I Hate the Monthly Jobs Report
Posted by Eddy Elfenbein on December 6th, 2012 at 9:25 am

I’m almost afraid to admit this, but I hate, hate, hate the monthly jobs report. There. I said it—and I know I speak for many others. The monthly jobs report needs to go die in a fire.

It’s almost a mystery this highly misleading and often inaccurate economic report came to be the most important monthly event on Wall Street. And when I say event, I’m not exaggerating.

On the first Friday of each month, the international finance world comes to a halt to hear the Bureau of Labor Statistics release some numbers that might as well be completely random. It’s just an estimate and a rather poor one at that. I’m especially tired of people thinking this report is an accurate portrait of the jobs market when in reality these figures have all the solidity of the summer breeze.

Of course, the jobs number will get revised next month, and the revisions to the revisions get revised again. Jeff Miller, who’s been bravely leading the charge on the BS from the BLS, points out that the payroll number has a confidence interval of plus or minus 105,000. You got to be effing kidding me? That’s not even close to being accurate. Do they say this rather important fact on the evening news? Of course not. The household survey is even worse. The plus or minus is 450,000 jobs. The deeper analysis of the report consists at the looking at the sub industries but the error margin there is even wider.

Imagine watching a football game where you didn’t know the score and the refs are constantly reversing calls from two quarters ago. That’s about where we’re at.

What should be done? Here’s an idea: Wall Street should say to the government, we’d like to have an accurate picture of the labor market, that’s not endlessly revised and without too much lag time. Tell us the truth. If it can’t be done, that’s fine. We’ll move on. If the only accurate report takes nine months or a year, then Wall Street should drop its focus.

There are lots of good reports that don’t have much lag time. Corporate earnings. The ISM Index correlates fairly well with NBER cycles. It’s rarely revised and it comes out on the first business day of the next month. Industrial production also lines up well. We get how these work.

The jobs report is obviously the most important report politically which is an even greater argument for accuracy. This is a sensitive area and as an investor I believe that no data is better than bad data. If we can only use a survey, fine—make it broad and shallow. If the report needs to be revised each month, fine—delay it for a few months. Focus on some jobs metric with a greater confidence interval. Just stop jerking us around.

If the Feds simply can’t get a good number, then work with some public-private consortium. There’s got to be a better way than what we have now.

Morning News: December 6, 2012
Posted by Eddy Elfenbein on December 6th, 2012 at 6:34 am

ECB Seen Refraining From Rate Cuts as Yields Sink on Bond Plan

China Mobile Says Apple Must Discuss IPhone Benefit Sharing

King Seen Maintaining QE as Osborne Extends Fiscal Squeeze

The Future Of US Energy In 4 Charts

Report Bolsters Case for Large U.S. Natural Gas Exports

Despite Storm’s Impact, Services Sector Grew

Short Sales of Homes Surge as Tax Break to Expire

Daimler Raises $2.2 Billion From EADS Stake Sale

Zynga Takes Gambling Step in Nevada

Standard Chartered Sees $330 Million Iran Fine, Profit Rise Erodes

Freeport Makes $9 Billion Energy Bet; Wall Street Pans Deal

Citigroup’s Corbat Ends Pandit’s Surge With Job Cuts

Trail to a Hedge Fund, From a Cluster of Cases

Cullen Roche: Buffett: Wall Street has Turned into a “Casino Game”

Phil Pearlman: Institutions Were Buying Netflix Yesterday Ahead of the Disney Announcement

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Stryker Raises Dividend 25%
Posted by Eddy Elfenbein on December 6th, 2012 at 1:42 am

In last week’s CWS Market Review, I said I expected Stryker ($SYK) to raise its quarterly dividend soon.

I expected Stryker to increase its payout from 21.25 cents per share to around 23 cents per share. Well, I wasn’t optimistic enough. The company just announced that the dividend will rise 25% to 26.5 cents per share. That brings the annual dividend to $1.06 per share. At Wednesday’s close, Stryker now yields 1.95%.

Stryker’s board also approved a $405 million increase in the share buyback program which brings the total to $1 billion.

