One Day to Go
Posted by Eddy Elfenbein on December 29th, 2011 at 6:21 pm

With one day to go, our Buy List is up 1.32% for the year to 0.43% for the S&P 500. Including dividends, our Buy List is up 3.18% to 2.55% for the S&P 500.

Unless something goes horribly wrong tomorrow, our Buy List will finish just ahead of the market. I’ll have more details tomorrow.

Is the 30-year Bull Market for Treasuries Already Over?
Posted by Eddy Elfenbein on December 29th, 2011 at 11:16 am

I’m curious if the bond market passed an important and in fact, generational moment and few people realized it. We may look back at September 2011 as the peak of a 30-year bull market in U.S. Treasuries.

On September 16th, the one-, two- and three-year Treasuries yielded, respectively, 0.08%, 0.16% and 0.29%. Those were the lowest yields for those securities in decades.

Three days later, on September 19th, we saw generational lows in the five-, seven, 10-, and 20-year Treasuries. The respective yields were 0.79%, 1.24%, 1.72% and 2.48%. (The 30-year T-bond deserves a slight asterisk because it reached it lowest yields in late 2008.)

Of course, Mr. Bernanke and his friends have been aiding the latest surge into bonds, but let’s add some context. Almost 30 years to the day before, the 10-year hit its peak yield. On September 30, 1981, the ten-year yielded 15.84%.

Last week, the 20-year TIPs yield dropped to 0.43%. In February, it was going for 2%. The 10-year TIPs is still slightly negative.

I don’t expect to see dramatically higher yields in 2012, but it makes sense to see yields rise. Investing in Treasuries has been a winning trade for so long that I think investors may have forgotten that it doesn’t always go this way.

Morning News: December 29, 2011
Posted by Eddy Elfenbein on December 29th, 2011 at 7:23 am

Italy Sells 7 Billion Euros of Bonds as Yields Fall

Italy’s Long-Term Borrowing Costs Decline

India to Exceed Its Record Borrowing Target

In Solar Power, India Begins Living Up to Its Own Ambitions

Tough India IPO Market Drives Deals Between Private Equity Funds

Putin’s Urals Ambitions Seen in Rotterdam Tanks

China Speeds Up QFII Approvals Amid Signs of Capital Outflow

Oil Prices Predicted to Stay Above $100 a Barrel Through Next Year

Retail Sales Resilient in Final Holiday Stretch

Global Takeovers Slump to Lowest in Year

Despite RIM Takeover Talk, Hurdles Would Be High

For IPOs, the Comeback Never Came

Mu Sigma: Is The Firm the New Wunderkind of Outsourcing?

Peugeot Joins Fiat in Sales Slump in Europe

Cavium Outlook Cut Sends EZchip to 8-Month Low

Morgan Stanley to Cut 580 Jobs in New York

Stone Street: Rolling Up Our Sleeves on Jos. A Bank

Roger Nusbaum: It’s The End of the World and Paul Farrell Knows It

Be sure to follow me on Twitter.

What Do You Like?
Posted by Eddy Elfenbein on December 28th, 2011 at 10:00 pm

In keeping with the refined, civilized and high-brow content of this website, I certainly hope you don’t find anything humorous in this clip.

I’m absolutely ashamed at you.

The Give and Take of Volatility
Posted by Eddy Elfenbein on December 28th, 2011 at 1:34 pm

Here’s a look at all the daily changes of the S&P 500 over the last five years:

I’ve said before that volatility is used incorrectly as a scare word by many in the financial media. Volatility is rarely good or bad, especially if you’re focused on the long-term as we are. In fact, I prefer a little volatility since it helps us spot bargain stocks.

What the chart shows us — and what to keep in mind — is that volatility comes and goes. I’m not trying to sound flippant or dismissive; the numbers back it up.

