Stocks Are Breaking Away From Inflation Expectations
Posted by Eddy Elfenbein on July 19th, 2012 at 2:27 pm

The S&P 500 has closely followed 10-year inflation expectations (the 10-year Treasury yield minus the 10-year TIPs yield). Lately, however, that relationship is showing signs it might be breaking down.

While inflation expectations have held steady at roughly 2.1%, stocks have moved higher. Until now, every 0.1% move in inflation expectations had been matched with a 35 to 40 point move in the S&P 500.

Morning News: July 19, 2012
Posted by Eddy Elfenbein on July 19th, 2012 at 6:45 am

Interest Rates From Sweden to South Korea Under Scrutiny

Spanish Fears Send Euro Lower, Earnings Lift Stocks

Greek Disaster Averted Points to ERF’s Bridge for All Concerned

I.M.F. Warns of ‘Sizable Risk’ of Deflation in Euro Zone

Geithner Says Congress Standing In Way Of Recovery

Housing Starts in U.S. Rose in June to Highest Since 2008

Agriculture Secretary Tells White House Drought Getting Worse

On Its First Birthday, Consumer Bureau Flexes Its Muscle

Deutsche Bank, HSBC Traders Investigated in Libor Probe

Retirees Wrestle With Pension Buyout From General Motors

BC Partners, CPPIB To Buy U.S. Cable Operator Suddenlink

Novartis Q2 Tops Estimates; Wary Of Dollar Strength

Bank of America Posts $2.5 Billion Profit, but Mortgage Woes Remain

IBM Boosts Profit Forecast After Quarter Tops Estimates

Jeff Carter: Who Can You Trust?

Joshua Brown: Lloyd Blankfein Hopeful on Fiscal Cliff

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Stryker Earns 98 Cents Per Share
Posted by Eddy Elfenbein on July 18th, 2012 at 4:33 pm

After the bell, Stryker ($SYK) reported Q2 earnings of 98 cents per share which was one penny below Street expectations. Most importantly, they reiterated their full-year guidance for “double-digit” earnings growth.

Stryker Corporation reported operating results for the second quarter of 2012 with net sales of $2.1 billion, up 2.9% and adjusted diluted net earnings per share(1) of $0.98, an increase of 8.9%.

“Leveraging the strength of our broad based product offering, our Q2 revenues increased 3% as reported and 5% in constant currency. Through solid sales growth coupled with margin expansion we delivered adjusted per share earnings growth of 9%,” commented Curt R. Hartman, Interim Chief Executive Officer and Vice President and Chief Financial Officer. “We remain on track to deliver on our financial commitments for 2012 which include 2% to 5% growth excluding the impact of acquisitions and currency and double-digit adjusted per share earnings growth.”

Stryker has earned $1.97 for the first half of 2012. Double-digit earnings growth translates to earnings of at least $4.09 per share. The stock is down some after hours, but Stryker is clearly still on track for this year.

A Small Town and a 450-Year Old Debt
Posted by Eddy Elfenbein on July 18th, 2012 at 3:42 pm

From Reuters:

The sleepy hamlet of Mittenwalde in eastern Germany could become one of the richest towns in the world if Berlin were to repay it an outstanding debt that dates back to 1562.

A certificate of debt, found in a regional archive, attests that Mittenwalde lent Berlin 400 guilders on May 28 1562, to be repaid with six percent interest per year.

According to Radio Berlin Brandenburg (RBB), the debt would amount to 11,200 guilders today, which is roughly equivalent to 112 million euros ($136.79 million).

Adjusting for compound interest and inflation, the total debt now lies in the trillions, by RBB’s estimates.

Town historian Vera Schmidt found the centuries-old debt slip in the archive, where it had been filed in 1963. Though the seal is missing from the document, Schmidt told Reuters that she was certain the slip was still valid.

“In 1893 there was a debate in which the document was examined and the writing was determined to be authentic,” Schmidt said.

Schmidt and Mittenwalde’s Mayor Uwe Pfeiffer have tried to ask Berlin for their money back. Such requests have been made every 50 years or so since 1820 but always to no avail.

DirecTV Close to Deal With Viacom
Posted by Eddy Elfenbein on July 18th, 2012 at 1:19 pm

I haven’t yet commented on the contretemps between DirecTV ($DTV) and Viacom because I didn’t see it lasting long. The short version of the story is that Viacom asked for a lot more money to carry their channels, and DTV said no.

It’s not just DTV who’s getting squeezed. The Dish Network couldn’t reach an agreement with AMC. Interestingly, Time Warner Cable ($TWC) came to DTV’s defense. The bottom line is that there’s just too much money at stake for the sides not to come together. The only issue is price.

