• Wright Express Earns 99 Cents Per Share
    Posted by on November 2nd, 2011 at 9:05 am

    Our second earnings report this morning comes from Wright Express ($WXS). The company earned 99 cents per share for the third quarter which was six cents more than estimates.

    For the fourth quarter, Wright expects earnings between 88 cents and 94 cents per share. Wall Street was expecting 94 cents per share.

  • Becton, Dickinson Earns $1.39 Per Share
    Posted by on November 2nd, 2011 at 6:37 am

    Becton, Dickinson ($BDX) just reported earnings for its fiscal fourth quarter of $1.39 per share which matched Wall Street’s expectations. A year ago, the company earned $1.24 per share for its fiscal fourth quarter. That’s an increase of 12.1%. For the fiscal year, BDX earned $5.62 per share compared with $4.94 per share last year.

    In the BD Medical segment, worldwide revenues for the quarter were $1.055 billion, representing an increase of 10.0 percent compared with the prior-year period. Revenues increased 3.8 percent on a foreign currency-neutral basis. Segment revenue growth reflected strong Diabetes Care and international safety sales, along with solid sales of Pharmaceutical Systems products. For the twelve-month period ended September 30, 2011, BD Medical revenues increased 5.6 percent, or 2.3 percent on a foreign currency-neutral basis.

    In the BD Diagnostics segment, worldwide revenues for the quarter were $642 million, representing an increase of 8.6 percent compared with the prior-year period, or 3.8 percent on a foreign currency-neutral basis. Revenues reflected solid growth in both the Women’s Health and Cancer and the Infectious Disease product offerings within the Diagnostic Systems unit. For the twelve-month period ended September 30, 2011, BD Diagnostics revenues increased 7.0 percent, or 3.9 percent on a foreign currency-neutral basis.

    In the BD Biosciences segment, worldwide revenues for the quarter were $354 million, representing an increase of 9.6 percent compared with the prior-year period. Revenues increased 4.7 percent on a foreign currency-neutral basis, primarily driven by instrument and reagent sales in the Cell Analysis unit. For the twelve-month period ended September 30, 2011, BD Biosciences revenues increased 6.7 percent, or 3.2 percent on a foreign currency-neutral basis.

    For the new fiscal year, Becton expects diluted earnings-per-share to range between $5.75 and $5.85 per share. That’s significantly below Wall Street’s forecast of $6.19 per share. Sometime later this month the company will likely raise its dividend for the 39th year in a row.

  • Morning News: November 2, 2011
    Posted by on November 2nd, 2011 at 6:00 am

    Referendum Will Confirm Greece in Euro: Papandreou

    Whispers of Return to Drachma Grow Louder in Greek Crisis

    Draghi Takes ECB Helm in Battle Mode as Debt Crisis Torments Policy Makers

    Euro-Area Manufacturing Production Contracts

    Spanish Debt Firefight May Focus on Regions

    Singapore Investors Lose Bid to Recoup Lehman-Related Losses on Appeal

    After Manager Miscues, Bond-Fund Investors Playing Catch-Up

    MF Global Asia Units Move to Limit Fallout

    In Corzine Comeback, Big Risks and Steep Fall

    BofA Retreats on Debit Fee, Citing Uproar

    Sony Forecasts $1.2 Billion Full-Year Loss

    Nissan Raises Profit Forecast, Beats Toyota

    Teva Declines to Lowest in a Week as Third-Quarter Profit Falls

    StanChart 3Q Revenue Growth Slowed But Still Strong

    Cullen Roche: Oil’s Endless Bid

    Joshua Brown: Investopedia’s History of Greek Default

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  • The College Loan Bubble
    Posted by on November 1st, 2011 at 6:17 pm

    Two years ago I wrote about the scandalous nature of American higher-ed:

    Lately it’s been all the rage to complain about companies that are too big to fail. However, there’s another prominent American institution that’s also become too big to fail. It’s bloated, overstaffed and often fails to meet the most basic need of its customers.

    Welcome to American higher education.

    More Americans are wising up to the fact that college is a big fat waste of money. Sure, if you’re lucky enough, and smart enough, get into a big-name school, college is just fine. But for millions of other students, a four-year degree often puts them in a mountain of debt and doesn’t give them the skills they need in the job market.

    First, let’s consider how long it takes many students to finish college. Even after six years, only 54% of college students even get a degree. For high-school students in the bottom 40% of their class and who go to a four-year college, an amazing two-thirds hadn’t earned a diploma after eight-and-a-half years. Sheesh, that’s worse than Bluto! I can’t think of another industry that has such a dismal record.