We had very little volatility before the financial crisis; then we had historic volatility. Since then, volatility has flared up twice, once in the summer of 2010 and again last summer. That latest flare-up is still going, but I suspect it’s rapidly fading.

There wasn’t a single move, up or down, greater than 2.3% between September 2, 2010 and August 1, 2011. Since August 2nd, there have been 25 such moves. Like the others, this too shall pass.

I think the best way to look at volatility is as a struggle in the market for competing theses. The sharper the conflict, the greater the volatility. Once the market settles on a theme, then stability quietly returns.

The S&P and Sector P/E Ratios
Posted by Eddy Elfenbein on December 28th, 2011 at 1:01 pm

Here’s a look at the S&P 500 plus the ten sectors along with their earnings estimates for next year and Price/Earnings Ratios.

Financials are still cheap but how much can we trust that earnings forecast?

The Euro Flash Crash
Posted by Eddy Elfenbein on December 28th, 2011 at 10:29 am

Yikes. Check out what happened earlier today. The euro plunged to a 15-month low against the dollar.

Things Are Better Than You Think
Posted by Eddy Elfenbein on December 28th, 2011 at 10:25 am

In The Daily Beast, Zachary Karabell writes on a theme that we’ve been discussing recently — namely, that things are better than you might think. Given all the mayhem of the past 12 months, the U.S. economy has so far dodged all the predictions of its demise.

Make no mistake, the economy is far from strong. But compared to the rhetoric, we’re not that bad.

In the last months of 2011, every major indicator of economic health in the United States showed marked improvement: manufacturing, sentiment, holiday sales, e-commerce, inflation, and employment. Even government is shrinking, a fact that Republican candidates strenuously avoid and which Democrats uncomfortably skirt because it means large-scale government-employee layoffs; there are nearly 400,000 fewer government workers now than there were at the end of 2010. Yet there are more people employed overall. Wages have not increased for years but nor is income decreasing the way it was. In almost every way, the U.S. economy is stable, which is a far cry from robust and an equally far cry from dismal.

I always find it interesting that people get angry when you tell them there’s good news. Check out some of the loony comments below the column.

The New Buy List
Posted by Eddy Elfenbein on December 28th, 2011 at 8:52 am

To reiterate, here’s the Buy List for next year. This list will go into effect on Tuesday, January 3rd which is the first day of trading next year.

For tracking purposes, I assume the Buy List is a $1 million portfolio equally dividend into 20 positions of $50,000 each based on the closing price of December 30, 2011.

AFLAC ($AFL)

Bed, Bath & Beyond ($BBBY)

CR Bard ($BCR)

CA Technologies ($CA)

DirecTV ($DTV)

Fiserv ($FISV)

Ford ($F)

Harris ($HRS)

Hudson City Bancorp ($HCBK)

Johnson & Johnson ($JNJ)

Jos. A. Bank Clothiers ($JOSB)

JPMorgan Chase ($JPM)

Moog ($MOG-A)

Medtronic ($MDT)

Nicholas Financial ($NICK)

Oracle ($ORCL)

Reynolds American ($RAI)

Stryker ($SYK)

Sysco ($SYY)

Wright Express ($WXS)

J&J Breaks $66
Posted by Eddy Elfenbein on December 28th, 2011 at 8:48 am

The big European news story today was a major bond auction held in Italy and it went much better than feared, though people were fearing the worst. The Italian government sold nine billion euros’ worth of six-month debt. The rate was 3.25% which is a huge drop from last month’s auction at 6.5%.

The S&P 500 has been up for the last five trading days, and the futures are currently pointing towards a sixth rally. The market turned on October 3rd so the S&P 500 is looking to close out its best fourth quarter since 1999.

Although Abbott Labs ($ABT) will soon depart our Buy List, the stock just did a Jerome Simpson to a new 52-week high. Johnson & Johnson ($JNJ) which is an amazingly stable stock, is starting to drift higher. Yesterday, the shares closed above $66 for the first time in more than five months.