings of 55 cents per share. That’s pretty much what I was expecting. Wall Street’s consensus was for 54 cents per share. For the year (Sysco’s fiscal year ends in June), the company made $1.93 per share. Investors seem pleased as the stock is up $1.21 or 4.20%.

Quarterly sales came in at $11 billion which is a 5.9% over last year’s Q4. What Sysco calls “adjusted operating income” increased by 2.2% to $608 million. The Street expects earnings for the current fiscal year of $2 per share. That means the stock is going for about 15 times earnings.

Morning News: August 13, 2012
Posted by Eddy Elfenbein on August 13th, 2012 at 7:41 am

Growth Doubts Send Shares Lower, Central Banks Eyed

European Stocks Pare Gains After Italy’s Bill Sale

Merkel Handed Sub-Zero Yields As ECB Plan Gains Traction

Greek GDP Sinks As Crisis Batters Economy

Japan Post-Quake Rebound Wanes As Spending Nears Stall

Julius Baer to Buy Merrill Unit

Total Told To Halt Kurdish Deals Or Sell Halfaya Stake

Facebook’s Drop Limits Goldman Sachs Gain As Lockup Ends

Google To Cut 4000 Motorola Mobility Jobs, Take $275 Million Charge

Nordstrom Raises Profit Outlook, To Speed Rack Buildout

Standard Chartered Nemesis Has History As Strict Enforcer

Libor Case Energizes a Wall Street Watchdog

Roger Nusbaum: The Big Picture for the Week of August 12, 2012

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