    David Leonhardt recently wrote at the New York Times: “At its top levels, the American system of higher education may be the best in the world. Yet in terms of its core mission—turning teenagers into educated college graduates—much of the system is simply failing.” He’s exactly right.

    Still, tuition costs continue to skyrocket. Between 1982 and 2007, tuition and fees rose 439% compared with just 147% for median family income. The trend shows no sign of stopping. One year at Yale now goes for $47,500. The University of Florida system wants to raise tuition by 15%, the maximum allowed.

    Much like the housing bubble, the Higher Ed bubble is being driven by cheap, government supported credit. The problem is compounded by the fact that hugely important financial decisions are placed on the backs of 19-year-olds, many of whom simply don’t have the life experience to weigh the implications of a gigantic, 20-year debt load. Heck, at least the irresponsible mortgage borrowers during the crazy days were adults (even though many acted like infants).

    One report shows that students from lower-income families need to pay 40% of their family income to enroll in a public four-year college. That’s a lot of coin to have some Marxist feminist theorist tell you about atavistic nature of late-stage capitalism. Please, you can watch the Oscars to learn that. Don’t think community colleges are a bargain, either. The average tuition is up to 49% of the poorest families’ median income from 40% in 1999-2000.

    The pro-college crowd likes to repeat the claim that college grads earn $1 million more, on average, over their working lifetime. Sure, this is true, but college grads start out in a big hole. On average, they don’t even catch up to high school grads until age 33.

    The debt load piled on students is scandalous. One in five students who graduated in the 1992–93 school with over $15,000 in debt defaulted on his or her loan within 10 years of graduation. We’re setting young people up for failure and ruin credit records. Thanks to the recession defaults are up 43% over the last two years. Many students go to grad school and pile on even more debt. The average law grad owes $100,000. Plus, many schools often use grad students as greatly underpaid professors in order to cut costs. Think of Lehman Brothers. Now imagine if they had a football team.

    The loans fall especially hard on minorities since colleges love to boast their “diversity.” For African-American students, the overall default rate is more than one-third. That’s five times higher than white students and over nine times higher than Asian students.

    What makes things even worse for many colleges is that the recent bear market put the squeeze on their endowments. Harvard’s endowment dropped by $11 billion and they announced they’re laying off 25% of their investment staff. Cornell’s endowment plunged 27% in the final six months of 2008. Yale lost $5.9 billion, or one-fourth its value. Lower endowments means…you guessed it, higher tuition.

    School financing has exploded in recent years, doubling in just ten years. Total student debt now stands at over half a trillion dollars. The average borrow took out a loan worth $19,200. That’s a 58% jump since 1993.

    Naturally, the government is set to make a bad situation worse. Last week, the House of Representatives voted to elbow Sallie Mae (SLM) out of the student loan biz and shift all student loans to a government-run, taxpayer financed system. So instead of government subsidized loans run through banks to students, we’ll now have a government monopoly. Hmmm…what could possibly go wrong?

    I got a better idea. It’s a real simple government program. I call it, “Dude, you really shouldn’t be going to college.” Best of all, the program is very cheap. The costs are solely a postcard and my consulting fee. If don’t want to listen to me, fine, then listen to the folks at the ACT who say that only 23% of students have the skills to do well in college.

    The good news is that Americans are catching on to the college scam. Admissions applications are dropping at elite school. Applications are off by 20% at Williams College. Middlebury saw a 12% decline and Swarthmore had a 10% drop. I believe this is just the beginning.

    Gleen Reynolds proposes a solution in today’s New York Post:

    I think we should return to the days when student loans were dischargeable in bankruptcy, starting five years after graduation. This will allow graduates who are unable to pay to get out from under what is otherwise a potential lifetime of debt-slavery. If you buy a house to flip, and wind up losing your shirt, we let you go bankrupt, take a credit-rating hit, and scrub the debt away. Why should graduates be forbidden from doing the same? The five-year delay means that you can’t use immediate post-graduation poverty as an excuse (as some medical students used to do), but still provides an out.

    But the real incentive-alignment part is this: Put the institutions who issued the degrees on the hook for the money they received. Making them eat the entire loan balance would probably bankrupt a lot of colleges (though that should tell us something about the problem right there), but sticking them with even a small fraction — say, 10% or 15% — would be enough to inspire a much greater degree of concern for how much debt students take on while in school, and for how likely they are to find gainful employment after graduation.

  • Fiserv Earns $1.16 Per Share
    Posted by on November 1st, 2011 at 5:47 pm

    Ah, my favorite autumn singing group — the beat and raise choir.

    Fiserv ($FISV) just reported Q3 earnings of $1.16 per share which was two cents better than Wall Street’s estimate.