“Given the considerable strength of our balance sheet and strong cash flow generation, we are well positioned to pursue a capital allocation strategy that includes highly focused M&A, an increasingly robust dividend and share buybacks,” said Kevin A. Lobo, President and Chief Executive Officer of Stryker. “We are committed to a strategy that will help drive our sales and earnings growth while simultaneously returning capital to shareholders at meaningful and consistent levels.”

Stryker has raised its dividend every year since 1995.

Our Buy List YTD
Posted by Eddy Elfenbein on December 6th, 2012 at 12:25 am

There are now just 17 trading days left in 2012, and our Buy List holds a narrow lead over the S&P 500. Through Wednesday, our Buy List is up 12.90% for the year while the S&P 500 is up 12.06%.

That doesn’t include dividends, which I will include in the final tally, but it’s not that much. I estimate that the S&P 500 yields around 15 to 20 basis points more than the Buy List.

Our Buy List‘s beta for the year is running at 1.0475.

December 6: A Good Day to Buy
Posted by Eddy Elfenbein on December 5th, 2012 at 1:10 pm

From Gary Alexander:

On Friday, December 6, 1974, the U.S. stock market reached its lowest reading during the last 50 years, hitting 577.6 on the Dow. In the 38 years since then, the Dow is up 2,150%, or about 8.7% per year.

On Monday, December 6, 1982, the Dow gained 24.3 points (+2.36%) in one day, rising from 1031 to 1055, capping a 36% gain in less than four months, up from a low of 777 on August 13, 1982. But the stock market, far from peaking, went on to gain another 20% in 1983 and 250% from 1982 to 1987.

On Monday, December 6, 1994, Orange County (California) declared Chapter 9 bankruptcy, the single biggest bankruptcy filing by a U.S. municipality. The Dow fell 60 points (-1.7%) in the next two days to 3685. (P.S. Within five years, the Dow tripled and Orange County went back into the black.)

On Friday, December 6, 1996, the Dow fell 55 points, and 140 points (-2.1%) for the week, from 6522 to 6382, mostly in reaction to Alan Greenspan’s Washington speech, in which he said that financial markets could be exhibiting “irrational exuberance.” (P.S. The Dow rose another 77% in the next three years

Intel Borrows Money To Buy Its Own Stock
Posted by Eddy Elfenbein on December 5th, 2012 at 12:41 pm

The stock market had a nice reversal today. The Dow went from being down 30 points to being up 130. Shares of Apple ($AAPL) are taking a beating today. At one point, Apple was down $30 per share.

Citigroup ($C) is also in the news. The shares are up close to 6% on the news that the bank will lay off some 11,000 employees. I’m never impressed with these bold cost-cutting announcements. A good company should always be looking for ways to cut costs. Sadly, these big announcements usually get a big ovation from Wall Street.

This morning’s jobs report from ADP said that 118,000 jobs were created last month. The big report comes Friday from the government. Economists expect to see a gain of 93,000 jobs. Also, the ISM Services Index rose to 54.7 last month. That was better than expectations.

I see that Intel ($INTC) is going to the bond market to raise $6 billion. What’s interesting is that Intel is going to use the proceeds to buy back shares. This makes a lot of sense. Intel’s dividend currently yields 4.6%.

The bond offering is $3 billion in five-years at 1.35%, $1.5 billion of 10-years at 2.7%, $750 million of 20-years at 4% and $750 million of 30-years at 4.25%.

While this makes sense for Intel, I can’t say I’m a big fan of these moves. I’d much rather see Intel stick to its business and make money that way than by trying to goose a few pennies per share by financial engineering.

RIP: Dave Brubeck
Posted by Eddy Elfenbein on December 5th, 2012 at 12:09 pm

Dave Brubeck died today one day shy of his 92nd birthday.

By the way, I love the mid-60s style in this clip. I feel like I want to stop by Sterling Cooper for a scotch.