The latest news is that they’re close to reaching a deal:

DirecTV (DTV) is closer to restoring Viacom Inc. (VIAB)’s 26 channels, including MTV, Nickelodeon and Comedy Central, as discussions between the two sides continue, according to the satellite-TV provider’s head of content.

“There’s been progress,” Derek Chang, DirecTV’s executive vice president of content, strategy and development, said yesterday in a phone interview. “We’ve been getting closer. We would love to be done with this thing, but we have to do it in a way that we can protect our customers.”

S&P 500 On Pace for Second-Highest Close in 10 Weeks
Posted by Eddy Elfenbein on July 18th, 2012 at 10:40 am

After sustaining six straight days of losses, the S&P 500 is starting to perk up. The index is on pace today for its second highest close in the last 10 weeks.

I was particularly impressed by Johnson & Johnson’s ($JNJ) reaction to its earnings report. Despite guiding lower for the year, the stock has rallied and it’s at a new 52-week high today.

For some time, Oracle ($ORCL) danced close to $30 per share, but the stock finally broke above $30 yesterday. Since then, ORCL has added another 57 cents. AFLAC ($AFL) got as high as $44 per share this morning.

Wright Express ($WXS) has gained back nearly everything it lost during a brutal sell-off in May. The stock isn’t far from a new high.

Earlier I said that Stryker ($SYK) would release its earnings on Tuesday. I was incorrect. The earnings report will come out after today’s close.

Looking at the 2/10 Spread
Posted by Eddy Elfenbein on July 18th, 2012 at 9:08 am

Let’s take a look at the spread between the yield on the 10-year Treasury and the 2-year Treasury — or you if want to sound cool, “2s10s.”

It’s hard to find good indicators that tell us when a recession is coming ahead of time. There are several metrics that perk up when a downturn is near, but they can often give out false alarms. The stock market is perhaps the best example. One of the better indicators is the 2/10 spread. Notice how the spread has gone negative just before the start of the last three recessions.

With the Fed keeping rates near 0%, this metric may have lost its effectiveness. I don’t know for sure. But in deference to its track record, we should note that the spread is still a long way from the danger zone, even though the 10-year yield is at record lows.

Eighteen months ago, the 2/10 spread was over 290 basis points — the highest since at least 1976. As recently as four months ago, it was at 200 basis points. Now the spread is under 130 basis points. In other words, the spread is quickly closing.

Morning News: July 18, 2012
Posted by Eddy Elfenbein on July 18th, 2012 at 7:19 am

BOE Voted 7-2 As MPC Signals Rate-Cut Case May Be Reviewed

Spanish Borrowing Costs Drop as Economy Minister Warns on Debt

Nordic Bank Earnings Hold Up in Face of Europe Debt Crisis

Visa Europe Should Match MasterCard Fee Cut, EU’s Almunia Says

Shares Gain, Euro Weak After Fed’s Mixed Signals

The Last Years of America’s Historic GDP Reign

Temporary Work Demand Rises As Companies Avoid Commitments

Credit Suisse Raises Capital Reserves as Profit Increases

Yahoo Data Shows Depth of Challenge Mayer Faces

Intel Lowers Forecast as Developed Markets Fail to Rebound

CEO Says HSBC Is Determined to Change

ASML Forecasts Second-Half Sales Drop on Weaker Chip Demand

Knight Capital 2nd-Quarter Net Down 81% on Lower Revenue, Facebook IPO Losses

Credit Writedowns: The Unacceptable Behavior of the Market

Roger Nusbaum: A Whole Lot of Nothing

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Bernanke Warns
Posted by Eddy Elfenbein on July 17th, 2012 at 6:03 pm

These are all from today.

Ben Bernanke Warns Congress on ‘Taxmageddon’‎

Bernanke Warns of Economic Downturn‎

Bernanke warns Congress of slowdown, gives no sign of new Fed action

Bernanke Warns Congress To Avoid The Fiscal Abyss‎

Bernanke Warns of Economic Slowdown‎

Bernanke warns of ‘fiscal cliff’ but leaves solution to Congress‎

Bernanke Warns of Dire Risk From Fiscal-Cliff Inaction‎

Bernanke warns against ‘fiscal cliff’ after Senate Dems embrace it‎

Bernanke warns of ‘frustratingly slow’ job recovery

Ben Bernanke Warns of Recession with the Coming Fiscal Cliff
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Death Cross Dead Ahead
Posted by Eddy Elfenbein on July 17th, 2012 at 12:59 pm

The S&P 500 is rapidly closing in on a “death cross.” This is when the 50-day moving average drops below the 200-day moving average. Historically, this has been a bad omen for stocks.

I caution long-term investors not to take these signals too seriously, but I’ll note that many traders consider this to be very important.