    The company also increased its full-year EPS guidance from $4.42 to $4.54 to a new range of $4.54 to $4.60. Last year, Fiserv made $4.05 per share so this is very good growth.

    Since the company has made $3.31 per share for the first three quarters of this fiscal year, their new full-year guidance translates to a Q4 guidance of $1.23 to $1.29 per share. Wall Street had been expecting $4.53 per share for the year and $1.25 per share for Q4.

    Nothing’s changed with Fiserv’s business except that the stock was at $65 four months ago. This is a very solid company.

  • S&P 500 Total Return Index
    Posted by on November 1st, 2011 at 11:27 am

    Through October, the S&P 500 is down 0.35% but including dividends, it’s up 1.30%. Here’s a look at the total return index of the S&P 500 going back to 1997.

  • October ISM = 50.8
    Posted by on November 1st, 2011 at 10:15 am

    The October ISM just printed at 50.8 which is a decline from 51.6 for September. Economists were expecting a reading of 52.

    Whenever the ISM is over 50 it means the economy is expanding. When it’s below 50, it’s contracting. The ISM has fallen between 50.0 and 52.0 a total of 89 times; just five have been recessions.

  • Morning News: November 1, 2011
    Posted by on November 1st, 2011 at 6:14 am

    Europe Debt Crisis Threatens Asian Growth

    China PMI Drops to Lowest in Almost 3 Years

    Markets Tumble as Greece Sets Referendum on Latest Europe Aid Deal

    Euro Weakens on Renewed Greek Default Concern; Dollar, Yen Gain

    Italian Bonds Slide, Premium to Bunds Reaches Record, Amid Greece Concern

    Czech PMI Falls to Lowest in 22 Months as Export Orders Dry Up

    Japan Acts Alone to Weaken Its Currency

    Report Says New York Fed Didn’t Cut Deals on A.I.G.

    Retreat From Debit-Card Fees Continues

    MF Global Suspended From LME Trade, CME Clearing on Filing

    MF Global Bankruptcy Leaves Star Bankers Adrift

    Time Warner Trims Its Excesses

    British Security Firm G4S’ Bid for Danish ISS Scuppered by Shareholder Backlash

    Japanese Brokerage Giant Nomura Posts First Loss in Two Years

    Allstate Adds Corporate Debt, Shuns ‘Too-Low’ Treasury Yields

    Edward Harrison: Greek Referendum Could Mean CDS Greek Default Trigger

    Paul Kedrosky: Doing Austerian Math

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  • More on Stocks Against Bonds
    Posted by on October 31st, 2011 at 1:45 pm

    Here’s another look at the epic battle of stocks against bonds. As a proxy for the long-term bond markets, I used Vanguard’s Long-Term Investment-Grade Index Fund (VWESX) and for stocks, I used Vanguard’s 500 Index (VFINX). It’s not perfect but it’s good enough to make my point.

    The graph below shows VFINX divided by VWESX so whenever the line is rising, stocks are outperforming bonds.

    As you can see, bonds have held their own for a long time which runs counter to established wisdom that there’s a “premium” in holding equities. I still think there is an equity premium but it’s much smaller than most folks realize. Furthermore, the premium is very volatile so it’s not unusual to experience long phases where bonds beat stocks.

    Despite how well the stock market has done since the March 2009 low, it’s dead even with corporate bonds since May 8, 2009.

    Since July 13, 2007, corporate bonds have gained 46.74% while stocks have lost 9.38%.

  • Even More Innumeracy from Jeremy Siegel
    Posted by on October 31st, 2011 at 11:43 am

    When Wharton Professor Jeremy Siegel takes on math, it’s usually not pretty. I’ve caught him making basic math errors a few times before.

    He’s still doing it.

    In the Bloomberg article I linked to before, Siegel has a long quote:

    “The rally in bonds is a once in a millennium event, but it’s absolutely mathematically impossible for bonds to get any kind of returns like this going forward whereas stock returns can repeat themselves, and are likely to outperform,” he said. “If you missed the rally in bonds, well, then that’s it.”

    He may be right about the direction of bonds, but he’s simply and obviously incorrect about the mathematical impossibility of bonds outperforming.

    Just because yields are low doesn’t mean they can’t go lower.

    Let’s take a 30-year bond with a coupon of 10%. If the bond sees its price jump by 50%, that brings the yield down to 6.28%.

    But if we take a 30-year bond with a coupon of 5% and if its price soars by 50%, that brings the yield down to 2.59%.

    In other words, as yields go lower each basis point is worth a greater price.

    Yes, bond yields are low, but there’s absolutely no rule in the realm of mathematics that prevents bonds from seeing the sames kinds of returns they’ve experienced.