Morning News: December 5, 2012
Posted by Eddy Elfenbein on December 5th, 2012 at 7:17 am

Euro-Area Manufacturing, Services Contract for 10th Month

As Budget Talks Continue, Markets Change Little

Euro Crisis Feeds Corruption as Greece Slides in Rankings

Global Shipping Industry’s Troubles Are Threat for Biggest German Banks

In Tax Fight, G.O.P. Seeks a Position to Fall Back On

U.S. Bank Earnings Up 6.6% on Growth in Revenue, FDIC Says

HSBC Sells Stake in Chinese Insurer for $9.4 Billion

Philips, LG And Others Fined 1.47 Billion Euros by EU for Cartel

US Auto Sales Race To 5-Year High For November

Olive Garden Parent Cuts View On Restaurant Sales Drop

Pandora Media Blames ‘Fiscal Cliff’ For Lowered Outlook

AT&T Seeks Freedom From Ma Bell’s Rules in Internet Era

Ex-Trader at Rochdale Is Arrested After $1 Billion Trade in Apple

Roger Nusbaum: Learning About Skill vs Luck

Jeff Miller: A Bull Market in Bad Predictions

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Mega-Cap Stocks Dominate Wall Street
Posted by Eddy Elfenbein on December 4th, 2012 at 1:02 pm

One important point about the stock market that I think many investors don’t fully appreciate is how skewed the market is toward very large stocks. Simply put, Wall Street is comprised of a small amount of gigantic companies, and thousands of much smaller ones. The gap is dramatic.

Bespoke Investment Group recently pointed out that the 49 largest stocks in the S&P 500 make up half its value. That’s about right in the long-term average. That’s pretty stunning once you think about it. You only need to own one-tenth of the stocks to get half the index. The other 90% make up the other half.

According to Russell Investments, the Russell 200 represents 64% of the U.S. market while the Russell 1000 represents 92%. Even within the big boys, the largest dominate. The top 50 stocks in the Russell 3000 make up 40% of its value. To closely mimic the market an investor can own a very small number of stocks.

According to S&P, the current S&P 100 is worth $8.84 trillion and the S&P 500 is worth $12.59 trillion. So the top 20% account for 70% of the value.

The Wilshire 5000 Total Market Index closed yesterday at 14,781.65. That number is supposed to be an approximation of total U.S. market cap in billions. In other words, the U.S. market is roughly $14.78 trillion. Adding that on to the S&P data, it means that thousands of companies are no more than a rounding error.

Even on our Buy List, which is pretty well diversified, the large stocks would dominate any cap weighting. Oracle ($ORCL), JPMorgan ($JPM) and Johnson & Johnson ($JNJ) would make up about two-thirds of our Buy List if it were cap-weighted. The other 17 would make up the remaining one-third. Please note that I DO NOT favor cap weighting. At the beginning of the year, I assume that each position on the Buy List is equally weighted.

One takeaway for investors is that a big secret on Wall Street is how easy it is for someone to be a closet indexer. I can easily construct a small portfolio that closely follows the market without appearing to. A few years ago, I found that a three-stock index fund of DuPont, Disney and United Technologies had an 85.4% correlation with the daily movements of the S&P 500. If we added five more stocks (Walmart, ExxonMobil, American Express, Verizon and IBM), the daily correlation rose to 95%.

Morning News: December 4, 2012
Posted by Eddy Elfenbein on December 4th, 2012 at 6:58 am

EU Debates Bank Supervisor

Greek Bond Buyback Offer Tops Expectations

Euro Zone Factory Prices Nearly Flatline In October

Australia Cuts Main Interest Rate

Chinese Companies Caught In SEC Crossfire

World’s Richest Man Faces Clampdown in Latin America

GOP Makes Counteroffer In Cliff Talks

U.S. November Auto Sales Rise

Investors’ Risky Bet on the Ghost of Freddie Past

Banks Discover Money Management Again as Trading Declines

Abramovich To Vote 22 Percent Stake In Norilsk

Oracle Moves 2013 Dividends Up To Beat Possible Tax Hike

Dish Announces Non-Recurring Dividend of $1 a Share

Joshua Brown: A Very Bad Bet: How Wall Street Deluded Itself

Howard Lindzon: Momentum Monday …Stock Picking is NOT a Hobby…The Stocktwits 50…Baidu has a Competitor and Adobe is Interesting?

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